HomeReportsBureau of Economic and Business Affairs2018 Investment Climate Statements...Kyrgyz Republic

# 					2018 Investment Climate Statements: Kyrgyz Republic			

 In this section										/

													Executive Summary											

                -  Executive Summary 
                -  1. Openness To, and Restrictions Upon, Foreign Investment   
                -  2. Bilateral Investment Agreements and Taxation Treaties   
                -  3. Legal Regime   
                -  4. Industrial Policies   
                -  5. Protection of Property Rights   
                -  6. Financial Sector   
                -  7. State-Owned Enterprises   
                -  8. Responsible Business Conduct   
                -  9. Corruption   
                -  10. Political and Security Environment   
                -  11. Labor Policies and Practices   
                -  12. OPIC and Other Investment Insurance Programs   
                -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                -  14. Contact for More Information   

## Executive Summary

The investment climate in the Kyrgyz Republic is characterized by considerable risk and uncertain time horizons. Widespread corruption and uneven application of the rule of law continue to pose major obstacles for the business community. The judicial system is not fully independent, and each sector of government experiences capacity and resource shortages. Weak enforcement undermines the legal and regulatory framework, especially with regard to intellectual property rights. In addition to at times restricting movement of expatriate staff of foreign entities, in one case the Kyrgyz government arbitrarily detained local staff for executing routine official duties. Potential investors should also be aware that more than an estimated 60 percent of economic activity in the country occurs in the unregulated gray economy.

Kyrgyz government officials continue to speak positively and with hope of factors they say indicate an improving investment climate, but there have been few significant and measurable improvements. The government has identified FDI as a key component to growing the economy and has created a strategic roadmap for economic development designed to facilitate this growth. The government is taking steps to streamline the process of starting a business, as well as its tax regime. Still, many burdensome regulations hinder business development for foreigners and locals alike.

The Kyrgyz government’s relationship with Centerra Gold, a Toronto-based company that is the single largest source of FDI in the country, continues to serve as the bellwether for Western investment. In 2016, Kyrgyz law enforcement officials raided the Bishkek headquarters of Kumtor Gold, Centerra’s subsidiary which operates the Kyrgyz Republic’s largest gold mine, on suspicions of financial irregularities. The Kyrgyz government prevented expatriate officials from exiting the country while a local court issued an injunction precluding the company from transferring profits to Centerra. The Kyrgyz government’s failures to abide by previous agreements led Centerra to file claims in a court of international arbitration. The two parties successfully negotiated a comprehensive settlement in September 2017 that lifted the travel ban and allowed for the repatriation of profits, however subsequent changes in the Kyrgyz government have delayed full implementation of the agreement and made further renegotiation possible. A hydropower deal with General Electric signed in early 2018 may prove to be an additional point of reference for potential foreign investors.

The Kyrgyz Republic struggles to meet basic infrastructure needs. The government has difficulty providing adequate power supply, especially outside of the capital, Bishkek. Several failed infrastructure projects, tied to corruption allegations, plagued the government’s development efforts. Power plants, roads, and canals are dilapidated and in need of major capital investment. Chinese infrastructure projects tend to improve market access predominantly for Chinese goods.

The Kyrgyz Republic is still undergoing an economic transition to the Eurasian Economic Union (EAEU), whose current members also include Russia, Kazakhstan, Armenia, and Belarus. Membership has altered economic conditions, as cheaper goods from competitive firms of other EAEU member states have flooded the local market and squeezed Kyrgyz domestic industries. EAEU accession also introduced new regulatory hurdles and led to an increase in non-tariff measures, to which the Kyrgyz government and businesses alike have struggled to adapt. Persistent reliance on Russia as a source of remittances, imports, and financial support subjects the economy to Russian influence.

Kyrgyz entrepreneurs increasingly are purchasing franchise licenses of major U.S.-based companies, particularly in the food service industry. The Kyrgyz Republic has also experienced a modest uptick in interest from U.S. corporations interested in bidding on infrastructure development projects funded by international financial institutions.

*Table 1*

							1. Openness To, and Restrictions Upon, Foreign Investment					

**Policies Towards Foreign Direct Investment**

The Kyrgyz Republic is open to foreign direct investment and the government publicly recognizes that foreign direct investment is an important component to growing the economy. Laws exist that make the investment climate more favorable than in the past for foreign companies. Application of these laws, however, is inconsistent, which can cause problems for and deter foreign investors. In addition, government activities, including demands for renegotiation of operating contracts, invasive and time-consuming audits, levies of large retroactive fines, and disputes over licenses, are impediments to foreign investment.

Since 1993, the United States has a bilateral investment treaty with the Kyrgyz Republic that encourages and offers reciprocal protection of investment.

The Kyrgyz Republic has an Investment Promotion and Protection Agency under the Government of the Kyrgyz Republic. The agency participates in the development and implementation of measures to attract and stimulate investment activity. Under the umbrella of the Prime Minister’s office, its mandate is to coordinate with state bodies, local municipalities, business entities, and non-state actors to promote investment in the Kyrgyz Republic, including private investment and public-private partnerships. The Agency has investor support programs to help guide investors through the registration process and conducts outreach aimed at helping create an environment conducive to foreign investment. The Agency often coordinates with international donor organizations on hosting round tables discussions, exchanges, and capacity building workshops in the field of economic development.

The Agency serves as a vehicle for maintaining an ongoing dialogue with foreign investors. At present, the Kyrgyz Republic does not have an Ombudsman with oversight on foreign investment. In 2017, the Kyrgyz Parliament created a Business and Entrepreneurship Development Council under the Speaker of the Parliament whose primary function is to strengthen cooperation between the country’s legislative body and business entities. The Council consists of MPs, business community representatives from across sectors of the economy, and members business associations. It meets on a regular basis to discuss measures to improve the investment, promotion of entrepreneurship, and legislation to facilitate doing business in the Kyrgyz Republic.

The Kyrgyz government also interacts with the business community via a number of local associations that serve as a voice for entrepreneurs and corporations, including the American Chamber of Commerce in the Kyrgyz Republic (AmCham), the International Business Council (IBC), and Business Association JIA, among others. The Ministry of Economy, Parliamentary Business and Entrepreneurship Development Council, and other government bodies often seek the opinion of these associations during the formulation of policy. In 2016, the Washington, DC-based U.S.-Kyrgyz Business Council relaunched under new leadership. The Business Council, which counts major U.S. multinational corporations among its charter members, seeks to strengthen economic and commercial ties between the United States and the Kyrgyz Republic.

**Limits on Foreign Control and Right to Private Ownership and Establishment**

While there are no official limits on foreign control, a large investor in a politically sensitive industry may find that the government imposes investor-specific requirements such as a high percentage of local workforce employment or a minimum number of local seats on a board of directors. Foreigners have the right to establish and own businesses. In 2017, U.S. investors did not allege any restrictions on market access.

According to the law, the Kyrgyz Republic guarantees equal treatment to investors and places no limit on foreign ownership or control. In 2017, there were no known cases of sector-specific restrictions, limitations or requirements applied to foreign ownership and control. In April 2017, the Kyrgyz Parliament passed the “Law on Mass Media” that limits foreign ownership of television broadcasters to 35 percent. This law does not affect print media or radio stations.

