2017 Investment Climate Statements: Kazakhstan

Policies Toward Foreign Direct Investment

Kazakhstan has attracted significant foreign investment since independence. As of September 30, 2016, foreign direct investment in Kazakhstan totaled $139.6 billion, primarily in the oil and gas sector. Kazakhstan is widely considered to have the best investment climate in the region, and numerous international firms have established regional headquarters in Kazakhstan.

Overall, 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 that curb the inflow of foreign investment into Kazakhstan’s economy.

The Investment Committee within the Ministry of Investment and Development is in charge of facilitating investment-related issues and developing an attractive investment climate in the country. The Minister of Investment and Development is the Investment Ombudsman.

In addition, the government plans to establish a national company, “Qazaq Invest,” that would facilitate the activities of foreign investors in Kazakhstan.

The government maintains a dialogue with foreign investors through the Foreign Investors’ Council under the president, as well as the Council for Improving the Investment Climate, which is chaired by the prime minister. The government also introduced investment advisor positions in Kazakhstan’s overseas embassies in order to promote Kazakhstan as an attractive place for foreign investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

By law, foreign and domestic private entities have the right to establish and own business enterprises.

Although no sectors of the economy are legally closed to investors, restrictions on foreign ownership exist, including a 20% ceiling on foreign ownership of media outlets, a 49% limit in domestic and international air transportation services, and a 49% limit in telecommunication services (the latter does not apply to mobile operators). 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. The government 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. At times, the authorities have used criminal charges in civil disputes as a pressure tactic. The protracted period of low oil prices has made the government more responsive to complaints from foreign investors. In one notable example, when Chinese investors complained about excessive inspections by the tax authorities and bribe requests from government officials, President Nazarbayev “promoted” his son-in-law, whom the investors blamed, from CEO of national gas monopoly KazTransGas to the largely ceremonial and less influential role of Chairman of the Board of Directors. In other instances, oil and gas companies have petitioned for and received tax relief for continuing to operate marginal and declining fields.

Many foreign companies say they must vigilantly defend investments from a steady stream of decrees and legislative changes, most of which do not exempt or “grandfather in” existing investments. Foreign investors also complain about arbitrary tax inspections, as well as problems finalizing contracts, delays and irregular practices in licensing, and land fees. Foreign companies report that authorities at the local and national level arbitrarily impose environmental fines which are then placed in the general budget, as opposed to directly offsetting any alleged environmental damage. As a result, companies argue that environmental fines are assessed to generate additional revenue rather than to punish companies for breaching environmental regulations. Government officials have acknowledged that the current system of environmental fines requires reform and the country’s parliament passed legislation in March 2016 that provided some relief by reducing the maximum penalties of environmental fines. Oil and gas companies operating in Kazakhstan report the situation somewhat improved in 2016 with respect to fines levied on the unplanned flaring of natural gas, but maintain that existing fine levels still significantly exceed the levels normally found in OECD countries.

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. On November 9, 2015, Kazakhstan introduced amendments to the migration and employment law that were expected (as of January 1, 2017) to liberalize foreign workers’ access to the local labor market by waiving quotas and work permits for expatriates coming to Kazakhstan on their own looking for work; certifying that foreign workers meet required qualifications; and assessing expatriate workers on a graded system. The new rules allowed electronic work permit applications at e-service centers and the direct purchase of expatriate work permits from the local government by employers. Although new rules for using foreign labor were taken in line with Kazakhstan’s WTO commitments, especially for intra-corporate transfers, some provisions remain controversial and cause concerns for foreign investors. For example, the rules expanded upon an already complicated quota system. The new quota system is now divided into three types of quotas: one for labor migrants, one by sectors of economic activity, and another by bilateral treaties with foreign countries. For 2017, the Government has established the quota for 19 types of economic activity at 0.6 percent (with breakdown by sectors) and for labor migrants at 4.2 percent. How this system will work in practice remains to be seen (please see more details in Section 5. Industrial Policy/Performance and Data Localization Requirements).

Foreign Investment in the Energy & Mining Industries

Despite substantial investment in Kazakhstan’s energy sector, companies remain concerned about the risk of the government challenging contractual rights, legislating or otherwise advocating for preferences for domestic companies, and creating mechanisms for government intervention in foreign companies’ operations, particularly in procurement decisions. These negative tendencies, combined with the vague and contradictory legal provisions that are often arbitrarily enforced, feed the perception that Kazakhstan’s investment environment is less than optimal.

Business associations and investment advisors express concern that Kazakhstan’s tax code could undermine tax stability clauses in existing and future subsoil contracts. The government has stated that it will only guarantee tax stability for existing production sharing agreements (PSAs) and for the one major hydrocarbon project that has a tax and royalty contract (Tengiz). Furthermore, in December 2011, the Minister of Finance publicly stated that only tax rates, but not tax filing/collection procedures, will be held stable. Contracts for the Tengiz, Kashagan, and Karachaganak fields include tax stability clauses that theoretically shelter the operating companies from changes to the tax code or customs regime.

In April 2008, Kazakhstan introduced a customs duty on crude oil and gas condensate exports that was reduced on January 1, 2016, to $40 per ton. Companies that pay taxes on mineral or crude oil exports are exempted from export duties. Revenues from the export customs duty are not deposited into the National Fund, which accumulates much of the government’s proceeds from the commodity sector, but instead go directly into the government’s budget. The government subsequently adopted a resolution that pegs the export customs duty to global oil prices. The duty will be zero at the average price of Brent and Urals oil below $25 per barrel, $10 per metric ton from $25 to $30 per barrel, $20 per ton from $30 to $35 per barrel and so on.

