Foreign direct investment (FDI) in Kazakhstan

FDI in Figures

Since declaring independence, Kazakhstan has passed a series of reforms to liberalize its economy and attract foreign investment. However, regional conflicts, sanctions imposed on Russia, and negative growth prospects have more recently deterred foreigners from investing in the region. According to UNCTAD's World Investment Report 2024, FDI inflows into the country stood at USD 3.22 billion in 2023, roughly half of the level recorded one year earlier. At the end of the same period, the total stock of FDI stood at USD 157.19 billion. During the year, Kazakhstan entered into a power purchase agreement with TotalEnergies (France) for a USD 1.4 billion onshore wind farm and battery energy storage system. Between January and September 2024, the net inflow of FDI into Kazakhstan's economy dropped 32.3 times year-on-year, falling from USD 2.3 billion to just USD 72.9 million, according to data from the National Bank. Substantial amounts of capital were withdrawn from Kazakhstan in 2024 when net FDI outflows included USD 1 billion to the U.K., USD 353 million to the U.S., USD 244 million to China, and USD 148 million to France. These outflows were largely attributed to capital repatriation, repayment of loans to foreign parent companies, and the withdrawal of profits or dividends. Figures from the same source show that the mining and quarrying sector is the one receiving the most FDI (51.6% of the total stock at the end of October 2024), followed by financial and insurance activities (13%), manufacturing (8.3%), and trade (6.9%). The main investing countries are the Netherlands (23.3%), the U.S. (19.6%), Russia (7.7%), the UK (6.1%), China (5.5%), and France (5.4%).

Kazakhstan is reputed to have a very good investment climate, and several international companies have established their regional headquarters in the country. In general, the government has been gradually improving the business climate for foreign investors, with the Ministry of Foreign Affairs’ Investment Committee and Kazakh Invest providing assistance to investors looking to do business in the country. By law, both foreign and domestic firms can establish and own businesses in Kazakhstan. While no sectors are fully closed to foreign investors, there are restrictions, such as a 20% cap on foreign ownership of media outlets and a 49% limit on domestic and international air transportation services. In 2016, Kazakhstan removed the 49% foreign ownership limit on telecom companies, except for KazakhTeleCom, though foreign investors still need a government waiver. There are no restrictions on foreign capital in banking and insurance, but offshore companies face limits in these sectors. Foreign ownership of pension funds and agricultural land is prohibited, and foreign citizens and companies cannot own private security businesses. Despite institutional and legal reforms, challenges such as corruption, excessive bureaucracy, arbitrary law enforcement, and limited access to a skilled workforce persist in certain regions and sectors. Furthermore, the government's inclination to expand its regulatory involvement in investor relations, promote import-substitution policies, restrict the use of foreign labour, and intervene in companies' operations remains worrisome for foreign investors. Moreover, due to Kazakhstan's lengthy border and deep economic connections with Russia, the investment climate in Kazakhstan is impacted by Russian aggression against Ukraine and the resulting sanctions imposed on Russia. Kazakhstan lacks a screening system and specific legislation addressing the national security implications of FDI. Overall, the country ranks 78th among the 133 economies on the Global Innovation Index 2024 and 68th out of 184 countries on the latest Index of Economic Freedom.

What to consider if you invest in Kazakhstan

Strong Points

The main assets of the country are:

• Kazakhstan's economy is primarily based on its large hydrocarbon resources and strong production capacity in this area.
• Located at the crossroads of Europe and Asia, the country has benefited from the huge investments made by China through its China's Belt and Road Initiative program to improve its transport infrastructure.
• The economic situation is relatively good and growing (4.5% in 2019 - IMF) despite a financial sector affected by the financial crisis.
• Kazakhstan has strong economic potential, a skilled and abundant workforce and a quality banking system.
• Kazakhstan is the largest economy in Central Asia: the country accounts for more than 60% of the region's GDP (The Astana Times, 2020)
• With a favourable investment climate, the country ranked 25 in the World Bank's Ease of Doing Business ranking 2020.
• Reliable transport and communication infrastructures (24 airports and the region's highest internet penetration rate 81.9% in 2019 - World Bank, latest data available).

Weak Points

Heavy constraints weaken Kazakhstan's economic potential and hinder the attraction of FDI:

• An economy highly dependent on commodity prices and Russian economic conditions
• Weak liberalisation of the economy: the strategy of the government in place is interventionist and protectionist
• An authoritarian political regime as a solution to chronic political instability in the region: a generally weak legal, legal and administrative framework, thus slowing down trade and allowing corruption to operate (Kazakhstan ranked 94th out of 180 according to Transparency International, 2020)
• The right to intellectual property is poorly protected
• The infrastructure is below international standards
• Landlocked country with a low population density
• Vulnerability of the exchange rate to foreign shocks

Government Measures to Motivate or Restrict FDI

Government policy has been encouraging foreign investment for nearly two decades (thanks to December 1994 and February 1997 laws) with measures such as reduction and even waiver of taxes for 5 years, a state subsidy, partial or total exemption from duties and taxes on equipment, raw materials and other material necessary for investment.

A new law aimed at making significant improvements to the investment climate in Kazakhstan was passed by the government on 24 June 2014 and has applied since 1 January 2015. The law introduces preferential treatment for investors involved in "priority investment projects". To counteract the economy's great dependence on its hydrocarbon production, the state has put in place programmes to diversify the economy by encouraging all initiatives relating to industrialisation, innovation and new technologies. For example, in 2017, the country launched the "Kazakhstan National Technology Initiative" program which by 2025 is supposed to accelerate technology renewal and create new digital-based industries in all sectors. At the same time, the state wants to liberalise the economy gradually, through the development of public-private partnerships and thus seeks to minimise its participation in the national economy.

As of January 2020, the restriction on opening branches of foreign banks and insurance companies has been lifted, in line with Kazakhstan's WTO commitments.