KAZAKHSTAN INVESTING IN SUCCESS Executive Briefing
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KAZAKHSTAN
INVESTING IN SUCCESS Executive Briefing
Kazakhstan is the most successful Central Asian country to emerge from the collapse the Soviet Union – indeed its gross domestic product of around $160 billion is larger than the combined total for all other Central Asian countries. Established as an independent sovereign state on 16 December 1991, Kazakhstan, under its founding President Nursultan Nazarbayev, immediately set about ridding itself of the fourth-largest store of nuclear warheads in the world. This constituted both a practical and symbolic act fundamental to a foreign policy seeking partners in peace and prosperity at all points of the compass – both regionally and around the globe. Enjoying strong relations with the European Union, Russia, China and the United States, it also became a member of a swathe of organisations, including the Organisation of Islamic Co-operation, the Shanghai Co-operation Organisation, the Organisation of Security and Cooperation in Europe and a participant in NATO’s Partnership for Peace programme. As a founder member of the Eurasian Economic Union it opened up a potential market of some 500 million consumers for Kazakh and Kazakh-based industry, whilst its 2015 membership of the World Trade Organisation paved the way for expanding its trade and commerce worldwide.
Seeking partners in peace and prosperity at all points of the compass – both regionally and around the globe. 3
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Central Asia’s first-ever country to serve as a non-permanent member of the United Nations Security Council in 2017/18.
UNITED NATIONS SECURITY COUNCIL Such was the reach and success of this multi-vector foreign policy that it ultimately formed the basis of Kazakhstan’s election as Central Asia’s first-ever country to serve as a nonpermanent member of the United Nations Security Council in 2017/18. Kazakhstan’s political system is based on a unitary Presidential model which has been the bed-rock of the societal stability needed to enable the country – with the assistance of foreign investors - to take full advantage of its vast natural resource wealth.
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BILLION BARRELS
of crude oil reserves
At around 30 billion barrels, Kazakhstan’s proven oil reserves are the 12th largest in the world. Located primarily in the western region of the country abutting the Caspian Sea, production has increased by around 10 per cent during the last five years and continues to advance, led by the country’s giant Kashagan Field. 4
But Kazakhstan’s mineral wealth extends way beyond hydrocarbons. It is the world’s biggest producer and exporter of uranium, and possesses 30 per cent of the world’s reserves of chromium ore, 25 per cent of manganese ores, 13 per cent of lead and zinc and 10 per cent of iron ores and copper. To which can be added, amongst others, major deposits of molybdenum, tin, titanium, cobalt, silver and gold – and of great strategic significance the so-called rare earth metals key to the production of rechargeable batteries, cell-phones, highfrequency lasers, x-ray machines and advanced robotics.
RARE EARTHS Indeed, according to the World Bank, there are over 5000 unexplored deposits of rare earths in Kazakhstan with a potential value over time in trillions of dollars. Of the 105 elements which appear in the Periodic Table, 99 are found in
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Kazakhstan, reserves of 70 have been explored and reserves of over 60 are in production. The exploitation of Kazakhstan’s natural resource wealth provided the basic foundation for the development of an economy capable of regularly achieving double-digit annual growth rates in the years running up to the global financial crisis of 2008.
Of the 105 elements which appear in the Periodic Table, 99 are found in Kazakhstan, reserves of 70 have been explored and reserves of over 60 are in production.
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basic infrastructure, including transport and logistics (see below), as well as telecommunications, digitisation and internet connectivity – creating the most connected and advanced network in Central Asia. Another key driver of growth and development will be the country’s determination to facilitate the creation of a powerful private sector driving industrial and financial momentum. In keeping with this policy the government is accelerating its privatisation programme and in 2018 launched the Astana International Financial Centre as a sustainable future source of corporate,
5th The world’s
LARGEST EXPORTER OF WHEAT
project and commercial private sector funding.
And even after allowing for the impact of global setbacks that followed, Kazakhstan still averaged around 5 per cent growth annually from 1995 to 2019 – a performance level comparable only with the “Asian Tigers”. Natural resource wealth will continue play a fundamentally important role in the country’s future development, but not just as a foreign revenue earner per se. It is increasingly the basic supply source for the high value-added processing and manufacturing industries Kazakhstan is seeking to expand and diversify to broaden and deepen longterm sustainable development – with the involvement of foreign investors.
STRATEGY 2050
Meanwhile, private sector foreign direct investment (FDI) amounting to over $300 billion dollars since independence has played a central role in the country’s rapid development.
The country’s over-arching development programme, known as Strategy 2050, aims to lift Kazakhstan into the ranks of the world’s top-30 most-developed countries by the middle of the 21st Century.
Initially heavily focused on the hydrocarbon sector, FDI in more recent years has further spread across a variety of industries, including transport and logistics, processing and manufacturing, and agri-business.
An important element in plans to accelerate development is the Nurly Zhol economic programme which covers huge investment in all forms of
The country’s rich natural resource base is complemented by a vast agricultural sector which covers 80 per cent of its land mass.
