FDI volume doubles in Kazakhstan in 2021, as efforts to enhance investment climate continue
Since its independence in 1991, Kazakhstan has made significant progress toward creating a market economy and has attracted significant foreign investment possessing abundant mineral, petroleum, and natural gas resources. Kazakhstan has attracted more than $376 billion in FDI – on par with some of the most competitive capital destinations globally.
Results of 2021
According to the results of last year, Kazakhstan's economy grew by 4 percent. Leading international rating agencies, including Moody’s, Fitch, and Standard & Poor’s, in 2021 positively assessed the country’s efforts to stimulate the recovery of economic growth and confirmed the sovereign credit rating of Kazakhstan at the level of investment reliability with a stable outlook.
The real sector has become the driver of sustainable growth. The volume of industrial production increased by 3.8 percent, including a 5.5 percent growth in the manufacturing industry. The key factor of positive changes was high investment activity in non-primary sectors.
Last year, more than 50 new projects, including 44 with foreign participation, worth over $3.8 billion were implemented, 2.4 times more than in 2020, creating 5,000 jobs, according to the data provided by Kazakh Invest national company tasked with the promotion of foreign investments in the country and that serves as a single negotiator between the government and investors.
The gross inflow of FDI by the end of nine months of last year increased by almost 50 percent and reached $18.8 billion with growth observed in almost all top 10 leading investor countries in Kazakhstan. Inflow from the United States nearly doubled, inflow from Switzerland grew by 41 percent, and from the Netherlands by 37 percent.
The growth of foreign investment can be explained by proper prioritization, said Kazakh Invest Chair Meirzhan Yussupov noting that overall the year 2021 was productive.
«We were able to restructure the format of our work in a timely manner and even increase efficiency. Due to the decline in business activity of investors during the peak of the pandemic, we redirected the focus of work to support projects with a high level of elaboration. Such issues as starting construction and assembly works, importing equipment, as well as resuming the work of the existing enterprises were promptly addressed. These efforts yielded good results,» he said.
How did the January events affect the investment image of Kazakhstan?
At the Foreign Investors’ Council meeting on February 22, President Kassym-Jomart Tokayev assured foreign investors that the tragic January events, which caused uncertainty, will not hinder the country’s firm commitment to its investment policies.
«As President of the country, I want to assure you that the open-door policy to foreign investment remains our strategic priority. The state shall fulfill its obligations and guarantees to our partners and investors to the full extent. The January crisis had no effect on our adherence to the market economy, rule of law, honoring international and domestic commitments. On the contrary, it became a motivation for further improvement,« he said.
Yussupov noted that though the January events damaged the investment image of the country which capitalized its investment attractiveness on political stability, predictability of policies, and strategic location between the world’s major economies, efforts are underway to mitigate the consequences and maintain confidence among investors.
«Of course, on some issues, there was certain wariness among investors. However, today the Ministry of Foreign Affairs and Kazakh Invest carry out a full-scale explanatory work among the investment community. It involves all the foreign offices of Kazakhstan, as well as the central office, regional and foreign representatives of Kazakh Invest,» he said.
According to the results of surveys among the business community, the vast majority of existing investors treats the ongoing processes with understanding and intends to continue their activities in Kazakhstan.
Current measures to support investors
As part of its goal to diversify the national economy and increase the sustainability of its growth, the government is working consistently to bring the rate of FDI to $30 billion a year and increase the level of investment in fixed assets to 30 percent of GDP by 2025. Creating favorable conditions for investors to do business in Kazakhstan has been therefore a priority for Kazakhstan, the largest economy of Central Asia that receives 70 percent of the total FDI flows in the region.
In Kazakhstan, depending on the sector, foreign investors are eligible for investment incentives, favorable tax regimes, special economic zones, priority sectors, and government resources.
To expand its support, in addition to previously approved government programs, Kazakhstan adopted a National Development Plan to 2025 in February 2021 that outlines objectives and parameters of the country’s new economic course announced by President Tokayev in September 2020. One of the seven priorities in the course is a favorable investment climate and to fulfill the tasks, the President established the Supreme Council for Reforms and the Agency for Strategic Planning and Reforms.
At the Supreme Council for Reforms meeting on March 3, President Tokayev tasked the council and government to develop new approaches to investment policy aimed at improving the investment ecosystem, promoting the growth of investment activity of the private sector and strengthening integration into global value chains as part of the investment policy concept.
Currently, the Ministry of National Economy and the Ministry of Foreign Affairs are developing a new Investment Policy Concept. The document focuses on attracting investment in the development of new technologies, green and renewable energy, manufacturing, pharmaceuticals, among other priority sectors.
One of the novelties of this document is that it will take into account the ESG standards that measure the sustainability of a company or investment in three specific categories - environmental, social, and governance, and to which investors are increasingly paying attention as part of their analysis process to identify material risks and growth opportunities.
«We are confident that the above-mentioned measures taken together will help retain existing investors, avoid freezing the terms of ongoing projects and attract new investments into the country,» said Yussupov.
Plans for 2022
Despite the challenges, Kazakhstan stands firm in its commitment to continue providing comprehensive support to investors and has ambitious plans for 2022.
«Our goal is to commission around 60 projects worth $6.2 billion by the end of 2022. We also expect the beginning of construction and installation work on 52 projects worth $12 billion. Besides, our new Task Force plans comprehensive support for major strategic projects, including the preparation of investment agreements with the government,» said Yussupov.
Much of the work will also be directed to fulfill the tasks set by President Tokayev to reform the investment support mechanism.
As Kazakhstan continues to weather the impact of the January events on its economy and investments, the effect of anti-Russian sanctions is another important issue needed to be addressed. While the government is trying hard to prepare and implement anti-crisis measures and the new anti-crisis team that held their first meeting on March 2, the efficiency of these efforts will become a matter of time.
Global trends
Globally, FDI flows also showed a strong rebound in 2021, increasing by 77 percent to an estimated $1.65 trillion, from $929 billion in 2020, surpassing their pre-COVID-19 level, according to UNCTAD (The United Nations Conference on Trade and Development) Investment Trends Monitor published on January 19.
«Recovery of investment flows to developing countries is encouraging, but the stagnation of new investment in the least developed countries in industries important for productive capacities, and key Sustainable Development Goals (SDG) sectors – such as electricity, food or health – is a major cause for concern,» said UNCTAD Secretary-General Rebeca Grynspan.
Experts have a positive outlook for global FDI trends in 2022 and say that last year’s rebound growth rate is unlikely to be repeated.
Article by Assel Satubaldina