Investment Climate In Kazakhstan: Turning Risk Into Reward

The resource-rich central Asian nation hasn”t always enjoyed the most flattering of headlines, but it repays a lot of attention for investors able to do the work, argues the author of this article.

When it comes to investing into countries that come outside
one’s “comfort zone,” a nation that might fall into that
bracket is Kazakhstan, renowned among other matters for its
energy and mineral resources. The country is included in the
MSCI Frontier Markets Index, for example. Corruption and
corporate governance remain difficult.

To discuss the investment merits and challenges of the country
and its businesses, is Almat Madaliyev (pictured), partner
at Boies Schiller
Flexner, a New York-headquartered law firm. 

Almat Madaliyev

The editors are pleased to share these insights; the usual
editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com
if you wish to respond. (Main picture shows Astana,
Kazakhstan.)

Geopolitical pressures in neighbouring markets coupled with
Kazakhstan’s investment-friendly measures and abundant oil, gas,
and mineral reserves have served to cement its position as a
resource-rich frontier ripe for investment. Additionally, the
government of Kazakhstan has taken measures to assure foreign
investors of its stability and commitments. Pledging to reduce
the outsized role of monopolies and oligopolies in the economy
(1), President Tokayev has aimed at fostering greater
transparency across public procurement, asset acquisition, and
meritorious civil appointments (2). The government has also
committed to complying with international sanctions against
Russia and invited Western investors to relocate from Russia to
Kazakhstan. 

However, beneath the surface of this progress lie persistent
obstacles that dampen the foreign business climate. Approximately
50 per cent of the population’s total wealth resides with 0.0001
per cent of the population. Despite ongoing reforms, there
is lingering apprehension regarding transparency in
bureaucratic processes that still appear to favour oligopolistic
entities. Understanding these challenges is key to investor
success in the region. 

Opaque transparency

The Kazakhstani government has repeatedly demonstrated a
willingness for amicable dispute resolution that strikes a
balance between national interests and foreign investment.
Successful deals involving ArcelorMittal, Jusan, and Karachaganak
investors demonstrate that mutually beneficial partnerships are
achievable. Kazakhstan has also passed a number of positive legal
and regulatory reforms intended to provide greater transparency
surrounding the legal and financial regulatory systems. However,
the fairness and predictability of these systems remains a threat
to both the value and volume of foreign investments. 

In 2021, the Administrative Procedure and Process-Related Code of
the Republic of Kazakhstan (APPC) came into force and changed
commercial dispute resolution procedures with the government.
When investor-state disputes arise, the APPC is designed to place
the onus on the state to prove that their measures are legal and
justified. 

The “presumption of guilt” of a state body shifted the burden of
proof and was designed to make dispute resolution quick and
efficient. It was also meant to be a deterrent for any potential
wrongful acts by state bodies. However, this policy message may
not yet have reached its addressees. When a claim is brought,
state bodies have tended to litigate cases all the way up to the
Supreme Court, instead of quickly resolving the issue. Such
unwritten policies justifying state authorities’ actions
circumvent the APPC’s aims. 

In some instances, there are well-founded reasons for exhausting
all legal remedies before a state body may admit wrongdoing
without triggering prosecutorial investigation against itself.
However, following recent reports about the large number of
appeals to the Supreme Court, the administration commented that
there is no procedural obligation to take all cases to such
levels as well as questioned the necessity to do so (3).  

Similarly, the President signed the following law in 2023: “On
the return of illegally acquired assets to the state.”
(4) It is essentially an asset recovery law to trace,
identify, and remedy the illegal acquisition of assets by UHNW
individuals and public officials. However, it invites criticism
for the simple lack of transparency over proceedings. There
is a clear public demand to recover assets that were amassed by
questionable means.

While the concept is well-intended, the process leaves
stakeholders and observers with more questions than answers. What
is meant to be a just and due process remains labelled by those
who tend towards conspiracies as an asset grab. Secrecy around
this type of procedure is unhelpful. In the future, this may
result in numerous legal battles well beyond the state’s
borders. 

