Assessment and recommendations

Kazakhstan has enjoyed a long period of stability and prosperity, with one of the world’s fastest growing economies over the past decade benefitting from high commodity prices. The past 15 years have been in contrast with the immediate post-independence period when the economy suffered from a sharp economic decline. Extensive reforms following independence, in 1991, started bringing benefits, supported by a sharp oil price increase beginning in 1999. Surging commodity prices supported a strong economic performance in particular between 2000-07, reflected in average annual growth of real GDP of 10.2%. On the demand side, growth had been driven by private consumption and private sector investment, fuelled by strong wage expansion and a credit boom increasingly funded by large scale foreign borrowing of Kazakh banks.

Against the backdrop of mostly external shocks, economic growth has nevertheless decelerated since then. Kazakhstan’s real GDP growth slowed from 6% in 2013 to 4.1 % in 2014 and 1 % in 2015,1 owing to a number of reasons including: reduced global demand for Kazakhstan’s main export commodities; the sharp decline in global oil prices since mid-2014; and spill over effects from sanctions imposed on Russia, Kazakhstan’s major trade partner (notably the KZT appreciation against the sharply falling RUB caused a loss of competitiveness). Foreign direct investment (FDI) flows in Kazakhstan have fallen, on average, by 15% since 2011, and by 52% from 2014 to 2015 (reaching USD 4 billion or 2.2% of GDP). Progress on poverty reduction largely stalled in 2014 and 2015 and growth was expected to remain low at 0.7% in 2016 and not to be higher than 1.0% in 2017.2

The ongoing vulnerability to global commodity prices (especially oil prices) has again unmasked the high risks related to inadequate economic diversification as already noted in a first Review of Kazakhstan’s investment policy, which was published in the OECD Investment Policy Review series in April 2012. In the framework of this Review, the OECD recommended inter alia easier access to agricultural land and the telecommunication sectors for foreign investors; investment policies related to national security guided by the principles enshrined in the OECD Guidelines for Recipient Country Investment Policies relating to National Security; more balanced and transparent local content requirements; corporate governance reforms at state-owned enterprises (SOEs); increased private participation in infrastructure; better enforcement of intellectual property rights (IPR); better financing support for small and medium enterprises (SMEs); more transparent and predictable trade and tax policy; enhanced fight against corruption; and the development of a coherent government strategy on responsible business conduct.

Over the past few years, the government has been attempting to soften the impact of the slowing economy by attracting foreign investment further, in particular in priority sectors of Kazakhstan’s economy. The “100 Concrete Steps, a Modern State for All” program set out by President Nazarbayev recognises economic diversification and growth as one of the country’s major priorities and a pre-requisite for sustainable development.3 The Program, also called “Plan of the Nation”, is structured around four major pillars of the reform agenda: i) professionalising public administration; ii) enforcing the rule of law; iii) increasing state transparency and accountability; and iv) fostering economic diversification and growth. The “100 Steps” program, the improvement of physical infrastructure (via the “Nurly Zhol Infrastructure Development” program), and the skills-enhancing agenda – aimed at raising the quality of human capital – are all key pillars of the long-term development strategy Kazakhstan 2050, which aims to transform Kazakhstan into a diversified economy driven by the private sector and achieve the country’s ambition of joining the top 30 most advanced economies by 2050.

Kazakhstan’s investment openness

Since the country’s independence in 1991, international investment has been viewed by the authorities as delivering important benefits, ranging from enhanced economic growth to job creation. Over the past decades the country has thus introduced a number of measures to remove restrictions on foreign direct investment. These reforms, coupled with buoyant commodity prices, contributed to the dynamic growth of investment during the first decade of this century. The share of inward FDI flows in total gross fixed capital formation and inward FDI stock in gross domestic product (GDP) increased more than ten- and twentyfold, respectively, since early 1990s (currently, remaining at 59% and 32%, respectively), and remains higher than in many other economies in the region. Still, FDI inflows were unevenly distributed to respond to the needs and aspirations of Kazakhstan’s society with a strong concentration of the FDI flows and stock in the extractive sector (Chapter 1).

With sluggish growth and a decrease of FDI flows in recent years, improving further the framework conditions for foreign investment has been among the authorities’ foremost priorities for attracting and retaining foreign investors in the country. Foreign investors can participate in most sectors of the economy on an equal footing with domestic investors. The government notably recently lifted the previous equity restriction in air transport and prohibition of foreign capital above a certain threshold in telecommunications. As a result of this move towards greater openness, Kazakhstan is now getting closer to OECD levels in terms of statutory restrictions according to the FDI Regulatory Restrictiveness Index, although it remains above the OECD average. Additional changes expected to be implemented within five years of Kazakhstan’s 2015 accession to the WTO, such as allowing operations of branches of foreign-owned banks, will support an even more open and transparent environment for foreign investors (Chapters 2 and 6).

