Chapter 7. Responsible business conduct in Kazakhstan and the OECD Guidelines for Multinational Enterprises

Responsible business conduct (RBC) is an important part of the investment climate and is increasingly integrated within policies aimed at attracting better quality investment and enhancing sustainable development. In line with global trends, RBC has also emerged as an important topic in Kazakhstan. Kazakhstan’s adherence to the Declaration, and, in particular, the establishment of a National Contact Point for the OECD Guidelines for Multinational Enterprises, is an opportunity to further promote RBC principles and standards, both within the government and with the wider public, and to further clarify and set out the government’s expectations on RBC.

  

While Kazakhstan continues to open its policy regime for trade and investment and improve the business environment to attract more investment, it also needs to maximise the positive impact of investment, leveraging the OECD Guidelines for Multinational Enterprises (Guidelines), a commitment by each country that adheres to the Declaration on International Investment and Multinational Enterprises to promote and enable responsible business conduct (RBC). This chapter reviews Kazakhstan’s policies in this area, including the planned institutional arrangements for establishing a National Contact Point (NCP) for the Guidelines based on the recommendations from the 2012 OECD Investment Policy Review of Kazakhstan (see Box 7.1). The chapter also takes into consideration the increasing global policy attention given to RBC in improving the business climate (see Box 7.2).

Box 7.1. 2012 Recommendations on responsible business conduct by the OECD
  • Put in place a coherent government strategy for facilitating responsible business conduct.

  • Expand disclosure requirements for enterprises to include environmental and other non-financial performance.

  • Encourage due diligence for responsible supply chains of minerals. In light of the importance of the mining sector in Kazakhstan and development of the country’s outward investment projects in the region, the government might consider endorsing and encouraging dissemination among companies of the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.

  • Consider creating an institution capable of fulfilling the role of promoting responsible business conduct similar to that of National Contact Points for the OECD Guidelines for Multinational Enterprises.

Source: OECD, 2012.

Box 7.2. International convergence and coherence on RBC

The consensus built around the 2011 update of the OECD Guidelines for Multinational Enterprises and the unanimous endorsement of the UN Guiding Principles on Business and Human Rights by the UN Human Rights Council has brought about international convergence and coherence on what responsible business conduct entails. The result has been a clearer understanding of the baseline standards for how businesses should understand and address the risks related to the actual and potential impacts of their operations, and how governments should support and promote responsible business practices. This common understanding has contributed to creating a more predictable business environment.

This coherence is echoed in other international standards, including the ISO 26000 Guidance on Social Responsibility, the IFC Performance Standards, and the OECD Recommendation on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence, as well as, increasingly, regional and country strategies. For example, the European Union Corporate Social Responsibility Strategy and the United States National Action Plan on Responsible Business Conduct are based on the OECD Guidelines and the UN Guiding Principles. Many countries are also developing National Action Plans to ensure that the recommendations from governments on responsible business conduct are actually implemented on the ground. Finally, more and more countries are using responsible business conduct principles and standards to frame domestic law. For example, the United States Dodd-Frank Act specifically addresses due diligence for human rights along the minerals supply chain and requires companies to report on whether they source certain minerals (tin, tantalum, tungsten and gold) from conflict areas. Another notable development is the 2015 G7 Leaders’ commitment to support responsible supply chains and improve access to remedy.

Understanding responsible business conduct

Responsible business conduct is a key element of a healthy business environment – one that attracts quality investment, minimises risks for businesses, ensures stakeholder rights are respected and ultimately leads to broader value creation. Irresponsible business practices erode the overall quality of the business environment; can result in large losses for businesses, environmental degradation, and poor conditions; and, in the most serious of cases, the loss of human life (see Box 7.3).

Box 7.3. Responsible business is good business

RBC can contribute to reducing costs and avoiding legal liability. In one study, nearly 20% of the 2,500 sampled companies were found to be subject to sanctions related to their social or environmental performance between 2012 and 2013, amounting to penalties upwards of EUR 95.5 billion (Vigeo, 2015). Likewise, a recent Harvard University study found that for a mining project with capital expenditure between USD 3-5 billion the costs attributed to delays from community conflicts can be on average USD 20 million per week due to lost productivity from temporary shutdowns or delays (Davis and Franks, 2014). RBC can also lead to increased returns, lower cost of capital, and higher employee retention. One study found that better business practices have the potential to reduce the cost of debt for companies by 40% or more and increase revenue by up to 20% (Rochlin et al., 2015). More broadly, a cross-sector study tracking performance of companies over 18 years found that high sustainability companies – that is those with strong environmental, social, and governance (ESG) systems and practices in place – outperform low sustainability companies in stock performance and real accounting terms (Eccles et al., 2011).

Suppliers of multinational enterprises (MNEs) may find that following RBC principles and standards gives them an advantage over businesses that do not, as they are able to respond to and address concerns that may come up in due diligence of the MNE when evaluating risks associated with its supply chain. Investors from the countries that adhere to the Guidelines are subject to them wherever they operate, including throughout the supply chain and in relation to business relationships. This means that a large majority of the global supply chain is covered by the Guidelines as these investors account for 75% global foreign direct investment (FDI) outflows and 58% of global FDI inflows between 2010 and 2015, as well as 81% of global FDI outward stock as of end 2014 (OECD/IMF, 2016). Similarly, businesses that want to access markets of these countries are also subject to the Guidelines, and, in some cases, actual regulation related to RBC.

All businesses – regardless of their legal status, size, ownership structure or sector – should behave responsibly. As set out in the internationally recognised principles and standards on RBC, such as the Guidelines and the UN Guiding Principles on Business and Human Rights (UN Guiding Principles), this entails making a positive contribution to economic, environmental, and social progress of the countries in which they operate, while at the same time avoiding and addressing adverse impacts of business activities. RBC principles and standards emphasise the integration and consideration of environmental and social issues into core business operations. A key element of RBC is risk-based due diligence, a process through which businesses identify, prevent and mitigate actual and potential adverse impacts, and account for how these impacts are addressed. RBC expectations extend to business activities throughout the entire supply chain and linked to business operations, products or services by a business relationship. RBC is a term sometimes used interchangeably with corporate social responsibility (CSR), although RBC is understood to be more comprehensive and integral to core business than what is traditionally considered CSR (mainly philanthropy).

Governments have a primary duty to protect the public interest and ensure that stakeholder rights are respected – they have an important role in promoting and enabling RBC. The RBC chapter in the OECD Policy Framework for Investment is a useful reference for designing and implementing a strong RBC policy framework. This entails establishing and enforcing an adequate legal framework that protects the public interest and underpins RBC, while monitoring business performance and compliance with the law. Setting and communicating clear expectations on RBC and providing guidance on what those expectations mean is important, while encouraging and engaging industry and stakeholders in collective initiatives and providing recognition and incentives to businesses that exemplify good practice is encouraged. Alignment of policies relevant to RBC is also important as is ensuring that, in the context of the government’s role as an economic actor, RBC principles and standards are observed. Not only is this in the public interest, it also enhances the government’s legitimacy in making recommendations on RBC to businesses (OECD, 2015a).

Understanding the OECD Guidelines for Multinational Enterprises

Addressed by the adhering governments to businesses operating in or from their jurisdictions, the Guidelines set out principles and standards in all major areas related to RBC, including information disclosure, human rights, employment and industrial relations, environment, bribery and corruption, consumer interests, science and technology, competition, and taxation. Their purpose is to ensure that business operations are in harmony with government policies, to strengthen the basis of mutual confidence between businesses and the societies in which they operate, to improve foreign investment climate, and to enhance the contribution of the private sector to sustainable development. The Guidelines, together with the UN Guiding Principles and the fundamental ILO Conventions, are one of the major international instruments on RBC.

A precise definition of a multinational enterprise (MNE) is not required for the purpose of the Guidelines. These enterprises operate in all sectors of the economy; their ownership may be private, state or mixed; and they comprise all entities within the enterprise, i.e. parent companies and local entities. The Guidelines do not aim to introduce differences of treatment between multinational and domestic enterprises – they reflect good practice for all. Adherents wish to encourage the widest possible observance of the Guidelines to the fullest extent possible, including among small- and medium-sized enterprises even while acknowledging that these businesses may not have the same capacities as larger enterprises.