The U.S. Embassy is unaware of any formal investment screening processes in the Kyrgyz Republic.

**Other Investment Policy Reviews**

In 2014, the World Trade Organization (WTO) reviewed Kyrgyzstan. In 2016, the International Finance Corporation (IFC), a member of the World Bank Group, released a report on the Kyrgyz investment climate in January 2016. The report is available here: http://www.worldbank.org/en/news/press-release/2016/01/28/world-bank-group-helps-boost-investment-in-the-kyrgyz-republic  .

**Business Facilitation**

The Kyrgyz Republic does not have a business registration website. Registration of legal entities, branches, or representative offices in the Kyrgyz Republic is based on “registration by notification” and the “one stop-shop” practice. State registration of a legal entity is completed within three business days from the date of filing the necessary documents for a specified fee. The Kyrgyz Republic ranked in the top quintile of the World Bank’s 2018 *Doing Business*report (29th out of 190 countries surveyed) in “Starting a Business.”

**Outward Investment**

The U.S. Embassy is not aware of host government efforts to promote outward investment from the Kyrgyz Republic, nor of any instances in which the government sought to restrict domestic investors from investing abroad.

							2. Bilateral Investment Agreements and Taxation Treaties					

The Kyrgyz Republic currently has bilateral investment treaties with the United States, Armenia, Azerbaijan, Belarus, China, Finland, France, Georgia, Germany, India, Indonesia, Iran, Kazakhstan, the Republic of Korea, Lithuania, Malaysia, Moldova, Mongolia, Pakistan, Sweden, Switzerland, Tajikistan, Turkey, United Kingdom, Ukraine, and Uzbekistan.

The U.S.-U.S.S.R. treaty on double taxation, which was signed in 1973, remains in effect between the U.S. and the Kyrgyz Republic. The Kyrgyz Republic has also signed double taxation treaties with Armenia, Austria, Belarus, Canada, China, Finland, Germany, India, Iran, Kazakhstan, Lithuania, Malaysia, Moldova, Mongolia, Pakistan, Poland, Russia, Switzerland, Tajikistan, Turkey, Ukraine, and Uzbekistan.

In August 2015, the Kyrgyz Republic fully acceded to the Eurasian Economic Union (EAEU), joining Russia, Belarus, Kazakhstan, and Armenia in the trade bloc. Though regulations are still being harmonized, free movement of labor, capital, and goods forms the basis of the EAEU.

The Kyrgyz Republic has a Bilateral Investment Treaty with the United States, which entered into force in 1993.

							3. Legal Regime					

**Transparency of the Regulatory System**

Although many laws and regulations in the Kyrgyz Republic were developed with technical assistance from donors and are consonant with international best practices, the legal and regulatory system of the Kyrgyz Republic continues to develop slowly. The process of implementing regulations and court orders relating to commercial transactions remains inconsistent. Some court decisions, which appear to contradict established procedures, can be implemented expeditiously in certain cases and are subject to outside influence. The Kyrgyz system is heavily bureaucratic and investors must overcome a great deal of formalities in order to conduct business.

After the former president was deposed in 2010, the interim government established public supervisory boards in ministries, state agencies, and state committee. These bodies are typically comprised of former government employees and representatives from non-state actors, including business associations, rights organizations, the media, and independent experts. The objective of these committees is to provide citizen oversight of policy formulation and execution, though their efficacy remains in question. There have been no known facts where U.S. Investors had been discriminated against during the reporting period.

Rule-making authority is vested in the Kyrgyz Parliament, which features robust committees that oversee legislation and regulations affecting several areas of the economy, including: the Committee on Economic and Fiscal Policy; the Committee on Fuel, Energy, and Subsoil Management; the Committee on Transport, Communications, Architecture, and Construction; and the Committee on Budget and Finance. The Office of the Prosecutor General is the supreme legal and regulatory enforcement body in the Kyrgyz Republic. The State Service on Financial Market Regulation and Supervision and the State Service on Combating Economic Crimes under the Kyrgyz Government both play important regulatory roles. The Anticorruption Service under the State National Security Committee is the state body tasked to prevent, suppress, and identify corruption within state agencies.

Accounting procedures tend to adhere to internationally recognized accounting rules, such as the International Financial Reporting Standards (IFRS), and audits are conducted regularly, often in compliance with agreements with international financial institutions (IFIs). Audit results of state organizations tend to be publicly available, unlike those of private organizations. Draft bills or regulations are posted on Parliament’s web site and are typically open to public comment for 30 days prior to consideration by Parliament and its committees. Parliament often holds public hearings on draft legislation, and is open to the participation of representatives of civil society organizations and the business community in relevant hearing.

The Investment Promotion and Protection Agency (IPPA), under the Government of the Kyrgyz Republic, assists investors with bureaucratic procedures. This agency also consolidates information about potential investment projects in the Kyrgyz Republic. However, the efficacy of this office in assisting firms with setting up shop is limited since official bureaucratic procedures comprise only some of the hurdles to opening a business. Investment councils, under the auspices of the Office of the President and Parliament respectively, exist to further regulatory improvements for the business climate. Contradictory government decrees often create bureaucratic paralysis or opportunities for bribe solicitation in order to complete normal bureaucratic functions. As often in the Kyrgyz Republic, the legal and regulatory framework is largely sound but reports about weak implementation and enforcement abound.

Regulatory enforcement bodies are known to conduct periodic inspections according to standards defined by law. However, businesses often complain about the uneven application of rule of law in the Kyrgyz Republic. Businesses that do not meet legally defined standards are often fined depending on the severity of the violation, and the enforcement process is reviewable through the judicial system.

**International Regulatory Considerations**

In August 2015, the Kyrgyz Republic acceded to the Eurasian Economic Union (EAEU), whose current members also include Russia, Kazakhstan, Armenia, and Belarus, and adopted the Union’s b. The Kyrgyz Republic continues to harmonize its laws to comply with regulations set by the Eurasian Economic Commission, the executive body of the EAEU. However, transition-related issues still continue to persist, and numerous Kyrgyz entrepreneurs have criticized non-tariff measures that emerged after the country’s accession to the Union, which act as barriers that prevent some local exporters from fully accessing the wider EAEU market.

The United States and other international partners provided substantial technical assistance to the Kyrgyz Republic in support of its accession to the WTO in 1998, and the country’s regulatory system reflects many international norms and best practices. The Law on the Fundamentals of Technical Regulation in the Kyrgyz Republic, which provides for standardization principles under the WTO Technical Barriers to Trade Agreement, entered into force in 2004. To Post’s knowledge, the Kyrgyz government notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). In 2016, the Kyrgyz Republic ratified the WTO Trade Facilitation Agreement.

**Legal System and Judicial Independence**

The formal legal system of the Kyrgyz SSR largely mirrored that of other union republics. The legal system has undergone a dramatic transformation since the breakup of the Soviet Union. The general principles of the reform encourage ideological and political pluralism, a socially oriented market economy, and the expansion of individual rights and freedoms. Major barriers to foreign investment derive from a lack of adequate implementation rather than gaps in existing laws.

The judicial system is technically independent, but political interference and corruption regularly besmirch its reputation and undermine its effectiveness. Resolution of an investment dispute within the Kyrgyz Republic depends on several factors, namely who the parties are and the amount of investment.

