Table Of ContentTextile
and
Apparel
Cluster
in
Kyrgyzstan
Laura
Birkman
Maria
Kaloshkina
Maliha
Khan
Umar
Shavurov
Sarah
Smallhouse
Harvard
Kennedy
School
Harvard
Business
School
May
2012
1
Table
of
Contents
Executive
summary
..................................................................................................................................................
3
1
Competitiveness
of
Kyrgyzstan
.................................................................................................................
4
1.1
Country
Overview
...................................................................................................................................
4
1.1.1
History
and
Modern
Political
Economy
of
Kyrgyzstan
..................................................
5
1.1.2
Kyrgyzstan
Economic
Performance
.......................................................................................
7
1.1.3
International
and
Regional
Trade
........................................................................................
11
1.2
National
Competitiveness
Analysis
..............................................................................................
12
1.2.1
Endowments
.................................................................................................................................
12
1.2.2
Macroeconomic
Conditions
....................................................................................................
13
1.2.3
Microeconomic
Conditions
.....................................................................................................
14
2
Kyrgyz
Textile
and
Apparel
Cluster
.....................................................................................................
20
2.1
Highlights
and
Economic
Performance
......................................................................................
20
2.1.1
History
of
Cluster
Development
...........................................................................................
23
2.1.2
Textile
and
Apparel
Cluster
Value
Chain
..........................................................................
25
2.1.3
Regional
Competitors
of
the
Cluster
...................................................................................
27
2.1.4
Cluster
Map
....................................................................................................................................
28
2.2
Textile
and
Apparel
Cluster
Business
Environment
Analysis
..........................................
29
2.2.1
Context
for
Firm
Strategy
and
Rivalry
...............................................................................
30
2.2.2
Factor
Conditions
........................................................................................................................
32
2.2.3
Demand
Conditions
....................................................................................................................
34
2.2.4
Related
and
Supporting
Industries
.....................................................................................
34
Recommendations
.................................................................................................................................................
36
2
Executive
summary
This
report
is
an
analysis
of
the
textile
and
clothing
cluster
in
the
Kyrgyz
Republic.
This
has
been
the
fastest
growing
segment
of
the
economy
over
the
last
decade
and
holds
special
promise
as
a
contributor
to
future
economic
development.
Kyrgyzstan
is
a
parliamentary
republic,
the
only
one
in
the
region.
It
has
undergone
considerable
political
turmoil
since
its
independence
in
1991,
and
has
suffered
multiple
regime
changes
and
enjoyed
little
continuity
of
leadership.
The
current
government
has
adopted
liberalization
and
privatization
policies,
and
has
prioritized
infrastructure
development
and
attracting
foreign
investment.
Corruption,
low
productivity
and
little
available
capital
are
obstacles
that
must
be
overcome.
There
is
a
new
hopefulness
about
what
is
possible
even
though
many
challenges
remain
for
this
economy.
Medium
and
long
term
strategies
must
be
developed
and
consistently
implemented
to
achieve
sustained
competitive
advantages.
Kyrgyzstan
is
a
small
and
low-‐income
country
bordered
by
much
larger
and
wealthier
countries.
It
has
turned
this
into
an
advantage
by
adeptly
participating
in
regional
trade.
While
local
demand
for
products
remains
limited,
Russian
and
Kazakhstani
demand
is
quite
large
and
consumers
have
shown
a
preference
for
products
from
Kyrgyzstan.
The
textile
and
apparel
cluster
has
grown
rapidly
by
focusing
on
these
markets.
The
study
concludes
with
some
specific
recommendations
for
the
government,
the
private
sector,
and
not-‐for-‐profit
organizations
that
will
accelerate
further
development
of
this
cluster.
3
1 Competitiveness
of
Kyrgyzstan
1.1 Country
Overview
Kyrgyzstan
covers
198,500
square
kilometers
of
Central
Asia,
bordered
by
China,
Tajikistan,
Uzbekistan,
and
Kazakhstan.
The
estimated
GDP
(2011)
is
$4.7
billion
USD,
with
real
annual
GDP
growth
rate
of
roughly
5.7%
over
the
past
five
years.1
The
population
is
5.5
million
with
a
GDP
per
capita
(adjusted
for
purchasing
power
parity)
of
$
2,4302
placing
it
183rd
in
the
world.3
It
is
a
mountainous
country
with
mineral
and
water
resources,
but
highways
over
passes
close
under
heavy
winter
conditions,
and
miners
contend
with
glacial
flows.
