The last 20 years have seen most governments shifting towards privatization, as most governments have conceded that private markets are better at allocating resources in most situations. The President of Kyrgyzstan, however, has rocked the boat by warning that the country’s largest foreign-run gold mine may be nationalized.

gold mine

The gold mine has been the target of frequent and incessant protests by Kyrgyzstani citizens. Many local citizens feel that the country itself is not receiving its fair share of the rewards from the vast gold mine, which by itself accounts for more than 10% of the country’s GDP. The government owns 33% of the mine while Canadian gold mining firm, Centerra Gold Inc. (TSE:CG), owns the rest.

Following months of protests, Centerra Gold and the government appeared to reach a deal in which ownership of the mine would be split 50-50. The national parliament, however, rejected this deal, claiming that the government should receive 67% of the mine. Centerra has stated that it is unlikely to agree to such a deal.

President Atambayev has stated that if a deal cannot be reached, the government may be forced to nationalize the mine. The President has admitted that such an action could be harmful for the country and could scare away future investments, however, he feels that it may ultimately be necessary to pacify the people.

Gold mine is a major economic asset

The protests began a year ago when protesters tried to storm several government buildings. Three MPs would later be charged with trying to seize power. While the government pushed back the initial wave of unrest, protests continued and coalesced around the mine. Since then, sporadic protests have broken out. Protesters have blocked the roads leading to the mine and have disrupted the power supply, among other things.

The mine is a major economic asset. In the first 6 months of 2013 alone, the mine produced over 160,000 ounces of  gold, making it one of the largest sources of gold in the world. The mine employs over 2,600 local citizens and generated nearly 60 million dollars in taxes through the first 6 months of the year. Given that the street value of the gold produced, however, exceeds 200 million dollars, some feel that the country is not receiving enough.

Nationalization may ultimately hurt the country

So far, the executive branch of the government has been hesitant to push too hard. The 50-50 deal seemed fair to both sides, but more radical elements of the government deemed that it wasn’t enough. Facing renewed protests, however, the President may be forced to act, but nationalization may ultimately hurt the country more than it helps if future FDI is driven away.