VZCZCXRO3656
RR RUEHAST
DE RUEHTA #0133/01 0290204
ZNR UUUUU ZZH
R 290204Z JAN 08 ZDK
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 1554
RUEHAST/USOFFICE ALMATY 0150

UNCLAS SECTION 01 OF 16 ASTANA 000133 
 
SIPDIS 
 
SCA/CEN - O'MARA 
EB/IFD/OIA 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ETRD EFIN ECON EINV PREL OPIC KTDB USTR
SUBJECT: 2007 INVESTMENT CLIMATE STATEMENT - KAZAKHSTAN 
 
REF:   A. 07 State 158802 
 
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Kazakhstan permits the importation of goods from EEC partners and 
certain developing or less-developed countries either free of duty, 
or at a reduced rate. There are no special requirements for engaging 
in trade-related activities. In keeping with internationally 
accepted practices, registration as an entrepreneur, legal entity, 
or branch/representation office is required. 
 
Right to Private Ownership and Establishment 
-------------------------------------------- 
Foreign and domestic private entities have the right to establish 
and own business enterprises and to engage in all forms of 
remunerative activity. Private entities can freely buy and sell 
interests in business enterprises. However, state-owned enterprises 
do sometimes enjoy better access to markets, credits, and licenses 
than private entities. 
Kazakhstan's constitution provides that land and other natural 
resources may be owned or leased by persons who are Kazakhstani 
citizens according to conditions established by law. The 2003 Land 
Code allows citizens of Kazakhstan to own agricultural land and 
urban land with commercial and non-commercial buildings and 
complexes, including dwellings and land used for servicing these 
buildings. Under the 2003 Land Code, only Kazakhstani citizens 
(natural and legalized) and Kazakhstani companies may own land. The 
Land Law does not allow private ownership for the following types of 
land: 
-- land used for national defense and national security purposes; 
-- specially protected natural territories, resorts, recreational 
land and territories of a historical and/or cultural significance; 
-- forests, water reservoirs (lakes, rivers, canals, etc.), 
glaciers, swamps, etc.; 
-- public areas (urban or rural settlements); 
-- main railways and public roads; 
Short-term land leases may last for up to five years. The maximum 
period for long-term land leases are 49 years. Foreigners may rent 
agricultural land for up to 10 years. Foreigners may also own 
agricultural land through either a Kazakhstani-registered joint 
venture or a full subsidiary. 
 
Protection of Property Rights 
----------------------------- 
Secured interests in property (fixed and non-fixed) are recognized 
under the Civil Code and the 2003 Land Code. Mortgage lending has 
grown dramatically in the past several years.  A credit bureau 
system does exist, but is in very early stages of development. The 
National Bank has created a national mortgage agency, which issues 
bonds secured by mortgages purchased from banks. All property and 
lease rights for real estate must be registered with special 
government-owned Real Estate Centers, which exist in cities and 
rural district centers. 
In principle, Kazakhstan's Civil Code protects U.S. intellectual 
property. In addition, the U.S.-Kazakhstan Trade Agreement, which 
came into force in 1993, obliges Kazakhstan to protect intellectual 
property rights (IPR).  In 2004, Kazakhstan ratified the 1997 World 
Intellectual Property Organization (WIPO) Copyright Treaty and the 
WIPO Performances and Phonographs Treaty, and amended the Copyright 
Law to affirmatively protect pre-existing works and sound 
recordings. In 2005, Kazakhstan amended its Criminal and Civil Codes 
to make IPR crimes easier to prosecute and to toughen penalties for 
violators.  The 2005 amendments played a significant role in USTR's 
2006 decision to remove Kazakhstan from the Special 301 Watch list. 
While Kazakhstan has demonstrated a commitment to improving its IPR 
regime, substantial weaknesses, particularly in the area of civil 
dispute resolution, still remain. 
Patents and trademarks: Patent protection is available for 
inventions, industrial designs and prototypes. Patents for 
inventions are available with respect to processes and products that 
are novel and have industrial applications. However, patent 
protection for certain types of products and processes -- such as 
layout designs and plant variety - is not yet available. The 
National Institute of Intellectual Property performs formal 
examination of patent applications. 
Patents for inventions are granted for a period of 20 years; patents 
for industrial designs are granted on a preliminary basis for five 
years. This period may be extended for an additional 10 years if the 
preliminary patent is converted to a patent. Prototypes are granted 
a five-year initial period of protection, with the possibility of an 
additional three-year extension. Unsuccessful applicants have the 
right to appeal decisions of the National Institute of Intellectual 
Property and the Committee for Intellectual Property Rights. 
Kazakhstan is a member of the Moscow-based Eurasian Patent Bureau 
and the Munich-based European Patent Bureau. 
Trademark violation is a crime. Enforcement has historically been 
questionable, but U.S. companies are generally confident that their 
trademarks are protected in Kazakhstan. Still, imported counterfeit 
goods can commonly be found at local markets. There are marked 
disparities in fees charged to domestic patent and trademark 
applicants, as compared to foreign applicants. Applications for 
trademark, service mark and appellations of origin protection should 
 
