Investment Policy of Kazakhstan
1. Investment cooperation
Analysing the investment policy of the Republic of Kazakhstan it is necessary to mention that the main aim of the government is to achieve auspicious investment climate in the country and to maintain the further stimuli for the direct foreign investments inflow. Today Kazakhstan holds a leading position among the CIS countries in terms of the amount of foreign investments inflow per capita.
The amount of the investments into the Kazakh economy testifies to the favorable investment climate and good image of our country. According to the National Bank of the Republic of Kazakhstan about USD89.7 billion of foreign direct investment (hereinafter - the FDI) were brought into the Kazakh economy during the years 1993-2008. The growth of FDI inflows into Kazakhstan in 2008 was 7,3% (USD 19,8 billion) YoY. In 2007 the growth of FDI was 73% (USD 18.5 billion) in comparison to 2006 (USD 10.6 billion).
During 2004-2008 the gross FDI outflow from Kazakhstan was USD 8,9 billion. In 2008, the gross FDI outflows amounted to USD 4.24 billion, higher by 60.9% in comparison to 2007 (USD 2.64 billion).
The Netherlands dominate in the structure of the gross FDI inflows accounting for 22,0% of the gross FDI and followed by the United States (10.4%), United Kingdom (9.1%), France (6.1%), Cayman Islands (4.9%), and Canada (4.8%). Gross FDI proceeds from the CIS increased by 10,6%, reaching in total $ 887.3 million (Table 1).
Table 1
Gross FDI inflows for 2007-2008 according to the countries of origin
Country 2007 2008
USD mio % USD mio %
Total 18 453,4 100,0 19809,1 100
including
Netherlands 3147,8 17,1 4349,4 22
USA 2462,1 13,3 2059,5 10,4
UK 909,3 4,9 1797,2 9,1
France 1022,6 5,5 1203,8 6,1
Cayman Islands
(British Overseas Territory) 9,3 0,1 976,5 4,9
Canada 314,1 1,7 944,8 4,8
40% of the gross FDI inflow comes from real estate transactions, 15% from mining industry, 11% from financial services and 9% from manufacturing.
As of January 1, 2009 there were 19,109 companies registered in Kazakhstan with the foreign capital participation from 137 countries.
2. The competitiveness of the investment climate of Kazakhstan
The investment climate of the country provides with one of the best conditions for conducting business in Kazakhstan. The Republic of Kazakhstan was the first among CIS countries to be assigned an investment grade rating by Moody’s in 2002 and by Standard & Poor's and Fitch in 2004. It is also ranks in the FDI Confidence Index Ranking, a regular survey conducted by management consulting firm AT Kearney.
The state has set a goal to become one of the 50 most competitive countries in the world. Today, the Republic of Kazakhstan ranks 61st and is planning to progressively move towards this goal.
Indicator Country’s 2009 Country’s 2008 Rating change
rating in conducting business rating in conducting business
Business 70 80 +10
Entities registration 78 61 -17
Obtaining construction permits 175 176 +1
Labour recruiting 29 23 -6
Property registration 25 77 +52
Loans 43 61 +18
Investors protection 53 49 -4
Taxation 49 47 -2
International trade 180 181 +1
Contracts enforcement 28 28 0
Entities liquidation 100 103 +3
The interaction with the foreign partners on institutional level is of a particular importance for Kazakhstan. The Council of Foreign Investors (hereinafter - FIC), existing from 1998, justifies the government’s rapt attention to the foreign investors. The FIC meets twice a year under the personal chairmanship of the President of the Republic of Kazakhstan Nursultan Nazarbayev. At present the FIC includes the 21 executives of major foreign companies operating in Kazakhstan.
3. Legal and economic framework to stimulate investment in the Republic of Kazakhstan
Kazakhstan has created the entire necessary legal framework to attract the investments. In 2003 the Investment Law (hereinafter - Law) was adopted, which fully regulates the legal and economic framework stimulating the investments into the country.
According to the international experts the Law is one of the best investment laws among the countries with transition economies. It guarantees the full protection of the investors’ rights and the stability of contracts, as well as ensures a very structured interaction of the state bodies with investors. The Law facilitates the free capital movement, capital repatriation, freedom of profits use, lands private ownership including by the foreign companies. It also defines the governmental measures to support the investments in the priority sectors of the economy. These governmental measures equally apply both to domestic and foreign investors.