These important initiatives notwithstanding, there still remains variation in terms of statutory restrictions on FDI in comparison with OECD countries. One restriction relates to the use of agricultural and forestry land, a sector where national sensitivities have been particularly acute. Other restrictions are found in guarding (security) services, mass-media, and fixed-lined telecommunications where Kazakhstan either applies total prohibition of foreign investment (in security services), prohibits foreign investment above a certain limit (in mass-media), or subjects foreign investment to approval above a certain threshold (in telecommunications). They are areas where most OECD countries do not find it necessary to maintain restrictions. Beyond their direct impact on the degree of competition, the key risk is that these restrictions constrain investment. Kazakhstan should restrain from applying these restrictions. Limiting the scope of application of exceptions to National Treatment would also signal greater openness to investment.

Ground-level conditions are also still posing constraints on investment, despite recent steps to eliminate some of them. Conditions include labour market tests for foreign managers and specialists hired in Kazakhstan in the framework of intra-corporate transfer; limitations on the number of foreigners for each category of corporate employees; regulatory quotas for work permits; and preferential treatment of domestic suppliers in the subsoil sector. These requirements are generally aimed at economically empowering citizens or at spurring the development of domestic chains. Notwithstanding their legitimate purposes, they risk constraining the investment attraction potential of Kazakhstan, in particular due to the complexity and fragmentation of regulations (Chapter 2). Alternative measures do exist to promote greater domestic involvement, for example business linkage, skills development programmes and support programmes for SMEs (Chapter 5). The OECD in 2012 already called upon the government to undertake an evaluation of local content policies against alternative options for local private sector development. If some of the requirements are to be maintained, there is scope for rationalising the legislative and regulatory framework and make it more transparent and ensure that they achieve their intended purpose without being unduly burdensome for investors.

The need for transparency also applies to the rules governing private investment in so-called strategic assets or sectors of national interest. Kazakhstan maintains national security grounded screening mechanisms which are not always swift and transparent. Ensuring that the legal framework provides guidance as to what considerations Kazakhstan should take into account in making a determination on national interest grounds would mitigate perceived risks by investors, increase investor confidence, and align the country closer with the recommendations contained in the OECD Guidelines for Recipient Country Investment Policies relating to National Security (Chapter 2).

Several sectors also remain difficult to access in practice for foreign investors due to the domination of state-owned enterprises (SOEs) and the prominent position of monopoly sectors in the national economy. By some estimates, the public sector accounted for around 40% of GDP at the end of 2015. To address this issue, in October 2015 the government announced the largest privatisation of SOEs since the country became independent in 1991. In all, 783 SOEs and subsidiaries of national holdings, including 65 of the largest Kazakh state-controlled companies in the oil and gas, transport, and nuclear sectors, are to be sold off between 2016 and 2020. The privatisation plan is aimed at reducing the number of so-called quasi-state entities to 15% by 2021 and at transferring 5% of companies owned by the local governments to the private sector. Other reforms are underway, aimed at encouraging competition and entry and operations of private investors in activities formerly reserved to monopolies. Kazakhstan should nevertheless ensure that privatisation encourages more competition in previously monopolistic sectors instead of merely replacing public with private monopolies (Chapter 2).

Yet, given the still prominent position of monopoly sectors and of SOEs in Kazakhstan’s economy, measures contributing to a more level-playing field, together with corporate governance standards, would further enhance the country’s attractiveness. Kazakhstan’s competition legislation has gone through major reforms recently and, as a result of this, the country has now a competition regime that is in many areas based on sound principles. It is nevertheless still in need of further reforms, including the establishment of an independent competition authority in order to minimize the risk of undue influence as well as – as already recommended in 2011 – of an independent regulator for the telecommunications sector. Intensifying reforms in the areas highlighted in the recent OECD peer review of Kazakhstan’s competition policy could help advance the country’s competition agenda in this regard. Similarly, even if improvements have been made to the corporate governance frameworks for SOEs, enforcement of rules and regulations remains a challenge. As illustrative of this issue, although audit has become mandatory for all SOEs, it has proved to be so far ineffective (Chapter 2).

Balancing investor protection and the government’s power to regulate

The attractiveness of Kazakhstan as an investment destination depends not only on the openness of the economy and restrictions that investors may face. Since the last Review, Kazakhstan has continued its efforts to offer both domestic and foreign investors an attractive investment climate by seeking to provide adequate levels of investment protection and effective dispute resolution mechanisms (Chapter 3). At the same time, there is an increasing recognition that investment protection policy involves efforts to balance investor protection and the government’s right to regulate.

Kazakhstan’s Constitution offers relatively general protection to all persons. Kazakhstan’s new Entrepreneurial Code from 2016 gives business entities, and investors specifically, more detailed guarantees on the protection of their rights and property. The Code protects against expropriation and unlawful government conduct in particular. The new Entrepreneurial Code reflects laudable efforts to increase the consistency and transparency of the applicable rules. It also seeks to well-tailor the protection it offers by defining different categories of investment, which qualify for different types and levels of protection. Certain regulatory stability assurances, for example, which can play an important role in the quest for balance between investment protection and the government’s right to regulate, are only available to economically important investors. Moreover, the Entrepreneurial Code (as well as legislation applicable to the subsurface sector) seeks to specify in which areas governmental legislative and regulatory action may be stabilised. The concepts and mechanisms introduced by the new Code, or taken over from previous legislation, however, are not always easy to apprehend.

