Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
Kazakhstan is the second-largest republic of the former Soviet Union, after Russia, and the ninth-largest country in the world in the territory. The country has an abundance of natural resources - including oil, gas, coal, uranium, and other mineral deposits - and has exploited these resources to build Central Asia’s leading economy. Kazakhstan is also emerging as a major transport and logistics hub in the region, linking the large and fast-growing markets of China and South Asia to those of Russia and Western Europe by road, rail and ports on the Caspian Sea. Kazakhstan presents a trade gateway to a market of about 100 million consumers in Caspian Sea countries, 76 million in Central Asia and 350 million in Western China. In addition, Kazakhstan boasts significant agricultural potential for grain and livestock production and U.S. companies are well positioned to help Kazakhstan diversify across this segment of the economy. With a growing middle class, Kazakhstan provides trade and investment prospects for U.S. firms seeking new opportunities in this growing, emerging market.
Since gaining independence in 1991, Kazakhstan has steadily worked to improve its business and investment climate. The Government of Kazakhstan realizes the need to implement transformative economic reforms to boost productivity and growth. Implementation of reforms has been uneven, however, and challenges remain in addressing problems related to the country’s competitiveness and economic diversification, its over-reliance on the extractive sector, corruption, inefficient bureaucracy, criminal liability for unintended tax infractions, and arbitrary law enforcement, especially at the regional and municipal levels.
2022 Kazakhstan Unrest and Reforms
In early January 2022, Kazakhstan was engulfed in mass protests that started over fuel price increases and escalated into violent protests across the country, especially in Almaty. Subsequent dismissals and arrests of top government officials close to the family of former president Nursultan Nazarbayev were signs of a significant shift of power within the political elite from Nazarbayev to current president Kassym-Zhomart Tokayev. Rather than slowing down the momentum for reforms, the January events have in fact achieved the opposite, with President Tokayev proposing a Reform Agenda of robust economic, political, and social reforms.
Following the unrest, President Tokayev promised a new democratic order, organizing the first referendum in 27 years, to approve constitutional changes aimed at limiting presidential powers in favor of the parliament and implementing significant decentralization. Another important development was Tokayev’s push for the repatriation of offshore illegally acquired assets and redemption of about $473 million back into the country.
The next phase of reforms will have to confront some of Kazakhstan’s systemic and structural economic challenges to achieve currency stability, manage inflation, reduce income inequality and state’s involvement in the economy along with greater diversification, privatization, digital and green transitions.
Civil society is watching closely the issue of whether the rhetoric will continue to live up to reality as President Tokayev proceeds to convey his preoccupation with improving the living standards, eliminating income gaps, and creating jobs and decent labor conditions.
War in Ukraine
Kazakhstan is striving to extricate itself from the shadow of Russia’s war on Ukraine and ensure financial and economic stability. The reinvasion of Ukraine by Russia, and subsequent Western sanctions levied against Russia and Belarus, are having significant repercussions in Kazakhstan, a member of the Eurasian Economic Union (EAEU) with a long border and extensive trade and economic relations with Russia.
At the time of this writing. the Kazakhstani currency (tenge) has lost value due to the volatility of the Russian ruble. Kazakhstan has also been burdened by the measures taken to comply with Western sanctions on Russia. The bulk of Kazakhstani energy is exported to and through Russia: with about 80 percent of all oil produced in Kazakhstan’s western oilfields being exported through southern Russia via the Caspian Pipeline Consortium (CPC). The majority of imports and exports traditionally have been transported through Russia and/or Belarus, with major supply chain disruptions due to Western sanctions and Russian/Belarusian responses. The situation between Russia and Ukraine also affects the country’s investment attractiveness.
Nevertheless, Kazakhstan, a state historically under Russian influence, now pursues a complex balancing multi-vector foreign policy to diversify its economic corridors. This involves seeking support from the U.S. and the EU to contribute to strengthening Kazakhstan’s economic position and national independence in a region stuck between a revanchist Russia and an assertive China.
