In Kazakhstan, the first peak of interest to foreign direct investments was in the mid of the nineties. Exactly at that very time the important steps were made to improve the investment climate in the republic, including the creation of the legislation base and system of preferences for the investors. Of course, all this brought fruitful results for the economy of Kazakhstan and, first of all, the raw material sector. Foreign banks appeared in the market, largest joint projects were launched.
Then, the “wealthy” first years of the twenty first century had come, when the state budget became replenishing with the oil dollars, while our banks got the access to the cheap borrowings abroad. Following that, the problem of investment attractiveness of our country had lost its actuality. However, the crisis spiral of 2007–2009 returned us to the given point again, this time at the new quality level. The country needs foreign money and know-how again, most of all, for the development of the non-raw material sectors. Meanwhile, the processing industry is the patrimony of European and, in the first place, German companies, and thus, in many respects, in the implementation of the accelerated innovative and industrial development program we will have to make a stake on cooperation with the given companies. So, it’s seems important to understand their interests, their viewpoint what should be done in Kazakhstan to improve the investment climate in the real sector of the economy. In this connection, we asked the representatives of German companies to answer the below three questions:
How do European industrial and financial circles estimate the investment climate in Kazakhstan?
What aspects are the most critical to foreign companies, while making decision to invest in the developing economies?
What measures, in your opinion, should the government of Kazakhstan take to increase investment attractiveness of the non-raw material sectors of the economy?
1. Kazakhstan has some advantages, compared to other countries in the region. This is a relatively high level of political stability, relatively serious attention which the government pays to the creation and maintaining of a favorable climate for the investors, and the endowment of the country with natural resources. The indicator of the level of interest and confidence of foreign investors in Kazakhstan is the impressive annual inflow of FDI, which was, in average, about 16% of the country’s GDP since 2000.
Now the interest of foreign investors is focused mainly on the raw material sectors, and, to a certain extent, on the servicing of the domestic market. The seeking of competitive niches in the Kazakhstan processing industry continues – just insufficient number of foreign investors is present there at the moment.
The investors realize that the macroeconomic condition in Kazakhstan depends heavily on the prices of oil and other resources, thus, they take into account the relevant risks. The government is implementing the initiative to remove the administrative barriers, which hampers the development of business climate throughout the entire post-Soviet area (corruption, bureaucratic delays, and etc.). The polls of Kazakhstani entrepreneurs and experts show that a certain progress in this area over the last few years. However, the barriers are still present. The investors realize and feel this.
2. One of the key indicators here is stability and fairness in the legislation and condition of work. When the investors invest their money today, they are concerned mostly about the future economic policy and those conditions, which will be by the time of repayment of investment income. In this regard – in the creation of confidence in the stable and fair economic policy – Kazakhstan has achieved a lot. It is quite important to maintain and strengthen this trust.
3. Indeed, this question is topical to Kazakhstan and, unfortunately, quite complicate to all those countries with the new market economies where there is a high level of dependence of their economies on the raw material resources.
Here, we see three major directions of the policy. The first oneis the measures to enhance the general climate for business and fair competition in the country. The second oneis the serious macroeconomic policy, including the accumulation of a considerable part of oil dollars at the National Fund to prevent the excessive real rise in the Tenge value. The third oneif the government’s attention to break-through projects, where the key public well-being, provided by the state, will be the factor contributing to the implementation of private investors’ initiatives (the latter ones, undoubtedly, bear risks with their money). This includes the necessary infrastructure, relevant statutory acts, engagement of key suppliers, the entering into trade agreements and other directions as well.
Steven Krieger, General Director of METRO Kazakhstan
1. In principle, the investment climate is not bad. All conditions are created for that: there is the Law on Investment, relevant statutory acts are enacted, certain preferences for certain types of production are in effect, money are raised to invest in FEZ, the relevant industrial and innovative development program is adopted. According to information of the National Bank of Kazakhstan, the FDI flow in Kazakhstan has been more than $100 billion.
2. The weak points are the poor infrastructure development, big remoteness of cities from each other, poor logistics, and low density of population.
3. The solution is found in improving the work of the authorized body, which is in charge of raising investments – the Committee for Investments of the Ministry of Industry and Trade of the Republic of Kazakhstan – through the expansion of its powers and the giving of the relevant status to it. It is necessary to expand the state-and-private partnership and to increase the presence of the world’s brand names in Kazakhstan.
