2019 Investment Climate Statements: Kazakhstan

Policies Toward FDI

Kazakhstan has attracted significant foreign investment since independence.  As of January 1, 2019, the total stock of foreign direct investment (by the directional principle) in Kazakhstan totaled USD 160.4 billion, primarily in the oil and gas sector.  International financial institutions consider Kazakhstan to be an attractive destination for investors, and 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 August 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 25 percent by 2022.    

The government of Kazakhstan has incrementally improved the business climate for foreign investors, and national legislation does not discriminate against foreign investors.  Corruption and excessive bureaucracy, however, do remain serious obstacles to foreign investment. 

Over the last year, the government has undertaken a number of structural changes aimed at improving how the government attracts foreign investment.  In April 2019 the Prime Minister announced the creation of the Coordination Council for Attracting Foreign Investment, which the Prime Minister will chair.  He will also act as Investment Ombudsman. In December 2018 the Investment Committee was transferred to the supervison of the Ministry of Foreign Affairs, which took charge of attracting and facilitating activities of foreign investors.  The Ministry of National Economy takes responsibility for investment climate policy issues and interaction on investment climate matters with international organizations like OECD, WTO, and the United Nations Conference on Trade and Development (UNCTAD).  Each regional municipality designates a representative to work with investors, and Kazakhstani foreign diplomatic missions are charged with attracting foreign investments. Specially designated front offices in Kazakhstan’s overseas embassies promote Kazakhstan as a destination for foreign investment.  In addition, the AIFC operates as the regional investment hub, with tax, legal, and other benefits. The state company KazakhInvest is part of this hub, offering investors a single-window for government services. 

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. 

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 on domestic and international air transportation services, and a 49 percent limit on telecommunication services.  As a result of its WTO accession, Kazakhstan formally removed this limit for telecommunication companies, except for the country’s main telecommunications operator, KazakhTeleCom. Still, to acquire more than 49 percent of shares in a telecommunication company, foreign investors must obtain a government waiver.  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 banks and insurance companies to form subsidiaries incorporated in Kazakhstan.  In addition, foreign citizens and companies are restricted from particating in private security businesses. The law limits the participation of offshore companies in banks and insurance companies and prohibits 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.  The enforcement process, widely viewed as opaque and arbitrary, is not publicly transparent. 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.

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 Part 5,  Performance and Data Localization Requirements.)

In April 2008 Kazakhstan introduced a customs duty on crude oil and gas condensate exports, revenue that goes to the government’s budget and does not reach the National Fund.  The National Fund is financed by direct taxes paid by petroleum industry companies, other fees paid by the oil industry, revenues from privatization of mining and manufacturing assets and from disposal of agricultural land.  The customs duty on crude oil and gas condensate exports is an indirect tax that goes to the government’s budget. Companies that pay taxes on mineral and crude oil exports are exempt from that export duty. The government adopted a 2016 resolution that pegged the export customs duty to global oil prices.

The December 2017 Code on Subsoil and Subsoil Use (the Code) defines “strategic deposits and areas” and restricts the government’s preemptive right to acquire exploration and production contracts to these areas, which helps to reduce significantly the approvals required for non-strategic objects.  The government approves and publishes the list of strategic deposits on its website: http://www.government.kz/ru/postanovleniya/postanovleniya-pravitelstva-rk-za-iyun-2018-goda/1015356-ob-utverzhdenii-perechnya-strategicheskikh-uchastkov-nedr.html  . 

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 not define “economic interests.” The Code, if properly implemented, appears to be a step forward in improving the investment climate, including the 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 that Kazakhstan is ready to launch a CO2 emissions trading system.  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 March 2019, the system is not operational. It is likely to be launched after the new Environmental Code is passed into law; the draft Code is expected to be submitted to parliament by the end of 2019. The Energy Ministry is now drafting the National Low Carbon Development Strategy, which will serve as a framework for the new Environmental Code.  Some companies have expressed concern that 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 Organisation for Economic Co-operation and Development .  To meet OECD requirements, the government will need to continue to reform its institutions and amend its investment legislation.  The OECD presented its second Investment Policy Review of Kazakhstan in June 2017, available at: 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 SOE share in the economy to 15 percent of GDP by 2020. 

Business Facilitation

The 2019 World Bank’s Doing Business Report ranked Kazakhstan 28 out of 190 countries in the “Ease of Doing Business” category, and 36 out of 190 in the “Starting a Business” category.  The report noted Kazakhstan made starting a business easier by reducing the time required for value added tax registration, simplified customs clearance procedures by introducing an electronic customs declaration system, ASTANA-1, and reduced customs administrative expenses.  The World Bank noted that the decision to make court rulings on commercial cases publicly available facilitates the enforcement of contracts in Kazakhstan.

