Académique Documents
Professionnel Documents
Culture Documents
• Market Overview
• Market Challenges
• Market Opportunities
• Market Entry Strategy
Business in Kazakhstan is often focused on the oil and gas sector, which has been
responsible for the country’s strong economic expansion over the last decade.
Kazakhstan, however, has developed into the leading market in Central Asia and has
the potential to play an important role as a transit route between China and Europe.
Kazakhstan is also actively seeking ways to use its new mineral wealth to diversify its
economy. These efforts, combined with a growing middle class, are providing trade and
investment prospects for U.S. firms seeking new opportunities in one of the most
dynamic of the emerging markets.
Like other former Soviet Republics, Kazakhstan is still developing a transparent and
effective business culture that is attractive to foreign investment. But with Kazakhstan
holding the 2010 Chairmanship of the Organization for Security and Cooperation in
Europe (the first former Soviet Bloc country to do so), the government has been
expediting economic reforms in order to move closer to Western/European standards.
However, new laws and regulations that should improve the business environment are
often incorrectly implemented at the local level. Foreign investors, as well as local firms,
complain about burdensome regulations that often reflect a way of doing business that is
reminiscent of the Soviet Union. Challenges remain in addressing problems related to
the country’s competitiveness and economic diversification, its over-reliance on the
extractive sector, continued corruption, need for increased rule of law, and concentration
of political power.
• Despite the credit crunch that began in 2007, Kazakhstan continues to have a
healthy appetite for imported goods. U.S. exports to Kazakhstan reached $1.1 billion
in 2008 and reported $44 billion in total imports for 2008, a 34% increase from 2007.
• The most recent report from the Heritage Foundation’s Index of Economic Freedom
rated the country as “moderately free” and ranked it 82 out of 179 countries, well
above neighboring Russia and China. This score is one point higher than last year,
primarily reflecting purported improvements in the ability to open a business as well
as the country’s low tax rates. The Foundation’s report scored Kazakhstan high in
trade freedom, fiscal freedom, and government spending. However, “challenges to
economic freedom remain considerable. The economy exhibits significant
shortcomings in three areas: investment freedom, property rights, and freedom from
corruption. Red tape and overly burdensome restrictions still hamper business
freedom. The weak rule of law allows for significant corruption and insecure property
rights.”
Over the past decade, Kazakhstan has made progress in transforming its economy to
create a more transparent, less regulated and more market-driven business
environment. Nonetheless, this progress continues to be steadily undermined by
continued developments that have caused increased concern for U.S. investors and
their government alike. Firms that have experience in Russia, the Ukraine and other
post-Soviet economies will be familiar with some of these challenges:
• As of January 2010, the Customs Union (CU) between Belarus, Kazakhstan, Russia
became effective. It was originally proposed as a way to boost trade and investment
in the three countries. However, Kazakhstan’s trade may be more restricted as it
has increased the majority of its tariff levels to match Russia’s and now has similar
limitations on certain categories of goods. Businesses are affected by a poorly
planned implementation of the territories’ integration, incomplete development of the
common customs code, and unclear documentation requirements.
• Competition is strong as Russia and China vie for access to the country’s energy
resources and growing buying power. In 2009, China agreed to investments of $13
billion in Kazakhstan with South Korea ($5 billion), Russia ($3 billion), and France
($2 billion) distant seconds. Turkey is another formidable competitor, using its strong
presence in the construction and retail sectors to better position itself.
• Despite the President’s declaration to have Kazakhstan join the World Economic
Forum’s “Global Competitiveness” Top 50 economies, Kazakhstan continues to fall
in the rankings. Their 2006 ranking of 56th fell to 61st in 2007, to 66th in 2008, and to
67th in 2009.
• Interpretation of laws by local officials is often at variance with that of the central
government, especially in the implementation of Kazakhstan’s system of taxation and
collection of revenues. U.S. investors report taxation as one of their top concerns,
reporting frequent harassments by local and national ‘financial police.’
• Kazakhstan moved up on the World Bank’s Ease of Doing Business Report for 2010,
ranking 63rd out of 183 countries (2009 ranking was 70th of 181 countries). Of the
various indicators used, Kazakhstan experienced lower rankings in “Employing
Workers” and “Registering Property”, while showing significant improvement in
“Dealing with Construction Permits” and “Paying Taxes”. Kazakhstan saw little
change to the report’s other indicators, with near bottom rankings in “Trading Across
Borders.”
Demand in this developing market goes beyond the few best prospect sectors that this
report is able to cover (see Chapter 4). Kazakhstan's strategic aspiration is to become a
modern, diversified economy with a high value-added and high-tech component, well
integrated in to the global economy, and they are cognizant of the need for foreign
expertise to accomplish this. Like other former Soviet republics, Kazakhstan’s
infrastructure needs modernization, especially roads, transportation, and
telecommunications. Likewise, areas such as health and environment need an infusion
of investment to reach global best practices. However, firms that seize this moment to
explore the country’s many business opportunities may be rewarded in the long term.
Kazakhstan offers many opportunities, but may not be the right market for all firms.
Companies that meet one or more of the following criteria will have an edge on the
competition:
• Export sales and emerging markets are an important part of your business.
• Your firm has experience in Eastern Europe, the Caucasus, Russia, or Ukraine.
• Your firm is active in growth sectors highlighted in Chapter 4.
• You are willing to invest your time, effort and resources for the long term.
Most exporters find using local distributors an easy first step for entering the Kazakhstani
market. A local distributor is typically responsible for handling customs clearance,
dealing with established wholesalers/retailers, marketing the product directly to major
corporations or the government, and handling after-sales service, if required. As the
country develops its own business acumen, it is also developing a new breed of
entrepreneur. It is not uncommon to partner with a firm that is involved in several
unrelated sectors. Other useful early steps:
• Perform detailed market research to identify specific sector opportunities.
• Establish a local presence or select a local partner for effective marketing and sales
distribution in Kazakhstan. Keep in mind that Kazakhstan has a small population
spread over a large landmass, and your distribution channels should be able to
represent your needs countrywide. Due diligence is also a must.
• Maintain a long-term timeframe to implement plans and achieve positive results.
Don’t expect this to be an inexpensive market that can be entered quickly.
• Be prepared to offer financing to your buyers (see Chapter 7).
http://www.state.gov/r/pa/ei/bgn/5487.htm
With a history based on networks of elite groups, business in modern Kazakhstan is still
based on personal relationships. In an economy where rule of law is not yet firmly
established, the quality and depth of key business relationships are often your best
protection against loss and your key to market access. Selection of a local partner (or
partners) is probably the most important decision your company will make in its market
entry. Though some firms choose to cover the Kazakhstani market from a regional
office in Russia, an on-the-ground presence is crucial to effective business development.
U.S. companies considering this market should take advantage of several excellent
trade promotion services offered by the U.S. Commercial Service. For U.S. companies
who send their executives on business trips to Kazakhstan (the recommended way to
create partnerships), we advise the Gold Key Service program. For more information,
contact CS Almaty or your local U.S. Export Assistance Center.
Establishing an Office Return to top
The required package of documents includes, but is not limited to, application for
registration, by-laws of the entity to be registered, and by-laws of the foreign partner of
the joint venture. In reality, the registration process might take much longer than the
specified time above. Usually the reason for delay is submission of an incomplete
package of registration materials, a subjective interpretation of the requirements, or a
failure of the government’s computer system. Turning in all requested materials from the
start will facilitate processing. There is also a registration fee that varies depending on
the type of organization being registered. Our office recommends that experienced and
well-established legal counsel be used to register a company.
Domestic telephone service is poor but getting better; international service is reliable in
major cities but expensive. Mobile phone services, both GSM and CDMA, are available
in most cities throughout Kazakhstan. Internet service is available as dial-up at any
location in Kazakhstan with a phone connection, but is normally too slow to conduct
effective business. Broadband solutions are available in major cities via cable or
satellite, but expensive. Office equipment (fax machines, telephones, and
photocopiers), parts, and service are readily available in Almaty and Astana. Russian is
the language of commerce. With the exception of Almaty and several other major cities,
it is difficult to find professional English-speaking staff. Training is an essential
component to any start-up operation.
Companies interested in working in the oil sector, as well as various types of sub-
contractors for the oil majors, may consider opening representative offices in the
Caspian Sea region cities of Atyrau, Aktau or other cities in western Kazakhstan located
near the major oil fields. There is a lack of quality office space in this region and most of
the companies tend to establish offices in apartments. The cost per square meter is
generally the same as in Astana.
While the small population and low population density of Kazakhstan limits franchising
opportunities, FCS Almaty believes that this sector has significant potential for
development. By our estimates, there are approximately one hundred franchises
operating in Kazakhstan - most of them located in Almaty – making Kazakhstan the
franchising leader in Central Asia. However, the Franchising in Kazakhstan book puts
the number at 1,000 franchising outlets, with an estimated annual turnover of $500
million.
Although franchising is a fairly new business concept in Kazakhstan, it is drawing
increasing interest from entrepreneurs. Kazakhstani companies have accumulated
financial resources that, combined with a lack of available investment instruments, are
stimulating interest in franchising. Several influential business groups seeking to
purchase an internationally recognized and well-designed franchising model have
contacted our office. While the number of potential franchisees grows steadily in
Kazakhstan, franchisers have yet to express a notable interest in expanding into the
market.
Any franchising contract should be carefully drafted because judges in Kazakhstan are
not familiar with this area of law. In fact, the Law of Franchising, adopted in June 2002,
does not even use the term, but retains the archaic term "complex business license."
Direct sales and sales through catalogs are particularly popular in the cosmetics sector
accounting for up to 15% of market turnover. Leading direct selling companies include
Avon, Oriflame, Mary Kay, Faberlique (Russia), and Amway. The majority of these
products are U.S. brands. Direct sales are oriented towards middle and lower class
consumers.
There are more than a dozen local and several Western advertising firms in Almaty.
Television, outdoor advertising, and general-interest publications represent primary
advertising channels for consumer goods. Advertising of services and general image
promotion are usually done using outdoor advertising and personal sales.
According to the Statistics Agency of the Republic of Kazakhstan, more than 9,100 joint
ventures with foreign partner participation currently operate in Kazakhstan.
The oil and gas sector includes many joint ventures. Altogether, some 300 joint ventures
with partners from 55 countries currently operate in the Atyrau oblast – the oil-rich region
in Western Kazakhstan. The newly formed Kazakhstani Center for Engineering and
Technology Transfer is actively involved in organizing strategic partnerships with foreign
companies investing in Kazakhstan. Additionally, government-related organizations,
such as the National Investment Fund, wish to invest in foreign firms that are developing
new technologies, or to license production of such technologies in-country for distribution
in the region. Other successful joint ventures are operating in the mining, agribusiness,
transportation and food processing sectors of economy.
Licensing procedures are often slow and non-transparent, though the new law is aimed
at improving and simplifying the issuance of licenses. The number of activities that are
subject to licensing has been reduced to 100 types and 249 subtypes; license issuance
has been simplified based on a “one window” principle; the process of license
deprivation is executed by the court; operation of license is not territorially limited; and
licenses must be issued within a 25-day period (for small businesses, seven days).
Provisions for issuing a license are determined by certain government agencies in
accordance with the type of license.
State procurement is regulated by the 2008 Law on State Procurement and applies to
ministries, state agencies and companies and enterprises wherein the state holds more
than 50% of the shares. Procurement by state agencies and companies working in such
sectors as defense and security is subject to special terms and procedures, as is
procurement by firms in the oil and gas sector. The “Rules on Oil and Gas Procurement”
give significant preferences to local suppliers, and establish what many firms, foreign
and domestic, consider unwarranted state interference in even small tenders.
U.S. companies are advised to approach any government contract with due caution.
However, lucrative opportunities do exist and American companies have had success in
Kazakhstan. Companies should be wary of payment-after-service arrangements and
use payment schemes providing additional guarantees of timely payments. Not doing so
puts any firm at risk, with little recourse in the Kazakhstani judicial system.
Kazakhstan’s online shops first emerged in 2000 but after ten years there is still
relatively little development in this business. Kazakhstan’s expensive internet access
resulted in a limited number of internet users and has greatly reduced its
competitiveness in the world market. However, based on recent reports, Internet use
has grown quickly over the last year, jumping from 4-5% use to anywhere between 11%
(International Telecommunication Union) to 19.8% (ICT Marketing) of the population in
2009. This provides excellent opportunities for growth in E-commerce. About 100
Internet shops and Business-to-Business (B2B) trade marketplaces exist in
Kazakhstan’s domain. Products sold online include prepaid phone and Internet cards,
multi-media, books, computer hardware, computer peripherals and accessories,
software, cosmetics, apparel and more recently, airline tickets.
B2B commerce is starting to grow, as many Kazakhstani companies begin to realize that
having a web page is a must for good standing in the business community. Some firms
now include product catalogs on their Internet pages. Most companies, however, are
not ready to go beyond the web representative office to conducting on-line business. In
2004, Kazkommertsbank, the leading local bank in Kazakhstan, and Commerce One,
with the support of IBM, activated the first Electronic Trade Ground (ETG) in Kazakhstan
for conducting sales and tenders through the Internet. By the end of 2009, this ETG
registered around 2,221 members and 1,428 completed tenders. These numbers
represent a considerable increase compared with 2005: 126 members and 140 tenders.
At the end of 2007 KazPost, the state-owned mail operator, launched a pilot ETG named
Postmarket intending for it to be used for testing e-commerce technologies. In prospect,
Postmarket should be developed into a system of remote trade working in B2B, P2P and
B2C environments.
In the B2C segment of the e-commerce marketplace, growth is slow. Russian online
shops are frequented more by Kazakhstanis, as there is no language barrier, while use
of popular marketplaces, such as Amazon.com and e-Bay, is minimal. On-line shopping
amounted to only 3-5% of all internet services provided in Kazakhstan in 2009. Most
international courier services have representation in Kazakhstan and use online sites to
support delivery. In 2007 Air Astana, a leading international air carrier in Kazakhstan
started to provide online services for its customers.
Imperfect and insecure systems of internet payments and goods delivery, and a low
level of consumer confidence in e-shopping are still main obstacles for E-commerce
development in Kazakhstan. Payments for orders over the Internet from Kazakhstan
online shops are mostly done by cash-on-delivery or bank transfer and rarely by
credit/debit cards. Most industry experts attribute the sector’s weak development to a
lack in critical mass of Internet users, as well as poor management of existing e-shops,
most of which were opened in Kaznet by technical specialists with little or no experience
in this specific business. At the same time, none of the large retail chains have yet
attempted to open online stores. Weak consumer confidence concerning the reliability
of Internet shops and security of online transactions remain large obstacles for the
development of this business in Kazakhstan. It is expected that approval in 2008 of the
president’s decree on e-commerce will provide an impulse for e-commerce development
in Kazakhstan. Another promising step towards e-commerce development in
Kazakhstan was the signing of a Memorandum of Understanding between Microsoft and
Samgau National Scientific-Technological Holding in 2008. The memorandum focuses
on information and communication services development in Kazakhstan and includes e-
commerce and e-public procurements as priorities.
Trade Shows
Kazakhstan’s exhibition industry has been growing over the past few years due to the
expansion of the oil and gas industry, as well as some non-energy industries including
food processing, construction, automotive and others. In addition to Almaty, which is
considered to be the most popular exhibition venue center, the exhibition industry has
experienced significant growth in other large cities of Kazakhstan such as Astana and
Atyrau. The largest event is the Kazakhstan International Oil and Gas Exhibition
(KIOGE), held every October in Almaty. Other major scheduled events include the Food
Expo (April), the Kazakhstan International Health Exhibition (KIHE) (May), the
Kazakhstan International Telecommunications Exhibition (KITEL) (May), Atyrau Oil &
Gas 2010 (April) and a power and energy exhibition (Power Kazakhstan 2010)
(November). Additional information on upcoming shows can be found at the CS Almaty
website. Organizers of trade exhibitions and conferences in Kazakhstan are
international companies such as ITE Group Plc (through its partner Iteca LLP) and TNT
Productions, Inc. (USA), and local companies: KazExpoService, Atakent Expo and
Central Asia International Exhibitions.
Key pricing components that should be considered include transport costs, duties
associated with import (customs duties and fees, certification payments, etc.), VAT and
high expectations of profits by importers/distributors (businesses in Kazakhstan tend to
charge much higher margins than in other countries).
Kazakhstan’s overall trade-weighted import tariff is around 6.6%; however, other aspects
of border-crossing procedures represent more significant problems. The greatest
challenge is that customs regulations tend to change often. Procedures, lists of goods
that are subject to mandatory licensing, and other technical issues are under constant
revision and customs officials on the spot tend to use regulations selectively and
arbitrarily.
The new Customs Union (CU) of Russia, Kazakhstan and Belarus implemented new
unified customs tariffs and non-tariff regulations as of January 1, 2010. More than 5,000
tariffs have been raised to meet those in Russia (among them foodstuffs and
equipment). The CU Customs Code is expected to take effect from July 1, 2010 to
regulate the resulting integrated customs zone.
Another factor affecting price and competitiveness of imported products is that the value-
added tax of 12%, slightly reduced from the previous rate of 13% in 2009, now has to be
paid on top of all customs duties and excise taxes at the time of customs clearance.
