19 June 2018
Kazakhstan: Market Profile
- Picture: Kazakhstan factsheet
- Graph: Kazakhstan real GDP and inflation
- Graph: Kazakhstan GDP by sector (2016)
- Graph: Kazakhstan unemployment rate
- Graph: Kazakhstan current account balance
- Graph: Kazakhstan merchandise trade
- Graph: Kazakhstan major export commodities (2016)
- Graph: Kazakhstan major export markets (2016)
- Graph: Kazakhstan major import commodities (2016)
- Graph: Kazakhstan major import markets (2016)
- Graph: Kazakhstan trade in services
- Graph: Kazakhstan FDI stock
- Graph: Kazakhstan FDI flow
- Graph: Kazakhstan short term political risk index
- Graph: Kazakhstan long term political risk index
- Graph: Kazakhstan short term economic risk index
- Graph: Kazakhstan long term economic risk index
- Graph: Kazakhstan vs global and regional averages
- Graph: Kazakhstan major export commodities to Hong Kong (2017)
- Graph: Kazakhstan major import commodities from Hong Kong (2017)
- Graph: Kazakhstan merchandise exports to Hong Kong
- Graph: Kazakhstan merchandise imports from Hong Kong
Kazakhstan has transitioned from lower-middle-income to upper-middle income status in less than two decades. The country moved to the upper-middle-income group in 2006. Strategically, it links the large and fast-growing markets of China and South Asia and those of Russia and Western Europe by road, rail, and a port on the Caspian Sea. Kazakhstan’s challenging external environment caused a broad-based economic slowdown in 2014 and put upward pressure on inflation. Progress on poverty reduction was largely stagnant in 2014 and 2015, reflecting slow growth and weak labour market outcomes. In 2017, more favorable terms of trade and increased oil production supported an economic recovery and an improvement in poverty indicators in Kazakhstan. Ongoing structural and institutional reforms (including those under the 100 Concrete Steps program and the Strategic Plan for Development of Kazakhstan to 2025) aim to reduce the role of the state in the economy and facilitate the development of a vibrant, modern, and innovative tradable non-oil sector.
Source: World Bank
2. Major Economic Indicators
Note: e = estimate, f = forecast
Sources: IMF, World Bank
3. External Trade
3.1 Merchandise Trade
Sources: WTO, World Bank WITS database
3.2 Trade in Services
4. Trade Policies
- Kazakhstan was officially accepted as the 162nd WTO member on 30 November 2015. Not only does WTO accession limit the country’s average tariffs on goods to 6.1% (tariffs on agricultural imports would be limited to an average of 7.6% and non-agricultural goods to 5.9%) from 8.6% in 2014, but it also removes the 49% foreign equity cap on foreign investment in the telecommunications sector. The branching limitation on foreign banks and insurance companies will also be lifted five years after the date of accession.
- The Customs Union (which became the Eurasian Economic Union (EAEU) as of 1 January 2015) between Kazakhstan, Russia and Belarus came into existence in 2010, and customs borders among the three countries were removed on 1 July 2011. Since then, a free-trade zone has come into operation, and the three countries have adopted unified import and export duties against trade with other countries, although exceptions still remain for certain sectors like pharmaceuticals, plastics and transport equipment. Armenia joined the Union on 2 January 2015, while Kyrgyzstan officially became the fifth member on 12 August 2015.
- Membership of the EAEU single market has meant the Kazakhstan has become an easier import market for all EAEU member states to penetrate, but a far more difficult market for non-EAEU member states to navigate. After ascending to the EAEU, Kazakhstan has been required to adopt the EAEU customs regime. The implementation of this customs regime has reportedly been haphazard across member states and still involves significant border and documentary compliance times and costs for non-EAEU member states.
This has largely not been beneficial, as Kazakhstan does not import that much from other EAEU member states, except Russia with which Kazakhstan already had tariff-free trade prior to the EAEU because it had been in a customs union with Russia and Belarus since 2010. In 2016, Kazakhstan's major importing partners were Russia (25.2% of total product imports), China (10.1% of total product imports), Germany (4% of total product imports), the US (3.5% of total product imports) and Italy (2.3% of total products imports). Given the increased trade bureaucracy for non-EAEU states when importing to Kazakhstan, we export Russia to maintain its dominance in the Kazakhstan import mix for the foreseeable future.
