Chapter 2. Kazakstan’s investment regime

Kazakhstan has been determined to make the regulatory framework more conducive to foreign investment. Reforms have resulted in the removal of obstacles to FDI so that foreign investors can now participate in almost all sectors of the national economy on an equal footing with domestic investors. While Kazakhstan is getting closer to OECD levels in terms of statutory restrictions according to the OECD FDI Regulatory Restrictiveness Index, some sectoral restrictions are still posing constraints on investment. Remaining restrictions include mass-media, where equity limits apply; fixed-line telecommunications, where authorisation is required for foreign participation above a certain threshold; security services, where foreign investment is prohibited; and the use of agricultural forestry and land. Kazakhstan also maintains somewhat burdensome conditions with regards to the employment of key foreign personnel, which apply horizontally across economic sectors, and are relatively less typical among OECD countries. Other investment impediments include the weight of the public sector in the national economy. The share of state-owned enterprises in the economy should nevertheless decrease to 15% by 2020 against over 35% in 2016.

  

The enabling environment for investment faced by foreign investors, both when they first establish and in their on-going operations, is a key component of the OECD Declaration on International Investment and Multinational Enterprises. The Declaration consists of OECD instruments designed to promote international investment in a transparent and responsible manner. Under the Declaration, governments voluntarily commit to a balanced set of rights and obligations for foreign investors through in particular the National Treatment instrument and the Guidelines for Multinational Enterprises. This chapter examines Kazakhstan’s investment regime in light of the National Treatment instrument, the first element of the Declaration, which establishes an internationally recognized standard of treatment that helps eliminate discrimination vis-à-vis foreign controlled enterprises operating in the territories of Adherents (Box 2.1). Kazakhstan’s framework regarding investment incentives is further analysed in Chapters 4 and 5, whereas Kazakhstan’s framework for responsible business conduct, as covered by the Guidelines for Multinational Enterprises, is analysed in Chapter 7.

Box 2.1. The OECD Declaration on International Investment and Multinational Enterprises

Adopted in 1976, the Declaration is a policy commitment by Adherents to provide an open and transparent environment for international investment and to encourage the positive contribution multinational enterprises can make to economic and social progress.

The Declaration consists of four main elements:

  • National Treatment: A voluntary undertaking by Adherents to accord to foreign-controlled enterprises established on their territories treatment no less favourable than that accorded to domestic enterprises in the same situations.

  • The Guidelines for Multinational Enterprises: Recommendations on responsible business conduct addressed by governments to multinational enterprises operating in or from Adherents. The Guidelines were updated in 2011.

  • Conflicting requirements: Adherents agree to co-operate so as to avoid or minimise the imposition of conflicting requirements on multinational enterprises.

  • International investment incentives and disincentives: Adherents recognize the need to give due weight to the interest of other adhering countries affected by laws and practices in this field; they need to strengthen international co-operation in this area and endeavour to make measures as transparent as possible.

All 35 OECD member countries have adhered to the Declaration, as have 12 non-member countries: Argentina (22 April 1997), Brazil (14 November 1997), Colombia (8 December 2011), Egypt (11 July 2007), Lithuania (20 September 2001), Morocco (23 November 2009), Peru (25 July 2008), Romania (20 April 2005), Tunisia (25 May 2012), Costa Rica (30 September 2013), Jordan (28 November 2013), and Ukraine (15 March 2017).

Main features of Kazakhstan’s investment regime: Overall policy approach towards foreign investment

The authorities have made strides in opening the country to international investment. 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. Kazakhstan’s score in the OECD FDI Regulatory Restrictiveness Index (a measure of statutory restrictions on foreign direct investment) is getting closer to OECD levels, although it is above the OECD average. Additional changes, expected to be implemented within five years of Kazakhstan’s 2015 accession to WTO, should support an even more open environment for foreign investors.

Ground-level conditions are nevertheless still posing constraints on investment, despite recent and on-going steps to eliminate some of them. The main operational restriction on foreign investment, primarily in the energy and mining industries, has involved a local content requirement covering goods and services, as well as labour. Since Kazakhstan’s accession to WTO, the government has started to reduce local content requirements and it is expected that at the end of a five-year transition period (i.e. by 2021), they will be further reduced. Reforms undertaken by Kazakhstan in this area are described in the section below on horizontal policies affecting FDI.

Other investment impediments include the weight of the public sector in the national economy. In spite of extensive privatisation in the 1990s and 2000s, the state is still heavily present, making up between 35% and 40% of the national economy according to some estimates. Also, a vast range of important industries and economic sectors are natural monopolies in Kazakhstan: some 1 200 companies in 15 spheres of economic activity in 2016. The excessive market power of some of these companies may have adverse consequences for the overall competiveness of the economy and a negative impact on foreign investment. Recent initiatives have nevertheless focused on reducing the share of SOEs in the economy: the on-going privatisation plan for 2016-20 aims at reducing the so‐called quasi-state companies owned by the central government to 15% by 2021. Other reforms aimed at encouraging competition and entry and operations of investors in activities formerly reserved to monopolies are underway.

Horizontal policies affecting FDI

Many resource-rich countries have put in place, at one point or another in the course of their development path, specific policy instruments requiring firms to use domestically available factors of production in an attempt to derive more benefits from their resource endowments. It is estimated that still today over 90% of these countries –and this includes OECD countries– have one form of local content policy or another as regards their extractive industries (Korinek et al., forthcoming). Kazakhstan is not an exception. Local content requirements, which also apply to labour, have long been seen by the Kazakh authorities as a way of building domestic supply capacity and spreading the benefits of the economic boom, especially the natural resource one. In the framework of its 2012 Review of Kazakhstan the OECD nevertheless noted that Kazakhstan’s local content policy significantly added to the administrative burden on an enterprise’s operations and to the cost of doing business in Kazakhstan (OECD, 2012). Since then, in connection with its accession to the WTO, the country has started to adopt new legislation and regulation aimed at altering or phasing out some existing requirements, including with regards to foreign labour and key personnel.

Labour policy

Kazakhstan’s local content policy applies to labour, combined with rather stringent rules on hiring foreign labour, including key personnel. Employers, in order to engage foreign labour and foreign workers, are required to obtain permits within a quota established by the government.1 In 2016, the quota made up 0.7% of Kazakhstan’s economically active population (i.e. 60 000 individuals). Work permits restrictions do not apply in certain cases, including: nationals of the State Parties to the Eurasian Economic Union Treaty (citizens of Armenia, Belarus, Kyrgyzstan and Russia); top management positions in branches and representative offices; chief executive officers (CEOs) in companies concluding contracts of over USD 50 million; managers in firms active in priority investment activities; and managers of Kazakh legal entities which have signed investment contracts for the implementation of an investment priority project. In 2016, they also were not applied for the hiring of managers and specialists in the “Park of Innovative Technologies” Special Economic Zone.2

Beyond these exceptions, restrictions apply to all employee categories. There are 4 categories of employees for which a working permit is required: Category I, which includes chief officers and their deputies; Category II, which deals with managers and specialists; Category III, which concerns technical experts; and Category IV, which comprises qualified workers. Restrictions vary according to the category of employees. Pursuant to a Government Resolution from 20123 which somewhat tightened the rules governing work permits, foreign staff are limited to 30% of Category I (against 50% in 2011) and of Category II. In the other two categories (specialists and qualified workers), foreign staff are limited to 10%.

The duration of work permits also varies from one category to another. Work permits are generally offered for one year, for categories II, III and IV, with the possibility of an extension for at most 2 years for categories II and III but not for category IV (qualified workers). Work permits for category I workers (executives and their managers) are offered for up to 3 years and can be extended for up to 12 months an unlimited number of times. Until the beginning of 2017, a labour market test (also called Economic Needs Test) was a prerequisite to receiving a work permit: the authorities would consider a work permit application only if there were no local employees qualified for the vacancy. In order to obtain work permits, employers had also to comply with “special conditions”, i.e. provide advanced training to Kazakhstani employees and/or create additional jobs for Kazakh citizens, as determined by local authorities.

In its first Review of Kazakhstan, the OECD noted that hiring expatriate staff involved a cumbersome process, and restrictions concerning the share of foreign staff existed in almost each type of position (OECD, 2012). In 2014, this horizontal restriction on the movement of people and key foreign personnel still accounted for one third of Kazakhstan’s overall score on the FDI Regulatory Restrictiveness Index, in contrast with OECD economies where such restrictions are less typical (Figure 2.1). Foreign investors have been complaining about the difficulties in hiring foreign labour for most of the past decade. Kazakhstan’s visa policy has also been seen as presenting an unnecessary obstacle to investors. Perhaps illustrative of this, national statistics on the number of work permits granted in the period 2013-15 show that the number of delivered work permits never matched the annual quota: in 2015, only 33 500 work permits were granted for 63 000 available (i.e. about 53%); in 2013, of a quota of over 100 000 individuals who could obtain a work permit, the number of issued permits did not exceed 26 000 (i.e. 25%).4 It would appear that locally-established foreign investors as well as domestic entrepreneurs might have decided to stay away from processes that have been perceived as time-consuming and document-intensive.

Figure 2.1. FDI Regulatory Restrictiveness Index in Kazakhstan and other economies, by restriction type, 2014
picture

Source: OECD FDI Regulatory Restrictiveness Index (2014).

 http://dx.doi.org/10.1787/888933452818

As mentioned above, Kazakhstan has committed to introduce changes in relation to the hiring of foreign workers as part of its obligations under GATS. As part of this process, in September 2015, the authorities removed the “special conditions” (or extra recruitment obligations) on companies hiring foreign managers and directors (the so-called “first category” employees), which included requirements for training and hiring of local workers.5 In November 2015, changes were made to the conditions and procedure for issuing and extending foreign labour engagement permits in the framework of intra-corporate transfer.6 Such a transfer can now be performed for a period of up to 3 years (with a year prolongation as an option). Furthermore, while foreign labour work permits are issued within the quota determined each year by the government, the quota does not apply to foreign staff engaged in the framework of intra-corporate transfers (ICTs). The number of such “transferred” employees to Kazakhstan remains nevertheless subject to compliance with the percentage ratio of the number of foreign employees to the number of local employees established by the authorities: their number must not exceed 50% of the total number of managers and specialists within a company. Furthermore, foreign employees may be attracted on an intra-corporate basis only within sectors of the economy determined by the Government.

