Doing business
Current business situation
Kazakhstan is the largest country geographically in Central Asia, and, with
a population of 18 million, it is second to neighbouring Uzbekistan’s 30
million. Kazakhstan benefits from its geographical location connecting
growing markets of Asia with Europe through a network of roads, railroads
and sea routes.
As a member of the Eurasian Economic Union (EEU) along with Russia,
Belarus, Kyrgyzstan and Armenia, Kazakhstan is part of an economic area of
184 million people. The absence of custom controls allows EEU members to
take advantage of a single market; free movement of goods, services, labour
and capital; and unified economic and regulatory policies. The five
countries have also adopted unified tariff and non-tariff import
regulations from third countries. A common system of government standards
and certification has been implemented.
Global economic trends such as the sluggish Eurozone, decelerating growth
in China and a weak average oil price were significant influencers during
the 2014 to 2016 period. In 2017, partially recovered oil prices supported
the economic rebound in Kazakhstan and contributed to an improvement in
major indicators. Real GDP grew at around 4 per cent in 2017 and is forecast to be
around 3.8 per cent in 2018 and 2019.
Kazakhstan possesses abundant natural resources such as fossil fuels,
minerals and metals. Kazakhstan is a significant producer and exporter of
hydrocarbons. The three largest oil and gas projects are Kashagan, Tengiz
and Karachaganak. Oil production in 2017 was 86.2 million tonnes. The
government expects the country to become self-sufficient in all types of
petrol and other oil products by August 2018. At current production levels,
Kazakhstan oil reserves will last for 49 years, according to BP.
The hydrocarbons sector was the main driver of economic recovery in 2017.
Other positive indicators are the intensified investment activity and the
gradual restoration of domestic demand.
The Kazakh Government is committed to diversifying the economy and reducing
resource dependency. In 2015 the Kazakh Government launched the ‘100
Concrete Steps, a Modern State for All’ program, an institutional reform
program that aims to modernise public administration, enforce the rule of
law and state transparency, foster economic diversification, and reduce the
role of the government in the economy. It’s expected that production from
the non-oil sector will double by 2025.
The Kazakh infrastructure sector faced severe challenges stemming from
falling oil revenue, cuts to government expenditure and weak credit
conditions. The government implemented two stimulus packages: the National
Fund, a A$5.4 billion program aimed at supporting the SME sector, and
another program worth A$3 billion that is targeted at infrastructure.
The Kazakh Government is trying to increase the competitiveness of its
state-owned enterprises (SOEs) and Samruk Kazyna, the state holding
company, which manages US$100 billion of SOEs. The government is planning
to spin-off certain assets and use funds to invest in new sectors (Source CEEMEA Kazakhstan update).
The agriculture sector accounts for six per cent of economic production of
the country. Three quarters of Kazakhstan’s land is suitable for
agricultural development, but only one quarter is arable. Kazakhstan is
within 10 top grain producers in the world, according to the International
Grains Council (IGC) and is looking to significantly expand livestock
production over the next 7 years.
Kazakhstan is Australia’s leading trading partner in Central Asia, although
the level of mutual trade remains modest. Most activities are associated
with oil, gas and mining projects. Australia is active in the education
market in Kazakhstan. The Australian education sector participates in the
Kazakh Government’s ‘Bolashak’ International Scholarship Program.
Australia exports animals, beef, manufactured goods, vehicles and equipment
to Kazakhstan and largely imports pig iron. Some trade is handled through
intermediate markets such as Russia, China and the Netherlands.
Kazakhstan joined the World Trade Organization (WTO) and signed a
cooperation agreement with the EU in 2015. Kazakhstan is considered the
leader among the Commonwealth of Independent States (CIS) countries to
provide the most favourable conditions for investment activities. The World
Bank ranks Kazakhstan 36th out of 190 countries in the Ease of Doing
Business 2018 report.
Business culture
As with any international market, Kazakhstan has its own way of doing
business and unique social norms. For Australian exporters, it’s important
to take time to understand how business is done in Kazakhstan in order to
maximise opportunities for success in your business dealings.
Kazakhstan is a vibrant Asian country with rich traditions and respect for
cultural norms. Historically, the country was home to many religions,
nationalities and peoples, and exhibits religious and cultural diversity.
At the same time, the country is quite modernised and some business is
conducted in a Western way, although remnants of the former Soviet command
system remain noticeable.
In Kazakhstan, strong personal relationships are critical to business
success. At the first meeting, Kazakhs may seem not particularly open, but
over time and especially in informal settings Kazakhs usually appear quite
friendly. Both formal and informal face-to-face business meetings are vital
to establish a rapport that can underpin successful business relationships.
Some points to consider to help you achieve successful business outcomes
are:
- Be prepared to deal with various types of management. Some government
officials, particularly those who are based in the remote regions, may
still be operating in a Soviet bureaucratic way, while elderly business
people conduct business in a spirit of Asian personalised traditions. A new
generation of young, multilingual managers can appear to have Westernised
manners.
- If possible, translate your most important materials into both Kazakh and
Russian (the latter is widespread as a language of general communication,
but the official language of the country is Kazakh). It may be helpful to
learn some basic Kazakh words, particularly in dealing with people from
rural areas. In 2017, Kazakhstan launched the phased transfer from the
Cyrillic to Latin alphabet that will be completed by 2025.
