Over the years of the sovereignty, the inflow of foreign direct investments attracted annually to Kazakhstan has increased more than 13 times. This has been achieved through the step-by-step creation of a legislative framework and the introduction of modern, sometimes unique tools to support investors.
The figure for 2020 is $17bn, while in 1993 it was $1.3bn. The first half of this year again saw an increase of 30.4% to $11.1bn.
In total, Kazakhstan has received over $330bn of foreign direct investment from more than 120 countries since independence. Half of the inflow comes from the European Union, another 15% – from the United States and about 5% are investments from the UK and China.
And these are the best indicators in Central Asia; for example, according to UNCTAD, Kazakhstan accounted for almost 60% of investment in the region in 2018. As of the end of October 2019, 16,800 companies with foreign capital are already operating in the country (and here too, the growth is 18.1%), and Kazakhstan is among the top 55 in the Global Competitiveness Index.
Naturally, it all started under different circumstances. In the early 1990s, in the most difficult times of economic instability and loss of ties, it was foreign investment that became the main means of survival for enterprises in Kazakhstan.
It is obvious why it was profitable for investors to choose Kazakhstan. The country has unique natural resources and is located between two of the world’s largest markets, providing export potential and access to major Asian and European markets. But in the turbulent 1990s, it was this potential on one side and the risks of the unknown on the other. The West had no idea about Kazakhstan’s reliability as an economic partner. In addition, our country simply had no legal framework and no experience; there were no guarantees other than the words of the head of state.
It was the First President of Kazakhstan, Nursultan Nazarbayev, who set the starting point for creating an investment climate in the country – in 1993, he literally persuaded the then President of Chevron Corporation, Kenneth Derr, to sign the Agreement on the unique Tengiz field.
– I was sitting opposite the president of the company, Mr. Derr, and I was arguing with him about taxes, how much to Kazakhstan, how much to him, what territory.
And he says to me: “Mr. President, you have no laws, you have no experts, you have no technology. What can we hope for? What are you convincing us of?”, Nursultan Nazarbayev later recounted of key events at the dawn of independence.
Nevertheless, the arrival of Chevron Corporation in Kazakhstan has become a peculiar signal for other foreign companies, first of all in the oil and gas industry of the republic: «Exxon Mobil», «Shell», «Eni», «Chevron Texaco», «Total», «British Petroleum», «Lukoil» and the China National Petroleum Corporation.
The mechanism of production sharing agreements (PSAs) played a key role in attracting investors at that time. Of course, over time, when our republic had already gained an investment reputation, it was decided not to apply the PSA regime to new projects. And the fact that investors have not stopped injecting into Kazakhstan’s economy only proves that the country is attractive to foreign companies as an equal partner.
The second stage in the process of investing in Kazakhstan’s national economy is the period from 1998 to 2007. During this time, the systematic efforts of our government to create a legal framework and strengthen an attractive investment climate can be clearly seen. First and foremost, in order to even out the internal imbalances, the investment policy has been turned towards attracting foreign finance to less attractive sectors. Priority areas include agriculture, manufacturing industry, industrial infrastructure, social, cultural and tourism facilities, and young capital city facilities.
At the same time, the legal and regulatory framework continued to improve. The laws “On state support for direct investment”, “On taxes and other mandatory payments to the budget”, “On the securities market”, “On external borrowing and external debt management”, “On investment funds in Kazakhstan” and a number of other adopted regulations began to ensure transparency of the sphere.
Stability, predictability and consistency – the world has seen all of this thanks, among other things, to the Council of Foreign Investors under the President of the Republic of Kazakhstan, which was established in 1998. The institute, which is still in operation today, provides a direct dialogue between our country’s leadership and foreign companies to find effective solutions to problematic issues.
By the way, the real breakthrough in attracting foreign capital to Kazakhstan’s economy came precisely since 2001, when the volume of annual gross inflows of foreign direct investment began to rise sharply, reaching a peak of $29 billion in 2012.
International recognition has also confirmed that the country is heading in the right direction. Kazakhstan was among the first CIS countries to be recognized as a market economy by the European Union and the United States. It was also the first of the former Soviet Union states to receive an investment grade country rating for foreign currency liabilities in 2002 (Moody’s Investor Services) and in 2003 for local currency liabilities (Standard & Poor’s).
