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Kyrgyz Economy and Business hints for Investors

30 Aug

Table of Contents

 

   1.   Introduction………..………………………………………………………………….      2

1.1   Objective…………………………………………………………………………      2

1.2      Approach and Structure…………………………………………………………     6

2.      Dynamics of Transition Economies: some theoretical insights..……………      8

2.1      Economic transition is as a type of Economic System…………………………..     8

2.2      The Emergency of Post Soviet Space in 1992-2005…………………………….   11

3.      Politics of Kyrgyzstan after Soviet Union. …………………………………………    14

3.1          Kyrgyz Policy and the beginning of new Sovereignty of Republic…………….    14

3.2          Kyrgyzstan and Geo-politics……………….…………………………..………     17

3.3          Influence of Corruption …………………………………………………………     22

4.      Economy of Kyrgyzstan after Soviet Union………………………………………..    24

4.1     Macro-economic policies of the government since 1991……….……………….   24

4.2      Towards a new level of Integration: Eurasian Union…………..…………………  27

5.        The Emergence of a Business Sector in Kyrgyzstan………………………………..    33

5.1          Early stage growth of Local Business Process…………………………………..    33

5.2          Types and Structure of Businesses: small, medium and large Enterprises……..    34

5.3          Importance of Local Culture for Business………..…………………………….    37

5.4          The Evolution of Kyrgyz Business and influence of Kyrgyz Policy…………….    39

6.           Kumtor Gold Mining Company Case Study ……..………………………………..    43

6.1      Cyanide disaster accident …………………………………………………………   46

7.          Conclusion…………………………………………….………………….….………   48

8.          Bibliography …………………………………………………………………………   53

9.          Annex ……………………………………………………………………………….     58

10.       Affidavit …………………………………………………………………………….    62

 

 

 

 

                                                                                                                                                               

Transformation of Post-Soviet Economy:

Case of Business in Kyrgyzstan.

1.          Introduction

 

  • Objective

 

There have been dramatic changes in every sovereign state of Union of Soviet Socialist Republics (USSR) and in the whole global community of it. However, this change was preceded by dismantling ideological, technological and political stereotypes. The collapse of the bipolar political system of USSR conditioned the transformation of the emergence of independent post-Soviet states and characterized their economies into a qualitatively different state by its dramatic changes in the structure of human activity, society and the state’s role in the mechanism of management in the late 1980s (Zhbanov, 2004).

 

I used a wide range of sources in researching my bachelor thesis, like: monographs and educational literature, interviews, document analysis, official documents, newspapers and analytical reports of international organizations about Kyrgyzstan’s condition according to Bertelsmann Index Report 2015 and Human Development Index and a Global Competitiveness index in World Economic Forum (WEM). However, it is important to notice that there were not wide information and other international sources about Kyrgyzstan and it was hard to search for it.
This thesis is about the economies of transition in Eastern Europe and the former Soviet Union between 1991 and 2005 and devoted to solve the interrelated problems: the analysis methods of post-socialist countries transition to a market economy;  the need to identify a transition economy and its individual institutions as a special object of study; assessing the effectiveness of the economic system of Kyrgyz Republic (KR) from the point of matching its economic and political institutions of a market status. It gives wide range of scope about Kyrgyz Policy and Economy.

This research paper contributes with good prognoses and helps for business people who are interested in opening their or doing their start up businesses in Kyrgyzstan. Nevertheless, it analyses the previous and new important laws for determining an effective strategy for the further development of Kyrgyzstan and the creation of an adequate public policy to new businessmen. The importance of society which needs self-determination and self-identification based on what just might move forward.
The subject of thesis is the economic mechanism and the features of its formation in the transition economies of the former Soviet space and its influence on other countries, in particular case of Kyrgyzstan. The changes taking place in a transition economy by leading ultimately to a change in the economic system and in socio-political terms.  Transitional periods are often accompanied by a sharp aggravation of the contradictions that lead to social and political upheavals. Furthermore, I would like to give more information about Political and economic dynamics of Kyrgyzstan. It is a short economical overview of Kyrgyz Republic.

Indicator Measurement Value Source
Population 2011 mill. 5,5 http://www.imf.org
Population 2017 (prognosis) mill. 5,9 http://www.imf.org
       
GDP 2011 bln Euro 3,9 http://trade.ec.europa.eu
GDP 2017 (prognosis) bln Euro 6,3 http://www.imf.org/
Import – sum 2010 bln Euro 5,4 http://trade.ec.europa.eu
  Imported goods Oil, machinery, chemicals    
Export – sum 2010 bln Euro 0,8 http://trade.ec.europa.eu
  Exported goods Gold, food    
       
Road freight transport (2008) 1000 tonnes 31.891 UNECE Transport Database

Table 1: Kyrgyzstan. FLAVIA, Public Document by Technical University applied Sciences Wildau, Germany, 2012.

Its capital and largest city is Bishkek. With a 5, 5 million populations, country is followed by significant minorities of Uzbeks and Russians. The official language is Kyrgyz which is closely related to the other Turkic languages.

The production of building materials (cement, glass, bricks) and textile products are the leading branches in manufacturing. Exporting goods are gold, uranium, meat, wool and food beverages.

As mentioned by Ministry of Economy: “The Kyrgyz economy is increasing the share of the service sector, which contributes more to Gross Domestic Product (GDP) than agriculture. Through membership in the World Trade Organization (WTO) Kyrgyzstan has managed to become a kind of “staging post” in the trade of the region. Goods produced mainly in China, and export directly to Kyrgyzstan and from there exported to neighbouring countries and Russia” (Berdakov D., 2015).

Until 2009, the country has been a steady upward trend in non-productive sectors of the economy, it was caused by a small risk when investing capital, provide low capital intensity of these industries, quick turnover of market presence. The need for maintenance and the need to import more modern communication led to a steady increase in the development of communication and transport.

Kyrgyzstan as a state system of the system is degraded. Over the years the search of identity ideology rollback, corruption has become the main enemy of the state as a system of making and implementing strategic decisions. The country is like there, people – also, but who will put into practice the common interests – is unclear. The government in fact is not only thief’s officials and traffic police taking bribes and above all to ensure the system of global security and socio-economic development, which is based on the authority of government and law enforcement (Flavia, 2012).

Corruption is one of unsolvable problem for the whole Central Asia countries, as you see in the following table the most of the neighbour countries which surrounds each other are well got used and living with the corruption and lobbying.

Kazakhstan
Uzbekistan
Turkey

 Figure 1: Corruption index 2012. Source: Corruption perception index 2012.

The economy of Kyrgyzstan is based on corruption. In year 2010, Revolution targeted corruption and thus increased competition among rival corrupt enterprises in Kyrgyzstan. The scheme of corruption includes government agencies and local officials along with criminal elements. As well, Street-level bribes are paid up in return to impunity guaranteed by a corrupt judiciary.

In order to get favourable decision, or licenses, or permits from the Kyrgyz Government, even a foreign company planning to do business in Kyrgyzstan is to pay bribes and kickbacks. Businessmen should know to whom, how much and when they should pay regular illegal shares.

Next method of case study was interview with Daniiyar Tologonov about ‘Kyrgyz Business today’ who is currently working in a Ministry of Foreign Affairs (MFA) in Bishkek, Kyrgyzstan. In this interview, I had a chance to ask number of questions which are not really effectively and successfully answered by Daniiyar Tologonov. He rejected that corruption does not exist at all. As well, he gave lot of suggestion to our foreign business people in opening and dealing with local Kyrgyz people. He started by giving the following suggestions which are really helpful to know or to remember:

Political life in Kyrgyzstan is generally better not to comment and criticize the prevailing way of life in Kyrgyzstan, even not to humiliate national dignity and don’t make a conflict. On emerging issues should consult the “opinion leaders” by the authorities in this area.

Entering to the Kyrgyz market without preparation and analysis of the economic situation by establishing close relations only with senior government officials it is a common mistake that leads to a variety of negative consequences, which take into account the advance is not possible. The general agreement in Kyrgyzstan does not mean resolving issues and creating conditions for business development, but only a prerequisite for the harmonization of procedures.

According to D. Tologonov, should not place undue trust local people in areas such as recruitment, security and choice of business strategy. In recruiting senior managers from the local residents to consider their relationship, affiliation to a particular set of clans. For the middle managers from the locals is better to give preference born and educated in major cities of the country. In recruiting line managers look for graduates: they are more progressive and less connected clan obligations advised D. Tologonov.

So, if you start in Kyrgyzstan big business, you need a formal (at the level of legal agreements) and informal support of the supreme bodies of state power of the Kyrgyz Republic. If the scale of your initiatives is more modest, you still need a formal and informal support from the regional government of the Kyrgyz Republic. It is advisable to avoid the intersection of the interests of the company with the interests of the state or representatives of the clans in power in Kyrgyzstan.

In a small business in Kyrgyzstan has to conduct business almost entirely “at your own risk”, but informal support from the heads of local communities is also a necessary.

Doing business in Kyrgyzstan is possible for everyone who is ready to open his or her own business. It is possible in continuation even, the long-term cooperation, franchising or joint venture, all the kind of entry modes are allowable. As our first president Askar Akaev used to say “Kyrgyzstan is our common home”, you welcome to do your business at any time or whenever you want, concluded Daniiyar Tologonov.

The case study of my bachelor research is Kumtor Gold mining company. I took this cooperation as a sample in order to show that there is an opportunity to open or cooperate in this sphere further. As we know, Kyrgyzstan is full of unopened natural recourses, which needs high technologies and successfully to cooperate in the future.  Kumtor Gold mining company is Kyrgyzstan’s main budgetable cooperation together with Canadian Centerra Gold Inc. The project was signed in Toronto on December 4, 1992. Centerra Gold Inc. is a gold mining company focused on operating, developing, exploring and acquiring gold properties primarily in Asia, the former Soviet Union and other emerging markets worldwide. Centerra is a leading North American-based gold producer and is the largest Western-based gold producer in Central Asia.

In the case of Kumtor Gold mining company, there are more critical ideas of local people who are not supporting the government’s decision in getting the benefits from it. It tends to be more damaging and pollution of ecology. Local people not getting the compensation for harming their health and even for the disaster that company made the cyanide accident which poured full of toxic lorry in to the river from where local people drink the potable water.

The corruption schemes are flourishing in business authorization. Permits are routinely issued by the government agencies for bribes, kickbacks or sweetheart deals. Nowadays, government and public offices are sold, in order to obtain a government position, you have to pay a lump sum upfront.

According to this case, I wanted to take an interview from Kumtor Gold mining company, unfortunately, it was a waste of time trying twice to enter the inside of company. Later I talked some security staffs about my interview but it was useless as well. Via telephone and e-mail, it was ignored and all the time was find several reasons to not take an interview.

After some local people’s discussion I found that company is avoiding giving some interviews even not to eager answer for some arguments after the cyanide accident.

These are the criticizing part of my research part, which still considers actual unsolved problems. Even, here as well plays the role of corruption, which lets the giant corporation to harm the local people in order to get its interest.

Furthermore, I would like to analyse about newly entered Eurasian Union and its advantages and disadvantages from my neutral point of view.

 

 1.2 Approach and Structure

 

The purpose of my research is the identification of the institutional patterns of economic development  and to explain the transformation processes in the post-socialist countries on the basis of a study of reform of the economic mechanism. Based on my analyses the main ways of transition of different post-Soviet countries is to identify the main approaches to the formation mechanism of management to a market economy (Alice, 2004. p.113). The features of the formation of Kyrgyzstan are the mechanism of economic management market-oriented and consider its development in different periods. To analyze the development and the extent to which the legal institution of the Republic of Kyrgyzstan demands of a market economy.

 

The overview of Transformation of Post Soviet Economy and Case of doing a business in Kyrgyzstan  switches slowly in terms of historical time process  and interrelated with nowadays actual issues, which covers in this bachelor’s thesis by being consisted of 7 chapters in chronological order. Each chapter carefully approaches and reviews the impact of applied policies of Soviet Union and more detailed case of Kyrgyzstan. This research starts by defining the historical functioning the Transformation Economy of Post Soviet Union, and Case of Kyrgyzstan after the demolition. In a chronological order follows the relevance of Kyrgyz policy and economy, doing a business in Kyrgyzstan, types and methods are discussed step by step in this dissertation paper.

