Why Invest in Kazakhstan?

New Silk Road connectivity, tax incentives and comprehensive structural and regulatory reform make Kazakhstan an attractive Central Asian powerhouse.

Over the last few years, Kazakhstan has made significant strides to attract more international business and investment, overhauling virtually every facet of doing business in the country in an attempt to facilitate and increase foreign direct investment (FDI). The nation’s strategic location as the main land corridor linking China with Russia and Europe, via newly expanded rail and highway networks, makes Kazakhstan the so-called “Buckle” in China’s new Belt and Road Initiative (BRI).

Kazakhstan’s regional and global trade potential have been vastly improved. A country built on oil revenues is now diversifying into agriculture, technology, financial services and beyond.

^{Credit: Maxim Rozhin}

Improving Investment Climate

Kazakhstan leads Central Asia in economic growth and FDI, and generates roughly 60 percent of the region’s GDP. After modest growth of 1.2 percent between 2013—15 (following contractions in neighboring Russia and China) Kazakhstan’s economy rebounded to achieve a 3.9 percent lift in 2017.

Since Kazakhstan joined the World Trade Organization (WTO) in 2015, sweeping trade, tariff and FDI regulatory reforms have significantly increased GDP and improved the nation’s score on the Organization for Economic Cooperation and Development's FDI Restrictiveness Index.

“Over the past few years, Kazakhstan has made significant progress in improving its investment regime and business environment,” notes OECD. It’s a view shared by the U.S. State Department’s 2018 Investment Climate Statement, which called Kazakhstan the “best investment climate in the region,” and highlighted its “significant progress” toward creating a market economy.

Today, 9,000 foreign companies are reported to be operating in Kazakhstan. Corporation tax stands at 20 percent, the value-added tax (VAT) has been reduced to 12 percent and a flat 11 percent social tax is applied to employers based on employees’ earnings. Personal income tax rate stands at 10 percent for nationals and between 5 percent and 20 percent for non-nationals.

State-of-the-Art Connectivity

Kazakhstan has invested $30 billion over the last 10 years in its transport and logistics infrastructure, according to government figures, and plans to spend an additional $8.4 billion to revive the ancient Silk Road route.

The 2,700 km Kazakh portion of the new 7,000 km Western Europe— Western China Highway has been built, and expanding northern and southern rail routes have already dramatically increased shipping volume and capacity. The southern rail route goes across Kazakhstan to Aktau, on the Caspian Sea, then across the water and into Georgia, Turkey and the EU through Bulgaria. The northern route goes from southwest China through Kazakhstan en route to Russia, Belarus, Poland and Germany, ending in Duisberg, the largest dry port in Europe.

This game-changing rail network saw 200,000 containers shipped from China to Europe, via Kazakhstan, last year. According to Roman Vassilenko, Kazakhstan’s Deputy Minister of Foreign Affairs, that number is expected to double to 400,000 in 2018, and reach 1.5 million containers by 2020. Although shipping by rail is more costly than shipping via sea, these new rail links enable freight to travel from China through Kazakhstan to Europe in just 15 days, and on to London in 18 days— considerably faster than the 30—45 days it takes by sea.

Meanwhile, Air Astana, Kazakhstan’s flagship airline and the fastest-growing carrier in Central Asia, continues to expand domestic, regional and international service from Astana and Almaty, Kazakhstan’s largest city, and recently received delivery of its first Airbus A320 neo and A321 neo aircraft; the airline expects to purchase 15 new Airbus as well as five new Embraer E190-E2 jets over the next few years. The airline serves many major cities, including London, Frankfurt, Moscow, Abu Dhabi, Bangkok, Hong Kong, Beijing and Seoul. 

Increased transport connectivity has been a boost for domestic and foreign owned export enterprises alike. Europe based Siemens Alstom, which has operated in Kazakhstan since 2010, has been a notable direct beneficiary as the main shareholder in Astana’s Electric Locomotives Assembly Factory (EKZ), under contract to provide 295 electric engines for the new rail lines.

AIFC Brings New Law and Order

The Astana International Financial Centre (AIFC) opened in July 2018 with the ambition to become the leading financial center in Central Asia. It forms a major part of Kazakhstan’s plans to attract financial resources to domestic enterprises and infrastructure projects. 

One major AIFC initiative is the establishment of the AIFC Court, an independent commercial dispute resolution court for companies registered with the AIFC. The court is based on the rules of English common law, and is staffed by experienced judges from the U.K., to create a familiar environment of trust and transparency.

Best of the Frontier Markets

During his annual state-of-the-nation address on Oct. 5, Kazakh President Nursultan Nazarbayev said: “Over the past 20 years, the country has raised $300 billion of foreign direct investment. We see the development of small and medium-sized enterprises serving as the foundation for our economic prosperity.”

Kazakhstan now ranks 28th among 190 countries in the World Bank Doing Business Index.

The government is focusing on supporting exporters as a central tenet of its economic development. President Nazarbayev has pledged $1.3 billion to support the manufacturing industry and non-commodity exports over the next three years.

Kazakhstan’s dynamic corporate bond market continues to boost domestic firms, and a strong push toward diversification of the economy has opened up opportunities for investment in many rapidly growing enterprises, including digital sectors like blockchain.

Marko Dimitrijevic, an expert on emerging markets, and author of Frontier Investor: How to Prosper in the New Emerging Markets, says the potential for high returns exist because the growth potential is so huge. Noting that the so-called frontier markets, like Kazakhstan, account for 71 of the world’s 75 fastest growing economies, he adds: “I truly believe that these overlooked frontier markets should be part of any savvy investor’s portfolio.”

It’s worth remembering how countries like China, India and Russia were once considered exotic investment destinations, and not so long ago. Kazakhstan is well positioned to lead the new wave of frontier markets and increasingly be a focus of attention in the years to come.

Written by Arif Durrani and Gabe Kirchheimer for Bloomberg Media Studios.