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Summary of the Study: Mining Industry as a Source of Economic Growth in Kyrgyzstan

Core Content

This study evaluates the role of the mining industry in the economic growth of Kyrgyzstan and explores the potential for development through legal and institutional reforms. It outlines the current status of the sector, its contribution to the national economy, and three development scenarios for the period up to 2020.

Main Points

1. Economic Contribution of the Mining Sector

• The mining industry is a core sector in Kyrgyzstan, contributing significantly to the economy.
• In 2004, the industry accounted for 10.2% of GDP, 41.1% of exports, and 11% of tax revenues.
• It generated $48 billion in som of industrial output, representing 25.578 billion som.
• The royalty on subsoil use yields 568 million som annually.
• The sector employs over 15,000 workers, with an average monthly wage of 10,600 som, which is 4 times higher than the national average.
• Each mining job creates 1.6 indirect jobs in related industries.

2. Mineral Resources and Potential

• Kyrgyzstan has a high mineral potential, especially in precious metals (gold, silver, mercury) and base and rare metals (copper, lead, zinc, antimony, tungsten, etc.).
• The country has a well-developed geological infrastructure, with 80% of its territory surveyed at a 1:50,000 scale.
• Many mineral deposits were discovered during the Soviet era, but only a fraction has been developed.
• The high mountainous regions (60% of the country) are underdeveloped economically, but mining can be a key driver for their development.

3. Current Status of the Mining Sector

• Kyrgyzstan has a long history of mining, with over 100 years of industrial development.
• Kumtor Operating Company is a major gold producer, and KME (Khaydarkan Mercury Enterprise) is a world leader in mercury production.
• KAE (Kadamjay Antimony Enterprise) was once a leading producer of antimony, but now relies on imported raw materials.
• KBME (Kara-Balta Mining Enterprise) was a key uranium producer during the Soviet era, but its raw material base was lost after the collapse.
• The mining industry has declined in recent years, with fewer working companies and increased informal mining activities, particularly artisanal gold mining involving up to 5,000 people.

4. Development Scenarios (2004–2020)

Low Growth (Passive) Scenario

• No significant reforms or investments are made.
• Gold-mining industry may collapse by 2010, leading to:
  • Loss of 3,000 direct jobs and 4,800 indirect jobs.
  • Tax revenue loss of $38 million.
  • Export value loss of $250 million (10 billion som).
  • Retained value loss of $50 million, worsening the trade balance.

Medium Growth (Reformed) Scenario

• Based on the Road Map recommendations.
• Investments of $680 million.
• GDP contribution increases 3 times to $90 million.
• Export volume increases to $390 million.
• Retained value reaches $170 million.
• 5,000 direct jobs and 8,000 indirect jobs are created.

High Growth (Speculative) Scenario

• Assumes favorable conditions, reforms, and high mineral prices.
• Investments exceed $1 billion.
• Annual revenues reach $650 million.
• Tax revenues reach $120 million.
• Exports reach $576 million.
• Employment reaches 66,000 jobs (direct and indirect).
• Retained value is $237 million.
• This scenario is more realistic due to the current gold price of $560/oz, expected to rise further.

Key Recommendations

• Develop a new Mining Code to replace outdated specialized laws and reduce state interference.
• Improve the legal regime for subsoil use to reduce investment risks and enable development of low-grade deposits.
• Implement a transparent tax system to reduce corruption and improve revenue collection.
• Enhance the licensing system with a "first come, first served" principle and eliminate speculative license holding.
• Create an electronic geological database connected to GIS systems to improve data management and exploration efficiency.
• Promote development of small-scale mines and artisanal mining by providing training and support from international donors.
• Ensure public access to geological information without administrative barriers.
• Encourage local communities to benefit from mining through license fees.

Conclusion

The mining industry is a vital source of economic growth in Kyrgyzstan, with high potential for development. However, it faces challenges such as complex legal frameworks, high tax burdens, lack of geological data accessibility, and administrative inefficiencies. Reforms are essential to unlock this potential and ensure sustainable development. The speculative scenario is considered the most realistic and beneficial for the country’s economy, especially with the current favorable mineral prices and potential for increased investment.