For example, the foreign investors’ projects in non-feed industries of the Kazakh economy are granted the following types of the preferences:
1) Exemption from customs duties on the imported equipment required to run the investment project and their accessories.
2) Governmental natural grants (plots of lands, buildings, machinery and equipment).
3) Investment tax preferences.
The new Kazakh Taxation Code (enforced since 1 January 2009) facilitates the use of the investment tax preferences by investors. Particularly, it abolished the previous procedures for investment preferences, which were only available from the date of singing the contract with the authorized body (the Investment Committee). Main idea of the investment tax preferences are in deduction of the value of the objects of preference and of the subsequent reconstruction and modernization costs. The period for a loss transfer is increased from 3 to 10 years, which would allow benefiting from the advantages of investment tax preferences. Under the new Code the rates of corporate income tax will decrease from 30% in 2008 to 20% in 2009, to 17.5% in 2010 and to 15% in 2011. The rate of VAT is decreased to 12%.
In addition to the investment law aimed to promote and protect investments into Kazakhstan, the Government signed the bilateral agreements on mutual protection and promotion of investment with 41 countries, among which are the USA, the UK, Germany, France, Russia, Netherlands, Turkey, Jordan, Qatar etc., and one multilateral agreement with the EurAsEC member countries.
It is important to note that as one of the measures of state investment support was co-financing the investment projects through public development financial institutions such as the National Innovation Fund, Kazakhstan Export Credit Insurance Corporation, Development Bank of Kazakhstan, Investment Fund of Kazakhstan, and the Corporation for Export Development and Promotion ‘KAZNEX’.
The main goal of these institutions is to promote and help to diversify the national economy through the creation of system of development and support of business on all levels and the effective management of investment resources.
The social-entrepreneurial corporations (hereinafter - CES), operating in 7 macroregions of Kazakhstan, have played a significant role in accelerating the country's economic diversification and the regions sustainable development.
Each corporation represents a regional development institution, which manages transfers of the state assets within the region, including areas of undeveloped lands and mineral fields. SEC is established with the status of the state company and fulfills the role of the projects generator, which attracts investments for their development and implementation.
Participation in projects of SEC’s is expected to be attractive for the businesses for it will provide them with access to the financial, land and technological resources and external markets.
With the help of the above corporations, the foreign companies also have the opportunity to create joint venture companies with the Kazakh partners in Kazakhstan where the use of foreign technologies and domestic raw materials would increase the competitiveness of their products.
There was a recent development of the instruments of economic incentives in Kazakhstan such as special economic zones industrial and technology parks.
Kazakhstan has six special economic zones. These are “Morport Aktau” - for transport and logistics services, “Astana - New City” - construction and production of the construction materials, Information Technology Park on the outskirts of Almaty, “Ontustik”, located on the South Kazakhstan region, – development of textile industry, the National Petrochemical Industrial Technopark in Atyrau region and FEZ “Burabai”, located 200 km away from Astana – development of the tourism cluster.
In these SEZ’s the investors are given the plots of land, provided with the necessary infrastructure for effective organisation of new productions. The SEZ’s provides tax and customs concessions (corporate income tax, land and property taxes) which allow not only to stimulate investments in the manufacturing sector, but also to determine the locations of industrial growth in line with state economic and regional policies.
There are three main factors affecting the investment attractiveness of Kazakhstan.
The first factor is the business climate of the country, supported by favourable investment legislation, attractive measures of investments support and economic and political stability.
The second factor is the richness of the country by the natural and mineral resources.
According to the scientific researches, Kazakhstan occupies the sixth place in the world reserves of natural resources. Kazakhstan has 99 out of 110 elements of the periodical table, of which 70 are explored and 60 are extracted and used.
Kazakhstan has the largest reserves of zinc, tungsten and borrit in the world, the second largest reserves of silver, lead, uranium and chromate, the third largest reserves of copper and fluorite, the fourth largest reserves of molybdenum and the sixth largest reserves of gold.
Thirdly, Kazakhstan benefits from its geographical location, which provides the investors with the consumer market of almost half a billion people from the neighbouring Central Asian counties, Russia and China.