Adherents to the Declaration use the Guidelines for several policy purposes, at both national and international level. The Guidelines provide comprehensive and clear guidance on the expected behaviour of businesses operating in or from jurisdictions of adherents; help protect public interest and stakeholder rights; and promote a more open, transparent, and better business and investment climate. Because of their breadth and scope, the Guidelines can also be useful for framing and strengthening the links between policy areas that govern business conduct, such as, for example, corporate governance and risk management for environmental and social issues. Therefore, the Guidelines can be used to promote policy coherence and a whole-of-government approach to policies that concern business behaviour.

Furthermore, the Guidelines also contribute to improved accountability in case of issues that can arise from their non-observance. Setting up an NCP is an obligation of each country that adheres. NCPs have a mandate to further the effectiveness of the Guidelines by undertaking promotional activities, handling inquiries, and contributing to the resolution of issues that arise if the Guidelines are not observed by businesses in specific instances. NCPs provide one of the few government-based, non-judicial grievance mechanisms with such an effective and broad application. NCPs offer, and with the agreement of the parties involved, facilitate access to consensual and non-adversarial means, such as conciliation or mediation, to resolve issues that arise if the Guidelines are not observed. This problem solving focus of NCPs allows the involved parties to exercise a better level of control over the process of reaching an agreement than more formal processes in which a third unrelated party makes a final binding decision. This can often be a significantly more expeditious and cost saving alternative to more formal procedures, and, in cases where there are no reliable procedures available, can often be the only venue available.

NCPs also have an important promotion and stakeholder engagement function. They are expected to develop and maintain relations with representatives of the business community, worker organisations and other interested parties that are able to contribute to the effective functioning of the Guidelines. NCPs are expected to make the Guidelines known and available by appropriate means, to raise awareness about them and their implementation procedures, including also with prospective investors (outward and inward).

Furthermore, Adherents have also agreed to help businesses, through a multi-stakeholder process and in co-operation with the NCPs, identify and respond to risks of adverse impacts associated with particular products, regions, sectors or industries. Guidance on due diligence has been developed for the extractives and agricultural supply chains (see Box 7.4) and is currently being developed for the garment and footwear and financial sectors.

Box 7.4. How responsible agricultural supply chains can contribute to sustainable development

Investing in agriculture is one of the most effective strategies for economic growth and poverty reduction in rural areas. GDP growth originating in agriculture is at least twice as effective in reducing poverty as GDP growth originating outside agriculture (World Bank, 2008). However, agri-business investments can also have adverse social and environmental impacts, particularly in countries with weak governance frameworks. Conflicts between investors and affected stakeholders can lead to social polarisation and political instability, and translate into reputational, operational and, thus, financial risks for investors. For instance, if land tenure rights are not well defined and protected, small land tenure rights holders may enter into unfair contracts with large agri-business investors that have higher bargaining power.

Businesses have a key role to play in ensuring that their operations do not have adverse impacts and benefit local communities and host countries. Their observance of responsible business conduct standards, as outlined in the 2016 OECD-FAO Guidance for Responsible Agricultural Supply Chains that aims to aid the implementation of the Guidelines for Multinational Enterprises can ensure that they contribute to sustainable development. The guidance calls on companies to:

  • Ensure that their operations contribute to food security and nutrition and sustainable and inclusive rural development;

  • Continuously assess and address the actual and potential impacts of their operations, processes, goods and services over their full life-cycle;

  • Disclose timely and accurate information related to risk factors and their responses to particular environmental, social and human rights impacts;

  • Respect human rights and core labour standards and strive to increase employment opportunities;

  • Establish and maintain an appropriate environmental and social management system and continuously improve their environmental performance; and

  • Prevent and abstain from any form of corruption and fraudulent practices.

Kazakhstan’s National Contact Point

Upon adherence to the OECD Declaration, Kazakhstan plans to establish the NCP in the Investment Committee of the Ministry for Investments and Development (MID) and to form a multi-stakeholder Working Party to assist it in its functioning. The Committee is the authorised state body responsible for implementation of the Guidelines and the establishment of the NCP according to Decree No. 1452 (16 November 2012). MID has led Kazakhstan’s process of adherence and is fully aware of the extent of commitments Kazakhstan will have to implement as a result of adherence, including as related to the Guidelines and the NCP. The OECD and MID organised a joint conference on 29 June 2016, chaired by the Vice Minister, to share information with the Kazakh authorities and relevant stakeholders about RBC, the Guidelines, and the NCP mandate, structure, and core criteria, as well as how NCPs resolve issues in practice. Around 50 participants attended the workshop, representing different parts of MID, but also Ministries of Foreign Affairs, National Economy, Energy, Finance, as well as representative of all stakeholder groups. Representatives of MID and the Ministry of National Economy also attended the 2016 Global Forum on Responsible Business Conduct and the Meeting of the National Contact Points on 7-10 June 2016.

In the government’s view, the Investment Committee and MID’s combined experience, breath of responsibilities, and available resources, in addition to the establishment of the Working Party, create the most appropriate conditions in the national context of Kazakhstan for establishing a robust, transparent and easily accessible NCP that is capable of fulfilling all of its functions effectively. The government has defined key NCP functions in line with the objectives set out in the Guidelines, namely raising awareness, including through seminars and other promotion and dissemination activities; providing advice and explanation about the NCP mandate; processing specific instances and co-operating with other NCPs as necessary in consideration of specific instances.

The NCP will be staffed by 5 part-time experts from the Investment Policy Division under the Investment Committee, who will act as a Steering Committee and whose range of responsibilities will include arranging Working Party meetings, disseminating information, organising seminars and awareness-raising events, maintaining the NCP website, drafting the NCP annual report, receiving complaints under the specific instance procedures and disseminating them to the Working Party for further processing. The NCP will report to the Working Party. The NCP budget will be provided under the general budget of the Investment Committee.

A draft action plan for NCP activities is being elaborated and is expected to be approved in January 2017. The government has reported that the planned actions include workshops to promote the Guidelines, promotion of RBC activities, notification of diplomatic missions about the establishment of the NCP and its services, development of recommendations for the preparation and publication of the annual report on NCP activities; activities to strengthen the implementation of international standards for protecting women’s rights; organisation of meetings of the Republican Tripartite Commission on Social Partnership and Regulation of Social and Labour Relations (see section below) at the national, sectoral and regional levels on issues related to labour rights; organisation of meetings on combating corruption; activities to incentivise RBC by companies such as awards or contests for best practices.

The multi-stakeholder Working Party will act both as an advisory and oversight board and will be the main decision-maker as related to specific instances. It will be headed by the Chair of the Investment Committee of the Ministry for Investments and Development. The list of Working Party members was approved through Decree No. 95 of the Chairman of the Investment Committee of the Ministry for Investments and Development on 22 November 2016. It includes a list of around 30 members, with representation from the Ministry of Healthcare and Social Development, Ministry of Energy, Ministry of Agriculture, Ministry of Internal Affairs, Ministry of Education and Science, Ministry of Foreign Affairs, Agency for Civil Service Affairs, the National Chamber of Entrepreneurs and several joint stock companies, National Center for Human Rights, and Legal Policy Research Centre. The list is open for extension and any organisation may apply for inclusion through a formal request (official letter). In the view of the government, the inclusion of different stakeholders in the Working Party is meant to fight conflicts of interest and ensure that the NCP operates in an impartial manner while maintaining an adequate level of accountability to the government and in accordance with core criteria of visibility, accessibility, transparency and accountability. Additionally, including stakeholders outside of the government is meant to ensure that the NCP retains the confidence of social partners and other stakeholders, and fosters the public profile of the Guidelines as envisioned in the Guidelines. The Working Party will meet at least on a quarterly basis or as needed for specific instances.

Rules of procedures for accepting specific instances as well as the distribution of responsibilities between the NCP and the Working Party for specific instances will be approved at the first meeting of the Working Party in January 2017. Envisioned procedures for handling specific instances involve formal notification to the Working Party by the Investment Committee, requesting positions of the Working Party members, and a subsequent meeting during which the Working Party will examine it and make decisions by consensus.

