EY Survey: Stability Drives FDI in Kazakhstan

Growing Beyond
EY's attractiveness survey

Kazakhstan 2013

Unlocking value

Attractiveness

EY’s attractiveness surveys
EY’s attractiveness surveys are widely recognized by our clients, the media and major public
stakeholders as a key source of insight on foreign direct investment (FDI). Examining the
attractiveness of a particular region or country as an investment destination, the surveys are
designed to help businesses to make investment decisions and governments to remove barriers
to future growth. A two-step methodology analyzes both the reality and perception of FDI in
the respective country or region. Findings are based on the views of representative panels of
international and local opinion leaders and decision-makers.

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Cover: The Bayterek monument and observation tower reflecting in the singing fountains of Astana, Kazakhstan.

Kazakhstan 2013

Contents

www.ey.com/attractiveness

02 Foreword
03 A strategic gateway on the New Silk Road

Kairat Kelimbetov, Deputy Prime Minister of the Republic
of Kazakhstan

04 Executive summary

06

A new world order

How is Kazakhstan's economy performing and what is its place
in today's global economy?

10

Perception

22

Future

30

Actions

A safe place to grow
What are Kazakhstan's key economic strengths, how does
its economy compare with regional competitors, what
improvements are investors seeking and what are their
immediate investment plans for the country?

Mining new opportunities
How do investors perceive Kazakhstan’s future attractiveness
and what sectors are set to act as the country's engines
of growth?

The path to prosperity
What steps can Kazakhstan take to help it realize its potential
as an investment destination?

38 Methodology
40 EY in Kazakhstan

Unlocking value

1

Foreword

Foreword
Strength in stability
Welcome to the third edition of EY’s
Kazakhstan attractiveness survey.

Jay Nibbe
Area Managing
Partner,
EMEIA — Markets,
EY

Erlan
Dosymbekov
Managing Partner,
Kazakhstan and
Central Asia, EY

In this new edition, we continue to analyze
the latest foreign direct investment
(FDI) trends in Kazakhstan and explore
what investors think about the country’s
investment climate, as well as its potential.
This year, the country’s macroeconomic,
social and political stability have taken
over as the key driver of investment.
This represents a shift from our previous two
surveys, which showed that the country’s
low labor costs and productivity gains on
offer were its most appealing features.
This change can be attributed in part to the
ongoing instability of the global economy.
It is this uncertainty that has led investors
to look to countries such as Kazakhstan as a
safer place to grow.
The reality of foreign investment in
Kazakhstan confirms this perception. While
global FDI inflows declined by 18% between
2011 and 2012, Kazakhstan remained
a stable destination for investors, receiving
US$14b in FDI inflows.
Investors continue to perceive
Kazakhstan as a treasure trove of
natural resources, while they also value
some knowledge-based, high-value-add
sectors that hold considerable promise.
The Kazakhstan Government remains
committed to reducing the country's
dependence on extractive industries
and developing a more balanced,
knowledge-driven and investor-friendly
economy. It continues to improve the
competitiveness and productivity of
priority sectors, such as agriculture
and agro-processing; construction and

2

EY’s attractiveness survey Kazakhstan 2013

construction materials; oil refining and
support services; metallurgy; chemicals
and pharmaceuticals; transportation;
automotive; telecommunication;
biotechnology; and alternative energy.
However, our survey findings reveal
a wide perception gap between foreign
investors who are already established in
Kazakhstan and those who are not. Current
investors are much more aware of the
country’s environment and are willing to
explore further possibilities in the market.
Conversely, Kazakhstan needs to change
the widely held perceptions of potential
new investors. Most seem not to have
Kazakhstan on their investment radar or
remain unaware of the country’s attractive
features, locations and sectors that present
opportunities for growth.
To overcome this challenge, it is important
that the Kazakhstan Government intensifies
its efforts to communicate the country’s
potential to the rest of the world. Even
in a challenging global environment, the
message can get through that Kazakhstan is
building a solid framework for moving up the
value chain and is developing a welcoming
business culture that is conducive to
innovation and growth.
As we present our third Kazakhstan
attractiveness survey, we would like to thank
the investors who have taken the time to
share their thoughts with us.
We hope the report makes a positive
contribution to the development of
Kazakhstan’s investment climate, and
provides useful insights for companies, as
they prepare their future investment plans.


A strategic gateway
on the New Silk Road

Kairat Kelimbetov
Deputy Prime Minister of the Republic of Kazakhstan

Kazakhstan is becoming a critical part of the emerging “New
Silk Road” that connects the East with Europe, Turkey and the
Middle East.
An advantageous geographical position, regional integration
initiatives and an improving business climate are three
key reasons why Kazakhstan is emerging as an attractive
investment destination.

“China and Russia are among
Kazakhstan’s three largest
trade partners.”
Two of the four BRIC countries, Russia and China, share a border
with Kazakhstan. China and Russia are among the top three
largest trade partners of Kazakhstan. Thanks to its mineral
endowment, Kazakhstan has become China’s most important
economic partner in Central Asia. Bilateral economic ties should
expand even further, given each country’s strong growth rates
and China’s growing demand for Kazakhstan’s rising exports
of oil and gas. Currently, 20% of Kazakhstan’s oil is exported to
China. As part of our overall industrial diversification process,
we are also making efforts to cooperate further with China in
non-resource areas.

With the introduction of the Customs Union and Common
Economic Space, the single market of Belarus, Kazakhstan and
Russia contains nearly 170 million people. International trade
within the Customs Union was expected to reach US$125b
in 2012 compared with US$92b the year before. Russia and
Kazakhstan both experienced a 37% increase in trade in the
Union from 2011 to 2012. And, of course, Kazakhstan also
looks forward to joining the World Trade Organization (WTO)
in the near future.
Kazakhstan has an increasingly business-friendly environment.
The World Bank’s Doing Business 2013 index ranks it 49th, up
from 56th place in 2012. We are 10th in protecting investors,
17th in paying taxes and 28th in registering property. There
are still some challenges in terms of dealing with construction
permits and import-export trade requirements, but we
are working hard to speed up procedures and streamline
documentation so that requirements are brought closer to
OECD averages. Overall though, Kazakhstan was named as one
of the 10 economies improving the most across three or more
areas of doing business between 2011 and 2012. And the World
Bank has included Kazakhstan in its list of the world’s 20 most
attractive investment destinations.
By 2016, GDP per capita in Kazakhstan is expected to reach
US$15,000, compared with the current level of over US$12,000 —
and the country will be classified by the World Bank as a “high
income economy.” All in all, these are significant achievements for
a country that only became independent just over 20 years ago.

Unlocking value

3

Executive summary

Executive summary
1

2

Stability amid global
uncertainty

FDI on growth
trajectory

FDI inﬂows in Kazakhstan (US$b)

Real GDP growth (%)
2011

2012

2013

2014

Kazakhstan 7.5%

5%

6%

7.5%

RGMs

6.4%

4.7%

5.1%

6%

World

3.9%

3.2%

3.3%

4%

11.6
2010

Source: Ernst & Young's Rapid-Growth Markets Forecast, April 2013; World Economic
Outlook, IMF, April 2013.

Kazakhstan’s stable macroeconomic environment is viewed as its
most attractive feature by 84% of investors currently established in
the country. Having recorded ongoing growth over the last few years,
the country is climbing up the ladder to become one of the top three
fastest-growing economies in 2015 and, in the eyes of international
investors, is a stable place in which to invest.
• For more on Kazakhstan in the world economy, turn to p.6

+1%

13.9
2011

14
2012

Source: World Investment Report 2013, United Nations Conference on Trade and
Development (UNCTAD), June 2013.

Despite a sharp decline in global FDI in 2012, FDI inflows in Kazakhstan
registered a modest increase. The country attracted US$14b in FDI
inflows, second only to Russia in the Commonwealth of Independent
States (CIS) region. The reality is in line with investors’ perception
of Kazakhstan as the region’s second-most attractive investment
destination.
• For more on CIS FDI inflows and attractiveness, turn to pp.8 and 11

4

3

Lack of awareness hampering
FDI growth

Investors prioritize strong
fundamentals

Most attractive features of Kazakhstan, according
to established investors
Attractive
feature

+20%

Awareness gap of foreign investors
Average % of “can't say” responses for parameters on Kazakhstan's attractiveness

Not attractive
feature

Macroeconomic stability

84%
80%

10%

Telecommunication infrastructure

78%

9%

Corporate taxation

68%

13%

Performance in sustainable development 63%

45%

10%

Stable political and social environment

27%

Source: EY’s 2013 Kazakhstan attractiveness survey (total respondents:
64 established in Kazakhstan).

Investors prioritize Kazakhstan's strong fundamentals as its
most attractive feature. Beyond Kazakhstan’s political, social and
macroeconomic stability, they highlight its telecommunications
infrastructure and corporate taxation as most attractive. However,
the country’s critical weaknesses are found in its innovation
capacity as well as the transparency and predictability of its
business environment.
• For more on Kazakhstan's strengths and challenges, turn to p.14

4


12%

Doing business
in Kazakhstan

Not yet established
in Kazakhstan

Source: EY’s 2013 Kazakhstan attractiveness survey (total respondents: 206 — 64
established in Kazakhstan; 142 not established in Kazakhstan).

The three “As” — Astana, Almaty and Atyrau — are the only cities
in Kazakhstan that seem to be known to foreign investors, while
the majority of non-established investors were not able to name an
attractive city in Kazakhstan. Similarly, potential investors lack clarity
about the country’s strengths and challenges; the impact of WTO
membership; the introduction of the regional Common Economic
Space (CES); and the sectors that offer growth opportunities. However,
foreign companies already established in Kazakhstan displayed a good
understanding of the country’s current investment climate and the
challenges that must be overcome in order to improve it.
• For more on locations and need to increase awareness, turn to pp.18 and 31

EY’s 2013 Kazakhstan attractiveness survey analyzes:
a) The real attractiveness of Kazakhstan among foreign investors, based on the World Bank, the World Economic Forum’s Global Competitive
Report 2012–2013, reports from fDi Markets and UNCTAD as well as government sources, such as the National Bank of Kazakhstan
b) The perceived attractiveness of Kazakhstan among foreign investors, based on a representative number of interviews conducted with a panel
of international business leaders
• For more on the methodology, turn to p.38

5

Diversification boosting
confidence

Kazakstan’s fact sheet

Diversifying for the future

Capital

Land area

• For more on sectors driving growth in Kazakhstan, turn to p.24

6

Five
steps

How to improve Kazakhstan's attractiveness
Spread
the word

Move up the
value chain

Remove
regional
disparities

Enhance
the business
environment

Foster
innovation

Source: EY’s 2013 Kazakhstan attractiveness survey.

