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