During the past 10 years, foreign investors withdrew more than $5 billion of profits from the Kyrgyz companies. Of these, 16% were withdrawn in 2020.
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The movement of foreign direct investment is directly related to business environment. The inflow of investments clearly indicates that the investors expect positive results from doing business in the country where they are investing. The outflow, on the contrary, shows that something went wrong.
In 2020, a lot went wrong: the new coronavirus pandemic, border closures and suspension of production for almost two months, loss of profits. All this significantly weakened the businesses in Kyrgyzstan, including large ones.
The October 2020 events in Kyrgyzstan also undermined investors’ confidence. A business survey conducted by the Chamber of Commerce and Industry in early 2021 showed that political turbulence is the main obstacle for the development of the business environment. It was indicated by 70.3% of entrepreneurs.
The change of power itself does not greatly affect the business; rather, the business is affected by the protests caused by it, attempts to redistribute the property by criminal figures, cancelation of previous agreements, and the instability of the political opinions. As a rule, at such time, investors are left alone with their problems; moreover, they do not know where to seek protection. The law enforcement agencies are also harsh. Since the beginning of 2021, the reports of pressure on businesses from the security forces appeared frequently. Unsurprisingly, all of this led to a record outflow of foreign direct investment during the last 10 years.
The investor sentiment was reflected in the report on foreign direct investment in Kyrgyzstan by the National Statistical Committee in mid-February 2021. It showed that the outflow of investments from the republic at the end of 2020 amounted to $808.1 million.
Of course, the foreign direct investment outflow in 2020 can be linked with the COVID-19 pandemic and the onset of the global crisis. However, this is only partly true. The sharp capital flight occurred in 2017 and remains high since then.
Compared to 2019, the outflow decreased in all categories, excluding the ploughed-back profits. In 2020, investors withdrew from Kyrgyzstan 4.1 times more net profit ($334 million 97.9 thousand) compared to the previous year. The National Statistical Committee explained this by an increase in the paid dividends by 2.6 times.
Despite this, the repaid non-resident loans make up the largest share of the outflow of foreign direct investment – 44.1%. The foreign investors did not reinvest their profits in Kyrgyzstan and returned part of the loans issued earlier. As a result, the republic faced not only a record outflow of foreign direct investments, but also an adverse balance.
This is the second time in the last 10 years, when the outflow exceeded the inflow. Previously, this happened in 2017, when the difference was -$107.2 million (compared to -$330.4 million in 2020).
Can we state that investors are leaving the country? No, but we can see the fact that they are in no hurry to invest profits and expand their presence in Kyrgyzstan. However, if we recall the conditions under which the foreign investors worked during the last year, it is not surprising.
The largest foreign direct investment outflow (86%) is related to professional activities, manufacturing and mining.
These industries are also leading in terms of outflow growth compared to 2019.
Breaking down to countries, the largest profits from Kyrgyzstan in 2020 were withdrawn by investors from China and United Kingdom – $502.58 million and $94.395 million, respectively. The highest amount of foreign direct investment outflow was observed in Chuy region – $354.65 million.
Title photo: fingazeta.ru
This publication was produced as part of the mentorship programme under the Development of New Media and Digital Journalism in Central Asia project delivered by the Institute for War and Peace Reporting (IWPR) with support from the UK Government. It does not necessarily reflect the official views of IWPR or the UK Government”