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be filed with the National Patent Office and approved by the 
Committee for Intellectual Property Rights. Trademarks and service 
marks are afforded protection for a period of 10 years from the date 
of filing. 
Copyrights: The Law on Copyrights and Related Rights was enacted in 
¶1996. The law is largely in conformity with the requirements of the 
WTO TRIPS Agreement and the Berne Convention. 
In late 2006, the government stated its plans to provide customs 
officials with ex officio authority to seize counterfeit products at 
the border.  However, appropriate legislation has not been passed. 
Complicating the issue is the government's concern that granting ex 
officio powers may exacerbate corruption at customs checkpoints. 
Amendments to the Administrative, Criminal and Civil Procedural 
Codes have been adopted to bolster IPR enforcement capabilities. IPR 
enforcement measures, while still somewhat sporadic, are 
increasingly robust. Prosecutions, under both the Criminal and 
Administrative Codes, have led to a steady legitimization of the 
domestic trade in copyrighted material. Progress in IPR protection 
through civil courts is less pronounced as the judicial system 
develops the expertise necessary to resolve the more complex civil 
disputes. 
Illegal software development and manufacture generally is not 
conducted in Kazakhstan; Russia and Ukraine are believed to be the 
major sources of bootleg software to the local market. 
Kazakhstan ratified the Berne Convention for the Protection of 
Literary and Artistic Works in 1998 and the Geneva Phonograms 
Convention in 2000. 
 
Transparency of Regulatory System 
--------------------------------- 
Transparency in the application of laws remains a major problem in 
Kazakhstan and an obstacle to expanded trade and investment. Foreign 
investors complain of changing standards and of corruption. While 
foreign participation is generally welcomed, some foreign investors 
point out that the government is not always even-handed and 
sometimes reneges on its commitments. Although the Investment 
Committee of the Ministry of Industry and Trade was established to 
facilitate foreign investment, it has had limited success in 
addressing the concerns of foreign investors. 
Opportunities for public comment on proposed laws and regulations 
are sporadic and generally limited. Often, contradictory norms 
hinder the functioning of the legal system. While Kazakhstan has 
recently defined more clearly which laws take precedence in the 
event of a contradiction, it has become clear that stability clauses 
granted investors under previous versions of the Foreign Investment 
Law or other legislation may not necessarily protect investors from 
changes in the legal and tax regulatory regime. The 2003 Investment 
Law holds that contracts signed subsequent to its enactment may be 
subject to amendments in domestic legislation and international 
treaty provisions that change "the procedure and conditions of the 
import, manufacture, and sale of goods subject to excise duties As 
an additional complication, oblast authorities may create additional 
bureaucratic encumbrances,  especially in the licensing and issuance 
of permits.. 
Kazakhstan, by law, will provide compensation for violations of 
contracts that were properly entered into and guaranteed by the 
government. Where the government has merely "approved" or 
"confirmed" a foreign contract, Kazakhstan's responsibility is 
limited to performing administrative acts necessary to facilitate 
the subject investment activity (acts "concerning the issuance of a 
license, granting of a land plot, mining allotment, etc."). 
Kazakhstan's institutional governance is weak , further adding to 
the problems of transparency in commercial transactions. Senior 
government officials have a large say in minor and major 
transactions, and decisions are often made behind closed doors. 
A 1995 Licensing Law established the legal framework for licensing 
activities in Kazakhstan. It requires the relevant agency to issue a 
license within one month of a company's submitting all required 
documents.  The law was further amended in 1998, 2005, and January 
¶2007.  The 2007 amendments simplified procedural requirements for 
issuing licenses, reduced the number of licensed activities from 426 
to 100 and introduced a mechanism to help prevent the extension of 
this list by other legal acts.  However, licensing remains a 
problematic area for business, particularly for small- and medium- 
sized enterprises. 
 
Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ----- 
Kazakhstan's efforts to create a sound financial system and a stable 
macroeconomic framework have been notable among former Soviet 
republics. Much progress has been made in creating and implementing 
an adequate legal framework. In comparison with other parts of the 
economy, reform of the financial system has been deeper and more 
effective. The financial system has started to mediate financial 
resource flows and direct them to the most promising parts of the 
economy. Official policy is clearly supportive of credit allocation 
on market terms and the further development of legal, regulatory and 
accounting systems that are consistent with international norms. 
 