Kazakhstan’s president Kassym-Jomart Tokayev told Russian President Vladimir Putin during a public panel at the St. Petersburg International Economic Forum that his country would not recognize the “quasi-states” of the Donetsk and Luhansk “peoples’ republics” in eastern Ukraine. Kazakhstan will not help Russia evade sanctions, emphasizing its obligation to the international community.
Besides strong political commitment to building a solid reputation as the strongest, most stable and reform-oriented economy in Central Eurasia, Kazakhstan still faces slow productivity growth, wealth inequality, rising living costs, limited job opportunities, and weak institutions. There is still a need to take a stronger stand against corruption, improve the rule of law, and increase competition and private sector growth.
Key Statistics and Economic Indicators
Kazakhstan has an export-oriented economy that is highly dependent on shipments of oil and related products (58 percent of total exports). In addition to oil, its main export commodities include natural gas, ferrous metals, copper, aluminum, zinc and uranium. It counts China, Italy, Russia, the Netherlands, Uzbekistan, India, Turkey, and France as its main export destinations. Others include Switzerland, Greece, Spain, Romania, and South Korea. The United States accounts for 1.1 % of Kazakhstani exports.
Kazakhstan’s imports from the United States totaled $1.12 billion in 2020, according to the United Nations COMTRADE database on international trade as of July 2022. The main imports from the U.S. in 2020 were machinery, nuclear reactors and boilers (25 percent), electrical and electronic equipment (8.8 percent), vehicles (6.1 percent), articles of iron and steel (6 percent), pharmaceuticals (4.1percent), mineral fuels and oil (3.5 percent), plastics (3.3 percent), aircraft parts (1.9 percent) and other.
A sharp increase in global oil prices substantially improved Kazakhstan’s trade balance and reduced the current account deficit to 3 percent of GDP in 2021 (from 3.8 percent in 2020). FDI inflows and higher foreign borrowing by state enterprises financed this deficit.
Spillovers from Russia’s economic collapse will disrupt Kazakhstan’s supply chains, weaken trade flows and dent its growth prospects, according to the World Bank. Real GDP growth is expected to be 3.5-4.0 percent in 2023. Trade disruptions, lower business confidence, and increased currency volatility will also lower growth, as will March storm damage at the Russian Black Sea terminal of Kazakhstan’s main oil pipeline, the CPC, , through which about 80 percent of Kazakhstan’s oil is exported.
Despite the ongoing global challenges, Kazakhstan’s economy grew by 4.6 percent between January and May this year, and remains the largest economy in Central Asia and a country with much unfulfilled potential.
The country remains the world’s largest producer of uranium and possesses enormous deposits of a wide range of metals, including gold, iron, chrome, copper, zinc, vanadium and rare earths. Kazakhstan also has the second–largest oil reserves and the second–largest oil production after Russia among the former Soviet republics. The United States is among the largest foreign investors in Kazakhstan, with the bulk of investment directed in the oil & gas industry.
Launched in 2018, the Astana International Financing Center (AIFC) offers special tax, visa, and employment regimes for companies looking to invest in this middle-income market. The AIFC Court and International Arbitration Center (separate and independent from the Republic of Kazakhstan judicial system) provide a common law court system for the resolution of commercial disputes. AIFC is also actively involved in developing green finance and a green bonds market in the country, as well as other sustainable development programs.
A growing middle class and a rise in real incomes have increased demand for quality products and brand names. Inexpensive Russian and Chinese goods flow across Kazakhstan’s borders, but Western goods and expertise are also in demand. In some cases, consumers are willing to pay more for imported goods and services that offer higher quality and innovation. Customer service in Kazakhstan is sometimes lacking; providing customers with after-sales service could give businesses an edge in the market.
The country has much to build on: experienced leaders interested in taking Kazakhstan to the next level; an economy with unfulfilled potential that continues to deliver sustained growth, despite its failings; a developing civil society eager to assist in the reform process; large land area with potential for development of agriculture and renewable energy; a geographical position that places it in the crossroads of regional transportation, and a young, dynamic, and educated work force.
