Kazakhstan: Paradise for investment
KAZAKHSTAN is the leader in investment attractiveness in Central Asia. Its profile is improving every passing day due to exploration of its rich natural resources and adoption of liberal policies to attract investment. Kazakhstan is a leading country in Central Asia economically, generating 60% of the region’s GDP, mainly through its oil/gas industry and other vast mineral resources. Commercial-scale production at Kazakhstan’s giant Kashagan field in the Caspian Sea has started at a daily rate of 90,000 barrels. Kashagan, the biggest oil discovery in Kazakhstan in about four decades, holds an estimated 38 billion barrels of crude and a trillion cubic meters of natural gas. Of the oil reserves, 10 billion barrels are recoverable. It makes this country the largest oil producer in Central Asia and ranks 18th in the world, with annual production of 1.72 million barrels per day as of two years ago. It presents unique opportunities and avenues to the foreign companies and other investors interested in numerous fields ranging from subsoil use to agro-industrial complex.
Today Kazakhstan has become a model for other countries in the region. The regional countries can learn from its experience of creating a conducive environment for foreign investors. There is no doubt that Kazakhstan met all the requirements to attract the foreign investment such as availability of substantial natural resources (oil, uranium, metals), adoption of economic and trade liberalization policy, legislation and an effective control system. Since its inception after the collapse of the erstwhile Soviet Union, Kazakhstan immediately took a sharp start to the formation of a market economy. And, unlike most post-Soviet states, Astana did not conduct experiments with gradual transformation of the economy. Therefore, 25 years after gaining sovereignty, it emerged as one of most liberal country having huge opportunities for businesses in entire former Soviet Union.
Learning a lesson from recent economic crises, Kazakhstan took measures to get rid of the dependence on raw materials. In this respect over the past few years, Kazakhstan has embarked on a policy of industrialization of the economy. However, despite the very substantial financial resources accumulated in the country ($ 63 billion of net reserves), it was aimed at accelerating the rate of attracting foreign investors. Moreover, as the country’s leadership claims, it should not only focus on financial investments but should also attract competitive technologies and innovations to make Kazakhstan a knowledge-based economy.
It is interesting to note that the integration processe in the post-Soviet period made Kazakhstan an attractive destination for investors. The market for the Eurasian Economic Area, which includes five countries (Kazakhstan, Russia, Belarus, Armenia and Kyrgyzstan) is about 180 million people. Russia, which, after the beginning of the sanctions, is closed to many companies from Europe and the United States. The free movement of goods, work and capital, as well as the absence of customs and other additional barriers within framework of Eurasian Economic Union (EAEU) is very important for commodity producers, which for most part are now targeting Russian market.
The geographical location of Kazakhstan is another important factor that contributed a lot in attracting investors. Kazakhstan is located in the centre of the Eurasian continent, has a significant transit potential. Today the country is providing connectivity both from North to South and West to East. The corridor is already actively used in the framework of the new Silk Road connecting Western Europe to Western China. This route enables the delivery of goods from China to Europe and back within 14-15 days (against 45 days by sea). Last year, a new railway corridor, Kazakhstan-Turkmenistan-Iran, was launched. This has become an important reason for growth of investment in the Republic in recent years. Only in past 10 years, size of foreign direct investment amounted to 327 billion dollars in Kazakhstan, of which 15 billion investment was recorded in 2016. It is of course a positive reflection of Kazakhstan’s economy amid global economic crisis.
Kazakhstan has several advantages in comparison with neighbouring states. First, various sectors opened for investors are clearly defined. These are machine building, agro-industrial complex, food industry, retail trade and chemical industry. The investors were given a number of incentives. The basic package is an advantage for investors – exemption from customs duties and full-time grants. For priority industries identified by the government, for investors with an investment volume of more than $ 13 million, an additional package of preferences is included: exemption from corporate income tax and land tax for 10 years, from the property tax for 8 years. In addition, the Kazakh authorities guarantee return of cash-back to 30% of capital expenditures spent on capital construction and purchase of equipment.
Further the country has 10 special economic zones, which also provide exemption from all major taxes for 10 years (including customs duties and corporate income tax), as well as free of charge (for the entire period of the special economic zones) provide a plot of land for construction of infrastructure. If the special economic zones are more oriented toward large-scale production, then the regional industrial zones represent sites and preferences for small and medium-sized businesses. The country has 42 such sites in all regions of Kazakhstan. It should be taken into account that the stability of investment contracts, fixed at the time of their conclusion, is ensured in the country. That is, any subsequent changes in national legislation (including tax rates and preferences) will not affect the investment contract. Also, their stability is guaranteed, that is, at the time of conclusion of the investment contract with the government (the investment committee), the investor fixes those rates, those conditions that are stipulated for him at the time he signs the contract and further changes in the legislation regarding tax rates and preferences will not touch him. The investors are allowed to attract their own (foreign) labour without special permits. Such employees may be involved in the construction of facilities and commissioning.
Since 2016, Kazakhstan has been practising a visa-free regime for representatives of several countries. Currently, citizens of 56 countries can enter the country for 30 days without obtaining a visa. At the same time, when choosing the states for visa cancellation, Astana chose not the political approach, but exclusively the volume of investments made. The list was initially formed from those countries that invested the most in Kazakhstan (the main donor countries are Netherlands, USA, China, France, and United Kingdom).
Kazakhstan improved its position in the World Bank’s Doing Business ranking – in 2016 it ranked 35th. It was definitely a result of reforms undertaken to improve the investment climate. Today Kazakhstan is one of the most open countries in the world. It intends to become one of the 30 most developed countries in the next two decades. In view of its attractive geographical position, huge opportunities for investing in a wide range of business avenues and full support of investors from the authorities gives a guarantee of successful development of entrepreneurship, both local and foreign. While following Singapore model of development, it is quite capable of achieving same level of development by focusing on investors who are ready to bring technology and innovation in Kazakhstan’s economic development.
— The writer is Research Fellow at Islamabad Policy Research Institute, a think-tank based in Islamabad.