Since its independence in 1991, Kazakhstan has made significant progress toward creating a market economy and has achieved considerable results in its efforts to attract foreign investment. As of January 1, 2018, the stock of foreign direct investment in Kazakhstan totaled USD 161.7 billion. The majority of foreign investment is in the oil and gas sector, and the United States is a leading source of investment capital with around USD 27.28 billion (FDI stock) invested in Kazakhstan as of January 1, 2018.
While Kazakhstan’s vast hydrocarbon and mineral reserves remain the backbone of the economy, the government continues to make incremental progress toward its goal of diversifying the country’s economy by improving the investment climate. Kazakhstan’s efforts to remove bureaucratic barriers – including through a new “single window” – have been moderately successful and the World Bank in 2018 ranked the country 36 out of 190 in its annual Doing Business Report.
The government maintains an active dialogue with foreign investors, through President Nazarbayev’s Foreign Investors Council, the Prime Minister’s Council for Improvement of the Investment Climate, and the Investment Ombudsman.
Kazakhstan joined the WTO in 2015 and began to lift local content requirements per its WTO accession commitments. In June 2017, Kazakhstan joined the OECD Declaration on International Investment and Multinational Enterprises and became an associated member of the OECD Investment Committee.
Despite institutional and legal reforms, concerns remain about corruption, bureaucracy, and arbitrary law enforcement, especially at regional and local levels. The government’s tendency to challenge contractual rights, legislate preferences for domestic companies, and intervene in companies’ operations continue to discomfit foreign investors. Foreign firms cite the need for improved transport and logistics infrastructure, a more open and flexible trade policy, and a more favorable work-permit regime.
|TI Corruption Perceptions Index||2017||122 of 180||https://www.transparency.org/news/
|World Bank’s Doing Business Report “Ease of Doing Business”||2018||36 of 190||http://www.doingbusiness.org/rankings|
|Global Innovation Index||2017||78 of 127||https://www.globalinnovationindex.org/|
|U.S. FDI in partner country (M USD , stock positions)||2014||USD 15,528||http://www.bea.gov/
|World Bank GNI per capita||2016||USD 8,810||https://data.worldbank.org/
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Toward FDI
Kazakhstan has attracted significant foreign investment since independence. As of January 1, 2018, the total stock of foreign direct investment (by the directional principle) in Kazakhstan totaled USD 147.1 billion, primarily in the oil and gas sector. Kazakhstan is considered to have the best investment climate in the region, and many international firms have established regional headquarters in Kazakhstan.
In June 2017, Kazakhstan joined the OECD Declaration on International Investment and Multinational Enterprises and became an associate member of the OECD Investment Committee.
In 2017, the government adopted a new 2018-2022 National Investment Strategy, developed in cooperation with the World Bank, which outlined new coordinating measures on investment climate improvements, privatization plans, and economic diversification policy. The strategy aims to increase total FDI inflow by 25 percent by 2022.
Kazakhstan’s government has incrementally improved the business climate for foreign investors and national legislation does not discriminate against foreign investors. Corruption and excessive bureaucracy, however, remain serious obstacles to foreign investment.
The Investment Committee of the Ministry of Investments and Development is in charge of developing an attractive investment climate. The Minister of Investments and Development also serves as the Investment Ombudsman. In 2017, the government established the national company “KazakhInvest” to facilitate the activities of foreign investors in Kazakhstan.
The government maintains a dialogue with foreign investors through the Foreign Investors’ Council chaired by the president, as well as through the Council for Improving the Investment Climate chaired by the Prime Minister. Investment advisor positions in Kazakhstan’s overseas embassies also promote Kazakhstan as a destination for foreign investment.
Limits on Foreign Control and Right to Private Ownership and Establishment
By law, foreign and domestic private firms may establish and own business enterprises.
While no sectors of the economy are legally closed to investors, restrictions on foreign ownership exist, including a 20 percent ceiling on foreign ownership of media outlets, a 49 percent limit in domestic and international air transportation services, and a 49 percent limit in telecommunication services. The government indicated it will remove restrictions in the telecommunications sector upon Kazakhstan’s accession to the World Trade Organization (WTO), though this has not yet happened. No constraints limit the participation of foreign capital in the banking and insurance sectors, but foreign bank and insurance company branches are prohibited from operating in Kazakhstan until 2020, when this restriction will be lifted in compliance with the country’s WTO commitments. The government currently requires foreign banking and insurance companies to form subsidiaries incorporated in Kazakhstan and restricts foreign ownership of agricultural land.
Foreign investors have complained about the irregular application of laws and regulations, and interpret such behavior as efforts to extract bribes. Some investors report harassment by the tax authorities via unannounced audits, inspections, and other methods. The authorities have used criminal charges in civil disputes as a pressure tactic.
Many foreign companies say they must defend investments from frequent decrees and legislative changes, most of which do not “grandfather in” existing investments. Penalties are often assessed for periods prior to the change in policy. Foreign investors also complain about arbitrary tax inspections, problems finalizing contracts, and delays and irregular practices in licensing. Foreign companies report that local and national authorities arbitrarily impose high environmental fines, arguing the fines are assessed to generate revenue rather than for environmental protection. Government officials have acknowledged the system of environmental fines requires reform and parliament passed legislation in March 2016 reducing maximum penalties for environmental violations. The Ministry of Energy plans to submit a revised version of the Environmental Code, compliant with OECD standards, to parliament in 2019 and is meeting with businesses and other stakeholders on the new Code’s development.
Foreign Investment in the Energy & Mining Industries
Despite substantial investment in Kazakhstan’s energy sector, companies remain concerned about the risk of the government legislating or otherwise advocating for preferences for domestic companies, and creating mechanisms for government intervention in foreign companies’ operations, particularly in procurement decisions. (For more details, please see Section 5. Performance and Data Localization Requirements.)
In April 2008, Kazakhstan introduced customs duty on crude oil and gas condensate exports, revenue from which does not go to the National Fund, but rather to the government’s budget. Companies that pay taxes on mineral or crude oil exports are exempt from export duties. The government adopted a 2016 resolution that pegged the export customs duty to global oil prices.
The 2010 Subsoil Law gave the government a preemptive right to acquire all exploration and production contracts. The 2014 Amendments restrict this right to “strategic” deposits and areas, which helped to reduce significantly the approvals required for non-strategic objects. The December 2017 Subsoil and Subsoil Use Code, effective July 2018, provides criteria for strategic deposits and areas. The government approves the list of strategic deposits, published on the Ministry of Investments and Development’s website (http://dep-nedra.mid.gov.kz/ru/pages/postanovlenie-pravitelstva-respubliki-kazahstan-ot-4-oktyabrya-2011-goda-no-1137-ob ). The Code entitles the government to terminate a contract unilaterally “if actions of a subsoil user with a strategic deposit result in changes to Kazakhstan’s economic interests in a manner that threatens national security.” The Article does note define “economic interests.” The new Subsoil and Subsoil Use Code, if properly implemented, appears to be a step forward in improving the investment climate, including for its streamlining of procedures to obtain exploration licenses and to convert exploration licenses into production licenses. The Code, however, appears to retain burdensome government oversight over mining companies’ operations.
The Ministry of Energy announced in April 2018 Kazakhstan is ready to launch a CO2 emissions trading system. (A previous trading system launched in 2013 was later abandoned.) It is unclear, however, when actual quota trading will begin. In January 2018, the government adopted a National Allocation Plan for 2018-2020, and in February 2018 the Ministry of Energy announced the creation of an online CO2 emissions reporting and monitoring system. As of April 2018, the system is not operational. Some companies have expressed concern Kazakhstan’s trading system will suffer from insufficient liquidity, particularly as power consumption and oil and commodity production levels increase.
