Once nicknamed ‘the easy-Stan’ amongst the investment community, Kyrgyzstan has undermined its reputational name by having two revolutions in the past five years. Now, however, over a year on since the last uprising, the country's proponents say that the recent turbulent past is behind them.

In the shadow of its more sophisticated oil-rich northern neighbour, Kazakhstan, Kyrgyzstan is landlocked and mountainous. Yet its geographical position works to its advantage. Sitting unassumingly between China and the wealthy Russian and European markets is a boon: Kyrgyzstan acts as a stop-off on the international trade circuit, much as it did when the Silk Route, which passes through it, was the main economic thoroughfare.

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Kyrgyzstan owes one of its more profitable lines of business to being the landlord of an air base, which it rents out to the US government. The US uses it to deliver cargo and military personnel to Afghanistan, which lies about 250km to the south, beyond Tajikistan.

Open to foreign brandnames

Kyrgyzstan has attracted some big foreign brandnames since independence in 1991. Coca-Cola established itself here as long ago as 1995, and Reemtsma, part of Imperial Tobacco, in 1998.

There is, of course, a significant and historic Russian legacy; some would call it dependency – Russian is still one of the two official languages in the country. Russian companies such as Renova and Novoye Sodruzhestvo make up more than 10% of foreign direct investment, according to fDiMarkets.

FDI has been patchy, but has been growing slowly since independence. From 2000 to 2009, FDI stock grew from around $432m to $1075m, according to UNCTAD’s World Investment Report 2010. Even though there has been an average of only four projects each year since 2003, according to fDiMarkets, there has also been rapid privatisation, with almost three-quarters of enterprises now privatised.

Political shocks

But then came two shocks: the Tulip Revolution (so-named because it was a peaceful overthrow of the incumbent government) and then, after the global financial crisis, another revolution and regime change in 2010 when the then President Kurmanbek Bakiyev was forced out of office following protests against cronyism and rising energy prices.

As a result, FDI inflows have fallen more than 50% from their 2009 levels, from $86m to $35m in 2010, according to Kyrgyzstan government statistics.

The political scene is still fragile, but the current government is using the words “investment rights” a lot. At a recent roundtable meeting between foreign companies, investors and the Kyrgyz Ministry of Investment Policy, a government spokesperson said: “The Kyrgyz people have a long history and they lean towards democracy. Yes, we had a revolution, but we have had free elections, we have a new constitution of a parliamentary republic and a presidential election this autumn. We are trying everything possible to keep investment rights protected.”

Incentives to invest

The tax and regulatory regimes have been adapted to encourage FDI. For example, there are a number of tax concessions built into a new tax code, such as a reduction in corporation tax (now 10%), while VAT on imported industrial machinery is 0%. Plus, licensing and bureaucracy have been liberalised in a range of industries.

And there are some burgeoning consumer outlets to show for it. The capital, Bishkek, hosts a Zara, the Spanish-owned clothing retailer, and an Apple store. News agencies including the BBC and China’s Xinhua have arrived, as well as small banks, such as Center Credit Bank from Kazakhstan.

But mining and minerals are the predominant FDI interest here. Gold glimmers in the country’s many mountainous regions, and foreign companies such as Kumtor Gold, now owned by Toronto-based mining company Centerra, arrived here in 1992.

The UK-based Kazakhmys set up shop in 2008 to mine copper as well as gold as part of its Bozymchak project. At the time, its CEO, Oleg Novachuk, was confident about the region: “This [project] is one of many opportunities that we believe exist in the region. We are uniquely placed to bring these projects to full development.” He spoke too soon, however, as the project was then delayed by the 2010 revolution.

Business as usual

Stans Energy, another Canadian mining and production company, which has been interested in Kyrgyzstan since the early 2000s, has launched a new project extracting rare earth metals, the so-called high-tech metals used, for example, in renewable energy.

Predicting 1500 tonnes of rare earth material per year, the company has just completed the purchase of a production facility and aims to produce rare earth metals in early 2014. “We have the mineralogy, the people and the technology. It’s just a matter of time,” says Stans Energy CEO Boris Aryev.

But mining is a peculiarly sensitive investment proposal, as reflected in incidents of Kyrgyz political protestors using foreign mining companies as a target for their opposition, arguing that the country’s natural resources should be kept for the Kyrgyz people. One busload of site visitors was recently temporarily hijacked by protestors in Talas, according to news reports.

New perspective

Yet companies already established in Kyrgyzstan believe they can ride out any further political or social upheaval. Robert Mackay, Stans Energy’s president, says: “We have been here through two revolutions and we are still here. The new government has made investment in Kyrgyzstan a number one priority and we look forward to working with them to build a successful company that can be a model for others in the future.”

Louis James, a mining analyst with US-based research bureau Casey Research, believes political risk is not like other problems such as infrastructure or technology, which foreign investors face. “Political setbacks are the one problem for which there is no solution; you wait them out or walk away," he says.

These challenges, however, are only relative to the problems of investing elsewhere in Central Asia. Or as one potential investor puts it to fDi: “Kyrgyzstan is a good place to be compared to its neighbours: Uzbekistan is closed, Tajikistan is not safe and Kazakhstan is too expensive.”

Kyrgyzstan may have lost its reputation as the easy investment option, but it still appears to be a lot easier to invest there than its neighbours.