Trade and Investment Opportunities in the Kyrgyz Republic

April 2015 Project number: 05-02-02-14

Source: Nations Online Project, www. nationsonline.org.

Fahd Shah Dr Eisa Abdelgalil

Source: OrexCA.com, Sasaki Associates, Agha Khan Development Network and GTZ

Economic Research Department Dubai Chamber of Commerce and Industry

Page 0

Overview

Kyrgyz Republic’s major economic indicators

 The Kyrgyz Republic is a landlocked country located in Central Asia. Neighboring countries include Uzbekistan, Kazakhstan, Tajikistan and China. With a population of about 5.7 million people and a land area of around 198,500 square kilometers, Kyrgyz Republic is a relatively small country surrounded by several growing and large markets.

2016

2017

2018

Real GDP, percentage change

3.60

1.65

3.40

5.20

5.20

Government budget deficit, % of GDP

1.11

-3.35

-3.68

-2.67

-0.73

Inflation, average %

7.53

10.75

8.58

7.11

5.87

GDP per capita, USD current prices

1,299

1,280

1,360

1,473

1,584

Current account balance, as % of GDP

-13.69

-17.04

-15.22

-13.5

-10.66

Kyrgyz Republic’s annual percentage change in volume of exports of goods and services 10 8 6 4 2

2020

2019

2018

2017

-2

2016

0 2015

 Kyrgyz Republic GDP per capita is also expected to grow gradually from around USD 1,299 in 2014 to around USD 1,584 by 2018. Kyrgyz and Russian are widely spoken languages. The country’s adult literacy rate was very high at around 99%.

2015

Source: IMF, World Economic Outlook Database, April 2015. Government deficit is approximated by net lending/ borrowing data

Percentage change

 Minerals, especially gold, make up a large portion of the export earnings. Overtime, growth in the mineral and non–mineral sectors is forecasted to boost real GDP growth to over 5% by 2018.Inflation which is expected to fluctuate, is also expected to come down to the 5.7% level by 2018. Overall, the budget deficit is also forecasted to remain at manageable levels through to 2018.

2014

Source: IMF, World Economic Outlook Database, April 2015.

Page 1

Kyrgyz Republic GPD composition Kyrgyz Republic’s GDP by sector (2014) 18.4

 According to EIU estimates, services made up the majority of the GDP by sector for the Kyrgyz Republic in 2014. Agriculture is the second biggest sector followed by Industry. In industry, the mining of precious metals especially gold is an important sub-sector.

Agriculture/GDP

Industry/GDP

54.1 27.5

 In terms of growth of sector GDPs, 2013 was a strong year for growth. According to EIU estimates, sector growth has since gone down, while it is expected to recover in 2016. Industry which includes mining, manufacturing, construction and utilities is expected to grow at a real growth rate of around 5% in 2016.

Services/GDP

Source: Dubai Chamber based on data from Economist Intelligence Unit (EIU) and World Bank, World Development Indicators. Data for 2013 and 2014 is based on EIU estimate.

Kyrgyz Republic’ real growth rate by sector (%) 50 40

 The large services sector is forecasted to grow at a positive real growth rate of over 3% in 2015 and 2016. Therefore, while large fluctuations in Kyrgyzstan’s sector growth rate can be expected, given the economic potential of the country, especially in the mining, services and consumer sectors, these sectors can be expected to have potential business opportunities.

30 20 10 0 2013

2014

2015

2016

-10 Agriculture (% real change pa)

Industry (% real change pa)

Manufacturing (% real change pa)

Services (% real change pa)

Source: Dubai Chamber based on data from Economist Intelligence Unit (EIU) and World Bank, World Development Indicators. Data for 2013 and 2014 is based on EIU estimates and data for 2015 and 2016 is based on EIU forecast. Industry includes mining, manufacturing, construction and utilities while manufacturing includes only real manufacturing.

Page 2

Kyrgyz Republic population growth and structure Kyrgyz Republic’s Population (millions of people) 9 8 7 6 5

 Most of the Kyrgyz Republic’s population resides in the rural areas. While people are expected to continue to move to the cities, most of the population will continue to live in rural areas till 2048.