The 2010 Subsoil Law gave the state a preemptive right to acquire all exploration and production contracts. The 2014 Amendments restricted this right to “strategic” deposits and areas, which helped to significantly reduce the number of approvals required for non-strategic objects. The approval of a conciliatory interagency commission is sufficient to approve contracts involving non-strategic objects. The 2014 Amendments oblige the government to develop “strategic” criteria and compile the list based on these criteria, rather than rely on its previous practice of using its discretionary authority to make such determinations. Under the 2014 Amendments, however, the government can still 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.

Kazakhstan plans to keep its current CO2 emissions reporting and monitoring system but postponed emissions quota trading until 2018 to address concerns about the quota allocation method. The government is currently working to develop a National Allocation Plan for 2018-2020, which must be adopted before 2018. Some companies have expressed concern regarding the liquidity of an internal quota trading system, particularly as power consumption and oil 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 amend its investment legislation. The OECD presented its Investment Policy Review on Kazakhstan in March 2012 (http://www.oecd.org/countries/kazakhstan/kazakhstan-investmentpolicyreview-oecd.htm ). In brief, the OECD review recommended corporate governance reforms at state-owned enterprises (SOEs), increased private participation in infrastructure, easier access to agricultural land for foreign investors, and better financing support for small and medium enterprises (SMEs).The OECD started its second Investment Policy Review in September 2015. The process is ongoing and the final report is expected to be completed by mid-2017.

Business Facilitation

The 2017 World Bank’s Doing Business Report ranked Kazakhstan 45 out of 190 in the category of ‘Starting a Business’. In the last year, Kazakhstan has managed to improve its rating in the Doing Business report by eliminating registration fees for small and medium-size firms, shortening registration times and eliminating the requirement to notarize company documents and founders’ signatures. All these measures made starting a business simpler in Kazakhstan. Foreign investors also have access to “single window” service, which simplifies many business procedures, including business registration. Investors may apply for business registration online through a website maintained by the Investment Committee at://isc.baseinvest.kz

According to the Committee, business registration can take three or four days, if all documents are submitted correctly. According to national law, an enterprise with less than 50 employees is considered “small”; “medium”-sized enterprises employ from 50 to 250 people; and “large” entities are those that have more than 250 people.

Outward Investment

The government neither incentivizes nor restricts outward investment.

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

In 1996, a Treaty on the Avoidance of Double Taxation between the United States and Kazakhstan came into force. Since independence, Kazakhstan has signed treaties on the avoidance of double taxation with 51 countries, and bilateral investment protection agreements with 48 countries (and ratified 32), including Great Britain, Germany, Italy, France, Russia, South Korea, Iran, China, Turkey, Japan and Vietnam. Some foreign investors have charged that Kazakhstani tax authorities are reluctant to refer double taxation questions to the appropriate bi-national resolution bodies.

Eurasian Economic Integration and WTO

Kazakhstan submitted its Memorandum on the Foreign Trade Regime (MFTR) to the WTO in 1996, and the first round of consultations on accession took place in 1997. Kazakhstan became a WTO member on November 30, 2015. Kazakhstan officially entered into a Customs Union with Russia and Belarus on July 1, 2010. Since that time, Kazakhstan’s trade policy has been heavily influenced by regulations promulgated by the Customs Union and its governing body the Eurasian Economic Commission, a supra-national body located in Moscow. As a condition of membership in the Customs Union, Kazakhstan had to double its average import tariff and introduced annual tariff-rate quotas (TRQs) on poultry, beef, and pork. U.S. exporters have expressed frustration about the trade-limiting effects of these TRQs, and the way they are calculated and distributed.

However, in accordance with its WTO commitments, Kazakhstan will now gradually lower 3,512 import tariff rates to an average of 6.1 percent by 2020. Starting from January 2016, Kazakhstan has applied a lower-than-Customs Union Tariff rate to food products, automobiles, airplanes, railway wagons, lumber, alcoholic beverages, pharmaceuticals, freezers, and jewelry.

On May 29, 2014 Kazakhstan and its Customs Union partners signed a treaty to create a common economic space known as the Eurasian Economic Union (EAEU). The EAEU is expected to further integrate their economies, and provide for the free movement of services, capital and labor within their common territory. The government of Kazakhstan has asserted that EAEU agreements comply with WTO standards. Kazakhstan’s government is optimistic that further integration within the EAEU will make Kazakhstan more attractive for foreign investment by expanding market access to those countries.

Following its policy of openness to foreign investments, Kazakhstan signed an Enhanced Partnership and Cooperation Agreement with the European Union in December 2015. Among other things, the agreement regulates the investment and trade regime for EU companies and contains Kazakhstan’s commitments to the WTO and the Eurasian Economic Union.

Kazakhstan is a signatory of the Free Trade Agreement with CIS countries. In addition, as a member of the EAEU, Kazakhstan is party to the Free Trade Agreement between the EAEU and Vietnam.

