: / Strategies / National Poverty Reduction Strategy (2003-2005)

Kyrgyzstan Review, 10 years ago

K. Foreign Economic Relations and Development of Exports

447. Intensive investment policy and measures for improvement of the economy can result in high economic growth and social development only with significant increase in the export of goods and services. There remain some serious problems in Kyrgyzstans foreign economic activity. Export and import levels fluctuate widely. Despite the positive trade balances in 2000 and 2001 (US$4 million and US$39.9 million, respectively) the trend of foreign trade and exports is in decline. Although export grew by 7.5 percent in the first five months of 2002, compared to the corresponding period of 2001, the balance of trade was negative. The situation is largely explained by the fact that the principal export items are:
gold, with its volatile world prices and unstable production; and
electricity, the export of which is directly related to a fluctuating water/energy balance and the situation regarding agreements between Kyrgyzstan and other states.
Foreign trade is also hindered by various barriers such as customs duties, tariffs, and non-tariff limitations imposed by traditional trading partners.
448. In this situation, it is necessary to develop a new external economic policy in order to ensure positive movement of the economy of Kyrgyzstan towards the world market. Active participation of Kyrgyzstan in all global economic relations will promote its status as a state with a stable and reliable trade policy. This would have a positive impact on both business and investment activities of commodity producers.
449. Kyrgyzstan has a geographically advantageous location in the center of Asia that is a natural junction of the shortest transportation routes, trade, financial and informational flows between West and East. It is also important that some of the largest countries of the world, such as China, India and Russia, with an aggregate population of almost 3 billion people, are located within 3 to 5 flight hours from Bishkek. Therefore, according to the opinion of Japanese experts, it is quite feasible to establish in future a regional business center that will allow Kyrgyzstan to become a service oriented country. With the technical support of the Government of Japan, it is planned to conduct studies on the development of export-oriented production of light and food processing industries (2002-2003), on development of export and import infrastructure (2002), and on development of information technologies (2003). In addition, it is intended to take a series of specific steps to develop the services sector. As for the finance industry, attraction of major foreign banks is envisaged, and creation of the relevant infrastructure and supporting production processes will be started in the area of tourism. At the same time, priority will be given to the study of systems of distribution and material and technical support, starting with supplies of raw materials and ending with satisfying the demand of the consumers of finished products. A very effective distribution network, including terminals, warehouses, transportation links and connections, will serve as a foundation for the modern trade infrastructure and primarily for the export of local goods and services.
450. The Kyrgyz Republic should pursue an aggressive policy of export promotion, focusing specific efforts on increasing the volume of exports of:
processed products;
gold and non-ferrous metals by developing new deposits;
electricity by supplying it to neighboring countries and attracting investment to the sector;
tourism industry services by developing its various forms (regional, elite, ecological, hunting, etc.); and
export of information technology software, in which the Republic has the necessary potential.
451. Advertising campaigns will be launched to promote local goods in both domestic and external markets.
452. One of the key aspects of penetration in global markets is participation of Kyrgyzstan in various regional and interregional agreements on free trade and investment. Therefore the State must promote the activities of international representative offices with such unions as APEC, EU, FTAA, and AFTA.
453. Kyrgyzstan will actively participate in the work of regional unions to pursue an active external economic policy on promotion of exports of local goods and services and attraction of investment.
454. In order to create conductive conditions for export as one of the determining factors for economic growth, the State will use its WTO membership broader to search for alternative trading partners with a sustainable payments system. In particular, it is necessary to carry out a thorough review of barriers impeding development of trade relations of Kyrgyzstan with other countries.
455. The Republic must focus its activities on active use of supplementary trade preferences according to the General System of Preferences, ensuring predictability of access to external markets, elimination of trade discrimination, acquiring of an international legal basis to protect the interests of local commodity producers, and to resolve the issue of unhindered transit of Kyrgyz goods through the territory of neighboring states.
456. The nearby presence of the large market of China, a member country of the WTO, promises significant prospects for the development of export of local goods and services. Kyrgyzstan will seek trading opportunities in the potentially huge market of Afghanistan that is being opened up. The State should focus efforts on export of its products to this country, experiencing an acute deficit in essential commodities.
457. Kyrgyzstan has certain geographical advantages. The Republic will make every effort to transform Manas airport in one of the most strategically important points in the Central Asia region for handling air cargo. Kyrgyzstan shall become a transit country for transportation of cargo by air. The Republic shall become a service-oriented country providing tourism, communication, banking and other services for the global market.
458. It is necessary to speed up the work on concluding bilateral agreements with countries that are partners in trade and economic cooperation. Practical experience shows that such agreements are the most effective in interaction with trading partners in terms of harmonization of taxation and customs regimes, avoidance of double taxation, removal of existing discriminatory barriers, and so forth.
459. The State will make all the efforts to create a unified marketing network in the Republic. The possibility will be considered of establishing a center similar to the JETRO in Japan, that would provide information on potential sales markets, market conditions, provide adequate training of production managers in foreign markets, and so forth.
460. The state will stimulate the introduction of electronic principles of trade and business management among entrepreneurs.
461. The taxation system will undergo reforming towards reducing the tax burden for industrial enterprises and promotion of export of their products. Amendments and addenda will be introduced to the Tax and Customs Codes aimed at promotion of export of local goods and services.
462. Systems of bar coding will be introduced for Kyrgyz goods for the purpose of export development. It is planned that the full-scale introduction of bar coding will be started from January 1, 2003 under the technical support of the Government of Japan. The Republic will speed up the transfer to international standards of quality of the products produced. It is necessary to search for investments to establish and modernize the laboratory-testing base for the purpose of the transfer to international standards of all types of goods produced in the Republic.
463. Legislation will be further improved in order to stimulate the development of free economic zones, their transfer to international operation standards. Special attention will be paid by the State to the establishment of specific zones, such as export industrial and innovation zones. In the future, all such zones will become sustainable model zones on application of new management approaches and methods in industry, where foreign direct investments and innovative technologies will be actively attracted.
464. In the longer term, Kyrgyzstan will need to carry out structural reforms according to global trends in demand, when secondary industry and services represent the dominant sectors of the economy. Special significance should be attached in future to the production of services that can become a consumer of the results of manufacturing production, helping this sector to adapt more quickly to the standards of global demand.
465. The main objective in the area of production is to create new export-oriented capacities. This implies:
upgrading and further development of existing productions of goods and services oriented on exports and replacement of imports; increasing the role of processing enterprises;
exploring new production areas, especially intellectual, such as production of software, technologies, etc.;
further improvement of taxation and customs policies; ensuring encouragement of investment in all levels of production (R&D and production) regardless of the source of investment; stimulating application of high technologies for better quality;
elaboration and implementation of a comprehensive industry development program;
building state system of informational support to industrial enterprises and productions (scientific information, marketing and promotion of goods and raw materials on world markets); and
elaboration of the strategy for modernization of the system of training and retraining of technical personnel with consideration of world trends in technology and the needs of the real sector.