2050

2045

2040

2035

2030

2025

2020

2015

2010

2005

4 2000

 The population of the Kyrgyz Republic has experienced gradual growth over time and this is expected top continue to 2050. The population is expected to have grown at a Compound Annual Growth Rate (CAGR) of around 0.94% from 2000 to 2015. From 2015 to 2050, the Kyrgyz Republic’s population is expected to grow at a slightly higher Compound Annual Growth Rate (CAGR) of around 0.96% from 2015 to 2050.

Source: Dubai Chamber based on data from Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects: The 2012 Revision, http://esa.un.org/unpd/wpp/index.htm

Kyrgyz Republic population residing in urban areas in mid year (%) 60 50 40 30 20 10

2050

2048

2046

2044

2042

2040

2038

2036

2034

2032

2030

2028

2026

2024

2022

2020

2018

2016

0 2014

 As the data shows, Kyrgyzstan has a growing population and a demographic profile which is conducive to increased demand for consumer items and the growth of the services industry.

Source: Dubai Chamber based on data from United Nations, Department of Economic and Social Affairs, Population Division (2014). World Urbanization Prospects: The 2014 Revision, custom data acquired via website http://esa.un.org/unpd/wup/

Page 3

Kyrgyz Republic population growth and structure Annual rate of change of Kyrgyz Republic’s Urban Population (%)

2.50

 The growth of the Kyrgyz Republic’s urban population is expected to peak at around 2.04% in the 2015 to 2020 period. Thereafter it is expected to go down to around the 1.77% level around 2045 to 2050.

2.00 1.50 1.00

 In terms of employment, the agricultural sector has the largest share of the labour force at around 31.6%, followed by trade, transport, accommodation and food services with a share of around 29.6%.  The growth of the urban population in Kyrgyzstan means that UAE businesses wanting to invest in provision of financial and IT services in Kyrgyzstan and wanting to use Kyrgyzstan as a base for doing business with other countries in the region can expect availability of potential workers.

0.50 0.00 2000 - 2005 - 2010 - 2015 - 2020 - 2025 - 2030 - 2035 - 2040 - 2045 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: Dubai Chamber based on data from United Nations, Department of Economic and Social Affairs, Population Division (2014). World Urbanization Prospects: The 2014 Revision, custom data acquired via website http://esa.un.org/unpd/wup/

Kyrgyz Republic labour force by economic activity (thousands) Agriculture Trade, Transportation, Accommodation, Food,Business and Administrative Services Public Administration, Community, other Services and Activities Construction

Manufacturing Mining and quarrying and Electricity, gas and water supply 0

200

400

600

800

Source: Dubai Chamber based on data from ILOSTAT database, International Labour Organization.

Page 4

Kyrgyz Republic’s trade with the world Kyrgyz Republic’s historical trade with the world 7,000

 As shown in the graph, the Kyrgyz Republic's trade with the world has generally resulted in a trade deficit. This is because the gap between value of imports and exports has been expanding due to the relatively higher growth rate of imports. Exports are dominated by gold.  Major items of imports include products such as mineral fuels, vehicles such as cars and trucks, machinery, electrical and electronic equipment and iron and steel. These import markets have experienced double digit growth in Kyrgyz Republic with vehicles having some of the strongest growth rates.  Major source countries for imports for goods in 2013 included the Russian Federation, China, Kazakhstan, Japan and Germany. Major export markets in 2013 included Switzerland, Kazakhstan, UAE, Uzbekistan and Russian Federation.

6,000

Million USD

 The Kyrgyz Republic’s historical trade with the world has experienced strong growth. According to data from trademap.org, imports from the world have grown at a Compound Annual Growth Rate (CAGR) of about 22.82% from 2004 to 2013, while exports to the world have grown at a CAGR of around 1.56% from 2004 to 2013.

