Business in Kyrgyz Republic: Resilience amid adversity

Published on Thursday, 28 April 2016

Published by Ayun Sundari on Thursday, 28 April 2016

A woman sells hats and slippers at the bazaar.
A woman sells hats and slippers at the bazaar.

The Dordoi bazaar in the Kyrgyz Republic is one of the largest markets in Central Asia. Spreading across 100 hectares and made up of endless rows of thousands of steel shipping containers with dual use as shops and storage units, the market is a vital artery of the country’s economy.

Most of the market’s income comes from wholesale business of re-exporting imported goods, mainly from the People’s Republic of China (PRC) to neighboring countries, particularly Kazakhstan and Russia. Traders make their profits from the difference of customs tariffs between countries.

Located on the outskirts of the capital Bishkek, Dordoi used to be jam-packed with domestic and wholesale buyers hunting for cheap imported goods, but it was relatively quiet on one recent Saturday morning.

The current low global commodity prices and slow economic recovery in the Russian Federation is taking a severe toll on the market. The Kyrgyz Republic’s recent decision to join a Russia-led customs union means all tariffs with non-member states—including the PRC—are now much higher, so imported goods from China are now too expensive for wholesale buyers from neighboring countries, and many of them have stopped going to the market. Traders are despairing due to the loss of business.

“We have felt the crisis,” said Aida Suymbaeva, a 42-year-old garment trader in Dordoi. In between serving her few costumers, she explained that she had to change her business strategy after losing her wholesale customers from Russia and Kazakhstan. “I decided to do retail garment business for domestic costumers. I am not making the same amount of money as before but at least I am still making money.”

Business in Dordoi is dominated by micro, small and medium-sized enterprises (MSMEs) – many of which have been forced to scale down and even close down in recent months as their customers disappeared.

 “MSMEs is one of the worst affected sectors by the current economic turbulence,” said Gulnara Shamshieva, General Manager of Bai Thusum Bank (BTB), one of the largest banks serving MSMEs in the Kyrgyz Republic.

For 54-year-old Zhorobekov Ulan, the owner of an imported ceramics business in the capital city of Bishkek, the current crisis is just another phase that businesses in the country have to go through. His company survived the Asian financial crisis in 1990s, the global economic crisis in 2008, and the negative impacts of the 2010 domestic political turbulence. Based on his experience, during a crisis business simply has to adjust.

“This year we had to adjust our business. We decided to sell our products that didn’t sell well with a big discount. We also replaced our suppliers with new ones that can offer us a lower price. By doing this we can lower our cost and continue to make a profit.”

While noting that it may take time for the economy to recover, Ms. Shamshieva is confident that if the government puts in place the necessary infrastructure to address the impact of the economic slowdown, and businesses quickly adapt to the new economic conditions, things will eventually get better.

”There is no crisis that will be everlasting,” noted Mr. Ulan. “I have no plan to close my business. I just look around and see all the newly constructed buildings around here, and I cherish the hope for that.”

Many MSMEs in the Kyrgyz Republic showed resilience during the economic turbulence by taking active steps to adjust their businesses and look for new opportunities. Their road to recovery to the pre-crisis state will likely be slow and difficult, and the provision of medium and long-term financing will be essential for MSMEs to rebuild their businesses, expand, and reach higher levels of productivity and competitiveness.

“MSMEs are the core of the economy of the Kyrgyz Republic, and a major contributor to the country’s economy. It is important to support them, as they create jobs and help boost the economy,” said Ms. Shamshieva.

ADB is providing a senior unsecured loan of up to $10 million for BTB to extend medium- and long-term financing to MSMEs. ADB’s support also includes technical assistance for developing mobile banking services to increase access to finance for the poor, and give them financial literacy training.

With a sound platform serving 32,000 MSMEs, BTB provides banking services and offers financing through its regional outlets to the MSMEs segment, capitalizing on cross-sale opportunities. ADB's support will help BTB improve its deposit mobilization and outreach to businesses and farmers in remote villages, thus promoting inclusiveness, and extend more loans to female entrepreneurs.