To unlock its growth potential, Kazakhstan must do more to make
international investors aware of its strengths. To bring about
sustainable and balanced growth, it is critical for the Government
of Kazakhstan to reduce its reliance on the oil and gas sector.
To address the country’s wide regional economic disparities, the
social infrastructure and health care system require development.
To improve the business climate, Kazakhstan’s regulatory
environment needs to be made more transparent and predictable.
And to boost innovation, incentives are required, along with better
education and training in new technologies.
• For more on actions to realize Kazakhstan's potential, turn to p.31

16.9 million

Proportion of urban population in
total (2013)

55% of total population

Age structure (2012 est.)

0–14 years (24.4%); 15–64 years
(68.7%); 65 and above (6.7%)

Languages

Kazakh (official language), Russian
(inter-ethnic communication)

President

Nursultan Abishuly Nazarbayev
(since 24 April 1990)

Prime Minister

Serik Nygmetovich Akhmetov
(since 24 September 2012)

Nominal GDP (2012)

US$202b

GDP growth (% per year) (2012)

5%

GDP per capita PPP (2012)

US$12,259 (2012 est.)
Agriculture (5.2%); Industry
(37.9%); Services (56.9%)
12.2%
8.975 million
5.3%

CPI inflation (% per year) (2012)

Nearly three-quarters of investors expect the historically powerful
energy and mining sectors to attract the most FDI in Kazakhstan
in the next three years. However, Kazakhstan’s Government
acknowledges the need to diversify its economy, and is promoting
initiatives and policies to improve knowledge-based industries so
that they become more competitive. As a result, investors are finding
that a more diverse range of sectors, including private and business
services, life sciences, real estate and construction, are beginning to
emerge as attractive investment options. As diversification efforts
intensify, the importance of these sectors is set to grow.

Population (January 2013)

Unemployment rate (2012)

Source: EY’s 2013 Kazakhstan attractiveness survey (total respondents: 206 —
64 established in Kazakhstan; 142 not established in Kazakhstan).

2,724,900 sq.km

Labor force (2012)

Agriculture

Russia, Uzbekistan, China,
Kyrgyzstan and Turkmenistan

Public debt (January 2013)

Real estate Transportation
and
and
construction
automotive

Bordering countries

5.1%

Stock Exchange

Kazakhstan Stock Exchange
(KASE)

Central Bank

National Bank of Kazakhstan

Corporate income tax rate

20%

Individual income tax rate

Life sciences

Kazakhstan is divided into 14
provinces and 2 cities of national
significance: Astana and Almaty

GDP composition by sector (2012)

Metals and
mining

Astana

Administration

Energy

10%

State value-added tax

12%

Major cities

Almaty, Astana, Karaganda,
Shymkent, Atyrau, Aktau

Time zone

Astana and Almaty time: GMT +6

Currency unit

Kazakhstan Tenge (KZT)

Annual average exchange rate (2012) US$1=KZT149.11
EUR1=KZT191.67
RUR=KZT4.80
CNY1=KZT23.64
Sources: Official site of the President of the Republic of Kazakhstan, www.
acorda.kz, accessed 8 July 2013; National Bank of Kazakhstan; The Agency
of Statistics of the Republic of Kazakhstan; Ernst & Young’s Rapid-Growth
Markets Forecast Spring Edition, April 2013, Ernst & Young, 2013.

Unlocking value

5

Kazakhstan in context

A new world order

How is Kazakhstan's economy performing and what is its place in today's global economy?

Real GDP growth rates

3.4%

(%)
2.2%

1.5%

2.8%

1.9%

3.4%

Russia
5%

Poland
2.2%

2.7%

6%

2% 1.6%
1.4%

7.5%

Japan

1.9%

3%

7.8%

Kazakhstan
-0.5%
-1.2%
Czech Republic

United States

2.2% 3.5%

8.2% 8.5%

5.4%
China

Turkey

3.2%

3.3%

4%

3.1%

4.4%

Brazil
5.1%

7.2%

0.9%

World
4.7%

5% 5.2%

6%

2.5% 2.8%

4%

India

South Africa

RGMs

2012

2013

2014

Source: World Economic Outlook, IMF, April 2013; Ernst & Young’s Rapid-Growth Markets Forecast, April 2013; Global Economic Databank,
Oxford Economics, accessed on 31 May 2013.

Rapid-growth markets keep to a safe path
After the economic setbacks of 2011, 2012 saw the global economy
in recovery mode. However, 2013 is expected to witness a pickup
in global economic momentum. Global growth is set to accelerate
moderately from 3.2% in 2012 to 3.3% in 2013 and 4% in 2014.1
The uptick in world growth is, initially at least, fueled by rapidgrowth markets (RGMs). Growth in Asian RGMs is set to accelerate
from 6.4% in 2012 to 7.4% in 2014, while that in Latin American
RGMs should progress from 2.6% in 2012 to 4.5% in 2014. Growth
in Middle Eastern RGMs is set to remain robust. In contrast, RGMs
in Eastern Europe are expected to lag behind their Asian and Latin
American counterparts. Poland is expected to grow by 1.5% in
2013 and 2.8% in 2014 while the Czech Republic is estimated to
contract by 0.5% in 2013 and grow by 1.9% in 2014.2
1. World Economic Outlook, IMF, April 2013.
2. Ernst & Young’s Rapid-Growth Markets Forecast, April 2013.

6


Mature economies grow slowly, but still account for half
of global GDP
In contrast to RGMs, the major advanced economies performed
disappointingly in 2012. This was driven by the recession in the
Eurozone and Japan. Their recovery is set to remain weak in
2013. Nevertheless, improving bank balance sheets and stronger
consumer finances have brought the US back on track. Overall,
the advanced economies should play a reduced role in the global
recovery, growing at 1.2% in 2013 and 2.2% in 2014.3 Although
growth in the major advanced economies has been much slower
than in RGMs, they still hold 50.1% of world GDP (in terms of
purchasing power parity).4

3. Ernst & Young’s Rapid-Growth Markets Forecast, January 2013.
4. World Economic Outlook, IMF, April 2013.


Kazakhstan in the world economy
Kazakhstan was one of the fastest-growing economies in the
world between 2000 and 2010. While many parts of the world
were reeling with the effects of the 2008 global financial crisis,
followed by sluggish growth, Kazakhstan continued to deliver
impressive results. However, a combination of factors, including
subdued external demand, weaker metal prices and a decline
in agricultural output, have resulted in slower growth of 5% in
2012.5 Nevertheless, Kazakhstan was the front-runner in the CIS
region. Growth in Russia last year was 3.4% and Ukraine expanded

by just 0.1%.6 Looking ahead, Kazakhstan’s GDP is expected to
accelerate at 6% in 2013, 7.5% in 2014 and 7.1% in 2015. Over the
next two years, its economy is expected to outperform most of the
other RGMs. According to Ernst & Young’s Rapid-Growth Markets
Forecast, only India and China are set to grow quicker over the next
two years. Strong growth projections for Kazakhstan are predicated
on high commodity prices, strong infrastructure spending and
improved grain harvests. Kazakhstan’s oil production and exports
are set to get a boost from the giant Kashagan oil field coming on
stream in the near future.

5. Ernst & Young’s Rapid-Growth Markets Forecast Spring Edition, April 2013, Ernst & Young, 2013.

6. Ernst & Young’s Rapid-Growth Markets Forecast Spring Edition, April 2013, Ernst & Young, 2013.

GDP growth rates − RGM’s
2012

2013

2014

2015

China

7.8%

China

8.2%

China

8.5%

China

Ghana

7.1%

Ghana

6.9%

Kazakhstan

7.5%

India

7.7%

Nigeria

6.5%

India

7.2%

Kazakhstan

7.1%

6.1%

Vietnam

6.9%

Vietnam

7.1%

Nigeria

6.1%

Qatar

6.1%

Saudi Arabia 6.8%

8.2%

Nigeria

6.5%

Indonesia

Thailand

6.4%

Kazakhstan

Indonesia

6.2%

Vietnam

5.5%

Indonesia

6%

Indonesia

5.6%

6%

Thailand

5.3%

Qatar

6%

Thailand

5.5%

5.2%

Ghana

5.9%

Nigeria

5.5%
5.5%

Qatar

6%

Malaysia

5.6%

India

Chile

5.5%

Qatar

5%

Malaysia

5.1%

Ghana

India

5%

Malaysia

5%

Thailand

4.9%

Malaysia

4.6%

Vietnam

5%

Chile

Mexico

4.8%

Mexico

4.5%

Kazakhstan

5%

Saudi Arabia 4.3%

Chile

4.6%

Chile

4.5%

Colombia

4%

Colombia

4.9%
4.2%

Saudi Arabia 4.6%

Mexico

3.9%

UAE

3.7%

Colombia

Russia

3.4%

Mexico

3.5%

Russia

UAE

3.3%

Russia

3.5%

UAE

4.4%
4%
3.9%

Saudi Arabia 4.3%
UAE

4.1%

Colombia

4.1%

Russia

4.1%

Source: Ernst & Young’s Rapid-Growth Markets Forecast, April 2013.

Unlocking value

7


Uncertainty hampers global inflows
The global picture
The United Nations Conference on Trade and Development (UNCTAD) estimated that
global FDI inflows totaled US$1.4t in 2012, a fall of 18% compared with 2011. After
rising in 2010 and 2011, the 2012 slump can be attributed to weary investor confidence
amid macroeconomic and political uncertainty. Developed economies bore the brunt and
accounted for 86% of the US$301b decline in global FDI. While investments in developing
economies also lost some momentum, the decline was moderate at 4.4%.

FDI inﬂows by region
(2012 vs. 2011)
5.1%

Africa

-2.2%

Latin America and the Caribbean

-6.7%

Asia

-26.1% United States
-41.5% European Union
-41.7% Europe
Source: World Investment Report 2013, UNCTAD, June 2013.

The CIS reality
The CIS region received US$82.3b of FDI in 2012, down 6.5% from the previous year.
Russia, the largest country in the region, accounted for more than 60% of the total FDI
amount in the CIS area. Kazakhstan was second, with a 17% share, and Ukraine was third
with 9.5%. While Russia’s FDI value declined by 6.6% since 2011, foreign investment in
Kazakhstan and Ukraine increased by 0.9% and 8.7%, respectively.7
7. World Investment Report 2013, UNCTAD, June 2013.

