History of changing of FDI in Kazakhstan


History of changing of FDI in Kazakhstan

The location of the transcontinental republic of Kazakhstan is Central Asia and Eastern Europe and it ranks the 9th in size in the world. Regional Distribution of Foreign Direct Investment of Republic of Kazakhstan has been adopted as one important funding source for the purpose of economic growth considering the dynamic global financial market. As the extent of the financial crisis internationally continues to increase, the republic of Kazakhstan is exploring the reconnection of the available sources of funding as well as the best approach of the identification of substitute monetary sources. With the onset of the crisis majority of the traditional monetary sources have been exhausted. The origin of the crisis was the nations in which financial institutions played the role of prime traditional monetary sources with the subsequent exposure of the crisis vulnerabilities to recipient nations. Republic of Kazakhstan is committed towards the eradication of the crisis which has been perceived to be achievable through appropriate corrections in misdevelopments that have been undertaken in the recipient as well as the source countries alike. The Republic of Kazakhstan has been committed to the efforts of coming at the conclusions based on the crisis leading to the laying of a firm foundation to an advanced level of sustainable as well as diversified development and growth in the financial systems as well as the real economy (Aitken, 1999)

There is a great level of diversification in the foreign direct investment (FDI), in Kazakhstan. All along from the early 1990’s, the republic of Kazakhstan has attracted over $90 in form of FDI, with close to 40 percent of the amount being in the form of cumulative FDI. The national official figures indicate that the 40 percent has been used in the hydrocarbons as well as the rest of the commodity sectors. The greater percentage of the amount has originated from Europe as well as the US. Investments of large scale size have also been made in the nations that neighbor Kazakhstan which include Russia, China as well as South Korea (Cheng & Ku, 2000).

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The flows of FDI have assumed a resilient as well as stable trend due to the long term vision that is inherent among the investors. The existing crisis in the inflows of FDI to this country has also assumed stability. In the meantime, the cross border lending in the foreign banks to Kazakhstan have been depleted as the year 2007 approached (Iboshi & Michael, 2004).

Regional Distribution of Foreign Direct Investment of Republic of Kazakhstan

Brief FDI overview

In his book author Anthony, (1993), wrote that domestic investors of any particular country who engage in investments activity outside their country of residence and this investment earn them returns which are then repatriated to their domestic country are engaging in foreign direct investment. From the point of view of a country, foreign direct investments are the investment made by non-citizens of that country or investment made by citizens in other foreign countries.

Foreign direct investment is attainable where there is a good business relationship between the investing company or parent company and its subsidiary company located abroad (Anthony,  1993) This kind of business relations has led to the emergence of multinationals company that engage in foreign direct investment in many parts of the world. According to Borrus, (2000), a business analyst whose studies refer to only those companies which have a minimum of 10 percent shareholding in foreign  subsidiaries as companies that participate in foreign direct investment, also companies which have voting rights in the annual general meeting of foreign subsidiaries engage in foreign direct investments (Borrus, 2000).

Types of Foreign direct Investments

As by the definition, foreign direct investment can be classified in two categories namely the internal FDI and external FDI, the classification of the two categories is mainly guided by the restrictions that are imposed for these investments and the requirements involved for such investments to take place (Griliches, 1979).

External FDI also known as ‘direct investment abroad’ usually supported by the local government due to the benefits it will bring to the country one among them is foreign exchange that will help the country to have a balance of payments in its international trade. The government offers there support by giving such investments tax incentives that will reduce the cost of doing business and as well as make the investment worthwhile without eroding their income. External investments become unfavorable when companies abroad get special treatment by their local governments which in a way give them competitive advantage over the external FDI by granting them subsidies and covering of their risks (Callis, 2006).

Internal FDI is encouraged by the host country in different manners which include; subsidies, elimination of trade or investment barriers that makes doing business for foreign investors hard, lowering of interest on loans granted to them and tax allowances.

Other classifications of foreign direct investment are vertical FDI and horizontal FDI. Vertical FDI occurs when a multinational company that owns more than 10 percent of foreign subsidiary, engage with its subsidiary in business activities whereby the foreign subsidiary is the main supplier of raw materials to the multinational company or it uses the goods and serviced produced by the multinational company. Horizontal FDI is when a local multinational company engages in the same business activity in different parts of the world (Chuang & Lin, 1999)

Motives behind Foreign Direct Investment

FDI which are driven by the motive of establishing a strong market presence or venturing into new markets are termed as ‘market-seeking FDI’, while FDI which are driven by the motive of tapping into factors of production like labor, human resource which are in foreign countries and are more efficient in operations and cost are termed as ‘resource –seeking FDI’. FDI motivated by maximizing the opportunities available and reaping on the benefits of economics of scale are termed as ‘efficiency-seeking FDI.