5,000 4,000 3,000 2,000 1,000 0 2004

2005

2006

2007

2008

2009

Imports from the world

2010

2011

2012

2013

Exports to the world

Source: Dubai Chamber based on trademap.org. Imports are imports from the world to Kyrgyz Republic and exports are exports to the world from Kyrgyz Republic.

Kyrgyz Republic's major imports from the world market Imports by Kyrgyzstan in product category, 2013 (USD millions)

Mineral fuels and oils, HS 27

Annual growth of Percentage total Kyrgyzstan in total import market for imports, product category, 2013 (%, 2009-2013)

1,282

13

21

Vehicles other than railway and tramway, HS 87

733

36

12

Boilers and Machinery, HS 84

407

17

7

Electrical, Electronic equipment, HS 85

290

29

5

Articles of iron or steel, HS 73

233

38

4

Iron or steel, HS 72

221

34

4

Source: Dubai Chamber based on trademap.org, International Trade Centre

Page 5

Kyrgyz Republic exchange rates USD and Kyrgyzstani Som historical exchange rate (Number of Kyrgyzstani Som per USD)

 According to data from the National Bank of the Kyrgyz Republic, the value of the Kyrgzstani Som (KGS) has undergone gradual depreciation as compared to the US dollar.

70 65 60 55

 More recently the trend of depreciation has accelerated somewhat as the exchange rate is around 59.6 KGS for one US dollar in the beginning of May 2015.

50 45 40

May-15

Jan-15

Sep-14

May-14

Jan-14

Sep-13

May-13

Jan-13

Sep-12

May-12

Jan-12

Sep-11

May-11

Jan-11

Sep-10

May-10

35 Jan-10

 One of the reasons of the depreciation of the Som has been the depreciation of the Russian Ruble, the currency of the one of Kyrgyzstan’s major trading partners.

Source: Dubai Chamber based on data from The National Bank of the Kyrgyz Republic.

Page 6

UAE’s trade with the Kyrgyz Republic Kyrgyz Republic’s selected exports to UAE in 2013 (USD thousand)

 The Kyrgyz Republic main export commodity to the world is gold and this is what dominates it’s exports to the UAE. In 2013, the Kyrgyz Republic exported about USD 206.5 million worth of unwrought gold to the UAE. Precious metal exports to the UAE. There was also some meat products exported to UAE in 2013.

250,000 208,123 200,000 150,000 100,000 50,000 3,764

 A growing consumer economy has meant that the Kyrgyz Republic’s main imports from the UAE in 2013 included goods for consumer use such as tea and spices, animal and vegetable fats, soaps and candles and furniture. Other imports included machinery and paints and dyes.

0 Precious metals

Meat

Source: Dubai Chamber based on data from Trademap.org, International Trade Centre

Kyrgyz Republic’s major imports from UAE in 2013 (USD thousand) 800 693 600

 Overall Kyrgyz Republic imports from the UAE have grown at a CAGR of around 1.17% from 2005 to 2013 while the Kyrgyz Republic’s exports to UAE have grown at a CAGR of around 3.16% during the same period. This report will highlight potential trade opportunities for further increasing UAE’s exports to the Kyrgyz Republic.

493 405 400

376

349

344

200

0 Tea and spices

Animal and Machinery Soaps and Furniture, Paints, vegetable candles lamps and dyes and fats light fittings pigments

Source: Dubai Chamber based on data from Trademap.org, International Trade Centre

Page 7

Selected Free trade agreements of the Kyrgyz Republic Kyrgyz Republic’s membership and Free Trade Agreements (FTA)

 The Kyrgyz Republic is party to several Free Trade Agreements (FTAs). Most of these are with nearby countries in the Commonwealth of Independent States (CIS) and especially in Central Asia.  The Kyrgyz Republic is also a member of the World Trade Organization.  As trade increases, there is prospect for more economic agreements between the UAE and Kyrgyz Republic. Already the Kyrgyz Republic also allows a visa free system for about 60 days UAE nationals.

