Macroeconomic Stabilisation -- September 1998

Growing GDP

After four years of continuing GDP decline (1991-94) with a total cumulative GDP decline of over 50% during those four years, the country has enjoyed a third year of economic recovery. The Kyrgyz Republic was the first country in the CIS to have positive GDP growth in 1995 (0.5%) and last year’s record of 10.4% growth rate assures the investor community of the country’s sustainable development. 1H98 results show a 5% GDP growth, providing a sound foundation for about 8-10% growth this year.

The recovery of 1996 emanated from strong growth in agricultural output, while in 1997 the GDP growth was predominantly based on the start of production at the Kumtor gold mine and the continued growth of agricultural output. However, prospective GDP growth is dependent on sources of financing: the country is characterised by a low domestic savings level and there are a limited number of projects which are attractive for massive foreign investment. To this end, the growth outlook for the short term is positive because the government makes every effort to achieve GDP growth. In the medium and long term, because of a lack of national capital, much will depend on the willingness and ability of the government to attract significant flows of foreign investment, both direct and portfolio.

Stable national currency	The Kyrgyz Republic was the first Central Asian country to introduce national currency, the Som, in 1993. Since that time, the country has achieved a current account convertibility and a remarkable exchange rate stability. The National Bank intends to maintain exchange rate stability and to limit interventions to smoothing seasonal pressures while strengthening international reserves.
Liberalisation of foreign trade regime	The Government of the Kyrgyz Republic applied for membership in the World Trade Organisation (WTO) and was granted WTO observer status in May 1996. According to the official Government statements, Kyrgyzstan will become a member of WTO by the end of 1998, thus being the first CIS country to comply with all the requirements of this international organisation.
Major trading partners	The Kyrgyz Republic is also a member of various regional economic organisations, including a customs union with some CIS countries. Russia, Uzbekistan, and Kazakhstan are among its major trading partners, as well as the USA, United Kingdom, Germany, France, and Switzerland.

Import	Kyrgyzstan imports various technological products and consumer goods from countries such as Switzerland, USA, UK, Cuba, Russia and many others. However, CIS countries (Uzbekistan, Kazakhstan, and Russia in particular ) account for over 61% of total imports.
Export	One of the key export products is electricity which accounts for 19% of the country’s total export. Because Kyrgyzstan is a country with extensive agriculture and food processing facilities, the export of various food products represents 17%, and textiles a further 13%. Metals (excluding precious metals) and coal, contribute 8 and 22.8 per cent, respectively.
Foreign investment	The government has been consistent in implementing policies to attract foreign investment. A specialised Foreign Investment Agency was established in January 1998 to co-ordinate all investment activity and to promote foreign investment in the country. This agency provides investors with all the necessary information with regard to potential investment projects and assists in resolving logistical issues.

Investment in gold mining

The Kumtor gold mine has been Kyrgyzstan’s major example of foreign direct investment so far. Recent amendments to the foreign investment law introduced earlier this year establish the royalty rate for companies operating in raw material extraction industries at 15%. The future of another JV engaged in the development of the Jeroi gold mine is in question due to current world gold prices, high construction and exploration costs. The President of KyrgyzAltyn proposed that the Government amend the foreign investment law and significantly decrease the royalty rate in August 1998.

© Kazkommerts Securities 1998. Please cite source when quoting.

This report has been prepared by Kazkommerts Securities and provided solely for information purposes to recipients only. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. This information does not constitute an offer to buy or sell securities. Kazkommerts Securities or its affiliated persons may be buying, selling or holding long or short positions, acting as investment bankers, be represented on the Board of the issuers in securities mentioned herein. This report is not intended for the use of private investors. Investment in Kazakhstan markets is an extremely risky activity and many persons, physical and legal, may be completely or partially restricted from dealing in the Kazakhstan securities markets.

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	1996	1997
Industry	317.0	58.5
Communications	0.7	-1.7
Construction	1.0	4.1
Trade and public catering	28.5	15.8
Finance, insurance, pension system	0.01	6.0
Other	2.82	17.4
Total:	350.3	100.1