Determinants of foreign direct investment

The main factors which will determine if a foreign direct investment can take place are the economic prospects of the foreign country and the size of the potential market. If the foreign country has wide market then foreign investors will assume that they will be able to grow their investments rapidly and get big returns of it (Laye, 2006).

The foreign country’s population will also play critical part in making decision on whether to participate in foreign direct investment, because it’s the size of the population that determines the consumer size available thus a big population will mean a big consumer base.

If the foreign country citizens have a reasonably higher per capita income it would mean that they would be ready to spend and to the foreign investor he or she would translate this to potential of good investments. Foreign investors will also be lured into investing in foreign country if the workforce that’s available is well qualified and competent enough, who will offer to them big returns on their human capital (Borensztein  & De Gregorio  & Lee, 1998).

The availability of natural resources like gold, oil and diamond will attract foreign investors to these countries, an example is Saudi Arabia, United Arab Emirates and other oil rich countries have all attracted foreign investors into their country to tap into the oil exploration industry that’s unlimited and has good future prospects. The level of technological advancement and infrastructure that are available in a country will also influence on foreign direct investments. Recent reports and studies have shown that countries which have properly placed infrastructure facilities have experienced a high amount of foreign direct investment (Michael, 1999).

Freeman,  (2001) studies noted that over the past countries have made tremendous reforms to their economic policies in bid to create conducive environment which can attract more foreign investments and companies that engage in foreign investments have altered their legal framework to make them more transparent and sensitive to their business environment (Freeman,  2001).

Foreign Direct Investment Policies

Numerous rules and regulations have been established in different countries in abide to control investment coming from abroad and is being done inside their country. These rules and regulations are known as foreign direct investment policies. These laid down rules and regulations form a very significance part in the decision making process of foreign investors, the amount to be invested is also determined by this policies if the rules and regulations are favorable to the investors and the general investment environment then more funds would be availed for FDI and investors will feel encouraged (Krugman, 1991).

The policies state circumstances under which exceptions can be made to allowances given to the foreign direct investors, also conditions that should be observed when participating in FDI, some of the conditions may require that investors get permission granted to them before they can engage in certain business activities could be from the government or relevant bodies who have authority. The policies will define the different ways through which FDI may be conducted in different sectors of the economy and at times they even stipulate sectors of the economy where the government has ban foreign direct investment an example is the gambling business, chit funds or even real estate and housing sector. Polices revaluations are done on regular basis with any change or alteration communicated to relevant parties in various channels one been the use of press.

Institutions that are responsible for formulating this rules and regulations are the relevant institutions charged with the mandate of supervising the affairs of foreign direct investment in a particular country, in other countries formulation of FDI policies is done by organizations charged with the responsibility of promoting the country as favorable location to do FDI. All of the concerned bodies have two main objectives in formulating these policies; one is to promote the investment opportunities that the country could offer to potential investors secondly the formulating bodies strive to create a balance between local investment and overseas investment.
Proposals are accepted on the various changes or amendments that may be done on the policies that are all aimed at making them more favorable to the investment environment and investors in particular.

Certain specific countries in the world have mentioned in their policies that local companies need to get permission before they can invite a foreign investor to invest in the company as a form of FDI or they can invest in companies abroad. Permission will only be granted if they complete laid down procedure after which they would still be expected to apply to rules and regulations in their formalized business relations.

Promoting Foreign Direct Investment                                                                                         

Both the developed, developing and underdeveloped countries are caught in a neck to neck competition for foreign direct investment to go into their countries. Thus the need to promote each individual’s country investment opportunities that can be tapped by potential foreign investors.

Countries have resorted to using of tools that offer to them competitive advantage over other countries to promote themselves, like; availability of ready market like in the case of Kazakhstan’s central Asia and Russia market, the availability of natural resources which are scarce or rare in other different parts of the world and availability of well qualified human capital. Other promotional tools could be in the line of advancement in the information technology and communication sector, improvements in transport logistics which brings close ready market to the company and easy access to raw materials (Michalet, 2005).

Besides the above tools of promoting, some countries have used their favorable foreign direct investment policies to promote their country as a favorable hub for FDI. Financial merits like subsides to companies, incentives, cash grants and tax concessions also help in promotions. Other countries try to eliminate trade barriers like unfavorable policies to create conducive business environment that can be easily marketed which could involve investors using state agencies that help them in reduced paperwork and less complex formalities and procedure that could have being followed before they could start investing (Freeman, 2001).

Foreign Direct Investment-trends globally

The trend that has been observed worldwide is the increasing number or amount of foreign direct investment which reflects positive economic reforms have taken place in many parts of the world, the rules and regulations that govern FDI have also focused more on creating a good climate for doing business. According research and survey done by the World Bank the world wide flow of FDI reached at its highest point of over one thousand three hundred billion US dollars by the year 2006 which was a 38 percent increase from the previous year. The increased flow was mainly attributed to mergers and acquisitions between different companies in many parts of the world (Michael, Marquardt & Berger, 2004).