FDI inﬂows in the CIS region (US$b)
43.2

11.6
6.5

55.1

51.4

13.9
7.2

14
7.8

Russia
Kazakhstan
Ukraine

2010

2011


8


2012

Developing countries
overtake traditional
counterparts
The year 2012 was significant for
economic historians, because it was the
first year in which developing countries
overtook developed nations as the
leading generator of foreign investment.
Foreign investors kept their eyes on the
BRICs, which continued to integrate
with the global economy. In 2012,
Brazil, Russia, India and China attracted
US$263.3b in FDI value. Although this
represents a drop of 6.6% on 2011,
it forms a better picture when compared
with the global decline. Africa received
US$50b in FDI in 2012, an increase of
5.1% on 2011. It was the only major
region to register a year-on-year increase
in 2012. High inflows from China,
investments in exploration and exploitation
of natural resources, and good economic
performance improved the continent’s
overall FDI picture. That said, while FDI
inflows increased in North Africa, Central
Africa and East Africa, investment declined
in West Africa and Southern Africa.
Latin America and the Caribbean attracted
FDI inflows amounting to US$244b,
only a slight decline of 2.2% on 2011.
However, there was a significant difference
in the sub-regional performance. While
FDI inflows to South America grew 12%
to US$144b, Central America and the
Caribbean witnessed a 17% decline over
2011 to US$99b. The increase in FDI
inflows in South America were driven
primarily by factors such as natural
resources, strengthening commodity
prices and expanding middle classes in
Chile, Colombia, Argentina and Peru.


Unlocking value

9

Perception
How Kazakhstan is viewed by foreign investors

p.11

Russia leading in the CIS

p.13

Natural resources driving growth

p.14

Seeking shelter in stability

p.18

Limited knowledge of regional
investment opportunities

p.20

Established investors remain
confident

Image: Bridge over Ishim river in Astana, Kazakhstan.

10


In this section ...
How FDI in Russia compares with Europe’s
investment trend, key investors, favoured sectors,
key activities and destination cities.


A safe place to grow
What are Kazakhstan's key economic strengths, how does its economy compare
with regional competitors, what improvements are investors seeking and what
are their immediate investment plans for the country?

Russia leading in the CIS

Key findings

Most attractive CIS market for investment

44%

of investors consider
Russia as the most attractive country
in the CIS region.

(Respondents prioritized up to three locations)
45%
44%

39%
24%

18%

9%

Russia

7%
3%

Kazakhstan

Established in Kazakhstan

3%
2%

2%
2%

3%
2%

Ukraine Belarus Georgia* Armenia Can't say

Total respondents

* Georgia is not a CIS member, but is included in the reference group for the purpose of this survey.
Sources: EY’s 2013 Kazakhstan attractiveness survey (total respondents: 206 — 64 established in Kazakhstan;
142 not established in Kazakhstan).

According to our survey results, Russia remains the most attractive investment destination
in the CIS region, also reflected in the reality of foreign investment in the region. It is the
first-choice country for 44% of our survey respondents. The country’s huge domestic
market of 143 million people,8 its burgeoning middle class (nearly 55% of the population9)
and rising disposable income underpin its appeal. It also enjoys vast natural resources, a
solid telecommunications infrastructure, a well-educated workforce, and strong connections
between its regions and neighboring countries.10 While the country’s doing-business ranking
is much lower than Kazakhstan’s, the sheer size and opportunities in Russia outweigh the
difficulty of doing business.

31%

think of Kazakhstan as a
country rich in natural resources.

84%

of established
investors commend the country's
macroeconomic stability.

34%

believe it has an
entrepreneurial culture.

59%

of them view the local
business environment as unattractive.

75%

of non-established
investors could not name a city
in Kazakhstan.

8. Ernst & Young’s 2013 Russia attractiveness survey “Shaping Russia’s future,” June 2013.
9. “Consumers to power Russian economy, stock market-study,” Reuters, 5 February 2013, via Dow Jones Factiva © 2013 Reuters Limited.
10. Ernst & Young’s 2013 Russia attractiveness survey “Shaping Russia’s future,” June 2013.

Unlocking value

11

Perception

Kazakhstan was the preferred destination for
9% of our respondents, putting the country
a distant second in the region. However,
investors continue to remain divided in their
outlook for the country. There is a large
gap between the preferences of investors
with a presence in Kazakhstan and those
who have yet to establish interests. Only
3% of non-established investors perceive
Kazakhstan as the most attractive CIS
country, while they remain largely unaware
of its strengths and potential. However,
24% of existing investors have Kazakhstan as
their first choice.

12


Ukraine was rated as the third-most
attractive destination, with a first-choice
score of 7%. With a population of
46 million people,11 Ukraine is the secondlargest domestic market in the CIS region.
However, the current macroeconomic
situation in Ukraine dampens investor
optimism. After growing at 5.2% in 2011,
the country recorded GDP growth of 0.1%
in 2012.12
11. “Ukraine: Investment Attractiveness,” International
experts website, www.internationalexperts.com, accessed
12 February 2013.
12. Ernst & Young’s Rapid-Growth Markets Forecast Spring
Edition, April 2013, Ernst & Young, 2013

Investor perception is in line with the overall
FDI reality, where UNCTAD revealed that
for 2012, Russia attracted the highest
FDI inflow (US$51.4b) in the CIS region,
followed by Kazakhstan (US$14b) and
Ukraine (US$7.8b).13

13. World Investment Report 2013, UNCTAD, June 2013.


Natural resources driving growth
What are the ﬁrst two things that come to mind when thinking
about Kazakhstan?
A country rich in natural resources

31%

A rapidly growing economy

17%

Stable political environment

12%

Favorable location

10%

The CES with Russia and Belarus

9%

High purchasing power

8%

An LLDC (landlocked developing country)

6%

WTO accession candidate

5%

Investment-friendly business environment

4%

Research and innovation capacity
Can't say

3%
29%

Source: EY’s 2013 Kazakhstan attractiveness survey (total respondents: 206 — 64 established in Kazakhstan; 142 not established in Kazakhstan).

Unsurprisingly, Kazakhstan’s vast natural
resource base is its key asset, according to
investors. The country ranks 12th in the
world in terms of oil reserves and 19th
for natural gas reserves. It currently holds
approximately 30 billion barrels of proved
crude oil reserves, making it one of the
world’s top 15 oil-producing countries.14
At present, Kazakhstan is a leading global
producer of coal, copper, zinc, bauxite,
uranium and chrome ore.

14. “BP Statistical Review of World Energy — June 2012,”
BP website, www.bp.com; Ernst & Young’s Mining Tax Guide 2012,
June 2012, Ernst & Young, 2012.

The awareness of Kazakhstan’s position
as a RGM is also climbing up the ladder in
the minds of investors. The Government
of Kazakhstan has been able to maintain
macroeconomic and political stability during
times of global crisis. Its GDP growth has
outperformed that of major CIS countries
over the last few years, making it the most
stable economy in the region. The country’s
competitive geographical location at the
junction of Asia, Europe and the Middle
East enables access to the rapidly growing
markets of Russia, India and China, creating
unique opportunities for investors and
local companies.

However, less than 5% of our respondents
acknowledged Kazakhstan’s diversity, the
quality of its labor force, R&D capacity,
entrepreneurial culture or business
environment. A focus from government
and business leaders on improving these
characteristics and working toward
sustainable and balanced growth would
therefore appear to have a positive impact
on increasing its attractiveness.

Unlocking value

13

Perception

Seeking shelter in stability
Investors prioritize Kazakhstan's strong fundamentals as its most
attractive feature. They rate Kazakhstan’s political, social and
macroeconomic stability above labor costs and corporate taxation.
The world was shaken by political and economic uncertainty in
2012. In this context, business leaders are looking for investment
destinations that offer stability and assurance. Kazakhstan’s consistent
GDP growth demonstrates its resilience to tough global conditions.
It is important to note that investors not yet operating in Kazakhstan
seem to have little knowledge of its profile. On average, 51% of
these investors replied “can’t say” when asked about Kazakhstan’s
attractive features.

Macroeconomic
environment

Kazakhstan's
ranking

Score

2012–13

16

6.1

2011–12

18

5.9

2010–11

26

5.3

2009–10

59

4.7

Source: The Global Competitiveness Report 2012–2013, WEF.

Most attractive features
• Stable macroeconomic environment
Among investors already established in Kazakhstan, 84% think
that macroeconomic stability is the country’s most attractive
feature. The Republic has not been left unaffected by the global
financial crisis. In 2009, its economic growth rate decelerated;
the amount of credit made available to business by the banking
system declined; and its liquidity deteriorated. The same year,
the Government launched economic stimulus measures covering
recapitalization of banks; support for the real estate and agriculture
sectors; targeted support for small and medium enterprises (SMEs);
and investment in industrial projects and infrastructure.
The Government’s initiatives, and its ability to maintain a stable
macroeconomic environment, are viewed by many respondents
as a sound achievement. Despite a substantial economic
slowdown, Kazakhstan achieved positive GDP growth of 1.2% in
2009 and returned to significant growth during the last three
years. GDP increased by 7.3%, 7.5% and 5% in 2010, 2011
and 2012, respectively. The World Economic Forum’s (WEFs)
Global Competiveness Report 2012–2013 ranks Kazakhstan’s
macroeconomic stability 16th out of 144 economies. And in
November 2012, the international agency Fitch Ratings upgraded
Kazakhstan's sovereign rating to BBB + with a ‘stable’ outlook. This
upgrade reflects the measures undertaken by the Government to
strengthen the state foreign balance, reduce the level of national
debt and aid the recovery of the banking system.
Meanwhile, only 10% of established investors are not confident
about Kazakhstan’s macroeconomic environment. Kazakhstan’s
overdependence on extractive industries though, exposes the
country to greater external risks. Banking problems also persist,

14


Most attractive for establishing activities
Evaluation of criteria on how attractive Kazakhstan is by established investors

Attractive
Macroeconomic stability

84%

Stable political and social environment 80%
Telecommunication infrastructure

78%

Corporate taxation

68%

Sustainable development

63%

Sources: EY’s 2013 Kazakhstan attractiveness survey
(total respondents: 64 established in Kazakhstan).

with the share of non-performing loans (NPLs) exceeding 36% in the
end of 2012.15 Nevertheless, the economic fundamentals that have
kept the country on track remain in place. The economy is expected
to grow by 6% in 2013,16 more than most other emerging markets.
• Political and social stability
Our survey reveals that 80% of existing investors place their trust
in Kazakhstan’s political and social stability. Economic Intelligence
Unit’s Political Instability Index 2009-10, ranks Kazakhstan as
one of the 50 most politically stable countries in the world. To
improve the economic and social environment, the Government has
launched a number of large-scale initiatives, including:
• Kazakhstan 2050 Strategy: become one of the 30 most
►
competitive nations in the world by 2050.
15. National Bank of Kazakhstan.
16. Ernst & Young’s Rapid-Growth Markets Forecast Spring Edition, April 2013, Ernst & Young 2013.