1. Actually, the European financial structures are interested a lot in partnership with Kazakhstani business. The european representatives find this partnership rather high-potential and beneficial enough. Political stability in the country is the main factor that attracts foreign investors here.
2. Our clients are different foreign companies, mostly uropean. Basing on our consulting and market entry experience, taxation and some legislative acts play the most important role among the other conditions of investment.
3. Kazakhstan should develop such branches as new innovative technologies, tourism and strengthen its agricultural sector. One of the ways to increase the number of investments to these sectors is to perform the government programs thoroughly and transparently to achieve the visible results.
1. Today I can hardly say on behalf of even a small number of European structures, but as to our company, the WIKA Group, the answer here is quite unambiguous. Of course, the investment climate in Kazakhstan seems rather attractive. The evidence of that is the fact that of all the countries of the former Soviet Union, Kazakhstan was exactly that where we set up our second subsidiary, following our first subsidiary in Russia. Our Kazakhstan-based subsidiary has been successfully operating for already eight years. In this regard, we look effective, having an advantageous position compared other Central-Asian countries where the investors enter with big apprehension.
2. Of course, every firm has its own priorities, but I suppose that a number of factors were important to our company while making investment decisions. They are economic and political stability, good industrial development potential, relatively developed infrastructure, educated population, and a sufficient number of people speaking foreign languages. For example, to work in a company as ours, many employees have to be well educated in technical areas. This is good that we can find skilled professionals in Kazakhstan.
3. Some time ago in Kazakhstan there were found various methods and mechanisms of attraction of foreign investors in the raw material sector. I believe this will be not difficult as well to provide for a number of conditions to raise investments in the non-raw material sector. Since the moneys invested in the non-raw material sector have a long payback period, then the government should provide a guarantee of stable condition for capital investment and operation of new productions, which are based on the given investments. Unfortunately, many foreign companies have negative experience of running business in Kazakhstan. The local market is quite limited; thus, the operation of many productions should be built on a cooperative basis. The government should apply a very weighted approach as to what productions should be developed in Kazakhstan; they should have the entire list of such productions and offer it for implementation to the foreign investors. The government should also provide for particular preferences with regard to this list. If these conditions are followed and turn out to be beneficial to the investors indeed, then there can be possible such a scenario that the government will be choosing among the investors for the best bid proposals.
Yekaterina Kurasova-Kim, Head of Representative Office of Fujitsu Technology Solutions for Kazakhstan, Kyrgyzstan and Tajikistan
1. I can judge by the current trends of the company’s presence in Kazakhstan. This year, Fujitsu will increase its investments in the expansion of the Kazakhstan-based office staff and in human resources of the partners and clients through their training and advancement of their professional skills. We are planning to increase investments in marketing and expensive demo equipment. All this says that to Fujitsu, the investment climate in Kazakhstan continues being stable and even more attractive, compared to the last year. In general, the IТ sector’s interest to the local market is huge, and judging by the activity that was before and is now I can say that our country is assessed positively.
2. The first very factor, which is taken into account while making plans to invest in new or existing markets is the market profitability, which, in its turn, involves the capacity of the market and competitive environment with regard to certain goods or services. In other words, it is the economic expediency of the project advancement in the market. The next two key factors are the political and economic stability. Besides, while planning investments, the relevant legislation and taxation are taken into consideration, to what extent they meet the real demand of business and economy and to what extent they stimulate their development and flourishing. The legitimacy of activities to our company as any other foreign firm is one of the main conditions of work in the new markets, including Kazakhstan. The plans for investments and the amount of investments depend on to what extent the legitimacy is possible (the condition of legislative base, transparent and efficient work of relevant state agencies, and etc.).
3. It is necessary to make further progressive steps to simplify the legislation with regard to the creation, operation and protection of the interests of joint ventures in the area of production and services, to provide temporary preferences to them for the time of launching business, to continue improving the efficiency and transparency of operation of those state agencies and employees, which are engaged in and responsible for the development of JV’s business. In particular, this is possible through the introduction of appropriate IT-solutions, and many positive changes in this direction are already made, including ones, made with the help of Fujitsu. Of course, we cannot miss the forthcoming changes in the economy in connection with the recent creation of the Customs Union. Our government has to continue work to protect the local producers’ interests after putting into effect of the new customs regulations.