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U.S. Department of State

Diplomacy in Action

2011 Investment Climate Statement - Kazakhstan


2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011
Report
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Openness to, and Restrictions Upon, Foreign Investment

Kazakhstan has made significant progress toward the creation of a market economy since it gained independence in 1991, and the European Union (2000) and the U.S. Department of Commerce (March 2002) granted it market-economy status. Kazakhstan also has attracted significant foreign investment since independence. As of September 2010, foreign investors had invested a total of $122.2 billion in Kazakhstan, primarily in the oil and gas sector. In 2008-2009, during a severe economic crisis, Kazakhstan still managed to attract $39.3 billion in foreign direct investment.

Despite growing investment in Kazakhstan's energy sector, concerns remain about the government's tendency to challenge contractual rights, legislate preferences for domestic companies, and create mechanisms for government intervention in foreign companies' operations, particularly in procurement decisions. Together with vague and contradictory legal provisions that are often arbitrarily enforced, these negative tendencies feed a perception that Kazakhstan is a suboptimal investment environment.

The government's Program for Accelerated Industrial Development, as part of its “Road Map for Business 2020,” aims to diversify Kazakhstan's economy, and will play a key role in determining the country's investment priorities.

Several major acts of legislation impact foreign investment in Kazakhstan: 1) the 2003 Law on Investments; 2) the 2003 Customs Code and the Customs Code of the Customs Union, which came into force in July 2010; 3) the Tax Code; and 4) the Law on Government Procurement. These laws provide for non-expropriation, currency convertibility, guarantees of legal stability, transparent government procurement, and incentives for priority sectors. However, inconsistent implementation of these laws and regulations at all levels of the government remains a significant obstacle to business in Kazakhstan.

The 2003 Law on Investments established a single investment regime for domestic and foreign investors and provides, inter alia, national treatment and non-discrimination for foreign investors. It guarantees the stability of existing contracts, with the qualification that new contracts will be subject to amendments in domestic legislation, certain provisions of international treaties, and domestic laws dealing with "national and ecological security, health, and ethics."

The Law on Investments contains incentives and preferences for government-determined priority sectors, providing customs duty exemptions and in-kind grants (See Performance Requirements and Incentives).

The Law also provides for dispute settlement through negotiation, Kazakhstan's judicial process, and international arbitration (See Dispute Settlement). In general, U.S. investors have expressed concerns about the Law’s narrow definition of investment disputes, its lack of clear provisions for access to international arbitration, and certain aspects of investment contract stability guarantees.

Experts consider Kazakhstan's tax laws among the most comprehensive in the former Soviet Union. In January 2009, Kazakhstan adopted a new Tax Code that lowered corporate-income and value-added taxes, replaced royalty payments with a mineral-extraction tax, and introduced excess-profits and rent taxes on the export of crude oil and natural gas. Accordingly, the corporate income tax rate has dropped from 30% to 20%. The value-added tax (VAT) has been reduced gradually from 16% in 2006 to 12% in 2009, where it will likely remain for a few years. Kazakhstan has a flat 11% social tax on employees' earnings and a personal income tax rate for residents of 10%. The tax rate for non-residents is between 5% and 20%, depending on an individual's type of income.

Special provisions exist for subsurface users, who are subject to payment of a signature bonus, commercial-discovery bonus, and historical cost reimbursement. Business associations and investment advisors are concerned that the new Tax Code could undermine tax-stability clauses in existing and future contracts. The government has stated that it will guarantee tax stability for existing production sharing agreements (PSAs) and for one major hydrocarbon project with a tax and royalty contract (Tengiz), only if parliament ratifies the contracts. Contracts for Tengiz, Kashagan, and Karachaganak include tax stability clauses that theoretically shelter the operating companies from changes to the tax code or customs regime. In 2008, however, the government determined that while the Karachaganak contract provided tax stability, it did not exempt the company from export duties. Under duress, the Karachaganak Petroleum Operating Company (KPO) paid more than $1 billion in customs duties, which it has been contesting through arbitration.

In April 2008, Kazakhstan introduced a customs duty on crude-oil and gas-condensate exports. Although the government zeroed the customs duty rate in January 2009, it re-introduced the customs duty at a rate of $20 a ton in August 2010. Since January 1, 2011, the customs duty has been $40 a ton. Companies paying the rent tax are exempted from the customs duty on crude exports.

The government’s "local content" strategy is considered to have a discriminatory effect on foreign investors. The government enacted procurement regulations to give preference to local suppliers, including three sets of rules: the 2007 Subsurface Procurement, Government Procurement, and 2009 Samruk Procurement. These rules give Kazakhstani bidders a nominal reduction in bid price of 20%, 10%, and 10%, respectively.

A new Law on Subsoil and Subsoil Use, adopted on June 24, 2010, contains explicit requirements regarding the local purchase of goods and services for all investments in offshore oil and gas exploration and production. On December 29, 2009, the government of Kazakhstan adopted a Local Content Law, which requires companies to set a minimum percentage of local content in contracts, but does not explain how to address existing contracts without such quotas. By January 26, 2010, the Ministry of Oil and Gas had introduced changes to more than 500 contracts to increase local content requirements.

The Local Content Law allows the state to revoke the subsoil-production rights of companies that do not meet local content requirements during a project’s exploration phase. On March 20, 2009, the government issued Decree 367 to establish a unified methodology for calculating local content. Government pressure for rapid legislative approval led to the adoption of a flawed formula. On June 25, 2010, the government established the National Agency for Local Content Development (NALCD), to oversee local content policy. The government also ordered NALCD to review the draft Law on Industrial Policy and Procurement Rules for Subsurface Users.

Ambiguities in the calculation and implementation of local content requirements present an administrative barrier for subsurface operators. International oil companies complain that implementation is uneven, irregular, and non-transparent, particularly at local levels of government. Representatives of international service companies also report that it is very difficult to obtain Kazakhstani source/origin certificates. According to the Local Content Law, a product must carry a certificate of origin issued in Kazakhstan to be considered a product of Kazakhstani origin.

The Subsoil Law allows the government to impose amendments to existing contracts of "strategic significance," or even to terminate contracts deemed to threaten Kazakhstan's economic security or national interests. On August 1, 2009, the government passed Decree No. 1213, approving a list of subsoil blocks with "strategic significance." The list includes over 100 oil and gas fields, including Tengiz, Kashagan, and Karachaganak. This Decree authorized the government to amend contracts if it determines that the actions of a subsoil user cause a "substantial change" in Kazakhstan's economic interests or threaten Kazakhstan's national security.

The Subsoil Law also requires a company to obtain governmental permission to conclude combined exploration and production contracts, puts shorter time limits on exploration contracts, and enhances the government's authority to terminate contracts not in compliance with the law. It also requires parliamentary approval for tax stability clauses in individual contracts. Moreover, the law treats draft work plans containing cost and production volume projections like formal contract commitments. The law severely reduces gas-flaring quotas and imposes harsher penalties for environmental violations. In addition, under the terms of the legislation, no future contracts would be structured as production-sharing agreements (PSAs). Companies must establish equal terms, conditions, and pay for Kazakhstani and foreign workers, and the government would evaluate subsurface resource bids based on promised social contributions.