The same reports indicated that FDI which went into the Caribbean and Latin America region shot up by 11 percent. In Africa the amount of FDI that went into the region was at it all time high in the year 2006 while the inflow into East, South and South East of Asia has continued in its upward trend same as to the oil rich Gulf States and Turkey. The United States of America also showed the same trend of continued flow of FDI mainly coming from Japan and Euro Zone.                                                                                     It is also important to note that continued inflow of FDI into a country will automatically lead to increased employment opportunities especially in the manufacturing sector (Xiaming,  et al., 1997)

The following diagram shows the annual Growth of FDI inflows over the globe:



Advantages of Foreign Direct Investment in Kazakhstan

According to statistics released by the Ministry of Economy and Budget planning of Kazakhstan they have shown that the country main benefit from foreign direct investment has being the economic development witnessed in that country, especially since the country was referred to as among those economically developing countries in the 1990’s. Foreign direct investment has also being the source of financial assistance for Kazakhstan during times of economic hardships.  Kazakhstan has also witnessed technological advancement since foreign investors who allocate a big percentage of their capital towards technology and research in the field that they plan to invest in (Hill, & Athukorala, 2007)

The workforce in that country has become more skilled and resourceful because the foreign companies bring in new skills and train their human resource according to their high standards, in addition they have contributed to the education development in that country because of the revenues they pay to the Kazakhstan government in the form of corporate taxes which are channeled to building of schools and technology-focused training institutions.

New jobs have being created in the country which can be mainly attributed to FDI that has also led to the rapid development of the manufacturing industry in that country, employees working in these companies are also paid according to international standards which affords them good lifestyle and increase in the living standards of the countries’ population (Lall, 2000).

Kazakhstan revenue collection has shot up because now it not only relies on domestic taxes but also taxes that come from these foreign investment made in that country, the increase in revenue collection has played a big role in the growth of the economy. Companies in Kazakhstan that have ventured to foreign markets have being able to increase market for their goods and services thus have being able to earn the country foreign exchange that helps it to attain a balance of payment in the international trade.

The Kazakhstan central bank reportedly has lowered it interest rates on loans made out to business ventures which is attributed to the influence of foreign direct investment. Business can now access capital from the local banks at a low interest rate level; the small and medium sized companies have tapped this advantage and have grown their business to a high level (Lindblad, 2008).

Disadvantages of Foreign Direct Investment in Kazakhstan

Operations of the companies, Human resource working for these FDI companies and the distributions of revenues made out of foreign direct investment are the main areas that are prone to suffer from the disadvantages of FDI. The fragile parts of the economy of the host country are also prone to any negative shift in foreign direct investment. Studies done by Campos & Yuko, (2002) have indicted that negative consequences of foreign direct investment in a host country can be reduced if the government is strict in ensuring that these companies that participate in FDI in their country are engaged in business activities that environment friendly, they abide by the social and legal regulations that the government has established. In Kazakhstan foreign investment has forced the government to make some economic reforms that which have not being received well by the locals, some of the economic policies do not even favor the foreign investors themselves (Campos, & Yuko,  2002).

The geographical location of Kazakhstan and also the fact that it is land locked has made foreign investors view it as an isolated region unfavorable for doing business because of the high transport fee to fly in and out of the country especially when moving goods or capital goods that need to be shipped or transported through the railway. In allowing foreign direct investment Kazakhstan will be placing their local companies at the disadvantage of being taken over by the large multinational companies who are exposed to huge amount of capital to invest. For Kazakhstan, local companies which engage in direct investment abroad will be exposing themselves to the danger of nationalized in the foreign country (Jomo, 2001).

The government of Kazakhstan aims at making the economy more liberal to attract even more foreign investment into the country, in doing so they loss control of these companies  that operate there as subsidiaries fully owned by multinational companies. When the government does not exercise control over these companies the environment and locals’ interest can’t be represented and employees are exposed to potential exploitation by such companies. Some of the companies will even disregard economic policies set by the government (Griliches,  1998).

Foreign direct investment won’t be of benefit to the Kazakhstan economy if the subsidiaries of multinational companies directly channel their profits to their mother country without making any developments in the country the invest in, there would also be imbalance of payment as more capital will be moving out of the country than capital coming into the country (Paul, 1990).

Foreign Investment in KZ economy

The foreign investment turnover in Kazakhstan has shown a continuous growth over the past ten years with an annual growth average of 19.1% with a significant growth being recorded in the years between 1995-2006, the rapid growth that was estimated to have reached more than fifty billion US dollars by August the year 2007 was largely associated with the sharp rise in prices of both oil and gas coupled with the significant increase in oil export volumes. Kazakhstan main partner in trade is still viewed to be Russia who are the country largest importers, the country basically enjoy a large export market in the western countries where there are leading in export of oil and metals that are used by industries there as raw materials (Beyer, 2002).