Other changes were introduced in April 2016 in conjunction with the entry into force of a new employment law.7 From January 2017 rules governing foreign labour are as follows:

  • Annual quotas continue to apply but are now distributed by economic sectors.

  • Fees apply to work permits instead of extra recruitment obligations on companies hiring foreign labour.

  • The economic needs test (ENT) is no longer required, except in the case of employment of foreign intra-corporate transferees (ICTs) as managers and specialists. Such requirement will continue to apply to this category of employees until 2020 at the latest.8

While the measures above can be seen as an effort by the authorities to simplify and improve the procedures for the hiring of foreign labour, other amendments adopted in 2015 and 2016 have somewhat tightened the rules for employing foreign workers. For example, amendments to existing legislation in 2015 have made more complex the rules for companies hiring foreign employees to work in more than one region of Kazakhstan. Previously, foreign staff were able to extend a work permit for one region of the country to another region but now must apply for new work permits for each new region, unless they spend less than 91 days outside the region issuing the permit.9 Furthermore, although the regulations recently adopted make it easier for local companies to employ foreign managers and directors in the framework of intragroup relocation, companies in Kazakhstan still confront a costly and complicated maze of regulations requiring them to justify why they must hire a foreigner. For example, while the government is committed to eliminate all labour test requirements by 2020, new regulations adopted in March 2016 tightened the rules governing the employer’s obligation to conduct a preliminary search for labour on the Kazakhstan labour market in the event of ICTs.10

In the same vein, despite Kazakhstan’s commitment to introduce changes in relation to the entry and temporary stay of natural persons, including business visitors, as part of its obligations under GATS, the rules and procedures have broadly remained the same, this despite the issuance of a new decree in this regard in April 2016.11 A maximum period of 120 days per calendar year still applies to business visitors who enter and remain in Kazakhstan without obtaining a work permit.12 The Government Decrees of March and April 2016 also tightened the rules governing foreigners’ stay by requiring host companies to inform the internal affairs authorities about foreign workers staying with them within 3 business days of the date of their arrival.13 Moreover, in case a foreign worker changes temporary his/her place of residence in the country, both the company and the individual are required to notify the internal affairs authorities within 3 and 5 business days, respectively. The latter has to re-register with the authorities at the place of his/her new residence. Such requirements risk imposing an additional burden on foreign investors. The authorities should ensure that the administrative procedures in this area and in others do not serve as a de facto barrier to hiring foreign personnel.

Local content requirements

In addition to tightening the rules governing work permits in the recent past, the Kazakh authorities have until recently increasingly inserted requirements for local content into the country’s legal framework through legislation, regulations, contracts and bidding practice, with the overall objective to increase the use of local inputs of goods and service in production by foreign investors in Kazakhstan. This policy has been implemented particularly in the oil, gas and mining sectors, but has covered other sectors as well, such as the automotive industry.

As a result of its accession to WTO in June 2015, Kazakhstan has begun a five-year transition period to bring its local content laws, policies and contracts into compliance with the new WTO requirements. The first legislative amendments adopted in October 2015 primarily concerned the oil and gas sector as regulated by the Law on Subsurface and Subsurface Use of 2010.14 These amendments entailed introduction of changes in requirements in respect of local content and acquisition of goods, work and services when performing Subsurface use operation contained in the Law on Subsurface and Subsurface Use. The new legislation has also eased in that context the requirements in respect of local staff engagement. In addition, it has abolished preferential treatment given to local producers in procurement of goods and services by state-owned companies.

Pursuant to the amendments to the Law on Subsurface and Subsurface Use, obligations in respect of local content in goods are now excluded from the newly concluded contracts. Previously, subsurface users were required to use “equipment, materials and finished products manufactured in Kazakhstan, provided they meet the requirements of competition and the laws of the Republic of Kazakhstan”.15 The requirement on mandatory use of equipment, materials and finished products manufactured in the Kazakhstan, as well as on mandatory acquisition of the Kazakhstan manufacturers’ goods, has now been abolished.16

The new legislation adopted in October 2015 also eases the requirements in respect of local staff engagement. Although a subsurface user is still obligated to give preference to local staff in the course of subsurface use operations, this requirement does not apply any longer to managers and specialists hired within the framework of intra-corporate transfers where other conditions apply. In other words, subsurface users are now entitled to use managers and specialist transferred to Kazakhstan as part of an intra-corporate transfer, provided that the number of Kazakh citizens is kept at not less than 50% of the total number of employees in each respective category and that they meet other requirements (see also Chapter 6).17

Other requirements that pre-existed to the adoption of the new legislation remain in force however. Acquisition by a subsurface user and its contractors of work and services from Kazakhstan producers and manufacturers remains mandatory for exercising subsurface use right.18 Although the minimal threshold for services has decreased from 90% in the recent past to 50% in order to comply with the commitments undertaken in WTO’s services market access schedule,19 it may still be perceived by some foreign investors as high.

In addition to local content requirements that apply to procurement of work and services by subsurface users within the framework of investment contracts in the oil and gas and mining sectors, Kazakhstan also applies local content requirements, in the form of preferences for purchase of locally produced goods, under investment agreements in the automotive sector. Such agreements are governed by the Order No. 113 of 11 June 2010 of the Deputy Prime Minister “On Certain Issues on Concluding, Conditions and Model Form of the Agreement on Industrial Assembly of Motor Vehicles with Legal Entities – Residents of the Republic of Kazakhstan”. Pursuant to the Order, a company that has signed a contract for industrial assembly of motor vehicles must ensure a local content level of at least 50%. At the time of writing of this Review, four companies had concluded agreements on industrial assembly with the Ministry for Investments and Development, two of them dealing with the industrial assemblies of Peugeot and Toyota automobiles. As part of its accession to WTO, Kazakhstan committed that, from 1 January 2015, any new industrial assembly agreements concluded with investors in the automotive sector will not include provisions that are WTO inconsistent. Kazakhstan also committed to eliminate all WTO-inconsistent measures contained in the existing four industrial assembly agreements by 1 July 2018.

Still in order to comply with the WTO provisions, Kazakhstan ended in 2015 its policy consisting of granting preferential treatment for local production and services supplied by domestic firms in the framework of commercial procurement conducted by companies owned or directly or indirectly controlled by the state. Previously, Kazakhstan suppliers of goods, works and services (hereafter: Kazakhstan manufacturers) were granted a putative reduction in the price of their bids during a tender procedure (up to 20% on goods and 10% on works and services). The Law No. 365-V “On Amendments and Addenda to Certain Legislative Acts of the Republic of Kazakhstan Related to the Accession to the World Trade Organisation” of 27 October 2015 has removed the local content provisions in procurement of companies with state participation. As a result of this new legislation, paragraph 5 of Article 19 of the Law “On the National Welfare Fund” (the largest state-owned conglomerate), which gave preference in tender procurements of “Samruk-Kazyna” to domestic firms over both non-resident and locally-established foreign controlled enterprises that did not meet the criteria of “Kazakhstan manufacturers” has been eliminated. In the same vein, given that all national holdings and national companies are established in Kazakhstan in the form of joint stock companies with state participation, paragraph 2 of Article 34-1 of the Law “On Joint Stock Companies” of 13 May 2003, which provided for similar preferential treatment, has been abolished.

Although valuable, these initiatives appear to be often ad-hoc and limited to comply with WTO requirements, without addressing the full set of issues faced by businesses. The promotion of greater domestic involvement should be tackled in a comprehensive manner and not follow a piecemeal approach which may exacerbate many problems already identified at the time of the first Investment Policy Review. Alternative measures do exist to empower local labour force or spur the development of domestic supply chains, for example business linkages between domestic and locally established foreign-owned firms and support programmes for SMEs as described in Chapter 5 on investment promotion and facilitation. Local content requirements need to be evaluated against alternative policy options. If some requirements have to be maintained, they should be clearly defined and applied in a transparent and comprehensive manner.

Sectoral policies

The sections below present the exceptions to the OECD National Treatment instrument notified by Kazakhstan as well as measures notified by Kazakhstan for transparency purposes as defined by the Declaration on International Investment and Multinational Enterprises. The latter measures include restrictions that may be based on national security considerations, others measures reported for transparency such as corporate organisation requirements as well as public and private monopolies and concessions.

Box 2.2. The OECD National Treatment instrument for Foreign-Controlled Enterprises

National treatment is the commitment by an Adherent to the Declaration on International Investment and Multinational Enterprises to treat enterprises operating on its territory, but controlled by the nationals of another country, no less favourably than domestic enterprises in like circumstances. The National Treatment instrument consists of two elements: a declaration of principle, which forms part of the Declaration, and a procedural OECD Council Decision which obliges Adherents to notify their exceptions to national treatment and establishes follow-up procedures to deal with such exceptions. The Decision comprises an annex that lists exceptions to national treatment, as notified by each Adherent and accepted by the OECD Council. The OECD Investment Committee periodically examines the exceptions. Only measures concerning legal entities are reported for the purpose of the National Treatment instrument, and thus any measure that may apply to natural persons is not reflected in the list contained in the annex to the Council’s decision. To ensure transparency, Adherents to the Declaration also undertake to report any measures that, while not representing exceptions to national treatment, have an impact on it. The lists of these exceptions and measures are published and regularly updated. There are featured in Annex B to the present Review, whereas Annex A presents Kazakhstan’s exceptions to national treatment.

Exceptions to the OECD National Treatment instrument notified by Kazakhstan

The exceptions concerning National Treatment notified by Kazakhstan concern the ownership and use of agricultural and forests, security services, fixed-lined telecommunications and mass-media (see Annex A at the end of this Review). Although restrictions in fixed-lined telecommunications and mass-media are grounded on national security interests under Kazakhstan’s legislation, the Kazakh authorities, showing their willingness to adopt best practices in this area, decided not to record them under the National Treatment instrument under measures noted for transparency based on public order and essential security considerations but instead placed them under the disciplines of National Treatment instrument through adjusting the list of exceptions to the National Treatment instrument accordingly.