 World Trade Organization (WTO)  Trade Preferential System of the Organization of the Islamic Conference (Signed but not yet in effect)  Commonwealth of Independent States Free Trade Area  Kyrgyz Republic and Armenia FTA  Kyrgyz Republic and Kazakhstan FTA  Kyrgyz Republic and Moldova FTA  Kyrgyz Republic and Russia FTA  Kyrgyz Republic and Uzbekistan FTA  Kyrgyz Republic and Ukraine FTA

 The UAE also has an air services agreement with the Kyrgyz Republic which allows for flights between the two countries. Source: Dubai Chamber based on data from Asian Development Bank (ADB) FTA database and WTO

Page 8

Potential products for increased exports from UAE to Kyrgyz Republic Product code and description

Imports by Kyrgyz Republic from world market (USD million), 2013

Annual growth of imports from world market 2009 to 2013, %

UAE share in Kyrgyz Republic’s import market , 2013, %

Analysis of opportunity

HS 0902, Tea

9.39

15.67%

7.35 %

 Consumer food products such as tea are in demand in Kyrgyzstan’s growing economy. The import market for this product has experienced robust growth growing at a Compound Annual Growth Rate (CAGR) of around 15.67% from 2009 to 2013.  This was a major export time from UAE to Kyrgyzstan in 2013, with UAE exporters having a share of 7.35% in 2013.

HS 1511, Palm Oil and its fractions

5.15

27.64%

9.08 %

 Palm oil and its fractions is another consumer food product which is in demand in Kyrgyzstan. Since palm oil is not made in Kyrgyzstan, it is in required as an import product for cooking, The demand for this products registered strong increase growing at a CAGR of around 27.64% from 2009 to 2013.  Kyrgyzstan imported about 5.15 million US dollars worth of products under HS 1511 in 2013. UAE exporters already have a share of about 9.08% in this market and there seems to be strong potential for further increasing market share.

HS 8419, Machinery, plant or lab equipment

10

38.99%

2.1 %

 Machinery for plant or lab equipment experienced strong increase in the Kyrgyzstan’s import market. Kyrgyzstan’s imports under this product experienced strong increased growing at a CAGR of around 38.99% from 2009 to 2013. This import market was valued at around USD 10 million in 2013 and UAE exporters had a share of about 2.1% in the import in 2013.

17.32

12.33%

1.82 %

 Kyrgyzstan imported about USD 17.32 of products under HS 3401 in 2013. Once again this consumer product was a fast growing category, with imports growing at a CAGR of around 12.33% from 2009 to 2013.  UAE exporters had a share of around 1.82% in the import market in 2013 and given the strong import growth in this market, it could be a potentially lucrative product category for increased exports from UAE to Kyrgyzstan.

HS 3401, Soap

Source: Dubai Chamber based on trademap.org, International Trade Centre

Page 9

Potential products for increased exports from UAE to Kyrgyz Republic Product code and description

Imports by Kyrgyz Republic from world market (USD million), 2013

Annual growth of imports from world market 2009 to 2013, %

UAE share in Kyrgyz Republic’s import market, 2013, %

Analysis of opportunity

HS 9403, Other furniture and parts

24.7

20.46%

1.28%

 As demand for consumer and office products grows the imports of Furniture and parts is also seeing strong growth. From 2009 to 2013, imports experienced strong annual growth of about 20.46%. Kyrgyzstan imported about USD 24.7 million worth of products in this market.  Given the strong growth in this import market, there could be robust potential for UAE exporters to increase exports of HS 9403 to Kyrgyzstan.

HS 3212, Pigments for paints and dyes

1.7

15.92%

18%

 UAE’s exports of HS 3212 Pigment and dyes also experienced strong growth, growing at a CAGR of around 15.92% from 2009 to 2013. UAE exporters had a 18% share in this market and there could be scope for increased exporting share further.

HS 8803, Aircraft parts

2.87

44.57%

11.45%

 Kyrgyzstan’s imports of aircraft parts saw strong growth, growing a CAGR of around 44.57% from 2009 to 2013. UAE exporters had a share of around 11.45% in this fast growing import market. Given strong past growth, there could be further scope for increasing UAE’s export share and therefore UAE exports to Kyrgyzstan.