Adequate legislation continued to be developed to improve the financial climate in the country, taking into account international experience. In 2003, a new law “On Investments” was adopted. Fundamental changes concerned the equality of rights for domestic and foreign investors and the improvement of dispute resolution mechanisms. The “Direct Investment Programme for 2003-2005” also contributed to this.
Legal instruments such as interstate agreements have also become actively used. Since then, Kazakhstan has signed 47 bilateral and 1 multilateral agreement on mutual protection and promotion of investments, which guarantee investors’ rights.
All of this led to a result: by 2005, Kazakhstan had become the CIS leader in the volume of attracting foreign investment per capita.
The global economic crisis of 2008 launched the third stage in the development of foreign investment in Kazakhstan – it was necessary to convince foreign companies, among others, to support the diversification of the economy. And the successful implementation of the State Programme of Accelerated Industrial and Innovative Development of Kazakhstan became such an argument for foreign capital.
The extent to which the principles of foreign investment have changed is evident from the data on the profile of investments. For example, in the structure of foreign direct investment, the proportion of investment in oil, metal ores and metallurgy was 77.7% in 1999, 75% in 2000 and already 48% in 2020. At the same time, the biggest growth is happening in completely different sectors. In the first half of 2021, for example, the largest increase of foreign investments is seen in manufacturing – 57.2%, 45.8% in commerce, 27.1% in mining, and 20.4% in transport.
The current phase in shaping an attractive investment climate began in 2017 with a systematic and comprehensive effort to increase foreign investment in the country. For example, Kazakhstan has joined the OECD Declaration on International Investment and Multinational Enterprises, and has been granted associate member status with the OECD Investment Committee.
The same year, the government adopts the National Investment Strategy for 2018-2022, developed in cooperation with the World Bank. This document can be called a manifesto address to investors, which outlines in detail Kazakhstan’s clear intentions to strengthen its position in cooperation with foreign companies.
The focus of the Strategy is to attract foreign direct investment specifically into non-raw-materials sectors that are primarily export-oriented. The entire economy is conventionally divided into two groups. The first group includes sectors with existing potential: food industry, metallurgy, chemistry and petrochemistry, and machine-building. The second are prospective industries: information and communication technology, finance and tourism. The first group is designed for the short or medium term, while the second consists of industries in which investors may be interested in the long term.
In addition to improving Kazakhstan’s investment climate, new operational measures are being introduced to improve the transparency and predictability of investment policy. For example, it has been decided to involve more actively the private sector in the drafting of regulations and to provide investors with access to investment-related statutory and regulatory enactments by publishing them in English.
It should not be left unmentioned the establishment of the Coordinating Council for Attracting Investment and the Institute of the Investment Ombudsman, as well as the opening of frontal offices to attract investors in Kazakh embassies.
The National Company “Kazakh Invest” became a new operational tool. It is essentially a single negotiator on behalf of the Government, which provides a full range of services to investors on a «one-stop-shop» approach – from the search for an idea, all the way to the post-investment period.
Also within the framework of the Strategy, an information and monitoring system of investment projects has been introduced. It records all the agreements, roadmaps, and tasks of all participants in the process. In addition, the Investment project map is integrated into the same system, which in turn is divided into two groups – prospective projects to be offered to investors and projects to be implemented. This is necessary to take into account regional specific features.
Such a structure allows foreign companies to easily navigate in the economy of our country, to see the reliability of the investment policy and the prospects for cooperation. In fact, Kazakhstan has built a “soft infrastructure” for investors: “Kazakh Invest” is also responsible for the explanation of Kazakhstani legislation,
procedures and algorithms of decision-making. As a result, it now takes only 1 day to open a business in our country and only 3 days to register real estate.
The competition for investment at the current level of globalization is very high, and the winning countries are those that guarantee the safety of capital, the rule of law and a comfortable business environment. Based on this, Kazakhstan is implementing consistent reforms to work with investors. And it is no coincidence that our country is now one of the world’s top 10 by such indicators as protecting the rights of minority investors and compliance with contracts, and in the World Bank’s “Doing Business 2020” rating among the 190 countries takes the 25th place.