Kazakhstan showing signs of investment reform

Kazakhstan showing signs of investment reform

Kazakhstan has made impressive progress towards attracting significant foreign investment since gaining independence in 1991.

As of September 2011, foreign investors had invested a total of $159.3 billion in Kazakhstan, primarily in the oil and gas sector. Kazakhstan is widely considered to have the ‘best’ investment climate in the region, with a number of international firms using Kazakhstan as a regional hub.

Weaknesses remain, however, with patronage and uneven business regulation tainting its reputation for foreign investors. Nevertheless, the Kazakhstani government is moving forward to address these flaws, rightly understanding that reforms must be enacted in order to further attract foreign investment and encourage economic development. In January, the Kazakhstani cabinet met to discuss how it could improve its standing in the World Bank’s Doing Business index. Despite its 49th overall place, Kazakhstan’s standing in “Obtaining permission for construction” and “Foreign trade” indicators is 155th and 182nd, respectively. To address this poor standing, the government announced that a single ‘e-window’ would be launched in 2013 to facilitate export-import transactions. A pilot system of electronic customs declarations of goods will also be tested. If successfully implemented, this has the potential to open Kazakhstan up to larger volumes of foreign trade.

Another decision announced by President Nazarbayev will certainly generate interest among foreign investors. In January 2013, he lifted the ban on new subsurface exploration and drilling. He tasked the government to change the laws and regulations to facilitate access for foreign investors to explore new mineral resource fields. The President also initiated the “National Plan for Attracting Investment” scheme, which included the simplification of visa procedures, customs clearance and the establishment of special service centres for foreign investors under regional municipal authorities.

English: The president of Kazakhstan, Nursulta...

The president of Kazakhstan, Nursultan Nazarbayev during a visit to the USA, 1997. (Photo credit: Wikipedia)

This recent government focus on improving Kazakhstan’s business climate for foreign investors is undoubtedly positive. However, the government has overlooked some key issues. Firstly, they have remained quiet on the various restrictions which exist for foreign investors. For example, the Kazakh government have enforced a 20% ceiling on foreign ownership of media outlets, a 49% limit for foreign ownership in the telecommunications sector and have made it near impossible for foreigners to own land in Kazakhstan.

Secondly, corruption and uneven regulatory enforcement is pervasive. Companies have complained about irregular application of laws and regulations, and regulatory pressure has been seen as an effort to extract bribes. This element of corruption and regulatory imbalance is particularly an issue in Kazakhstan’s energy sector, where concerns remain about the government’s tendency to challenge contractual rights and intervene in foreign companies operations.

There is no doubt that Kazakhstan has a bright future. They have taken steps in recognizing that they must streamline their bureaucracy and create a more competitive environment for foreign investors if their economy is to diversify and grow. Although restrictions on foreign investors are still in place and corruption is prevalent, recognizing the importance of attracting foreign investment is a first step, and they have outlined these steps to make this possible. Implementation will be messy, but the intentions to move ahead are there.

About Author

Basim Al-Ahmadi

Basim was previously the Editor of Bonds & Loans, an expert publication on Emerging Debt Capital Markets. He forged partnerships with the world’s most reputable investment banks, asset management firms and corporations. Basim achieved a First Class Honours in Politics with International Relations from the University of York. He subsequently obtained his Masters in International History from the London School of Economics (LSE). At LSE he was the President and co-founder of the LSE Political Risk & Investment Society. In his free time, Basim is an avid reader of US Presidential History.