Transparency of the Regulatory System

The legislation of Kazakhstan has set up basic principles for fostering competition on a non-discriminatory basis. Kazakhstan has steadily improved its business environment since independence. It has streamlined bureaucratic practices, provided accelerated business start-up procedures, reduced minimum capital requirements for businesses, and simplified the procedures for registering property and obtaining construction permits. As a result, the World Bank in 2017 moved Kazakhstan up 6 places to 35 out of 190 countries in its “Doing Business” report.

Kazakhstan is a unitary state, and national legislation accepted by Parliament and President are equally effective for all regions of the country. The Government, ministries and local executive administrations in the regions (“Akimats”) have the ability to issue regulations and executive acts in compliance and pursuance of laws. Kazakhstan is a member of the Eurasian Economic Union and decrees of the Eurasian Economic Commission are mandatory for the country 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.

Implementation and interpretation of business-related legislation sometimes creates widespread confusion. In summer 2016, the Ministry of Health and Social Development introduced new rules on attracting foreign labor, some provisions 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 most onerous clauses of these new rules were cancelled.

The non-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. Although the central government has enacted many positive and progressive laws, local authorities may interpret rules in arbitrary way for the sake of their own interests.

Draft bills are available for public comments, however, the process occurs without broad notifications and some bills are excluded from public commentary altogether. All laws, decrees of the President and the Government are available in Kazakh and Russian at the web-site of the Ministry of Justice of the Republic of Kazakhstan: http://adilet.zan.kz/rus 

In 2015, President Nazarbayev announced five presidential reforms and the implementation of the “100 Steps” Modernization program. The reforms include the creation of modern government apparatus, strengthening of rule of law, industrialization and economic growth, and a transparent accountable state. The latter anticipates 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 access to information held by state bodies. Initial implementation of this plan has already helped to improve the government’s accountability. For example, in addition to the Audit Committee that monitors government agencies’ performance, ministers and regional governors now report to the public annually.

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

As reported above, Kazakhstan is the part of the Eurasian Economic Union and decisions of the Union supersede the national regulatory system.

Kazakhstan became a member of the WTO on November 30, 2015. The government notifies the WTO Committee on Technical Barriers to Trade about drafts of national technical regulations.

Legal System and Judicial Independence

Kazakhstan’s Civil Code establishes general commercial law principles. 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. The judicial system is independent of the executive branch according to the country’s Constitution. Aggrieved investors can seek dispute settlement in Kazakhstan’s courts or international arbitration. Although some analysts believe the government prefers litigation to arbitration, courts will enforce arbitration clauses in contracts. Any court of original jurisdiction can consider investment disputes and bankruptcy cases. Monetary judgments are normally made in the domestic currency.

The Supreme Court of Kazakhstan established a special Investment Court in Astana in 2016. The Government intends to develop the Astana International Financial Center in 2018. According to the Government, the Center will have its own courts that will be based on principles of British business laws.

Laws and Regulations on Foreign Direct Investment

The following legislation affects foreign investment in Kazakhstan: 1) the 2015 Entrepreneurial Code; 2) the Civil Code; 3) the Tax Code; 4) the 2003 Customs Code and the Customs Code of the Customs Union (in force since July 2010); 5) the Law on Currency Regulation and Currency Control; and 6) 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.

A new 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.

Tax rates are competitive. The tax code that Kazakhstan adopted in 2009 lowered corporate income and value-added taxes (VAT), replaced royalty payments with a mineral extraction tax, and introduced excess profit 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 VAT rate is 12%. Kazakhstan applies a flat 11% social tax to employers based on employees’ earnings, and a personal income tax rate of 10%. The tax rate for non-residents varies between 5% and 20% depending on the type of income. Subsurface users may be subject to additional taxes, such as signing bonuses, commercial discovery bonuses, and historical cost reimbursements.

It is common for Kazakhstan’s tax authorities to invoke national Tax Code provisions over International Financial Reporting Standards (IFRS). At times this can lead to double taxation, especially when employing IFRS standards for deducting expenses between a company’s home office and its branch office in Kazakhstan.

In 2001, Kazakhstan adopted transfer pricing legislation which gives tax and customs officials the authority to monitor export-import transactions, and which since 2009 have codified the “arm’s length principle” embraced by the OECD. Amendments to the law made in 2010 further clarified the rights and liabilities of government agencies by providing private parties contracting with the government the right to justify applied prices to state agencies and to appeal tax inspection results. According to the law, the Ministry of Finance has the right to monitor companies’ transactions by surveying the prices of transactions and analyzing companies’ reports. Foreign investors have noted the new law is more closely aligned with international standards, but remain concerned that the law will be applied not only to transactions with related parties, but all international transactions.

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 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.

Dispute Settlement

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

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 refereeing inter-governmental disagreements hampering investors’ activities. According to the Ministry of Investment and Development, from 2015-2016 the Investment Ombudsman successfully addressed 60 investors’ requests.

Kazakhstani law provides for government 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, the government’s responsibility is limited to the performance of administrative acts (for example, concerning the issuance of a license, granting of a land plot, or mining allotment, etc.) necessary to facilitate the investment activity in question. In such a case, litigation or commercial arbitration may be needed to remedy the alleged violation.

International Commercial Arbitration and Foreign Courts

Even when investment disputes are eventually resolved in accordance with contractual conditions, the process of reaching a resolution can be very slow and require a considerable investment of time and resources. Many investors therefore elect 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.

