How to attract investment? Kazakhstan reinforces measures

Alikhan Smailov, First Deputy Prime Minister of Kazakhstan – Kazakh Finance Minister, started off by citing first President Nursultan Nazarbayev’s the 30 January expanded Government session speech stating that the country’s third modernization requires investments amounting to 30% to GDP per year, and the first Kazakh President’s instructions to work out systematic solutions to finance the real sector and investment projects, as well as establish an integrated eco-system to attract investments focusing on investors from different countries.

The speaker outlined that there had been volatility of global investment flows in recent years.

“In 2017, the amount of global direct investments lowered by 23%, falling further by 19% in 2018, to US$1.2trl”, he said, pointing to the increasing competition for investments among emerging economies.

The Minister called for new robust mechanisms in a bid to attract investments and the infrastructure re-examined in a serious way.

“This January a Fund of direct investments with a capital of US$1bn has been established. Notwithstanding the increase in gross investment flows, the amount of net investment has almost halved, standing at US$3.8bn last year. Direct foreign investments make up a mere one-third of their overall amount. Therefore, it is necessary to come up with new efficient mechanisms to attract quality investments and seriously review the infrastructure in this field”, he said.

The speaker proceeded by pointing to the main problems hampering the development of investments in the country.

“A special working group to work out proposals was set up. The existing mechanisms were thoroughly analyzed, bottlenecks were revealed, the reasons for the ineffectiveness of the existing mechanisms were defined as well. Coordination between government agencies and organizations is lacking. The ministries, national companies and governor’s and mayor’s offices are shaping the investment climate, however, they all work in a fragmented way. The instruments created at the Astana International Financial Center, that are unique for our regions, are not used. There is a lack of attractive projects designed and presented in a way that is transparent to the world investment community. The work to promote the investment image abroad is still far from the appropriate level”, Smailov said.

The Government decreed that the measures to attract foreign investments would be strengthened, leading to a new architecture of the work to attract investments. This will give impetus to the quality improvement of investment activities in the country, with the PM-chaired Coordinating Council to attract investments taking a special role. The PM will be empowered to grant special terms for implementing strategic investment projects, making necessary decisions quickly to efficiently implement investment projects. The Council’s members will include the first deputy prime minister, deputy prime minister of infrastructure development, first leaders of the key Ministries, the AIFC, national managing holdings, national companies, Atameken NCE as well as heads of the Supreme Court, the General Prosecutor’s Office and the NSC. The PM was appointed as investment ombudsman, with the AIFC being a single center for coordinating the efforts to attract investments and promote Kazakhstan’s investment image. It will turn into a regional investment hub, with investment services being centralized under the “one window principle” and a single pool of investment projects.

Kazakh Invest will be transferred to the AIFC’s authorities to trust managing. A single information system to form and support projects will be created. Measures to further liberate the visa and migration regimes using modern digital technologies will be taken. The geography of direct flights of the city Nur-Sultan with international finance center will be expanded. Proposals will be elaborated to further improve the investment climate, protect the rights of investors, and ensure the rule of law together with the Supreme Court and the General Prosecutor’s Office.

Given the new architecture, projects will be promoted as follows:

Stage 1. Integrated collection of all potential investment projects in the regional investment hub;

Stage 2. Processing and analyzing projects based on Kazakh Invest by attracting experts from the AIFC and consultants; bringing projects in the ways that are transparent to foreign investors;

Stage 3. The promotion of ready-made and packed projects through the existing channels of the AIFC and the Foreign Ministry;

Stage 4. The signing of investment projects at the Investment Hub using the juridical infrastructure of the AIFC.

The new architecture will be carried out in a short time, which will be presented as part of the Astana Economic Forum, with further full information support.

“The measures will allow to form packages of investment subsidies for investors in a prompt and consolidated way and give a start to comprehensive work to increase the amount of direct investments. Increased paces of flow of investments is key to quality GDP growth by 5%, as well as to the country’s strategic goals”, First Deputy Prime Minister A. Smailov concluded. 

While reporting on the work done during the 1st quarter of 2019, Kazakh Foreign Minister Beibut Atamkulov said that three-tiered comprehensive system to attract investments was built, with deputy heads being selected in each line ministry, governor’s and mayor’s office, national company who are responsible for investment performance, exports in person.

“Diplomatic missions’ heads are well aware of the tasks in the country of residence and the performance indicator. Our [Kazakhstan’s – author’s note] foreign institutions held meetings with 650 new companies, 78 huge-potential projects for further implementation were dealt”, he said.

40 priority countries to attract investments have been determined, largely focusing on the USA, Germany and Japan. Based on Kazakh Invest, the ministry has established the CRM information and monitoring system, which will enable to automate interaction of all interested organizations to support investors at every level. The monitoring system include over 174 projects for US$40bn with foreign participation, roadmaps of which have been already designed and approved.

The speaker called for reviewing and upgrading the existing legislation to retain Kazakhstan’s positions in the region and fully supported the establishment of an eco-system around the AIFC to attract investments. He also mentioned that the Foreign Ministry and foreign embassies’ experience during the last three months had demonstrated that investors welcome an AIFC-based investment hub’s creation. He also called for using the AIFC’s capacity that includes the unique legal regime based on English law, stating that the development institutes will base in one place, including Kazakh Invest’s Investment Committee, the Fund of direct and foreign investments, as well as other organizations.

The AIFC’s platform will function under the “one window” principle. A single pool of investment projects will be established in a systematic way, thus providing investors with all the state support measures. The Coordinating Council is under development, which will include heads of key government agencies, national companies, as well as representatives of judicial and security structures. The Council will deal with large and medium investors’ issues and decide on them. It’s powers as granting deposits special tax regimes, relaxing the procedures regarding importing labourers, providing land, bringing infrastructure will enable to push the issues relating to attraction of large investors promptly.

“The proposed measures will enable to bring the system of investors’ attraction to a new level”, the Foreign Minister concluded.     

AIFC Governor Kairat Kelimbetov said that the investment vertical, which is under development, would bring the work with foreign capital to a new level. The AIFC Administration will be a working body of the Coordinating Council, with the core functions such as organizing the work of the ombudsman’s office, the Kazakh Prime Minister, preparing documents for investment projects, working out financial standards and models. The AIFC’s jurisdiction consists of the Committee on Financial Market Regulation, the AIFC Court and the International Arbitrage Center, all based on the principles of English Law. The financial infrastructure includes the fund of direct investments and the AIFC’s Exchange. This vertical’s main part will be the involvement of financial institutes such as the Development Bank, KazynaCapital Management.

“To ensure sustainable operation of the new eco-system, it is proposed with the support of the Government, government agencies and organizations to define the law of treaties and the AIFC’s law as applicable law and use the AIFC Court and the International Arbitrage Center to apply an arbitration clause in all the model contracts with foreign participation”, he said.

Investment projects will be checked for conformity with financial models and will be included into a single pool of investment projects. Projects will be processed on the base of Kazakh Invest, upon the results of which ready-made projects will be relayed abroad in accordance with the single media communications policy, ensuring a single approach towards promoting Kazakhstan’s investment capacities abroad.

Concluding his speech, he outlined that capital Nur-Sultan should turn into not only a center of attraction of investment for the whole region but also international, touristy, sports and cultural.

Adlet Seilkhanov

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