Kazakhstan: A Global Investment Hub

When Kazakhstan declared its independence in 1991, the country’s policy makers realized the vital importance of a vibrant investment policy as a driver of sustainable economic growth. As a result, the country was able to attract nearly $320 billion of foreign direct investment (FDI) over a duration of three decades.

Muhammad Rafiq

Kazakhstan accounts for 70 percent of the FDI inflow to Central Asia.

Abundance of natural resources including oil, gas, uranium, coal, zinc, copper, iron, aluminum, gold and rare earths in Kazakhstan fascinate international investors. Another attraction is the immense agricultural potential of grains and livestock production. That is why the gigantic investment project of the Belt and Road Initiative (BRI) was launched in 2013. Kazakhstan has captured this mega investment opportunity of BRI with an aggregate investment of $27 billion in 51 infrastructure projects. This investment has strengthened Kazakhstan’s position as a regional transit hub. A glaring example is the dry port of Khorgos-Eastern gate where $3.5 billion has been invested.

A number of international corridors crossing through Kazakhstan link it to the markets of Asia, Europe, and Middle East where around 65 percent of the world’s GDP is generated. The GDP of Kazakhstan is more than $180 billion, which is more than half of the GDP of entire Central Asia. Under its 2050 Strategy, Kazakhstan is well on its way to be among 30 most developed nations of the world.

The United Nations Conference on Trade and Development (UNCTAD) has observed in its World Investment report that in spite of the adverse impact of the coronavirus pandemic on the global economy, Kazakhstan observed a growth of 34.9 percent ($3.9 billion) in the net FDI, out of 34 landlocked countries and 17 transition economies in 2020. This trend is a stark contrast to the decline of 35 percent in global investment.

A positive element is the diversity of investment sources. During the last five years, massive foreign investment has poured into Kazakhstan from diverse countries like Netherlands ($33.8 billion), the United States ($19.4 billion), Switzerland $12.5 billion), China ($6.2 billion) and France ($4.7 billion). A bulk of this investment (60 percent) has been attracted into the non-extractive sectors such as trade, transportation, manufacturing, financial and insurance services.

Kazakhstan also has ambitious plans to become a global investment hub. The systematic and structural measures adopted by the government of Kazakhstan to absorb FDI in big volumes prove this fact.

In Kazakhstan, 13 Special Economic Zones (SEZs) have been set up by the government authorities in a geographical expanse with necessary infrastructure and a special legal regime. Each SEZ focuses on a specific industry representing priority sectors of the economy.

The member countries and partners of the Organization for Economic Development and Cooperation (OECD) are entitled to receive policy recommendations that prepare them to become benchmarks of trade and investment. In 2017, Kazakhstan had an accession to the OECD and obtained the status of an associate member of the OECD Investment Committee.

An exclusive organization Kazakh Invest was established in 2017 with the aim of promoting sustainable economic development of Kazakhstan through foreign investment in the priority economic sectors. Kazakh Invest is a single negotiator to discuss the prospects and conditions to carry out the investment projects. It serves investment projects on a single window principle.

From January 2020, the WTO framework has been implemented in Kazakhstan. Therefore, Kazakhstan has removed restrictions on opening branches of foreign banks and insurance companies.

Oil and gas related products are the core strength of Kazakhstan’s economy that has a contribution of 70 percent in national exports. Therefore, the government has made available a friendly climate to oil and gas sector giant investors including TengizChevrOil, KazMunaiGas and Caspian Pipeline Consortium and other companies. Three large oil refineries at Pavlodar, Shymkent and Atyrau support the prolific oil fields of Kashagan and Tengiz.

The policy makers are cognizant of the need for economic diversification that is reflected in the soaring investment trends in the energy, transport, mining, telecommunications and financial sectors. Moreover, further shifts in the investment priorities are being directed to agriculture, construction, tourism, pharmaceuticals, ecology and information technology.

The government of Kazakhstan has structured a wonder organism called the Astana International Financial Center (AIFC) having a special tax, visa and employment regimes for the investing countries and companies. A stand-alone Court and International Arbitration Center are also an integral part of the AIFC for brisk resolution of trade disputes. It is independent from the local judicial system of Kazakhstan to avert any judicial delays.

Towards improvement in the investment climate, a number of measures have been undertaken. Investment attraction function has been assigned to the Ministry of Foreign Affairs. Then, a Coordinating Council on Investment Attraction was created under the chairmanship of the Prime Minister. The government has introduced a strategic investment agreement that allows the opportunity to directly sign an investment agreement with the Kazakh government. Besides, a Foreign Direct Investment Fund with the capitalization of USD 1 billion has been established to facilitate the most promising export-oriented projects.

Congenial investment climate in Kazakhstan has also been vindicated by rise in the global rankings. Kazakhstan is positioned 10th in the Protecting Investors category, placed 34th in the 2021 Index of Economic Freedom and ranked 29th in the UN e-Government Survey 2020 among 193 countries.

Among various investment projects include multifunctional resort ESIK, construction of a cottage city and health center on Beregu Ozera Alcohol, AQbura resort area, plant for deep complex processing of wheat grain in the Kostanai Region, construction of a waste processing industrial complex near Nur Sultan, a hybrid power plant using biogas and solar technologies in Almaty Region, and a mountain resort Turgen-37 in Almaty region and other projects.

Under the ongoing geopolitical scenario, a number of companies including WEG, a Brazilian electrical equipment producer, Fortescue Metal Group of Australia, Carlsberg, Tik Tok social media platform, a Danish brewing company have planned to relocate to Kazakhstan from Russia. These and many other companies aim to keep their presence in Eurasia. Kazakh Deputy Minister of Foreign Affairs Almas Aidarov is in talks with some 43 companies willing to relocate to Kazakhstan. The government is also ready to make some amendments in the legislation for this purpose.

In a nutshell, it is pertinent to cite Mark Smith, the Chairman of European Business Association of Kazakhstan who observed that “more and more investors are beginning to see the country as an attractive destination for direct investment.”

The author is Muhammad Rafiq, a senior banker based in Kazakhstan, with a keen interest in Central Asian studies.

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