Access to agricultural land and forestry

One of the principal objectives of Kazakhstan’s authorities since the past decade has been to boost the agricultural sector as part of the strategy for economic diversification.20 Restricting access to agricultural land can hold back agricultural development and economic diversification (OECD, 2013). In 2012, the OECD recommended Kazakhstan to increase the access to agricultural land and forestry for foreign investors, after having noted that agri-business is a priority sector for diversification and that Kazakhstan had more statutory restrictions on foreign investment in this sector than the OECD average (OECD, 2012).

Restrictions still apply in relation to agriculture and forestry.21 Only Kazakh citizens and legal entities can own forests. Furthermore, foreign legal entities and subsidiaries of foreign companies, where the share of foreign equity participation is more than 50%, are not allowed to own agricultural land plots. Foreign land users are also not entitled to permanent land use. They are entitled to lease agricultural land plots and forest service land for up to 10 year years, while Kazakh legal entities can lease agricultural land for up to 49 years. While the government planned to extend the lease period to 25 years for foreign land users, the reform has been stalled due to public protests.22

By contrast, foreign nationals and legal entities may hold private ownership of land plots granted for construction, or land plots comprising constructed production and non-production buildings, including residential (structures, facilities) and their complexes, and land designed to serve buildings (structures, facilities) in accordance with the intended use.

Communications technology

The government has been liberalising gradually the telecommunications sector since 2004, replacing the 1999 Telecommunications Law with a new law in 2004. This reduced the market power of the state-owned incumbent operator Kazakhtelecom, primarily on the mobile telephony market. The government has also progressively reduced its share in Kazakhtelecom, until it reached 51% in 2007. Since 2004, foreign investors have entered the sector (Tele2 was the last foreign operator to enter the Kazakh market in 2010), including through the acquisition of Kazakhtelecom’s shares in existing local mobile operators.

As a result of this gradual liberalisation, foreign-owned operators now dominate the mobile telephony market,23 which has thus benefited from technological upscaling and registered years of dynamic growth. Although the mobile segment has now reached saturation (mobile phone penetration reached 170% at the end of 2014), growth potential is strong in mobile data services.24 By contrast, state-owned Kazakhtelecom controls the lion’s share of the fixed-line telephony (now accounting for less than 20% of overall telecom revenues, while the mobile segment accounts for around 50%) and broadband internet market segments. According to its annual report, Kazakhtelecom accounted for 84.5% of broadband internet subscribers and 92.2% of fixed telephony subscribers in 2014. In addition to Kazakhtelecom, two affiliates of other large SOEs (Kaztranskom and Transtelecom) are among service providers of fixed line telephony and broadband internet access. Fixed broadband internet penetration reached 13 per 100 inhabitants in 2014, slightly below the Russian Federation (17 per 100 inhabitants). Given impressive growth (broadband internet penetration was only 5.5 per 100 inhabitants in 2010) in recent years and relatively low penetration level, this segment will remain the most dynamic on Kazakhstan’s telecommunication market for the next few years.

Until recently, foreign individuals and legal entities could not directly or indirectly possess more than 49% of the voting shares or interest shares of legal entities conducting long-distance international communication using land (cable, fibre-optic or radio-relay) connection cables (Law “On National Security of Republic of Kazakhstan”, 6 January 2012). As a result, foreign-owned mobile operators had to rent Kazakhstan’s lines for fixed broadband and intercity transmission services or set up joint ventures with smaller local intercity transmission operators. This contributed to the current limited share of foreign-owned operators on the fixed-line voice, data, and broadband internet markets. The maximum foreign equity limit in fixed-line telecommunications also contributed to the Kazakhstan’s elevated score on the FDI Index in 2014.25 FDI restrictions in the sector were also estimated to have an equivalent effect to a 15-20% ad valorem import tariff, significantly above the average import tariff level in Kazakhstan.26

However, as of January 2016, the amended legislation allows foreign ownership of legal entities operating or owning main fixed communication lines beyond the 49% equity threshold, except for the national operator JSC Kazakhtelecom,27 provided that a special permit is delivered by the Ministry of Information and Communication jointly with the National Security Committee.28 Despite this amendment, there is still room for improvement. The excessive market power of the incumbent state-owned operator in fixed line telephony and broadband internet services, combined with the absence of an independent regulatory authority in the telecommunication sector,29 may have adverse consequences for the overall competitiveness of the economy. Reducing the remaining foreign investment restrictions concerning fixed-line international and inter-city telecommunication (including through the removal of the special screening procedure introduced in January 2016) could help increase competition and increase foreign direct investment in the sector. If the government decides to retain the procedure, it should ensure that the evaluation criteria and the administrative procedures used are clear and transparent, as highlighted in the OECD Policy Framework for Investment; and do not de facto limit market access in the sector. In 2012, the OECD recommended that Kazakhstan pursue its reform agenda in the telecommunication sector to open up to greater competition and create an independent regulatory authority for the sector (OECD, 2012).

Mass-media

As was the situation when the OECD released its first Review of Kazakhstan in 2012, the country retains legislated restrictions on foreign ownership in media: equity stakes in media companies are limited to 20% for foreign natural and legal persons.30

Security services

Foreigners, foreign legal entities and established foreign-controlled enterprises shall not provide security services or manage companies providing security services.31

Air transport

Until 2016, foreign investment in the air transport sector was allowed only up to 49% in companies involved in regular international and domestic flights for both passengers and cargo services. Since then, as of 1 January 2016, the equity restriction in air transport has been entirely lifted. At the time of writing, the authorities were nevertheless considering to reinstitute the previous restriction.

Measures notified by Kazakhstan under the National Treatment instrument for transparency purposes

Several policies applied by Kazakhstan qualify for notification as measures reported for transparency under the National Treatment instrument. These are listed in Annex B of this Review. Kazakhstan imposes conditions on key personnel both across economic sectors and in specific activities such as maritime and air transport and legal services. State and natural monopolies still apply in some significant sectors such as oil transport via trunk pipelines, transmission of electricity, ports and airports, and railways. In addition, foreign investment activities can be limited or banned in certain areas due to national security considerations.

Measures based on public order and essential security considerations

Measures based on public order and essential security interests must be reported for transparency purposes. Measures which do not openly discriminate between foreign-controlled enterprises and domestic enterprises but may result in difference in impact, imposing a greater burden on the foreign controlled-enterprise, are also notified for transparency purposes (OECD, 2005).

Cross-sectoral

Pursuant to the National Security Law (2012), foreign investment activities can be limited or banned in certain areas due to national security considerations. The Law takes a broad definition of national security by encompassing “public security’ and “economic security”, concepts that involve the protection of the “spiritual-moral values of Kazakhstan society”; “the integrity of society and its stability”, the “favourable international situation of the state” and “economic development.” The objective of economic security has been a justification for establishing a national security scrutiny or review in existing or subsequent laws, for example in the Law “On Subsurface and Subsurface Use”, which has been amended in line with the National Security Law, which stipulates that “economic security” extends to the preservation and increase of the energy resources of Kazakhstan. Accordingly, the Government of Kazakhstan has the priority in purchasing the rights to subsurface utilisation, when sold by their current holder. Although not explicitly discriminatory, as this provision applies equally to domestically-owned and foreign-owned juridical persons of Kazakhstan, it allows the government to prohibit companies with foreign participation from becoming a subsurface user. The decision on acquisition of alienable subsurface use right is taken by the competent authority on behalf of the Government of Kazakhstan.

Similar provisions apply to the sale/purchase of strategic objects, defined as a property of social and economic importance for sustainable development of Kazakhstan’s society, the disposal of which will affect national security. Pursuant to Article 193-1 of the Civil Code and Article 188(3) of the Law on State Property, the sale/purchase of shares and any alienation of objects of strategic importance are subject to approval by the Government. Strategic assets may be in state ownership and in private ownership. The following assets may be considered as strategic objects: long distance railway networks; oil and gas transmission pipelines; national grid; refineries; some generation installations; nuclear energy facilities and other facilities indicated in Article 193-1 of the Civil Code. The list of objects of strategic importance is publicly available and regularly updated.32 Although not explicitly discriminatory, these provisions allow the authorities to bar the acquisition by foreigners of strategic objects, including the participation of foreign investors in the privatisation of certain assets deemed to be strategic.

While it is legitimate for countries to protect their essential security interests, it is important that such policies are based on the principles of proportionality, transparency, predictability and accountability as recommended in the OECD 2009 Guidelines. To ensure predictability and accountability, the review or authorisation procedures should be based on clear criteria and specify the modalities, including the documents to be submitted by applicants, the timeframe for conducting the review of a transaction, and the possible appeal or redress procedures against the security- and strategic sectors-related investment policy decision (Wehrlé and Pohl, 2016). As already recommended by the OECD in its 2012 Review of Kazakhstan, such measures would help reduce the current legal and regulatory uncertainty in Kazakhstan’s policies based on national security considerations (OECD, 2012).

Agricultural land in border areas

Agricultural land immediately adjacent (3-km zone) to the protected zone of the state border of the Republic of Kazakhstan can only be leased by citizens and legal entities of Kazakhstan. Foreigners and foreign legal entities are prohibited to lease or acquire agricultural land in this zone.33 Pursuant to paragraph 28 of Article 2 of Law “On the State Border of the Republic of Kazakhstan”, a border zone is a part of the territory of the Republic of Kazakhstan adjacent to the borderland within the territory of administrative districts.34 The minimum distance from the border that is prohibited for lease or purchase by foreigners is within the territory of 27 km and/or within administrative territories (districts) adjacent to Kazakhstan’s state border and banks of the border rivers, lakes and other basins. On the coast of the Caspian Sea, the distance is within the 25 km adjacent to the shoreline of the Caspian Sea.35

Other measures reported for transparency

Kazakhstan also imposes certain conditions on corporate organisation as well as limits on key personnel and other foreign staff both across sectors and in specific sectors (maritime and air transport, legal and para-legal services, forensic accounting, property management and tourism).

Corporate organisation

Kazakhstan’s legal framework contains few corporate organisations requirements and, with some exceptions, they are applied on a non-discriminatory basis to foreign and domestic investors. For example, airlines performing regular flights must be joint-stock companies and this incorporation requirement applies to both domestic and foreign investors.36 Exceptions include the prohibition for foreigners to establish as individual entrepreneurs.37 A foreign company must also establish a subsidiary (not a branch) to perform maritime transport and financial services (bank, insurance and brokerage services) in Kazakhstan.