In the first chapter, it explains the general overview of research paper’s objectives, methods, approach and its structures. The second chapter reveal the essence of the economy in transition by introducing and characterizing its main components and analyzes the various options for the post-Soviet countries in dynamics of transition from a command to a market economy, notes features, positive and negative effects of it. Way of how they made transition Economies by giving detailed explanation to the term Transition. Then follows the short introduction about Kyrgyzstan and its economic condition and version of the transition is considered in comparison with the experience of other countries. The third chapter explains the policy of Kyrgyzstan after Soviet Union (SU), as well, together with economic growth of Kyrgyzstan with the relation of Post Soviet countries.

The fourth chapter gives an economic overview in different spheres to the country and advantages and disadvantages of entering to the Eurasian Union. And in the next to following chapters discusses about the evolution, structure and culture of business in Kyrgyzstan. Firstly, it is about introduction to local business and its types, and then follows with the discussion of the legal framework of doing business and its procedure in realizing it in Kyrgyzstan.

By analyzing the last chapter, I will discuss one of the well doing international company about Kumtor Gold mining Cooperation as an example. As stated, qualitative data was gathered via expert interview with Daniiyar Tologonov about ‘Kyrgyz Business today’ who is currently working in a Ministry of Foreign Affairs (MFA) in Bishkek, Kyrgyzstan. In this interview, I had a chance to ask number of questions which is really effectively and successfully answered by Daniiyar Tologonov. As well, he gave lot of suggestion to our foreign business people in opening and dealing with local Kyrgyz people and their business culture.

 

 

(1) Objective and Structure
Over viewing of whole thesis objectives and purposes
(2) Dynamics of Transition Economies: some theoretical insights
Approach to Transition and Emergency of Post Soviet Space
(3) Politics of KR after Soviet Union
Approach to Kyrgyz Policy and Geo-politics
(4) Economy of KR after Sovereignty
Approach to Macroeconomy of KR and new level of Integration: Eurasian Union
(5) The Emergence of Business Sector
Evolution of local Business and importance of Business Culture
(6) Kumtor Gold Mining Company Case Study
Researching the KGC and its influence to Government
(7) Conclusion
Summary

 

Table 2: Thesis Structure

 

The summarizing part analyses the following questions: What types of Business in Kyrgyzstan? Is Kyrgyzstan ready for international Business? What should Government do against corruption? After analysing these questions, follows rankings among other world organizations and different international rankings of different types of rankings to show the Government’s level in other and different spheres. 

 

CHAPTER TWO

 

THE DYNAMICS OF TRANSITION ECONOMIES: SOME THEORETICAL INSIGHTS

 

2.1   Economic transition is as a type of Economic System.

Every economic system passes through the stages of formation, development and decline of the mature state under the formation of a new system. Since the late 1980s, the economic system is different from a number of sustainable features from all previous in the USSR and parallel to the existing systems in the world. Firstly, this system was developed on the basis of public ownership of production and hence has stemmed its fundamental differences from capitalism.
Secondly, economic life was oriented to the principles of “one factory” and in the management of established planning and prescriptive approach. The state tried to direct the vital functions of labor groups determined their functional orientation, adjusted to their prospective and current plans for all major indicators. The company was disabled in decision-making on managing and directing the farms (Alice, 2004. p.115).
An economic system which is based on public ownership allows to concentrate on material and human resources in key areas of society and provides powerful breakthroughs in the key sectors of economic activity. However, this system was doomed to failure in USSR’s history. According to Zhbanov, the normal functioning and increasing economy came into conflict with centralized policy management. The Soviet Union was not able to gain the achievements of scientific and technological revolution in the second part and the economy has entered the stage of extinction. There was a need for a change in property relations as the foundation of the entire system of economic relations. Thus, the failure of the Soviet administrative-command system of economic management was the objective cause of the need for transformation of the newly formed sovereign states in a market economy.

The market system includes: the variety of forms of ownership; individual initiative and free enterprise; development of competition; availability of personnel and business experience of interaction of state structures with the risk; availability of economic and legal barriers in the ways of the desire to undivided domination of the monopolies (Zhbanov, 2004).

However, the transition economies are characterized by a kind of “intermediate” state of society where the old system of social and economic relations and institutions destroyed and reformed and the new system started to emerge. Today, the exact definition of a transition economy is not based on its basic terms, we can say that the transition is called a type of economic system in which the transformation of management mechanism from command to market principles (Akerlof and Kranotn, 2010).
According to Akerlof and Kranotn, the transition economy is characterized by the following features:

Firstly, the transition economies are characterized by volatility, instability, bearing the “irrevocable” nature. They do not just temporarily disrupt the stability of the system and then it returned to a state of equilibrium by weakening and gradually gives way to a different economic system. On the one hand, this instability makes the unstable transition economy, changes the special dynamism of its development and increase the uncertainty of the transition economy in the formation of a new system of options. Secondly, the transition economies is a kind of mixture of old and new which characterized by the existence of special transitional economic forms. Thirdly, a transition economy has a special character of contradictions. This is contrary to the new and old, the various contradictions behind those or other subjects of relations of society. The changes taking place in a transition economy by leading ultimately to a change in the economic system and in socio-political terms.  Transitional periods are often accompanied by a sharp aggravation of the contradictions that lead to social and political upheavals. Fourth, a feature of the transition economy is USSR’s historicity, due to the peculiarities of economic development of individual countries. The problems faced by Eastern European countries and newly independent States, formerly part of the Soviet Union more difficult than the problems of Latin American countries  where the hundreds, the thousands of market institutions and the number of state-owned enterprises to be previously privatized. In addition, specific levels of development of each country are responsible for the specificity of the percolation of transition. General regularities in the transition economies receive various forms of manifestation in different conditions. All this must be considered when developing programs of reform of the economic system in the transition period. The process of transformation of the economic system of the state from a command economy to a market mechanism called a transition supported Belarussian writer Podvitsky in ‘Golden League’ Newspaper Vol. 34. Issue14.
According to Podvitsky, the transition period is a special time in the evolution of the economy, when one system comes from the historical arena and the other comes from new born and approved by the State. Therefore, the development of transition economy has a special character which differs from the usual and normal economic development. The transition period from a command to a market economic system is characterized by great originality. Today’s developed countries have shifted from the traditional agrarian economy to a market, and this change was accompanied by the industrial revolution which was the material basis for the transformation of production and society.
Thus, the establishment of industrial bases of capitalist society led to the growth in private ownership, the development of forms of ownership, as a shareholder and the state monopoly. The administrative-command system was based on the absolute dominance of state property and one of the main tasks of the transitional period was denationalization and privatization of state property. There were established diverse forms of ownership which are called collective, private, cooperative, state, etc… In the transition to a market economy was an objective law of restructuring the organizational and economic structure of the economy through demonopolization, decentralization, deconcentration of production control and extensive development of small and medium-sized businesses.
The transformation of property relations, organizational and economic structure of the economy means the establishment of new relations of production. For the transition necessary to restructure production and technological structure of the economy, but it is not a simple change in the ratio of its various sectors and areas.

The specifics of the socio-economic processes began in the late 1990s which fundamentally change the all subsystems of the economic formation of society: government, social, property rights, economic structure (of hotel its branches, complexes), because it is assumed that the change is an economic system itself.

As for A. Podvitsky, the economic system is a combination of public and private sectors. The economic basis of its transformation is evolutionary development of relations of the property and management types which accordingly manifested as an increase in the variety of forms and directions of development

Summarising the transition process, it is impossible to quickly replace existing forms of new and the impossibility of such an approach, according to which one must first destroy all the old and then create a new one. In other words, during the transition period long enough preserved the old forms and at the same time there are the growth of new forms and relations. This means that there are implemented succession and inheritance plays a great role in the gradual changes of the economy and as well, in the socio-economic development.
2.2 The Emergency of Post Soviet Space in 1992-2005.

 

Since 1989 as known in history, after the collapse of the Soviet Union, many countries in Europe and Central Asia (ECA) are experiencing unprecedented political, economic and social changes. This period is often referred to as a transition.
The collapse of the Soviet Union and the subsequent transition to a market economy occurred incredibly fast and the scale of this process was unprecedented. The transition to a market economy has been associated with enormous difficulties, such as the serious imbalances in the economy and the collapse of trade relations and the lack of market institutions. An important role in this process played the international economic organizations, such as: the World Bank Group (WB), International Monetary Fund (IMF) and etc. These kind of organizations provided advice and technical assistance to lend reform projects and provide free assistance (grants) to countries with economies in transition (UNICEF, 2001).
As for Alice K., the policy discipline promoted the most consistently in Estonia, Hungary and Poland. This variant of the transition was the most painful for the economies of those countries and has been named by “shock therapy” by exposing the problems of the economy and a sharp decline in incomes and living standards. Indeed, the forced transformation entailed the fastest results as well, which included the negative results in the beginning.
Bulgaria, Kyrgyz Republic, Moldova, Romania, Russian Federation and Ukraine liberalized their economies, but for a long time they were unable to maintain discipline through hard budget constraints and they could not contain illicit enrichment and misappropriation of assets by a law or administrative control. In the context of weak discipline on old enterprises complicates the incentives and the competition for resources between the old and new enterprises. Russia and Ukraine are at an early stage of the transition process stimulated the entry of new businesses. But state capture a narrow range of stakeholders in old factories and closely related new entry of companies in the later stages of the transition process and created an unfavourable investment climate. The result gave a system of protectionism and selective incentives (Druta, 1991. pp.1-5).

There was no liberalization or tightening budget constraints in Belarus, Turkmenistan and Uzbekistan. It created powerful disincentives for the entry of new businesses. Access to foreign currency loans on special terms softened budget constraints for state enterprises. However, this element of discipline was achieved due to a protectionist regime which prevented the entry of new enterprises as well as small and medium-sized enterprises (Ellman, 2000, pp. 603-630).
According to Hamm P., Stuckler D.and King.L., it is shown in their book which is called: ‘Mass privatization, state capacity and economic growth in post-communist countries: firm- and country level evidence’ pp. 295-324. They explain that in most countries the economic reforms were stable. Many countries with economies in transition in a short time had a price and trade liberalization. The experience of reform in countries such as Poland and Russia (restructuring of the coal industry) and Bulgaria (pension reform), suggest that no matter how well developed the reform, the pace of its implementation is largely dependent on the Government’s interest in its implementation and the reform could get the support of society as a whole. Well-informed civil society often became one of the main “driving forces” transformations concluded P.Hamm and his co-writers.

The effectiveness of the implementation of the reform reflect well the results of a study of the World Bank in the report “Business 2005″which was published in September 2004. Dynamics of this review was a part of a study to assess the investment climate in the world and judging the degree of investment attractiveness of the economy of a country as a result indicator of the success or failure of the reforms. In 2004, out of 145 countries analyzed by the World Bank, 58 have improved the business climate, deregulated business and strengthened the institution of private property. Champions of reforms became Slovakia and Colombia, where it was introduced electronic method of registering new companies, simplified procedures for obtaining loans and adopting a flexible labour market laws (Jacoby, 2004).
As for W. Jacoby, in Slovakia, Armenia, Russia and Kazakhstan will need 17 weeks to dismiss an employee, in Belarus – 21 weeks, in the Ukraine – 94 and in Romania – 98 weeks with an average duration of 35 weeks of dismissal. The report “Business 2005” notes that the high cost and complexity of creating and registering property are associated with low levels of investment, a high share of the informal sector and corruption. Today, register property in Lithuania can be 3 days, in Russia – for 37, in Belarus – 6.5 months, in Croatia this process take about three years (UNICEF, 2001).
Countries such as Slovakia (9), Albania (9) and Latvia (8) are on a par with developed countries. Weak legal rights have entrepreneurs in Poland and Russia. Croatia, Lithuania, Kazakhstan, Belarus and other ten countries in Europe and Central Asia (ECA) have credit information index (0 to 6, where 6 – the most comprehensive access to information of this type) is “0” and only the Czech Republic, Poland and Estonia have established a system of credit registry estimated at 5 points on this indicator. The region is the least time-consuming to solve contract dispute were in Estonia (150 days), Lithuania (154 days), Latvia (189 days) and Armenia (195 days). Belarus occupies the fifth position on this indicator (250 days) with an average length of proceedings by the ECA in 416 days, but the cost of this process reaches 20.7% of gross income per capita 21th result. It uses in order to prevent the misappropriation of funds and identify the necessary legal protection of shareholders, the ability to fulfil the commitments and the provision of information about the owners of companies and financial data (Kolsto, 2002).