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Additionally, Kazakhstan benefits from grain and wheat growing conditions – possessed only by a handful of countries – which do not require artificial irrigation. As a result Kazakhstan is the world’s fifth largest exporter of wheat. As with its natural resource wealth, Kazakhstan is increasingly seeking the value-added returns from agribusiness processing and manufacturing, including meat and dairy products – exports of which to neighbouring countries, particularly China, have grown exponentially in recent years.
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A Strategic Location Kazakhstan sits at the cross-roads of Europe and Asia – making it arguably the most important geo-strategic location in the world. Its history echoes with stories of the epic silk route adventurers of centuries past its present with the rapidly rising sound of rail and road traffic heading between China and Europe, and back again. Kazakhstan’s geo-strategic pre-eminence is fundamental to China’s Belt and Road Initiative and is increasingly described as the “buckle on the belt” which stretches from China’s east coast to western Europe’s North Sea with Kazakhstan accounting for 70 per cent of East-West transit traffic. With continuous up-grading of track and rolling stock container trains are now crossing Kazakhstan at the rate of 1,100 kilometres a day with deliveries from south-east China to Europe now taking around 15 days.
Meanwhile, the Western EuropeWestern China Transcontinental Auto Expressway will facilitate increasing volumes of road freight with a transport time of just 10 days. Overall transit volume across Kazakhstan has grown exponentially over the last five years or so from 47,000 TEUs in 2015 to an estimated 1.7 million TEUs by 2020. There is much value for Kazakhstan in escalating transit traffic alone, but the main longterm incremental e c o n o m i c and industrial benefits rest in capturing the added-value such traffic can generate for processing and manufacturing capacity, opening up new industrial areas and sectors – and the logistics industry itself.
KAZAKHSTAN AT A GLANCE Founded 16 December 1991 Capital City Nur-Sultan (formerly Astana) Population 18 million Area 2.7 million square kilometres – 1 million square miles – the equivalent to western Europe and the 9th largest country in the world Currency – the Tenge Averaged around 5 per cent annual GDP growth since 1991 Founder member of the Eurasian Economic Union – a regional market of 500 million consumers. “The buckle” on China’s Belt and Road Initiative $300 billion in foreign direct investment since 1991 Hosted Astana Expo 2017 – World Expo on “Future Energy” 2017/18 became the first Central Asian country to serve as a nonpermanent member of the United Nations Security Council National Airline – Air Astana (49 per cent owned by BAe Systems)
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AIFC AND INVESTORS’ RIGHTS The Astana International Financial Centre is not only a key element in Kazakhstan’s plans, nationally and regionally, to raise private sector funding to back trade and investment (including the “green” and Islamic finance sectors), but its legal foundation and modus operandi demonstrates the country’s determination to implement the rule of law in support of investors’ rights.
An Educated Workforce From its inception Kazakhstan sought to create a highlyeducated workforce to drive the country forward as an independent nation. Creating the Bolashak scholarship programme enabled more than 10,000 of its best students to study at the world’s top 100 universities, many of whom have returned to Kazakhstan to occupy strategic roles in government and industry and become drivers of the country’s economic success.
This has involved the adoption by the AIFC Court and International Arbitration Centre of a legal system based on English Common Law separate from Kazakhstan’s judicial system and presided over by English High Court Judges. Moreover, the official language of the AIFC is English to further assist investor confidence and ease of doing business.
Meanwhile, at home Kazakhstan has invested heavily in education at all levels, especially higher education with an emphasis on graduates and post-graduates honing knowledge and skills which can be mobilised in the country’s future development.
Further, and separately, Kazakhstan has signed 47 bilateral and multi-lateral investment treaties which guarantee investors’ rights.
First President Nazarbayev
President Tokayev
A Change of President After almost 29 years in office President Nursultan Nazarbayev resigned on 19 March 2019 and was succeeded by KassymJomart Tokayev, Chairman of the Parliament’s Senate. A previous holder of high office – including that of Prime Minister and Foreign Minister, President Tokayev also served as a former Deputy General Secretary of the United Nations. First President Nazarbayev remains Chairman of the National Security Council and the Nur Otan Party and is now formally known as Elbasy – Father of the Nation. 7
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KAZAKHSTAN
INVESTMENT ENVIRONMENT Executive Briefing
Political and social stability have been key: as have the evolution of legal frameworks which generate investor confidence, especially those which protect minority rights.
The foregoing narrative attributes Kazakhstan’s economic success to a range of important factors, amongst them its vast natural resource wealth, pre-eminent geographic location between Europe and China and an uncompromising drive to develop, diversify and expand its commerce and industry under Strategy 2050. It is a potent combination which has been - and remains - increasingly attractive to international corporates and financial institutions seeking to invest in Kazakhstan.
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But over the long-term foreign investors’ interest can only be sustained in any country by the host’s willingness to create a welcoming, supportive and engaging business environment which provides the stability and security all investors seek.