HS 3923, Plastic packing goods or closure stoppers

18.5

29.8%

0.61%

 Kyrgyzstan imported about USD 18.5 million of HS 3923 Plastic and packing goods in 2013. The import market for this product category experienced strong growth, growing at a CAGR 29.8% from 2009 to 2013. Given robust import growth, there could be potentially lucrative opportunities for UAE exporters in this market.

Source: Dubai Chamber based on trademap.org, International Trade Centre

Page 10

Inward FDI inflows into the Kyrgyz Republic Kyrgyz Republic FDI inflows (USD millions) 800

600 500 400 300 200 100

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

0 2002

 FDI inflows into Kyrgyzstan have grown at a rapid pace in the past decade partly as a result of the improved FDI climate. From 2001 to 2013, FDI inflows have grown at a Compound Annual Growth Rate of around 52%. However there have been relatively large fluctuations in the level of FDI inflows in some years.

700

2001

 According to information from Deloitte’s Tax and Investment guide for Kyrgyzstan 2014, the Foreign Investment Law of 2003 has provided an open FDI regime which provides the ability to freely undertake transactions to repatriate profits and national treatment for foreign investors. Investment incentives could include the possibility of tax incentives for private partner under a Public Private Partnership (PPP) agreement. Major taxes include corporate income tax at a rate of 10%, Value Added Tax (VAT) at a general rate of 12% of the value added and pension fund contributions at 15% of gross salaries

Source: Dubai Chamber based on United Nations Conference on Trade and Development (UNCTAD), UNCTADSTAT

 Kyrgyzstan’s business environment has overtime become more business friendly with the government signing more trade and investment agreements with other countries and providing incentives to foreign investors. Therefore, the overall long term trend of increased FDI inflows could be expected to continue.

Page 11

Investment opportunities in Tourism Projections for tourism sector in Kyrgyz Republic (USD million)

Value of tourism (direct contribution to GDP)

91.7

147.4

Leisure spending

380.2

614.4

Business spending

234.1

366.1

Capital investment

71.1

107.3

Source: Dubai Chamber based on data from World Travel and Tourism Council (WTTC). Projections for 2024 by WTTC based on 2013 constant prices and exchange rates.

Tourist Arrivals in Kyrgyzstan (000)

2013

2012

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2011

 Given Kyrgyzstan’s natural flora and fauna, past growth in tourist numbers there is substantial future growth potential. Niche areas of potential growth include development of ecotourist resorts and hotels. While there is opportunity to build new eco-tourist resorts, some of the older tourist sites need some upgrading and therefore could represent potential long term investment opportunities available at a cheap price. According to data from Euromonitor International most tourists in Kyrgyz Republic came from Europe. With Kyrgyzstan now allowing visa free travel to citizens of about 61 countries, there is scope to further increase the source countries to increase tourists from other regions as well.

2025

2010

 According to data from Euromonitor International, the Kyrgyz Republic has seen growth in tourist arrivals from around 2.14 million people in 2009 to around 3.6 million people in 2013.

2014

2009

 The Kyrgyz Republic has pristine scenery in sites such as Issyk-Kul lake and the historic sites of the Silk road. According to information from the World Travel and Tourism (WTTC), Kyrgyzstan's’ tourism sector is expected to grow a annual rate of 5% from 2015 to 2025. By 2025, Kyrgyzstan's tourism sector GDP is expected to have leisure spending of about USD 614 million and USD 366 million in business spending.

Source: Dubai Chamber based on data from Euromonitor International.

Page 12

Investment opportunities in Mining sector

7 6 5 4 3 2 1

2012

0 2011

 According to the Investment Promotion Agency, Ministry of Economy of the Kyrgyz Republic, the country has seen an FDI inflow of around USD 217.6 million into the mining sector from 2010 to 2013. For non-mining sector UAE businesses, there could also be opportunities to provide used bulldozers and used construction machinery for mining activities.

8

2010

 Minerals explored include gold of which about 60 deposits have been found and it has become on the major exports. In non-ferrous metals, 7 large deposits of antimony and 3 major deposits of tin and tungsten have been found. There has also been production activity for minerals such as oil and gas, coal and construction material.

