Kazakhstan: An Ideal Destination of Investments

Analytics 09:30 06.07.2022

Eurasia Diary presents an article titled " Kazakhstan: An Ideal Destination of Investments" published in National Herald Tribune. 

Article was written by Dr Mehmood Ul Hasan Khan, expert on geopolitical and regional studies. 

The Republic of Kazakhstan is an “ideal destination” of Foreign Direct Investments (FDIs) in Central Asian Region. It is again getting “momentum” after successful holding of referendum in the country in which numerous necessary legislations have been promulgated in the new constitution to further foster its macro-economy. Moreover, Kassym-Jomart Tokayev’s constant structural reforms have proved “reagent”.

Kazakhstan has now emerged as an important player in the global economy and an attractive investment destination. The BRI provides the largest international trade corridors pass through the country because of constant structural reforms and world class infrastructural development in the country. The country’s geography enables it to connect European, Asian and Middle Eastern markets, where 65 percent of the world’s GDP is generated.

In this connection, most recently, the Prime Minister of Kazakhstan, Alikhan Smailov said that the political reforms, initiated by the President, Mr. Kassym-Jomart Tokayev triggered the deep economic transformations.

Moreover, he termed that political stability and economic sustainability has further strengthened Kazakhstan’s status as a gateway to the largest world markets with a volume of more than 1 billion potential consumers, including the Eurasian Economic Union and China, and considered it a transit hub in Central Asia.

According to Kazakhstan official statistics (June 2022), Kazakhstan has attracted 390 billion USD of foreign direct investments, most of which was attracted in the last 10 years since its inception. In 2021, the inflow of FDI was projected at 24 billion USD, which was 38 percent higher than 2020. Interestingly, massive diversification of national economy paid off and the share of investments in oil and gas 2021 was substantially decreased to 28 percent which was in 50 percent during 2018-2019.

Kazakhstan blesses with significant natural resources which enables it an important supplier to global commodity markets. Moreover, Kazakhstan ranks 6th in the world in terms of agricultural land.

The government of Kazakhstan is providing favorable conditions and support to investors to invest in the country which would be provide befitting propositions and win-win situation for all the investors.

Kazakhstan the heaven for investors and businessmen has biggest numbers of special economic zones in the entire Central Asian Region. Currently, 13 special economic zones and 36 industrial zones are operating and full functional in different parts of Kazakhstan, which ensure a Preferential Investment Regime (PIR). Furthermore, the Astana International Financial Center (AIFC) shares and facilitates possible information about government’s investment policies, programs and projects and always showcases real economic and investment potential of the country through holding of numerous forums, seminars, conferences, Investment Road Shows (IRSs) and strategic dialogues. In this context, Kazakhstan is the sovereign guarantor of all the FDIs which always secures investments.

Most recently, while sharing the Investment Policy Concept (IPC 2026) the first vice Minister of National Economy Timur Zhaksylykov shares that the level of investment in fixed capital is expected to reach 25.1 percent of GDP, while the inflow of FDI will account for $25.5 billion in 2026. It was formulated and finalized under the vision of Kazakh President Tokayev which would definitely further promote investment flows to the different sectors of macro-economy. It includes 45 systemic measures aimed at creating an appropriate environment for all investments.

It comprises of three pillars of environment, social, and corporate governance. Hopefully, the new growth strategy will attract investments in agricultural, transport, logistics, services, fin-tech, green energy, rare and rare-earth metals industries etc.

It seems that the manufacturing industry will be a key driver in increasing the overall competitiveness of Kazakhstan. The government will set New Rules of the Game (NRG) and initiate integrated efforts to further enhance labor productivity, high volumes of exports, developing new productive channels and facilities for higher value-added products, and the gradual localization of production to provide essential economic, human and industrial supports to all the potential investors and businessmen in the country.

Interestingly, Kazakhstan is the leading country in terms of FDIs, GDP and GNP. It attracts 46 percent of total FDI in the region. Its main investor countries are the Netherlands, the USA, Switzerland, Russia, China, Belgium, the United Kingdom, South Korea, Turkey, and France.

To streamline, systemized and further strengthened its FDI potential in April 2022, the government built a single pool of all investment projects implemented in the country, which now consists of 765 projects worth 24.4 trillion tenge (US$53 billion). Thus potential of FDI is huge and diversified in Kazakhstan.

