Country File Issues Related to Their Investment Activities in the Country

COUNTRY FOCUS

Virgin Islands ($7.8bn), China ($7.8bn), Russia ($6.4bn), Switzerland ($6.4bn), Italy ($5.8bn) and Canada ($5.5bn). Kazakhstan law grants foreign investors Kazakhstan the same rights as Kazakhstani nationals. Foreigners may invest in almost all Reforms to attract foreign investment to this oil-rich nation sectors of the economy. But restrictions apply to foreign ownership in certain are top of the government’s agenda, say Aset Shyngyssov, areas, for example, national post, air and Klara Nurgaziyeva and Marat Mukhamediyev seaports, oil and gas, and mass media and telecommunication. The law also imposes restrictions to encourage companies to Kazakhstan became an independent credit and currency policies to support hire local personnel and procure goods sovereign state in 1991 as a result of further economic integration with other and services locally. the dissolution of the former Soviet post-Soviet Union nations and to assure Kazakhstan is a party to bilateral Union. Since then, it has undergone continued access to export routes. In the investment treaties with 45 countries, significant change as it has journeyed meantime, Kazakhstan is looking to join the Energy Charter Treaty, the New York from having a single-party political the World Trade Organization (WTO) Convention of 1958 and other international system, and a centrally controlled and negotiations on its accession to the treaties that secure protection of foreign command economy, towards a market- WTO are still pending. investors’ interests in Kazakhstan. oriented, more democratic approach. New foreign investment reforms are top Between 2001 and 2007, its GDP grew Foreign investment regime of the Kazakhstan government’s agenda. cumulatively by almost 200% in real Like many other emerging economies, Some of the key policies that should terms, according to the National Statistics Kazakhstan’s economy is still substantially stimulate investment opportunities in Agency of Kazakhstan. dependent on foreign investment. Kazakhstan include: Kazakhstan is known for its vast According to official sources, Kazakhstan Economic incentives through the reserves, and active export, of natural has attracted over $160bn of foreign direct creation of special economic zones and/ resources. These include oil, gas, steel, investment since 1993. Although there was or granting of investment preferences. copper, ferroalloy, iron ore, aluminium, an insignificant decline in foreign direct These apply to investments in certain coal, lead, zinc and wheat. As a landlocked investment in 2008-2010, this investment areas, such as agriculture, manufacturing country, Kazakhstan relies on having has picked up since 2011 and reached or the government’s strategic projects good relations with its neighbours to approximately $22.5bn in 2012. Inbound (reconstruction and modernisation of ensure its ability to export. So it has foreign direct investment is mainly in the refineries, creation of digital television taken various steps to promote regional oil, gas and mining sectors. transmission, etc). The incentives relate economic integration among nearby From 1993 to 2012, the Netherlands (a to corporation tax, VAT, land and/or countries. In 2009, Kazakhstan, Russia key hub for holding companies due to a property tax, customs duty, etc. and Belarus set up a customs union. The favourable Kazakhstan-Netherlands tax Institutional support through the aim of the union is to create a free customs treaty) was responsible for a third of all Special Permanent Commission on area within which member countries investment into the Kazakhstan economy Foreign Investment, which is headed by enjoy free movement of goods, services, ($43bn) followed by the US ($25bn). The the prime minister of Kazakhstan. The capital and labour. The member countries top 10 foreign investors also include the main purpose of the commission is to also intend to harmonise their fiscal, UK ($11.6bn), France ($10bn), the British promote direct dialogue between the government of Kazakhstan and foreign investors in order to efficiently address key Country file issues related to their investment activities in the country. Population size: 17 million Service support through the National Geographical area: 2,724,900 sq km Export and Investments Agency, Kaznex GDP growth (2013): 6% Invest, which is responsible for organising Type of govt: Republic business forums and meetings, and providing information and analytical Official languages: Kazakh and Russian support to investors. Capital city: Astana Meanwhile, slow, step-by-step GDP (PPP) in 2012: $235.6bn liberalisation reforms are being Central government debt as a introduced to reduce the number proportion of GDP (2012): 13.2% of licences and permits, and other administrative hurdles. Also, the Currency: Kazakhstani tenge parliament and government are drafting a Currency rate against the euro: 0.0039 new, more liberalised administrative code, a mining code, and various other laws and SOURCE: INDEX MUNDI