The key problem in dispute resolution is the weak and opaque Kyrgyz judicial system that often fails to act as an independent arbiter, according to local business associations and councils. Since most of these disputes are between foreign investors and the Kyrgyz Government, local courts often serve as executors of the authorities’ political agenda. Regulations and enforcement actions can be appealed and are adjudicated in the national court system.

**Laws and Regulations on Foreign Direct Investment**

The Kyrgyz Republic’s main legal framework for foreign direct investment remainsthe “2003 Law on Investments,” and the “Law of the Kyrgyz Republic on Amendments to the Law on Investments,” adopted in February 2015. Cases that have gone through the justice system however, have been reported to take years, with the process characterized by a lack of judicial independence.

The Kyrgyz Republic does not have a business registration website. The IPPA maintains the country’s main website for investment queries, www.invest.gov.kg . The site also contains information regarding current legislation and regulations affecting potential investors. Registration of legal entities, branches, or representative offices in the Kyrgyz Republic is based on “registration by notification” and the “one stop-shop” practice.

**Competition and Anti-Trust Laws**

The State Agency for Anti-Monopoly Regulation under the Government of the Kyrgyz Republic conducts unified state antitrust price regulation in the economy. The main tasks of the State Agency are:

- to develop and protect competition
- to control compliance with legislation in the field of anti-trust, price regulation
- to protect the legal rights of consumers against manifestations of monopoly and unfair competition
- to ensure observance of legislation on advertising.

To Post’s knowledge, there have been no developments in any significant competition cases over the past year.

**Expropriation and Compensation**

According to the Law on Investments in the Kyrgyz Republic, investments shall not be subject to expropriation (nationalization, requisition, or other equivalent measures, including actions or omissions by the government bodies of the Kyrgyz Republic which have resulted in forced withdrawal of investors’ funds or in depriving them of an opportunity to gain on the investments’ results), except as provided by Kyrgyz laws when such expropriation is in the public interests and is carried out on a non-discriminatory basis and pursuant to a proper legal procedure with the payment of timely, appropriate and feasible reparation of damages, including lost profit.

In December 2017, the Kyrgyz government agreed to return four Uzbek-owned resorts on Lake Issyk-Kul, which the government had expropriated in April 2016. The resorts trace back to the Soviet Union, when the neighboring socialist republics of Uzbekistan and Kazakhstan built resorts to help boost the region’s tourism potential.

The Kyrgyz government spent much of 2013 and 2014 renegotiating the agreement underpinning foreign investment in the Kumtor gold mine and many aspects of the dispute remained unresolved until September 2017. In 2016, a Kyrgyz court issued an interim ruling that prevented Kumtor Gold from transferring property or assets, declaring or paying dividends, or making loans to its parent company, Centerra Gold, Inc. While the order did not prohibit the company from using its cash resources to operate the Kumtor mine, cash generated from mining operations (a reported USD 350 million in 2017) was held by Kumtor Gold and was not distributed to Centerra. Citing this action by the Kyrgyz judicial system, Centerra suspended its dividend payments to shareholders. In September 2017, the Kyrgyz government and Centerra Gold reached a comprehensive agreement, resolving outstanding disputes. The Kyrgyz government universally dismissed its claims against Centerra, allowing freedom of movement for Centerra’s staff after a nearly 18-month travel ban and permitting Centerra to repatriate profits out of the country. Centerra, in exchange, agreed to a USD 60 million lump sum payment in addition to a tenfold increase in annual environmental damage payments.

Both the executive and legislative bodies perpetually discuss how and when to allocate, reallocate, revoke, suspend, and otherwise handle mining licenses. Foreign investors have the right to compensation in the case of government seizure of assets. However, there is little understanding of the distinction between historical book value, replacement value, and actual market value, which brings into question whether the government would provide fair compensation in the event of expropriation.

**Dispute Settlement**

*ICSID Convention and New York Convention*

The Kyrgyz Republic is a member of the International Center for the Settlement of Investment Disputes (ICSID). It signed the ICSID agreement on June 9, 1995, and ratified it on July 5, 1997. The Kyrgyz Republic became a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on March 18, 1997.

*Investor-State Dispute Settlement*

The Code of Arbitration Procedure specifies that, if an international treaty of the Kyrgyz Republic establishes the rules of court procedure other than those provided by the legislation of the Kyrgyz Republic, rules of the international treaty shall apply. The U.S.-Kyrgyz BIT outlines procedures by which parties may consent to binding arbitration. The U.S. Embassy is unaware of any claims made by U.S. investors under the agreement since it entered into force.

Cases of investment disputes have been reported to be subject to corruption during the judicial process. Since most of these disputes are between foreign investors and the Kyrgyz government, local courts serve as the executors of the authorities’ political agenda.

In September 2017, a local media outlet, citing the Kyrgyz government’s center for legal representation, reported that, between 2011 and 2017, eighteen lawsuits were filed against the Kyrgyz Republic totaling over USD 1.8 billion in claims. 11 of these arbitration disputes totaling over USD 1.6 billion in claims had been settled.

The most well-known investment dispute centers on the Kumtor gold mine. Since the mine began commercial production in 1997, Canadian-based Centerra Gold, whose mine is operated by local subsidiary, Kumtor Gold, has renegotiated the terms of their investment with the government more than three times at the request of the Kyrgyz Government. In December 2015, both sides tabled the talks without resolution. In 2016, Kyrgyz law enforcement officials raided the Bishkek headquarters of Kumtor Gold on accusations of financial irregularities, and prevented expatriate officials from exiting the country. A local court issued an injunction to preclude the company from making financial transfers to Centerra, and later fined Kumtor for nearly USD 98 million in alleged environmental damages. Shortly afterward, Centerra elevated its dispute with state corporation KyrgyzAltyn over environmental, dividend, and land use claims to a court of international arbitration. In September 2017, the two parties negotiated a settlement without a decision from the arbitration court, but subsequent changes in the Kyrgyz government have delayed full implementation of the agreement and made yet another renegotiation possible.

Stans Energy Corporation, a Toronto-based resource development company focused on mining rare earth metals, has also been involved in a long running, high profile investment dispute with the Kyrgyz Republic. In 2009, Stans acquired a 100 percent stake in the Kutessay II rare earth mine in the Kyrgyz Republic. Claiming the acquisition process was tainted, a Kyrgyz parliamentary committee revoked the company’s permits, prompting Stans to file a lawsuit against the Kyrgyz government claiming it took expropriatory actions against the firm’s interests. In June 2014, an international arbitration court in Moscow awarded Stans a USD 118 million judgment. The company has yet to receive compensation, and contends the Kyrgyz government has sought to undo this ruling. Canadian courts rejected Stans efforts twice, preventing the miner from seizing shares of Centerra Gold belonging to state-owned company KyrgyzAltyn as compensation.

As of 2017, the Kyrgyz Republic had not yet compensated a Turkish company despite a 2009 ICSID tribunal determination. In 2005, armed personnel raided the Pinara (now the Ak-Keme Hotel), a Turkish-owned hotel in Bishkek. An ICSID tribunal determined in 2009 that the Kyrgyz government’s actions related to the incident were tantamount to expropriation, and the government bore full responsibility for reparations, a decision subsequently recognized by arbitration courts in the United States, Canada, and France. To date, the Kyrgyz Republic has failed to provide compensation – currently in excess of USD 11.6 million – to the Turkish company Sistem Muhendislik Insaat Sanayi Ve Ticaret Anonim Sirketi in accordance with the international tribunal.

