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Reference ID Created Released Classification Origin
09ASTANA112 2009-01-22 00:46 2011-08-30 01:44 UNCLASSIFIED Embassy Astana

DE RUEHTA #0112/01 0220046
O 220046Z JAN 09

E.O. 12958: N/A 
REF:  08 STATE 123907 
ASTANA 00000112  001.2 OF 019 
1.  Per reftel, below is Post's submission for the 2009 Investment 
Climate Statement for Kazakhstan. 
2009 Investment Climate Statement - Kazakhstan 
Openness to Foreign Investment 
Kazakhstan has made significant progress toward creating a market 
economy since its independence in 1991. The European Union in 2000 
and the U.S. Department of Commerce in March 2002 recognized the 
success of Kazakhstan's reforms by granting it market economy 
status.  Kazakhstan also has attracted significant foreign 
investment since independence.  By July 2008, foreign investors had 
invested a total of about $76.1 billion in Kazakhstan, primarily in 
the oil and gas sector during the country's fifteen years of 
independence.  Following independence, the government created a 
favorable regime for oil and gas investments at the same time that 
it undertook other liberalizing economic measures and began an 
ambitious privatization program. 
Despite continuously increasing investment into Kazakhstan's energy 
sector, concerns remain about a tendency on the part of the 
government to challenge contractual rights, to legislate preferences 
for domestic companies, and to create mechanisms for government 
intervention in foreign companies' operations, particularly 
procurement decisions.  Together with vague and contradictory legal 
provisions that are often arbitrarily and inconsistently enforced, 
these negative tendencies feed a perception that Kazakhstan is less 
than fully open to investment.  Four major pieces of existing 
legislation affect foreign investment. These are: 1) the 2003 law 
"On Investment"; 2)  the 2003 Customs Code;" 3) the 2007 law "On 
Government Procurement, with recent amendments made in 2008; and 4) 
the 2008 Tax Code . These four laws provide for non-expropriation; 
currency convertibility; guarantees of stability in the legal 
regime; transparent government procurement; and incentives in 
certain priority sectors.  However, inconsistent implementation of 
these laws and reforms at all levels of government remains the key 
obstacle to business in Kazakhstan. 
There has been a trend in favoring domestic investors over 
foreigners in most state contracts.  Furthermore, amendments passed 
in 1999 to the Oil and Gas Law require mining and oil companies to 
use local goods and services.  According to these "local content" 
regulations, subsurface users in Kazakhstan are obligated to 
purchase goods and services from Kazakhstan entities -- provided 
that the local goods meet minimum project standards -- and to give 
preference to the employment of local personnel.  Prospective 
subsurface users are required to specify in their tenders the 
anticipated local content of their work, goods, and services.  Since 
2002, a designated government body must approve all tender 
documents, participate in tender committees, and approve all tender 
committee decisions, in order to ensure compliance.  In December 
2008, a new Subsurface Law was approved by parliament, superseding 
legislation on oil production and exploration, mineral resources 
mineral management, and production sharing agreements (PSAs).  The 
Law, expected to be signed by the President in January 2009, allows 
the government to annul contracts in the extractive sector if they 
are deemed to be harmful to Kazakhstan's economic security or 
national interests.  The legislation also requires separate 
contracts for exploration and production operations, puts shorter 
time limits on exploration contracts, enhances the government's 
authority to terminate contracts not in compliance with the law, and 
requires tax stability clauses in individual contracts to be 
approved by parliament.  In addition, under the terms of the 
legislation, no future contracts would be structured as production 
sharing agreements (PSAs), companies are required to establish equal 
terms, conditions, and pay for Kazakhstani and foreign workers, and 
the government would evaluate subsoil resource bids based on 
ASTANA 00000112  002.2 OF 019 
promised social contributions. 
Tax experts consider Kazakhstan's tax laws to be among the most 
comprehensive in the former Soviet Union.  In January 2009, 
Kazakhstan adopted a new Tax Code that will increase tax revenues 
from the extractive industries.  The new Tax Code will l
corporate income taxes, the crude oil rent tax, and the value added 
tax, while introducing new taxes for mineral extraction and excess 
profits.  Business associations and investment advisors are 
concerned that the new code may undermine tax stability clauses in 
existing and future contracts.  The government has said it will 
guarantee tax stability only for existing production sharing 
agreements (PSAs) and for one major hydrocarbon project which has a 
tax and royalty contract, if the contracts are ratified by 
legislative acts of the Kazakhstani parliament. 
The new Tax Code applies taxes universally and allows only a limited 
set of exemptions.  The code applies an international model of 
taxation, based on the principles of equity, economic neutrality, 
and simplicity.  According to many experts, this code is an 
improvement over its predecessor and a step forward in establishing 
a transparent and effective tax system, particularly for the 
non-extractive sectors. 
Starting January 1, 2009 the corporate income tax rate will be 
decreased from 30% to 20%. The rate will then be lowered to 17.5% in 
2010, and 15% in 2011.  The value-added tax (VAT) will continue to 
be reduced every year as well. In 2006, the VAT was 16%, in 2007 - 
14%, in 2008 - 13%, and in 2009 the VAT will be 12%.  The 
progressive social tax imposed on employees' earnings will have a 
flat rate of 11%. The personal income tax rate for residents will be 
10%.  Depending on the specific type of income, non-residents 
working in Kazakhstan are responsible for payment of income tax 
rates that range between 5% and 15%. 
