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Kyrgyzstan: Market Profile

Picture: Kyrgyzstan factsheet
Picture: Kyrgyzstan factsheet

1. Overview

Following peaceful elections, a successor took office in November 2017, and the new coalition government (which is accountable to the parliament) has embarked on an ambitious reform agenda. Growth accelerated to 4.5% in 2017 from 3.8% a year earlier, supported by continued improvements in the Russian and Kazakhstani economies and by expansionary macroeconomic policies. The reliance on one single gold mine, Kumtor (accounting for approximately 10% of Kyrgyzstan's GDP), means that the country is exposed to volatility.

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

December 2016
Kyrgyz voters approved a raft of constitutional changes in a referendum which strengthened prime ministerial powers.

October 2017
Sooronbai Jeenbekov was elected president.

Sources: BBC Country Profile - Timeline, Fitch Solutions

3. Major Economic Indicators

Graph: Kyrgyzstan real GDP and inflation
Graph: Kyrgyzstan real GDP and inflation
Graph: Kyrgyzstan GDP by sector (2017)
Graph: Kyrgyzstan GDP by sector (2017)
Graph: Kyrgyzstan unemployment rate
Graph: Kyrgyzstan unemployment rate
Graph: Kyrgyzstan current account balance
Graph: Kyrgyzstan current account balance

e = estimate, f = forecast
Sources: IMF, World Bank, Fitch Solutions
Date last reviewed: November 17, 2018

4. External Trade

4.1 Merchandise Trade

Graph: Kyrgyzstan merchandise trade
Graph: Kyrgyzstan merchandise trade

Source: WTO
Date last reviewed: November 17, 2018

Graph: Kyrgyzstan major export commodities (2017)
Graph: Kyrgyzstan major export commodities (2017)
Graph: Kyrgyzstan major export markets (2017)
Graph: Kyrgyzstan major export markets (2017)
Graph: Kyrgyzstan major import commodities (2017)
Graph: Kyrgyzstan major import commodities (2017)
Graph: Kyrgyzstan major import markets (2017)
Graph: Kyrgyzstan major import markets (2017)

Sources: Trade Map, Fitch Solutions
Date last reviewed: November 17, 2018

4.2 Trade in Services

Graph: Kyrgyzstan trade in services
Graph: Kyrgyzstan trade in services

Sources: WTO, Fitch Solutions
Date last reviewed: November 17, 2018

5. Trade Policies

  • Kyrgyzstan joined the WTO in 1998.

  • Kyrgyzstan's trade profile received a significant boost when the country ascended to the Russian-led Eurasian Economic Union (EAEU) single market trading bloc in 2015. It is a member along with Russia, Belarus, Kazakhstan and Armenia. The EAEU single market provides for the free movement of goods, people, capital and services between member states, with a common external tariff regime.

  • Various anti-dumping measures were imposed on products from Ukraine, autos parts and steel products from China, and autos from various countries. The country is highly dependent on imports for consumer and industrial needs. This makes accessing them from non-EAEU markets significantly more expensive. Given that China is Kyrgyzstan's neighbour, this has significantly impacted trade flows between the two countries.

  • The country's landlocked status has meant, in the past, that it has largely traded with its immediate neighbours, such as Russia and China. Trade with Russia has benefitted from Kyrgyzstan's accession to the EAEU.

  • Switzerland is Kyrgyzstan's biggest export destination, receiving up to 45.5% of all goods (in USD terms). Gold is virtually the only kind of product which Switzerland imports from Kyrgyzstan.

  • China has become Kyrgyzstan's most important source of goods. China is the source of two-fifths of all goods brought into Kyrgyzstan. Machinery, clothing goods and other manufactured products make up the bulk of the basket of items bought by Kyrgyzstan from China over 2016.

Sources: WTO - Trade Policy Review, Fitch Solutions

6. Trade Agreement

6.1 Trade Updates

The EAEU-China agreement was signed on May 29, 2018. The EAEU and Iran signed an interim agreement on a free trade zone in May 17, 2018 during the Astana Economic Forum. Two years of negotiations resulted in a three-year arrangement to reduce import customs duties on approved goods.

6.2 Multinational Trade Agreements

Active

  1. Commonwealth of Independent States Free Trade Agreement (CISFTA): Most of Kyrgyzstan's main trade partners are now included in the EEU, which has somewhat superseded the CISFTA.

  2. Kyrgyzstan-Tajikistan (effective date: January 2006): Kyrgyzstan mainly imports fruits, nuts and tobacco from Tajikistan. Kyrgyzstan's exports to Tajikistan include coffee, tea, and milk, preparations of cereals, spirts and vinegar.