Considering all the difficulties associated with customs clearance procedures, importers
are advised to use the services of customs brokers.
Conditions demand that U.S. companies take into account strong competition from
Russian, Chinese, Southeast Asian, and European producers. Consumers in
Kazakhstan are very sensitive to prices and quality of the goods supplied, though most
consumers are willing to pay premiums for uniqueness or higher quality. Higher-than-
average prices, however, have to be justified by a recognizable brand name, marketing
or special features.
Strong customer support and service add value in Kazakhstan. In a country where the
practice of customer service is developing but still leaves much to be desired, providing
after-sales service (either directly or through a trained local representative) will make a
lasting difference. U.S. companies should be prepared to commit resources to
customer-service training for local staff. Local companies starting business with foreign
partners are becoming increasingly concerned about after-sales service and customer
support, and distributors in Kazakhstan expect that equipment/technologies will come
with some kind of guarantee. U.S. companies entering the market are recommended to
have pre-arranged agreements with certified maintenance centers. This is extremely
important when selling vehicles, construction equipment, electronics and other
equipment. Due to the considerable time difference between Kazakhstan and the U.S.,
companies should consider using 24-hour help lines, or existing customer support
centers in Asia, Russia, or Europe, when support centers in Kazakhstan are not
economically justified.)
Introduction
Several general principles are important for effective management of intellectual
property (“IP”) rights in Kazakhstan. First, it is important to have an overall strategy to
protect your IP. Second, IP is protected differently in Kazakhstan than in the U.S. Third,
rights must be registered and enforced in Kazakhstan, under local laws. Your U.S.
trademark and patent registrations will not protect you in Kazakhstan. There is no such
thing as an “international copyright” that will automatically protect an author’s writings
throughout the entire world. Protection against unauthorized use in a particular country
depends, basically, on the national laws of that country. However, most countries do
offer copyright protection to foreign works under certain conditions, and these conditions
have been greatly simplified by international copyright treaties and conventions.
While the U.S. Government stands ready to assist, there is little we can do if the rights
holders have not taken these fundamental steps necessary to securing and enforcing
their IP in a timely fashion. Moreover, in many countries, rights holders who delay
enforcing their rights on a mistaken belief that the USG can provide a political resolution
to a legal problem may find that their rights have been eroded or abrogated due to legal
doctrines such as statutes of limitations, laches, estoppel, or unreasonable delay in
prosecuting a law suit. In no instance should U.S. Government advice be seen as a
substitute for the obligation of a rights holder to promptly pursue its case.
It is always advisable to conduct due diligence on potential partners. Negotiate from the
position of your partner and give your partner clear incentives to honor the contract. A
good partner is an important ally in protecting IP rights. Consider carefully, however,
whether to permit your partner to register your IP rights on your behalf. Doing so may
create a risk that your partner will list itself as the IP owner and fail to transfer the rights
should the partnership end. Keep an eye on your cost structure and reduce the margins
(and the incentive) of would-be bad actors. Projects and sales in Kazakhstan require
constant attention. Work with legal counsel familiar with Kazakhstan’s laws to create a
solid contract that includes non-compete clauses, and confidentiality/non-disclosure
provisions.
IPR Resources
A wealth of information on protecting IP is freely available to U.S. rights holders. Some
excellent resources for companies regarding intellectual property include the following:
The government’s efforts have greatly helped to expand the Kazakhstani market for
licensed goods (considered to be the most promising marketplace of the CIS region,
behind only Russia and Ukraine.) Still, much remains to be done; particularly in making
the customs controls a more effective line of defense against incoming infringing goods.
This will be particularly important with the anticipated onslaught of counterfeit goods
from China coming across the border to enter the 200 million customer base that is the
new Russia-Belarus-Kazakhstan Customs Union. Further progress is also needed in the
realm of civil adjudication, where an increasing number of IPR disputes are being
settled. Although civil courts have been used effectively to stem IPR infringement,
judges often lack expertise in the area of IPR.
The National Patent Office performs formal examination of patent applications, and their
website contains several informative links. Applications for trademark, service mark and
appellations of origin protection may also be filed with the National Patent Office.
Existing Soviet patents are being converted to Kazakhstani patents. Copyrights are
overseen by the Committee for Intellectual Property Rights, under the Ministry of Justice.
For more information, see the Protection of Property Rights section in Chapter 6 of this
report.
Kazakhstan can be a challenging market fraught with obstacles for the U.S. company
that does not take the time to learn about the business environment and choose local
partners wisely. Taking shortcuts in evaluating business opportunities and selecting
local partners is not advisable. Complicating these efforts is the fact that the
Kazakhstani economy is still in transition from a closed, socialist economy to a more
open, market economy. This means that basic business information about regulations,
company ownership and credit worthiness are not always easy to find.
In many cases, business in Kazakhstan is still based on family ties and personal
connections. Knowing if your potential business partner is able to proactively negotiate
these networks can help your firm better determine if this is the right relationship to take
on. Finding a reliable, credit-worthy partner in Kazakhstan requires due diligence,
caution, and attention to a potential partner’s achievements and reputation. U.S. firms
are advised to verify trade references offered by potential partners, check banking
records and correspondent account capability with Western banks, and verify the
personal bona fides of key company officers.
U.S. companies looking for a reliable local partner in Kazakhstan can use CS Almaty’s
International Company Profile (ICP) service. The ICP is a composite report of a
Kazakhstani company that contains not only commercial background and information on
the reliability of a firm, but also our evaluation of the firm and a recommendation as to
the suitability of the foreign firm as a potential partner. Noted below are additional
resources that provide information about the Russian market and how to be successful.
There are several international firms providing legal, accounting and consultancy
services in Kazakhstan. Auditing firms include: Ernst & Young, Center-Audit
Kazakhstan, KPMG, and PriceWaterhouseCoopers. Western-based legal firms include
Baker & McKenzie, Bracewell & Giuliani LLP, Dewey and LeBoeuf, McGuire Woods
Kazakhstan LLP, Salans, Sherwood & McKenzie, Denton Wild Sapte, Astana Law
Partners, Macleod Dixon, and White & Case.
For a full list of firms or industry associations, please contact the Commercial Service in
Almaty. You can also visit our website’s list of business providers, which includes local
and international service providers supporting the international business community in
Kazakhstan.
Agricultural Sectors
Oil and Gas Equipment and Services
Kazakhstan has the Caspian Sea's largest recoverable crude oil reserves. The
Government of Kazakhstan and foreign investors continue to focus heavily on the
hydrocarbons sector, which so far has received approximately 60% of the estimated $76
billion in foreign direct investment in Kazakhstan since 1991, and constitutes
approximately 53% of its export revenue. Existing oil extraction sites offshore in the
North Caspian, combined with onshore fields currently under development, mark
Kazakhstan as a potentially major near-term oil exporter. Over the past seven years, oil
production in Kazakhstan has more than doubled and reached 1.62 million barrels per
day (bbl/d) in 2009. Major producers include Tengiz, Karachaganak, CNPC-
Aktobemunaigas, Uzenmunaigas, Mangistaumunaigas, and Kumkol, all of which
account for 1 million bbl/d. Output solely from the country's three major fields (offshore
Kashagan, onshore Karachaganak, and onshore Tengiz) is set to grow to 1.7 million
bbl/d by 2011 and to 2 million bbl/d by 2015. Kazakhstan now accommodates significant
investment in its vast upstream oil and gas resources and government forecasts predict
that oil exports could reach as much as 3.5 million barrels per day in 2015. Most of this
year's production increase will come from the onshore Tengiz and Karachaganak fields.
The huge offshore Kashagan field, with an estimated 7-9 billion barrels of recoverable
oil, is expected to come on stream by the end of 2012, but first commercial oil production
will not exceed 100,000 bbl/d. The magnitude of the resource could result in
Kazakhstan becoming one of the world's major energy exporters by the end of the next
decade. This jump in production has also stimulated planning for processing plants and
pipelines to come on-line in time for the start of production.
Oil industry sources estimate that Kazakhstan could eventually attract up to $140 billion
of foreign investment in its oil infrastructure. The current market for oil and gas field
equipment and services slowed in 2009 due to, 1) low oil prices and the economic crisis
and 2) cuts in capital expenditures by oil and gas exploration and production companies.
But overall demand remains strong with opportunities for U.S. companies in virtually
every sub sector associated with oil extraction, processing, and transportation. Best
prospects include: drilling, research and data management, laboratory studies, oil spill
cleanup technologies, and pipeline equipment and services.
Kazakhstan as yet has no experience in offshore production and operations. This
experience gap offers many opportunities for U.S. service companies in rig work,
support infrastructure, and environmentally sensitive technologies. The Caspian Basin's
oil-bearing formations are generally quite deep (15,000 feet), under considerable
pressure, and often contain a high degree of sulfur and other contaminants, making
special Western-made drilling and processing equipment necessary.
U.S. oil and gas field equipment suppliers have the potential for solid growth over the
next decade as new fields are brought on-stream and secondary recovery methods are
introduced to existing deposits. The most promising sub-sectors are the following:
offshore/onshore oil and gas drilling and production equipment; turbines, compressors
and pumps for pipeline applications; measurement and process control equipment for
pipeline applications; industrial automation, control and monitoring systems for
refineries, gas processing and petrochemical plants, seismic processing and
interpretation, petroleum software development, sulfur removal and disposal
technologies, well stimulation and field abandonment services.
Plenty of other opportunities exist for U.S. companies producing oil and gas field
equipment and machinery such as drilling and wellhead equipment, Christmas trees,
valves, pumps, motors, compressors, electrical submersible and jet pumps, underwater
repair equipment, and oil spill containment equipment. Good prospects also exist for
U.S. small- and medium-size firms offering downstream engineering and services such
as fabrication, welding, engineering services and testing in accordance with API and
ASME standards.
The Government of Kazakhstan is pursuing a development program for oil fields in the
Caspian Sea that calls for increasing offshore oil production to about 2 million bpd by
2015, and for development of terrestrial infrastructure. The offshore development
program also calls for more than 100 offshore blocks to be privatized through open
tenders. These future projects, combined with current production and exploration, should
provide opportunities for interested U.S. exporters over the next few decades.
Kazakhstan's power generation industry has undergone a challenging and painful post-
Soviet transformation. The production and consumption of electricity in Kazakhstan fell
significantly following independence in 1991. This was followed by an aggressive
privatization program, followed by state involvement in a few generation companies.
Robust economic growth since 2000 has helped boost generation to 78.9 billion kilowatt-
hours (Bkwh) in 2007 and consumption to 76.9 Bkwh. In 2008, consumption reached 80
Bkwh. Due to the financial and economic crisis, generation of electricity in 2009
decreased to 78.4 Bkwh while consumption also fell to 77.9 Bkwh (due to production
stagnation in metallurgical plants and the construction industry).
The electric power industry remains a key factor in Kazakhstan’s industrial development
and economic growth as electric power generation accounts for about one-tenth of all
industrial output. The government of Kazakhstan has developed an action plan for
electric power development up to 2015 which includes a list of power plants for
reconstruction and modernization as well as the construction of new facilities. The
country's power generation sector is projected to boost total capacity to 124.5 billion
kWh by 2015. However, equipment in existing electric power plants will only allow an
increase in energy production to 80 billion kWh. Therefore, the country plans to
modernize existing facilities and construct new power plants in order to meet
consumer demand and increase its export potential and reserve capacity.
Needs are great in the services market as Kazakhstan seeks to replace aging plants and
equipment. Overall, 94% of Kazakhstan's gas turbines, 57% of its steam turbines, and
33% of its steam boilers have been in use for at least twenty years. Electricity
transmission networks are inefficient, with losses during transmission and distribution
estimated at approximately 15% of energy produced, although the actual number may
be higher. Construction of new power plants and expansion of power distribution
networks are priorities for the government and are likely to be implemented in the
medium term. Some observers project steady growth in the market for a wide range of
power generation and distribution equipment.
Major categories of goods imported by the electric power generation sector include fuel
elements (non-irradiated), liquid dielectric transformers, inverters, parts for transformers
and inverters, and vapor-generating boilers and parts. Considering the overall
remodeling of the Kazakhstan Electric Grid Operating Company’s (KEGOC’s) systems
and development of new power generation facilities, it is likely that demand for IT
support, management, and communications systems will increase as well.
U.S. companies must prepare to compete with Russian, German and Chinese
companies that have acquired strong positions in the market and are sometimes entitled
to tax breaks and other preferential treatment (particularly when they qualify as investors
and not only as importers). Attempts to sell equipment for the power generation sector
are more likely to be successful if based on a strategic approach to the market and
accompanied by appropriate training, servicing, and consulting programs. The ability of
U.S. suppliers to secure project financing is also key.
Kazakhstan's economic development plan for 2007-2015 calls for the upgrade of power
facilities, the launch of a north-south power transmission line, and the construction of
small hydropower plants. For the program's implementation, new production facilities are
needed and existing electricity producers have to be refurbished. The program
envisions the installation of a gas turbine electricity station capable of producing 56
megawatts in Western Kazakhstan, an electricity station in Karachaganak (120
megawatts), a gas turbine plant at the SIPS-Aktobemunaigaz company (48 megawatts)
and another in the country's south (60 megawatts). Small hydroelectric stations along
the rivers in the Almaty region will be refurbished, and a pilot project for building wind-
powered generators in the region is also planned. For all these projects, Kazakhstan
needs to attract about $21 billion to electric power development by 2015, according
to the president of KEGOC.
The vast majority of those Regional Electric Companies (RECs) providing power
distribution have not been privatized. As the privatization process moves forward, it will
represent a major strategic opportunity for U.S. suppliers and investors, since most of
the RECs are in very poor shape, with most equipment requiring urgent repairs and
replacements.
The country plans to construct five new combined heating and power stations: the 150
MW Uralskaya TETS, the 450 MW Aktyubinskaya TETS, the 300 MW Mainakskaya
GES, the 1280 MW Yuzhno-Kazakhstanskaya TETS, and the 500 MW Zapadno-
Kazakhstanskaya TETS-1. In addition, Kazakhstan is considering building a new
nuclear power station, with three units of 640 MW costing $2 billion each.
Construction of gas turbine power station with capacity of 54MW, West Kazakhstan
Region, Uralsk (2008-2010)
AES: http://www.aes.com/
Almaty Power Consolidated: www.apcalmaty.kz/
Kazakhstan Electricity Grid Operating Company: http://www.kegoc.kz/
Kazakhstan Operator of Electricity Market: http://www.korem.kz/
KazTransGas: http://www.kaztransgas.kz/
U.S. Energy Information Administration:
http://www.eia.doe.gov/emeu/cabs/Kazakhstan/Background.html
Power Kazakhstan 2010 - www.powerexpo.kz/en/
Nearly 80% of machinery currently in use is at the end of its lifecycle and agricultural
companies are actively replacing it. Local production of such equipment is insignificant
so Kazakhstani farmers heavily depend on imports. In 2009, the Kazakhstani agricultural
machinery and equipment sector was estimated at $573 million, of which $560 million is
imported. The U.S. is a market leader for agricultural machinery and equipment with a
30% market share, followed by Russia (25%), Germany (15%), and Canada (12%). This
represents a great change in the market division, showing U.S. market share growing
dramatically while the traditional leading supplier, Russia, has lost market share. Italy,
Netherlands, Belarus, Turkey and China are other large suppliers. However, this
breakdown might change in 2010 to benefit Russian market share due to Kazakhstan’s
entrance into a Customs Union (CU) with Russia and Belarus. Within the CU import
tariffs on most agricultural machinery and equipment will increase by 15% on average
but tractors and combines imported under the state leasing program will be exempt from
custom duties.
Despite the financial and economic crisis, imports grew by 17% in 2009. Kazakhstan’s
agricultural sector has been receiving increased investment infusion from the national
budget over the last three years. Starting in 2008, the Government of Kazakhstan
(GOK) increased financial support to the agriculture industry and is allocating $1 billion
annually over a three-year program. The GOK announced that it would not cut funding to
the agricultural sector even under the difficult conditions of the financial crisis. For
purchase and lease of agricultural machinery and equipment, commercial banks and
state supported financing are available. Kazagrofinance, a state leasing organization
that uses combined financing resources including government allocations and
international export credit agency loans, leases agricultural machinery at the most
favorable terms on the market – 4%-8.5% annual interest rate for a 7-year term.
Currently, there are about 15 million hectares under grain cultivation. In 2009, the
average yield of grains in Kazakhstan totaled 12.6 quintals per hectare with wheat at
11.9 quintals per hectare. However, as industry specialists note, climatic conditions in
the wheat growing areas in the north of Kazakhstan permit increasing average yield
rates up to 20 quintals per hectare, provided farmers use modern technologies and
equipment. Average production cost is about $65 per ton. In the next 3-5 years,
Kazakhstan plans to increase grain exports up to 10-12 million tons per year by
modernizing agricultural technologies and fleets of machinery, and developing export
routes and their related infrastructure. As a result of increased exports, revenue is
expected to grow to $5 billion.
Best prospects include: 100-150 horse power (hp) tractors and combines for southern
regions, tractors of greater than 250 hp and combines for northern regions, pneumatic
seeders, reapers, sprayers, grain drying and cleaning technologies, storage quality
control systems, engineering and design services for cattle feed complexes and on-farm
processing facilities.
