PROGRAMME FOR COUNTRY PARTNERSHIP
UNIDO’s PCP Kyrgyzstan Team receives the Kyrgyz Delegation led by Emil Osmonbetov, Chairman of the State Committee on Industry, Energy and Subsoil Use, to discuss progress and follow-up activities related to the PCP, at the occasion of the 46th session of the UNIDO Industrial Development Board.
Emil Osmonbetov, Chairman of the State Committee on Industry, Energy and Subsoil Use of the Kyrgyz Republic, meets UNIDO’s DG and participates as a panelist in the Advanced Session of the Seventh ISID Forum.
The State Committee on Industry, Energy and Subsoil Use of the Kyrgyz Republic submits the draft Industrial Development Strategy of Kyrgyzstan to the Parliament for consideration and approval.
UNIDO submits the draft Industrial Development Strategy of Kyrgyzstan 2018-2022 to the Government for endorsement.
President Sooronbai Jeenbekov endorses the National Development Strategy of Kyrgyzstan 2018-2040, defining the strategic benchmarks for the long-term development of the country.
UNIDO shares the draft PCP Kyrgyzstan Programme Document (English and Russian) with Kyrgyz counterparts for comments.
UNIDO presents PCP Kyrgyzstan at the 5th International Economic Forum in Issyk-Kul during Kyrgyzstan's Economic Week from 16-21 July 2018.
The Project Steering Committee holds a meeting on the formulation of a national industrial development strategy for Kyrgyzstan in Bishkek.
National stakeholders validate methodology, workplan and deliverables.
UNIDO completes the PCP Kyrgyzstan Country Diagnostic identifying challenges faced by industrial sectors, and opportunities and solutions for accelerating industrialization in the country.
The Government of the Kyrgyz Republic, with the support of UNIDO, commences the formulation of a national industrial development strategy for 2018-2022.
UNIDO organizes a roundtable on “The Programme for Country Partnership and Inclusive and Sustainable Industrial Development of the Kyrgyz Republic: Contribution to Regional Development” in Bishkek.
UNIDO announces Kyrgyzstan as the pilot PCP for the Europe and Central Asia region at the occasion of the 17th UNIDO General Conference.
UNIDO launches the PCP Kyrgyzstan Country Diagnostic to help identify the main opportunities and bottlenecks for advancing industrialization and support the design and development of the PCP Programme Document.
UNIDO Executive Board approves the development of PCP Kyrgyzstan.
UNIDO conducts a programming mission to the Kyrgyz Republic.
The Kyrgyz Republic has favorable conditions for steady and sustainable industrial growth, primarily due to the country’s rich natural resources and immediate proximity to growing neighboring markets. Classified as a lower-middle-income country by the World Bank, the Kyrgyz Republic has maintained relatively steady annual GDP growth rates, ranging from 4.6 % to 5.5 % over the past five years, and ranks 97/140 in the Global Competitiveness Report 2018. Kyrgyzstan’s accession to the Eurasian Economic Union (EAEU) in August 2015 demonstrates the country’s efforts to enter the international market and establish a stable market economy.
Challenges remain however due the strong dependence of the economy on three major but highly volatile sources of income: the exploitation of gold (accounting for about 10 % of GDP), worker remittances (27 % of GDP in 2017), and foreign aid and loans (UNIDO, 2018). In order to counter fluctuations in GDP growth figures, revenues and poverty rates, Kyrgyzstan needs to further diversify economic activities focusing on its strongest assets, including inter alia agriculture, textiles/apparel and water resources, and to establish mechanisms to utilize these competitive advantages. Increasing private sector development and improving occupational skills and productivity in the labor market, especially for youth, are also essential for Kyrgyzstan to reach its full potential.
The Programme for Country Partnership for the Kyrgyz Republic (PCP Kyrgyzstan) seeks to mobilize partners, resources and expertise to accelerate inclusive and sustainable industrialization in Kyrgyzstan. The PCP rests on a multi-stakeholder partnership between development partners, UN agencies, financial institutions and the business sector, under the overall leadership of the national government.
PCP Kyrgyzstan is aligned with government priorities in the National Strategy for Sustainable Development of the Kyrgyz Republic 2018-2040, the programme "Jany Doorgo Kyrk Kadam 2018-2023” (40 Steps to a New Era 2018-2023), the Programme for the Development of the Kyrgyz Republic 2018-2022, the Agriculture and Food Security Strategy – Concept of Food Security for 2009-2019, the Programme for the Development of Food and Processing Industry of the Kyrgyz Republic for 2017-2021, and the Programme for the Development of Tourism until 2020, among others.
UNIDO has been supporting the government in formulating an overarching industrial strategy to drive inclusive and sustainable economic growth, in line with existing national development strategies. The draft PCP Kyrgyzstan Programme Document was developed building on the findings of the UNIDO country diagnostic, the national Industrial Development Strategy, and extensive consultations with the Kyrgyz Government, counterpart institutions and other partners.
