What will the future of Kyrgyzstan be like? How will the economy develop, how to attain the growth of citizens' incomes? The goal of promoting economic development can be achieved by increasing production of goods and services, generating more jobs and revenue, and improving the quality of life of people.
These objectives are always considered the most important by the leaders of any country. How were these objectives accomplished in Kyrgyzstan yesterday? How are they achieved today?
Over almost thirty years and nearly three dozen Prime Ministers, Kyrgyzstan has adopted hundreds of different state strategies and programs. Most of them were never implemented. Despite the abundance of strategies, according to many experts, Kyrgyzstan is developing spontaneously and sporadically, and is lagging far behind other countries.
In terms of economic development today, the answers can be found in two key documents: the National Development Strategy 2018-2040 (hereinafter the "Strategy"), a kind of agreement between society and government, developed with broad public participation and approved by the President, and the Government Development Program 2018-2022 “Unity. Trust. Creation.”(hereinafter, the "Government Program"), approved by the Jogorku Kenesh of the Kyrgyz Republic (Parliament). Both documents were enacted in 2018. The article contains references to the Strategy, which describes the future of the country, and to the Government Program, which describes the steps to the future.
"In terms of economic development, Kyrgyzstan must join the group of upper-middle-income countries by gross national income per capita (Strategy, Chapter I. Vision of the future. Development goals).
What is meant by upper-middle-income countries? These are the countries whose GNI (gross national income) per capita is between $4,000 and $12,000. In other words, according to the Strategy, the GNI per capita in Kyrgyzstan must grow from current $1,200 to (at least) $4,000.
Besides, according to the Strategy (Chapter VI. Medium-term priority steps), by 2023, Kyrgyzstan must join the world's top:
• 40 economies in terms of the Ease of Doing Business Index (World Bank's Ease of Doing Business Ranking 2020, Kyrgyzstan ranked 80th);
• 70 economies in terms of the Global Competitiveness Index (World Competitiveness Ranking 2019, Kyrgyzstan ranked 96th);
• 30 economies in terms of the World Happiness Index (World Happiness Ranking 2019, Kyrgyzstan ranked 73th)
• 50 economies in terms of the Corruption Perceptions Index (Transparency International's Corruption Ranking 2019, Kyrgyzstan ranked 126th).
2. Can Kyrgyzstan join the group of upper-middle-income countries?
To answer this question, we need to know the deadline for achieving this goal? The Strategy does not set the deadline, but most likely it is 2040. But are Kyrgyzstanis ready to wait another 20 years?
Our society lives in five-year electoral cycles: from one parliamentary election to another. The Parliament forms the Government which manages the country's economy. The Parliament, which represents the people, and the Government which represents the Parliament, have direct responsibility for what society will come to at the end of their five-year term of office. Therefore, it will be logical for each new Parliament to set specific and measurable objectives for itself and for the Government formed by it, including the growth of incomes of the country's citizens. (The issues of income growth should be addressed in parallel with the issues of raising the level of education, improving the quality of health care and other social issues, but these issues require a separate discussion).
It should be noted right away that achieving a $4,000 GNI per capita in five years is an unbearable task for Kyrgyzstan, since in this case the country's economy should grow by almost 27% per year.
Can the economy of Kyrgyzstan grow, for example, by 10% annually? Although this task is more realistic, nevertheless, it is not easy. In this scenario, by 2025, the GNI per capita should reach $1,900 and its growth should look something like this:
If the economy should grow by 10% annually, who will ensure that growth? First of all, we need to know who and how contributes to the economy today? Will they be able to do this tomorrow?
In 2019, the largest contribution to the economy (almost 47%) was made by the service sector, namely, the people engaged in trade, hotel, restaurant, vehicle repair, media, communications, transport and many other private services. The second-biggest contributors to GDP (almost 39%), are the producers of construction, agricultural, industrial (including apparel), energy, recycling and other goods.
The predominant share of contribution to GDP (85%) is attributable to the activities of the private sector, and the remaining 15% are contributed by the state. This means that the economy of Kyrgyzstan is created mainly by and due to the private sector. In fact, the faster and stronger the private sector develops, the stronger the country's economy will grow.
Also, it is important to note that 98% of all business entities operating in Kyrgyzstan are private. The private sector employs 84% of all people working in the country. The major part of the private sector consists of small and medium-sized enterprises (hereinafter the "SMEs"). As of January 2020, there were about 715 thousand registered business units, including: 23.6 thousand small enterprises; 4.3 thousand medium-sized enterprises; 344.2 thousand individual entrepreneurs; 342.2 thousand peasant farms and farmers.
In general, Kyrgyzstanis are very enterprising people, they create jobs for themselves, earn income for themselves, and pay taxes to the government. Yet, many of them still prefer to work in the informal sector (which contributes 44.5% of GDP), avoiding exactions and complicated tax procedures.
So, who will ensure economic growth? Definitely, the private sector. Under what conditions will this happen? The answer has already been given in the Strategy: government must create the enabling environment for enterprise development.
From a bureaucratic point of view, the situation is as follows: in 2015, there was adopted the Private Sector Development Program, which was terminated in 2017, with some of the planned activities remaining unimplemented; in 2016, there was drafted a package of measures to simplify regulation of business, which was never adopted; in mid-2019, the Ministry of Economy prepared the SME Development Program, which was never approved.
What do we actually have? Kyrgyzstan worsened its position in the Doing Business Ranking 2020, sliding to 80th versus 70th in 2019, and once it ranked 44th. In this respect, we are catastrophically lagging behind many of our neighbors, for example, Georgia (7th), Kazakhstan (25th), Russia (28th), Armenia (47th), Uzbekistan (69th versus 138th only a few years ago). Our neighbors' success is not a coincidence, but the outcome of considerable work on promoting enterprise development.