The government of Kazakhstan and local producers are looking for partners to increase
domestic production of some agricultural equipment and set up new manufacturing and
assembly facilities of agricultural machinery and equipment by attracting foreign
investment and expertise
Kazakhstan is endowed with a wide range of mineral resources including coal, ferrous
metals, and non-ferrous metals. Because of this mineral wealth, it has a large mining
sector and more than 230 separate enterprises produce or process coal, iron and steel,
copper, lead, zinc, manganese, gold, aluminum, titanium sponge, uranium, barites and
many others. The sector is responsible for approximately 30% of export earnings, 16%
of GDP, and 19% of industrial employment.
Kazakhstan produced 105 million tons of coal in 2008, ranking it the world’s 9th largest
producer. In 2009, coal production fell 12% to 93 million tons. The country is the 8th
largest in iron ore reserves with 12.5 billion tons. The nation ranks second in manganese
ore reserves with an estimated 600 million tons. Kazakhstan boasts 30% of the
worldwide chromite ore deposits. The country is also a significant producer of beryllium,
tantalum, barite, cadmium and uranium among the CIS. Kazakhstan is paying particular
attention to developing its gold mining (ranked 10th globally) and uranium mining (25% of
world reserves) as commodity prices rise, and will need to attract foreign investment in
order to expand current production.
Much of the technology and management practices of this industry date from the Soviet
times, which has hampered foreign sales. Exports of mining equipment to Kazakhstan
have been limited by a lack of investment in this sector. In the mid-1990's, many foreign
investors entered the country and started exploration and development activities, but,
with few exceptions, they have ceased their operations. The investors claimed that lack
of transparency, poor financial incentives, unclear and arbitrary laws which favor local
investors, bureaucracy, and unclear land tenure made it impossible to continue their
operations. The government, in turn, claims that many investors failed to deliver on
promised commitments. As a result, under the current system, few foreign companies
are willing to risk investment, with or without a local partner.
Taking into consideration the price increase for non-ferrous metals, gold, uranium and
growing demand for coal in 2000-2007, Kazakhstan’s mining industry was developing
rapidly. Due to the financial and economic crisis, price decreases for non-ferrous metals
and decreasing demand for coal, in 2008-2009 local mining companies were decreasing
capital expenditures and production as well. Kazakhstan, however, remains an
attractive market for U.S. mining equipment/machinery suppliers. American companies
can provide needed products and services to the Kazakhstani mining companies such
as bulldozers, drilling equipment, explosives, trucks, drill rigs, trams, cranes, crushing
and pulverizing machinery, dredges, hydraulic excavators, quarrying machinery and
equipment, elevators, compressors, hammer mills, special trucks, etc. Among the best
sales prospects and services are diamond drilling contractors and people that perform
geological, geochemical and geophysical surveying, equipment involved in bulk
sampling such as a processing plant, small aircraft, fuel supplies and geological supplies
like sample bags. American companies that can provide goods and services that
address erosion, formation of sinkholes, loss of biodiversity, and contamination of
groundwater and surface water by chemicals from the mining process and products,
which may minimize the harm towards the environment, will also have significant
demand in Kazakhstan. Explosives also present interesting export opportunities in the
region.
More than half of Kazakhstan’s mining, processing, and smelting enterprises use
outdated equipment that is often in need of repair. Almost all lack environmentally
friendly technologies. Kazakhstan does not have its own mining machinery industry and
relies heavily on Russian imports. U.S. mining equipment firms should explore trade
opportunities in used and refurbished equipment, as well as turnkey project
management. Demand in Kazakhstan for mining machinery grew 9% annually through
2008, but slowed in 2009. U.S. mining equipment and service suppliers should target
major players in the mining sector such as Kazakhmys, Eurasian Natural Resources
(ENRC), TNK Kazchrome, KazakhGold Group, ShalkiyaZinc, KazAtomProm and others.
Kazakhstan’s healthcare sector accounts for 2.7% of overall GDP. The government had
adopted a reform program to develop this sector from 2005-2010 which envisioned
increasing state healthcare expenditures up to 4% of GDP by 2010. Priorities stated in
the program include reformation and development of the country’s primary healthcare
networks, improvement in its public health administration system, provision of enhanced
medical personnel training, enhancement of mother and child health services, emphasis
on preventive measures such as diagnostics, treatment of social diseases, and patient
rehabilitation. Approximately $2 billion was allocated to Kazakhstan’s healthcare sector
from the budget in 2009, which exceeds the 2008 figure by 66%.
According to industry experts, the impact of the financial crisis and possibility of
decreased government financing for medical equipment will be minimal in 2010. There is
practically no production of medical equipment in Kazakhstan and the government
recognizes the need to replace obsolete equipment, which comprises approximately
80% of the medical equipment currently being used in the country’s public hospitals.
85% of medical equipment in Kazakhstan is purchased by the public sector. Most
procurement for public healthcare institutions is done through government-organized
tenders.
From 2008 to 2009, the market for medical equipment in Kazakhstan decreased by an
estimated 6.5%, with almost all of the medical equipment imported. Medical equipment
imports from 2008 to 2009 decreased by 6.7%, reaching an estimated $750 million. The
U.S. market share was 3.8% in 2008, valued at almost $31 million. In 2009, imports of
U.S. equipment reached an estimated $34 million, while market share increased to
4.5%. America’s closest competitors are Russia, Germany, and Japan. Local
production of medical equipment in 2009 accounted for only 1.8% of the total market.
The best sales potential for U.S. medical equipment is expected to be in the following
areas: electro-medical diagnostic and therapy equipment, diagnostic imaging with a
special emphasis on X-ray equipment and supplies, surgical supplies, equipment for
cardio surgery, cardiac rhythm management and interventional cardiology equipment,
medical lasers, chemotherapy, radiotherapy, oncology markers, neurosurgery
equipment, endoscopes, dental equipment and supplies, laboratory equipment and test
kits including HIV/AIDS blood testing sets.
Equipping child and obstetrics hospitals with modern medical instruments is one of the
government’s priority tasks. In 2008, the government adopted a program for reduction of
maternal and infantile mortality for 2007-2009. The program focused on procurement
and supply for obstetric and children health institutions. According to the program, new
maternity hospitals and children’s clinics would be built and equipped with advanced
perinatology equipment and technologies.
To solve the problems of mother and child health, a range of projects aimed at improving
obstetrics and childcare was also introduced. In particular, activities on prenatal aid for
2004-2010 were developed on the basis of recommendations from the World Health
Organization.
The Ministry of Health continues to work on the introduction of telemedicine and mobile
medicine in the country’s rural regions. The goal of the project is to improve diagnostics
and treatment in rural hospitals, improve access to quality healthcare for rural citizens,
and further professional development of medical personnel.
In January 2008, the World Bank’s Board approved a $117.7 million loan for the
Kazakhstan Health Sector Technology Transfer and Institutional Reform Project. The
total project cost is $296 million, with $178.4 million being co-financed by the
Government of Kazakhstan. The project will help introduce international standards and
build long-term institutional capacity in the Ministry of Health and related healthcare
institutions in support of key health sector reforms pursued by the government. The
project components include:
Resources
In 2004, the government adopted a program for reformation and development of the
healthcare sector from 2005-2010. According to the program, providing the population
with pharmaceutical products is one of the government’s priority tasks while state
healthcare expenditures would increase up to 4% of GDP by 2010. Based on unofficial
estimates, about $500 million was allocated from state and local budgets for purchasing
pharmaceutical products in 2008. This amount corresponds to approximately 67% of the
total market. Local production is relatively insignificant, accounting for approximately 10-
15% of the entire market. Local manufacturers produce basic pharmaceutical products
that do not require innovative technologies. Market demand for specific complex
pharmaceuticals is met entirely by imports.
The pharmaceutical market is divided almost equally into two major segments: state
procurement and retail sales.
State Procurement
State procurement of pharmaceuticals is implemented through tenders announced by
regional and city health departments. State procurement of oncology and diabetic
medicines is funded by state-financed program. The existing model of procurement is
highly decentralized with about twenty distributers supplying hospitals with medicines.
This has resulted in an increase of logistics expenses, interrupted supply and unjustified
prices for pharmaceuticals. In 2009, the Ministry of Health set up SK-Pharmatsiya LLP
as a single distributor for supplying pharmaceuticals to state health institutions. The
share of pharmaceuticals bought through the single distributor system will be gradually
increased, reaching 70-80% by 2012. The remaining 20-30% of pharmaceuticals with a
low consumption level will be directly purchased by hospitals. By the end of 2009 the
single distributor had already bought 70% of “state-funded” pharmaceuticals planned for
2010.
U.S. companies producing the following pharmaceutical products have strong prospects:
Generally foreign suppliers participate in state funded tenders through their local
distributors.
Retail Sales
According to 2009 statistics, the following pharmaceuticals are the best selling products
on the retail market:
In January 2008, the World Bank approved a $117.7 million loan for Kazakhstan’s
Health Sector Technology Transfer and Institutional Reform Project. The project will help
introduce international standards and build long-term institutional capacity in the Ministry
of Health and related healthcare institutions in support of key health sector reforms
pursued by the Government of Kazakhstan. The project includes a Pharmaceutical
Policy Reform Component of $4.2 million. It will help improve the safety, efficiency,
economy, quality, and affordability of pharmaceuticals in Kazakhstan by supporting
reforms in pharmaceutical procurement, pricing, monitoring, information provision,
benefit package design and quality control.
Resources Return to top
Bolashak Scholarship
Bolashak is a national government scholarship established in 1993. It aims to assist
talented young people in obtaining quality education abroad. The scholarship covers all
costs related to education, including tuition and fees, costs of travel, and a living stipend.
It requires all Bolashak recipients to return to Kazakhstan upon completing their
education and work for five years in Kazakhstan. Currently, there are more than about
3,000 scholarship recipients studying abroad.
The most popular countries are the U.S., the UK and Russia.
The sustainable growth of Kazakhstan’s economy during the past five years in all
sectors of the country’s economy has generated a growing demand for a highly qualified
labor force. Vacancies for graduates of Western universities are available in both private
and government sectors. The following are the most demanded majors by Kazakhstani
students:
• Finance
• Management
• Marketing
• Foreign Languages
• Jurisprudence
• Petroleum Engineer and Geologists
• Information Technologies
Resources
There is no single registration agency for franchising systems; consequently, there are
no reliable statistics on franchising in Kazakhstan. Industry specialists indicate that since
1998 the number of franchising systems in Kazakhstan has grown from about 20 to
approximately 120 with approximately 1,000 franchising outlets. The Kazakhstan
Franchising Agency states the total number of all franchises and brands operating on
franchising (or similar) terms is approximately 300. Domestic franchising is just starting
to develop with 20 local franchises and 200 franchising outlets. Local franchises are
successfully developing and actively creating franchisees.
Several well known U.S. franchises have successfully entered the Kazakhstani market.
Among the most visible brands are: Baskin Robbins, Crestcom, FasTracKids, Sbarro,
Pizza Hut, KFC, Office 1 Superstore, Tiffany Marble, Hyatt Regency, and
Intercontinental. The U.S. Commercial Service in Kazakhstan is working with a number
of prospective franchisers that are either finalizing agreements with local partners or in
the midst of constructing their first outlets in Kazakhstan. Fast food restaurants are one
of the areas in great demand for U.S. franchise models. U.S. market presence is also
visible in business education and training services, business services, and children’s
services/preschools. The majority of non-U.S. foreign franchises in Kazakhstan are from
Russia and Western Europe, mainly the U.K., France, Germany, Spain, and Italy.
Some factors limit the growth rate of franchising in Kazakhstan such as: weak legal
protection of intellectual property rights, lack of long-term financing opportunities, lack of
transparency in Kazakhstan’s business environment, and low awareness of Kazakhstani
entrepreneurs of franchising opportunities. Despite these negative factors and
considering the small population and low population density in Kazakhstan, we believe
this sector has significant potential for development.
According to experts, franchising is quite attractive for businesses that are interested in
sales of business support services (business consulting - audit and accounting services,
advertising, HR related services, technical consulting), housing construction and repair
services, education services (tutoring, foreign language courses), leisure and
entertainment, fast food, medical and cosmetic services, retail sales, and other personal
services (laundry, footwear and clothing repair, delivery services etc).
Currently, the majority of local potential franchisees are seeking agreements with
franchisers operating in the following sectors:
Central Asian Franchising and Licensing Agency (CAFLA) (covers Kazakhstan and
Uzbekistan) – www.cafla.com
Kazakhstan Franchising Agency– www.franchising.agentstvo.kz
Ministry of Industry and Trade of Kazakhstan - www.mit.kz
National Institute for Intellectual Property (Kazpatent) - www.kazpatent.org
Small Business Development Fund - www.fund-damu.kz
Kazakhstan’s vast territories and various climate conditions make it a unique country for
agriculture, forestry, hunting, fishery and eco-tourism. The country’s 85.2 million
hectares of agricultural lands include 22.5 million ha of arable land, 57.5 million ha of
pastures, 1.9 million ha of natural hay land, and 3.3 million ha of neglected fields.
Grain production is prevalent in the North, North-East and significant parts of West and
Central regions including soft and durum wheat with 18-28% of gluten content.
Meanwhile, the eastern and southeastern areas are favorable for oilseeds crops, sugar
beets, corn, fruits and vegetables. Southern Kazakhstan is favorable for fruits and
vegetables, horticultural products, and cotton and rice production.
The fishery sector is well represented with sturgeon, starred sturgeon, common
sturgeon, pike perch and others. Fishery water basins can be leased for 10-49 years
and there are good opportunities for pond fish establishments as well as valuable
species production in artificial reservoirs.
Best Prospects/Services
U.S. exports to Kazakhstan consist mostly of agricultural machinery and poultry meat.
Opportunities
There is continued government support in the form of subsidies for the agricultural
sector.
Grape Farming
40% of grape farming input is reimbursed in order to support the long-term development
of industrial plantations which use modern irrigation techniques including drop irrigation
technology and high quality breeds.
Cotton farming
100% of cotton-fiber testing costs are compensated to cotton farmers.
Seed farming
40% of R&D costs for breeder and foundation seeds are compensated in order to
support agricultural research facilities.
Livestock breeding
Subsidies vary including 50% reimbursements for breeding stock, baby-chicks, breeding
eggs, and breeding semen to any farmer; 100% of breeding stocks, semen, embryos of
foreign breeds costs and maintenance for breeding farms to special cattle breeding
farms (only); and 100% of costs for breeding bird for poultry breeding farms.
Food Processing
There is a subsidized rate of interest on commercial loans for fixed and working assets,
as well as equipment leasing.
Irrigation
Up to 40% compensation is available for the cost of delivery of irrigation water.
Resources
• Import Tariffs
• Trade Barriers
• Import Requirements and Documentation
• U.S. Export Controls
• Temporary Entry
• Labeling and Marking Requirements
• Prohibited and Restricted Imports
• Customs Regulations and Contact Information
• Standards
• Trade Agreements
• Web Resources
With Kazakhstan’s entry into the Belarus, Kazakhstan, Russia Customs Union, the
average import tariff rate will nearly double and reach approximately 15%. As of
January 2010, the tariff increase will affect more than 5,000 types of goods in the
country. However, Kazakhstan will retain some flexibility in applying the common
external import tariff regime. For example, Kazakhstan will have no tariff on
approximately 900 specific commodity items including modern aircraft, certain types of
engines, and raw materials needed in the food processing industry, such as tropical
fruits. More than 400 specific commodity items will be subject to a transitional period
varying from one-and-half to five years. These items include pharmaceuticals, medical
equipment, processed aluminum products, raw materials for the petrochemical industry,
paper products, and rail wagons. Agricultural combines and tractors will be exempt from
customs duties if the import is financed through state programs.
The full customs union schedule can be found (in Russian only) at the websites of the
Customs Union Commission http://www.tsouz.ru/ and at the Kazakhstan Customs
Control Agency www.keden.kz
Kazakhstan charges a 12% value-added tax (VAT) which is paid on top of all customs
duties and excise taxes at the time of customs clearance. The country also provides a
drawback of import duties and taxes when the imported goods are processed in
Kazakhstan and exported within two years after importation. The processing operations
that qualify for drawback include manufacturing and assembly operations and repairs.
Though the Customs Code has provisions for WTO-compliant customs valuation
methodologies, in practice customs administration remains a problematic aspect of
trade. U.S. exporters to Kazakhstan have consistently identified the requirement to
obtain a "transaction passport" to clear imported goods through customs as a significant
barrier to trade. This regulation is designed to stem capital outflows and money
laundering by requiring importers to show copies of contracts and other documentation
to legitimize and verify the pricing of import/export transactions. Though new regulations
have simplified the practice, the requirement is still seen as retarding the growth of trade.
The impact of the newly-created Customs Union between Russia, Kazakhstan and
Belarus is also yet to be determined as the Customs Code will come into force July 1,
2010. Widespread corruption, present at all levels of government, is also seen as a
barrier to trade and investment in Kazakhstan. It reportedly affects nearly all aspects of
doing business in Kazakhstan, including customs clearance, registration, employment of
locals and foreigners, payment of taxes, and extends even to the judicial system.
Service Barriers: Foreign banks and insurance companies are limited to operating in
Kazakhstan through joint ventures with Kazakhstani companies. Oil and gas
procurement regulations stipulate that oil companies must purchase services only from
Kazakhstan-based companies unless the required service is unavailable in Kazakhstan.