• Green Bridge Partnership: create a vast market for green
►
goods, services and new technologies to embed environmental
sustainability in rapid economic development.
• G-Global forum: join efforts of G8 and G20 forums to develop
►
a more comprehensive global economic policy toward growth,
innovation and prosperity.
• Telecommunication infrastructure
Seventy-eight percent of established investors find the
telecommunication infrastructure attractive, while only 9% express the
need for significant improvement. Telecommunication infrastructure
has improved substantially since the 1990s, with reports of stable
growth in mobile phone and internet penetration. The WEF Global
Competitiveness Report 2012–13 ranks Kazakhstan 20th out of
144 countries for mobile telephone subscriptions. The country had a
mobile penetration of approximately 130% in 2011 and a broadband
penetration of 53.4% in 2010.17 Furthermore, Kazakhstan’s Ministry
of Transport and Communications intends to achieve 100% broadband

17. “Number of internet users increases by 20% in Kazakhstan,” Tengri News website, en.tengrinews.
kz, accessed 11 February 2013; “Kazakhstan — Telecom, Mobile, Broadband and Forecasts,” Market
Research.com website, www.marketresearch.com, accessed 11 February 2013.

population coverage by 2013.18 The liberalization of the telecom
sector in 2004 opened doors for private players, both local and
foreign, to capitalize on the untapped market opportunities.
• Competitive tax rates
Corporate taxation is thought attractive by 68% of established
respondents, while 13% of them do not find the regime attractive.
Corporate and individual income tax rates in Kazakhstan are low by
international standards, at 20% and 10%, respectively.
• Sustainable development
Sixty-three percent of respondents established in Kazakhstan find
the country’s performance in sustainable development positive.
Sustainable development has been a key priority for the country
and remains at the heart of its agenda. It aims to manage natural
resources responsibly, promote the use of clean energy, and use
economic and social policy to promote the well-being of the nation.
The country has set an objective to ensure that, by 2050, no less
than half of the energy it consumes is produced from alternative
and renewable sources.
18. “Kazakhstan aims to achieve 100% broadband coverage by 2013,” Telegeography website, www.
telegeography.com, accessed 11 February 2013.

Mixed views
• Size of the domestic market
Although Kazakhstan’s population is not very large, the introduction
of the Customs Union and CES promises the opportunity to reach
nearly 170 million consumers in a market comprising Russia,
Belarus and Kazakhstan. According to our survey, 62% of existing
investors describe the domestic market size as attractive, while 29%
think it unattractive.
• Labor costs
Kazakhstan’s labor costs are seen as an attractive feature by 55%
of established respondents, while 35% express discontent. Unlike
last year, labor costs are not seen as Kazakhstan’s most attractive
feature. The average monthly nominal wage totaled KZT106,286
(approximately US$690) in May 2013, up 7.4% on the previous year.19
• Skill set
A total of 53% of investors already established in Kazakhstan
express satisfaction with the skill set of the country’s workers,
while another 40% express a need for more training. The local
population is well educated, with a literacy rate of 99.6%.20
However, low workforce productivity and a large skills gap are
impeding Kazakhstan’s competitiveness. Workers with technical
19. The Agency of Statistics of the Republic of Kazakhstan website, www.eng.stat.kz, accessed
7 July 2013.
20. “Educational system,” Embassy of The Republic of Kazakhstan to the United States website,
www.kazakhembus.com, accessed 1 February, 2013.

Mixed views for establishing activities


Attractive

Not attractive

Size of the domestic market 62%

29%

Local labor costs

55%

35%

Local labor skills

53%

40%

Labor law ﬂexibility

50%

36%

Open trade policies

49%

39%

Government incentives for FDI 38%

35%

Sources: EY’s 2013 Kazakhstan attractiveness survey (total respondents:

skills, management expertise and marketing capabilities are in
short supply in Kazakhstan, so foreign workers are brought in to fill
the void. According to the Global Competitive Report 2012–13, an
inadequately skilled workforce is the most serious concern among
investors considering starting operations in Kazakhstan. Also, in
his “State of the Union” speech in 2010, Kazakhstan President
Nursultan Nazarbayev said that a worker in Kazakhstan produces
approximately US$17,000 worth of goods every year. This is
compared with US$90,000 in developed countries.21
21. Kazakhstan Partnership Program Snapshot, World Bank, April 2013.

Unlocking value

15

Perception

In 1993, President Nursultan Nazarbayev established an
international scholarship program, called Bolashak. Since then,
more than 8,100 young Kazakh students have been educated in
the best universities around the world.22
More recently, the Government has launched a number of
initiatives to align learning, training, teaching and research with
the requirements of Kazakhstan’s industry and labor market.
In 2010, a new innovative research institution, Nazarbayev
University, was established. Its academic processes are based on
the best international educational standards, and were developed
in partnership with the world’s leading institutions.23
To improve the productivity of the workforce, enhance technical
skills and meet the requirements of key industries, the
Government has been paying special attention to raising the
standards of technical education. In cooperation with the World
Bank, a Technical and Vocational Education Modernization Project
was launched in 2011. The same year saw the Government
establish a professional technical education program, Kasipkor, to
attract young Kazakhs to the technical professions that are critical
to the country’s development. The aim of these educational
programs is to boost the relevance, quality and efficiency of
technical and vocational education by improving the policy
framework; expanding institutional capacity and knowledge
transfer; and developing new technologies.
22. “Statistics of the scholarship program,” The Center of International Programs website, www.
bolashak.gov.kz, accessed 20 March 2013.
23. Nazarbayev University website, nu.edu.kz, accessed 19 March 2013.

• Labor regulations
While half of the respondents who already do business in Kazakhstan
are satisfied with labor flexibility in the country, 36% express
concerns. In the view of some respondents, the current labor
regulations in Kazakhstan give too much protection to local employees,
but do not sufficiently balance the rights of employers and employees.
At the same time, international talent is vital for bringing in knowledge
and the latest technology, and sharing it with local talent.
• Trade policies
Nearly half of established investors find Kazakhstan’s trade policies
conducive for international business. According to the Most Favored
Nation Tariff Trade Restrictiveness Index, Kazakhstan is more open
to trade than many Central Asian and European countries.24 The
country has concluded a number of bilateral trade agreements with
neighboring countries. Furthermore, likely accession to the WTO
will further promote stable and transparent trade policies; and
foster efficient, reliable cross-border trade procedures. However,
the country needs to enhance border trade procedures. The World
Bank’s Doing Business report 2013 ranks Kazakhstan 182nd out
of 185 economies on “trading across borders.” The number of
days-to-export in Kazakhstan is 81, compared with 26 days for
Eastern Europe and Central Asia and 10 for OECD countries. And
at US$4,685 per container, the cost-to-export is double that of
Eastern Europe and Central Asia.25
24. “Kazakhstan Trade Brief, ”World Trade Indicators website, info.worldbank.org, accessed 25
February 2013.
25. “Trading Across Borders,”The World Bank website, www.doingbusiness.org, accessed
25 February 2013.

Challenges
• Difficult operating environment
In recent years, Kazakhstan has improved its legal and regulatory
environment. This is evident from the country’s steady advancement
up the World Bank’s Ease of Doing Business Index — from 56th
position in 2012 to 49th in 2013.26
However, 59% of respondents who are already established in
Kazakhstan, consider the level of legal and regulatory transparency
and stability as one of its least attractive features. Instances of
inconsistent interpretation of the law and its selective application
are reported regularly by foreign investors operating in Kazakhstan.
Respondents share concerns about the ability of different layers of
government to implement strategic initiatives consistently. They
call for more efficiency in state governance institutions.

• Lack of research and development capabilities
Fifty-one percent of respondents established in Kazakhstan find
the availability and quality of its R&D unattractive. The country
spends just 0.2% of GDP on science and research. This is lower than
Russia (1%) and below the level recommended for countries at a
similar development stage (1%–1.5% of GDP).27 The WEF Global
Competitiveness Report 2012–13 ranks Kazakhstan 108th out of
144 countries on the quality of scientific research institutions and
92nd on its innovation capability.28 Unlike developed economies,
R&D activities in Kazakhstan tend to be carried out by public
organizations rather than private businesses.

Furthermore, the country’s court and arbitration system appear to be
ineffective in resolving disputes involving investors. Respondents raise
concerns over respect for property rights and security of investments.

• Underdeveloped transport and logistics infrastructure
Fifty percent of established investors expressed the need for
enhancing Kazakhstan's transport and logistics infrastructure.
The country’s road and rail networks are, on the whole, more
developed than those in other Central Asian countries. However,
there are inconsistencies across regions, with poor road quality in

26. “Doing Business — Kazakhstan,” The World Bank website, www.doingbusiness.org, accessed
8 February 2013.

27. The Global Competitiveness Report 2012–2013, World Economic Forum, p. 116.

16



Banking sector challenges
The banking sector in Kazakhstan has not
yet recovered from the aftermath of the
financial crisis. The banks' balance sheets
are still burdened with significant levels of
NPLs. Discussions between the National
Bank and the tax authorities on taxation of
NPLs and their provisioning are still going
on. While some banks have started setting
up subsidiaries for managing problem loans,
as enabled by new legislation, it is difficult
under current legislation to remove such
loans from the banks' balance sheets. The
tax legislation discourages banks from
selling problem loan portfolios to collectors.

Foreign banks operating in Kazakhstan
face a number of challenges, which stem
primarily from changes in the legislative
environment. Restrictions on the use of
foreign parent bank guarantees in assessing
credit risk exposure have harmed foreign
banks' competitive position. Foreign
investors are concerned by proposed
limitations on the placement of deposits
by state companies in banks with foreign
ownership. They are also apprehensive
about recent legislative changes limiting
off-balance sheet positions, interest rates
hedging rules, and a Supreme Court
decision regarding mortgages.

remote areas, which mostly house production facilities. The WEF
Global Competitiveness Report 2012–13 ranks Kazakhstan 117th
out of 144 countries on road quality.29
• Complex tax administration and compliance
The attraction of Kazakhstan’s low tax rates is undermined by
complex tax administration rules and high compliance costs. Nearly
half of respondents who already do business in Kazakhstan are
not satisfied with the current tax administration and compliance
laws. Our findings support the view expressed in the World
Bank Enterprise Surveys that investors in Kazakhstan have to
engage in more visits and meetings with tax officials than their
counterparts in other Central Asian and East European countries.30
While respondents recognize progress in the tax administration
system — in particular, the move to an electronic platform — the
business community expects more constructive dialogue. It wants
the authorities to take a more consultative approach to taxpayers
and decriminalize some economic offenses.

30. World Bank Enterprise Survey — Kazakhstan 2009, The World Bank.

The Kazakhstan Government has taken
several measures to address the issue of
growing NPLs in the country's banking system.
It altered the tax code and permitted local
banks to set up subsidiaries to manage bad
loans linked to real estate. It also established a
special Distressed Assets Fund, to where banks
can transfer some of their bad loans. While
these are positive steps, they have not been
enough to improve the condition substantially.
The Government needs to ensure that asset
quality is thoroughly evaluated.
Sources: "Kazakhstan Country Assessment," European Bank
for Reconstruction and Development website, www.ebrd.com,
accessed 1 July 2013; "Kazakhstan unlikely to pull off bank
merger in 2013 - S&P," 23 April 2013, Reuters website, accessed
1 July 2013.