The Investment Committee and the NCP by extension are expected to maintain a dialogue with stakeholders on a regular basis. The information on the activities of the NCP, as well as contacts of the Committee representatives responsible for the implementation of NCP activities will be published on the MID website and on Kaznex Invest website. The Committee is also expected to carry out an annual seminar to promote the Guidelines with all stakeholder groups.

Alleged RBC issues in Kazakhstan have already been considered by the National Contact Points under the Guidelines. In July 2013, the UK, US and Italian NCPs received a request for review from NGOs alleging that KPO Consortium had breached the general policies, and human rights provisions of the Guidelines in Kazakhstan. The request covered a period from the early 2000s to the present, and the allegations made relate to obligations to resettle villagers in view of emissions levels and other environmental impacts of relevant facilities. Taking into account the facts of the request, the situation of the parties and the capacity of NCPs to provide good offices should the issues merit this, the NCPs decided that the UK NCP should act as lead NCP while the US and Italian NCPs would provide support. The UK NCP conducted an initial assessment and concluded that the specific instance merits further examination with respect to the limited issue of individual households legally entitled to resettlement. The details of the NCP decision and next steps are outlined in an initial assessment issued in November 2013.1 The specific instance is currently ongoing.

General policies for promoting responsible business conduct in Kazakhstan

In line with global trends, RBC has emerged as an important topic in Kazakhstan. As summarised in the 2014 OECD Responsible Business Conduct in Kazakhstan report (2014 RBC report), numerous RBC-related public and private initiatives have been established since the first National Forum on Corporate Social Responsibility in 2008 and the launch of the Paryz awards to recognise leading enterprises in the field and provide incentives for integrating responsibility into decision-making processes. Notable efforts between 2008 and 2014 include the elaboration of a CSR policy by Samruk-Kazyna, Kazakhstan’s sovereign wealth fund and joint stock company, and the ongoing promotional activities by the National Chamber of Entrepreneurs and civil society organisations such as the Legal Policy Research Centre and Eurasia Foundation of Central Asia (OECD, 2014a).

A number of promising developments have emerged since 2014. In April 2015, a draft CSR concept was adopted at a meeting of the Republican Tripartite Commission on Social Partnership and Regulation of Social and Labour Relations, chaired by the Prime Minister. The concept was introduced by the National Chamber of Entrepreneurs (NCE) on the basis of a draft outline developed by the Eurasia Foundation of Central Asia (LPRC, 2016; Government RK, 2015a; Atameken, 2015). The concept includes a reference to the Guidelines. The government has reported that the Tripartite Commission approved a plan in July 2016 to promote the CSR concept for 2016-17. The NCE is also piloting sectoral agreements in order to promote social dialogue. For example, in May 2016, a two year programme was launched with energy companies to promote better industrial relations and development of human capital (Atameken, 2016a). The government has reported that several activities have also been undertaken by regional chambers of entrepreneurs, for example seminars in the Almaty, Pavlodar, Aktobe and South Kazakhstan regions in October- November 2015 on political activities and the responsibilities associated with undertaking such activities. Furthermore, the government has reported that industry associations are planning to undertake an industry-wide effort to promote CSR such as the 2012-13 effort by KazEnergy to review Social Responsibility in the Oil and Gas Sector of the Republic of Kazakhstan (KazEnergy, 2016). There have also been notable efforts by Samruk-Kazyna to improve corporate governance as already noted in Chapter 2 of the present Review.

On a policy level, a new Entrepreneurial Code, which superseded the Law on Private Entrepreneurship among others, was enacted in early 2016. The legal definition of RBC had been given in the Law on Private Entrepreneurship (art. 1.2) as “social responsibility of business – voluntary contribution of private business entities in development of the society in the social, economic and ecological spheres” and has largely been kept. However, the new code expands on the concept in a new Chapter on Social Responsibility of Business. The voluntary nature of social responsibilities is underlined throughout the text, with charity (with tax benefits) mentioned as one form through which businesses can undertake social responsibility. Two prioritised thematic areas are featured – employment and labour relations and the environment.

Notably, the state itself also commits to create conditions for social responsibility and separates the functions of state and businesses, underlining that the state should not interfere with businesses in the exercise of charity. These are welcome developments, particularly in light of the previous reports that the contributions of enterprises under the previous Law on Private Entrepreneurship were rarely voluntary in practice and investors often perceived them to be charity tax, with limited input in the selection and implementation of projects (OECD, 2014a). Particular attention needs to be paid to ensure the implementation of these provisions. It should be also noted that, while charity is a legitimate form for businesses to engage with the society, RBC is considered to more comprehensive than philanthropy and focuses on integrating environmental and social considerations into core business operations.

These developments point to an increasing, although not yet wide-spread, awareness of the importance of RBC in Kazakhstan. Efforts should be made to ensure that existing initiatives are sustained. For example, some promising initiatives discussed in the 2014 RBC Report seem to have stopped. When the Ministry of Labour and Social Protection of Population (whose mandate has now been enveloped into the Ministry of Healthcare and Social Development) launched the agreements to promote UN Global Compact Principles with relevant stakeholders, including the National Chamber of Entrepreneurs, more than 226 enterprises were signatories. As of June 2016, only 5 companies were listed as active (UN Global Compact, 2016).

Stakeholders have continuously called for co-ordinated action by the government on RBC in order to address some of these gaps.2 The government has yet to develop a comprehensive RBC policy or strategy as recommended by the 2012 Investment Policy Review. Although several Ministries have implemented initiatives related to RBC, it has been on an ad hoc basis and they remain fragmented (OECD, 2014a). Though the government reports that a focal point on RBC was established in MID in 2012, it does not appear to be functional in practice. Kazakhstan’s adherence to the OECD Declaration, and, in particular, the formal establishment of an NCP under the Guidelines, will be an opportunity to consolidate efforts by the stakeholders and further promote RBC principles and standards, both within the government and with the wider public and to clarify and set out the government’s exact expectations on RBC.

The government should consider working with stakeholders to develop a National Action Plan (NAP) on RBC, in line with international good practice and based on the Guidelines. The UN has strongly encouraged all states to develop a NAP on Business and Human Rights as part of the state responsibility to disseminate and implement the UN Guiding Principles. A number of OECD governments, notably the United States, have decided to broaden these efforts and include RBC issues, based on the Guidelines, in their NAPs. Considering the alignment between the UN Guiding Principles and the Guidelines, this approach is complementary with UN recommendations and efforts. The UN Working Group on Business and Human Rights has set up a dedicated webpage on NAPs to provide easy access to existing plans, as well as key public information and analysis on the various stages of NAP development, implementation and follow up (UN OHCHR, 2016a).

The process of developing a NAP would be a good way for the government to engage with stakeholders and the wider public on a range of issues related to RBC, to promote the Guidelines, as well as policy coherence and alignment on RBC. The NCP, in coordination with relevant government and other stakeholders, could lead the process. The process of developing the NAP would also be a good way for the government to understand and eventually remove barriers that influence RBC uptake by businesses, as well as to facilitate collective initiatives to promote RBC among industry and other stakeholders. The process of developing an NAP could also serve to assess barriers to ensuring the implementation of Pillars I and III of the UN Guiding Principles - the State Duty to Protect Human Rights and Access to Remedy respectively - in the context of Pillar II, the Corporate Responsibility to Respect Human Rights. These two pillars focus on preventative and remedial measures as related to the role of governments and should not be overlooked.

Leading by example – RBC and the activities of state owned enterprises

Governments are expected to lead by example on RBC, including in their own practices, i.e. as employers, business partners, through procurement and contracting practices, and in commercial activities, including activities of state-owned enterprises (SOEs). As already mentioned in the previous section, the Guidelines apply to all entities within the enterprise in all sectors, whether of private, state or mixed ownership. The same is true for the UN Guiding Principles, which apply to all states and all enterprises. UN Guiding Principle 4 stipulates that states “should take additional steps to protect against human rights abuses by business enterprises that are owned or controlled by the State, or that receive substantial support and services from State agencies such as export credit agencies and official investment insurance or guarantee agencies, including, where appropriate, by requiring human rights due diligence” (UN, 2011). The UN Working Group on Business and Human Rights recently examined RBC practices of SOEs and found that there is a general lack of attention to RBC issues and has called on states to explicitly fill these gaps (UN, 2016).