All goods entering the customs territory of Kazakhstan are subject to declaration and
customs clearance at approved customs clearance points. A declaration must be filed
within thirty days of arrival of the goods to Kazakhstan, but a brief declaration and
notification on arrival of goods shall be submitted to the customs body within 24 hours
after the goods cross the border and are placed at a temporary storage warehouse.
With the exception of private persons permitted to transfer goods under a simplified
procedure, a customs declaration must be filed by a Kazakhstani person - that is, a
business organization registered under Kazakhstani law, or its affiliate or representative
located in Kazakhstan, an individual entrepreneur registered in Kazakhstan, or a
permanent resident of Kazakhstan. Foreign entities cannot deal directly with customs
officials in Kazakhstan and are legally required to use services provided by licensed
customs brokers having the right to operate in Kazakhstan.
A party declaring commercial goods at a customs office in Kazakhstan for their release
for free circulation is responsible for submitting the paper and electronic copies of
customs declarations (one copy of each per shipment), as well as accompanying
documents. The Customs Cargo Declaration (5 copies) - must be completed in either
the Kazakh or Russian language. Other documents may be submitted in a foreign
language. A customs officer, however, has the authority to request a translation of such
documents into Kazakh or Russian as well as a notarization of the translation. In
addition to the Customs Cargo Declaration, a party declaring goods is required to submit
a set of other documents including invoices, a contract for the supply of goods, an
import/export transaction passport, and shipping documents (e.g., bill of lading, airway
bill, etc). The passport of transaction is the primary tool used in the framework of the
currency control system. The passport of transaction represents a cross-agency
document filled out by the exporter/importer and reviewed by customs officials and
representatives of the exporter/importer’s bank.
Certain goods that are imported temporarily are fully or partially exempt from payment of
customs duties and taxes. These include transport vehicles, professional equipment,
goods imported for demonstration purposes, shipping containers, and advertising
materials. Specific periods for temporary use of the goods are determined by the party
declaring the goods, but are not to exceed two years from the date of shipment in or out
of the customs territory of Kazakhstan.
A firm importing goods for a temporary period should provide customs with documents
containing the description and value of the goods and a written confirmation stating that
the goods will be sent out of Kazakhstan after a defined period. Goods not eligible for
full or partial duty exemption are: spare parts and components (not intended for use on
temporarily imported transport vehicles), raw materials, foodstuffs, and industrial wastes.
According to Kazakhstani law, import of the following items is prohibited: “(i) military
weapons, its ammunition; weapons of mass destruction, material and equipment that
can be used to create weapons of mass destruction; (ii) printed or graphic material
intended to undermine state and public systems, or promote war, terrorism, violence,
racism or pornography; (iv) ozone layer destructing substances (21 titles)”. Item (iii),
narcotics, psychotropic substances, and precursors, are generally prohibited but can be
imported subject to Government of Kazakhstan legislation or permission. See the U.S.
Export Controls section of this report for additional information.
Kazakhstan’s customs code remains overly complicated and does not encourage
transparency or the expeditious movement of goods. This is one of the reasons why the
country continues to rank at the bottom (182nd) on the World Bank’s indicator for
“Trading Across Borders”.
Kazakhstan's customs valuation rules largely conform to the WTO Valuation Agreement,
and the country has adopted HS 96 as its tariff nomenclature. Foreign firms can import
some items for their own use duty-free including equipment and spare parts imported to
implement an investment project, if this equipment is unavailable on the territory of
Kazakhstan. Generally, Customs requires that imported goods be placed in a temporary
storage warehouse operated by a customs-licensee pending clearance; a procedure that
importers claim can add significant costs and delays to customs processing. U.S. firms
have noted that the need to present “transaction passports” to document procurements
and bank transfers in order to clear their goods with Customs is a significant barrier to
trade. Implementation of regulations allowing periodic declarations remains problematic.
Foreign entities cannot deal directly with customs officials in Kazakhstan and are legally
required to use services provided by licensed customs brokers having the right to
operate in Kazakhstan. The Customs Control Agency maintains a registry of licensed
customs brokers and is required to post it at: www.keden.kz with regular updates.
• Overview
• Standards Organizations
• Conformity Assessment
• Product Certification
• Accreditation
• Publication of Technical Regulations
• Labeling and Marking
• Contacts
Certification and/or conformity assessment procedures are part of the national system of
technical regulation. Kazakhstan is striving to join the World Trade Organization (WTO),
thus, much work has been done to harmonize its legal base with international standards.
To implement international standards, in 2007 Kazakhstan adopted a number of laws
and amendments to the existing Law on Technical Regulations including such laws as
Safety of Chemical Products, Safety of Food Products, Safety of Toys, and Safety of
Equipment and Machinery. The national file of standards now includes 41,000 rules
and norms, of which only 4,000 represent international standards and are applied in all
economic sectors. Legislation enables the country to initiate other reforms in the system
of technical regulation, which will last until 2010 -- the date defined by the
Commonwealth of Independent States (CIS) Interstate Council on Standardization,
Metrology, and Certification, of which Kazakhstan is a member.
Under the current regulations, safety standards acquire the status of normative
documents, mandatory for consideration, while quality standards will gradually become
voluntary. The functions of governmental bodies will be limited to dealing with safety
control issues. Technical regulations will acquire the status of laws and will be intended
to ensure the safety of life and health of consumers. Other standards relating to quality
of goods will be given a voluntary status, and manufacturers will no longer be forced to
follow outdated requirements dictating a shape, or color of goods as it was under the old
legislation.
Any goods imported into Kazakhstan and included on the mandatory list of goods are
subject to the mandatory procedure of certification under national requirements. The list
includes machines, cars, agricultural and telecommunication equipment, construction
materials, fuel, clothes, toys, food and drugs. Contracts for goods delivery should be
accompanied by the following documents: product description, country of origin
certificate, name of producer, customs declaration, expiration date, storage
requirements, and user manuals printed in Kazakh and Russian. Foreign certificates,
testing protocols and compliance indicators of imported products should correspond to
appropriate international treaties.
The law on certification establishes the legal foundations of product certification and
quality systems in manufacturing, operations and services, as well as regulating
relationships in the field of certification and establishing rights, commitments and
responsibilities of certifying parties. The government owned National Center of
Expertise and Certification manages certification. In order to increase protection against
fake or falsified certificates of conformity, the government has introduced a hologram for
additional protection, which has the mark of conformity and inscription "Memstandard."
Kazakhstan is a member of the ISO, but it does not have a full membership in the
international organizations dealing with accreditation (ILAC and IAF). National
mechanisms for the adoption of international standards are in place. This process
stipulates a gradual, but complete, transition to international standards. Kazakhstan
has already adopted some of the international standards in the sphere of quality
assessment, including ISO/IEC 17025 General Requirements in Terms of Competence
of Testing and Calibrating Laboratories, and these standards are considered as the
national ones.
National Center for Accreditation (NCA) of the Committee on Technical Regulation and
Metrology is an authorized state organization for accreditation.
According to Kazakhstani legislation, most products imported into the country should be
labeled in Kazakh and Russian languages. Product labels should include names,
manufacturer, country of origin, and information on date of production, period of validity,
storage conditions and usage.
Product manufacturers or sellers obtaining certificate of conformity have a right to use a
mark of conformity by all means established by the state system of technical regulation.
Kazakhstan has signed bilateral free trade agreements with all CIS countries except
Turkmenistan.
Kazakhstan has made significant progress toward creating a market economy since
gaining independence in 1991. The European Union in 2000 and the U.S. Department
of Commerce in March 2002 recognized the success of Kazakhstan's reforms by
granting it market-economy status. Kazakhstan also has attracted significant foreign
investment since independence. By July 2009, foreign investors had invested a total of
$97.6 billion in Kazakhstan, primarily in the oil and gas sector. In 2008, during a severe
economic crisis, Kazakhstan still managed to attract $20.1 billion in foreign direct
investment.
Four major acts of legislation affect foreign investment in Kazakhstan. These are: 1) the
2003 law "On Investment;” 2) the 2003 Customs Code and the Customs Code of the
Customs Union, expected to be approved by July 2010; 3) the 2007 law “On
Government Procurement," with 2008 amendments; and 4) the 2008 Tax Code. These
four laws provide for non-expropriation; currency convertibility; guarantees of legal
stability; transparent government procurement; and incentives in certain priority sectors.
However, inconsistent implementation of these laws and regulations at all levels of the
government remains a significant obstacle to business in Kazakhstan.
In public procurement, the government has enacted regulations that give preference to
local suppliers. For example, amendments passed in 1999 to the Petroleum Law require
mining and oil companies to use local goods and services. According to these “local
content” regulations, subsurface users in Kazakhstan are obligated to purchase goods
and services from Kazakhstan entities -- provided that the local goods meet minimum
project standards -- and to give preference to the employment of local personnel.
Prospective subsurface users are required to specify in their tenders the anticipated
local content of their work, goods, and services (see Section A.5. Performance
Requirement/Incentives). Current procurement regulations include three sets of rules –
2007 Subsurface Procurement, State Procurement, and 2009 Samruk Procurement –
that presuppose a nominal reduction of bid price by Kazakhstani producers of 20%,
10%, and 10%, respectively. In essence, this assumption makes local products more
cost competitive. However, since existing subsurface laws and procurement rules use
different definitions of local producers and local content, the legal basis for applying the
local content criteria, in practice, is unclear and hence subject to interpretation by state
and local authorities. A draft Subsurface Law, which would replace the 1995 Petroleum
Law and the 1996 Subsurface Law, is expected to address these discrepancies and
unify the definitions of local content.
October 2007 amendments to the existing Subsurface Law allow the government to
impose amendments to existing subsoil contracts of “strategic significance” or even to
terminate contracts deemed to threaten Kazakhstan's economic security or national
interests. An August 2009 government decree lists more than 100 oil and gas fields,
including Tengiz, Kashagan, and Karachaganak, as subsoil fields with “strategic
significance.” The government, therefore, can initiate changes to existing contracts if it
determines that the actions of a subsoil user could lead to a substantial change in
Kazakhstan’s economic interests, or threaten Kazakhstan’s national security.
The draft Subsurface Law has been pending in Parliament since October 2008. The
new law, expected to be adopted early in 2010, requires separate contracts for
exploration and production operations, puts shorter time limits on exploration contracts,
enhances the government’s authority to terminate contracts not in compliance with the
law, and requires tax stability clauses in individual contracts to be approved by
parliament. In addition, under the terms of the legislation, no future contracts would be
structured as production-sharing agreements (PSAs), companies must establish equal
terms, conditions, and pay for Kazakhstani and foreign workers, and the government
would evaluate subsoil resource bids based on promised social contributions.
Tax experts consider Kazakhstan's tax laws to be among the most comprehensive in the
former Soviet Union. In January 2009, Kazakhstan adopted a new Tax Code that
lowered corporate-income and value-added taxes, replaced royalty payments with a
mineral-extraction tax, and introduced excess-profits and rent taxes on the export of
crude oil and natural gas. Subsurface users are also subject to a signature bonus,
commercial-discovery bonus, and historical cost reimbursement. Business associations
and investment advisors were concerned that the new code would undermine tax-
stability clauses in existing and future contracts. The government subsequently issued a
statement that it would guarantee tax stability only for existing production-sharing
agreements (PSAs) and for one major hydrocarbon project with a tax and royalty
contract (Tengiz) if parliament legislatively rarifies the contracts.
The new Tax Code applies taxes universally and allows only a limited set of exemptions.
The code applies an international model of taxation, based on the principles of equity,
economic neutrality, and simplicity. According to resident experts, this code is an
improvement over its predecessor and a step forward in establishing a transparent and
effective tax system, particularly for the non-extractive sectors.
On January 1, 2009, the government lowered the corporate income tax rate from 30% to
20%. In 2010, the rate will remain the same (20%), although a gradual decrease to
17.5% and 15% in subsequent years is very possible. The value-added tax (VAT) has
been reduced gradually over the past several years from 16% in 2006 to 12% in 2009,
where it will likely remain in 2010. The social tax imposed on employees’ earnings has a
flat rate of 11%. The personal income tax rate for residents is 10%. Depending on the
type of income, non-residents working in Kazakhstan are responsible for payment of
income tax at rates between 5% and 15%.
In 2008, Kazakhstan introduced, adjusted, and ultimately zeroed out a customs duty on
crude oil and gas condensate exports due to low world oil prices. Each quarter after the
Prime Minister signed the April 2008 decree, the Ministry of Finance reviewed the
customs duty rate in light of average global Brent crude prices and adjusted the amount
of the tariff according to a published formula. On January 26, 2009, the government
introduced a zero rate for the customs duty. However, should oil prices rise, the
government retains the right to re-introduce the customs duty. Companies paying the
rent tax are exempted from the customs duty.
In addition to concerns about tax stability, contract sanctity, and tender transparency,
companies in the oil and gas industry have reported a number of other business
difficulties, including delays in obtaining work permits for expatriate employees, alleged
environmental violations followed by large fines, inconsistent enforcement of a Kazakh-
language law, and unexpected customs delays and documentation.
In January 2003, President Nazarbayev signed the law "On Investments" that
superseded and consolidated past legislation governing foreign investment. The law
establishes a single investment regime for domestic and foreign investors and provides,
inter alia, guarantees of national treatment and non-discrimination for foreign investors.
It guarantees the stability of existing contracts, with the qualification that new contracts
will be subject to amendments in domestic legislation, certain provisions of international
treaties, and domestic laws dealing with "national and ecological security, health and
ethics."
The 2003 Investment Law currently contains incentives and preferences based on
government-determined sectoral priorities, and provides for investment tax preferences,
customs duties exemptions, and in-kind grants. According to provisions of the new Tax
Code and 2009 amendments to the Investment Law, preferences on corporate income
tax for Kazakhstani residents replace investment tax preferences, such as 10-year
corporate income tax exemptions and exemptions from land and corporate property
taxes. However, preferences for some priority sectors in the form of custom duties
exemptions and in-kind grants will remain. (Customs duties exemptions are limited to
equipment that is destined for use in production processes exclusively in Kazakhstan
and to imported equipment/components if Kazakhstani-produced stocks are not
available or do not meet international standards).
In 2001, Kazakhstan adopted transfer-pricing legislation, which gives tax and customs
officials the authority to monitor export-import transactions in order to prevent the
understatement of earnings through manipulation of export prices. Foreign investors
have expressed concern that the government specifically rejected the use of OECD
standards for determining a proper market price under its transfer-pricing legislation,
creating instead a methodology that fails to fully account for all cost and quality
differences. The government holds that transfer-pricing can take place even in
transactions between unrelated parties, because the practice, until recently, was defined
by transaction prices that differ from market prices by as much as 10%. Kazakhstan's
deviation from international methodology on this issue complicates the ability of firms to
obtain relief under double taxation treaties. This remains a contentious issue with
investors. A new law on transfer pricing that came into force on January 1, 2009, is
designed to allow for improved control of transfer pricing by applying the commonly
accepted “arm’s length principle.” Foreign investors concede that the new law is more
closely aligned with international standards, but are concerned that the law will be
applied not only to transactions with related parties, but to all international transactions.
The Embassy is not aware of any cases involving the inappropriate application of
transfer-pricing legislation in 2009.
Although Kazakhstani law holds that no sectors of the economy are fully closed to
investors, there are sectoral limitations, specifically a 20% ceiling on foreign ownership
of media outlets and a 49% restriction on foreign ownership in the telecommunications
sector and in new oil exploration and production projects. However, a December 2005
law lifted restrictions on the participation of foreign capital in the banking sector. A ban
on foreign bank and insurance company branches remains in force. February 2006
amendments to the Law on Insurance have eliminated participation restrictions for
foreign legal entities in insurance and re-insurance organizations in Kazakhstan.
Restrictions also exist on foreign ownership of land in Kazakhstan. See below
(A.6 "Right to Private Ownership and Establishment").
The draft Subsurface Law reiterates the state’s right of first refusal on the purchase of
shares in new exploration and production projects in the extractive industries. In 2005,
the government broadened its claim of priority purchase rights to include shares of
companies that have invested in the oil and gas sector. The same amendments allow
the government to block the sale of oil and gas assets in the interest of “national
security.” Additional amendments to the current Subsurface Law, signed in December
2008, also assign the government the right to exclude selected companies from
participating in oil and gas investment program tenders in the interests of “national
security.” Article 71 of the current Subsurface Law gives the state the right of first
refusal on any equity transactions involving subsurface user rights for oil and gas or
mining operations. According to the draft Subsurface Law, the preemptive right now
applies to any kind of transaction. The draft Subsurface Law includes a preemption
clause that guarantees the state the right of first refusal when a party seeks to sell any
part of its stake in a mineral-resource extraction project. The state claims this
preeminent right even in cases where the controlling agreement assigns preemptive
rights elsewhere (e.g., to other investors in a consortium). However, the draft
Subsurface Law offers more transparent procedures for the state and companies to
exercise subsoil rights and provides a clear definition of cases in which the state can
exercise its priority right. In practice, investors may find that a joint venture with a well-
connected local partner is advantageous to navigate the legal and political complexities
of operating in Kazakhstan.
Uneven, and sometimes blatantly unfair, application of tax laws is particularly egregious
when a company is involved in another, unrelated dispute with authorities. Foreign
investors also have complained about irregular application of other laws and regulations.