In 2008, Kazakhstan introduced, adjusted, and ultimately abandoned 
an export duty on crude oil and oil products.  On April 8, Prime 
Minister Karim Masimov signed a decree establishing the duty.  Each 
quarter thereafter, the Ministry of Finance reviewed the export duty 
rate in light of average Brent crude prices and adjusted the amount 
of the tariff according to a published formula.  On December 29, 
however, the Government announced that it would abolish the export 
duty as of January 26, 2009. 
In addition to concerns about tax stability, contract sanctity, and 
tender transparency, companies in the oil and gas industry have 
reported difficulty doing business for a number of other reasons, 
including delays in obtaining work permits for expatriate employees, 
alleged environmental violations followed by large fines, 
inconsistent enforcement of a Kazakh language law, and unexpected 
customs delays and documentation.  In January 2003 President 
Nazarbayev signed a new law "On Investments" that superseded and 
consolidated past legislation governing foreign investment.  The law 
establishes a single investment regime for domestic and foreign 
investors, and provides, inter alia, guarantees of national 
treatment and non-discrimination for foreign investors.  It 
guarantees the stability of existing contracts, with the 
qualification that new ones will be subject to amendments in 
domestic legislation, certain provisions of international treaties, 
and domestic laws dealing with "national and ecological security, 
health and ethics." 
The 2003 law provides for dispute settlement through negotiation, 
Kazakhstan's judicial process, and international arbitration. 
However, the law narrows the definition of investment disputes and 
lacks clear mechanisms for access to international arbitration. U.S. 
investors should note that the U.S.-Kazakhstan Bilateral Investment 
Treaty, as well as the New York Convention, protect U.S. investor 
access to international arbitration.  Additionally, the Kazakhstani 
Constitution, as well as the 2003 law "On Investments," specifies 
that ratified international agreements have precedence over domestic 
law.  The May 2005 Law on International Agreements appeared to 
contradict this legal hierarchy, setting precedence of the domestic 
law of Kazakhstan over its international agreements   However, 
Kazakhstan amended this law in February 2007, eliminating this 
ASTANA 00000112  003.2 OF 019 
contradiction.  Finally, in December 2004 Kazakhstan adopted a law 
"On International Commercial Arbitration" (see "Dispute Settlement" 
for full discussion). 
The 2003 law currently contains investment incentives and 
preferences based on government-determined sectoral priorities, and 
provides for investment tax preferences, customs duties exemptions, 
and in-kind grants. 
According to provisions of the new Tax Code, investment tax 
preferences such as ten-year corporate income tax exemptions and 
exemptions from land and corporate property taxes will likely be 
removed from the investment law via amendments expected in 2009. 
However, preferences for some sectors in the form of custom duties 
exemptions and in-kind grants will remain.    (Customs duties 
exemptions are limited to equipment that is destined for use in 
production processes exclusively in Kazakhstan, and to  imported 
equipment/components if Kazakhstani-produced stocks are not 
available or do not meet international standards.) 
In 2001, Kazakhstan adopted transfer-pricing legislation, which 
gives tax and customs officials the authority to monitor 
export-import transactions in order to prevent the understatement of 
earnings through manipulation of export prices.  Foreign investors 
are concerned that the government specifically rejected the use of 
OECD standards for determining a proper market price under the 
transfer-pricing legislation, creating instead a methodology that 
fails to fully account for all cost and quality differences.  The 
government in effect holds that transfer-pricing can take place even 
in transactions between unrelated parties, because the practice, 
until recently, was defined by transaction prices that differ from 
market prices by a deviation of 10%.  Kazakhstan's deviation from 
international methodology on this complicates the ability of firms 
to obtain relief under treaties on avoidance of double taxation from 
their home countries.  This remains a contentious issue with 
The new law on transfer pricing adopted in July 2008 will in the 
opinion of its authors allow for improved control of transfer 
pricing by applying the commonly accepted "arm's length principle." 
 This law is expected to come into force on January 1, 2009. 
Foreign investors admit that the new law is more closely aligned 
with international standards.  However, there is concern that the 
law may be applied not only to transactions with related parties, 
but also to all international transactions, and may present a major 
challenge in 2009.  Driven by suspected government mandates to 
generate revenues, it is suspected that tax authorities may apply 
provisions of transfer pricing rules to all international 
transactions of foreign enterprises. 
Kazakhstani law holds that no sectors of the economy are fully 
closed to investors, although there are sectoral limitations, 
specifically a 20% ceiling on foreign ownership of media outlets and 
49% restriction on foreign ownership in the telecommunications 
sector.  However, a December 2005 law lifted the restrictions on the 
participation of foreign capital in the banking sector. A ban on 
foreign bank and insurance company bran
ches remains in force. 
Finally, the 2005 Production Sharing Agreement law mandates that the 
state oil company be a minimum 50% participant in new offshore 
projects. In practice, investors may find that a joint venture with 
a well-connected local partner is advantageous in navigating the 
legal and political complexities of operating in Kazakhstan 
Insurance supervision and licensing powers are exercised by the 
Financial Supervision Agency. February 2006 amendments to the Law on 
Insurance have eliminated participation restrictions for foreign 
legal entities in insurance and re-insurance organizations in 
Restrictions also exist on foreign ownership of land in Kazakhstan. 
See below (A.6 "Right to Private Ownership and Establishment"). 
The government plays a large role in overseeing foreign investment. 
Government officials, sometimes at the highest levels, screen major 
foreign investment proposals. 
