Question

BUSA 3000

Country: Kazakhstan

For your assigned country, Please discuss Kazakhstan country

1. how would you describe the current situation?

2. How does the forecast for the international business look like?

3. What recommendations would you give a U.S.-based business that is interested in investing in your assigned country?

Answer 1

1) Kazakhstan which can be called a developed nation for some of its characteristics and still underdeveloped for other things. General literacy of the population, a wide range of higher educational, research and design establishments make it as good as developed nations but the extractive sector overweighting, environmental pollution in many regions, heavy demand for foreign investments and new technologies, underdeveloped infrastructures puts it in a category of underdeveloped ones. Despite having a vast area (the ninth largest in the world) and intercontinental location (almost land-locked), Kazakhstan is too far from the international transportation routes, and railway and pipeline transport is not developed enough. With a result, the country should take any chance it can get to be integrated in the world economic community.

(2) Kazakhstan is widely considered to have the best investment climate in the region, and numerous international firms mainly in Oil and Gas sector have established regional headquarters in Kazakhstan. The 2017 World Bank’s Doing Business Report ranked Kazakhstan 45 out of 190 in the category of ‘Starting a Business’.  They have further eliminated registration fees for small and medium-size firms and requirement to notarize company documents and founders’ signatures. All these measures made starting a business simpler in Kazakhstan. Foreign investors also have access to “single window” service, which simplifies many business procedures, including business registration. Investors may apply for business registration online through a website maintained by the Investment Committee.

Government policy now encourages foreign investment with measures such as reduction and even waiver of taxes for 5 years, a State subsidy, partial or total exemption from duties and taxes on equipment, raw materials and other material necessary for the establishment of the investment.  The new investment strategy for 2018-2022 sets up another 36 states as potential investors. The Foreign Ministry plan to develop a specific plan of action to work with every country. There are lot of opportunities for international businesses. Kazakhstan is a very rich country and is positive country to meet business with. There is an eagerness from a Kazakh people and from the Government and business as well they want collaborate with foreign companies. The Constitution provides foreign investors the same rights and obligations as Kazakh nationals. The Investment Code guarantees foreign firms equality between local and foreign investors, protection of investor’s rights, arbitration of disputes, guarantees against nationalization and affirms the right to repatriate profits. Functioning on the principles of the English law the Astana International Financial Center (AIFC) intends to attract $40 billion in Kazakhstan by 2025. The AIFC is planning to create attractive investment conditions. The new Code on Subsoil and Subsoil Use, which will come into force in July 2018, will make Kazakhstan even more attractive for foreign companies. The law simplified the procedures for obtaining the subsoil use right and issuing the necessary permits. In particular, four steps of project examination will be replaced by one. The terms of consideration of applications for exploration and production were reduced.

3) While a company decides to invest in Kazakhstan, they should very well know the positive and negatives of investing in the country. Strong points that make Kazakhstan favourable for investment is that it identifies it's needs to diversify its economy in order to reinforce its growth. The country acknowledges that it has to attract foreign investors in order to modernize the existing infrastructures, and to create new ones. The economic situation is relatively good, despite a financial sector affected by the financial crisis. Kazakhstan has a strong economic potential, a quality banking system, and remarkable political stability, since its independence.

Government policy now encourages foreign investment with measures such as reduction and even waiver of taxes for 5 years, a State subsidy, partial or total exemption from duties and taxes on equipment, raw materials and other material necessary for the establishment of the investment. The Investment Code of January 2003 guarantees equality between foreign and local investors, protection of the investors' rights and arbitration for disputes. In practice, there are stability guarantee clauses, guarantees against nationalization or expropriation and the right to repatriation of profits.A new law aimed at bringing about significant improvements to Kazakhstan’s overall investment climate became effective on 24th June, 2014. The law introduces preferential treatment for investors involved in “priority investment projects”.

However, the negatives are that it being landlocked and have an obsolete economic structures with an economy which is still not diversified enough. The oil windfall has impeded the structural reforms but Corruption is a negative factor.

Before making an investment, a company should consult the foreign investment laws on the website "Invest in Kazakhstan". The Kazakhstan Investment Promotion Center in the country porvides information on the authorizations necessary for company establishment. The acquisition of the majority shareholding of a Kazakh company is authorised under reserve of obtaining an authorization beforehand from Ministry of Justice.