It is typical for many countries to implement restrictions and limitations for foreign investment sectors in order to secure national security. Therefore, the first step for any investor considering establishing their presence in a foreign country is to understand whether the industry is open for foreign capital.
According to Bloomberg, in 2017, Kazakhstan was leading Central Asia in economic growth and FDI, generating roughly 60 percent of the region’s GDP. While no sectors of the economy are legally closed to investors, regulations outline certain restrictions on foreign ownership, which are quite scattered throughout different laws and regulations. This article summaries the major restrictions and limitations by the Kazakhstan laws.
Energy & Mining Industries
Kazakhstan’s vast hydrocarbon and mineral reserves remain the backbone of the economy. The country is rich in oil, natural gas, tungsten, coal, uranium and copper and has top positions in numerous world rankings for natural resources’ reserves.
The overall rights of Kazakhstan residents and non-residents in relation to subsoil use are covered by the same regulations. The main differences and potential risks appear when investment projects involve subsoil resources of strategic importance (SRSI).
[SRSI] is subsoil plot (i) containing geological oil reserves of more than 50 million tons or natural gas of more than 15 billion cubic meters, (ii) located in the Kazakhstan part of the Caspian Sea, (iii) containing uranium.
The regulations outline a general approval procedure for investors willing to use the subsoil. However, foreign invested projects are exposed to additional grounds of rejection related to the purposes of national security. Moreover, foreign investors’ right to use the subsoil is less stable as the government has the right to unilaterally amend the contract where the change of the economic situation affects national security.
Along with this, the transfer of the subsoil resources of strategic importance is executed under the government’s preemptive right over the transfer.
Banking & Insurance Sectors
At the date of writing, foreign banks and insurance organizations can take an equitable interest in local banks and insurance organizations or establish their subsidiaries, but they are not allowed to open branches in Kazakhstan.
Five years ago, following its membership of the World Trade Organization (WTO), the Government passed the “Law on Amendments to Certain Legislative Acts as to the Provision of Financial Services and Activities of Financial Organizations“, which lifts the aforementioned restriction. The introduction of the right of foreign banks and insurance organizations to open branches will enter the force on the 16th of December 2020.
In order to open a branch in Kazakhstan, a foreign bank and insurance organization will have to obtain a permit from the National Bank of Kazakhstan (NBK). The aforementioned Law also provides for the right of the NBK to set up certain norms and limits and establish standards for the managerial staff of branches.
Regulations state certain limitations of the activities that will be performed by a branch. In particular, the branch will be prohibited from accepting deposits from individuals of less than 120,000 USD.
Regulations set specific limits for foreign investor equity stakes in media companies to 20%, and in long distance or international communications operators to 49%.
Moreover, foreign investors shall also obtain approval from the government to acquire more than 10% of voting rights in long distance or international communications operators.
The government had indicated that it will remove restrictions in the telecommunications sector upon Kazakhstan’s accession to the WTO, though this has not yet occurred.
Similar to other post-soviet countries, Kazakhstan laws and regulations restrict foreign investors ownership of agricultural land and land plots located at the border.
Air and Transport Services
Foreign and legal entities cannot hold more than a 49 percent stake or effectuate control over domestic and international air transportation company.
Overall, throughout the years of the development of foreign investment regulations, the Kazakhstan government have presented a positive trend and opened many sectors for foreign investors. A recently implemented investment promotion plan intends to increase the stake of foreign investments in the GDP to 25%. Therefore, foreign investors may expect further enhancements of foreign investment regulations, especially after the COVID-19 pandemic.