- The country is highly dependent on imports for consumer and industrial needs. The EAEU applies import tariffs on pharmaceutical products, certain aircraft-related goods, coal mining machines, wagons, oil and gas equipment. This makes accessing them from non-EAEU markets significantly more expensive.
- There are various anti-dumping measures imposed on products from Ukraine, autos parts and steel products from China and other countries, as well as light passenger vehicles from Italy and Germany.
- All labelling must be in both Russian and Kazakh languages.
Source: WTO – Trade Policy Review
5. Trade Agreement
5.1 Trade Updates
Kazakhstan's EAEU membership has meant is that the country has been able to increase its levels of trade openness and regional integration.
In May 2018 it was announced that the Russia-led Eurasian Economic Union trade bloc signed an interim trade deal with Iran.
5.2 Multinational Trade Agreements
- The Customs Union (which became the Eurasian Economic Union (EAEU) as of 1 January 2015) between Kazakhstan, Russia and Belarus came into existence in 2010, and customs borders among the three countries were removed on 1 July 2011. One thing Kazakhstan EAEU membership has meant is that the country has been able to increase its levels of trade openness by entering into Free Trade Agreements (FTAs) with partners it would not ordinary have. For example, Vietnam's FTA with the EAEU came into effect from October 2016, and in April 2017 it was announced that the EAEU and India had signed a Free Trade Agreement (FTA) in order to stimulate trade between the Single Market bloc and India.
- Kazakhstan also has FTA's with Uzbekistan, Kyrgyzstan, Russia, and Georgia. Kazakhstan officially entered into a Customs Union with Russia and Belarus on July 1, 2010. Since that time, Kazakhstan’s trade policy has been heavily influenced by regulations promulgated by the Customs Union and its governing body the Eurasian Economic Commission, a supra-national body located in Moscow.
- Kazakhstan is part of the Commonwealth of Independent States (CIS). The CIS is a political and economic confederation of nine member states and two associate members, all of which are former Soviet Republics located in Eurasia (primarily in Central to North Asia), formed following the dissolution of the Soviet Union. Georgia withdrew its membership in 2008, while the Baltic states (Estonia, Latvia and Lithuania) chose not to participate.
Source: WTO Regional Trade Agreements database
6. Investment Policy
6.1 Foreign Direct Investment
6.2 Foreign Direct Investment Policy
- The government recognises FDI is essential to promote economic diversification and the modernisation is key industries, such as oil and gas, and there is therefore a well-developed investment promotion strategy, and an associated incentive programme, in place to encourage FDI. The government organisation 'KAZNEX Invest', operating under the Ministry of Investment and Development, offers support, advice and information to foreign investors through its online portal, Invest in Kazakhstan. The website also details the country's investment incentive programme. Investors in any industry may receive exemption from customs duties on raw materials and production equipment, as well as grants of up to 30% of the value of fixed assets.
- To further improve business environment and attract FDI, the government launched an annual USD3billion stimulus package for 2015-17, as part of the Bright Path five year economic plan, with investment priorities including transport and logistics, utility networks and energy infrastructure. Meanwhile, the government is devoted to greatly reduce the time required to register a business (to one hour), and paperwork needed for customs procedures and other business operations (by 60%), and extended and expanded its visa-free entry scheme for citizens of a number of countries in order to boost tourism and foreign investment. More information on investment environment and regulations can be found at the Invest in Kazakhstan.
- The government has also identified a number of priority sectors into which it is attempting to divert foreign investment, including metallurgy, oil refining, petrochemicals, food processing, chemicals production, automotives, electrical equipment, machinery for extractive, agricultural and transportation activities, and production of construction materials. In addition to the benefits listed above, investors in these industries may benefit from incentives including corporate income and land tax exemption for 10 years, property tax exemption for eight years, subsidies up to the value of 30% of construction and new equipment costs, stability of legislation, and state support through the 'one-stop-shop'.