Other Investment Policy Reviews
Kazakhstan announced in 2011 its desire to join the Organization of Economic Cooperation and Development (OECD). To meet OECD requirements, the government will need to continue to reforms its institutions and amend its investment legislation. The OECD presented its second Investment Policy Review of Kazakhstan in June 2017 (http://www.oecd.org/countries/kazakhstan/oecd-investment-policy-reviews-kazakhstan-2017-9789264269606-en.htm ).
The OECD review recommended Kazakhstan undertake corporate governance reforms at state-owned enterprises (SOEs), implement a more efficient tax system, further liberalize its trade policy, and introduce responsible business conduct principles and standards. OECD also said it is carefully monitoring the country’s privatization program that aims to decrease the SOEs’ share in the economy to 15 percent of GDP by 2020.
The 2018 World Bank’s Doing Business Report ranked Kazakhstan 36 out of 190 countries in the category “Ease of Doing Business” and 41 out of 190 in the category of “Starting a Business.” The report noted Kazakhstan strengthened protections for minority investors and improved contract enforcement. The World Bank identified obtaining construction permits and trading across borders as areas for improvement.
Foreign investors have access to a “single window” service, which simplifies many business procedures. Investors may apply for these services here: http://invest.gov.kz/enguide/child/enterprise_registration .
According to the World Bank, it takes 9 procedures and 34 days to establish a foreign-owned limited liability company (LLC) in Almaty. This is slightly longer than the IAB (Investing Across Borders) average for Eastern Europe and Central Asia, but faster than the IAB global average. In addition to the procedures required for domestic firms, a foreign company establishing a subsidiary in Almaty must authenticate its parent company documents and register its charter capital contribution to the new company with the National Bank of Kazakhstan within 10 business days of registration.
The government supports women’s entrepreneurship by providing access to credit. State-owned fund DAMU, local banks, and international donor organizations have special programs supporting women in business.
The government neither incentivizes nor restricts outward investment.
2. Bilateral Investment Agreements and Taxation Treaties
The United States-Kazakhstan Bilateral Investment Treaty came into force in 1994, and the United States-Kazakhstan Treaty on the Avoidance of Double Taxation came into force in 1996.
Since independence, Kazakhstan has signed treaties on the avoidance of double taxation with 53 countries (http://kgd.gov.kz/ru/content/konvencii-ob-izbezhanii-dvoynogo-nalogooblozheniya-i-predotvrashchenii-ukloneniya-ot ) and bilateral investment protection agreements with 47 countries. (http://invest.mid.gov.kz/ru/pages/soglasheniya-o-pooshchrenii-i-vzaimnoy-zashchite-investiciy ).
Kazakhstan is also party to the Eurasian Economic Union mutual investment protection agreement, which came into force in 2016. Some foreign investors allege Kazakhstani tax authorities are reluctant to refer double taxation questions to the appropriate resolution bodies.
Eurasian Economic Integration and WTO
Kazakhstan joined the WTO in November 2015. Kazakhstan entered into a Customs Union with Russia and Belarus on July 1, 2010 and was a founding member of the Eurasian Economic Union (EAEU), created on May 29, 2014 between Kazakhstan, Belarus, Kyrgyz Republic, and Russia. The EAEU is governed by the Eurasian Economic Commission, a supra-national body headquartered in Moscow, and is expected to further integrate the economies of its member states, and provide for the free movement of services, capital and labor within their common territory.
Kazakhstan’s trade policy has been heavily influenced by EAEU regulations. While Kazakhstan asserts the EAEU agreements comply with WTO standards, since joining the Customs Union Kazakhstan doubled its average import tariff and introduced annual tariff-rate quotas (TRQs) on poultry, beef, and pork. Per its WTO commitments, Kazakhstan will lower 3,512 import tariff rates to an average of 6.1 percent by 2020, and since January 2016 has applied a lower-than-Customs Union tariff rate on food products, cars, airplanes, lumber, medicine, and jewelry.
Kazakhstan is a signatory to the Free Trade Agreement with CIS countries, and as a member of the EAEU, is party to the EAEU-Vietnam Free Trade Agreement.
3. Legal Regime
Transparency of the Regulatory System
Kazakhstan law sets out basic principles for fostering competition on a non-discriminatory basis.
Kazakhstan is a unitary state, and national legislation accepted by the Parliament and President are equally effective for all regions of the country. The government, ministries, and local executive administrations in the regions (“Akimats”) issue regulations and executive acts in compliance and pursuance of laws. Kazakhstan is a member of the EAEU and decrees of the Eurasian Economic Commission are mandatory and have preemptive force over national legislation. Publicly listed companies adhere to international financial reporting standards.
The government consults on some draft legislation with experts and the business community; however, the legal and regulatory process remains largely opaque. Draft bills are available for public comment, but the process occurs without broad notifications and some bills are excluded from public comment altogether. All laws and decrees of the President and the government are available in Kazakh and Russian on the website of the Ministry of Justice of the Republic of Kazakhstan: http://adilet.zan.kz/rus .
Implementation and interpretation of commercial legislation sometimes creates confusion among foreign and domestic businesses alike. In 2016, the Ministry of Health and Social Development introduced new rules on attracting foreign labor, some of which (including a Kazakh language requirement) created significant problems for foreign investors. After an active intervention by the international investment community through the Prime Minister’s Council for Improving the Investment Climate, the government canceled the most onerous rules.
The non-transparent application of laws remains a major obstacle to expanded trade and investment. Foreign investors complain of inconsistent standards and corruption. Although the central government has enacted many progressive laws, local authorities may interpret rules in arbitrary ways for the sake of their own interests.
In 2015, President Nazarbayev announced five presidential reforms and the implementation of the “100 Steps” Modernization program. The reforms include the creation of a modern, transparent, and accountable state, strengthening of the rule of law, and industrialization and economic growth. The program calls for the formation of a results-oriented public administration system, a new system of audit and performance evaluation for government agencies, and introduction of an open government system with better public access to information held by state bodies. Initial implementation of this plan has already helped to improve accountability. For example, in addition to the Audit Committee that monitors government agencies’ performance, ministers and regional governors now hold annual meetings with local communities.
The “100 Steps” plan emphasizes the importance of foreign investment for the country and has objectives to attract transnational corporations in the local processing industry, transport and road infrastructure, agriculture, energy saving, and tourism.
International Regulatory Considerations
Kazakhstan is the part of the Eurasian Economic Union and EAEU regulations and decisions supersede the national regulatory system. Kazakhstan became a member of the WTO in 2015. It regularly notifies the WTO Committee on Technical Barriers to Trade about drafts of national technical regulations. Kazakhstan ratified the WTO Trade Facilitation Agreement (TFA) in September 2015, notifying its Category A requirements in March 2016, and requesting a five-year transition period for its Category B and C requirements. In January 2018, the government established an intra-agency trade facilitation committee to implement its TFA commitments.
Legal System and Judicial Independence
Kazakhstan’s Civil Code establishes general commercial and contract law principles. Under the constitution, the judicial system is independent of the executive branch, although the government likely interferes in judiciary matters. According to Freedom House’s Nations in Transit report for 2016, public trust in the impartiality of the judicial system was low, and citizens held little expectation that justice would be dispensed professionally in court proceedings. The Department of State’s Report on Human Rights 2017 noted that business entities were reluctant to approach courts because foreign businesses have a historically poor record when challenging government regulations and contractual disputes within the local judicial system. Judicial outcomes were perceived as subject to political influence and interference due to a lack of independence.Regulations or enforcement actions are appealable and adjudicated in the national court system. Monetary judgments are assessed in the domestic currency.