Additionally, the U.S. Ambassador participates in every meeting of the Prime Minister’s Council to Improve the Investment Climate. The Council was created with the goal of paying special attention to questions related to foreign investors, including protection of their rights and interests. The Council has proved to be an efficient forum for foreign companies to raise concerns about doing business in Kazakhstan to the country’s ministers and decision makers. In 2012-2017, the Council discussed various issues, including tax administration problems, decriminalization of administrative violations, the rule of law, judicial independence, and the arbitrary application of environmental fines.

Bankruptcy Regulations

A 2014 bankruptcy law improves the insolvency processes 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 eases bureaucratic requirements for bankruptcy filings, gives creditors a greater say in continuing operations, and introduces a time limit for adopting a rehabilitation or reorganization plans, and adds court supervision requirements. In part due to these changes, the World Bank ranked Kazakhstan 37 (up from 47) for ease of resolving insolvency in its latest “Doing Business” report. As the World Bank’s report indicates, the country made resolving insolvency easier by changing voting procedures for reorganization plans and providing protection to creditors who vote against such plans. Creditors have also received a greater access to the information about debtor during insolvency proceedings and may challenge decisions affecting their rights.

Investment Incentives

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, prioritize diversifying Kazakhstan’s economy away from its overdependence on extractive industries. The government has announced a set of industries that feature tax waivers and simplified procedures for acquiring visas and work permits. The list of priority sectors includes agriculture, agricultural chemistry, agricultural machinery manufacturing, construction materials, metallurgy, chemistry, food production, oil refining, oil and gas machinery manufacturing, transport, electric equipment, and mining. The government’s preference system applies to new and existing enterprises, and the duration of tax preferences increases with the size of investment. All information on priority sectors and preferences is available at http://invest.gov.kz  or at://isc.baseinvest.kz

The 2015 Entrepreneurial Code and 2009 Tax Code provide for tax preferences, customs duties exemptions, investment subsidies and in-kind grants as incentives for foreign and domestic investment in priority sectors. The Investment Committee under the Ministry of Investment and Development (MID) makes decisions on every type of 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 its headquarters in Astana and district service centers in every region of Kazakhstan. Special Economic Zones give investors a wide range of preferences, which are described by a separate law.

In order to facilitate the work of foreign investors, especially in targeted non- extractive industries, the government the government has approved visa-free travel for citizens of 19 countries, including USA, Germany, Japan, UAE, and France and simplified work permit acquisition procedures.

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 procedures to attract foreign labor, and establishes a special customs zone regime not governed by Customs Union rules. A system of tax preferences exists for foreign and domestic enterprises engaged in prescribed economic activities in Kazakhstan’s ten SEZs. The SEZs are located in the New Administrative Center in Astana, the Seaport of Aktau, the Alatau Information Technology Park (near Almaty), the Ontustik Textile Center in south Kazakhstan, the international tourism zone “Burabay” (a resort area 300 kilometers from Astana), the Atyrau National Industrial Petrochemical Techno park, SEZ “Saryarka” in the Karaganda region, a transport and logistics zone in Khorgos at the Kazakhstan-Chinese border, and SEZ “Pavlodar”, and SEZ ”Chemical Park Taraz”.

For more details see http://isc.baseinvest.kz/account/wey_map# .

Performance and Data Localization Requirements

The government of Kazakhstan still requires local employment and content. The November 2014 amendments to the 2010 Subsoil Law required new subsoil use contracts to quantify a firm’s local labor content obligations in definitive numerical terms. The 2010 Subsoil Law previously required all new contracts to contain local content provisions, though the obligations could be unspecified. While the government has long pursued a policy of incorporating numerical local labor content obligations into subsoil contracts, this amendment codified the practice.

The 2010 Subsoil Law established strict local content requirements and harsh penalties for failure to meet them, including the potential cancellation of contracts. This creates challenges for businesses as Kazakhstani goods do not always fully comply with international standards, and Kazakhstani service suppliers are not always able to provide the technically complex services necessary to support projects in the oil and gas sector. On November 9, 2015, Kazakhstan introduced amendments to the subsoil use legislation that significantly altered existing local content requirements to meet the country’s WTO accession requirements. Subsoil use contracts concluded after January 1, 2016, will no longer contain local content requirements for goods or requirements to support local producers (i.e., the requirement to reduce the stated (not actual) value of bids from Kazakhstani producers of goods by 20 percent to increase their likelihood of winning the tender). These requirements, however, will still apply until January 1, 2021, to subsoil use contracts signed before January 1, 2016.

The terms of Kazakhstan’s accession to the WTO also require that Kazakhstan relax limits on foreign nationals by increasing the “quota” to 50 percent from 30 percent for company executives and from 10 percent for engineering and technical personnel to be foreign nationals by January 1, 2021.

Despite these commitments, the Government, particularly at the regional level, continues to pressure international businesses to increase their use of local content. For example, the new $36.8 billion investment into the Tengiz oilfield by Tengizchevroil includes an agreement that 32 percent of the total investment will flow toward local content in Kazakhstan.

Additionally, the Ministry of Energy also announced in March 2017 that foreign companies providing services for the oil and gas sector will have to create joint ventures with local companies if they want to continue to receive contracts in Kazakhstan.

