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 KAZAKHSTAN International Business Magazine №2, 2011
 Kazakhstan Investment Attractiveness. Investor Opinion Survey

Kazakhstan Investment Attractiveness. Investor Opinion Survey

*This article is partial reproduction of Kazakhstan investment attractiveness report, with prior permission of copyright holder – Ernst & Young. Full version of the report can be viewed at

The global downturn that followed the financial crises of 2008 provoked a worldwide decline in FDI, which fell by 39% in 2009.

Over the recent years Kazakhstan demonstrated strong performance in attracting FDI, particularly in extractive industries. But if the Government is to achieve its ambitions plans to diversify the economy, it will need to attract FDI that brings with it not only financial transfers, but also transfers of knowledge, high-tech equipment and opportunities for human capital development. For internationally mobile investors location decisions depend primarily on the stability, transparency and predictability of the business environment, proximity to markets, efficient access to infrastructure and skilled labor. Industry specific policies are becoming increasingly important in responding to these key requirements of the business community.

Kazakhstan investment attractiveness survey is performed by Ernst & Young and based on the perception of the investment attractiveness as seen by a representative panel of over 200 prospective and existing investors from over 20 countries.

Regional attractiveness

From the perspective of regional FDI attractiveness Kazakhstan was rated in the top three most attractive CIS investment locations by 32% of respondents (Graph 1). For industries that rely on consumer market, Russia is frequently the first choice given the size of its consumer market. However, some investors believe that compared to Russia, Kazakhstan is more advanced in its adoption of best international practices. Also, despite the larger consumer base of some of its neighbors like the Ukraine, Kazakhstan is perceived as more attractive for new entrants in some sectors, e.g., the services sector, because it offers significant untapped opportunities.

Investors’ success

Existing investors surveyed in Kazakhstan are, to a large extent, satisfied with their investment decisions; many of them find the business environment “challenging but rewarding” (Graph 2). When asked, “if you had a chance to reconsider your investment in Kazakhstan, would you still decide to invest in Kazakhstan,” 81% responded positively. However, for existing investors to expand their facilities and for prospective investors to make the investment decision, further reforms are expected to enhance the business and investment environment.

Business environment

Kazakhstan’s progress in recent years in reforming its legal and regulatory environment is evident, though the investor community expects further reforms. In particular, 53% of respondents felt that the level of legal and regulatory transparency and stability remains unattractive. Particular areas cover:

1. Insufficient assessment of the future impact, when introducing laws and regulations

2. Ambiguity of laws and inconsistency of application of law

3. Independent court system should be guaranteed

4. Lack of business-like approach in some of the law enforcement agencies’ operations

5. Security of contracts and fair treatment of investors’ rights

6. Over-regulation

7. Form over substance

8. Corruption remains a serious problem in view of some of our respondents.

52% of respondents indicated that the labor costs in Kazakhstan are attractive, while 28% of respondents felt it was not (Graph 3). Those respondents who were not satisfied with the labor costs perceived a disconnection between the compensation packages dictated by the market and the available employee competencies. The acquisition and retention of skilled labor is one of the biggest operational challenges of doing business in Kazakhstan.

More flexibility is expected in labor regulations. 40% of respondents find the level of flexibility of labor regulations (both for local and foreign employees) not attractive for the investment community. The main concern centers around the challenges experienced in bringing in qualified foreign labor. Sufficient qualified foreign labor flows into the economy is critical to ensuring timely execution of investment projects and development of local human capital.

The respondents were divided in their opinion of the potential for productivity increase for their companies, with 37% believing there are opportunities to realize this potential. Modernization of processes is likely to reduce the amount of labor required in existing production. In an expanding economy it should be possible to redeploy such labor to areas in which it can be used more productively, but this can only happen if the labor laws are flexible and the market for labor is efficient.

Investors need sustainable tax planning. 31% of all respondents assess the corporate taxation system as attractive (68% of respondents surveyed in Kazakhstan; 21% of respondents outside of the country). Kazakhstan has introduced favorable tax rates in a number of areas (e.g. corporate income tax has been reduced from 30% to 20%), however compliance costs are viewed as unreasonably high. High compliance costs undermine the positive effect of low tax rates, as the real tax burden should be measured by the combination of tax rates and the cost of the tax administration system.

Political stability is a key factor in investor confidence. 37% of surveyed investors (83% surveyed in Kazakhstan; 26% surveyed outside of the country) indicated the level of political and social stability as high.

Research and development requires further incentives. Only 14% of respondents find R&D availability and quality attractive. It is important to establish partnerships between private business, research centers and educational institutions, and to provide necessary state incentives in support of development of local R&D and R&D intensive FDI.

32% of the investors surveyed believe the size of the domestic market is attractive (46% surveyed in Kazakhstan and 28% of investors surveyed outside of the country). Respondents are divided in their opinion as to whether the Customs Union between Kazakhstan, Russia and Belarus with 170 million people, is a threat or an opportunity for Kazakhstan. On the one hand this opens up more opportunities for local businesses, but raises competition. Therefore Kazakhstan businesses need to invest to improve quality and efficiency in order to compete both locally and abroad with the best producers in other countries of the Union.

Further reforms are expected in infrastructure. Nearly 50% of respondents are not satisfied with the current level of development and transport and communication infrastructure, particular areas of concern are poor infrastructure in remote areas, insufficient development of rail and road network, comparatively low internet access availability.

