Country’s Economic and Social Stability Key Factors in Investment Attractiveness

ASTANA – The third annual Ernst and Young Attractiveness Survey of Kazakhstan has been released and paints a positive picture overall of the country’s investment attractiveness, past performance, and potential growth. Indeed, the key challenge the country faces in attracting more investment is to simply make investors aware of the possibilities it already presents. The survey suggests that Kazakhstan’s most attractive qualities are its economic, social and political stability.

The survey also noted some recent changes in Kazakhstan’s investment profile, in particular that the key drivers of investment this year are the country’s macroeconomic, social and political stability in a time of global economic instability, not the low labour costs and productivity gains that were major appealing features in previous years.

Kazakhstan’s stable and steadily growing economy – on a pace to become one of the three fastest-growing economies in the world in 2015 – is the main draw for foreign investors. Kazakhstan’s gross domestic product (GDP) has grown at nearly double the rate of the rest of the world from 2011 onward and is predicted to continue that rate to 2014. This growth managed to attract a modest increase in foreign direct investment (FDI) in 2012 while the rest of the world saw a sharp decline.

Political and social stability are also key attractive qualities and are being fostered by programmes like the Green Bridge Partnership, the Kazakhstan 2050 strategy the G-Global forum, all of which aim to increase competitiveness, create new markets and promote better policies for growth. Investors also appreciate the country’s telecommunications infrastructure, the establishment of which is a priority for the government. 2012 saw a 30% growth in broadband connections and Kazazakhtelecom hopes to provide Internet and telecommunication services to all rural settlements by next year. The system of corporate taxation was another attractive feature, as was the government’s promotion of sustainable development.

The survey also said significant achievements in intangible assets like religious and ethnic harmony, efforts toward anti-nuclear proliferation, hosting the Asian Winter Games and holding chairmanships of regional organisations had been achieved and had contributed to the country’s attractiveness. A total of 41 percent of investors expect Kazakhstan’s investment attractiveness to grow over the next three years and 48 percent believe accession to the WTO will make the country more appealing to investors.

Diversification is beginning to attract more investment and was highlighted as one of the key steps to make Kazakhstan even more attractive to FDI. Government initatives to promote non-extractive sectors of the economy are helping make sectors like real estate, life sciences and construction, among others, more competitive and giving foreign investors a wider array of attractive investment options. While the energy sector will remain a major destination for FDI, continuing to diversify away from it will increase the country’s economic stability and create sustainable and balanced growth, attracting additional investment to these new and growing economic sectors.

The survey identifies Kazakhstan’s biggest challenge to attracting investment as a basic lack of knowledge about the country’s possibilities. 75 percent of non-established investors surveyed could not name a city in Kazakhstan. Nearly a quarter of investors already established in Kazakhstan called it the most attractive market in the CIS, compared to 9 percent of investors not established in the country. 29 percent of the 206 respondents to the Ernst and Young survey couldn’t think of something to say about the country as an investment destination. The Kazakhstan government has been actively marketing itself in recent years, and the survey recommends intensifying these processes. Subsequent recommendations were to move up the value chain, remove regional disparities, enhance the business environment and foster innovation. The government’s State Programme of Accelerated Industrial-Innovative Development (SPAIID) was noted as a key way of achieving these goals.

In addition to a dearth of awareness, the survey identified a few areas that could be improved. Fewer than 5 percent mentioned the country’s business environment, innovative capacity as attractive qualities. The survey mentioned Kazakhstan’s recent improvements to its business environment and its improved place in the World Bank’s Doing Business rankings, but recommends continued improvement to the business environment, and other characteristics. Half of investors also recommended improving the country’s transport and logistics infrastructure.

The Ernst and Young Attractiveness Survey of Kazakhstan is based on reports by the World Bank and other government and non-government sources as well as a survey of 206 international business leaders from 27 countries conducted in December of 2012 and January 2013.

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