According to P. Kolsto, by 2004, privatization of small enterprises has been virtually completed and in most countries started to privatize large objects. Although the reform of the financial sector, public sector, social security system, the restructuring of enterprises and competition were at a slower pace. In all transition countries the share of private sector in Gross Domestic Product (GDP) reached almost 70% and eight countries in Central and Eastern Europe (CEE) and the Baltic States joined the European Union (EU). 

 

CHAPTER THREE

 

POLITICS IN KYRGYZSTAN AFTER SOVIET UNION.

 

  • Kyrgyz Policy and the beginning of new Sovereignty of Republic.

 

Kyrgyzstan or formerly known as Kirghizia during the Soviet Union. Nowadays officially called Kyrgyz Republic, it is a mountainous country in Central Asia. Kyrgyzstan is bordered by Kazakhstan to the north, Uzbekistan to the west, Tajikistan to the southwest and China to the east.

Figure 2: Political Map of Kyrgyzstan. Source: One World Nations Online

 

Bishkek is a capital of Kyrgyzstan, there are about 5, 7 million populations followed by significant minorities of Uzbeks and Russians. The official language is Kyrgyz which is closely related to the other Turkic languages, although Russian remains widely spoken, a legacy of a century-long policy of Russia.

Figure 3, Source: BTI 2014, Kyrgyzstan

 

Kyrgyzstan is a multi-ethnic unitary state. The country’s territory is administratively divided into seven regions: Batken, Jalal-Abad, Osh, Naryn, Talas, Chui, Issyk-Kul and the capital city Bishkek.

The period immediately preceding and following independence saw a proliferation of political groups of various sizes and platforms. Although President Akayev emerged from the strongest of those groups, in the early 1990s no organized party system developed either around Akayev or in opposition to him. In the 1990s, numerous political parties with a variety of agendas developed, but few had broad national followings.

The Communist Party of Kyrgyzstan (CPK), which was the only legal political party during the Soviet years, was abolished in 1991 in the aftermath of the failed coup against the Gorbachev government of the Soviet Union. A successor, the Kyrgyzstan Communist Party, was allowed to register in September 1992. It elected two deputies to the lower house of parliament in 1995. In that party, significant oppositionists include past republic leader Absamat Masaliyev, a former first secretary of the CPK. The 1995 election also gave a deputy’s mandate to T. Usubaliyev, who had been head of the CPK and leader of the republic between 1964 and 1982. Another party with many former communist officials is the Republican People’s Party. Two other, smaller neocommunist parties are the Social Democrats of Kyrgyzstan, which gained three seats in the upper house and eight seats in the lower house of the 1995 parliament and the People’s Party of Kyrgyzstan, which holds three seats in the lower house.

Nowadays, it is more than eight parties in KR, which are struggling each other for better condition of the country. The first parliamentary election was voted by in the first referendum in year 2010, which I was as well in the row of commission for voting the fair election here in Berlin. These are the actual parties which are doing well since that year:

Table 3, source: Kyrgyzstan – Political Parties. 2015.

As of 2012 Political parties and leaders included Ata Jurt, (Fatherland) Kamchybek Tashiyev; Social Democratic Party of Kyrgyzstan, Chynybai Tursunbekov; Ar Namys (Dignity) Party, Feliks Kulov; Ata-Meken (Fatherland) Party, Omurbek Tekebaev; Respublika, Omurbek Babanov; Butun Kyrgyzstan Party, Usen Sydykov; Zamandash (Contemporary) Party, Muktarbek Omurakunov; Ak Shumkar (White Falcon) Party, Temir Sariyev.

The parliamentary election occurs every five years; the next election is scheduled for 4 October, 2015.

In this election appeared two new and young Parties: “Bir bol” which means “Be together” and second Party is “Onuguu” means “Progress”. The main differentiations of these two Parties are: young, well educated, experienced and motivated generation who are struggling to push out the old system and old political clans, make a new wave of generation.

Mass of people were waiting these kinds of Party reform changes before it, now, about 60-70 percent of population are eager to vote for them. I also took part in their Program sharing meeting, top newly good ideas and reforms were discussed. As for me, Old Parties are against for these two young Parties, because they do not want to fail in this election.

 

3.2 Kyrgyzstan and Geo-politics: Living under the shadow of Russia and the importance of US

 

The first agreement on the basics and new principles of interstate relations of Kyrgyzstan and Russia was signed June 21, 1991. After the collapse of the USSR, the most of young independent states faced with the task of forming the legal base and with international law.

The first document of this kind are: the Protocol on establishing diplomatic relations between the Republic of Kyrgyzstan and the Russian Federation (20 March 1992) and the Protocol on cooperation and coordination between the Ministries of Foreign Affairs (24 April 1992).

June 10, 1992 for the first time in history signed equitable “Treaty of Friendship, Cooperation and Mutual Assistance between the Republic of Kyrgyzstan and the Russian Federation,” which stated: “… Based on the historically strong ties between the two states, the good tradition of dialogue, friendship and cooperation of their peoples, as well as the foundations started in the previous years of cooperation between the Republic of Kyrgyzstan and the Russian Federation.

The High Contracting Parties shall build their relations as friendly states, consistent with the principles of mutual respect for sovereignty and territorial integrity, the peaceful settlement of disputes and non-use of force or threat of force, including economic and other means of pressure, equality and non-interference in internal affairs, respect for and observance of human rights and fundamental freedoms, conscientious fulfilment of obligations, and other universally recognized norms of international law ” (Country Reports, 2015).

The agreement laid friendly relations between two equal sovereign states, thus opening a new page in their history.

Kyrgyzstan and Russia exchanged embassies, jointly create a favourable environment for the diplomatic service. But the first economic difficulties and lack of enforcement of contracts, different positions on debt netting led to the fact that good agreements and joint statements stalled. The matter was compounded by ethnicity is not always correct, personnel and language policy. It’s no secret that in the first years of independence allowed a lot of mistakes in internal and foreign policies of the two states. These errors have caused a lot of negative effects, destroyed the old system of values and created uncertainty, anxiety among people in the former Soviet space. The growth of social and ethnic tensions, deepen property differentiation, worsening the lives of most of the population, the gap of industrial, cultural and scientific ties, the migration of Russian-speaking population – all this has become a reality (Country Reports, 2015).

In this situation before the political leadership of Kyrgyzstan and Russia sharply raised the question of the social costs of the reforms, their sense of the need to move from public declarations of commitment to international law to take concrete steps to prevent the negative phenomena.
The euphoria of the first years of independence, political and socio-economic reforms on the establishment of economic relations and the integration process is gradually giving way to a sober assessment of the situation, long-term forecasts and the development of strategic priorities. At the same time more and more enhanced role and importance of Russia to Kyrgyzstan, which largely affected the military-terrorist activities of the Mujahideen in the south. The role of the joint Kyrgyz-Russian activities aimed at strengthening regional security and borders to combat drug trafficking and so on.

Kyrgyzstan’s credibility as an international partner suffered considerably during Bakiyev’s reign, and the current president has drawn a contrast with his own behavior. The ex-president was infamous for manipulating rival interests surrounding the U.S. Manas Transit Center and Russia’s $2 billion credit. He first declared that he would expel the U.S. center, only to change his mind two months later. The current president Almazbek Atambayev has underscored his intention to be a more consistent partner, and the Manas base closure, should it take place as scheduled in mid-2014, will be the test case. He has made it clear that, although partnership with the United States and the European Union is in the national interest, Russia is the country’s chief political and economic ally. It is important to note that A. Atambayev started out his term striking a noticeably independent posture in foreign policy, with some criticism aimed at Russia, along with close courting of China, Turkey and several other partners. Though a more pro-Russian orientation soon emerged, a fair degree of cooperative tone with the other partners has also been maintained.

Current president prefers near neighbours’ support than far one, in this case USA. Nowadays, US Army base is moved out of KR, after the contract finished. For this case Russia played a great role by supporting in all spheres, like strengthening the Kyrgyz borders by sending Russian Army and enlarged Russian Army Base which is located in Kant near to capital city Bishkek. (BTI Report, 2014).

 

Russia and Kyrgyzstan have created a lot of real preconditions for the formation of a common economic space. But all these measures will bring the desired result if the two countries fail to implement principles such as economic mutual benefit, mutual assistance, legal guarantees compatibility purposes and motivations, responsibility commitments (Country Reports, 2015).
The policy and mechanisms of the two states aimed for cooperation at stimulating the interaction between the horizontal markets and provide protection from unfair actions of economic entities.

Since 1991, the Kyrgyz Republic and the Russian Federation signed about 100 agreements on trade and economic cooperation. Potential needs of Kyrgyzstan and Russia suggest a significant expansion of export-import operations. The market economy brings about changes in the volume of trade and the range of goods. The Kyrgyz Republic will always need the metal, wood, oil, mineral fertilizers. Even in the long term, there is no more cost-effective source of their production than Russia.

However, there are some critical facts about Russia were published by Alan Beattie in Financial Times with the head writing: ‘Russia, an economic black hole for its neighbours’. According to Alan Beattie, Moscow’s attempt to build a regional trading bloc with a diverse range of products has been a dismal failure. Russia has tried to create an alternative centre of economic gravity to the EU, but the only countries it can persuade to participate have to be bribed or bullied into joining through Moscow’s control over gas supply. Having failed to diversify its own economy and remaining dependent on food and other consumer goods from abroad, Russia’s attempts to punish trading partners by restricting imports inflicts far more damage on itself.

Central and eastern European countries and particularly the former Soviet states have for some time been presented with a choice between orienting economically towards Russia or towards the west. The EU has offered trade access (and full membership for some) and encouraged governments to lock in to the global trading system by joining the WTO. Russia has built a customs union comprising itself, Belarus and Kazakhstan, rather ambitiously named it the Eurasian Economic Union, and expounded a great deal of energy trying to bounce the likes of Ukraine, Armenia and Kyrgyzstan into it.

Certainly, customs union membership is not transforming Belarus and Kazakhstan into economic wonderlands. Like Russia, Kazakhstan exports mainly oil and other minerals: it does not benefit from trading with a very similar economy. Russia has used the common external tariff feature of the customs union to force Kazakhstan to raise import taxes, discouraging trade with other countries and in effect preventing it from joining the WTO. Meanwhile, Belarus wants to undo the structural reform programme of Tsar Alexander II and reintroduce serfdom, not generally a move espoused by countries looking to move up the value chain (Alan B., 2014).

 

According to Alan Beattie argument in Financial Times that Georgia has long exported its famous fruit, vegetables and wine to Russia; Ukraine, one of the world’s great grain producers, was always regarded as the breadbasket of the Soviet Union. But Ukraine sells as much to the EU as to Russia (about a quarter of exports to each in 2012). It would be disastrous to plump for a jealous and capricious trading partner who tries to exclude all other relationships and periodically cuts off commerce in a geopolitical tantrum. Russia imposed a six-year embargo on Georgian wine and fruit in 2006 after Tbilisi moved politically away from Moscow following the Rose Revolution, similarly blocked Moldovan wine the same year after disagreements over the breakaway and last year banned chocolates made by a company owned by Petro Poroshenko, then merely a pro-European oligarch and now Ukraine’s president.

Russia’s customs union is not a trading bloc: it is a protection racket – and not a very successful one concluded Alan Beattie. Moscow’s menacing entreaties to others to join become less credible as geographical and economic distance from Russia increases. Even the threat of a gas embargo is increasingly impotent the more it is used: the reliance on pipelines for gas distribution means Russia and Europe are locked into mutually assured destruction. Central and western Europe would be hit very hard by a total gas embargo, but Russia’s economy would be destroyed.

Prospects for the development of trade between the two states are linked, firstly, with the search for effective models of development and ways out of economic crisis; Secondly, the progress of market reforms and structural reorganization; Third, with the problem of non-payment; Fourth, with increased efficiency; Fifth, with economic recovery and strengthening of the integration trends in the CIS as a whole (Libman and Golovnin, 2010, p.10).

