for Kazakhstan and Central Asia,
Member of the Governing Board
of the Kazakhstan Foreign Investors' Council Association (KFICA),
The Development of Kazakhstan's Business Climate and Investment Attractiveness in Light of Current Trends
The 31st Plenary Session of the Foreign Investors' Council chaired by the President of the Republic of Kazakhstan Nursultan Nazarbayev. Astana, June 6, 2018 (www.fic.kz)
The history of EY's practice in Kazakhstan is closely bound up with the development of the country's business and investment climate. We began operating in Kazakhstan in 1992, when the market had just opened up to international cooperation. Many major investors (already clients of EY on a global level) recognised the market's potential and began opening offices here. We came to Kazakhstan to help clients who needed quality assurance and business advisory services meeting international standards. In time, the Government itself became our client and today, services to national companies and the Government make up a large part of our portfolio.
Over the course of 25 years, not only have we seen major improvements in the country's business environment (as a foreign investor and in representing the interests of our clients), but we have also made our own contribution by advising the Government on a wide range of issues concerning the investment climate and investment attractiveness.
It is essential to note that many of these achievements were made possible thanks to the timely course set by the country's leadership towards accelerated industrial and innovation-driven development and related programmes (GPFIIR 2010-2014, then GPIIR 2015-2019 as part of the Kazakhstan-2050 Strategy and the vision of Kazakhstan's inclusion in the top 30 developed countries). As a result, in only the last 10 years, the country has attracted on the order of $250 billion in foreign direct investments and has been the recipient of over 70 percent of the investments made in the Central Asian region (according to Kazakhstan's Ministry for Investments and Development).
Nevertheless, the events of recent years and global trends are fundamentally transforming the idea of investment attractiveness and the criteria by which it is evaluated. In October of this year, the World Economic Forum (WEF) published its annual report on the Global Competitiveness Index (GCI). GCI methodology was updated in 2018 to take elements of the Fourth Industrial Revolution into account. The 2018 report put Kazakhstan in 59th place (where it was in 2017). Despite Kazakhstan's respectable position in the general ranking of 140 countries, individual criteria show room for improvement. Thus, for example, Kazakhstan's competitiveness is judged to be average in terms of Information and Communications Technology (44th place) and Education and Skills (57th) and weak in the category of Innovation Capacity (87th).
Another recent World Bank Group report, The Best Countries to Invest In (a survey of over 6,000 chief executives and business owners worldwide), concludes that private, corporate and major institutional investors are concerned not only with a country's natural wealth and sales markets, but are increasingly deciding in favor of technologies and brands developed in a country.
No less important in terms of the investment climate today is science. According to the latest data from the United Nations Educational, Scientific and Cultural Organisation (UNESCO) Institute for Statistics, the five leading countries in terms of investments in research and development (R&D) in absolute terms are the U.S., China, Japan, Germany and the Republic of Korea. As a percentage of GDP, South Korea is in the lead (4.3 percent), followed by Israel (4.1 percent) and Japan (3.6 percent). China's R&D spending is 2 percent of GDP and its average annual growth rate of R&D spending is 18.3 percent, compared with 1.4 percent in other developed countries. By way of comparison, spending on scientific research in Kazakhstan is less than 0.3 percent of GDP.
These examples illustrate the new reality of global competition for investments. Countries moving into the forefront today are those capable of projecting a favorable image – not only as a source of abundant and accessible natural resources, but also in offering investors high-quality human capital, technological infrastructure and conditions for the development of science and innovations.
Here it should be noted that the country's leadership has adopted a very forward-thinking policy – both externally (i.e. efforts to position the country to attract new investments) and on the domestic market (incentives to enhance the investment climate and encourage reinvestment by current investors) – and this policy takes into account all the latest global trends.