In some cases, investors have interpreted regulatory pressure as an effort to extract
bribes. Investors should not assume that their agreement to a settlement with tax
authorities following an investigation or civil case will prevent the pursuit of charges
under criminal provisions. At times, the authorities have used criminal charges in civil
disputes as a pressure tactic.
In December 2007, Kazakhstan adopted new regulations on foreign labor that the
Ministry of Labor and Social Protection claims simplify the issuance of work permits to
foreigners. The Ministry also, however, placed additional requirements on employers to
support the domestic labor market. According to the new regulations, permits for foreign
labor are issued only in the event that suitable candidates cannot be found in country,
which is subject to verification and assessment by Kazakhstani labor authorities. Those
foreign employers that do receive permits for foreign laborers are expected to meet
specific terms of agreement that include training Kazakhstani citizens to eventually fill
positions held by foreigners, the gradual overall replacement of foreign labor with
Kazakhstani citizens, and the creation of new jobs for domestic workers in the event of
an increase in production volumes. The scale of these individualized terms is directly
proportional to the number of foreign workers hired. Kazakhstani labor authorities are
expected to complete their review of work permit applications for foreigners within 20
days. If awarded, employers must provide authorities with documents within 10 days,
guaranteeing the prompt departure of foreigners after the expiration of their permits.
From 2003-2008, the quota steadily increased from 0.14% to 1.6%. However, because
of the current economic crisis, the government reduced by half the quota for foreign
labor. The 2009 quota of 0.75% of the active labor force will remain in force for 2010.
Index/Ranking Year
In 1996, Kazakhstan adopted Article 8 of the IMF Articles of Agreement, which stipulates
that current account transactions, such as currency conversions or the repatriation of
investment profits, will not be restricted. In 1999, the government and National Bank of
Kazakhstan announced that the national currency would be allowed to float freely at
market rates, thus abolishing the previous managed exchange-rate system. After the
tenge devaluation on February 4, 2009, the National Bank returned to the managed-float
exchange-rate regime and maintained throughout 2009 the tenge exchange rate in the
corridor 150 tenge/per U.S. dollar plus/minus 3% (please see section A.9. “Efficient
Capital Markets and Portfolio Investments”).
In June 2005, President Nazarbayev signed the Law on Currency Regulation and
Currency Control. This law lifted restrictions on money transfers, allowing residents and
non-residents to take up to $10,000 in cash out of the country without documentation of
the money’s origin. However, the transfer of cash amounts exceeding $3,000 must be
declared, and the transfer of amounts exceeding $10,000 must be accompanied by
National Bank certification. Beginning January 1, 2007, all licensing requirements and
procedures for foreign-currency operations were eliminated. Since that time, agencies
conducting transactions with foreign currency, including bank payments and transfers
relating to capital movements, must simply notify or register at the central bank their
operations.
The National Bank requires an "Import [or] export transaction passport," ostensibly for
the purpose of currency control. The document, which re-states information from other
documents, complicates import and export processing. The law's effectiveness for its
stated purpose -- to ensure that the proceeds from export sales are returned to
Kazakhstan and to prevent money laundering and fraudulent over-invoicing of imports --
is questionable.
The 2005 Law on Currency Regulation and Currency Control was amended in July
2009. Some amendments further liberalize currency controls. The ceiling for
transactions requiring passports was increased from $10,000 to $50,000. Residents
have a right to calculate the terms for repatriation of profit (though based on methods
and limits set by the National Bank). Individuals also can open bank accounts in foreign
banks without notifying the National Bank. In addition, the ceiling for capital movement
operations subject to notification or registration at the National Bank also was raised
from $50,000 to $100,000 for capital outflow; and from $300,000 to $500,000 for capital
inflow. Export-import credits, with the exception of transactions requiring passports and
financial loans with terms longer than 180 days will remain under the registration regime.
Borrowers or lenders must register credit transactions with the National Bank before
making them.
Amendments also specified measures for a "special currency regime," which only can be
introduced in emergency situations -- when the country's economy and financial
system's stability are in jeopardy. Measures may include requirements for companies to
retain a certain percentage of their foreign currency profits in the National Bank of
Kazakhstan or other authorized banks, the mandatory sale of foreign currency earnings,
and limits on the use of foreign bank accounts. Considered an extreme measure, its
application in the foreseeable future appears unlikely.
The National Bank regularly monitors the currency operations of selected non-residents.
This procedure primarily affects the oil and gas, construction, and mining industries, and
companies providing architectural, engineering and industrial-design services.
According to the National Bank, this monitoring provides better statistical data on the
balance of payments and external debt.
The U.S. Embassy is not aware of any concerns with regard to remittance policies or
availability of foreign exchange for remittance of profits.
In 2001, the government announced an amnesty for all Kazakhstani citizens repatriating
cash or transferring money during a 30-day period. The legalized money was not taxed
and became available to its owners at the end of the amnesty period. Kazakhstanis
repatriated $480 million under this amnesty, of which almost 90% was brought to banks
in the form of cash. Another amnesty, which concluded on August 1, 2007, resulted in
the legalization of nearly $7 billion in property.
The 2003 Investment Law represents a step back from the clarity of the 1994 law with
regard to expropriation and compensation. The 2003 law allows nationalization by the
state in emergency cases "as provided in legislative acts of the Republic of Kazakhstan."
Unlike the 1994 law, it does not provide clear grounds for expropriation. Similarly, the
1994 law required "prompt, adequate and effective" compensation at fair market value,
with interest. The 2003 law differentiates between nationalization and requisition,
providing full indemnification of the investor in the case of the former, but only payment
of market value in the case of the latter. Bilateral investment treaties (BITs) between
Kazakhstan and other countries, including the United States, also refer to compensation
in the event of expropriation.
There has been one case of legal expropriation of a foreign investor's property for public
purpose. The investor ultimately submitted the case for international arbitration. In May
2006, after lengthy delays and negotiations, the government paid the amount awarded
by the arbiter.
There have been a number of investment disputes involving foreign companies in the
past several years. While the disputes have arisen from unrelated, independent
circumstances, many are linked to alleged breaches of contract or non-payment on the
part of Kazakhstani state entities. Some disputes relate to differing interpretations of
joint-venture-agreement and production-sharing-agreement (PSA) contracts. One
questions the legality of the government's use of ex-post facto regulations governing
value added taxes. In some instances, the disputes involve hundreds of millions of
dollars. A recurring theme remains the unpredictability of actions taken by tax
authorities and other regulatory agencies. Kazakhstan is still building the institutional
capabilities of its court system. Until it completes this process, the performance of
courts in the country will be less than optimal. Problems also arise in the enforcement of
judgments. Given a relative lack of judicial independence, ample opportunity for
interference in judicial cases exists.
The 2003 Investment Law defines an investment dispute as "a dispute ensuing from the
contractual obligations between investors and state bodies in connection with investment
activities of the investor." It states that such disputes can be settled by negotiation, in
Kazakhstani courts, or through international arbitration. According to the law, disputes
not falling within the above-noted category "shall be resolved in accordance with the
laws of the Republic of Kazakhstan," thus restricting recourse to international arbitration
in favor of the Kazakhstani judicial system. While some investors find this legislation
problematic since it does not address disputes between private entities, others believe
that Kazakhstan's Civil Code and Civil Procedure Code provide private parties with
recourse to foreign and/or third party courts.
Kazakhstan has been a member of the International Center for the Settlement of
Investment Disputes (ICSID) since December 2001.
Any international arbitral award rendered by the International Center for the Settlement
of Investment Disputes (ICSID), any tribunal applying the United Nations Commission on
International Trade Law Arbitration rules, the Stockholm Chamber of Commerce, the
London Court of International Arbitration, or the Arbitration Commission at the
Kazakhstan Chamber of Commerce and Industry should, by law, be enforced in
Kazakhstan
The U.S.-Kazakhstan Bilateral Investment Treaty can serve to buttress the Investment
Law in this area. Kazakhstan ratified the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards in 1995.
Although creditor rights are set forth clearly in the 1997 bankruptcy law, its complexity
and numerous subsequent amendments result in considerable misapplication in
practice. The latest amendments passed in July 2008 and February 2009. The law now
contains a detailed list of creditors’ rights and prescribes a mechanism for their
enforcement. The 2008 amendments elaborated a comprehensive list of the
governmental authorities involved in bankruptcy procedures and expanded the rights of
enterprises during possible rehabilitation procedures. The Committee on Work with
Insolvent Debtors, operating under the umbrella of the Ministry of Finance, is
Kazakhstan’s official bankruptcy agency.
Due to BTA and Alliance banks' restructuring negotiations and cases filed in London by
some former stockholders of BTA bank, the government of Kazakhstan enlarged the
competence of the Specialized Almaty Financial Court. According to amended article 28
of the Civil Code, civil suits about the restructuring of financial institutions now fall within
the jurisdiction of the Almaty Financial Court. The new Chapter 34-1 of the Civil Code
defines an order of proceedings of restructuring cases in the courts. According to this
chapter, all court orders, including claims by creditors, preceding the creation of the
Almaty Financial Court on restructuring should be suspended. Furthermore, the Court
must approve creditor-agreed restructuring plans.
The Investment Committee under the Ministry of Industry and Trade monitors the
fulfillment of investor obligations. If the committee determines that a company has not
complied with its financial or other contractual obligations, the government may revoke
the company's operating license.
The 2003 Investment Law and 2008 Tax Code provide for tax preferences, customs
duties exemptions, and in-kind grants as incentives for foreign and domestic investment
in government-determined priority sectors. As of 2009, investors receive tax
preferences automatically after implementation of projects in non-extractive sectors. The
Tax Committee of the Republic of Kazakhstan and local authorities administer these
preferences. The Investment Committee makes decisions on customs duties
exemptions (with notification to customs authorities) and in-kind grants on a case-by-
case basis. The Ministry of Industry and Trade reported that it signed 400 contracts with
such preferences for a total of about $7-8 billion over the last ten years. Approximately a
quarter of these investments included foreign involvement. The law allows the
government to rescind such incentives and collect back payments if an investor fails to
fulfill contractual obligations.
Largely focused on selected priority sectors, the system of preferences echoes the
government’s policy of economic diversification away from the extractive sector. The
overall list contains 245 types of activities grouped into 36 categories. Those priority
sectors include agriculture, construction, metallurgy, chemistry and pharmaceuticals, oil
refining, oil and gas infrastructure, transport and information communication, power,
machinery, tourism and space activity. The system applies to new enterprises, as well
as to existing enterprises making new investments. The duration of tax preferences
increases with the size of investment. Although not explicitly required, technology
transfers frequently occur, and sometimes are included in contracts. Because of the
accelerated, post-crisis, industrial-development program, the government has increased
its emphasis on technology transfers in foreign investor cooperation.
In addition, the Kazakhstani government is elaborating its official concept for the
development of Kazakhstani content. A mandate of substantial increases by 2014 in the
local-content share of Kazakhstani-produced goods (up to 50%) and Kazakhstani-
produced services (up to 90%) is expected.
There are no known cases in which U.S. or other foreign firms have been denied
participation in government-financed or subsidized research and development programs
on a national basis.
The government has liberalized its trade policies and passed legislation to begin bringing
its legal and trade regimes into conformity with World Trade Organization (WTO)
standards. Kazakhstan submitted its Memorandum on the Foreign Trade Regime
(MFTR) in 1996 and the first round of consultations on WTO accession took place in
1997. Kazakhstan has made significant progress in implementing the legal framework
necessary for accession and signed bilateral protocols on market access for goods and
services with several of its major trading partners. As of January 1, 2009, Kazakhstan
had completed bilateral negotiations with 21 of 26 members of the Working Party.
However, accelerated creation of the Customs Union impeded this process. Russia,
Belarus, and Kazakhstan officially signed legal agreements to create the Customs Union
on November 27, 2009 in Minsk. According to the agreements, a common external
trade tariff is enacted January 1, 2010.
Kazakhstan’s entrance into the Customs Union will almost double its average import
tariff. Kazakhstan will retain some flexibility in applying the common external import tariff
regime. For example, Kazakhstan will have no tariff on over 900 specific commodity
items, including modern aircraft, certain types of engines, and raw materials needed in
the food processing industry, such as tropical fruits. Over 400 specific commodity items
will be subject to a transitional period varying from one-and-half to five years. These
items include pharmaceuticals, medical equipment, processed aluminum products, raw
materials for the petrochemical industry, paper products, rail wagons, combines, and
tractors. In some specific cases, Customs Union member states also can apply
protective import tariffs on selected goods without the consent of the other members, but
only for six months per year and for a maximum of five years. The member states have
agreed to grandfather all previously existing protective and anti-dumping measures at
the time of accession into the Customs Union. The Customs Union implementation
timeline anticipates implementation of the new common Customs Code and abolishment
of the Russian-Belarus customs border on July 1, 2010. The Kazakhstani-Russian
customs border is scheduled for abolishment on July 1, 2011.
Despite the creation of the Customs Union, Kazakhstan is expected to continue to offer
preferential treatment to investors outside of the extractive sector in an effort to promote
economic diversification.
Kazakhstan is also a member of the Eurasian Economic Community (EEC), along with
Russia, Kyrgyzstan, Belarus, and Tajikistan. Armenia, Moldova, and Ukraine have
observer status. Kazakhstan permits the importation of goods from EEC partners and
certain developing or less-developed countries duty-free, or at a reduced rate.
Foreign and domestic private entities have the right to establish and own business
enterprises and to engage in all forms of remunerative activity. Private entities can
freely buy and sell interests in business enterprises. However, state-owned enterprises
sometimes enjoy better access to markets, credits, and licenses than private entities.
Kazakhstan's constitution provides that land and other natural resources may be owned
or leased by Kazakhstani citizens according to conditions established by law. The 2003
Land Code allows citizens of Kazakhstan to own agricultural land and urban land with
commercial and non-commercial buildings and complexes, including dwellings and land
used for servicing these buildings. Under the Land Code, only Kazakhstani citizens
(natural and legalized) and Kazakhstani companies may own land. The Land Law does
not allow private ownership for the following types of land:
Short-term land leases may last up to five years. The maximum period for long-term land
leases are 49 years. Foreigners may rent agricultural land for up to 10 years.
Foreigners may also own agricultural land through either a Kazakhstani-registered joint
venture or a full subsidiary.
Protection of Property Rights Return to top
Secured interests in property (fixed and non-fixed) are recognized under the Civil Code
and the 2003 Land Code. Mortgage lending grew dramatically in recent years, though
decelerated in 2007-2009 due to the global financial crisis. A credit bureau system is in
the very early stages of development. All property and lease rights for real estate must
be registered with special government-owned Real Estate Centers, which exist in cities
and rural district centers.
In principle, Kazakhstan's Civil Code protects U.S. intellectual property. In addition, the
U.S.-Kazakhstan Trade Agreement, which came into force in 1993, obliges Kazakhstan
to protect intellectual property rights (IPR). In 2004, Kazakhstan ratified the 1997 World
Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Performances
and Phonographs Treaty, and amended the Copyright Law to affirmatively protect pre-
existing works and sound recordings. In 2005, Kazakhstan amended its Criminal and
Civil Codes to make IPR crimes easier to prosecute and to toughen penalties for
violators. The 2005 amendments played a significant role in USTR’s 2006 decision to
remove Kazakhstan from the Special 301 Watch list. While Kazakhstan has
demonstrated a commitment to improving its IPR regime, substantial weaknesses,
particularly in the area of civil dispute resolution, remain.
Patent protection is available for inventions, industrial designs, and prototypes. Patents
for inventions are available for novel processes and products that have industrial
applications. The National Institute of Intellectual Property performs formal examination
of patent applications. Patents for inventions are granted for 20 years. Patents for utility
models are granted for a five –year period with a possible three-year extension.
Prototypes are granted a 10-year initial period of protection, with the possibility of an
additional five-year extension. Kazakhstani legislation also permits an "innovation"
patent, which is granted for inventions for an initial three-year period with a possible
extension for two years. Issued after only checking the local novelty of an invention, an
innovation patent is expected to boost local-business innovation. Unsuccessful
applicants can appeal decisions of the National Institute of Intellectual Property and the
Committee for Intellectual Property Rights. Kazakhstan is a member of the Moscow-
based Eurasian Patent Bureau and the Munich-based European Patent Bureau.
The Law on Copyrights and Related Rights was enacted in 1996. The law largely
conforms to the requirements of the WTO TRIPS Agreement and the Berne Convention.
Ex officio authority of customs officials to seize counterfeit products at the border came
into force on January 1, 2010. President Nazarbayev signed the relevant amendments
to the Customs Code in December 2009.
Amendments to the Administrative, Criminal, and Civil Procedural Codes have been
adopted to bolster IPR enforcement capabilities. IPR enforcement measures, while still
somewhat sporadic, are increasingly robust. Prosecutions, under both the Criminal and
Administrative Codes, have led to a steady legitimization of the domestic trade in
copyrighted material. Progress in IPR protection through civil courts is less pronounced
as the judicial system develops the expertise necessary to resolve more complex civil
disputes.
Kazakhstan ratified the Berne Convention for the Protection of Literary and Artistic
Works in 1998 and the Geneva Phonograms Convention in 2000.