While bringing both positive and negative changes, the June 2016 amendments to the Expatriate Workforce Quota and Work Permit Rules that came into effect on January 1, 2017, are causing concern among international investors. Positive changes include eliminating special conditions that currently can be imposed on an employer attracting foreign labor force as conditions for obtaining a work permit (e.g. requirements to train local personnel or create additional vacancies). The amendments also: (1) eliminate the requirement that companies conduct a search for candidates on the internal market prior to applying for a work permit; (2) increase the number of possible extensions from two to three for permits for categories two (engineering and technical personnel) and three (skilled workers); and (3) reduce the timeframe for the issuing authority to make a decision to issue or refuse a work permit from 15 to seven days. Overall, however, the amendments have caused considerable confusion and contain several negative aspects. The maximum term for a work permit will be decreased from three years to 12 months (with possible extensions). Additionally, work permits will be effective for one region of Kazakhstan only and will not be valid in any other. The U.S. Embassy and international business associations continue to seek clarification from the Government of Kazakhstan regarding these changes.

The November 2015 amendments to the migration and employment law were also meant to liberalize 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. Under the current system, local branches of the Ministry of Labor must certify that foreign workers meet required qualifications and assess expatriate workers on a graded system. 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. The move toward e-service centers is expected to speed permit processing from 40 to five days, improve transparency, and reduce opportunities for corruption. 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. These changes came into effect on January 1, 2017.

The Ministry of Energy, Ministry of Investment and Development and Samruk Kazyna monitor local content compliance. 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.

Real Property

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 service centers distributed throughout the country. According to the “Doing Business Report”, Kazakhstan ranks 18 out of 190 countries in terms of the ease of registering property. In 2014, Kazakhstan introduced new procedures aimed at expediting property transfer and registration.

Kazakhstan’s constitution provides that 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 thereupon situated. 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 the frontier zone. Amendments to the Land Code from 2015 anticipated rights for foreigners to rent agricultural lands for 25 years. However, mass protests of population occurred in spring 2016 made authorities 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 Land Code does not allow private ownership of the following types of land:

• land used for national defense and national security purposes;
• specially protected nature reserves;
• forests, reservoirs (lakes, rivers, canals, etc.), glaciers, swamps, etc.;
• designated public areas within urban or rural settlements, except of land plots, occupied by private building and premises;
• main railways and public roads;
• land reserved for future development and construction of national parks, railways and public roads, subsoil use and power facilities, and social infrastructure.

Intellectual Property Rights

Kazakhstan has not been listed in the Special 301 Report since 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/wipolex/en/profile.jsp?code=KZ .

In 2015, Kazakhstan signed the Enhanced Partnership and Cooperation Agreement with the European Union and its members, which has a special section on IPR protection.

In 2015, Kazakhstan enacted two legislative acts. The law from April, 2015 enhanced the role and transparency of organizations for collective management of copyrights. The law from October, 2015 extended the protection period up to six years for a patent for an original medicine. During this period, no new drug can be registered with a reference to the test data and confidential information received by the applicant of the original patent. That law is expected to improve protection of proprietary data and patents owned by international pharmaceutical companies.

In July 2015 the Ministry of Health amended its regulation on state registration of pharmaceuticals in order to avoid distribution of illegal generics. In 2014, new Administrative and Criminal procedures came into force, making formerly administrative violations criminal and lengthening criminal jail terms from five years to seven years. Articles 198 and 199 of the Criminal Code define punishment for violations of copyright and allied rights and for violations of rights for inventions, useful models, industrial patterns, selective achievements, and integrated circuits topographies. The law also permits 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. U.S. companies and associated business groups have alleged that 73% of software used in Kazakhstan is pirated, including in government ministries, and have criticized the government’s enforcement efforts.

In order to comply with OECD IPR standards, Kazakhstan submitted to the Parliament a new bill in Fall, 2016. Once approved, the new legislation will provide for a more convenient, one-tier system of IPR registration and would give right holders the opportunity for pre-trial dispute settlement through the Appeals Council at the Ministry of Justice.

Every year Kazakhstan’s authorities conduct a nationwide public awareness campaign called “Counterfeit,” which is aimed at increasing public awareness about IP issues. Results of the campaign are publicly available. In 2016 authorities conducted the campaign in February, May, August, and November and seized 137,000 copies of counterfeited goods, ( 10,000 audio disks, 126,000 discs with video content, and 577 disks with pirated software).

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/ .

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.

A general attitude of authorities toward foreign portfolio investors is positive, though foreign clients may only trade via local brokerage companies or after being registered as members of the Kazakhstan’s Stock Exchange (KASE). The KASE, which has operated since 1993, is an insignificant source of investment. The number of listed companies dropped from 354 in 2010 to 142 in 2017. 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. Trading is dominated by block trades, and the spreads are extremely wide. Traditionally, the foreign exchange is a main segment of trades. In 2017, 52.6% of KASE trades were in foreign exchange, repo transactions comprised a further 46.4%, and government and corporate securities trading accounted for roughly 1.0% of KASE volume. By the end of February 2017, the stock market capitalization was $47.4 billion, and corporate bond market capitalization was $24.7 billion.

The Single Pension Fund is the main source of local currency liquidity in the country and has accumulated nearly $21.3 billion by the end of March, 2017. Its largest investment positions are in Kazakhstani government securities (44.2%) and corporate bonds of Kazakhstan-based banks (20.22%). The Single Pension Fund is not listed, and does not trade, on the KASE. As the stock exchange is not fully developed, decreased capitalization and diminished transaction volumes have not impacted financial markets or the overall economic situation.

The National Bank of Kazakhstan owns 50.1% of KASE shares and plans in the future to reset the stock exchange through creating an alternative stock market in Astana as a part of the International Financial Center project.