Foreign investment in Kazakhstan economy has increased because investors are attracted to the country by the fact that economy of the country has be experiencing tremendous growth, evidence is shown by figures which show that about eighty percent of all capital inflows that went to the central Asia region were direct towards the country’s economy with the European Union topping the list in terms of source of investments. Author Arromdee,  (1992), in his studies show that this sharp raises in foreign investment is due to the economic reforms made, stable institutions that have being set up and the development experienced in the banking sector (Arromdee, 1992).

Foreign investment led to about eighteen Kazakhstan companies being listed in the London Stock Exchange with four being listed at the main market in the period between the years 2005-2007.

Foreign direct Investment in Kazakhstan;



Sources: Ministry of Economy and Budget Planning of the Republic of Kazakhstan.


Foreign Inflow by various countries to Kazakhstan figures according to the year 2009;


COUNTRY Japan France US Russia Netherlands China Italy UK Others
% 3% 7% 16% 4% 28% 6% 4% 6% 22%


Source: Ministry of Economy and Budget Planning of the Republic of Kazakhstan.


Movement in the key economic indicators

 Key economic indicators 2003  2004 2005 2006 2007 2008
 Real GDP growth (%)  9.3  9.6 9.7 10.7  8.9 3.1
 Consumer price inflation (av. %)  6.8 6.7 7.5 8.4 10.8 9.5
 Exchange rate Tenge:US$ (av)  149.58 136.00  132.88  126.09  122.60  122.55
 Exchange rate Tenge:€ (av)  168.79  169.04  165.42  158.27  167.8  167.75
 Budget balance (% of GDP)  –  –  –  – -1.7  -1.9
SOURCES: Kazakh Statistical Agency, Investor’s Guide, Nationalbank


Main exporters and importers

Main destinations of exports 2007 % of total  Main origins of imports 2008  % of total
 Russia  9.8  Russia  35.5
 Italy  16.3  EU  24.5
 France  8.3  China  10.7
 Switzerland  15.7  US  5.1
 China  11.8  Ukraine  4.7
 Others  38.1    
SOURCES: Kazakh Statistical Agency, Investor’s Guide, Nationalbank


Main export and imports

 Major exports 2007  % of total  Major imports 2007 % of total
 Mineral products  69.8  Mineral products  12.8
 Chemicals, plastics, rubber  4.1  Chemicals, plastics, rubber  10.7
 Non precious materials, its products  17.3  Non precious materials, its products  13.5
 Machinery, equipment transport, instruments and apparatus  1.8  Machinery, equipment transport, instruments and apparatus  46.8
 Foodstuff  3.9  Foodstuff  6.8
 Others  3.1  Others  9.4
 SOURCES: Ministry of Energetic and Mineral Resources, Investor’s Guide, Ministry of Agriculture of the Republic of Kazakhstan      


Investment Environment in Kazakhstan

Kazakhstan located in the central Asia and Europe region is the ninth largest country in the world that’s landlocked with a gross national income per capita of more than six thousand and a population of more than fifteen million whom according to reports released by United Nation are averagely in the income group of middle income earners.

Kazakhstan currently leads the central Asia in terms of social and economic growth, it has the potential to make the region independent and an economic success, the European Union in the year 2000 elevated the country to the  market economy status due to its attraction to international investors and multinational companies who prefer to locate their. The same move was followed by the United States of America who in the year 2002 also elevated the status of Kazakhstan to a market economy up from a non-market economy opening up for their local companies the wider western nations market that includes the US; this conclusion was arrived at after observing economic indicators that showed improvements such as the increase in level of wages for the workforce, convertibility of country’s currency, increase in foreign direct investment, drop in corruption level, control of production, public control and reduction in human rights violation (ASEAN Secretariat, 2000)

The transition to market economy is a journey that started 17 years ago from the former soviet economy to a free market economy. After independence from the Soviet Union in 1991, the high rate of inflation and economic decline that was witnessed in the early parts of 1990’s Kazakhstan engaged itself into a series of political, economic and social reforms. Currently the economic reforms are geared towards diversifying the economy more particular is to remove the economic reliance on natural resources and focus on developing other key sectors of the economy.

Kazakhstan investment environment has seen an overall macro- economic stability coupled with economic reforms that are aimed at making the environment more investment friendly. Figures released by the Index of Economic Freedom show that over the past five years the country has witnessed a recommendable economic growth that can be attributed to the increased revenues from the Oil industry (Bergsman,  2008).

The Kazakhstan high corruption level, unfavorable tax rates and lack of access to funds for investment are the main difficulties experienced in the investment environment that has made doing business even harder this is according to the 2009 reports by Enterprise Surveys.