The importance of RBC in SOE activities has been recognised beyond the Guidelines and the UN Guiding Principles. The 2015 OECD Guidelines on Corporate Governance of State-Owned Enterprises (SOE Guidelines) recommend that the state ownership policy fully recognise SOE responsibilities towards stakeholders and request that SOEs report on their relations with stakeholders, as well as to make clear any expectations the state has in respect of RBC by SOEs (OECD, 2015e: V). The SOE Guidelines further recommend extensive measures to report on foreseeable risks, including in the areas human rights, labour, the environment, and risks related to corruption and taxation.

As mentioned earlier in this report, considering that public and state-owned companies account for a large share of GDP, totalling more than 7 000 companies, they have significant leverage and can improve the quality of the business environment. In addition to having set out a CSR policy, Samruk-Kazyna has recently taken important steps to improve its corporate governance framework. A new Corporate Governance Code was adopted in 2015 and applies to all organisations in which the fund owns more than 50% of voting rights. The code calls for transparency and accountability of internal audit systems, comprehensive and systemic risk management, observance of human rights, prevention of environmental abuse, intolerance of corruption and other integrity related aspects. It also requires disclosure of these issues in the annual reports of the fund and its subsidiaries (OECD, 2016). The Code sets out that the fund and its organisations should develop action plans on sustainable development, with the Guidelines mentioned as a relevant international standard (Samruk-Kazyna, 2015). The government has reported that the Code is currently being introduced in Samruk-Kazyna affiliated companies. First compliance reports are expected in 2017. Additionally, a specific hotline number and a confidential email to report any alleged violations has been established.

The government should establish expectations on RBC and should publicly disclose these expectations, as well as establish mechanisms for their implementation. More broadly, this is true in general for corporate governance beyond SOEs. RBC and corporate governance are intrinsically linked as, on the one hand, RBC impacts the company’s decision-making processes, risk management, disclosure and transparency, and relationships with investors and stakeholders; and, on the other hand, the actual process of undertaking due diligence is closely related to the corporate governance framework and the relationships between company management, board, shareholders and other stakeholders. The G20/OECD Principles of Corporate Governance reflect the expectations set out in the Guidelines, including the expectation that the corporate governance framework recognises the rights of stakeholders and encourages active co-operation with them; ensures timely and accurate disclosure on all material matters regarding the corporation; and reflects high ethical standards (G20/OECD, 2015). The government should ensure, as a matter of policy coherence, that corporate governance reforms adequately address, describe and reflect the extent of corporate responsibilities related to environmental and social matters.

Policies in specific areas covered by the OECD Guidelines

In addition to general recommendations on RBC, the Guidelines include specific recommendations to enterprises in the areas of information disclosure, human rights, employment and industrial relations, environment, bribery and corruption, consumer interests, science and technology, competition, and taxation.

Disclosure

Disclosure is an integral part of RBC and corporate governance. Clear and complete corporate information is important to a variety of users, from shareholders to workers, local communities, governments and the society at large. The Guidelines call for timely and accurate disclosure on all material matters regarding the corporation, including the financial situation, performance, ownership and governance of the company. The Guidelines also encourage disclosure in areas where reporting standards are still evolving such as, for example, social, environmental and risk reporting. These expectations align with the expectations set out in the G20/OECD Principles of Corporate Governance. Many businesses already provide information on a broader set of topics than financial performance and consider disclosure of non-financial information a method by which they can demonstrate a commitment to socially acceptable practices. Additionally, the process of gathering and thinking through data pieces needed for effective non-financial disclosure is not only relevant for communication and reporting, but also serves as invaluable input for strategic planning, decision-making, and risk management.

Corporate governance requirements, including on disclosure and reporting, are still evolving in Kazakhstan. Out of 140 examined economies in the World Economic Forum (WEF) 2015/2016 Global Competitiveness Index, Kazakhstan ranks lower in areas related to corporate governance than average among the 46 adherents to the OECD Declaration: for example, strength of auditing and reporting standards (74 vs average of 44), efficacy of corporate boards (58 vs average of 50), and protection of minority shareholders’ interests (52 vs average of 50). The rankings are based on the WEF’s executive opinion survey and the World Bank’s Doing Business indicators.

The Joint Stock Company Law and Law on Accounting and Financial Reports are the legal basis for corporate disclosure in Kazakhstan (OECD, 2014a). Kazakhstan also adopted a voluntary corporate governance code in 2005, approved by the Council of Issuers of the Kazakhstan Stock Exchange, and amended in 2007, although a recent OECD review has pointed out that the code does not fully align with OECD standards of corporate governance and that practical implementation remains weak (OECD, forthcoming). Disclosure of non-financial information, such as social and environmental performance, is weak and remains on a voluntary basis. Disclosure requirements for enterprises to include environmental and other non-financial performance have partially been expanded, as recommended by the 2012 Investment Policy Review. The inclusion of a specific chapter on Transparency in the 2015 Corporate Governance Code of Samruk-Kazyna and the disclosure requirements as referenced in the above section are welcome developments. Additionally, the July 2016 plan of the Tripartite Commission to promote the CSR concept for 2016-2017 also includes specific activities geared at promoting non-financial disclosure. The government has reported that the Ministry of National Economy has approved a model corporate governance code in accordance with OECD principles and standards on 1 November 2016 by the Decree No. 465 of the Minister of National Economy.

Some promising initiatives have recently emerged. Since September 2015, Kazakhstan Stock Exchange (KASE) participates in the Sustainable Stock Exchanges Initiative (SSEI) and has committed to promoting long-term sustainable investment and improved environmental, social and corporate governance disclosure and performance among its companies (SSEI, 2015). A 2015 study showed that there has been some progress in non-financial disclosure of the top 20 Kazakh companies by market capitalisation – 47% have published some form of non-financial information or integrated reports on their website, as compared to 40% in 2012 (Novikova, 2015).

Due to the importance of the extractives sector, sector-specific initiatives have also been implemented. In October 2013, Kazakhstan was declared compliant with the Extractive Industries Transparency Initiative (EITI), which aims to promote revenue transparency in the oil and gas industry. This was the culmination of a process that began in 2005 when the government, businesses (foreign and domestic) and civil society signed a Memorandum of Understanding that committed the parties to implement the EITI. This commitment was promoted in the 2010 Law on Subsoil and Subsoil Use (art. 76) that required all companies to comply with the terms of the MoU and to confirm compliance through an audit report. A new MoU requiring the parties to implement the EITI was signed on 9 October 2013. As mentioned in Chapter 3, the government is currently preparing a new subsoil code. The EITI requirements have remained as of the February 2016 draft. The EITI implementation is supervised by a National Stakeholders’ Council, which is a multi-stakeholder body. The National Stakeholder Council is currently undertaking a review process to identify new activities for EITI implementation, in light of the deadline for the next EITI report at the end of 2016. The EITI website reports that there seems to be considerable interest among stakeholders to decentralise the EITI process and establish regional multi-stakeholder forums, in particular in resource-rich provinces (EITI, 2016).

More efforts should be made to encourage companies to be more transparent in general, but also to disclose information on non-financial issues. This could be done by promoting disclosure of information based on the Guidelines disclosure chapter, or through supporting dedicated campaigns and targeted programs, including support for multi-stakeholder initiatives, such as the Global Reporting Initiative or the Integrated Reporting Framework. The government has a leading role to play in these efforts, particularly in terms of clarifying the requirements in this area.