• Entrepreneurship deficit
Almost half of investors that are established in Kazakhstan believe
that the country does not sufficiently develop entrepreneurship.
They cite weak corporate governance, a lack of transparency in
business practices and unsustainable operations as factors that
hamper partnerships with local companies.
Recognizing that entrepreneurship is the foundation of sustainable
economic development, the Government has established several
programs. For example, the Entrepreneurship Development Fund
DAMU, which was established in March 1997, aims to increase
the number of enterprises in non-extractive sectors and boost the
resilience of existing small and medium-sized businesses. In the
period from January 2009 to October 2012, almost 62,000 entities
were supported by a total amount of financial aid equal to US$11b.31
Another government institution, the National Agency on Exports
and Investments (KAZNEX INVEST), helps existing Kazakh
enterprises by promoting export-oriented strategies and inflow
of foreign investments.
31. Entrepreneurship Development Fund (DAMU) website, www.damu.kz, accessed 20 March 2013.

Challenges for establishing activities

Not attractive

Transparent and stable legislative, regulatory and administrative environment

59%

Visa and work permits regime

56%

R&D availability and quality

51%

Transport and logistic infrastructure

50%

Tax administration system

49%

Entrepreneurial culture and availability of local entrepreneurs to partner with

47%

Sources: EY’s 2013 Kazakhstan attractiveness survey (total respondents: 64 established in Kazakhstan).

Unlocking value

17

Perception

Limited knowledge of regional investment opportunities
Highlights

75%

of investors not yet
established in Kazakhstan, could not
name an attractive city in the country.

22%

SMEs account for 22% of Astana’s GDP.

25%

Almaty contributes 25% to
Kazakhstan’s tax revenues.

50,000

new jobs were
created in Atyrau in the past 10 years.

Sources: EY’s 2013 Kazakhstan attractiveness survey;
Prime Minister of Kazakhstan official website, www.
primeminister.kz, accessed 27 March 2013; “Almaty
Akimat signed memoranda of cooperation with 9 major
banks of the country,” Official Almaty city website,
almaty.kz/page, accessed 16 February 2013; “Atyrau,
Kazakhstan,” World energy cities partnership website,
www.energycities.org, accessed 16 February 2013.

18


When asked about the most attractive cities
in Kazakhstan, investors could only come
up with three: Astana, Almaty and Atyrau.
In fact, three-quarters of respondents not
established in Kazakhstan had trouble
mentioning even one city, suggesting
limited knowledge of the country’s regional
opportunities. The EIU Benchmarking global
city competitiveness 2012 report backs this
hypothesis. According to the report, Almaty
was ranked 100th on the list of the top
120 cities, and was the only Kazakh city to
appear on the list.
Investors believe that the Government
should intensify its efforts to develop its
social infrastructure and health care system.
The development of physical infrastructure
and investment in urban projects should
also be prioritized.

Astana: the capital
With its modern infrastructure and
excellent business opportunities, Astana is
progressing quickly. Thirty-four percent of
respondents think Astana is the country’s

most attractive city for investment. Their
opinion is reflected in the statistics. In the
last 10 years, the city’s GDP has increased
by a factor greater than 50, implying that
its contribution to the country's GDP has
increased from 1.5% to 10%.32
Astana is a leader in the production of
construction hardware, including ready-touse concrete and concrete building blocks.
To encourage investors to develop new
competitive industries in the city, the
Government has established Astana-New
City, a special economic zone (SEZ).
Projects worth nearly US$1b are under
way in the city’s industrial park that lies
within the SEZ.33 The Government plans to
open more such SEZs in the city by 2014
to attract investments in the non-resourcebased and high-tech industries. This,
again, is part of the Government’s move to
diversify its largely oil-based economy, by
fostering technology and innovation.
32. “Astana remains central to Kazakhstan's development, says
city's mayor,” FDI Intelligence website, accessed 16 February 2013.
33. “Astana plans to attract more investment,” Central Asia Online
website, centralasiaonline.com, accessed 16 February 2013.


Most attractive cities in Kazakhstan for an investment project
The three “A’s” (Respondents prioritized up to three cities)

1%
34%

Pavlodar
Astana

Karaganda
13%

10%

Can't say
57%

Average monthly wage (July 2013)
KZT145,541 (US$946)
Major industries
Transport, communication and construction

4%

Atyrau
22%
Aktau

Almaty

KZT189,591 (US$1,232)
Major industry
Oil and gas

KZT143,133 (US$930)
Major industries
Transport, communication and construction

Source: EY’s 2013 Kazakhstan attractiveness survey (total respondents: 206).

Almaty: the business and tourism hub
Almaty, which contributes 18% to
Kazakhstan’s GDP,34 is seen as the best
city for investments by 54% of investors
already established in Kazakhstan. Given
its favorable investment climate, the city
is widely recognized as the country’s
financial and economic center. True to its
reputation, the city houses headquarters of
the majority of second-tier banks, insurance
companies, pension funds, professional
services firms, brokerage companies and
the Kazakhstan Stock Exchange. Smallscale and medium-size businesses are
also growing in Almaty, with over 80,000
companies registered in the city. This is an
increase of 20,000 since 2008.35
The city is also Kazakhstan’s tourism hub.
Its geographical location, at the foot of the
Tien-Shan mountain range, offers world-class
skiing facilities. Furthermore, the mountain
vistas, alpine-style lakes, winter sports
34. “Official internet source of Almaty City,” Almaty website,
www.almaty.kz, accessed 16 February 2013.
35. “Official internet source of Almaty City,” Almaty website,
www.almaty.kz, accessed 16 February 2013.

facilities and incomparable wildlife provide
a wide choice of outdoor activities.
To build on existing capabilities and
generate new ones, the Government
is developing the Park of Innovative
Technologies Alatau IT City, which has
preferential tax and regulatory regimes.

What are the most attractive cities or
locations in Kazakhstan for investors?
City

Established in
Kazakhstan

Not
established
in Kazakhstan

With major domestic and international
oil and gas companies concentrated in
the city, Atyrau is known as Kazakhstan’s
energy capital. Oil and gas drives the city’s
economic welfare, with its production
accounting for 40% and 60%, respectively,
of the country’s total production.36 In
the next five years, National Company
KazMunayGas and its foreign partners plan
to construct and commission a number
of petrochemical and refinery projects
for a total sum in the region of US$9b.37

66%

19%

Almaty

54%

7%

Atyrau

Atyrau: the energy capital

Astana

40%

1%

Aktau

26%

3%

Karaganda

9%

1%

Pavlodar

2%

1%

Can't say

19%

75%

Source: EY’s 2013 Kazakhstan attractiveness
survey (total respondents: 206 — 64 established in
Kazakhstan; 142 not established in Kazakhstan).

36. “World Energy Cities Partnership — Atyrau, Kazakhstan,”
World Energy Cities Partnership website, www.energycities.org,
accessed 18 February 2013.
37. The Ministry of Oil and Gas of Kazakhstan website, www.mgm.
gov.kz, accessed 20 March 2013.

Unlocking value

19

Perception

Established investors remain confident
Investment plans

Is your group considering establishing or developing activities in Kazakhstan
over the next year?
49%
25%

19%
7%

Yes

No

Keep operation
at the same level

Can’t say


A quarter of investors have plans to increase or establish operations
in Kazakhstan, compared with 17% a year ago. The majority of
respondents are eyeing organic growth. Almost half are looking
to expand their existing operations, while 30% plan to increase
their headcount. Joint ventures have also become popular in
Kazakhstan. In many instances, the Government establishes joint
ventures with foreign firms and co-finances projects. Foreign
investors benefit from the limited capital exposure and knowledge
of a local partner, while the Government or domestic firms get
much-needed capital and technological know-how.
Established investors are much more optimistic about Kazakhstan’s
future than potential investors. More than two-thirds plan to
increase their operations in the country, while 18% plan to maintain
their current level. However, only 6% of respondents with no
presence in Kazakhstan are considering setting up activities in the
country, whereas two-thirds are unlikely to enter the country.

Investment activities

How are you planning to invest?
(Respondents could mention several possible answers)
Expansion of facility

48%

Increasing labor force

30%

Joint venture or alliance 26%
Greenﬁeld investments

13%

Acquisition

11%

Can't say

17%

Source: EY’s 2013 Kazakhstan attractiveness survey
(total respondents: 52 planning to invest in Kazakhstan).

20


Measuring investors’ success
83%

10%

7%

If you had a chance to reconsider your investment in
Kazakhstan, would you still decide to invest there?

67%
20%
8%

6%
Yes

Has your company been successful in achieving its business
objectives in Kazakhstan over the past ﬁve years?
Neutral

No

Can’t say

Source: EY’s 2013 Kazakhstan attractiveness survey (total respondents:

The divergence of opinions among the two sets of investors can
be attributed to their level of experience in terms of conducting
business in the country. Investors that have yet to move into
Kazakhstan continue to be cautious and largely unaware of the
investment opportunities that the country presents. On the other
hand, existing investors, particularly in the business services and
high-tech telecom sectors, are confident about their investments
(83%) and successful in achieving their business objectives in
Kazakhstan (67%), numbers that reflect investor satisfaction and
faith in Kazakhstan’s potential.


What it means for businesses
In the context of the current global conditions, Kazakhstan’s stable
macroeconomic, political and social environment, coupled with its
rapid growth, offer both comparative safety and good returns on
investment. However, before making a decision to invest, foreign
investors should consider the operating challenges of doing
business in the country. While it is not difficult to start a business,
established investors are challenged by inconsistent regulatory and
legal standards and complex tax administration. Furthermore, the
lack of appropriate skills and a limited R&D environment can make

it difficult for foreign companies to recruit the right talent and
innovate. Although the telecommunications infrastructure has seen
great improvements in recent years, easing the path for foreign
investors, underdeveloped transport and logistics infrastructure
can result in high transportation costs and lengthy delays in the
transfer of goods and services. Investors must be prepared to
bear these costs. Proper due diligence and a strategic cost-benefit
analysis are imperative to ensure that long-term returns more than
offset the costs incurred.

Unlocking value

21

Future
Kazakhstan’s future attractiveness

p.23

Optimism prevails

p.27

Toward integration

p24

Beyond natural resources

Image: Close up of the Bayterek tower, symbol of Astana, Kazakhstan’s capital.

22



Mining new
opportunities
How do investors perceive Kazakhstan’s future attractiveness and what sectors
are set to act as the country's engines of growth?