Foreign investors have access to a “single window” service, which simplifies many business procedures.  Investors may apply for these services here: https://invest.gov.kz/doing-business-here/invest-guide/  .

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 average for Eastern Europe and Central Asia, but faster than the global average.  A foreign-owned company registered in Kazakhstan is considered a domestic company for Kazakhstan currency regulation purposes.  Under the Law on Currency Regulation and Currency Control, residents may open bank accounts in foreign currency in Kazakhstani banks without any restrictions.

The government supports women’s entrepreneurship by providing access to credit.  The state-owned “Damu” Entrepreneurship Development Fund, local banks, and international donor organizations have special programs supporting women in business. 

Nonetheless, there is still room for improvement in business facilitation.  Foreign investors often complain about problems finalizing contracts, delays, and irregular practices in licensing.

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-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 at: http://kgd.gov.kz/ru/content/konvencii-ob-izbezhanii-dvoynogo-nalogooblozheniya-i-predotvrashchenii-ukloneniya-ot  , and bilateral investment protection agreements with 48 countries, at: 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 among Armenia, Belarus, Kazakhstan, Kyrgyz Republic, and Russia.  The EAEU is governed by the Eurasian Economic Commission, a supra-national body headquartered in Moscow, and is expected to integrate further the economies of its member states, and to 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. Furthermoore, since January 2016 Kazakhstan has applied a lower-than-Customs Union tariff rate on food products, automobiles, airplanes, railway wagons, lumber, alcoholic beverages, pharmaceuticals, freezers, 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 and the Interim Agreement on formation of a free trade zone with Iran.

Transparency of the Regulatory System

Kazakhstani 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 indicate that they adhere to international financial reporting standards, but accounting and valuation practices are not always consistent with international best practices.

The government consults on some draft legislation with experts and the business community; draft bills are available for public comment at www.egov.kz   under Open Government section, however, the comment period is only ten days, and the process occurs without broad notifications.  Some bills are excluded from public comment, and the legal and regulatory process, including with respect to foreign investment, remains largely opaque.  All laws and decrees of the President and the government are available in Kazakh and Russian on the website of the Ministry of Justice: http://adilet.zan.kz/rus  .

Implementation and interpretation of commercial legislation is reported to sometimes create 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 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.

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. For example, foreign companies report that local and national authorities arbitrarily impose high environmental fines, saying 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.

In 2015, President Nazarbayev announced five presidential reforms and the implementation of the “100 Steps” Modernization program.  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 improved 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.

Public financial reporting, including debt obligations, explicit liabilities, are published by the Ministry of Finance on their site: http://www.minfin.gov.kz/  .  However, authorities have indicated that contingent liabilities, such as exposures to state-owned enterprises, their cross-holdings, and exposures to banks, are not fully captured there.

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 notifies the WTO Committee on Technical Barriers to Trade about drafts of national technical regulations (although lapses have been noted).  Kazakhstan ratified the WTO Trade Facilitation Agreement (TFA) in May 2016, notified its Category A requirements in March 2016, and requested a five-year transition period for its Category B and C requirements.  Early in 2018, the government established an intra-agency Trade Facilitation Committee to implement its TFA commitments. By the end of 2018, Kazakhstan notified the WTO Trade Facilitation Committee that it has fulfilled its implementation commitments for Category A at 57 percent, for Category B at 19 percent, and for Category C at 24 percent. 

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 interferes in judiciary matters.  According to Freedom House’s Nations in Transit report for 2018, the executive branch dominates de facto the judicial branch.  Allegedly, pervasive corruption of the courts and the influence of the ruling elites results in low public expectations and trust in the justice system.  The Department of State’s Report on Human Rights 2018 noted that foreign 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 are perceived as subject to political influence and interference. Regulations or enforcement actions can be appealed 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, which opened in July 2018, includes its own arbitration center and court based on British Common Law and independent of the Kazakhstani judiciary.  The court is led by former Chief Justice of England and Wales, Lord 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 Entrepreneurial Code; the Civil Code; the Tax Code; the Customs Code of the Eurasian Economic Union; the Customs Code of Kazakhstan; the Law on Government Procurement; and the Law on Currency Regulation and Currency Control (will enter in force from July 1, 2019).  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, have been reported to create significant obstacles to business in Kazakhstan.

The Entrepreneurial Code outlines basic principles of doing business in Kazakhstan and the government’s relations with entrepreneurs.  The Code reinstates a single investment regime for domestic and foreign investors, 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 4, Industrial Policies.  The Code also provides for dispute settlement through negotiation, use of Kazakhstan’s judicial process, and international arbitration.  U.S. investors have expressed concern about the Code’s narrow definition of investment disputes and its lack of clear provisions for access to international arbitration.  The government’s single window for foreign investors, providing information to potential investors, business registration, and links to relevant legislation, can be found here: https://invest.gov.kz/doing-business-here/invest-guide/  .

