In Kyrgyzstan, the Hungarian-Kyrgyz Development Fund has just been officially launched; the Uzbek-Kyrgyz Development Fund was launched a little earlier; the opening of several more such structures with the participation of capital of other countries is at the negotiation stage, officials say. All of them have been created on the model of the successful Russian-Kyrgyz Development Fund, which has worked for several years.
Despite the similarity of names and the choice of funding priorities, they are different in their activities. We will find it out and how all funds’ resources supply market needs together with representatives of the domestic expert and business community.
What are the terms of their grants?
Development funds are established to strengthen economic cooperation between the two countries. One state being the key investor provides assistance to another state in modernisation and development of economy by providing new technologies, professional consultants and financial resources.
The emphasis is placed on development of such spheres of activities that can create as many jobs as possible, ensure competitiveness of products produced in the country receiving the investments, and find a niche in the global market. Therefore, organisations established under government agreements often offer reasonable terms to fund business projects, and impose stricter requirements to borrowers.
According to the information published on the websites of the Hungarian-Kyrgyz Development Fund and Uzbek-Kyrgyz Development Fund, the funding terms are as follows:
“Any country taking part in investment projects wants to involve their suppliers or entrepreneurs there. This is their main requirement,” said Iskandarbek Mamatov, chief of Office for Regional Development of the Ministry of Economy and Commerce of the Kyrgyz Republic.
However, not all entrepreneurs are willing to accept this requirement. For example, the largest Kyrgyz producer and supplier of grain legume, top supplier of agricultural produce in Central Asian region once had to refuse the money from the Russian-Kyrgyz Development Fund.
First, processing of one application takes 1.5-2 years, according to entrepreneur Uran Niyazaliev. This procedure is unprofitable to a company that works actively in particular months only. The enterprise might lose its competitiveness if it does not respond to the market needs during the waiting time period. Second, the requirement of mandatory purchase of Russia-made equipment was inappropriate to the domestic producer.
“To be honest, we have held a few negotiations, but finally did not buy anything. They told us to buy Russian equipment. We found it inappropriate because we never worked with this equipment and it was unknown to us. On the other hand, the fund requires huge collaterals. They all require collaterals. But I think that funds should have a different approach as they work in the framework of the country. They have too much bureaucracy, according to those who have already taken out loans from them,” Uran Niyazaliev, director of the company, said.
Meanwhile, the Russian-Kyrgyz Development Fund funded 79 projects for 209.7 million dollars, and commercial banks granted loans in the amount of 207.2 million dollars, which support 3,107 small and medium business projects since the day of its establishment to April 1, 2022.
*Project with value up to 1 million dollars are funded by commercial banks, and over 1 million – directly by the fund.
Impact on the national economy
The Fund established jointly with Russia is the only example so far, whose analysis could show how the fund’s resources have affected the national economy. However, the Ministry of Economy and Commerce does not perform such analysis. This agency prepares reports on all macroeconomic indicators, and given the rate of national GDP growth in the last 5 years, the effect seems to be unremarkable.
“Yes, GDP is growing, but not consistently everywhere. Bishkek, Chui, Issyk-Kul and Dzhalal-Abad regions are more economically developed regions than others. They get more investments. The country needs more investments,” said Iskandarbek Mamatov, chief of the Office for Regional Development of the Ministry of Economy and Commerce of the Kyrgyz Republic.
In most cases, the resources of development funds are provided in the form of lending resources on preferential terms and for investment projects only (for construction of new enterprises, production of new processed products, etc.). Therefore, according to experts, they do not cover the needs of the whole market. For example, agriculture, according to preliminary estimates of independent expert Bakyt Shamkeyev, requires nearly 150 billion som (1.8 billion dollars at the rate of the National Bank of the Kyrgyz Republic as of June 10, 2022) every year for spring field work and herd expansion.
“5 billion soms that are granted are not enough. Therefore, farmers have to take out expensive loans, consumer loans from microcredit organisations. Cost-effectiveness in agriculture is about 25 per cent, maximum 30 per cent, and if they take out loans at 30 per cent interest, their profit will be zero,” said independent expert in agribusiness management and financing Bakyt Shamkeyev.
According to him, it’s only the soft financing programme for agriculture available from 2012 that meets more or less the current needs and expectations of farmers. However, because of the launch of another project designed to introduce the cluster system** throughout the country’s agribusiness, the focus was slightly shifted this year.
“No one has received a penny for cluster development so far, and all people have been dropped out. Can you imagine what will happen next? The old programme offers limited amounts, farmers have planted fewer crops. And no money was given under the new programme. It is quite possible that this year fewer crops will be planted,” said agribusinessman Rustam Nurmatov.
**This refers to the government’s programme that is designed to ensure food security of Kyrgyzstan. For the first time, the state planned to allocate 10 billion som (125.7 million dollars) from the budget to support agriculture, instead of subsidies that covered only a part of the market interest rate.
Photo: e-cis.infoThe initiative of cluster approach use, according to experts, is dictated by market needs. Amid forecasts of climate change and widespread use of new technologies across the world, local farmers can hardly withstand the competition. According to Bakyt Shamkeyev, on average, the profitability of one hectare of agricultural land in Kyrgyzstan is nearly 450 dollars, while in Uzbekistan this indicator is 1.200 dollars per hectare. On the one hand, climate contributes to it, and on the other hand, it is due to the widespread use of drip irrigation system.
“Our main problem is the shortage of raw materials. For example, today we supplied a powerful dairy plant, which processes dairy foods, and we don’t have enough raw materials. The meat-packing plant, which is known in Kyrgyzstan, produces sausages, and imports raw materials. They supply meat from India and Belarus, in deal with suppliers in advance,” Bakyt Shamkeyev said.
Therefore, according to him, it is important to strengthen work in this direction: not only to allocate financial resources, but also to improve quality of business projects. In this regard, entrepreneurs put high hopes on the activity of the Kyrgyz-Hungarian Development Fund.
“The Hungarian project is very interesting. 30 per cent of the amount they allocate must be spent by Hungarian consultants, suppliers, etc. It is a very good opportunity for local companies, Business projects will be really evaluated not only in terms of people management level, but also by finance management level,” Rustam Nurmatov said.
In addition to the Kyrgyz-Hungarian Development Fund, which supports projects from various economy sectors, there is the Uzbek-Kyrgyz Development Fund. According to some entrepreneurs, it does not operate in full so far.
“As to the Uzbek fund, I cannot say anything. There is no information available. All I know is where their office is located. How are they financed? Which projects do they support? This is what I don’t know. Should the products be supplied to Uzbekistan then? No one has voiced their conditions. If the Hungarian fund is transparent, the Uzbek fund is not,” Rustam Nurmatov, agricultural processor, said.
All is known is that the agreement between the two countries – Uzbekistan and Kyrgyzstan – on the establishment of the fund with the authorised capital 50 million dollars was ratified in November 2021, and the opening ceremony was held in April this year. Representative of the new structure have not made an official statement to the real sector representatives so far, whereas the Hungarian-Kyrgyz Development Fund called for applications from local companies on May 12 this year.
However, just recently the chair of the board of Uzbek-Kyrgyz Development Fund, Aziz Aaliev presented to Akylbek Zhaparov, head of the Cabinet of Ministers, the concept of construction of trade and logistical centre in the former airport area in Kyzyl-Kiya.
The author of the business project, as well as the selection criteria are unknown so far.