The latter condition is especially important for Kyrgyzstan and Russia. The parties concurred that economic policy of both countries should focus on the development of the external market and the protection of domestic producers and the improvement of capacity utilization. Since independence for Kyrgyzstan there was a problem of attracting foreign investment and additional financial resources. Russia was among those who are in difficult times come to the aid, which had a diverse nature – credits, loans, part of which was transferred free of charge. In 1993, in the most difficult time for the country, Russia has allocated commodity loan in the amount of 22 million Dollars. The money was used to purchase inventory items for industry, agriculture and the needs of the state broadcasting company and for the publishers of the Ministry of Internal Affairs. In May 1994, the country has accepted the humanitarian aid for 500 mln. Rubles. Significant amount of loans Kyrgyzstan was able to return, and some of them due to difficulties in the economy remained unreturned. As a result, the external debt of Kyrgyzstan Russia amounted to more than 130 million US dollars. Considering the difficult financial situation of Kyrgyzstan, the Russian side again went forward and on 9 December 1996 was signed an intergovernmental agreement on debt restructuring (Country Reports, 2015).

Another point in Kyrgyz-Russian relations at the present stage is forced migration. The peak it accounted for 1992-1993, when Kyrgyzstan have left hundreds of thousands of people, mostly resettled in Russia. According to the National Statistics Committee, today in Kyrgyzstan there are more than 700,000 ethnic Russians, or about 15% of the population. The Russian diaspora currently holds the second position after the indigenous population. Analysis of the migration situation shows that there is a new wave of migration of Russian-speaking population appeared at the end of 1999. After joining Custom Union, Kyrgyz citizens get allowance to stay and work without permission, patent or registration to work in Russian Federation. This kind of easiness was included in ratification of CU for interest of Kyrgyz citizens.

 

3.3 Influence of Corruption.

 

Nowadays, the corruption is the main problem of the country’s economy;  failure to comply with the rules, laws and regulations, the deterioration of the investment climate, reducing investor confidence, reducing the loan portfolio quality, the lack of clear and understandable guidance in infrastructure reform and tariff policy.

Corruption remains a serious problem at all levels and in all sectors of Kyrgyz society and the economy. According to the Transparency International Corruption Perception Index, in 2012 the Kyrgyz Republic ranked 154th out of 176 countries surveyed. Kyrgyz politicians and citizens alike are aware of the systemic corruption but the problem is deeply entrenched and difficult to fight. Moreover, many in the Kyrgyz Republic view paying of bribes as the most efficient way to receive government assistance and many, albeit indirectly, gain benefits from corrupt practices.

The corruption perceptions index scores countries on how corrupt their public sectors are in figure one can be seen. As an explanation it is unsolvable problem for the whole Central Asia countries, as you see in the Figure 1,  you can easily see the most of the neighbour countries which surrounds each other are well got used and living with the corruption and lobbying.

The Kyrgyz Republic is a signatory of the UN Anticorruption Convention but not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The Kyrgyz Government recently announced a number of initiatives to fight corruption. Current President Almazbek Atambayev established a new anticorruption service within the State Committee on National Security. The service has taken action against a limited number of ministers and parliamentarians.

The Kyrgyz Government encourages all companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials, but not all companies have effective internal controls. The Kyrgyz Republic has laws that criminalize giving and accepting a bribe, with penalties ranging from a small administrative fine to a prison sentence, but the government’s active enforcement of these laws is uneven. While, at times, senior government officials take anti-corruption efforts seriously, a truly serious, sustained effort would probably result in more consistent enforcement of the existing laws.

Operating a business in Kyrgyz Republic will likely involve some or all of the following experiences. The Government of the Kyrgyz Republic issues special license plates to foreign business owners, which the police target for regular stops. Foreign businesses may also find themselves the subject of frequent tax audits and have a variety of inspectors consistently visiting their establishments. Each experience opens the door for bribery.

Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law (Pike, 2013).

Summarizing about the corruption, it is the second illness of post Soviet countries after Government Instability. Each country is struggling by changing their anti corruptional methods and structures. According to President A. Atambaev, ‘each person should start from himself to be getting rid of corrupted or lobbied; in this case we can help to ourselves, to government and to environment’.  As well through media, government invests its contribution by filming short films anti corruption which show and teach the young generation very effectively.

It results positively; even in statistics of government is available to note that results are better than previous year. So it helps and my point of view is to support each other and work together. It is the best way to win the corruption and good motivated movement of government.

 

CHAPTER FOUR

 

THE ECONOMY OF KYRGYZTAN AFTER SOVIET UNION

 

4.1 Macro-economic policies of the government since 1991.
In year 1989, Kyrgyzstan was announced as an independent sovereign Republic after the demolition of Soviet Union. New born government suffered in financially and as well morally was not ready to regulate. As the first regulator was Askar Akaev, later he was elected as a first president of a new Kyrgyz Republic. It was so hard for him to start to rule the country which has never been before, even, country without its own currency. People lived in poverty. Mass of people started to immigrate to neighbour countries. As I remember, my parents as well switched to work in Russia and Kazakhstan. A lot of children stayed at home without parents. These 10 years were so hard for young government. From year 2000, it started being better, government found the way and took the regulation better than before.

President A. Akaev developed the agriculture sector, trading with other neighbour countries, exporting the tobacco and cotton to Russia and China and getting the credits and mortgages with small interests for countrymen helped to get out from the financial crises.
The production of building materials (cement, glass, bricks) and textile products are the leading branches in manufacturing. As mentioned by Kyrgyz Ministry of Economy: “The Kyrgyz economy is increasing the share of the service sector, which contributes more to GDP than agriculture. Through membership in the WTO Kyrgyzstan has managed to become a kind of “staging post” in the trade of the region. Goods produced mainly in China, come to Kyrgyzstan and from there exported to neighbouring countries and Russia”.

Until 2009, the country has been a steady upward trend in non-productive sectors of the economy, it was caused by a small risk when investing capital, provide low capital intensity of these industries, quick turnover, market presence. The need for maintenance and the need to import more modern communication led to a steady increase in the development of communication and transport (NSC, 2008).
In the 2000s year the volume of foreign investments in Kyrgyz economy topped Canada, then followed the United States and China. The most attractive for large foreign investors stayed Gold. In 2007 the volume of foreign investments in the economy amounted to 468 million dollars. In 2008, it reached 586 million dollars. In 2009, the total inflow of investments into the national economy is still growing, but considerably reduced Chinese investments.

The decline in investment from the CIS amounted to more than 35%, Kazakhstan – 40%; has been a marked reduction in Chinese investments and Russian rose slightly. The investment climate in the country worsened the April and June events of 2010 and the change of political power. Investors took a cautious stance, which led to a reduction of foreign investment in almost all sectors of the national economy.
Foreign direct investment (FDI) into the economy of the republic in January – June 2010 amounted to 229.1 million USD, I.e. compared to the same period of 2009 to 74.1% (309.1 million). Of these, the share of non-CIS countries in January-June 2010 (Canada, UK and China) accounted for 89.2% against the same period of 2009. Among the CIS countries in the first half of 2010 compared to the same period of 2009 investment flow has decreased to 15.6%. The outflow of foreign direct investment in the first half of 2010 (96.1 million USD, 42% of FDI received) was caused by the return of most of the loans received from foreign co-owners of enterprises and retail loans, which accounted for 90.5%. From finance investment outflows amounted to 43.5%, processing industry 22.7%, trade and repair of motor vehicles, household goods and personal items 19.2% (NSC, 2008).

 

Table 4: Basic macroeconomic indicators in Kyrgyzstan 2001-2011.

Indicators 01 02 03 04 05 06 07 08 09 10 11
GDP bln. Soms
bln. Dollars.
73,8833

 

75,3667

 

83,8716

 

94,3507

 

100,899

2,5

113,800

2,8

141,897

3,8

187,991

5,1

201,222

4,6

212,000

4,6

46,6

0,98

Agricultural production
at current prices, in billion $
        96 101,8 101,8 100,9 107,4 97,2 100,5
GDP in %         84,1 75,8 59,4 34,3 58,4 60,9  
Level of unemployment  in %         3,3 3,5 3,3 2,9 2,6 2,6 2,6

Sources: National Statistical Committee (NSC) of Kyrgyzstan, the Kyrgyz Republic Statistical Yearbook 2008, the Ministry of Social Labor of Kyrgyz Republic.

Table shows the last ten years results between 2001 till 2011, how the country is dealing in the sphere of Agriculture, its Gross Domestic Product (GDP) and level of Unemployment.

In 2002, Kyrgyzstan as a whole managed to cope with inflation, for a long time it remained the lowest among the CIS countries. But in middle 2008, it exceeded the level of 30%. In 2009, due to lower world commodity prices and a slowdown in demand in the country there was a sharp reduction in inflation to 16% 83 (NSC, 2008).

Real gross domestic product in 2007 compared to 2001 increased by 52.1%, while the gross value added of industry increased by 14.5, agriculture – 17.2, construction – 33.8%. However, political events in 2005 will continue in 2006 and 2007 and ended June 2010, actually stopped the growth of the economy (decline in GDP growth in 2005 to 0.2%). Although by 2007 it managed to overcome the recession. In 2006, GDP growth was 3.1% and in 2007 – 8.2, in 2008 – 3.4%. In 2005-2008 it reached to 13% while the share of industry in GDP (see Table 3).

 

Agriculture is the main sector in Kyrgyzstan, according to the landscape, it is about 90 percent is surrounded by mountains. Cattle breeding play a great role by exporting the meat, leather and wool to other neighbour countries like: China, Kazakhstan, Turkey and Russia.

Thus, over the years of independence, to overcome the systemic crisis has arisen a number of measures to create the foundations of a market economy, such as the introduction of the national currency, the distribution of arable land privatization. The economy has become more open. This will stop hyperinflation, to form the private sector, foundations of a market infrastructure, to pursue an independent monetary policy and resume economic growth. Real GDP in 2007 compared to 2001 increased by 52.1%, while the gross value added of industry increased by 14.5%, agriculture – 17.2%, construction – 33.8% (NSC, 2008).

 

  • Towards a new level of Integration: Eurasian Union.

 

The Eurasian Economic Community (EurAsEC) is considered the most successful and promising integration project in the post-Soviet space. This structure was created as a result of a failed attempt to integrate formed after the collapse of the USSR new independent states in the form in which it was conceived in the framework of the CIS. Creating an international regional economic organization consisting of Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan was the logical culmination of the process of gradual transformation of the five associations of the Commonwealth, have chosen the path of real economic integration. The first step in this direction was the signing in 1995 of the “Agreement on the Customs Union between Russia and Belarus,” which is then joined by Kazakhstan, Kyrgyzstan, Tajikistan and Armenia later.

Figure 4, Evrazes Map. Source: http://www.evrazes.com

 

In October 2000, Member countries signed the “Agreement on the Establishment of the Eurasian Economic Community” designed to translate the interaction partners in a real way of integration. Distinctive features of the new alliance is to the body system, the mechanism of decision-making and control over their implementation, as well as in the principles of the budget and in the distribution of votes, taking into account the economic weight of the Member States (Berdakov, 2015).

The main goal of Kyrgyz integration is a reindustrialization. There is a chance replaced the re-export of the economy with the share of small-scale agriculture will turn to a completely different view thereof: will actively develop the mining cluster of large-scale agriculture, the local garment industry.
The Customs Union (CU) is only the first stage of mutually beneficial economic cooperation, the Eurasian Economic Space (EES) and the Eurasian Economic Community (EurAsEC), Kyrgyzstan will receive benefits for a whole range of areas:
1) Facilitating activities for migrant workers. They do not need to obtain a work permit, and their children will be able to get to kindergarten and schools, they themselves will be able to receive medical treatment as citizens of the CU.

2) A single energy market within the EEA will allow Kyrgyzstan to gain access to oil and gas at preferential prices.

3) The single market for services, which involves mutual recognition of licenses and permits for business, the ability to carry out these activities without establishment of a legal entity, national treatment and most favored nation without exception will enable our businesses to reduce costs and give them access to markets CU countries.

4) Creating a common financial market will promote the development of investment cooperation of the Customs Union and the Common Economic Space. Removing the barriers to the mutual access of financial services, creation of a common capital market will ensure the efficient allocation of capital, diversify risks and increase competition in the financial services market, improve their quality and reduce the cost of credit to the economy. With the arrival of our market leading Russian and Kazakh banks to reduce the cost of mortgage loans cheaper (Berdakov, 2015).
As a WTO member since 1998, Kyrgyzstan retains liberal foreign trade policy. Thanks to Kyrgyzstan’s early WTO membership, compared to its neighbours, the country has become a regional transit hub for goods from China and Russia. Since 1998, Kyrgyzstan foreign trade volume has increased 330%. WTO membership helped Kyrgyzstan fend off some negative repercussions of Belarus-Russia-Kazakhstan Customs Union, which tends to maintain higher trade tariffs. In this reporting period, Kyrgyzstan was in the process of discussions to join the customs union, which has been a divisive issue among entrepreneurs in the country (BTI Report, 2014).