A revised Law on Currency Regulation and Currency Control, which comes into force July 1, 2019, expands the statistical monitoring of transactions in foreign currency and facilitates the process of dedollarization.  In particular, the law will treat branches of foreign companies in Kazakhstan as residents and will enable the National Bank of Kazakhstan (NBK) to enhance control over cross-border transactions. The NBK is currently developing a list of companies that will keep their non-resident status; the majority of these companies are from extractive industries (see also Part 6, Financial Sector).

The legal and regulatory framework offered by AIFC to businesses registering on that territory differs substantially from that of Kazakhstan, although the Center is quite new, and experience is limited.  A more detailed analysis of the legal and regulatory implications of operating within AIFC can be found here: http://www.ftseglobalmarkets.com/news/astana-international-financial-center-can-it-become-a-regional-finance-hub.html  . 

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 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.

Post is aware of cases when owners of flourished and developed businesses had to sell their businesses to companies affiliated with  high-ranking and powerful individuals.

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 rules of the UN Commission on International Trade Law Arbitration, 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 48 countries.  These agreements recognize international arbitration of investment disputes. The United States and Kazakhstan signed a Bilateral Investment Treaty in 1994.  The U.S. Mission to Kazakhstan does not have any information on claims by U.S. investors under the Treaty during the last five years.

Kazakhstan does recognize arbitral awards by law.  In October 2018, ICSID ordered Kazakhstan to compensate a foreign company for USD 30 million in investments in oil transshipment and storage facilities.  In 2015, this company appealed to ICSID for Kazakhstan’s breach of its bilateral investment treaty and Energy Charter Treaty.  The 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 may be settled by negotiation, litigation or international arbitration.  Investment disputes between the government and large investors fall to the Astana City Court and may be appealed to 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.

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.

Kazakhstani law provides for government compensation for violations of contracts guaranteed by the government.  Yet, where the government has merely approved or confirmed a foreign contract, the government’s responsibility is limited to the performance of administrative acts necessary to facilitate an investment activity (e.g., the issuance of a license or granting of a land plot).  The resolution of disputes arising from such cases may require litigation or arbitration.

International Commercial Arbitration and Foreign Courts

The Law on Mediation offers alternative (non-litigated) dispute resolutions for two private parties.  The Law on Arbitration defines rules and principles of domestic arbitration. As of April 2019, Kazakhstan had 20 local arbitration bodies unified under the Arbitration Chamber of Kazakhstan.  Please see: https://palata.org/about/  .  The government noted that the Law on Arbitration brought the national arbitration legislation into compliance with the United Nations Commission on International Trade Law (UNCITRAL) Model Law, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and the European Convention on 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 a bilateral agreement on mutual judicial assistance with the respective 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 the European Bank for Reconstruction and Development’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. In February 2018, a U.S. company initiated arbitration against the Kazakhstani government for failure to pay approximately USD 75 million for the return of two hydropower plants, operated under a 20-year concession agreement.  In April 2018 the government responded by denying liability and seeking over USD 480 million in counterclaims.  The final evidentiary hearing is scheduled for July 22-26, 2019.  

Bankruptcy Regulations

Kazakhstan’s 2014 Bankruptcy Law protects the rights of creditors during insolvency proceedings, including access to information about the debtor, the right to vote against reorganization plans, and the right to challenge bankruptcy commissions’ decisions affecting their rights.  Bankruptcy is not criminalized, unless the court determines the bankruptcy premeditated. The Bankruptcy Law improves 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 eases bureaucratic requirements for bankruptcy filings, gives creditors a greater say in continuing operations, introduces a time limit for adopting rehabilitation or reorganization plans, and adds court supervision requirements. In 2018 the government introduced a bill to improve rehabilitation and bankruptcy procedures.

Investment Incentives

The government’s primary industrial development strategies, such as the Concepts for Industrial and Innovative Development 2015-2019 and 2020-2025 and the National Investment Strategy for 2018-2022, aim to diversify the economy from its overdependence on extractive industries.  The Entrepreneurial Code and Tax Code provide tax preferences, customs duty exemptions, investment subsidies, and in-kind grants as incentives for foreign and domestic investment in priority sectors. Priority sectors include agriculture, metallurgy, chemical and petrochemical industry, food production, and machine manufacturing.  Firms in priority sectors receive tax and customs duty waivers, in-kind grants, investment subsidies, and simplified procedures for 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: https://invest.gov.kz/doing-business-here/regulated-sectors/  .

The Investment Committee at the Ministry of Foreign Affairs 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.

