Kazakhstan: A hidden gem in Central Asia

SpirE-Journal-Q3-2013_Kazakhstan-A-hidden-gem-in-Central-Asia_page1_image1In medidonteval times, central Asia lay at the heart of Asia’s economy. Its states grew rich from being at the intersection of trade routes connecting China, India, the Middle East and Europe. The rise of sea trade in the 20th Century robbed it of this status. But Central Asia is now a fast-growing emerging market rich in natural resources such as energy and arable land, with Kazakhstan in the ascendant as the region’s largest economy. But while the potential for doing business in Kazakhstan is exciting, challenges remain.

Kazakhstan – Central Asia’s crown jewel

Kazakhstan is the largest country in Central Asia and the ninth largest country in the world; occupying a total of 2,717,300 square kilometers with a population of 15.9 million as of 2012. After gaining independence from the Soviet Union in 1991, the country underwent massive economic restructuring. Today, while Kazakhstan is still an early developer in global terms, it is undoubtedly the economic leader of the Central Asia region.

Kazakhstan is slowly emerging as a viable investment destination. Some of the reasons for this include:

Robust economic growth: The economic outlook for Kazakhstan appears positive, with projected annual GDP growth averaging 5.9% from 2013 to 2016. This healthy growth outlook is largely due to the expansion of the oil industry and the growth of a few non-oil sectors. Currently, Kazakhstan is ranked 12th in the world in terms of proven reserves of oil and condensate.

Favourable business environment: In recent years, Kazakhstan has won plaudits for creating a favourable business environment. According to The World Bank, Kazakhstan was ranked 47th out of 183 countries for ease of doing business; a jump of 11 places from 2011.stock-footage-almaty-kazakhstan-july-traffic-drives-past-a-large-government-building-in-almaty

Political stability: Since gaining independence in 1991, Kazakhstan became a constitutional republic with a strong focus on national identity, democracy and political stability. Equal rights and equal opportunities are given to all, regardless of nationality, so as to create a harmonious multi-ethnic environment.

Strategic location: Kazakhstan is strategically situated in the middle of Europe and Asia, almost equidistant from both the Atlantic and Pacific oceans. Most importantly, it is located at the crossroads of Europe and Asia, thus guaranteeing a role in trade. The recent launch of a new railway through Kazakhstan linking China to Europe strengthens this advantage.

Natural resources: One of the biggest competitive advantages Kazakhstan has would be its rich abundance of natural resources. Kazakhstan is one of the richest countries in the world in terms of energy resources, such as petroleum and natural gas, as well as mineral resources such as titanium, magnesium, tin, uranium, gold and other color metals.

Where to invest – Emerging sectors: A few sectors are now fast-emerging as business opportunities for export sales as well as investment in Kazakhstan.

Construction: The construction industry presents many opportunities for foreign investment and partnerships. As part of the Affordable Housing 2020 Program, the government plans to commission 1.3 million square meters of housing annually, from 2015 to 2020. This would translate to an investment of USD5.6 billion in the construction industry each year.

Banking and financial services: Despite Kazakhstan’s banking sector remaining relatively subdued throughout 2013, the government is taking steps to restore confidence in the banking sector. Such developments are likely to alleviate investors’ and depositors’ concerns.

Infrastructure: The government has been investing heavily to upgrade Kazakhstan’s infrastructure – drawing a parallel with gove


While Kazakhstan offers great investment opportunities, it is important to understand the challenges present so as to successfully penetrate the market.


Poor infrastructure: Just like many former Soviet Republics, one of the biggest challenges Kazakhstan faces is its poor infrastructure. This is especially so in the areas of transportation and telecommunications. In terms of transportation networks, Kazakhstan lacks a modern highway system and railway network to transport freight in an organized and reliable manner. The telecommunications services are also incongruent with the rapid economic growth of the country. Due to poor infrastructure, there has been much delay in the flow of goods and materials, as well as increasing difficulty for suppliers and distributors to communicate with each other across geographic distances.

Corruption: Corruption remains prdontevalent despite the government’s anti-corruption campaigns and dismissal of guilty bureaucrats. According to Transparency International’s Corruption Perceptions Index for 2012, Kazakhstan was ranked 133th out of 183 countries. This is a 28-place drop from 2010.

Shortage of skills: Skills shortages are another major challenge in Kazakhstan. According to the Kazakh Statistics Agency, skills shortages in the country are on the rise. As of January 2013, the biggest labour shortage has been observed in the manufacturing industry, where there is a shortfall of approximately 10,000 workers. This is followed by the construction industry as well as the health and social services sector, with a shortfall of approximately 5,000 and 3,000 workers respectively.


Conclusion

Undoubtedly, Kazakhstan is still grappling with the challenge of creating a transparent and effective business climate to draw in foreign investors. Challenges stemming from its Soviet era past, such as poor infrastructure and high corruption, remain prdontevalent – making it necessary for companies to undertake cautious planning before executing any business plan in the country. In particular, companies should reach agreement with the government on arrangements for securing manpower before inking any investment deals.

Despite the challenges, the investment outlook remains positive. The Kazak government has shown the political will to meet these challenges. Since 1991, restructuring efforts have ensured strong economic growth, demonstrating the country’s ability to transition to a market economy. Most importantly, Kazakhstan’s political stability, abundance of resources and favourable business environment make it an ideal investment destination for companies searching for untapped opportunities. As the economy continues to open up, more foreign firms are expected to penetrate the Kazakhstan market.