Opportunities for public comment on proposed laws and regulations are sporadic and
generally limited. Contradictory norms often hinder the functioning of the legal system.
While Kazakhstan recently has defined more clearly which laws take precedence in the
event of a contradiction, stability clauses granted investors under previous versions of
the Foreign Investment Law or other legislation may not necessarily protect investors
from changes in the legal and tax regulatory regime. The 2003 Investment Law holds
that contracts signed subsequent to its enactment may be subject to domestic legislative
amendments and international treaty provisions that change "the procedure and
conditions of the import, manufacture, and sale of goods subject to excise duties."
Regional authorities can create additional bureaucratic encumbrances, especially in the
licensing and issuance of permits.
Kazakhstan, by law, will provide compensation for violations of contracts that were
properly entered into and guaranteed by the government. Where the government has
merely "approved" or "confirmed" a foreign contract, Kazakhstan's responsibility is
limited to the performance of administrative acts (i.e., those "concerning the issuance of
a license, granting of a land plot, mining allotment, etc.") necessary to facilitate the
subject investment activity.
Most domestic borrowers receive credit from Kazakhstani banks. However, foreign
investors find the margins taken by local banks and the collateral required for credit to be
very onerous. It is usually cheaper and simpler for them to use retained earnings or
borrow from their home country. Because the Kazakhstani Stock Exchange is struggling
to gain momentum, it is not yet a realistic source of funds (see below). Since 1998,
Kazakhstani banks have placed Eurobonds on international markets and obtained
syndicated loans, the proceeds of which have been used to support domestic lending.
Leading Kazakhstani banks were able to obtain reasonably good ratings from
international credit assessment agencies. However, the global crisis hit the country’s
economy, and drastically changed the attitude of foreign investors to Kazakhstan and
the landscape of banking sector.
The National Bank has demonstrated an ability to maintain a stable exchange rate and
strike a balance between keeping inflation down and supporting the economy and
financial sector. The National Bank spent approximately $6 billion from its foreign
currency reserves during the last quarter of 2008 and January 2009 to defend the tenge.
On February 4, 2009, the National Bank allowed the tenge to devalue from a level of 122
tenge. The new target rate of 150 tenge to the dollar was expected to conserve foreign-
exchange reserves and increase domestic competitiveness. Due to favorable oil and
commodity prices at world markets in 2009, the National Bank successfully maintained
the exchange rate within the promised corridor of 145-155 tenge to the dollar and
replenished its international reserves. The National Bank's gold and foreign-currency
reserves grew by 16.8 percent from $19.87 billion on January 1, 2009 to $23.2 billion on
January 1, 2010. The liquidity crunch and efforts to boost the economy forced the
National Bank to adjust its monetary policy. In the course of 2009, the refinancing rate
was reduced consecutively six times from 10% in January 2009 to 7% in December
2009.
The global liquidity crisis, which hit in late summer 2007, presented a substantial
challenge to the Kazakhstani banking system, which had come to rely heavily on
external borrowing over the preceding five-year period. Kazakhstani banks had been
directing much of the borrowed funds into the country’s construction and real-estate
sectors, particularly in the form of construction-financing and mortgages for new housing
in Astana and Almaty. The sudden global liquidity dry-up abruptly left some leading
Kazakhstani banks unable to continue their aggressive external borrowing, forcing them
to curtail their domestic-lending activity. While policymakers widely saw this
development as a healthy correction in view of the preceding liquidity glut, the National
Bank of Kazakhstan and the government introduced measures in late 2007 to provide
liquidity to the banking system and inject capital in the cooling construction sector.
Continued world-wide financial turmoil, marked by falling commodity prices and
increasing unemployment have exacerbated the situation of Kazakhstan’s largest banks.
In October 2008, the Kazakhstani government announced stabilization plans that
included the purchase of 25% ownership stakes of Kazakhstan’s four largest private
banks, thereby injecting an additional $4 billion in to the banking system.
Kazakhstani authorities took former top managers of BTA and Alliance Banks to court on
corruption charges.
International donor organizations and local analysts unanimously agree that the situation
in the banking sector deteriorated significantly in 2009. The slowing economy
(according to the preliminary government assessment, annual GDP growth reached 0.5-
1% in 2009 versus 3% in 2008) and exchange-rate devaluation increased pressure on
the banks. As of December 1, 2009, the share of non-performing loans (NPLs) reached
31.2% of banks’ total loan portfolio. Although the total external debt of commercial
banks decreased in 2008 -2009, the level remained high ($32.2 billion as of June 30,
2009). The government, National Bank, and Financial Supervision Agency (FSA) took a
multi-pronged approach to overcome the banking sector's challenges. In December
2008, the government increased the maximum limit for deposit insurance seven-fold
from 700,000 tenge (just under $6,000) to 5 million tenge (about $33,000). The total
government bail-out package for the banking sector totaled around $10 billion. In 2010,
the FSA and National Bank are expected to begin implementation of the "Financial
Sector Development in post-crisis period" concept, according to which the FSA's control
and regulatory functions will be significantly strengthened. (NOTE: The FSA,
Kazakhstan’s main financial regulator, has broad authority over the banking and
insurance sectors, as well as the stock market. The FSA is financed from the National
Bank’s budget and subordinate to the President of Kazakhstan. END NOTE)
Kazakhstani authorities' efforts appear to be boosting confidence in the banking sector.
According to the FSA, private deposits have rose 23.3% January-November, 2009. As
of December 1, 2009, the total amount of private deposits reached approximately $12.5
billion.
In operation since 1997, the Kazakhstani Stock Exchange (KSE) merged with the Almaty
Regional Financial Center (AFC) in 2008, and new listing rules were introduced.
Inadequate financial records prevent many companies from being put on the exchange.
Moreover, company managers fear diluting control of their enterprises by selling shares.
As of October 1, 2009, the total capitalization of the KSE was $65.2 billion, or 56.8% of
GDP. Despite a negative trend of declining value since mid-2007, capitalization of the
stock exchange in both the absolute value of total capitalization and capitalization
relative to GDP slightly increased in 2009.
Since 1999, several dozen bank and non-bank corporations, large and small, have
issued bills, notes, and bonds with maturities ranging from three months to seven years.
Rates for borrowers have declined on average from approximately 16% in September
1999 to approximately 9% in 2006. Maturities have increased from one-and-a-half years
to up to 10 years during the same period. Earlier issues were matured and redeemed.
However, defaults began in 2009. As of December 1, 2009, 25 companies defaulted on
43 issues of corporate bonds, a total nominal value of which equaled 273.98 billion
tenge (approximately $1.85 billion). Nevertheless, in contrast to stock-market debt
instruments, yield rates grew in 2009 from 12.3 % at the end of 2008 to 15%. In 2009,
the volume of trade in government securities grew by 21% and reached $9.44 billion. As
of December 2009, the effective yield rate on middle-term government notes (with a
three-year maturity) was up to 7.64%. Longer-term government notes (with maturities
up to 10 years) were offered at 6.5%.
Trading on the KSE is overwhelmingly dominated by block trades, liquidity is low, and
the spreads are extremely wide. In 2006, several large Kazakhstani companies issued
initial public offerings on the London Stock Exchange (LSE). In compliance with a 2006
law requiring a domestic issuance to accompany any foreign IPO by a Kazakhstani
company, these companies also offered shares on the KSE. Despite these offerings
and the Kazakhstani pension funds’ (see below) tentative moves to invest in KSE-traded
shares, the exchange remains in a very early stage of development. The crisis years
2008-2009 again proved the KSE's insignificance. Decreased capitalization and
diminished transaction volumes at KSE have not impacted the overall economic situation
and financial markets due to the stock market's underdevelopment.
The plans for the “Almaty Financial Center” (see below) and upcoming new concept of
Financial Sector Development aim to spearhead the development of Kazakhstan’s
securities markets.
In 1998, the government introduced an accumulative pension system that requires all
employed persons to contribute 10% of their salary to the pension funds. As of
November 2008, the 14 funds (13 private and one state-owned) operating in Kazakhstan
held approximately $11.5 billion in pension savings. Custodian banks hold pension
assets. Asset management companies invest the contributions on behalf of the pension
funds. While the government provides specific restrictions on pension funds'
investments, these restrictions were relaxed in 2006, allowing some involvement in
Kazakhstani equities. As of 2009, pension assets must still be invested in specific
categories of securities, including corporate and government bonds and securities
issued by foreign governments and foreign corporate securities. In addition, around 5%
of pension funds’ assets are deposited in commercial banks. Pension funds overall did
not fare well in 2008-2009 because of global losses and risky investment policies. In
November 2009, four pension funds had total losses amounting to $6.6 million. A
generally positive dynamic exists. The total net profit of all pension funds was $138
million in November 2009. The government planned to sell some shares of state
enterprises on the national stock market, in part to provide a more profitable, alternative
vehicle for the investment of pension fund assets. Amendments made to pension fund
legislation in November 2008 guarantee the preservation of pension savings, and grant
individual investors the right to choose either a conservative, moderate, or aggressive
type of individual investment portfolio.
There have been very few hostile takeovers in Kazakhstan, primarily because there are
few publicly-traded firms. Defensive measures are not targeted toward foreign investors
in particular. Current legislation provides a legal framework for takeovers. The Civil
Code requires a company that has purchased a 20% share in another company to
publish information about the purchase. However, business realities show that
successful local companies may not be well enough protected from professional hostile
takeovers in most cases.
The 1998 Law on Joint-Stock Companies provides the basis for the regulation of open
and closed-type joint-stock companies. It also contains clauses to protect investors in
often-abused circumstances, such as:
The Law on Joint-Stock Companies also regulates tender offers for stock of open joint-
stock companies by requiring the purchaser to notify the Financial Supervision Agency
and target company of its intention to purchase 30% or more of the target company.
After such purchase, the buyer must offer to all remaining shareholders to purchase their
shares at the average price over the six months prior to purchase.
Formally, private enterprises can compete with public enterprises under the same terms
and conditions. However, state-owned enterprises do enjoy better access to markets,
credits, and licenses than private entities (see section A.6. Right to Private Ownership
and Establishment).
National Welfare Fund “Samruk-Kazyna” unifies all key national companies of the
Kazakhstani economy. As of the end of 2009, Samruk-Kazyna had 36 subsidiaries and
affiliated companies, including “KazMunaiGas” (oil and gas), “Kazakhstan Temir Zholy”
(rail way company), “KazakhTeleCom,” “KazPost,” Air Astana, KEGOC (electricity grid
operating company), and a number of development institutions, such as the
Development Bank of Kazakhstan, Investment Fund, Innovation Fund, and Kazakhstani
Export Promotion Center. Development institutions aim to stimulate the country’s non-
extractive sector and diversify the economy. In addition, Samruk–Kazyna continues to
establish new companies, such as the United Chemical Company and Mining Company
“Tau Ken–Samruk.”
The Prime Minister chairs the Board of Directors of Samruk-Kazyna, on which the
Ministers of Finance, Industry and Trade, Economy and Budget Planning, and Energy
and Mineral Resources, the assistant to the President of Kazakhstan, and two foreign
independent directors serve. In February 2009, President Nazarbayev signed a
separate law on the National Welfare Fund “Samruk-Kazyna”. According to this law,
Samruk-Kazyna acquired a special status and rights. Samruk-Kazyna thus can
conclude large transactions between members of the Samruk-Kazyna group without
public notification. (NOTE: According to Kazakhstani law, all joint-stock companies
must notify the public of large transactions. END NOTE) Samruk-Kazyna also has a
pre-emptive right to buy strategic facilities and bankrupt assets. Samruk-Kazyna is
exempted from government procurement procedures and has the right to establish its
own procurement rules. Moreover, the government can transfer to Samruk-Kazyna
state-owned property. Experts believe this provision allows a simplified process to
transfer state property to private owners (i.e., state property can be easily privatized
without any tender process or observation of privatization legislation).
The law requires National Holding Companies to publish annual reports and submit their
books to independent audit. In 2009, Standard & Poor’s assessed Samruk-Kazyna’s
transparency at 24 out of a possible score of 100.
Kazakhstan has put aside significant oil revenue in a sovereign wealth fund, which is
called the National Oil Fund of the Republic of Kazakhstan. Established by Presidential
decree in 2000, the fund aims to diminish the country’s budgetary dependence on
fluctuations of world oil prices and to accumulate savings for the benefit of future
generations. The Fund accumulates all direct taxes from the oil sector, revenues from
the privatization of state property in mining and manufacturing industries, and revenues
from sales of farmlands. As the government’s agent, the Ministry of Finance owns the
National Fund, and the National Bank is a trustee of the Fund. The National Bank also
selects and hires external administrators from internationally-recognized investment
companies or banks. Information on external administrators and the assets they
manage is confidential.
Two portfolios - stabilization and saving – compose the National Fund. Not fixed,
distribution of assets between these two portfolios depend on the economic situation.
The National Fund invests in the domestic economy through “official transfers.” The
budget law approves the annual size of official transfers from the National Fund to the
national budget. These official transfers cannot exceed one third of the National Fund’s
assets, and in principle, only should finance development projects. In 2008- 2009, the
government and National Bank had to increase National Fund spending for their bail-out
package. As a result, the stabilization portfolio increased in comparison to the saving
portfolio. According to the government’s Anti-Crisis program approved in 2008, around
$10 billion of the National Fund was directed for stabilization purposes. Samruk-Kazyna
was assigned as the operator of these funds.
The Ministry of Finance and National Bank prepare the National Fund’s annual report,
which the President approves. In addition, the Ministry of Finance and National Bank
publish on their websites (www.minfin.kz, www.nationalbank.kz) monthly and annual
reports on revenues and use of the National Fund money. Although these reports
provide information on the Fund’s general financial situation, they do not provide details.
As of January 1, 2010, the National Fund’s assets totaled $24.37 billion. Total
international reserves of the country, including the National Bank’s foreign currency
reserves, equaled $47.6 billion (in current prices).
Even though Kazakhstan has not adhered to the OECD Guidelines for Multinational
Enterprises, the idea of corporate social responsibility is well known in Kazakhstan due
to the government’s promotion of it. In his addresses to foreign investors and local
businesses, President Nazarbayev has asked them to proactively implement principles
of social responsibility, including by supplying quality goods and services to customers,
providing occupational safety, legally paying workers, and investing in human growth
potential. The President annually awards “Paryz” (“Honors” in the Kazakh language) for
achievements in the area of corporate social responsibility. In 2009, a U.S. company
was awarded the Golden Paryz for the best collective agreement. Companies who
employ corporate social responsibility approaches are viewed favorably, especially in the
regions.
Corruption, including bribery, raises the costs and risks of doing business. Corruption
has a corrosive impact on both market opportunities overseas for U.S. companies and
the broader business climate. It also deters international investment, stifles economic
growth and development, distorts prices, and undermines the rule of law.
It is important for U.S. companies, irrespective of their size, to assess the business
climate in the relevant market in which they will be operating or investing, and to have an
effective compliance program or measures to prevent and detect corruption, including
foreign bribery. U.S. individuals and firms operating or investing in foreign markets
should take the time to become familiar with the relevant anticorruption laws of both the
foreign country and the United States in order to properly comply with them, and where
appropriate, they should seek the advice of legal counsel.
The U.S. Government seeks to level the global playing field for U.S. businesses by
encouraging other countries to take steps to criminalize their own companies’ acts of
corruption, including bribery of foreign public officials, by requiring them to uphold their
obligations under relevant international conventions. A U. S. firm that believes a
competitor is seeking to use bribery of a foreign public official to secure a contract
should bring this to the attention of appropriate U.S. agencies, as noted below.
U.S. Foreign Corrupt Practices Act: In 1977, the United States enacted the Foreign
Corrupt Practices Act (FCPA), which makes it unlawful for a U.S. person, and certain
foreign issuers of securities, to make a corrupt payment to foreign public officials for the
purpose of obtaining or retaining business for or with, or directing business to, any
person. The FCPA also applies to foreign firms and persons who take any act in
furtherance of such a corrupt payment while in the United States. For more detailed
information on the FCPA, see the FCPA Lay-Person’s Guide at:
http://www.justice.gov/criminal/fraud/docs/dojdocb.html.
OECD Antibribery Convention: The OECD Antibribery Convention entered into force
in February 1999. As of December 2009, there are 38 parties to the Convention
including the United States (see http://www.oecd.org/dataoecd/59/13/40272933.pdf).
Major exporters China, India, and Russia are not parties, although the U.S. Government
strongly endorses their eventual accession to the Convention. The Convention obligates
the Parties to criminalize bribery of foreign public officials in the conduct of international
business. The United States meets its international obligations under the OECD
Antibribery Convention through the U.S. FCPA. Kazakhstan is not a party to the OECD
Convention.
OAS Convention: In 1996, the Member States of the Organization of American States
(OAS) adopted the first international anticorruption legal instrument, the Inter-American
Convention against Corruption (OAS Convention), which entered into force in March
1997. The OAS Convention, among other things, establishes a set of preventive
measures against corruption, provides for the criminalization of certain acts of
corruption, including transnational bribery and illicit enrichment, and contains a series of
provisions to strengthen the cooperation between its States Parties in areas such as
mutual legal assistance and technical cooperation. As of December 2009, the OAS
Convention has 33 parties (see http://www.oas.org/juridico/english/Sigs/b-58.html).