- There are significant restrictions on where in Kazakhstan foreigners can own land, and there is a wide array of restriction on which private ownership is not allowed if that property is being used for a specific purpose. Foreigners are allowed to own land in order for the construction of residential or commercial real estate, but can only rent agricultural land.
- There are caps on foreign capital in certain sectors including media outlets (limited at 20%), air transport (49%) and non-mobile telecommunications (49%) are present. There are many regulations surrounding foreign involvement in the oil & gas industry, which is subject to changeable and arbitrarily enforced legislation which often disadvantages foreign investors.
The tax regime for foreign oil and gas companies is more onerous than for other sectors, with profits taxed outside of the standard corporate income tax system at different rates according to the contract. Tax stability is only guaranteed for one project the Tengiz field.
Furthermore, exports of oil and gas products are subject to customs duty at USD40 per tonne as of 2016, undermining profit margins for companies involved in the hydrocarbons sector.
- Local content hiring and supply chain requirements – Kazakhstan has specific ratios for the employment of foreign and local workers in all sectors. Furthermore, there are certain requirements for the use of local businesses in the supply of raw materials and services.
Specific codes exist for the oil & gas and autos sectors. While some of these have been relaxed since the country ascended to the WTO in 2016, they still remain a pertinent barrier for foreign investment.
- Although, Kazakhstan is now pushing ahead with its much-delayed privatisation programme, and the first companies will likely come to market in the near term. IPOs of national carrier Air Astana and uranium producer KazAtomProm are promised for 2018. Sales of minority stakes in energy producer KazMunaiGas, national electricity utility Samruk Energy, postal service KazPost and the Kazakh national railway operator are due to follow in 2019 or 2020. Dual listings are planned for most of the assets, with London the preferred international venue. Kazakh authorities are hoping that the latest privatisation drive will prove more successful than its predecessor, the 'People's IPO' programme.
- There is also a special economic zone (SEZ) programme in place offering generous incentives for domestic and foreign business based in 10 specific locations throughout Kazakhstan. SEZs are based at the New Administrative Center in Astana, the Seaport of Aktau, the Alatau Innovation Technology Park (near Almaty), the Ontustik Cotton Center in south Kazakhstan, the international tourism zone, Burabay (a resort area 300km from Astana), the Atyrau National Industrial Petrochemical Techno park, Saryarka in the Karaganda region, a transport and logistics zone in Khorgos at the Kazakhstan-Chinese border, SEZ Pavlodar, and Chemical Park Taraz. Businesses based in these SEZs benefit from exemption from income tax, land tax, property tax, and VAT, customs duties on imports, free land plots for up to 10 years, and simplified procedures for employing foreign workers. Businesses in the Alatau Innovation Technology Park are also eligible for exemption from social security payments for employees for five years.
Sources: WTO – Trade Policy Review, The International Trade Administration (ITA), U.S. Department of Commerce
6.3 Free Trade Zones and Investment Incentives
|Free Trade Zone/Incentive Programme||Main Incentives Available|
|10 Special Economic Zones located throughout the country||– Exemption from custom duties, income, land, property tax and VAT|
– Free land plots for up to 10 years
– Simplified hiring procedures for foreign workers
7. Taxation – 2017
- Value Added Tax: 12%
- Corporate Income Tax: 20%
Source: PwC Taxes at a Glance 2017
7.1 Important Updates to Taxation Information
As of January 1 2018, a new Tax Code is in force in Kazakhstan. While there have been no substantial changes made to corporate or personal income tax rates, there have been some amendments to the taxation regime in respect to share dividends, interest income, and capital gains. Additionally, tax payer rights have been strengthened through the introduction of the principal of good faith into Kazakhstan’s tax code. This principle of good faith makes the core presumption that the taxpayer has acted in good faith unless proven otherwise and that the burden of proving tax violations is now imposed on tax revenue authority. There have also been changes as to when and how the Tax Code can be amended by the Kazakh government.