 

However, it should be noted that it is also risky to accompany the process of accession of Kyrgyzstan to the Custom Union (CU). Firstly, there can be the growth of prices for local food (vegetables, fruits and meat), higher prices of clothing and household appliances. The thing is changing tariff rates. Now Kyrgyz customs rate is 35 cents per kilogram of product. Upon entering the customs TC minimum rate will be 4 Euros – a difference of 1 kilogram of goods amounted to 200 250 Soms. However, with the good work of the government, a change of duties to Kyrgyz consumers will not hit. Let me give a simple example: the cost of imported men’s shirt grow up to 30 Soms. It’s no secret sellers Dordoi in retail trade increase the price of imported goods several times.
The situation with the country’s entry into the Customs Union brings to the fore a number of non-economic issues: solvency of the state, social structure of society, the role of government in the country, the dominance of comprador elites, creating a real working development ideology.

 

However, some analysts arguing that Russia Pushes Kyrgyzstan to Adopt Draconian Legislation Ahead of Joining Customs Union, it is not free entry, it is an interest of Russian policy. Russia is pushing by restricting the Kyrgyz immigrants who are working in territory of Russian Federation, demanding from them to leave the country or to lead them so called Black list which not allows reenter the border. That is why Kyrgyz current President A. Atambaev accelerated the process to sign the contract as soon as possible. Almost, all Parliament members voted for entering to CU (Ebi, 2014).

The country has become a center for re-export distillation of products from China, the United Arab Emirates, Turkey, the CIS and Eastern Europe. The numbers are staggering: 9/10 of all goods passing through the territory of the Kyrgyz Republic sent on for re-export. A certain circle of people has its share in the form of minimum customs rate (28 cents per 1 kg according to simplified customs clearance. Indeed, Dordoi’s growth has been particularly spectacular over the last 5 years, following Kazakhstan’s accession to the ECU and EEU in 2010, which made it much more cost effective for Chinese goods to pass through Kyrgyzstan instead (see figure 5).

Figure: 5, Carrec Corridor. Source: Asian Development Bank CARREC corridor

At present, overall logistics services for Chinese cargo shipments to Kazakhstan costs roughly $80,000-100,000 per truck, more than tripling over the last four years. By contrast, similar trucking costs from China to Bishkek are roughly only $12,000, giving the latter a considerable logistical advantage.

Using Kazakhstan’s previous experience as a guide, accession to the ECU – which includes Russia, Kazakhstan and Belarus – would result in a significant required increase in trading costs with all non-ECU members, through the imposition both of higher tariffs – currently, the average ECU import tariff is 7.8 per cent vs. 5.4 per cent in Kyrgyzstan – and stricter technical and quality standards. Independent estimates suggest that China-Kyrgyz logistics costs could rise from $12,000 to anywhere between $65,000-100,000, negating much of its competitive advantage (Gavin, 2014).

Some industry experts are convinced that Kazakhstan seeks to recapture the significant profits that Kyrgyz operators are enjoying from the re-export trade. Recent months have seen a crackdown on “shuttle traders” – mostly small tradesmen selling across the border from Kyrgyzstan into Kazakhstan – on the Kazakh side of the border.

 

Last year, even the minimum customs duties gave 36 billion Soms, it is more than a third of the total budget revenues in Kyrgyzstan. Also, it is a significant contribution to the national economy are making money migrant workers (about $ 2 billion) and income from operations of the Kumtor gold mining Company (Berdakov, 2015).

This model allows us to live and that the State and society, which was formed by a socio-economic model over the past decade. The state represented by the clan oligarchy as possible has withdrawn from the economy, of course, leaving the number of inspectors currently functions as an inexhaustible source of income. Weak public suit all participants carve Soviet legacy infrastructure.

However, the trough was under serious threat: after Kazakhstan became the CU to block the illegal re-export the goods and not everything can legally carry on technical regulations, re-export trade (which is 85-90% of the flow of goods coming through the market “Dordoi”) became going through hard times. If prior to January 1, 2012 on the market “Dordoi” call in the order of 200 cars per day, now only 50 cars (Gavin, 2014).
Any customs union is the next stage of economic integration after the free trade zone. It is a form of collective protection of their goods from third countries when cancelled customs duties between the countries – participants of such alliances, but applies a common customs tariff and other measures to regulate trade with third countries. This is a theoretical understanding of this phenomenon, as the Customs Union. In practice this means that Kyrgyzstan will benefit from entry into the vehicle if it is to promote the development of its industry. Re-export, of course, is more favourable, but the era of re-export objective sunk into oblivion. Its markets to foreign goods re-export of the Customs Union countries will not give up.
It is necessary to improve the business environment, fight corruption and create an infrastructure for business, and then the possibility of 170- million market of the Customs Union will give a powerful impetus to the development of new industries in the country. Customs union is a zone of relatively fierce competition between the major state and oligarchic corporations, and our state apparatus will need to clearly defend the interests of our country in this struggle.

Therefore, Kyrgyzstan as a country have to run as fast just to stay in the same place, and to start the development need to run twice faster ( Berdakov, 2015).

 CHAPTER FIVE

 

THE EMERGENCE OF BUSINESS SECTOR IN KYRGYZSTAN

 

 

  • Early stage growth of Local Business Process

 

The starting point of the state support of small business concept appeared in 1989, when the Soviet Union was created by the small state-owned enterprises of the USSR. In the same year it was made position of the organization of activity of small enterprises. Such enterprises were considered at the time the company created by the founders and working on the principle of self-sufficiency and self-financing. The number of staff working in small enterprises should not be more than 100 people. Regulations provide for the procedure for opening, reorganization and liquidation of these companies. The document defines the planning and reporting of the above organizations. However, the definition of small enterprises has been formulated clearly, because they did not have explicit status.

Small businesses can also engage in foreign trade activities in international exhibitions to carry out export-import operations.

The provisions of the program provides targeted funding small businesses for the year 1996 for this purpose the Federal Small Business Support Fund has been allocated 386.6 billion rubles. These funds, in turn, should be reallocated from now on regional SME support funds for the implementation of specific support for small businesses. Thus, the program included the formation of a unified state system for support and development of small business (Libman and Golovnin, 2010, p.10).

The aim of the second program of the Federal Small Business Support for 1996-1997 was to ensure the sustainable development of small businesses in manufacturing and innovation and other areas. It develops the concept of mutual credit societies and the mechanism of state guarantees for loans and investment trust. Particular attention was paid to support the PM in crisis and depressed areas (Burla, 2005).

At that time, there were about thousands of small businesses. However, their main problem remained survival. Small business at the time did not have sufficient support in the regions of Kyrgyzstan. Due to inflation, high taxes, lack of sufficient financial resources many enterprises were liquidated within a few months after registration. The new program includes support to these organizations in the region in terms of small business lending. Regional funds were to provide assistance in the field of guarantee of collateral, direct concessional lending to banks to compensate part of the lost interest on a contractual basis at their own expense.

 

5.2 Types and Structure of Businesses: Small, Medium and Large Enterprises.
With the transformation of post-industrial society in the new information age hyperspace for the task you need to seriously consider the innovation process, as it is responsible for the successful development of small and medium-sized businesses in Kyrgyzstan. Types of Businesses are:

Micro-enterprises are very small businesses. They often include the individual rarely two owners, as well as the scope of the family business. Most micro-enterprises have little capital; they have limited technical and business skills. The majority of these companies demonstrate the viability of small businesses.

Medium-sized enterprises are on the edge of small and large firms. As a rule, the average company understands that manager under the control of the owners, shareholders and subject to the upper limit of the limit values ​​set for the small business.

Entrepreneurship – is a completely new type of business, based on the innovative behaviour of the owner of the company, which has a deep thinking, based on a high intellectual capital. Entrepreneurship has its roots from the time of the merchants, that they were called entrepreneurs and compared with financiers.

Entrepreneurship is one of the key elements of the economic life of all societies, not just a sample of the market. It seems deeply mistaken position of those scientists who believe that entrepreneurship in Kyrgyzstan – it is almost a new kind of social and economic activities of the population. During the years of Soviet power in the country was lost experience entrepreneurship. In the USSR, it was virtually banned from the late 30s of the last century (Tenenbaum, 1994, p.6).

One of the major problems in the economic life of Kyrgyzstan is to support small and medium-sized businesses, which is carried out at the state level. Serious support for small and medium-sized businesses will not only solve the economic, but also social problems. In addition, since small businesses can respond more quickly to changing market demands, it will meet the demand of consumers (Baetov, 1998, p.7).

Particular attention paid to the state authorities to young entrepreneurs, making the first steps in a small business. First of all, the young entrepreneur can receive consultations of experts who will assist in company registration, business plan development or recruitment.

In addition, support for small and medium business is reflected in the provision of soft loans to enable businesses to increase working capital or to purchase the necessary equipment. It should be borne in mind that support for small and medium businesses do not only central but also local authorities, who organize seminars and consultations with leading experts in various fields are developing their own programs to support small businesses.

In many regions of Kyrgyzstan to build business centers, which are focused on small businesses, where entrepreneurs will be able not only to remove a room at a good rental rate, but also to obtain all the necessary conditions for successful work. Compact arrangement of small businesses will create the necessary atmosphere for creativity, which is important for many companies involved in the development of innovative technologies (Omurzakov, 1998, pp.120-126).

Another way to support small and medium-sized businesses is to simplify the process of business registration and reduced the number of inspections by the regulatory authorities.

Also, in order to support small and medium-sized businesses, many state orders for the production of goods or services are placed in the form of tenders, which allows entrepreneurs to find a profitable job that will provide good profit enterprise. Despite the best efforts of government agencies, small and medium enterprises are developing in KR is more slowly. While in many foreign countries, small businesses create most of the GDP, while in Kyrgyzstan small businesses cannot compete with government agencies or by the number of employed people, not profit or turnover.

Support for small and medium enterprises is one of the most important tasks set by the Government of Kyrgyzstan in the development plans of the country in 2010. According to the politician, it is the support of entrepreneurship, small and medium-sized businesses will bring the country out of economic crisis (Sammigulin, 1998, pp.4-7).

According to Sammigulin, “Time forward” – the famous slogan of the first Soviet five-year plans, when the country was built, studied and raised such entrepreneurs. They were entrepreneurs of the highest class. However, we emphasize that in the 30 years it was forbidden in the Soviet Union is not business, and profit at the expense of the exploitation of wage labor.

Recently in the press and on television, people revealed the words business and entrepreneurship concepts. Entrepreneurship creates the preconditions for the emergence and operation of the business and by introducing innovations in the functioning market explodes its structure, thus provoking the emergence of an extensive network of strong business.

Business takes the palm and starts using embedded innovation, thereby contributing to the emergence of a strong ramified business, which further calms the market until the next new introduction of innovations from the business. In this small business for any economic activity is profitable, even it is small enterprise.

Thus, business and entrepreneurship are inextricably linked structures can affect the development of the economy and individual regions. Now this view is shared by many politicians, economists and practice, but according to their own statement of recognition of the importance of entrepreneurship is still underestimated in our country.

That is why the government needs to change the priorities of socio-economic policy, the essence of which is to move from the export of raw materials and energy to the production and export of industrial products.

Obviously, the solution to this problem will require a significant increase in the competitiveness of Kyrgyzstan industrial products and as a consequence of the development of entrepreneurship both small and large.

One of analyzing object of the thesis is to develop and realize the state support of small and medium enterprises in Kyrgyzstan.

We assume that the successful development of small business depends on the performances of its information infrastructure, monitoring surveillance, regulatory and legal framework on which the activities take place, support from the state.

