Kazakhstan, as a landlocked country, has no direct access to Western European markets, though it does neighbor two major markets: China and Russia. High transport costs in the final price of exported products hamper not only the country’s competitiveness in the international market but also the expansion of investment in non-primary sectors of its economy. Much attention is given to the development of modern transport infrastructure to enable Kazakhstan’s potential as a transit country for cargo flows. The Russia-Ukraine crisis has intensified Kazakhstan efforts to develop alternative routes for oil and cargo transportation, specifically, the Middle Corridor, which starts from China and runs through Kazakhstan, the Caspian Sea, Azerbaijan, Georgia and on to Europe. The Government of Kazakhstan has carried out official visits to participant countries to develop a roadmap for building out the Middle Corridor over 2022-2025 that will help eliminate bottlenecks and unlock the corridor’s full potential.
Competition is strong, as Russia, China and EU countries vie for Kazakhstan’s growing buying power. Inexpensive products from China and Russia are readily supplied across the borders. After the introduction of economic and political sanctions against Russia, foreign companies began to leave its market one by one. The Ministry of Industry and Infrastructure Development of Kazakhstan is preparing 23 investment projects for the partial relocation of companies from Russia primarily in such sectors as cars and spare parts, electrical engineering, fertilizers as well as the production of parts for railway transport. This will enhance competition for local and other foreign companies in the market, but at the same time contribute to job creation and economic growth in the long term.
Kazakhstan has been accused of accommodating Russia’s so-called “parallel imports” scheme that allows imports of foreign brands without the approval of trademark owners. In response to this, Kazakh Government is proposing a ban of sanctioned goods to Russia and Belarus through its territory. The directive has now been posted for public discussion.
The progress of Eurasian economic integration has been mixed. The project started with the Customs Union, launched by Russia, Kazakhstan and Belarus in 2010. It morphed into the Single Economic Space in 2012 and was superseded by the Eurasian Economic Union (EAEU) in 2015, when Kyrgyzstan and Armenia were added as members. Despite this, the EAEU has not significantly boosted Kazakhstan’s trade with the other member countries. Importers are affected by a poorly planned implementation of the EAEU integration, non-standardized application of the common customs code, and unclear documentation requirements. The Ukraine invasion has also reignited domestic sensitivities and regional tensions. In Kazakhstan, President Tokayev has failed to endorse Russia’s justification for the invasion and refuses to recognize the ‘independence’ of the separatist Luhansk and Donetsk Peoples Republics. Russia’s invasion of Ukraine clearly reduces the benefits of Eurasian integration even further than before and imposes higher cost on the partner countries than were envisaged when they joined. However, despite the tensions, the EAEU will endure, although Russia’s EAEU partners will continue suffering collateral damage from Russia’s war in Ukraine, because their ability to diversify risk is limited.
According to the World Bank in Kazakhstan, ongoing structural and institutional reforms aim to reduce the role of the state in the economy and facilitate the development of a less regulated, transparent and market-driven business environment. The economy’s reliance on oil and its resulting vulnerability to external shocks remain the main challenges to achieving stable and sustainable development. Kazakhstan’s reliance on the Caspian Pipeline Consortium (CPC) pipeline to carry 80% of its crude oil exports through Russia highlights how heightened geopolitical risks could spill into macroeconomic performance and credit metrics. Besides global oil demand and prices, complicated relations with Russia will be another key external factor affecting Kazakhstan’s economic performance.
External demand from China and Russia, Kazakhstan’s main trading partners, as well as global oil demand and prices, will continue to be the key external factors affecting Kazakhstan’s economic performance. Despite Kazakhstan’s improving its Corruption Perception Index rank from 113 in 2019 to 102 in 2021, corruption remains a challenge: the judiciary, police, customs, and medical system are often cited as the source of problems.
Over the years the Government of Kazakhstan has announced several measures to reform the economy, and remains engaged with U.S., UK, Canadian and EU leadership, the American Chamber of Commerce in Kazakhstan, and other foreign investors in a public-private dialogue on how to improve the investment climate. Despite these efforts, there remain systemic issues of concern to foreign businesses and other stakeholders. These include:
- Rule of Law: establishment of an independent judiciary. Launched in 2020, the European Union-led Central Asia Rule of Law Program is implemented over the period of four years to reinforce democracy and human rights.
- Intellectual Property Protection: actively promote and consistently enforce intellectual property rights. In June 2022, Kazakhstan signed several key amendments to simplify the IP registration procedure, eliminate legal gaps, and remove administrative barriers around intellectual property.
- Transparency in Rule Making: adopt eGov principles to give notice of rule changes and provide stakeholders with meaningful opportunity to comment.
- Interpretation of Laws: ensure consistent interpretation of national laws by local officials, especially in the implementation of Kazakhstan’s system of taxation, collection of revenues, and customs procedures.
- Standards & Regulations: eliminate outdated Soviet-era regulations and adopt widely used international standards.
- Tax Issues: end criminal liability investigations for incidental tax violations.
For more information on barriers to doing business, see the American Chamber of Commerce in Kazakhstan’s 2018 White Paper on Improving Kazakhstan’s Investment Climate.