Parties of commercial contracts, including foreign investors, can seek dispute settlement in Kazakhstan’s courts or international arbitration, and Kazakhstani courts will enforce arbitration clauses in contracts. Any court of original jurisdiction can consider disputes between private firms as well as bankruptcy cases.
The Astana International Financial Center, set to open in July 2018, includes its own arbitration center and court based on British common law and independent of the Kazakhstan judiciary. The court is led by former Lord Chief Justice of England and Wales Harry Woolf, and several other Commonwealth judges have been appointed.
Laws and Regulations on Foreign Direct Investment
The following legislation affects foreign investment in Kazakhstan: the 2015 Entrepreneurial Code; the Civil Code; the Tax Code (in force since January 2018); the Customs Code of the Eurasian Economic Union and the Customs Code of Kazakhstan (both in force since January 2018); the Law on Currency Regulation and Currency Control; and 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. Inconsistent implementation of these laws and regulations at all levels of the government, combined with a tendency for courts to favor the government, create significant obstacles to business in Kazakhstan.
The 2015 Entrepreneurial Code outlines basic principles of doing business in Kazakhstan and relations of entrepreneurs with the government. The Code reinstates a single investment regime for domestic and foreign investors, and thus, in principal, codifies non-discrimination for foreign investors. The Code contains incentives and preferences for government-determined priority sectors, providing customs duty exemptions and in-kind grants detailed in Part 5.2, Performance Requirements and Investment Incentives. This law also provides for dispute settlement through negotiation, use of Kazakhstan’s judicial process, and international arbitration. U.S. investors have expressed concern about the law’s narrow definition of investment disputes and its lack of clear provisions for access to international arbitration.
Competition and Anti-Trust Laws
The Entrepreneurial Code regulates competition-related issues such as cartel agreements and unfair competition. The Committee for Regulating Natural Monopolies and Protection of Competition and Consumers’ Rights under the Ministry of National Economy of the Republic of Kazakhstan is responsible for reviewing transactions for competition–related concerns.
Expropriation and Compensation
The bilateral investment treaty between the United States and Kazakhstan requires the government to provide compensation in the event of expropriation. The Entrepreneurial Code allows the state to nationalize or requisition property in emergency cases, but fails to provide clear criteria for expropriation or require prompt and adequate compensation at fair market value.
ICSID Convention and New York Convention
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 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 is enforceable in Kazakhstan.
Investor-State Dispute Settlement
The government is a signatory to bilateral investment agreements with 47 countries. The United States and Kazakhstan signed a bilateral investment treaty in 1994. Post does not have any information on if there have been claims by U.S. investors under the agreement.
Although the local courts do recognize arbitral awards by law, Post is not aware of any cases of enforcing arbitral awards against the government. The 2015 Entrepreneurial Code 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,” and states such disputes can be settled by negotiation, litigation or international arbitration. Investment disputes between the government and large investors fall to the Astana City Court and are appealable at a special investment panel at the Supreme Court of Kazakhstan.
A number of investment disputes involving foreign companies have arisen in the past several years linked to alleged violations of environmental regulations, tax laws, transfer pricing laws, and investment clauses. Some disputes relate to alleged illegal extensions of exploration schedules by subsurface users, as production sharing agreements with the government usually make costs incurred during this period fully reimbursable. Some disputes involve hundreds of millions of dollars. Problems arise in the enforcement of judgments, and ample opportunity exists for influencing judicial outcomes given the relative lack of judicial independence.
In an effort to encourage foreign investment, the government has developed dispute resolution mechanisms aimed at enabling aggrieved investors to seek redress without requiring them to litigate their claims. The government established an Investment Ombudsman in 2013, billed as being able to resolve foreign investors’ grievances by intervening in inter-governmental disagreements that affect investors. According to the Ministry of Investments and Development, since 2017 the Investment Ombudsman successfully addressed 50 investors’ requests.
Kazakhstani law provides for government compensation for violations of contracts guaranteed by the government. However, where the government has merely approved or confirmed a foreign contract, the government’s responsibility is limited to the performance of administrative acts (e.g., the issuance of a license or granting of a land plot) necessary to facilitate an investment activity. Disputes arising from such cases may require litigation or arbitration.
International Commercial Arbitration and Foreign Courts
The 2011 law on mediation offers ways of alternative (non-litigated) dispute resolutions for two private parties. The 2016 law on arbitration defines rules and principles of domestic arbitration. As of April 2018, Kazakhstan had 17 local arbitration bodies unified under the Arbitration Chamber of Kazakhstan (https://palata.org/about/ ). The government noted that the 2016 law brought the national arbitration legislation into compliance with UNCITRAL model law, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and the European Convention on the International Commercial Arbitration.
Judgements of foreign arbitrations are recognized and enforceable under local courts. Local courts recognize and enforce court rulings of CIS countries. Judgement of other foreign state courts are recognized and enforceable by local courts, when Kazakhstan has bilateral agreement on mutual judicial assistance with respective foreign country or applies a principle of reciprocity.
When SOEs are involved in investment disputes, domestic courts usually find in the SOE’s favor. By law, investment disputes with private commercial entities, employees, or SOEs are in the jurisdiction of local courts. According to EBRD’s 2014 Judicial Decision Assessment, judges in local courts lacked experience with commercial law and tended to apply general principles of laws and civil code provisions with which they are more familiar, rather than relevant provisions of commercial legislation.
Even when investment disputes are resolved in accordance with contractual conditions, the resolution process can be slow and require considerable time and resources. Many investors therefore elect to handle investment disputes privately, in an extrajudicial way.
A 2017 investment dispute began when the Kazakhstani government declined to extend a U.S. company’s 20-year concession to operate two hydropower plants, returning the assets to the government’s control while allegedly failing to compensate the company for its substantial investments. The case is now in international arbitration.
Kazakhstan has a bankruptcy law from 2014. The law protects the rights of creditors during insolvency proceedings, including access information about the debtor, the right to vote against reorganization plans and the right to challenge bankruptcy commissions’ decisions affecting their rights. The bankruptcy is not criminalized, unless the court determines the bankruptcy premeditated.
The 2014 bankruptcy law improved the insolvency process by permitting accelerated business reorganization proceedings, extending the period for rehabilitation or reorganization, and expanding the powers of (and making more stringent the qualification requirements to become) insolvency administrators. The law also eased bureaucratic requirements for bankruptcy filings, gaves creditors a greater say in continuing operations, introduced a time limit for adopting rehabilitation or reorganization plans, and added court supervision requirements.
There are public and private credit bureaus. The National Bank subsidiary, the State Credit Bureau (www.mkb.kz ), and the privately-owned First Credit Bureau (https://www.1cb.kz/main/ ) provide credit dossiers upon requests.
4. Industrial Policies
The government’s primary industrial development strategies, such as the Concept for Industrial and Innovative Development 2015-2019 and the National Program to Attract Investments, aim to diversify the economy from its overdependence on extractive industries. Priority sectors include agriculture, metallurgy, chemical and pharmaceutical industry, manufacturing of agricultural machinery, construction materials, food production, oil refining, manufacturing of oil and gas machinery, transport, electric equipment, and mining. Priority sector industries receive tax and customs duty waivers, in-kind grants, investment subsidies, and simplified procedures for acquiring visas and work permits. The government’s preference system applies to new and existing enterprises. The duration and scope of preferences depends on the priority sector and the size of investment. All information on priority sectors and preferences is available at http://invest.gov.kz/ru/guide/child/investment_preferences .
