Kazakhstan Business Snapshot Update - Risk, Corruption & The Political Elite
(International Politics - Risk & Threat)
Kazakhstan is one of the most competitive economies in Central Asia. President Nazarbayev has repeatedly stressed economic reforms over political reforms and in this climate, trade liberalisation and privatisation of former state assets have progressed relatively far. In principle, foreign trade and ownership have been liberalised, but there are some exceptions in industries of strategic importance such as media, telecommunications and oil.
While the country has experienced dramatic and significant economic growth in recent years due in the main to its large oil deposits, this unfortunately like its near neighbour Azerbaijan, has seen these natural assets successfully monopolised by the political elite who have profited enormously from the boom.
Foreign companies should be aware that there are major concerns regarding corruption in Kazakhstan's environment of intra-elite allocations of benefits connected to oil production. As far back as 2010, a Global Competitiveness Report (2009-2010) identified corruption as the most problematic factor for doing business in Kazakhstan. It still remains a serious problem for SME's and foreign companies wishing to do business in Kazakhstan are recommended strongly to conduct extensive due diligence when planning to do or are already doing business in the country.
The prevalence of corrupt practices remains a major problem and at times is systemic, even within the country's anti-corruption agency and few public offices are free from executive interference. Long delays, unwieldy bureaucracy, weak business law, short deadlines, employee discontent and the absence of explanatory information that is prevalent breeds corruption. Some of these frustrating factors I personally experienced whilst setting up the new British Embassy in Astana.
In some economic sectors deemed of "strategic importance" such as oil and gas, electricity and railroads, state companies still play an important role, making frequent purchases of initial public offerings and receiving preferential treatment from anti-monopoly authorities.
Despite Kazakhstan's competitive edge over other countries in the region, the regulatory burden on foreign companies is considerable. The business licensing, customs and tax authorities are areas of particular concern. Nevertheless, the conditions for developing transparent relations between companies and the government are slowly improving. Public officials are now trained in anti- corruption and a code of ethics exists for public officials. On another positive note, competitive exams are now held for middle and lower ranking officials that are in regular contact with companies. However, positions in the higher levels of government are still not awarded on merit based criteria and a recent Freedom House report emphasised the fact that companies continue to report bribes are frequently required in relations with state officials.
The prevalence of corruption, whether it is real or perceived is always going to be a key factor for any company wishing to do business in a foreign market clime. Former Soviet Republics in particular have not had a good record in addressing corruption issues since gaining their independence. It will be difficult for them to get to grips with this major problem while the long standing political elites continue to hold the reins of power. Kazakhstan is a prime example of this, yet despite these corrupton concerns, the flows of foreign direct investment have remained strong and have seen year on year increases highlighting the fact that the country is still seen as an attractive destination for investment.
A full and detailed Kazakhstan report is available upon request.