SPECIAL ECONOMIC ZONES The SEZ’s offer free land, simplified foreign labour employment procedures, and access to established infrastructure and digital networks.
Kazakhstan has worked hard over the years to create such a climate, not only for its own indigenous business sector, but for the increasing number of foreign investors it has sought to attract. 8
Political and social stability have been key: as have the evolution of legal frameworks which generate investor confidence, especially those which protect minority rights. As noted earlier, the decision to base the AIFC’s legal modus operandi on English law was both a practical and symbolic expression of Kazakhstan’s determination to maximise confidence in private sector financial trading and services. Relationships between current and prospective investors in Kazakhstan focus around Kazakh Invest, the official inward investment agency, colloquially known as foreign direct investors’ “OneStop-Shop” which operates within the Ministry of Foreign Affairs – see page 10. Indeed, such have been the efforts of Kazakhstan to streamline foreign investors’ engagement with the country that Kazakhstan now stands 28th on the World Bank’s 2019 Ease of Doing Index after climbing eight places from the previous year, leap-frogging a clutch of leading global economies, including
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those of China, the Netherlands, France, Poland and Turkey.
regime for stays in Kazakhstan of up to three weeks.
Additionally, the same report puts Kazakhstan first for protection of investors’ minority rights and fourth for enforcing contracts, whilst a raft of measures introduced by the government to cut red-tape and reduce business regulation has cut the time it takes to register a business to just five days and three days to register property.
Travelling around the country has become increasingly efficient, especially by air with many flights daily linking key cities, such as Nur-Sultan, Almaty, Shymkent, Aktau and Atyrau – all centres which facilitate international links to Europe, Asia and beyond.
The impressive array of investment incentives are especially concentrated in 12 Special Economic Zones (SEZs) and 22 industrial zones around the country offering investors 0% rates for
Moreover, world-class hotel accommodation is available in all main cities and locations, such as Nur-Sultan’s state-of-the-art Hilton Astana and the eloquent Caspian Riviera Hotel overlooking the Caspian Sea at Aktau – and 4G connectivity is universal.
0
% rate CORPORATION, LAND AND PROPERTY TAX
corporation, land and property tax as well as exemption from customs duties. Additionally, the SEZ’s offer free land, simplified foreign labour employment procedures, and access to established infrastructure and digital networks. The SEZs are strategically positioned around the country to act as economic development accelerators and hence are additionally attractive to foreign investors. They include, for example, locations at the Khorgos Gate on the south-eastern border with China, and Aktau at the opposite end of the country where the New Silk Way crosses the Caspian Sea and heads on into Europe.
Targeting Opportunities A relatively new aspect of investor engagement is the presentation of researched priority investment project targets which integrate into the heartland of strategic development. Kazakh Invest is the driver behind this policy and, working with international consultancy firms, has developed a number of specific targets in the following industrial sectors: The agro-industrial complex Mining and smelting
As noted earlier, the highly educated indigenous workforce is an increasing resource for foreign investors, but for those corporate investors who need to bring workers with them, the country has a simplified visa regime especially for workers in the SEZs. Business people from 65 countries, including all OECD members, can take advantage of the country’s visa-free
Chemicals and petrochemicals Machinery and car components Energy Transport and logistics Tourism The agency is also focusing on opportunities with the crossindustry theme of public sector-private sector collaboration.
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KAZAKH INVEST FOREIGN INVESTORS’ ONE-STOP SHOP One-stop-shop for investors Source of information Organisation of visits to the regions Assistance with raising finance Subsidies, grants and incentives Assistance with permits and public services
Kazakh Invest is Kazakhstan’s official inward investment agency designed to attract foreign direct investment into Kazakhstan’s priority economic sectors and provide comprehensive services to investors. The agency operates internationally under the aegis of the country’s Ministry of Foreign Affairs and its governing body, which contains several key ministers, is chaired by the Kazakhstan Prime Minister Askar Mamin. The Chairman of Kazakh Invest’s Management Board is Baurzhan Sartbayev.
Post investment support Networking Contact Kazakh Invest 2 Kunayev st., Nur-Sultan City, 010000 Fax +7 7172 620 600 Email info@invest.gov.kz For contact telephone number including 24-hour investor helpline consult website:
www.invest.gov.kz
The organisation acts as the single negotiator with foreign direct investors on behalf of the Government of Kazakhstan.
Askar Mamin
Baurzhan Sartbayev
Kazakh Invest is a one-stop-shop for current and potential investors in Kazakhstan and acts as a single point of contact to support foreign businesses across the entire arc of investment from project concept through to launch and development.
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Moreover, it is especially valuable as a single point of contact with central, regional and local government for all regulatory and governance matters, as well as for exploring the availability of various types of support and incentives. Kazakh Invest is represented around the world in all major industrial centres where it not only promotes Kazakhstan as a highly competitive FDI location, but increasingly smart targets industrial sectors and corporates whose expertise and outputs synergise with Kazakhstan’s strategic industrial needs and requirements.