Production value of mining sector in Kyrgyz Republic (Billion Kyrgyz Som)

2009

 According to the Investment Promotion Agency, Ministry of Economy of the Kyrgyz Republic, the country has one of the largest mineral deposits in Central Asia. There has also been exploration activity which has led to increase in production value of the mining sector.

Source: State Committee for the Mineral Reserves of the Kyrgyz Republic (GKZ), Central Asian Countries Geo-portal of Kyrgyzstan

Page 13

Investment opportunities in Transport and logistics Kyrgyz Republic Annual Cargo Transport volume (Million tonnes)

 Due to the landlocked geography of the country, most trade between the Kyrgyz Republic and other countries is done by road transport with the vast majority being road (or motor) transport. In 2013 this made up around 96.57% of overall freight transport while railway made up about 3.43% of overall freight transport. The volume of Inland water and air transport in overall transport volume in the Kyrgyz remains very small.

Air Inland water

[VALUE]

Source: Dubai Chamber based on data from Investment Promotion Agency under the Ministry of Economy of the Kyrgyz Republic.

Kyrgyz Republic Railway Freight Traffic (Million net tonnes)

2014

2013

2012

2011

1,000 900 800 700 600 500 400 300 200 100 0 2010

 Furthermore, there has been gradual growth in freight carried by rail. Rail traffic generates comparatively lower carbon emissions per tone of freight and is more efficient as compared to road freight transport. Given the need for improved rail transport in Kyrgyzstan, there could be opportunities for UAE businesses to partner with Kyrgyz businesses to provide improved rail transport capabilities.

Motor Railway

2009

 Therefore while multi modal air and land transport could have potential to quickly bring goods, especially perishable food and medicine items, from other countries to Kyrgyzstan, the current use of the air component remains limited. Given the strong multi-modal capabilities of Dubai, there is strong prospects for Dubai businesses to fly perishable goods and medicines via air to Kyrgyzstan.

1,400

Source: Dubai Chamber based on data from Euromonitor International.

Page 14

Investment opportunities in Consumer products  Consumer demand has experienced strong and consistent increase in the Kyrgyz Republic in the past a trend which is expected to be maintained in the future.

Consumer Expenditure in Kyrgyz Republic (KGS Billion) 700 600

 According to data from trademap.org, major consumer products imported by Kyrgyz Republic included articles of apparel and clothing such as shirts, suits and jackets, footwear, cars, trucks and motor vehicle parts, and processed food products.

500 400 300 200 100

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

0 2009

 Individually, according to data from trademap.org, the import of products such as HS 61 articles of apparel knitted have grown at annual rate of about 6% from 2009 to 2014, HS articles of apparel not knitted have grown at an annual rate of around 16% while imports of HS 87 vehicles other than railway and tramway have grown at annual rate of around 27% from 2009 to 2014. While these are import figures, they provide an estimate of the overall growth potential of the domestic market for consumer products. UAE business could therefore take advantage of these opportunities by investing in shopping malls and stores to cater to the growing demand for consumer products in Kyrgyzstan.

Source: Dubai Chamber based on data from Euromonitor International

Page 15

Possible investment projects Project name

Sector

Description

Railway route construction

Transport and logistics

Possible project to build about 885 kilometer of rail. Estimate construction period is estimated to be around 120 months. Potential revenue sources include routes from Russia-KazakhstanKyrgyzstan-Tajikistan and China-Kyrgyzstan-Uzbekistan. Projected cargo volume in 1st year are about 8.1 million tons, 5th year about 9.2 million tons and 10th Year about 12.1 million tons. There is also for potential for passenger traffic long these routes.