The Subsoil Law reaffirms the state's preemptive right to participate in equity transactions involving subsurface user rights in oil and gas or mining operations, including, but not limited to, the purchase of shares in new exploration and production projects. The state claims this preeminent right even in cases where the controlling agreement assigns preemptive rights elsewhere (e.g. to other investors in a consortium). The government also can block the sale of oil and gas assets and exclude specific companies from participating in oil and gas tenders in the interests of "national security." The Subsoil Law establishes transparent procedures for state and private companies to exercise subsurface rights, and clearly defines when the state can exercise its priority right. On December 20, 2010, the government passed a regulation to establish an interdepartmental committee to advise whether and how to exercise the government's preemptive rights in extractive projects.

A draft law on Natural Gas and Gas Supply aims to regulate gas transportation, distribution, and pricing, as well as to create a single, monopolistic operator to purchase natural gas. International oil company executives and legal analysts argue that the draft legislation could inhibit the development of a domestic gas market in Kazakhstan, and view it as part of an overall trend toward greater state control and involvement in the management and marketing of the country's natural resources. The draft is expected to be submitted to Parliament in 2011.

In 2001, Kazakhstan adopted transfer-pricing legislation, which gives tax and customs officials the authority to monitor export-import transactions. A new transfer pricing law that came into force on January 1, 2009, introduced the commonly accepted "arm's length principle." The law was amended in 2010 to provide for rights and liabilities of government agencies, the right of a transaction party to provide state agencies with a justification for applied price, and the right to appeal results of tax inspections. Foreign investors concede that the new law is more closely aligned with international standards, but are concerned that the law will be applied not only to transactions with related parties, but to all international transactions. The Embassy is not aware of any cases involving the inappropriate application of transfer-pricing legislation in 2010.

Although no sectors of the economy are legally closed to investors, limitations exist; specifically, a 20% ceiling on foreign ownership of media outlets and a 49% restriction on foreign ownership in the telecommunications sector. There are no restrictions on the participation of foreign capital in the banking and insurance sectors, but a ban on foreign bank and insurance company branches remains in force. Restrictions also exist on foreign ownership of land in Kazakhstan. (See Right to Private Ownership and Establishment)

Foreign investors have complained about irregular application of other laws and regulations, and investors have interpreted regulatory pressure as an effort to extract bribes. Some report harassment by the Financial Police via unannounced audits, inspections, and other methods. One company reported a request from the Financial Police for confidential information on employees, with no apparent connection to an ongoing investigation. At times, the authorities have used criminal charges in civil disputes as a pressure tactic.

By law and in practice, foreign investors can participate in privatization projects, which should protect investors against discrimination. However, many foreign companies cite the need to defend their investments from the near-constant barrage of decrees and legislative changes, most of which do not "grandfather" existing investments. In addition to arbitrary tax inspections, foreign investors complain of problems in finalizing contracts, delays and irregular practices in licensing, and land fees. Some foreign firms have expressed concern about the failure of government organizations to fulfill their contractual obligations, particularly regarding payments, which can prevent the foreign partner from advancing its investment program. The investor then is exposed to government charges of non-performance, which could allow the government to cancel a contract.

Foreign workers must obtain work permits, which can be difficult and expensive to receive. The government limits issuance of work permits to boost local employment, based on the area of specialization and geographic region. From 2003-2008, the quota for foreign labor steadily increased from 0.14% to 1.6%, but was reduced by half on the heels of the crisis. A foreign labor quota of 0.75% of the active labor force remained in force throughout 2009 and 2010, and was slightly increased in 2011 to 0.85%.


Measure

Year

Index/Ranking

Transparency International

2010

105 (2.9)

Heritage Economic Freedom

2010

61/82

World Bank Doing Business
Ease of Doing Business

2011

59

Conversion and Transfer Policies

In 1996, Kazakhstan adopted Article 8 of the IMF Articles of Agreement, which stipulates that current account transactions, such as currency conversions or the repatriation of investment profits, will not be restricted. In 1999, the government and National Bank of Kazakhstan announced that the national currency would be allowed to float freely at market rates. After the tenge devaluation on February 4, 2009, the National Bank returned to a managed-float exchange-rate regime and maintained an exchange rate in the corridor 150 tenge/per U.S. dollar plus/minus 3% (See Efficient Capital Markets and Portfolio Investments). In 2010, the National Bank broadened the corridor of fluctuation. The tenge was allowed to float between 127.5 and 165 to the dollar (plus 10%, minus 15%). Due to favorable world oil prices, the National Bank rarely intervened in 2010.

No distinction is made between residents and non-residents in opening bank accounts. No restrictions require different types of bank accounts for investment or import/export activities. Money transfers associated with foreign investments, whether inside or outside of the country, are unrestricted. Non-residents may pay wages in a foreign currency (Article 16 of the Law on Currency Regulation and Currency Control). Foreign investors may also convert and repatriate earnings in tenge.

In June 2005, President Nazarbayev signed the Law on Currency Regulation and Currency Control. This law lifted restrictions on money transfers and allows individuals to take up to $10,000 in cash out of the country without documentation of the money's origin. The Customs Union further will liberalize the money transfer regime. Starting later in 2011, any amount in excess of $10,000 must be declared at the border of the Customs Union while amounts less than $10,000 need not be declared. However, the Customs Union removes the requirement for a National Bank to certify money's origin in amounts over $10,000. The National Law on Currency Regulation and Currency Control will be amended accordingly in 2011. On January 1, 2007, Kazakhstan eliminated all licensing requirements and procedures for foreign-currency operations, except the licensing of forex operations. Agencies conducting transactions in foreign currency, including bank payments and transfers relating to capital movements, should notify the National Bank their operations.

2009 amendments to The Law on Currency Regulation and Currency Control continued to liberalize the currency control. Individuals now can open bank accounts in foreign banks without notifying the National Bank. The ceiling for capital movement operations subject to notification or registration at the National Bank was raised from $50,000 to $100,000 for capital outflow; and from $300,000 to $500,000 for capital inflow. Export-import credits, with the exception of transactions requiring passports and financial loans with terms longer than 180 days, remain under the registration regime. Borrowers or lenders must register credit transactions with the National Bank before making them.

Amendments also have enhanced the responsibility for the non-payment of foreign currency on external trade contracts. In particular, administrative charges will be applied for non-payments exceeding $50,000, and criminal charges can be initiated for non-payments over $10,000 on monthly calculated indexes.

The National Bank still requires an "Import [or] export transaction passport," ostensibly for the purpose of currency control. In 2009, the ceiling for transactions requiring passports was increased from $10,000 to $50,000.