The new Subsoil Law reiterates the state's right of first refusal on 
the purchase of shares in new exploration and production projects in 
the extractive industries.  In 2005, the Kazakhstani government 
broadened its claim of priority purchase rights to include shares of 
companies that have invested in the oil and gas sector. The same 
amendments allow the government to block the sale of oil and gas 
assets in the interest of "national security." Additional amendments 
ASTANA 00000112  004.4 OF 019 
to the Subsoil Law signed in December 2008 also assign the 
government the right to exclude companies from participating in oil 
and gas investment program tenders in the interests of "national 
Foreign firms operating in Kazakhstan frequently report harassment 
by the Financial Police via unannounced inspections and other 
methods.   One company reported a request from the Financial Police 
for confidential information on employees, with no apparent 
connection to an ongoing investigation. 
It is important to note that in practice the application of tax laws 
has been uneven, and in some cases blatantly unfair. This has been 
particularly true in cases where a company is involved in another, 
unrelated dispute with the authorities. Foreign investors have 
complained of a lack of evenhandedness in the authorities' 
application of other laws or regulations as well. In some cases, the 
investors have interpreted regulatory pressure as an effort to 
extract bribes. 
Investors should not assume that agreeing to a settlement with tax 
authorities following an investigation or civil case will prevent 
the pursuit of charges under criminal provisions.  At times the 
authorities have used criminal charges in civil disputes as a 
pressure tactic. 
By law and in practice, foreign investors are allowed to participate 
in all privatization projects. There appears to be no discrimination 
against foreign investors after an investment is made.  However, 
many foreign companies cite the need to protect their investments 
from a near-constant barrage of decrees and legislative changes, 
most of which do not "grandfather" existing investments.  In 
addition to arbitrary tax inspections, foreign investors also 
complain of problems with closure on contracts, delays and irregular 
practices in licensing, land fees, etc.  Some foreign firms have 
expressed concern that government organizations fail to live up to 
their side of the contract, particularly regarding payment. This 
often prevents the foreign partner from moving ahead with its 
investment program.  When this occurs, the investor is exposed to 
government charges of non-performance and the real possibility that 
the government will cancel the contract. 
Foreign workers are required to have a work permit to work legally 
in Kazakhstan. Obtaining these work permits can be difficult and 
expensive. The government cites the need to boost local employment 
by limiting the issuance of work permits to foreigners. U.S. 
companies should consult legal firms for assistance (see A.5 for 
details) in obtaining work permits.  The work permits quota system 
is based on the 1998 Law on Employment  of the Population.  Under 
this system, the government limits the number of work permits 
available to foreigners, based on the area of specialization and 
geographic region. 
In December 2007, Kazakhstan adopted new regulations on foreign 
labor that the Ministry of Labor and Social Protection claims 
simplify the issuance of work permits to foreigners,  They do, 
however, also place additional requirements on employers to support 
the domestic labor market.  According to the new regulations, 
permits for foreign labor are issued only in the event that suitable 
candidates cannot be found in country, which is subject to 
verification and assessment by Kazakhstani labor authorities.  Those 
foreign employers that do receive permits for foreign laborers are 
expected to meet specific terms of agreement that include the 
training of Kazakhstani citizens to eventually fill positions held 
by foreigners, the gradual overall replacement of foreign labor with 
Kazakhstani citizens, and the creation of new jobs for domestic 
workers in the event that production volumes increase.  The scale of 
these individualized terms is directly proportional to the number of 
foreign workers hired.  Kazakhstani labor authorities are expected 
to complete their review of work permit applications for foreigners 
within 20 days.  If awarded, employers must provide authorities with 
documents within 10 days, guaranteeing the prompt departure of 
foreigners after the expiration of their permits.  From 2003 -2008, 
the quota has steadily increased from 0.14% to 1.6%.  However, 
because of the current economic crisis conditions, the government 
has reduced the quota for foreign labor by half; in 2009 it will be 
only 0.75% of the active labor force. 
Conversion and Transfer Policies 
There are minimal restrictions on converting or transferring funds 
associated with an investment into a freely usable currency at a 
ASTANA 00000112  005.2 OF 019 
legal market-clearing rate. 
In 1996, Kazakhstan adopted Article 8 of the IMF Articles of 
Agreement, which stipulates that current account transactions, such 
as currency conversions or the repatriation of investment profits, 
will not be restricted. In 1999, the Government and National Bank of 
Kazakhstan announced that the national currency would be allowed to 
float freely at market rates, thus abolishing the previous managed 
exchange rate system. 
No distinction is made between residents and non-residents when 
opening bank accounts. There are no restrictions whereby different 
types of bank accounts are required for investment or import/export 
activities. For non-residents, money transfers in currency 
associated with foreign investments, whether inside or outside of 
the country, can take place without restriction. The National Bank 
permits non-residents to pay wages in foreign currency. Foreign 
investors may convert and repatriate tenge earnings made inside 
In June 2005 the President signed the Law on Currency Regulation and 
Currency Control. This law lifted restrictions on money transfers: 
both residents and non-residents are allowed to take up to $10,000 
in cash out of the cou
ntry without documentation of the money's 
origin.  However, the transfer of cash amounts exceeding $3,000 must 
be declared; the transfer of amounts exceeding $10,000 must be 
accompanied by the certification of the National Bank.  Beginnning 
January 1, 2007 all licensing requirements and procedures for 
foreign currency operations were elimiated.  Since that time, 
agencies conducting transactions with foreign currency, including 
bank payments and transfers relating to capital movements, either 
have to simply register or notify the central bank of their 
The National Bank requires an "Import [or] export transaction 
passport," ostensibly for the purpose of currency control. The 
document, which re-states information from other documents, 
complicates import and export processing. There is a real question 
whether the law is effective for its stated purpose - to ensure that 
the proceeds from export sales are returned to Kazakhstan, and to 
prevent money laundering and fraudulent over-invoicing of imports. 