It is important to note that the investment environment in Kazakhstan has shown improvements in these three problematic areas making doing business easier in that country. The most notable improvements were in reduction of costs from 1,431 dollars to 119 dollars which are incurred when applying for construction permits, the other sectors that transformed so as to improve the investment environment was shown by the 10 percent fall in corporate tax, reduction in labor taxes and even compulsory contributions by the Kazakhstan’s working population was lowered. A new tax code and the Kazakh law were also introduced all aimed at making the country a good investment harbor, the new law mainly focused on ensuring that there was equality in the distribution of investment incentives to both local investors and foreign investors, safeguard the rights of investors and establish procedural system that was free and fair in settling disputes of investors. Some of the measures that the new tax code put into considerations included; adjusting the tax code so that it can be in line with the international financial reporting standards, eliminating the advance payments by all but three hundred biggest companies of their corporate tax, extension of loss deferral period to up to ten years, lowering of value added tax from 13% to 12%, gradual introduction of traditional payment scheme for value added tax and the implementation of  a common social tax rate of 11% replacing the regressive scale (Booth, 2007).

The drastic changes and economic policy reforms all paid of when the country was voted as the leading country in CIS because of its efforts in creating an investment environment that was conducive for doing business. International rating agency in 2002 rated Kazakhstan highly in terms of investment and due to the fact that Kazakhstan was the first Soviet Union republic to repay all the loan advanced to it by the International Monetary Fund (IMF) in the year 2000 which was seven years ahead of the repayment schedule, Standard & Poor’s and Fitch confirmed the same in the year 2004 as other surveys and research done by international organizations all showed the same. In particular Fitch analyst pointed out that Kazakhstan’s finance and economy in general was better placed to deal with pressure from Oil and the ever changing oil prices than any other country in the world (Buckley,  2003).

The organization of top forty most industrialized countries (OECD) in the year 2003 put Kazakhstan at position four in terms of export credit rating which was an upward movement from the last rating done by OECD before 2003. The better ratings meant that the country could now enjoy good opportunities for doing trade (Silva,  1995).

According to figures given out by World Bank business experts they show that out of all the foreign direct investment made in central Asia nearly eighty percent of these investments were made in Kazakhstan, the same report also showed that the country is regarded as being among top twenty countries which are most favorable to foreign investors (Eduardo & Lee, 1995).

Recent years have seen research and survey place Kazakhstan in the top spot in foreign direct investment per capita which has being increasing steadily. In the period between 1993 and 2005 FDI was reportedly to have grown to be more than 37 billion US dollars, important point to note is that in the period of 2001 to 2003 there was only 4.5 billion US dollars worth of FDI made while in 2004 there was a drastic increase of up to 8.4 billion US dollars worth of investment made in Kazakhstan which was due to the increase in local companies that had foreign direct investment from 6,579 companies in 2003 to 7070 companies in 2004 (Myers, 2009).


Literature Review

Regions of Kazakhstan

Kazakhstan is divided into five main regions namely; the Western Kazakhstan region, Eastern Kazakhstan region, Northern Kazakhstan region, Southern Kazakhstan region and the Central Kazakhstan region.

Western Kazakhstan region                        

The western side of Kazakhstan is further divided into five more regions that include the Atyrau region, Aktyubinsk region, Atyrau region, Mangistau region, and West Kazakhstan region. It’s a vast landscape with continental climate, that’s one thousand two hundred kilometer from the south to north and one thousand three hundred kilometers from east to west. The region has abundant water resources that include rivers Emba, Ural and lakes Kamis-Samarskiye, Inder, Aralsor. Economically this region contributes to the country’s Gross National Income through its oil production activities, in particular the Atyrau region which thrives in the processing and production of black caviar, Caspian Sea also contributes a lot economically to this region. Foreign direct investments here were mainly associated with the oil industry and the production of black caviar.

Southern Kazakhstan region

The Southside of Kazakhstan             comprises of four more regions which are the Kyzylorda region, Zhambil region, South Kazakhstan region and Almaty region. It’s located from lake Balkhash and Betpak-Dala barren plateau that’s in the north and from then Aral sea that is in the west of the Zhungaraian Gates.

Eastern Kazakhstan region

The Eastern part of Kazakhstan comprises only of one region the East Kazakhstan that’s situated at the junction which serves Russia, China and Mongolia. The landscape is mostly covered by mountain ranges of Saur-Tarbagatay, Southern Altai, Ore and Kalba, which have an average altitude of eight hundred to fifteen hundred meters. The East region has one main river which is the Irtysh with its tributaries Buhtorma, Uba, Ulba and lakes which consist of Alakol, Maralye, Markakol, Zaisan, Rahmanovskoye, Sasikkol and Alakol.

