The economic development and investment growth depend not only on the willingness and capacity of the state and business, but also on the social and political situation in the country. Any turmoil significantly worsens the investment image of Kyrgyzstan.

Money loves silence

Local politicians often repeat that "money loves silence," and that investors will never put their money in a country with political instability. However, every spring the opposition in Kyrgyzstan is trying to "rock the boat" by organizing protests in the country.

"Investors are mostly concerned with the country risks when making decisions to enter the market,” International Business Council (IBC) Executive Director Temirbek Azhykulov said at a press conference in Bishkek.

The investment climate surveys that the IBC has been conducting for fifteen years show that investors’ confidence in Kyrgyzstan had drastically reduced after political events of 2005 and 2010.

“In our survey conducted in the autumn 2005, 55% of respondents said that the investment climate in the country became even worse than it had been immediately after Tulip Revolution in March of 2005. There was a large and sustained decline in investment and the recession lasted until July of 2007. A similar decline was after events in 2010. Several companies with foreign capital left our market. The presence of such companies in Kyrgyzstan not only provided additional jobs and tax revenues but also promoted the country’s investment image in the world market. When companies leave the country, its image is badly deteriorating,” the IBC Director concluded.

When making decisions, investors have to forecast the economic situation in the country, Ruslan Akmatbek, Executive Director of the JIA Business Association (Association of Young Entrepreneurs), said. "The Government urges domestic investors to invest in the regions. But business wants to be sure in the safety of its capital there."

Political unrest and rallies have a negative impact on the business activity, and business is suffering losses. “The development of political events suspends business decisions,” Ruslan Akmatbek added.

IFC Survey results

Corruption, the lack of governmental transparency, and unpredictable legal and regulatory environment are key constraints to business in Kyrgyzstan, says the survey “Investment Climate in Kyrgyz Republic – Views of Foreign Investors,” conducted by IFC, a member of the World Bank Group.

While it is fairly easy to enter the Kyrgyz market and register a company, operating a business and doing it effectively is much less so. A transparent and predictable legal environment is critical to encouraging investment, and the Kyrgyz government should continue to simplify and streamline regulations, specifically in the areas of permits and licensing, the IFC report said.

Investors are ready to work without any preferences, provided that the legal and operational environment is clear, predictable and transparent. About 40% of the surveyed investors believed that there was some discrimination against foreign investors compared to local. They also feared possible unjust expropriation and confiscation of their assets in the country.

Rallies and investors

According to the Constitution, Kyrgyzstan’s citizens have the right to participate in peaceful rallies. But even if they are held in the framework of the law, photos and videos soon spread on the Internet all over the world and cautious investors may postpone their intentions to invest in the country.

The Second Investment Forum "Silk Road-2016" planned for March 19 in Bishkek was postponed because representatives of companies from the European Union, Israel, the Middle East and Russia had decided “not to visit Kyrgyzstan for the reason of their own safety in connection with the opposition’s increased activity.”

According to experts, the instability of the institutional environment, often deliberately worsened by some political forces, is an even larger obstacle to successful foreign investment than corruption.

Kyrgyzstan is now preparing for the summer tourist season, and the Second World Nomad Games will be the major event. However, rallies and pickets can negate all the efforts of the Games’ organizers, and as a result not only the state budget may suffer losses but also the population of the resort regions, for whom serving of tourists is the main source of income.

Kyrgyzstan has already experienced alarming political situations led to the fact that investors preferred to invest in more stable countries. The business community has called on the society and decision-makers to be reasonable and think about possible consequences of their actions.

FDI: Official report

Despite the external economic factors, foreign direct investments amounted to $818.8 million in 2015 in Kyrgyzstan, 12.6% more than in 2014, Prime Minister of Kyrgyzstan Temir Sariyev said on March 31 in the Parliament. Of this amount, $120 million was received due to tenders for development of two major gold fields, Jerooy and Terekkan-Perevalnoye.

In 2015 the world economy crisis affected the economies of developing and countries in transition. The Eurasian Economic Union (EEU) member countries also saw the economic decline. Against this background, the economic growth (3.5%) in Kyrgyzstan was the highest among the EEU countries, and inflation was the lowest (3.4%), Sariyev said.

During cutback of economic activity and decline in commodity prices, competition between producers intensifies in the world markets. Accordingly, the role and significance of investments substantially grows.

The Prime Minister suggested seven principles of attracting investments, and the main one is to provide investment guarantees for security and protection of property rights. Investors should be confident in the safety and repayment of their investments. He advised to improve the legislation so that the authorities intervene in major strategic investment projects only by a court decision.

Speaking in the parliament on March 31, Kyrgyzstan’s Prime Minister Temir Sariyev outlined key measures aimed at the country’s economic development, the government’s press service reported.

Seven principles for investment attraction

Prime Minister Sariyev indicated seven principles for investment attraction, creation of a favorable investment environment, and export promotion:

First, institutional aspects: to guarantee the safety of investments and protection of ownership rights. To interfere in large investment projects by a court decision only.

Second, infrastructural projects: to speed up the connection of infrastructural projects to utilities networks, construct a transnational railroad, and develop international transport routes.

Third, fiscal aspects: to lower the tax burden, to reduce the number of procedures and documentation of customs clearance.

Fourth, the labor market: to improve vocational training and liberalize the import of qualified labor force.

Fifth, financial aspects: to provide the economy with long and cheap money, to revise the concept of operation of the Russian-Kyrgyz Development Fund in order to expand the range and increase the affordability of financing.

Sixth, technological modernization of production facilities: to create an Industrial Development Fund, to introduce new technology to agriculture (drip irrigation, greenhouses).

Seventh, access to new export markets: creation of logistics centers for agricultural products, promotion of organic agriculture, tax exemptions for new enterprises.