In 2008, the National Bank announced impending amendments to the Law 
on Currency Control that would further liberalize currency controls, 
including an increase on the ceiling for transactions requiring 
passports from $10,000 to $50,000. 
In July 2006, Kazakhstan adopted an amendment to its Customs Code, 
requiring submission of export declaration forms of country of 
origin for bringing goods into Kazakhstan.  This resulted in an 
unintentional virtual shutdown for imports from many countries, 
particularly from the United States.  The July amendment was 
repealed in November, ending the problem. 
The U.S. Embassy is not aware of any concerns with regard to 
remittance policies or availability of foreign exchange for 
remittance of profits. 
In 2001, the government announced an amnesty for all Kazakhstani 
citizens repatriating cash or transferring money during a 30-day 
period. The legalized money was not taxed and became available to 
its owners at the end of the amnesty period. Kazakhstanis 
repatriated $480 million under this amnesty, of which almost 90% was 
brought to banks in the form of cash.   Another amnesty, which 
concluded on August 1, 2007, resulted in legalization of nearly $7 
billion in property. 
Based on rules adopted in late 2005 relating to the control of 
currency turnover and capital flows, the National Bank regularly 
monitors currency operations of selected non-residents. This 
procedure primarily affects the following sectors: the oil and gas 
industry, construction, mining, as well as companies providing 
architectural, engineering and industrial design services. According 
to the National Bank, this monitoring will furnish the National Bank 
with better statistical data on the balance of payments and external 
Expropriation and Compensation 
The Investment Law of 2003 represents a step back from the clarity 
of the 1994 law with regard to expropriation and compensation. The 
2003 law allows nationalization by the state in cases "as provided 
in legislative acts of the Republic of Kazakhstan." Unlike the 1994 
law, it does not provide clear grounds for expropriation. 
Similarly, the 1994 law required "prompt, adequate and effective" 
ASTANA 00000112  006.2 OF 019 
compensation at fair market value, with interest. The new law 
differentiates between nationalization and requisition, providing 
full indemnification of the investor in the case of the former, but 
only payment of market value in the case of the latter. Bilateral 
investment treaties (BITs) between Kazakhstan and other countries, 
including the U.S., also refer to compensation in the event of 
There has been one case of legal expropriation of a foreign 
investor's property for public purpose. The investor ultimately 
submitted the case for international arbitration. In May 2006, after 
lengthy delays and negotiations, the government paid the amount 
awarded by the arbiter. 
Some foreign investors have encountered serious problems short of 
expropriation. In one instance, in 1996, three foreign companies 
were forced to relocate their offices under pressure from the 
government. In 1997, investors, after reviving an important mine, 
found they could not obtain export licenses for their ore, although 
the right to export was written into their contract. The same year 
another investor alleged forgery and fraud by government officials, 
claiming its employees had been physically threatened in a 
management dispute at its ferro-alloy venture in northern 
The Embassy is aware of one case, in 1992, of government action 
tantamount to expropriation, when a U.S. company was deprived of its 
rights to explore and develop an oil deposit in Atyrau Oblast. In 
1999, the Stockholm Arbitral Court found that the government's 
action was tantamount to expropriation. After the U.S. Embassy 
raised the case with the government, it paid in full the amount of 
compensation called for in the arbitral award. 
Dispute Settlement 
There have been a number of investment disputes involving foreign 
companies in the past several years. While the disputes have arisen 
from unrelated, independent circumstances, many are linked to 
alleged breaches of contract or non-payment on the part of 
Kazakhstani state entities. Some disputes relate to differing 
interpretations of joint-venture agreement and production sharing 
agreement (PSA) contracts; one questions the legality of the 
government's use of ex-post facto regulations governing value added 
taxes.  The disputes involve, in some instances, hundreds of 
millions of dollars.   A recurring theme remains the 
unpredictability of actions taken by tax authorities and other 
regulatory agencies. Kazakhstan is still in the process of building 
the institutional capabilities of its court system. Until this is 
complete, the performance of courts in the country will be less than 
optimal. Problems also arise in enforcing judgments. Given a 
relative lack of judicial independence, there is ample opportunity 
for interference in judicial cases. 
General commercial law principles are established in Kazakhstan's 
Civil Code. 
The 2003 law "On Investments" defines an investment dispute as "a 
dispute ensuing from the contractual obligations between investors 
and state bodies in connection with investment activities of the 
investor." It states that such disputes can be settled by 
negotiation, in Kazakhstani courts, or through international 
arbitration. According to the law, disputes not falling within the 
above-noted category "shall be resolved in accordance with the laws 
of the Republic of Kazakhstan." While some investors find this 
legislation problematic since it does not address disputes between 
private entities, others believe that Kazakhstan's Civil Code and 
Civil Procedure Code provide private parties with recourse to 
foreign and/or third party courts. 
Additionally, in December 2004, Kazakhstan adopted a law on 
international arbitration. The law appears to give broad authority 
for judicial review of arbitral awards in Kazakhstan. An early test 
case yielded decidedly mixed results. In 2005, a U.S. company became 
embroiled in a dispute over payment for the sale of its shares in a 
joint venture to a grou
p of Kazakhstani companies. The London Court 
of International Arbitration (LCIA) issued a preliminary ruling 
ordering that the shares be frozen pending its final decision. The 
acting Kazakhstani court, however, ignored the LCIA's ruling, and 
proceeded with its own hearings. The case was ultimately decided by 
the Supreme Court of Kazakhstan in the U.S. company's favor. In 
January 2006, however, the Astana City Court relied on an 
international convention loophole to decline the LCIA's award of 
ASTANA 00000112  007.2 OF 019 
legal costs to the U.S. firm on the grounds that doing so would be 
detrimental to "public order" in Kazakhstan. In May 2006, that 
decision was overturned, and the legal costs were awarded. 