The 2015 Entrepreneurial Code and 2018 Tax Code also provide tax preferences, customs duty exemptions, investment subsidies and in-kind grants as incentives for foreign and domestic investment in priority sectors. However, the Investment Committee at the Ministry of Investments and Development makes decisions on each incentive on a case-by-case basis. The law also allows the government to rescind incentives, collect back payments, and revoke an investor’s operating license if an investor fails to fulfill contractual obligations. In 2015, the Committee simplified application procedures by creating a “single window” for investors throughout the country, including at its headquarters in Astana and at district service centers in every region of Kazakhstan.
In order to facilitate the work of foreign investors, especially in targeted non-extractive industries, the government has approved visa-free travel for citizens of 52 countries, including the United States, Germany, Japan, United Arab Emirates, France, Italy, and Spain. Residents of these countries may stay in Kazakhstan without visas for 30 days.
Foreign Trade Zones/Free Ports/Trade Facilitation
The 2011 Law on Special Economic Zones allows foreign companies to establish enterprises in special economic zones (SEZs), simplifies permit procedures for foreign labor, and establishes a special customs zone regime not governed by Eurasian Economic Union rules. A system of tax preferences exists for foreign and domestic enterprises engaged in prescribed economic activities in Kazakhstan’s eleven SEZs.
Performance and Data Localization Requirements
The government requires local employment and content, though the country‘s WTO accession commitments provide for abolition of most local content requirements over time. In 2015, Kazakhstan adopted legislative amendments to alter existing local content requirements to meet accession requirements. Pursuant to these amendments, subsoil use contracts concluded after January 1, 2015 no longer contain local content requirements, and any local content requirements in contracts signed before 2015 will phase out on January 1, 2021.
Kazakhstan’s WTO accession terms require that Kazakhstan relax limits on foreign nationals by increasing the “quota” for foreign nationals to 50 percent (from 30 percent for company executives and from 10 percent for engineering and technical personnel) by January 1, 2021.
Despite these commitments, the government, particularly at the regional level, continues to advocate for international businesses to increase their use of local content. The USD 36.8 billion investment into the Tengiz oilfield by Tengizchevroil includes an agreement that 32 percent of total investment will flow toward local content. The Ministry of Energy announced in March 2017 that foreign companies providing services for the oil and gas sector will need to create joint ventures with local companies to continue to receive contracts at the country’s largest oilfields. Some companies report these forced joint ventures or consortia lead to the creation of domestic monopolies, rather than stimulate a healthy domestic market of oil service providers. As another example, the Ministry of Energy and the Karachaganak Petroleum Operating Consortium reportedly agreed that a Kazakhstani design research company would carry out at least 50 percent of the design-work at the Karachaganak expansion project.
The government regulates foreign labor at the macro and micro levels. Foreign workers must obtain work permits, which have historically been difficult and expensive to obtain. While bringing both positive and negative changes, 2016 amendments to the Expatriate Workforce Quota and Work Permit Rules, which came into effect in January 2017, caused some confusion among international investors. Positive changes included eliminating special conditions for obtaining a work permit for foreign labor (e.g. requirements to train local personnel or create additional vacancies). The amendments also: (1) eliminated the requirement that companies conduct a search for candidates on the internal market prior to applying for a work permit; (2) reduced the timeframe for the issuing authority to make a decision to issue or deny a work permit from 15 to seven days. The amendments, however, contained several negative aspects, including limiting the validity of a work permit to one region of Kazakhstan.
In March 2018, the Ministry of Labor and Social Protection implemented other changes to the Expatriate Workforce Quota and Work Permit Rules, specifying three types of work permits for expats: (1) one-year work permits without the possibility of extension for temporary jobs and for category four workers (certain skilled workers); (2) one-year work permits with the possibility of a three-year extension for category two (engineering and technical personnel) and three (specialists) workers; and (3) work permits for up to three years with the possibility of a three-year extension for category one workers (highly qualified expats).
Additionally, the 2015 amendments to the migration and employment law, effective January 1, 2017, liberalized foreign workers’ access to the local labor market by waiving quotas and work permit requirements for expatriates coming to Kazakhstan on their own looking for work.
Electronic work permit applications can be processed at e-service centers, which are being used for an increasing number of licensing and payment transactions with the government. Under the new system, employers will pay the local government for expatriate work permits directly, creating a monetary incentive not to impose bureaucratic obstacles on the issuance process, which previously was one of the main barriers to employing foreign workers. In order to encourage the employment of highly skilled foreign workers, fees for work permits will vary depending on both the sector of economic activity and on worker qualifications. For example, highly skilled workers in critically-designated sectors pay lower fees.
The Ministry of Energy, Ministry of Investments and Development, and sovereign welfare fund Samruk Kazyna monitor local content compliance, and there are various enforcement tools for companies that do not meet performance requirements. Authorities may begin more frequent tax or sanitary inspections, suspend or revoke licenses, terminate contracts, or file lawsuits.
5. Protection of Property Rights
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 commercial activity.
Secured interests in property (fixed and non-fixed) are recognized under the Civil Code and the 2003 Land Code. All property and lease rights for real estate must be registered with the Ministry of Justice through its local service centers. In 2014, Kazakhstan introduced new procedures aimed at expediting property transfer and registration. According to the World Bank’s Doing Business Report, Kazakhstan ranks 17 out of 190 countries in ease of registering property.
Kazakhstan’s constitution provides land and other natural resources may be owned or leased by Kazakhstani citizens. The 2003 Land Code allows citizens and Kazakhstani companies to own agricultural and urban land, including commercial and non-commercial buildings, complexes, and dwellings. Amendments to the Land Code in 2011 permit foreigners to own land to build industrial and non-industrial facilities, including dwellings, with the exception of land located in border zones. In 2015, the government proposed Land Code amendments that would allow foreigners to rent agricultural lands for up to 25 years. Mass protests in the spring of 2016 led the government to introduce a moratorium on these provisions until December 31, 2021. The moratorium is also effective on other related articles of the Land Code that regulate private ownership rights on agricultural lands.
The 2018 Land Code Amendments authorized the government to monitor proper use of leased agricultural lands, the results of which can affect the status of land-lease contracts.
The Land Code does not allow private ownership of: land used for national defense and national security purposes; specially protected nature reserves; forests, reservoirs (lakes, rivers, canals, etc.), glaciers, and swamps; designated public areas within urban or rural settlements, except land plots, occupied by private building and premises; main railways and public roads; land reserved for future national parks; subsoil use and power facilities; and social infrastructure.
Intellectual Property Rights
The legal structure for IPR protection is relatively strong, however, enforcement needs further improvement. Kazakhstan was last listed in the Special 301 Report in 2006. To facilitate its WTO accession and attract foreign investment, Kazakhstan continues to improve its legal regime for protecting intellectual property rights (IPR). The Civil Code and various laws, in principle, protect U.S. intellectual property. Kazakhstan has ratified 18 of 24 treaties endorsed by the World Intellectual Property Organization (WIPO). (http://www.wipo.int/members/en/details.jsp?country_id=97 ).
In 2015, Kazakhstan signed an Enhanced Partnership and Cooperation Agreement with the European Union, which includes a special section on IPR protection.
In 2015, Kazakhstan enacted two new IP laws enhancing the role and transparency of organizations for collective management of copyright royalty payments, and extending the original medicine patent protection period to six years, during which no new drug can be registered with reference to the test data and confidential information submitted under the original drug owner’s patent.
