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2018 results. Golden swings of Kyrgyz economy and problems with investors

The economy of Kyrgyzstan is still heavily dependent on the operation of Kumtor. Kyrgyzstan’s accession to the Eurasian Economic Union with the promised change in the structure of the economy has not influenced it so far. The existing problems exacerbated the protests of the local population against the development of deposits by foreign investors.

24.kg news agency summed up the past year results and outlined the main economic events of 2018.

In a golden trap

All year long the republic’s economy was in a state of fever. If at the beginning of the year everything looked more or less optimistic, then after three months of 2018, its growth slowed down sharply — from 2.3 percent in January to 1.3 percent in April. In the first half of the year, it turned out to be very modest at all — only 0.1 percent. There was even a decline of 0.2 percent since July 2018.

The reason is simple and quite predictable. The economy has slowed due to the fact that the largest gold deposit Kumtor has proceeded to the development of an area with poor ore content. As a result, the export of the precious metal fell sharply immediately affecting the economic performance.

In 2018, Kumtor vividly showed how seriously changes in gold production and exports affected the country’s GDP.

Minister of Economy Oleg Pankratov

The situation has changed at the beginning of the autumn. Development of a site with a higher gold content in the ore began at Kumtor. The economy reacted almost instantly. Growth began after a three-month-long fall.

«We have told about trends in the economy in the middle of the year, about the fact that the situation would change in the beginning of autumn. Our predictions were confirmed. In the first 11 months of 2018, GDP growth reached 3.1 percent. We expect from December to give a few more percentage points. Maybe, by the end of this year (2018), the GDP will grow to 3.5 percent,» Oleg Pankratov commented on the situation to 24.kg news agency.

It is worth noting another fact. Without taking into account the enterprises for the development of Kumtor mine, the indicators of the Kyrgyz economy are rather stable. GDP growth remained positive, remaining at around 2 percent.

At the same time, indicators of industrial production, as well as the entire economy, in contrast to 2017, were mainly provided by textiles, not mining.

Farewell, investor!

An important component of the country’s economy is attraction of investment. Mining sphere is the most capable of attracting them. But in 2018, the authorities of the Kyrgyz Republic reiterated their inability to protect an investor from local residents.

2018 was marked by a new round of rallies against the development of mineral resources in Kyrgyzstan.

The first alarming message appeared in January of 2018. Residents of Ala-Buka district rallied against the development of Solomo gold deposit. And then it rolled like a snowball.

In February, a rally against the development of Shambesai deposit was held in Kadamdzhai district.

In April, protesters set fire to a factory under construction of Makmal Altyn company in Toguz-Toro district. The investor estimated the damage at $ 2 million.

In June, residents of Ala-Buka district opposed the development of Ishtamberdi field. A few days later, residents of Aknazarov rural administration of Bakai-Ata district in Talas region held a rally against gold mining in Urmaral gorge.

The government tried to sort things out. But the events in December 2018 showed that the effort was clearly not enough. Due to provocations by local residents, production at Terek, Terekkan and Perevalnoe deposits was stopped.

If we recall the unfinished negotiations on Kumtor, $ 500,000 fine from developer of Jerooy for, allegedly, not started in time construction and seizure of KAZ Minerals Bozymchak’s accounts for tax evasion, the situation with investors looks stale.

Mining sector from the driving force of attracting investments turns into a scarecrow for large enterprises.

«The difficult investment climate and the ongoing legal struggle with the Canadian firm (the Cabinet’s negotiations with Centerra Gold on Kumtor project. — Note of 24.kg news agency) for the joint ownership structure of the country’s largest gold mine restrain potential investors,» Forbes ranking, published in late December, says.

Eurasian inconsistencies

But the accession of the Kyrgyz Republic to the Eurasian Economic Union over the past year has not yielded tangible results. Officials still talk about the need to build laboratories, remove veterinary posts and increase the supply of goods to the markets of the countries of the Union.

In practice, 90 percent of promises remained only words. We have not completed construction of the laboratories, the outfitting of posts on the external border of EEU is delayed, and Rosselkhoznadzor returns domestic goods in batches due to the lack of required accompanying documents and phytosanitary certificates.

Kyrgyzstan is a member of EEU for the fourth year, but veterinary posts on the border with Kazakhstan have not been removed. No one even predicts when this happens.

However, the Minister of Economy has the opposite opinion. Oleg Pankratov believes that there are changes in the structure of the economy. But they cannot be fast. We must wait at least five or six years, then the comparison will show the true picture.

«We constantly said that joining of EEU would be a stimulus for the transition from a re-export economy to an industrial one. We have created the necessary conditions for this. And today we see the first results. Large and serious enterprises are opened almost every month. These are, for example, the launch of a cement plant in the south with the support of the Russian-Kyrgyz Development Fund, two large enterprises for the assembly of household appliances in the Bishkek Free Economic Zone with the participation of Uzbek partners,» Oleg Pankratov told.

Sharp shocks not expected

According to the analyst of the Economic Analysis Department of the Eurasian Development Bank, Aigul Berdigulova, gold production will remain key in the dynamics of economic growth in 2019. A gradual reduction in precious metal production at Kumtor mine will restrain GDP growth.

«We can outline the consumer demand, which will be determined by the preservation of growth in real cash income, among the factors that can support the economy in 2019,» she said.

According to our estimates, Kyrgyzstan’s GDP will grow by 3.9 percent in 2019.

Aigul Berdigulova, Analyst of the Economic Analysis Department at Eurasian Development Bank

Economy Minister of Kyrgyzstan Oleg Pankratov expects GDP to reach 4 percent this year. There will be no shocks. The year will be, in his opinion, stable, without sharp fluctuations.

The minister reminds that the economy is slowly but growing. And the greater the industrial growth is, the less the influence of one large enterprise will be felt.

Industry already accounts for 18 percent of the country’s GDP, and agriculture — for 12 percent.

«The more industrial enterprises will open, the less Kumtor’s influence will be. The launch of new deposits will also contribute to it, including Jerooy. Altynken has already began a stable operation. We hope that by the end of Kumtor project it will no longer have such a significant impact on the economy,» Oleg Pankratov summed up.