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[12.08.23] Seeking Investors, Kazakhstan Downplays Weak Institutions

Kazakhstan has established its image as the economic dynamo of Central Asia. Yet, that image is undermined by the fact that outside of the oil-and-gas sector the country has struggled like its Central Asian neighbors to attract foreign investment. Experts contend that an unreliable legal framework continues to scare potential investors away from development projects in Kazakhstan.
 
Kazakhstani authorities will be looking to bolster the country's ability to lure foreign capital when they play host to a United Nations conference on investment due to start on August 28. The meeting will explore investors' attitudes toward the landlocked countries of Central Asia - including Afghanistan, Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan, Turkmenistan and Uzbekistan - in an era of global trade and strategy.
 
The UN High Representative for Least Developed Countries, Anwarul Karim Chowdhury, is scheduled to chair the conference. He has said landlocked countries deserve special consideration when it comes to development initiatives. "These are countries paying a heavy price for their geographical isolation," Chowdhury said.
 
Kazakhstan enjoys significant economic advantages over most other Central Asian republics, with the exception of Turkmenistan, in that it possesses abundant reserves of oil and gas. Nevertheless, Kazakhstan's investment climate shares many of the same characteristics as those found in neighboring states.
 
Kazakhstan has recorded strong growth in recent years, including an estimated 10.4 percent rise in GDP during the first half of 2003. Experts stress, however, that most investment flows to the oil and gas sectors. As long as energy prices remain at their relatively high level, Kazakhstan should be able to maintain its current growth trend. If oil prices drop, double-digit growth may become next to impossible - unless the government makes substantial policy shifts.
 
Weak institutions protecting investors, property owners and potential litigants still discourage foreign interests from staking meaningful capital in non-oil-related projects in Kazakhstan. Many foreign companies have complained that the Kazakhstani government, despite pledging itself to a free-market system, changes rules and fees in midstream. [For background, see the Eurasia Insight archives].
Some subtle changes may be beginning to take shape. In late June, Kazakhstani President Nursultan Nazarbayev promised boom times for investors in his country's oilfields. To reinforce his message, Akhmetov, shortly after taking office, submitted an ambitious privatization package for parliamentary consideration. He has also announced his intention to push for the deregulation of telephone service and for lower electricity and transportation prices
 
Few Western companies are willing to tolerate the arbitrary rulings that these courts produce, or to staff local offices with people willing or able to constantly monitor political intrigues. Aigoul Kenjebayeva, who manages the Almaty office for the Paris-based law firm Salans, told attendees at a recent conference that Kazakhstani courts do not allow enforcement of arbitration awards granted by foreign arbitration tribunals, preferring to leave the door open for bribes.
 
Government officials, on a recent visit to Washington, sought to portray Kazakhstan as a prime investment opportunity. Energy Minister Vladimir Shkolnik and Finance Minister Erbolat Dosaev both suggest that Kazakhstan can draw investment beyond the oil sector and can manage its investments well. "President Nazarbayev authorized industrial development program[s] till 2015, and we want to radically change [the] Kazakh economy," Dosaev said. "Special tax tools and tax regimes in special sectors which have some real potential will attract foreign investors"
 
Yevgeny Zhovtis, a human-rights activist and director of the Kazakhstan Bureau for Human Rights and the Rule of Law, says corrupt institutions turn investors away more intensely than any cultural trends do. "The most difficult task is the reform to introduce real rule of law," he said.
 
Of course, the tendency of the executive branch to intervene whenever it wants to dates back to Soviet times. Kazakhstan may define its investment goals in weeks and formally welcome new investors within months. But Zhovtis suspects that years will go by before enforceable laws protect investors' capital.
 
By Ariel Cohen,
EurasiaNet, August 12, 2003

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