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Successfully investing in Kazakhstan

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last updated on 1 August 2023 | reading time approx. 5 minutes

 

 

 

How do you assess the current economic situation in Kazakhstan?

Sanctions against Russia are currently having an indirect impact on the economy of Kazakhstan. At least, it can be stated in this context that Kazakh consumers are now spending more money on consumer goods that were previously produced by foreign companies in Russia. Disruptions in supply chains are also hampering economic growth in Kazakhstan. The rise in energy prices is providing Kazakhstan with more revenue as a raw materials supplier, even if, for example, the transport of oil, which is also sold to Germany, has to be carried out through Russian oil pipelines.
 
According to the First Deputy Minister of Economy of Kazakhstan, Timur Zhaksylykov, the foreign trade turn­over increased by 32.1 percent to 134.4 billion US dollars by the end of 2022. Exports increased by 39.9 percent to 84.4 billion US dollars, while imports reached 50 billion US dollars. The positive trade balance is 34.4 billion US dollars.
 
Prime Minister Alikhan Smailov emphasized that the economic growth of Kazakhstan is currently benefiting the real sector, i.e. the industrial and construction sectors as well as agriculture. The industrial sector grew by 1.5 percent, including the manufacturing sector by 1.6 percent.
 
According to Prime Minister Alikhan Smailov, Kazakhstan's GDP growth was 4.9 percent in the first quarter of 2023. This dynamism is due to growth in areas such as construction, trade, transport and manufacturing. Invest­ment also made a significant contribution to the Kazakh economy.
 
According to the Federal Statistical Office, there were 36,500 foreign companies in Kazakhstan as of 1 January 2023. This represents an increase of 45 percent compared to 1 January 2022. This process is explained by the relocation of companies, as 24 foreign companies were founded in Kazakhstan in 2022. These are mainly com­panies from Russia and Belarus, which see their business threatened by sanctions in Russia. This must be seen against the background that relocating economic activities from Russia to Kazakhstan is relatively straight­for­ward. A Kazakh GmbH can be founded within three to four weeks. Opening bank accounts usually takes a few weeks. Local staff who were previously employed in Russia or Belarus can also be employed in Kazakhstan with­out a visa. In Kazakhstan, global goods and financial flows – with the exception of disruptions in supply chains – run smoothly. These are the advantages of a common economic area (Eurasian Economic Union). Kazakhstan can therefore rightly claim to want to become a hub for economic activity in Central Asia.
 
It should be emphasized that Kazakhstan is not behaving politically neutral with regard to the situation in Ukraine, but has clearly stated that it does not recognize the separatist areas as independent. Most recently, all exports of arms from Kazakhstan have been banned.
 
Experts within the Eurasian Economic Union expect a rapid return to dynamic investment activity, which is ex­pec­ted to lead to real growth of 3 to 4 percent in 2023. After Russia and Belarus have effectively ceased to be markets, the interest of foreign companies in the Kazakh market is increasing.

 

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 10 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 10 years).

The Astana International Financial Center 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 com­panies 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.

 

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

The practice of law enforcement remains a factor that companies consider a risk factor. Changes in tax regulations and a lack of consistent legal practice pose a challenge for companies to regularly review their business activities for tax risks and to align them with new trends, which often include additional tax risks.


The influx of skilled workers from Russia and Belarus can only partially alleviate the shortage of skilled workers. However, Kazakhstan, which trains its generations all over the world, invests heavily in the training of highly qualified workers and is in a better position than Uzbekistan.


Long logistics routes in the ninth largest country in the world pose a challenge that has not yet been completely overcome in recent years, despite the steady expansion of 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 di­rect investment into sectors such as IT, startups and renewable energy.

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