Kazakhstan as it is perceived: improving but not yet on investors’ radar.
The substantial difference in the responses of investors who have established activities in Kazakhstan versus those who have not suggests that many international investors still have insufficient awareness of Kazakhstan’s business and economic environment.
In 2011, Kazakhstan’s investment climate improved in the opinion of 35% of respondents (compared with 27% of respondents surveyed in 2010).
Macroeconomic stability and growth potential contribute to investors’ confidence. Despite the global financial crisis resulting in a noticeable slowdown, the economy bounced back relatively quickly, growing by 7.5% in 2011.
Thirty-nine percent of respondents find the macroeconomic environment stable.
That said, to compete successfully for foreign direct investment (FDI) in a global market and move up the value chain, the country needs to improve certain quality indexes. These include transport and logistics infrastructure, transparency and predictability of the business environment, R&D availability and further develop human capital in line with economic needs and innovation.
Thus, while 44% of respondents indicate that the labor costs in Kazakhstan are attractive for doing business, there is the perception that industry-specific skills are not sufficiently competitive.
A number of respondents see opportunities arising from the introduction of the Customs Union and Common Economic Space, which currently comprises Belarus, Kazakhstan and Russia. Investors see this regional organization as a stimulus to aid market expansion, enhance competitiveness and strengthen human capital skills.
Despite substantial progress, the Kazakhstani regulatory environment needs further reform.
Fifty percent of respondents felt that the level of legal and regulatory transparency and predictability is insufficient.The main areas of concern are inconsistency of interpretation of law and its selective application, over-regulation and onerous local content requirements, perceived corruption and an insufficiently independent court system.
Thirty-five percent of respondents believe that the investment climate has improved due to:
- The willingness and commitment of the Government to engage in an open and constructive dialogue with investors.
- The ability of the Government to ensure macroeconomic stability during the global economic downturn.
- Enhanced opportunities with the Customs Union and Common Economic Space.
- Consistent reforms, including large-scale industry-specific programs and the constructive development of an FDI promotion program.
Forty-three percent of respondents believe the investment climate has remained stable. However, 14% of respondents feel that the investment climate has deteriorated due to:
- Increased administrative burden and level of government intervention in business processes.
- Resource protectionism, abolishment of production sharing agreements (PSAs) and the removal of fiscal stability from petroleum contracts.
- Perceived deterioration of the rule of law and concern over security of investments.
- Deterioration of labor regulation flexibility for foreign nationals and onerous local content requirements that investors see as having a negative impact on project implementation.
- Results of restructuring of the banking sector, which is perceived by some respondents as a discouraging factor for new investors.