Experience from Adherents to the Declaration is of relevance in this area. In 2014, the EU issued a Directive (2014/95/EU) for the European Economic Area on disclosure of non-financial and diversity information, amending the 2013 Accounting Directive (2013/34/EU). The new Directive requires companies of a certain size to disclose in their management reports information on policies, risks and outcomes related to environmental matters, social and employee aspects, respect for human rights, anticorruption and bribery issues, and diversity in their board of directors, aiming to provide investors and other stakeholders with a more comprehensive picture of company performance (EU, 2014). Article 9 of the Directive states that business could rely on the Guidelines framework to meet these requirements. Kazakhstan should consider adopting a similar measure in order to approach international standards in the area of corporate governance, as well as a way of encouraging non-financial disclosure with the business community and promoting the Guidelines. Other examples of strengthened disclosure requirements include Section 1502 of the 2010 United States Dodd–Frank Wall Street Reform and Consumer Protection Act for minerals supply chains, which directs certain companies to undertake efforts to ascertain the origin of tin, tantalum, tungsten and gold in their mineral supply chains. If the minerals are considered to come from the Democratic Republic of Congo or adjoining countries, or if the mineral provenance is unknown, then the issuers are required to undertake due diligence and file additional disclosures about the minerals.3 Additionally, in March 2015, the UK enacted the Modern Slavery Act, mandating that commercial organisations prepare an annual statement on slavery and humantrafficking and report on their due diligence processes to manage these risks within their operations and supply chains (UK, 2015).

Human rights

As recognised by the Guidelines and the UN Guiding Principles, states have a primary duty to protect human rights. However, businesses are expected to respect human rights independently of the state ability and willingness to fulfil its human rights obligations. Failure either to enforce relevant domestic laws or to implement international human rights obligations, or the fact that the state may act contrary to those laws and obligations, does not diminish obligation of businesses to respect human rights (OECD, 2011; UN, 2011).

Kazakhstan has ratified 8 of 9 core international human rights instruments4 (UN OHCHR, 2016b, d). Kazakhstan has also ratified 24 ILO Conventions, including the eight fundamental Conventions and four priority Governance Conventions (ILO, 2016a).5

Human rights are recognised and guaranteed in Kazakhstan’s Constitution (article 12) by virtue of birth and are recognised to be absolute and inalienable (Government RK, 2007). The reforms in the 2050 Strategy are also based on protecting and upholding human rights through modernising the state and society, in part by strengthening the rule of law, state accountability and transparency. The protection of human rights and freedoms is cited as one the main objectives of the Foreign Policy Concept developed on the basis of the 2050 Strategy (Government RK, 2014a). A Commission on Human Rights has been established as a consultative and advisory body under the President (e-gov, 2016). A formal National Human Rights Ombudsman (sometimes also often referred as the Human Rights Commissioner) has also been established and has a mandate to address complaints related to human rights abuses. The Ombudsman is appointed by the President (Ombudsman, 2016).

To date, one of most ambitious government efforts to bring about improvements in protecting human rights in Kazakhstan has been the adoption of a National Human Rights Action Plan for 2009-2012. Developed through a multi-stakeholder process, on the basis of the results of the Baseline Report on Human Rights in Kazakhstan, the Plan intended to consolidate the steps for improving human rights legislation and the national system of protection of human rights, and to promote education on human rights and the mechanisms for their protection (UNDP, 2009). However, independent experts have stated that only 23% of the recommendations were implemented and human rights defenders have noted that the recommendations did not address some of the main human rights issues, in either the legislation or in law-enforcement practices (EU, 2013). The findings in the 2014 report on the activities of the Ombudsman also support the observations that the human rights situation in Kazakhstan needs to be improved - remediation was found for only 13.8% of the 716 complaints accepted for consideration by the Ombudsman (out of 1330 total received complaints) (Ombudsman, 2015).6 In 2014, the Kazakhstan International Bureau for Human Rights and Compliance with Laws, the Legal Policy Research Centre, and MediaNet, with the support of the EU, submitted a Concept for the next National Plan of Action for Human Rights for 2015-20.7 The plan, however, has not yet been developed or adopted.

Concerns about the human rights situation in Kazakhstan, also as connected to business activities, have been raised by international organisations, some OECD member governments, and human rights defenders. Business and human rights issues in Kazakhstan drew particular attention following the 2011 Zhanaozen crisis when clashes between demonstrators and police resulted in deaths and casualties.8 Although the government has made efforts to investigate and prosecute responsible parties, the UN Special Rapporteur on the Rights to Freedom of Peaceful Assembly and of Association noted after a country visit in 2015 that there is still conflicting information on what happened in Zhanaozen and has joined the Office of the High Commissioner for Human Rights call for an independent international investigation into the crisis (UN, 2015a). The UN Special Rapporteur has also raised concerns that, since Zhanaozen, participants in unsanctioned assemblies seem to have been increasingly subjected to intimidation, fines, imprisonment and administrative sanctions.

Additionally, the UN Special Rapporteur, the United States, the European Union and civil society have expressed concerns that the new Criminal Code, Code on Administrative Offences and Code of Criminal Procedure adopted in 2015 could negatively affect or limit fundamental freedoms, including the right to freedom of association9 and that provisions in the codes could be used to criminalise the activities of political parties and trade unions (UN, 2015a). Kazakhstan has refuted this criticism and has stated that the codes are in line with international standards on preservation of interethnic harmony and stability and that the practice of applying these provisions should not raise questions (UN, 2015b). A review Kazakhstan’s implementation of the International Covenant on Civil and Political Rights (ICCPR) took place on 22‐23 June in Geneva (UN OHCHR, 2016d). While the final Committee report is not available as of the date of this draft report, it should be noted that a collection of Kazakh Human Rights NGOs, including the above mentioned which gave advice to the government on the 2015-2020 National Action Plan on Human Rights, have expressed serious concerns about the deteriorating human rights situation in Kazakhstan (IPHR, 2016 a-b).10 The recent protests over land reform and the related arrests, detention and criminal prosecutions point to the fact that some of these concerns are not unwarranted. UN human rights experts have called on the government to “immediately end all forms of persecution and take effective measures to protect civil society” (UN OHCHR, 2016c). Protesters were concerned that amendments to the land law increasing lease terms for foreigners for renting agricultural land from 10 to 25 years would be to the detriment of Kazakh citizens and landowners (BBC, 2016; Al Jazeera,2016; APF, 2016). The intensity of the protests has led to delaying the adoption of the amendment by a year (APF, 2016).

It is unclear how much of these protests are over the actual substance of the proposed amendments and how much are a reaction to the perceived corruption, distrust, and the historical legacy of privatisation (BBC, 2016). As already stated in this review, the current 10 year maximum rental time by foreigners is relatively restrictive compared to OECD economies (OECD, 2012) and may be holding down the country’s potential in agricultural production (OECD, 2013). However, fears around liberalisation should be addressed. Establishing a strong NCP and explicitly stating and implementing expectations on RBC in line with the Guidelines and the UN Guiding Principles may help alleviate some of the concerns around investment and help build trust. The development of the NAP on RBC could be a good opportunity for the government to engage with stakeholders. Kazakhstan should also consider revisiting some of the provisions that the international stakeholders have raised concerns about.

Employment and industrial relations

Kazakhstan’s labour market is characterised by the population of a working age (15 to 64 years old) accounting for 67% of total population (UN DESA, 2015), with labour force participation rate at 73% in 2014, comparable to other emerging economies (ILO, 2014). Agriculture is both the least productive sector and the largest employer, accounting for around 24% of employment in 2013. The 2016 OECD Multi-dimensional Review of Kazakhstan noted that there is a need to shift labour to more productive sectors in order to address productivity concerns. There is potential to broaden the industrial base from a relatively low GDP share of manufacturing at 11% compared to other emerging economies as well as advanced, resource-rich countries (OECD, 2016). Job quality remains an issue for a large number of workers concentrated in several sectors and regions and concerns about low wages, non-payment of wages and discrimination have been raised by stakeholders when it comes to foreign investors (OECD, 2014).

The 2015-16 WEF Global Competitiveness report has indicated that inadequately educated workforce is among the most problematic factors for doing business in Kazakhstan. Finding qualified staff, good quality local products and suppliers remains difficult, especially for technical personnel and in rural areas. As Kazakhstan phases out local content requirements as part of its WTO obligations, this Review notes (see Chapter 5) that the planned development of the database of local suppliers and MNEs operating in different sectors by Kaznex Invest could help local and foreign enterprises learn about the locally available opportunities. Chapter 5 recommends that these activities be complemented with active matchmaking events and that IPA, MID or other government agencies can facilitate the creation of specific capacity-building programmes for local firms and develop and implement them in close collaboration with investors.