  3. EAEU, comprising Kyrgyzstan, Russia, Kazakhstan, Armenia, and Belarus: While opening up markets in major trade partners Russia and Kazakhstan, the deal increases trade barriers with neighbouring China.

  4. EAEU-Vietnam Free Trade Agreement (FTA): Vietnam is not a major export or import partner of Kyrgyzstan's. However, the promulgation of this FTA in October 2016 does provide another tariff-free market for Kyrgyzstani exports, and may allow Vietnam to overtake some of China's dominance in the textiles and manufactured goods markets.

Under Negotiation

  1. In December 2017, Kyrgyz Deputy Foreign Minister Emil Kaikiev met with the European Union’s (EU) foreign policy chief, Federica Mogherini, and the director of the department overseeing ties with Central Asian countries, Luc Devigne, to launch negotiations covering a new bilateral agreement.

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Kyrgyzstan FDI stock
Graph: Kyrgyzstan FDI stock
Graph: Kyrgyzstan FDI flow
Graph: Kyrgyzstan FDI flow

Sources: UNCTAD, Fitch Solutions
Date last reviewed: November 17, 2018

7.2 Foreign Direct Investment Policy

  1. Kyrgyzstan does attract quite significant inward FDI flows in the mining sector and has a clear and incentive-driven FDI legal framework. Significant hurdles have made foreign investors wary of the country as a destination for doing business. These include the inconsistent application of FDI laws by the Kyrgyzstan government which has seen them involved in several large-scale international lawsuits with foreign mining companies, resource nationalisation in the mining sector, significant limits on foreign ownership of land and high levels of corruption.

  2. Foreign land ownership – Foreigners cannot own agricultural land, nor can foreigners own or use any land except residential land, which has been foreclosed under a mortgage loan agreement under the Kyrgyzstan law.

  3. Resource nationalism – The Kyrgyzstan government, Centerra Gold (which operates the largest gold mine in the country), and Kumtor were involved in court battles regarding the government stake-holding in the mine.

  4. Regulatory uncertainty – Many high profile mining companies have had to renegotiate their mining contracts, had their mining licenses revoked, or been charged very high penalties for alleged environmental policy non-compliance. Sectors which employ a large portion of the population or contribute significantly to tax revenue may find themselves subject to additional audits, fines which apply to instances which happened many years prior, licensing and/or permit disputes, or have additional local workforce hiring requirements imposed on them.

  5. Legal risk – Investors face significant barriers from the high levels of corruption and weak protection of intellectual property rights in Kyrgyzstan.

  6. Foreign exchange restrictions – Since 2016, all local transactions for payment of goods and services has to be made in the local currency.

Sources: WTO - Trade Policy Review, ITA, US Department of Commerce, Fitch Solutions

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Free Economic Zones (FEZs) located in Bishkek, Naryn, Karakol and Maimak- Efficient transport connections
- Streamlined customs procedures
- No restrictions on capital repatriation
- Income tax exemption
- Exemption from customs duties and trade tariffs
Park of innovative technologies- Exemption from profit tax
- Customs duties and VAT
- Employees taxed at a reduced rate of 5%

Sources: US Department of Commerce, Fitch Solutions

8. Taxation – 2018

NIL

9. Foreign Worker Requirements

9.1 Localisation Requirements

The Kyrgyzstani government sets specific quotas for how many foreign workers can be employed. These quotas are set by the Ministry of Labour on an annual basis and differ from region to region within the country.

9.2 Visa/Travel Restrictions

The country still has fairly low female workforce participation rates, estimated at around 56.3%. Significant cultural and religious barriers still remain. Women do not enjoy the same pay or career opportunities as men.

9.3 Foreign Worker Permits

While citizens of other EAEU and CommonweaIth of Independent States (CIS) countries may be employed without obtaining a special work permit, this is not the case for foreign workers from countries outside these regional arrangements. In order to be legally allowed to employ foreign workers, a business must first obtain permission from the Ministry of Labour. In order to be issued a foreign worker permit (which usually takes around 35 days), the employer must demonstrate that the skills needed for the specific position cannot be sourced within the Kyrgyzstani labour market. Preference is usually given to granting foreign worker permits for highly skilled professionals.