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.

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 the NBK introduced the requirement for residents and non-residents to present a currency contract if the transfer exceeds $10,000. Article 16 of Kazakhstan’s Law on Currency Regulation and Currency Control (hereafter the “currency law”), has, since June 2005, permitted employers to pay non-residents their wages in foreign currency and foreign investors may convert and repatriate earnings. The currency law likewise prohibits restrictions on money transfers and allows individuals to take up to $10,000 in cash out of the country without documenting its origin. The Eurasian Economic Union has further liberalized money transfer rules by removing the requirement for a member state central bank to certify the origin of amounts exceeding $10,000. On January 1, 2007, Kazakhstan eliminated licensing requirements and procedures for foreign currency operations except the licensing of exchange operations. Banks conducting transactions in a foreign currency are still required to notify the NBK of their operations once certain thresholds, $100,000 for capital outflow operations and $500,000 for capital inflow operations, are reached. For foreign exchange transactions, individuals are required to present their ID if the amount they buy exceeds 1 million tenge (or $3,154 at the current exchange rate). If legal entities or residents of Kazakhstan buy more than $100,000 through an authorized bank, they must present a contract justifying that purchase.

The NBK’s registration regime also governs export-import credits and financial loans exceeding $50,000 with terms longer than 180 days. Banks must register these transactions and notify the NBK before completing them. Legislation stipulates that non-fulfillment of payment obligations related to export-import contracts can trigger administrative or criminal charges. Administrative penalties are applied for non-payment of up to $50,000, above which criminal charges are applied. Following December 2011 legislative amendments to the currency law, the NBK no longer requires so-called transaction passports for export-import operations, but requires commercial banks to issue contract registration numbers for currency imports and exports. A registration number is required for all transactions exceeding $50,000, and the procedure to receive a registration number can take several days.

The currency law allows the government to create a “special currency regime” in the event 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 NBK or other authorized banks, the mandatory sale of foreign currency earnings, and limits on the use of foreign bank accounts.

Money and Banking System

Kazakhstan has 34 commercial banks. As of March 1, 2017, the five largest banks (HalykBank, KazKommertsBank, Tsesna Bank, Sberbank-Kazakhstan and ATF Bank) held assets worth approximately $45.6 billion, or about 58.5% of the banking sector’s total assets. Although Kazakhstan’s banking system remains stable, it has experienced hard times. The share of non-performing loans started to decline during the last two years from 31.2% in January, 2014 to 7.32% in February, 2017. The National Bank conducted a policy in 2016 aimed at de-dollarization and curbing inflation. As result, the share of retail dollar-denominated deposits dropped to 53.8 % in February 2017 from 80.3 % in February 2016. The loan portfolio has displayed a lax 9.6 percent growth for the last year due to decelerated economic growth. The Government is supporting the banking sector by injecting money from the National Oil Fund and the Single Pension Fund for implementation of various government programs.

The National Bank has also begun a policy on consolidation of the banking sector. Two large banks (Tsesna and CenterCredit) announced their merger early in 2017. Halyk bank, the banking industry leader, signed a Memorandum of Understanding with Kazkommertsbank (KKB) to study the acquisition of KKB .

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. Foreigners are allowed to establish bank accounts if they have a local tax number registration number.

Foreign Exchange and Remittances

Foreign Exchange

Following global market trends, Kazakhstan introduced a free floating exchange rate and inflation targeting regime on August 20, 2015. Since that time the tenge has fallen by almost 100% from 188.38 on August 20, 2015 to 345.73 on March 20, 2016 against the U.S. dollar. Due to growth of oil prices in 2016, the tenge has appreciated and is worth 315.5 tenge against the U.S. dollar as of March 20, 2017. The National Bank defined the REPO rate as its key basic rate of monetary policy, which is set at 11% for March-April, 2017.

Kazakhstan has managed to maintain its international reserves at a sufficient level. Kazakhstan’s total international reserves, including the NBK’s foreign currency and gold reserves and the National Fund assets, equal $93 billion (at current prices).

Remittance Policies

The U.S. Embassy is not aware of any concerns with regard to remittance policies or the availability of foreign exchange conversion for remittance of profits. According to the 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 in the mining and manufacturing industries, proceeds from sales of farmlands, as well as 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.

In addition to preserving wealth for future generations, the Fund is also used to support the government’s political and economic objectives. The Fund extended a $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 invests in the domestic economy through annual official transfers to the state budget, which currently vary from $6.8 billion to $9.2 billion annually. In 2014-2016, President Nazarbayev decided to direct more than $20 billion as official and special purpose transfers from the Fund for stimulating economic diversification, infrastructure, and small business development. President Nazarbayev has decreed that the Fund should retain a minimum balance of no less than 20% of GDP. As of March 1, 2017, the National Fund’s assets totaled $63.05 billion.

Kazakhstan is not a member of the IMF-hosted International Working Group of Sovereign Wealth Funds.

Officially, private enterprises compete with public enterprises under the same terms and conditions. In reality, however, SOEs generally enjoy better access to natural resources, markets, credit, and licenses than private entities.

