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A Central Asian country of incredible natural beauty and proud nomadic traditions, Kyrgyzstan was annexed by Russia in 1864; it achieved independence from the Soviet Union in 1991. Current concerns include: privatization of state-owned enterprises, expansion of democracy and political freedoms, inter-ethnic relations, and terrorism.
Update No: 264 - (01/01/03)
The president of Kyrgyzstan may have done a clever thing in aligning his republic immediately with the US after 9:11. Certainly, the Manas military base which the Americans are now using, with a complement of 3,000 personnel, is going to bring in useful rents and open up the republic to renewed US business interest. Kyrgyzstan is now the US's watchtower on Central Asia, not just on Afghanistan, but on Northern China.
But the economy is not doing well. A very poor country on independence in 1991, this remote nomad mountain estate in Central Asia is very beautiful, but too far away to nurture hopes of a western tourist industry for a while, although it has long been popular with discerning holidaymakers from the former Soviet empire.
The republic's economy is far too concentrated upon one sector, the mining sector, and one industry within it, the gold-mining industry, for comfort. When they do badly, and other sectors begin to malfunction, everyone does badly, as the economy turns sharply down. The authorities admit that GDP, which contracted by 1.9% last year, is due to fall by more this year, decreasing by 2.6% year-on-year in the first nine months.
The downturn was caused first and foremost by a 17.3% fall in industrial output. Partly this has been due to a drop in oil refining of 26% and one of power generating of 17%. But the key reason for the poor performance has been a reduction in the gold-mining industry's output to 60% of planned levels, that is a contraction of a third.
The country has one huge gold mine Kumtor, which is operated and one-third owned by Canada's Camoco (the government holds the majority stake). Increased operating costs and lower gold content in the ore, plus an accident earlier this year, have forced Camoco to cut its annual production target by 700,000 to 500,000 ounces of which 300,000 had been extracted before the calamity.
Agriculture is the backbone of the Kyrgyz economy, contributing over a third to GDP. But gold mining is also very important. Kyrgyzstan is the third largest gold producer in the CIS, after Russia and Uzbekistan. It produces over 20 tonnes of gold annually, which is nearly all produced at Kumtor.
The Kumtor mine has produced more than three million ounces of gold since extraction started in 1997. The mine accounts for approximately 38 per cent of Kyrgyzstan's industrial output (which contributes some 20 per cent to GDP) and 33 per cent of exports. Its problems have therefore no small consequences for Kyrgyzstan's economy.
This shows Kyrgyzstan's failure to diversity its economy. It is too dependent on volatile world gold prices - and on output levels at Kumtor. Yet the declining gold content of Kumtor makes it clear that the mine's productive life span may be falling fast, and that Kyrgyzstan has to make haste diversifying and reforming its economy. If it fails to do so, observers believe prospects for long-term economic growth remain bleak and the risk of destabilisation high.
EBRD to the rescue
The EBRD is strongly urging the same. It is closely involved with all aspects of modernisation of the economy. The EBRD strategy for the next two years is to encourage small and medium-sized enterprises (SMEs), the development of the financial sector and the attraction of investments to key natural resource projects.
In the context of high public indebtedness of the country, the EBRD will respect the government's commitment to budget restraint by focusing on the private sector where there is no need for sovereign financing or guarantees.
Adding to the private-sector projects that the EBRD has co-financed - Kumtor gold mine, Hyatt-Regency Hotel, Demir Kyrgyz International Bank, and the Kyrgyz Investment and Credit Bank (KICB) - the bank recently launched the Micro and Small Enterprise Finance Facility Programme, for Kyrgyz commercial banks, as well as five investments in local SMEs via its Direct Equity Fund (DIF) programme.
EBRD has signed 21 investments in the Kyrgyz Republic with a total commitment of 174.5m Euro. Five projects are in the public sector, with one aimed at the modernisation of the telecommunications network, two focusing on upgrading parts of the electricity transmission network, and two in the agribusiness sector.
FOREIGN LOANS & AID
US appears set to expand cooperation with Kyrgyzstan in 2003
As Russian forces move to establish an air base in Kyrgyzstan, US-Kyrgyz cooperation continues to expand, as Washington views the Central Asian nation as a hub for its regional anti-terrorism operations, Wojciech Bartuzi wrote in Eurasia Insight of 10th December. Overall US aid to Kyrgyzstan may reach US$92m in 2002, and the appearance of Russian military forces in the country may place pressure on the United States to expand cooperation with Bishkek.
A large portion of American assistance consists of military aid, and the nexus of US-Kyrgyz cooperation is an anti-terrorism coalition air base at Manas, a Bishkek suburb. The Kygyz government in early December 2001 granted the United States basing rights. In the year since the decision, the base has grown to house about 2,000 military personnel, mainly from the United States. Manas airport's 13,800-foot-long runways are well suited for anti-terrorism coalition fighters, bombers and heavy transports. The US facility - named after Fire Chief Peter Ganci, who was killed in the September 11th collapse of the World Trade Centre in New York - is used mainly for operations against targets in Afghanistan.
In September, in connection with a visit by Kyrgyz President Askar Akayev to Washington, American Ambassador to Kyrgyzstan John O'Keefe said that US aid to the Central Asian nation could double in 2003. That announcement came before Russia's move to reassert its influence in Kyrgyzstan by setting up an air base of its own at Kant, also near Bishkek.
MINERALS & METALS
Canadian corporation wants to buy the Kumtor gold mine
The CAMECO (Canadian Mining and Engineering Corporation) company wants buy the rest of the shares of the Kumtor Operating Company (KOC). The KOC is a joint venture between Kyrgyzstan and CAMECO, which develops the Kumtor gold mine in Kyrgyzstan and was formed in 1992. Chairman of a parliamentary committee of Kyrgyzstan Akylbek Japarov told an RFE/RL correspondent on 14th November, that CAMECO is offering US$240m for the 67 per cent of the shares, which belong to the Kyrgyz government.
KOC produced about 100 metric tons of gold at Kumtor already, paying about US$50 million in taxes. According to the agreement between Kyrgyzstan and CAMECO, the sides share profit only not the produced gold. Kumtor is one of the biggest gold deposits in the world, there are more than 500 tons of gold in it.
Kazakhtelecom seeks 51 per cent of Kyrgyz operator
Kazakstan's largest telephone company, Kazakhtelecom, is considering taking a majority shareholding in Kyrgyztelecom, the monopoly operator in neighbouring Kyrgyzstan, Kazakhtelecom said.
"The company is looking at the possibility of acquiring 51 per cent of the shares in Kyrgyztelecom," a Kazakhtelecom official told Reuters News Agency.
Kyrgyz authorities have said they may sell 51 per cent of Kyrgyztelecom shares in 2002-2003, but have not yet set a date for the tender.
The Kyrgyz state owns 77.84 per cent of Kyrgyztelecom, with the government's social fund owning another 12.51 per cent. Company employees and management own six percent, with private shareholders holding the remaining 3.65 percent.
It has a charter capital of 620 million soms (around US$13.5m), and last year posted a net profit of 78 million soms.
Kazakhtelecom has an exclusive licence to operate international and inter-urban lines in former Soviet Central Asian Kazakstan. Its main competition comes from cell phones which are widely used in urban areas.
Kazakhtelecom is 50 per cent owned by the Kazak state, with the country's largest bank, Kazkommertsbank, holding 30.5 per cent.
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