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Economy games. Kyrgyzstan still not ready to protect investors

The Kyrgyz authorities consider the mining industry as almost the most important branch for attracting foreign investments into the country. However, statements of the country’s leadership often for some reason radically differ from the practice of foreign companies that work in the republic or tried to do it.

What does the president think about mining?

Speaking before the deputies of the Parliament on June 27, 2018, the President of Kyrgyzstan Sooronbai Jeenbekov told about the importance of using the mining industry and its advantages.

«Work of the industry should be aimed at the development of small towns and villages, and contribute to the growth of jobs in the regions. It is necessary to eliminate the factors that hamper its development. Protection of the environment should be the main requirement. We are all well aware that many cases in this sphere are politicized, and this affects the investment climate in the country. Therefore, the relevant bodies together with investors should actively conduct explanatory work among the local residents,» the head of state noted.

Development of deposits should improve people’s lives and the infrastructure of the regions. Work on improvement of the overall investment climate is important.

Sooronbai Jeenbekov

The president’s words are confirmed by the long-term experience, which is reflected in the indicators of Kyrgyzstan’s investment attractiveness in prestigious world rankings.

What can positively influence the image of the country in the eyes of foreign investors? These are stable rules of doing business and political stability. And if the country has managed to achieve the latter, then a frequent change of government forces investors to repeatedly negotiate over «terms of the game.»

Investments go negative

Strengthening of the protective mechanisms that allow a large business to work stably would give an opportunity to strengthen the republic’s positions in the international arena and increase the number of investors ready to invest in the enterprises of Kyrgyzstan. However, the notorious «terms of the game» and administrative barriers seriously impede this.

Take, for example, Kumtor mine, the development of which provides almost 10 percent of the country’s GDP. The state should think about preparing «a reserve option» that will replace this budget-forming enterprise.

However, investors will come only if they receive reliable guarantees. Transparent working conditions and liberal laws, which will act not on paper, but in deeds — that’s what foreign partners need not to fear for the safety of their assets.

In the first half of 2018, the inflow of foreign direct investment to Kyrgyzstan decreased by 33.2 percent to $247 million.

According to the National Statistical Committee of Kyrgyzstan, the main investors were China, Russia, the Netherlands, Turkey, Switzerland and Kazakhstan. Their share was 79 percent.

The volume of foreign loans decreased from 6.86 billion soms to 6,124 billion. Foreign direct investment decreased by almost 1 billion soms — from 3,527 to 2,594 billion soms.

Neither guarantees nor protection

Centerra is the main among the investors in the gold mining industry, which is developing the largest Kumtor deposit in Issyk-Kul region. However, Kyrgyzstan constantly argues with the Canadian investors about the control of the mine and is trying to revise existing agreements.

The unstable situation around the mine negatively affects the reputation of the state and discourages other investors from Kyrgyzstan.

The other day, the Economy Minister of Kyrgyzstan, Oleg Pankratov, said in an interview with Noviye Litsa that Kumtor came under the guarantees of the country’s leadership, and the irremovability of the authorities is an essential motive for the investor not to fear changes in the rules of the game.

«Kyrgyzstan experienced two revolutions, switched to a parliamentary form of government. Accordingly, political turbulence does not allow the authorities to act as a guarantor for the investor,» he said.

Simultaneously, the head of the Ministry of Economy admitted that the country’s leadership failed to create alternative levers of protection, which would guarantee compliance with the agreements reached and the stable operation of the enterprise for Kumtor.

Oleg Pankratov said that the government was set the task «to ensure the growth of the economy till the end of the year and bring the indicators to 102.8 percent.» Taking into account gold production targets of Kumtor, this goal should be achieved.

Investors that are still there

All the time, the Canadian company has been interested in further work in the country’s gold mining industry, constant dialogue with the authorities and financial support of the population for the development of business projects.

About 4,000 local specialists work at Kumtor currently. There are three Kyrgyz citizens in its top management. The company is one of the largest taxpayers.

At the government meeting, Centerra’s Chief Executive Officer, Scott Perry, said that his company fully complied with the terms of the strategic agreement on environmental protection and investment development. The annual environmental payment has been increased from $ 310,000 to $ 3 million within the framework of the document.

The senior executive of Centerra said that the board of directors approved a two-year exploration program in the total amount of $ 18 million. At least $ 6.5 million of the sum will be disbursed by Kumtor geologists already in 2018, and $ 11.5 million — in 2019.

«We have not invested in geological exploration since 2012 due to the fact that there were some disagreements between the Kyrgyz government and the company. After signing of the new agreement, we decided to resume investments in geological exploration,» said Scott Perry.

Centerra intends to develop production to increase gold output at the mine that will influence the amount of tax payments to the state budget of Kyrgyzstan.

This is especially important, since the draft budget of the Kyrgyz Republic for 2019 is characterized by social orientation, dependence on external sources of financing, lack of funds and the need to contain public debt.

The treasury still lacks money to implement economic growth projects. The local budgets depend on the republican subsidies, while the normative legal acts continue to be adopted without taking into account the real financial possibilities of the budget of Kyrgyzstan.

It’s time for Kyrgyz authorities to think about keeping investors in the country and attracting attention of new ones. Otherwise, we will continue to live with a hat in hand.