Council of Europe Criminal Law and Civil Law Conventions: Many European
countries are parties to either the Council of Europe (CoE) Criminal Law Convention on
Corruption, the Civil Law Convention, or both. The Criminal Law Convention requires
criminalization of a wide range of national and transnational conduct, including bribery,
money-laundering, and account offenses. It also incorporates provisions on liability of
legal persons and witness protection. The Civil Law Convention includes provisions on
compensation for damage relating to corrupt acts, whistleblower protection, and validity
of contracts, inter alia. The Group of States against Corruption (GRECO) was
established in 1999 by the CoE to monitor compliance with these and related anti-
corruption standards. Currently, GRECO comprises 46 member States (45 European
countries and the United States). As of December 2009, the Criminal Law Convention
has 42 parties and the Civil Law Convention has 34 (see www.coe.int/greco.)
Kazakhstan is not a party to the Council of Europe Conventions.
Local Laws: U.S. firms should familiarize themselves with local anticorruption laws, and,
where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot
provide legal advice on local laws, the Department’s U.S. and Foreign Commercial
Service can provide assistance with navigating the host country’s legal system and
obtaining a list of local legal counsel.
Assistance for U.S. Businesses: The U.S. Department of Commerce offers several
services to aid U.S. businesses seeking to address business-related corruption issues.
For example, the U.S. and Foreign Commercial Service can provide services that may
assist U.S. companies in conducting their due diligence as part of the company’s
overarching compliance program when choosing business partners or agents overseas.
The U.S. Foreign and Commercial Service can be reached directly through its offices in
every major U.S. and foreign city, or through its Website at www.trade.gov/cs.
The Departments of Commerce and State provide worldwide support for qualified U.S.
companies bidding on foreign government contracts through the Commerce
Department’s Advocacy Center and State’s Office of Commercial and Business Affairs.
Problems, including alleged corruption by foreign governments or competitors,
encountered by U.S. companies in seeking such foreign business opportunities can be
brought to the attention of appropriate U.S. government officials, including local embassy
personnel and through the Department of Commerce Trade Compliance Center “Report
A Trade Barrier” Website at tcc.export.gov/Report_a_Barrier/index.asp.
Guidance on the U.S. FCPA: The Department of Justice’s (DOJ) FCPA Opinion
Procedure enables U.S. firms and individuals to request a statement of the Justice
Department’s present enforcement intentions under the antibribery provisions of the
FCPA regarding any proposed business conduct. The details of the opinion procedure
are available on DOJ’s Fraud Section Website at www.justice.gov/criminal/fraud/fcpa.
Although the Department of Commerce has no enforcement role with respect to the
FCPA, it supplies general guidance to U.S. exporters who have questions about the
FCPA and about international developments concerning the FCPA. For further
information, see the Office of the Chief Counsel for International Counsel, U.S.
Department of Commerce, Website, at http://www.ogc.doc.gov/trans_anti_bribery.html.
More general information on the FCPA is available at the Websites listed below.
Exporters and investors should be aware that generally all countries prohibit the bribery
of their public officials, and prohibit their officials from soliciting bribes under domestic
laws. Most countries are required to criminalize such bribery and other acts of
corruption by virtue of being parties to various international conventions discussed
above.
Although the Kazakhstani Criminal Code contains special penalties for accepting and
giving bribes, corruption is prevalent throughout Kazakhstan. The President issued an
anti-corruption decree in April 2009, which foresees whistle-blower protection,
punishment for state officials that fail to report corruption cases, and measures to
prevent conflict of interests. Amendments to the anti-corruption law were signed on
December 7, 2009. These amendments increase punishments for corruption crimes,
institute mandatory asset forfeitures, broadens the definition of corruption crimes to
include fraud committed by government officials, and criminalized the acceptance of a
bribe on behalf of a third party and acceptance of intangible assets. The law also
extended the definition of government official to managers of companies in which the
government holds more than a 35% stake.
The Ministry of Interior, Financial Police, Disciplinary State Service Commission, and
Committee for National Security (KNB) are responsible for combating corruption.
However, some problems with jurisdiction and competition between the Financial Police
and KNB have occurred over the past year.
In 2003, two U.S. citizens were charged in the United States with violating the Foreign
Corrupt Practices Act in a case that received significant international media attention.
The two persons allegedly channeled tens of millions of dollars in bribes to two senior
Kazakhstani officials during the 1990's in order to facilitate oil deals for American
companies. One currently is serving a jail term. The criminal case against the second
defendant is ongoing.
Anti-Corruption Resources
Some useful resources for individuals and companies regarding combating corruption in
global markets include the following:
• Information about the U.S. Foreign Corrupt Practices Act (FCPA), including a “Lay-
Person’s Guide to the FCPA” is available at the U.S. Department of Justice’s
Website at: http://www.justice.gov/criminal/fraud/fcpa.
• The World Economic Forum publishes the Global Enabling Trade Report, which
presents the rankings of the Enabling Trade Index, and includes an assessment of
the transparency of border administration (focused on bribe payments and
corruption) and a separate segment on corruption and the regulatory environment.
See
http://www.weforum.org/en/initiatives/gcp/GlobalEnablingTradeReport/index.htm.
• Additional country information related to corruption can be found in the U.S. State
Department’s annual Human Rights Report available at
http://www.state.gov/g/drl/rls/hrrpt/.
Global Integrity, a nonprofit organization, publishes its annual Global Integrity Report,
which provides indicators for 92 countries with respect to governance and anti-
corruption. The report highlights the strengths and weaknesses of national level anti-
corruption systems. The report is available at: http://report.globalintegrity.org/.
The United States-Kazakhstan Bilateral Investment Treaty came into force in 1994. In
1992, the United States and Kazakhstan signed an Investment Incentive Agreement.
In 1996, the Treaty on the Avoidance of Double Taxation between the United States and
Kazakhstan came into force. However, an ongoing dispute with a U.S. investor raises
concerns with the government’s tax treaty compliance. Since independence,
Kazakhstan has ratified treaties on the avoidance of double taxation with 39 countries.
In 2008-2009, Kazakhstan ratified treaties with Malaysia and Japan, and signed, but has
not yet ratified, ones with Armenia, Luxembourg, and the Arab Emirates. Kazakhstan
has bilateral investment agreements in force with 42 countries, including the United
States, Great Britain, Germany, France, Austria, Russia, Korea, Iran, China, Turkey, and
Vietnam. In 2009, Kazakhstan signed a multilateral investment agreement with the
Eurasian Economic Community.
The 1999 Labor Law and the Constitution guarantee basic workers' rights, including the
right to organize and right to strike. In April 2009, 70 workers at UzenMunayGaz (Uzen
Oil and Gas) went on strike for 10 days during a confrontation with management over
failure to pay outstanding wages. The strikers succeeded in their demands.
The 1996 Law on Labor Disputes and Strikes lays out the procedure to resolve disputes.
However, the law also restricts strikes by requiring, inter alia, that a peaceful attempt at a
solution first be made, that two-thirds of the labor collective must approve the strike, and
that the employer must be warned 15 days in advance in writing. In addition, strikes for
political purposes are forbidden.
A separate 1992 Law on Collective Bargaining Agreements sets out the basic framework
for concluding such agreements. There are a growing number of instances in which
unions have successfully negotiated collective bargaining agreements with
management. Following a widely-publicized mining tragedy and subsequent strike in
January 2008, the government launched a pro-union campaign called “Sign a Collective
Bargain” intended to empower workers to more effectively protect their rights as
members of the workforce. This action marked a significant change in policy in which
independent unions and collective bargaining groups are “no longer seen as the enemy”
according to a prominent independent labor union organizer.
In May 2007, Kazakhstan passed a new Labor Code, encompassing all the preceding
legislation under a single umbrella and retaining key provisions of all the previous labor
laws. The Labor Code extended minimum mandatory vacation time from 18 to 24 days,
provided an outline of labor unions’ and labor representatives’ rights, and toughened
rules governing the dissolution of labor contracts.
The 1993 Law on Professional Labor Unions legally guarantees against limitations of
labor. It also grants socio-economic, political, and personal rights and freedoms as a
result of union membership and prohibits the denial of employment, the denial of
promotion, or termination of employment on the basis of such membership. Kazakhstan
also joined the International Labor Organization (ILO) in 1993. As of December 2009,
Kazakhstan has ratified 17 ILO conventions, including those pertaining to minimum-
employment age, forced labor, discrimination in employment, equal remuneration,
collective bargaining, and the worst forms of child labor. Currently, the Labor Ministry is
preparing the basis for ratification of ILO Convention 156 on Equal Opportunities and
Equal Treatment for Men and Women Workers: workers with Family Responsibilities.
In 2009, the minimum wage was $92.56 per month, with approximately 10.5% of the
population receiving income below that level as of the 3rd quarter 2009. In real terms,
the minimum subsistence level has declined year-on-year due to the tenge’s
devaluation. The minimum pension in 2009 was $102.98. By government estimates,
2009 unemployment was 6.3%-6.5%.
AGRICULTURE
HUNTING AND, 73.5 38.5 56.3 168.3
FORESTRY
Direct Investment
AGRICULTURE,
HUNTING AND FORESTRY 84.7
including
International Organizations 33.6
Virgin Islands (British) 31.0
Latvia 8.5
Germany 0.2
USA 0.0
Other 11.4
MINING AND QUARRYING 14,525.0
including
USA 6,854.3
Netherlands 2,089.6
China 1,314.4
Canada 1,283.1
Virgin Islands (British) 1,077.8
Great Britain 450.3
Switzerland 12.6
Russia 125.2
Other 1,317.6
MANUFACTURING 3,166.8
including
Netherlands 1,966.6
Switzerland 1,100.9
Russia 71.6
Luxemburg 2.7
Other 25.0
ELECTRICITY, GAS
AND WATER SUPPLY 512.5
including
Netherlands 233,5
Virgin Islands (British) 214.8
Russia 48.6
Other 15.5
CONSTRUCTION 729.7
including
China 220.5
Netherlands 103.2
Russia 75.3
South Korea 52.0
Great Britain -33.2
Virgin Islands (British) 26.9
Turkey 48.8
Belgium 24.8
Panama 1.7
Other 209.6
WHOLESALE AND
RETAIL TRADE, REPAIR OF
MOTOR VEHICLES, AND PERSONAL
AND HOUSEHOLD GOODS 2,321.9
including
Arab Emirates 992.2
Russia 108.7
Netherlands 226.3
Virgin Islands (British) 99.0
Switzerland 13.5
USA 31.5
China 161.9
Great Britain 42.3
Germany 81.6
Cyprus 59.3
South Korea 50.9
Turkey 83.3
Other 371.4
ACTIVITY OF PROFESSIONAL
ORGANIZATIONS,
ASSOCIATIONS AND
UNIONS 3,002.3
including
Virgin Islands (British) 2,962.6
Netherlands 36.0
USA 1.8
Spain 1.6
Other 0.4
Source: National Bank of Kazakhstan (the stock data is valued at market cost)
Country of
Destination 2004-2007 2008 2009 (9 months) Total
As of September 30, 2009, the extractive sector accounted for over 15% of the $137
billion invested in Kazakhstan, with U.S. firms consistently ranking as the largest foreign
investors. U.S. companies have invested $9.34 billion in the extractive sector, including
billion-dollar investments in Kazakhstan’s petroleum sector by Chevron, ExxonMobil,
and ConocoPhillips. From 1993 to 2008, Tengizchevroil, in which Chevron holds a 50%
stake, and ExxonMobil, which owns 25%, contributed approximately $30.4 billion to
Kazakhstani entities, including purchases of Kazakhstani goods and services, tariffs and
fees paid to the state-owned companies, profit distributions to Kazakhstani shareholder,
taxes and royalties paid to the government and Kazakhstani employee’s salaries. Other
major foreign investors in this sector include the Chinese National Petroleum
Corporation (CNPC), Shell, British Gas, Total, Agip, Lukoil, Eni, and Inpex. Other major
U.S. investors include Philip Morris (over $320 million in tobacco processing) and
General Electric Transportation (a locomotive facility). Other major non-U.S. foreign
investors include Arcelor Mittal and BAE Systems.
As in other markets, payment methods and terms vary depending upon the U.S.
company’s business model and relationship with its trading partners. For new to market
companies, requesting advance payment for goods and services from a Kazakhstani
customer may be a prudent course to follow until both parties establish a positive record
of payment. Exporters should also keep in mind that Kazakhstani firms are finding it
increasingly difficult to gain access to credit from local banks, as a result of these banks
having decreased access to international financing.
The safest method of receiving payment for a U.S. export is through an irrevocable letter
of credit (L/C) confirmed by a major Western bank. In general, importers must deposit
enough funds to cover the payment before applying for a letter of credit. Local
companies may apply at any one of several major local commercial banks to obtain an
L/C, which, in most cases, according to Kazakhstani banking legislation, must be
confirmed by a reputable Western bank. U.S. companies are strongly advised to re-
confirm payment arrangements with the importer prior to shipping goods. There are a
number of U.S. banks that accept letters of credit from some of the largest Kazakhstani
banks, specifically those that have been approved by the U.S. Export Import Bank.
Once a U.S. firm has established a strong relationship with a local trading partner, it may
consider extending short and eventually longer-term credit as a way to bolster sales
volume. This should be done with caution and only after careful evaluation and
establishment of successful payments.
As of January 2010, the National Bank set the refinancing rate at 7% (down from 10% at
last year’s publication of this report). Tenge-based loans from Kazakhstani banks carry
an interest rate that is significantly higher than the refinancing rate (8.5% vs. 4.5%).
The banking system of Kazakhstan is the most developed in Central Asia and is moving
toward adoption of international banking standards under the strong supervision of the
National Bank of Kazakhstan. Kazakhstan has a two-tier banking system. The top (first)
tier is represented by the National Bank, which is the central bank of Kazakhstan and
reports to the President of the country. The second tier represents all private
commercial banks and one state-owned bank.
The National Bank and the Financial Supervision Agency (FSA) are charged with overall
bank supervision. These two institutions have introduced regulations to implement
international banking standards in such areas as accounting, liquidity management,
capital requirements, timely recognition of problem loans, limitations on insider
transactions, and limits on aggregate credit exposures to any one borrower. The FSA
also has tightened requirements for the establishment and licensing of banks.
Thirty-eight banks were operating in Kazakhstan at the end of 2009. Of these, only the
Housing Construction Savings Bank is considered state-owned. However, in early
February 2009, the government bought controlling shares of BTA (75.1% of common
shares) and Alliance Bank (100% of common shares) in an effort to sustain what it
considered to be financially-unstable institutions. Total assets in the banking system
amounted to $78.4 billion at the end of November 2009, or 72.3% of GDP.
The current situation stands in marked contrast to 1993 when over 200 banks held total
assets of less than $1 billion. The most recent contraction in the number of banks
operating in Kazakhstan, which occurred from 2003-2004, resulted from the National
Bank policy of increasing capital requirements, merging of institutions, and relicensing of
some smaller institutions such as credit unions or credit partnerships. The number of
banks likely will continue to drop as the National Bank implements policies to raise
capital requirements for institutions engaged in banking activities. The current difficulties
faced by international capital markets and heightened interest of foreign investors may
also lead to the further consolidation of Kazakhstani banks.
Kazakhstan's banking sector had a rocky year in 2009. As of December 1, 2009, total
banking sector assets were 11,558.77 billion tenge ($74.4 billion), demonstrating a 3.3%
decline year-on-year. For the first time in history, the capital levels of the consolidated
banking sector were net negative -1,039.4 billion tenge (-$7.05 billion) due to the
negative stock capitals of BTA and Alliance banks. Although the total capital levels
without BTA and Alliance banks are positive at 1,280.1 billion tenge ($8.68 billion), they
declined by 34.3% from 1,947.8 billion tenge ($13.4 billion) in January 2009 to 1,280.1
billion tenge at the end of November 2009.
BTA bank, Kazkommertsbank, and Halyk Bank remain the largest commercial banks by
size of assets, and control 55.7% of Kazakhstan's total banking assets as of the end of
November 2009.
BTA and Alliance Bank (the country's sixth largest bank) currently are under a
restructuring process (for more details please see Chapter 6, section A.9. Efficient
Capital Markets and Portfolio Investment). Within the framework of the government’s
program to counteract the global financial crisis, it acquired 21% and 19.8 % of common
shares in KazKommertsbank and Halyk Bank respectively. The Samruk-Kazyna
National Welfare Fund represents the state’s interests in these four banks.
Despite a substantial decline in the total external debt of Kazakhstani banks over the last
three years, from $46 billion in 2007 to $28.4 billion, the pressure on banks remains high
due to deteriorating asset quality, declining earnings, weak capitalization, and stressed
liquidity profile. The share of non-performing loans (NPL) remains quite high. About
72% of all NPLs are on the books of BTA bank, TemirBank, and Alliance Bank. Other
large banks hold 20%. These banks must allocate extra provisions to offset potential
credit losses, which leaves them with fewer funds for new loans.