The government has strengthened provisions against illegal generic pharmaceuticals in recent years, creating new administrative and criminal penalties for distributing illegal generics. The Criminal Code sets out criminal punishment for violations of copyright and related rights and for violations of rights for inventions, useful models, industrial patterns, selective achievements and integrated circuits topographies. The law authorizes the government to target internet piracy and shut down websites unlawfully sharing copyrighted material, provided rights holders register copyrighted material with Kazakhstan’s IPR Committee. Despite these efforts, U.S. companies and associated business groups have alleged that 73 percent of software used in Kazakhstan is pirated, including in government ministries, and have criticized the government’s enforcement efforts.
To comply with OECD IPR standards, draft legislation was introduced in 2016 to provide for a more convenient, one-tier system of IPR registration and provide right holders the opportunity for pre-trial dispute settlement through the Appeals Council at the Ministry of Justice. The legislation remains in Parliament.
Kazakhstan’s authorities annually conduct a nationwide campaign called “Counterfeit,” aimed at increasing public awareness about IP issues. The Ministry of Justice and law enforcement agencies regularly report the results of their inspections. According to them, in 2017 authorities seized 38,600 copies of counterfeited goods, including 38,200 CDs and DVDs, and 223 disks with pirated software.
Although Kazakhstan continues to make progress to comply with WTO requirements and OECD standards, foreign companies complain of inadequate IPR protection. For example, a U.S. beverage company successfully sued a Kazakhstani company for violating its trademark, but a local court blocked the enforcement after company merely changed its legal name.
For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en .
6. Financial Sector
Capital Markets and Portfolio Investment
Kazakhstan has created a sound financial system and stable macroeconomic framework. Official policy supports credit allocation on market terms and the further development of legal, regulatory, and accounting systems that are consistent with international norms. However, capital markets remain underdeveloped and illiquid, with small equity and debt markets dominated by state-owned companies and lacking in retail investors. Most domestic borrowers obtain credit from Kazakhstani banks, although foreign investors often find margins and collateral requirements onerous, and it is usually cheaper and easier for foreign investors to use retained earnings or borrow from their home country. The National Bank of Kazakhstan (NBK) is Kazakhstan’s main financial regulator, overseeing banks, insurance, pension system, stock market, microcredit organizations, debt collection agencies and credit bureaus.
The government actively seeks to attract foreign direct investment, including portfolio investment. Foreign clients may only trade via local brokerage companies or after being registered as members of the Kazakhstan’s Stock Exchange (KASE). KASE, which has operated since 1993, is an insignificant source of investment capital. As the stock exchange is not fully developed, it has not greatly impacted financial markets or the overall economic situation.
The number of listed companies dropped from 354 in 2010 to 154 in 2018. The government’s 2013 decision to consolidate all pension savings into a single state-owned pension fund practically froze the stock market, as private pension funds, which until that time were Kazakhstan’s main institutional investors, ceased to operate. Since 2013, the stock exchange has been gradually recovering thanks to a stable currency and improving macroeconomic conditions. In 2017, KASE obtained frontier market status from FTSE Russel, MSCI, and S&P Dow Jones Indices, and the number of issuers reached an historic high of 110. Traditionally, the foreign exchange market had dominated KASE, and the foreign exchange market is dominated by National Bank transactions. In 2017, around 49 percent of KASE trades were in foreign exchange, repo transactions comprised a further 49 percent, and government and corporate securities trading accounted for roughly 2.0 percent of KASE volume. By March 2018, the stock market capitalization was USD 57.8 billion, and corporate bond market volume was USD 26.25 billion.
The Single Pension Fund is the main source of local currency liquidity in the country and has accumulated USD 24.9 billion as of April 1, 2018. Its largest investment positions are in Kazakhstani government securities (44.0 percent) and foreign sovereign papers (13.78 percent), corporate bonds of Kazakhstan-based banks (15.51 percent) and bonds of Kazakhstan parastatal companies (10.03 percent). The Single Pension Fund is managed by the National Bank of Kazakhstan.
In July 2018, the government will open the Astana International Financial Center (AIFC), a regional financial hub modeled on Dubai with a focus on fintech, Islamic finance, and green finance. The AIFC will have its own stock exchange, regulator, and court (see Section 4). The AIFC has partnered with NASDAQ and the Shanghai Stock Exchange.
Kazakhstan is bound by Article 8 of the International Monetary Fund’s Articles of Agreement, adopted in 1996, which forbids the government to restrict currency conversions or the repatriation of investment profits. No distinction is made between residents and non-residents in opening bank accounts, but all account holders must have a Kazakhstani tax identification number. Money transfers associated with foreign investments, whether inside or outside of the country, are unrestricted. However, in 2015 NBK introduced a requirement for residents and non-residents to present a currency contract if the transfer exceeds USD 10,000.
Unlike to branch offices, a subsidiary of foreign-owned company registered in Kazakhstan is considered a domestic company for currency regulation purposes.
Money and Banking System
Kazakhstan has 32 commercial banks. As of March 1, 2018, the five largest banks (Halyk Bank, KazKommertsBank, Tsesna Bank, Sberbank-Kazakhstan and Forte Bank) held assets worth approximately USD 40.75 billion, or about 55.4 percent of the banking sector’s total assets. Although Kazakhstan’s banking system remains stable, it continues to be plagued by non-performing loans – legacies of the 2008 financial crisis and the 2015 tenge devaluation – and problems with self-dealing. While the share of non-performing loans is declining, dropping from 31.2 percent in January 2014 to 10 percent in February 2018, analysts believe the figure has always been much higher than reported. In 2016, the NBK introduced a policy of de-dollarization to help curb inflation. As result, the share of retail dollar-denominated deposits dropped from 80.3 percent in February 2016 to 45.7 percent in February 2018. In 2017, loan portfolio growth slowed due to decelerated economic growth. The government continues to support the banking sector through capital injections from the National Oil Fund and the Single Pension Fund. In 2017, the NBK launched a bailout facility, but stopped the program in February 2018, limiting it to five mid-sized banks.
The NBK continues its policy on consolidation of the banking sector. In 2017, the government facilitated the merger of Qazkom (formerly Kazkommertsbank) with Halyk Bank by taking around USD 7 billion in bad debts off Qazkom’s books. The merger made Halyk Kazakhstan’s largest bank with 35 percent of the country’s banking assets.
The government’s implementation of Basel III standards were postponed until 2021, though the NBK confirmed its commitment to move gradually toward this goal.
Foreign banks are allowed to establish operations in the country only through opening subsidiaries. This restriction will be removed by 2020 as a part of Kazakhstan’s WTO commitments.
The NBK hails the use of block chain technology. In March 2018, the NBK launched its own “Invest Online” application, which is based on block chain technology. Users of this application may buy and sell NBK notes, which offer higher interest rates than tenge-denominated retail deposits. The NBK does not support cryptocurrency. In March 2018, Governor of the NBK stated that the regulator does not recognize cryptocurrency as a means of payment and a unit of value. The NBK is currently developing measures restricting exchange of tenge or tenge-denominated financial instruments for cryptocurrency and prohibiting any transactions in cryptocurrency.
Foreign Exchange and Remittances
There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment (e.g. remittances of investment capital, earnings, loan or lease payments, royalties). Funds associated with any form of investment may be freely converted into any world currency, though local markets may be limited to major world currencies.
A new bill on currency regulation, introduced in parliament in December 2017, will not change the existing liberal regime of currency regulation, but would require branch offices of foreign companies to be treated as residents. Currently, foreign company branches are treated as non-residents, and can conduct transactions with both residents and non-residents, in foreign currency or the tenge. New currency legislation would remove this privilege and oblige all foreign branches, though with a few exceptions, to conduct all transactions in the tenge. The NBK maintains the draft law would help achieve its de-dollarization objectives, but foreign investors report the law would create onerous new requirements for them. Once the bill is approved, the provision on residency of foreign branch offices is scheduled to be enacted in December 2020.