Maritime transport

Under the Shipping Law, only ships and vessels with Kazakh state flag or the flag of a Caspian sea country, established as a local subsidiary and registered in Kazakhstan are allowed to provide maritime cabotage services, subject to administrative authorisation by the government.38 Foreign legal entities operating in the Caspian Sea according to production sharing agreements (e.g. contracting companies, operators, agents) may also fly the national flag.39 Thus, the right to fly under the state flag of the Republic of Kazakhstan is given to ships operating in the property of juridical persons, established in Kazakhstan, except for foreign legal entities operating in the Caspian Sea under the Production Sharing Agreements.

Financial services
Banks and insurance

Since 2005, the sector has been almost completely opened to foreign investment. The principal requirement remaining for foreign investors in the banking sector concerns branching, which is not a restriction in the meaning of the National Treatment instrument. Foreign banks may open a representative office but may not open branch offices. The insurance sector is governed by the 2000 Law on Insurance Activities, as amended. As in banking, non-resident insurance companies may open representative offices but are prohibited from establishing branches. This requirement will however soon be phased out in accordance with the Schedule of Specific Commitments of Kazakhstan under the GATS: starting from 16 December 2020, non-resident banks, insurance (reinsurance) companies, companies providing brokerage services will be allowed to open a branch in Kazakhstan, subject to the terms and conditions established by Kazakhstan’s legislation.40

Generally, resident and non-resident legal entities (as well as individuals) may act as founders, or be shareholders of local insurance companies or banks. However, entities registered in certain offshore jurisdictions41 as defined by a Resolution of Kazakhstan’s agency for financial market regulation, or their individual shareholders, cannot be founders or shareholders of a local bank or insurance company.42, This limitation does not apply to insurance (reinsurance) companies or banks that are subsidiaries of insurance companies or banks that have a minimal international credit rating of BBB or equivalent (foreign currency rating, international scale).43

Other financial services

Securities dealing and stock brokerage services have been gradually opened to foreign investment. As a rule, foreign firms can set up and be shareholders of companies providing specialised services on financial markets (securities dealing, stock brokerage services, underwriting new issues) and of investment funds, provided they are not controlled by legal entities registered in offshore jurisdictions (as listed in the Resolution No. 385 of the National Bank of Kazakhstan dated 24 December 2012). This restriction does not apply to companies that are subsidiaries of non-resident companies that have a minimum long-term credit rating of BBB on foreign currency (as rated by international ratings agencies listed in the Government Resolution No. 385).44

With regards to pension funds, the new Law on pension provision (No. 105-V) adopted on 21 June 2013, as amended, provides that asset management services for pension funds can be provided by companies whose shareholders are residents and resident legal entities. There is no discriminatory provision regarding foreign-owned established enterprises. Non-resident asset management companies can also offer those services if they respect minimal financial rating criteria and are not controlled by entities from offshore jurisdictions.

Key personnel

As noted earlier in this Chapter, Kazakhstan’s legal framework contains a number of specific rules for employing foreign workers and restrictions concerning the share of foreign staff apply to almost each type of position.45 With a few exceptions (e.g. heads of representative offices or branches of foreign legal entities and Armenian, Belarus, Kyrgyz and Russian citizens), limits on employment of foreign staff apply to each employee category:

  • The number of citizens of Kazakhstan in first (executives and their deputies) and second (managers and specialists) categories shall be not less than 70% of the staff;

  • The number of citizens of Kazakhstan in third (technical experts) and fourth (qualified workers) categories shall be not less than 90% of the staff;

  • The number of foreign transferees (i.e. foreigners transferred in a Kazakh affiliate of their employer) shall be not more than 50% of the relevant staff category in each company.

In addition, in accordance with sector-specific laws, certain professional activities can only be performed by citizens of Kazakhstan. Thus in maritime transport, foreign persons cannot take the position of the captain, chief captain’s mate, chief engineer and signaller of a ship.46 In the air transport sector, only a citizen of the Republic of Kazakhstan may be the head of the aviation security service of airport or of an air company providing scheduled air transport services, or can be the air security officer of an operator providing non-scheduled air services and aerial works.47 In the field of legal or para-legal services, similar restrictions apply: only a citizen of Kazakhstan may be an advocate or notary, or a candidate advocate/notary (intern); a public and private bailiff; and a patent attorney.48 Restrictions also apply to the forensic profession, the management of property in bankruptcy procedures, and the tourism industry.49

Government purchasing

Public procurement represents an important share of Kazakhstan’s economy. In 2010, the aggregate value of public procurement amounted to 6.6% of the country’s GDP and government purchasing amounted to 43% of total governmental expenses (United Nations Economic and Social Commission for Asia and the Pacific, 2014). Kazakhstan’s legislation allows locally established foreign-controlled enterprises to engage in government procurement on the same basis as domestic firms with no foreign equity.50 With regards to non-resident foreign enterprises, the new 2015 Public Procurement Law has kept the concept, introduced in 2014, of “national regime” according to which public procurement is open to foreign and domestic economic operators on equal grounds, provided that the requirement to grant such a regime is set by the international treaties ratified by the Republic of Kazakhstan and pursuant to the terms and conditions set forth in such treaties.51 As at 31 December 2016, Kazakhstan provided on a reciprocity basis national treatment for the purposes of participation in public procurements only for the Member-States of the Eurasian Economic Union (Armenia, Belarus, Kyrgyzstan and Russia) under the Treaty on Eurasian Economic Union of 29 May 2014.

Sectors subject to public/private/mixed monopolies or concessions

Monopolies and concessions are notified under the National Treatment instrument for transparency purposes as well. Monopolies can take two forms in Kazakhstan: i) a public monopoly, run by the state or managed by local governments (“state monopolies”); and ii) natural monopolies. There are no private monopolies in Kazakhstan, and the term “private monopoly” is not provided for in Kazakhstan’s legislation.

Public monopolies

The Kazakh legislation defines a state monopoly as an activity in which competition would be detrimental for “the constitutional order, national security, public order, human rights and freedoms, and public health”.52 There are currently about 20 state monopolies in Kazakhstan active in some 25 economic sectors (See Annex B). They are not registered or classified systematically, as state monopolies are created and regulated by specific legislation in the sectors in which they are established (OECD, 2016b). Most of the existing state monopolies are operating in areas which traditionally were considered basic public services such as medical equipment control, production of passports, or assessment of patent applications. Some state monopolies are also granted in sectors where the risks of competition for the environment, such as wild life protection, are considered to be too high by the Kazakh authorities.

Natural monopolies

A vast range of important industries and economic sectors are natural monopolies in Kazakhstan. The importance of natural monopolies in Kazakhstan can be seen by the fact that some of the country’s largest and most powerful corporations, such as the Kazakhstan Electricity Grid Operating Company (KEGOC) (national transmission grid operator), KazTransOil (national oil transporter in Kazakhstan accounting to 65% of all oil transported in the country), KazTransGas (the state corporation responsible for 95% of natural gas transportation via gas pipelines) and the National Company Kazakhstan Temir Zholy (the national railway company of Kazakhstan) are subject to natural monopoly regulation.

The Law on Natural Monopolies and Regulated Markets of 1998, as amended, forms the legal framework. It defines a natural monopoly as a state of the market that does not allow for competition in the production of certain goods or the provision of certain services because it is either impossible or economically inefficient in the area.53 The law contains an exhaustive list of industries which are recognised as ‘natural monopolies’. In total, some 15 economic sectors or business activities are currently subject to public monopoly in Kazakhstan.54 They include:

  1. transportation of oil, oil derivatives via trunk pipelines;

  2. storing and transporting natural gas via trunk and/or distribution pipelines, operation of natural gas pipelines, usage of natural gas distribution systems;

  3. transportation and/or distribution of electrical energy;

  4. thermal generation, transmission, distribution and/or supply;

  5. provision of electricity dispatch services;

  6. services relating to organizing of balancing generation and consumption of electrical energy;

  7. operation of main-line railways;

  8. provision of railway services under concession agreements in the absence of alternative railway track;

  9. operation of branch railway lines;

  10. air navigation;

  11. airport and harbour services;

  12. provision of telecommunication services, if there is no other competing telecom operator due to technical impossibility, or economical unfeasibility, except for universal telecommunication services;

  13. universal postal services;

  14. leasing to other entities of duct banks and equipment for connecting telecommunication lines to terrestrial telecommunication network (of incumbent telecom operator);

  15. operation of water and sewage systems.

All in all, the state register of enterprises acting in these naturally monopolistic spheres includes 1 186 economic entities. At the end of 2015, these enterprises provided 1 643 regulated services to consumers, including: 850 in water supply and utilisation; 456 in electric and heat energy sector; 279 in the transport area; 52 in oil and gas transportation; and 6 in post and telecommunications sector (OECD, 2016b).

In 2014, the government declared its intention to introduce competition into potentially competitive areas of the natural monopoly sectors and its readiness to improve the investment climate and to attract private investments (including through PPPs) into the housing and utilities sector, as well as other industries subject to natural monopoly regulation. In this context, it adopted a roadmap for an analysis of the regulated sectors to facilitate their transition from a state of natural monopoly to a competitive status. This roadmap defined eight markets where this analysis had to be conducted by the relevant authorities in 2014-15. These sectors included services in the areas of railroads, sea ports, telecommunications and oil transport. As a result of these initiatives, the government approved in December 2015 an ambitious privatisation programme which targets some enterprises acting in these naturally monopolistic spheres (see below, on privatisation).

