Investments
as a key driver of Kazakhstan’s economic growth: New enterprises, advanced
technologies and job creation
During
the years of independence in Kazakhstan, a lot of work has been done in the
investment sphere. For the first decades of sovereignty, the republic actively
accepted offers of foreign investors to invest in new promising projects.
During its formation, Kazakhstan needed external support, and it was the influx
of foreign investment that could contribute to the systematic development of
the country's economy and, even to some extent, become a growth driver. Today
Kazakhstan became a new opportunity and huge potential for profitable
investment. Our republic occupies a strategically important location, has a
favorable environment for doing business, protecting the rights of investors
and investment incentives.
Last
week, Prime Minister Askar Mamin paid a working visit to the United States of
America, where it was agreed that the leaders of the American agribusiness
would invest in opening meat processing and irrigation systems in Kazakhstan.
The Head of Government also met with the leadership of leading world companies
in the field of innovative and digital development, venture financing and
energy with the aim of implementing joint projects involving American
technology.
How
much investment attracted to Kazakhstan in 28 years?
Today,
our country can confidently choose investors from a rather decent line of
people who want to work in a Kazakhstani state. During the period of independence
of Kazakhstan, $ 330 billion of foreign investments from more than 120
countries was attracted. The bulk of investments - more than 50% are in the
countries of the European Union, in the United States — 15% of foreign direct
investment, about 5% are investments from the UK and China.
It is
worth noting that every year the economy of Kazakhstan becomes more competitive
and attractive to investors. At the end of October of this year 16.8 thousand
companies with foreign capital operate in the country — 18.1% more than in the
same period a year earlier (14.3 thousand companies). This year, Kazakhstan
entered the top 55 countries in the ranking of global competitiveness, rising
to 4 lines.
Speaking
about projects, it should also be noted that the dynamics and structure of
foreign investment in Kazakhstan is changing. If earlier in the industrial
context projects in the extractive industries prevailed, now there is a high
activity of investors in other sectors.
Which
countries invest most in the economy of the Republic of Kazakhstan and in what
areas?
According
to the results of 11 months of 2019, investors from 26 countries were attracted
to Kazakhstan, such countries as the EU ($10.1 billion, 37 projects), Russia
($5.4 billion, 26 projects), Turkey ($1.6 billion, 16 projects), the USA ($718
million, 9 projects) and Singapore ($2.1 billion, 7 projects).
The
emphasis in the policy of attracting investors is placed on the industrial
production of high value-added products, services and new technologies.
As a
result, today the leaders in the volume of investment projects in Kazakhstan
are: engineering, mining and metallurgy and metallurgy, agribusiness, renewable
energy, petrochemicals, chemical industry, transport and logistics, as well as
building materials.
The largest
volume of investments is traditionally observed in mining and quarrying: $7.3
billion, or 60.1% of the total.
Compared
to the same period last year, the amount of investment increased by 8.1%.
The
three most attractive industries also included manufacturing, wholesale and
retail. This three sectors has a significant impact on the economic development
of Kazakhstan.
So,
for January – September 2019, the country's economic growth amounted to 4.3%
over the corresponding period a year earlier, and the main contribution was
made by the mining industry (+ 3.1% per year), as well as the processing sector
(+ 3.5% per year) and trade (+7, 6% per year).
The
top five industries in terms of foreign direct investment inflows also included
transportation and storage ($642 million, + 49.2% per year) and construction
($463.2 million, + 45.1% per year).
Promising
industries include information and communication technology (ICT), tourism and
finance. This group consists of industries in which investors may be interested
in the long term. Positive results in these areas are already observed.
So, in
2018, the gross inflow of foreign direct investment in the field of information
and communications increased by 27.8%, to $185 million. And in the first half
of 2019, FDI inflows reached $142.5 million, an increase of 14.7% per year.
Support for projects in the field of information and communication technologies
helps enterprises to compete successfully in conditions focused on the
high-tech global economy. Meanwhile, the gross inflow of FDI in financial and
insurance activities in 2018 increased by more than 3 times, to $1.3 billion.