Following the drop in oil prices and the ruble’s devaluation in 2015, Kazakhstan abandoned its currency peg in favor of a free floating exchange rate and inflation targeting monetary regime in August 2015. The switch precipitated a large depreciation, and the National Bank admits to intervening in foreign exchange markets to combat excess volatility. Kazakhstan has managed to maintain its international reserves at a sufficient level; as of March 2018, international reserves totaled USD 90.4 billion, including foreign currency and gold reserves at the National Bank and National Fund Assets. The REPO rate is the NBK’s main monetary policy mechanism, which is set every two months. Rates are published on the NBK’s website, http://www.nationalbank.kz .
Post is not aware of any concerns about remittance policies or the availability of foreign exchange conversion for the remittance of profits. According to National Bank rules, foreign investors can receive investment returns after their subsidiary or partners in Kazakhstan present a contract to the bank. There are no time limitations on remittances and the wait period to remit investment returns depends on the internal procedures of the servicing bank.
Sovereign Wealth Funds
Kazakhstan’s sovereign wealth fund is called the National Oil Fund, and was established by Presidential decree in 2000. The fund exists to reduce the country’s budgetary dependence on fluctuating world oil prices and to accumulate savings to benefit future generations. The Fund receives all direct taxes and a percentage of revenues from the oil sector, revenues from the privatization of state property and assets of quasi-sovereign companies, proceeds from sale of state farm lands, and the Fund’s investment income. The Ministry of Finance owns the National Fund, while the NBK acts as 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. As of December 2017, the National Fund’s assets totaled USD 58.3 billion, or approximately 36.9 percent of GDP.
In addition to preserving Kazakhstan’s wealth for future generations, the Fund is also used to support the government’s political and economic objectives. The Fund extended a USD 4 billion loan in 2012 to Kazakhstan’s state-owned oil company KazMunayGas (KMG) to support its participation in the Kashagan oil field. The Fund also provides state budget support through annual official transfers. Under a December 2016 National Fund policy, transfers to the national budget should be gradually reduced from USD 8 billion in 2018 to USD 6.2 billion beginning in 2020. The President may also direct National Fund assets through “special purpose transfers.” In 2014-2016, President Nazarbayev directed more than USD 20 billion in official and special purpose transfers for the “Nurly Zhol” fiscal stimulus program, focused on economic diversification, infrastructure development, and small businesses. In 2017 the President approved USD 3.4 billion as a special purpose transfer for the recovery of the banking sector. The National Fund is required to retain a minimum balance of no less than 30 percent of GDP. Although domestic investments into the National Fund facilitate an increase of the state share in the economy, it does not have direct negative ramifications for U.S. investors.
Kazakhstan is not a member of the IMF-hosted International Working Group of Sovereign Wealth Funds.
7. State-Owned Enterprises
Officially, private enterprises compete with public enterprises under the same terms and conditions. In reality, SOEs generally enjoy better access to natural resources, credit, and licenses than private entities.
The law on state property defines various types of SOEs in Kazakhstan, including public institutions, state enterprises with the right to conduct economic activity, national companies, national holding companies, and national managing holding companies. Public institutions or state enterprises with the right to conduct economic activity are usually subsidiaries of government agencies, which render services to the public, such as hospitals, social rehabilitation centers, and research institutes. National companies or national holding companies are government-created joint stock companies that operate in “fundamental industries” or facilitate regional economic development, and in which the state holds a controlling interest. A 2015 OECD report estimated that there are over 7,000 public and state-owned companies in Kazakhstan. According to the Ministry of Finance, as of January 1, 2018, the government owns 3,617 entities, including all large national holding companies, national companies such as KazakhInvest, state universities, resorts, theaters, government subsidiaries, and natural reserves. The law requires all SOEs to publish annual reports and submit their books for independent audit. The lists of SOEs is available at: http://www.minfin.gov.kz/irj/portal/anonymous?NavigationTarget=ROLES://portal_content/mf/kz.ecc.roles/kz.ecc.anonymous/kz.ecc.anonymous/
National Welfare Fund Samruk-Kazyna (SK) is Kazakhstan’s largest national holding company, and manages SOEs in the oil and gas, energy, mining, transportation, and communication sectors. SK has 404 subsidiaries and employs 327,000 people. By some estimates, SK controls around half of Kazakhstan’s economy, and is the nation’s largest buyer of goods and services. In 2016, SK reported USD 67.4 billion in assets and USD 1.33 billion of consolidated profit. Created in 2008, SK’s official purpose is to facilitate economic diversification and to increase effective corporate governance; however, it spent its first two years spearheading the government’s efforts to respond to the global financial crisis. The Prime Minister chairs SK’s board of directors, and several other ministers and the Head of the Presidential Administration also serve on the board, alongside three independent directors. President Nazarbayev endowed SK with special rights, such as the ability to conclude large transactions between members of its holdings without public notification. SK enjoys a pre-emptive right to buy strategic facilities and bankrupt assets, and is exempt from government procurement procedures. Critically, the government can transfer state-owned property to SK, easing the transfer of state property to private owners. More information is available at http://sk.kz/ .
Domestic and foreign companies can sell products and services to SK, although in the past local content requirements made this difficult. SK dropped local content requirements from its procurement rules in January 2016 as part of the government’s efforts to comply with the WTO Agreement on Government Procurement, which Kazakhstan intends to join.
In addition to SK, the government created the national managing holding company Baiterek in 2013 to provide financial and investment support to non-extractive industries, drive economic diversification, and improve corporate governance in government subsidiaries. Baiterek is comprised of the Development Bank of Kazakhstan, the Investment Fund of Kazakhstan, the Housing and Construction Savings Bank, the National Mortgage Company, the National Agency for Technological Development, Distressed Asset Fund, and other financial and development institutions. Like SK, the Prime Minister is Chairman of the Board, assisted by several cabinet ministers and independent directors. In 2016, Baiterek had USD 12 billion in assets and earned USD 142 million in net profit. Its loan investment portfolios totaled USD 7 billion and USD 1.5 billion respectively. Please see https://www.baiterek.gov.kz/ru/ .
Other notable SOEs include KazAgro, which manages state agricultural holdings such as the state wheat purchasing agent National Food Contract Corporation, farm equipment subsidy provider KazAgroFinance, the Agrarian Credit Corporation, and an agricultural insurance company (http://www.kazagro.kz/ ). The national holding company Zerde is charged with creating modern information and communication technologies and to stimulate investments in the communication sector (http://zerde.gov.kz/ ).
International investment ratings of national companies are usually tied to the country’s sovereign rating. National holding companies and national companies pursue investment policies consistent with the government’s official industrial policy. The government considers national companies tools for accomplishing its economic goals, and supports them accordingly. Government officials, including cabinet members and the Prime Minister, serve on SOEs’ boards of directors. The government exercises its ownership rights for SOEs through the Committee of State Property and Privatization of the Ministry of Finance of the Republic of Kazakhstan.
In pursuit of its long-term strategy to join the world’s top 30 economies, Kazakhstan aims to decrease the SOEs’ share in the economy to 15 percent by 2020, in line with OECD averages. The government enacted a 2015 law applying Yellow Pages Rules to limit state participation in the economy. The government is also conducting a large-scale privatization campaign. However, the current preferential status of parastatal companies remains unchanged; for example, parastatals enjoy greater access to subsidies and government support.
OECD Guidelines on Corporate Governance of SOEs.
