Successfully investing in Kazakhstan

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last updated on 27 May 2020 | reading time approx. 5 minutes

 

 

 

How do you assess the current economic situation in Kazakhstan?

In 2019 the GDP growth has exceeded both the international forecasts (Economist Intelligence Unit) and forecasts of Kazakhstan's government. It was 4.5 per cent which exceeded results of the previous year (4.1 per cent). Construction and industrial sectors, and primarily oil-and-gas sector were the principal drivers of the economic growth. A stable growth of amounts of the direct foreign investments could be noted in the previous year, the major part of these investments was made in the industrial sector.

 

A good growth dynamic of Kazakhstan's economy has also been outlined in the beginning of 2020. Slowdowns in inflation, growth of the production quantities in the major economic sectors and increase in the private consumption have been recorded. However, currently the country's economy is under the significant negative impact of the global Coronavirus pandemic and dramatic drop in the global oil prices.

 

Despite the various interventions of the National Bank of Kazakhstan aimed at maintaining the stability of the national currency, exchange rate of the United States dollar to the Kazakhstani Tenge has increased by 15 per cent in March 2020. Further depreciation of the local currency would be expected despite the agreed reduction in oil production by the Opec+ countries.

 

In order to mitigate the economic impact of the quarantine measures due to the Coronavirus spreading within the territory of the Republic of Kazakhstan, the government had developed a number of measures and actions aimed at supporting the individuals and businessmen, including the tax remissions, changes in the customs regime and others.

 

Current developments weaken the national economy, business economic activity of the small and medium businesses decreases, decline in the export demand is also observed. For example, according to the preliminary estimates, in the first two months of 2020, China (being the major importer of Kazakhstan's natural gas) had purchased from Kazakhstan an amount which is approx. 20 per cent less compared to the similar period in the previous year.

 

Currently the subsequent development trends of Kazakhstan´s economy will be defined by the oil prices and development of the pandemic situation.

 

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

Nowadays a favorable business climate has been noted in Kazakhstan, this climate is accompanied with the political stability which are the major factors for the attractiveness of the country for foreign investors. In 2019, the amount of the direct foreign investments in Kazakhstan was 24.1 billion United States dollar.

 

Kazakhstan is actively working on improving the investment climate in the country, and complex measures taken bring their outcomes. In 2019, the country has been ranked 28th out of 190 countries in the annual rating of Doing Business of the World Bank. Nowadays the advanced legal framework has been developed in Kazakhstan in order to implement the investment activities, investors registration process has been simplified, including improvements in the customs and tax regimes, multilayered infrastructure of the investors support has been developed as well.

 

Today the dominant investments flow is aimed at the higher potential sectors, such as ore mining and processing industries, chemistry and petroleum chemistry, food industry, machine-building industry and metallurgy. It is also possible to mention the promising industries in terms of the longer term, such as Information and Communication Technologies (ICT), tourism, as well as the financial and insurance activities. The government of Kazakhstan keeps on doing the comprehensive work on the continuous development of the investment infrastructure for improving the investments climate.

 

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

Companies which do not foresee the bureaucratic expenses in Kazakhstan beforehand, encounter major problems and difficulties. Together with the frequent lack of understanding for the need for submitting numerous documents, the local legal practice in the regions complicates the prompt and efficient exchange with the confirmatory (legalizing) authorities, and with the local clients.

  

Moreover, there is a comparatively less transparent legal practice. Usually there is a lack of key resolutions on the most critical economic and tax matters and issues, which complicates the decisions making process further.

 

Requirements of the Migration Legislation have been significantly simplified over the last five years. However, in planning for sending technical personnel from Germany to Kazakhstan, a great amount of the local qualification requirements must be taken into consideration.

 

And finally, but equally important: Kazakhstan's fiscal policy as modified considering the economic circumstances facilitates to occurrence of the tax uncertainties. Matters in dispute relating deduction of the withholding tax are mainly resolved for the benefit of tax authorities, including using the blocking of a bank account purposed for enforcement of the stated claim on tax deduction.

 

How far has Kazakhstan progressed with digitization?

The Governmental Program “Digital Kazakhstan” has been approved in December 2017 by the Government of Kazakhstan. This program is aimed at expanding the level of introduction and using the digital technologies for the continuous and further development of the national economy and increasing the population living standards.

 

The Program is implemented on the five key directions:

  • Digitization of the traditional economy branches;
  • Development of the electronic infrastructure of providing the public services to the population and business entities;
  • Introduction of the modern-day infrastructure of the data transfer, storage and processing;
  • Expansion of extent of using the contemporary digital technologies in the educational system, professional training and advancement of the digital literacy of a population as entire;
  • Formation of a media system for creating and developing of the technological entrepreneurship culture.
     

Currently the major effect of digitalization introduction has been reached in such activities as the public services, education, public healthcare, financial, transportation, and mining-metallurgical sectors. The German company SAP has the largest market shares in this area.

 

In the previous year, 80.2 per cent of the public services were provided in electronic format. In addition, the electronic employment exchange is successfully functioning. Kazakhstan has started implementing the Project of the “Intelligent Transportation System” in terms of the transportation. The digital technologies are being introduced in terms of the fuel power industry, as well as the ore mining and metallurgic industries using the elements of Industry 4.0 technology. Kazakhstan is creating the favorable conditions for developing the informational technologies. Inflow of the raised investments to Kazakhstan's IT Market over the last two years was around 69.6 million Euros (Exchange rate 465.75 Kasakhstani Tenge, as for 15 April 2020). Memorandums of Cooperation with 25 international organizations have been signed in 2019 based on Astana Hub Technology Park of IT start-ups as a part of development of the innovative cooperation.

 

In your opinion, how will Kazakhstan develop?

Due to the current situation at the world markets, instable oil prices, reduced amounts of the international trading and negative impact of the Coronavirus pandemic on the global economy, impact of these listed factors is expected in the form of slowdown in Kazakhstan's economic growth.

 

In the light of the existing developments, it is quite difficult to forecast any future development trends of the economy.

  

But it can be fairly likely assumed that potential reduction of the economic activities in the European Union countries (EU), Russia and China, as well as the falling prices of the raw material will have a negative impact on the export and consequently on the entire economy of Kazakhstan.

 

In the present conditions, a coherent policy of the government aimed at the economic diversification in order to reduce the raw materials-based dependence of the country, the further digitization development, creation of the favorable climate for doing business and increase of the investment attractiveness of Kazakhstan will still remain to be the priority orientations for the next few years.

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