Successfully investing in Kazakhstan

published on May 16, 2018

  

How do you assess the current economic situation in Kazakhstan?

Yet in 2016, Kazakhstan was facing challenges relating to low commodity prices. The fiscal measures and the structural reforms implemented by the Kazakh government helped to improve the economic situation of the country. The process of economic recovery in Kazakhstan has been initiated. Consequently, a 4 per cent growth in the GDP was recorded in 2017.

 

With its new strategy package, Kazakhstan strives to increase industrial export rates. In addition, the country is furthering the digitisation of its economy in line with the “Digital Kazakhstan” programme.  Despite strong dependence on commodity prices, the socio-economic forecast for 2018-2022 estimates an economic growth in the range between 3.1 and 4.2 per cent. It will develop on the basis of moderate global economic growth rates, a rebound in demand and the continuously low commodity prices. Kazakhstan remains by far Germany's largest economic partner in Central Asia.

 

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

Two central tasks include maintaining a favourable investment climate and promoting foreign direct investments in Kazakhstan's economy. The aim of the State Programme for Industrial and Innovative Development of the Republic of Kazakhstan in the period from 2015 to 2019 is to promote competitiveness of the processing industry, based on labour productivity and an increase in export volumes for processed products. An important task is to attract investments, including foreign investments.

 

Foreign direct investments are mainly focused on such areas as the chemical and pharmaceutical industries, mechanical engineering, construction, transport and mining of metal ores. Also the extraction and processing of the country's natural resources, such as petroleum and gas, but also uranium, copper, zinc, iron ore etc., continues to be a profitable business. According to the estimates of “Trading Economics”, investments of 5.5 billion US dollar are expected in the second quarter of 2018. Already in the first quarter of 2018, the country reported 5.16 billion US dollar worth of inbound investments[1].

 

The agricultural sector and the food industry are in demand, too. In addition, the energy industry and trade unlock potential for German investors.

 

What challenges do German companies face during their business ventures into Kazakhstan?

One of the relics of Kazakhstan's Soviet past is still the bureaucracy. German companies should pay particular attention to the bureaucratic process of handling payments. Alone the procedure of opening a bank account can take many weeks to complete and require a great deal of effort in terms of the notarial authentication of signature cards, delivery of electronic signature card readers, etc. For reasons of currency regulation and control, banks in Kazakhstan often require presenting copies of contracts or invoices before they process any payments. Therefore, it should be always taken into account that no payment in Kazakhstan may be executed overnight. Especially when employees from the controlling department must approve the payment as two authorised signatories. Due to the time difference of 4 to 5 hours, such payment transactions must be planned ahead and closely consulted with the subsidiary.

  

Furthermore, the legal system is still in the development phase, although some successes have been achieved so far. The application of law causes great uncertainty since there is no established legal practice. This leads to regional differences in the interpretation and construal of legal provisions. Other challenges include corruption and a large degree of economic interventionism. German companies should be aware that it is absolutely necessary for them to have in place a higher-impact risk management system when doing business in Kazakhstan and that they should implement effective compliance regulations.

 

What is the significance of the introduction of the Customs Code of the Eurasian Economic Union for foreign investors?

The new Customs Code of the Eurasian Economic Union (in short: CC EAEU) entered into force on 1 January 2018. It has been based on advanced customs practices, including the provisions of the International Convention on the Simplification and Harmonisation of Customs Procedures (Kyoto Convention) and the WTO Trade Facilitation Agreement (Bali Package).

 

A major advantage is that the Code has laid down clear and precise rules governing legal relationships. Thus, every economic operator knows his/her rights and obligations. Subjectivity of the customs administration's decisions has been driven out, e.g. due to the application of IT systems and technologies as well as measures aimed at excluding conflicts of law (both in customs law itself and in other legislative acts) since every uncertainty may result in investors' financial losses, which might severely undermine the outcome of an investment project. The CC EAEU has also minimised financial risks referring to taxes and penalties.  It is expected that the innovative nature of the CC EAEU will lead to an increase in trading volume and promote the development of the Union's economy.

 

In your opinion, how will Kazakhstan develop?

We have noticed that more and more international companies are coming to Kazakhstan right now. Due to the drastically lower structural costs and the relatively favourable legal framework conditions, the country has caught the attention of foreign businesses.

 

Currently, the Kazakh government is focusing on such programmes as “Nurly Zhol” and “Digital Kazakhstan”, which are aimed at boosting the country's economy. In addition, it is expected that the investment climate, the competitive environment and the promotion of innovativeness as part of the implementation of the Nation's Plan “100 concrete steps” will improve. 

  

The private sector must be one of major drivers of the economic growth. For this purpose, measures are taken to reduce all kinds of costs for business management. The procedures regulating the performance of state services are being optimised and digitised to the greatest possible extent. Reforms of tax and customs laws are planned so as to improve the business climate. Furthermore, business establishment and property registration procedures are being simplified and the rights of minority investors strengthened. Nevertheless, despite its reliance on commodity exports, Kazakhstan is generally on the right track to see a positive economic and political development.



 

 

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Dr. Andreas Knaul, LL.M., d.i.a.p. (E.N.A.)

Partner, Office head

+7 495 9335 120
+7 495 9335 121

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Michael Quiring

Deputy office head, Partner

+7 727 3560 655
+7 727 2596 269

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