*International Commercial Arbitration and Foreign Courts*

The Code of Arbitration Procedures allows for international and domestic arbitration of disputes. If feasible, the arbiter and the terms of arbitration should be identified in the initial contract. Establishing the terms for arbitration beforehand may prevent further complications in the event of a dispute. According to local media, seven arbitration claims against the Kyrgyz Republic totaling USD 250 million remain unresolved.

Parties can agree to any judicial institution, including third-party courts within or outside of the Kyrgyz Republic, or domestic or international arbitration. If the parties fail to settle the dispute within three months of the date of the first written request, any investment dispute between an investor and the public authorities of the Kyrgyz Republic will be subject to settlement by the judicial bodies of the Kyrgyz Republic. Any of the parties may initiate a settlement by recourse to:

- the International Centre for Settlement of Investment Disputes under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States or;
- arbitration or a provisional international arbitration tribunal (commercial court) established under the arbitration procedures of the UN Commission for International Trade Law (UNCITRAL)

**Bankruptcy Regulations**

The Kyrgyz Republic has a written law governing bankruptcy procedures of legal persons and insolvent physical persons (Law of the Kyrgyz Republic “On Bankruptcy” September 22, 1997, with amendments of December 30, 1998; July 7, 1999; September 29, 2000; June 17, 2002; March 7, 2005; July 4, 2005; August 10, 2005; January 27, 2006; July 27, 2006; June 13, 2007; July 24, 2009; April 20, 2015; June 22, 2016; July 7, 2016; December 16, 2016; April 20, 2017; and May 12, 2017) which covers industrial enterprises and banks, irrespective of the type of ownership; commercial companies; private entrepreneurs; foreign commercial entities. Bankruptcy proceedings are conducted by the court of arbitration competent for the district in which enterprise is located. The procedure of liquidation can be carried out without the involvement of the judicial bodies if all creditors agree on out-of-court proceedings. Chapter 10 of the law on bankruptcy provides for the possibility of an amicable settlement between the enterprise and its creditors, which can be made at any stage of the liquidation process. The World Bank has ranked the Kyrgyz Republic 119 out of 190 countries in “Resolving Insolvency” in its 2017 *Doing Business* report.

							4. Industrial Policies					

**Investment Incentives**

The Kyrgyz Government has reduced the tax burden on repatriation of profits by foreign investors to conform to the tax rate for domestic investors. The IPPA and the Ministry of Economy often expresses the government’s willingness to discuss potential incentives, including access to land, with specific foreign investors.

**Foreign Trade Zones/Free Ports/Trade Facilitation**

There are five Free Economic Zones (FEZs) in the Kyrgyz Republic: Bishkek, Naryn, Karakol, Leilek, and Maimak. Each is situated to make use of transportation infrastructure and/or customs posts along the Kyrgyz borders with China, Kazakhstan, Tajikistan, and Uzbekistan. Currently only the Bishkek FEZ is operating, as the other four have failed to comply with infrastructural requirements such as video surveillance systems and fencing. Government incentives for investment in the zones include exemption from several taxes, duties and payments, simplified customs procedures, and direct access to utility suppliers. The production and sale of petroleum, liquor, and tobacco products in FEZs are banned. The Kyrgyz Republic’s accession to the EAEU may lead to the closure of all FEZs; according to EAEU regulations, goods produced within a FEZ and then delivered to an EAEU country are considered the equivalent of imports from third countries and thus subject to customs duties, eliminating many of the tax preferences inherent to FEZs.

**Performance and Data Localization Requirements**

While there are no formal legal requirements for local employment, most major international investors are subject to tremendous public pressure to hire as many local employees as possible. New investors may find local employment quotas included in potential investment agreements, mandating numbers for boards of directors, senior management, and/or other employees. There are no known barriers to mobility of foreign investors and their employees or any conditions on permission to invest. The Kyrgyz Government does not enforce any “forced localization” policies. There are no known government/authority-imposed conditions on permission to invest. The U.S.-Kyrgyz BIT ensures that investments are guaranteed freedom from performance requirements, including requirements to use local products or to exports local goods.

Foreign investors may freely transmit customer or other business related data outside the country’s territory upon their own need as long as it does not contradict with local law on investments. There are no known instances of requiring foreign IT providers to turn over source code and/or provide access to encryption. There is no legislation on maintaining data storage within the country.

							5. Protection of Property Rights					

**Real Property**

In its 2013-2017 National Strategy for Sustainable Development, the Kyrgyz Government identified property rights as one of the priority areas for strengthening investment climate in Kyrgyzstan. The Kyrgyz Republic was first among its neighboring Central Asian states to introduce private property rights for land ownership. According to government sources, there are no lands without a clear title. According to the World Bank, the Kyrgyz Republic is among the easiest countries in which to register property, ranking 8th out of 190 countries in the Bank’s 2018 *Doing Business* report.

However, a study recently conducted by a local NGO revealed that, despite significant legislative amendments, the Kyrgyz government continues to lack capacity to properly enforce property rights. The study cited weak rule of law and the persisting need for judicial reform as among the primary factors.

Mortgages and liens are common in the Kyrgyz Republic and operate according to relevant legislation. The State Registration Service is the major operator of a recording system (database) on property under mortgage/lien commitments. When providing mortgages, local banks must request a reference from the State Registration Service that confirms the property is not under lien. However, several have questioned the reliability of the recording system, and the Service itself is frequently subject to allegations of corruption.

There are a number of legal restrictions on the right of foreign persons to own land in the Kyrgyz Republic. The land rights of foreign persons are limited to the following:

- Foreign persons may not own or use agricultural land.
- Foreign persons may not own or use any land except residential land, which has been foreclosed under a mortgage loan agreement in accordance with Kyrgyz Pledge Law. Foreclosed agricultural land may belong to foreign banks and specialized financial institutions but only for the period of three years.
- Foreign persons may use non-residential land transferred thereto by way of universal succession, except agricultural and mining use land, subject to permission of the Kyrgyz Government, for the period of up to 50 years.
- Foreign persons who have acquired ownership of land by way of universal succession (inheritance, reorganization) must transfer such land to a Kyrgyz national or legal entity within one year from the date of acquiring such ownership.

**Intellectual Property Rights**

Intellectual property right protections are slowly emerging. The State Service for Intellectual Property and Innovation under the Government of the Kyrgyz Republic (“Kyrgyzpatent”) is the authorized body of the Executive Branch that issues documents to certify intellectual property. Kyrgyzpatent establishes the Appeal Council that is the primary body to hear intellectual property related disputes. While the Kyrgyz Republic has a robust body of laws, regulations, and rules governing protection of intellectual property, and while the country is a signatory to several international treaties on the subject, enforcement remains problematic. The judicial system remains underdeveloped and lacks independence. Due to the structure of the system, the appeals process can be lengthy and prolonged. Court actions can force the sale of property to enforce payments and other contractual obligations. The government does not pay a sum as compensation for these actions.