Potential investors can apply for preferences through the government’s  single window portal; these are special offices for serving investors, located in the capital and at district service centers in every region of Kazakhstan.  More information is available here: https://invest.gov.kz/doing-business-here/invest-guide/  .

The government’s guarantee or joint government financing are normally used for large infrastructure projects.

To facilitate the work of foreign investors, especially in targeted, non-extractive industries, the government has approved visa-free travel for citizens of 61 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 up to 30 days.

Since January 2019, foreigners may obtain business, tourist, and medical treatment visas to Kazakhstan online at: www.vmp.gov.kz  .  However, the system is applicable only for visitors who have letters of invitation and enter Kazakhstan through the Nur-Sultan or Almaty airports.  Businesses registered in the AIFC have a relaxed entry visa regime, allowing them to obtain entry visas upon arrival at the airport and to obtain five-year visas for employees. 

Foreign Trade Zones/Free Ports/Trade Facilitation

The 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 twelve SEZs. In April 2019, President Tokayev signed amendments which extend the rights of SEZ managing companies and set up a single center to coordinate the activities of all SEZs and industrial zones in Kazakhstan.

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 would need to create joint ventures with local companies to continue to receive contracts at the country’s largest oilfields.  Although these recommendations are not legally binding, companies choose to abide by them. Some companies reported these forced joint ventures or consortia led to the creation of domestic monopolies, rather than stimulation of a healthy domestic market of oil service providers. For 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.  Amendments to the Expatriate Workforce Quota and Work Permit Rules: (a) eliminate special conditions for obtaining a work permit for foreign labor (e.g. requirements to train local personnel or create additional vacancies); (b) eliminate the requirement that companies conduct a search for candidates on the internal market prior to applying for a work permit; (c) reduce the timeframe for issuance or denial of work permit from 15 to 7 days; (d) eliminate the required permission of local authorities for the appointment of CEOs and deputies of Kazakhstani legal entities that are 100 percent owned by foreign companies; and (e) expand the list of individuals requiring no permission from local authorities (including non-Kazakhstani citizens working in national holding companies as heads of structural divisions and non-Kazakhstani citizens who are members of the board of directors of national holding companies). 

The Ministry of Energy, Ministry of Industry and Infrastructure 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.

Real Property

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

Secured interests in property (fixed and non-fixed) are recognized under the Civil Code and the Land Code.  All property and lease rights for real estate must be registered with the Ministry of Justice through its local service centers.  According to the World Bank’s Doing Business Report, Kazakhstan ranks 18 out of 190 countries in ease of registering property.

Under Kazakhstan’s constitution, land and other natural resources may be owned or leased by Kazakhstani citizens.  The Land Code: (a) allows citizens and Kazakhstani companies to own agricultural and urban land, including commercial and non-commercial buildings, complexes, and dwellings; (b) permits foreigners to own land to build industrial and non-industrial facilities, including dwellings, with the exception of land located in border zones; (c) authorizes the government to monitor proper use of leased agricultural lands, the results of which may affect the status of land-lease contracts; (d) forbids private ownership of: land used for national defense and national security purposes, specially protected nature reserves, forests, reservoirs, glaciers, 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.  The government maintains the land inventory and constantly updates its electronic data base, though the inventory data is not exhaustive. The government has also set up rules for withdrawing land plots that have been improperly or never used.

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.

Intellectual Property Rights

The legal structure for intellectual property rights (IPR) protection is relatively strong; however, enforcement needs further improvement.  Kazakhstan is not currently included in the United States Trade Representative (USTR) Special 301 Report. To facilitate its accession to the World Trade Organization (WTO) and attract foreign investment, Kazakhstan continues to improve its legal regime for protecting IPR.  The Civil Code and various laws protect U.S. IPR. Kazakhstan has ratified 18 of the 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.  Kazakhstan enacted two new IPR laws in 2015. One law enhances the role and transparency of organizations for collective management of copyright royalty payments, while the other law extends pharmaceutical patent protection period for up to six years, during which no new drug can be registered with reference to the test data or confidential information that was 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 punishments for violations of copyright, rights for inventions, useful models, industrial patterns, select inventions, and integrated circuits topographies. The law authorizes the government to target internet piracy and shut down websites unlawfully sharing copyrighted material, provided that rights holders had registered their 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, Kazakhstan accepted amendments to its IPR legislation that would streamline IPR registration and enforcement.  The law set up a more convenient, one-tier system of IPR registration and provided rights holders the opportunity for pre-trial dispute settlement through the Appeals Council at the Ministry of Justice.  In addition, the law included IPR protection as one of the government procurement principles that should be strictly followed by government organizations. The Ministry of Justice is working with the World Bank on developing new IPR legislation based on OECD norms, including patent protection of IT products. 