By
2027, the number of announced projects in priority sectors with the
participation of foreign investors should reach 124, totaling $ 5 billion. The
growth of investment in fixed assets in the manufacturing industry, in turn,
from 2020 to 2027 should be 109.8% per year .
Doing
Business 2020: Kazakhstan took 25th place among 190 countries
In the
framework of the National Investment Strategy, investment promotion activities
are focused on priority sectors of the economy of Kazakhstan. These include the
food industry, mineral processing, metallurgy, chemistry and petrochemistry,
and mechanical engineering.
It
should be noted that the issue of attracting foreign investment in the economy
is relevant in any country in the world. The race for foreign investment has
entered not only developing countries, but also developed countries. Countries
take measures to improve the investment climate and provide the most
competitive conditions for doing business, reduce or abolish taxes, provide a
lot of benefits, infrastructure solutions, etc.
In
turn, investors give preference to countries that guarantee the preservation of
capital, the rule of law, a transparent and comfortable business environment.
Thanks to a number of successfully implemented reforms, the introduction of new
approaches to attracting investment and working with investors, Kazakhstan is
one of such countries.
Kazakhstan
ranked 25th among 190 countries in the World Bank's Doing Business 2020
ranking. Our country is in the top ten in such indicators as the protection of
the rights of minority investors and compliance with contracts. Recent reforms
have greatly simplified business registration. For example, it takes only 1 day
to start a business in Kazakhstan, and only 3 days to register a property.
The
investment attractiveness of our country is significantly increasing. So, fDi
Intelligence (a subsidiary of the Financial Times) assigned Kazakhstan the
first place in terms of the “Cost Effectiveness for the Future Location of
Production Facilities 2018/19.”
In
2017, the republic became the 48th country to join the Organization for
Economic Co-operation and Development Declaration on International Investment
and Multinational Enterprises and an associate member of the OECD Investment
Committee.
In
addition, Kazakhstan has signed 47 bilateral and 1 multilateral agreements on
mutual protection and promotion of investments, which guarantee the rights of
investors.
Along
with this, the Council of Foreign Investors under the President of the Republic
of Kazakhstan is successfully operating in the country. The Council for
Improving the Investment Climate and the Coordinating Council for Investment
Promotion, where the Ombudsman is the Head of Government of the country, Askar
Mamin, also conduct their activities under the auspices of the Government.
Why
is it profitable for an investor to choose Kazakhstan?
Kazakhstan
is located at the crossroads of Europe and Asia, between the two largest world
markets. This provides obvious benefits, such as export potential and access to
major Asian and European markets. Due to its location, Kazakhstan has become a
modern transit hub in the heart of the Eurasian continent.
Our
republic provides preferential access to the regional market for more than 500
million consumers, including the EAEU market with more than 180 million
consumers, the markets of Central Asia (50 million), Western China (300
million) and the countries of the Caspian Sea (150 million).
At the
same time, Kazakhstan plays a key role in the implementation of the Belt and
Way initiative. More than 3,000 km out of 10,000 km in total will pass through
the territory of Kazakhstan, which makes it an important section of the main
land corridor and will significantly reduce the time and cost of
transportation.
Since
the country gained independence, more than $330 billion of foreign direct
investment has been attracted to Kazakhstan. According to UNCTAD, in 2018,
almost 60% of investments in Central Asian countries are in Kazakhstan.
Moreover,
over the past ten years, the national economy has received $ 250.2 billion, or
about 80% of all historically constituted investment flows. This fact indicates
the effectiveness of investment policy.
The largest
volume of foreign direct investment was recorded in:
·
2011 ($ 26.5
billion)
·
2012 ($ 28.9
billion)
·
2018 ($ 24.3
billion)
Despite a
decrease in global investment flows in 2018, Kazakhstan has seen an increase.
So,
according to the results of 2018, the gross inflow of FDI in the Republic of
Kazakhstan increased by 15.8% per year, to $ 24.3 billion. The growth affected
the ratio of FDI to GDP, which amounted to 14.5% (in 2017 — 12.9% )
At the same
time, the Government of the Republic of Kazakhstan plans to bring the ratio of
gross FDI to GDP to 19% by 2022.
