Investors looking for a new frontier of opportunity might want to consider Kazakhstan. The country has the largest and most productive economy in Central Asia. Gaining independence in 1991, the nation of Kazakhstan is strategically located between Asian and European business centers. The Kazakhs have the additional advantage, of having a close geographic proximity to 3 out of 4 of the BRIC countries. Russia, India and China are all in the neighborhood, for purposes of trade and the marketing of goods. This has made Kazakhstan a major transit zone in the region, containing 3 out of the 4 existing Eurasian railways. Commodities and manufactured goods moving east to west or north to south by land, are more than likely to transit through the country of Kazakhstan.
One can move goods from China to Europe in 10 days, rather than the traditional sea route of 30-35 days by taking a rail route through Kazakhstan. The difference in distances are substantial as well. Shipping overland is between 8 and 9 thousand kilometers (4 to 6 thousand miles) as compared to 24,000 kilometers or close to 15 thousand miles to ship by water.
Kazakhstan’s economy had grown an average of 8% annually, for a number of years following independence. Of course much of this growth can be attributed to the expanding production of oil. The country has the 11th largest proven reserves of both oil and natural gas, in the world. These are estimated to be 6.1 billion tons. Other major exports of the country include livestock, textiles and wheat.
This coincides with a rapidly growing mineral extraction industry. For example, Kazakhstan has become a major exporter of uranium with 35% of global production and the world’s 2nd largest reserves after Australia. The country also has the second largest global reserves for chromium, lead and zinc. It is reported that the Kazakhs possess the world’s 3rd largest manganese reserves, and the fifth largest copper deposits. It also ranks in the top 10 for reserves of coal, gold and iron. There are rather large deposits phosphorite and potassium as well. Other minerals include bauxite, chromite, silver, sulfur, and titanium.
In addition, the country has recently begun a lively trade in the export of diamonds.
The agricultural sector of Kazakhstan has experienced rapid growth since independence. As one of the supposed birthplaces of the apple, this sector provides about 5% of the country’s GDP (Gross Domestic Product). The most important agricultural commodities includes grains, melons, livestock, potatoes, and vegetables. Major crops include barley, cotton, rice and most importantly wheat. Exports of wheat, have become a major source of hard currency for the country.
Livestock products are dominated by dairy, meat, leather and wool.
Agricultural land occupies some 327 thousand square miles or 846 thousand square kilometers. Of course out of the total, 236 thousand square miles consists of pasture and land for hay.
The main industries of the country in addition to mining and metal extraction include, iron and steel, tractors, and other agricultural machinery, electric motors, and construction materials.
Exports were reported to be worth annually $87 billion USD (United States Dollar) at the beginning of 2013. Oil and oil products comprised 59% of the total. This was followed by ferrous metals at 19%,chemicals at 5% and machinery at 3%. The rest is comprised of grain, wool, meat and coal.
The main export partners consist of China with 21% of the total followed by Russia with 9.9%. France is next with 9.3% and Germany at 6.9% of the total. Italy, Canada, Ukraine, and Romania follow at 5%, 4.8%, 4.7%, and 4.1% respectively.
Imports totaled $43 billion USD at the end of 2012. Major imports consist of foodstuffs, machinery and equipment as well as metal products.
Major imports partners comprise Russia with 31.6% of the total and China with 26.6%. Germany and the Ukraine follow at 6% and 4.4% respectively.
Kazakhstan was the first former Republic of the Soviet Union to repay all of the debt incurred from the IMF (International Monetary Fund). Amazingly, this was done 7 years ahead of schedule.
Already in 2002, the country achieved the status under United States trade laws, as being identified as a market economy. This meant that the country had made major advancements in economic and monetary reforms, that had allowed the economy to become a capitalist entity.
This fiscal situation inside the country is quite stable. The government although allowing substantial outside investment, has continued to maintain a conservative attitude toward spending. Oil revenues have been saved much like Norway, the UAE (United Arab Emirates), Saudi Arabia and others. The oil fund in Kazakhstan is known as Samruk-Kazyna. The global financial crisis did however, facilitate a higher rate of public borrowing to keep the economy moving. Public debt increased to 12% of GDP in 2012 and 13.4% in 2013, from a low of 8.7% in 2008. It is important to note though, that between 2012 and 2013 the government did achieve an overall fiscal surplus of 4.5%. This has allowed the total debt incurred at the national level, to start declining.
The financial sector has undergone much larger reforms than other parts of the economy. However, capital markets are still not fully developed, but the bond market is growing. Troubled banks have been recapitalized, to provide monetary stability.
The government continues to subsidize agriculture and still has price controls in place for fuel.