There
is
only
one
rail
line
and
one
international
airport,
which
is
located
in
the
nation’s
capital
of
Bishkek.
Kyrgyzstan
has
a
highly
multi-‐ethnic
population,
with
over
80
different
ethnicities.
Slightly
over
a
third
of
its
people
live
in
urban
areas.
Bishkek,
located
in
the
north
near
Kazakhstan,
and
is
the
country’s
largest
city.
It
is
located
on
the
ancient
Silk
Road,
the
most
important
historical
over-‐
land
trade
route
in
Asia.
Osh
is
the
second
largest
city,
and
is
located
near
the
southern
border
with
Uzbekistan.
Employment
is
principally
in
agriculture
(48%),
with
industry
employing
12.5%
and
services
39.5%.
Gold
is
the
most
important
export
product,
and
oil
the
largest
import.
1
EIU
statistics,
2001
22
IIbbiidd
33
CCIIAA
WWoorrlldd
FFaaccttbbooookk
4
1.1.1 History
and
Modern
Political
Economy
of
Kyrgyzstan
The
history
of
the
country’s
territory
goes
back
many
centuries
and
has
known
many
rulers
and
formed
part
of
the
Chinese
and
Russian
Empires
before
it
joined
the
Soviet
Union.
In
1924,
the
Kara-‐Kirgiz
Autonomous
Region
was
formed
(renamed
Kirghiz
Autonomous
Region
in
1925),
creating
the
borders
of
what
is
present-‐day
Kyrgyzstan.
Traditionally
the
people
led
a
nomadic
lifestyle
of
herders,
but
Soviet
land
reforms
in
the
1920s
and
1930s
dramatically
changed
the
traditional
way
of
life.
Many
formerly
nomadic
people
settled
as
part
of
the
land
reforms.
In
1936,
the
Kirghiz
Soviet
Socialist
Republic
(SSR)
–
also
known
as
Kirghizia
–
became
formally
a
constituent
republic
within
the
USSR
and
part
of
the
planned
economy.
The
region
remained
stable
for
decades
until
1990,
when
a
state
of
emergency
was
imposed
after
several
hundred
people
were
killed
in
inter-‐ethnic
clashes
between
Uzbeks
and
Kyrgyz
in
the
southern
capitol
of
Osh.
Askar
Akaev,
a
reformist
liberal
member
of
the
Kyrgyz
Communist
Party,
was
elected
to
the
newly-‐created
post
of
President.
In
1991,
the
Kyrgyz
Republic
declared
its
independence
after
the
collapse
of
the
USSR
and
joined
the
Commonwealth
of
Independent
States
(CIS).
President
Akaev
won
another
term
in
office
that
same
year.
In
1992,
Kyrgyzstan
joined
the
UN
and
the
OSCE
and
launched
its
first
economic
reform
program.
In
1993
the
som
replaced
the
Russian
ruble
as
the
main
unit
of
currency.
In
1995,
Akaev
won
another
term
in
office
with
nearly
70%
of
the
vote
and
anchored
his
position.
Soon
thereafter,
with
the
help
of
a
referendum,
he
approved
constitutional
amendments
to
concentrate
more
power
in
the
hands
of
the
presidency
and
reduce
powers
of
the
legislature.
In
1998,
a
constitutional
court
approved
Akaev’s
appeal
to
run
for
a
third
term
in
2000,
and
in
5
November
he
was
re-‐elected
for
another
five
years
(though
international
observers
deemed
the
election
results
suspect).
Increasing
dissent
with
the
government
marked
the
early
2000’s
and
a
number
of
opposition
leaders
were
arrested
and
given
long
prison
sentences
for
alleged
abuses
of
office.
In
2002,
opposition
protestors
marched
on
Bishkek
demanding
President
Akaev’s
resignation.
In
early
2003,
a
referendum
approved
another
constitutional
change
intended
to
hand
some
of
the
president’s
powers
back
to
parliament,
but
was
seen
by
many
as
a
farce.