Kazakhstan’s authorities annually conduct a nationwide campaign called “Counterfeit” that is aimed at increasing public awareness about IP issues.  The Ministry of Justice and law enforcement agencies regularly report the results of their inspections.  In 2018, authorities reportedly seized over 260,000 units of counterfeit goods worth around USD 55,500. IPR violations are prosecuted regularly. In 2018, the Ministry of Internal Affairs reported 25 criminal copyright violations. Of these 25 cases, only two went to trial, seven were resolved by conciliation of parties, and the rest were revoked due to the absence of rightholders and lack of major damage.

Although Kazakhstan continues to make progress to comply with WTO requirements and OECD standards, foreign companies complain of inadequate IPR protection.  Judges, customs officials, and police officers also lack IPR expertise, which exacerbates weak IPR enforcement.

Capital Markets and Portfolio Investment

Kazakhstan maintains a stable macroeconomic framework, although weak banks inhibit the financial sector’s development (described further in next section), valuation and accounting practices are inconsistent, and large state-owned enterprises that dominate the economy face challenges in preparing complete financial reporting.  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 at the Kazakhstan’s Stock Exchange (KASE). 

KASE, in operation since 1993, trades a variety of services and products, including stocks, bonds, and derivatives, but it is under-developed and is an insignificant source of investment capital.  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. Early in 2019, the Moscow Stock Exchange bought three percent of KASE with intentions to purchase up to 20 percent before the end of 2019.  The number of listed companies grew from 154 in 2018 to 175 in 2019. Market shares of government securities and forex dominate at KASE. These two segments made up 56 and 28 percent, respectively, of KASE total trade in February 2019. By March 2019 stock market capitalization was USD 41.8 billion, and corporate bond market volume was USD 30.2 billion.  In 2013 the government decided to consolidate all pension savings into the state-owned Single Pension Fund, managed by the National Bank of Kazakhstan. The move practically froze the stock market, as private pension funds ceased to operate. The Single Pension Fund is the main source of local currency liquidity in the country and has accumulated USD 25 billion as of March 1, 2019. 

In July 2018 the government launched the Astana International Financial Center, a regional financial hub modeled on the Dubai International Financial Center.  The AIFC has its own stock exchange (AIX), regulator, and court (see Part 4).  The AIFC has partnered with the Shanghai Stock Exchange, NASDAQ, Goldman Sachs International, the Silk Road Fund, and others.  In November 2018, state-owned uranium production company KazAtomProm conducted its first initial public offering (IPO) of 15 percent of common shares jointly on the London Stock Exchange and the AIX, and plan further IPOs in the future.

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.  Money transfers associated with foreign investments, whether inside or outside of the country, are unrestricted; however, a currency contract must be presented if the transfer exceeds USD 10,000. 

Money and Banking System

Kazakhstan has 28 commercial banks.  As of March 1, 2019, the five largest banks (Halyk Bank, Sberbank-Kazakhstan, Forte Bank, Kaspi Bank and Bank CenterCredit) held assets worth approximately USD 41.2 billion, or about 62.3 percent of the banking sector’s total assets.  The Kazakhstan’s banking system remains weak despite repeated government bailouts; this weakness is exacerbated by poor risk management, doubtful capitalization in some large banks, as well as significant inter-bank and inter-SOE exposures.  The banking sector continues to be plagued by non-performing loans and problems with lending to related entities. The reported level of non-performing loans declined from 31.2 percent in January 2014 to 8.1 percent in February 2019, but the decline is accounted in large part by government bailouts and by several large banks creating special-purpose vehicles to transfer distressed assets, and then reporting on a deconsolidated basis. 

The government continues to support the banking sector through capital injections from the National Fund, the National Bank, and the Single Pension Fund.  The NBK continues its policy to consolidate the banking sector, most notably the 2017 merger of Kazkom and Halyk banks. At the same time, policies aimed at employment and investment stimulus through subsidized lending have contributed to weakness in banks’ portfolios and erosion of credit culture.  In 2016, the NBK introduced a policy of de-dollarization, in part to limit the foreign-currency denominated liabilities. As a result, the share of retail dollar-denominated deposits dropped from 80.3 percent in February 2016 to 46.2 percent in February 2019. 

The government’s implementation of Basel III standards was 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 the opening of subsidiaries.  This restriction will be removed by 2020 as a part of Kazakhstan’s WTO commitments.

Foreigners may open bank accounts in local banks if they have a local tax registration number.

Foreign Exchange and Remittances

Foreign Exchange

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, or 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.

