The president of the Kyrgyz Republic has made attracting foreign investment a priority and has supported the creation of an administrative structure that is specifically tasked to improve the investment climate. During roundtables held in 2001, 2002 and 2003, the Kyrgyz government and members of the business and diplomatic communities discussed needed reforms and a strategy for marketing the Kyrgyz republic to foreign investors. The participants developed a detailed plan to encourage investment through reform of the banking sector, the legal system and infrastructure improvement.
The Kyrgyz Republic has a liberal investment regime.Foreign investors usually form a joint venture with a local partner, which has proved the most successful strategy to date. Kyrgyz law on foreign investment guarantees protection for foreign investors from expropriation and nationalization.
Foreign and domestic private entities may own business enterprises and engage in a broad range of commercial activities. Foreign entities are expressly forbidden to own land, including farmland, although regulations allow for up to 99-year leases of property, which is adequate for most business purposes. A central land registry has helped potential lenders and others deal with the financing of real property (land, buildings, and other improvements) in a more sophisticated manner. Previously, neither foreigners nor locals had the right to own land. As a result of an October 1998 referendum, private land ownership has been introduced.
Former tax holidays and other incentives for foreign investors have been eliminated in accordance with standards preferred by international financial institutions and as a requirement of the Kyrgyz Republic's entry into the World Trade Organization. The Kyrgyz Republic is in compliance with WTO trims obligations. Due to changes in business practices and adherence to international standards required for WTO members, the Kyrgyz Republic's trade and investment regime is unusually liberal for Central Asia. The Kyrgyz government has also reduced the tax burden on repatriation of profits by foreign investors to conform to the tax rate for domestic investors. There are no specific conditions for permission to invest. However, any project is likely to be scrutinized for its effect on employment and tax revenues.
Foreign exchange is widely available, and the local currency, the som, is freely convertible. The National Bank of the Kyrgyz Republic (NBKR) conducts weekly inter-bank currency auctions where competitive bids determine market-based transaction prices. Banks clear payments within a single working day.
Banking laws do not discriminate against foreign banks. Several foreign banks now operate in the Kyrgyz Republic. Demir bank, Bank of Asia, and National Bank of Pakistan are entirely foreign held. Other banks are partially foreign held, including the Asia Universal Bank (70% foreign held), Reidan bank (30% foreign held), and Aman bank (30% foreign held).
The Kyrgyz Credit and Investment Bank (KCIB) began operation in mid-2001. It was created to provide commercial lending and other services while helping to introduce western banking practices and encouraging the entry of other banks into the Kyrgyz market. KCIB's principle shareholder is the Aga Khan Fund for Economic Development, which has a 30 percent stake. Other shareholders are IFC, EBRD, and the German Bank for Reconstruction and Development (DEG), each with 20 percent shares, and the Kyrgyz government with a ten percent share.
Total capitalization of the banking sector as of January 2003 was about USD 36,500,000. There are currently 18 commercial banks in the Kyrgyz Republic, with a total of 149 branches throughout the country.
In 2000 the NBKR introduced a minimum charter capital requirement of 50 million som in response to Asian Development Bank conditions, later increased to 100 million som in august 2001. In spring 2002, the minimum owned capital requirement (charter capital plus or minus profit or losses) was set at 25 million som(approx. USD 40,000). It will increase to 30 million some in July 2003 and 60 million by January 2006. Banking law also requires that banks maintain reserves of 10% on deposit with the National Bank.
Accounting systems in banks and enterprises are rapidly being converted to international standards. The Kyrgyz government has supported this exercise. International assistance programs have contributed to rapid progress in reaching these standards via accounting training and certification.
The Kyrgyz Republic currently enjoys bilateral investment treaties with the United States, Armenia, Azerbaijan, Belarus, China, France, Georgia, Germany, India, Indonesia, Iran, Kazakhstan, Malaysia, Mongolia, Pakistan, Switzerland, Tajikistan, Turkey, United Kingdom, Ukraine, and Uzbekistan.
The Kyrgyz Republic has also signed double taxation treaties with several countries including Belarus, Canada, India, Kazakhstan, Mongolia, Poland, Russia, Tajikistan, Turkey, Ukraine, and Uzbekistan. The U.S.-U.S.S.R. treaty on double taxation, which was signed in 1973, remains in effect between the U.S. and the Kyrgyz republic.
Labor is widely available, including well-educated specialists. International organizations are generally able to employ competent staff, often bilingual in English or other languages, without difficulty and the availability of competent staff is likely to grow, not diminish, with time. Literacy in the Kyrgyz republic is approximately 98 percent. Considering the lack of employment prospects for technically skilled workers, investors can easily find skilled labor in the Kyrgyz republic.
Several Free Economic Zones (FEZs) exist, but some are likely to be closed because of poor results. There are currently four FEZs in the Kyrgyz Republic: Bishkek, Naryn, Karakol, and Maimak. Each is situated to make use of transportation infrastructure and/or customs posts along the Kyrgyz borders. Goods entering and traded within the zones are duty free within the Kyrgyz republic. Government incentives for investment in the zones include exemption from several taxes, duties and payments; exemptions from some import and export duties; simplified customs procedures; and direct access to utility suppliers. The production and sale of petroleum, liquor and tobacco products in FEZs is banned.
According to the State Statistical Committee, foreign direct investment totaled USD 116 million in 2002, an increase from an estimated USD 90 million in 2001.
Foreign direct investmentis chiefly oriented toward trade, restaurant services, industry, transportation, communications, and the financial sector. Many foreign firms conduct contract work for foreign assistance organizations. U.S. direct investment is concentrated in the hotel and telecommunications sectors with increasing interest in construction and mining.
Joint ventures and foreign companies in the Kyrgyz Republic include the Reemtsma Kyrgyzstan Company (tobacco), the Plaskap Bishkek Company (packaging/bottling), Besser Brick Company, the Central Asian Group (entertainment/garments), and the Hyatt Regency Bishkek. A Turkish Coca-Cola Franchise Bottles its soft drinks locally, and the Canadian gold-mining firm Cameco has formed the largest western joint venture in the Kyrgyz Republic, the Kumtor operating company. Joint ventures play a leading role in the mining, petrochemical, hotel and food processing sectors.
According to the National Statistics Committee, the following countries were the largest sources of FDI in 2002: Canada, USD 25.7 million; USA, USD 39.1 million; Turkey USD 30 million; Germany, USD 31.4 million; Korea, USD 11.7 million; China 10 million.
In 1998-2002, regional shares of total foreign investment were: Issyk-kul oblast - USD 37.4 million (6.9%); the City of Bishkek - USD 322 million (59.6%); Osh oblast - USD 95.8 million (17.7%); Jalal-abad oblast - USD 43.7 million (8.1%); Chui oblast (excluding Bishkek) - USD 32.3 million (6%); Naryn oblast - USD 5.2 million (1%) and Batken oblast - USD 3.8 million (0.7%).