Astana Opens Massive Multi-Sectoral Foreign Investment Opportunities

Originally published in EU Today on April 10th 2017

Over the past decade, Central Asia has emerged as a vital region in the global energy market, showing the world’s best growth performance in a sector which now accounts for about 8% of GDP of the region’s states, confirming their geo-economic potential.

Of these Central Asian states, Kazakhstan is the largest, and the richest in terms of natural resources: in addition to fossil fuels, the land is simply dripping with all the elements of the periodic table.

With the recent discovery of giant Kashagan oil field, Kazakhstan’s proven oil reserves have reached a staggering 40 billion barrels, amounting to 3.2 % of the global total.

The current proven 2.5 Trillion Cubic Metres (Tcm) reserves of gases are also expected to rise to 3.3 Tcm in next decade, subject to significant future investment, and is in attracting investment that Kazakhstan excels.

After the collapse of the USSR, the newly sovereign nation set out on the road of transition towards a liberal market economy, and began the implemention of what was to become an ambitious and far reaching reform agenda. 25 years later, the country is now considered to be amongst the most liberal for business in the entire former USSR.

Astana’s effective management system, combined with an open and very liberal domestic attitude, and a bare minimum of bureaucracy in comparison with other countries in the region, is reflected in the World Bank’s 2017 Doing Business Report showing that Kazakhstan has leapt 6 places on the list since 2016 to 35th place among 190 economies.

During recent years Kazakhstan began the industrialisation of the economy, in an attempt to escape from an overly strong dependence on raw materials, which had a strong impact on the economy during the recent fall in commodity prices.

However, despite the very substantial financial resources accumulated in the country the government aims to attract foreign investors. As the country’s leadership has stated, this is not just about financial investments, but is also about attracting cutting-edge technologies and innovations to Kazakhstan.

Integration processes in the post-Soviet space make Kazakhstan particularly attractive for investors. The market of the Eurasian Economic Union, which includes five countries (Kazakhstan, Russia, Belarus, Armenia and Kyrgyzstan) comprises about 180 million people. The free movement of goods, work and capital that the union allows is very important for both Kazakhi and foreign companies.

There is another important factor that attracts investors to the country – its geographical location. Kazakhstan, located in the centre of the Eurasian continent, has a significant transit potential.

The country seeks to achieve even greater economic and transport integration, which ultimately will contribute to the formation of a common economic space from the Atlantic to the Pacific.

These amitious ideas were outlined by the President of Kazakhstan, Nursultan Nazarbayev, within the framework of the concept of Great Eurasia, which includes the partnership of the Eurasian Economic Union and the European Union, as well as the intensification of the Chinese project Silk Road Economic Belt for the benefit of all countries.

The Government of Kazakhstan is working towards the creation of a multimodal “Eurasian transcontinental transport corridor” to ensure free transit of goods from Asia to Europe – the overland journey from China to Europe currently takes 13-16 days, compared with a month or more by sea.

This transport corridor will include two routes. The first through Kazakhstan to Russia and then onwards to Europe, and the second via Kazakh territory from Chinese Khorgos to the seaport of Aktau and through the Caspian Sea to Azerbaijan and Georgia and again, continuing further on to Europe.

Last year a new railway corridor linking Kazakhstan, Turkmenistan,and Iran was launched, opening the way for Kazakh businesses to directly access the Persian Gulf.

Since 2010 the government has invested about $10 billion in the ongoing development of its own transport and transit infrastructure, and plans to invest a further $32 billion by 2020 to facilitate integration into existing and future global transport systems.

This has proven key to the growth of investment in the republic in recent years.

In the past 10 years, the level of foreign direct investment has amounted to $327 billion; viewed against a background of global economic crisis this a is a very positive indicator.

The diplomats of the European External Action Service have demonstrated strong support for the country, and recognise its special role in the region. The EU and Kazakhstan signed an Enhanced Partnership and Cooperation Agreement (EPCA) in Astana on 21 December 2015, this new agreement, the first of its kind signed by the EU with one of its Central Asian partners, has elevated relations between the EU and Kazakhstan to a new level.

One advantage that Kazakhstan offers to foreign investors is that the government clearly defines a number of sectors in which preferential conditions are offered. These are machinery, agriculture, retail trade and the chemical industry.

The “basic package for investors” includes exemption from customs duties, and the grant of property of the Republic which is given on the basis of temporary free use for the implenentation of investment projects.

For priority industries attracting an investment of more than $13 million, additional preferences include exemption from corporate income tax and land tax for 10 years, and from property tax for 8 years.

In addition, the government guarantees the return of up to 30% of capital expenditure on capital construction and purchase of equipment.

The country has also designated 10 special economic zones, which allow for exemption from all major taxes for 10 years (including customs duties and corporate tax). For the duration of the special economic zone status (25 years) the government also provides land for construction, along with necessary infrastructure.

If the special economic zones are more oriented toward large-scale production, then the regional industrial zones represent sites and preferences for small and medium-sized businesses. There are currently 42 such sites throughout Kazakhstan.

The stability of investment contracts are fixed at the time of their conclusion, and ensured by law. Rates and conditions agreed at the time of signing, and further changes in the legislation regarding tax rates and preferences will not affect the investor.

Investors will also be exempt the need for work permits for foreign workers, including those employees involved in the construction and commissioning of facilities.

Since last year Kazakhstan has been practicing a visa-free regime for representatives of several countries. Citizens of 56 countries including all citizens of the European Union and the UK can enter the country for 30 days without obtaining a visa.

Today Kazakhstan is one of the most open countries in the world.

A highly attractive geographical position, huge opportunities for investing in a wide range of business sectors, and full support for investors from the authorities give a guarantee of successful development of entrepreneurship, both local and foreign.

Gary Cartwright writes for EU Today, with a focus on Environmental issues, and also on energy and defence.

A published author, he has many years of experience working in the EU institutions, and is a former consulting editor of the long established and highly respected journal EU Reporter.