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The National Bank has demonstrated a willingness to pursue monetary 
tightening in response to inflationary pressures. In 2006, it raised 
the refinancing rate twice as well as toughened reserve requirements 
for second-tier banks. Capital inflows and commodity exports have 
enabled the National Bank to accumulate foreign exchange reserves, 
and at the same time to lower interest rates and maintain inflation 
in the single-digit range. 
As of the middle of December 2007, the net gold and hard currency 
reserves of the National Bank stood at $18.1 billion; the total gold 
and hard currency reserves of Kazakhstan, including the National 
Bank reserves and reserves accumulated in the National Fund, reached 
$39 billion. The National Bank has pursued market-based policies 
that have contributed to financial sector development and to 
exchange rate stability. In 1999 the National Bank created a deposit 
insurance system in order to attract the nearly $1 billion in cash 
it estimated people were hoarding at home. Since then, private 
deposits have grown thirty nine-fold, from less than $300 million in 
November 1999, to $11.87 billion in November 2007. 
Most domestic borrowers receive credit from Kazakhstani banks. 
However, foreign investors find the margins taken by local banks and 
the collateral required for credit to be very onerous. It is usually 
cheaper and simpler for them to use retained earnings or borrow from 
their home country. The Kazakhstani Stock Exchange is struggling to 
gain momentum and, as such, not yet a realistic source of funds (see 
below). Since 1998, Kazakhstani banks have placed Eurobonds on 
international markets and obtained syndicated loans, the proceeds of 
which have been used to support domestic lending. Leading 
Kazakhstani banks have been able to obtain reasonably good ratings 
from international credit assessment agencies. The National Bank and 
 the Financial Supervision Agency (FSA) supervise the banking system 
and have overseen a steady consolidation and strengthening of it. 
The global liquidity crunch, which hit in late summer 2007, 
presented a substantial challenge to the Kazakhstani banking system, 
which had come to rely heavily on external borrowing over the 
preceding five-year period.  Kazakhstani banks had been directing 
much of the borrowed funds into the country's construction and real 
estate sectors, particularly in the form both of construction 
financing and for mortgages for new housing in Astana and Almaty. 
The sudden global liquidity dry-up abruptly left some leading 
Kazakhstani banks unable to continue their aggressive external 
borrowing, forcing them to curtail their domestic lending activity. 
While policymakers widely saw this development as a healthy 
correction in view of the preceding liquidity glut, the National 
Bank of Kazakhstan and the government introduced measures in late 
2007 to provide liquidity to the banking system and inject capital 
in the cooling construction sector. 
Since 1999, a market for debt securities has been rapidly developing 
in Kazakhstan. Several dozen bank and non-bank corporations - large 
and small - have issued bills, notes and bonds with maturities 
ranging from three months to seven years. Earlier issues have 
matured and been redeemed; so far, there have been no defaults. 
Rates for borrowers have declined on average from approximately 16% 
in September 1999 to approximately 9% in 2006. Maturities have 
increased from 1.5 years to up to 10 years during the same period. 
Kazakhstan's pension system reform has boosted the bond market by 
creating a pool of capital. The market for fixed-income securities 
has grown from $74,000 in September 1999 to over $14.7 billion in 
October 2007. 
In 2007, the yield rate on middle-term government notes was 6.35%. 
Longer-term government notes (with maturities up to 10 years) were 
offered at 7.0%. 
The Kazakhstani Stock Exchange (KSE) has been in operation since 
¶1997. As of December 2007, there were 69 listed companies with 31 
"A-listed" stock issues; 38 companies with "B-listed" stock issues; 
and 5 non-listed issuers. There are also 62 "A-listed" and 26 
"B-listed" corporate bond issues. Inadequate financial records 
prevent many other companies from being put on the exchange. 
Moreover, company managers fear diluting control of their 
enterprises by selling more shares. 
As of October 1, 2007, total capitalization of the KSE was $71.95 
billion, or 70.7% of GDP Though there has been a slight decline of 
capitalization over the second half of 2007,  a continued  annual 
growth in both the absolute value of total capitalization and 
capitalization relative to GDP has occurred for the last three 
years. 
Trading on the KSE is overwhelmingly dominated by block trades, 
liquidity is low, and the spreads are extremely wide. In 2006, 
several large Kazakhstani companies issued initial public offerings 
on the London Stock Exchange (LSE). In compliance with a 2006 law 
requiring any foreign IPO by a Kazakhstani company to be accompanied 
by a domestic issuance, these companies also offered shares on the 
KSE. However, despite these offerings and the Kazakhstani pension 
funds' (see below) tentative moves to invest in KSE-traded shares, 
the exchange remains in a very early stage of development. Due 
largely to Kazakhstani companies' recalcitrance to dilute ownership 
and provide extensive disclosure, the Kazakhstani debt market is 
substantially more developed. The plans for the "Almaty Financial 
Center" (see below) aim to spearhead the development of Kazakhstan's 
 