Suppliers of MNEs may find that following RBC principles and standards and integrating them in core business operations gives them an advantage over businesses that do not, as they are able to respond to and address concerns that may come up in due diligence of the MNE when evaluating risks associated with its supply chain. Investors from the 46 countries that adhere to the Guidelines are subject to them wherever they operate, including throughout the supply chain and in relation to business relationships. Similarly, businesses that want to access markets of these 46 countries are also subject to the Guidelines, and, in some cases, actual regulation related to RBC. Additionally, MNEs are increasingly basing their decisions about where to do business on the ability to ensure predictable and reliable supply chains, capable of delivering effectively at the each stage (Taglioni and Winkler, 2014; OECD, 2014b: 27). It is estimated that costs of delays can be substantial for certain product categories and any delays due to, for example, labour unrests or environmental damage, contributes to those costs. (Hummels, 2007; OECD, 2014b: 27).

Building on the recommendations from Chapter 5, the government should consider including RBC principles and standards in the design of the systematic and well-institutionalised industry-specific training programmes, in collaboration with the business community and educational institutions. This could encompass everything from promotion to capacity building exercises to supporting cross-sectoral learning efforts (for example, supporting cost-sharing efforts within and among industries for specific due diligence tasks, participation in initiatives on responsible supply chain management and co‐operation between industry members who share suppliers).

RBC expectations should also be included in FDI attraction efforts and may help attract MNEs that are more inclined to source locally. One element of supplier databases and matchmaking events could be RBC. Additionally, training and awareness-raising with business leaders could also be useful in promoting a wider understanding and recognition of the importance of RBC. Educational institutions such as business schools and existing business initiatives pursing social objectives can also be important platforms. Finally, the authorities should make educational and training programmes more market driven by increasingly involving the private sector in human resource development policies and encouraging internal and external training by employers.11 Communicating to enterprises that contributing to human capital formation (in particular by creating employment opportunities and facilitating training opportunities for employees) is a pillar of RBC – and recognising those that do it – can serve as a good incentive.

There is also a need to bring about full alignment of Kazakhstan’s legal framework on labour relations with international standards. Although Kazakhstan has ratified 24 ILO conventions, including the eight Fundamental Conventions and four Governance Conventions (ILO, 2016), serious concerns have been raised about limited freedoms in practice, as noted in the above section on Human Rights. The ILO Committee on the Application of Standards at its recent meeting in June 2016 has also “expressed serious concern regarding the Government’s lack of progress in relation to the implementation of the conclusions of the Committee in 2015” and urged the government to introduce reforms in the legal framework governing labour relations without delay. Specifically, the committee recommended to amend the 2014 Trade Union Law, including as related to limitations on the structure of trade unions that are perceived to limit the right of workers to form and join trade unions of their own choosing; to amend the provisions of the Law on the National Chamber of Entrepreneurs to ensure the full autonomy and independence of the free and independent employers’ organisations; to amend the Labour Code to indicate which organisations fall into the category of organisations carrying out dangerous industrial activities and indicate all other categories of workers whose rights may be restricted, to ensure any minimum service is a genuinely and exclusively minimum; to permit judges, firefighters and prison staff to form and join trade unions; to lift the ban on financial assistance to national trade unions by an international organisation; and to accept ILO technical assistance to complete the above noted conclusions (ILO, 2016b). Concerns about the existence of forced and child labour in Kazakhstan has also been expressed in recent years.12 A new Labour Code entered intoforce as of January 2016. In the government’s view, the code is fully aligned with OECD and ILO standards (Government RK, 2016). Reactions by stakeholders have been mixed. Workers’ rights advocates have expressed concerns about the lack of public consultation and debate prior to the adoption of the code (Eurasianet, 2015).

Kazakhstan could consider making a particular effort to promote the good offices envisioned as part of the mandate of the NCP for the Guidelines as one of the available non-judicial mechanisms for resolving issues related to employment and labour relations. The Guidelines are a useful framework for determining the extent of enterprise responsibilities in this regard. This is not only related to respecting fundamental labour rights, but also includes principles of equality of opportunity and treatment in employment and non-discrimination; provision of best possible wages, benefits and conditions of work; as well as provision of training with a view to improving skill levels, in co‐operation with worker representatives and, where appropriate, relevant governmental authorities.

Environment

The Guidelines call on enterprises to take due account of the need to protect the environment, public health and safety, and generally to conduct their activities in a manner contributing to the wider goal of sustainable development. This entails sound environmental management that aims to control both direct and indirect environmental impacts; establishing and maintaining appropriate environmental management systems; improving environmental performance; being transparent about the environmental impacts and risks, including also reporting and communicating with outside stakeholders; being proactive in avoiding environmental damage; working to improve the level of environmental performance in all parts of their operations, even where this may not be formally required; and training and education of their employees with regard to environmental matters.

Box 7.5. Debunking the Pollution Haven Hypothesis

2016 OECD report Do environmental policies affect global value chains? A new perspective on the pollution haven hypothesis that examined the impact of environmental policies on global value chains has shown that countries that implement stringent environmental policies do not lose export competitiveness when compared to countries with more moderate regulations. High and low pollution industries and trade in manufactured goods between 23 advanced and six emerging economies from 1990-2009 were examined, and data on the domestic value added in exports from the OECD-WTO Trade in Value Added (TiVA) dataset was included in the analysis.

The findings suggest that emerging economies with strong manufacturing sectors could strengthen and implement environmental laws without denting their overall share in export markets. High-pollution or energy-intensive industries would suffer a small disadvantage, but this would be compensated by growth in exports from less-polluting activities. These results are compelling evidence against the so-called Pollution Haven Hypothesis, which suggests that tightening environmental laws often prompts manufacturers to relocate some production stages to countries with lower regulations.

Source: Koźluk and Timiliotis, 2016.

Kazakhstan ranks 69 out of 180 in the 2016 Yale Environmental Performance Index, with an assessed 25% positive change in environmental performance compared to 10 years ago. Notable changes have been in improving water resources and air quality (Yale, 2016). The improvement in the ranking is a direct result of the efforts by the government over the last decade to modernise environmental legislation and address the legacies of the Soviet period. The main instrument for the protection of the environment is the 2007 Environmental Code. In May 2013, the Concept for Transition of the Republic of Kazakhstan to Green Economy was adopted, with the intention to invest 1% of GDP annually into green technologies. The 2050 Strategy sets forth an agenda which integrates environmental issues into economic policies; objectives include energy independence by 2025, water-saving measures for 15% of acreage by 2030, and addressing irrigation issues by 2040 (Government RK, 2015b). Kazakhstan is also a member of the OECD Task Force for the Implementation of the Environmental Action Programme and is a signatory to the OECD Green Growth Declaration.

As outlined in the OECD Multi-dimensional Review, the country’s reliance on fossil fuels weighs on the environment. The economy is characterised by high greenhouse gas emissions, reflecting the high energy intensity of the economy. Kazakhstan’s fragile ecology is vulnerable to climate change and issues with water shortages and considerable pollution, even if improved compared to a decade ago, persist. Raising energy efficiency, developing renewable energy sources and improving the management of natural resources such as water, land and air, can improve the sustainability of the economy (OECD, 2016).

In practice, it has been reported that the administrative complexity and sometimes discretionary decision-making impedes the correct assessment of the true extent of possible environmental impacts of business activities. Some enterprises have complained about the lack of transparency of environmental regulations, and expressed concerns that the fines were imposed in an attempt to exert pressure and obtain additional funds (OECD, 2014a). Increasing the quality of institutions that are charged with environmental protection and promoting compliance with internationally recognised standards as a competitive opportunity that could open up opportunities for international trade are areas where better practice and co-ordination would bring benefits (OECD, 2016).

Finally, as discussed in the section on Disclosure, Kazakhstan should consider strengthening disclosure requirements and rules, including on environmental and climate change matters. Corporate climate change reporting is relevant for design and implementation of long-term actions aimed at reducing greenhouse gas emissions. A majority of G20 countries have some kind of mandatory corporate reporting scheme in place or in preparation that requires disclosure of some climate change related information. As new OECD research shows, this information can be used for multiple policy purposes, from informing consumer decisions to assessing performance against policy objectives, investment analysis and risk analysis. Companies themselves also use the information to increase awareness of climate related risks and opportunities, streamline processes, reduce costs and improve efficiency and mitigation or reversal of negative climate impacts (OECD, 2015b).