Northern Kazakhstan region          

The northern side of Kazakhstan comprises of five regions which are the Kostanay region, North Kazakhstan region, Akmola region and Pavlodar region. These five regions are found in the uppermost part of the country in the basins of Obagan, Tobil and Esil rivers. The water resources include the main river Irtysh that has two tributaries Tobol and Esil, the northern side is also endowered with lakes for example in the Akmola region there are Koraljin and Tengiz rivers, Kostanay region has Sari Kopa and Kusmurin lakes while the North Kazakhstan region has Burabay, Shortan and Shagala region.

Central Kazakhstan region             

This Central region of Kazakhstan covers a landscape area of more than three hundred and ninety thousand square kilometer with an estimated population of two million people whom about 86 percent reside in towns and settlements. The Central region boosts of unique scenery that includes Lake Balkhash which is among the largest lakes in the world, the spectacular mountain forest oasis named Kargalinsky and the Ulytau Mountains that attracts big number of mountain climbers during tourism season among others ethnographical and archeological sites that had been preserved.

Regional distribution of foreign direct investment is the allocation of the investment opportunities and resources in economical manner so that every region gets a piece of the cake. When Kazakhstan is making strategic planning, they make a regional distribution plan considering the available FDI. It involves distributing FDI among the much needed projects or sectors of the economy and regions in the country. In the strategic planning decisions are made as to what areas or regions need FDI and what amount of FDI is needed, afterwards a contingency mechanism is established which sets out regions or area that should be given more priority than the others incase FDI is limited Regionally the country enjoys great leadership thanks to its close ties with the Russia, China and the central Asia region also the creation of customs union between the country Russia and Belarus this year has cemented its position as the regional leader (Peck, 1996).

Major Key sectors that Kazakhstan has mainly focused on improving through the help of foreign direct investment include; agriculture which offer investment opportunity in over twenty million hectares of farmland with more than a hundred and sixty five million hectares of pasture, the government has tried to promote these sector to investors by putting in place infrastructure facilities that offers smooth transport system. The textile industry also offers investment opportunities that’s backed up by availability of qualified workforce, availability of processing factories that are already in place the government also make grants to these industry in form of tax holidays, favorable custom tariffs plus there is a wide ready market for textile products in East-Europe region and Russia, close links that exist between neighboring cotton producers  like Turkmenistan, Uzbekistan, Tajikistan make the sector highly capable of big returns (Ronald,  2006).

The telecommunication sector has being liberalized to attract more foreign investors enhanced by the growing number of information technology an internet penetration which has resulted to a sharp demand for broadband ISP services. The power generation sector will attract FDI due to high electricity consumption attributed to increased income/quality of life, infrastructure and hydrocarbon projects, recent reports show that a total of twenty two billion US dollars worth of investment are expected by the year 2015 plus the government has set aside thirteen billion US dollars that are to be channeled in the expansion program of power generation capacity a further nine billion US dollars will be invested in distribution and national grid.

The other potential area that the Kazakhstan government focuses on distributing FDI to is the Metallurgy sector which produces huge amount of world-class base, precious minerals and metals, the sector has well developed infrastructure that are already in place and the closeness to biggest consumers of metallurgical products makes it worthwhile to channel FDI to. According to National Bank of Kazakhstan, the country is ranked at the 20th position in terms of its oil reserve, 13th position in terms of natural gas reserve and 24th in the world in natural gas production.

Regions of Kazakhstan: Economic Review

It would be important to note that according to studies and researches conducted by Beyer, (2002) it is impossible for a country that has more than sixteen regions to have equal economic structure and distribution of foreign direct investments; this could be due to the unequal or un-even distribution of FDI determinants or economic factors such as human resources, water availability, agriculture potential and other natural resources.

Regions that are in the west to east side of the country which include West-Kazakhstan region, Kyzylordinskaya region, Atyrauskaya region and Mangystauskaya region are endowed with natural resources of fossil gas and oil. These regions are economically enriched with high level of investments that translates to fifty percent of all capital investment and foreign direct investments in Kazakhstan.

The economy of these regions can be described as mono-oriented in that it only focuses on one type of economic activity. Recent reports from the United Nations show that these regions have poor agricultural and processing sector, with high rate of unemployment and poverty

Foreign domestic investments that have been channeled to the agriculture sector are in the northern side of the country in particular the Kostanaiskaya region and in the southern side of the country South Kazakhstan region and Zhambylskaya region are considered agrarian-industrial areas. These three regions have mainly focused on agriculture as their main economic activity thou they have scarce natural resources; the areas also have wide resources which can fully exploit the regions industrial potential. The agriculture production in South Kazakhstan region and Zhambylskaya region is conducted using irrigation, while Kostanaiskaya region uses dry-farming method.

Besides these three mentioned areas, there are other where agricultural is the main economic activity thou they have poor industrialization of the sector, an example is Almatinskaya area which is located in the southeastern part of the country and in the northern part there is North Kazakhstan region and Akmolinskaya region which all practice agricultural activity as their main source of income.

