Assessment of effectiveness of the FDI policy of the Kyrgyz Republic

The effectiveness of the FDI policy of the Kyrgyz Republic has been assessed as of follows.

As illustrated in Figure 8, the UNCTAD Inward FDI Performance Index for the Kyrgyz Republic within the period of 2005 - 2015, always takes on the value greater than one, except of one year - 2005: in 2010 and 2013, the index value is even greater than 4 and in 2011, it is greater than 5. It indicates that the country has attracted the FDI more than expected, taking into account its GDP or economic size. Generally, the Kyrgyz Republic’s Inward FDI Performance Index behaves volatilely: sometimes it rises and sometimes falls.

In our opinion, the index, as the tool for assessment the effectiveness of the FDI policy, has disadvantages, because of the two reasons. Firstly, the high values of the index do not necessary indicate a good condition of the FDI in the Kyrgyz Republic. It might indicate the low GDP of the Kyrgyz Republic and, as consequence, a little amount of the attracted FDI will be considered as a good achievement. And, secondly, GDP of the country does not reflect the conditions for the FDI within the economy. By conditions, we mean legal and institutional framework for the FDI.

Therefore, in our opinion, we should interpret and deal with the given index carefully

Source: UNCTAD.

Within the EAEU and considered period, according to the UNCTAD Inward FDI Performance Index, the Republic of Kazakhstan takes predominantly the leading positions, but from 2009 the country has a falling tendency. The Kyrgyz Republic ranks second and dominates in 2010, 2011, 2013 and 2015. The Republic of Armenia ranks third, the Republic of Belarus - fourth, and the Russian Federation takes predominantly the lowest positions.

As presented in Figure 9, according to the Global Opportunity Index that has been proposed by the Milken Institute, within the EAEU and period of 2009 - 2015, the Republic of Kazakhstan index has the highest scores compared to the other countries. The Republic of Armenia ranks second. The index of the both, the Republic of Kazakhstan and the Republic of Armenia have a rising tendency. The Russian Federation ranks third and the Kyrgyz Republic ranks last, indicating relatively more limited opportunities for investments.

The Republic of Belarus was not included into the ranking.

Source: Global Opportunity Index: Attracting Foreign Investment. Second Edition. Milken Institute, 2015. - pp. 35- 39.

According to the methodology of the Global Opportunity Index of 2016, the EAEU countries are ranked as of follow (Figure 10).

From this graph we can see the composite rank of the EAEU countries according to the Global Opportunity Index in 2016, and the ranks by the dimensions of the given index.

Within the EAEU, the Kyrgyz Republic ranks last on all the dimensions, except of Institutional Framework. However, it is still bad, taking into account that the index covers 124 countries. Therefore, according to the index, the Kyrgyz Republic has inefficient business environment for attracting the investments due to the following reasons:

1. Poor macroeconomic performance, low quality of labor force and infrastructure.
2. Limited access to financial services.
3. The lack of supportive network from the institutions to business, and
4. The lack of contribution by the country’s institutions, policies, and legal system to facilitating international integration by following international standards.

According to the Global Opportunity Index composite rank, within the EAEU, the leading position takes the Russian Federation, the Republic of Kazakhstan ranks second, the Republic of Armenia – third, and the Kyrgyz Republic ranks last.

The Russian Federation dominates in Financial Services and International Standards and Policy. The Republic of Kazakhstan - in Economic Fundamentals, Business Perception, and Institutional Framework. The Republic of Armenia shows relative good results in Financial Services and Business Perception.

Source: The World Bank.

In order to enhance our assessment of effectiveness of the FDI policy of the Kyrgyz Republic, we have also considered Doing Business Index that provides objective measures of business regulations and their enforcement[1]. Higher index scores indicate more conducive regulatory environment to starting and operating a business[2].

As we can see from the Figure 11, within the given index, the EAAU countries are not different significantly from each other.

In addition to this, according to the Doing Business Ranking 2017, the Kyrgyz Republic ranks 75th among 190 economies, the Russian Federation ranks 40th, the Republic of Armenia - 38th the Republic of Belarus - 37th, and the Republic of Kazakhstan ranks 35th among 190 economies.

Malika Mamtylaeva

«BizExpert»

[1] The World Bank. About Doing Business. URL: http://www.doingbusiness.org/about-us.

[2] The World Bank. Economy Rankings. URL: http://www.doingbusiness.org/rankings.