Investment Environment of the Agricultural Sector in Kyrgyz Republic

Kyrgyz Republic has implemented policies to transition the most liberal and democratic in Central Asia to achieve economic stabilization and restructuring. The country has a market-friendly trade regime, and no exchange controls. They joined the WTO in 1998. Government of Kyrgyzstan is actively working to improve the investment climate in the country. The last five years, investment arrays have been developed and implemented to increase private investment and promote economic growth. In addition, policies to limit inflation, reducing the budget deficit, and maintaining the stability of the real exchange rate has helped to improve the investment climate.

In recent years, inflation was running below 5 percent and som / dollar has remained stable, with some appreciation of the som against U.S. dollar in 2002 and 2003. The budget and current account deficits have improved since 2000. However, macroeconomic fundamentals remain an issue with important implications for the sustainability of future growth and capacity to reduce poverty Kyrgyzstan. These problems are caused by high levels of public spending and public debt, slow important elements of the program of economic reform in the banking sector and poor governance structure. There are also chronic problems of corruption, employment, and inefficiency in the public sector.

The inflow of FDI is important for Kyrgyzstan to achieve sustainable economic growth and improve their export potential. Although domestic savings rose 12 percent to 13 percent of GDP in 2002-2003, the amounts are not yet sufficient for the country. The country also has to limit the growth of external public debt by reducing the scale of the loans financed by the Public Investment Program and grants from international development organizations. And to attract more foreign direct investment necessary financial resources, technology, management, and linkages to export markets.

While the cumulative FDI to Kyrgyzstan were U.S. 453 million U.S. dollars from 1993 to 2001, FDI in 2003 and U.S. $ 2004 147 million and U.S. $ 175 600 000, respectively. With a new investment policy of the government of Kyrgyzstan, inward foreign direct investment shows trend. However, agriculture, processing industries, especially agricultural products still requires stable FDI inflows. While the domestic market for processed foods is low, Kyrgyzstan faces a more difficult competition for agricultural products and foodstuffs. Traditional export markets in the CIS countries are currently building new food import links with China and Europe. consumer expectations in these traditional markets have increased significantly since the 1980

Agriculture and Agro-industry Sector of Kyrgyz Republic

The Kyrgyz Republic’s economy is predominately driven by agriculture and has relatively small manufacturing industry. The agricultural sector contributes nearly 40 percent to the country’s GDP and employs about half of total registered employment. Following the break-up of state owned enterprises, the agricultural sector has increasingly moved away from large scale collective farming to smaller subsistence level of family farming. Specifically, 40 percent of agricultural output is produced by private farmers and 54 percent from family farms.

The major food and agricultural commodities, produced in Kyrgyz Republic are potatoes, wheat, cow milk, sugar beets, and maize. Cotton lint and tobacco leaf are the major exporting agricultural commodities and wheat and sugar are major importing agricultural items.

As part of its effort to stimulate the development of the cotton sector, the government has set aside about 3 percent of total arable land for cotton production. This resulted in growth of cotton production from 75,000 ton in 1995 to about 122,000 ton in 2004. Nearly 80 percent of the cotton is grown by private farmers, which generates almost 5 percent of the total value of the country’s exports. However, high production costs from lack of fertilizers, pesticides, and herbicides weaken the industry and negatively affect country’s cotton export potential. Tobacco is also an important cash crop for the Kyrgyz agricultural sector. However, most of tobacco is grown by state owned enterprises and local value-added production activities are very limited.