The most attractive areas for investment are mining industry and manufacturing area. Investments allowed to implement nine investment projects in Kazakhstan, and in 2020, their number will amount to 33 projects.
Foreign direct investments are the integral part of the open and efficiently functioning economic system and the main catalyst of the country’s development. However, the current situation of the world economy characterized by global geopolitical and economic uncertainty negatively affects the investment activity of countries and significantly slows down their development. As a result, according to OECD, global investment inflow in 2018 decreased by 27% over the year, while the growth of the world economy decreased from 3.1% to 2.9%. The downward trend continued in 2019 – at the end of the first half of the year, global FDI inflows declined by 20%, while the economy grew by only 2.5% over the year according to forecasts of the World Bank.
Despite the decline in global FDI inflows and a slowdown in the growth of the world economy, Kazakhstan has maintained the trend of growing investment prospect of the country. According to the results of 2019, the gross FDI inflow into the country amounted to about 25 billion USD. This is 2.9% more than in 2018 (24.3 billion USD). In relation to the GDP level, the indicator was 15.9%, with the share of FDI to GDP expected to reach 19 % by 2022.
Investments in Kazakhstan’s economy come from over 120 countries. The largest amount of investment in the first nine months of 2019 came from the Netherlands (5.8 billion USD), the USA (4.1 billion USD), Switzerland (1.6 billion USD), China (1.2 billion USD) and Russia (1 billion USD).
Investment attraction activities mainly focus on priority sectors of Kazakhstan’s economy. In general, there are two groups of such sectors.
The first group includes industries with existing potential: food processing, mineral processing, metallurgy, chemistry and petro-chemistry, as well as mechanical engineering. These industries are the sources of the country’s competitive advantages. In the first nine months of 2019, gross FDI inflows to the mining industry amounted to 10.7 billion USD, which is 8.6% more than in the corresponding period of 2018 (9.9 billion USD). The manufacturing sector received an investment of 2.6 billion USD.
With additional financial flows, production in mining and manufacturing increased by 3% and 3.6%, respectively.
The second group – “promising industries” – includes information and communications technology, tourism and finance. These industries have a long-term perspective, which makes them attractive for investment. Thus, according to the results of nine months of 2019, the gross inflow of FDI in the financial and insurance industry increased by 79% over the year and amounted to 879.7 million USD. Moreover, this area has become one of the five most popular investment sectors.
Investment flows in the sphere of information and communication reached 74 million USD, and in education, health care, social services, art, entertainment and recreation – 2.6 million USD.
The development of a favorable investment climate in Kazakhstan is largely due to the reforms carried out in the country, which touched upon many aspects of investors’ activities, such as visa and migration policy, investment preferences, taxation, international trade, judicial system and investment security guarantees.
In order to increase the country’s investment attractiveness, stimulate business and develop the financial sector in Kazakhstan, the Astana International Financial Centre (AIFC) was established. As of the end of 2019, more than 350 companies from 35 countries have registered on the AIFC site. The total volume of investments by participating companies in various Kazakhstani projects exceeded 130 million USD.
By 2025, it is projected that the contribution of AIFC to Kazakhstan’s GDP will reach about 40 billion USD. Of these, 12.1 billion USD will be a direct contribution of AIFC to the GDP of the country, about 8 billion USD – providing services to clients in Central Asia, Transcaucasia, the EAEC, the Middle East and Europe.
Besides, it is planned to launch the Investment Tax Residence Program based on AIFC, which aims at attracting investments. The Program will provide for the possibility for investors and their family members to obtain entry visas to the territory of the country for up to 5 years, as well as the introduction of exemption from paying personal income tax on income from sources outside Kazakhstan.
According to the results of the eleven months of 2019, attracted investors are representatives of 26 countries. In terms of the volume of their investments, the leading positions were occupied by such countries as EU (10.1 billion USD, 37 projects), Russia (5.4 billion USD, 26 projects), Turkey (1.6 billion USD, 16 projects), USA (718 million USD, 9 projects) and Singapore (2.1 billion USD, 7 projects).
Traditionally, the main flow of funds has been directed to the industrial production of high-value-added products, as well as services and new technologies, i.e. in such areas as mechanical engineering, mining, metallurgy, agro-industrial complex, renewable energy sources, oil and gas chemistry, chemical industry, transport and logistics, and production of construction materials.
Among the investors in Kazakhstan, attracted in 2019, there are the world’s largest representatives:
- SUEZ (France) – construction and reconstruction of sewage treatment facilities;
- Fortescue (Australia) – geological exploration and development of non-ferrous metal deposits;
- Demir Export (Turkey) – construction of mining and metallurgical complex for mining and processing of tin ores “Syrymbet” (the investor carries out a comprehensive examination of the deposit);
- Suhail Bahwan Group (Oman) – construction of a plant to produce base oils;
- RHI Magnesita (Austria) – construction of a plant for the production of refractory materials.
In 2019, 9 investment projects worth 464 million USD have already been implemented. It is also planned to commission 10 projects with attraction of foreign investments for 487 million USD, and construction and installation works on 21 projects for 3.4 billion USD have already started.
As a result, 33 projects with the participation of foreign investors for the total amount of 1.5 billion USD will appear in priority sectors of the economy in 2020, and by 2027, the amount will reach 5 billion USD with 124 projects.
As of the end of September 2019, accumulated foreign investment in Kazakhstan amounted to 221.4 billion USD (222.2 billion USD a year earlier). Mining and quarrying accounted for the largest share with 124.8 billion USD (or 56.4 %), which makes an increase of 3.5 % over the year.
The largest investors in this area are the Netherlands, the USA and France, which together invested 101.1 billion USD (or 56.4%). The largest investors in this area are the Netherlands, USA and France, which together have invested 101.1 billion USD or 81% of the total.
The top three industries also included manufacturing with an investment of 17.7 billion USD and professional, scientific and technical activities – 16.5 billion USD.
In recent years, the Government of Kazakhstan has taken several effective measures to improve the country’s investment climate, which has been characterized by an increase in investment and the growth rate of the national economy. At the current rate of growth of investment flows, it is expected that by 2022, gross FDI inflows may increase by 1.26 times compared to 2016. At the same time, according to the forecasts for the manufacturing industry, investment flows will increase by 1.5 times, the volume of external investments in the fixed assets of the non-resource sector of the economy will also increase by 1.5 times.