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 Document