According to official data (June 2022), for five months of 2022, the volume of investments in fixed capital reached 4.1 trillion tenge (US$9 billion) increasing by 2.5 percent, and achieving the pre-pandemic level of investment growth. In this regard, Akmola Region, Shymkent, and Almaty witness high investment growth, while the Turkestan and Karaganda Regions are lagging behind.

Kazakhstan Foreign Direct Investment (FDI) increased by US$2.9 billion in Mar 2022, compared with an increase of US$537.1 million in the previous quarter. On the other hand, the National Bank of Kazakhstan claims that the FDI flows into the Kazakh economy has rebounded to pre-pandemic levels reaching $23.7 billion and growing 37.7 percent compared to 2020.

In terms of the industries, mining is leading in terms of investments attracting US$9.7 billion in 2021. In 2020, the figure was US$8.2 billion. Last year, investment in the manufacturing industry, the second-largest sector in terms of FDI, grew a record 65.4 percent reaching US$5.2 billion.

Kazakhstan has a land area equal to that of Western Europe but one of the lowest population densities globally. Strategically, it links the large and fast-growing markets of China and South Asia and those of Russia and Western Europe by road, rail, and a port on the Caspian Sea. Kazakhstan has transitioned from lower-middle-income to upper-middle-income status in less than two decades. Thus the new economic challenges also bring not only risks but also opportunities for investment growth.

For the further strengthening of FDIs inflows in Kazakhstan I may submit the following suggestions as:-

a. The investment policy should be further “intensified” and “incentivized”. The investment climate should be further made “beneficial” and friendly. Judicial reforms, digitalization, further development of e-commerce, e-government, optimization of public services and the permit system, among other initiatives should be further made easy and smooth.

b. The government should introduce New Productive Innovations (NPIs) in all the main sectors of macro-economy which will further enhance its potential for FDIs in the region.

c. Role of “KAZAKH INVEST” should be further strengthened through coordinated efforts and holistic policies among the different ministries and stakeholders. It is involved in more than 216 investment projects and initiatives worth $42.5 billion that will create around 47,000 jobs.

d. There is an urgent need to create balance and remove undue overlapping among all the stakeholders in the country. That is why transferring investment attraction functions to the Ministry of Foreign Affairs, establishing the Coordinating Council on Investment Attraction under the chairmanship of the Prime Minister, and the Foreign Direct Investment Fund with capitalization of $1 billion used for the most promising export-oriented projects should be further revisited and collaborated.

e. There is an urgent need to further plug-in the regional economic disparities pertaining among different region and equally foster industrial growth. The pattern of economic growth between the South-North should be further narrowed through better management skills by building necessary infrastructural projects and providing necessary incentives.

f. The tally of special economic and industrial zones should be increased in all the country.

g. There is an urgent need to further develop Middle Corridor to connect the various regions/countries and continents especially after the outburst of Russia-Ukraine Conflict.

h. Integrated Transport System (ITS) should be further developed in Kazakhstan to make it connecting hub.

i. Smart economy and smart living should be mantra of Kazak government to attract more and more inflows of FDIs in the country.

j. There is a need to shift focus of attracting investments in social, education, tourism and housing sectors in the country which would provide necessary diversification of economy, investment, production and utility in the days to come.

k. Diversification of exports mix is the need of hour. Joint ventures, opening of reciprocal Trade Houses, direct air-links, easy and smooth facility and banking & finances should be further streamlined.

l. Qualitative human capital may be one of the biggest assets of attracting more and more inflows of FDI in the country.

m. Huge but still unutilized landscapes may be offered to potential investors for modern agriculture, tourism, horticulture, cattle farming, fisheries, and many cash crops etc. According to latest reports (April 2022) the Ministry of Agriculture attracted US$2.01 billion of fixed capital investments (108.4 percent of the plan), the Ministry of Industry and Infrastructure Development US$13.5 billion (100.3 percent of the plan) and the Ministry of Digital Development, Innovations and Aerospace Industry US$531.8 million (98.7 percent of the plan).

n. The government should create the most optimal conditions for investors to attract more and more FDIs in the country. It is necessary to expand the sources of financing for investment projects in non-resource sectors of the economy. Joint ventures in non-traditional sectors of national economy may also be showcased for potential investments.

o. Green energy transition is must to transform Kazakhstan macro-economy up to next level. Special efforts must be coordinated to attract more and more FDIs inflows in solar, wind, waste management and electric production.

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