Kyrgyzstan’s industrial policy and the need to change strategy

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BISHKEK (TCA) — Official statistics and overall public opinion tell that foreign direct investment in Kyrgyzstan is declining and there is no investment at all in small and medium enterprises (SME). Kyrgyzstan has to react and the Government should understand that due to different factors such as international crisis, currency problems, cashless Russia, and Eurasian Economic Union membership, the country needs a new industrial approach with income from the China trade being replaced with local production and processing.

This new approach should offer investors, local and foreign, fiscal incentives and facilities that practically do not exist. The European sanctions on Russia are a bad thing for many European companies and they affect the Russian consumer that got used to quality products which are scarcely available now. The same is happening to Kazakhstan that due to an incredible devaluation of its currency cannot afford buying western products and has to look inside the country and to partners within the Eurasian Economic Union.

The slowdown is evident everywhere and the Kyrgyz reaction should focus on transforming the present difficult moment into an opportunity. This is not a difficult task, as any company can easily find out what items have been penalized by the European sanctions on Russia — supply of such items has dropped considerably but the market is still there. Then choose items that could be produced in Kyrgyzstan with its human resources, local raw materials, know how, and equipment. With a shortlist of such products to be manufactured down here, look around to get the necessary support in terms of know how, equipment, finance, facilities etc., and make your business plan. Today in Kyrgyzstan there are the Russian-Kyrgyz Development Fund and several banks that have money to finance new manufacturing units and start-ups. What is missing is a clear strategy from the Government for activating local potentiality and offering to local and foreign investors suitable incentives.

Kyrgyzstan welcomes investment but such speeches and promises do not translate into concrete actions. Take, for example, industrial facilities and places where local manufacturing should concentrate in an appropriate environment and with adequate services. This is completely missing and we do not see around any industrial park with ready buildings or land where one could build factories under an approved master plan with construction permits issued within days and not months or years as it happens now. The idea of the Investment Promotion Agency under the Ministry of Economy to create a Promo Park is excellent but it still remains on the drawing board.  

In the West, as well as in Turkey and China, everybody understands that the present crisis — for various reasons — is going to last several years. In the meantime, China’s export will suffer for the lack of buyers and Western manufacturers will look to new markets instead of Russia. Turkish companies are fully aware that the standoff with Russia and its sanctions are damaging their economy. So why not to take advantage of that long list of problems and step in immediately with Kyrgyz made goods, produced with up-to-date know how, to be exported to Russia and Kazakhstan for the time being. This will give a new breath to local and foreign investors here, and locals will probably stop investing in empty apartments and realize that renting a factory can be a much more profitable investment.

We have a ready market of nearly 200 million people and we can easily attract local and foreign investment if only the Kyrgyz Government will do its part. The author of this article knows how to do it, and the answer is in a credible, transparent and serious Public-Private Partnership (PPP). It is the best formula to mobilize local and foreign efforts and the proper answer to several problems such as unemployment, currency risks, diversification of income etc. This will work if the country has the intention to develop domestic export-oriented enterprises or manufacturers for import substitution. To abandon re-export of Chinese goods, Kyrgyzstan should move fast by developing a more effective industrial system that favors small and medium domestic companies focused on the EEU market. An important role in this process should be assigned to the Ministry of Economy and the Investment Promotion Agency, which should support potential investors in preparation of short and preliminary business plans for the many sectors where Kyrgyzstan can excel. These are agro and milk processing, the garment industry, several types of consumer goods, jewelry, food, small equipment, assembly of electronic items and so on. Then in a joint effort with the private sector to organize a trade delegation of local business people that have patronized the selected proposed projects and are willing to venture and invest into specific activity. Then such trade delegation, with support of banks, embassies, and foreign institutions, should promote B2B meetings in different countries, not only in Europe but also in Turkey and China. All this can be done with private means, since participants should pay their own expenses as they invest in their own projects. The organizers may search for some sort of support from Banks and foreign institutions while the strategic organization would remain in the hands of the selected Ministry that should assign the task to English-speaking competent government officials that instead of sitting in their chairs and talking should move forward and bring results.

Another issue to be considered is enhancing the existing Bishkek Free Economic Zone (FEZ). This zone, although among the first of its kind in Central Asia, has never been very successful due to corruption and incompetence. Its statute and idea is good, its potential is incredible, but the lack of a competent management has always been standing on its way to success. Why not assign the FEZ to competent Chinese or Turkish companies under a management concession? The State can fix the rules and the task not only to manage the zone but also attract more local and foreign investors. The selected company should pay the State an agreed rent and commit to a certain business plan agreed upon between the parties, while taking the responsibility for an investment attraction strategy within the Free Economic Zone.