How would you evaluate the evolution of the business environment in Kazakhstan over the past decade?
Over the past decade, the business climate in Kazakhstan has improved despite the challenges entailed by the global financial and economic crises of recent years. For many years, Kazakhstan had average annual growth of 5-10% propelled by the country's dominant oil industry. The government understands that a positive business environment is necessary to attract foreign investment, but there are still many impediments. Economic diversification is a necessity, though it has proven a challenge, as it has for many countries with oil-fuelled economies. Creating a broad-based economy is a government priority and there have been some successes, but there are areas where the economy could, and should, improve, notably agriculture, where Kazakhstan has all the prerequisites for a robust agriculture and agribusiness industry.
Foreign investors have been attracted to areas such as consumer products, logistics, training, consulting, and tourism. The hospitality industry is strong with many global leaders in the luxury hotel industry represented in Almaty and Astana, where business is centered and international conferences are plentiful. There are many other areas of the economy that could benefit from foreign investment and be of interest to investors in search of new markets.
Which sectors are currently the most attractive for investors?
The oil industry is always attractive, but is well established with a 25-year history behind it. The major oil companies from North America, Europe, and Asia and their supporting oilfield service providers have been in Kazakhstan for a long time. Given that the price of oil is currently volatile and under extreme pressure, now is not the right moment for oil companies or their related services to enter the market. Looking at other areas of the economy, Kazakhstan has an endless appetite for consumer goods of all types and the means to pursue a solid middle-class lifestyle, even a luxurious lifestyle for those who have benefitted from economic growth. The areas that traditionally have performed well are continuing to be the most attractive for foreign investment. Agriculture is an industry that Kazakhstan could excel in given its climate and vast, yet under-utilized territory; provided that agriculture receives a good balance of investment and planning, it will be critical to reducing the country's reliance on food imports and establishing a firm basis for self-sufficiency and food security.
Where can reforms be implemented to facilitate the country's economic growth?
Kazakhstan has a strong reform agenda and is continuing to implement reforms in many areas that would be helpful not only to foreign investors, but also to local investors. However, there are some crucial areas that continue to be in need of fundamental reform. First and foremost this refers to the country's judicial system, which is still struggling to emerge from the post-Soviet mold—judges are not always well-qualified, nor independently appointed, and tend to issue judgments in support of the government, rather than recognizing the merits of investor cases. Many of these disputes relate to tax issues, where systemic reform is needed to remove legislative inconsistencies that repeatedly bring the same issues back to the courts again and again. Tax legislation changes frequently, yet these changes too often cause more difficulty and more uncertainty, rather than removing difficulties. Every business needs a reliable legal environment in which it can operate. Investors value stability—not just in taxes, but also in everything relating to their business operations. One impending change in the country's tax legislation is of particular concern to foreign investors. Kazakhstan intends to abolish VAT and introduce a sales tax model on January 1, 2017—a fundamental change that most investors oppose. VAT is used throughout the EU and is recognized as a model for economically developed countries. AmCham, its members, and many other businesses in Kazakhstan are discussing the pros and cons of this change with the government, and are offering expert tax advice from international sources, including the OSCE to ensure that whatever changes may be made to conform to best international practices.