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BISHKEK (TCA) — Founders and top managers of more than two hundred leading enterprises of Kyrgyzstan and Russia discussed ways to expand cooperation within the Eurasian Economic Union (EEU). On September 14, a Kyrgyz-Russian business forum was held at the Ala-Archa state residence near the Kyrgyz capital Bishkek.

Two contracts were signed at B2B meetings. The Kyrgyz-Russian Development Fund and the Russian Export-Import Bank signed a contract on concessional lending for the supply of Russian equipment to a Kyrgyz state-owned company, and the Imperial Group of Companies, Kyrgyzstan’s footwear manufacturer, and Russian Leather JSC signed a contract for the supply of raw materials.

Five promising sectors

Kyrgyz Deputy Economy Minister Eldar Abakirov told the guests about five economic sectors profitable to invest in, as well as measures taken by the Kyrgyz authorities to create favorable conditions for doing business and improve the investment climate in the country.

Abakirov urged to consider the possibility of investing in the garment industry, processing of agricultural products, tourism, information technologies, and medicine. According to experts, these sectors can give high growth, and invested funds could be paid off in three-five years, he said.

Large investors can conclude investment agreements with the Kyrgyz Government and negotiate special conditions as part of the agreements. The country also introduced a stabilization regime under which investors have the right to choose the most favorable way to pay taxes including VAT for ten years. If taxes are raised, the investors will be able to use the tax rates fixed in their contracts.

The primary Government’s task is to ensure the private property rights and protect businesses from unreasonable interference of state bodies, Abakirov concluded.

Trade relations

The adaptation period after Kyrgyzstan’s entry to the Eurasian Economic Union has been passing without significant shocks, and this is the merit of both the state agencies and the business, Charge d'Affaires of Russia in Kyrgyzstan Vadim Chekmazov said.

Russia is trying to maintain its role of a strategic partner and ally, helping to smoothly overcome the transition period when the markets of the two countries unite. The Russian-Kyrgyz Development Fund has already allocated hundreds of millions of dollars to entrepreneurs in loans aimed at developing the food industry, transport logistics, agro-industrial complex and construction. As a result, production and exports are growing in Kyrgyzstan.

Exports of Kyrgyz goods to Russia increased by 41% over the first half of 2018 and by 47% in 2017.

In 2017, trade between Kyrgyzstan and Russia amounted to $1.5 billion and increased by 12.4% compared to 2016, of which Kyrgyz exports were $265 million, and imports — $1.3 billion. Kyrgyzstan exports clothing, machinery, agricultural raw materials, and glass to Russia, and imports oil products, ferrous and non-ferrous metals, consumer goods, timber, cardboard, chemical products, perfumes and cosmetics, plastics, agricultural products, and household appliances.

At the same time, imports of goods from Russia are growing more slowly. Over the first six months of 2018, it has grown by 10%, and in 2017 — by 34%. This is encouraging and shows that the economy of Kyrgyzstan is developing. This trend contributes to the improvement of the trade balance between the two states, Chekmazov said.

It is necessary to create new enterprises to provide products not only to the Kyrgyz market but also to the EEU countries, he added.

According to the Association of Russian manufacturers of specialized equipment, agricultural machinery manufacturers increased their supplies to Kyrgyzstan up to 111 million rubles, which is 3.5-fold compared to the same period last year. There are all conditions for substantially increasing the exports in the future, they said.

According to representatives of Russian businesses, the currency risks have a negative impact on trade relations between the two countries and make some projects unpredictable.

New markets

Many Russian investors are thinking about opening new businesses in Kyrgyzstan, because they are attracted by new markets.

Russian Leather Enterprise signed a contract with a Kyrgyz company that produces footwear. The head of the Russian company said that he had been searching for partners in Kyrgyzstan for a long time.

"We had no fears about entering the Kyrgyz market, and there is no shortage of labor in the light industry, so we are very interested in cooperation," he told Sputnik news agency.

The delegation of the Sverdlovsk region of Russia met with representatives the Ministry of Transport and Roads of Kyrgyzstan and offered to use materials of Russian manufacturers for laying roads, noting that crushed stone and mastic asphalt concrete is cheaper than that currently used in Kyrgyzstan.

The head of a Russian company engaged in supplies of wool processing equipment offered to open a new business in Kyrgyzstan. There are many sheep in the country, but no large wool processing workshops, except for small private companies. Farmers sell mostly untreated wool, and this is unprofitable.

The Russian company has the necessary equipment that allows producing goods from sheep wool, including traditionally national ones, yurt felt, koshmas and kiyiz (felt carpets).

It is important to restore the merino breed, since their wool is highly valued.

In the Soviet era, Kyrgyzstan was famous for its merino breed. The development of sheep breeding was put on a scientific basis, and new, highly productive sheep breeds, including fine wool ones, were bred. In 1991 (before Kyrgyzstan’s independence), there were over 10 million sheep in the country, and 92% of them were fine-fleeced. After the poorly conducted economic reforms, the merino sheep breed became unclaimed.

The merino breeding has only recently begun to recover, but the lack of financing and marketing services for the wool sale adversely affect its development. To interest farmers in the merino breeding, it is necessary to raise the cost of wool and provide with other incentives.

According to the forum participants, foreign businesspeople do not have enough information about the economy of Kyrgyzstan. Foreign investors may be attracted by cheap labor force in Kyrgyzstan, as it makes doing business more profitable.

Russian-Kyrgyz Development Fund

If joint projects are created in the priority sectors for the Russian-Kyrgyz Development Fund, it will provide concessional financing from 4% per annum in US dollars, the Fund Chairman Erkin Asrandiyev said at the forum.

The Fund has approved 1,530 projects worth $28 million in 2018. Of these, more than 55% of loans were allocated to entrepreneurs in the production and agro-industrial sector.

Since the beginning of 2018, 549 small and medium enterprises have been financed in the regions, and 349 of them are engaged in the agricultural sector. The regions’ financing has increased by 12% this year in such key areas as agriculture, processing of agricultural products and products of animal origin, and intensive gardening. The Fund is implementing three sectoral programs on the development of fine-fleeced sheep breeding, intensive gardening and fisheries.

The Fund is using a mechanism to stimulate entrepreneurs. If projects are successfully implemented and entrepreneurs timely repay their loans, the Fund returns half of the paid interest at the end of each year.

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