Despite the recent development in the manufacturing sector in the Kyrgyzstan, there are still some issues that the country is facing. These include the lack of modern management and marketing techniques, widespread corruption and high prices for imported raw materials. To address these issues, COVID-19 response initiatives are being carried out.
1 High prices for imported raw materials
Despite the importance of the agricultural sector in the Kyrgyz economy, the sector faces many difficulties. It is vulnerable to natural disasters and fluctuating commodity prices. It is also subject to outbreaks of livestock diseases due to underinvestment in veterinary services.
The lack of properly equipped laboratories in Kyrgyzstan is another major concern. As a result, obtaining product certification from foreign laboratories is perceived as time-consuming and expensive. Moreover, there is a lack of knowledge about standards and certificates required by the market.
While agriculture contributes to 15% of GDP, the industry is largely vulnerable to external shocks. Hence, the government should work towards reducing its dependence on basic commodities and diversifying its export portfolio. It should also ensure effective integration with global value chains.
As part of its National Sustainable Development Strategy 2013-2017, the government of Kyrgyzstan has launched several initiatives to boost its exports. It is important to increase knowledge about the regulations and trade procedures in order to achieve a better market access and increase the competitiveness of Kyrgyz products.
In addition to implementing international standards and regulations, the government of Kyrgyzstan should also focus on capacity building. This will help reduce the high level of staff turnover and will improve the effectiveness of services. Moreover, it will allow the private sector to gain more experience and to better compete with international competitors.
The NTM survey conducted in Kyrgyzstan by the ITC publications team revealed that more than half of the companies are affected by regulatory barriers. The majority of the respondents believe that the business environment in the country has not improved in the past five years. A majority of the respondents also report that they have not found out what requirements are needed to export.
2 Lack of modern management and marketing methods
Despite its vast potential, the textile and apparel industry in Kyrgyzstan is still far from fully functional. In fact, the sector is almost dead. The government is trying to bring in investments into the industrial sector, but the market reforms are not yet up to speed. Moreover, Kyrgyz companies are lacking the expertise and know-how to compete with Asian and European competitors.
One of the major challenges is the low quality of the workforce. Seasonal demand forces enterprises to hire less experienced workers. Also, the quality of the raw materials is declining, because the cotton is not treated with fertilizers. This means that the supply is limited, and the enterprises are forced to import all their raw materials from abroad.
The Kyrgyz clothing industry mainly exports to Russia and Kazakhstan. A large number of SMEs in the apparel industry have been supported by USAID, which helped them improve their production processes and increase their export potential. Several joint ventures with Turkic countries, especially Turkey, have also contributed to the development of the textile and apparel industry in Kyrgyzstan.
During the Soviet era, the Kyrgyz textile industry employed more than 100,000 people. Most of the units are small-sized enterprises, with only a few being owned by foreign investors.
In the mid-1990s, large processing companies were privatized. The resulting financial crisis had a negative impact on the economy. However, since the beginning of the new decade, Kyrgyz sewing enterprises have been seeking new sales options.
3 New sales options
Despite the low costs of labour, Kyrgyz clothing and textile products cannot compete with those of their Asian competitors. In particular, the textile industry cannot compete with those of China and Bangladesh.
In order to remain competitive, the apparel manufacturing industry requires significant capital investments. The United States supports a number of garment enterprises in Kyrgyzstan. They have helped create more than 18,000 new jobs and access new markets.
In the garment manufacturing sector, a large percentage of workers are female. However, many women are trapped in low-paid informal work. They must also rely on foreign-made raw materials.
Kyrgyz garment manufacturing companies are now focusing on design and branding. They have also strengthened their quality control systems. They have undergone social audits and BSCI labor certifications. In the next few years, they will develop their own product ranges and diversify their supply chain.
The United States works with small and medium-sized enterprises in the garment and apparel industries to increase their production and exports. This helps them meet international standards and create jobs. For example, USAID helped the Cool Bros Company establish its first factory in Kyzyl-Kiya, the Batken region. They are now negotiating deals with European clients.
Cool Bros plans to expand to two-shifts in the near future. They will also begin producing garments from woven fabrics and blends. This will allow them to produce 500,000 garments a month. The new equipment will enable them to make overalls for construction workers, security services, and fuel companies.
