New Gold Find Unlikely to Alter Overall Slowing of Growth

Even the discovery of a new seam at the Kumtor gold mine will not reverse the declining importance of the gold industry in the Kyrgyz economy as a whole, NBCentralAsia analysts say.



Earlier this week, Centerra Gold Inc, in which the Kyrgyz government has a 16 per cent share, announced the discovery of new deposits near the Kumtor mine which it operates in the Issykkul region of northern Kyrgyzstan. At an average 20.3 grams per tonne of rock, the seam could contain 43 tons of gold.



The gold produced at Kumtor, one of the world’s largest gold deposits, has had a major impact on the Kyrgyz economy, accounting for 10 per cent of gross domestic product, GDP, and one-third of industrial production in the years 1997 to 2005. The impact is so marked that the “Kumtor effect” is calculated separately in macroeconomic reporting.



Production fell in 2006 as a result of a major accident when mine walls caved in. The reduced output of gold dragged the projected annual growth figure for Kyrgyzstan’s GDP down to 1.8 per cent, compared with the four per cent increase the government had based its economic plans on.



The Kumtor Operating Company’s press office has said production should start rising again next year to regain 2005’s output level.



However, despite these plans and the discovery of more gold, analysts argue that future gold production is unlikely to make as large a contribution to overall GDP as it used to, meaning that economic growth rates will slow.



“We won’t see the kind of production volumes that we had in the late Nineties and the first years of the present century. GDP growth rates are falling because of [the lesser contribution of] Kumtor, and the discovery of a new gold-bearing structure won’t alter that trend,” said Sapar Orozbakov, director of the Bishkek Centre for Economic Analysis, says.



Orazbakov believes the new reserves will simply allow mining to continue for an extra couple of years.



Economics expert Jyldyz Sarybaeva says that in any case, Kumtor does not earn Kyrgyzstan as much in revenue as it could. “It is therefore wrong to forecast an upsurge in economic activity and a more significant contribution to GDP,” she said.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)