The Kyrgyz Republic is obligated to protect intellectual property rights as a member of the WTO. The Kyrgyz Republic acceded to both the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty in 2002. Counterfeit goods made primarily in China, however, are widely available. The Kyrgyz Republic is not on the Office of the United States Trade Representative (USTR) Special 301 Report nor is it listed on the USTR Out-of-Cycle Review of Notorious Markets.

While there have been no significant cases thus far, the recent increase in the number of American franchises such as KFC, Baskin-Robbins, and Papa John’s raises some concerns about IP issues moving forward. In one notable instance, the Kyrgyz government supported the KFC franchise in obtaining the rights to the initials “KFC,” forcing a long-standing local company “Kyrgyz Fried Chicken,” to change its name to “Bishkek Fried Chicken.”

To Post’s knowledge, the Kyrgyz Republic did not pass any new IP related laws or regulations in 2017. There are no pending IP bills listed on the Parliament’s website. Criminal liability for violation of IPR is listed in the Criminal Code. Unfortunately, enforcement is lax and according to sources, there have been no successful prosecution for IP violations in the history of the Kyrgyz Republic. In 2018, Kyrgyzpatent agreed to develop a project called “IP Chain,” a “trust infrastructure” network for IP protection through the digitization of data. The Kyrgyz government intends to launch IP Chain within the framework of its national program “Taza Koom” (Clean Society), a comprehensive effort to provide digital government services.

There are no official statistics on seizure of counterfeit goods. However, the State Customs Service regularly writes alerts and notifications on the recent seizure of counterfeit goods on its official website. Most counterfeit goods transit via the massive Dordoi bazaar – Central Asia’s largest market – from China en route to Russia and Kazakhstan. The Kyrgyz Republic is not known as a major producer of counterfeit goods. However, in 2017, Adidas, Reebok, and Tango officially applied to the State Customs Service to prohibit the production and trade of counterfeit products under their brand-names within the Kyrgyz Republic. In response, the State Customs Service included these trademarks in the Customs Register of Intellectual Property Objects and officially stated their intent to fully protect these companies’ intellectual property related to goods transported across the customs border.

*Resources for Rights Holders*

Contact at Mission:Munara NiiazovaCommercial Assistant+996 312 59 76 07niiazovame@state.gov

Country/Economy Resources:American Chamber of CommerceAddress: 191 Abdrakhmanov Street, Office #123Phone: +996 312 623 389, 623 395Fax: +996 312 623 406E-mail: pa.amcham@gmail.com, memberservices@amcham.kg

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ 

							6. Financial Sector					

**Capital Markets and Portfolio Investment**

The Kyrgyz government is generally open toward foreign portfolio investment, though experts from international financial institutions (IFIs) have noted that capital markets in the Kyrgyz Republic remain underdeveloped. The economy of the Kyrgyz Republic is primarily cash-based, although non-cash consumer transactions, such as debit cards and transaction machines, have quadrupled in the last five years. In 2017, Moody’s Investors Services assigned the Kyrgyz Republic a sovereign credit rating of B2. The government debt market is small and limited to short maturities, though Kyrgyz bonds are available for foreign ownership. Broadly, credit is allocated on market terms, but experts have noted that the presence of the Russian-Kyrgyz Development Fund subsidized sources of credit have introduced market distortions. Bank loans remain the primary source of private sector credit, and local portfolio investors often highlight the need to develop additional financial instruments in the Kyrgyz Republic.

There are two stock exchanges in the Kyrgyz Republic (Kyrgyz Stock Exchange and Stock Exchange Kyrgyzstan), but all transactions are conducted through Kyrgyz Stock Exchange. In 2017, the total value of transactions amounted to 4.6 billion soms (approximately USD 67.5 million). The small market lacks sufficient liquidity to enter and exit sizeable positions. Since 1995, the Kyrgyz Republic has accepted IMF Article VIII obligations.

Foreign investors are able to acquire loans on the local market if the business is operating on the territory of the Kyrgyz Republic and collateral meets the requirements of local banks. The average interest rate for loans in USD is between 10-15 percent.

**Money and Banking System**

The National Bank of the Kyrgyz Republic (NBKR) is a nominally independent body whose mandate is to achieve and maintain price stability through monetary policy. The Bank is also tasked with maintaining the safety and reliability of the banking and payment systems. The NBKR licenses, regulates, and supervises credit institutions. The penetration level of the banking sector is 40.1 percent.

According to the IMF, the Kyrgyz banking system at present remains well capitalized. Non-performing loans decreased from 8.8 percent to 7.6 percent in 2017, with restructured loans in excess of 20 percent. Net capital adequacy decreased from 24.8 percent to 24.2 percent in 2017. Total assets in the Kyrgyz banking system in 2017 equaled 198 billion *som*(USD 2.87 billion) in 2017. As of August 2017, the Kyrgyz Republic’s three largest banks by total assets were Kyrgyz Investment and Credit Bank (KICB; 27.0 billion *som*, approximately USD 394 million), Optima Bank (26.3 billion *som*, approximately USD 382.6 million), and Aiyl Bank (20.9 billion *som*, approximately USD 304.8 million).

There are currently 25 functioning commercial banks in the Kyrgyz Republic, with 319 operating branches throughout the country; the five largest banks comprise 56 percent of the total market. There are eight foreign banks operating in the Kyrgyz Republic: Demir Bank, National Bank of Pakistan, Halyk Bank, Optima Bank, Finca Bank, Kompanion Bank, Chang An Bank, and Kyrgyz-Swiss Bank are entirely foreign held. Other banks are partially foreign held, including KICB and BTA Bank. KICB has multinational organizations as shareholders including the European Bank for Reconstruction and Development, Economic Finance Corporation, the Aga Khan Fund for Economic Development and others. The micro-finance sector in the Kyrgyz Republic is robust, representing nearly 10 percent the market size of the banking sector. Trade accounted for 28.7 percent of the total loan portfolio of the banking sector, followed by agriculture (19.9 percent) and consumer loans (9.9 percent).

Although no U.S. bank operates in the Kyrgyz Republic, many Kyrgyz banks maintain subordinated debts from U.S. and other foreign banks to facilitate short-term commercial lending, such as letters of credit. Outside investors rarely seek financing from domestic banks. Bank lending is heavily biased towards short-term loans, although mid-term loans are also offered.

During the summer of 2017, the Kyrgyz banking sector witnessed the complete exodus of U.S. financial institutions with correspondence accounts tied to Kyrgyz banks as a result of “de-risking” – a strategy whereby large international banks terminate or limit relationships with local or regional banks to limit the larger banks’ exposure to perceived risks. These risks often, but not exclusively, refer to higher than average risk for money laundering or terrorism financing. As a result, Kyrgyz banks must operate through second- or third-tier Russian financial institutions for U.S. dollar transactions.

The National Bank of the Kyrgyz Republic exercised conservatorship of eight banks, including some since the mid-1990s. Four banks under conservatorship were liquidated in 2016, one in 2017, with the remaining three expected to be liquidated in 2018. In 2016, the Kyrgyz Parliament passed a reformed Banking Law praised by the IMF as an important step toward building a modern and effective regulatory framework. The amended law, which entered into effect in June 2017, is expected, *inter alia*, to strengthen the NBKR’s ability to better quarantine problem banks from impacting the wider banking system.

