Kazakhstan - Market Challenges Kazakhstan - Market Challenges
Kazakhstan, as a landlocked country, has no direct access to West European markets, though it does enjoy proximity to two major markets: China and Russia. High transport costs in the final price of exported products hamper not only the country’s competitiveness in the international market but also the expansion of investment in non-primary sectors of its economy. Much attention is given to the development of modern transport infrastructure to enable Kazakhstan’s potential as a transit country for cargo flows. The government of Kazakhstan is trying to address these challenges by implementing several state programs and further accessing inland transport conventions and legal agreements and participating in projects such as the UNECE Euro-Asian Transport Links.
Competition is strong as Russia, China and EU countries vie for Kazakhstan’s growing buying power. Inexpensive products from China and Russia are readily supplied across the borders.
The progress of Eurasian economic integration has been mixed. The project started with the Customs Union, launched by Russia, Kazakhstan and Belarus in 2010. It morphed into the Single Economic Space in 2012 and was superseded by the Eurasian Economic Union (EAEU) in 2015, when Kyrgyzstan and Armenia were added as members. Despite this, the EAEU has not significantly boosted Kazakhstan’s trade with the other member countries. Importers are affected by a poorly planned implementation of the EAEU integration, non-standardized application of the common customs code and unclear documentation requirements.
Systemic Issues
According to the World Bank in Kazakhstan, ongoing structural and institutional reforms aim to reduce the role of the state in the economy and facilitate the development of a less regulated, transparent and market-driven business environment. The economy’s reliance on oil and its resulting vulnerability to external shocks remain the main challenges to achieving stable and sustainable development. External demand from China and the Russian Federation, Kazakhstan’s main trading partners, as well as global oil demand and prices, will continue to be the key external factors affecting Kazakhstan’s economic performance.
Despite Kazakhstan’s slightly improving its Corruption Perception Index rank from 124 in 2018 to 113 in 2019, corruption remains a challenge: the judiciary, police, and customs are often cited as the source of problems.
Over the years the government of Kazakhstan has announced several measures to reform the economy, and remains engaged with U.S., UK, Canadian and EU leadership, the American Chamber of Commerce in Kazakhstan and other foreign investors in a public-private dialogue on how to improve the investment climate. Despite these efforts, there remain systemic issues of concern to foreign businesses and other stakeholders. They include the need to:
- Rule of Law: establish an independent judiciary;
- Intellectual Property Protection: actively promote and consistently enforce intellectual property rights;
- Transparency in Rule Making: adopt eGov principles to give notice of rule changes and provide stakeholders with meaningful opportunity to comment;
- Interpretation of Laws: ensure consistent interpretation of national laws by local officials, especially in the implementation of Kazakhstan’s system of taxation, collection of revenues and customs procedures;
- Standards & Regulations: eliminate outdated Soviet-era regulations and adopt widely used international standards;
- Tax Issues: end criminal liability investigations for incidental tax violations.