Kazakhstan has been a member of the International Center for the 
Settlement of Investment Disputes (ICSID) since December 2001. 
Any international arbitral award rendered by the International 
Center for the Settlement of Investment Disputes (ICSID), any 
tribunal applying the United Nations Commission on International 
Trade Law Arbitration rules, the Stockholm Chamber of Commerce, the 
London Court of International Arbitration, or the Arbitration 
Commission at the Kazakhstan Chamber of Commerce and Industry 
should, by law, be enforced in Kazakhstan 
The U.S.-Kazakhstan Bilateral Investment Treaty can serve to 
buttress the law "On Investment" in this area. Kazakhstan ratified 
the New York Convention on the Recognition and Enforcement of 
Foreign Arbitral Awards in 1995. 
Creditor rights are set forth clearly under the current law on 
bankruptcy. However, the 1997 bankruptcy legislation is hindered by 
its complexity and numerous subsequent amendments, resulting in 
considerable misapplication in practice. The Committee on Work with 
Insolvent Debtors, operating under the umbrella of the Ministry of 
Finance, is Kazakhstan's official bankruptcy agency. 
The Law "On Bankruptcy" approved in 1997 was amended in May 2007, 
and again in July 2008.  It contains a detailed list of creditors' 
rights and prescribes a mechanism for their enforcement.  The 2008 
amendments define a comprehensive list of Governmental authorities 
in bankruptcy procedures, and expand the rights of enterprises 
during possible rehabilitation procedures. 
Monetary judgments are normally made in domestic currency. 
In general, the Government of Kazakhstan has a mixed record of 
addressing investment disputes. Foreign investors have often had to 
endure protracted negotiations. Most investors prefer to handle 
investment disputes privately, rather than make their cases public. 
In addition, the law "On Investments" restricts recourse to 
international arbitration and places more reliance on the 
Kazakhstani judicial system for dispute resolution. The U.S. Embassy 
advocates on behalf of U.S. firms with investment disputes. 
Performance Requirements and Incentives 
The Investment Committee under the Ministry of Industry and Trade is 
responsible for monitoring the fulfillment of obligations undertaken 
by investors. If the committee determines that a company has not 
complied with its financial or other contractual obligations, the 
government may revoke the operating license of the company. 
With the exception of investments in oil production or mining, rules 
on local content and local sources of financing vary from contract 
to contract.  Typically, an investor's obligations might include an 
obligation to train local specialists and contribute to the social 
development of the respective regions. 
Technology transfers frequently occur and sometimes are written into 
contracts, but are not explicitly required for foreign investment. 
The Investment Law of 2003 provides tax preferences, customs duties 
exemptions, and in-kind grants as incentives for investment in 
government-determined priority sectors. To obtain the preferences, 
the investor enters into a contract with the Investment Committee. 
Under the law, the government may rescind such incentives, and 
collect back payments on duties, etc. including fines, if the 
investor fails to fulfill contractual obligations. The early 2006 
amendments to the Investment Law eased compliance and audit 
requirements for firms wishing to qualify for the preferences. The 
law provides the same preferences for domestic and foreign 
investors.  Preferences are, however, determined on a case-by-case 
basis. The Ministry of Industry and Trade reported that for the last 
years it signed 400 contracts for a total of about $7-8 billion, in 
which such preferences were extended.   Roughly a quarter of these 
investments had foreign involvement. 
The preferences system echoes the government's policy of 
diversifying the economy away from the extractive sector and largely 
focuses on selected clusters. The overall list contains 245 types of 
activities grouped into 36 categories. The system applies to new 
enterprises as well as to existing enterprises making new 
investments; the duration of the tax preferences increases with the 
size of such investments. The government is, however, expected to 
amend the Investment Law in 2009, thereby removing most of the 
ASTANA 00000112  008.2 OF 019 
previously enumerated preferences in an attempt to increase 
transparency and promote more uniform application of tax codes. 
In 2006-2007, the government created four large state-owned holding 
companies; Samruk, Kazyna,, KazAgro, and Samgau.  The Samruk State 
Holding Company, modeled on Singapore's Temasek, manages the state's 
shares in a growing number of large enterprises. The Kazyna 
Sustainable Development Fund oversees the government's development 
institutions aiming to stimulate the country's non-extractive sector 
and diversify the economy.  KazAgro manages the state's agricultural 
holdings.  Samgau, the newest holding, is charged with stimulating 
the development of domestic know-how in the high-tech sector.  In 
2007, the government announced formation of Social Entrepreneurial 
Corporations (SECs).  Charged with managing regional government's 
holdings, SECs are meant to serve as a link between business and 
regional governments.  Most recently, in October 2008, the 
Kazakhstani government announced as part of its program to deal with 
the effects of the global financial crisis the merger of Samruk and 
Kazyna, as well as the regional SECs, into the Samruk-Kazyna 
National Welfare Fund. 
There are no known cases in which U.S. or other foreign firms have 
been denied participation in government-financed or subsidized 
research and development programs on a national basis. The 
Kazakhstani government has recently taken a strong interest in 
dedicating state resources to the support of research and 
development. How such projects will be administered in practice 
remains to be seen. 
