CREATIVE INDUSTRIES PARK: THE FIRST STEP TOWARDS REFORMING KYRGYZSTAN’S CREATIVE ECONOMY

Kyrgyzstan’s creative industries are beginning to play an increasingly important role in the country’s economy, although their contribution to gross domestic product is still very small. This has led to the creation of the Creative Industries Park, which opens up new opportunities for the development of sectors such as design, advertising, cinema and architecture.

In Kyrgyzstan, the contribution of the creative industries to gross domestic product has remained at just 1 per cent for the past five years. In absolute terms, however, it has grown from 4 billion soms to 6.2 billion soms. The sector receives about half a million US dollars a year in foreign direct investment. The main sectors of the creative economy that attract FDI are activities related to software development and publishing, as well as mass media activities.
In general, the creative economy sector in Kyrgyzstan is represented in twelve sectors of activity, including publishing, information and communication technologies including computer games, music, photography, communications, architecture, advertising, design and fashion, art, cinema, jewellery, and includes 20 types of sectoral specialisation of creative industries.

Bishkek is the leader in the creative sector, with 49% of the total number of registered enterprises. The creative sector is least developed in the oblasts of Batken (3%), Naryn (3%) and Talas (1%). This is due to the fact that the potential for the development of creative industries in these regions is weak due to limited opportunities and demand.

If we look at the general trend, the production of innovative products in the country is decreasing. For example, according to the State Intellectual Property and Innovation Service ‘Kyrgyzpatent’, the largest volume of innovative products was achieved in 2016, when it amounted to 2.4 billion KGS. Since then, the production of this type of products has been steadily decreasing.

The sector officially provides jobs for about 14,000, or 0.6% of the total working population. Moreover, these are women (60%) and young people (40%). Among the creative industries, software development is the most interesting. They attract the most employees because they are willing to offer the most favourable working conditions, namely high salaries compared to other sectors.

As a result, this sector is now the fastest growing of the creative industries in Kyrgyzstan. This is largely due to the creation of the High Technology Park (HTP) in 2013. This is a kind of free zone with its own tax regime for companies specialising in information technology. HTP residents are completely exempt from VAT, income tax and sales tax. Their only obligations are a 1% contribution to the park’s management and 5% personal income tax.

Special economic regimes are an exception. Thus, following the example of the Hi-Tech Park, it was decided to extend its positive experience in Kyrgyzstan. In 2022, for example, Kyrgyz President Sadyr Zhaparov signed a decree on measures to develop the creative economy, and the Cabinet of Ministers approved the Creative Economy Development Concept for 2022-2026, which sets the direction for future initiatives. In the same year, at the end of July, deputies of the Jogorku Kenesh passed the law on the Creative Industry Park, which was signed by the President. Already at the beginning of 2023, the Tax Code was amended to simplify conditions for participants in the park, as was the Law on Tariffs of State Social Insurance Contributions.

The Creative Industries Park (CIP) itself has been fully operational since April this year, when its management was established. Today it is home to 20 companies and three individual entrepreneurs. They operate under the conditions of a single tax, which for all creative industries is 0.5%, income tax for them is set at 5%, the social fund tariff is $43, as well as the obligation to contribute 1% to the PKI Directorate.

Since the park and its residents have been operating under these conditions for about six months, it is too early to talk about results. However, since the inauguration of the park, six new companies have become its residents. They have already paid 2 billion 39.96 million soms to the budget in the form of compulsory payments and taxes, and all PKI residents have contributed 12 billion 504.5 million soms to the treasury for ten months of the year. This is 2.6% more than last year.

Despite the fact that one of the prerequisites for the Creative Industries Park in Kyrgyzstan was the positive example of the Hi-Tech Park, the challenges are different, says economic expert Iskender Sharsheev.

“The hi-tech park is indeed proving its effectiveness, especially for digital nomads and IT specialists, including those who move from Russia, for example, due to current events. This regime remains relevant and shows its effectiveness in developing a strategically important sector in our country. For IT specialists, legal work is much more attractive than working in the black economy. The situation is different in the creative industries. As a rule, people in this sector do not pay taxes because they do not keep records, do not acquire patents and do not register their activities. Turnover in this sector can reach $4 billion, but almost no taxes are paid. That is why it was important to bring order to this sector,” says Iskender Sharsheev.

Today, many countries at different levels of development are demonstrating success in developing the creative economy. The UK, for example, is considered one of the world’s leading countries in the development of the creative economy. The creative sector contributes 6% of the country’s GDP and employs over 2.04 million people, 25 per cent of them in London. One of the key factors in the successful development of the creative sector in this country has been the observance of the principle of non-interference by the state in the economy, the availability of favourable conditions for financing start-ups and tax benefits.

Another example is Georgia. In Georgia, the creative economy has been boosted by reforms aimed at developing start-ups and SMEs through easier registration, simplification of the tax system and the provision of affordable credit.

The creation of such special zones can help fiscalise hard-to-manage sectors such as the creative industries. This will not solve all the problems, but it is an important step towards reducing the informal economy, which will ultimately benefit society,’ Sharsheev concluded.

by Maria Indina