Reports show that only 20 percent of the entire Kazakhstan population resides in agricultural-based regions which indicate that agriculture is not widely considered as a good venture or the returns are low hence the foreign domestic investment won’t be much in these agriculture-based regions.

The industrialized regions of Kazakhstan are mostly in the eastern to the central part of the country. They include Pavlodarskaya, East-Kazakhstan and Karagandinskaya regions. The three regions have similar characteristic feature of having vast deposits of colored and black metals, processing and manufacturing industries. Apparently about twenty three percent of the entire nation’s population resides in industrial-based regions; this will encourage investments especially foreign direct investors to invest in the regions because of availability of human resource capital and availability of ready market.

According to author Hill & Athukorala, (2007) who conducted studies and researches on FDI distribution in Kazakhstan, he noted that the Almaty region and Astana region are consumer centres of the republic. The two regions are characterized with residents whom mostly are high income earners and can afford high living standards; the other distinctive feature is that both regions have well developed service sector industry. Statistics from the National Bank of Kazakhstan show that Almaty region and Astana region have attracted huge amounts of foreign direct investment that are mainly channeled to the service industry particularly the banking sector.

It’s evident that there exist a big difference between each region and its individual economic importance and potential to the country as a whole, a good example is shown by statistics from Kazakhstan’s National Bank which indicate that in the year 2008 Almaty region contributed 18 percent to the gross national product and the Atyrauskaya region contributed 11 percent while the least contributor where Zhambylskaya region which contribute only two percent. These findings tends to reflect on the distribution of

FDI which evidently is more in regions which contribute highly to the GNP and it is least in regions who contribute less to the GNP.



The Kazakhstan regions economic endowment and FDI distribution

Aktyubinsk region is considered the region which has the highest amount of chromium and among all the other regions which have natural resources it has the highest capability of diversifying its manufacturing sector. It can thus attract more FDI.
Akmola region is viewed as more agriculture oriented because of its favorable environment for doing livestock and grain-crops farming, also good base for establishing manufacturing and processing industries.

Almaty region is regarded as the leading region in terms of agriculture with growing numbers of consumers thus it can provide a good investment opportunity for local as well as foreign investors.

Atyrau region is referred to as the leading region in terms of foreign direct investment because of the oil industry that’s in the region but in spite of oil industry success other sectors of the economy are not growing, like the fishing industry is performing poorly mainly due to increased poaching in the water resources.

East-Kazakhstan region is enriched with various manufacturing companies that include; motor vehicle assembly industry, color metallurgy, a manufacturing company for building materials, fabrics, and food processing factory, also important to note is that the country’s currency manufacturing company is located in this region in the city of Ust-Kamenogorsk. Foreign investors are attracted to this region

Zhambil region thou it mainly focuses on agriculture as the core economic activity, it is in possession of 72 percent of the country’s phosphorites and 68 percent of fluor-spar that’s in Kazakhstan.

West-Kazakhstan region main attraction for foreign investors is the oil and gas resources that contribute a lot to the country gross domestic product.

Kostanay region has all the bauxites resources of the country located here and the main attraction for foreign investors here is the growing industry for grain-crops, meat and milk products.

Kyzylorda region has faced devastating ecological disintegration over the past few years, for example, the ecological destruction led to fall in hydrocarbon production; it has not enjoyed much inflow of FDI during these periods.

Mangistau region is the entry point to the wide Kazakhstan regions as it is where the main port of Aktau is located, which serves as an entry and exit point to the Caspian Sea. Industries have been set up here for the production of gas and oil.

Pavlodar region the economy has being diversified between agricultural manufacture and industries and there are abundant resources of raw materials.

North-Kazakhstan region has the smallest share of foreign direct investments due to poor developed industries and the fact that it is only good for crop production.

South-Kazakhstan region has good investment potential mainly due to the high population that offers wide market and human resources who will work in companies that are to be set-up.


Kazakhstan should take the advantage of its strategic location which put it at a better place to become the centre of business in central Asia with ready markets form Russia and China. To gain competitive advantage over other country Kazakhstan should focus on creating conducive business environment together with political stability and increase the incentive granted their local companies that want to participate in direct investment abroad. All this will be attainable if there will be zero tolerance to corruption cases, improving of the education standards and the logistical infrastructure.

Political institution should be strengthen by instituting professional training for government officials, engaging the local government in the developments of clusters, design a process to ensure that the political environment is transparent in its deal and consistent, institute professional civil service with transparent rules and performance based  promotion.

Zero tolerance to corruption will be achieved if the government institution eliminate the long tendering procedure that are involved with tenders, put in place comprehensive strategy to fight against corruption in  national and local government, the other way to eliminate corruption is to ensure maximum punishment for those officials who engage in corrupt deals plus salary increment  to government staff (Booth,  2007).