Kazakhstan also offers a wide range of dispute resolution mechanisms to protect investor rights and enforce government obligations. Recent government efforts focused on the functioning of the court system to improve the overall investment climate: the court system has been streamlined, and now offers special court procedures for investors. New initiatives seek to foster capacity of the judges, providing for additional qualification requirements and strengthening performance reviews and training (see Chapter 5). The Astana International Finance Centre is poised to include a special court system, based on the English legal system. Investors may also rely on arbitration or mediation mechanisms. Arbitration and mediation have reportedly only been used sparely by investors, but the Kazakh authorities are seeking to improve their attractiveness, and to thereby reduce the case load of the courts. The protection of intellectual property (IP) rights shows the importance of effective enforcement mechanisms: Kazakhstan has improved the overall legal framework for IP rights – not least in the WTO accession process – but the enforcement of IP rights continues to be a challenge and constitutes a policy priority. While recent indexes and surveys suggest that overall Kazakhstan is on the right way towards enhancing the quality of its court system, some business representatives and investors continue to voice concerns about the independence of the judiciary.

As part of its efforts to improve the investment climate, Kazakhstan has also signed a number of international investment agreements: These treaties typically protect existing covered investments against expropriation without compensation and against discrimination, guarantee fair and equitable treatment, and give covered investors access to investor-state dispute settlement mechanisms to enforce those provisions. In addition to 47 bilateral investment treaties, 44 of which are currently in force, Kazakhstan has also adhered to a number of multilateral investment treaties. In total, around half of Kazakhstan’s investment treaties are concluded with adherents to the OECD Declaration on International Investment and Multinational Enterprises. The provisions found in most of Kazakhstan’s investment treaties are typically relatively broad, leaving arbitrators a lot of leeway in determining the actual scope of protection they provide. Vague standards that fail to clearly reflect government intent may undermine the right balance between investor protection and the power to regulate.

Properly designed investment treaties can help support Kazakhstan’s sustainable and inclusive growth objectives and consolidate domestic priorities, such as promoting and enabling responsible business conduct. Investment treaties can also help ensure that investments are not encouraged by lowering domestic health, safety, labour and environments standards as recommended by the OECD Guidelines on Multinational Enterprises (see Chapter 7).

Kazakhstan’s tax policy

With the view of attracting foreign investment beyond the extractive sector, Kazakhstan has also been offering generous tax incentives. While the merits of tax investment incentives will depend upon the specific objectives of the incentives, the type and mix of incentives provided and the design of the incentives, there is a danger that the benefits of such incentives are likely to be limited, and could contribute to a harmful ’race to the bottom’ among countries competing to attract investors (Chapter 4). This is especially the case where tax investment incentives have been introduced without a comprehensive assessment of their costs and benefits. Despite recent efforts aimed at some rationalisation, the current tax regime remains complex. Kazakhstan applies tax reliefs that vary depending on the type of investment, its location, or activity. Tax and non-tax incentives related to so-called special investment projects, priority investment projects or strategic investment projects also appear to be discretionary as investors, in order to be granted preferences, must enter into negotiations with the responsible state agency. In general, there has been inadequate analysis to assess the effectiveness of tax incentives.

The recent decline in oil prices has highlighted the risks of excessively relying on tax incentives and the importance of broadening the tax base. While the authorities are working on a new tax code, the current context may be a good opportunity to reform Kazakhstan’s tax investment incentives system. Thus, eliminating some incentives, designed and introduced at a time of rising oil prices, could provide a relief to fiscal pressures. Kazakhstan’s authorities have recently announced their decision to eliminate wasteful tax incentives. Ensuring better consistency between sustainable growth objectives and the overall investment attraction agenda will be crucial in this context. The OECD has developed a number of tools which allow Adherents to the Declaration on International Investment and Multinational Enterprises and other interested countries to assist meeting the recommendations contained in the instrument on International Investment Incentives and Disincentives, including the Checklist for Foreign Direct Investment Incentive Policies. Enhanced engagement with the OECD Committee on Fiscal Affairs could also provide an opportunity to learn from international experience and strengthen the tax policy regime to support investment.

The quality of the tax administration could also be enhanced as it is central to investors’ perception of the stability and certainty of Kazakhstan’s tax regime and overall investment climate. Despite recent reforms, Kazakhstan’s tax officials continue to be seen by investors as sometimes operating in arbitrary ways. Effective guidance primarily directed at tax officials should be in place to deter inconsistent application of rules, enhance predictability, and eliminate rent-seeking opportunities for officials subject to limited accountability (Chapters 4 and 5). As related to responsible business conduct, tax governance and tax compliance should be treated as important elements of enterprise oversight and broader risk management systems and corporate governance (see Chapter 7).

Investment promotion and facilitation

Well-designed and implemented investment promotion and facilitation policies can help countries attract investment into most productive uses, supporting the objectives of economic diversification and private sector development. In recent years, Kazakhstan has implemented several reforms to reduce red-tape and administrative burdens placed on firms as well as to promote its image as an attractive business destination abroad.

