October 1998

by Judith Robinson and Kelly Raftery

Kyrgyzstan, a small country in the heart of Central Asia, is often overlooked by U.S. companies expanding into the NIS. While Kyrgyzstan does not have the population base or extensive oil and gas resources of its neighbors, Kazakhstan and Uzbekistan, the overall climate for trade and investment for foreign companies is generally more favorable. Its location between the People's Republic of China and the NIS makes Kyrgyzstan a potential transportation nexus between these markets.

Kyrgyzstan has been among the forerunners of reform in Central Asia and the NIS. Over the last several years, the country has followed a carefully-planned program of reform and transition to a market economy. The Krygyzstani currency, the som, is the most stable currency in the region, and is freely convertible. The Kyrgyz Civil Code is modeled on the Dutch Civil Code, forming a basis for stable commercial relationships and additional commercial laws. Individuals or legal entities can import to and export from Kyrgyzstan without limitations, although they must indicate the types and amounts of goods in a customs declaration.

Industry and Natural Resource Base

Kyrgyzstan's traditional economic base has been agriculture, but its future lies in a number of nontraditional sectors. Infrastructure development has been highlighted as a priority for the Kyrgyz Government in 1998. The Government of Japan is already assisting in the reconstruction of the Bishkek airport, as well as several roads between major cities. Kyrgyzstan's key role in the control of water resources gives it a distinct advantage over its neighbors.

Kyrgyzstan, with several hydroelectric plants, has an abundance of power that it is planning to export. To date, however, Kyrgyzstan's neighbors have refused to pay market prices for the electricity, and Kyrgyzstan has thus far refused to export it. Several more hydroelectric plants are in the planning stages at the current time.

While not as rich in natural resources as its neighbors, Kyrgyzstan does have significant gold deposits. The most high-profile joint venture in the country to date, between the Kyrgyz Government and the Canadian company Cameco, involves the Kumtor mine, one of the world's 10 largest sources of gold deposits.

Kyrgyzstan retains from its Soviet history a well-developed mechanical engineering and instrument-making capacity, microelectronics plants, and a computer equipment plant that manufactured the onboard computers for the command and control of Soviet space vehicles. The gamma telescope that photographed Halley's Comet was manufactured in Kyrgyzstan. Investment and partners from the West are considered most desirable in the development of Kyrgyzstan's microelectronic as well as semiconductor chip production industries.

Tourism is another key industry for development in Kyrgyzstan. Nestled in the Tien Shen mountains, Kyrgyzstan has an abundance of natural beauty and unspoiled wilderness. Western hotel chains such as Hyatt have begun construction on hotels in the capital, Bishkek, and are expected to begin development on the shores of Lake Issyk-Kul in the future.

Environment for Foreign Trade and Investment

Currently, foreign investors in Kyrgyzstan have legal status equal to that of a Kyrgyz citizen and can buy stocks and securities in Kyrgyz companies and participate in privatization programs. Foreign investors can also repatriate capital, export profits as foreign currency, and convert local currency freely into foreign currency. In the past, foreign investors enjoyed enhanced rights and tax breaks of up to five years in Kyrgyzstan. However, late in 1997, on recommendation from the World Bank, the Kyrgyz Government issued the Law on Foreign Investments, which eliminated tax benefits for joint ventures and foreign enterprises in Kyrgyzstan.

One of the Kyrgyzstani Government's goals has been to achieve World Trade Organization (WTO) membership. Kyrgyzstan has passed all major hurdles to WTO accession and should be inducted into the WTO by the end of the year. If membership is attained, Kyrgyzstan will be the first former Soviet country to do so.

Kyrgyzstan has a tax code and a rational import regime. The country is in the process of revising its value-added tax (VAT) regime. VAT in Kyrgyzstan is an invoice-based tax levied at 20 percent. Upon accession to the WTO, Kyrgyzstan plans to harmonize the tax regime for both imported and domestically- produced goods by applying VAT to all goods sold or imported, regardless of their country of origin.

Kyrgyzstan has four Free Economic Zones (FEZs) in the Issyk Kul and Naryn regions, as well as the cities of Talas and Bishkek. These FEZs allow companies to import and export goods free of certain taxes and customs duties. FEZs also offer simplified documentation and procedural requirements, direct access to utilities and communications facilities, and export/reexport incentives. In addition, profits earned in these zones and invested into Kyrgyz manufacturing enterprises are also exempt from tax.

For more information on Kyrgyzstan, visit BISNIS OnLine, at www.mac.doc.gov/bisnis/country/cntasia.htm.

Judith Robinson covers Kyrgyzstan for BISNIS.
Kelly Raftery is a BISNIS Central Asia specialist.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)