The government has liberalized its trade policies and has passed 
legislation to begin bringing its legal and trade regimes into 
conformity with World Trade Organization (WTO) standards. Kazakhstan 
submitted its Memorandum on the Foreign Trade Regime (MFTR) in 1996 
and the first round of consultations on WTO accession took place in 
1997. Kazakhstan has made significant progress in implementing a 
legal framework necessary for accession and
signed bilateral 
protocols on market access for goods and services with several of 
its major trading partners.  As of January 1, 2009   Kazakhstan had 
completed bilateral negotiations with 21 countries out of 26 members 
of the Working Party.  Kazakhstan is also a member of the Eurasian 
Economic Community (EEC), along with Russia, Kyrgyzstan, Belarus, 
Tajikistan, and Uzbekistan.  Armenia, Moldova and Ukraine currently 
have observer status. In 2006, Kazakhstan, Russia, and Belarus 
announced the formation of a trilateral customs union. There are 
plans to eventually expand it to include other EEC countries. The 
union aims to bring about coordinated customs procedures and a high 
degree of uniformity in its members' external tariffs.  The 
government's working assumption appears to be that the country will 
enter the WTO before the customs union will enter into force, 
However, the global financial crisis has increased the political 
appeal of regional integration in some governmental circles. 
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 used for national defense and national security purposes; 
-- specially protected natural territories, resorts, recreational 
land and territories of a historical and/or cultural significance; 
ASTANA 00000112  009.2 OF 019 
-- 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 grew 
dramatically in recent years, though decelerated in 2007-2008 
because of the global financial crisis.  A credit bureau system does 
exist, but is in very early stages of development. The Ministry of 
Finance 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 QQQ[8,uBO 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 
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 
ASTANA 00000112  010.2 OF 019 
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 
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 349, and introduced a mechanism to help prevent the extension of 
this list by other legal acts.  On a whole, as estimated by experts, 
licensing for the period 2004-2007 was reduced three-fold, while 
licensing in agriculture, education and health care has been 
decentralized.  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. 
The National Bank has demonstrated a willingness to pursue monetary 
ASTANA 00000112  011.2 OF 019 
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 from 
2001-2007 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.  The global financial crisis 
has dramatically reduced capital inflows forcing the National Bank 
to slightly adjust its monetary policy.  In 2008, the refinancing 
rate was reduced from 11% to 10% and reserve requirements for 
second-tier banks were softened.  As of December 31, 2008, the net 
gold and hard currency reserves of the National Bank stood at $19.4 
billion; the total gold and hard currency reserves of Kazakhstan, 
including National Bank reserves and reserves accumulated in the 
National (Oil) Fund, reached $46.7 billion, marking 21% growth 
during 2008.  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 forty-fold, from less than $300 million in 
November 1999 to $12.27 billion in November 2008. 
To better support the banking sector during the global economic 
crisis, the Government has increased the maximum limit for deposit 
insurance seven-fold from 700,000 tenge (just under $6,000) to 5 
million tenge (about $42,000). 
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 
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 s
udden 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.  Continued world-wide financial 
turmoil, marked by falling commodity prices and increasing 
unemployment have exacerbated the situation of Kazakhstan's largest 
banks.  In October 2008, the Kazakhstani government announced 
stabilization plans that include the purchase of 25% ownership 
stakes of Kazakhstan's four largest private banks, thereby injecting 
an anticipated additional $4 billion in to the banking system. 
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. 
During the first ten months of 2008 the stock exchange demonstrated 
an intense interest in debt securities of high quality, with the 
number of transactions involving corporate bonds increasing 2.5 
fold.  By the end of 2008, the yield index for corporate bonds was 
12.3%.  Kazakhstan's pension system reform has boosted the bond 
market by creating a pool of capital. The market for fixed-income 
ASTANA 00000112  012.2 OF 019 
securities has grown from $74,000 in September 1999 to over $12.5 
billion in December 2008. 
In 2008, the yield rate on middle-term government notes was 8.94% at 
maximum. Longer-term government notes (with maturities up to 10 
years) were offered at 9.27%. 
The Kazakhstani Stock Exchange (KSE) has been in operation since 
1997. In 2008, the floors of the Kazakhstani Stock Exchange and 
Almaty Regional Financial Center (AFC) were merged and new listing 
rules were introduced. As of December 2008, KSE and AFC had 101 
registered members, of which 52 are listed as category "A"  fully 
operational financial institutions. 
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, 2008, the total capitalization of the KSE was 
$58.87 billion, or 46.8% of GDP. This negative trend of declining 
value has continued since the mid- 2007, and 2008 was marked by a 
decrease in the  capitalization of the stock exchange in both the 
absolute value of total capitalization and capitalization relative 
to GDP . 
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 
financial markets. 
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 
In 1998, the government introduced an accumulative pension system 
that requires all employed persons to contribute 10% of their salary 
to the pension funds. As of November 2008, the 14 funds (13 private 
and one state-owned) operating in Kazakhstan held approximately 
$11.5 billion in pension savings.  Custodian banks hold pension 
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. As of 2008, pension assets must still be invested in 
specific categories of securities, including corporate and 
government bonds and securities issued by foreign governments. 
Pension funds overall did not fare well in 2008 because of global 
losses and risky investment policies.  For the period of 
January-November 2008, eight major pension funds had total losses 
amounting to $99.3 million.  The government planned 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. Amendments made to pension fund legislation in 
November 2008 guarantee the preservation of pension savings, and 
grant individual investors the right to choose either a 
conservative, moderate, or aggressive type of individual investment 
portfolio.  In November 2008, the government also announced plans to 
use accumulated pension funds in housing and infrastructure projects 
as part of its financial stabilization package, 
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 
ASTANA 00000112  013.2 OF 019 
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, 2008, total assets of the mutual 
investment funds amounted to $2.38 billion, representing a 105% 
increase when compared to October
 2007 figures.  Investment in 
equity of legal entities and Kazakhstani corporate securities remain 
a significant share of the consolidated mutual fund investment 
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 
-- 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 
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 
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, 
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 
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 
elections are scheduled to take place in 2012. 