In its Investment Review from 2017, OECD recommended Kazakhstani authorities identify new ways to ensure that all corporate governance standards applicable to private companies apply to SOEs. The OECD called Samruk-Kazyna an example of promising developments as it adopted a new Corporate Governance Code in 2015. The Code, which is applied to all SK subsidiaries, specified the role of the government as ultimate shareholder, underlined the role of the Board of directors and risk management, and called for transparency and accountability.
By law and in practice, foreign investors can participate in privatization projects. The government and parastatal National Welfare Fund “Samruk-Kazyna” (SK) approved a comprehensive plan of privatization for 2016-2020. As of March 2018, SK managed to sell full or partial stakes in 140 legal entities out of 214 subsidiaries of large national companies operating in the energy, mining, transportation, and service sectors. SK plans also to offer institutional investors non-controlling shares in the seven largest national companies via Initial Public Offerings (IPOs): state oil company KazMunaiGas, uranium mining company KazAtomProm, Air Astana, national telecom operator KazakhTelecom, railway operator Kazakhstan Temir Zholy, KazPost, and Samruk –Energy. IPOs for KazakhTelecom, Kazatomprom, and Air Astana are planned for 2018. Information on privatization of SK assets is available here: https://www.sk.kz/investors/privatization/index_en.php?sphrase_id=33443 .
The government also sells small state-owned and municipal enterprises through electronic auctions. For more information, please see http://privatization.gosreestr.kz/en .
8. Responsible Business Conduct
Entrepreneurs, the government, and non-government organizations are aware of the expectations of responsible business conduct (RBC). Kazakhstan continues to make steady progress toward meeting the OECD Guidelines for International Investment and Multinational Enterprises, and the government promotes the concept of RBC. The OECD National Point of Contact is the Investment Committee under the Ministry of Investment and Development, see: http://invest.mid.gov.kz/en/pages/national-contact-center-republic-kazakhstan .
A legal framework for RBC was introduced in 2015. The Entrepreneurial Code has a special section on social responsibility, which is defined as a voluntary contribution for the development of social, environmental, and other spheres. The Code says that the state creates conditions for RBC but specifies that it cannot force entrepreneurs to perform socially responsible actions. The Code considers donations to charity one of the key forms of social responsibility and envisions a tax deduction for the charitable giving, though no such rule exists.
In April 2015, the National Tripartite Commission on Social Partnership and Regulation of Social and Labor Relations adopted the National Concept on Social Corporate Responsibility, developed by the National Chamber of Entrepreneurs “Atameken” and the corporate fund Eurasia-Central Asia. The non-binding document covers human rights, environmental protection, consumer interests, RBC, corporate governance, and community development.
President Nazarbayev has repeatedly asked foreign investors and local businesses to implement corporate social responsibility (CSR) projects, to provide occupational safety, pay salaries on time, and invest in human capital. President Nazarbayev presents annual awards for achievements in CSR. Foreign investors report local government officials regularly pressure them to provide social investments to achieve local political objectives. Local officials attempt to exert as much control as possible over the selection and allocation of funding for the projects.
The government has signed on to the Extractive Industries Transparency Initiative (EITI). Kazakhstan produces EITI reports disclosing revenues from the extraction of its natural resources. Companies disclose what they have paid in taxes and other payments and the government discloses revenue received; these two sets of figures are then compared and reconciled. In February 2018, the EITI Board determined Kazakhstan made meaningful progress in implementing EITI standards by providing additional information on local content, social investment, and transportation of oil, gas, and minerals. The board gave Kazakhstan until August 2019 to implement certain corrective actions before EITI will carry out a second validation.
U.S. firms have cited corruption as a significant obstacle to investment. Foreign investors are occasionally pressured by law enforcement agencies, a practice made possible by the fact that many errors or omissions financial reporting that would constitute routine civil violations in OECD countries may be treated as criminal cases in Kazakhstan. The government and local business entities are aware of the legal restrictions placed on business abroad, such as the Foreign Corrupt Practices Act and the UK Bribery Act.
Corruption is a common problem, despite measures to mitigate it. On December 26, 2014, President Nazarbayev signed into law the 2015-2025 anti-corruption strategy, focused on measures to prevent the conditions that foster corruption rather than fighting the consequences of corruption. A new Criminal Code came into force on January 1, 2015, toughening criminal liability and punishment for corruption. Under the new code, probation is no longer allowed for corruption crimes and a new penalty of a life ban on employment in the civil service was introduced, with mandatory forfeiture of title, rank, grade, and state awards.
The statute of limitations does not apply to persons charged with corruption. In 2015, President Nazarbayev signed a law entitled “On Countering Corruption,” as part of his Five Institutional Reforms program, introducing broader definitions of corruption, corruption policy, and risks, anticorruption monitoring and analysis, and stronger financial accountability measures. The Agency for Civil Service Affairs and Countering Corruption presents its report on countering corruption annually. Kazakhstan ratified the UN Convention against Corruption in 2008. It has been a participant of the Istanbul Anti-Corruption Action Plan of the OECD Anti-Corruption Network since 2004, the International Association of Anti-Corruption Agencies since 2009, and the International Counter-Corruption Council of CIS member-states since 2013.
Resources to Report Corruption
Under the 2015 counter-corruption law, all government, quasi-government entities, and officials are responsible for countering corruption. Along with the anti-corruption agency, prosecutors, national security agencies, police, tax inspectors, military police, and border guard service members are responsible for the detection, termination, disclosure, investigation, and prevention of corruption crimes and for holding the perpetrators liable within their competence.
Transparency International (TI) maintains a national chapter in Kazakhstan.
Contact at the government agency responsible for combating corruption:
Agency for Civil Service Affairs and Countering Corruption
37 Seyfullin Street, Astana
+7 (7172) 75-34-19
Contact at a “watchdog” organization:
Civic Foundation “Transparency Kazakhstan”
43 “A” Mynbayev Str.
+7 (7273) 79 84 50
Kazakhstan’s rating in TI’s 2017 Corruption Perceptions Index is 31/100, ranking Kazakhstan 122 out of 180 countries rated – a relatively weak score but the best in Central Asia. According to the report, corruption remains a serious challenge for Kazakhstan, amplified by the instability of the economy. In its September 2017 report on the fourth round of monitoring under the Istanbul Action Plan, OECD stated Kazakhstan had not implemented any of the 19 previous recommendations in full and was partially compliant with 15 recommendations. Based on the results of its monitoring, the OECD issued 22 new recommendations, including recommendations to engage civil society in combat against corruption, to ensure independence of the anti-corruption agency, and to adopt a comprehensive legal framework to protect whistle-blowers.
10. Political and Security Environment
There have been no reported incidents of politically motivated violence against foreign investment projects, and politically motivated civil disturbances are infrequent. In June 2016, individuals described by the government as Salafist militants attacked a gun shop and a military unit, killing 8 and injuring 37 people in the Aktobe region of northwestern Kazakhstan. Kazakhstan generally enjoys good relations with its neighbors. Although the governments of Central Asia are actively discussing and seeking greater regional cooperation, including on border issues, Kazakhstan remains concerned that its borders could be vulnerable to penetration by extremist groups.
Kazakhstan held presidential elections in April 2015, with President Nursultan Nazarbayev, in office since 1991, winning 97.75 percent of the vote. President Nazarbayev’s Nur Otan party received 82 percent of the vote in the March 2016 election for the Mazhilis (lower house of parliament), while the business friendly Ak Zhol party and the Communist People’s party each received 7 percent. All three parties support Nazarbayev and his policies. Following the 2016 election for the lower house of parliament, the Organization for Security and Cooperation in Europe (OSCE) reported “Kazakhstan still has a considerable way to go in meeting its OSCE commitments for democratic elections.” (https://www.osce.org/odihr/248786 ).