Currently, foreign company branches are treated as non-residents, and can conduct transactions with both residents and non-residents in foreign currency or tenge.  Nevertheless, a new law on currency regulation, adopted in July 2018, will require branch offices of foreign companies to be treated as residents beginning in July 2019.  The new law will oblige all foreign branches,with a few exceptions, to conduct all transactions in tenge. The NBK maintains the law would help achieve its de-dollarization objectives, but foreign investors report the law would create onerous new requirements for them.  The provision on residency of foreign financial organizations is scheduled to be enacted in December 2020. For enterprises registered at AIFC, there is no restriction on the currency of operation and settlement.

Kazakhstan abandoned its currency peg in favor of a free floating exchange rate and inflation-targeting monetary regime in August 2015, although 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 2019, international reserves totaled USD 88.2 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  .  

Remittance Policies

The U.S. Mission in Kazakhstan 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, the National 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, a percentage of revenues from the oil sector, revenues from the privatization of state property, assets of quasi-sovereign companies, proceeds from sale of state farm lands, and 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 it. Information on external administrators and the assets they manage is confidential.  As of March 2019, the National Fund’s assets totaled USD 59 billion, around 38 percent of GDP.

The Fund is also used to support the government’s political and economic objectives.  The government receives regular transfers from the National Fund for general budget support, as well as special purpose transfers on the order of the President.   For example, early in 2019 President Nazarbayev established the Kazakhstan Investment Development Fund and directed around USD 1 billion from the National Fund to form its equity.  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.

According to the Ministry of Finance, as of January 1, 2019, the government owns 3,775 state-owned enterprises (SOEs), including all forms of SOEs from small veterinary inspection offices or hospitals in regions to large national companies,  controlling energy, transport, agricultural finance and product development. In April 2018 the World Bank estimated about 12,000 entities, based on a broader definition of all public establishments excluding schools and hospitals; these employ more than 340,000 people.  According to the 2017 OECD Investment Policy Review, SOE assets amount to USD 48-64 billion, approximately 30-40 percent of GDP; net income was approximately USD 2 billion. 

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/kz.ecc.anonym_activities/activities/statistics_fldr  . 

The National Welfare Fund Samruk-Kazyna (SK) is Kazakhstan’s largest national holding company, and manages key SOEs in the oil and gas, energy, mining, transportation, and communication sectors.  At the beginning of 2018, SK had 358 subsidiaries and employed around 300,000 people. By some estimates, SK controls around half of Kazakhstan’s economy, and is the nation’s largest buyer of goods and services.  In 2017, SK reported USD 72 billion in assets and USD 1.8 billion in consolidated net 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.  Although portfolio companies are required to have corporate governance standards and independent boards, in reality, political influence is obvious and unavoidable. First President Nazarbayev remains the Chairman of the Managing Council of SK. The Prime Minister chairs SK’s board of directors, Minister of National Economy and Aide to President also serve on the board, alongside three independent directors.  SK has special rights, such as the ability to conclude large transactions among 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/  .

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, the 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 2017, Baiterek had USD 13.6 billion in assets and earned USD 143 million in net profit.  At the end of 2018 its loan investment portfolios totaled USD 14 billion for 63 projects.  Please see https://www.baiterek.gov.kz/en  

Other 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 infrastructure, using new technologies, and stimulating investments in the communication sector (http://zerde.gov.kz/  ).

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

In its 2017 Investment Review, the OECD recommended Kazakhstani authorities identify new ways to ensure that all corporate governance standards applicable to private companies apply to SOEs.  Samruk-Kazyna adopted a new Corporate Governance Code in 2015. The Code, which applies 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. 

Privatization Program

Kazakhstan aims to decrease the SOE share in the economy to 15 percent by 2020, in line with OECD averages. To limit state participation in the economy, the government is 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. Despite the declared policy goals, the government continues to establish new quasi-sovereign organizations, such as  the Direct Investment Fund and the Fund for Developing Defense Industry created in 2019. 

By law and in practice, foreign investors may participate in privatization projects.  SK approved a comprehensive plan of privatization for 2016-2020, and as of December 2018 had sold full or partial stakes in 148 legal entities out of 214 subsidiaries of large national companies operating in the energy, mining, transportation, and service sectors.  SK plans 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.  Samruk-Kazyna sold 15 percent of its stake in KazAtomProm in a dual-listed IPO on the London Exchange and the Astana International Stock Exchange in November, 2018.  Kazakhstani investors bought nearly half of the total placed securities, and the Single Pension Fund bought one third. Information on privatization of SK assets is available here: https://www.sk.kz/investors/privatization/index_en.php?sphrase_id=33443  . The public bidding process is established in law.

The government also sells small, state-owned and municipal enterprises through electronic auctions.  For more information, please see: http://privatization.gosreestr.kz/en.  

Entrepreneurs, the government, and non-governmental 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 Ministry of National Economy.