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financial markets.  In 2007, the Almaty Financial Center officially 
announced that it would merge its efforts to create an effective 
equity market with the KSE, thereby signaling that there will be 
only one stock exchange in Kazakhstan in the foreseeable future.) 
The Financial Supervision Agency (FSA), Kazakhstan's main financial 
regulator, has broad authority over the banking and insurance 
sectors, as well as the stock market.  The FSA is financed from the 
National Bank's budget and subordinated to the President of 
Kazakhstan. 
In 1998, the government introduced an accumulation pension system 
that requires all employed persons to contribute 10% of their salary 
to accumulation pension funds. As of November 2006, the 14 funds (13 
private and one state-owned) operating in Kazakhstan held 
approximately $9.6 billion in assets. Asset management companies 
invest the contributions on behalf of the pension funds. While the 
government provides specific restrictions on how the pension funds 
may invest, these restrictions were relaxed in 2006, allowing some 
involvement in Kazakhstani equities. Still, the pension assets must 
be invested primarily in specific categories of instruments, such as 
government bonds and A-listed securities. The largest concentration 
of investments is in dollar-denominated Kazakhstani Eurobonds. 
Custodian banks hold pension assets. The government plans to sell 
some shares of state enterprises on the national stock market, 
partly to provide a more profitable alternative vehicle for the 
investment of pension fund assets. 
There appear to be no "cross-shareholding" or "stable shareholder" 
arrangements used to restrict foreign investment in private firms 
through mergers and acquisitions. Joint stock companies may not 
cross-hold more than 25% of each other's stock unless they have an 
exemption codified by law and may not exercise more than 25% of the 
votes in a cross-held joint stock company. Kazakhstani law 
recognizes companies as "related" if one company or legal entity 
holds more than 20% of the shares of another. However, the owning 
company may not vote more than 25% of the total shares at the 
general meeting of shareholders of the related company. The general 
meeting must approve various corporate actions, such as mergers and 
acquisitions. This rule applies to all persons, domestic or foreign. 
 
There have been very few hostile takeovers in Kazakhstan, primarily 
because there are few publicly traded firms. Defensive measures are 
not targeted toward foreign investors in particular. Current 
legislation provides a legal framework for takeovers. The Civil Code 
requires a company that has purchased a 20% share in another company 
to publish information about the purchase. 
The mutual investment fund industry remains small but is growing 
rapidly.  As of October, 1 2007, total assets of the mutual 
investment funds amounted to $1.16 billion, representing a 302% 
increase when compared to October 2006 figures. Despite a reduction 
from 37.1% in October 2006 to 15.77% in October 2007, Kazakhstani 
corporate securities remain a significant share of the consolidated 
mutual fund investment portfolio. 
The 1998 Law on Joint Stock Companies provides the basis for the 
regulation of open and closed-type joint stock companies. It also 
contains clauses to protect investors in often-abused circumstances, 
such as: 
-- issuance of additional shares; 
-- maintenance of charter capital and restrictions on payments of 
dividends; 
-- re-purchase by a company of its own shares; 
-- debt-to-equity conversions; 
-- fiduciary duties imposed on company officers; 
-- proxy votes; 
-- independent audit; and 
-- the determination of asset values during the sale of company 
property. 
The Law on Joint Stock Companies also regulates tender offers for 
stock of open joint stock companies by requiring the purchaser to 
notify the Financial Supervision Agency and the target company of 
their intention to purchase 30% or more of the target company and, 
after such purchase, to make an offer to all remaining shareholders 
to purchase their shares at the average price during the last six 
months before the purchase. 
There are no laws or regulations specifically authorizing firms to 
adopt articles of incorporation or associations that limit or 
prohibit foreign investments. The Law on Joint Stock Companies, 
however, allows charter limits on the number of shares or votes that 
one shareholder may have. 
In March 2007, the Government accepted amendments to legislation 
regarding the protection of minority stockholders' interests.  The 
enactment of this law was prompted by numerous violations of 
minority stockholders' interests. In addition, this step was driven 
by the Government's intention to promote the development of stock 
exchange. 
Standards, including sanitary and phyto-sanitary standards, are 
promulgated solely by the Committee for Technical Regulation and 
Metrology (Gosstandard). Proposals for adoption, amendment, or 
abolishment of state standards are normally prepared by technical 
committees constituted by Gosstandard, and may include producers, 
 
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scientific and engineering associations, and technical experts. 
Foreign participation in the standardization process is regulated by 
international multilateral and bilateral agreements. 
 