7.2 Business Taxes
|Type of Tax||Tax Rate and Base|
|Corporate Income Tax||20% on profits|
|Capital Gains Tax||20% on profits|
|Permanent Establishment Tax||20% on profits|
|Branch Tax||19% on profits|
|Withholding Tax (dividends, interest, royalties, capital gains)||15%|
|Withholding Tax (interest, royalties)||20%|
|Value Added Tax (VAT)||12% on sale of goods, services and imports|
Sources: General Department of Taxation, Minstry of Economy and Finance, PwC
8. Foreign Worker Requirements
8.1 Localisation Requirements
Each year the Kazakh government sets different quotas for the hiring of foreign workers or how many local workers must be hired within different sectors. Sectors like mining and oil and gas have their own local workforce hiring requirements as provided for in the Codes governing these industries. Autos and agriculture have also been targeted.
8.2 Obtaining Foreign Worker Permits for Skilled Workers
As of January 1 2017 the Kazakh government has adopted rules which make it harder and easier in some respects for foreign workers to obtain a permit to work in the country, but it must be noted overall the process is time consuming, expensive and on average a work permit takes around two and a half months to be issued.
There are several critical changes to the previous regime. Firstly, under these new rules head of foreign branches and representative offices in Kazakhstan and heads of companies engaged in government contracts are now required to apply for work permits, as they used to be exempt. Heavy fines now apply if work permits are not obtained.
Secondly, however employers will no longer be show proof that they have conducted market research as to whether a local Kazakh citizen exists who can be employed for the role before applying for a foreign worker permit.
Thirdly, ratio requirements for local citizen hires or caps on foreign worker hires don't apply to branches of international businesses which employ 30 people or less. And fourthly, a state fee will now have to be paid for every general work visa issued, whereas before it was free.
8.3 Visa/Travel Restrictions
Residents of several countries can travel to Kazakhstan visa-free. From January 2017 this has been extended to include residents of the EU, the US, and Japan.
8.4 Regional Workers
Significant migration from the country has taken place, which has the potential to increase further since Kazakhstan became a fully-fledged member of the Eurasian Economic Union (EAEU) in 2015. The country is a member along with Russia, Belarus, Kazakhstan and Armenia. The EAEU single market provides for free movement of goods, people, capital and services between member states, with a common external tariff regime. This has significantly increased the ease for Kazakh citizens to be employed in other EAEU member states. On the other hand, EAEU ascension has also significantly widened the pool of potential labour for positions in Kazakhstan. The 'freedom of labour' tenet in the EAEU regional agreement provides the country with access to the common labour market, and all workers have equal rights in other EAEU member states with no more quota requirements needing to be met, and the qualifications of Kazakh workers in various professional fields are automatically recognised. Workers involved in professions such as legal, education, medical and pharmaceutical activities will still have to undergo a recognition procedure of their various qualifications in another EAEU member states. It must be noted that the process of employing foreign citizens from non-EAEU or Commonwealth of Independent States (CIS) countries remains complicated in Kazakhstan as the Kazakh government implements fairly strict quota systems for foreign hires and strict local hiring content requirements in key industries such as mining and oil and gas. Furthermore, the process for actually applying for a foreign work permit is time consuming and expensive, as described in more detail in the table below.
9.1 Sovereign Credit Ratings
|Rating (Outlook)||Rating Date|
|Standard & Poor's||BBB-||17/02/2016|
Sources: Moody's, Standard & Poor's, Fitch Ratings
9.2 Competitiveness and Efficiency Indicators
|Ease of Doing Business Index ||41/189||35/190||36/190|
|Ease of Paying Taxes Index||17/189||51/190||50/190|
|Logistics Performance Index ||77/160||N/A||N/A|
|Corruption Perception Index||131/176||122/180||N/A|
|IMD World Competitiveness||47/63||32/63||N/A|
Sources: World Bank, IMD, Transparency International
9.3 BMI Risk Indices
|Economic Risk Index Rank||81/202|
|Short-Term Economic Risk Score||46.9||54.4||55.6 |
|Long-Term Economic Risk Score||57.3||58.3||55.8|
|Political Risk Index Rank||86/202|
|Short-Term Political Risk Score||69.8||66.7||66.7 |
|Long-Term Political Risk Score||60.3||66 ||66.0|
|Operational Risk Index Rank||60/201|
|Operational Risk Score||59.8||59.4||58.0 |
Source: BMI Research
9.4 BMI Political and Economic Risk Indices
BMI Risk Summary - Q2 2018
In the wake of the sharp drop in oil prices in the latter stages of 2014, the Kazakh authorities have implemented a series of fiscal belt-tightening measures, which will weigh on living standards in the country. Nevertheless, we see the risk of social instability in Kazakhstan as fairly limited, due to the effectiveness of the establishment's security and police apparatuses. Additionally, in a sign of goodwill, President Nursultan Nazarbayev has recently passed a variety of constitutional amendments, which slightly strengthen the country's political institutions which we believe aim to ensure a smooth transition of power in the event of his passing. A potential power struggle in a post-Nazarbayev era would derail the structural reform implementation, which could disincentivise foreign direct investment and thus impair economic diversification.