4 COVID-19 response initiatives
During the COVID-19 pandemic in Kyrgyzstan, the country faced a steady increase in cases. While the number of COVID-19 incident cases did not rise above 100 per day until June 2020, the infection rate steadily increased. Amid the outbreak, the government declared a state of emergency in three major cities. In response, the Ministry of Health developed an action algorithm.
In order to ensure adequate and timely care, the World Health Organization and the World Bank helped the country to improve its health care system. They provided funding for the procurement of equipment. The USAID-funded Local Humanitarian Support System (LHSS) also helped the country’s healthcare system to enhance protocols and procedures. LHSS supported the training of over 1,300 health care workers. It also worked to develop procedures for the collection and storage of COVID-19 specimen.
The Kyrgyz Republic is among the countries that are most affected by the global COVID-19 pandemic. While the country remains under control, the pandemic has significantly affected the economies of Central Asia. Several textile and clothing companies in the region have suffered a blow from the coronavirus.
The Cool Bros factory in Kyrgyl-Kiya is one of the biggest employers in the region. Initially, the factory hired 77 workers from nearby villages. The factory produced cloth face masks for local government orders. The factory also provides transportation services. It has invested $260,000 in renovations and can produce 500,000 garments per month. Its products are certified to international quality standards and allow it to take on large export orders.
5 Economic performance has been hindered by widespread corruption
Despite its long-standing commitment to democracy, Kyrgyzstan has faced several bouts of political instability and incapacity, resulting in a number of changes in government. Throughout its history, Kyrgyzstan has adopted liberal market policies and adopted a relatively free and open investment climate. However, the country’s economic performance has taken a turn for the worse in 2020.
The country experienced a number of restrictions, including a severe currency crisis and a serious outbreak of the COVID-19 virus. These events contributed to a deepening of Kyrgyzstan’s incapacity. The country’s banking sector remains exposed to external influences. Moreover, the Kyrgyzstan currency depreciated against the euro. This caused a sharp decline in the country’s economic performance.
The political situation in Kyrgyzstan was volatile, with two competing parties. One led by the president’s brother, Raimbek Matraimov, and a rival party led by his younger brother, Asylbek Jeenbekov. The two parties formed an unscrupulous alliance. The president’s political party, the Social Democratic Party of Kyrgyzstan, split into two separate parties: an Atambayev-loyalist party and a Jeenbekov-loyalist party.
The Kyrgyz government is weak in protecting citizens from the consequences of corruption and implementing its own policies. It has limited resources for first-order needs, and often gets exploited by corrupt interests.
While most socioeconomic problems are not documented by official statistics, they are readily observable in the media. Many rural communities lack drinkable water and other basic services. Moreover, there is a wide divide between urban and rural communities.
6 Low foreign investment
Until 2010, Kyrgyzstan had faced political and economic instability. It was also faced with economic stagnancy and low foreign investment. As of now, the government is trying to bring in new investments to the country’s major industrial sectors. This includes the garment manufacturing sector.
The Kyrgyz textile and apparel industry has been encouraged by the government policies. But, the sector is still in need of improvements. Most of the units are small. They lack technological and management standards that are suitable for modern manufacturing processes. They are also plagued by low labour productivity.
Moreover, the industry suffers from seasonal demand. This means that the workforce is not well trained and skilled. It is also difficult for the manufacturers to meet the demands of international consumers.
Another major challenge is the lack of access to finance. The cost of bank loans can be as high as 20-30 percent. In addition, larger companies are burdened with high taxes and pay-offs. Consequently, smaller enterprises are not able to cooperate with foreign industries.
There is a need to develop a strong financial system, as well as the financial infrastructure. In order to attract Chinese investment, the government must increase its market reforms. The government is also looking to attract businesses in the energy and chemical manufacturing industries.
Currently, the Kyrgyz clothing industry is mainly export oriented. About 90% of the production is exported to Russia. But, the apparel sector is facing technological obsolescence and low labour productivity. In order to increase the export potential, Kyrgyz textile and apparel manufacturers should be positioned to respond to international markets.
Henry Pham (Pham Quang Anh), CEO of DONY Garment
This year, we have found that many international buyers are seeking new suppliers based in nations outside of China and Thailand to purchase many goods and products, including uniforms, workwear, reusable cloth face mask, and protective clothing.
At DONY Garment, we are proud to welcome international customers, especially those based in the US, Canada, the Middle East, and the EU market to discover the professional production line at our factory in Vietnam.
We guarantee our products are of the highest quality, at an affordable cost, and easy to transport across the world.