Political Violence 
------------------ 
There have been no incidents of politically-motivated violence 
against foreign investment projects. Kazakhstan has been stable 
since independence. Politically-motivated civil disturbances remain 
exceptionally rare. Kazakhstan has good relations with its 
neighbors. The government continues to express concern over the 
security of its borders with Kyrgyzstan and Uzbekistan, which it 
views as vulnerable to penetration by extremist groups. 
Kazakhstan's 2007 parliamentary elections took place without 
significant violence or unrest. President Nazarbayev's Nur Otan 
party won every seat in the lower house of parliament with an 
overwhelming majority of the votes. In its assessment, the OSCE 
noted that the election did not meet a number of OSCE commitments 
and international standards for democratic elections. Although 
opposition groups denounced the election as fraudulent, there were 
no significant demonstrations against the announced results. The 
next parliamentary election is scheduled to take place in 2012. 
The February 2006 murders of a prominent opposition politician and 
his two associates were perceived by opposition parties as 
politically motivated. The former chief of staff of the Senate was 
convicted in August 2006 of having ordered the murders; prosecutors 
charged that he was motivated by personal animosity. 
 
Corruption 
---------- 
Although the Kazakhstani Criminal Code contains special penalties 
for accepting and giving bribes, corruption is prevalent throughout 
Kazakhstan. The Ministry of Interior, the Financial Police, the 
Disciplinary State Service Commission, and the Committee for 
National Security (KNB) are responsible for combating corruption. 
The government has taken some measures to address corruption and 
increased its attention to the problem through educational and 
public awareness efforts.  President Nazarbayev publicly deplored 
corruption and encouraged media to report about it.  Some lower and 
middle-ranking officials and minor political figures have been 
penalized on corruption charges. 
Transparency International has a national chapter in Kazakhstan. The 
government has signed on to the Extractive Industries Transparency 
Initiative (EITI). 
U.S. firms have cited corruption as a significant obstacle to 
investment. Law enforcement agencies have on occasion t pressured 
foreign investors perceived to be uncooperative with the government. 
The government and local business entities are widely aware of the 
legal restrictions placed on U.S. business abroad (i.e., the Foreign 
Corrupt Practices Act). 
In 2003 in the United States two American citizens were charged with 
violating the Foreign Corrupt Practices Act in a case that received 
significant international media attention. The two allegedly 
channeled tens of millions of dollars in bribes to two senior 
Kazakhstani officials during the 1990's in order to facilitate oil 
deals for American companies. One is currently serving a jail term. 
The trial of the second defendant, James Giffen, began in 2007 in 
Southern New York Federal District court. 
 
Bilateral Investment Agreements 
------------------------------- 
The United States-Kazakhstan Bilateral Investment Treaty came into 
force in 1994. In 1992, the United States and Kazakhstan signed an 
Investment Incentive Agreement. 
In 1996, the Treaty on the Avoidance of Double Taxation between the 
United States and Kazakhstan came into force. However, an ongoing 
dispute with a U.S. investor raises concerns with the government's 
tax treaty compliance. Since independence, Kazakhstan has ratified 
treaties on the avoidance of double taxation with 41 countries. 
Kazakhstan has bilateral investment agreements in force with  forty 
countries, including the United States, Great Britain, Germany, 
France, Austria, Russia, Korea, Iran, China, and Turkey. 
 
OPIC and Other Investment Insurance Programs 
-------------------------------------------- 
The Overseas Private Investment Corporation (OPIC), an independent 
U.S. Government agency that provides project financing, political 
risk insurance, and a variety of investor services, has been active 
in Kazakhstan since 1994. OPIC is seeking commercially viable 
projects in the Kazakhstani private sector. OPIC offers a full range 
of investment insurance and debt/equity stakes. 
Kazakhstan is a member of the Multilateral Investment Guarantee 
Agency (MIGA). 
 
Labor 
----- 
The 1999 Labor Law and the Constitution guarantee basic workers' 
rights, including the right to organize and the right to strike. 
 
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Teachers, miners and workers at a variety of enterprises have 
conducted occasional strikes for generally short periods during the 
past several years. In September 2006 the death of 41 miners in an 
explosion at Mittal Steel Termirtau's "Lenin" coal mine triggered an 
unprecedented wave of strikes. Mittal's striking coal miners were 
joined by steel workers which shut down operations at each of the 
eight coal mines owned by the company for a week. The strike ended 
after Mittal agreed to substantial raises. Subsequently, two U.S. 
companies operating coal mines in Kazakhstan raised wages 25-30% in 
order to avert threatened strikes. 
The 1996 Law on Labor Disputes and Strikes lays out the procedure 
for resolving disputes. However, the law also restricts strikes by 
requiring, inter alia, that a peaceful attempt at a solution first 
be made, that two-thirds of the labor collective must approve the 
strike, and that the employer must be warned 15 days in advance in 
writing. In addition, strikes for political purposes are forbidden. 
 