The other recommendation that will see increase in FDI is removal of labor quota on expatriates; promote the transfer of skills as show of commitment to the growth of FDI, promoting the entrance of foreign banks in to the local banking industry, establishing transparent small and medium enterprises lending institutions, reduce the complexity in regulatory procedures that are involved in the licensing and registration process and the involvement of existing multinational companies in setting up private sector IFCs. Privatization of government-owned industries and establishing a competition oversight authority that will make the country more attractive for foreign direct investments.


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ASEAN Secretariat, 2000,  Statistics of Foreign Direct Investment in ASEAN (Extended Data        Set).     Jakarta: ASEAN Secretariat, 2000.

Bergsman, J., 2008,  ‘Advice on Taxation and Tax Incentives for Foreign Direct Investment’,       financial times.

Beyer, J., 2002, “Please invest in our country” – how successful were the tax incentives for foreign investment in transition countries ?’, Communist and Post-Communist        Studies.Vol. 35pp. 191-211.

Booth, A., 2007,  ‘The Economic Development of Southeast Asia, 1870-1985’, Australian            Economic History Review. Vol. XXXI, No. 1 pp. 20-52.

Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998, “How does foreign direct investment affect economic growth? ” Journal of International Economics, Elsevier, vol. 45(1), pages 115-135.

Borrus, M.,  2000, Dieter Ernst and Stephan Haggard. International Production Networks in         Asia: Rivalry or Riches ? London,  Routledge.

Buckley, J., 2003, ‘The Future of Foreign Investment in Southeast Asia. London: Routledge

Callis, H., 2006,  Foreign Capital in Southeast Asia. New York, Arno Press.

Campos,  F. & Yuko K.,  2002, ‘Foreign Direct Investment as Technology, William Davidson       Working Paper No. 438 .

Cheng, T. & Ku Y., 2000, “The effect of foreign direct investment on firm growth: the case of     Taiwan’s manufacturers”, Japan and the World Economy, No. 12.

Chuang, Y. & Lin, C., 1999, “Foreign direct investment, R&D and spillovers efficiency” Business Analysis, Vol. 2. 134-146.

Eduardo, B. & Lee, J.,  1995, “How Does Foreign Direct Investment Affect Economic Growth?,”           NBER Working Papers 5057, National Bureau of Economic Research.

Eduardo B.,  1994, “How Does Foreign Direct Investment Affect Economic Growth,” IMF         Working Papers 94/110, International Monetary Fund.

Freeman,  J., 2001, “The Rise and Fall of Foreign Investment in Laos, 1988-2000”, Post- Communist Economies, Vol. 13 No. 1.

Freeman,  J., 2001, “Understanding the Decline in Foreign Investor Sentiment Towards Vietnam             During the 1990s”, Asia Pacific Business Review.

Freeman,  J. & Curt N.,  2002,  “FDI in Vietnam: Fuzzy Figures and Sentiment Swings”, in Re-    thinking Vietnam, London: Routledge.

Griliches, Z.,  1999, “Issues in Assessing the Contribution of Research and Development to          Productivity Growth,” Bell Journal of Economics, vol. 10(1), pages 92-116.

Griliches, Z.,  1998, “Issues in Assessing the Contribution of Research and Development to          Productivity Growth,” The Econometric Evidence, pages 17-45.

Hill, H. & Athukorala, P., 2007,  ‘Foreign Investment in East Asia: A Survey’, Asian-Pacific        Economic Literature, Vol. 12, No. 2 pp. 23-50.

Iboshi, P. & Michael, G. 2004,  Direct Foreign Investment and Development in ASEAN, East-West Center Working Papers, No. 3.

Jomo K., 2001, Southeast Asia’s Industrialization: Industrial Policy, Capabilities and         Sustainability. Basingstoke: Palgrave.

Krugman, P.,  1991, “Increasing Returns and Economic Geography,” Journal of Political   Economy, University of Chicago Press, vol. 99(3), pages 483-99.

Lall, S.,  1980, “Monopolistic Advantages and Foreign in Manufacturing Industry,” Oxford         Economic Papers, Oxford University Press, vol. 32(1), pages 102-22.

Lall, S., 2000, ‘FDI and Development: Research Issues in the Emerging Context’, Paper presented at the Asian Development Forum, Singapore.

Laye, J., 2006, Corporate Social Responsibility. Wiley

Lindblad, J., 2008, Foreign Investment in Southeast Asia in the Twentieth Century.             Basingstoke,             Macmillan Press.

Michalet, C., 2005,  Strategies of Multinationals and Competition for ForeignDirect Investment:    The Opening of Central and Eastern Europe. Washington DC: Foreign Investment Advisory Service, Occasional Paper 10.

Michael J. M., 1999, Developing human resources in global economy. Oxford: OUP.

Michael J. Marquardt, N. O. & Berger, P. L., 2004, HRD in the age of globalization. Oxford:        OUP.

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