Kyrgyzstan expects foreign investment to grow 47% in 2011

ASTANA – After a turbulent 2010 that kept foreign investors away from the Kyrgyz economy, Kazakhstani businesses are planning to step up investment in their neighbour.

“The investment climate no longer looks like the Titanic,” RNCA investment analyst Ivan Tikhomirov said.“The investment climate of Kyrgyzstan was shaken by last April’s and June’s turmoil, resulting in the loss of more than 40% of investments in the country in 2010 compared to 2009,” RNCA investment analyst Ivan Tikhomirov said. “But one year later, the investment climate no longer looks like the Titanic.”

One problem associated with last year’s political unrest was nationalisation of property, a measure instituted to prevent embezzlement. The nationalisation was necessary, an official of the presidential administration said, requesting anonymity.

“At the time, it was important to retain within the country the money that the (ousted president Kurmanbek) Bakiyev family might take abroad, so the government announced the nationalisation,” he said. “That was a provisional measure to be cancelled this year. Foreign partners being well aware of this, we expect investment to grow 47% this year.”

Foreign investment in Kyrgyzstan in 2010 totalled US $2.7 billion, down 40% from US $4.5 billion in 2009.

Kyrgyzstan is again working to encourage investment inflow by cutting down on bureaucracy, TRACE Consulting Kyrgyzstan Co. director Arzymat Aldayarov said.

“Kazakhstani business owners not only enjoy support in Kyrgyz government structures but also are capable of working in an environment where they must look to whoever’s in power rather than existing laws which can be interpreted in different ways,” he said.

The mining, tourist, hydropower and light industries as attractive for investors, Aldayarov said.

Kazakhstan traditionally a big partner

Kyrgyz Prime Minister Almazbek Atambayev, during a February 5 visit to Astana, acknowledged Kazakhstan’s role as the largest investor in Kyrgyzstan in recent years.

“Kazakhstan is Kyrgyzstan’s key partner and investor,” Atambayev said.

In 2009, Kazakhstani investments in the Kyrgyz economy amounted to 32% of the total, followed by Britain with 16%. About 400 joint ventures with Kazakhstani participation operate in Kyrgyzstan.

In 2010, the two countries’ trade exceeded US $500m compared to US $340m in 2009. Kazakhstan’s investment in Kyrgyzstan grew by 4.2% in 2010, down sharply from 2009’s 59% growth rate, Kazakhstan’s National Statistics Committee said.

“We expect a substantial growth in business investment from Kazakhstan this year,” said Kyrgyz Finance Ministry statistics department official Omurbek Samrukov, who refrained from giving an exact figure. “Other major investors are China, West European countries and Russia. But analysis of existing investment proposals already shows Kazakhstan is in the lead.”

Kyrgyzstan offers investment advantages

Ulan Shamistanov, a co-founder of the Shymkent-based light industry company ZholTekstil, said he plans to invest in a garment-manufacturing company in Bishkek.

“Taxes are relatively lower there, and I won’t have to pay as much for raw materials and wages as I do in Kazakhstan,” he said. “I don’t anticipate any particular risks (in Kyrgyzstan) because many analysts are pointing to the return of investors and an improvement of the business climate.”

Babur Ismayilov, a co-founder of the Kyrgyz company CHUY FRP Composite, said doing business in Kyrgyzstan has advantages.

“The VAT rate here is low, and the proximity to China shrinks transport costs when (one is) purchasing raw materials and selling goods,” he said.

The VAT in Kyrgyzstan and Kazakhstan is only 12%, compared to 18% in Russia and Azerbaijan and 20% in Uzbekistan, Ukraine, Armenia, Tajikistan and Turkmenistan.

Low power rates help, too, Ismayilov said.

“Atambayev promised to protect Kazakhstani investments and support investors, and red tape is reduced to a minimum in Kyrgyz government agencies, so why not invest in their business?” Shamistanov said.

Trade and investment in Kyrgyzstan are not subject to any bureaucratic restrictions, said Aleksei Oseledko, head of the Kazakhstan-based Garling distributing firm, which has offices in Kyrgyzstan.

“We’ve already survived two revolutions and look into the future with optimism,” he said. “Hopefully, Kyrgyzstan’s joining the Russia-Kazakhstan-Belarus customs union this spring will give a new boost to that country’s development. That union should help tap Kyrgystan’s full business potential.”