Since July 2017, new banks must have a minimum charter capital requirement of 600 million soms (USD 8.7 million). Banking laws also require that banks maintain an 8.5 percent reserve with the National Bank for national currency liabilities and a 9.5 percent reserve for foreign currency liabilities. A deposit insurance system exists for the benefit of individual investors. With the support of the Kyrgyz Government, accounting systems in banks and enterprises are being converted to international standards. In addition, international assistance programs contributed to rapid progress in reaching these standards via accounting training and certification.

The Government of the Kyrgyz Republic is considering the introduction of blockchain technologies into different sectors of the economy, including the banking sector. In December 2017, the National Bank of the Kyrgyz Republic announced the use of blockchain technologies in its operations. In April 2018, the Kyrgyz Stock Exchange and the International Financial Center Development Agency published a report, commissioned from international legal experts, on “the Legal Status of Blockchain Commerce in the Kyrgyz Republic,” which recommended the use of blockchain for Government registers and State procurement procedures. The National Bank and the Kyrgyz Stock exchange have no plans to impede the development of cryptocurrency in the country.

Microfinancing in the Kyrgyz Republic is rapidly growing. In 2017, approximately 150 microfinance companies, 110 credit unions, 669 pawnshops and 396 exchange offices operated in the Kyrgyz Republic. Over the last four years, the three largest microfinance companies (Bai-Tushum, Finca and Kompanion) transformed into banks with full banking licenses.

**Foreign Exchange and Remittances**

*Foreign Exchange Policies*

Foreign exchange is widely available and rates are competitive. The local currency, the Kyrgyz *som*, is freely convertible and stable compared to other currencies in the region. While the *som*is a floating currency, the NBKR periodically intervenes in the market to mitigate the risk of exchange rate shocks. As of March 28, 2018, the National Bank of the Kyrgyz Republic established the official exchange rate at 68.2 som to the U.S. dollar, while the market rate was slightly higher at 68.38 som to the U.S. dollar.

The National Bank of the Kyrgyz Republic conducts weekly inter-bank currency auctions, in which competitive bids determine market-based transaction prices. Banks usually clear payments within a single business day. Complaints of currency conversion issues are rare. With occasional exceptions in the agricultural and energy sectors, barter transactions have largely been phased out.

**Remittance Policies**

The Kyrgyz economy remains heavily reliant on remittances, which typically account for 25-30 percent of GDP. However, according to the IMF, remittances in 2017 spiked to 37.1 percent of GDP. There are no known plans to change remittance policies or limitations on remittances. In 2014, the Financial Action Task Force (FATF) recognized the Kyrgyz Republic’s significant progress with regards to policies on money laundering and financial crimes, and removed the country from the “gray list.” The State Department assessed the Kyrgyz Republic as “fiscally transparent.”

**Sovereign Wealth Funds**

The Kyrgyz Republic’s Sovereign Wealth Fund originated from proceeds of the Kumtor gold mine and is composed of shares in the parent company of the gold mine operator, Centerra Gold. The Kyrgyz Republic owns roughly 77 million shares of the company, which are currently valued at USD 566 million. The Fund was associated with the corrupt practices of deposed ex-President Kurmanbek Bakiev and the Bakiev family allegedly used it as their personal slush fund. Today, large percentages of the Fund are frozen due to several pending legal cases regarding Kumtor gold mine.

							7. State-Owned Enterprises					

There are approximately 166 SOEs in the Kyrgyz Republic that play a significant role in the local economy. The State Property Management Fund of the Kyrgyz Republic (www.fgi.gov/kg ) is the public executive authority representing the interests of the state as the owner of the state property. The purpose of the Fund is to ensure the efficiency of the use, management, and privatization of state property. The list of the largest SOEs and the responsible ministry is available online, but not comprehensive. Information on allocations to and earnings from SOEs is included in budget execution reports and is published (in Russian) on the Kyrgyz Treasury’s website. Information on assets, earnings, profitability, working capital, and other financial indicators is available on the State Property Management Fund’s website (http://finance.page.kg/index.php?act=svod_profit ). The State Property Management Fund also reviews the budgets for the largest SOEs, while the Accounting Chamber reviews the accounts of all SOEs and publishes audit reports on their website (www.esep.kg). Within the framework of the Kyrgyz Republic current three-year extended credit facility (ECF) program with the IMF, the State Property Management Fund is required annually to submit the balance sheets of the ten largest SOEs to the Fund.

The State Property Management Fund executes corporate governance of SOEs and appoints members of the SOE boards of directors. The board, in return, appoints an executive director. In 2015, the Government adopted “Concepts of reforming the system of state property management” intended to ensure the integrity, proper development, and administration of SOEs. As a result of these Concepts, in 2017 the Government decided to liquidate non-operating SOEs.

While the Heritage Foundation’s 2017 Index of Economic Freedom report did not specifically address SOEs, previous analyses identified cronyism and corruption within SOEs as a major obstacle to the Kyrgyz Republic’s economic development. In many cases, the Foundation noted, elected officials appoint company board members based on political loyalty rather than professional skills and corporate governance knowledge. Positions on boards of directors are frequently used as rewards for political support, and the dynamic has reinforced the patronage system and resulted in poor economic performance and public service delivery. The Foundation also assessed that rule of law remains weak and the state lacks the capacity to enforce contracts and sufficiently protect property rights. Broadly, the country does not fully adhere to the OECD Guidelines on Corporate Governance of SOEs.

The government tries to practice an open and transparent policy when it comes to contracts and biddings. However, due to widespread corruption, there are common complaints that only individual government officials have access to government contracts and bidding processes. SOEs purchase goods and services from the private firms and usually place the calls for bids either on their websites or in public newspapers, as required. Private enterprises have the same access to financing as SOEs and are subject to the same tax burden. In some cases, SOEs have preferential access to land and raw materials. However, transparency initiatives attempt to hold the government accountable in such proceedings.

**Privatization Program**

The Kyrgyz government periodically auctions rights to subsoil usage and broadcasts tender announcements, including disseminating information to diplomatic missions, in order to attract foreign investors. There are no restrictions on foreign investors participating in privatization programs. The privatization process is not well defined and is subject to change. There is ongoing deliberation on the privatization of other state-owned assets, such as the postal service and the capital’s international airport, but lack of interest by private partners has stalled any potential moves.

In 2015, the Kyrgyz government privatized AlfaCom (operating as MegaCom), the country’s largest mobile telecommunications company. In February 2017, the leader of Parliament’s leading opposition faction was arrested and charged with corruption on allegations he received a bribe from a Russian businessman in connection with the sale of a MegaCom stake in 2010. After years of delays, the Kyrgyz government announced it would auction its 100 percent stake in MegaCom in July 2017; to date, the Kyrgyz government has been unable to divest itself of the telecommunications firm.

Foreign investors – both companies and individuals – are generally able to participate in public auctions of state owned properties unless specifically prohibited in the terms and conditions. There are, however, some land legislation restrictions concerning the property rights of foreigners. Information about terms and conditions of SOE sales are posted on the State Property Management Fund’s website (www.fgi.gov.kg).