In the area of investment facilitation the focus has been primarily on administrative simplification and a removal of certain licensing requirements. About 30% of all licenses were removed since 2014, and certain procedures clarified or streamlined. These efforts were recognised by some international organisations. For example, at the end of 2016 the World Bank’s annual Doing Business index ranked Kazakhstan 35th out of 190 countries for 2017 – an improvement of 16 places since 2016 – and lauded the country’s efforts to remove bureaucratic barriers, streamline licensing procedures, and introduce legislation to facilitate and hasten new business formation in the country.

Most recently, under the instruction of the President of the Republic of Kazakhstan, the government established a One-Stop-Shop (OSS) for investors, assisting firms in obtaining necessary information, starting administrative procedures and obtaining permits. It currently has a form a physical facility administered by, and located, at the Investment Committee at the Ministry for Investments and Development with offices elsewhere in the country. Still, during the consultations with stakeholders undertaken in the course of this Review, it was established that the OSS is still relatively unknown by the businesses operating in Kazakhstan and embassies of top investing countries in the country. Further work could be undertaken to familiarise the business community with the OSS and obtain feedback. If the implementation of the OSS can truly allow better inter-governmental coordination and translate into reduced time and resources spent by firms in obtaining various licenses and permits, this innovation could facilitate establishment of new and expansion of existing projects in Kazakhstan.

The primary focus of recent investment facilitation reforms on administrative simplification may, nevertheless, fail to address the true source of administrative burdens placed on firms, i.e. the quality, transparency and coherence of the domestic regulatory process. Indeed, in 2012, the OECD Investment Policy Review highlighted that the predictability, coherence, and quality of regulations and administrative procedures remained problematic in Kazakhstan. The changes to the country’s ranking on the World Bank’s Doing Business indicators do not necessarily reflect such aspects. Businesses consulted in the process of this Review highlighted that poor-quality regulations as well as their inconsistent interpretation and arbitrary application continue complicating business decisions and create a breeding ground for corruption (Chapter 5). Tax administration, environmental permits, obtaining visa and work permits for foreign staff as well as satisfying local content requirements by firms appear to be most burdensome areas.

Improving the quality of regulatory processes can help ensure that overly stringent, contradictory or poorly-defined administrative procedures are less common, reducing the scope for arbitrary treatment. While the country implemented several reforms to improve the process of creating new regulations in recent years – notably by introducing the regulatory impact assessment (RIA) as an obligatory element of creating new legal acts – there is still scope for improving the transparency of the regulatory process, including through broadening and systematising the process of stakeholder consultations and performing advance impact assessment of adequate quality and frequency.

In the area of investment promotion, while the institutional set-up for investment promotion has been reformed, numerous institutions with overlapping functions and mandates are still involved in investment promotion in Kazakhstan. It would be beneficial that their roles and modes of co-operation are more clearly defined. This issue is linked to another lacuna – there is currently no investment promotion strategy in Kazakhstan that would clearly outline the government’s objectives and available tools. If accompanied by concrete actions plans for individual agencies and an adequate monitoring framework, such a strategy could help the government ensure that investment promotion activities are well-coordinated and achieve intended results. Finally, as mentioned above, the current system of fiscal incentives for investment in Kazakhstan lacks transparency, and could be reformed to reduce opportunities for corruption and ensure level playing field among firms. Overall, while investment promotion in Kazakhstan benefits from high level of political support, it is still burgeoning and requires clear administrative procedures to achieve results and value for money.

SMEs development

Small and medium sized enterprises (SMEs) policy has become a key component of Kazakhstan’s overall economic policy and is at the core of the country’s 2050 Strategy. In 2012, the Investment Policy Review noted that SMEs faced a lack of access to finance. Since then, the government has been implementing multiyear SME strategies, each of them focusing on subsidized loans to SMEs. In addition, business support centres have been established in the country’s rural regions. They provide free business support packages like consultations on how to prepare and file tax reports, how to develop business plans and apply for funding, how to register a new business or how to market a business. They also provide educational support programs, including training courses and seminars aimed at increasing the knowledge and skills of existing and potential entrepreneurs in business management.

However low SME contribution to GDP (about 17.5% at the end of 2014 against almost 60% in countries such as Turkey) and low share of population employed in the SME sector (just over 2.5 million people) show that much more could be done to foster entrepreneurship and SME growth. Two-thirds of SMEs in Kazakhstan are individual entrepreneurs, contributing little to employment and value added as well as to productivity growth. Addressing this issue requires a more coherent and comprehensive approach to SME policy. A well-structured overview of various private sector development programmes, including those directed at SMEs, is missing and implementation monitoring and impact assessment mechanisms are not systemically employed (Chapter 5).

Trade openness

The attractiveness of a country as location for investment depends not only on statutory FDI restrictions, investor protection, business facilitation and other promotion tools, it also depends on the costs of doing business across borders. Trade policy and the quality of physical infrastructure influence directly the ability of local firms to connect to global markets. The WTO entry in 2015 marked an important step in Kazakhstan’s reform process. Negotiations had lasted for nearly twenty years and led to far-reaching changes in Kazakhstan’s trade and investment regime, in particular in services. The positive effect of WTO entry on Kazakhstan’s GDP has been estimated to amount to about 4% and 10% in the medium and long run, respectively (see Chapter 6).