According to
the results of the first half of 2019, the inflow of FDI into the economy of
the Republic of Kazakhstan amounted to $12.1 billion (a year earlier — $12.5
billion). In 2018, geographically, most direct investments came from investors
from the Netherlands ($7.4 billion), the United States ($5.3 billion) and
Switzerland ($2.5 billion).
For
reference: In 2018, global foreign direct investment continued to decline for
the third year in a row, falling by 13.4% to $1.3 trillion. The decline is
mainly due to the large-scale return of the accumulated overseas profits of US
multinational enterprises after the tax reforms carried out in the country at
the end of 2017.
FDI inflows
to developed countries reached their lowest level since 2004, down 27%. The
influx of investment in Europe halved, to less than $200 billion.
Meanwhile,
investment in developing countries has increased by 2%. As a result of this
increase and an abnormal decline in FDI in developed countries, the share of
developing countries in global FDI has increased to a record 54%.
The largest
inflow of FDI in 2018 was observed in the USA ($252 billion), China ($139
billion) and Hong Kong ($116 billion). The top 5 countries also included
Singapore ($78 billion) and the Netherlands ($70 billion).
It is worth
noting that in 2019, the decline in global FDI inflows continues. According to
the OECD, global foreign direct investment flows in the first half of 2019
decreased by 20%, to $ 572 billion. In the first quarter of this year, the
global FDI flow decreased by 5%, in the second quarter – by 42% per year.
How
comfortable are the conditions for investors created in Kazakhstan?
Since
December 2018, the functions of attracting investments were transferred to the
Ministry of Foreign Affairs of the Republic of Kazakhstan, in turn, the policy
of attracting investments was transferred to the Ministry of National Economy
of the Republic of Kazakhstan. The Investment Committee and the National
Company KAZAKH INVEST JSC, established by the Government of the Republic of
Kazakhstan and being the sole negotiator on his behalf, were given the
authority to conduct negotiations with investors and monitor the implementation
of investment projects into the structure of the Ministry of Foreign Affairs of
the Republic of Kazakhstan.
Investors
are provided with a full range of support services according to the “one-stop
shop” principle - from searching for an idea to putting a project into
operation, and also monitors in the post-investment period, which allows
working with each investor and project precisely, at all levels.
Such a
mechanism allows broadcasting projects from regions directly to foreign
agencies to search for potential investors, and vice versa.
Today,
thanks to the Government’s team work, a “soft infrastructure” has been built
for investors: systematic work has been put in place to clarify Kazakhstani
laws and procedures, transparency in decision-making, and reduced
administrative burden.
It is
a well-known fact that not only the presence of a promising industry, sales
markets, but also a comfortable environment for business is important for any
company. And this is the institutional environment, the stability of
legislation, the conditions of the visa regime and a host of other components.
Therefore, new approaches have been developed and implemented, which include
the development of investment proposals, accompanying investors, identifying
and eliminating adverse factors.
In
matters of supporting domestic investors, important issues such as the search
for strategic investors with a willingness to expand their business, access to
new markets, and ensuring synergies in supply chain relations are addressed,
since investors need local partners and reliable suppliers.
In
order to increase the efficiency of work to attract investment in the country's
economy, an information and monitoring CRM system is being introduced, which
includes all the agreements, roadmaps being developed for their implementation,
and tasks are assigned to all participants in the process - central state and
local executive bodies.
In
total, the KAZAKH INVEST information and monitoring system currently contains
228 investment projects worth $54.3 billion. Of these, 168 projects worth about
$46 billion are being implemented and are being worked out with a high degree
of participation with the participation of foreign investors.
