Kyrgyzstan seeks to double its
GDP By Roman Muzalevsky
"Money loves quiet," Kyrgyzstan's
President Almaz Atambayev once stated, stressing
the need for a better investment climate amid
occasional instability plaguing the aspiring
democracy, which boasts Central Asia's first
parliamentary system of government.
Atambayev, who gained a six-year term in
2011 in Kyrgyzstan's first peaceful transfer of
power, hopes that the five-year economic
development strategy, adopted on January 17, will
reassure investors, bring prosperity, and enhance
stability for the country that has seen two
government overthrows in the past eight years and
experienced destabilizing clashes between two
ethnic groups in 2010.
As part of the
strategy, the government has proposed a host of
reforms and intends to spend
US$13 billion to double gross domestic product
(GDP) in five years, drawing on aid and investment
to fund projects in agriculture, mining,
transport, power and other sectors. Doubling the
GDP will require an annual growth rate of at least
7%. Kyrgyzstan's GDP growth is projected at 8.5%
in 2013, up to 7.5% in 2014, and up to 3.5% in
2015; inflation is projected to reach 6% to 8% in
2013.
Besides economic reforms, the
government notably seeks to harness the region's
geo-economic and geopolitical trends while
particularly relying on Russia, China and
Kazakhstan to secure financial resources in order
to expand and integrate its economy into global
markets. However, authorities face a difficult
task due to the shaky domestic and regional
political, economic, and security situation -
especially considering the potential for regional
instability after the pull-out of coalition forces
from Afghanistan.
In 2012, protests by
opposition groups calling on the Canadian-led
Centerra Gold mining venture in Kyrgyzstan to
comply with environmental standards and tax
liabilities led the company to halt its
operations. The loss of production by the company,
in which Bishkek owns a third of the shares, led
to a 1%-3% decrease in the country's economic
growth rate. The company's production amounted to
12% of the Kyrgyz Republic's GDP in 2011. A
separate opposition protest in 2012 forced
authorities to cancel or suspend the sale of
mining licenses at a televised auction.
The government has since sought to
persuade critics about the need to open up the
country to more foreign investment in order to
generate resources for the development strategy.
Bishkek considers Moscow a significant partner in
this effort. Russia is home to hundreds of
thousands of Kyrgyzstani migrants who contributed
remittances worth about 29% of Kyrgyzstan's GDP in
2011, making this Central Asian republic the
world's third-largest recipient of remittances
after Tajikistan and Liberia.
In 2012,
Bishkek secured a substantial military and
economic aid package from Moscow, which is
prepared to fund the construction of the
Kamabarata-1 hydro-power station, opposed by
downstream Uzbekistan, and to purchase
Kyrgyzstan's crumbling gas distribution network.
Development of the power industry is
intended to boost employment in remote areas and
electricity exports to Central and South Asia.
However, the construction of power stations is
seen as controversial given energy trade and water
sharing disputes between downstream and upstream
countries, which also suffer from border conflicts
as the January 5 border incident in the
Uzbekistani enclave of Sokh in Kyrgyzstan has
shown.
Recent media reports suggest that
Moscow's aid is tied to Bishkek's decision not to
extend the lease for the US military base at Manas
airport, which is part of the Northern
Distribution Network for transporting supplies to
Afghanistan. During a meeting with US Assistant
Secretary for Central and South Asia Robert Blake
on January 16, Atambayev reiterated that "No
military component should be left at the airport".
Instead, Bishkek will develop the airport
as a regional civilian air hub - an initiative
that Moscow said it would help accomplish. Moscow
operates its own military base at Kant outside the
capital as part of the Russian-led Collective
Security Treaty Organization (CSTO), which
Kyrgyzstan recently agreed to host for another 15
years, in part because of instability in
Afghanistan.
Kyrgyzstan also looks to
neighboring China, the world's second-largest
economy, to support its development strategy in a
number of areas. It intends to partner with
Beijing to expand its transport infrastructure and
develop manufacturing and logistics centers at
what are Central Asia's largest trade markets at
Dordoi and Kara-Suu in the country's north and
south.
The focus on the markets is
noteworthy given China's expanding trade into
Russia and Europe via these markets and Moscow's
attempts to enlist Kyrgyzstan and Tajikistan into
the Customs Union comprising Russia, Kazakhstan
and Belarus. The annual trade between Kyrgyzstan
and China is about $5 billion. It is unclear if
inclusion into the Customs Union would undermine
Kyrgyzstan's trade with the "Middle Kingdom",
which is so keen on developing the "New Silk Road"
routes across Central Asia.
Bishkek
further leans on Beijing to build an anticipated
railway line connecting China and Uzbekistan via
Kyrgyzstan, a planned refinery in the country's
north, a proposed Kazakhstan-Kyrgyzstan-China oil
pipeline, and a projected gas pipeline from
Turkmenistan through the southern part of
Kyrgyzstan. According to the development plan,
this should enable the country to bridge its
geographic and economic divides despite
mountainous terrain and evolve as a critical
transit route for expanding trade and energy flows
across entire regions.
Kazakhstan is
emerging as an important source of investment for
Kyrgyzstan as well. Kazakhstan has already
invested about $1 billion in the country's
banking, construction and energy sectors. It has
also set up a joint $135 million investment fund
with Kyrgyzstan enabling the construction of the
Datka Kemin power transmission line to export
electricity from Kyrgyzstan to Kazakhstan.
The reliance on geopolitical and
geo-economic trends as well as outside powers is
an important component of Kyrgyzstan's development
strategy. However, the government needs to first
implement its proposed reforms and improve the
country's business climate in order to maintain a
steady inflow of investment and aid. It also needs
to work with neighbors to address, in earnest, the
region's potentially destabilizing border
disputes, energy trade, and water-sharing issues.
Finally, it needs to ensure - in cooperation with
its partners - that the region's security is not
jeopardized upon the exit of coalition forces from
Afghanistan.
Roman Muzalevsky
works for iJet Intelligent Risk Systems, Inc. and
is a Contributing Analyst at Wikistrat. He
received his MA in International Affairs with
concentration in Security and Strategy Studies
from Yale University.
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