This Review has been undertaken under the aegis of the Investment Committee and as a contribution to the OECD-Eurasia Competitiveness Programme, for which the European Commission and the UK Foreign and Commonwealth Office have provided financial support.

This Review presents a blueprint for the next phase of reforms in our continuing effort to create a world class investment climate in Kazakhstan. Since achieving independence in 1991, we have viewed foreign direct investment (FDI) as an important means to increase competitiveness and economic growth, and improving the investment climate remains a top government priority. The OECD has been our long time partner through this process, publishing its first Investment Guide for Kazakhstan in 1998.

Kazakhstan has enjoyed a long period of stability and prosperity, with one of the world’s fastest growing economies over the past decade on the back of high commodity prices. The past decade is in sharp contrast with the post-independence period when the economy suffered through a total of six years of negative growth. Extensive reforms following independence finally paid off and the country was able to profit from the sharp rise in oil prices beginning in 1999. In common with other oil-producing countries, the government has created a sovereign wealth fund with the aim of enhancing competitiveness, economic diversification and sustainable development. The government is nevertheless far from achieving the long-standing goal of diversifying the economy away from natural resources to support broad-based economic development and to mitigate some of the macroeconomic volatility associated with fluctuations in global commodity prices.

Attracting foreign investors into priority sectors is one of the key platforms for diversifying the economy, yet the evidence from inward investment in non-extractive sectors suggests that much of the work of diversification still remains to be done. While Kazakhstan has performed well in international comparisons, given the small size of its economy and a population of only 16 million – receiving on average USD 11 billion annually over the past five years and with a total stock of inward foreign direct investment (FDI) of almost USD 89 billion at the end of June 2011 or 57% of GDP – both FDI inflows and exports from Kazakhstan are still highly concentrated (more than 70%) in natural resources.

Kazakhstan has no general screening mechanism for foreign investment and few sectoral restrictions. The Constitution of Kazakhstan provides the same rights and obligations to foreign entities and individuals as to Kazakhstani citizens, unless specified elsewhere in legislation. In terms of the typical statutory restrictions on FDI found in other emerging economies, Kazakhstan is relatively open to foreign investment. Foreigners may invest in any sector, with equity limits in only a handful of sectors. But at the same time, a number of measures introduced in the past decade to diversify the economy and create greater local value added from foreign investments, particularly in the subsoil sector, have increased operational restrictions on foreign investment and added greater uncertainty for investors.

Based on the OECD Policy Framework for Investment, which helps to evaluate various policies relevant for a country’s investment climate, Kazakhstan has deployed significant efforts to improve its investment environment. Recent initiatives have focused on reducing administrative burdens for small and medium-sized enterprises, including simplifying registration procedures and reducing minimum capital requirements. But performance is not yet satisfactory in areas such as public consultation. Corruption also remains a serious challenge, and investors still complain about inadequate enforcement of intellectual property rights protection although an adequate legal framework is now in place. Investment promotion and facilitation are a priority for the government but could be further streamlined. Kazakhstan’s pending accession to the WTO will be an important step in enhancing the transparency and predictability of the country’s trade policy. The entry into force of the Customs Union between Belarus, Kazakhstan and the Russian Federation means gradual harmonisation in the business environment in the CU area which might lead to some reallocation of economic activities among the member countries.

Responsible Business Conduct (RBC) principles and practices are recognised as an important part of the investment climate and therefore increasingly integrated within public and corporate policies aimed at attracting investment and enhancing sustainable development. Kazakhstan has not yet developed a comprehensive policy for promoting RBC and has not established a specific government institution in charge of these issues. Enterprises in Kazakhstan disclose information on social and environmental issues only on a voluntary basis, and market pressure for disclosure is weak. Corruption remains a serious challenge in Kazakhstan in a number of areas such as public procurement, use of subsoil resources and land and customs and tax administration. Kazakhstan’s development strategy has increasingly integrated environmental protection and sustainable development considerations, notably in the 2007 Environmental Code.

Foreign natural and legal persons and foreign-established enterprises with the share of foreign equity participation more than 50% cannot own private land plots for agricultural land and forestry purposes.

Agricultural land, immediately adjacent (3-km zone) to the protected zone of the State Border of the Republic of Kazakhstan, available only to citizens and legal entities of the Republic of Kazakhstan, unless otherwise stipulated by the legislation of the Republic of Kazakhstan on state borders.