							8. Responsible Business Conduct					

There is a general awareness about responsible business conduct (RBC). The Kyrgyz Government does not factor RBC policies or practices into its procurement decisions. Kumtor, the largest gold mining company operating in the Kyrgyz Republic, often draws criticism for violating environmental regulations and thus damaging the living standards of the nearby villages, and local villagers staged rallies to protest the operations of smaller gold mines owned and operated by Chinese mining companies in 2017 and 2018. However, these accusations often are used for political purposes rather than legitimate RBC concerns. Few NGOs work to promote RBC.

Corporate social responsibility (CSR) is not a fully developed concept or practice. Most companies have not yet developed the capacity to coordinate with civil society on this level. The companies that generally demonstrate CSR are large, foreign-owned companies that participate in or lead industry-strengthening training sessions, work with local universities to develop internship programs and donate to national development projects. Many new large investors, particularly in natural resource extraction, find that there is a requirement to establish a sizeable “social development fund” as a prerequisite for doing business in the Kyrgyz Republic. Charitable donations are not tax deductible.

The Kyrgyz Republic is a member of the Extractive Industries Transparency Initiative (EITI), but is currently behind on several annual reports. According to the license register of the State Committee on Industry, Energy, and Subsoil Use, the Kyrgyz Republic currently has 2480 active extractive licenses, and EITI covers more than 95 percent of mining revenues in the Kyrgyz Republic. In 2017 the Kyrgyz Republic was named the recipient of the 2017 EITI Chair’s Award for Beneficial Ownership Transparency at the EITI’s “Opening Up Ownership” Conference. The Kyrgyz Republic was honored for its new mining law, which requires companies to disclose their beneficial owners when they apply for a license. The law also includes a clear definition of ownership, as well as sanctions for failure or false reporting. The U.S. Embassy is unaware of the Kyrgyz government’s efforts to implement OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas or OECD or UN Guiding Principles on Business and Human Rights.

							9. Corruption					

Corruption remains a serious problem at all levels of Kyrgyz society and in all sectors of the economy. According to Transparency International’s Corruption Perception Index, in 2017 the Kyrgyz Republic ranked 135th out of 176 countries rated, climbing from 136th in 2016. Kyrgyz politicians and citizens alike are aware of the systemic corruption, but the problem has shown to be difficult to fight. Moreover, many in the Kyrgyz Republic view paying of bribes as the most efficient way to receive government assistance and many, albeit indirectly, gain benefits from corrupt practices.

The Kyrgyz Republic is a signatory of the UN Anticorruption Convention but not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The Kyrgyz Government has announced a number of initiatives to fight corruption. Former President Almazbek Atambaev established an anticorruption service within the State Committee on National Security. The service has taken action against a limited number of ministers and parliamentarians. Over the past year, instances of corruption-related arrests against public figures from the political opposition have increased. President Sooronbai Jeenbekov criticized state anticorruption entities for failing to achieve sufficient results in their efforts to fight corruption during a speech at the Security Council of the Kyrgyz Republic in February 2018. The President announced urgent measures to clean up state bodies and purge corruption. The Kyrgyz Government encourages all companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials, but not all companies have effective internal controls. The Kyrgyz Republic has laws that criminalize giving and accepting a bribe, with penalties ranging from a small administrative fine to a prison sentence, but the government’s active enforcement of these laws is uneven. While senior government officials pledge strong support to anticorruption measures, a sustained effort would probably result in more consistent enforcement of the existing laws.

Businesses operating in the Kyrgyz Republic often encounter some or all of these practices. The Government of the Kyrgyz Republic issues special colored license plates to foreign business owners, which the police frequently target for regular stops. Foreign businesses may also find themselves the subject of frequent tax audits or a variety of inspectors consistently visiting their establishments. Each experience presents an opportunity to demand a bribe.

Public procurement remains an area prone to corruption. Allegations of corruption in a USD 100 million Chinese-financed highway tender prompted the resignation of the Kyrgyz Prime Minister in April 2016. The Kyrgyz government is currently investigating corruption allegations related to improper management of a USD 386 million modernization project, funded by EximBank of China, which led to massive failures at the Bishkek Central Heating Plant during a severe cold snap in January 2018. With support from international donors, in recent years the Kyrgyz government has prioritized advancements in e-governance, with the aim to increase transparency and, in part, combat corruption in public procurement. In 2016, the WTO noted progress in negotiations with the Kyrgyz Republic on acceding to the Government Procurement Agreement. Projects supported by IFIs and subject to their standards of transparency may present greater opportunities for prospective U.S. bidders in the Kyrgyz Republic.

Corruption, including bribery, raises the costs and risks of doing business in the Kyrgyz Republic. It has had a corrosive impact on both market opportunities for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines rule of law.

It is important for U.S. companies, regardless of their size, to assess the business climate in the relevant sector in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the Kyrgyz Republic and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel.

*UN Anticorruption Convention, OECD Convention on Combatting Bribery*

The Kyrgyz Republic ratified the UN Anticorruption Convention in September 2005.The Kyrgyz Republic is not a party to the OECD Convention on Combatting Bribery.

*Resources to Report Corruption*

Hotline of the Anti-corruption Service of the State Committee for National Security:BishkekZhibek-Zholu Street+996 (312) 660020aks.gknb@gmail.com

Contact at “watchdog” organization:

Mukanova N.A., General SecretaryAnticorruption Business Council of the Kyrgyz RepublicMinistry of Economy114Chui Avenue, Bishkek+996 312 895 496secretariat.adc@gmail.comwww.adc.kg 

							10. Political and Security Environment					

The Kyrgyz Republic has a history of political upheaval, although recent years have seen greater stability. In 2005, and again in 2010, mass protests against government corruption precipitated the ouster of the country’s elected president. The country has experienced a period of relative political stability since 2010. The first peaceful transfer of power in the nation’s history occurred with the inauguration of President Almazbek Atambaev in December 2011. The governing coalition changed peacefully in September 2012 and again in the spring of 2014 with no impact on foreign business or investment interests. In October 2015, the Kyrgyz Republic successfully conducted competitive national parliamentary elections, and a nationwide Constitutional Referendum was held in December 2016. With the historic election and inauguration of President Sooronbai Jeenbekov in 2017, the Kyrgyz Republic oversaw Central Asia’s first transition from one democratically elected president to another.

Since independence, governments in the Kyrgyz Republic have frequently turned over (30 prime ministers in 27 years), though the transitions have occurred in accordance with Kyrgyz law. Protests organized by opposition politicians are common, and have been occurring with greater frequency over the past year. Concerns about law enforcement abuses and human rights violations in the country remain.

The Kyrgyz government has also at times attempted to use aggressive tactics for political or economic leverage in negotiations with international organizations. For example, in an apparent response to Centerra Gold’s acquisition of an American mining company – which the Kyrgyz Republic perceived as an attempt to dilute its influence over and benefits from the Kumtor Gold venture – the Kyrgyz government raided Kumtor Gold’s offices in 2016, enforced travel restrictions on all expatriate staff and their family members, and issued an injunction to prevent repatriation of company assets.