2009 amendments also specified measures for a "special currency regime," which only can be introduced in emergency situations -- when the country's economic and financial stability are in jeopardy. Measures may include requirements for companies to retain a certain percentage of their foreign currency profits in the National Bank of Kazakhstan or other authorized banks, the mandatory sale of foreign currency earnings, and limits on the use of foreign bank accounts. Considered an extreme measure, its application in the foreseeable future appears unlikely.

The National Bank regularly monitors the currency operations of selected non-residents. This procedure primarily affects the oil and gas, construction, and mining industries, as well as companies providing architectural, engineering, and industrial-design services. According to the National Bank, this monitoring provides better statistical data on the balance of payments and external debt.

The U.S. Embassy is not aware of any concerns with regard to remittance policies or the availability of foreign exchange for remittance of profits.

Expropriation and Compensation

The 2003 Law on Investments allows nationalization by the state in emergency cases "as provided in legislative acts of the Republic of Kazakhstan." Unlike its predecessor -- the 1994 Investment Law -- it does not provide clear grounds for expropriation, nor does it require "prompt, adequate and effective" compensation at a fair market value. The 2003 Law differentiates between nationalization and requisition, providing full indemnification in the case of the former, as opposed to payment of market value in the case of the latter. Bilateral investment treaties (BITs) between Kazakhstan and other countries, including the United States, require compensation in the event of expropriation.

There has been only one case of legal expropriation of a foreign investor's property for public purpose. The investor ultimately submitted the case for international arbitration, and the government paid the amount awarded by the arbiter in May 2006.

Dispute Settlement

There have been a number of investment disputes involving foreign companies in the past several years. While the disputes have arisen from unrelated, independent circumstances, many are linked to alleged violations of environmental regulations, tax laws, transfer-pricing laws, and investment clauses. Some disputes relate to alleged illegal extensions of the exploration schedule by subsurface users, because costs incurred during this period are fully reimbursed under the terms of a production sharing agreement. In some instances, disputes involve hundreds of millions of dollars. Problems arise in the enforcement of judgments, and ample opportunity can exist for interference in judicial cases given a relative lack of judicial independence.

Kazakhstan's Civil Code establishes general commercial law principles. The 2003 Law on Investments defines an investment dispute as "a dispute ensuing from the contractual obligations between investors and state bodies in connection with investment activities of the investor." It states that such disputes can be settled by negotiation, in Kazakhstani courts, or through international arbitration. According to the Law, disputes not falling within the aforementioned category "shall be resolved in accordance with the laws of the Republic of Kazakhstan," which favors use of the Kazakhstani judicial system in lieu of international arbitration.

In 2004, Kazakhstan adopted a law on international arbitration. The law gives broad authority for judicial review of arbitral awards in Kazakhstan, although an early test case yielded mixed results. In 2005, a U.S. company became embroiled in a dispute over a payment for the sale of its shares in a joint venture to a group of Kazakhstani companies. The London Court of International Arbitration (LCIA) issued a preliminary ruling ordering the shares frozen pending its final decision. The acting Kazakhstani court, however, ignored the LCIA's ruling and proceeded with its own hearings. The Supreme Court of Kazakhstan ultimately decided the case in favor of the U.S. company. The Astana City Court relied on an international convention loophole to decline the LCIA's award of legal costs to the U.S. firm on the grounds that doing so would be detrimental to "public order" in Kazakhstan. In May 2006, the Supreme Court overturned the decision and awarded the legal costs.

Kazakhstan has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since December 2001 and ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1995. By law, any international arbitral award rendered by the ICSID, a tribunal applying the UN Commission on International Trade Law Arbitration rules, Stockholm Chamber of Commerce, London Court of International Arbitration, or Arbitration Commission at the Kazakhstan Chamber of Commerce and Industry should be enforced in Kazakhstan

An issue of serious concern for foreign investors is the lack of explicit provisions for international arbitration in the Subsoil Law. International law firms worry that since the Subsoil Law does not expressly provide for international arbitration, the government might choose not to include a provision in the contract to allow resolution of disputes through international arbitration during pre-contract negotiations. That said, in July 2010, Prime Minister Karim Massimov ordered the Ministry of Justice to create a special legal department to defend the country's interests in international courts.

Monetary judgments are normally made in domestic currency.

The government of Kazakhstan has a mixed record of addressing investment disputes, and foreign investors often have endured protracted negotiations. Most investors prefer to handle investment disputes privately, rather than make their cases public. The U.S. Embassy advocates on behalf of U.S. firms with investment disputes. A Kazakhstani Investment Ombudsman planned for 2011 would pay special attention to questions related to foreign investors, including protection of their rights and interests, and consideration of investment disputes.

Although creditor rights were clearly defined in a 1997 Bankruptcy Law, numerous complex amendments have led to misapplication in practice. The law contains a detailed list of creditors' rights and prescribes a mechanism for their enforcement. The 2008 amendments elaborated a comprehensive list of the governmental authorities involved in bankruptcy procedures and expanded the rights of enterprises during possible rehabilitation procedures.

According to Article 28 of the Civil Code, civil suits concerning the restructuring of financial institutions now fall within the jurisdiction of the Almaty Financial Court. The Court must approve creditor-agreed restructuring plans of financial institutions.

Performance Requirements and Incentives

The 2003 Law on Investments and 2008 Tax Code provide for tax preferences, customs duties exemptions, and in-kind grants as incentives for foreign and domestic investment in priority sectors. The Investment Committee under the Ministry of Industry and New Technologies makes decisions on customs duties exemptions (with notification to customs authorities) and in-kind grants on a case-by-case basis. The Investment Committee also ensures that investors meet their contractual obligations. The law allows the government to rescind such incentives, collect back-payments, and/or revoke an investor's operating license if an investor fails to fulfill its contractual obligations. Tax preferences can be extended upon decision of regional tax authorities.

Largely focused on priority sectors, the government uses preferences to help diversify its economy away from the extractive sector. Priority sectors include agriculture, construction, metallurgy, chemistry and pharmaceuticals, oil refining, oil and gas infrastructure, transport, information communication, power, machinery, tourism, and aerospace. The system applies to new enterprises, as well as to existing enterprises making new investments. The duration of tax preferences increases with the size of investment. In light of Kazakhstan's Accelerated Industrialization Program (See Openness to, and Restrictions Upon, Foreign Investment), the government plans to amend the Law on Investments in 2011 to broaden the list of priority investment goods subject for customs duty exemption.

The government of Kazakhstan continued its promotion of local content in 2010 (See Openness to, and Restrictions Upon, Foreign Investment). The Local Content Law allows the imposition of administrative charges for violations of government procurement rules, specifically local content requirements. According to the new rules, proposals that include significant use of locally-produced goods and services will receive a discount (i.e., preferential treatment). Tender commissions and bidders that do not follow local content requirements may face administrative prosecution. This rule applies to government agencies, state-owned enterprises, national holding companies such as Samruk-Kazyna, and subsoil users, both domestic and foreign.