Investors are concerned about the potentially negative economic effects of a contested presidential succession. President Nazarbayev has not announced whether he will seek reelection in 2020.
11. Labor Policies and Practices
Kazakhstan has an educated workforce, although the proportion of highly technically competent workers is fairly small. Demand for skilled labor generally exceeds local supply. 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. The government is particularly keen to see Kazakhstanis hired into the managerial and executive ranks of foreign enterprises. In November 2015, the government amended the legislation on migration and employment that resulted in new rules for foreign labor starting January 2017 (please see details in Section 5. Performance and Data Localization Requirements). U.S. companies are advised to contact Kazakhstan-based law and accounting firms and the U.S. Commercial Service in Almaty for current information on work permits.
Kazakhstan joined the International Labor Organization (ILO) in 1993, and has ratified key ILO conventions pertaining to minimum employment age, prohibition on the use of forced labor and the worst forms of child labor, and prohibition on discrimination in employment, equal pay, and collective bargaining. In September 2017, the ILO expressed concern over Kazakhstan’s compliance with the Freedom of Association and Protection of the Right to Organize Convention and the Right to Organize and Collective Bargaining Convention by calling on the government to amend the relevant legislation in order to (1) not limit the right of workers to form and join trade unions of their own choosing, (2) allow labor unions to benefit form joint projects with international organizations, and (3) allow financial assistance to labor unions from international organizations. The constitution and national labor law guarantee basic workers’ rights, including the occupational safety and health, the right to organize, and the right to strike. In November 2015, the President signed a new Labor Code that came into force on January 1, 2016. In contrast to the previous law, the new Labor Code leaves many labor-related issues at the discretion of employers and gives employers more rights, especially in relation to dismissals and layoffs. The Labor Code imposes tighter collective bargaining requirements and restrictions on employees involved in labor disputes.
Article 46 of the Labor Code gives the right to an employer to change work conditions due to fluctuating market conditions with a proper and timely notification of an employee. Article 52 of the Labor Code envisages the right of the employer to cancel an employment contract in case of a decline in production that led to the deterioration of economic and financial conditions of the company. Article 131 of the Labor Code envisages severance of payment of average monthly wages for two months in case of layoffs for economic reasons. The Ministry of Labor and Social Protection is responsible for offering alternative job openings within state programs of the so-called Employment Road Map, alternative professional training, or temporary jobs to workers laid off for economic reasons.
Chapter 15 of the Labor Code describes a mechanism for resolution of individual labor disputes via direct negotiations with an employer, mediation commission, and court. Chapter 16 of the Labor Code identifies a mechanism for resolution of collective labor disputes via direct negotiations with an employer, mediation commission, labor arbitration, and court.
Two strikes in two weeks hit Karaganda region in late November-early December 2017. Around 300 workers mining copper for Kazakhmys LLP held an hours-long strike that ended with the management agreeing to increase workers’ wages. On November 30, 2017, approximately 680 coal miners from Arcelor Mittal Temirtau (AMT) ended their four-day strike, started on December 11, 2017, soon after the City Court of Shakhtinsk (a satellite town of Karaganda) found in favor of AMT and ruled the strike illegal. AMT management promised to increase coal miners’ wages by 30 percent and pay a one-time bonus of a month’s salary.
Workers’ rights to strike are limited by several conditions. Workers can strike if all arbitration measures defined by law have been exhausted. Strike votes must be taken in a meeting where at least half of workers are present, and strikers are required to give five days’ advance notice to their employer, include a list of complaints, and tell the employer the proposed date, time and place of strike. Courts have the power to declare a strike illegal at the request of an employer or the General Prosecutor’s office. Employers may fire striking workers after a court declares a strike illegal. The criminal code enables the government to target labor organizers whose strikes are deemed illegal. A Labor Union Law enacted in July 2014 and amended in November 2017 is generally considered to restrict workers’ freedom of association. Under the law, any local (and potentially independent) labor union must be affiliated with larger unions, and the rights to freely establish and join independent organizations without prior authorization are restricted. Under the new law, in 2016 authorities did not allow the registration of one independent labor union and ordered its liquidation. In April 2018, the U.S. government initiated a review of Kazakhstan’s compliance with the Generalized System of Preferences following a petition by the AFL-CIO, based on the country’s alleged failure to afford internationally recognized worker rights. The AFL-CIO petition highlights the Law on Unions and also raises concerns about the use of Article 404 of the Criminal Code which appears to prohibit unregistered organizations.
Please see details at the Human Rights Report at http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/#wrapper.
The official unemployment rate in Kazakhstan has been steady in recent years at or just below five percent. Independent analysts claim this rate is not accurate, given the large number of self-employed people or those whose companies have mandated part-time shifts or leave without pay.
12. OPIC and Other Investment Insurance Programs
The Overseas Private Investment Corporation (OPIC) and the government of Kazakhstan signed an Investment Incentive Agreement in 1992, and OPIC has been active in Kazakhstan since 1994. In January 2018, OPIC President Ray Washburne signed a Memorandum of Understanding (MOU) with Chairman Saparbek Tuyakbayev to support U.S. investment in Kazakhstan and improve collaboration between the two countries. OPIC seeks commercially viable projects in Kazakhstan’s private sector and offers a full range of investment insurance and debt/equity stakes. Kazakhstan is also 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.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) (M USD )||2016||USD 137,300||2016||USD 137,278||https://data.worldbank.org/
|Foreign Direct Investment||Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country (M USD , stock positions)||2017||USD 27,204||2012||USD 12,512||BEA data available at
|Host country’s FDI in the United States (M USD , stock positions)||2017||USD 469||2015||USD -2||BEA data available at http://bea.gov/international/direct_
|Total inbound stock of FDI as % host GDP||2017||102.2%||2015||55%||https://www.oecd-ilibrary.org/finance-and-investment/oecd-investment-policy-reviews-kazakhstan-2017/inward-fdi-stock-in-kazakhstan-2015_9789264269606-graph8-en|
*The National Bank of Kazakhstan
Table 3: Sources and Destination of FDI
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||USD 141,904||100%||Total Outward||USD 20,414||100%|
|Country Netherlands||USD 62,859||44%||Netherlands||USD 12,559||62%|
|Country United States||USD 24,035||17%||United Kingdom||USD 4,364||21%|
|Country France||USD 13,020||9%||Russian Federation||USD 1,238||6%|
|China P.R: Main land||USD 9,484||7%||Luxembourg||USD 1,181||6%|
|Country Japan #5||USD 5,812||4%||United States||USD 841||4%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars) As of June,2017|
|Total||Equity Securities||Total Debt Securities|
|All Countries||USD 65,512||100%||All Countries||USD 11,031||100%||All Countries||USD 54,481||100%|
|United States||USD 31,484||48%||United States||USD 5,725||52%||United States||USD 29,759||47%|
|Japan||USD 5,102||8%||Japan||USD 909||8%||Japan||USD 4,193||8%|
|France||USD 4,271||7%||United Kingdom||USD 860||8%||France||USD 3,82||7%|
|United Kingdom||USD 3,543||5%||Switzerland||USD 478||4%||Germany||USD 2,921||5%|
|Germany||USD 3,242||5%||France||USD 429||4%||United Kingdom||USD 2,683||5%|
14. Contact for More Information
Economic Section at the U.S.Embassy in Astana
3, Koshkarbayev Str., Astana
7 7172 -70 21 00
Country/Economy resources: the American Chamber of Commerce (AmCham) in Kazakhstan additional information: www.amcham.kz .