24 The Treasurer April 2014 www.treasurers.org/thetreasurer of of credit. Some Kazakhstani banks debtin order to fund arapid expansion Kazakhstan incurred high levels foreignof was experiencing rapid growth, banks in 2007, while the Kazakhstan economy global financial crisis. Between 2000 and particularly adversely affected by the more than one-third foreign ownership. foreignparticipation asthathas abank Russia. Legislation defines a bank with Citibank Kazakhstan and Sberbank of Kazakhstan, includingRBS with foreign participation operating in In February 2014, there were 16banks provide banking services in the country. subsidiary or joint venture in order to They must establish a Kazakhstani from opening branches in Kazakhstan. in Kazakhstan in February 2014. commercial banks licensed to operate tier). According to NBK, there were 38 a special statusbelongsto and neither which, as a state development bank,has Development Bank Kazakhstan, of second tier (with the exception the of the commercialbanks comprising the (NBK) comprising the first tier and with the National Bank Kazakhstan of Kazakhstan has a two-tier banking system Banking system for attractingforeign directinvestment. initiatives,in order to improve the climate Informal meetings with the local partner Informal meetingswiththelocalpartner especially ifthegovernment isinvolved. expected, butthesigningoftransaction something ofthehistory ofKazakhstan. are usefulfor establishing relationships. Kazakhstan’s banking sector has been Currently, foreign banks are prohibited horse milkormeat, andto make the approvals process, taxstructuring, associated withthedeal,for example, to identifyandunderstand key issues documents canhappenvery quickly, Be prepared to accept whenoffered A professional advisercanhelpyou Negotiations may take longerthan documentation andlikely timeline. Learn afew phrases inKazakh and potential localpartnerinadvance. Carry outduediligence onyour DOING BUSINESS IN KAZAKHSTAN TOP TIPSFOR eloquent toasts. 4 5 2 3 1

the defaultrisksto of broker dealers. instructions andcosts,minimise and settlementof transactions, delivery operational efficiency, reduce the volume settlement system that will enhance include establishinga clearingand increasing market liquidity. These aimed at attractinginvestors and bonds, andderivatives. institutions), shares and corporate the bonds international financeof government securities(including that is active in foreign currency, KASE is a universal financial market city Almatyof and was founded in 1993. in Kazakhstan.It is located in the largest is the only functioning stock exchange The Kazakhstan Stock Exchange (KASE) Capital markets and debtrestructurings. to deleverage through partial repayments remain under stress, with banks starting Kazakhstani banking system continues to into ‘good banks’ and ‘badbanks’. The framework for banks to be reorganised creditorsrevisingthe existing and of are approved by a qualified majority of consensual financial restructurings that Law with the twin aims of enabling parliament adopted the Restructuring their books. So, in 2008-9, Kazakhstan’s loansnon-performing on number of came under pressure due to the growing KASE is undertaking several projects dependent onforeign investment www.treasurers.org/thetreasurer

economy isstill substantially

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economies, Kazakhstan’s professional advisers. which can be provided by experienced need insight into the Kazakhstanimarket, these foreign opportunities,investors of and economic reforms. To make the most investors, with the support of ongoing legal still offers lots of opportunities to foreign particularly its banking sector, the country negatively affected Kazakhstan’s economy, StockExchange. are also attracted by the Hong Kong Stock Exchange. Kazakhstani companies with a coupon 9.875% of on the Irish offered $200m in three-year eurobonds In 2013, bank mid-sized KaspiBank Kcell and energy company KazMunaiGas. Kazakhmys, mobile network operator that arelisted ontheLSE are miner Exchange (LSE). Among the companies markets, mostly on the London Stock equity and debt investment in Western Lewis &Bockius(Almaty office) practice ofgloballaw firmMorgan, an associate, inthebusiness andfinance are partners,andMarat Mukhamediyev is Aset Shyngyssov and While the global financial crisis has Kazakhstani companies tend to raise cosmodrome inKazakhstan The launchpadat Baikonur April 2014 Klara Nurgaziyeva The Treasurer