Following two consecutive waves of sharp devaluation of the tenge in 2014 and 2015, and a continued weakening trajectory into 2016, the burden to borrowers of FX-denominated debt repayments will correspondingly increase. This poses a significant risk to public finances stemming from contingent liabilities to state-owned enterprises, including in the extractive and manufacturing sectors, as well as the banking sector. Nevertheless, the strong position of the sovereign will prevent a systemic economic or banking sector collapse.
Investors in Kazakhstan face moderate operational risks by regional standards. The major impediments for businesses considering investing in the country stem mainly from the threat of terrorism and criminal activity, corruption throughout the judiciary and at high levels of government, and the ineffectiveness of law enforcement, which all serve to undermine the operating environment. The country's logistics network also presents sizeable risks, including the very high costs to import and export goods, which substantially raise business costs. However, high levels of foreign direct investment, ambitious government expansion plans and a well-educated labour force entice potential investors.
9.5 BMI Operational Risk Index
|Operational Risk||Labour Market Risk||Logistics Risk||Trade and Investment Risk||Crime and Security Risk|
|Caucasus and Central Asia Average||49.8||54.9||47.3||52.0||45.1|
|Caucasus and Central Asia Position (out of 8)||2||1||3||4||4|
|Emerging Europe Average||56.6||54.1||57.4||58.4||56.7|
|Emerging Europe Position (out of 31)||14||1||21||21||20|
|Global Position (out of 201)||60||9||71||77||98|
Note: 100 = Lowest risk, 0 = Highest risk
Source: BMI Operational Risk Index
|Country||Operational Risk Index||Labour Market Risk Index||Logistics Risk Index||Trade and Investment Risk Index||Crime and Secruity Risk Index|
|Emerging Markets Averages||46.8||48.0||45.8||47.5||46.1 |
|Global Markets Averages||49.8||49.8||49.3||50.0||49.9 |
Note: Higher score = Lower risk
Source: BMI Operational Risk Index
10. Hong Kong Connection
10.1 Hong Kong’s Trade with Kazakhstan
|2016||Growth rate (%)|
|Number of Kazakhstan residents visiting Hong Kong||11,968||-12.88|
|Number of Kazakhstan residents in Hong Kong||N/A||N/A|
Sources: Hong Kong Tourism Board, Hong Kong Immigration Department
10.2 Commercial Presence in Hong Kong
|2016||Growth rate (%)|
|Number of Kazakhstan companies in Hong Kong||N/A ||N/A|
|- Regional headquarters|
|- Regional offices|
|- Local offices|
10.3 Chamber of Commerce (or Related Organisations) in Hong Kong
Kazakhstan Consulate General in Hong Kong
Address: Unit 2503-2504, 25/F, Cosco Tower, 183 Queen's Road Central, Sheung Wan, Hong Kong
Email: email@example.com, firstname.lastname@example.org
Hours of Business: Monday to Friday, 9:00 a.m. - 5:00 p.m.
Consul General: Anuarbek Argingazin
Tel: (852) 2548 3841
Fax: (852) 2548 8361
10.4 Visa Requirements for Hong Kong Residents
As of 2012, it was mutually agreed that Hong Kong Special Administrative Region (HKSAR) passport holders may visit the Republic of Kazakhstan visa-free for a stay of up to 14 days. Likewise, nationals of the Republic of Kazakhstan will also enjoy 14 days' visa-free access to Hong Kong.
Source: Visa on Demand