Concessions

The July 2006 Concession Law No. 167-III, as amended (the “Concession Law”), is the principal source of rules governing concessions. In addition, general laws such as the Civil Code and the new Entrepreneurial Code, sector specific laws55 as well as sub-laws are applicable to concessions.56

The majority of current concessions in Kazakhstan are in the energy sector (exploration and exploitation of oil and gas), in social infrastructure and the transport sector (road, railroad and airport). In principle, infrastructure facilities in all economic sectors can be subject to a concession agreement, with a few exceptions, such as trunk rail networks, navigable waterways, lighthouses and other navigation devices and signs, and water structures.57 Such concession agreements are open to foreign investors.58 Although a number of concession agreements have been implemented, none of them have been completed. As a result, it is still too early to judge their success. International institutions such as the EBRD and the UNECE have seen Kazakhstan’s Concession Law and its subsequent amendments as a basic piece of legislation enabling the implementation of concessions in infrastructure based on rather good practices and a competitive selection (EBRD, 2014; UNECE, 2013). The World Bank has nevertheless noted that substantial legal barriers remain due to excessive regulation and lack of clarity in implementation arrangements.59 Against this background, it is expected that the Law on Public Private Partnerships (PPPs), enacted at the end of 2015, will enhance the enabling environment to attract private sector investment in infrastructure through PPPs. The regulatory framework and recent developments of PPPs in Kazakhstan is detailed further in Chapter 5 on investment promotion and facilitation.

Enhancing competiveness

Privatisation process

State-owned enterprises (SOEs) still represent a large part of the economy in Kazakhstan. In spite of the rapid privatisation of businesses in the 1990s and 2000s,60 the state has secured control over the most important economic sectors like oil and gas production, electricity, transport and telecoms.61 These sectors are dominated by the few national holding companies established and managed by the government.62 At the end of 2015, public and state-owned companies still accounted for about 35%-40% of GDP according to some estimates (OECD, 2016c), totalling more than 7 000 companies.63 As seen above, in some sectors such as infrastructure, the state is either the sole provider or plays a dominant role through its control of the largest incumbent operator.

The Civil Code No. 409-I from 1 July 1999 (last amended on 27 April 2015); the Law No. 413-IV “On State Property” dated 1 March 2011; the Law No. 434-V “On Public Procurement” dated 4 December 2015; and the government Decision No. 920 of 9 August 2011 “On Approval of the Rules of the Sale of Privatization Objects”, as amended on 31 December 2015, are the main legal acts regulating privatisations in Kazakhstan. State property can be sold to individuals, domestic (non-state) legal entities and foreign legal entities. There are no restrictions for foreign participation in privatisation.

In December 2015, the government approved a new wave of privatisation for 2016-20 aimed at privatising 783 state owned companies and subsidiaries of national holdings.64 Such privatisation has been one of the main response measures of the government intended to reduce the presence of the state in the national economy and cut down subsidies to businesses as well as make up for the budget loss from the lower oil price.

Assets in the atomic energy, oil and gas and mining sectors will be sold. Kazakhstan’s largest state-owned companies such as Kazatomprom nuclear company, Samruk-Energy company, Tau-Ken Samruk mining company and KazMunaiGaz (oil and gas company) are planned to be transferred to the private sector through initial public offering (IPO). Among KazMunaiGas’s subsidiaries, the Atyrau refinery, Pavlodar Petrochemical Plant, PetroKazakhstan Oil Products (Shymkent refinery), Kazmortransflot National Maritime Shipping Company and others are also planned to be transferred to the private sector. Companies operating in the telecommunication and postal services sectors such as “Kazakhtelecom”, “Kazpost”, and “Trancetelecom” will also be sold. The National Company Kazakhstan Temir Zholy (the national railway company of Kazakhstan) is also planned to be transferred to the private sector through initial IPO.65 Tenders and auctions will be opened to both local and foreign investors.66 The target indicators are: i) reduction of quasi-state companies owned by the central government to 15% by 2021 and ii) transfer of 5% of companies owned by the local governments to the private sector.67 Taking into account the plans for broadening the ownership of state enterprises through initial public offering, the state and SOEs should take steps to ensure that all shareholders are treated fairly, which also means that the state should behave as an informed and professional shareholder, avoid ad-hoc intervention in the operation of SOEs and act only through the shareholder rights in concert with the boards of directors.

Given the strong role of SOEs in Kazakhstan’s economy, the OECD in 2012 called for the strengthening of corporate governance in SOEs (OECD, 2012). Since then, all SOEs are required by law to publish annual reports and to go through an independent auditing process.68 In parallel, the authorities have made continuous efforts to reform the accounting legislation and align standards applicable in Kazakhstan with international accounting standards. Despite these reforms, audits of SOEs have proved to be ineffective69 and there is still a long way to go to improve accountability and transparency in these companies. While the Kazakh authorities continue to undertake reforms aimed at attracting foreign investment further, they should also identify new ways to ensure that all corporate governance standards applicable to private companies also apply to SOEs. There should also be a clear separation between the state’s ownership function and other state functions that may influence the conditions for state-owned enterprises, particularly with regard to market regulation. The OECD Guidelines on Corporate Governance of State-Owned Enterprises contain a wealth of practical experience, which is highly pertinent to the on-going reform priorities in Kazakhstan (OECD, 2015).

Samruk-Kazyna is an example of promising developments as it has recently taken steps to improve its corporate governance framework. A new Corporate Governance Code was adopted in 2015 and applies to all organisations in which Samruk-Kazyna directly or indirectly owns more than 50% of voting rights. The Code makes clear role of the Government as ultimate shareholder, describes specifics of Samruk-Kazyna in relation to its portfolio, emphasizes the role of the Board of directors and Risk management, Sustainable development is addressed; the Code calls for transparency and accountability, observance of human rights, prevention of environmental abuse, corruption prevention and other integrity related aspects. It also requires disclosure of these issues in the annual reports of the Fund and its subsidiaries (See also Chapter 7). Another promising development relates to the Government’s efforts aimed at better aligning the Model Code of Corporate Governance of Joint Stock Companies with State Participation of 2007 with the principles and recommendations contained in the OECD Guidelines.70

Competition policy

Given that SOEs still represent a large part of the economy in Kazakhstan, an effective competition authority is an essential precondition for a more level playing field for private investor in Kazakhstan. At the core of this role is the need for sufficient human and material resources.

As already noted in the previous Investment Policy Review of Kazakhstan, the country has made perceptible progress in establishing a basic legal and institutional framework for competition policy over the past decade. In particular, Kazakhstan’s competition authority, the Agency on Protection of Competition, has become increasingly active, notably in encouraging demonopolisation and the reduction of state interference in the economy. Concerns were nevertheless expressed in the Review that the authority did not appear to dispose sufficient human and material resources to carry out its growing responsibilities in addition to its main mission to facilitate fair competition and prevent and investigate violations of anti-monopoly legislation (OECD, 2012a).

Since then, Kazakhstan has undertaken a series of reforms in the field of competition. In particular, important changes were made in 2014, with the establishment of the Committee on Regulation of Natural Monopolies and Protection of Competition (KREMZK) as the new competition authority.71 As a result of this move, KREMZK counted over 500 employees at the end of 2015. Prior to this, in 2013, 200 people were working in the Agency on Protection of Competition. The agency’s budget also nearly tripled between 2012 and 2014, from USD 4.5 million to USD 11.7 million. These figures could be seen as illustrating the willingness on the part of the Kazakh government to strengthen the role of the authority as a governing body in the sphere of competition responsible for both enforcement and policy.72 They are nevertheless primarily the result of the merger of two previous agencies, the former Agency on Protection of Competition and the former Agency on Regulation of Natural Monopolies, previously responsible for regulating natural monopolies. It would appear that the merger has created more opportunities for the economic regulator rather than for the competition authority (OECD, 2016b).

KREMZK is also not an independent authority, as it is housed in the Ministry of National Economy. One could argue that the merits of the agency lie in being housed in the government, as this structural setting places the authority close to process to draft laws and regulations, since the Ministry is also mandated to set policy priorities for competition. Nevertheless, there is a possible downside of Kazakhstan’s choice to locate its competition authority in the Ministry of National Economy. In its 2016 peer review of Kazakhstan’s competition law and policy, the OECD noted that the competition authority’s positioning within the structure of the executive power in Kazakhstan’s highly centralised government might have a direct impact on the agency’s ability to influence state policy and implement its law enforcement activity. The OECD further noted that this positioning was in contrast to the role of independent law enforcer as suggested by President Nazarbayev in his 2015 Plan for the Nation in which he called for the alignment of Kazakhstan’s competition law and enforcement with the OECD standards (OECD, 2016b).

Since this structural setting was introduced recently, as of the time of this Review there was not yet sufficient practice to make a conclusive argument as to whether the agency, in its current form, has become more effective. In 2015, Kazakhstan was still placed relatively low in terms of its competition policy in the World Bank’s Global Competitiveness Report 2014-2015. Kazakhstan ranked 111st out of 144 countries regarding the intensity of local competition and 94th in terms of effectiveness of its anti-monopoly policy. Legislative and institutional changes aimed at improving the competition climate are nevertheless expected to take place in the near future as the result of Kazakhstan’s decision in 2014 to join the Eurasian Economic Union (EAEU).

The development of Kazakhstan’s competition law and policy could benefit substantially from EAEU membership, as it requires the establishment among Member States of a solid legal and institutional framework for competition. According to the OECD, “a substantive implementation of the EAEU Model Law could give a serious impetus to the development of Kazakh competition policy in the direction of recommended OECD standards” (OECD, 2016b). At the end of 2015, Kazakhstan already included some provisions of the EAEU model law in its Entrepreneurial Code, which entered into force on 1 January 2016 and incorporates and supersedes the law “On Competition” adopted in 2008. Changes in the field of antimonopoly regulation are related to several issues including: opportunity is now provided for preliminary reviews of the market entities’ agreement by the antimonopoly authority; the Anti-Monopoly Agency may now issue a “notice” without investigation if it finds out that a certain market entity abuses its dominant or monopolistic position; starting from 1 January 2017, a company under antitrust investigation will be able to initiate a review of a draft report on antitrust compliance findings by a conciliatory commission involving independent experts. At the end of 2016, a draft law aimed at addressing the recommendations of the OECD, including reportedly the strengthening of the new competition authority’s independence, was being discussed in parliament.

