The rising tiger of Eurasia. Kazakhstan looks to attract more foreign investors
Kazakhstan remains the top destination for investment in the Central Asian region, accounting for around 70% of total FDI inflows to the region. It is also number one among developing countries in this respect. The growth in foreign direct investment in Kazakhstan has been largely driven by an increase in investment in mining, transport, financial services, telecommunications and energy, which have offset declines in investment in construction, metallurgy and trade. By the end of 2022, foreign direct investment inflows to Kazakhstan amounted to USD 28 billion, 17.7 per cent more than in 2021. (USD 23.8 billion) [1]. However, this is not all, as Astana has announced that the country plans to attract foreign investment of at least USD 150 billion by the end of this decade [2].
In our latest report “Destination: East. Current trends and attractive foreign expansion destinations in the face of geopolitical turbulence”, Kazakhstan came second on the list of the most attractive second-circle destinations, i.e. countries so far underestimated by Polish investors.
The heart of Central Asia attracts the attention of global investors
In the latest UNCTAD World Investment Report, Kazakhstan was ranked among the top five largest recipients of FDI in 2022 [3]. The top 10 FDI investors in Kazakhstan in 2022 included the Netherlands, the US, Switzerland, Belgium, Russia, South Korea, China, France, the UK and Turkey [4]. It is time for Poland to join that group as well. According to our research, which we conducted in cooperation with PwC Poland and KUKE, and summarised in the report “Destination: East. Current trends and attractive foreign expansion destinations in the face of geopolitical turbulence”, Kazakhstan appears to be a destination with very high investment potential, also for Polish investors. It should be noted that historical circumstances have created a special bond between our country and Kazakhstan, where Poland is seen in a very positive light. It should be noted that historical circumstances have created a special bond between our country and Kazakhstan, where Poland is seen in a very positive light. It is worth taking advantage of this fact.
Kazakhstan is the ninth largest country in the world in terms of territory (and number one among landlocked countries). It is also the richest country in Central Asia. The country is widely known primarily as one of the largest oil producers (being in the top 20 with an average production of 1.8 million barrels per day). Although Kazakhstan's economy is indeed often associated mainly with the extraction of energy resources and, for some time, rare earth elements, the country is also investing in the development of several other important sectors, moving towards a service- and technology-based economy. In terms of industrial production, the metallurgical and chemical sectors lead the way, while in terms of services, the financial, transport and technology sectors are the most significant contributors to the country's GDP. Situated at the crossroads of Europe and Asia, Kazakhstan has in recent years become the beneficiary of huge investments made by China as part of China's Belt and Road initiative to improve transport infrastructure. All this translates into huge export and investment potential for Polish companies. Read on to find out what else we highlighted in our report.
Good business climate
Kazakhstan is known as the most investor-friendly country in Central Asia.
Since the 1990s, it has made significant progress towards marketisation of the economy and has ambitions to join the ranks of the world's 30 most developed economies by 2050. It is currently achieving high GDP dynamics, typical of developing countries. GDP growth was 3.3% in 2022 and 5.1% in 2023. Kazakhstan has rich natural resources, including oil, natural gas, coal and metals and minerals. The mining sector therefore accounts for a significant part of the economy and attracts investors. On the other hand, as Astana announced, the strategic goal is to increase the production of finished products, including using modern technologies. Importantly, Kazakhstan boasts a well-organised financial market, which has developed strongly in recent years in particular, offering solutions comparable to those of developed countries.
Recognising the interest from the West, which has sharply increased since Russia's attack on Ukraine, the Kazakh authorities are planning a spectacular opening up to foreign investors. The country's Prime Minister recently stressed that attracting investment is a key growth factor included in the National Investment Policy. The goal is ambitious: to attract at least USD 150 billion in foreign investment by 2029. To achieve this, Kazakhstan attaches particular importance to creating an investment-friendly environment, including the development of economic zones and the introduction of numerous incentives for investors.