There are no known cases in which U.S. or other foreign firms have been denied participation in government-financed or subsidized research and development programs.

The government has liberalized its trade policies and passed legislation to bring its legal and trade regimes into conformity with World Trade Organization (WTO) standards. Kazakhstan submitted its Memorandum on the Foreign Trade Regime (MFTR) in 1996 and the first round of consultations on WTO accession took place in 1997. Kazakhstan has made significant progress in implementing the legal framework necessary for WTO accession and signed bilateral protocols on market access for goods and services with several working party members. Russia, Belarus, and Kazakhstan officially entered into the Customs Union on July 1, 2010. This development's impact on Kazakhstan's WTO accession process remains unclear. Kazakhstan made significant progress on its bilateral WTO negotiations in the second half of 2010.

Kazakhstan's entrance into the Customs Union almost doubled its average import tariff. Furthermore, as required by the Customs Union, Kazakhstan implemented tariff-rate quotas (TRQs) on January 1, 2010 on poultry, beef, and pork. U.S. exporters are concerned about the possible trade limiting-effects of these TRQs, as well as the way TRQs are calculated and distributed. According to the Ministry of Economic Development and Trade, Kazakhstan plans to maintain its tariff-rate quotas in 2011 at 2010 levels.

Kazakhstan is also a member of the Eurasian Economic Community (EurAsEc), along with Russia, Kyrgyzstan, Belarus, and Tajikistan. Armenia, Moldova, and Ukraine have observer status. Kazakhstan permits the duty-free and/or reduced rate importation of goods from EurAsEc partners and certain developing or less-developed countries.

Right to Private Ownership and Establishment

Private entities, both foreign and domestic, have the right to establish and own business enterprises, buy and sell business interests, and to engage in all forms of remunerative activity.

Kazakhstan's constitution provides that land and other natural resources may be owned or leased by Kazakhstani citizens in accordance with the law. The 2003 Land Code allows citizens of Kazakhstan to own agricultural and urban land, including the commercial and non-commercial buildings, complexes, and dwelling thereupon situated. Under the Land Code, only Kazakhstani citizens (natural and legalized) and Kazakhstani companies may own land. The Land Law does not allow private ownership of the following types of land:

land used for national defense and national security purposes;
specially-protected natural territories, resorts, recreational land and territories of historic and/or cultural significance;
forests, reservoirs (lakes, rivers, canals, etc.), glaciers, swamps, etc.;
public areas (urban or rural settlements);
railways and public roads.

Short-term land leases may last up to five years. The maximum period for long-term land leases is 49 years. Foreigners may rent agricultural land for up to 10 years. Foreigners may also own agricultural land through either a Kazakhstani-registered joint venture or a full subsidiary.

Protection of Property Rights

Secured interests in property (fixed and non-fixed) are recognized under the Civil Code and the 2003 Land Code. A credit bureau system is in the very early stages of development. All property and lease rights for real estate must be registered with special government-owned Real Estate Centers, which exist in cities and rural district centers.

Kazakhstan continues to move closer to international IPR standards. Its Civil Code and various IPR laws, in principal, protect U.S. intellectual property. In 2010, the government introduced amendments to trademark legislation that would bring provisions of the law in line with WTO guidelines for trade-related aspects of intellectual property rights (TRIPS). Kazakhstan also has ratified 15 of the 24 treaties endorsed by the World Intellectual Property Organization (WIPO). In 2011, Kazakhstan plans to sign the Madrid Agreements, including the Agreement on the Repression of False or Deceptive Indications of Source on Goods and Agreement Concerning the International Registration of Trademarks. Kazakhstan also intends to sign the Singapore Treaty on the Law of Trademarks and Rome Convention for the Protection of Performers, Producers of Phonograms, and Broadcasting Organizations. In 2006, USTR removed Kazakhstan from the Special 301 Watch list.

In 2009, Kazakhstan adopted several amendments to its IPR law, including the legal recognition of vendors who own rights to print and digital media. This amendment allows licensed vendors to seek damages from unauthorized dealers selling pirated merchandise. Illegal software development and manufacture generally is not conducted in Kazakhstan. Russia and Ukraine are believed to be the local market's major sources.

Patent protection is available for inventions, industrial designs, and prototypes. Patents for inventions are available for novel processes and products that have industrial applications. The National Institute of Intellectual Property performs formal examination of patent applications. Patents for inventions are granted for 20 years. Patents for utility models are granted for a five-year period with a possible three-year extension. Prototypes are granted a 10-year initial period of protection, with the possibility of an additional five-year extension. Kazakhstani legislation also permits an "innovation" patent, which is granted for inventions for an initial three-year period with a possible extension for two years. Issued after only checking the local novelty of an invention, an innovation patent is expected to boost local-business innovation. Unsuccessful applicants can appeal decisions of the National Institute of Intellectual Property and the Committee for Intellectual Property Rights. Kazakhstan is a member of the Moscow-based Eurasian Patent Bureau and the Munich-based European Patent Bureau.

Trademark violation is a crime in Kazakhstan. While trademarks are protected in Kazakhstan, counterfeit goods can be found at local markets. Marked disparities in fees charged to domestic patent and trademark applicants, as compared to foreign applicants, exist. Applications for trademark, service-mark, and appellations-of-origin protection should be filed with the National Patent Office and approved by the Committee for Intellectual Property Rights. Trademarks and service marks are afforded protection for 10 years from the date of filing. The Law on Copyrights and Related Rights was enacted in 1996. The law largely conforms to the requirements of the WTO TRIPS Agreement and the Berne Convention.

Ex-officio authority for customs officials to seize counterfeit products at the border came into force on January 1, 2010.

Progress in IPR protection through civil courts is less pronounced as the judicial continues to develop the expertise necessary to resolve more complex civil disputes.

Transparency of the Regulatory System

The transparent application of laws remains a major problem in Kazakhstan and an obstacle to expanded trade and investment. Foreign investors complain of inconsistent standards and corruption. While foreign participation is generally welcomed, some foreign investors point out that the government is not always even-handed and sometimes reneges on its commitments. Although the Investment Committee of the Ministry of Industry and New Technologies was established to facilitate foreign investment, it has had limited success in addressing the concerns of foreign investors. The government of Kazakhstan intends to create a special Investment Commission, or Investment Ombudsman (See Dispute Settlement) to discuss conditions for investors as well as to address controversial questions from foreign investors.

Opportunities for public comment on proposed laws and regulations are available but limited. Contradictory norms often hinder the functioning of the legal system. While Kazakhstan recently has defined more clearly which laws take precedence in the event of a contradiction, stability clauses granted to investors under previous versions of the Foreign Investment Law or other legislation may not necessarily protect investors from changes in the legal and tax regulatory regime. The 2003 Law on Investments holds that contracts signed subsequent to its enactment may be subject to domestic legislative amendments and international treaty provisions that change "the procedure and conditions of the import, manufacture, and sale of goods subject to excise duties." Regional authorities can create additional bureaucratic encumbrances, especially in the licensing and issuance of permits.