PCP Kyrgyzstan will focus on six priority areas: (i) developing agro-processing value chains with a focus on food and beverages; (ii) upgrading the textiles and apparel industry; (iii) promoting renewable energy with a focus on hydropower; (iv) developing sustainable tourism and its linkages with productive industries; v) modernizing the construction materials industry; and vi) supporting the sustainable development of the mining sector.
These will be supported by cross-cutting interventions in areas such as quality infrastructure and trade facilitation, environmental management and sustainable energy, access to finance and investment promotion, implementation of multilateral environmental agreements, and information and communication technology.
Through the PCP, UNIDO provides policy advice to the government, delivers multidisciplinary technical assistance focused on selected priority areas, and facilitates overall PCP coordination and the convening of partners. The various technical projects and programmes are implemented by UNIDO and other development partners, and coordinated through national governing bodies.
NATIONAL DEVELOPMENT GOALS
The PCP supports the following national targets from the country’s Programme for the Development of the Kyrgyz Republic 2018-2022, inter alia:
1. AGRO-PROCESSING VALUE CHAINS, FOCUS ON FOOD AND BEVERAGES
Development of agro-processing value chains focusing on food and beverages
Kyrgyzstan’s economy is dominated by agriculture, which accounts for about 15 per cent of the country’s GDP and 30 per cent of its labour force (UNIDO 2018). However, although the volume of the country’s food processing industry was on the rise between 2005 and 2017, not all produce followed the same trend. Small-scale farming dominates the dairy sector, and with most of milk and dairy production intended for domestic consumption, only one quarter remains for processing or export. The fruit and vegetable sector, one of Kyrgyzstan’s largest processing sectors, still has a relatively small market value.
Some of the factors contributing to limited success in modernizing the above-mentioned sectors and establishing sustainable value chains are: lack of transparency in trading, difficulties in accessing market channels and poor understanding of customers’ needs and requirements, low production volumes, lack of permanent buyers, and low levels of knowledge and skills in modern agricultural technology and marketing techniques. Quality management and product placement also need to be addressed, as local fruit and vegetable companies find it difficult to compete with imported products due to standardization and product certification.
Kyrgyzstan has adopted several sector-specific policies recently. Among these, the Concept of Development of Organic Agricultural Production in the Kyrgyz Republic for 2017-2022 aims to create favorable conditions for the development of organic agriculture. It also seeks to increase its competitiveness by improving regulatory legal acts and adopting measures to further support the sustainable development of the agricultural sector. In addition, the Food and Processing Industry Development Programme for 2017-2021 seeks to increase export growth while generating additional jobs and income in rural areas.
UNIDO is already implementing two large-scale agrobusiness-related projects in the Kyrgyz Republic. The project entitled Linking the tourism industry to productive activities in the Issyk-Kul Region enhances market access and value chain governance through fostering collective action and strengthening linkages between tourism and agro-industry enterprises. The project entitled Promoting community level job creation and income generating activities through the development of cost-effective building materials production aims at community-level job creation and income-generating activities through the development and use of cost-effective building materials and the rehabilitation of the water irrigation systems in rural areas.
Within the framework of PCP Kyrgyzstan, UNIDO will develop additional technical cooperation projects to support institutional capacity-building and help modernize Kyrgyzstan’s agro-industrial sector to produce high-quality, safe and market-driven processed products.
1. TEXTILES AND APPAREL
Upgrading the textiles and apparel industry
The textile and apparel industry plays a significant role in the country’s manufacturing sector although it has witnessed a decline in the volume of production and export since its peak in 2012. In 2015, it accounted for 4 per cent of the total manufacturing production and of 41 per cent of employment in the manufacturing sector. The textile and apparel industry is dominated by micro-, small- and medium-size enterprises, the vast majority of which operate as cut-make-trim-garment manufacturers, with very limited domestic textile production.
The main reasons cited for the current decline in production and export are the risk perceptions connected with integration processes and increasing competition. Additionally, the main importers of Kyrgyz products, i.e. Russia and Kazakhstan, introduced a stricter system of requirements and certification for Kyrgyz textile products. As the country’s textile production is oriented towards middle- and low-level-income consumers, this is also the niche Kyrgyz products occupy on the markets of Russia and Kazakhstan.
Taking into account the abundance of raw materials such as cotton and wool, the textile and apparel industry has the potential to greatly contribute to the economic development of the country, with competitive wages and low energy costs giving Kyrgyzstan important comparative advantages. Nevertheless, modernization of the textile sector will depend on several closely related interventions, i.e. training of employees and a new generation of managers, implementation of logistical centers to help establish a more organized system of export, application of new technologies, and financial support to improve quality of production and increase competitiveness.