 

5.3 Importance of Local Culture for Business

In order to answer mass of questions how to open or is it possible to open, what is a culture of Business in Kyrgyzstan and etc. This part of the thesis answers for all people who are interested in that sphere and interview with kyrgyz experts. The first interview is about ‘Kyrgyz Business today’ with Daniiyar Tologonov who is currently working as an Assistant of Ministry of Internal Affairs (MIA) in Bishkek, Kyrgyzstan. In this interview, I had a chance to ask number of questions which is really effectively and successfully answered by Daniiyar Tologonov. As well, he gave lot of suggestion to our foreign business people in opening and dealing with local Kyrgyz people. He started by giving the following suggestions which are really helpful to know or to remember:

It is useful to know the kyrgyz or uzbek languages for businessman in Kyrgyzstan.  As well, it is nice to know to show special respect for the elder local people, to understand religious traditions (for example, it is difficult to change money or to find partners on Friday).

Some traditional way of approaching to local people:

It is desirable to take souvenirs or sweets for the children of the owner if you visiting someone. Before visiting to someone’s home, you should call beforehand.

Local Culture plays a great role in doing business. Here are some simple rules to remember simple everyday communication:

– The hand is usually greeted with only men;

– A handshake is appropriate only if the first woman stretches out his hand;

– Women and persons sitting in the background are greeted by putting his right hand to his heart and accompanying this gesture a slight inclination of the head;

– During the handshake is traditionally interested in health, the state of affairs at work and at home;

Entering to the Kyrgyz market without preparation and analysis of the economic situation, by establishing close relations only with senior government officials it is a common mistake that leads to a variety of negative consequences, which take into account the advance is not possible. The general agreement in Kyrgyzstan does not mean resolving issues and creating conditions for business development, but only a prerequisite for the harmonization of procedures.

According to D. Tologonov, should not place undue trust local people in areas such as recruitment, security, and choice of business strategy. In recruiting senior managers from the local residents to consider their relationship, affiliation to a particular set of clans. For the middle managers from the locals is better to give preference born and educated in major cities of the country. In recruiting line managers look for graduates: they are more progressive, less connected clan obligations advised D. Tologonov.

In carrying out large-scale works in remote areas based on local human resources aiming to ensure that the composition of the governing and the production consisted of representatives of different clans. The case will go better if the management team will consist of representatives from different district of the republic. It is important that PR-strategy for your business has been clear to the local community.

So, if you start in Kyrgyzstan big business, you need a formal (at the level of legal agreements) and informal support of the supreme bodies of state power of the Kyrgyz Republic. It is advisable to also win the support of your project by the public authorities of the Russian Federation.

In a small business in Kyrgyzstan has to conduct business almost entirely “at your own risk”, but informal support from the heads of local communities is also a necessity.

Nice to remember, to develop business in Kyrgyzstan is no more difficult than in other Central Asian countries. Like in other countries, the main communication in Business considers the Internet and mobile communications.

Doing business in Kyrgyzstan is possible for everyone who is ready to open his or her own business. It is possible in continuation even, the long-term cooperation, or franchising, joint venture, all the kind of entry modes are allowable, as our first president used to say “Kyrgyzstan is our common home” concluded Daniiyar Tologonov.

 

5.4 Evolution of Kyrgyz Business and influence of Kyrgyz Policy.

In order to develop the business, it is necessary the assessment of the State. The State regulation of big business as a particular type of business is aimed at reducing the risks associated with its operation. State supports for small business is to reduce the riskiness of small business. In the following Table shows how the most problematic factors which interrupts the local and foreign businessmen. Source was taken from the Bertellsman organization.

Table 5.  The most Problematic factors for doing Business. Source: BTI 2014, Kyrgyzstan

One of the main problems is the instability of government which acts not correctly and directly interrelated with mass of corruption; as well policy is over corrupted. These are the main root of problems which contains more than 50 percent of rankings of survey and still government cannot find the solution how to solve it nowadays. After it follow an inefficient government bureaucracy, inadequately educated workforce and an access to financing sectors almost with an quarter percent from 100 percent. In order to solve these problems, government should start from itself by organizing anti corruption movements and to be stable in a whole process of aiding to business people. Government should support small and medium-sized businesses in the following areas (BTI, 2014):

  • Financial support (formation of government programs providing preferential loans for small businesses, grants, tax and depreciation benefits and so on).
  • Logistical support (various forms of technology and equipment rental of small businesses, the establishment of industrial parks and so on).
  • Advisory and information support (access to technical libraries, databases, advisory and legal services, especially on the creation, management, taxation and so on).
  • Creation of a market infrastructure (local fairs and markets equipment and technologies for small firms, markets and so on).

Nowadays, government supports the small businesses in some developed market countries; most of them are actively developing and growing fast in the most effective type of small business. A major role in the implementation of government’s program plays a form of self-support of small business. In order to strengthen the financial position of entrepreneurs of the developed market economies encourage the union of small and medium enterprises in co-operatives, production, credit and marketing.

In order to promote small businesses and provide state support to small businesses by the Council of Ministers – the Government of Kyrgyzstan has adopted a number of special regulations and laws. They identified the priorities for the development of small businesses and provide assistance in the field of finance and credit, scientific and technical development, logistics and marketing, training and the establishment of tax incentives for small businesses.

No small business is financing from the state budget or supported, mostly small business is often dictated by political considerations (the election campaign, the need to create the image of a democratic politician in the eyes of foreign partners and so on) but not by economic consideration included. There are no influential structures from the government which are interested in the protection of economic and political interests of small businesses (Omurzakov, 1998, pp.120-126).

Of course, the role of the lawyer is equally important for both large and small firms. Help experienced lawyers needed to avoid violations of the law and the opportunities allowed by law. Only the lawyer is able to solve a lot of legal problems, starting with the registration of the company and ending with the rights of consumers. In a large company that uses sustainable business practices Legal Service is usually quite large and consists of a team of lawyers who specialize in specific legal issues of business operation. Small businesses often do not have the ability to include the lawyer as a personal staff. Therefore, worldwide small business actively seeks the help from specialized legal advice.

 

There was a fifth webinar in Russia, so called “The peculiarities of doing business in Kyrgyzstan”, organized by the Russian Federation Business Committee on the economic integration of the CIS. The webinar was attended by over a hundred participants from 26 cities of Russia, including managers and employees of regional chambers, entrepreneurs and representatives of regional ministries and departments. Presentations were made by: Deputy Chairman of the Committee, Advisor to the General Director of “World Trade Center” Boris Pastukhov, Director of the Third Department of the CIS Foreign Ministry of Russia M.A. Peshkov, head of the sector of economic development of post-Soviet states, Member Committee E.M. Kuzmina, and other Trade Representative of the Russian Federation in the Kyrgyz Republic.

Despite the costs on to bring the commodity nomenclature to the requirements of the EurAsEC, the entry of Kyrgyzstan into the Customs Union would be a landmark step towards socio-economic development, concluded Elena Kuzmina. She noted that Russia is the main trade and economic partner of Kyrgyzstan and does not intend to yield to these positions. Kyrgyzstan is rightly ranked among the world leaders in terms of gold, antimony, uranium, lead, silver and other metals, including rare recourses in the earth (Country Reports, 2015).
As the years of experience of doing business with Kyrgyz counterpart’s foreign entrepreneur must openly lobby for the interests of the country of origin of the business. Maxim Peshkov noted that at present the Russian business in Kyrgyzstan is experiencing some difficulties due to the unstable political situation here. He recommended Russian entrepreneurs thrash out contracts and other agreements with Kyrgyzstan strictly follow the precise fulfilment of the obligations and guarantees for contracts to consult with the Russian Embassy in Kyrgyzstan and the Russian Trade Representation in Kyrgyzstan. He advised the Russian businessmen up to organize the political aspects of life in the country in any case not to interrupt the negotiation process.

According to the member of the Committee, Yelena Kuzmina mentioned that the largest partners of Kyrgyzstan are Russia and Kazakhstan, the third place is China, exporting their goods through Kyrgyzstan to the CIS countries. The main income comes from Labour Migration; it covers around 85% of country’s basic income.

For the past twenty years, the economy of Kyrgyzstan developing slowly. As in addition to the factors that influenced the entire post-Soviet space in Kyrgyzstan operates its own factor of political instability. At the same time economic growth was observed in the republic until the global economic crisis.

Kyrgyz production and the food industry today total exceed half of GDP. In recent years, the economy has considerably increased the share of services, strengthen the banking system, increased the number of banks, including by coming to the Kyrgyz economy banks of the Republic of Kazakhstan (Country Reports, 2015).

 

Kyrgyzstan has successfully produced gold, some types of non-ferrous metals of interest to foreign investors. There are a lot of uncovered natural resources and metals like: gold, copper and etc.  One of main and big Corporation is Kumtor which is the biggest Gold mining company in Central Asia. I would like to show it as a case study in this research. Now we can take a look closer and wider into this company in the next following chapter in detail.

 

CHAPTER SIX

 

KUMTOR GOLD MINING COMPANY CASE STUDY.

Kumtor Gold mining company is today’s well doing cooperation together with Canadian Centerra Gold Inc. The project was signed in Toronto on December 4, 1992.  Centerra Gold Inc. is a gold mining company focused on operating, developing, exploring and acquiring gold properties primarily in Asia, the former Soviet Union and other emerging markets worldwide. Centerra is a leading North American-based gold producer and is the largest Western-based gold producer in Central Asia. Centerra’s shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is headquartered in Toronto, Canada.

In 2015 Centerra entered into a new 50/50 Joint Venture (JV) partnership with Premier Gold Mines Limited, to advance the Trans-Canada Project, including the Hardrock Gold Project located in the Geraldton-Beardmore Greenstone belt in Ontario, Canada. Centerra has more than three gold mining projects except Kumtor, which are in Mongolia, Turkey. The largest and highest profitable is Kumtor, as you see in the following table:

Table 6, Source: Centerra Annual Report 2013

The main fair trade product in Kyrgyzstan is gold. “Kumtor Gold mining company” is one of the highest gold deposits in the world and situated in the southern region of the Central Tien-Shan at an altitude of 4,000 meters above sea level. The deposit is located 350 kilometres from Bishkek, the capital of the Kyrgyz Republic. In 1992 on December, Kyrgyzstan signed the Kumtor Master Agreement with Canadian Cameco Corporation, which is one of the world’s largest uranium producers in Toronto. In February 1993, Kumtor Operating Company was created. The name of Kumtor Gold Project comes from the local River Kumtor. In 1991, its total gold reserves and resources were estimates by more than 300 tonnes of clean gold in a year (Centerra Annual Report, 2013).

Kumtor Gold Company provides jobs for over 2,500 people. 95 percent of the Company full-time employees are Kyrgyz citizens and this proportion is ever growing as the result of foreign managerial personnel being gradually replaced by national employees. A further 1,000 people are contract employees involved in the mine’s operations. Direct contributions and support to the development of infrastructure. In addition, company invests 1% of our revenue annually into the Issyk-Kul Development fund which is used to support development of Issyk-Kul Oblast. You can easily see that government benefits a lot here (KGC, 2013).

Table 7, Source: Kumtor Gold Company (KGC) Report, 2013

Kumtor’s proven and probable mineral reserves total 8.51 million ounces of contained gold as of December 31, 2013 after processing 766,000 contained ounces in 2013. Kumtor’s life-of-mine plan is based only on the open pit reserves and no provision has been made for production from the underground resources. Measured and indicated resources at Kumtor were unchanged at 2.65 million contained ounces and inferred resources were unchanged at 2.64 million contained ounces (KGC, 2012).

The reserves and resources estimated by Centerra and determined in accordance with National Instrument 43-101 which is the same standard used by many international mining companies. Such reserve and resource estimates are based on mining operations continuing until the end of the current life of mine plan in 2026 and do not consider potential mining activities after that time. These estimates also formed the basis of Centerra’s discussions with the Government of the Kyrgyz Republic when they entered into the non-binding Heads of Agreement on the Kumtor Restructuring. The Company will file updated reserve and resource estimates with the appropriate Kyrgyz authorities for their review and approval to facilitate the updating of the Kyrgyz state reserve registry.

Table 8, Source: official website of KGC: the 1st quarter Report 2015.

All 2013 year-end reserves and resources were estimated using a gold price of $1,300 per ounce compared to $1,350 per ounce at December 31, 2012. The change in gold price had no impact on the reserves and resources (KGC, 2013).

Since May 1997 till March 2015, company has produced approximately 10.3 million ounces 311 tonnes of gold. It contributes yearly 2.92 billion Soms to Kyrgyz budget. However, local people were not included in compensation or were not supported by Kyrgyz government. This issue is still arguable and discussion leads to the corruption again (KGC, 2015).