Kazakhstan has taken great pains to ameliorate its business environment and streamline bureaucratic practices, including start-up procedures for businesses and minimum capital requirements, 100 tenge ($0.70). The government also introduced new building regulations in 2009 and a risk-based approach for permit approvals in 2009 in order to make less onerous the attainment of construction permits. As a result, Kazakhstan received top reformer honors in the World Bank's 2011 Doing Business Report and moved up 15 places in the rankings to 53 out of 183 countries.

Kazakhstani law provides compensation for violations of contracts that were properly entered into and guaranteed by the government. However, where the government has merely "approved" or "confirmed" a foreign contract, Kazakhstan's responsibility is limited to the performance of administrative acts (i.e., those "concerning the issuance of a license, granting of a land plot, mining allotment, etc.") necessary to facilitate a subject's investment activity.

Kazakhstan's institutional governance is weak, further adding to the problems of transparency in commercial transactions. Senior government officials have a large say in minor and major transactions, and decisions often appear to be made behind closed doors.

A 2007 Licensing Law established the legal framework for licensing activities and simplified procedural requirements. The relevant agency must issue a license within one month of receiving required documents from a company. Licensing procedures remain problematic and confusing, particularly for small- and medium-sized enterprises, although experts estimate that overall licensing between 2004 and 2009 was reduced three-fold.

Efficient Capital Markets and Portfolio Investment

Kazakhstan has endeavored to create and implement a sound financial system and stable macroeconomic framework. As a result, the financial system has started to mediate financial resource flows and direct them to the most promising parts of the economy. Official policy clearly supports credit allocation on market terms and the further development of legal, regulatory, and accounting systems consistent with international norms.

Most domestic borrowers obtain credit from Kazakhstani banks, although foreign investors find the bank margins and collateral requirements onerous. It is usually cheaper and simpler for foreign investors to use retained earnings or borrow from their home country. Because the Kazakhstani Stock Exchange is struggling to gain momentum, it is not yet a realistic source of funds. Since 1998, Kazakhstani banks have placed Eurobonds on international markets and obtained syndicated loans to support domestic lending. Leading Kazakhstani banks were able to obtain reasonably good ratings from international credit assessment agencies until the global financial crisis struck.

In October 2008, the Kazakhstani government announced a stabilization plan that included a $10 billion bailout package for banks. In February 2009, the government, via Samruk-Kazyna, acquired majority stakes in four systemically important banks: 75.1% of common shares in BTA, 100% of Alliance Bank, 19.8% of common shares in Halyk Bank, and 21.24% of common shares in KazKommertsBank. By the end of 2009, BTA, Alliance Bank, Astana Finance, and Temirbank all defaulted and began debt restructuring processes. BTA alone required $16.65 billion in debt restructuring, while Alliance Bank had to negotiate $4.5 billion in debt. In 2010, Alliance Bank and BTA bank concluded debt restructuring negotiations. 67% of Alliance Bank's common shares were allocated to Samruk-Kazyna and 33% to creditors. Samruk-Kazyna owned 81.48% of common shares in BTA at the end of restructuring, while foreign and domestic creditors held 18.5%, and minority shareholders – 0.02%.

Despite the restructuring and default, BTA Bank remains one of the largest banks in Kazakhstan. As of November 1, 2010, assets of five largest banks, including KazKommertsBank, HalykBank, BTA bank, and ATF-UniCredit bank were valued at 8.8 trillion tenge (approximately $53.9 billion), or 45.4% of GDP.

Although stable, Kazakhstan's banking system is far from recovered. The poor and deteriorating quality of banking assets, capital constraints, and cautious lending policies remain major challenges. As of November 1, 2010, the share of non-performing loans (NPL) remained high 23.1%, though the volume of NPLs had decreased by 28.2% since the beginning of 2010. While the volume of credit has grown by 0.6%, banks’ capacity to create new credit remains severely distressed. The share of loan portfolios against GDP has shrunk during first 10 months of 2010 from 56.7% to 47.5%.

In operation since 1993, the Kazakhstani Stock Exchange (KSE) is an insignificant source of investment, as reaffirmed by the crisis. Decreased capitalization and diminished transaction volumes at KSE have not impacted the overall economic situation or financial markets.

Trading on the KSE is dominated by block trades, and the spreads are extremely wide, with the bulk of KSE trade in forex operations. In 2010, forex transactions amounted to 51.8% of total annual trade at KSE, and transactions with government papers accounted for 42% of KSE trade. In November 2010, the total capitalization of the KSE was $53 billion, or 40.5% of GDP; there are 354 listed companies.

Pension funds remain strong candidates for investment. As of November 2010, 13 pension funds had accumulated 2,163.1 billion tenge (approximately $14.6 billion). According to Kazakhstani legislation, pension assets should be invested in specific categories of securities, including corporate and government bonds, and securities issued by foreign governments and foreign corporate securities. The government is considering options to liberalize the pension funds’ investment rules.

There do not appear to be "cross-shareholding" or "stable shareholder" arrangements to restrict foreign investment in private firms through mergers and acquisitions. Joint-stock companies may neither cross-hold more than 25% of each other's stock, unless they have an exemption codified by law, nor exercise more than 25% of the votes in a cross-held joint-stock company. Kazakhstani law recognizes companies as "related" if one company or legal entity holds more than 20% of the shares of another. However, the owning company may not vote more than 25% of the total shares at the general meeting of shareholders of the related company, and the general meeting must approve various corporate actions, such as mergers and acquisitions.

There have been few hostile takeovers in Kazakhstan, primarily because there are few publicly-traded firms. Defensive measures are not targeted toward foreign investors in particular. The Civil Code requires a company that has purchased a 20% share in another company to publish information about the purchase. Currently, the government is preparing to make existing legislation against hostile takeovers more efficient.

Competition from State-Owned Enterprises

Officially, private enterprises compete with public enterprises under the same terms and conditions. However, state-owned enterprises enjoy better access to markets, credit, and licenses than private entities.

The government of Kazakhstan has actively consolidated state-owned enterprises in recent years. At the end of 2010, five state-owned holding companies existed in Kazakhstan. Kazakhstani law requires national holding companies to publish annual reports and submit their books for independent audit.

1. Samruk-Kazyna - National Welfare Fund (NWF) was modeled on Singapore's Temasek. Kazakhstan's largest national holding company, it manages the state's assets in oil and gas, energy, transportation, telecommunication, and financial and innovation sectors. According to some estimates, Samruk-Kazyna controls more than half of Kazakhstan's economy. Samruk-Kazyna aims to facilitate economic diversification and to increase effective corporate governance. However, Samruk-Kazyna spent its first two years spearheading the government's anti-crisis program. Samruk-Kazyna is the largest buyer of goods and services in Kazakhstan. Procurement contracts concluded during 2010 made around 2 trillion tenge (about $13.5 billion).