Kazakhstan's Ministry for Investment and Development, Ministry of Foreign Affairs and embassies and Kazakh Invest are making great headway on the external front. Here, I could name the recent initiatives for membership in the Eurasian Economic Union (EAEU) and the World Trade Organisation (WTO), expanded partnership with the European Union (EU), creation of the Astana International Financial Centre, involvement in the Belt and Road Initiative and much more.
Domestic issues are addressed not only by the Ministry for Investment and Development (one-stop shopping for all investors' issues), but also at such platforms as the Foreign Investors' Council (FIC), chaired personally by the head of state, and the Prime Minister's Council on Improvement of the Investment Climate.
EY has been an active member of FIC since 2001. Each year FIC's Investment Policy Working Group collaborates with the Ministry for Investments and Development and leading foreign investors to formulate a plan of action identifying the highest-priority issues affecting the investment climate and then, actively addresses those issues. These include the adoption of best global practices, legislative improvements and tax and customs administration. Sessions of the Prime Minister's Council on Improvement of the Investment Climate, where is EY is an active member as well, discuss ways of promoting a national investment policy in line with economic development priorities and the needs of current and potential investors.
The recently adopted National Investment Strategy for 2018-2022 (drafted by the Ministry of Innovation and Development and the World Bank with input from the community of foreign investors in the form of comments and suggestions submitted via the forums and platforms already mentioned) should also be mentioned. This Strategy identifies priority areas for investment, including areas with current potential (the food industry, deep processing of oil, gas and minerals and machine engineering) and others that hold promise for the future (information and communications technology (ICT), tourism and finance). The Strategy also identifies 36 countries that offer potential for closer cooperation, including 11 priority countries (China, France, Germany, Italy, Japan, Russia, South Korea, Turkey, the United Arab Emirates, the U.K. and the U.S.). The industry and country priorities identified in the Strategy will help in achieving the desired results.
Special attention should be given to soft power as a factor of growing importance in competition for investments. Soft power is the ability to influence the decisions of third parties by virtue of intangible assets. The concept of soft power includes a number of criteria: full and consistent integration in the global economy (open trade relations, an effective visa regime and immigration policy) and image (cultural heritage, science, sports and business image). Kazakhstan's achievements in the sphere of soft power include inter-ethnic and religious harmony, nuclear nonproliferation initiatives, renewable energy, international sports competitions and cultural events.
The country's numerous international conferences and forums also contribute to soft power. One such event, Promotion of Trade and Investments for Development: The Eurasian View, a high-level forum organised by Kazakhstan's Ministry of National Economy in partnership with a WTO group – the Friends of Investment Facilitation for Development – underscores the importance that the Government attaches to the multilateral discussion of investment opportunities.
Countries that have the soft power of influential brands obtain more investments by inspiring confidence in investors. Thus, for example, the specialised international exhibition EXPO-2017 in Astana had a positive impact on the country's development, both economically and in terms of image, and the exhibition infrastructure continues to generate value. This was vividly illustrated in November, when Kazakhstan President Nursultan Nazarbayev officially opened the Astana Hub, an international technopark for IT startups on the EXPO grounds.
Erlan Dosymbekov's participation as a speaker at a high-level forum “Promotion of Trade and Investments for Development: The Eurasian View", Astana, Sept. 28, 2018.
Efforts to promote a startup culture are yet another example of soft power and a key means of motivating talented young people to realize their business ideas in Kazakhstan. In today's gig economy, the younger generation can work remotely from any part of the world without being limited to a single employer, country or even citizenship, and they need to have the right conditions at home. This involves creating an entire culture. On the other hand, by enhancing the business climate, we make our market more attractive to foreign investors.
Finally, I would like to point out that modern investors (especially now, with such a wide choice of countries to invest in) are giving increasing attention to transparent and predictable legislative environment, rule of law and independence of judicial system in the country. They naturally want to safeguard their investments and be able to rely on the market in the long term. Laws also require updating to meet the needs of the digital age and this must be done in a timely manner. We at EY see great opportunities in this area and are open to discussion and joint efforts.
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