Interethnic tensions persist in the southern part of the country, but did not have a destabilizing effect on the government in 2017. In 2016, ISIS efforts to recruit Kyrgyzstani fighters to Syria continued to generate headlines. Supporters of extremist groups such as the Islamic Movement of Uzbekistan (IMU), Al-Qaeda, and the Eastern Turkistan Islamic Movement (ETIM) remain active in Central Asia. These groups have expressed anti-U.S. sentiments and could potentially target U.S.-affiliated concerns. In August 2016, a suicide bomber, reportedly affiliated with ETIM and trained in Syria, detonated a vehicle-borne improvised explosive device inside the Chinese Embassy compound in Bishkek, located less than 200 yards from the U.S. Embassy. The attack reportedly killed the perpetrator and injured four others, and caused extensive damage. The United States has cooperated with the Kyrgyz Government to improve border and internal security and efforts to stem the flow of fighters to Syrian are ongoing.

In the recent past, the extractive resources companies have been the target of localized instability, with 2017 seeing a resurgence of demonstrations against mine operators after relative calm in 2015 and 2016. Protestors have targeted various installations, at times resorting to vandalism and violence. The trouble caused by repeated protests prompted one large, international mining firm to sell its share of an exploration project in 2014 and leave the Kyrgyz market entirely. In 2017, the Kyrgyz government suspended the license of the largest Kazakh mining company due to purported environmental violations. Some experts believe the suspension was linked to deteriorating relations between the two countries in late 2017.

The Department of State urges U.S. citizens to plan ahead when traveling to the Batken region. Demarcation along portions of the Kyrgyz-Uzbek and Kyrgyz-Tajik borders are in dispute. These disputed areas occasionally experience skirmishes between border guards that can include violence and sometimes involve civilians. When traveling near the border, be prepared with either the appropriate travel documents (visas), or plan your routes to avoid these disputed areas. U.S. citizens planning to travel to the Kyrgyz Republic should refer to the U.S. Department of State for updated security information. This information is available on the Internet at http://travel.state.gov.

							11. Labor Policies and Practices					

There is significant competition for skilled and educated individuals in the Kyrgyz labor market as many qualified Kyrgyz citizens find lucrative job opportunities abroad, and the nation’s education system has largely failed to keep pace with advancing educational needs within many sectors. International organizations are generally able to employ competent staff, often bilingual in English or other languages. However, reports indicate there is a shortage of highly qualified local candidates in IT, mining, energy, and manufacturing, forcing international organizations to rely on expatriates for these skills. Literacy in the Kyrgyz Republic is approximately 97 percent. The official unemployment rate is approximately 7 percent, though experts estimate the number of actual unemployed individuals exceeds this figure. Additionally, approximately one million Kyrgyz citizens work abroad because of limited opportunities in the Kyrgyz Republic.

There are no government policies that require hiring Kyrgyz nationals, though it is often added as a condition for investment, particularly in the mining sector. There are no restrictions on employers adjusting to fluctuating market, including hiring and firing workers at will. Many private companies use temporary or contract workers. The Labor Code does not provide any special conditions in order to attract investment. Labor unions are independent and are not subject to state bodies, employers, political parties, or other unions. In practice, labor unions are not very active when it comes to the protection of workers’ rights.

Workers have the right to form and join trade unions. The law allows unions to conduct their activities without interference, organize, and bargain collectively. Workers may strike, but the requirement to receive formal approval has made striking difficult and complicated. The law prohibits government employees from striking, but the prohibition does not apply to teachers or medical professionals. The law does not prohibit retaliation against striking workers. Labor disputes are settled by Commission for Labor Disputes (established within all organizations with 10 or more employees), by the authorized state body, or by courts of the Kyrgyz Republic. The employee has the right to choose one of these bodies to settle the dispute.

Safety and health conditions in factories are generally poor. The law establishes occupational health and safety standards, but to a large extent the Kyrgyz government did not enforce them. The State Labor Inspectorate is responsible for protecting workers and carrying out inspections for all types of labor problems, but its activities were limited, and business compliance was uneven. Workers in the informal economy had neither legal protection nor mandated safety standards. See more at: http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper

While the Labor Code of the country complies with all required international laws and treaties, there is a gap in protecting the rights of individuals employed by private companies. Many employees are hired based on basic or even oral agreements and lack knowledge of their rights. In February 2015, the Ministry of Economy established a working group to amend the Labor Code with the goal of simplifying labor agreements and making them more common. The proposed amendments aimed to lower payment for overtime work and simplify firing processes. The bill was heavily criticized and eventually dropped.

In January 2017, amendments to the Labor Code of the Kyrgyz Republic entered into force that strengthened labor rights and protections for people under the age of 18. The law now prohibits people under the age of 18 from being sent on business trips, engaging in overtime work, night shifts, and working on days off or official holidays. However, child labor laws are not uniformly enforced.

							12. OPIC and Other Investment Insurance Programs					

The United States signed a bilateral OPIC agreement with the Kyrgyz Republic in 1992. OPIC recently financed part of the campus expansion of the American University of Central Asia in Bishkek and the University of Central Asia in Naryn. In 2016, OPIC approved USD 21 million in credit to Gazelle Finance for a special purpose investment fund to promote lending to small and medium enterprises in four countries in Eurasia, including the Kyrgyz Republic.

Bank lending and international donor financing remain the primary mechanisms by which businesses in the Kyrgyz Republic seek to fund their growth. There are few investment funds in the Kyrgyz Republic. OPIC products have the potential to expand small and medium enterprise lending and assist the development of private equity funds in the Kyrgyz Republic, which are currently few in number.

							13. Foreign Direct Investment and Foreign Portfolio Investment Statistics					

*Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy*

* National Statistical Committee of the Kyrgyz Republic http://www.stat.kg 

According to the National Statistical Committee, U.S. FDI in the Kyrgyz Republic in 2016 was USD 3.1M, while FDI from the Kyrgyz Republic in the U.S. was USD 0.9M. According to the Bureau of Economic Analysis of the Kyrgyz Republic, U.S. FDI into the Kyrgyz economy was estimated at USD 96M. Discrepancies are linked to different methodologies used by two institutions.

*Table 3: Sources and Destination of FDI*

The Kyrgyz Republic has limited stock and bond markets for portfolio investors. The country is not listed on the IMF’s Coordinated Portfolio Investment Survey (CPIS) site. It is unlikely the country has any large portfolio investors.

*Table 4: Sources of Portfolio Investment*

Data not available. The Kyrgyz Republic has limited stock and bond markets for portfolio investors. The country is not listed on the IMF’s Coordinated Portfolio Investment Survey (CPIS) site. It is unlikely the country has any large portfolio investors.

							14. Contact for More Information					

Dominic McIntyreCommercial OfficerU.S. Embassy in the Kyrgyz Republic171 Prospekt MiraBishkek, Kyrgyz Republic 720016+996-312-597-000

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### On This Page

                    -  Executive Summary 
                    -  1. Openness To, and Restrictions Upon, Foreign Investment   
                    -  2. Bilateral Investment Agreements and Taxation Treaties   
                    -  3. Legal Regime   
                    -  4. Industrial Policies   
                    -  5. Protection of Property Rights   
                    -  6. Financial Sector   
                    -  7. State-Owned Enterprises   
                    -  8. Responsible Business Conduct   
                    -  9. Corruption   
                    -  10. Political and Security Environment   
                    -  11. Labor Policies and Practices   
                    -  12. OPIC and Other Investment Insurance Programs   
                    -  13. Foreign Direct Investment and Foreign Portfolio Investment Statistics   
                    -  14. Contact for More Information   

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