Kyrgyzstan’s textile and apparel sector is dotted with small sized units. What they mainly do is import apparel from China and re-export to neighboring Russia and Kazakhstan. A large part of the country’s domestic demand too is fulfilled by apparel imported from China.
Till some years ago, apparel sourced from China was of low quality and this spurred some Kyrgyz companies to better their products. However, since then China's textile and apparel qualities have improved significantly and Kyrgyzstan’s clothing industry is facing technological obsolescence, low labor productivity, and absence of manufacturing and quality standards. Besides China, Kyrgyzstan is pitted against bigger, formal players like Bangladesh, India, Turkey, who have a diverse range of qualities and products to offer.
Almost 60 per cent of Kyrgyz trade is in the informal sector, in the form of selling in bazaars and cross-border trade. The apparel sector has low skilled, low quality workforce. The lack of sophisticated long term contracts with large international clients adds to this problem. Kyrgyzstan's tax policies are not quite conducive to formalisation of trade. Tax systems incentivise small companies. However, once they attain a certain size, companies are burdened with taxes, audits, leading to pay-offs and bribes. The cost of formalisation is high. Kyrgyzstan does not have a well developed financial system. And so the industry does not have access to easy and low cost bank loans.