Agricultural logistics Centre

Logistics and storage

Located in the Chui region, this project envisages provision of storage facilities for perishable products such as meat, vegetables and fruits. The project is expected to be a center for sales and exports of agricultural products (such as meat). Along with refrigeration system it is also expected that there will be a chamber for cultivation of seeds (including hydroponics system, green houses and cultivation of seeds)

Monorail project

Logistics and transport

Possible project to build a monorail in Bishkek city. With a population of around 1.2 million people, this monorail project could help transport local passengers and tourists. The monorail plan is according to the General plan of Bishkek City up to 2025. This mono rail which is expected to be about 14.7 kilometers long would be able to transport about 150,000 to 200,000 people per day.

Hypermarket

Retail and consumer goods

Growth in the population and income of residents have created a need for hypermarkets. There is possibility of multiple hypermarkets in Bishkek and other urban centers. Given projections of growth in consumer expenditure in Kyrgyzstan, the construction of hyper markets across large and small cities could hold potentially lucrative business opportunities.

‘Issyk-Kul’ hotel

Tourism and hotels

‘Issyk-Kul’ hotel is expected to be located in southern foothills of Bishkek. The total area of the hotel is expected to be around 12.9 thousand square meters. With a expected capacity of about 250 rooms, this hotel is expected to provide accommodation to local and foreign tourists.

Source: Dubai Chamber based on data from ‘Investment Possibilities in Kyrgyz Republic’, Investment Promotion Agency under the Ministry of Economy of the Kyrgyz Republic. Please note that this is a list of possible projects but they may not be currently available. This report does not contain investment advice. Prospective investors are expected to do their own research about risk and return. Also these projects may not be available or the information may have changed. Prospective investors should contact the Investment Promotion Agency of the Kyrgyz Republic for an updated list of projects and related information.

Page 16

Ease of Doing Business rankings Comparison of Doing Business 2015 rankings for Kyrgyz Republic and neighboring countries

 There is a large variance in Kyrgyz Republics doing business sub-ranking. For example in registering property it ranks at 6 out of 189 economies, while in trading across borders it ranks at 183 out of 189 economies, according to doing business 2015 of the World Bank Group. In protecting minority investors it ranks relatively high at 35 out of 189 economies.  Kyrgyz Republic generally ranks higher as compared to neighboring countries such as Kazakhstan and Uzbekistan in ease of registering property, starting a business and dealing with construction permits.  However, it ranks lower than Kazakhstan in ease of getting electricity and protecting minority investors. As with other landlocked Central Asian countries, the Kyrgyz Republic ranks low in trading across borders and it takes on average of about 73 days to import goods into the Kyrgyz Republic. On average the cost to import a standardized container into Kyrgyzstan is about USD 6,000 while the cost to export a standardized container is around USD 4,760 according to Doing Business 2015 of the World Bank Group.

Kyrgyz Republic

Kazakhstan

Uzbekistan

Registering property

6

14

143

Starting a business

9

55

65

Protecting minority investors

35

25

100

Dealing with construction permits

42

154

149

Enforcing contracts

56

30

28

Getting electricity

168

97

145

Trading across borders

183

185

189

Source: Doing Business 2015, doingbusiness.org, World Bank Group

Page 17

Ease of Starting a business and Registering property Average number of days needed to start a business in Kyrgyz Republic

 According to Doing Business 2015 of the World Bank Group, the Kyrgyz Republic ranks at around 102 out 189 economies. Within this rank, the sub-ranking is uneven as discussed earlier.

25 20 15 10 5

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

0 2004

 For example the Kyrgyz Republic ranks at a quite high 9 out of 189 economies in starting a business and at 6 out 189 economies in registering property. The number of days taken for both has shown a reduction especially from 2008 to 2010.

Source: Doing Business 2015, doingbusiness.org, World Bank Group

Average time in days to register property in Kyrgyz Republic

 While there have been improvements across these metrics, the ranking remains low in other areas such as trading across borders and getting electricity.

8 7 6 5 4 3 2 1 2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

0 2005

 Therefore, while the business environment in the Kyrgyz Republic has shown improvement in some areas, some challenges do remain in other doing business metrics.

