Kazakhstan is losing capital: reasons why foreign investors are reducing their investments.
Recently, Kazakhstan has faced a decline in the influx of foreign investments. In the first six months of 2024, foreign entrepreneurs invested $9.8 billion. This is a decrease of $3.7 billion compared to the same period in 2023. More details about which sectors are in demand among investors and which attract the least attention can be found in the report by a correspondent from inbusiness.kz.
The reduction in foreign investments is linked to a nearly $4 billion decrease in investment in Kazakhstan's oil and gas sector.
"The primary reason for the decline in FDI in the mining and metallurgical complex is the completion of major works within the future expansion project of 'Tengizchevroil'," explained representatives from the Ministry of Foreign Affairs of the Republic of Kazakhstan.
It is worth noting that in 2023, the volume of foreign direct investments worldwide fell by 2%. In Asia, the decline was noted at 8%. Experts attribute this trend to several factors, such as global economic instability and geopolitical tensions, which cause international investors to approach their choice of investment countries more cautiously.
In turn, economic analyst Yuri Masanov pointed out that the reduction in FDI (foreign direct investment) is a temporary trend and that Kazakhstan expects numerous new investment projects in energy and industry in the near future.
Investing Money: Where Are Wealthy Foreigners Putting Their Funds?
The majority of investments are directed towards the mining and processing industries. For instance, over the past nine years, the annual volume of FDI in the processing industry has more than doubled, increasing from $2.6 billion in 2015 to $5.4 billion by the end of 2023.
The oil and gas sector, which has attracted foreign investors for many years, is gradually falling out of favor. In recent years, the investment volume in this area has decreased from 75% to 36%.
Foreign investors are also eager to invest in real estate transactions, agriculture, and sectors related to financial and insurance activities.
The least amount of funds are attracted to the information and communication, transportation, and warehousing sectors.
"In recent years, Kazakhstan has attracted capital through innovative projects for the production of goods and services with high added value. Significant potential is demonstrated in the food industry, tourism, and alternative energy. Moreover, advanced sectors such as the production of environmentally friendly hydrogen, advanced processing of rare earth metals, the IT industry, and fintech are attracting investor interest," noted representatives from the Ministry of Foreign Affairs of the Republic of Kazakhstan.
Leaders in Investment Volume in Kazakhstan
From 2005 to the first half of 2024, the largest volume of gross FDI inflow by country comes from the Netherlands – $121.3 billion (29.1%). The USA follows with $53.2 billion, Switzerland with $35.2 billion, and China with $25.5 billion.
Other leaders in investment volume include Russia ($24.1 billion), France ($19.5 billion), the United Kingdom ($17.7 billion), Belgium ($13.3 billion), South Korea ($10.2 billion), Japan ($8.0 billion), and Italy ($7.6 billion).
In terms of regions, the leaders in attracting foreign direct investments are Almaty and the Atyrau region. For instance, a project by the Malaysian company Ravak Smart for the production of electrical equipment was implemented in Kazakhstan's southern capital. In the Atyrau region, a factory for manufacturing measuring instruments by the German company WIKA has been launched.
Challenges Ahead
A survey of investors conducted in 2023 revealed that foreign entrepreneurs most frequently encounter issues such as technological and production difficulties (75.3%) and administrative barriers (73.6%). These include infrastructure limitations, a lack of qualified personnel, high costs of new technologies, repair difficulties, and access to engineering communications.
According to the ministry, local executive bodies review problematic issues of domestic and foreign investors on a monthly basis. Additionally, the Ministry of Foreign Affairs of the Republic of Kazakhstan has launched a National Digital Investment Platform, where foreign entrepreneurs can directly contact the government regarding various issues arising during project implementation.
All for Investors: Benefits and Special Conditions
Despite the decrease in the volume of foreign direct investment inflow, the interest of foreign entrepreneurs in Kazakhstan remains high, as evidenced by international rankings and the presence of many leading international companies in the domestic market.
Economic analyst Yuri Masanov explained that this interest is driven by several factors:
- The openness of the market to new companies and investments. Kazakhstan offers foreign companies various benefits and conditions for registration and business operations, with special economic zones established. The country's government actively collaborates with foreign investors in areas such as energy, agriculture, renewable energy sources, and industry.
- Unique conditions for investors in the form of the Astana International Financial Centre*. The institution operates based on English law, enhancing business transparency and protection. The AIFC has its own independent court and arbitration center with foreign specialists. Such conditions are not found in other post-Soviet states.
- Geographical location. Kazakhstan is situated on land logistics routes, through which the "Middle Corridor" and the "Belt and Road Initiative" pass, aimed at developing trade corridors from China to Europe and back. This makes the country an important logistics and transport hub, facilitating the import of raw materials and goods for production, as well as the export of finished products to nearby markets.
"There are also other advantages, such as relatively cheap electricity (which is important for industry), a developed human capital, international investment-grade credit ratings, and so on. Together, these factors create attractive conditions for foreign businesses seeking investment opportunities. For the general public, such changes may not be immediately noticeable, but they exist and gradually contribute to overall economic growth," the expert noted.
What Are the Benefits for Kazakhs?
Attracting foreign investments is crucial for the economy of any country. Foreign capital brought into the country leads to increased production and services, the creation of new enterprises and jobs. Clearly, by creating conditions for foreign investors, the government is also looking out for domestic entrepreneurs.
"We see benefits in the form of new sources of income for citizens and new products that appear in the market. Not to mention the SMEs that serve as suppliers for large enterprises during the operational phase, thereby generating additional income," explained Yuri Masanov.
Future Plans with Optimism
Despite the current contradictions and the decrease in investment volumes, the leadership of Kazakhstan remains optimistic and sets ambitious goals. On October 31, President Kassym-Jomart Tokayev emphasized at the 36th plenary session of the Foreign Investors Council that Kazakhstan aims to attract $150 billion in FDI by 2029.
To achieve this goal, the government intends to continue improving the investment climate, focusing efforts on creating favorable conditions for international companies and long-term financial investments.
In the near term, Kazakhstan plans to attract $25.1 billion in investments by 2025. These funds will be directed towards the development of priority sectors, including energy, transport infrastructure, and digitalization, which authorities believe will help enhance the country's competitiveness on a global scale.