The law on state property defines national companies, national holding companies, and national managing holding companies. A national company is a government-created joint stock company which operates in “fundamental industries” or facilitates regional economic development, and in which the state holds a controlling interest. A national holding company is a government-created entity which holds shares in national companies. A national managing holding company is a government-created entity which manages the government’s interest in national holding companies, national development institutes, and other legal entities. As of January 1, 2017, Kazakhstan had 129 joint stock companies with state participation, including four national holding companies and five national companies. The law requires all SOEs to publish annual reports and submit their books for independent audit.

National Welfare Fund Samruk-Kazyna (SK) is Kazakhstan’s largest national holding company, and manages the state-owned companies that dominate the oil and gas, energy, mining, transportation, information and communication sectors. SK has 600 subsidiaries and employs 360,000 people. (please see details at http://sk.kz/ ) By some estimates, SK controls more than half of Kazakhstan’s economy, and is the nation’s largest buyer of goods and services. 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 of 2008. 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. Although domestic and foreign companies can sell their products and services to SK, local content requirements may distort free competition. Kazakhstan intends to join the WTO Agreement on Government Procurement (GPA) in 2018. Prior to this, the government has indicated that it plans to bring government procurement rules and procurement of quasi-sovereign companies into compliance with the GPA. To follow this policy, SK approved new procurement rules without direct local content requirement in January 2016.

The government in 2013 created a national managing holding company called Baiterek to provide financial and investment support to non-extractive industries, drive economic diversification, and to improve corporate governance in its subsidiaries. Baiterek is comprised of the Development Bank of Kazakhstan, the Investment Fund of Kazakhstan, the Housing and Construction Savings Bank, National Mortgage Company, 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. Please see details here: https://www.baiterek.gov.kz/ru/ 

Other notable SOEs include KazAgro, which manages state agricultural holdings such as the government’s wheat purchasing agent the National Food Contract Corporation, farm equipment subsidy provider KazAgroFinance, the Agrarian Credit Corporation, and an agricultural insurance company (http://www.kazagro.kz/ ) National company Parasat is charged with stimulating domestic scientific research and development in the high-tech sector (http://www.parasat.com.kz ), and manages several scientific institutions and funds, while holding company Zerde is charged with creating modern information and communication technologies and to stimulate investments in the communication sector (http://zerde.gov.kz/ ).

OECD Guidelines on Corporate Governance of SOEs.

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. Therefore, government officials either chair the SOEs’ boards of directors or become its members. Members include ministers or vice-ministers, the Deputy Prime-Minister and Prime Minister himself. 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.

Following its OECD commitments, Kazakhstan should decrease the SOEs’ share in the economy to 15% by 2020. For this purpose, the government enacted legislation in 2015 applying Yellow Pages Rules that would limit state participation in the economy. The government is also conducting a large-scale privatization campaign for the same purpose. However, the current preferential status of parastatal companies remains unchanged. Although such companies are subject to the same tax burden as private sector companies, parastatals enjoy more facilitated access to the budget and National Oil Fund money. Since 2008 SK has received several substantial subsidies and contributions from the government via the National Oil Fund.

Privatization Program

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. The priority list for privatization includes 65 subsidiaries of large national companies operating in the energy, mining, transportation, and service sectors. The Government maintains that all necessary information on the privatization is available at the websites of Kazakhstan’s embassies abroad. SK plans also to privatize via the “ People’s Initial Public Offerings (IPO)”, the terms of which would allow citizens and institutional investors to buy up to 10% of the stock of national companies, such as those that operate Kazakhstan’s oil and gas industry “KazMunaiGas”, uranium mining –“KazAtomProm” , national railway system “Kazakhstan Temir Zholy”, the national post “KazPost” and the national airline AirAstana. In addition, the Government continues to sell small municipal enterprises, through electronic auctions. see: https://e-auction.gosreestr.kz 

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 OECD Guidelines for International Investment and Multinational Enterprises, and the government facilitates promotion of RBC.

A legal framework of responsible business conduct was introduced in Kazakhstan in 2015. The Entrepreneurial Code has a special section on social responsibility, which is defined as a voluntary contribution in development of social, environmental, and other spheres. The Code says that the state creates conditions for the social responsibility of business but, specifies that nobody can force entrepreneurs to perform socially responsible actions. The Code considers donations to charity one of key forms of social responsibility and envisions a tax deduction for the charitable giving though no such rule is currently in force.

In April 2015, the National Tripartite Commission on social partnership and regulation of social and labor relations accepted the National Concept on Social Corporate Responsibility. The Concept was developed by the National Chamber of Entrepreneurs “Atameken” and the Corporate Fund “Eurasia – Central Asia”. The document covers human rights, protection of the environment, consumer interests, responsible business conduct, corporate governance, and community development. The Concept is a non-binding document.

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. The President presents annual awards for achievements in CSR. Foreign investors report that local government officials regularly pressure them to provide social investments in order to achieve local political objectives. These local officials also attempt to exert as much control as possible over both the selection of and the subsequent allocation of funding for the projects. The OECD National Point of Contact is the Investment Committee under the Ministry of Investment and Development, see: http://invest.mid.gov.kz/ 

The government has signed on to the Extractive Industries Transparency Initiative (EITI). Kazakhstan produces EITI reports that disclose revenues from the extraction of its natural resources. Companies disclose what they have paid in taxes and other payments and the government discloses what it has received. These two sets of figures are compared and reconciled. Kazakhstan published in its most recent EITI report in November 2016, which covers the country’s extractive sector for 2015.

