KYRGYZSTAN: CENTRAL ASIAN GEM

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**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 expandinginto the NIS.  While Kyrgyzstan does not have the population base or extensive oil and gas resources of itsneighbors, Kazakhstan and Uzbekistan, the overall climate for trade and investment for foreign companies isgenerally more favorable.  Its location between the People's Republic of China and the NIS makes Kyrgyzstan apotential transportation nexus between these markets.                         
Kyrgyzstan has been among the forerunners of reform in Central Asia and the NIS.  Over the last severalyears, the country  has followed a carefully-planned program of reform and transition to a market economy.  TheKrygyzstani currency, the som, is the most stable currency in the region, and is freely convertible.  The KyrgyzCivil Code is modeled on the Dutch Civil Code, forming a basis for stable commercial relationships and additionalcommercial 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 nontraditionalsectors.  Infrastructure development has been highlighted as a priority for the Kyrgyz Government in 1998.  TheGovernment of Japan is already assisting in the reconstruction of the Bishkek airport, as well as several roadsbetween major cities.  Kyrgyzstan's key role in the control of water resources gives it a distinct advantage over itsneighbors. 
Kyrgyzstan, with several hydroelectric plants, has an abundance of power that it is planning to export.  Todate, however, Kyrgyzstan's neighbors have refused to pay market prices for the electricity, and Kyrgyzstan hasthus 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. Themost high-profile joint venture in the country to date, between the Kyrgyz Government and the Canadiancompany **Cameco**, involves the **Kumtor mine**, one of the world's 10 largest sources of golddeposits.
Kyrgyzstan retains from its Soviet history a well-developed mechanical engineering and instrument-makingcapacity, microelectronics plants, and a computer equipment plant that manufactured the onboard computers forthe command and control of Soviet space vehicles.  The gamma telescope that photographed Halley's Comet wasmanufactured in Kyrgyzstan.  Investment and partners from the West are considered most desirable in thedevelopment 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 Hyatthave begun construction on hotels in the capital, Bishkek, and are expected to begin development on the shores ofLake 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 stocksand securities in Kyrgyz companies and participate in privatization programs.  Foreign investors can also repatriatecapital, 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 ofthe 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-addedtax (VAT) regime.  VAT in Kyrgyzstan is an invoice-based tax levied at 20 percent.  Upon accession to theWTO, Kyrgyzstan plans to harmonize the tax regime for both imported and domestically- produced goods byapplying 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 ofTalas and Bishkek.  These FEZs allow companies to import and export goods free of certain taxes and customsduties.  FEZs also offer simplified documentation and procedural requirements, direct access to utilities andcommunications facilities, and export/reexport incentives.  In addition, profits earned in these zones and investedinto Kyrgyz manufacturing enterprises are also exempt from tax. 
*For more information on Kyrgyzstan, visit BISNIS OnLine, atwww.mac.doc.gov/bisnis/country/cntasia.htm.
Judith Robinson covers Kyrgyzstan for BISNIS.*