Sources: Government websites, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
B2 (Stable)
20/11/2017
Standard & Poor'sNot ratedNot rated
Fitch Ratings
Not ratedNot rated

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
67/18975/19077/190
Ease of Paying Taxes Index
138/189148/190151/190
Logistics Performance Index
146/160N/A108/160
Corruption Perception Index
111/176102/180N/A
IMD World CompetitivenessN/A
N/A
N/A

Sources: World Bank, IMD, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201620172018
Economic Risk Index Rank158/202
Short-Term Economic Risk Score31.343.344.8
Long-Term Economic Risk Score34.5
38.941.2
Political Risk Index Rank176/202
Short-Term Political Risk Score57.556.358.8
Long-Term Political Risk Score37.343.843.8
Operational Risk Index Rank128/201
Operational Risk Score44.344.242.7

Source: Fitch Solutions
Date last reviewed: November 17, 2018

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Kyrgyzstan became an official member of the Kremlin-led EAEU in 2015. The EEU comprises Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan. This will have major implications for Kyrgyzstan's prospects for economic development and diversification. For instance, Moscow has announced support for Kyrgyzstan's agricultural sector, which is expected to expand in the coming years, as Russia will also benefit from cheap Kyrgyz food exports in the context of punitive sanctions on EU agricultural exports.

OPERATIONAL RISK
Kyrgyzstan exposes businesses to a number of operational risks, such as those from poor logistics infrastructure. Labour risks are also elevated, with the largely low-skilled workforce on offer often necessitating the importation of labour; however, relatively light labour regulations reduce labour costs. On a positive note, Kyrgyzstan’s government has established clear frameworks for FDI, low tax rates and bureaucratic procedures will potentially become more efficient as a result of e-government investments.

Source: Fitch Solutions
Date last reviewed: November 15, 2018

10.5 Fitch Solutions Political and Economic Risk Indicies

Graph: Kyrgyzstan short term political risk index
Graph: Kyrgyzstan short term political risk index
Graph: Kyrgyzstan long term political risk index
Graph: Kyrgyzstan long term political risk index
Graph: Kyrgyzstan short term economic risk index
Graph: Kyrgyzstan short term economic risk index
Graph: Kyrgyzstan long term economic risk index
Graph: Kyrgyzstan long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: November 17, 2018

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Kyrgyzstan Score43.752.846.638.033.5
Caucasus and Central Asia Average49.654.952.046.644.9
Caucasus and Central Asia Position (out of 8)656
7
7
Emerging Europe Average56.954.158.458.556.8
Emerging Europe Position (out of 31)2921
27
30
29
Global Average49.749.850.049.349.9
Global Position (out of 201)12878
117
135
151

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Kyrgyzstan vs global and regional averages
Graph: Kyrgyzstan vs global and regional averages
Country
Operational Risk Index
Labour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Security Risk Index
Georgia61.664.769.754.857.1
Kazakhstan57.771.656.054.049.3
Azerbaijan57.660.358.059.452.8
Armenia55.156.156.849.957.6
Tajikistan43.051.241.838.840.1
Kyrgyzstan42.752.846.638.033.5
Uzbekistan41.349.248.834.732.5
Turkmenistan37.733.837.843.136.1
Regional Averages49.654.952.046.644.9
Emerging Markets Averages46.848.047.545.746.0
Global Markets Averages49.649.749.949.149.8

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: November 17, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Kyrgyzstan

Graph: Major export commodities to Kyrgyzstan (2017)
Graph: Major export commodities to Kyrgyzstan (2017)
Graph: Major import commodities from Kyrgyzstan (2017)
Graph: Major import commodities from Kyrgyzstan (2017)

Note: Graph shows the main Hong Kong exports to/import from Kyrgyzstan (by consignment)
Date last reviewed: November 17, 2018

Graph: Merchandise exports to Kyrgyzstan
Graph: Merchandise exports to Kyrgyzstan
Graph: Merchandise imports from Kyrgyzstan
Graph: Merchandise imports from Kyrgyzstan

Note: Graph shows Hong Kong exports to/import from Kyrgyzstan (by consignment)
Exchange Rate HK$/US$, average
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Source: Hong Kong Census and Statistics Department
Date last reviewed: November 17, 2018


2017
Growth rate (%)
Number of Kyrgyz residents visiting Hong Kong171
-32.1

Sources: Hong Kong Tourism Board, Fitch Solutions


2017
Growth rate (%)
Number of European residents visiting Hong Kong1,929,824
-0.2

Sources: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: November 17, 2018

11.2 Commercial Presence in Hong Kong


2017
Growth rate (%)
Number of Kyrgyz companies in Hong KongN/A
N/A
- Regional headquarters
- Regional offices
- Local offices


11.3 Treaties and Agreements between Hong Kong and Kyrzyzstan

Kyrgystan and China have a Bilateral Investment Treaty which came into force in September 1995.

Source: Investment Policy Hub

11.4 Visa Requirements for Hong Kong Residents

Hong Kong residents need a visa before travel to Kyrzyzstan.

Source: Kyrgyztan Mission
Date last reviewed: November 17, 2018

Content provided by Picture: Fitch Solutions – BMI Research
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