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Kyrgyzstan Review, 10 years ago

[07.08.23] Kyrgyzstans Investment Climate Through the Eyes of UNIDO

The UNIDO (United Nations Industrial Development Organization) has conducted a survey of the investment climate in Kyrgyzstan. The survey questioned representatives of 24 major investors working in Kyrgyzstan, including the Central Asian Group, Kumtor Operating Company, Kyrgyz Petroleum Corporation, the National Bank of Pakistan, Reemtsma-Kyrgyzstan, Sa-Sa International, CAT Corporation, and Wimm Bill Dann.
Investments go to small and medium business  
About 25% of the companies questioned invested in the food industry, 14% in the financial sector and 14% in the restaurant and hotel business. Only one of these companies has over 1,000 employees and almost 65% have less than 100 employees.
Fifty percent of these investors have invested less than US $1 million, but some have invested more than US $20 million. So Kyrgyzstan gets mostly small and medium investments.
Representatives of 17 companies said in the next three years they would invest in their businesses up to US $1 million. In general, investors plan to invest almost US $700 million. This figure, however, only shows their financial potential, not the investors' immediate plans. The survey shows there are no prerequisites that indicate Kyrgyzstan will get these investments.
Investors disappointed  
The investors have negative rather than positive expectations. 75% are disappointed with the fulfillment of their business plans and only one investor said the result had surpassed his best expectations. The UNIDO experts have come to the conclusion that "investors are very negative about the existing market and the investment climate in Kyrgyzstan."
The survey also revealed the reasons why foreign investors come to Kyrgyzstan. They are the possibility to access the neighboring markets of Central Asian countries and China, cheap but qualified local labor force, and the opportunity to work at local free economic zones.
Most investors get the necessary information themselves or from their colleagues who have worked in the region. The survey shows that only in 5% of cases had the Kyrgyz government provided the required information on the opportunities for direct foreign investments in Kyrgyzstan.
Seventy percent of the questioned companies and 50% of investors working in Kyrgyzstan's free economic zones are not satisfied with the pace of the institutional reforms in the country. More than 80% the companies think the present Kyrgyz legislation does not help to attract direct foreign investments. Ninety percent of the survey participants said Kyrgyzstan's legal structure is not favorable for investment and complained about too much state regulation and control. They also complain about a large number of permissive documents required for running business in Kyrgyzstan. Most investors think that many Kyrgyz government agencies do the same functions for attracting foreign investments, therefore duplicating each other.
About corruption  
All the participants in the survey were negative or worse about corruption in Kyrgyzstan. Nobody stated any progress in combating corruption. Investors working in the free economic zones spoke especially toughly, demanding to "protect them from corruption, eliminate corruption, combat corruption, and liquidate corruption." These similar demands show that the investors are really sick of red tape and bribery of Kyrgyz government officials.
Reforms are critical
The investors have spoken of creating a special government agency to deal with direct foreign and domestic investments. The investors also speak about further tax reforms, particularly they suggest reducing taxes and exemption from taxes of large investments for some time.
Foreign investors recommend decreasing checkups by the government agencies and cutting the number of government officials, giving the remaining ones good salaries (to somehow reduce corruption). They also speak for more legal protection for commercial banks, "giving them the right to manage collateral property without the court's interference." They demand that the Kyrgyz legal system guarantee their security, fair justice, and the laws protecting investors' interests.
By Larisa Lee,
The Times of Central Asia, August 07, 2003

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