Opening services sectors to trade and investment due to WTO entry was predicted to have the largest impact on the Kazakh economy (over two thirds of total welfare gains). Indeed, the country implemented several reforms throughout its WTO entry negotiation process and committed to further opening of some sectors upon its entry. For example, the maximum foreign equity limit in fixed-line telecommunications (of 49%) was to be removed by mid-2018, and Kazakhstan already lifted the restriction (see Chapter 2). In financial services, allowing operations of branches of foreign-owned banks, by 2020, will also have a further liberalising effect. Last but not least, WTO-induced reforms to the country’s local content policies and rules on hiring foreign staff can also reduce some burdens faced by foreign and domestic-owned firms, albeit subject to transition periods and exceptions (Chapter 6).

Overall, while changes to horizontal or sector-specific restrictions to FDI required by the WTO entry have helped significantly liberalise Kazakhstan’s FDI regime over time, in some sensitive areas, identified as restrictive or burdensome in the past Review, such as hiring of foreign staff, local content requirements, the impact will be felt only gradually. In addition, the removal of de jure restrictions on FDI will need to be accompanied by further investment facilitation and regulatory reform to ensure that improved market access is not hindered in practice by administrative procedures (Chapter 5).

In addition, the WTO entry may have some impact on the predictability of the country’s trade regime. Being simultaneously bound by various WTO rules – on tariff and non-tariff barriers to trade, subsidies, and others aspects – can help reduce the scope for hasty or contradictory policy movements, increasing the stability and coherence of Kazakhstan’s trade regime. WTO notification and due process requirements may also help somewhat increase the transparency of the regulatory process. Committed domestic reform of the process of making draft laws and regulations is, however, necessary to achieve tangible results, including through improved consultations and impact assessment (discussed in Chapter 5). Simultaneously, progress in regulatory co-operation at the level of the Eurasian Economic Union and with other trading partners through deep free trade or economic partnership agreements can help reduce non-tariff barriers faced by Kazakh firms abroad and diminish disparity in regulatory approaches among Kazakh authorities and those of its partners.

Last but not least, a committed trade facilitation reform and investment in infrastructure will be critical to help reduce trade costs faced by all firms in Kazakhstan, including foreign investors. As a landlocked country, Kazakhstan relies on an effective network of railway, road, and air transport links for its non-oil exports. Meanwhile, Kazakhstan scores below the OECD average and regional best practices on most available metrics of efficiency of border procedures. In order to ensure that planned reforms are implemented, a degree of diplomacy at the level of the Eurasian Customs Union will be required but also a better oversight of domestically implemented reforms and allocation of targeted capacity building programmes.

Infrastructure investments

Infrastructure also plays a significant role in the country’s future as a major enabler of economic development. Infrastructure and basic services facilitate trade and investment by connecting manufacturers to markets. Infrastructure development is needed in several areas, in particular transport. There are a number of barriers that have constrained private financing of infrastructure in Kazakhstan in the past, including lack of adequate framework for Public-Private-Partnerships (PPPs) and inconsistent enforcement of rules. In 2012, noting the inadequacy of the legal framework as well as high presence of SOEs in significant segments of the infrastructural markets, the OECD recommended that Kazakhstan provide more opportunities for private participation in infrastructure.

Since then, in the context of reduced fiscal capacity due to falling oil prices, Kazakhstan has been increasingly interested in promoting public private partnerships for infrastructure as a tool by which to reduce reliance on public investment, draw in private financing, and share risk. PPPs have been seen as instrumental for improving infrastructure provision by mobilising private investment in infrastructure while improving the efficiency in project delivery and value for money. Thus, in 2015 Kazakhstan enacted a new PPP law, updated its concessions law as well as its PPP agency. These actions should bring clarity to the PPP regime and should help Kazakhstan better mobilise private investment. The true test will nevertheless come with the capacity of public authorities to manage future infrastructure projects. Delivering projects on time and on budget will require building government capacity at all stages, from project design and approval to execution. For PPPs to succeed, it will also be essential that the integrity framework relating to infrastructure investment is strengthened, including conflict of interest and the public procurement system (see Chapter 5).

Combatting bribery and other forms of unfair treatment of business

The success of Kazakhstan in attracting more investment will hinge on the authorities’ management of one of the main concerns of investors: solicitation of bribes, favouritism, and other forms of unfair treatment of business. Although Kazakhstan has made progress in its anti-corruption efforts, bribery remains a persistent problem, for example in the context of public contracts, business licensing, tax audits, customs and land fees. Rent-seeking behaviour that guides the appropriation, control, and distribution of key resources by ruling elites is another area of concerns. Promising reforms are nevertheless underway, aimed at strengthening the rule of law, building effective safeguards against corruption, promoting more open and inclusive dialogue to designing anti-bribery measures, improving the regulatory environment for businesses, and modernizing the government machinery, including the public procurement system. The authorities appear committed to cleansing the system of corruption. New laws have been enacted; the authorities have developed the necessary action plans and programmes. They have also established two business ombudsmen as a means of supporting companies that are faced with explicit or implicit demands for bribes and other forms of unfair treatment and of resolving disputes expeditiously (Chapter 5).