Optimism prevails

Key findings

Future attractiveness

Over the next three years, do you think the attractiveness of Kazakhstan as a place to establish
activities will...
68%
41%

33%

30%

29%
22%

26%
11%
9%

Improve

Stay the same

20%

6%

5%

Decrease

Can’t say

Not established in Kazakhstan

Total respondents

Individual values are rounded and may not total 100%. Source: EY’s 2013 Kazakhstan attractiveness survey
25%
(total respondents: 206 — 64 established in Kazakhstan; 142 not established in Kazakhstan).

Forty-one percent of investors expect
Kazakhstan’s investment attractiveness
to improve over the next three years. This
optimism can be attributed to proven
political and macroeconomic stability,
and the commitment of political leaders
to improve the environment for foreign
investors. The country has made impressive
progress in the last decade. GDP per capita
(in constant US$) rose from US$5,982
in 2000 to US$11,245 in 2011, and
the poverty rate dropped from 46.7% to
6.5% over the same period.38 Integration
processes such as the creation of a regional
Customs Union and accession to the WTO
38. “Economy,” Embassy of the Republic of Kazakhstan to the
United States website, www.kazakhembus.com, accessed
25 February 2013.

are expected to accelerate the country’s
development by boosting competition and
aligning business practices with the best
international standards.
The gap in the perception of those
investors who already do business in
Kazakhstan and those who do not is
pronounced yet again. Having firsthand
knowledge of the Government’s efforts
to improve the business climate, 68% of
established respondents are optimistic
about Kazakhstan’s future. Yet, just 30%
of investors not established in the country
think that Kazakhstan will become a more
attractive place in which to establish
operations. They largely expect conditions
to remain the same.

41%

of respondents expect
Kazakhstan’s attractiveness to improve
over the next three years.

48%

believe that the WTO
accession would positively impact the
country’s investment appeal.

47%

expect a rise in
opportunities from the CES and
potential Eurasian Economic Union.

68%

think that the future of
Kazakhstan will be driven by oil and
gas, mining and metals, reflecting
an overdependency on extractive
industries.

Only 9% of respondents (6% established
in Kazakhstan; 11% not established in
Kazakhstan) think that the investment
climate in the country will deteriorate.
These investors have concerns over
Kazakhstan’s rule of law, labor skills
and innovation capabilities. The future
attractiveness of Kazakhstan remains
central to the Government’s efforts to
diversify its economy, reduce regional
disparity, and improve the innovation and
entrepreneurial climate.

Unlocking value

23

Future

Beyond natural resources
Unsurprisingly, a large majority of respondents think that oil
and gas, and mining and metals will dominate future FDI inflows
in Kazakhstan.

Attractive sectors for FDI

Which business sectors will attract the maximum foreign investments
in Kazakhstan over the next three years?
(Respondents prioritized up to three sectors)
Energy and heavy industry

45%

Mining and metals

29%

Private and business services

15%

Life sciences

12%

Real estate and construction

11%

Agriculture

10%

High-tech and telecommunication

6%

Consumer products

6%

Automotive and transportation

5%

Energy and heavy industry: oil and gas, heavy industry, power and utilities and
alternative and renewable energy, and cleantech. Private and business services: business
services, hotels and tourism, ﬁnancial services, logistics, human capital and media and
entertainment. Life sciences: chemicals and allied products, biotechnology, health care,
chemical and pharmaceuticals. Real estate and construction: infrastructure (roads,
highways and ports) and real estate and construction. High-tech and telecommunication:
electronic and electrical equipment, aerospace and defense, information and
telecommunication. Consumer products also includes retail.

The oil and gas sector has been the cornerstone of Kazakhstan’s
growth, with its share of the country’s GDP growing steadily
from 3.7% in 1997 to 14.7% in 2006, and up to 25.8% in 2011.39
Oil production stood at 79.2 million tons in 2011. The development
of new oil fields and an increase in production capacity will enable
it to produce 130 million tons of oil by 2020. Such progress would
position Kazakhstan among the world's top five oil-producing
nations.40 The country’s natural gas production stood at 40 billion
cubic meters in 2012, an increase of 2% from 2011. It aims to
increase production to 110 billion cubic meters by 2030.41
Similarly, the mining and metals industry plays an important role in
Kazakhstan’s economic growth, accounting for approximately 27%
of Kazakhstan’s GDP.42 The country has 30% of the world’s reserves
of chrome ores, 25% of manganese ores and 10% of iron ores. It
39. “Energy Sector,” Embassy of the Republic of Kazakhstan to the United States website,
www.kazakhembus.com, accessed 13 February 2013.
40. The Ministry of Oil and Gas of Kazakhstan website, www.mgm.gov.kz, accessed 20 March 2013.
41. The Ministry of Oil and Gas of Kazakhstan website, www.mgm.gov.kz, accessed 20 March 2013.
42. “Mining Industry,” Embassy of the Republic of Kazakhstan to the United Kingdom website,
www.kazembassy.org.uk, accessed 25 February 2013.

24


is the 3rd-largest producer of titanium in the world, 7th in zinc
production and 13th among global iron ore producers.43 With only
10%–15% of Kazakhstan’s explored reserves currently in operation,
its metals and mining industry has huge potential for further
growth. The Government promotes the sector’s development by
encouraging FDI and maintaining direct and indirect interests in
large mining companies. In 2010, it included the mining sector
in the state program on accelerated industrial and innovative
development. The program aims at attracting increased FDI inflows
and creating a substantial number of new jobs in the sector by
2014.

Sectors on the rise
Kazakhstan’s Government acknowledges the need to diversify
its economy, and is promoting initiatives and policies to improve
knowledge-based industries so that they become more competitive.
As a result, investors are finding that a more diverse range of
sectors are beginning to emerge as attractive investment options.
Respondents highlight private and business services, life sciences,
real estate and telecommunication as sectors that will offer
opportunities in the future. As diversification efforts intensify, the
importance of these sectors is set to grow.
A good example in this regard has been set by the Gulf
Cooperation Council (GCC) countries, which have solid experience
in diversification efforts. Here, government attempts to ease their
reliance on the volatile oil and gas sector have led Investors to see
beyond energy projects. In the region, there is a clear shift toward
more strategic and knowledge-driven sectors. The governments
in GCC countries have created an environment that allows these
sectors to flourish. For instance, they have established financial
free-trade zones, health care cities and e-government initiatives.
The result is a substantial inflow of foreign capital into knowledgedriven sectors.44 Between 2003 and 2011, the services activity
attracted more than half of total FDI projects in the Middle East.
• Business services and technology
Fifteen percent of investors expect business and private services
to be key contributors to FDI in Kazakhstan in the next three
years. Hi-tech and telecommunications is seen as a sector that will
drive future FDI growth by 6% of respondents. A higher level of
broadband penetration and mobile connection than its neighbors,
makes Kazakhstan a potential platform for IT and business services
in Central Asia. The banking and insurance sector is expected to
recover after suffering from the effects of the world financial crisis.
43. “Mining-and-Metallurgical Sector,” Invest in Kazakhstan website, invest.gov.kz, accessed
25 February 2013.
44. Ernst & Young’s 2012 Middle East attractiveness survey “Shifting perspectives,” October 2012,
Ernst & Young, 2012.


Many global high-technology companies — Cisco, HP, LG, Microsoft
and Samsung, among others — are already present in the country.
Many of such companies help develop the local IT industry, cooperate
with local technical universities and bring the latest IT trends and
innovations to Kazakhstan. However, business services firms often
cite the lack of necessary skills among the labor force as a major
hindrance to growth in this sector. The technical qualifications offered
by universities and colleges do not reach industry requirements.
According to the WEF Global Competitiveness Report, Kazakhstan
ranks 103rd out of 144 countries for the quality of its management
schools. Only a small portion of IT firms in Kazakhstan seem to
innovate effectively. This shortcoming is demonstrated by the lack
of patents filed by these firms. According to the OECD Country
Capability survey,45 the majority of ICT firms in Kazakhstan have not
filed a patent since 2006.
In order for this sector to develop and become more competitive,
Kazakhstan needs to unlock the potential of its human capital,
stimulate innovation, and improve its institutional environment.
• Life sciences
According to the Ministry of Industry and New Technologies, the
pharmaceutical industry produced US$198m worth of products in
2012, which is about 0.2% of the total GDP for that year.46
However, the expanding middle class and a developing health
care system are set to increase pharmaceutical demand in
Kazakhstan. As of 2009, Kazakhstan imported 90% of the total
drugs consumed in the country, indicating a substantial fund
flow out of the country.47 In order to support the development of
the sector and increase the share of locally produced drugs, the
Ministry of Industry and New Technologies is implementing the
45. “Competitiveness and Private Sector Development,” Organization for Economic Co-operation and
Development (OECD) website, www.oecd.org, accessed 10 February 2013.
46. The Ministry of Industry and New Technologies website, www.mint.gov.kz, accessed 20 March 2013.
47. “Pharmaceutical industry,” Invest in Kazakhstan website, invest.gov.kz, accessed 8 July 2013.

Pharmaceutical Industry Development Program 2010–14. It also
intends to create jobs through diversified growth and keep health
care costs in check. A number of global pharmaceutical companies
entered the growing Kazakhstan market in the last few years.
Among them are Poland-based Polpharm, Turkish-based Abdi
Ibrahim and Nobel Ilac, and French-based Sanofi.

Highlights

90%

Kazakhstan imports 90% of the total drugs consumed in
the country.

6.3%

Kazakhstan's construction sector accounted for 6.3% of GDP
in 2012.

6.742

Kazakhstan commissioned 6.742 million square meters of
housing space in 2012.

9th

Kazakhstan is the world’s ninth-largest country and more
than 74% of its territory is suitable for agricultural production.

Sources: “Pharmaceutical industry,” Invest in Kazakhstan website, invest.gov.kz,
accessed 8 July 2013; Agency on Statistics of Kazakhstan website, www.stat.kz,
accessed 20 March 2013 and 10 July 2013; Official Site of the President of the
Republic of Kazakhstan, akorda.kz, accessed 10 July 2013; US-Kazakhstan Business
Association website, www.uskba.net, accessed 10 July 2013.