 

6.1 Cyanide disaster accident.

Environment protection and safety are among the Company’s top priorities. In its activities KOC adheres to production and environmental standards accepted by international lending institutions. Kumtor Gold Company is closely following the relevant requirements effective in Canada and Kyrgyzstan as well as those recommended by the World Bank.

Of course there are some disadvantages occurs to locality, like as pollution the water, to environment and ecology.

Figure 6, Polution of Local Lake Issyk Kul. Source: from Local Photographer

In year 1999, there was an accident with toxic cyanide poured to the river Kumtor, this river pours to Issyk Kul Lake, because of this pollution lot of fish died and of course, local people as well injured from chemical pollution through potable water. Company compensated 310 000 USD, but from this amount of compensation nor cent did not reached to local people cause of corrupted government.

Mass of people went out to strike in front of the Kumtor Company even in Capital city Bishkek; however, it is still not positively answered and still considers as actual discussion among Kyrgyz people. Even an interview was not allowed with the staff of the KGC, even from the Government.

Kyrgyzstan ranks 101st in the Environmental Performance Index, significantly down from previous years. Some longstanding problems, such as management of radioactive tail dumps in several places, remain generally neglected, and environmental issues in general remain at the margin of government policies. Most of the visible efforts regarding environmental regulations are concentrated around the Kumtor Gold Company. These efforts are likely to be motivated by political and populist agendas, intended to demonstrate that the government is keeping the company’s Canadian investors in check. Another prominent case in 2011 – 2012 was the importing of allegedly radioactive coal for the Bishkek central heating station from Kazakhstan, which seemed to be more of a political score-settling than an environmental case. According to Osmonbek Artykbayev, head of state inspection on environmental and technical safety, Kyrgyzstan has an elaborate set of environmental regulations, but local governments have been ignoring them. Most NGO work in this area is sustained by international donors (BTI Report, 2014).

 

Summarizing the well doing kyrgyz enterprise, it is profitable and valuable to KR, the only thing needs to be discussed is anti corruption procedure. Even International Companies are contributing to the Government; unfortunately this contribution has not reached to the Budget of Government. This means that some ministers, parliamentarians or some authority parts influencing in Lobbying and Corruption.

According to this case, the case of corruption, I wanted to take an interview from Kumtor Gold mining company, unfortunately, it was a waste of time trying twice to enter the inside of company. Later I talked some security staffs about my interview but it was useless as well. Via telephone and e-mail, it was ignored and all the time was find several reasons to not give an interview.

After some local people’s discussion I found that company is avoiding giving some interviews even not to eager answer for some arguments after the cyanide accident and some local picket against them.

These are the criticizing part of my research part, which still considers actual unsolved problems. Even, here as well plays the role of corruption, which lets the giant corporation to harm the local people in order to get its interest.

Gold brings approximately 10 % of GDP. The company is strongly associated with kickbacks. The Kyrgyz government maintains an approximate one-third stake in the Canadian Centerra Company, which owns the main Kumtor mining. Protracted, on-again  and off-again negotiations are under way over restructuring the Joint Venture or potentially nationalizing the mine.

By analysing the Kumtor’s case, I found out that it is not useful or beneficial to cooperate even with a giant Corporation if the local place is over corrupted. In this case, I mean Kyrgyz Government and its corrupted Policy and its environment.

The Kyrgyz Government recently announced a number of initiatives to fight corruption. Current President Almazbek Atambayev established a new anticorruption service within the State Committee on National Security. The Kyrgyz Government is a signatory of the UN Anticorruption Convention but not party to the Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The service has taken action against a limited number of ministers and parliamentarians. Nowadays, it is acting in a good way and we hope to hear better results for the next year.

 

 

CONCLUSION

 

Economic transition was a phenomenon of the border situation in which the objective necessity of the circumstances proved to the newly independent post-Soviet states. In the early period of this type of transformation of the economic system characterized by the forced destruction of administrative-command type of control, spontaneous formation of market institutions, to streamline the process of creating that played not only the governments but also international organizations. The transition to a market economy has been associated with enormous difficulties, such as the serious imbalances in the economy, the collapse of trade relations, social tensions, growing corruption and crisis situations. A combination of government policies and incentives discipline protectionism and the suppression of entrepreneurial initiative revealed two contrasting one another regime, a combination which identified four alternative ways of transition in post-Soviet states.

The most consistent in reforming the old system of government Estonia, Hungary, Poland succeed in their transition to a market at the first stage, in a short time by taking measures to liberalize trade and prices, privatization of state property, financial sector reform, social security system, the restructuring of enterprises. No matter how well developed the reform, the pace of its implementation is largely dependent on the Government’s interest in its implementation and on whether the reform could gain support of society as a whole. Soft budget constraints and lack of proper management of the public sector in the Czech Republic, Lithuania, Slovakia, Bulgaria, Kyrgyzstan, Moldova, Russia and Ukraine in the context of liberalization of the economy provoked unjust enrichment and misappropriation of assets by means of a law or administrative control. In Belarus, Turkmenistan and Uzbekistan, where there was no liberalization or tightening budget constraints, were created powerful disincentives for the entry of new businesses.

The experience of transition from a centrally planned economy to a market economy is a historically unprecedented process – a process which in any case is not over in many countries of Eastern Europe and the former Soviet Union. It remains to express hope for further discussion of these experiences by policy makers, and the “brain” centers in countries with economies in transition, and in particular in the Republic of Belarus.

There are many factors that can potentially influence the direction of a country’s development after liberation from an imperial dictatorship. In fact, the important question of modern economic theory is how to predict, understand, and explain numerous preconditions and social behaviour under these circumstances. More and more academics now are convinced that there is no across-the-boards scenario for such a break-up, and specific individual or collective choices may be irrational, depending on a multitude of characteristic attitudes of mind inherited by the society from the past. Similar processes are occurring in the post-Soviet countries after two decades of independence. Their experience provides grounds for as cribbing the delay in development to commonly shared Soviet-style values and assumptions. The logical conclusion is that to break through and re-emerge in a viable form, it is necessary not only to improve the economic indicators but also to abandon the old mentality and change the old mindset. It is a long and difficult social process, but one that is of vital importance in bringing about a better future for these fledgling nations (Hamm, Stuckler and King, 2012).

Also, in order to support small and medium-sized businesses, many state orders for the production of goods or services are placed in the form of tenders, which allows entrepreneurs to find a profitable job that will provide good profit enterprise. Despite the best efforts of government agencies, small and medium enterprises are developing in Russia is more slowly. While in many foreign countries, small businesses create most of the GDP, while in Kyrgyzstan small businesses cannot compete with government agencies or by the number of employed people, not profit or turnover.

Support for small and medium enterprises is one of the most important tasks set by the Government of Kyrgyzstan in the development plans of the country in 2010. According to the politician, it is the support of entrepreneurship, small and medium-sized businesses will bring the country out of economic crisis.

We live in an era of market economy, forcing change and improve both people and many business organizations are not only to survive, but to grow and develop, to make a profit and prosper. With the transformation of post-industrial society in the new information age hyperspace for the task you need to seriously consider the innovation process, as it is responsible for the successful development of small and medium-sized businesses. A small company – a company that is not dominant in its field and the owner – it is an independent owner, managing the small number of subordinates compared to other companies in the same industry.

Summarizing the political and economical situation of the country that there are two regime changes since 2005 and have slowed down the pace of economic development of Kyrgyzstan. The country ranks 126th in the world according to Human Development Index, with a Global Competitiveness index of 108 with the score 3,7 from 1-7 ranking, in 2014-2015 the latest data available.

Figure 6, Source: World Economic Forum (WEM), GCI Rankings Report 2014-2015

This puts the country in the relatively mid-range group of countries with a notable but not critical rate of inequality. The percentage of the population living below $2 per day reached 21.7%, suggesting a slow tendency toward improvement over recent years. As in other former Soviet states, the literacy rate remains high over 99% for both males and females but some alternative surveys of secondary education found the country performing rather poorly. The number of women enrolled in tertiary education has been falling over the past two decades.

Obviously, according to the BTI’s Report that Kyrgyzstan faces four major challenges in the coming years. First, the country needs to capitalize on the existing decentralized political system and improve governance practices. Elected officials must resolve to reduce corruption and to improve the professionalism of public officials. The judicial and law-enforcement sectors, in particular, are in dire need of reform. The government and the parliament must learn effective ways of collaborating with Non-governmental Organizations (NGOs) and the citizenry at large. With that, both MPs and government officials must implement policies that benefit the nation at large, as opposed to only their immediate constituencies. The international community could work with the government and civil society groups to build avenues for effective collaboration.

Second, Kyrgyzstan’s political leaders must strive to improve the country’s economic performance by improving the investment climate and reducing the size of the shadow economy. External funds must be channelled toward improving the country’s fiscal system and development prospects, not financing public sector consumption needs. Foreign aid and loans must be spent more transparently and more strategically. Both government and international experts agree that Kyrgyzstan’s mining sector could attract a great deal of foreign investment. But corruption, the unpredictable political environment, and state weakness in dealing with the unconstructive opposition of local communities to mining projects have all deterred foreign investment and other efforts to grow Kyrgyzstan’s economy.

 

Third, Kyrgyzstan must pursue a careful and balanced foreign policy that does not antagonize or play off its key partners, such as Russia, Uzbekistan, Kazakhstan and China, but also manages to maintain and further develop cooperation with countries like United States, the European Union and Turkey. On the eve of 2014, which promises changes in regional political and security dynamics after the planned Western withdrawal from Afghanistan, Kyrgyzstan will do well to cooperate actively and constructively within multilateral initiatives and institutions.

Finally, the president and the parliament must make every effort to restore interethnic peace in southern Kyrgyzstan. In this regard, all relevant activities must be pursued in earnest, including prosecution of all perpetrators of the June 2010 violence, regardless of their ethnic origins or political status. Ethnic Uzbeks and other minority groups must be better represented on both the local and national government levels. Ethnic minorities should also be able to preserve their native language and identity.

Overall, Kyrgyzstan’s stability will largely depend on whether the president, prime minister, and MPs will be able to design viable economic policies. Specifically, if the government fails to deal with the energy and food security issues affecting the majority of the population, it will face new mass protests, both spontaneous rallies and those organized by the opposition. Kyrgyzstan will also be tested as to whether its current decentralized political system can foster good governance and whether the current leadership is able to advance the law enforcement reforms that began following the 2010 regime change. In the best case scenario, the 2015 parliamentary elections will produce more consolidated political alliances that will function as cohesive political entities, presidential power will continue to be checked, and the current president will relinquish the office in 2017, as expected.

 

It is necessary to improve the business environment, fight corruption and create an infrastructure for business, and then the possibility of 170- million market of the Customs Union will give a powerful impetus to the development of new industries in the country. Customs union is a zone of relatively fierce competition between the major state and oligarchic corporations and our state apparatus will need to clearly defend the interests of our country in this struggle.

Therefore, Kyrgyzstan as a country have to run as fast just to stay in the same place, and to start the development need to run twice faster as Russian journalist, Denis Berdakov said in his article.

 
  

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 Annex

Interview with Daniiyar Tologenov

Date: 10.08.2015

Location: Ministry of Foreign Affairs, Bishkek

Interviewee: Daniiyar Tologenov, Chairman of Ministry of Foreign Affairs in Kyrgyzstan

 

 

Eldiar Nyshanov (EN):  Thank you very much Mr. Tologenov for agreeing to this Interview. First off all, I would like to ask about you and which position do you have here?

Daniiyar Tologenov (DT):  I am working here in Special Service Department as an assistant of Chairman. Before I worked in Kyrgyz Embassy in Germany.

EN: Our conversation is about Business in Kyrgyzstan. Tell me please, about doing a Business for today. Is it hard to open start ups here, and what kinds of entry modes are possible?

DT: Doing business in Kyrgyzstan is possible for everyone who is ready to open his or her own business. It is possible in continuation even, the long-term cooperation, franchising or joint venture, all the kind of entry modes are allowable.

EN: What types of Business do we have? Tell me please, does the local culture also play a role in doing a business here?