The Prime Minister chairs Samruk-Kazyna's Board of Directors, which includes the Ministers of Finance, Industry and Trade, Economic Development and Trade, and Oil and Gas, as well the assistant to the President of Kazakhstan and three independent directors. In February 2009, President Nazarbayev signed a separate law providing Samruk-Kazyna special status and rights. Samruk-Kazyna can conclude large transactions between members of its holdings without public notification. Samruk-Kazyna also has a pre-emptive right to buy strategic facilities and bankrupt assets. It is exempt from government procurement procedures and has the right to establish its own procurement rules. Moreover, the government can transfer to Samruk-Kazyna state-owned property, simplifying the process to transfer state property to private owners (i.e., state property can be easily privatized without any tender process or observation of privatization legislation). In 2009, Standard&Poors assessed Samruk-Kazyna's transparency at 24 out of a possible score of 100.

2. KazAgro manages the state's agricultural holdings, including the National Food Contract Corporation (wheat trade), KazAgroFinance (leasing to farmers), Agrarian Credit Corporation, Corporation on Livestock Development, and Fund of Financial Assistance to Agriculture. Chaired by the Deputy Prime-Minister, the Board of Directors includes the Ministers of Finance, Agriculture, and Economic Development and Trade, as well as three independent directors.

3. Parasat is charged with stimulating the development of scientific research and domestic know-how in the high-tech sector. The holding company manages several scientific institutions and funds. Chaired by the Minister of Education of Science, the Board includes the Vice-Minister of Finance, the Chairmen of State Property Committee and Science Committee.

4. Zerde - National Informative and Communication Holding Company was created to develop modern information and communication technologies and to stimulate investments and innovations in the communication sector. The Managing Board's Chairman is subordinate to the Ministry of Communication and the Prime Minister's office.

5. The National Medical Holding company seeks to implement business-oriented innovative corporate management in the newly built hospitals of Astana. The Managing Board's Chairman is subordinate to the Ministry of Health and the Prime Minister's office.

National Oil Fund

Kazakhstan has a sovereign wealth fund, which is called the National Oil Fund of the Republic of Kazakhstan. Established by Presidential decree in 2000, the fund aims to diminish the country's budgetary dependence on fluctuations of world oil prices and to accumulate savings for the benefit of future generations. The Fund accumulates all direct taxes and a percentage of revenues from the oil sector, revenues from the privatization of state property in mining and manufacturing industries, and revenues from sales of farmlands, as well as the Fund's accumulated investment incomes. The Ministry of Finance owns the National Fund. The National Bank is its trustee, and selects external administrators from internationally-recognized investment companies or banks to oversee the fund. Information on external administrators and the assets they manage is confidential.

The National Fund’s money is divided for two parts – stabilization and saving. Stabilization money is expected to be used to maintain macroeconomic stability. The National Fund invests in the domestic economy through "official transfers," although annual transfers from the National Fund to the budget are limited to $8 billion, since 2010. The purpose of saving part is to keep oil money for future generations of Kazakhstanis. The size of saving part depends on investment returns of the National Fund. Additionally, President Nazarbayev decreed that that National Fund should retain a minimum balance of no less than 20% of GDP.

The Ministry of Finance and the National Bank prepare the National Fund's annual report, which the President approves. In addition, the Ministry of Finance and National Bank publish on their websites (www.minfin.kz, www.nationalbank.kz) monthly and annual reports on revenues and use of National Fund monies. Although these reports provide information on the Fund's general financial situation, they do not provide details. As of December 1, 2010, the National Fund's assets totaled $30.24 billion. Kazakhstan's total international reserves, including the National Bank's foreign currency reserves, equaled $58 billion (in current prices).

Corporate Social Responsibility

Even though Kazakhstan has not adhered to OECD Guidelines for Multinational Enterprises, the government actively promotes the idea of corporate social responsibility. In his addresses to foreign investors and local businesses, President Nazarbayev has repeatedly asked them to implement socially responsible projects, to provide occupational safety, to pay salaries, and to invest in human capital. The President annually awards "Paryz" ("Honors" in the Kazakh language) for achievements in corporate social responsibility.

Political Violence

There have been no incidents of politically-motivated violence against foreign investment projects, and politically-motivated civil disturbances remain exceptionally rare. Stable since independence, Kazakhstan has good relations with its neighbors. The government continues to express concern over the security of its borders with Kyrgyzstan and Uzbekistan, which it views as vulnerable to penetration by extremist groups.

Kazakhstan's 2007 parliamentary elections took place without violence or unrest. President Nazarbayev's Nur Otan party won every seat in the lower house of parliament, with an overwhelming majority of the votes. In its assessment, the Organization for Security and Cooperation in Europe (OSCE) noted that the election did not meet a number of OSCE commitments and international standards for democratic elections. Although opposition groups denounced the election as fraudulent, no significant demonstrations against the announced results occurred. The next presidential and parliamentary elections are scheduled for 2012. Analysts expect the ruling elite to retain power with little opposition, and independent polling data suggests they will do so with broad popular support.

Opposition parties perceive the February 2006 murders of a prominent opposition politician and his two associates as politically motivated. A former Senate Chief of Staff was convicted in August 2006 of having ordered the murders. Prosecutors charged that personal animosity motivated him.

Corruption

Although the Kazakhstani Criminal Code contains special penalties for accepting and giving bribes, corruption is prevalent throughout Kazakhstan. The President issued an anti-corruption decree in April 2009, which provides whistle-blower protection, punishes state officials that fail to report corruption cases, and tries to prevent conflict of interests. Amendments to the anti-corruption law were signed on December 7, 2009. These amendments increased punishments for corruption crimes, instituted mandatory asset forfeitures, broadened the definition of corruption crimes to include fraud committed by government officials, and criminalized the acceptance of a bribe on behalf of a third party. The law also extended the definition of government official to managers of companies in which the government holds more than a 35% stake.

The Ministry of Interior, Financial Police, Disciplinary State Service Commission, and Committee for National Security (KNB) are responsible for combating corruption. However, questions of jurisdiction and competition between the Financial Police and KNB have occurred over the past year.

Transparency International (TI) has a national chapter in Kazakhstan. The government has signed on to the Extractive Industries Transparency Initiative (EITI), and is expected to complete the validation process by June 2011. Kazakhstan's rating rose from 2.2 in 2008 to 2.7 this year in TI's Corruption Perceptions Index for 2009. TI experts believe the improvement resulted from the government's desire to improve conditions for foreign direct investment and its 2010 chairmanship of the Organization for Security and Cooperation in Europe (OSCE). However, they also point out that corruption remains systemic, with the most problematic areas being the judiciary, police, customs, property rights, land registration, and construction projects.

U.S. firms have cited corruption as a significant obstacle to investment. Law-enforcement agencies occasionally have pressured foreign investors who are perceived to be uncooperative with the government. The government and local-business entities are widely aware of the legal restrictions placed on U.S. business abroad (i.e., the Foreign Corrupt Practices Act).