Protests
amplified
as
numerous
independent
and
opposition
candidates
were
prevented
from
participating
in
the
parliamentary
elections.
Masses
rioted
demanding
Akaev’s
resignation,
and
he
fled
to
Moscow.
Parliament
appointed
the
opposition
leader,
Kurmanbek
Bakiev,
the
acting
Prime
Minister.
Bakiev
became
President
in
a
landslide
victory
in
2005,
but
political
upheaval
continued.
There
were
five
prime
ministers
in
four
years.
Protests
demanding
Bakiev’s
resignation
took
place
and
when
constitutional
changes
were
made
in
the
latter
half
of
2007;
many
opposition
members
considered
it
a
step
closer
to
authoritarian
rule.
Turbulence
between
2005-‐2009
finally
came
to
a
head
in
a
full-‐blown
revolution
in
2010.
Bakiev
was
forced
to
resign
and
fled
to
Belarus.
In
ensuing
days
of
political
power
vacuum
hundreds
of
people
were
killed
and
thousands
displaced
in
clashes
between
the
Kyrgyz
and
Uzbek
ethnic
communities
of
Osh
and
Jalalabad.
Roza
Otunbaeva
served
as
interim
President
until
2011,
when
Almazbek
Atambaev
was
elected.
The
President
was
the
undisputed
leader
in
Kyrgyzstan
until
2010
when
a
constitutional
referendum
moved
the
country
to
a
parliamentary
system,
placing
greater
power
in
the
parliament
and
the
cabinet
and
less
in
the
presidency.
Conditions
in
Kyrgyzstan
have
steadily
6
improved
under
the
new
system.
The
new
Prime
Minister-‐
Omurbek
Babanov
has
shown
commitment
to
building
the
economy
through
market
forces
and
the
economy
is
recovering
from
what
was
a
destructive
and
violent
period.
His
administration
is
showing
fiscal
restraint
and
has
kept
inflation
in
check.
It
has
begun
implementing
policies
aimed
at
further
liberalizing
the
economy
and
strengthening
trade
relationships.
Most
industry
has
been
privatized,
and
there
is
a
concerted
effort
to
stimulate
foreign
direct
investment.
Infrastructure
investment,
diversification
of
the
economy,
and
improved
governance
are
the
highest
economic
development
priorities.
The
turmoil
of
the
last
ten
years,
while
harmful
to
growth,
remarkably
did
not
deter
progress
in
all
areas.
Literacy
remained
consistently
high
and
savings
and
investment
both
increased.
Prior
investments
in
physical
infrastructure
have
improved
key
logistics.
But
power
outages,
limited
capital,
and
exogenous
factors
(notably
Russian
immigration
policy,
Russian
and
Kazakhstani
FDI,
and
the
prices
of
gold
and
oil)
continue
to
contribute
to
ongoing
economic
and
political
vulnerability.
Perception
of
corruption
continues
to
be
a
serious
concern.
1.1.2 Kyrgyzstan
Economic
Performance
Kyrgyzstan
had
erratic
real
GDP
growth
over
the
last
decade,
with
a
brief
period
of
negative
growth
in
2010,
due
to
political
instability
and
a
down-‐cycle
of
the
Kumtor
gold
mine4,
however
in
2011
real
GDP
growth
was
9%.5
Inflation
peaked
sharply
in
2008
and
2011
following
years
of
major
revolts,
exacerbated
by
high
international
prices
for
food
and
fuel
(Figure
1).
4
The Kumtor gold mine generates 30% of country’s foreign currency reserves and 9% of Kyrgyzstan’s GDP.
5
Economist
Intelligence
Unit
7
Figure
1:
Real
GDP
Growth
and
Inflation
Rate
in
Kyrgyzstan
Real
GDP
growth,
%
10
5
0
20012002200320042005200620072008200920102011
-‐5
CPI,
%
30
20
10
0
20012002200320042005200620072008200920102011
Source:
Economist
Intelligence
Unit
Difficulties
raising
revenue
and
high
levels
of
social
spending
have
produced,
and
are
expected
to
continue
to
produce,
budget
deficits.
FDI
inflow
has
been
volatile
and
stayed
below
10%
mainly
due
to
political
instability
in
the
country
and
failure
to
enforce
investors’
rights.