Following a recent request from the Kyrgyz Government, UNIDO has developed a pipeline project on industrial modernization of the wool processing industry. The project will support the establishment of a wool processing facility and provide training to local users on machine operations, management and cleaner production methods. UNIDO will also look into offering assistance to strengthen the human and technical capacities of pilot small and medium-sized enterprises operating in the textile and apparel industry, focusing on enterprise diagnosis and modernization, competitiveness and marketing, inter-institutional networking and other related activities.
1. RENEWABLE ENERGY, FOCUS ON HYDROPOWER
Promotion of renewable energy with a focus on hydropower sector
Due to Kyrgyzstan’s abundance of clean energy and hydropower potential, the development of the energy sector features as a priority in the medium- and long-term socioeconomic development strategies of the country.
The Kyrgyz Republic is, however, not exploiting its potential to the fullest. With over 1.1 million consumers enjoying access to electricity at low prices, and the electrification rate approaching 100 per cent, the energy sector remains financially distressed outdated production facilities, resulting in reduced reliability and high technical losses.
Currently, small hydropower stations are considered the most attractive renewable energy sources (RES) in Kyrgyzstan. Their deployment, however, is hindered by factors such as the absence of strategic programmes for the introduction of new electricity generation capacities, and the absence of qualified staff. The current law on RES foresees a special tariff for a period of eight years, which is, however, not sufficient to increase economic profitability of the particular RES. In addition, tax exceptions, provided only for newly constructed RES power plants, are considered unfair by other players in the energy market.
The National Sustainable Development Strategy and the government’s power sector strategy aim to ensure the provision of reliable energy to consumers through measures such as investing in existing domestic energy resources, developing effective demand management and loss reduction measures, reforming the tariff policy, and improving the financial performance of sector entities.
Since little of the vast renewable energy potential of the Kyrgyz Republic has been exploited, UNIDO can support the country in the application of new energy management standards and optimization measures and assist with the deployment of new energy efficient industrial technologies through technical, financial and policy advisory assistance (also in the framework of the PAGE initiative). Potential projects can include the establishment of a center for circular economy and renewable energy, and the development of small-scale energy generation facilities. The application of a water-energy-food-nexus approach could also be explored.
1. SUSTAINABLE TOURISM
Enhancing sustainable tourism and strengthening linkages between tourism and productive industries
Kyrgyzstan is among the 200 priority ecological regions of the planet and, according to the government’s Tourism Sector Development Programme up to 2020, the country has high potential for tourism stemming from its different ecosystems and unique mountainous and lowland landscapes.
The tourism industry grew significantly from 2012 to 2016 along with volumes of investment into the sector (from 8.040 million to 17.453 million soms). There are three existing tourism value chains grouped according to the type of core tourism products, rather than itinerary or destination. These include: 1) Issyk-Kul Lake beach tourism; 2) cultural and soft-adventure tourism, including eco-tourism; and 3) extreme sports and hard adventure tourism. These categories account for most of the sector’s revenue and reflect the broad spectrum of tourism activities in Kyrgyzstan.
The government has signed the Tourism Sector Development Programme up to 2020, which seeks to improve the legislative framework and business environment, enhance tourism service and infrastructure, invest in branding campaigns, attract qualified staff, provide security to tourists and preserve the natural environment.
Moreover, the Ministry of Economy of the Kyrgyz Republic has requested UNIDO’s support to develop and implement a cluster development project aimed at strengthening linkages between tourism and productive industries in the Issyk-Kul region. UNIDO’s project entitled Linking the tourism industry to productive activities in the Issyk-Kul Region, initiated in 2016, is a three-year Russia-funded project aiming to promote linkages between the tourism sector and targeted productive sectors, for example the fruit and vegetable processing sector, and stimulate growth and employment. In particular, the project aims to strengthen the processing capacities and the access to markets of selected agro-industries.
1. CONSTRUCTION MATERIALS
Modernization of construction materials industry
In 2016, the share of the construction industry - mainly expressed by rubber and plastic products necessary for construction – amounted to 6.9 per cent of national GDP. It was, however, a slight decrease compared to 2014, when the share of the construction material sector accounted for 10.1 per cent. Cement and glass production accounts for over 80 per cent of overall production, with growth until 2015 attributed to increased domestic demands for cement and glass. The decline that ensued after this period was mainly due to the financial crisis which affected some countries of the Eurasian Economic Union (EAEU) region. 2017, however, was marked by returning growth fueled in part by growing investment in construction and the increased availability of hypothec financing.
The enterprises producing construction materials are spread unevenly across the regions, with the Batken region having the highest share of 40.9 per cent. A particular feature of this sector is that all existing enterprises are private owned, which means that all the necessary technical equipment, modernization and production and financial questions are solved by owners and managers.