Unlocking value

25

Future

• Real estate and construction
Poor transport and logistics infrastructure is often cited as a barrier
to operating in Kazakhstan. However, the rapid development and
modernization of transport infrastructure has been underway
since 2010. The Government plans to spend around US$19b on
transport infrastructure by 2014, especially on links from China
to Europe, which will be crucial to facilitate cross-border trade.
Further, Kazakhstan’s state railway monopoly, Kazakhstan Temir
Zholy, expects to invest more than US$40b in domestic railway
expansion projects by 2020.48
The residential construction sector is also growing. In 2012, 6.742
million square meters of housing space was commissioned, an
increase of 3.2% on 2011. The Government initiated the Housing
and Utilities Sector Modernization Program 2011–2020 to repair
condominium facilities. It also launched the Affordable Housing
2020 program in 2012.49
• Agriculture
One in 10 respondents are confident about the agricultural sector’s
future FDI prospects. Agriculture contributes 5.5% to Kazakhstan’s
GDP and employs more than 20% of the labor force. Kazakhstan is
already among the world’s major wheat and flour exporters.50
The country is also among the largest grain exporters in the world
and exports to over 70 countries, including those in the CIS, the
Middle East, North Africa and the European Union.51
Despite the potential and opportunities offered by the sector, it
is weighed down by low productivity. There is little knowledge of
modern farm management and marketing techniques, and low
labor efficiency. According to the World Bank, Kazakhstan’s labor
efficiency in agriculture is lower than in Eastern Europe, Russia and
Ukraine.52 The Government has adopted the Agribusiness-2020
Program and plans to invest US$20b from 2013 to 2020 to reform
the sector. The Government aims to boost agriculture production
48. Kazakhstan rolls out new roads, CNN, 13 September 2012, Building products quarterly briefing,
Ernst & Young, February 2013.
49. Committee for construction, Housing and Utilities of the Ministry of Regional Development of the
Republic of Kazakhstan website, www.ads.gov.kz, accessed 20 March 2013.
50. “Agriculture Sector,” Embassy of the Republic of Kazakhstan to the United States website,
www.kazakhembus.com.
51. Invest in Kazakhstan website, www.invest.gov.kz, accessed 7 July 2013.
52. “Agriculture Sector,” Embassy of the Republic of Kazakhstan to the United States website,
www.kazakhembus.com, accessed 25 February 2013.

26


by 150%, improve labor productivity by 300% and increase
agricultural exports by 20%.53 Kazakhstan’s vast arable land gives
it the opportunity to produce natural, ecologically sound food. It is,
therefore, well placed to benefit from the boom in global demand
for food. The share of GDP provided by its agriculture sector could
rise fivefold by 2050.
With increasing development in agri-business, the demand for
modern equipment and logistics facilities is likely to increase,
offering opportunities to manufacturers and distributors.
Furthermore, the need for credit availability is expected to increase,
opening doors for a wide range of financial institutions as well.
• Automotive and transportation
Automotive vehicle production in Kazakhstan grew by 260% in
2010 and 112% in 2011, and sales increased by 14% and 31%,
respectively. Lada cars assembled in Russia and Kazakhstan lead
sales figures, with more than 40% market share. Despite a morethan-threefold increase, domestic production volumes remain
relatively low, with more than 80% of the demand for light vehicles
in Kazakhstan met by imports.54
Car imports to the country dropped almost 75-fold in 2012, as
119,809 cars were imported to Kazakhstan in 2011 compared
with only 1,599 from January to November 2012.55 This decline is
linked directly to higher custom duties, which the governments of
Customs Union member states imposed in a bid to limit car imports
and improve the local car manufacturing industry. Furthermore,
the Government of Kazakhstan is making efforts to attract large
automobile manufacturers with the most advanced technology and
management. This would help create new production lines in the
country. Toyota signed a Memorandum of Understanding (MoU)
with the Government of Kazakhstan to begin manufacturing of its
Fortuner SUVs in 2014 at the Saryarka Avtoprom automobile plant
in Kostanay city.56 Renault-Nissan, together with Russia's largest
automaker OJSC AvtoVAZ, is also considering the possibility of
assembling cars in Kazakhstan.
53. Ministry of Agriculture website, www. mgov.kz.
54. An overview of the Russian and CIS automotive industry February 2012, Ernst & Young, 2012.
55. “Car import dropped 75-fold in Kazakhstan,” Tengri News website, en.tengrinews.kz, accessed
14 February 2013.
56. “Toyota signs deals to make SUVs in Kazakhstan,” The Astana Times, 12 February 2013.


Toward integration
Accession to the WTO

What impact would the WTO accession have on increasing Kazakhstan's investment appeal?
22%

26%

24%

18%
10%

High impact
Medium impact
High/medium impact: 48%

Low impact
No impact
Low/no impact: 28%

Can’t say


WTO accession
After almost 14 years of negotiations, Kazakhstan is expected
to become a member of the WTO in 2013. Nearly half of survey
respondents think that accession would have a medium-to-high
impact on the country’s investment appeal. These investors believe
that the move could allow better market access, and ensure
predictability and transparency in trade policy and Kazakhstan’s
legal system. Membership would also remove trade barriers and
unfair treatment in the trade of Kazakh goods.
Kazakhstan’s accession to the WTO would not only increase the
volume of trade between the rest of the world and Kazakhstan. It
would also make indigenous products more competitive in the world
markets. Given that the country would now have to compete with
international markets, the path to enhanced production and job
creation could open up. According to estimates, in the medium term,
accession to the WTO would result in gains of around 3.7% of GDP
and real income gains of 6.7% of consumption. In the long run, the
gains should be about 9.7% of GDP and 17.5% of consumption.57
57. World Trade Organization website, www.wto.kz, accessed 12 February 12, 2013; “The
impact of Kazakhstan accession to the World Trade organization,” The World Bank website,
www.doingbusiness.org, accessed 12 February 2013.

However, 28% of respondents expect the WTO entry to have little
or no impact on Kazakhstan’s investment appeal. WTO membership
might place significant limits on state support for industries and
state regulation of projects with foreign capital participation.
Accession might also bring risks to domestic producers that fail to
be competitive under new market conditions. On the other hand,
the increase in competition could act as a further stimulus for these
companies to intensify innovation.

Likely WTO accession benefits
• Enhanced economic ties with other markets and increased
opportunities for foreign investors who are looking to export
from Kazakhstan.
• Reduced tariffs on goods to improve domestic resource
►
allocation and increase the range of imports in imperfectly
competitive sectors.
• Removal of barriers that deter multinational service providers,
►
increase the number of services available in Kazakhstan, and
improve productivity in sectors that use business services.

Unlocking value

27

Future

The Customs Union and CES
The recent creation of the Customs Union and CES with Russia and
Belarus are some noteworthy examples of Kazakhstan’s focus on
deeper economic integration. In November 2011, Russia, Belarus
and Kazakhstan also signed an agreement to form the Eurasian
Economic Union by 2015.
Nearly half of respondents expect these integration initiatives to
bring additional opportunities. They believe that integration will
help Kazakhstan to increase its potential in neighboring markets
and tap international markets. This could translate into opportunities
to reach a market of nearly 170 million people and GDP of US$2.3t
(at current prices), achieve US$900b of aggregate trade, and build
capacity for approximately 120 billion barrels of proved oil reserves.58
The CES is designed to facilitate business among investors and
entrepreneurs from the three countries by enabling the free
movement of goods, services, capital and labor. The move is
expected to allow participating countries to gain equal access to
internal infrastructure. Furthermore, by joining the Customs Union,
Kazakhstan would re-establish access to Russia’s considerable
industrial and technological capabilities.
58. World Economic Outlook database, April 2013, IMF; BP Statistical Review
of World Energy, June 2012, BP website, www.bp.com, accessed 20 March 2013.

28


Integration

How does the CES between Russia, Belarus and Kazakhstan, and a likely
Eurasian Economic Union by 2015, affect your perception of Kazakhstan's
attractiveness?
47%
28%
17%
8%

Improve

Neither improve,
nor deteriorate

Deteriorate

Can’t say

25%

Likely Customs Union benefits
• Enhanced market opportunities with access to nearly 170
million consumers.
• Easier, or abolishment of, customs procedures, resulting in
reduced costs and increased competitiveness.
• Equal access to internal infrastructure, which is especially
important for a landlocked country such as Kazakhstan.
• Diversified FDI inflows due to an enlarged market.
• Closer cooperation in research and innovation.
►
• Access to the industrial and technological capabilities of
member states.


What it means for businesses
Foreign investors already operating in Kazakhstan are optimistic
about the country’s future. While extractive sectors are set
to dominate future FDI inflows, opportunities are now arising
in strategic sectors such as agriculture, private and business
services and life sciences. However, lack of knowledge about the
local market often makes it challenging for potential investors to
innovate and implement the right strategies. An entry strategy
that involves joint venture with local businesses and government,
as well as a partnership with local vendors and research firms

can help foreign companies to overcome these challenges.
Recent integration initiatives, such as the CES between Belarus,
Kazakhstan and Russia, and likely accession to the WTO, are also
set to have a visible impact on Kazakhstan’s business appeal.
These developments would help to provide companies with better
market access, a larger consumer base, access to technological
capabilities, predictability and transparency in trade policy,
and a robust legal framework.

Unlocking value

29

Actions
How to improve Kazakhstan's attractiveness

p.31

Spread the word

p.33

Move up the value chain

p.34

p.35

Enhance the business
environment
p.36

Foster innovation

Remove regional disparities

Image: The Akorda presidential palace in Astana, Kazakhstan.

30



The path to prosperity
What steps can Kazakhstan take to help it realize its potential as
an investment destination?

Spread the word

Key findings

The survey clearly reveals that non-established investors lack awareness of Kazakhstan’s
business prospects and the opportunities it offers, reflected by the fact that a majority
of them replied “can’t say” to a number of questions. For instance, when asked about the
most attractive cities or locations in Kazakhstan, 75% could not name any city. Similarly,
they were not aware of the strengths and challenges, the impact of integration and growth
areas. Contrary to that, foreign companies that are already doing business in the region
have a good grasp of Kazakhstan’s strengths, the Government’s diversification drive and
the challenges for maintaining its accelerating growth trajectory.

Foreign investors not aware of "on-the-ground" situation
Percentage of “can't say” responses for parameters on Kazakhstan's attractiveness.
75%

55%
36%

19%

Most attractive cities or locations
in Kazakhstan for investors

14%

Kazakhstan in 2030

36%

35%

12%

11%

First things that come to mind
when thinking about Kazakhstan

Business sectors
driving future growth

9%
Impact of CES and likely
Eurasian Economic Union
27%
16%

Impact of WTO on
investment appeal

Majority

of potential
investors lack awareness of
Kazakhstan’s prospects.

38%

of respondents established
in Kazakhstan see the country as a
leader in energy in 2030.

None

of the respondents
established in Kazakhstan view
the country as a leader in R&D
and innovation.

35%

of respondents believe that
developing the social infrastructure and
health care systems will help address
regional disparity.

32%

think that a transparent
and predictable regulatory
environment will improve Kazakhstan’s
investment climate.

27%

call for better education
and training in new technologies.

Not established in Kazakhstan

Sources: EY’s 2013 Kazakhstan attractiveness survey (total respondents: 206 — 64 established in Kazakhstan;
142 not established in Kazakhstan).

