Successfully investing in Kazakhstan

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​​​​last updated on 7 June 2024 | reading time approx. 5 minutes

 

    

   

How do you assess the current economic situation in Kazakhstan?

The sanctions against Russia are having an indirect impact on the Kazakh economy. At the very least, Kazakh consumers are now spending more on consumer goods that were produced by foreign companies in Russia before the war began. Disruptions to supply chains are also hampering growth in the Kazakh economy. The rise in energy prices is increasing Kazakhstan's revenues as a supplier of raw materials, even though, for example, crude oil sold to Germany and other countries is transported through Russian oil pipelines.
   
The government forecasts that Kazakhstan's economy will grow by at least 5.3 percent by 2024. According to last year's results, the republic's economy has adapted to the new conditions and embarked on a path of sustainable development. Thanks to the measures taken, the economy grew by 5.1 percent. All major sectors showed positive dynamics: construction – 13.3 percent, trade – 11.3 percent, information and communication services – 7.1 percent, transport services – 6.9 percent, industry – 4.3 percent. 
  
Fixed capital formation increased by 13.7 percent. At the same time, foreign direct investment (FDI) totalled 19.7 billion US dollar in the first nine months of the year, of which more than 11 billion US dollar went to non-resource sectors. Overall, FDI indicators have been among the highest in the past decade for the second year in a row, with annual volumes ranging from 26 billion US dollar to 28 billion US dollar. Kazakhstan leads the CIS countries in terms of total foreign investment inflows.
   
According to the National Statistics Agency, there were 43,000 foreign companies in Kazakhstan as of 1 January 2024. This process is explained by the relocation of companies, as a result of which foreign companies were established in Kazakhstan in 2022-2023. These are mainly companies from Russia and Belarus that see their business threatened by sanctions in Russia. This should be seen in the light of the fact that it is relatively easy to relocate economic activities from Russia to Kazakhstan. The establishment of a Kazakh limited liability company can be completed in three to four weeks. Opening a bank account usually takes a couple of weeks. Local staff previously employed in Russia or Belarus can also be employed in Kazakhstan without a visa. In Kazakhstan, the global flow of goods and money works smoothly, with the exception of disruptions in supply chains. These are the benefits of a common economic space (the Eurasian Economic Union). Kazakhstan can therefore justifiably claim to want to become a hub of economic activity in Central Asia. 
    
It should be stressed that Kazakhstan is not politically neutral on the situation in Ukraine, but has clearly stated that it does not recognise the separatist territories as independent. Recently, all defence exports from Kazakhstan have been banned.
   

How would you describe the investment climate in Kazakhstan? Which sectors offer the largest potential?

The majority of foreign direct investment continues to flow into the raw materials sector. This is obvious given the rising raw materials prices, especially energy prices. Economic activities related to raw materials attract the most foreign capital. Currently, almost 72 percent of all foreign investment is concentrated in several large oil and gas projects. Investments in mining and processing play a non-negligible role in the context of the inter­national obligation to reduce CO2.
  
Investments in metal production and processing follow. It is also the most important sector for foreign invest­ment in the manufacturing sector. Other important sectors for foreign investors include food, beverages and tobacco production, rubber and plastic production, chemical industry and oil refining. Investments in renewable energies, including hydrogen, which has become a coveted energy carrier of the future within months, also represent a promising investment area.
  
There are ten special economic zones (SEZs) in Kazakhstan, which also offer tax and customs benefits (exemption from corporate tax, land tax, property tax, value added tax for goods consumed in the SEZ, free land lease for ten years).
  
The Astana International Financial Centre also operates in Kazakhstan. The main goal of the organization is to contribute to the sustainable development of Kazakhstan and the region by offering new opportunities for com¬panies and businesses to attract investment, create meaningful and effective projects in the industrial and services sectors, and open up new markets for goods and services.
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What challenges do German companies face during their business ventures into Kazakhstan?

The practice of applying the law remains a factor that companies consider to be a risk factor. Changes in tax regulations and the lack of consistent legal practice present companies with the challenge of regularly reviewing their business activities for tax risks and adapting to new trends, most of which involve additional tax risks. 
Kazakhstan, which educates its generations all over the world, invests heavily in training highly qualified specialists and is in a better position than Uzbekistan. Long logistics routes in the world's ninth largest country are a challenge that has not been fully overcome in recent years, thanks to steady progress in developing transport infrastructure. 

   

How far has Kazakhstan progressed with digitisation?

According to the 2022 E-Government Study by the United Nations, Kazakhstan ranks 28th in terms of digitization. In the development of E-Government systems and the quality of online services, the country ranks 11th. The above-mentioned study is carried out every two years and assesses 193 UN member states. It is one of the most important indicators for the development of the information society.
  
The E-Government Development Index (EGDI) was 0.86 points. This is the highest value among the CIS countries and Central Asia. In addition, Kazakhstan ranked 15th in the E-Participation Index (EPI) in 2022, making it one of the best in the world.
  
Kazakhstan is constantly driving digitization forward. A multi-platform model for the digital provision of public services is constantly being expanded. The processing of a car purchase contract in digital form including the digital registration is just as possible as checking any tax obligations at a short notice. By now, more than 90 percent of public services in Kazakhstan are available digitally and are used by around 11 million people.
  
Another area of Kazakhstan's digital economy is the development of the cryptocurrency industry. After the USA and China, Kazakhstan is the third largest Bitcoin miner in the world. According to the University of Cambridge, Kazakhstan accounts for 13.22 percent of the entire Bitcoin network (BTC).

   

In your opinion, how will Kazakhstan develop?

The priorities of the Kazakh government include the modernization of industry, diversification and digitization of the Kazakh economy.
  
The World Bank raised Kazakhstan's position in the "Doing Business" ranking in 2020 by three places. Of a total of 190 countries, Kazakhstan now ranks 25th. The reasons for this are reforms to the existing legislation, improvements to the licensing system, simplification of procedures for starting a business, optimization of state control and supervision activities, and the development of the business climate. A comprehensive program is also to secure the privatization of more than 900 state-owned enterprises in the coming years.
  
Kazakhstan is the magnet for foreign direct investment in Central Asia. The main sectors of direct investment are concentrated on oil and gas, as well as mining and metallurgy. Kazakhstan is striving to diversify foreign di¬rect investment into sectors such as IT, startups and renewable energy.

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