New Opportunities Revealed by the COVID-19 Pandemic
While upending the economy in 2020, the COVID-19 crisis has also revealed opportunities in Kazakhstan. In particular, the crisis has placed a renewed focus on logistics, digital technologies, and the financial sector. According to KPMG’s report on the Impact of COVID-19 on Key Economic Sectors in Kazakhstan, among the most pressing needs are: use of e-platforms to deliver key public services (including remote education to rural areas); online trade solutions; cargo transportation; development of digital products in the financial sector; IT solutions to track productivity of remote work; modernization of telecommunications networks due to high workload; financing and investments in airports and capital-intensive projects in mining and agriculture among others.
Overseas Security Advisory Council (OSAC)
The Overseas Security Advisory Council’s mission is to promote security cooperation between American business and private sector interests worldwide, and the U.S. Department of State. OSAC, which falls under the Bureau of Diplomatic Security, is an active partner of American businesses and universities, helping them to remain competitive and secure in a global environment through the dissemination of vital security-related information. The Council, established in 1985 under Secretary of State George Shultz, is made up of 34 private sector and four public sector member organizations that represent specific industries or agencies that operate abroad. The more than 4,600 U.S. companies and organizations affiliated with OSAC receive the tools needed to cope with security-related issues abroad. The Mission Kazakhstan OSAC Country Committee is an overseas extension of OSAC and provides a forum for effective communication between U.S. Embassy Nur-Sultan/U.S. Consulate General Almaty and the U.S. private sector in Kazakhstan. The Mission Kazakhstan OSAC committee is one of over 150 OSAC Country Committees operating globally.
- Establish continuing liaison and provide for operational security cooperation between State Department security functions and the private sector
- Provide for regular and timely interchange of information between the private sector and the State Department concerning developments in the overseas security environment
- Recommend methods and provide material for coordinating security planning and implementation of security programs
- Recommend methods to protect the competitiveness of American businesses operating worldwide.
OSAC created Sector Committees to provide U.S. private sector organizations a networking platform for discussing security issues and challenges unique to their industry or community:
- Media & Entertainment
- Faith Based
- International Development/NGOs
- Hotel and lodging
For more information about OSAC please visit www.OSAC.gov. For U.S. companies with a presence in Kazakhstan interested in joining the U.S. Mission Kazakhstan OSAC Country Committees in Atyrau, Almaty or Nur-Sultan, please contact MissionKazakhstanOSAC@state.gov.
Special American Business Internship Training Program (SABIT)
A global technical assistance program housed in the U.S. Department of Commerce, SABIT promotes free, fair, and reciprocal economic relationships between the United States and Kazakhstan. The program builds partnerships and provides opportunities for mid- to senior-level business leaders from transitioning countries to see, first-hand, U.S. business practices. The program’s worldwide alumni network of almost 7,000 leaders from the business, community, and scientific organizations all over the world use their SABIT training to create better business climates for trade and investment and are predisposed to work with American companies. More than 470 of these leaders are from Kazakhstan.
The SABIT training is industry-specific and is developed closely with the U.S. private sector, facilitating high-level meetings with U.S. companies, industry associations, educational institutions, et al. These meetings provide a forum where U.S. organizations share innovative leadership ideas with the delegates and showcase their technologies, equipment, and services. The program links American companies with foreign partners and aids both in the development of new relationships and strengthening of existing ties. Programs focus mainly on the private sector, but government officials often participate as well, allowing U.S. companies important access to decision-makers in complex markets.
The U.S.-based training programs generate significant diplomatic and commercial results by assisting American organizations in creating new relationships and strengthen existing ties with foreign partners and customers. The linkages formed through SABIT also serve as a basis for new business development and lead to tangible results. For example, the program has generated more than USD1 billion in U.S. exports to Eurasia alone since its inception in 1990. This represents a return on investment of 14-to-1.
Starting in 2021, the SABIT program in Central Asia focuses solely on promoting the development of Renewable Energy sources in the region. Due to the pandemic, SABIT holds online webinars for local companies and government representatives on Wind and Solar Power generation, Energy Market Design and other topics partnering with American associations and the private sector. For more information on the SABIT Program, please visit: https://www.trade.gov/sabit.