Albeit in 2020 Kyrgyzstan experienced a contraction of foreign direct investments due to Covid-19 this post-Soviet republic might become an interesting market for foreign investors who aim at penetrating the Central Asian market which plays a significant role in the geopolitical Eurasian chessboard.
In 2020 Covid-19 hugely affected the global economy and finance with negative consequences for several industrial markets. Looking at Kyrgyzstan, we can state that, especially during the pandemic foreign investors have not yet fully exploited the investment opportunities this Central Asian republic provides.
According to the data reported by the Nacional’nyj statisticheskij komitet Kyrgyzskoj Respubliki (National Statistics Committee of the Republic of Kyrgyzstan), the foreign direct investment s (FDIs) received from January to September 2020 amounted to 398.4 million dollars. FDIs in January-September 2020, compared to the same period in 2019, decreased by 30.9%. The volume of investments directed to geological exploration decreased by 3.5 times, the sphere of information and communication by 21.3%, financial intermediation and insurance by 8.9%, mining enterprises by 9.5%%, and manufacturing industries by 3.7%
Because 238.6 million dollars was re-invested from the received profit (reinvested profit), it is possible to assume that foreign investors did not export their profits but they preferred to re-place inside the country. Considering the amount of reinvested profit, we must underline that Kyrgyzstan received only 159.4 million dollars in the form of cash from foreign countries.
The negative trend registered last year and the consequences of the pandemic might have discouraged foreign investors and businessmen even though Kyrgyzstan is a member of the Eurasian Economic Union (EEU) and is located in a strategic region such as Central Asia at the crossroad of the Belt and Road Initiative (BRI).
Prominent sectors for investments in Kyrgyzstan
According to local and international sources, it appears that the following sectors will be in the near future the most competitive and dynamic:
- Mining: Foreign investors have shown huge interest in this sector. The country has deposits of gold, antimony, iron, uranium and other minerals, attracting FDIs for exploitation activities. China and Russia have vast interests in the mining industry, albeit the Kyrgyz Government aims to attract financial funds for development projects and new technologies, know-how, and expertise to modernise national companies and maximise mining potentialities.
- Tourism: In the first nine months of 2020, tourism attracted only 920 thousand dollars, confirming that Kyrgyzstan is far from the international tourist market. The government has elaborated a strategy to create appropriate conditions for investors to contrast this negative trend. Nowadays, the country has the infrastructure and potentiality to attract FDIs from Russia, China, Kazakhstan, and Arab countries.
- Education: Despite the fact that the level of education in the country has fallen significantly, at present, the interest of students from neighbouring Asian countries in medical education remains quite high. The low cost of education in Kyrgyzstan and the availability of infrastructure preserved since Soviet times characterise Kyrgyzstan as a convenient country for obtaining medical education. Relatively inexpensive and high-quality medical services attract customers from neighbouring countries making Kyrgyzstan a hub that might provide medical and touristic services.
- Hydropower: this field is extremely necessary for Kyrgyz development. Considering the current energy situation in the country, hydroelectric power stations are essential for national needs. As local sources have underlined, it is possible to build several large and small hydroelectric power stations along the Naryn Riverbank. It is necessary to create appropriate conditions for investors and raise the export tariff of electricity to an attractive level to foreign companies.
- Information Technology: if the Government manages to create profitable conditions for foreign investors in IT, the money income might transform the country into a technological hub connected with China, Russia, India, and Central Asia. Adapting Kyrgyzstan to the needs of foreign Hi-Tech companies is the most important step for national economic development. As reported by the High Technology Park of Kyrgyzstan (HTP), after having analysed the performance of 73 domestic companies before the pandemic and the declaration of an emergency the IT sector was registering a positive moment.
Why does it matter?
Because Kyrgyzstan is part of the confrontation between the West, China, and the Russian Federation due to its geographical position in Central Asia, this means that FDIs might become geopolitical leverage and support foreign strategy in the country considering the recent political and socio-economic crisis which the new-elected president Sadyr Zhaparov should manage and overcome.
Furthermore, Kyrgyzstan plays a significative role in the Russian Central Asian strategy because this post-Soviet republic is a member of the Eurasian Economic Union and part of the blizhnee zarubezhe (near abroad). This context might be ascribed to the coming first official visit of Kyrgyz President Zhaparov with Russian President Vladimir Putin.
Author: Giuliano Bifolchi