Academic journal article Current Politics and Economics of South, Southeastern, and Central Asia

Kazakhstan: Investment Climate Statement 2015

Academic journal article Current Politics and Economics of South, Southeastern, and Central Asia

Kazakhstan: Investment Climate Statement 2015

Article excerpt

U.S. Department of State Bureau of Economic and Business Affairs

Executive Summary

Kazakhstan has made significant progress toward creating a market economy since it gained independence in 1991, and has achieved considerable results in its efforts to attract foreign investment. As of September 30, 2014, total foreign investment in Kazakhstan reached USD 211.5 billion. Of that total, net Foreign Direct Investment (FDI) constituted USD 129.3 billion, with portfolio and other investments comprising the remaining USD 82.2 billion. The majority of foreign investment is in the oil and gas sector, and the United States is one of the leading sources of investment capital with around USD 14 billion of FDI invested in Kazakhstan from 2005-Sept 30, 2014.

The government of Kazakhstan continues to make incremental progress toward its goal of diversifying the country's economy away from an overdependence on the extractive industries by improving the investment climate. Kazakhstan's efforts to remove bureaucratic barriers have yielded some modest results. In the World Bank's 2015 Ease of Doing Business Report, Kazakhstan ranked 77 out of 189. The 2014 Ernst& Young attractiveness survey ranked Kazakhstan as the second leading CIS market for investment, saying that "the country's 'brand perception' is growing strong." In spite of these changes, corruption and bureaucracy remain challenges for foreign investors working in Kazakhstan. American firms seeking to invest in Kazakhstan should conduct thorough due diligence and retain legal counsel prior to any investment.

The government maintains a dialogue with international investors and is committed to improving the investment climate. President Nazarbayev himself has publicly pledged to create a favorable climate for foreign investors in order to spur domestic innovation and the use of new technologies. In June 2014, Nazarbayev endorsed amendments to investment legislation that extends preferences to investors to develop the non-extractive sectors of Kazakhstan's economy. The country's world-class hydrocarbon and mineral reserves continue to form the backbone of the economy, and foreign investment continues to flow into these sectors. Despite this investment growth, concerns remain about the government's tendencies to challenge contractual rights to legislate preferences for domestic companies, and to create mechanisms for government intervention in foreign companies' operations, particularly in procurement decisions. Together with vague and contradictory legal provisions that are often arbitrarily enforced, these negative tendencies feed the perception that Kazakhstan's investment environment is subpar.

Kazakhstan's government is optimistic that further integration with Russia and Belarus through the Eurasian Economic Union (EAEU) will make the country more attractive to foreign investors by offering access to those countries' markets. Although Kazakhstan has, thus far, not realized the gains it sought when it created the customs union with Russia and Belarus, economic integration will likely continue to deepen within the EAEU.

1. Openness to, and Restrictions upon, Foreign Investment

Attitude toward Foreign Direct Investment

Kazakhstan has attracted significant foreign investment since independence and would like to see more come into the country. As of December 31, 2014, foreign direct investment in Kazakhstan totaled USD 132.6 billion, primarily in the oil and gas sector. Kazakhstan is widely considered to have the best investment climate in the region, and numerous international firms have established regional headquarters in Kazakhstan.

Although Kazakhstan's government has incrementally improved the business climate for foreign investors overall, its efforts to support local content requirements have restricted foreign investment, especially in the extractive sectors.

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