These reforms should in time have a direct influence on the perception of the investment climate. For example, business may have greater confidence in investing in the country if they know that, when solicited to pay bribes, they can take their grievance to the ombudsmen institutions for speedy resolution. The real test will however be met only through determined implementation of actions on the ground every day. Existing legal safeguards have also to be reinforced, notably by expanding and effectively implementing asset declaration systems, and, given the role of the judiciary in providing safeguards against possible misbehaviour by public officials, by enhancing the independence and accountability of the judicial system. Strengthening the independence of the newly-established ombudsmen is essential too. Raising awareness within the private sector about preventive measures such as the new Anti-Corruption Business Charter, and facilitating further public-private dialogue on business integrity standards, tools and instruments through dissemination of best practices will also be important (Chapters 5 and 7). The OECD Anti-Corruption Network for Eastern Europe and Central Asia, to which Kazakhstan belongs, could help advance the anti-corruption agenda in this regard.

Promoting and ensuring responsible business conduct

Kazakhstan has committed to establish a National Contact Point (NCP) for the OECD Guidelines on Multinational Enterprises- which are recommendations on what constitutes responsible business conduct (RBC) in the areas of information disclosure, human rights, employment and industrial relations, environment, bribery and corruption, consumer interests, science and technology, competition, and taxation. At the beginning of 2017, Kazakhstan had planned to establish it in the Investment Committee of the Ministry for Investments and Development (MID). The government was also working on a multi-stakeholder Working Party to assist it in its functioning. The Working Party will act both in an advisory and oversight capacity; it will have decision-making power; and will be multi-stakeholder. In the view of the government, the inclusion of different stakeholders in the Working Group 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 NCP will be staffed by 5 experts 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. In addition to bringing in a multi-stakeholder view into the NCP through the WorkingParty, a dialogue with stakeholders is planned on a regular basis.

In general, awareness of RBC has increased in Kazakhstan in recent years. Numerous public and private initiatives have been established, with notable efforts to promote RBC by Samruk-Kazyna, the sovereign wealth fund and joint stock company; the National Chamber of Entrepreneurs, Kazakhstan’s umbrella business organisation; and several civil society organisations. On a policy level, the new Entrepreneurial Code includes a legal definition of social responsibility and commits the state to creating the conditions and not interfering with business activities in this area, a welcome development in light of previously reported practices that social responsibility projects amounted to a charity tax. Although the government has yet to develop a coherent government strategy on RBC as recommended by the OECD in 2012, some Ministries have implemented RBC-related initiatives, but they have in general been fragmented and on an ad hoc basis. Samruk-Kazyna’s 2015 Corporate Governance Code is another notable effort. The Code calls for transparency and accountability, respect for human rights, and environmental protection and envisions the development of action plans on sustainable development, with the Guidelines mentioned as a relevant international standard (Chapter 7).

In specific areas covered by the Guidelines, corporate governance requirements, including as related to disclosure and reporting, are still evolving. While requirements on non-financial reporting have been partially expanded as recommended by the OECD in 2012, they remain weak in practice. However, some promising initiatives to promote transparency have emerged. The inclusion of a specific chapter on Transparency in the Samruk-Kazyna’s Corporate Governance Code is a welcome development. Additionally, Kazakhstan Stock Exchange participates in the Sustainable Stock Exchanges Initiative and Kazakhstan has been declared compliant with the Extractive Industries Transparency Initiative, which is particularly notable due to the importance of the extractives sector.

As related to human rights and employment and industrial relations, while Kazakhstan has ratified most relevant international Conventions, issues with the protection of human and labour rights persist in practice, including also as related to business activities. International organisations, some OECD countries, and human rights defenders have raised serious concerns about the legal framework itself, for example as related to the new criminal codes and trade union laws and their negative effect on fundamental freedoms. While in Kazakhstan’s view its legal framework is in line with international standards, the recent protests over land reform and the related arrests, detention and criminal prosecutions imply that some of these concerns might not have been unwarranted. The government has responded by delaying the adoption of the amendment in question by a year. On a policy level, reforms in the 2050 Strategy are in theory based on protecting and upholding human rights; efforts were made to investigate and prosecute responsible parties for the 2011 Zhanaozen casualties; a new Labour Code entered into force as of January 2016 and in the government’s view is fully aligned with OECD and International Labour Organisation (ILO) standards. However, in light of the acute nature of these issues, revisiting some of the provisions that the stakeholders have raised concerns about might be warranted.

The government has made notable efforts over the last decade to modernise environmental legislation and address the legacy of the Soviet period, as reflected in an increase in the position in international rankings on environmental performance. Nevertheless, the economy’s reliance on fossil fuels and high energy intensity weigh heavily on the environment, with high greenhouse gas emissions a notable problem. Kazakhstan is vulnerable to climate change and issues with water shortages and considerable pollution, even if improved compared to a decade ago, persist. In an attempt to address these issues, the 2050 Strategy integrates environmental considerations in economic objectives. Increasing the quality of institutions charged with environmental protection could be prioritised in order to address the reports of administrative complexity and sometimes discretionary decision-making that impede 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 fines were imposed in an attempt to exert pressure and obtain additional funds. Strengthening disclosure requirements and rules, including on environmental and climate change matters, would also be beneficial.