The sector is also characterized by limited export possibilities, a fact that does not allow for the maximum use of the existing factories’ capacities. The production output is, therefore, primarily oriented towards the needs of the local market, while exporting construction materials is, for the most part, done by a limited number of larger construction companies.
With several small- and medium-scale projects already on their way in the construction material sector, there are prospects for future growth and production increases. There is also a new agreement with Chinese investors for the construction of a cement factory in Kara-Kul with an overall capacity of 1 million tons per year. The factory is expected to start operations in 2019.
UNIDO’s recommendations for this sector mainly focus on the availability of resources in the domestic market, i.e. stimulation of domestic demand for construction materials via supporting housing programmes, promotion of domestically-produced materials and components, and improved quality of Kyrgyz products.
UNIDO is currently implementing a technical cooperation project entitled Promoting community level job creation and income generating activities through the development of cost-effective building materials production in Kyrgyzstan. The project aims to promote and disseminate innovative and low-cost technologies to produce cost-effective and environmentally-friendly construction materials on the basis of the sustainable use of local raw resources that can be easily absorbed by the local construction industry for housing and irrigation purposes.
The project has a phased approach based on the premise that modernization of the country’s building material sector through the adoption of innovative technologies and capacity-building activities could facilitate community-level job creation and income generating activities. This, in turn, could improve livelihoods, especially in rural areas, contributing to the government’s efforts towards achieving economic prosperity, poverty alleviation, and affordable housing and infrastructure improvements.
1. MINING SECTOR
Sustainable development of the mining sector
The mining sector represents the lion’s share of the Kyrgyz national industry. The development of this sector is strongly connected with the exploration of gold reserves, with gold mining and smelting accounting for approximately 7-10 per cent of GDP, depending on the annual mine output. With exports of 16-17 tons annually, gold is also by far the most important export item contributing up to 45 per cent to overall exports.
Coal mining is another important sector in Kyrgyzstan, and the extraction of coal has a significant share in the overall volumes of the mining industry. Following a significant decrease in production in the period 2012-2016, the Concept of Development of the Heating and Energy Complex up to 2030 foresees a future increase in coal mining, accompanied by a growth in industry based on expected structural reforms, market liberalization and privatization of existing enterprises.
Oil and gas extraction is another prominent activity in the sector. However, the volumes of oil and gas extracted have been shrinking significantly since the 1980s, mainly because of the fact that the process has become increasingly difficult and requires new technologies and advanced methods. The existing reserves have been exploited for the last 70 years, using up as much as 70 per cent of the available resources, while the remaining amounts are in places where oil is difficult to extract.
In addition to gold and coal mining and oil extraction, the sector relies on mercury and tin mining, processing of antimony, iron, rare metals and non-ferrous ores, raw materials extraction and production of construction materials.
In order to diversify and boost the development of the mining industry, it is necessary to balance interests of the state, extracting companies and the local population for the benefit of future generations and the environment.
Efforts in this respect have been made by the adoption of the Strategy of the Government of the Kyrgyz Republic for the Development of the Mining Industry for 2015-2035, which aims to achieve sustainable development of the mining industry, but also by other financial institutions (e.g. International Finance Corporation) which seek opportunities to increase direct investments in the agribusiness and mining sectors.
Difficulties in the sector arise from social as well as legislative factors. Without proper institutional frameworks, the mining industry risks being trapped in a resource curse due to foreign currency inflows on accounts of the gold mining companies. This, in turn, would lead to a volatile growth, low competitiveness and a decline in the share of manufacturing. There is also a significant lack of clarity in terms of regulations regarding compensation to local communities for project deployment and a lack of community involvement in decision-making processes. UNIDO’s proposed interventions, focusing on the implementation of regulations for environmental protection and social impact assessments, could be an important contribution to related government initiatives already in process.
Inter-Ministerial Working Group
An Inter-Ministerial Working Group is being established under the leadership of the Government of Kyrgyzstan. It will be composed of representatives from: Ministry of Economy, Ministry of Foreign Affairs; Ministry of Culture; Information and Tourism; Ministry of Transport and Communication; Ministry of Agriculture and Melioration; Ministry of Education and Science; and the State Committee on Industry, Energy and Subsoil Use, among other national counterparts.
This Inter-Ministerial Working Group will meet regularly to provide strategic direction to the PCP and oversee resource mobilization efforts for PCP activities. It will also ensure coordination among the various partners involved in the programme.
PCP Working Groups
Working Groups will be established for each PCP priority area. Each Working Group will hold regular coordination meetings and provide the necessary technical updates on implementation.
OUTLOOK FOR 2019
The national Industrial Development Strategy is expected to be approved by the Government of Kyrgyzstan in 2019, which will lead to the finalization of the PCP Kyrgyzstan Programme Document and related technical interventions.