Source: Doing Business 2015, doingbusiness.org, World Bank Group

Page 18

Costs and time taken to import goods into Kyrgyz Republic Number of documents to import goods 12

 While the Kyrgyz economy presents significant niche opportunities in the import market, the landlocked geography of the country means that it can take more time to import goods as compared to the average for countries in Europe and Central Asia. For example, according to Doing Business 2015 of the World Bank Group, it takes about 11 documents to import goods into the Kyrgyz Republic. This is somewhat higher than the average of 8 documents for Europe and Central Asia.

11 8

8

5 4 0 Kyrgyz Republic

Europe and Central Asia

UAE

Source: Doing Business 2015, doingbusiness.org, World Bank Group

Time in days to import goods 80

73

60

 In terms of time taken also, it takes about 73 days to import goods in Kyrgyzstan, which is significantly higher than the average for countries in Europe and Central Asia and the UAE.

40

26

20

7

0 Kyrgyz Republic

Europe and Central Asia

UAE

Source: Doing Business 2015, doingbusiness.org, World Bank Group

 In terms of costs taken to import goods in Kyrgyzstan, at an average cost for a standardized container of around USD 6000, it costs about 2.46 times the average costs of importing a standardized container into countries in Europe and Central Asia.

Cost to import goods for standardized container (USD) 9000 6000

6,000 2,436

3000

625 0 Kyrgyz Republic

Europe and Central Asia

UAE

Source: Doing Business 2015, doingbusiness.org, World Bank Group

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Costs and time taken to export goods from Kyrgyz Republic Number of documents to export goods 10

 It is relatively easier in terms of time and costs to export goods from the Kyrgyz Republic as compared to importing goods. It takes about 9 documents to import goods in the Kyrgyz Republic as compared to 7 days for countries in Europe and Central Asia. In terms of time taken, it takes around 63 days to export goods from the Kyrgyz Republic as compared to about 24 days for countries in Europe and Central Asia.

9 7

8 6

3

4 2 0 Kyrgyz Republic

Europe and Central Asia

UAE

Source: Doing Business 2015, doingbusiness.org, World Bank Group

Time to export goods (days) 80 63

 In terms of the costs of exports also the cost of exporting a standardized container from the Kyrgyz Republic is about USD 4,760 which is substantially higher than the cost of exporting a container from the OECD region.

60 40 24 20

7

0 Kyrgyz Republic

 It is also relatively lower than the cost of importing a container into the Kyrgyzstan. One possible reason for the relatively lower costs of exports as compared to imports could be that the Kyrgyz Republic’s export markets are mostly in nearby neighboring countries while some of the import markets are further away, which may contribute increasing the costs of imports.

Europe and Central Asia

UAE

Source: Doing Business 2015, doingbusiness.org, World Bank Group

Cost to export goods for standardized container (USD) 6000

4,760

4000 2,155 2000 665 0 Kyrgyz Republic

Europe and Central Asia

UAE

Source: Doing Business 2015, doingbusiness.org, World Bank Group

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Challenges and risks of Doing Business in the Kyrgyz Republic As noted earlier, Kyrgyzstan ranks highly in some areas of doing business for example in opening a business in which it ranks at 9 out of 189 economies and in registering property in which it ranks at 6 out of 189 economies, according to Doing Business 2015 of the World Bank Group. However, the overall business environment can sometimes be challenging. Therefore, while the country holds many potential business opportunities there are also some potential challenges. Some of these are highlighted below.

 Trading across borders: According to Doing Business 2015 of the World Bank Group, it takes about 73 days to import goods into Kyrgyzstan while it takes about 63 days to export goods. The landlocked nature of the country means that most imported and exported goods have to be transported by land. Therefore exporting goods from large distance to the Kyrgyz Republic can be a challenge of doing business.

 Reliance of precious metal exports: Precious metals, especially gold, dominate Kyrgyz Republic exports . A sustained decrease in the price of gold could therefore dampen economic growth even as export volumes increase.

 Spillover of global and regional macro-economic challenges: The Kyrgyz Republic has a relatively small economy and is surrounded by many large markets. As a result global and regional economic and trade turbulences have the potential to cause economic challenges in the country. Business wanting to hedge against these risks should therefore aim to diversify their businesses across sectors and also in other regions.

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