As noted earlier in this assessment, bribery remains one of the main constraints for doing business in Kazakhstan, despite efforts made by the government to address the issue. Progress has also been made to scale up protection of consumer rights. Obtaining reliable information on products remains nevertheless a challenge for consumers. 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.

There is also still substantial room for improvement to raise the performance of Kazakhstan’s education system and to expand economic opportunities benefiting domestic workers. An inadequately educated workforce has been among the most cited problematic factors for doing business in Kazakhstan, while job quality remains an issue for a large number of workers concentrated in several sectors and regions. In particular, concerns about low wages, non-payment of wages and discrimination have been raised by stakeholders when it comes to foreign investors. 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. 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 (see also Chapter 5).

Although the legal framework that protects the public interest and underpins RBC has been partially established, more efforts are needed to strengthen it further and ensure implementation and enforcement of the relevant laws. 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.

The way forward

Promoting foreign investment, reducing the cost of doing business, creating fair competition rules, fostering private sector development, building more efficient and transparent public administrations, ensuring the rule of law and fighting corruption are high on the agenda of the Kazakh authorities. The present Review confirms that, since the previous examination by the OECD of Kazakhstan’s investment policies, the country has made significant progress in improving its policy framework. Many of the reforms recently undertaken illustrate willingness on the part of the Kazakhstan authorities to take practical measures to improve the overall business climate and attract more foreign investment.

Investment-related policies in areas such as competition, tax, infrastructure, private sector development as well as policies aimed at combatting bribery and at strengthening the rule of law need nevertheless to be further scaled up to support Kazakhstan’s objective to attract foreign investors as part of the country’s efforts to diversify the economy away from natural resources. In the case of trade policy, there is also scope to build momentum from the recent WTO entry to engage in further deep-reaching trade reforms, both through committed domestic reforms and further collaboration with the main trading partners.

With regards to RBC, although the legal framework that protects the public interest and underpins RBC has been partially established, more efforts are needed to strengthen it further and ensure implementation and enforcement of the relevant laws. Particular attention is warranted to ensure the protection of human and labour rights. Finally, Kazakhstan’s newly established NCP could serve as a valuable vehicle for bringing about policy coherence on a wide range of issues that affect the quality of the investment environment, including, for example, labour relations and corporate governance. A robust NCP that operates in accordance with the criteria set out in the Guidelines, retains the confidence of social partners and other stakeholders, and fosters the public profile of the Guidelines has the potential to shape the quality of incoming investments, contributing to a more stable and predictable investment environment based on a level-playing field.

Overall, it has to be noted that Kazakhstan has undertaken numerous reforms in recent years. In some cases, new laws have just been passed, or are yet forthcoming, and it is too early to assess their impact on Kazakhstan’s policy framework for investment, and confidence of firms to invest in the country. While the reformist momentum of the authorities is laudable, the tendency to pass numerous laws in a short period of time can also add to compliance costs by firms and create uncertainty. There is hence a balance to be struck between reforms and legal and institutional turnover that the government grapples with. More frequent use of ex ante and ex post assessment tools and regular feedback from stakeholders and coordination among agencies may help amend that.

The main recommendations from this Review are presented below while more detailed ones are provided in each chapter.

Box 1. Principal Policy Recommendations

Horizontal policies

  • Ensure that timely preparation of new rules and regulations does not come at the expense of their consistency and clarity.

  • Replace fragmented local content policies for greater domestic involvement with more coherent, strategic reform packages, taking into consideration the interactions between policy areas.

  • Consider further strengthening safeguards of judicial independence to ensure that proceedings cannot be influenced by considerations of specific interests or the identity of the natural or legal persons involved.

  • Bear in mind that regulatory change imposes costs, as repeated changes can cause uncertainties and compliance costs for business.

Investment policy

National treatment

  • Consider further liberalisation in sectors that remain relatively closed to foreign investment and where WTO market access commitments have been limited, such as ownership of land.

  • Ensure that administrative procedures, including screening mechanisms, do not limit market access in practice in sectors where market access has recently been deepened, such as telecommunications.

National security-grounded restrictions

  • Adopt best practices concerning investment policies taking into account the principles of non-discrimination, proportionality, transparency and accountability enshrined in the OECD Guidelines for Recipient Country Investment Policies Relating to National Security, and restrain on the application of exceptions based on essential security interest listed under the National Treatment instrument list of exceptions.

Key personnel

  • Pursue further efforts aimed at simplifying administrative procedures for hiring key foreign personnel to facilitate access of local firms to talent worldwide. Local content requirements are being reduced but, together with other administrative procedures, still remain a barrier. Administrative capacity of institutions dealing with issuing relevant permits could also be strengthened to reduce delays while retaining appropriate control.