Growing importance of Kazakh oil
More than 80 per cent of Kazakh oil is exported to Europe, which accounts for around 10 per cent of EU oil demand. It is worth mentioning that the state-owned KazTransOil plans to transport up to 1.2 million tonnes of Kazakh oil through the Transneft oil pipeline system. The volume of Kazakh oil transported by Transneft's oil pipeline system to the Adamow point (the start of the Polish section of the Druzhba oil pipeline), as planned, amounted to 100,000 tonnes in January this year. [5]. This is also an interesting aspect for Polish companies, which have a great deal of experience and the advanced technology necessary to extract many types of raw materials. We therefore encourage everyone to get to know this market and country better, which may make it easier to decide on your own capital investment.
Strategic location and diversified economy
Oil and gas are not the only assets of the country. The Kazakh government is taking steps to diversify the economy and reduce dependence on the mining sector. This opens up new opportunities for sectors such as agriculture, manufacturing, construction, energy (including renewable energy) or new technologies. In addition, Kazakhstan's undoubted advantage is its strategic location, which connects Asia and Europe and makes the country an important transport hub, especially in the context of the New Silk Road initiative linking China to Europe, as well as fostering infrastructure development. At the same time, the vast territory has huge needs in terms of transport and logistics organisation.
Kazakhstan wants to take advantage of its transit location and become an important player, a major transport hub in the Central Asian region, as well as a capital and investment centre, home to regional manufacturing companies or subsidiaries of large global corporations, and international service providers operating in the regional market This will require significant investment in broadly understood infrastructure. Plans include the construction of new motorways, the renovation of existing roads and the construction of new railways, air and rail terminals and logistics centres in the east of the country, as well as the expansion of ports on the Caspian Sea.
Last year, 170 projects worth USD 2 billion were implemented in the manufacturing industry. As a result, according to official figures, the share of manufacturing in the economy has equalled that of the mining industry. The comprehensive plan for the development of the mechanical engineering industry by 2028 assumes a 4.5-fold increase in total added value of the industry [6].
The Trans-Caspian International Transport Route (TITR) and the TRACECA (Transport Corridor Europe-Caucasus-Asia) initiative have brought Kazakhstan closer to Europe. It has invested more than USD 35 billion in transport infrastructure over the past 15 years. Further investments include the construction of more than 1,300 km of new railway lines. This will increase freight transport volumes between China, South Asia and Europe [7].
An important partner for Poland
In the region of Central Asia, Kazakhstan remains Poland's most important economic partner. In 2022, mutual trade turnover between Poland and Kazakhstan reached more than USD 2.6 billion. We mainly export to Kazakhstan machinery and equipment, chemical industry products and plastics, as well as agri-food products . In contrast, the main imported products are hydrocarbons.
An important aspect of cooperation are Polish investments in Kazakhstan. There are around a hundred companies with Polish capital in the country. These include companies in sectors such as pharmaceuticals, chemicals, construction and energy [8]. The advantage of Polish companies over Western entities is their extensive experience of operating at the junction of many different economic systems and under conditions of systemic transformation, and such a process is currently underway in Kazakhstan.
Of course, mention should also be made of the students, who are our country's best ambassadors in Kazakhstan. In an interview with the Boym Institute, Piotr Guzowski, president of the Polish-Kazakh Chamber of Commerce and Industry, stressed that many graduates who returned to Kazakhstan after studying in Poland have gone on to pursue international or business careers. This is important from the point of view of building business relationships by companies that would like to invest there. Most importantly, Kazakhs graduates have fond memories of Poland and are themselves very well regarded in terms of their professional preparation [9. ...].
Data sources:
- Astana News, Kazakhstan rise as premier investment hub,
- Investment Monitor, Kazakhstan plans to attract at least $150bn in FDI by 2029,
- Astana Times, Kazakhstan Enters Top Five Recipients of FDI Inflows in 2022,
- Lloyds Bank, Foreign direct investment (FDI) in Kazakhstan,
- WNP, Przez Polskę płynie kazachska ropa,
- Astana Tomes, Kazakhstan Set to Launch 180 Industrial Projects This Year,
- Akorda, The Head of State delivered a speech at the Kazakhstan-Italy Investment Roundtable,
- MRiT, Polska rozwija współpracę gospodarczą z Kazachstanem,
- Instytut Boyma, Współpraca z Kazachstanem w praktyce.