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, a practice that is made possible by the fact that many errors or omissions that would constitute routine civil violations in OECD countries are 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 at all levels of society, despite measures to mitigate the problem. On December 26, 2014, President Nazarbayev signed into law the new anti-corruption strategy for 2015-2025. The document focuses 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 crimes related to corruption. Under the new code, probation is no longer allowed for corruption crimes. A new penalty of a life ban on employment in the civil service was introduced, as well as mandatory forfeiture of title, rank, grade, and state awards.

The statute of limitations does not apply to persons charged with corruption. On November 20, 2015 President signed the new law On Countering Corruption as part of his Five Institutional Reforms program. The law introduces broader definitions of corruption, corruption policy and risks, anticorruption monitoring and analysis. The law toughens financial accountability through declaration of income and assets. 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, International Association of Anti-Corruption Agencies since 2009, International Counter-Corruption Council of CIS member-states since 2013.

Resources to Report Corruption

Under the counter-corruption law, all government, quasi-government entities, and officials are responsible for countering corruption. Along with the anti-corruption agency, prosecutors, national security, police, tax inspectors, military police, and border guard service members are responsible for detection, termination, disclosure, investigation, and prevention of corruption crimes and holding the perpetrators liable within their competence.

Transparency International (TI) maintains a national chapter in Kazakhstan.

Contact at government agency responsible for combating corruption:

Kairat Kozhamzharov
Chairman
Agency for Civil Service Affairs and Countering Corruption
37 Seyfullin Street, Astana
+7 (7172) 90-92-60
anticorruption@nab.gov.kz

Contact at “watchdog” organization:
Natalya Kovalyeva (Petyaksheva)
Executive Director
Civic Foundation “Transparency Kazakhstan”
43 “A” Mynbayev Str.
+7 (7273) 79 84 50
nnm_04@mail.ru

Kazakhstan’s rating in TI’s 2016 Corruption Perceptions Index is 29/100, ranking Kazakhstan 131 out of 176 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. According to a survey conducted by the independent NGO Transparency International (TI), 46% of respondents believe that the government should strengthen its counter-corruption efforts despite some improvement in countering corruption at lower levels. Initiatives aimed at improving implementation of citizens’ constitutional rights are largely ineffective because of poor and selective application of laws.

There have been no incidents of politically motivated violence against foreign investment projects, and politically motivated civil disturbances remain rare. 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 Aktobe in the north-western region. Foreign investment or foreigners working in Kazakhstan have not been targeted. Kazakhstan enjoys generally good relations with its neighbors, although the government is concerned that the borders with Kyrgyzstan and Uzbekistan are vulnerable to penetration by extremist groups.

Kazakhstan held presidential elections in April 2015, with President Nursultan Nazarbayev, in office since 1991, winning 97.75% of the vote. President Nazarbayev’s Nur Otan Party won 82 percent of the vote in the March 20, 2016, election for the Mazhilis (lower house of parliament). The business friendly Ak Zhol party won 7.18% and the Communist People’s party won 7.14% of the vote. All three parties support President Nazarbayev and his policies. The Organization for Security and Cooperation in Europe (OSCE)/Office for Democratic Institutions and Human Rights (ODIHR) observation mission noted some progress but judged the country continues to require considerable progress to meet its OSCE commitments for democratic elections.

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, and as noted above, 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. Local content regulations require a minimum of 1% of a project budget be earmarked for training programs and workforce development, including overseas assignments with the lead operator. Employers’ reliance on foreign labor in the face of poverty in rural Kazakhstan has become a political issue in recent years. In October, 2015, the Government amended the legislation on migration and employment and that will result in new rules for foreign labor starting from January 2017 (please see details at Section 2.Openness To and Restrictions Upon, Foreign Investment and Section 5.Industrial Policies ) Following Kazakhstan’s WTO commitments, a new legislation changed rules on intra-corporate transfers. Nonetheless, U.S. companies are strongly advised to contact Kazakhstan-based law and accounting firms and the U.S. Foreign 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, prohibition on discrimination in employment, equal pay, and collective bargaining. The Constitution and the national labor legislation 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 them more rights, especially in relation to dismissal and layoffs. The Labor Code imposes tighter collective bargaining requirements and restrictions on employees involved in labor disputes.

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 new Labor Union law enacted in July 2014 remains a concern for several international organizations and independent labor unions, because it restricts workers’ freedom of association. The law says that any local (and potentially independent) labor union should be affiliated with larger unions. Pursuant to the Labor Union law, authorities did not allow registration of one independent labor union and began its liquidation process late in 2016.

Please see details at the Human Rights Report at http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/#wrapper

The minimum wage for 2017 is approximately $77.2 per month, and the minimum pension is $88.8 per month and from July 1, 2017 – $98.6. The official unemployment rate in Kazakhstan has been steady for past years at 4.9%; however, independent analysts claim that this rate does not reflect the real situation in the labor market, given the large number of self-employed people or those whose companies have mandated part-time shifts or leave without pay. According to labor unions, the share of all enterprises covered by collective bargaining agreements was 34.5% in January, 2015.

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. 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.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* The National Statistic Committee at the Ministry of National Economy of Kazakhstan

**The National Bank of Kazakhstan

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Economic Section at the U.S.Embassy in Astana
3, Koshkarbayev Str., Astana
7 7172 -70 21 00
InvestmentClimateKZ@state.gov

Country/Economy resources: the American Chamber of Commerce (AmCham) in Kazakhstan additional information: www.amcham.kz