Kazakhstan in the OECD FDI Restrictiveness Index

The above description of reform processes for key sectors of Kazakhstan’s economy cannot fully capture the country’s enabling environment for investment. Quantitative indicators have in this regard proven highly effective in drawing attention to the burdens of statutory restrictions on FDI, identifying priorities for reform and communicating success and progress. Kazakhstan’s FDI regulatory restrictiveness is assessed against a group of 69 economies, including all OECD and G20 economies. The FDI Regulatory Restrictiveness Index (FDI Index), developed by the OECD, seeks to gauge the restrictiveness of a country’s FDI rules in 22 sectors taking into account four types of measures: equity restrictions, screening and approval requirements, restrictions on key personnel, and other operational restrictions such as for instance restrictions on branching (see Box 2.3). The FDI Index constitutes one component of indicators used for the OECD’s Going for Growth policy recommendations. It is also used on a stand-alone basis to assess the restrictiveness of FDI policies in reviews of candidates for OECD accession and in the OECD Investment Policy Reviews series. It is also an important component of any review of candidate Adherents to the Declaration on International Investment and Multinational Enterprises.

The FDI Index does not provide a full measure of a country’s investment climate as it does not score the actual implementation of statutory restrictions and does not take into account other aspects of the investment regulatory framework, such as the nature of corporate governance, the extent of state ownership, and institutional and informal restrictions which may also impinge on the FDI climate. Nonetheless, FDI rules are a critical determinant of a country’s attractiveness to foreign investors and the FDI index, used in combination with other indicators measuring various aspects of the FDI climate, contributes to assess countries’ international investment policies and explain variations among countries in attracting FDI.

Box 2.3. Calculating the OECD FDI Regulatory Restrictiveness Index

The OECD FDI Restrictiveness Index covers 22 sectors, including agriculture, mining, electricity, manufacturing and main services (transports, construction, distribution, communications, real estate, financial and professional services).

For each sector, the scoring is based on the following elements:

  • The level of foreign equity ownership permitted;

  • The screening and approval procedures applied to inward foreign direct investment;

  • Restrictions on key foreign personnel; and

  • Other restrictions such as on land ownership, corporate organisation (e.g. branching).

Restrictions are evaluated on a 0 to 1 scale: “0” corresponds to the absence of restrictions and “1” indicates a sector totally closed to FDI. The overall restrictiveness index is the weighted average of individual sectoral indexes.

The measures taken into account by the index are limited to statutory regulatory restrictions on FDI (as reflected in the countries’ lists of exceptions to the National Treatment instrument and measures notified for transparency) without assessing their actual enforcement. The discriminatory nature of measures, i.e. when they apply to foreign investors only, is the central criterion for scoring a measure. State ownership and state monopolies to the extent they are not discriminatory towards foreigners are not scored. Incorporation requirements, as they restrict FDI in the form of branching, are also taken into account although they are not covered and, thereby, listed as an exception in the National Treatment instrument.

For the latest scores, see www.oecd.org/investment/fdiindex.htm. For an explanation of the methodology, see OECD Working Paper on International Investment No. 2010/3 OECD’s FDI Restrictiveness Index: 2010 Update available at www.oecd.org/daf/inv/investment-policy/WP-2010_3.pdf.

As of December 2015, Kazakhstan already maintained a relatively open statutory regime for foreign investors, despite still above OECD average levels (Figure 2.2). A few service sectors remained partly off limits to foreign investors, notably media, air transport, banking and insurance and fixed telecommunications. Foreign investors in primary sectors too faced discriminatory restrictions relating to the use of agricultural and forestry land. Kazakhstan also maintained somewhat burdensome conditions with regards to the employment of key foreign personnel, which apply horizontally across economic sectors, and are relatively less typical among other Adherents.

Figure 2.2. FDI Regulatory Restrictiveness score by country
picture

Note: Data as of December 2015, with the exception of Kazakhstan simulated results.

Source: OECD FDI Regulatory Restrictiveness (www.oecd.org/investment/fdiindex.htm).

 http://dx.doi.org/10.1787/888933452820

Nevertheless, Kazakhstan has made strides in committing to important reforms during its WTO accession process, which will likely bring its statutory regime to foreign investors much closer to the OECD average (see Figure 6.2 in Chapter 6). The government has already anticipated the need to implement some of these reforms, notably lifting, as of January 2016, the previous foreign equity restriction in fixed-line telecommunications. Though no WTO commitment exists, it lifted, as noted earlier in this Chapter, the equity restriction in air transport. Such reforms, together with other changes expected to be implemented within five years of Kazakhstan’s accession to WTO, will support an even more open environment for foreign investors and contribute to greater productivity (see trade section in Chapter 6 for more detail). Liberalisation may be provided for under investment treaties as well (see Box 2.4 below, as well as next chapter on investment treaties).

Box 2.4. Investment treaties as a tool to liberalise investment policy

Increasingly, international treaties (IIAs) are being used to liberalise investment policy. These provisions are often referred to as applying to the “pre-establishment” phase of an investment. A key tool to foster liberalisation is to extend the national treatment (NT) and most-favoured nation (MFN) standards to those covered foreign nationals seeking to make investments. The Kazakh agreement with Japan grants covered investors NT and MFN, but only extends MFN to the pre-establishment phase.73 When countries grant national and/or most-favoured nation treatment, whether pre- or post-establishment, they typically do so subject to reservations. There are two broadly different approaches:

  1. A negative list-approach typically provides that MFN and NT are generally afforded, except for specific exceptions or provisions (“negative lists”) specified in annexes;

  2. A positive-list approach specifies that its liberalisation provisions only apply to specific identified sectors.

The Kazakhstan-Japan IIA does not contain any annexes setting out the exceptions, but provides for certain cross-sectoral exceptions for MFN and specifies that MFN does not apply to matters related to the acquisition of land property (art. 4[2]).

Compared to other economies and the provisions of recent investment treaties, such as the Trans-Pacific Partnership agreement, CETA, and agreements in ASEAN, Kazakhstan makes little use of investment treaties as a tool to foster investment liberalisation. Kazakhstan might wish to consider whether such investment liberalisation provisions could be a useful complement to its other efforts to attract and facilitate new investments.

Policy recommendations

The authorities have made strides in opening the country to international investment. Nevertheless, given the statutory restrictions that still apply in sectors such as mass-media and telecoms – areas where most OECD countries do not find it necessary to maintain restrictions –, Kazakhstan’s score in the OECD FDI Regulatory Restrictiveness Index is higher than the average of OECD countries, albeit lower than the non-OECD countries average. Kazakhstan has committed to important reforms during its WTO accession process, which should bring its statutory regime to foreign investors much closer to the OECD average in the coming years. Such reforms, like in financial services where operations of branches of foreign-owned banks will be allowed by 2020, should support a more open and transparent environment.

  • Consider further liberalization 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.

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

  • Pursue further efforts aimed at simplifying administrative procedures for hiring foreign key personnel to facilitate access of local firms to talent worldwide. Local content requirements that apply to labour 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.

  • Keep strengthening the competition law regime, notably in the areas highlighted in the OECD’s 2016 peer review of Kazakhstan’s competition law and policy, such as improving the independent action of the new competition authority.

  • Pursue efforts aimed at supporting the development and enforcement of corporate governance frameworks for state-owned enterprises (SOEs).

References

American Chamber of Commerce in Kazakhstan (2014), “Improving Kazakhstan’s Investment Climate: Top Ten Barriers to Foreign Investment”, AMCHAM White Paper, May 2014.

Devereux, M.P. and R. Griffith (1998), “The Taxation of Discrete Investment Choices”, Institute for Fiscal Studies Working Paper Series, No. W98/16.

EBRD (2014), Commercial laws of Kazakhstan, An Assessment by the EBRD.

Jensen, J. and D. Tarr (2007), The impact of Kazakhstan accession to the World Trade Organisation: a quantitative assessment. Policy, Research working paper No. WPS 4142, Washington, DC: World Bank, http://documents.worldbank.org/curated/en/2007/03/7413147/impact-kazakhstan-accession-world-trade-organisation-quantitative-assessment.

Kjærnet, H., D. Satpaev and S. Torjesen, “Big Business and High-level Politics in Kazakhstan: An Everlasting Symbiosis?”, China and Eurasia Forum Quarterly, Volume 6, No. 1 (2008) pp. 95-107, www.isn.ethz.ch/Digital-Library/Publications/Detail/?lang=en&id=55285.

Korinek et al. (forthcoming), Local Content Policies in Minerals-exporting countries, Part 1, OECD Publishing, Paris.

OECD (1993), National Treatment for Foreign-Controlled Enterprises, OECD Publishing, Paris.

OECD (1997), Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, www.oecd.org/daf/anti-bribery/ConvCombatBribery_ENG.pdf.

OECD (2005), National Treatment for Foreign-Controlled Enterprises: 2005 Edition, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264012912-en.

OECD (2009), Guidelines for Recipient Country Investment Policies relating to National Security, Recommendation adopted by the OECD Council on 25 May 2009, www.oecd.org/investment/investment-policy/43384486.pdf.

OECD (2010), OECD’s FDI Restrictiveness Index: 2010 Update, Working Paper on International Investment No. 2010/3, www.oecd.org/daf/inv/investment-policy/WP-2010_3.pdf.

OECD (2012), OECD Investment Policy Reviews: Kazakhstan, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264121812-en.

OECD (2013), OECD Review of Agricultural Policies: Kazakhstan 2013, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264191761-en.

OECD (2015), Guidelines on Corporate Governance of State-Owned Enterprises, 2015 Edition, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264244160-en.

OECD (2016a), OECD Investment Policy Reviews: Ukraine 2016, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264257368-en.

OECD (2016b), Competition Law and Policy in Kazakhstan: A Peer Review, www.oecd.org/daf/competition/OECD2016_Kazakhstan_Peer_Review_ENG.pdf.

OECD (2016c), Multi-dimensional Review of Kazakhstan: Volume 1. Initial Assessment, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264246768-en.

UNECE (2013), UNECE PPP Assessment Report. Green PPPs in Kazakhstan, United Nations, November 2013, www.unece.org/fileadmin/DAM/ceci/documents/UNDA_project/PPP_ Readiness_Assessment_Kazakhstan.pdf.

UNESCAP (2014), “Governments can use sustainable public procurement to foster inclusive and sustainable development in Asia and the Pacific”, MPDD Policy Brief, No. 19 (January 2014), Macroeconomic and Policy Development Division, United Nations Economic and Social Commission for Asia and the Pacific, Bangkok, www.unescap.org/sites/default/files/pb19_0.pdf.