The publicly broadcasted jury trial of the former Economy
Minister Quandyq Bishimbaev is a good demonstration of arbitrary
policy on transparency. The trial was an outlier in a largely
closed-door justice system. Though observers are noticing other
live broadcasted trials, there is an acute lack of consistency
with regards to the court’s openness.

As with the legal system, financial regulation in the country is
also subject to uncertainty or change. While regulators aim for
broader tax bases, investors are exposed to unplanned taxes,
currency controls, and policies perceived as unfavourable to
foreign capital with limited recourse for protection. 

With all these reforms, questions remain with regard to how soon
investors will see consistency in their application. Hence the
leitmotif of any report focusing on Kazakhstan, the improvement
of the regulatory framework needs to be followed by progress in
practices on the ground.

Uneven infrastructure   

On a sector or project level, chronic underinvestment in
infrastructure and skills development threatens to hinder
economic and sector development on a national level, acting as a
significant hurdle for international project potential. This has
created an imbalance within certain sectors.  

While investments into the manufacturing industry surged by 60
per cent in 2023, the Soviet-era legacy infrastructure on which
the sector relies is in urgent need of upgrades, including power
supply, telecoms, and water. These same shortcomings pose latent
risks to the mining and quarrying sector, which comprise over 35
per cent of foreign direct investment (FDI) inflow. 

Coupled with infrastructural challenges is declining productivity
of human capital, with a persistent shortage of technical skills
and capabilities. According to the World Bank, Kazakhstan’s Human
Capital index dropped by 37 per cent during the pandemic. When
adjusted for access to education, the HCI sits at 0.45 –
comparable to that of a low-income economy (5). These shortages
are particularly pronounced in technical skills areas such as
engineering, which are integral to the natural resources and
manufacturing sectors. 

Taken together, these two indicators point to the need for
long-term government investment into the sectors and utilities
supporting foreign investment. While natural resources are a
lucrative source of short-term value, a failure to diversify or
re-invest into other sectors will hamper Kazakhstan’s long-term
growth potential.

Geopolitical disruption

The ongoing situation in Eastern Europe and its broader regional
implications adds a layer of geopolitical uncertainty that
investors must carefully consider. 

After the government reshuffle in Russia was finished in mid-May,
its Security Council’s agenda’s first item was – further
relations with post-Soviet states. Russia’s president emphasised
that in the new political cycle, Russia should pay even more
attention to this topic. Further discussions about how the
Russian government is planning to “organise this work from all
points of view, including organisational” was held

behind closed doors. 

These types of conversations and the regional impact of the
Russian-Ukrainian war heightened cross-border scrutiny, and the
potential for secondary sanctions creates risk factors. 

Kazakhstan’s reliance on Russian supply chains leaves it
vulnerable to disruption, while investors are increasingly
concerned that these same Russian-linked trade routes can be used
to bypass sanctions.

With Russia remaining among Kazakhstan’s largest trading
partners, internal political dynamics and customs issues,
including at Khorgos Gateway, add to the complexity of navigating
the regulatory environment. 

Navigating the market as an investor

Despite these challenges, opportunities remain. Kazakhstan
presents a complex but potentially rewarding investment
landscape. Investors can navigate the risks by forming strategic
partnerships and remaining adaptable. Developing contingency
plans for both positive and negative scenarios is vital, as is
staying informed about recent legal precedents and regulatory
updates impacting investors in the region. 

In addition to understanding government objectives and the
competing forces behind policies, fostering strong relationships
with the government, local actors, and commercial advisors with
strong links to the region is crucial for navigating the
environment. Investors considering Kazakhstan are well-served by
proactive engagement. 

Footnotes

1, International Trade Administration, Kazahkstan investment
Climate, 2022, Kazakhstan – Investment Climate Statement
(trade.gov)

2, Council of Europe’s Group of States against Corruption, 2022,
GRECO (coe.int)

3, The Supreme Court of Kazakhstan criticized government agencies
for disputes with investors, ULYS Media, 2024 

4, The Head of State signed the Law “On the return of illegally
acquired assets to the state” 2023

5, World Bank, Kazakhstan Economic Update, 2023, World Bank
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