Unlocking value

31

Actions

A key mechanism for development
The 2010 ot 2014 state program on accelerated industrial and
innovative development was established to promote stable and wellbalanced economic growth. The program targets diversification of
the economy and improved competitiveness by developing priority
sectors and supporting industrial development.
An industrialization map is the key mechanism used to implement
the program. The Government and the business community work
together to identify specific projects that meet the program’s
requirements and plot them on the industrialization map. Currently,
the industrialization map includes 779 projects, which have a
combined value of KZT11.2t (US$74.7b). These projects will create
approximately 220,000 jobs during their construction period and
around 181,000 jobs when they are put into operation.

The perception gap: a closer look
The Government recognizes how important
it is to reach out to investors. It formed
KAZNEX INVEST in 2010 to attract and
better educate foreign investors. Since
2010, this agency has conducted 38
international business forums in the
country and abroad, and has signed 275
memoranda and agreements worth over
US$16b. It has also conducted eight
roadshows, which were attended by more
than 490 local and foreign companies.59

Results for the first three years (2010 to 2012) of the program:
• Number of projects put into operation: 537
• Total investment: KZT2.1t (US$14b)
• Jobs created: 57,000
Amount of products produced by these projects:
• 2010: KZT110b (US$747m)
• 2011: KZT501b (US$3.4b)
• 2012: KZT913b (US$6.1b)
• First three months of 2013: KZT235.5b (US$1.6b)
Contribution of these projects to GDP:
• 2012: 1.3%
Source: Ministry of Industry and New Technologies website, www.mint.gov.kz, accessed 8 July 2013.

While these measures are noteworthy,
a lot more needs to be done to bridge
the perception gap. An ongoing and
constructive dialogue with foreign investors
is vital for the Government to better
understand and address the operational
challenges that they face. Also, adopting a
proactive approach to hosting sporting and
cultural events is an effective way to raise
awareness about the country, and would
help improve infrastructure.

Furthermore, after studying global
investment trends, the Government
is seeking to implement a strategy for
knowledge-intensive sectors. It includes
key performance indicators (KPIs) for
government officials and promotional
campaigns aimed at international media.

The country’s attractiveness is influenced
not only by tangible assets, such as natural
resources and infrastructure, but also by
the rising importance of intangible assets,
such as culture and values.60 Soft power
can be manifested in, for example, cultural
exports, performance at the Olympics, CO2
emissions or global integration.

59. “KAZNEX INVEST summed up the efforts to attract foreign
investment in Kazakhstan for 2012,” Kaznex Invest website,
www.kaznexinvest.kz, accessed 20 February 2013.

60. Ernst & Young’s Rapid-growth markets soft power index,
Spring 2012, Ernst & Young, 2012.

32


Kazakhstan’s achievements in this regard
are significant, and include ethnic and
religious integration; taking a lead in the
non-proliferation of nuclear weapons;
chairing the Organization for Security
and Co-operation in Europe; focusing on
clean energy and sustainability; hosting
the Asian Winter Games; and winning
performances at the 2012 Olympics in
London. International integration remains
at the top of the country’s agenda, with the
recent establishment of the Customs Union,
Kazakhstan’s active role in the Shanghai
Cooperation Organization, and its aspiration
to become an OECD member state.
In 2017, Astana will host EXPO 2017, when
the country will welcome five million visitors
and secure investment projects worth
€1.5b. Preparations for the EXPO and the
investment that is set to flow from it will
boost SMEs, create jobs and bring upgrades
to physical and social infrastructure.


Move up the value chain
Kazakhstan in 2030

How do foreign investors already established in Kazakhstan see Kazakhstan in 2030?
(Respondents provided two possible answers)
A leader in the energy
energy

38%

A highly diversiﬁed economy

25%

Surpassed by competition from more dynamic countries

19%

A leader in agri-business

14%

A country with highly developed technological infrastructure 13%
A leader in exports to international markets

12%

A leader in manufacturing

11%
8%

A country with one of the best education systems
A country with one of the highest-value labor markets

- None of the respondents view

One of the world leaders in knowledge-based industries

- knowledge-based industry,
- and R&D and innovation

A leader in R&D and innovation
Can't say

Kazakhstan as a leader in

14%

Source: EY’s 2013 Kazakhstan attractiveness survey (total respondents: 64 established in Kazakhstan).

Thirty-eight percent of respondents
already established in Kazakhstan expect
the country to be a global energy leader
in 2030. The oil and gas sector has been
the backbone of Kazakhstan’s economy
and has done much to lift the country’s
growth and well-being of its people.
However, the sector remains vulnerable to
the volatility associated with fluctuating
global commodity prices. Nearly 20% of
respondents think Kazakhstan risks being
surpassed by competition from more
dynamic countries.
Meanwhile, a quarter of investors based in
Kazakhstan are confident that the country
will manage to reduce its dependence on
energy and will be on the way to becoming
a highly diversified economy by 2030.
These investors acknowledge government
programs that will drive diversification.
Kazakhstan’s diversification mission
also receives financial support from
international institutions and investors.
In the period from 2001 to 2011, the
European Bank for Reconstruction and
Development (EBRD) invested €11b in 152
projects in Kazakhstan to aid economic

diversification. It plans to support the
Government’s economic diversification
program through equity and debt
investments in corporate, energy, financial
institutions and infrastructure sectors.61
Twelve percent of investors expect
Kazakhstan to be a leading export
market by 2030, and 11% see it leading
in manufacturing. Growing investments,
coupled with increasing demand, have
played a crucial role in the ongoing
expansion of manufacturing activities
in Kazakhstan. The sector’s share of
overall GDP has grown to 11.4% in 2011,
compared with 11.3% in 2010 and 10.5%
in 2009.62 Manufacturing activity in
Kazakhstan is concentrated on oil and gas,
chemicals, metals, equipment and tools,
and construction material. Recently, there
has been a shift in this trend. Competitive
labor costs and an improving business
environment, along with a rising domestic
market, have encouraged a number of
61. EBRD in Kazakhstan website, www.ebrd.com, accessed
20 March 2013.
62. “Weekly Review. Kazakhstan to provide citizens with
affordable housing,” Kazworld website, kazworld.info, accessed
14 February 2013.

On the ground …
• stana Solar has established a PV
A
►
module plant.
• E has established a locomotive plant
G
►
in Kazakhstan.
• AF is opening a meat processing plant
K
►
in West Kazakhstan.
• alzgitter is building a pipe insulation
S
►
plant in Atyrau.
• oyota is opening an assembly plant
T
►
near Karaganda.
Sources: “GE, Kazakhstan to build locomotives in
partnership,” The Herald, 24 May 2012, via Dow Jones
Factiva © 2013Reuters Limited; “Astana Solar opens PV
module plant in Kazakhstan,” Central Asia news, 7 January
2013, via Dow Jones Factiva © 2013 Reuters Limited;
“Kazakhstan to set up manufacturing plant of fresh and
chilled lamb,” Central Asia News, 4 February 2013, Dow
Jones Factiva © 2013 Reuters Limited; “French and German
pipe firms to invest $100 million is western Kazakhstan,” The
Times of Central Asia, 4 October 2012, Dow Jones Factiva
© 2013 Reuters Limited; “Toyota to open assembly plant
in Kazakhstan,” 8 February 2013, Embassy of Republic of
Kazakhstan to the United States website, www.kazakhembus.
com, accessed 1 February, 2013.

global companies to set up manufacturing
projects in the automotive, chemicals,
pharmaceuticals, defense and steel sectors.
In order to move up the value chain and
ease dependence on natural resources,
Kazakhstan should develop and enhance
the competitiveness of its knowledge-based
and non-extractive sectors. With input
from the corporate sector, the Government
should better define and identify clusters
that are competitive. It can work with
private sector players and strategic foreign
partners that have the requisite knowledgeintensive technology and know-how.
None of the respondents established in
Kazakhstan think that by 2030 it will have
a high-value labor market, will be a leader
in knowledge-based industries, or will be a
leader in R&D and innovation. So these are
the areas on which the Government needs
to concentrate.

Unlocking value

33

Actions

Remove regional disparities
How to develop Kazakhstan's regions

What do you think are priority measures to address regional disparities and enhance attractiveness of speciﬁc locations?
(Respondents provided two possible answers)
Develop social infrastructure and health care system, improve quality of life

35%

Invest in infrastructure and urban projects

30%

Adopt a proactive approach to attract investors with target region-speciﬁc campaigns 24%
Direct education and training in line with prospective economic needs of the region

23%
9%

Host sport and cultural events to enhance awareness of the region

30%

Can't say


According to investors, the top priority
of Kazakhstan’s Government should
be providing proper social and physical
infrastructure and a health care system.
A consistent and improving standard of living
across the country is the leading indicator
of well-being. However, in Kazakhstan, there
is a wide gap in income distribution, and
between rural and urban areas.
The concentration of investment projects
in a few Kazakh cities is indicative of the
country’s regional disparity. To spread
growth and development, the Government
has to work on reducing the attractiveness
gap between regions. It should attempt
to formulate plans for the regions that
lag behind based on their competitive
advantage, available industries and
workforce.
In January 2013, President Nazarbayev
established the new Ministry of Regional
Development to manage projects and social
infrastructure in regions, as well as develop
entrepreneurship. The ministry will analyze
the factors that hamper social and economic
development in the regions, and develop

34


for each region, and industrial satellite towns
will be developed to improve living standards
and provide job opportunities.

long-term centers of economic growth
integrated with regional and international
markets. Priority industries will be specified

Main sectors by city or region
City

Main sectors

Astana

Business services; construction and construction materials; food
processing; public services

Almaty

Business services; construction

Region

Main sectors

Akmola

Agriculture and agroprocessing; chemical and pharmaceutical; construction
materials; mechanical engineering; uranium and gold mining

Aktobe

Industry (ferrous metal industry; mechanical engineering; oil)

Almaty

Agriculture and agroprocessing

Atyrau

Industry (oil and gas; mining)

East Kazakhstan

Nonferrous metal industry

Karagandy

Mining (ferrous and nonferrous metals; precious and rare metals)

Kostanay

Agriculture and industry (iron ore production and processing; asbestos)

Kyzylorda

Oil and gas; mining

Mangystau

Oil and gas

North Kazakhstan

Agriculture and industry (food processing; mechanical engineering)

Pavlodar

Industry (aluminum; coal; ferroalloys; power)

South Kazakhstan

Agriculture and industry (processing; uranium production)

West Kazakhstan

Natural gas

Zhambyl

Agriculture and industry (food processing; chemicals)

Sources: Ministry of Regional Development of the Republic of Kazakhstan website, www.minregion.
gov.kz, accessed 8 July 2013; Astana city website, www.astana.kz, accessed 8 July 2013; Almaty city
website, www.almaty.kz, accessed 8 July 2013.

EY Survey: Stability Drives FDI in Kazakhstan

EY Survey: Stability Drives FDI in Kazakhstan

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