DT: There are small, medium sized and large businesses here in Kyrgyzstan. In order to open up a new start up takes about from one to two weeks. For registering the so called small sized business it takes one to three days. Of course, local culture is one of the main important things to know it beforehand. Simple things are also play great respect in doing business. It is useful to know the Kyrgyz, Russian, Chinese or Uzbek languages for businessman in Kyrgyzstan.  As well, it is nice to know to show special respect for the elder local people, to understand religious traditions or for example, it is difficult to change money or to find partners on Friday. There are some traditional ways of approaching to local people:

It is desirable to take souvenirs or sweets for the children of the owner if you visiting someone. Here are some simple rules to remember simple everyday communication:

– The hand is usually greeted with only men;

– A handshake is appropriate only if the first woman stretches out his hand;

– Women and persons sitting in the background are greeted by putting his right hand to his heart and accompanying this gesture a slight inclination of the head;

– During the handshake is traditionally interested in health, the state of affairs at work and at home;

EN: Can you call the some large well doing international companies for instance? And what other business types here, does Government support them?

DT: There are a lot of, for example: Kumtor Gold mining company, Reemstma Bishkek, Coca Cola Bottlers, Ülker and others. One of the profitable is Kumtor Gold mining Company which cooperates together with Canadian Centerra Company. Centerra has more than three gold mining projects except Kumtor, which are in Mongolia, Turkey. The largest and highest profitable is Kumtor.

According to small business, nowadays, government supports the small businesses in some developed market countries; most of them are actively developing and growing fast in the most effective type of small business. A major role in the implementation of government’s program plays a form of self-support of small business. In order to strengthen the financial position of entrepreneurs of the developed market economies encourage the union of small and medium enterprises in co-operatives, production, credit and marketing.

In order to promote small businesses and provide state support to small businesses by the Council of Ministers – the Government of Kyrgyzstan has adopted a number of special regulations and laws. They identified the priorities for the development of small businesses and provide assistance in the field of finance and credit, scientific and technical development, logistics and marketing, training and the establishment of tax incentives for small businesses.

EN: What should we do in order to attract the foreign investors or to cooperate with international companies?

DT: Yeah, it depends on situation. But I can give some hints which I think helpful for you.

The first thing is Government’s instability. Every 5th year all kind of revolution and pickets are dismissing our foreign investors and even Businessmen. Secondly, country is over corrupted. It is a disaster for our Business Prosperity. These two are the main problematic factors for our Business Progress.

The only possibility for today is doing the business with neighbour countries together. The same factors occur there and same mentality follows. Nowadays, even Russian business in Kyrgyzstan is experiencing some difficulties due to the unstable political situation here. Russian entrepreneurs thrash out contracts and other agreements with Kyrgyzstan strictly follow the precise fulfilment of the obligations and guarantees for contracts to consult with the Russian Embassy in Kyrgyzstan and the Russian Trade Representation in Kyrgyzstan. As advise: the Russian businessmen up to organize the political aspects of life in the country in any case not to interrupt the negotiation process.

In order to attract the foreign investors, Kyrgyz Government should support them with flexible laws and show them guarantee for further stability and pure cooperation. Give the support for especially newly opened young business to cross over the all barriers which actually they are facing nowadays.

 

EN: You were talking about corruption and instability; tell me please, how can we win these problematic factors or how can we improve the business environment?

DT: There is already anti corruption projects by our President A. Atambaev, which is effectively showing the results for this year. By year 2020, it should disappear; we should show new pure waves of life for our young generation, there is better life without corruption that show Europe countries and even in China.

It is necessary to improve the business environment, fight corruption and create an infrastructure for business, and then the possibility of 170- million market of the Customs Union will give a powerful impetus to the development of new industries in the country. Customs union is a zone of relatively fierce competition between the major state and oligarchic corporations and our state apparatus will need to clearly defend the interests of our country in this struggle.

Therefore, Kyrgyzstan should enter to this Custom Unions. I think it is the only way to develop Business Environment through co- working with our neighbour countries.

 

Russia is the main trade and economic partner of Kyrgyzstan and does not intend to yield to these positions. As Russian President Putin noticed that Kyrgyzstan has good rankings among the world leaders in terms of gold, antimony, uranium, lead, silver and other metals, including rare recourses in the earth. This means, the future of Kyrgyz Business will flourish in coming ten years.

EN: Thank you for your taking time and for useful interview, you did a great contribution for my dissertation.

DT: You are welcome, happy to see you.

 

 

 

“Say Bye Bye to My Fear of Technology”

28 Jun

Few weeks ago, while writing my Blog post about the web browsers I met with this kind of question: which browser is the fastest and the best one? Also last time some of us were arguing about the same questions. Well, I’ve had enough of these unfounded arguments during the semester. That’s why I was eager to test it and now I have a great experience.

As we know, there is a speed war on the web. Browsers compete on many fronts: security, standards support, features and speed. Many organizations and users try to claim that their browser is the fastest. The Opera site claims that Opera is The Fastest Browser on Earth! The Mozilla site claims that Firefox 3.0 empowers you to browse faster. Apple’s Safari pages claim that Safari loads pages more quickly than any other Mac web browser. Internet Explorer users often claim that they use it because of its speed, as the alternatives take longer to start and load pages.

I present my research. This is an honest, get rid of fearing of technology, unbiased view. Unlike most people, I am not only testing all the browsers, I will compare them all on the same computer. Here are the specs of my test system, for comparisons and curiosity:

OS: Windows Vista (64-bit)

Processor: 2 GHz Intel Core 2 Duo processor

Memory: 1 GB

This, I hope, gives an accurate comparison, and also gives a fairly accurate comparison of the different optimizations for each browser.

The testing system

I installed completely fresh copies of the four browsers on my Windows Vista laptop, with all settings left to defaults. It’s the same system I used to test Internet Explorer 7, Firefox 3, Chrome and Opera 9.5, so I can make fair comparisons between all the browsers. It’s not scientific in the strict sense, but it’s meant to measure browser performance as real humans experience it—load, click, and wait. So, then I need a timer, and was preferred using Rob Keir’s simple but millisecond-accurate timer, I launched every action with a dual tap of the enter and “\” keys to set the timer, then tapped the “\” key again when what I wanted to load had arrived.

I re-ran the tests when I thought I’d been slow, and each score below is an average of three or more trials.

I timed each browser loading up “cold” load (straight off a system restart) and “warm” (having run twice already). I used a locally-saved copy of Google’s minimalist home page to negate net connection variations and to compensate for Vista’s start-up fickleness, timed each browser exactly two minutes after boot-up. So after few seconds I came up with these following results:

Test 1: Startup time—Winner: Chrome!

In cold loading, Chrome started up two times faster than Firefox or even IE 8.

Let’s check out the warm boots:

Test 2: Warm loading—Winner: Firefox 3!

A pleasant surprise that Firefox boots faster than others, as well as how quick Opera moves in general, at least compared to Chrome in this test.

Even though Chrome was slower at startup than Firefox or even IE 8, it’s less than a second of difference between them all.

So overall, Google’s new Chrome web browser beta is getting a lot of attention with its nice looking logo, helpful features, and better performance. Firefox is bit faster than Internet Explorer, except for scripting, but for standards support, security and features, it is a better choice. However, it is still not as fast as Opera, and Opera also offers a high level of standards support, security and features. Opera is also, in some points seems to be the fastest browser for Windows, and also is a clear winner using history… Of course, its poor standards and security clearly make it a much less attractive prospect.

Well, that is up to you. I am not going to tell this browser exactly the best one or something so similar, I learned during the test that everything depends on how you use your browser and what you use it for, and what operating system you use it on. Although there is also a little difference in using all these web browsers, most of the major browsers perform very fast, with very little to distinguish between them. So, the choice up to you.

References in easy way to test:

Good luck

„Two turkeys don’t make an eagle, but no penguin will ever soar.”

22 Jun

So I called my post theme. But what does it mean? For whom this quotation belongs? In my previous post I wrote about the vice-president of Google I/O – Vic Gundotra, this saying belongs to him, this announcing is living since February 11, 2011. He meant that Nokia and Microsoft may not make an Apple but neither will Android ever create the future. So there were many arguments after his quoting. Here is an expert of Apple Horace Dediu’s explanation about this situation. He is clearly said that Nokia threw in the towel. Not because they could not build, but because their building processes could not create greatness. Continue reading

Google I/O

14 Jun

Two years ago, while watching Google I/O, I met this talented guy’s name on the screen. Vic Gundotra (born June 14, 1968), is Senior Vice-President of Social for Google and was previously a general manager at Microsoft. Vic Gundotra is senior vice president of Social at Google, responsible for its social products such as +1. Previously he was a Vice President of Engineering responsible for developer evangelism and open source programs. He also manages applications development. Prior to Google, Vic worked 15 years at Microsoft as General Manager of Microsoft’s developer outreach efforts. At Microsoft, he was responsible for a variety of products and operating systems, including Windows 3.0, NT, Windows XP, and Vista.

He is born talented manager and leader, his acting, leading and interest into new technology are familiar to me. Because I am also interested in new creation and technology. He said in his last interview that the time has come for Google I/O, the search giant’s annual developer event. Google uses I/O as a forum for unveiling some of its most significant user-facing innovations and key parts of its technology roadmap.

What is Google I/O?

Google I/O was started in 2008. The “I” and “O” stand for “Innovation in the Open“, and input/output. The format of the event is similar to that of the Google Developer Day.

Google I/O is an annual two-day developer-focused conference held by Google in San Francisco, California Google I/O features highly technical, in-depth sessions focused on building web, mobile, and enterprise applications with Google and open web technologies such as Android, Chrome, Chrome OS, Google APIs, Google Web Toolkit, App Engine, and more. Google I/O 2011 has shown that Google is on a mission and expressed the intention to present its products in nearly all the tech markets. The intention to release its plans within the next several months and years seems to be unreachable. The representatives of Google amplified the idea that their reliance on search and advertising is completed and the new technologies should take place. Now, we can see the foundation for these ideas as Google is trying to get its share in the market of Smartphone. The purchase of AdMob, dated 2009 appeared to be a step in taking part in mobile advertising. Surprisingly, Google didn’t say anything about its development in the market of mobile communication as well as mobile advertising.

The most impressive announcement of Google was Google Music. This very service will provide customers with the access to music over the web. The lucky owners of Androids will be able to reach the music files through the cloud. Seems that Google wants to become a leading player in the market but, now it doesn’t present any threat to the iTunes of Apple.

Here is detailed information, watch it till the end, so interesting to know how world is developing:

http://www.youtube.com/watch?v=OxzucwjFEEs

http://www.google.com/events/io/2010/

http://www.youtube.com/watch?v=IY3U2GXhz44&feature=relmfu

Talk to Your Computer: Chrome Listens and Translates

7 Jun

“As the contract between Mozilla and Google comes to the end in 2011, Mozilla is expected to look out for other partners, as now Google can boost it up for free via Chrome” said Moonjungkoo, in her previous post.  I would also broadly talk about a new web browser– Chrome. Google is really developing its spheres by creating its own browser, video chat, map, translator, mail and etc. I am quite interested in Chrome Browser.

Google’s new Chrome web browser is getting a lot of attention for its slick looks, helpful features, and performance.

Continue reading

Travel by Google Walk

30 May

Last week, when Dr. Bruce showed us about the Google street view, I really interested in it, this was brilliant idea for my next posting. I knew before Google Earth program, but this is extraordinary perfect creation of Google. So I would like to share with others who are unfamiliar with it.

One of the neat features of Google Maps is the ability to get a street view of many urban and suburban areas. The street view is an actual photograph shot with an Immersive Media camera that delivers a 360 degree image of the surroundings. Continue reading

Audi A9 Concept Car Repairs Itself, Changes Body Color.

24 May

As everybody knows I am a great fan of cars, this time as well informing about the new unbelievable Audi A9 Concept car. In my previous post I mentioned about the Knight Rider which changes it is color in that movie, and this creation changes and repairs itself in reality.

This is Audi A9 concept from the reputed Spanish designer Daniel Garcia who has Ducati 6098 R concept. The awesome A9 concept will be lighter than Audi’s current flagship model, A8. Inspiration for the styling of A9 comes from the stunning architectural style of Santiago Calatrava’s buildings in “La Ciudad de las Artes y de las Ciencias in Valencia.

Daniel’s  A9 concept is a low emission hybrid vehicle for the future. A9 concept features a single-piece windscreen and its roof is formed from nanotechnology material (which is yet to be discovered) that has a unique automatic-system that repairs damage and can also be adjusted for colors and opacity.

Continue reading