Bilateral Investment Agreements

The United States-Kazakhstan Bilateral Investment Treaty came into force in 1994. In 1992, the United States and Kazakhstan signed an Investment Incentive Agreement.

In 1996, the Treaty on the Avoidance of Double Taxation between the United States and Kazakhstan came into force. Since independence, Kazakhstan has ratified treaties on the avoidance of double taxation with 40 countries. Kazakhstan has bilateral protection investment agreements with 45 countries, including Great Britain, Germany, Italy, France, Russia, South Korea, Iran, China, Turkey, and Vietnam. 38 agreements out of those 45 have been ratified. In 2010, Kazakhstan signed investment agreements with Romania, Austria, and Serbia.

OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC), an independent U.S. government agency that provides project financing, political risk insurance, and a variety of investor services, has been active in Kazakhstan since 1994. OPIC is seeking commercially-viable projects in Kazakhstan's private sector, and offers a full range of investment insurance and debt/equity stakes.

Kazakhstan is a member of the Multilateral Investment Guarantee Agency (MIGA), which is part of the World Bank Group and provides political-risk insurance for foreign investments in developing countries.

Kazakhstan's devalued its national currency, the tenge, by 20% in 2009. In 2010, the National Bank of Kazakhstan maintained the tenge's exchange rate within a tight trading band from 146.67 tenge/$ to 148 tenge/$. The average exchange rate for 2010 was 147.35 tenge per one dollar. The tenge is expected to remain stable against the dollar in the course of 2011, though there may be some slight appreciation.

Labor

Kazakhstan has an educated and technically-competent workforce. However, demand for skilled labor has exceeded locally-available supplies. Technical skills, management expertise, and marketing skills are all in short supply. Many large investors rely on foreign workers and engineers to fill the void.

The Kazakhstani government has made it a priority to ensure that Kazakhstani citizens are well-represented in foreign-enterprise workforces. In 2009, the government instituted a comprehensive policy for local content, particularly for companies in the extractive industries (See Openness to, and Restrictions Upon, Foreign Investment and Performance Requirements and Incentives). It is particularly keen to see Kazakhstanis hired into the managerial and executive ranks of foreign enterprises. Local content regulations require that a minimum 1% of a project budget should be earmarked for training programs and workforce development, including overseas assignments with the lead operator. Employers' reliance on foreign labor in the face of persistent poverty in rural Kazakhstan has become a political issue in recent years. In 2010, the minimum wage was $101.2, and the minimum pension was $83.5. By government estimates, the unemployment rate by the end of September 2010 was 5.6%. Employers claim that a lack of skilled labor necessitates importation of managers.

The existing quota system for foreign employees (See Openness to, and Restrictions Upon, Foreign Investment) creates an additional burden for employers. Several U.S. employees of companies doing business in Kazakhstan informed the U.S. Embassy in 2009 that their work permits have come under increased scrutiny by immigration authorities. U.S. companies are strongly advised to contact locally-based law and accounting firms and the U.S. Foreign Commercial Service in Almaty for updated information on work permits.

The Constitution and 2007 Labor Code guarantee basic workers' rights, including the right to organize and right to strike. In April 2009, 70 workers at UzenMunayGaz (Uzen Oil and Gas, owned by a subsidiary of the national oil company KazMunaiGas Exploration and Production KMG EP) went on strike for 10 days over outstanding wages. The strikers convinced management to meet their demands. From March 4-8, 2010, 3,000 employees of UzenMunaiGas went on strike, demanding reorganization of the company, new management, removal of the chairman of the trade union, cancellation of the new pay scale, lower annual production targets, and new bonuses. The district court called the strike illegal, because the workers did not receive permission to strike, and demanded that management of KMG EP take actions against officials who had violated the Labor Code. In April 2010, KMG EP's Board of Directors adopted a number of resolutions to meet the demands of the strikers, including higher wages and bonuses. In June 2010, more than 200 drivers of one foreign oil company called a strike to demand higher wages. The organizers of the unauthorized strike were charged in court with violating the country's Labor Code.

Kazakhstan joined the International Labor Organization (ILO) in 1993. As of December 2010, Kazakhstan had ratified 18 ILO conventions, including those pertaining to minimum-employment age, forced labor, discrimination in employment, equal remuneration, collective bargaining, the worst forms of child labor, and safety and health in construction. In 2010, Kazakhstan ratified Seafarers' Identity Documents Convention. Currently, the Labor Ministry is preparing the basis for ratification of ILO Convention 156 on Equal Opportunities and Equal Treatment for Men and Women Workers: workers with Family Responsibilities.

Foreign Trade Zones/Free Trade Zones

A system of tax preferences exists for enterprises, foreign and domestic, engaged in prescribed economic activities in Kazakhstan's "special economic zones." The six zones are the "New Administrative Center" in Astana, the Seaport of Aktau, the Alatau Information Technology Park (near Almaty), the Ontustik Cotton Center in south Kazakhstan, the international tourism zone "Borabay" (resort area in 300 km from Astana), and the Atyrau National Industrial Petrochemical Techno park.

Foreign Direct Investment Statistics

Table 1: Annual Gross Foreign Direct Investment by Country (Unit: Million Dollars; nominal)
 

 

1993-2008

2009

2010 (9 months)

Total

USA

18,079.4

1,949.8

-1.8

20,027.4

Netherlands

15,326.2

6,629.8

5,064.3

27,020.3

UK

8,066.9

1,272.6

807.7

10,147.1

Italy

4,054.6

653.0

456.9

5,164.4

France

4,578.6

1,350.2

1,067.4

6,996.1

Switzerland

3,072.1

449.3

390.5

3,911.9

South Korea

3,253.2

163.1

270.2

3,686.5

China

3,094.3

708.7

789.1

4,592.1

Canada

3,286.8

653.4

382.1

4,322.3

Russia

3,393.2

623.4

469.4

4,486.0

Japan

2,209.5

588.5

446.4

3,244.4

Turkey

1,513.8

80.0

51.2

1,644.9

Liberia

1,802.3

622.6

289.7

2,714.0

Others

17,896.1

3,772.6

2616.9

24,285.6

TOTAL

89,617.0

19,517

13,100

122,234.0

Table 2: Annual Gross Foreign Direct Investment by Industry (Unit: Million Dollars; nominal)
 

 

1993-2008

2009

2010 (9 months)

Total

Agriculture, hunting and forestry

66.5

57.7

12.8

137.1

Mining and quarrying

33,276.9

4,732.1

2,480.3

40,489.4

Mining of coal and lignite, extraction of peat

68.6

-11.4

-1.7

55.5

Extraction of crude petroleum and natural gas

30,182.2

4,125.3

1,873.7

36,181.2

Mining of uranium and thorium ores

656.2

202.4

145.3

1,003.9

Mining of metal ores

2,201.3

413.9

401.6

3,016.7

Other mining and quarrying

168.7

1.9

61.5

232.1

Manufacturing

8,688.2

1,804.4

1,504.6

11,997.2

Electricity gas and water supply

886.5

-418.2

75.0

543.3

Construction

1,698.6

564.3

289.3

2,552.1

Wholesale and retail trade, repair of motor vehicles, motorcycles

and personal and household goods

4,305.9

1,105.6

855.2

6,266.7

Hotels and restaurants

212.2

80.2

11.3

303.7

Transport and communication

1,444.8

157.1

189.3

1,791.2

Financial activity

5,843.2

625.4

253.1

6,721.7

Real estate, renting
and business activities

29,864.2

10,934.5

7,285.2

48,084.0

Including but not limited to

 

Geological exploration and prospecting activities

28,526.0

9,103.7

6,911.0

44,540.7

Education, health and social work

240.2

4.0

54.1

298.3

Activity of professional
organizations, associations and unions

2,729.1

-129.9

89.5

2,688.6

Activities, n.e.c.

