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Kyrgyzstan Review, 10 years ago

[24.04.23] Kyrgyzstan - for a Better Investment Climate

The recent announcement by the Deputy Prime Minister of Kyrgyzstan, Dr. Djoomart Otorbaev, that the visa regime for entering the Kyrgyz Republic has been completely relaxed for 28 developed countries, is by all means good news and it is a step forward the facilitation of a better knowledge of Kyrgyzstan and the possibility to attract foreign investors. The list of countries exempted from submitting a letter of invitation and free to request a visa on arrival or departure or at any Kyrgyz Embassy without any prior formality include mostly all European countries in addition to USA and Canada, Australia, New Zealand and the Republic of Korea
The liberalization of the visa regime has rectified a bureaucratic procedure that was an obstacle to the entrance to the country and was loudly demanded by all tourist agents and indeed one of the priority demands of the IBC (International Business Council) for Matrix I in 2001.
Although the liberalization was announced several times in the past it was never clearly implemented. Now it seems that the final act has been drawn and that visitors to the country, tourist or business men, may come to Kyrgyzstan at least for one month without additional formalities. It has taken two years to implement this request.
In the meantime Matrix II and Matrix III have come on stream and one can only hope that the many obstacles to be removed be it sooner than later will be implemented. Today the business community, mainly the members of IBC are questioning if the process of the Matrix is really useful to increase investment, and to attract new local and foreign investors
No doubt that the Matrix has gone a long way in pointing out the numerous barriers that create obstacles and hinder the development of a better investment climate but all this did not yet succeed in the final scope of having more investors or making those that have already invested satisfied on the present behavior of various authorities.
Today the Secretariat for the attraction of foreign investment, under the Deputy Prime Minister, is actively working on several projects aimed at improving the investment climate. In its task the Secretariat is supported by USAID and IBC and there is no doubt that it is doing an exhaustive job in promoting the country and pointing out the numerous barriers. All of this is needed but cannot be considered enough if investment is to come. It has been recognized that if Kyrgyzstan wants to attract more investors the need to adopt a new investment policy and that such an approach needs the involvement of the public and private sectors.
For some unknown reason the private sector has been marginalized a]nd after two years, from the first Matrix, the system needs a general overhaul where a proper voice is assigned again to those of the investment community who know much more. If the Matrix should be developed from a simple list of obstacles to a more effective tool capable of creating the suitable investment attraction climate, the participation of the private sector is a must for its success.Today more then before a clear policy that simplifies the system and eliminates the numerous abuses of power is a request that represent the very essence of the future development of the country if the intentions are to move forward.
President Akaev decrees and orders aimed on creating a better investment climate do not seem to have brought the necessary results. We refer to decree 100 of 2002 on the moratorium for the creation of new obstacles or the decree of 15 January 2003 on additional measures to create a favorable investment climate and establishing Matrix III. It is without question that if the Government wants to succeed in attracting new investors it should first approve a new investment law, drafted in consultation, with the private sector and international agencies. The proposed law cannot be a result of useless exercises made by people that have never invested a single red cent in their life, or are looking for a vehicle in the law to enrich themselves.
Kyrgyzstan needs an investment attraction law, capable of providing incentives and making the country attractive to local and foreign investors. The problem of large unemployment should be re-addressed, so it is in the best interests of less developed areas in the country. It has been said many times that Kyrgyzstan should match its neighbors but not go beyond them and in any case to try to compensate the lack of natural resources and internal market
This brings a basic consideration that has been put forward several times: the country should first consider those investors that are already here. If dissatisfaction continues with those that have already invested how we can expect to attract new ones?
The Matrix was created to establish a new approach that involved certain basic principles that today seems forgiven. We refer to the consultation between the business community and the government, the predictability of any action and the complete abolishing of any retroactive decision.
The idea of establishing joint working groups to develop proposals that bring forward ideas and suggestion for a better investment climate, was certainly a welcome novelty for Kyrgyzstan, Today the Matrix is loosing steam and it is passed over by other agencies without any consultation, with a damage that if it is easy to estimate today, will certainly increase in the future.
Recently a new regulation has been imposed on social contributions with the removal of the ceiling on the Social Fund Contribution greatly affecting the employer. Another issue was the proposal to adopt a new licensing system in the tourism field, not to mention the erratic actions of the tax department.
Kyrgyzstan is continuing to develop a day to day policy without the proper vision of what foreign investment should be. Taxes are seen as a method to support the budget without an appropriate effective strategy that with consistency may create new investment. Potential areas of development such as tourism and agriculture do not receive adequate attention. The country continues to live off grants and other international support. The overall economy is moved by synergies generated by external factors such as the military base and the neighboring countries. Bishkek and Kyrgyzstan in particular are enjoying considerable benefits from the coalition forces present at Manas but new investors did not come in the numbers and volume expected. If this is to change, it is time to substitute words with deeds and pass an attractive investment law.
By Giorgio Fiacconi, TCA publisher,
The Times of Central Asia, April 24, 2003

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