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 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 that 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 such 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 pay 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.

Starting this year, members of EITI, including Kazakhstan, will be required to disclose the ownership of subsoil users.  In February 2019, Kazakhstan’s EITI National Secretariat solicited feedback from stakeholders on how to ensure compliance with the new requirements and will review recommendations in the coming months.

Kazakhstan’s rating in Transparency International’s (TI) 2018 Corruption Perceptions Index is 31/100, ranking Kazakhstan 124 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 July 2018 report on the fourth round of monitoring under the Istanbul Action Plan, OECD stated a lack of progress on 19 of 29 recommendations, including: implementation of a holistic anti-corruption policy in the private sector, ensuring independence of the anti-corruption agency, detailed integrity rules for political officials, independence of the judiciary and judges, mandatory anti-corruption screening of all draft laws, bringing the Law on Access to Information in line with international standards, effective and dissuasive liability of legal entities for corruption crimes; effectiveness and proportionality of sanctions for corruption crimes.

The 2015-2025 Anti-Corruption Strategy focuses on measures to prevent the conditions that foster corruption, rather than fighting the consequences of corruption.  The Criminal Code imposes tough criminal liability and punishment for corruption, eliminates suspension of sentences for corruption-related crimes, and introduces a life ban on employment in the civil service with mandatory forfeiture of title, rank, grade and state awards.  The Law On Countering Corruption introduces broader definitions of corruption and risks, anticorruption monitoring and analysis, and stronger financial accountability measures. The Law On Government Procurement prohibits companies, the managers of which are directly related to decision makers of contracting government agencies, from participation in tenders. The Law on Countering Corruption states that private companies should undertake measures to prevent corruption, while business associations can develop codes of conduct for specific industries.

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.  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.

Despite provisions in laws, however, corruption allegations are noted in nearly all sectors, including extractive industries, infrastructure projects, state procurements, and the banking sector.  The International Finance Corporation’s Enterprise Survey that gather responses from thousands of small and medium-sized enterprises in each of more than 100 countries, finds that respondents indicate corruption as the most severe obstacle to doing business in Kazakhstan.  For more information, please see: http://www.enterprisesurveys.org/data/exploreeconomies/2013/kazakhstan#corruption  .

The legal framework controlling corruption has been softened and important loopholes exist.  In 2018 the president signed into law a set of amendments to criminal legislation mitigating punishment for acts of corruption by officials, including decriminalizing official inaction, hindrance to business activity, and falsification of documents; significantly reducing the amounts of fines for taking bribes; and reinstituting a statute of limitation for corruption crimes.  The largest loophole surrounds the first president and his family. The Law on the First President of the Republic of Kazakhstan—Leader of the Nation establishes blanket immunity for First President Nazarbayev and members of his family from arrest, detention, search or interrogation. Journalists and advocates for fiscal transparency are reported to have faced frequent harassment, administrative pressure, and there are reports of disappearances and unaccounted deaths.

Resources to Report Corruption

Under the Law On Countering Corruption, 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.

TI maintains a national chapter in Kazakhstan.

Contact at the government agency responsible for combating corruption:

Alik Shpekbayev
Chairman, Agency for Civil Service Affairs and Countering Corruption
37 Seyfullin Street, Astana
+7 (7172) 909002
Email: a.shpekbaev@kyzmet.gov.kz

Contact at a “watchdog” organization:

Olga Shiyan
Executive Director
Civic Foundation “Transparency Kazakhstan”
Office 308/2
89 Dosmuhamedov str, Business Center Caspi
Almaty 050012
+7 (727) 292 0970; +7 771 589 4507
Email: oshiyantikaz@gmail.com

There have been no reported incidents of politically-motivated violence against foreign investment projects, and although small-scale protests do occur, large-scale civil disturbances are infrequent.  No major terrorist attacks took place in Kazakhstan in 2018. 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 presidential transition in neighboring Uzbekistan has opened the door to greater regional cooperation, including on border issues, Kazakhstan continues to exercise vigilance against possible penetration of its borders by extremist groups.  The government also remains concerned about the potential return of foreign terrorist fighters from Syria and Iraq.

After close to three decades, President Nursultan Nazarbayev resigned as president March 20, 2019, and was succeeded by Kassym-Jomart Tokayev, the former Senate Chairman and next in line of constitutional succession.  On April 9, 2019, President Tokayev announced that Kazakhstan would hold early presidential elections June 9, 2019. 