A separate 1992 Law on Collective Bargaining Agreements sets out the 
basic framework for concluding such agreements. There are instances 
of unions successfully negotiating collective bargaining agreements 
with management. 
In May 2007, Kazakhstan passed a new Labor Code, encompassing all 
the preceding legislation under a single umbrella.  Key provisions 
of all the previous labor laws were retained.  The Labor Code 
extended  minimum mandatory vacation time from 18 to 24 days, 
provided an outline of labor unions' and labor representatives' 
rights, and toughened rules governing the dissolution of labor 
contracts. 
The 1993 Law on Professional Labor Unions provides a legal guarantee 
against limitations of labor. It also grants socio-economic, 
political and personal rights and freedoms as a result of membership 
in a union and prohibits the denial of employment, the denial of 
promotion or termination of employment on the basis of such 
membership. Kazakhstan also joined the International Labor 
Organization (ILO) in 1993. As of January 2007, Kazakhstan has 
ratified 16 ILO conventions, including those pertaining to minimum 
employment age, forced labor, discrimination in employment, equal 
remuneration, and collective bargaining. 
Kazakhstan's economy has grown steadily in the last five years. 
Preliminary 2007 GDP growth is estimated at 8.7%.  (The highest 
year-on-year rate was 13.5% in 2001.) Although incomes and consumer 
spending have risen across the board, in the 3rd quarter 2007 the 
minimum subsistence wage is still only $83.. per month;   with 13.8% 
of the population receiving income below that level. Starting on 
January 1, 2008, the minimum pension  will be $65.45 per month. By 
government estimates, in the 3rd quarter of 2007 unemployment was 
7%. 
Kazakhstan has an educated and technically competent workforce. 
However, the demand for specialized skilled labor created by the 
simultaneous development of several major oil fields in western 
Kazakhstan has exceeded locally available supply. Foreign investors 
increasingly cite a lack of skilled workers and technical 
professionals. Management expertise and marketing skills are also in 
short supply. Many large investors rely on foreign workers, 
particularly from Turkey, to fill the vacuum. In turn, the GOK has 
made it a priority to ensure that Kazakhstani citizens are 
well-represented on foreign enterprise workforces, and is 
particularly keen to see Kazakhstanis hired into the managerial and 
executive ranks of those enterprises. In late 2006, the government 
discussed measures limiting the inflow of foreign workers, 
particularly unskilled, and pressuring large foreign investors to 
hire and train Kazakhstanis. Since 2001, the quota system has 
required employers to search for local workers prior to the issuance 
of work permits for foreigners (see section A.1.). U.S. companies 
are strongly advised to contact locally-based law and accounting 
firms, as well as the U.S. Commercial Service in Almaty, for the 
latest information on work permits. 
Employers' reliance on foreign labor in the face of persistent 
poverty in rural Kazakhstan became a political issue in 2006 and 
¶2007. The debate revolved around the underlying causes of some 
violent incidents between Kazakhstani and foreign workers. The 
tension was epitomized by a major October 2006 brawl that involved 
over 400 workers. Policymakers often point to disparities in wages 
and working conditions between Kazakhstani and foreign workers. 
Employers retort that the domestic lack of skilled labor frequently 
necessitates management of Kazakhstani laborers by foreigners. 
 
Foreign - Trade Zones/Free Ports 
-------------------------------- 
A system of tax preferences exists for enterprises engaging in 
prescribed economic activities in the so-called "special economic 
zones." As of December 2007, four such zones had been established: 
the "New Administrative Center" in Astana, the Seaport of Aktau, the 
Alatau Information Technology Park (near Almaty), and the Ontustik 
Cotton Center in south Kazakhstan.). In addition, a separate 
preferential tax system exists for enterprises manufacturing high 
value-added goods, regardless of location. 
In the second half of 2006, the government took steps toward 
 
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establishing the Almaty Financial Center, a legal and institutional 
framework aimed at making Almaty the financial capital of Central 
Asia. The plans, which are still in very early stages of 
implementation, include tax privileges for major participants in the 
financial marketplace: investors, broker-dealers, and issuing 
corporations. The legal framework for the Almaty Financial Center 
includes a specialized court with jurisdiction over civil disputes 
between the Financial Center's participants 
 