The February 2006 murders of a prominent opposition politician and 
ASTANA 00000112  014.2 OF 019 
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. 
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 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 criminal case against  the second defendant is ongoing. 
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 thirty-nine 
countries. In 2008, Kazakhstan signed, but has not yet ratified 
treaties with five countries, including Malaysia, Armenia, 
Luxembourg, Arab Emirates, and Japan.   Kazakhstan has bilateral 
investment agreements in force with thirty-eight countries, 
including the United States, Great Britain, Germany, France, 
Austria, Russia, Korea, Iran, China, and Turkey. In 2009, the 
Kazakhstani Parliament is expected to ratify investment agreements 
with Qatar, the Eurasian Economic Community, Armenia, and the Slovak 
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). 
The 1999 Labor Law and the Constitution guarantee basic workers' 
rights, including the right to organize and the right to strike. 
Teachers, miners and workers at a variety of enterprises have 
conducted occasional strikes for generally short periods during the 
 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 
ASTANA 00000112  015.4 OF 019 
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 a growing 
number of instances in which  unions have successfully negotiating 
collective bargaining agreements with management.   Following a 
widely publicized mining tragedy and subsequent strike in January 
2008, the government launched a pro-union campaign called "Sign a 
Collective Bargain" intended to empower workers to more effectively 
protect their rights as members of the workforce.  This marked a 
significant change in policy in which independent unions and 
collective bargaining groups are "no longer seen as the enemy" 
according to a prominent independent labor union organizer. 
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 
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 17 ILO conventions including those pertaining to minimum 
employment age, forced labor, discrimination in employment, equal 
remuneration, and collective bargaining, and the worse forms of 
child labor. 
In 2008, the minimum subsistence wage is still only $102.8 per 
month, with 13.5% of the population receiving income below that 
level.  Starting January 1, 2009, the minimum pension will be $82.10 
per month.  By government estimates, in the 3rd quarter of 2008, 
unemployment was 6.4%. 
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 
ASTANA 00000112  016.2 OF 019 
Cotton Center in south Kazakhstan.. In the second half of 2006, the 
government took steps toward 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 
Annual Gross Foreign Direct Investment Flows by Country of Origin 
(Millions of Dollars; nominal) 
      1993-2006  2007       2008 (1st half)  Total 
USA   13,550.1   2,454.9      819.6 16,824.1 
Netherlands 7,826.1  3,148.7     1,628.1  12,602.9 
UK    5,240.6   733.0       499.8 6,473.4 
Italy  2,844.6  517.2       267.1 3,628.9 
France  2,352.3  1,022.6       507.5 3,882.4 
Switzerland  2,256.1   633.2       115.2 3,004.5 
South Korea   2,129.7  232.3       119.6  2,481.6 
China  2,043.4 358.2      354.2 2,755.8 
Canada   1,919.7   314.1   70.0  2,303.8 
Russia   1,713.8   772.0     375.3  2,861.1 
Japan   1,347.7  405.3      201.3 1,954.3 
Turkey   1,005.4  337.1      85.0   1,427.5 
Others   7,179.6  6,586.3   2,119.8   15,886.2 
TOTAL   51 409.1  17,514.9    7,162.5 76,086.5 
Source: National Bank of Kazakhstan 
Annual Gross Foreign Direct Investment Flows by Sector (Millions of 
dollars; nominal) 
1993-2006  2007  2008 (1st half)  Total 
AGRICULTURE,  53.0  - 24.93  4.5        32.6 
MINING AND   24,682.3   4,656.9   1,644.0 30,983.2 
mining of coal 39.8   -0.7   31.0  70.1 
and lignite, 
of peat 
extraction of  22,409.7  4,316.3  1,438.1 28,164.1 
and natural 
mining of  308.