In the June 9 election, the first without First President Nazarbayev, President Tokayev was elected to a full term with 71 percent of the vote.  The Organization for Security and Cooperation in Europe (OSCE) published a preliminary assessment of the election June 10, noting in its press release that “a lack of regard for fundamental rights, including detentions of peaceful protestors, and widespread voting irregularities on election day, showed scant respect for democratic standards.”   In the March 2016 election for the Mazhilis (lower house of Parliament), Kazakhstan’s largest party, Nur-Otan, received 82 percent of the vote, while the business-friendly Ak Zhol party and the Communist People’s party each received 7 percent. All three parties supported Nazarbayev and his policies. The OSCE similarly critiqued the March 2016 election for its lack of adherence to OSCE standards for democratic elections.

Access to skilled labor is the third-most cited obstacle to doing business in Kazakhstan as reported by enterprise owners in IFC’s most recent Enterprise Survey; indeed the proportion of highly technically competent workers is small.  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. In 2018, Kazakhstan issued over 20,000 foreign work permits. Chinese workers received around 25 percent of all permits, with the rest going to foreign workers from Turkey, U.K., India, Ukraine, and others.  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 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 Part 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.  AIFC-registered entities may attract foreign workforce without any work permit.

Kazakhstan joined the International Labor Organization (ILO) in 1993, and has ratified 24 out of 189 ILO conventions, including eight fundamental 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, as well as conventions on equal pay and collective bargaining.  In March 2019, Kazakhstan’s Federation of Trade Unions proposed that the Kazakhstani government join five more ILO technical conventions on social security (minimum standards), minimum wage fixing, collective bargaining, part-time work, and safety and health in agriculture.

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) enable workers to form and join trade unions of their own choosing, (2) allow labor unions to benefit from 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 occupational safety and health, the right to organize, and the right to strike. Amendments to the Labor Code since July 2018 leave many labor-related issues, including dismissals and layoffs, to the discretion of employers. It imposes tighter collective bargaining restrictions on employees involved in labor disputes. According to the Ministry of Labor and Social Protection, 33.4 percent of all working enterprises have collective agreements. The Federation of Trade Unions reported in February 2019 that 31.2 percent, or two million out of 6.4 million employees, were members of trade unions in 2018.

Article 46 of the Labor Code gives the employer the right to change work conditions due to fluctuating market conditions with proper and timely notifications to employees.  Article 52 of the Labor Code gives the employer the right to cancel an employment contract in case of a decline in production that may lead to the deterioration of economic and financial conditions of the company.  Article 131 of the Labor Code allows for 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.  The 2017-2021 Productive Employment and Mass Entrepreneurship National Program, run by the Ministry of Labor and Social Protection, aims at connecting workers with permanent jobs. The program provides micro-loans and grants, and equips workers with basic entrepreneurial skills.    

Article 15 of the Labor Code describes a mechanism for resolution of individual labor disputes via direct negotiations with an employer, mediation commission, and court.  Article 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.

Labor unrest presents a risk where unemployment is high and where the bargaining power of limited skilled labor is relatively high, but authorities have been quick to intervene with controls and mitigating measures.  Unauthorized rallies against unemployment started in the oil town of Zhanaozen in the western Mangystau region on February 9, 2019. Currently, about 1,800 of the town’s 81,000 residents are officially registered as unemployed.  Regional authorities established an ad hoc commission and opened four employment offices to help the unemployed find jobs. The government is particularly sensitive to unrest in Zhanaozen, after a seven-month strike of oil workers in the town culminated in riots that killed 15 and injured over 100 in December 2011.

Over 200 workers from KKS-SICIM LLP, a local contractor of Karachaganak Petroleum Operating Consortium (KPO) that builds oil trunk pipelines in the Western Kazakhstan region went on a one-day strike on February 7, 2019, over working conditions and pay.  Around 1,000 workers of the Oil Services Company went on a one-day strike on May 22, 2018, in three different locations in the Mangystau region over labor contract cancelations.  The Ministry of Labor and Social Protection reported establishing a special commission to review the dispute.

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’ notice to their employer, include a list of complaints, and tell the employer the proposed date, time and place of the 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.  The Labor Union Law generally restricts workers’ freedom of association. Under the law, any local (and potentially independent) labor union must be affiliated with larger unions, and the right to freely establish and join independent organizations without prior authorization is restricted. On the basis of this law, in 2016 authorities did not allow the registration of one independent labor union and ordered its liquidation.  In 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 workers’ 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: https://www.state.gov/reports/2018-country-reports-on-human-rights-practices/.

The official unemployment rate in Kazakhstan has regularly been near five percent in recent years.  In 2018, Kazakhstan’s U-3 unemployment rate stood at 4.8 percent, and youth unemployment rate was 3.6 percent.

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 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, 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 Statistic Committee and 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, Qoshkarbayev Str., Astana
+7 7172 70 21 00
Email: InvestmentClimateKZ@state.gov
Country/Economy resources: American Chamber of Commerce (AmCham) in Kazakhstan www.amcham.kz