- Many Kazakh business people speak English, but will be more accustomed to
American or British accents. Minimise use of slang and provide clear,
concrete explanations.
- Potential business partners are used to negotiating a price and will
expect several offers and counter-offers before a mutually acceptable price
is reached.
- It is important to follow up on the phone, on email and even in-person to
build relationships with potential business partners and customers. Some
business people still don’t have established formal procedures and don’t
keep records of meetings, so a gentle reminder and timely follow up are
essential.
- In some cases potential buyers may want to sign contracts on the same day
as initial meetings. Be prepared that decisions can be made in a radically
different manner – some decisions could take minutes while others may take
months. The government system and quasi-government structures can be
particularly slow while private business people are often faster to decide
on deals. Don’t be discouraged if your Kazakh business partners are slow to
respond to emails; this does not always imply disinterest. Wait an
appropriate time then follow up again, preferably via phone.
- Business discussions may be held in restaurants or homes as Kazakhs are
very hospitable and like to seal their deals in informal environment, often
with numerous toasts and sometimes with vodka.
- Kazakh partners generally respect promised delivery dates and production
quantities but there could be cases when they allow failures from their
side. You should be careful with your Kazakh partners as not all of them
may keep to agreed deadlines and commitments. It’s useful to regularly
reinforce your understanding of terms and timetables.
- Kazakh business people tend to dress quite formally. A business suit and
tie is expected attire for men. For women similar guidelines apply. Pant
suits are fully acceptable in Kazakhstan. It is preferable to dress well
and conservatively to create the right first impression.
- Appointments are generally kept. However, in the business climate in
Kazakhstan, meetings can frequently be cancelled or timings changed because
other ‘urgent’ issues arise.
- Government (‘the state’) still plays a big role in business operations in
Kazakhstan. In many cases, your partner may need to seek various licenses
and certifications from the state authorities and this could be both time
consuming and costly. If your partner requests documentation for government
approvals, pay close attention to the required procedures and documents, as
small mistakes can lead to delays and additional costs.
- Exchanging gifts at the end of a meeting is quite common. Kazakh business
people will often present you with ceremonial gifts and will appreciate
thoughtful and uniquely Australian gifts in return. While an exchange of
ceremonial gifts can be appropriate, you should be aware of Australia’s
laws prohibiting bribery of foreign officials. More information can be
found
here.
Setting up in Market
Finding the right partner
Sustained business in Kazakhstan and the CIS requires commitment to a
long-term market strategy.
A first step in this process is to determine the type of in-market
representation best suited to your objectives. You should consider your
needs at the time you enter the market while ensuring you have sufficient
flexibility to adapt as the market develops over time.
Prior to formalising representation, it is prudent to ensure that the
structure proposed is appropriate under local law and that you understand
fully the implications of any agreements in the local context. You should
ensure the agreement protects your interests to the fullest extent
possible. Ultimately, as in any market, the durability and success of your
representation arrangements will depend not only on your formal contractual
undertakings, but also upon the strength of understanding, trust and
communication that you develop with your in-market representatives and
partners.
Always take your time in this selection process as it is generally the most
important decision in ensuring that your business not only gets off to a
good start, but continues to grow in the market.
In-market representation
Kazakhstan is the world’s ninth largest country in geographic terms but most business is created in the two largest cities of the country – Astana (capital city) and Almaty (financial center). The western oil city of Atyrau may also be attractive in terms of business developments and higher purchasing capacity. Not all companies attempt to service all of the country’s regions.
Banking and finance
Kazakhstan has a two-tier banking system. The National Bank of Kazakhstan
is the country’s central bank and represents the upper (first) tier of the
banking system of Kazakhstan. All other banks represent the lower (second)
tier of the banking system, excluding the state-owned Kazakhstan
Development Bank, which has a specific legal status.
For a long time the national currency, the Tenge, was kept within the
corridor of 145-155 per US dollar under the managed float policy. In
February 2014, it was devaluated by 19 per cent to about 185. A freely
floating exchange rate for local currency was introduced by the Kazakh
Government in 2015 resulting in further Tenge depreciation against a
backdrop of a fall in world crude prices. The current exchange rate is 325
Tenge per US dollar.
Links and resources
Government, business and trade
Eurasian Economic Union (EEU)
State Revenue Committee (Customs)
European Business Association in Kazakhstan
Foreign Investors Council
The Foreign Ministry of Kazakhstan
Invest in Kazakhstan
Kazenergy Association
National Bank of Kazakhstan
Atameken National Chamber of Entrepreneurs of Kazakhstan
The Government of Kazakhstan
The President of the Republic of Kazakhstan
The Parliament of Kazakhstan
The Ministry of Investment and Development
Statistics Agency of the Republic of Kazakhstan
Astana International Financial Center
Kazakhstan Stock Exchange
News and media
Information and legal database
The Astana Times
Kazinform
Please note: This list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only. The content is for information and carries no warranty; as such, the addressee must exercise their own discretion in its use. Australia’s anti-bribery laws apply overseas and Austrade will not provide business related services to any party who breaches the law and will report credible evidence of any breach. For further information, please see foreign bribery information and awareness pack.