Combating bribery, bribe solicitation and extortion

As discussed earlier in this Review (see Chapter 5, Section on Addressing Business Concerns), bribery remains one of the main constraints for doing business in Kazakhstan, despite significant efforts made by the government to address the issue. The fight against corruption has become a national priority in the context of the 2050 Strategy. Several measures have been implemented, including judicial and legislative reforms, and the establishment of dedicated bodies to fight bribery and other forms of unfair practices. Recent prosecution of high-level officials13 also illustrate the willingness on part of the government to acknowledge the problem of bribery and to take practical measures to address it.

The Guidelines recognise the important role of the private sector in combating bribery and corruption. Enterprises should not, directly or indirectly, offer, promise, give, or demand a bribe or other undue advantage to obtain or retain business or other improper advantage, and should also resist the solicitation of bribes and extortion. As discussed in Chapter 5, recent steps have been taken by the authorities to encourage the development of preventive measures in the private sector through, for instance, the adoption of an Anti-Corruption Business Charter.

Consumer interests

Protection of consumer rights is codified in the Article 10 of the Civil Code of Kazakhstan and the Law on Protection of Consumer Rights. Consumers are granted the right to freely conclude contracts on the purchase of goods; access information on protection of consumer rights; access complete, reliable and timely information on a product and on the seller; purchase of safe products; free choice of a product; adequate quality of a product; exchange or return of a product of both adequate and inadequate quality; receipt of a seller’s document confirming the fact of purchase of a product (LPRC, 2013). In May 2016, amendments to a number of legislative acts related to consumer protection were passed, including on the Law on the Protection of Consumer Rights. New provisions were introduced to avoid unfair competition and to further protect consumers (Atameken, 2016b).

Overall, it appears that the legal framework is detailed and balanced enough to ensure protection of consumer rights. In practice, one of the main challenges encountered by consumers seems to be obtaining reliable information on a product (LPRC, 2013). The National League of Consumers, an NGO that is a member of Consumers International, provides independent information on goods and services, consumer education programmes, and ensures protection of consumer rights, including through a hot line dedicated to handle complaints and providing legal advice (Consumers International, 2016).

The Guidelines recommend that enterprises act in accordance with fair business, marketing and advertising practices and take all reasonable steps to ensure the quality and reliability of the goods and services that they provide when dealing with consumers. This includes co-operating fully with public authorities to prevent and combat deceptive marketing practices and to diminish or prevent serious threats to public health and safety or to the environment deriving from the consumption, use or disposal of their goods and services. It also includes supporting efforts to promote consumer education in order to improve the ability of consumers to make informed decisions, better understand the economic, environmental and social impact of those decisions, and support sustainable consumption.

Kazakhstan could consider supporting and promoting consumer education and information programmes in order to increase the capacity of civil society to be aware of consumer rights, to monitor government policy, and to promote effective defence of consumer rights. Particular efforts could be made to promote sustainable consumption. This may be an efficient strategy for reaching both economic and environmental objectives, as increased demand for sustainable products would lead to increased supply and investments into sustainable products. One area of particular interest for Kazakhstan could be organic agriculture in light of the increasing demand for organic products from European countries and from the United States (OECD, 2015c).

Science and technology

The chapter on science and technology of the Guidelines aims to promote, within the limits of economic feasibility, competitiveness concerns and other considerations, the diffusion by multinational enterprises of the fruits of research and development activities among the countries where they operate, contributing therefore to the innovative capacities of host countries. Intellectual property rights are of relevance in this regard.

Kazakhstan’s ranks relatively low in international indexes on innovation considering its potential. According to the 2015/2016 WEF Global Competitiveness report, Kazakhstan ranks 72 out of 140 economies in overall innovation factors. Strategy 2050 emphasises the importance of investing in science and sets ambitious goals for developing a knowledge-based economy. The state programme of industrial-innovative development of Kazakhstan for 2015-2019, adopted by decree in 2014, notably aims to “increase the Global Competitiveness Index” and avoid the “middle-income trap” through measures focused on technology and innovation. The Program calls for the “support of strategic projects through the provision of innovation grants for foreign technology purchase”, “the development of technology transfer network and participation in international programs on the development of science, technology and innovations”, “Enhancement of technological and managerial competencies” (Government RK, 2014b).

The focus on science has sharpened since 2011, when the Law on Science was passed. This law recognises the importance of research and gives it priority along with science education. New types of higher education institutions called “research universities” were introduced. More recently, efforts to improve the quality of education, particularly of vocational training, have been introduced through the development of “points of growth” – selected new, world-class educational institutions in the area of secondary education, vocational training and tertiary education (OECD, 2016).

Involving businesses, including foreign ones, in developing and adjusting training and learning opportunities to the market needs would be a worthwhile effort. The government could consider incentivising firms to provide on-the-job training and learning opportunities, as well as providing apprenticeships, traineeships and internships. The OECD Guidelines call on enterprises to encourage local capacity building and human capital formation, in particular by creating employment opportunities and facilitating training opportunities for employees with a view to improving skills levels. Enterprises are encouraged to invest, to the greatest extent practicable, in training and lifelong learning while ensuring equal opportunities to training for women and other vulnerable groups, such as youth, low-skilled people, people with disabilities, migrants, older workers, and indigenous peoples (OECD, 2011).

Competition

The goal of competition policy is to promote market conditions in which the nature, quality, and price of goods and services are determined by competitive market forces. This benefits consumers and the economy as a whole, as well as enterprises through allowing them to respond efficiently to consumer demand. The OECD Guidelines recognise the importance of compliance with competition laws and regulations by domestic and foreign businesses.14 Enterprises are expected to carry out their activities in a manner consistent with all applicable laws and regulations and to refrain from entering into or carrying out anti-competitive agreements among competitors. An important aspect of enterprises responsibilities in this regard is co-operation with competition authorities and promotion of awareness and training among employees on the importance of compliance, particularly among senior management.

Competition policy of Kazakhstan is already discussed in Chapter 2 of the present Review. In terms of RBC, questions have been raised around the intersection between competition law and RBC standards developed at international level, with concerns being raised that competition law principles may chill RBC initiatives, particularly if these entail co-operating with other companies (and possibly competing companies) and participation in multi-stakeholder initiatives. A recent analysis by the OECD Secretariat Competition Law and Responsible Business Conduct, prepared for the 2015 Global Forum on Responsible Business Conduct, has found a variety of approaches in OECD countries on how to address the concerns that may be raised, detailing ways to avoid competition law issues in relation to RBC collaboration or initiatives, such as seeking advice and guidance from competition enforcers, practicing transparency and developing and implementing compliance programmes to ensure there is awareness of the risks and an understanding of how they should be managed at an organisational level (OECD, 2015d).

Taxation

Chapter 4 summarises the taxation policy framework in Kazakhstan. As related to RBC, tax governance and tax compliance should be treated as important elements of enterprise oversight and broader risk management systems and corporate governance. A comprehensive risk management strategy that includes tax not only allows the enterprise to act as a good corporate citizen but also to effectively manage tax risk, which can serve to avoid major financial, regulatory and reputation risk for an enterprise. The Guidelines call on enterprises to comply with both the letter and spirit of the tax laws and regulations of the countries in which they operate and make timely payments of their tax liabilities.

Corporate boards, in particular, have a role to play. The Guidelines recommend that boards should adopt tax risk management strategies to ensure that the risks associated with taxation are fully identified and evaluated. This entails proactively developing appropriate tax policy principles, as well as establishing internal tax control systems so that management actions are consistent with board views on tax risk. Businesses are also expected to co‐operate with tax authorities and provide information that is required by law to ensure an effective and equitable application of the tax laws. This also includes co-operation by multinational enterprises as related to transfer pricing and the arm’s length principle.

Some governments provide incentives to encourage businesses to uptake responsible business practices, including financial incentives such as credits for demonstrated commitment to RBC in government contracting, procurement processes, investment or tax incentives (e.g. to encourage businesses to, for example, invest in low-carbon technologies, or to pursue a social objective). Kazakhstan provides exemptions from value added tax on sales of goods, works and services and corporate income tax, and a lowered social tax rate, for employers and entrepreneurs if at least 51% of the total number of employees are people with disabilities and if at least 51% of total expenditure on wages accounts for their employment.