45% of respondents believe significant improvement is still needed in improving the quality of life. Living standards in the largest cities – Astana and Almaty – have been steadily improving. However there is a substantial gap between these two cities and the rest of the country in terms of access to social infrastructure. The main challenges identified by respondents include access to qualified medical care and education. 

Evolution of investment climate

A stable environment is fundamental to investor confidence. At the same time, the Government needs predictability of revenue and compliance with obligations by investors. Over the past years, the Government has focused more of its energies on its investment policies. However, respondents felt that there was still room for improvement in the balance between state interests and the economic interests of investors (Graph 4).

27% of respondents believe that the investments climate has improved over three recent years (39% surveyed in Kazakhstan and 23% surveyed outside the country). These investors believe that the country’s leadership is willing to engage in open dialogue with foreign investors and is committed to consistent reforms, aimed at building a transparent and competitive market environment, developing specific industries and welcoming FDI. At the same time the Government was able to ensure macroeconomic stability during the times of global economic and financial crises.

16% of respondents (44% of investors surveyed in Kazakhstan and 9% of surveyed investors outside of the country) believe that the investment climate has deteriorated. In their opinion legal and regulatory environment is not sufficiently predictable for the investment community, resulting in an increase of the level of government intervention in business processes, inspection system being inconsistent with a market economy. The removal of fiscal stability from petroleum contracts has sent a negative signal to investors. Restructuring of the banking sector had a negative impact in view of some investors. Kazakhstan did not fully follow the “western” bail-out model. Some investors expected that, if the Government intervenes in the equity of the banks, their debts should have been repaid in full rather than the lenders taking a “haircut”. However, the Kazakh approach is now being seen as having greater merit that the unlimited bank bail-outs by many western states that have ultimately degraded some sovereign credit ratings.

56% of respondents felt that Kazakhstan’s investment attractiveness did not change over recent years (15% of those surveyed in Kazakhstan and 66% surveyed outside of the country), with the main comment being that a number of large-scale investor friendly initiatives are being implemented but the results are yet to be seen.

Future investment attractiveness

31% of respondents (54% surveyed in Kazakhstan and 25% surveyed outside the country) expect the investment attractiveness to improve over the next three years (Graph 5).

Kazakhstan’s rising geopolitical status, balanced international relations, geographical location with proximity to Russia, China, Middle East and Asian markets, openness to best international practices, large scale reforms aimed at development of a balanced and sustainable economy and investment policy focused on value added products and processes are viewed as opportunities for enhancing the investment attractiveness.

Investors who believe that the investment climate will deteriorate over the next three years (6% in total – 20% surveyed in Kazakhstan and 4% outside of the country) have main concerns on predictability and transparency of the legal and regulatory environment.

However, 53% felt the investment environment would stay the same. The future direction will depend on a number of factors, the main one being the position of the country’s leadership and commitment to reforms.

The overall majority of respondents surveyed in Kazakhstan expressed confidence about the strong potential of the country and the long-term vision of its leadership. Foreign investment is seen as essential in the realization of large-scale national initiatives to achieve further economic development.

Expected measures and reforms

To ensure successful FDI attraction (Graph 6), we believe the following elements need to be addressed:

1. Transparent legal and regulatory environment and independent court system

2. Investment in human capital is critical to ensure productive and efficient investment environment. The educational infrastructure needs to provide knowledge and skills in line with economic needs

3. Further development of transport, logistics and communication infrastructure is vital to ensure country’s integration at the regional level, improving existing infrastructure and overcoming current strategic weaknesses (e.g. rail and car road transportation network)

4. A more proactive approach is needed to ensure the sustainability of a financial system that includes improved corporate governance in banking and business and solution of non-performing loans problem to resume lending consistently to the real economy

5. Investor incentives linked to the wider economic development plan and target groups of sector specific investors

6. Support of entrepreneurshipis vital for a sustainable economy and, at the same time, it is needed for investors. FDI requires the local businesses to be involved, prepared and ready to move up the value chain

7. Focused and committed government. The current Government is seen by respondents as strong, proactive and willing to exchange opinions with investors.

Foreign investors in any country look for clarify, consistency and commitment: clarity in identifying the terms of investment, consistency in fair treatment of investor rights and commitment in improving the institutional environment for investors and entrepreneurs. Kazakhstan’s leadership has a vision for unlocking the country’s economic potential and, as such, has adopted strategic development programs that cover the approach to industry, the development of the country’s infrastructure, human capital and support for entrepreneurs. It is essential to ensure that the benefits envisaged to ensue from these programs are delivered in practice thus enhancing Kazakhstan’s national competitiveness and further attraction of FDI for building a balanced and diversified economy.


Table of contents
· 2016 №1  №2  №3  №4  №5
· 2015 №1  №2  №3  №4  №5  №6
· 2014 №1  №2  №3  №4  №5  №6
· 2013 №1  №2  №3  №4  №5  №6
· 2012 №1  №2  №3  №4  №5  №6
· 2011 №1  №2  №3  №4  №5  №6
· 2010 №1  №2  №3  №4  №5/6
· 2009 №1  №2  №3  №4  №5  №6
· 2008 №1  №2  №3  №4  №5/6
· 2007 №1  №2  №3  №4
· 2006 №1  №2  №3  №4
· 2005 №1  №2  №3  №4
· 2004 №1  №2  №3  №4
· 2003 №1  №2  №3  №4
· 2002 №1  №2  №3  №4
· 2001 №1/2  №3/4  №5/6
· 2000 №1  №2  №3

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