Wehrlé, F. and J. Pohl (2016), “Investment Policies Related to National Security – A Survey of Country Practices”, OECD Working Papers on International Investment, 2016/02, OECD Publishing, Paris, http://dx.doi.org/10.1787/5jlwrrf038nx-en.

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WTO (2015b), Schedule of Goods, WT/ACC/KAZ/93/Add.1.

WTO (2015c), Schedule of Specific Commitments in Services, WT/ACC/KAZ/93/Add.2.

Notes

← 1. Until 2017, the yearly quota for foreign labour was set annually by the government on the basis of the needs of each local (regional) authority. The local needs were based on an assessment of local labour market and of employer’s applications submitted to the Ministry of Healthcare and Social Development in which they specified their needs in terms of labour force. The Ministry then developed the draft of the government resolution establishing the annual quota. The Government amended these rules in 2016, with entry into force in January 2017. According to the new rules, the annual quota for foreign labour recruitment is now determined on the basis of industries’ needs. Source: official website of the Prime Minister of Kazakhstan: “Kazakhstan to distribute quotas for foreign workers by economic sectors”, 28 October 2016.

← 2. Government Resolution No. 45 of 13 January 2012 on “Quota establishing regulation for foreign labour force in Kazakhstan, terms and conditions for issuing permits to foreign workers for employment and to employers for engaging foreign labour force”. In 2016, the Resolution contained a total of 17 exceptions.

← 3. Ibid.

← 4. Statistics provided by the Government of Kazakhstan.

← 5. Berry Appleman & Leiden LLP, “Kazakhstan – New rules set for regional work permits, hiring foreign managers”(2 September 2015).

← 6. Law No. 365-V “On Amendments and Addenda to Certain Legislative Acts of the Republic of Kazakhstan in Connection with Joining the World Trade Organisation” of 27 October 2015,which entered into force on 9 November 2015. Regulations in this sphere were laid down in the Government Decree No. 173 of 31 March 2016 “"On Introduction of Amendments into the Decree No. 45 of the Government of the Republic of Kazakhstan of 13 January 2012 on Approval of the Rules for Establishing Quota for Foreign Labour Engagement in the Republic of Kazakhstan, Rules and Conditions for Issuing Job Placement Permits to Foreign Employees and Work Permits to Employers for Foreign Labour Engagement, and on Introduction of Amendment into the Decree No. 836 of the Government of the Republic of Kazakhstan of 19 June 2001 on Measures for Implementation of the Law of the Republic of Kazakhstan of 23 January 2013 on Population Employment, and Decree No. 673 of the Government of the Republic of Kazakhstan of 2 July 2013 on Approval of the Rules for Privatization of Dwellings from the State Housing Fund”.

← 7. Law No. 482-V “On Employment” dated 6 April 2016, which entered into force on 18 April 2016.

← 8. Pursuant to Law No. 482-V, the requirement to search for suitable workers on local labour market before attracting foreign ones will be eliminated upon expiration of a 5-year period after Kazakhstan’s accession to the WTO (i.e. by November 2020).

← 9. Work permits are delivered by regional authorities at the oblast level. Pursuant to the amendments introduced by the Decree of the Government No. 844 dated 28 October 2015, work permits cannot be issued for two or more administrative regions.

← 10. Decree No. 173 of the Government dated 31 March 2016.

← 11. Decree No. 190 of the Government dated 7 April 2016 “On Introductionof Amendments to the Decree No. 148 of the Government of the Republic of Kazakhstan of 21 January 2012 on Approval of the Rules for Immigrants’ Entry and Stay in the Republic of Kazakhstan, and Their Exit from the Republic of Kazakhstan, and the Rules for Migration Control and Recording of Foreign Citizens and Stateless Persons Illegally Crossing the State Border of the Republic of Kazakhstan, Illegally Staying in the Territory of the Republic of Kazakhstan, and Persons Prohibited to Enter the Territory of the Republic of Kazakhstan”.

← 12. Paragraph 4(11) of the Government Resolution No. 45 of 13 January 2012, last amended on 31 March 2016.

← 13. Slightly different rules apply to intra-corporate transfers: the employer is required to notify the local authorities within ten calendar days of the foreign worker’s entry into the territory of Kazakhstan.

← 14. Law No. 365-V “On Amendments and Addenda to Certain Legislative Acts of the Republic of Kazakhstan in Connection with Joining the World Trade Organisation” of 27 October 2015, which entered into force on 9 November 2015.

← 15. Article 76.9 of the Law of the Republic of Kazakhstan No. 291-IV “On Subsurface and Subsurface Use” of 24 June 2010 prior to its amendment.

← 16. Inconsistent measures contained in investment contracts concluded prior to January 2015 will cease to be enforced as of the date of expiration of the initial duration of the contracts or by 1 January 2021, whichever takes place sooner.

← 17. The local content in personnel is established in accordance with the Law on Employment of the Populationdated 23 January 2001, as amended. As noted above, the legislation of Kazakhstan distinguishes work permits depending on the category of workers, establishing different conditions of validity, extension, etc.

← 18. Under Kazakhstan’s legislation, as amended by Law No. 365-V of 27 October 2015, “Kazakhstan manufacturers and producers of works and services” are defined as individual entrepreneurs and legal entities organised under Kazakhstan’s laws and located on its territory, were at least 95% of all employees are citizens of Kazakhstan without regard to the numbers of managers and specialists carrying out labour activities in Kazakhstan within the framework of intra-corporate transfers. The number of such managers and specialists is nevertheless not to exceed 25%, and - starting from 1 January 2022 - 50% of the total number of employees in each respective category.

← 19. Paragraph 2 of Article 47 of the Law “On Subsurface and Subsurface Use”, which provides for a maximum of 50% of local content requirement in services and works.

← 20. In the President’s national development Strategy 2050 articulated in December 2012, the agro-food sector is identified as one of the eight priority sectors for diversification.

← 21. Article 23, 24 and 37 of the Land Code dated 20 June 2003, as amended.

← 22. Presidential Decree No. 248 of 6 May 2016 imposing moratorium on certain norms of the land legislation and Law of the Republic of Kazakhstan “On suspension of certain provisions of the Land Code of the Republic of Kazakhstan and enactment of the Law of the Republic of Kazakhstan as of 2 November2015 “On amendments to the Land Code of the Republic of Kazakhstan” adopted in June 2016. 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 (see Chapter 7).

← 23. The two largest operators by far are foreign-owned Kcell (13.1 million subscriptions at the end of 2014) and KaR-Tel (Vimpelcom group, 9.8 million subscriptions). Source: Vimpelcom 2014 Annual report p.70.

← 24. Source: Kcell annual report, p. 8.

← 25. According to the OECD FDI Restrictiveness Index, fixed telecommunications was the most protected sector in Kazakhstan with a score of 0.8 (on the scale from 0 to 1), nearly eight times higher than the OECD average and five times higher than the average score of Kazakhstan in all sectors (0.2).

← 26. Jensen and Tarr (2007) estimate that the barriers to FDI in fixed-line and mobile telecommunications in Kazakhstan amounted to 20 and 15% ad valorem tariff equivalent, respectively.

← 27. In case of JSC Kazakhtelecom, and its possible successors, the 49% total foreign equity limitation in the charter capital (stocks or shares) will be maintained. Source: Kazakhstan’s WTO Services Schedule.

← 28. Article 23 of the Law “On National Security” No. 527-IV of 6 January 2012, as amended.

← 29. The Communication, informatization andinformation Committee (CIIC), which is the main government body in charge of regulating the telecommunication sector since October 2014, is not an independent authority, as it is a unit within the Ministry for Investments and Development.

← 30. Article 23 of the Law “On National Security” No. 527-IV of 6 January 2012, as amended.

← 31. Article 5 of Law “On Security Services’’ No. 85 of 19 October 2000.

← 32. The list is publicly available on the official websites of the Ministry of National Economy (www.minplan.kz) and the Ministry of Justice (www.minjust.kz) in both Kazakh and Russian.

← 33. Articles 23 and 24, Land Code dated 20 June 2003 No. 442, as amended.

← 34. Law No. 70-V “On the State Border of the Republic of Kazakhstan” of 16 January 2013.

← 35. Government Resolution of the Republic of Kazakhstan No. 365 “On Establishment of the Limits of Borderland, Quarantine Zone and Border Zone” of 16 April 2014.

← 36. Law No. 339-IV “Concerning the Use of Air Space of the Republic of Kazakhstan and Civil Aviation” of 15 July 2010.

← 37. Only a citizen of the Republic of Kazakhstan can be an individual entrepreneur: Entrepreneurial Code of the Republic of Kazakhstan No. 375-V of 29 October 2015.

← 38. Law of the Republic of Kazakhstan No. 284-II “On Merchant Shipping” of 17 January 2002 and Law of the Republic of Kazakhstan No. 574-II “OnInland Water Transport” of 6 July 2004.

← 39. For shipping in the Caspian Sea, the following legal regimes apply: According to the special regime on the Caspian Sea; only 5 flags (the Caspian region states) are allowed to ship in the Caspian Sea; in accordance with paragraph 3-1 of Article 11 of the Law No. 284-II “On Merchant Shipping”, the right to fly the State Flag of the Republic of Kazakhstan is given to ships, operating in the property of i) the state; ii) citizens and legal entities, registered in accordance with the legislation of the Republic of Kazakhstan; and iii) foreign legal entities, operating in the Caspian Sea, in accordance with the Production Sharing Agreement (contracting companies, operators, agents).

← 40. Law No. 422-V of 24 November 2015 “On amendments and addenda to certain legislative acts of the Republic of Kazakhstan on the issues of non-performing loans and assets of the second-tier banks; on rendering financial services and activities of the financial institutions and the National Bank of the Republic of Kazakhstan”.