Balancing investment protection and the government’s power to regulate

  • Focus on establishing a regulatory environment which enhances investor confidence. Government commitments to maintain legislation in the future should be carefully evaluated with regard to the government’s future ability to regulate. They should be seen as a useful tool to increase investor confidence until an improved overall legal framework ensures adequate predictability and protection.

  • Specify investment treaty language to ensure that treaties accurately reflect government intent. Review existing investment treaties to ensure that improved treaty design is also reflected in Kazakhstan’s network of existing treaties.

  • Manage liability risks under investment treaties actively. The authorities should seek to ensure that different government agencies and officials are aware of treaty policy and the obligations it entails. Efforts to improve the management of risks could include training programs for government officials and the creation of dispute prevention and management mechanisms.

Tax policy and investment incentives and disincentives

  • Increase tax revenue to meet the country’s public spending and investment needs by streamlining the tax system and eliminating wasteful tax incentives.

  • Review policy rationale for offering different levels of protection and tax incentives to different groups of investors. While in some cases there can be benefit in providing certain extra incentives to attract specific investors, e.g. investors in certain sectors and projects or foreign investors, Kazakhstan should seek to guarantee a sound investment climate for all investors and consider the distorting effect of preferences to efficient investment decisions.

  • Establish clear guidelines for tax officials to encourage uniform approach and interpretation of the tax provisions.

Investment promotion and facilitation

  • Ensure that business views are taken into account in the design of future investment facilitation reforms.

  • Ensure that investor community is aware of the one-stop-shop (OSS) for business registration, obtaining licenses and permits and going through other administrative procedures.

  • Define a clear investment promotion strategy that would outline the goals and tools of investment promotion strategy in Kazakhstan.

  • Clearly define responsibilities of different agencies involved in investment promotion activities in Kazakhstan and agree on modes of co-operation between them to share resources and avoid waste.

  • Improve the efficiency of Kaznex Invest operations and reorient its functions towards serving investors, not other government bodies.

Trade policy

  • Build on the momentum from the WTO entry to engage in further deep trade reforms.

  • Engage in trade negotiations with countries with which trade complementarity is high and no free trade agreement exists.

  • Pursue ambitious trade facilitation reform to help reduce trade costs faced by all firms. In particular, advance on streamlining and automating border procedures in collaboration with other Eurasian Economic Union members and internally.

  • Strengthen regulatory co-operation with the main trading partners to reduce non-tariff barriers to trade.

Infrastructure development

  • Take account of the role of the first pilot PPP project in sending market signals to investor about the adequacy of the new regulatory framework for PPPs.

  • Build stronger administrative PPP capacities within the government.

  • Strengthen integrity frameworks relating to infrastructure investment and the procurement system, including conflict of interest

Competition policy

  • Given that the economy is still characterized by the prevalence of a few powerful undertakings as well as monopolistic sectors, keep strengthening the competition law regime, notably in the areas highlighted in the OECD Competition Committee’s recent peer review of Kazakhstan, such as improving the independent action of the new competition authority, and ensure that privatisation encourages more competition in previously monopolistic sectors instead of merely replacing public with private monopolies.

Corporate governance

  • Given that state-owned enterprises (SOEs) are still present in many sectors of the economy, strengthen measures contributing to a level playing-field, including by supporting the enforcement of corporate governance frameworks for SOEs. The OECD Guidelines on Corporate Governance of State-Owned Enterprises advise countries on how to manage more effectively their responsibilities as company owners, thus helping to make state-owned enterprises more competitive, efficient and transparent.

Public governance

  • Implement determinately anti-bribery and integrity measures, notably in the areas highlighted by the third round monitoring report on Kazakhstan under the Istanbul Anti-Corruption Action Plan and the Integrity Scan of Kazakhstan undertaken under the auspices of the OECD’s CleanGovBiz Initiative.

  • Pursue on-going efforts aimed at fighting bribery in civil service and promoting public sector integrity, notably through the development of efficient systems that proscribe conflicts of interests. The OECD Recommendation on Guidelines for Managing Conflict of Interest in the Public Service advises countries on how to avoid and manage more effectively conflicts of interest.

  • Adopt clear and robust implementing rules to articulate the new public procurement law’s vision, especially in terms of transparency and accountability, oversight, and fair and equitable treatment for potential suppliers, and reduce the exceptions that limit the application of the law to the greatest extent possible. The 2015 OECD Recommendation on Public Procurement advises countries on how to establish a well-functioning public procurement system.

  • Take further action, as appropriate in co-operation with business organizations and other civil society stakeholders, to advise and assist companies throughout Kazakhstan in their efforts to prevent bribery through, for example, the development of seminars, guidelines and other forms of guidance.

Responsible business conduct

  • Develop a National Action Plan on Responsible Business Conduct (RBC), 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.

  • 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.


← 1. National sources; the World Bank, Country data: Kazakhstan; and the Asian Development Bank website, Kazakhstan: Economy.

← 2. Asian Development Bank website, Kazakhstan: Economy.

← 3. English version available on the Kazakh embassy to the United Kingdom website: (accessed on 11 July 2016).