Legal regulation of the foreign investment climate in

Legal regulation of the foreign investment climate in the Republic of Kazakhstan Kassym Maulenov Doctor of Law, Professor International IT University k. maulenov@mail. ru 1

Global foreign direct investment inflows soared in 2006 to reach $1, 306 billion – a growth of 38%. This marked the third consecutive year of growth, and approached the record level of $1, 411 billion reached in 2000. 2

As for the investment aspect, Kazakhstan currently remains one of the most attractive countries of the CIS states with prospects for future. The volume of direct overseas investments into Kazakhstan has reached more than $200 bln for the period of 1993 -2013 y. y. The highest level of investments was achieved in 2006: $6. 143 bln 3

Attraction of foreign investments is one of new spheres of the state activity in Kazakhstan In the Message by N. A. Nazarbayev, President of the Republic of Kazakhstan, entitled “Kazakhstan - 2030. Prosperity, Security and Improving the Well. Being of All Citizens of Kazakhstan” an economic growth based on the open market economy with a high level of foreign investments and internal savings was attributed to the longterm priority goals. 4

According to international indices of investment environment, e. g. , those of the EBRD, Kazakhstan is among the countries with an unfavourable investment environment. § § § Reasons: corruption frequent breaches of agreements high costs during investment difficulties in visa processing reliability of foreign business partners. All these problems deter investors from investing in production and services, except for the mining industry. 5

The investment policy of the Republic of Kazakhstan is a system of: 1. Measures of the legislative; 2. Executive and controlling character taken by authorized governmental bodies for the purpose of increasing the investment activity of business entities by means of creation of a system of stimulating investors; 3. A favorable investment climate, securing legal stability of the investment process. 6

Growth of the Number of International Mergers of Companies In 2013, 153 parent corporations based in economy of the Kazakhstan and 1873 foreign affiliates located in economy 7

Duplicating of the activities of different governmental bodies is observed in this sphere in the republic, however. The experience of such countries as Great Britain, Ireland, Singapore, Czech Republic and others confirms that for successful attraction of investments it is better to coordinate governmental assistance to investors through a specialized agency for supporting investments. 8

In a geopolitical aspect, Kazakhstan is located at a cross-roads of traditional ways from Europe to Asia The famous Silk road of trade connections between two continents passed namely through Kazakhstan and states of Central Asia. The project TRASECA (a transport system Europe – the Caucasus – Asia) is one of directions of restoration of the traditional trade Silk road. 9

The second geopolitical aspect is in natural resources of Kazakhstan and first of all in its increasing role of a supplier of hydrocarbon raw materials (oil and gas) to the world market. 13 th place in the world by the volume of explored oil resources. 15 th place by the natural gas and condensate. 10

The Committee on Investments of the Ministry of Commerce and Industry of the Republic of Kazakhstan (the former Agency on Investments of the Republic of Kazakhstan), set up by the Decree of the President of the Republic of Kazakhstan dated August 28, 2002 “On Measures of Improving the System of State Government of the Republic of Kazakhstan”, is authorized to pursue the investment policy in the republic. 11

Establishment of the Council of Foreign Investors (CFI) under the President of the Republic of Kazakhstan is a new direction in state regulation of foreign investment activities. The Degree of the President of the Republic of Kazakhstan on that matter was adopted on June 30, 1998. 12

Goals of CFI are the following: Submitting proposals to the President of the Republic of Kazakhstan including proposals on perfection of legislation regulating matters of investment activities. Elaboration of recommendations on improvement of the investment climate as well as recommendations on the strategy of attracting foreign investments into the economy of the Republic of Kazakhstan. Working-out proposals on integration of the economy of the country into world economic processes. 13

“The Declaration on Code of Ethics of Foreign Investors Working in Kazakhstan” was adopted on the President’s initiative at a meeting of the Council of Foreign Investors on December 8, 2000. It established the main ethical principles guiding foreign investors’ activities in the republic. 14

It is possible to determine the following main trends of the investment policy of the Republic of Kazakhstan which is many-sided and includes: 1. Creation of favorable investment climate. 2. Active membership organizations. of Kazakhstan in international 3. Conclusion of different international agreements and conventions by the republic. 4. The activity of the Committee on Investments in the field of realization of the strategy of the investment policy. 5. Undoubtedly, the investment policy of Kazakhstan must be perfected and should apply the best instruments and mechanisms used in practice by foreign states. 15

The oil sector is an important sphere to attract foreign investors. More than 70 % of foreign investments have been made in this sector of economy.

The following suggestions can be made to improve the legal regulation of oil business in Kazakhstan: 1. A solid legal basis must be provided for oil business in Kazakhstan. This leads to studying the oil legislation of oil producing countries which have an extensive experience (US, Great Britain, Norway, Algeria, Middle Eastern countries), and make this study public and available for oil legal experts of Kazakhstan. 2. A new meaningful law “On Petroleum” should replace the current decree on oil. 3. Organisational and legal issues of oil business regulation in Kazakhstan need to be improved. 4. It is important to establish a union of oil producing states to include the C. I. S. or Caspian countries, similar to OPEC. 17

Foreign investors are seriously concerned with corruption in investment projects. According to some specialists, corruption is to some degree unavoidable. However, money laundering and bribery in investment processes have become so common that it can destabilize economy and finances worldwide. A lot of efforts to eradicate corruption are taken by the International Monetary Fund (IMF). 18

2013 Corruption Perceptions Index

Improvement of the public administration mechanism in the area of foreign investment activity in Kazakhstan should include the following: Solving the problem of funding the Committee for Investments. – The direct investment attraction programme says that a similar agency for support of investments in Ireland (IDA Ireland), founded in 1950, has a $26 million annual budget. – Three Central and Eastern European countries which are leaders in reforms (Hungary, Poland the Czech Republic) also pay proper attention to funding their own agencies for support of investments. Experts' assessments of the annual budget of ITD Hungary give us $5 million, of PAIZ Poland - $4. 7 million, and of Czechinvest - $2 million 20

Establishing regional and foreign branches of the Committee for Investments The following oblasts can be included here: Atyrau, Mangistau, Western Kazakhstan (oil producing), Karaganda, Eastern Kazakhstan, and the city of Almaty (industrial) 21

Kazakhstan's embassies abroad should be assigned with providing assistance to the Committee for Investments in the following fields: – advertising campaigns – conferences, workshops – collection of information about the investment legislation and work of government bodies of other countries on attracting potential investors – reaching out to potential investors, etc 22

The direct investment attraction programme rightly states that the Committee for Investments should enhance: cooperation with similar foreign agencies to study investment opportunities in target countries. study the work experience regarding investment attraction. Besides, the Committee for Investments intends to continue collaboration with the World Bank, IMF, MIGA, UNDP, FIAS, UNIDO, TACIS, WAIPA, and other international organizations. 23

In fact, the Government of Kazakhstan constantly tries to improve the administrative system. However, the most important priority for Kazakhstan is to establish a legislative system attractive foreign investors. Important innovations in this area include approving a new Law On Investments of 8 January 2003, which identifies legal and economic bases for investment stimulation and guarantees of protecting the rights of investors in Kazakhstan. 24

Thank you very much for your attention! 25