Republican Reference - Area (sq.km) 199,951 - Population 5,587,443 - Capital Bishkek - Currency Kyrgyz Som - President Roza Otunbaeva - Principal ethnic groups Kyrgyz 64.9%, Russians 12.5%, Uzbeks 13.8% and many others

kyrgyzstan

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Key Economic Data 
 
  2009 2008 2007 Ranking(2009)
GDP
Millions of US $ 4,578 5,058 3,802 146
         
GNI per capita
 US $ 870 780 620 178
Ranking is given out of 213 nations - (data from the World Bank)

  

Background:
Deep in the heart of the continent, this is 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, interethnic relations, and combating terrorism.  Its proximity to China, will when it has developed friendly relations, augurs well for the future.  It is likely that railway, highway are pipeline communications from the west of Asia will pass through its territory, bringing a measure of prosperity in its wake.  This would be the 21st Century version of the Silk road, the vital trading mute from West to East through Central Asia.

Update No: 334 - (26/06/13)

Summary: Kyrgyzstan is putting the squeeze on the Canadian company that operates the country's largest gold mine and on the US air force to get out of the country, threatening the Central Asian state's stability.

Kyrgyzstan's government is reconsidering the terms by which a Canadian company operates Kumtor gold mine, the most lucrative asset in the country. The government has also said it wants to expel US forces from its military airbase in the country after NATO's withdrawal from Afghanistan next year. These moves will likely make the country even less economically stable than it already is, giving rise to unrest.

In February, the Kyrgyz parliament gave the government three months to renegotiate the terms of a 2009 contract with Canada-based Centerra Gold Company, which operates Kumtor gold mine in the mountainous heart of Kyrgyzstan. The 2009 deal granted Centerra a low rate of tax that officials now say is detrimental to Kyrgyzstan's national budget. Kumtor is the republic's main source of revenue, comprising 12 per cent of the country's GDP and more than half of its exports. For the first four months of this year, Kumtor paid 1.4 billion soms (US$29m) in taxes and, because Kumtor is the most viable business in Kyrgyzstan that exploits a natural resource, the country's political opposition wants it to be nationalised.

For more than 10 years, locals who live near the mine have sporadically protested against alleged environmental damage they insist is caused by the mine, saying that waste products from the gold extraction procedure have poisoned their water supply. That argument has now turned political. At the beginning of May, a Kyrgyz government commission started looking into the potential for environmental damage caused by unstable waste heaps at Kumtor and, on May 27, around 200 protesters gathered in the village of Saruu near the mine, saying they want Centerra to build a hospital and a pharmacy providing locals with free medicine. The size of the rally grew. Protesters were joined by opposition politicians and activists and the next day as many as 1,000 people had blocked the road to the mine, demanding that the venture be nationalised. An electricity station was seized, cutting off power to Kumtor, and on May 31 protesters clashed with police, resulting in dozens of arrests and the declaration of a state of emergency, which lasted three days.

When the furore had died down, Kyrgyzstan's parliament gave the government another four months to renegotiate the terms of the financial agreement with Centerra Gold and it is uncertain whether talks will shift to booting out Centerra altogether. The Canadian-based company, which has operated Kumtor mine since 1997, said earlier that any negotiations must take "existing legal obligations" into account. However, Kyrgyzstan's track record with business is poor and it's possible that Centerra will at least be subject to sudden, large tax hikes, potentially scaring scare off other foreign companies who had hoped to work in Kyrgyzstan. If it goes the whole way and demands a take-over of the mine, it would be disastrous for the economy. While the gold reserves at the mine are good and there is even potential to begin diamond mining at the same site, Kyrgyzstan does not have the expertise or the open business practices needed to effectively operate it. Since the collapse of the Soviet Union, Kyrgyz people have not had access to the kind of specialist training in engineering needed to work the mine to its full capacity and corruption is so rife that the profits would not necessarily be put back into the business or spent on benefiting the population.

In a different blow to foreigners present in Kyrgyzstan, on May 21, the government declared that it is cancelling the current agreement that it has, allowing US troops to use Manas air base near the capital, Bishkek. The US uses the base mainly to fly troops in and out of Afghanistan and has been a crucial part of operations there. The agreement will be cancelled as of July 11 next year, but as it is scheduled to expire then anyway, it's unclear why the government has made such a statement.

In 2009, the Kyrgyz government jacked up the rent the US pays for the base to $60m, significantly bolstering the state budget. By sending signals that the US is not welcome beyond the exit from Afghanistan next year the government is essentially ruling out the possibility of reaping further revenue from Manas. The US hopes to extend its presence beyond July 2014 and a US State Department spokesperson has downplayed Bishkek's announcement. "Our understanding is this text is a draft of a possible law. Therefore, I'm not going to speculate on hypothetical next steps," the official said. "This does not change our existing agreements or timeline with the Kyrgyz Government."

Poor and unstable, Kyrgyzstan is vulnerable to social and political upheaval when the economy is in bad shape. Tensions between ethnic Uzbeks and Kyrgyz, which erupted in communal violence in the southern cities of Osh and Jalalabad most recently in 2010, leading to the deaths of 1,000, could resurface at any time and more extreme forms of Islam are gaining a firmer hold. Most people survive on remittances sent home from migrant workers in Russia and elsewhere, and the revenue that Kyrgyzstan makes from the airbase at Manas and from Kumtor form a large part of the 103 billion soms state budget (around $2.2 billion), a portion it can't afford to lose, but almost certainly will.
 

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