Foreign Direct Investment (FDI) Statistics 
------------------------------------------ 
Annual Gross Foreign Direct Investment Flows by Country of Origin 
(Millions of Dollars; nominal) 
1993-20052006  2007(1st half) Total 
USA 11,841.2  1,694.7  802.2 14,338.1 
UK 4,378.7  852.5  255.2  5,486.4 
South Korea 1,880.9  248.6  116.6  2,246.1 
Italy 2,468.3 376.1  212.6  3,057 
Canada 1,481.2  437.1  273  2,191.3 
Switzerland 2,021.5  234.6  367.9  2,624 
Netherlands 4,940.1  2,877.3  1,170.6  8,988 
China 1,680.5  359.5  171.6  2,211.6 
Turkey 906.9   92.9  141.9  1,141.7 
Russia 1211.1  490.9  219.0  1,921 
Japan 1005.1  342.6  169.7  1,517.4 
Others 6,970  2,559.9  3,033.6  12,563.5 
TOTAL 40785.5  10,566.7  6,933.9   58,286.1 
Source: National Bank of Kazakhstan 
 
Annual Gross Foreign Direct Investment Flows by Sector (Millions of 
dollars; nominal) 
1993-2005  2006  2007 (1st half)  Total 
 
AGRICULTURE, 15.7  37.3  1.3  54.3 
HUNTING AND 
FORESTRY 
 
MINING AND  22,286.2  2,323.1  2,126.4   26,735.7 
QUARRYING 
 
mining of coal 39.8  0.0  0.0  39.8 
and lignite, 
extraction 
of peat 
 
extraction of  20,406.3  2,003.4  1886.3  24,296 
crude 
petroleum 
and natural 
gas 
 
mining of 146.5  162.4  83.7  392.6 
uranium and 
thorium ores 
 
mining of 884.6  149.1  156.2  1,189.9 
metal ores 
 
other mining 
and quarrying 50.9  8.3  0.1  55.5  114.8 
 
MANUFACTURING  5,066.4  644.4  326.1  6,036.9 
 
including but 
not limited 
manufacture of 
food products, 644.7  51.9  19.8  716.4 
beverage and 
tobacco products 
 
manufacture of 
coke, refined 
petroleum 
products 508.2 -15.8 -192.8 299.6 
and nuclear 
fuel 
 
manufacture of 139.8  17.9  7.9  165.6 
chemicals 
and chemical 
products 
 
manufacture of 32.9   7.9  12.3  53.1 
rubber and 
plastics 
products 
 
manufacture of 85.9  26.2  13  125.1 
 
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other 
non-metallic 
mineral products 
 
manufacture 3,068.7   423.9  385.8  3,878.4 
of basic metals: 
manufactures 405.7  1.4  1.6  408.7 
of ferrous 
metals 
 
manufacture of 2,649.3  419  381  3,449.3 
basic precious 
and non-ferrous 
metals 
 
manufacture of 13.9  3.4  3.3  20.6 
fabricated 
metal products 
except 
machinery 
and equipment 
 
manufacture 21.4  4.2  0.1  25.7 
of machinery 
and equipment 
 
manufacture 431.1  39.7  20.4  491.2 
of electric 
and computing 
machinery 
 
manufacture of 11.8  72.4  53.9  138.1 
transport 
equipment 
 
manufacture, 5.0  0.7  1.6  7.3 
n.e.c 
 
ELECTRICITY, 699.2  26.6  5.3  731.1 
GAS AND WATER 
SUPPLY 
 
CONSTRUCTION 416.1  378.4  243.8  1,038.3 
 
WHOLESALE AND 1,122.8 760.9  618.7  2,502.4 
RETAIL TRADE, 
REPAIR OF 
MOTOR VEHICLES, 
MOTORCYCLES 
AND PERSONAL AND 
HOUSEHOLD GOODS 
 
HOTELS AND 115.3  10.2  43.5  169 
RESTAURANTS 
 
TRANSPORT690.6  301.3  48.5  1,040.4 
STORAGE AND 
COMMUNICATION 
land transport 378.8  23.6  20.6  423 
 
including 
transport 
via pipelines 360.3  19.4  20.6  400.3 
 
water -12.2  4.1  0.6  -7.5 
transport 
 
air transport 24.9  3.2  1.1  29.2 
 
supporting 152.3  187.4  29.5  369.2 
transport 
activities 
 
post and 146.8  83  -3.2  226.6 
telecommunication 
 
including 145  81.1  -4.0  222.1 
telecommunication 
 
FINANCIAL 494.2  375  201.6  1070.8 
ACTIVITY 
 
REAL ESTATE, 9,223.3   5,610.1  3,271  18104.4 
RENTING 
AND BUSINESS 
ACTIVITIES 
 
Including 
 
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but not limited 
real estate 
activities 105.1 29.1 30.6 164.8 
 
legal, 
accounting, book- 
keeping and 
auditing                   143.2 -22.5 49.6  170.3 
activities, 
tax consultancy, 
market research, 
business and 
management 
consultancy 
geological  8,739.5 5,487.5 3,167.6 17,394.6 
exploration and 
prospecting 
activities 
 
EDUCATION, 295.3  99.5  47.5  442.3 
HEALTH AND 
SOCIAL WORK 
 
ACTIVITIES, 360.8  0.0  0.0  360.8 
N.E.C. 
 
