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CEE and CIS / Kazakhstan

The state of play: FDI in Kazakhstan

Kazakhstan is one of the leading transition economies for attracting FDI, but the impacts of Covid-19 look set to dampen its investment environment.

Taraz city, Kazakhstan
Chinese company North Huajin Chemical Industries has invested in the carbide plant project based in Taraz city (pictured). (Photo by AlexelA/Shutterstock)

Kazakhstan gained independence in 1991 and has since revolutionised its economic landscape through a series of reforms designed to attract foreign direct investment (FDI). These measures included tax incentives, improved rail and air transport links, Silk Road connectivity and the opening in 2018 of the Astana International Financial Centre (AIFC).

The AIFC is particularly significant to investors as it includes the AIFC court, which abides by the rules of English common law and is staffed by UK judges. This acts as an independent commercial dispute resolution court for AIFC-registered companies.

Kazakhstan is both a transition economy and a landlocked developing country. According to the UN Conference on Trade and Development (UNCTAD), the country saw a 17% decrease in FDI flows during 2019. Despite this decrease, it ranked third in the top five transition economies in the report, with $3.1bn in FDI inflows during the year.

Chinese company North Huajin Chemical Industries made the largest FDI investment in Kazakhstan in 2019, with the roughly $600bn carbide plant project based in Taraz city in the Jambyl region. The plant is based in one of 12 special economic zones within Kazakhstan.

Alongside petrochemicals and oil, other key sectors for investment in the country include mining, manufacturing, and wholesale and retail trade. The largest source markets for FDI include the US, China and Russia.

Major headwinds

Covid-19 has negatively impacted some of Kazakhstan’s key sectors, with natural resource-based projects diminishing as global commodity prices, most notably for oil, continue to fluctuate. The Kazakhstan Economic Update – Navigating the Crisis report published in July 2020 by the World Bank noted uncertainty surrounding the country’s oil and gas sector and as a result estimated a drop in GDP of 3% in 2020, followed by an expected modest recovery of 2.5% in 2021.

As countries across the world vie for FDI opportunities in the wake of the pandemic, Kazakhstan has taken steps to liberalise its arbitration framework further. This would mean that would-be investors could choose a foreign law in a dispute involving the state, which would bring enforcement provisions in line with the New York Convention.

Overall, Kazakhstan’s FDI figures have shown resilience so far in 2020. According to the National Bank of the Republic of Kazakhstan, FDI in the country increased by $864.8m in June 2020, compared with an increase of $1.1bn in the previous quarter.