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The new country strategy for Kyrgyz Republic is presented in a dramatically different political and economic setting. The political direction is positive, but there are major challenges ahead. The economic situation has stabilised, but there are critical weaknesses that need to be addressed.
The last round of the Business Environment and Enterprise Performance Survey (BEEPS) conducted in 2008-09 concluded that the top obstacles to doing business in the country as perceived by enterprises were access to finance, the quality of electricity supply, and competition from the informal sector. Around 10 per cent of all enterprises and almost one quarter of medium-sized enterprises considered corruption to be the most significant impediment. In addition, the low level of business sophistication (management best practice, standards and innovation) is constraining business growth and export potential, particularly in strategic sectors such as agribusiness.
In 2008 and 2009, some progress was achieved in improving the business environment. Starting up a business was made easier in 2008 by the establishment of a one-stop shop, which significantly streamlined and simplified business registration processes. Further progress in this area was made in 2009 by eliminating the minimum capital requirement, reducing the registration time, an abolishing various post-registration fees. In addition, six previously required customs documents were eliminated and inspection procedures simplified in 2009.
In 2010, investor confidence deteriorated significantly, as the socio-economic crisis revealed the problems of deep rooted corruption and nepotism and undermined the credibility of the previous public administration and regulatory bodies. In Transparency International’s 2010 Corruption Perception Index, the country scored 2 out of 10, where 10 is least corrupt. The World Economic Forum’s Global Competitiveness Report 2010/2011 also placed the Kyrgyz Republic near the bottom (121 out of 139 rankings), primarily attributed to poor infrastructure, low innovation and lack of technological readiness. On the positive side, the country’s ranking in the World Bank Group’s “Doing Business” 2011 survey improved from 47th in 2010 to 44th out of 183 countries, but this largely reflected an improvement in the rating for “paying taxes” that was related to the introduction of tax privileges for businesses in the south affected by the June 2010 riots. The rating for “trading across borders” slightly deteriorated, reflecting the border closures after the above-mentioned events.
In order to ensure that the EBRD can still do business in this difficult environment, the authorities should continue their efforts to improve the business climate and restore investor confidence, particularly through fighting corruption, strengthening governance and protecting private property rights.
Last updated 8 September 2011