← 41. Footnote by Turkey: The information in this document with reference to “Cyprus’’ relates to the Southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

Footnote by all European Union member states of the OECD and the European Union: The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

← 42. The list of offshore jurisdictions is established by Resolution No. 145 dated 2 October 2008 of the Board of Agency of Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organisations “On approval of the list of offshore zones for the purposes of banking and insurance activities, activities of professional participants of securities market and other licensed types of activities in the securities market, activity of accumulative pension funds and joint stock investment funds”, as amended.{p1}As of July 2016, the list of offshore centres mentioned “1. Principality of Andorra. 2. The State of Antigua and Barbuda. 3. The Commonwealth of the Bahamas. 4. The State of Barbados. 5. The State of Belize. 6. The State of Brunei Darussalam. 7. The Republic of Vanuatu. 8. The Republic of Guatemala. 9. The state of Grenada. 10. The Republic of Djibouti. 11. The Dominican Republic. 12. The Republic of Indonesia. 13. Spain (in the part of the territory of the Canary Islands). 14. The Republic of Cyprus. 15. The Peoples Republic of China (in the part of the territories of special administrative regions of Macau and Hong Kong.). 16. The Federal Islamic Republic of the Comoros.17. The Republic of Costa Rica. 18. Malaysia (in the part of the territory of Labuan enclave). 19. The Republic of Liberia. 20. The Principality of Liechtenstein. 21. The Republic of Mauritius. 22. Portugal (in the part of the Madeira Islands). 23. Republic of Maldives. 24. Republic of Malta. 25. The Republic of the Marshall Islands.26. The Principality of Monaco. 27. The Union of Myanmar. 28. The Republic of Nauru. 29. Netherlands (in the parts of the island of Aruba and dependent territories of Antilles). 30. Federal Republic of Nigeria. 31. New Zealand (in the parts of the Cook Islands and Niue). 32. The Republic of Palau. 33. The Republic of Panama. 34. Samoa. 35. The Republic of Seychelles. 36. The State of Saint Vincent and the Grenadines. 37. The Federation of Saint Kitts and Nevis. 38. The State of St. Lucia. 39. The United Kingdom and Northern Ireland (for the following territories: The islands of Anguilla; Bermuda Islands; British Virgin Islands; Gibraltar; Cayman Islands; the Island of Montserrat; Turks and Caicos Islands; Isle Of Man; and Guernsey, Jersey, Sark, Alderney). 40. The USA (for the territories of the US Virgin Islands, Guam and the Commonwealth of Puerto Rico). 41. The Kingdom of Tonga. 42. The Republic of the Philippines. And 43. The Democratic Republic of Sri Lanka.”

← 43. Articles 29 and 17 of the Banking Law No. 2444 adopted on 31 August 1995, as amended, and Resolution No. 385 of the National Bank of Kazakhstan (24 December 2012), as amended; Articles 33 and 21 of the Law on insurance companies No. 126 (adopted on 18 December 2000), as amended.

← 44. Law on Securities No. 461 adopted on 2 June 2003, as amended, and Law on investment funds No. 576, adopted on 7 June 2004, as amended.

← 45. “Rules and conditions for Hiring Foreign Workers” as attached to Resolution of the Government No. 45 of 13 January 2012.

← 46. Law No. 574-II “On Internal Water Transport” of 6 July2004; Law No. 284-II. “On Commercial Navigation” of 17 January, 2002.

← 47. Law of the Republic of Kazakhstan No. 339-IV “On Use of Air Space and Air Operations” of 15 July 2010.

← 48. Law No. 195-I “On Advocacy” of 5 December 1997; Law No. 155-I “On Notariat” of 14 July 2007; Patent Law No. 427-I of 16 July 1997; Law No. 261-IV «On Enforcement Proceedings and Bailiff Status» of 2 April 2010.

← 49. The position of a forensic expert in forensic enquiry bodies can only be taken by a Kazakh citizen (Law No. 240-IV “On Forensic Examination Activity in the Republic of Kazakhstan” of 20 January 2010); The property and business of insolvent debtors as part of bankruptcy procedures can only be managed by citizens of Kazakhstan (Rules of licensing and qualification requirements to management of property and business of insolvent debtors as part of bankruptcy procedures are approved by the Order of the Government of the Republic of Kazakhstan No. 615 of 20 July 2007); only a citizen of the Republic of Kazakhstan can work as a guide (interpreter guide) or tourism instructor (Law No. 211-II “On Tourist Activity in the Republic of Kazakhstan” of 13 June 2001).

← 50. Law “On Public Procurement” No. 434-V dated 4 December 2015, which entered into force on 1 January 2016 and replaces the previous law “On Public Procurement” No. 303-III dated 21 July 2007. Similarly, the other legal and regulatory acts that govern public procurement do not provide for any kind of discrimination between domestic and locally-established foreign controlled enterprises.

← 51. Subparagraph 31 of Article 2, and Article 14 of the Law “On PublicProcurement” No. 434-V dated 4 December 2015.

← 52. Article 193 of the Entrepreneurial Code of Kazakhstan dated 29 October 2015, effective from January 2016.

← 53. Article 3(15) of the Law “On Natural Monopolies and Regulated Markets” No. 272-I dated 9 July 1998, which states that “natural monopoly shall mean the condition of services (goods, works) market, where the creation of competitive conditions for satisfying demand for a particular type of services (goods, works) is impossible or economically inefficient due to the technical peculiarities of production and provision of the given type of services (goods, works).” Changes to this Law were introduced by Law No. 312-V of 5 May 2015 “On Introduction of Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan regarding Natural Monopolies and regulated Markets” but did not affect the definition of natural monopolies.

← 54. The Committee on Regulation of Natural Monopolies and Protection of Competition of the Ministry of National Economy of Kazakhstan (KREMZK), as successor of the Agency of the Republic of Kazakhstan On Regulation of Natural Monopolies, maintains a Register of entities operating as natural monopolies, with the exception of those falling under the remit of the Committee on Communications, Information Technologies and Information of the Ministry for Investments and Development (post and telecommunication services). The Register maintained by KREMZK consists of a Republican (for most important companies) and Local sections (for local level companies).

← 55. E.g. the 2010 Subsurface Law (Law No. 291-IV adopted on 24 June 2010), as amended. See Articles 61 to 74 on subsurface users’ contracts.

← 56. E.g. the Government Resolution No. 693 of 17 July 2008 “On Establishment of a specialised organisation on concessions”, setting up the Kazakhstan Public-Private Partnership Centre (“PPP Centre”). On the PPP Centre’s role, see Chapter 5 on investment promotion and facilitation.

← 57. List of objects which cannot be transferred into concession (Decree of the President No. 294 adopted on 5 March 2007). Kazakhstan nevertheless allows the concession of water management facilities (water intake facilities, pumping stations, water treatment facilities) of most large cities.

← 58. For example, in 2014, one concession relating to the construction of a 66 km ringroad around Almaty was meant to attract foreign investors to manage, maintain, and operate the new road for 20 years. EBRD, “Milestone Kazakh PPP’s event at EBRD attracts over 100 companies”, November 2014.

← 59. World Bank (2015), “International Bank for Reconstruction and Development Programme Document for a Proposed Loan in the Amount of USD 1 Billion to the Republic of Kazakhstan for the First Macroeconomic Management and Competitiveness Programmatic Development Policy Loan” (9 October 2015).

← 60. Between 1991 and 2005, Kazakhstan held six two-year privatization programmes. During that period, more than 39 000 state-owned enterprises were privatised with total proceeds amounting to KZT 347 billion (OECD, 2012). From 1991 to 2012, a total of 45 631 entities, or approximately 85% of state property,were privatized (WTO, 2015).

← 61. Maslov D. “Privatization in Kazakhstan: losses and achievements”, Continent, Vol. 11, 8-21 December 1999 (in Russian) (Маслов Д. Приватизация в Казахстане: потери и приобретения. // Континент. No. 11, 8-21 декабря 1999).

← 62. For instance, according to Kazakhstan’s president Nazarbayev, the largest state owned conglomerate – National Welfare Fund “Samruk-Kazyna”– controlled at the end of 2015 a network of more than 500 subsidiaries. Other examples include the National Managing Holding “KazAgro”, which is aggregating assets in the agrarian sector; the National Managing Holding “Baiterek”, active in development and high-tech; and the National Information Technology Holding “Zerde”, which covers communications and IT.

← 63. “Kazakhstan in the new global reality: growth, reform, development”, address by President Nazarbayev, 30 November 2015: http://consulsinwales.org.uk/archives/2984.

← 64. Government Decree No. 1141 of 30 December 2015 “On Several Issues Related to Privatisation for 2016-2020”, which entered into force on 1 January 2016. Of the 783 assets to be transferred to the private sector, 217 belong to Samruk-Kazyna and 61 are organisations owned by the central government, while 137 are subsidiaries of national managing holdings, national holdings, national companies (including socio-entrepreneurial corporations). The remaining assets are controlledby municipalities. Source: Kazakhstan’s Replies to the OECD Questionnaire (June and December 2016). The government made available in 2016 the list of assets of Samruk-Kazyna to be privatised, as well as the Uniform Rules of Sale of Assets, which regulate the order of privatization of the Samruk-Kazyna’s assets on the following websites: www.sk.kz; www.privatization.sk.kz and www.skc.kz.

← 65. A full list of the state-owned enterprises put up for privatisation and offered to transfer to the private sector, can be found here: (in Russian): http://economy.gov.kz/upload/Files/Celevie_indikat_real_komp_plana_privatiz_na_2016-2020g_ru.doc.

← 66. In his State of the Nation speech on 30 November 2015, President Nazarbayev stated that the “government had been instructed to create conditions for the maximum participation of local and foreign investors”.

← 67. GRATA International, “Kazakhstan’s Privatisation Decree”, in Tengri News, 4 April 2016.

← 68. In particular, amendments to the Law “On Auditing” enacted in December 2011 have subjected all SOEs to statutory audits.

← 69. For this reason, with the entryinto force of the new Law “On the State Audit and Financial Control” in November 2015, audits of SOEs will now be conducted by private auditing firms.

← 70. On 1 November 2016, the Ministry of National Economy issued a decree whose purpose is to bring the Kazakhstan corporate governance framework more into line with the OECD standards (Decree of the Minister of National Economy No. 465 of 1 November 2016).

← 71. Government decision of 25 September 2014.

← 72. Article 163 of the Entrepreneurial Code defines the competition authority as a state agency responsible for restricting and controlling monopolistic activities as well as for the development of competition policy by advising the government on this matter.

← 73. Article 4, Japan-Kazakhstan IIA (2014).