The
government
has
embarked
upon
an
anti-‐corruption
drive
to
make
the
country
more
attractive
to
foreign
investors.
Remittances
constitute
a
high
and
increasing
percentage
of
GDP
–
27%
in
2010
(Figure
2).
The
sources
of
remittances
are
transfers
from
Kyrgyzstan
citizens
working
abroad
as
well
as
unregistered
trade.
Remittances
increases
have
coincided
with
an
increase
in
the
trade
deficit
likely
due
to
growth
in
unregistered
exports.
What
is
both
captivating
and
potentially
dangerous
about
remittances
is
how
they
“simultaneously
represent
the
ability
of
vulnerable
populations
to
help
themselves
and
reflect
the
danger
of
institutional
capture
of
a
phenomenon
that
should
be
8
uniquely
the
realm
of
vulnerable
populations”.6
In
other
words,
remittances
cannot
be
part
of
a
country’s
sustainable
growth
strategy.
Figure
2:
Remittances
to
Kyrgyzstan
as
percent
of
GDP
Remittances,
%
of
GDP
30
20
10
0
20012002200320042005200620072008200920102011
Foreign
trade
balance,
%
of
GDP
20
0
20012002200320042005200620072008200920102011
-‐20
-‐40
Sources:
World
Bank,
Economist
Intelligence
Unit
Labor
productivity
(GDP
per
employee)
remains
a
key
challenge
in
Kyrgyzstan,
with
the
country
lagging
behind
its
regional
neighbors
as
well
as
other
prominent
textile-‐producing
countries
such
as
India,
China
and
Turkey
(Figure
3).
According
to
the
Global
Competitiveness
Report,
Kyrgyzstan
also
lags
behind
the
same
countries
in
its
competitiveness
scores,
which
encompass
basic
requirements,
efficiency
enhancers,
and
level
of
sophistication
of
the
economy.
6
Rosser,
Ezra,
Remittances
(October
24,
2007).
American
University,
WCL
Research.
Available
at
SSRN:
http://ssrn.com/abstract=1024177
9
Figure
3:
Productivity
and
competitiveness
scores
of
Kyrgyzstan
in
comparison
to
other
economies
Labor
productivity*,
current
USD
30,000
29,016
GDP
per
employee
GDP
per
capita
20,000
17,551
GDP
per
capita
@
PPP 14,491
10,000
6,632
1,845
2,064
2,122
2,870
3,156
3,954
-‐
Tajikistan Kyrgyzstan Vietnam Pakistan India Moldova China Kazakhstan Russia Turkey
%
of
U.S.
productivity 1.9% 2.1% 2.2% 3.0% 3.2% 4.1% 6.8% 14.9% 18.1% 29.9%
Competitiveness
scores
6 5.3
3.8 3.5 4.2 3.6 4.3 3.9 4.2 4.2 4.3
4
2
0
Tajikistan Kyrgyzstan Vietnam Pakistan India Moldova China Kazakhstan Russia Turkey
*Labor
productivity
=
current
GDP
/
(labor
force
x
(1
–
unemployment
rate))
Source:
Global
Competitiveness
Report
2011-‐12,
World
Bank
Even
more
worrisome
is
the
stagnation
of
labor
productivity
over
the
past
decade
(Figure
4).
The
productivity
drop
in
the
beginning
of
the
90’s
can
be
partially
explained
by
the
growth
of
the
informal
economy
after
the
Soviet
Union
collapse.
50%-‐60%
of
the
economy
in
Kyrgyzstan
is
informal,
and
thus
output
and
productivity
are
underestimated.
Additionally
entrepreneurs
have
been
attracted
to
less
productive
labor-‐intensive
industries,
such
as
trade
and
apparel,
as
these
sectors
have
had
low
barriers
to
entry.
And
finally,
the
general
use
of
modern
technology
is
low
and
equipment
is
often
obsolete.
The
widening
gap
between
labor
productivity
and
salary
growth
can
likely
be
explained
by
social
policy.
In
2002
the
share
of
the
population
living
for
less
than
$2
a
day
(PPP)
was
67%,
which
10
Description:1.1.1 History!and!Modern!Political!Economy!of!Kyrgyzstan!! The!history!of!the!country’s!territory!goes!back!many!centuries!and!has!known!many!rulers!