360.8

0.0

0.0

360.8

TOTAL

89,617

19,517

13,100

122,234

Source: National Bank of Kazakhstan

Table 3: FDI as Percentage of GDP (Flow)
 

2008

2009

2010 (9 months)

14.8%

16.9%

13.5%

Source: National Bank of Kazakhstan

Table 4: Foreign Direct Investment (Stock) in Kazakhstan by Investor and Industry, as of September 30, 2010 (Unit: Million Dollars)
 

Industry

Direct Investment

TOTAL

80, 326.0

Agriculture, Hunting and Forestry

77.3

International Organizations

28.0

British Virgin Islands

31.1

Other

18.2

Mining and Quarrying

15,781.8

USA

4,011.8

Netherlands

5,618.5

China

1,790.2

Great Britain

1,144.4

Canada

1,737.3

Romania

419.2

Russia

102.6

Switzerland

13.6

Other

944.3

Manufacturing

6.783.2

Netherlands

3,326.2

Switzerland

1,583.6

Great Britain

1,072.7

British Virgin Islands

97.1

Russia

58.5

Other

645.1

Electricity, Gas and Water Supply

423.3

British Virgin Islands

219.8

Netherlands

185.0

Russia

43.1

Other

-24.6

Construction

945.9

China

186.4

Netherlands

204.9

Russia

115.3

South Korea

98.6

British Virgin Islands

18.3

Great Britain

109.0

Other

213.5

Wholesale and Retail Trade, Repair of Motor Vehicles, and Personal and Household Goods

3,106.1

Netherlands

555.3

Russia

211.7

Arab Emirates

595.8

British Virgin Islands

192.3

China

205.4

Caiman Islands

372.3

Other

973.3

Hotels and Restaurants

150.8

British Virgin Islands

71.3

Turkey

30.9

Netherlands

41.6

Other

7.0

Transport and Communication

903.7

Netherlands

457.2

Great Britain

-10.3

International Organizations

1.0

USA

118.8

British Virgin Islands

78.0

Sweden

82.9

Other

191

Financial Activity

4,635.6

Austria

1,742.8

Netherlands

792.2

Great Britain

132.3

USA

212.8

Germany

18.5

International Organizations

343.3

Russia

433.7

China

128.4

British Virgin Islands

127.6

South Korea

351.9

Other

352.2

Real Estate, Renting and Services to Enterprises

45,276.3

Netherlands

19,009.8

USA

8,841.6

France

5,618.8

Japan

2,526.5

British Virgin Islands

1032.5

Great Britain

667.5

China

526.4

Germany

537.5

South Korea

358.9

Bermuda

331.2

Cyprus

124.2

Other

5,701.3

Education, Health and Social Work

106.1

Arab Emirates

42.6

Netherlands

27.6

Great Britain

3.7

British Virgin Islands

2.8

South Korea

15.1

Other

14.3

Activity of Professional Organizations, Associations and Unions

2,136.2

British Virgin Islands

2,080.1

Netherlands

34.5

USA

18.2

Other

3.3

Source: National Bank of Kazakhstan (the stock data is valued at market cost)

Table 5: FDI (stock) as a Percentage of GDP
 

as of September 30, 2010

83.0%

Table 6: Kazakhstani Direct Investment Outflows (Unit: Million Dollars; nominal)
 

Destination

2004-2008

2009

2010 (9 months)

Total

Netherlands

2,732.9

4,536.9

4,747.9

12,017.6

Great Britain

202.5

13.6

1,938.5

2,154.7

Russian Federation

1,376.7

73.1

114.5

1,564.3

British Virgin Islands

706.1

37.7

9.1

752.9

Switzerland

839.9

2.0

-92.0

749.9

USA

452.4

177.6

0.7

630.7

Turkey

463.7

28.4

10.4

502.6

Cyprus

418.4

1.3

26.4

446.0

Kyrgyzstan

312.8

57.9

2.7

373.3

Ukraine

321.9

26.6

1.2

349.7

Germany

237.4

1.2

0.4

239.0

Georgia

128.5

57.9

0.1

186.5

Uzbekistan

132.3

1.5

0.0

133.7

China

98.6

9.9

10.2

118.7

Arab Emirates

81.3

18.0

6.9

106.2

Canada

47.1

3.1

18.3

68.6

India

7.3

17.2

0.4

24.9

Austria

9.8

0.3

0.1

10.2

Iran

10.4

-0.3

0.0

10.1

Other Countries

513.1

46.6

19.7

579.5

TOTAL

9,093

5,111

6,815

21,019

Source: National Bank of Kazakhstan

Summary of Investments: As of September 30, 2010, $139.3 billion was invested in Kazakhstan with 35.6% in business consulting and geological exploration, 19.4% in the financial sector, and approximately 16.2% in the extractive sectors. U.S. firms consistently have ranked as one of the largest foreign investors. U.S. companies have invested $6.5 billion, or 28.7% of foreign investments in the extractive sector, including billion-dollar investments in Kazakhstan's petroleum sector by Chevron, ExxonMobil, and ConocoPhillips. Since 1993, Tengizchevroil, in which Chevron holds a 50% stake, and ExxonMobil, which owns 25%, contributed approximately $30.4 billion to Kazakhstani entities. These investments include purchases of Kazakhstani goods and services, tariffs and fees paid to state-owned companies, profit distributions to Kazakhstani shareholders, taxes and royalties paid to the government, and Kazakhstani employee's salaries. Other foreign investors in this sector include the Chinese National Petroleum Corporation (CNPC), Shell, British Gas, Total, Agip, Lukoil, Eni, and Inpex. Other major U.S. investors include J.Ray McDermott, S.A. (over $400 million in manufacturing), JP Morgan Chase&Co (over $300 million in business services), Marriott International (around $170 million in construction), and General Electric Transportation (a locomotive facility with $78 million of investment). Other major non-U.S. foreign investors include Arcelor Mittal and BAE Systems.



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