TOTAL      40, 785.5  10,566.7 6,933.9   58 286.1 
Source: National Bank of Kazakhstan 
 
FDI as a Percentage of GDP 
2005   2006  2007(1st half) 
11.58% 13.05% 15.5% 
Source: National Bank of Kazakhstan 
 
Kazakhstani Direct Investment Outflows 
Millions of US dollars, nominal 
Country of 
Destination 2004-2005 2006 2007(1st half) Total 
Austria   0.4     0.3       0.1    0.8 
Azerbaijan 0.0    3.2       3.4     6.6 
Armenia 2.8     0.7       0.0   3.5 
Afghanistan 0.1  -0.1  0.0   0.0 
Byelorussia 3.4  1.5  0.1   5.1 
Bulgaria   0.0  0.0  0.7   0.7 
Dominican Republic 0.0 10.0 0.0   10.0 
France   0.0  0.0  3.0  3.0 
Great Britain 15.5  -3.7  82.1   93.9 
Virgin Islands 43.225.4  78.9   147.5 
Germany 217.3  0.2  10.4  227.9 
Georgia 1.9  66.0  9.2   77.1 
Hong Kong 0.0  0.0  60.0   60.0 
Israel  0.0  0.4  0.0   0.4 
India  0.0 0.1  0.1   0.2 
Iran  0.0  0.0  0.3   0.3 
Italy  0.1  0.0  0.0   0.1 
Canada  5.8  37.3  0.0   43.1 
Cayman Islands 0.0 0.5  0.0  0.5 
Cyprus 0.0  0.8  88.8   89.6 
China  6.0  7.1  34.5   47.6 
Kyrgyzstan 57.4  102.8  55.4   215.6 
Latvia  1.9  0.0  0.3   2.2 
Lithuania 0.0  -5.0  0.0   -5.0 
Luxemburg 0.0  9.5  1.7   11.2 
Malaysia  0.0  0.8  0.7  1.5 
Marshall Islands 0.0 0.0  96.0  96.0 
Isle of Man   6.6  0.0  0.0  6.6 
Mongolia 0.1  0.0  0.0   0.1 
Netherlands 17.5  639.4 17.6  674.5 
Nigeria 0.0  0.0  0.1   0.1 
Arab Emirates 0.0 1.4  37.7   39.1 
Russian Federation 127.2  183.3  198.1  508.6 
Seychelles 28.3  0.0  0.0   28.3 
Singapore 0.0  2.4  61.7   64.1 
South Korea 0.0  0.0  1.1     1.1 
Spain 0.0  0.0  1.0      1.0 
USA 8.1   3.2  0.4   11.7 
Tajikistan 0.1  12.3  10.7    23.1 
Thailand 0.0  0.0  0.2      0.2 
Turkey 41.2 3.9  318.3  363.4 
Uzbekistan 8.0  86.0  14.3   108.3 
Ukraine 10.1  2.0  8.7   20.8 
Check Republic -4.00.2  2.0   -1.8 
Switzerland 127.1 77.1  157.5   361.7 
Estonia 0.0  0.0  0.0   0.0 
Other 
Countries 6.5  4.0  0.7   11.2 
TOTAL  732.6  1,273.0  1,356   3,361.6 
Source: National Bank of Kazakhstan 
 
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Investments as of 2007 
---------------------- 
The oil and gas sector accounts for approximately 71.5% of the $58.3 
billion that has been invested in Kazakhstan, with U.S. firms 
consistently ranking as the largest foreign investors. U.S. firms 
with noteworthy investment in Kazakhstan's petroleum sector include: 
Chevron, ExxonMobil, and ConocoPhillips. Other major foreign 
investors in this sector include: LucArco, Agip, Shell, Inpex, Eni, 
Total, British Gas, Lukoil, Mitsubishi and the Chinese National 
Petroleum Corporation (CNPC). 
Other major US investments include: AES (over $200 million in power 
generation), Access Industries (coal mining), Philip Morris (over 
$320 million in tobacco processing), and General Electric 
Transportation (locomotive modernization facility). Non-petroleum 
foreign investors include Mittal and BAE Systems. 
 
ORDWAY