The global financial crisis encouraged Kazakhstan's regulators to strengthen oversight of
the banking sector. The Law on Sustainability of the Financial System, approved in
November 2008, amended a number of laws and increased the authority of the Financial
Supervision Agency (FSA) to oversee banking activity. In 2009, the Law on Banks and
Banking Activity was amended to include two new chapters on bank restructuring and
Islamic financing (for more details see Chapter 6). As of January 1, 2010, banks that do
not have a large single shareholder (above 10% of the bank's equity) will not be allowed
to attract deposits from individuals. Also, large banking conglomerates will be limited in
external borrowing. Twenty-four second-tier banks, as well as the National Bank of
Kazakhstan, have licenses to trade securities. Eleven banks are also licensed to carry
out custodial services for pension accumulation funds. In January 2008, Citibank
Kazakhstan also received a license for custodial activity in Kazakhstan.
Foreign banks are active in Kazakhstan. As of January 2010, 32 foreign banks have
representative offices in Kazakhstan. Under existing legislation, foreign banks cannot
have branches in Kazakhstan but may establish subsidiaries, joint ventures, and
representative offices. By law, foreign investors and Kazakhstani investors are treated
equally. In 2005, amendments to the banking legislation lifted restrictions on the
participation of foreign capital in the banking sector. No individual may own more than
10% of the shares of a bank (unless that bank is a subsidiary of another bank) without
permission from the FSA.
Nineteen banks now have foreign participation (i.e., a minimum of one-third of shares
are owned by non-residents). The global financial turmoil appears to have made the
Kazakhstani banking sector even more attractive for potential foreign investors. A
number of new foreign stockholders entered the Kazakhstani banking market in 2008
including Russia's Sberbank, Israel's Bank Hapoalim, South Korea's Kookmin Bank, and
the Arab investment company Alnair Capital. However, according to official statistics, by
the end of 2009, the share of banks with foreign participation did not exceed 20% of
Kazakhstan's total banking sector’s assets. After the acquisition of 91.8% of its shared
capital by UniCredit Group in 2007, ATF Bank became the largest foreign bank in
Kazakhstan and the fourth largest by asset size. After selling 30% of shares to Kookmin
Bank, CenterCredit bank became the second largest foreign bank in Kazakhstan and the
fifth largest bank by assets size. Citibank and HSBC established subsidiaries in Almaty
in 1998. Citibank Kazakhstan offers a wide range of products and services for foreign
and local corporate clients, including cash management, working capital and trade
finance, electronic banking, foreign exchange and money market products, card
services, and personal banking for corporate employees. Chinese and Russian banks
have established 100% subsidiaries in Kazakhstan, and several Dutch and Turkish
banks have established joint ventures. Money transfers from the West can be
completed in as little as 24 hours through the SWIFT network.
The government united all development institutions, as well as all key national
companies, into one Samruk-Kazyna National Welfare Fund (see Chapter 6).
The National Bank allows the tenge to float. It is fully convertible with the U.S. dollar. In
July 1996, Kazakhstan joined Article 8 of the International Monetary Fund Charter, which
calls for full convertibility and the removal of all controls on current account transactions.
After the tenge devaluation on February 4, 2009, the National Bank returned to the
managed-float exchange-rate regime and maintained throughout 2009 a tenge
exchange rate in the corridor of 150 tenge/per U.S. dollar plus/minus 3%. Due to signs
of a return to normal economic activity, this approach is changing. On December 30,
2009, the National Bank declared it would widen the KTZ/USD exchange range
fluctuation between 127.5 KZT/USD to 165 KTZ/USD, effective February 5, 2010
through March, 20, 2011. Experts viewed this decision as a sign of gradual short-term
tenge appreciation and a return to a more flexible exchange rate.
According to the 2005 Law on Currency Regulation and related amendments in July
2009, the National Bank has the right to establish a different regime of currency
regulation for different types of capital movement, including registration or notification.
The procedures and necessary documentation required for each of these regimes are
specified in the Law on Currency Regulation and special rules approved by the National
Bank. For example, the National Bank must be notified about foreign direct investment,
participation in joint ventures, and securities operations if the operation exceeds
$500,000. Other currency operations can be conducted without any restrictions,
including non-resident transfers to/from the National Bank and the Finance Ministry.
However, the National Bank reserves the right to impose a notification regime on
selected foreign-currency operations.
Both residents and non-residents must provide information and supporting documents,
such as invoices and contracts, about capital movements (for example, foreign loans) in
line with the reporting requirements of the National Bank, including the purpose of
payment, beneficiary’s residence, and sector of economy.
Residents and non-residents must initiate foreign currency transfers from a foreign
currency account. According to the Law on Currency Regulation, both residents and
non-residents can take up to $10,000 in cash out of the country without documenting the
money’s origin. However, the transfer of any cash amount exceeding $3,000 must be
declared. A National Bank certification must accompany the transfer of amounts
exceeding $10,000.
The only U.S. bank operating in Kazakhstan with an office is Citibank. American
Express Bank Ltd is also operating, though the firm was purchased by Standard
Chartered in 2007.
CitiBank
41A, Kazybek Bi St, 2nd floor
050010 Almaty, Kazakhstan
Tel: 7 (727) 298-0400
Fax: 7 (727) 298-0415
U.S. banks with correspondent relations include, but are not limited to: American
Express Bank, Bank of New York, Citibank, Deutsche Bank Trust Company Americas,
JP Morgan Chase Bank, Mashreq Bank and Wachovia Bank.
In addition to the Export-Import Bank of the United States and Overseas Private
Investment Corporation, the U.S. Trade and Development Agency (TDA) provides funds
to carry out feasibility studies related to major projects in emerging markets. TDA has
extensive experience in transitional economies, and the agency moved quickly to
establish its program when Kazakhstan became independent in 1991. As of year-end
2009, TDA had provided $9.3 million in funds to benefit Kazakhstan, financing a number
of feasibility studies on major projects in key sectors including oil and gas,
transportation, food processing, mining, and electric power. These projects, which
require significant inputs of foreign equipment and technology, will help develop
Kazakhstan’s physical infrastructure. Feasibility studies typically assess the technical,
economic, financial, and environmental aspects of a project to determine whether and
how the investment project should be built.
World Bank
Historically, the World Bank has been a major source of external assistance to
Kazakhstan. Since July 1992, the Bank has provided 34 loans to Kazakhstan totaling
more than $4.2 billion. The first projects focused on the reform of the financial and
private sectors. After 1997, the focus shifted to reforming the civil service and
strengthening the overall structure of state-resource management. Following the
successful implementation of key structural reforms, the World Bank support now
focuses exclusively on investment projects including the development of agriculture,
environmental protection, health, and general infrastructure.
In April 2009, the World Bank approved a $2.1 billion loan for the South-West road
project, which will upgrade sections of the road between Aktobe and Shymkent and
increase transportation efficiency and traffic safety.
The Bank’s net commitments for active projects are currently $2.5 billion. In addition to
the South-West road project, its 12 active projects include 1) Kazakhstan Moinak
Electricity Transmission; 2) Health Sector Technology Transfer and Institutional Reform;
and 3) Customs Development.
Since 2002, the World Bank and the government of Kazakhstan collaboratively have
financed and implemented the multi-year Joint Economic Research Program (JERP).
The program effectively has provided strategic research on key areas of policy
development. Current themes include public-finance management reform,
administrative reform, the implementation of international financial reporting standards,
tax administration, macroeconomic management, public utilities, public-private
partnerships, vocational education, the pension system, social protection systems, and
regional development. Additionally, the JERP is supplying technical assistance to
Kazakhstan's Ministry of Education and Science to establish the New University of
Astana. The establishment of this University will play a key role in the broader
modernization and reform of Kazakhstan’s higher-education sector.
In response to the global challenges facing the international financial markets, the IFC
has helped Kazakhstan secure financing to promote stability in its banking sector. In
2009, the IFC extended a $75 million subordinated loan to ATF bank. In June 2009, the
IFC disclosed its plan to purchase a 10% equity share in BCC Equity and issue an $85
million subordinated loan.
Prior to the global financial crisis, IFC played a critical role in the establishment of the
first international banking joint venture; ABN-Amro Bank Kazakhstan. The IFC also has
disbursed credit lines to Kazkommertsbank, Bank TuranAlem, and Caspian Bank. The
IFC continues to focus on the development of the financial sector by creating strong
partnerships, supporting SMEs, and helping to strengthen and liberalize the leasing
industry and housing markets.
In December 2008, the EBRD and the Samruk-Kazyna National Welfare Fund agreed to
establish a joint Kazakhstani Growth Fund. Focused on development of the private
sector, 70% of the Fund’s capital will be invested in projects in Kazakhstan. The Fund’s
total capital is expected to be around $125 million.
Kazakhstan is the 14th largest shareholder among regional members and the 16th largest
borrower. By January 1, 2009, total loan commitments to Kazakhstan amounted to more
than $1 billion, covering 17 loans in agriculture and natural resources, education,
finance, transport and communications, water supply, sanitation, and irrigation.
• Business Customs
• Travel Advisory
• Visa Requirements
• Telecommunications
• Transportation
• Language
• Health
• Local Time, Business Hours and Holidays
• Temporary Entry of Materials and Personal Belongings
• Web Resources
Scheduling meetings can be difficult, but this is also the norm. It can sometimes take
weeks to get a response to an email, fax or a telephone message request for a meeting.
Once contact has been established, patience is still required to confirm a date and time
to meet. It is not uncommon for meetings to be cancelled with no explanation. Since
traffic is a problem in Almaty, company representatives appreciate meeting at their office
locations, but are not averse to accepting an invitation for a lunch meeting.
Kazakhstani businessmen are generally less direct than American businessmen. What
can be accomplished in a few meetings in the U.S. might take more in Kazakhstan,
requiring patience and discipline on the part of the American. An experienced and
competent interpreter can be invaluable to your business meetings.
Please consult the State Department’s Bureau of Consular Affairs web site,
www.travel.state.gov or the Embassy’s website http://kazakhstan.usembassy.gov for
current travel and consular information, including the most recent Consular Specific
Information for Kazakhstan.
Americans living or traveling in Kazakhstan are encouraged to register with the nearest
U.S. Embassy or Consulate through the State Department’s travel registration web site
so that they can obtain updated information on travel and security within Kazakhstan.
By registering, American citizens make it easier for the Embassy or Consulate to contact
them in case of emergency.
• The U.S. Embassy in Astana is located at Akbulak-4, St. 22-23, Building 3,
010010, Astana, tel. 7-7172-70-21-00, fax 7-7172-70-22-80, e-mail
USAKZ@state.gov.
• The U.S. Consulate General in Almaty is located at 97 Zholdasbekov St., Samal-
2, Almaty 050059, tel. 7-727-250-49-00, 250-49-01, fax 7-727-250-48-84, e-mail
USAKZ@state.gov.
U.S. business travelers should obtain a Kazakhstani visa prior to arrival through
Kazakhstani Embassies abroad. Travelers may reach the Embassy of Kazakhstan in the
U.S. in Washington, DC at 1401 16th St, N.W., Washington, DC 20036; Tel: (202) 232-
5488; Fax: (202) 232-5845, washington@kazakhembus.com, or the Consulate in New
York at 866 UN Plaza, Suite 586 A, New York (1st Ave and 48th St), N.Y.; Tel: 202-230-
19-00 or 202-230-1192; Fax 202-230-11-72; kzconsulny@un.int;
kazconsul@veriomail.com; Kazakh.consul@verizon.net; http://www.kazconsulny.org.
The Embassy of Kazakhstan requires a completed visa application form; the applicant's
passport (not a photocopy); one passport-size photo; and a letter of invitation from a
sponsoring institution in Kazakhstan (note: an invitation letter is not required if
applying for a single-entry visa). Two types of invitations usually suffice – an invitation
from a registered Kazakhstani sponsor (an individual or organization), or from a
Kazakhstan-based organization. Visas are absolutely necessary in Kazakhstan.
Travelers risk being deported if they do not have valid visas. All travelers transiting
Kazakhstan must obtain a Kazakhstani transit visa, which is valid for five days.
All travelers must register with the Migration Police of Kazakhstan within five days of
arriving in the country. Fines may be levied at the airport and departures delayed if the
proper registration form from the Migration Police is not obtained. If you are invited by a
local firm, the local firm can assist with visa registration procedures. All U.S. citizens
arriving in Kazakhstan through the country's twelve international airports, the railroad
crossing at Dostyk (Druzhba), land crossings at Khorgos, Dostyk, Bakhty, Maikapchagai,
Kordai and Kolzhat, and at the seaports of Aktau and Bautino should be automatically
registered in Kazakhstan. As proof of registration, you receive a migration card with two
oval entry and registration stamps from the Border Service of the Committee of National
Security of the Republic of Kazakhstan. The automatic registration is valid for three
months. For stays longer than 90 days, travelers should register with the Migration
Police in the jurisdiction where they reside in Kazakhstan.
If for any reason a U.S. citizen does not receive a registration card immediately upon
arrival in Kazakhstan, the traveler should register with the Migration Police in the city
where he/she staying within five calendar days. Visitors registering a long-term (more
than three months) stay, must present a certificate indicating a negative HIV test
conducted no more than one month before registration. Evidence of an HIV test
performed abroad is acceptable. In Kazakhstan, testing also may be done at the Center
for the Prevention and Control of AIDS (7 Talgarskaya St, Almaty).
Business travelers can obtain Internet access via most hotels, but at a price. Wi-Fi at
cafes is becoming more and more common in Almaty, including at shopping and
entertainment facilities and at the Almaty airport. Many expatriates living in larger cities
still find it difficult to get high-speed Internet access. Even after getting ADSL lines
installed, many expatriates complain that speeds obtained are far from what was
advertised by the provider.
Transportation Return to top
Though Kazakhstan’s capital moved to Astana in 1997, Almaty is still the country’s
business and travel hub. Travelers tend to arrive into Almaty via Frankfurt, Amsterdam
or London, though there are also connections via Istanbul, Dubai, Moscow and other
cities. Travelers may go directly to Astana on one of several carriers’ select flights that
first stop in Astana en-route to Almaty. Likewise, there is direct service to Astana via
Vienna, the UAE, Moscow, and Istanbul. Most international flights that originate in or are
departing for Europe arrive and depart Almaty and Astana between 11 pm and 7 am.
Travelers should ensure that they have early check-in reservations at their hotel. In-
country travel is usually accomplished by utilizing Air Astana’s network of flights between
major cities. There is also a high-speed, overnight Spanish train between Almaty and
Astana.
Despite a national movement to encourage the use of the Kazakh language, Russian is
still widely used in business as well as on the street. Both Kazakh and Russian
languages appear on road signs, at stores and on product packaging. English is one of
Kazakhstan’s three official languages and also occasionally appears on some signs.
Travelers will also find that English skills are quite strong in the service industries.
Though good interpreters demand a premium price, business travelers are well advised
to ensure they have a qualified interpreter in business meetings.
Medical care in Kazakhstan is limited and well below North American and Western
European standards. Basic medical supplies, including disposable needles, anesthetics,
and antibiotics can be in short supply. Elderly travelers and those with pre-existing
health problems may be at risk due to inadequate medical facilities. Most resident
Americans travel to Western Europe for serious medical treatment. Such travel can be
extremely expensive if undertaken under emergency conditions. For this reason, all
visitors are strongly advised to carry medical evacuation insurance that includes
overseas hospitalization coverage. Travelers requiring prescription medications or
specific brand-name medicines should bring sufficient supplies of medications and not
rely on local availability.
Information on vaccinations and other health precautions, such as safe food and water
precautions and insect bite protection, may be obtained from the Centers for Disease
Control and Prevention’s hotline for international travelers at 1-877-FYI-TRIP (1-877-
394-8747) or via the CDC’s internet site. For information about outbreaks of infectious
diseases abroad consult the World Health Organization’s (WHO) website. Further
health information for travelers is available at http://www.who.int/ith.
Observance days may vary, so travelers are advised to confirm dates with contacts in
Kazakhstan, or check the Embassy’s website. If a holiday falls on a Tuesday or
Thursday, the Government of Kazakhstan may elect to make the preceding Monday or
following Friday a holiday as well, thereby linking the holiday to the weekend.
Kazakhstani holidays for 2010 include:
ATA Carnets cannot be used for the temporary entry of materials into Kazakhstan.
Certain goods that are imported temporarily, however, are fully or partially exempt from
payment of customs duties and taxes, including professional equipment, goods imported
for demonstration purposes, and advertising materials. A firm importing goods for a
temporary period should provide Customs with documents containing the description
and value of the goods, and a written confirmation stating that the goods will be sent out
of Kazakhstan after a defined period.
• Contacts
• Market Research
• Trade Events
To view market research reports produced by the U.S. Commercial Service please go to
the following website: http://www.export.gov/mrktresearch/index.asp and click on Market
Research Library.
Please note that these reports are only available to U.S. citizens and U.S. companies.
Registration to the site is required, but free of charge.
Please click on the link below for information on upcoming trade events.
http://www.export.gov/tradeleads/index.asp
The U.S. Commercial Service offers customized solutions to help your business enter
and succeed in markets worldwide. Our global network of trade specialists will work
one-on-one with you through every step of the exporting process, helping you to:
For more information on the services the U.S. Commercial Service offers U.S.
businesses, please click on the link below.
http://www.buyusa.gov/kazakhstan/en/products_services.html
To the best of our knowledge, the information contained in this report is accurate as of the date
published. However, The Department of Commerce does not take responsibility for actions
readers may take based on the information contained herein. Readers should always conduct
their own due diligence before entering into business ventures or other commercial
arrangements. The Department of Commerce can assist companies in these endeavors.