Since the
beginning of the year, about 40 new foreign investors have been attracted. Among them, the following can be
noted:
·
SUEZ (France) – construction
and reconstruction of sewage treatment facilities;
·
Fortescue (Australia) –
geological exploration and development of non-ferrous metal deposits;
·
Demir Export (Turkey) –
construction of the Syrymbet mining and metallurgical complex for the
extraction and processing of tin ores (the investor carries out a comprehensive
examination of the deposit);
·
Suhail Bahwan Group (Oman) –
construction of a base oil plant;
·
RHI Magnesita (Austria) –
construction of a plant for the production of refractory materials;
·
Bitfury (Netherlands) –
construction of a blockchain competence center;
·
Shanghai Construction (PRC) –
construction of a multidisciplinary clinic with 1000 beds;
·
"Bobrovsky
quartzite" (RF) – production of silicon carbide;
·
Eco-Culture (RF) –
construction of industrial greenhouses.
Today, on
the KAZAKH INVEST pipeline, at various stages of the implementation of 27
agricultural projects for a total of $3.1 billion. All are implemented with the
participation of foreign investors.
What work is
being done to attract investment in the country?
As part of
the implementation of the KAZAKH INVEST Development Strategy for 2018-2027, the
work on attracting investments into the country has been systematized. The
company has searched and selected new “niche” projects for offering to
potential investors.
As a
result of this work, about 200 investment projects from local businesses were
collected. KAZAKH INVEST together with Deloitte prepared business plans,
teasers and financial models for 60 "niche" projects in industries
such as metallurgy, gas chemistry, food processing, tourism and others.
For
example, Kereku-Agro (a starch production complex in Kostanay region), Green
Land Alatau (expansion of a greenhouse complex in Almaty region),
KazExportAstyk (processing of soy crops in North-Kazakhstan region), Condensate
Group (production of base oil components from natural gas in WKO), KazAzot
(production of mineral fertilizers in the Mangystau region), Kazakhmys
(industrial development of the Zhaisan copper deposit in the Zhambyl region),
Aktau foundry (long products in the Mangystau region), South Oil and BI
Construction (construction of a clinic and a multidisciplinary hospital in the
city of Shymkent and Turkistan region) and others.
Having
such a list of investment projects removes questions from investors – which
industries and regions to invest in Kazakhstan.
An
important role in promoting investment potential and specific projects is
played by the implementation of investment measures, which are collected by the
management of large companies. This is an effective platform for establishing
business relations and informing about investment opportunities, at the same
time, meticulous work is carried out with investors on the fields of such
events, target investors are studied in advance, factors affecting
decision-making, potential partners are selected from the Kazakh side.
According
to the results of 11 months of 2019, as part of the 10 measures taken, a total
of agreements was reached on the implementation of more than 30 investment
projects totaling $2 billion. About 40 thousand jobs will be created on
projects.
Meanwhile,
13 special economic zones and 24 industrial zones are currently operating in
Kazakhstan, which exempt investors from various types of tax and customs
duties.
Special
economic zones provide a plot of land, access to established infrastructure. In
case of concluding an investment contract with the Investment Committee of the
Ministry of Foreign Affairs of the Republic of Kazakhstan, investors can
receive such investment preferences as exemption from customs duties on
imported equipment and raw materials, in-kind grants, tax benefits.
In
addition, the launch of the Astana International Financial Center in the
capital of Kazakhstan is an important initiative to ensure the rule of law and
protect the rights of investors.
The
AIFC Court and the International Arbitration Center (separate and independent
from the judiciary of the Republic of Kazakhstan) is a court system of English
law that operates according to the highest international standards for
resolving civil and commercial disputes in the AIFC.
The
center is a financial hub for companies and investors from Central Asia, the
republics of Transcaucasia, the EAEU, the Middle East, Western China, Mongolia
and Europe. AIFC participants are provided with tax benefits up to 50 years,
simplified currency, visa and labor regimes. This is the only center in the
region whose work is based on English law.
Today,
the AIFC has every opportunity to become a regional center for the development
of green, Islamic and innovative financial instruments.
In
order to increase the competitiveness of the national economy and stimulate
investment activity of the Republic of Kazakhstan, a Direct Investment Fund has
been created that will allow for the implementation of large investment
projects with the participation of investors on the principle of co-investment.
https://primeminister.kz/en/news/reviews/investments-as-a-key-driver-of-kazakhstan-economic-growth-new-enterprises-advanced-technologies-and-job-creation