Kazakhstan

Statistics for Kazakhstan’s natural potential trip off the tongue: ninth largest in terms of land mass in the world; largest reserves of barite, lead, tungsten, and uranium; second largest reserves of chromite, silver, and zinc; third largest of manganese; significant deposits of copper, gold, and iron ore. Additionally, it has projected oil reserves of between 100-110 billion barrels by 2015 (which would place it in the top 3 of the world) and projected natural gas reserves of 5 trillion cubic metres by 2015. Kazakhstan is as a result extremely attractive to foreign investors. The World Bank statistics show that prior to the recession, Kazakhstan enjoyed strong economic performance from 2000 to 2007 with average real GDP growth of 10 percent. However, Transparency International’s (TI) Corruption Perceptions Index ranks it 105 out of 178, which makes it a challenging country in which to operate, particularly in light of UK’s new Bribery Act.

Kazakhstan’s current President, Nursultan Nazabayev, has been in power since 1989, when he was appointed First Secretary of Communist Party. He won the first election held after the fall of communism in 1991 and has retained his hold since. In the most recent elections held in 2005, Nazarbayev reportedly won 90% of the votes. The opposition party claimed the elections were rigged and European observers stated that it was flawed. More recently, in June 2010 the Kazakh Parliament named him “Leader of the Nation” and “President for Life”, guaranteeing Nazarbayev a say in all domestic and foreign issues even after departing the presidency. The question of his succession has prompted much dialogue and infighting among the country’s political factions, particularly because there is no succession plan in place. Rivalries between various family members including two of Nazarbayev’s sons-in-law Timur Kulibayev and Rakhat Aliyev have not clarified matters any and appear to have only encouraged Nazarbayev to continue consolidating his increasingly authoritarian power.

As TI’s index suggests, corruption remains one of the greatest risks to foreign companies (particularly for SMEs) investing in emerging markets, and often comes from the business licensing, customs and tax authorities. One of the most common forms of corruption in Kazakhstan is administrative, including routine extortion and shadow control of companies by officials, which is believed to have fuelled inflation. Efforts have been made to improve transparency with the introduction in an Anti-Corruption Code in 2009, salary increases for lower levels of officials and competitive examinations for these officials to increase awareness of dealing with foreign companies. However, given the control exercised by the executive over all areas of government, and the lack of transparency in decision-making at top, it is difficult to expect the lower level officials to comply with new rules or regulations.

Most foreign companies present in Kazakhstan are investing in the natural resources industry and one key question to understand before purchasing any licence or land is whether a contract could be a threat to national security. With the President signing a law in 2007 allowing the Government to annul any contracts, along with efforts to increase duties on foreign companies, Kazakhstan continues to be is a high risk country in which to operate despite its enormous potential.

Posted date 14-02-2011