Unfortunately, inflation which had averaged above 6% earlier, but for the past few years has slowed to the 5% range coming in at 5.1% this year, is still an issue.
Kazakhstan is the largest landlocked country in the world. It is the 9th largest nation in land area with over 1 million square miles (2,727,300 square kilometers), making it larger in geographic size than Western Europe.
The country borders China, Russia, Kyrgyzstan, Turkmenistan, and Uzbekistan as well as the Caspian Sea. The country has a vast variety of landscapes and features. It also has various different climate and precipitation zones.
The 17 million people who are estimated to live within the country, make Kazakhstan the 61st most populous in the world. Population density is among the lowest in the world with just 15 people per square mile. The labor force comprises slightly more than 9 million. By occupation 25.8% are engaged in agriculture, 11.9% in industry and 62.3% in services.
In the 2014 Index of Economic Freedom published by the Heritage Foundation, Kazakhstan ranks 67. The economic freedom score is 0.7 points higher than last year bringing the total to 63.7%. There have been notable improvements in investment, business, and monetary freedom since last year. That puts them squarely between Ghana and Montenegro worldwide. In the Asia-Pacific region, the ranking situates the country between Malaysia and Thailand, coming in at number 11 out of 42. As indicated the overall score is above regional and world averages. Kazakhstan has gained 22 points in the overall score, in a mere 17 years. This is one of the 20 best improvements recorded by any country.
The GDP (Gross Domestic Product) PPP (Purchasing Power Parity) is $243.6 billion USD. Nominal GDP is at $224.9 billion as of 2013. GDP rank for Kazakhstan is 53rd in the world. Growth has slowed to 5% with a 4.8% average over the last 5 years. Per capita income is now at $14,100 USD.
Unemployment stood at 5.4% in 2013, it is presently reported at 5.3%.
The Ease of Doing Business Rank of countries created by the World Bank, ranks Kazakhstan 49th.
FDI (Foreign Direct Investment) is now $14 billion USD. Foreign Reserves were reported at $28.29 billion USD at the end of 2012.
The credit outlook for the Kazakhstan has been rated stable or positive by the major Western agencies. The score rating is in the BBB range (plus and minus).
Kazakhstan has made great strides in regulatory efficiency and market openness. In the Index for Economic Freedom scores for 7 out of the 10 economic freedoms including business, financial, fiscal, monetary and trade freedoms have increased by double digits. Where the country was once considered repressed, it has now earned the rank of moderately free as of 2008.
What will be of the utmost importance now, will be structural reforms that will reduce the over reliance on energy for economic growth. The present dependence on oil and natural gas exports, places an increasing need for further diversification of this sector of the economy. A major challenge will be in the area of corruption and the protection of private property, which remain far below world averages. Corruption and bribery as well as graft, are widespread at all levels of government. The lock hold the president and founder of the country (President Nursultan Nazarbayev) has on the levers of power include the judiciary is problematic. As a result, the courts cannot always protect private property rights effectively and intellectual theft is widespread. To be fair, the continued dominance of President Nazarbayev, has provided the country years of peace and stability, that might not of happened under a more representative and pluralistic system of government.
The individual income tax rate is just 10%. The corporate rate is double that at 20%. There is a VAT (Value Added Tax) and a number of other excise taxes. The overall burden of taxes equal about 14.6% of the gross domestic income. This is quite low by Western taxation standards. Government expenditures make up 22% of the domestic economy.
The average tariff rate for imports and exports is 3.4%. It is costly and time consuming to import goods. Exports are just the opposite. It is true however, that foreign investors can find the legal and regulatory system difficult to manage at times. That is why it is recommended to have a local partner in business.
Incorporating a business takes a total of 6 procedures, with no minimum financial investment required. Unfortunately, licensing requirements can take up to 4 months. Labor regulations remain on the whole, quite flexible. Wages are reasonable, and releasing an employee from their job is not difficult or very expensive. On the other hand, regulations on work hours though, can be quite rigid.
Kazakhstan is a member of the customs union with Russia and Belarus, in place since 2010. The strong role the country has with the Russian space and rocket program, will make the continued close cooperation between Russia and Kazakhstan likely. A potential investor who is attempting to circumvent Western sanctions on Russia because of that nations involvement in Ukraine, might wish to set up operations in Kazakhstan. The government plans to join the Eurasian Union in 2015. Ongoing border and water disputes with Uzbekistan are now be negotiated. Oil production is expected to reach 3 million barrels a day by 2030. As aforementioned, the economy is still too dependent on energy exports but manufacturing is showing solid growth. This is particularly the case with the fast growing trade with China. Perhaps the recent drop in international oil prices, will help facilitate a greater diversification of the economy in Kazakhstan.