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Foreign direct investment (FDI) in Kazakhstan has experienced an extraordinary 30-fold drop, falling from $2.3 billion to just $72.9 million in the first nine months of 2024, according to data from the National Bank. In response to this dramatic decline, Kazakh Invest, the national agency responsible for promoting foreign investment, has attributed the drop to temporary, cyclical economic factors, stressing that it does not reflect failures in the country’s investment policies.
Potential Reasons for Decline
Kazakh Invest explained that the decline is primarily due to global commodity market volatility and changes in investor behavior. Given that the mining sector represents a significant portion of Kazakhstan’s FDI, these external economic shifts are beyond the control of the government.
Kazakh Invest explained that the National Bank of Kazakhstan withholds data from international investors’ reports due to its obligations towards the International Monetary Fund (IMF) and national legislation. As a result, a significant decline in FDI inflows by 98.4% year-on-year (YoY) was observed, which was primarily attributed to a substantial reduction of 93.4% in reinvested earnings. This could be the outcome of either a decrease in profits earned by foreign enterprises in Kazakhstan or a rise in dividend payments made to international shareholders.
Kazakh Invest also pointed to the completion of large infrastructure projects, such as the Tengizchevroil Future Growth Project, as another factor behind the reduction. However, the agency views this as a temporary shift, noting that it will allow for increased investment in other promising sectors such as renewable energy, agriculture, logistics, and digital technologies — areas poised for future growth.
Reasons to be optimistic
Despite this dip, Kazakh Invest remains optimistic about Kazakhstan’s attractiveness to international investors. According to the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), Kazakhstan secured $15.7 billion in new investment projects in 2024, an 88% increase from the previous year. The agency also pointed out that Kazakhstan continues to lead the region in new investment volume.
Expert opinions
Economist Galymzhan Aitkazin argued that the decline in FDI is more indicative of changing investor interest rather than capital outflows. He emphasised that the completion of the Tengizchevroil project, which contributed significantly to FDI from 2016 to 2024, is a key factor behind the reduced inflows, with the conclusion of its construction phase resulting in a temporary slowdown.
Government’s FDI strategy
Kazakh Invest remains committed to attracting foreign investments, reiterating its goal of fostering a favorable business environment. This message aligns with President Kassym-Jomart Tokayev’s call for the development of an integrated ecosystem to bring in “high-quality investments.”
In the first nine months of 2024, Kazakhstan saw FDI outflows reach $1.5 billion, double the outflows recorded in 2023. However, the net FDI remained negative at -$1.6 billion, though it was an improvement over the previous year’s -$3.2 billion. Despite these fluctuations, analysts caution that FDI figures alone do not fully reflect the health of the investment climate, as they fail to account for capital leaving the country.
Top investors up to mid-2024
Russia led foreign direct investment in Kazakhstan as of mid-2024, with inflows of nearly $932 million. However, this represents a decrease of 21.4% compared to the first half of 2023. Other significant investors in Kazakhstan include Singapore, Luxembourg, Switzerland, and Cyprus, focusing primarily on trade, finance, and manufacturing.
Tax reform 2025 – serious concerns for businesses and experts
Kazakhstan is considering raising the value-added tax (VAT) rate from 12% to 20%. This proposal was announced at a meeting between Kazakhstan’s Prime Minister Olzhas Bektenov and experts, economists, and business representatives in early January. In addition to increasing the VAT rate, it was also proposed to lower the VAT registration threshold to 15 million tenge per year and reduce special tax regimes. The government justifies the need for these changes due to the budget deficit and reliance on transfers from the National Fund. The situation is further complicated by high current expenditures, which are difficult to reduce without harming the socio-economic well-being of citizens. Some members of the Majilis oppose such a sharp increase in VAT.
Some experts support these amendments, believing that raising the VAT will help plug holes in the state budget. However, other experts and businessmen oppose this proposal. They are confident that a sharp increase in the VAT rate will lead to higher prices for all products and goods, as well as to an economic slowdown, a decrease in the purchasing power of the population, or even stagnation in the medium term. Experts and businesses suggest focusing on bringing the economy out of the shadows and reducing government spending instead of raising taxes.
Debated TAX reform raises serious concerns among businesses and experts, even though the government views it as a way to increase budget revenues and safeguard socio-economic interests.
It is important to note that the issue of raising VAT remains open. The decision to increase VAT has not yet been made, and the discussion on this issue continues. It is crucial to consider all possible consequences of this step to make a balanced and informed decision.