When it comes to Kyrgyzstan's positions in other international rankings, the situation is not better. In 2019, Kyrgyzstan ranked 96th in the Global Competitiveness Index, 73rd in the Global Happiness Index, and 126th in the Corruption Perceptions Index. Despite this, by 2023, Kyrgyzstan plans to join the world's top 70, 30 and 50 economies, respectively.
Is it fair to assume that the objectives set forth in the Strategy, a document which determines the future of the country, remain unimplemented in practice? Probably, yes. Moreover, neither the Program nor government action plans include measures to improve Kyrgyzstan's position in international rankings.
Does government influence business? Yes, indeed. Lack of state support, growth and intensification of bureaucracy, intervention of controlling and law enforcement agencies, lead to drop in business activity, outflow of investments and withdrawal of capital.
Over the past few years, foreign direct investment outflow continued to grow, indicating that investors do not believe in the country's future. Thus, in 2017, 2018 and 2019, annual investment outflows reached a record $700 million in almost thirty years. In January-March 2020, foreign direct investment outflow to non-CIS countries increased by 2.2 times and to CIS countries by 6 times.
While, according to experts, there is a strong entrepreneurial spirit in Kyrgyzstan, many indicate that the country's private sector is still weak. Despite this, there is an argument that today only the private sector can become the economic change leader.
In many countries, entrepreneurs are the main generators of economic growth. For example, in Germany, the contribution of SMEs to GDP is 55%, in China more than 60%, in Italy and Ireland 70%, in Taiwan 85%. In Kyrgyzstan, SMEs contribute 41.5% of GDP.
Can entrepreneurs contribute more? Yes, indeed. For this purpose, not just on paper but in action, it is essential to create the enabling environment for enterprise development (as stated in the Strategy). And (as also stated in the Strategy) Kyrgyzstan should really become “attractive for businesses, investors, and any entrepreneurs”.
What steps are necessary to promote enterprise development?
First of all, government should keep its promises to society, specifically: reform the public administration system and bring the country to the level of the top 25% of economies in terms of the worldwide governance indicators: government effectiveness, regulatory quality, voice and accountability, control of corruption, rule of law, judicial independence (Section 9 of the Government Program).
Also, it is necessary to put into action as soon as possible a number of the Strategy's bullet points, in particular, the following:
• make Kyrgyzstan attractive for businesses, investors, and entrepreneurs, domestic and foreign, large and small, and generally for all talented and creative people;
• develop an innovative economy with a high-tech, compact and eco-friendly industry;
• join, by 2023, the world's top 40 economies in terms of the Ease of Doing Business Index; 70 economies in terms of the Global Competitiveness Index; 30 economies in terms of the World Happiness Index; 50 economies in terms of the Corruption Perceptions Index;
• increase, by 2023, the SME sector's contribution to GDP to 50%;
• suspend business inspections for 3 years after initial registration;
• stimulate entrepreneurial activity and market mechanisms, make government only responsible for generating rules binding on all;
• keep entrepreneurs free of administrative pressure, minimize state intervention in business, reduce the number of licenses and permits, stop the practice of unnecessary inspections and prosecutions, fully decriminalize economic offences;
• reduce the overall tax burden, including social security contributions, by up to 20%, limit the number of tax types to two: sales tax and income tax, regardless of the form and size of enterprise, exempt reinvested profits from income tax;
• and many more.
There are many useful initiatives proposed by business associations and experts. In May 2020, a group of MPs presented a package of bills aimed at improving the business environment. But so far, unfortunately, proposals and initiatives are drowning in bureaucracy which refuses to take responsibility. And if we ask again: what steps are necessary to promote enterprise development, the answer is that government should start with reorganizing itself in the first place.
I am sincerely grateful to all who have invested their time in reading all three of my articles. I had no plans to write them, especially since I have never studied economics. But I was tormented by the questions: Why is our country not succeeding? Why are we always lagging behind? What are we doing wrong? What needs to be done for Kyrgyzstan to develop? I tried to answer these questions for myself and shared my opinion with you. And this is just a small part of the issues that need to be discussed in society.
Perhaps, my opinions are arguable, which is very good. Let's argue, debate, prove, disprove and agree. It is only in such an environment that we can develop; otherwise, we will remain lagging behind in this rapidly developing and changing world. I invite everyone to share their opinion. I know there are people who are already working on their proposals, and I really hope that they will share them with the general public. Today, Kyrgyzstan really needs ideas and, most importantly, actions that will give our society the opportunity to grow and be proud of our achievements. We need to see the light at the end of the tunnel.
List of sources used:
World Bank Country and Lending Groups. Country Classifications. https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups
Gross Domestic Product Structure 2019. National Statistical Committee of the Kyrgyz Republic. http://www.stat.kg/ru/news/struktura-valovogo-vnutrennego-produkta-za-2019-god/
Analysis of the current state of the labor market and labor productivity in the Kyrgyz Republic. 2019. National Statistical Committee of the Kyrgyz Republic. http://stat.kg/ru/news/analiz-sovremennogo-sostoyaniya-rynka-truda-i-proizvoditelnosti-truda/
The number of operating business entities by type of business activity located in the territory of the Kyrgyz Republic as of January 1, 2020. National Statistical Committee of the Kyrgyz Republic. http://www.stat.kg/ru/bazy-dannyh/
Foreign direct investment inflow, 1Q 2020. National Statistical Committee of the Kyrgyz Republic. http://www.stat.kg/ru/news/postuplenie-pryamyh-inostrannyh-investicij-v-1-kvartale-2020-goda/