9   148.9  90.0  547.8 
uranium and 
thorium ores 
mining of  1864.6   188.0 49.3  2,101.9 
metal ores 
other mining 
and quarrying  59.2    4.5   35.6  99.3 
MANUFACTURING  5,708.8  893.5  428.1 7,030.4 
including but 
not limited 
manufacture of 
food products, 757.3  63.0  80.5  900.8 
beverage and 
tobacco products 
manufacture of 
coke, refined 
products   492.4  -189.9   33.7  336.2 
and nuclear 
manufacture of  153.5  11.9   9.5   174.9 
and chemical 
manufacture of 39.6    25.4  9.5   74.5 
rubber and 
manufacture of  112.1  28.3  41.7   182.1 
ASTANA 00000112  017.2 OF 019 
mineral products 
manufacture 3,495.0   671.1 68.9   4,235.0 
of basic metals: 
manufactures 407.1   23.3  5.9    436.3 
of ferrous 
manufacture of 3,069.8  628.9  52.2  3,750.9 
basic precious 
and non-ferrous 
manufacture of  18.2   19.0   10.8   48 
metal products 
and equipment 
manufacture   25.6  0.2   0.9   26.7 
of machinery 
and equipment 
manufacture   470.8 53.9   65.3 590 
of electric 
and computing 
manufacture of  84.2   149.7 26.5  260.1 
manufacture,   5.7   4.6  3.3   13.6 
ELECTRICITY,   725.9  36.6  46.5  809 
CONSTRUCTION   783.9 483.2  226.4  1,493.5 
WHOLESALE AND   1,862.1 1,238.3  437.7 3,538.1 
HOTELS AND   125.5  49.2  19.2   193.9 
TRANSPORT   690.6  301.3  48.5   1,040.4 
land transport  402.4  39.7   9.6  451.7 
  via pipelines  379.7  36.6   4.3   420.6 
water   -8.1   0.9  0.5   -6.7 
air transport   28.1  2.3   1.1   31.5 
supporting   339   150.7 42.7  532.4 
post and    229.8 -11.7  38.6   256.7 
including    226.1  -14.5 38.1   249.7 
FINANCIAL    946.9  2,938.3  798.6  4,683.8 
REAL ESTATE ,  14,774.3 6,963.8  3,375.6  25,113.7 
but not limited 
real estate 
activities   134.2  65.4   22.7  222.3 
accounting, book- 
keeping and 
ASTANA 00000112  018.2 OF 019 
auditing           131.2 142.4  50.0  323.6 
tax consultancy, 
market research, 
business and 
geological   14,153.4  6,631.3  3,245.0 24,029.7 
exploration and 
EDUCATION,   394.8  98.1   89.4   582.3 
ACTIVITIES,   360.8 0.0   0.0   360.8 
TOTAL        51409.1 17,514.9 7,162.5  76,086.5 
Source: National Bank of Kazakhstan 
FDI as a Percentage of GDP 
2006  2007  2008(1st half) 
13.1% 16.7% 12.4% 
Source: National Bank of Kazakhstan 
Kazakhstani Direct Investment Outflows 
Millions of US dollars, nominal 
Country of 
Destination  2004-2006      2007   2008(1st half)  Total 
Austria     0.7  8.8  0.1   9.6 
Azerbaijan      3.2    3.5   0.0  6.7 
Armenia        3.5     4.0   0.3  7.8 
Afghanistan   0.0  0.0  0.0  0.0 
Byelorussia   4.8  -0.1  1.5  6.2 
Bulgaria    0.0   1.5   0.9   2.4 
Belgium   0.0  0.1  0.0  0.1 
Great Britain    11.8  162.2 24.5   198.5 
Hungary   0.0  0.1  0.0  0.1 
Virgin Islands  73.6  374.8  64.4  512.8 
Germany    217.5   14   2.0  233.5 
Guernsey   0.0  0.0  0.1  0.1 
Hong Kong    0.0   60.0  0.0  60.0 
Greece   0.0  0.1  0.0  0.1 
Georgia    67.9  50.7  -29.9 88.7 
Dominican Republic  10.0  -9.8  0.0  0.2 
Egypt   0.0  0.0  0.0  0.0 
Israel    0.4   1  0.3   11.1 
India   0.1   7.2   0.0   7.3 
Iran     0.0   1.6  1.3   2.9 
Ireland   0.0  0.1  0.1  0.2 
Spain   0.0  1.8  1.6  3.4 
Italy    0.1   0.0   0.0  0.1 
Canada    43.1  3.9   0.0  47 
Cayman Islands   0.5  0.5   0.0  1.0 
Cyprus    0.8  90.7  326.0 417.5 
China   12.9  51  25.9  89.8 
Kyrgyzstan   160.2  144.2 -10.6 293.8 
Latvia    1.9   0.3   0.0  2.2 
Libya   0.0  0.0  0.1  0.1 
Lithuania    -1.0   2.1   0.0  1.1 
Liechtenstein  0.0  0.1  0.0  0.1 
Luxemburg    9.5  1.8   0.0  7.7 
Mauritius   0.0  0.1  0.1  0.2 
Malaysia     0.8  1.4  0.3  2.5 
Marshall Islands   0.0   96.0  0.0  96.0 
Isle of Man         6.6  0.0   0.0  6.6 
Mongolia     0.1  0.1  1.7   1.9 
Netherlands   659.8 -274.3 556.2 941.7 
Nigeria     0.0   0.2  0.0  0.2 
United Arab Emirates 1.4 50.9  17.9  70.2 
Poland   0.0  0.0  18.6  18.6 
Russia    311.3  537.4  263.1 1111.8 
Seychelles  28.3  0.0  0.0   28.3 
Serbia   0.0  0.0  0.1  0.1 
ASTANA 00000112  019.2 OF 019 
Singapore    2.4  65.5  0.0   67.9 
South Korea    0.0  1.4  0.0  1.4 
USA     11.3  423.3 18.0   452.6 
Tajikistan    12.4  20.9  1.6   34.9 
Thailand        0  49.2  0.0   49.2 
Turkmenistan     0.0  0.0  0.0  0.0 
Turkey     50.0  328  5.5  383.5 
Uganda   0.0  0.0  0.0  0.0 
Uzbekistan    94   34.8  0.5  129.3 
Ukraine     13.1  112.4 14.5  140 
France      0.0  8.3   4.4   12.7 
Czech Republic  -3.8   8.2  0.0  4.4 
Switzerland   204.2 282.6  169.8 656.6 
Estonia     0.0   0.0   0.0  0.0 
South Africa  0.0  0.0  0.1  0.1 
Other Countries   11.0  4.6  4.1   19.7 
TOTAL   2024.4 2733  1485.1 6242.5 
Source: National Bank of Kazakhstan 
Investments as of 2008 
The oil and gas sector accounts for approximately 70% of the $76.1 
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 LukArco, Agip, Shell, Inpex, Eni, 
Total, British Gas, Lukoil, Mitsubishi, and the Chinese National 
Petroleum Corporation (CNPC).  Other major US investors include 
Philip Morris (over $320 million in tobacco processing), and General 
Electric Transportation (locomotive modernization facility). Other 
major non-US foreign investors include Arcelor Mittal and BAE 


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