In general, financial incentives, and, in particular tax incentives, need to be considered in the context of the overall tax system and taking into account their full costs and benefits. Such incentives could be an appropriate step once the baseline reforms establishing a more efficient tax system have been completed.

Policy recommendations

The legal framework that protects the public interest and underpins RBC has been partially established in Kazakhstan, but more efforts are needed to strengthen it further and ensure implementation and enforcement of the relevant laws. Awareness of RBC principles and standards is not yet wide-spread, but Kazakhstan’s adherence to the Declaration, and, in particular, the formal establishment of an NCP under the Guidelines, will be an opportunity to consolidate existing efforts and further promote RBC principles and standards, both within the government and with the wider public.

  • Develop a National Action Plan on Responsible Business Conduct, in collaboration with stakeholders and in line with international good practices. Clearly communicate expectations on RBC, provide guidance on accepted practices, and promote policy coherence and alignment on RBC. Support awareness raising events.

  • Consider strengthening disclosure requirements for non-financial information in line with international best practice. Ensure, as a matter of policy coherence, that any corporate governance reforms adequately address, describe and reflect the extent of corporate responsibilities related to environmental and social matters.

  • Ensure that the legal framework and national system of protection of human and labour rights is aligned with international standards. Make a particular effort to promote the good offices envisioned as part of the mandate of the NCP for the Guidelines as one of the available state-based non-judicial mechanisms for resolving issues related to human rights and employment and labour relations.

  • Include RBC expectations in FDI attraction efforts and include RBC criteria in efforts to promote linkages between MNEs and domestic industries, for example, by making RBC one element of supplier databases and matchmaking events. Include RBC principles and standards in industry-specific training programmes for local firms and support training and awareness-raising with business leaders on RBC.

  • Involve the private sector in human resource development policies and encourage internal and external training by employers. Communicate to enterprises that contributing to human capital formation (in particular by creating employment opportunities and facilitating training opportunities for employees) is a pillar of RBC – and recognise those that do it.

  • Increase the quality of institutions charged with environmental protection and promote compliance with internationally recognised standards as a competitive opportunity that could open up opportunities for international investment and trade.

  • Continue the ongoing reforms to combat bribery and further encourage the development and implementation of preventive measures in the private sector.

  • Consider introducing initiatives that promote consumer education and information programmes in order to increase the capacity of the civil society to be aware of consumer rights, to monitor government policy, and to promote effective protection of consumer rights. Particular efforts could be made to promote sustainable consumption.

References

AFP (2016), Ex-Soviet Kazakhstan halts land reform after rare protests, 5 May 2016, http://en.rfi.fr/wire/20160505-ex-soviet-kazakhstan-halts-land-reform-after-rare-protests.

Al Jazeera (2016), Dozens detained in Kazakhstan over land reform protests, 21 May 2016, www.aljazeera.com/news/2016/05/dozens-detained-kazakhstan-land-reform-protests-160521132802863.html%20Accessed%2021%20June%202015.

Atameken – National Chamber of Entrepreneurs of the Republic of Kazakhstan (2016a), Energy companies are ready for a social dialogue, http://palata.kz/en/news/22685.

Atameken – National Chamber of Entrepreneurs of the Republic of Kazakhstan (2016b), The concepts of “discounted goods” and “sale” were legalized in Kazakhstan, http://palata.kz/en/news/22595-ponyatiya-ucenennyj-tovar-i-rasprodazha-uzakoneny-v-kazahstane.

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EITI (2016), Country Website – Extractive Industries Transparency Initiative, Kazakhstan, https://eiti.org/Kazakhstan.

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Notes

← 1. The total amount of insurance premiums paid by the cedent company to reinsurance companies-non-residents of the Republic of Kazakhstan shall not exceed 85% of the total amount of insurance premiums received by the cedent (including premiums paid to reinsurance companies) at the end of the full financial year. This limitation shall not apply to the risks related to maritime transportation services (except for vessels supplying solely or permanently cabotage transportation services) and commercial aviation and space launching and freight (including satellites), with such insurance to cover any or all of the following: the goods being transported, the vehicle transporting the goods and any liability arising therefrom. See WTO (2015c: 19).

← 2. For more information see http://mneguidelines.oecd.org/database/instances/uk0036.htm and the Initial Assessment by the UK NCP available at https://www.gov.uk/government/publications/uk-ncp-initial-assessment-complaint-against-the-kpo-consortium-in-kazakhstan.

← 3. See, for example, the outcomes of the international conference Introducing standards of the responsible business conduct in politics and policy – national and international experience (LPRC, 2015).

← 4. For more information refer to the Report On The Implementation of the Recommendation On Due Diligence Guidance For Responsible Supply Chains Of Minerals From Conflict-Affected And High-Risk Areas, see the OECD website.

← 5. 1) International Convention on the Elimination of All Forms of Racial Discrimination, 2) International Covenant on Civil and Political Rights; 3) International Covenant on Economic, Social and Cultural Rights; 4) Convention on the Elimination of All Forms of Discrimination against Women; 5) Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment; 6) Convention on the Rights of the Child; 7) International Convention for the Protection of All Persons from Enforced Disappearance; 8) Convention on the Rights of Persons with Disabilities. Kazakhstan has not ratified the InternationalConvention on the Protection of the Rights of All Migrant Workers and Members of Their Families.

← 6. Fundamental conventions include 1) Forced Labour Convention, 1930 (No. 29); 2) Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87); 3) Right to Organise and Collective Bargaining Convention, 1949 (No. 98); 4) Equal Remuneration Convention, 1951 (No. 100); 5) Abolition of Forced Labour Convention, 1957 (No. 105); 6) Discrimination (Employment and Occupation) Convention, 1958 (No. 111); 7) Minimum Age Convention, 1973 (No. 138); 8) Worst Forms of Child Labour Convention, 1999 (No. 182). Governance Conventions include 1) Labour Inspection Convention, 1947 (No. 81); 2) Employment Policy Convention, 1964 (No. 122); 3) Labour Inspection (Agriculture) Convention, 1969 (No. 129); 4) Tripartite Consultation (International Labour Standards) Convention, 1976 (No. 144).

← 7. The limited power of the Ombudsman to stop human rights abuses has also been noted by the domestic civil society and some international human rights defenders. Questions have also been raised about the Ombudsman’s limited mandate, as well as its independence. See for example the 2015 Human Rights Report by the US Department of State, www.state.gov/documents/organization/253177.pdf, or the Amnesty International 2015 country report, www.amnesty.org/en/countries/europe-and-central-asia/kazakhstan/report-kazakhstan/.

← 8. This documentis only available in Russian.

← 9. The exact number of deaths and casualties is disputed.

← 10. See UN (2015); EU Statement on Legal and Judicial Reforms in Kazakhstan: www.osce.org/pc/121302?download=true; US Mission to OSCE Statement on Kazakhstani Criminal Code: www.osce.org/pc/121082?download=true.

← 11. A full submission on documents regarding this review is available at CCPR – International Covenant on Civil and Political Rights, 117 Session (20 Jun 2016-15 Jul 2016), http://tbinternet.ohchr.org/_layouts/treatybodyexternal/SessionDetails1.aspx?Session ID=1031&Lang=en.

← 12. The government has reported that the Ministry of Education and Science provides a “Bolashak” international scholarship for higher education degrees and scientific and industrial internships for priority sectors of the economy.

← 13. See the country report by the US Department of State Trafficking in Persons Report 2016, www.state.gov/j/tip/rls/tiprpt/2016/index.htm; US Department of Labor 2014 Findings on the Worst Forms of ChildLabor, www.dol.gov/sites/default/files/documents/ilab/reports/child-labor/findings/2014TDA/kazakhstan.pdf; and the US Department of Labor List of Goods Produced by Child Labor or Forced Labor, www.dol.gov/ilab/reports/child-labor/list-of-goods/.

← 14. For example, the recent sentencing of a former high-level official that headed the Astana EXPO 2017 company and was found guilty of embezzling KZT 10.2 billion (USD 30 million) (Eurasianet, 2016).