Between 2000 and 2010, Kazakhstan was one of the fastest-growing economies in the world. While many parts of the world were reeling with the 2008 global financial crisis, Kazakhstan continued to deliver positive results. However, a combination of factors, including subdued external demand, weaker metal prices and a decline in agricultural output, have resulted in slower growth of 5% in 2012.
Nevertheless, the uncertainly stemming from ongoing instability of the global economy, has led investors to look at Kazakhstan as a safer place to grow. In 2012, the country attracted US$14b in FDI inflows, making it the second most attractive investment destination in the CIS region.
In 2012, Kazakhstan’s macroeconomic, social and political stability became the key driver of investment, as supported by 84% of current investors, who named the country’s stable macroeconomic climate as its most attractive feature. Looking to the future, over the next two years, Kazakhstan’s economy is expected to grow to 7.1% in 2015, outperforming most other emerging markets, aligned with investors’ expectations that the country’s attractiveness will continue to improve.
Kazakhstan’s strategic strength
Beyond Kazakhstan’s political, social and macroeconomic stability, established investors highlight telecommunications infrastructure (78%) and corporate taxation (68%) as attractive features. Unsurprisingly, investors continue to perceive Kazakhstan as a treasure trove of natural resources. The country ranks 12th in the world in terms of oil reserves and 19th for natural gas reserves. The metals and mining industry also plays an important role in Kazakhstan’s economic growth and is expected to attract future FDI inflows in the country.
Moreover, Kazakhstan’s competitive geographical location at the junction of Asia, Europe and the Middle East enables access to the rapidly growing markets of Russia, India and China, creating unique opportunities for investors and local companies. The country’s performance in sustainable development is another positive factor pulling investors to the country. Labor costs are seen as an attractive feature only by 55% of current investors, much further down on the list of the country’s most attractive feature compared to last year, when this factor was named as the most appealing.
Critical weaknesses: innovations and business environment
According to 59% of our respondents who are already established in Kazakhstan, the level of legal and regulatory transparency and stability remains questionable. Half of our respondents expressed the need for enhancement of Kazakhstan’s transport and logistics infrastructure. Among the other country’s weaknesses investors named lack of research and development capabilities, entrepreneurship deficit, complex tax administration and compliance.
Awareness gap of foreign investors
Kazakhstan was the preferred destination for 9% of our respondents, putting the country at second place in the region, behind Russia. However, investors continue to remain divided in their outlook for the country.
There is a wide perception gap between foreign investors who are already established in Kazakhstan and those who have not done this yet. Current investors are much more aware of the country’s environment and are willing to explore further possibilities in the market. Twenty-four percent of established investors have Kazakhstan as their first choice. However, only 6% of respondents with no presence in Kazakhstan are considering setting up activities in the country, while they remain largely unaware of country’s attractive features, locations and sectors that could offer them opportunities for growth. Two-thirds are unlikely to enter the country.
Source: Ernst & Young