kazakhstan: A country eager for business.

kazakhstan: A country eager for business. - Foreign investors who are beating a path to the leafy capital of Kazakhstan need a strong appetite for risk - and deep pockets.

by Hashi Syedain.
Last Updated: 31 Aug 2010

Foreign investors who are beating a path to the leafy capital of Kazakhstan need a strong appetite for risk - and deep pockets.

On the tree-lined avenue of Ablai Khan, recently changed from Kommunistichsky Prospect, stands an elegant peach and white building that has become a hub of activity in Alma Ata - the leafy capital of the ex-Soviet Republic of Kazakhstan. It houses the Ministry of Foreign Economic Relations whose task it is to encourage the foreign investment that Kazakhstan so desperately needs as it sets out on the road to capitalism.

Inside, newly recruited young interpreters scurry about finding rooms for the numerous foreign delegations on "fact finding" missions. A world which for years regarded the Soviet Union as synonymous with Russia is beating a path to the crumbled empire's second largest republic - a vast country spanning Europe and Asia and endowed with one of the world's richest reserves of oil, gas, metals and minerals. It's these resources that are putting Alma Ata on the map, as well as its president, Nursultan Nazerbayev, who has emerged as one of the lynchpins of the troubled Commonwealth that has replaced the former Soviet empire. Widely respected as a man committed to change, Nazerbayev is determined to present a country that's open for business.

But the task is enormous. Banking and financial institutions are still in their infancy, while laws and regulations on foreign investment, privatisation and property rights are far from comprehensive and frequently contradicted by presidential decrees.

Visitors to the ministry bombard officials with questions about the nitty-gritty of doing business. "If a company pays back a loan by exporting commodities, can it get tax exemption on those exports?" inquires one hopeful businessman of the deputy minister of Foreign Economic Relations. The latter smiles knowingly at this foreigner who is part of a group of mainly British bankers and insurance representatives. The question has been put to the deputy minister a hundred times. "It's possible," he muses, "... subject, of course, to the issuing of an appropriate government decree." The audience breaks into laughter. After one and a half hours in the ministry they are little the wiser - except that what they all suspected before they came is probably true: everything is possible, but nothing is certain in Kazakhstan.

Nevertheless, this newly independent state has pulled off a handful of mega deals with bluechip western companies that leave even Russia green with envy. Contracts have been signed with US giant Chevron for the development of the vast Tenghiz oil field in western Kazakhstan and with British Gas and the Italian Agip for further oil development. A third agreement with France's Elf Aquitaine covers oil exploration.

Official figures last autumn put the number of joint ventures at 350 and rising. But many of these companies exist only on paper. What's more - the vast majority are trade operations, exporting commodities and importing consumer goods. It's all healthy commercial activity, but it's not developing the productive base that Kazakhstan craves.Those foreign companies that do take the plunge face obstacles as high as the Tian Shan mountains which form Alma Ata's majestic backdrop. Lee Kyung-Jae is managing director of Graphro, a south Korean textile joint venture. He's the proud creator of the only western style fashion shop in town - complete with glossy window display. Behind the scenes is an airy workshop where rows of women sit at sewing machines creating the garments for next season's collection. Lee has improved productivity by 400% since the workshop started but the slide in the value of the rouble means constant price rises and dwindling demand - Graphro imports its fabrics from Korea for hard currency, but sells its clothes for roubles. Its only salvation is if the government decides to ease export taxes. This would allow Lee to sell in western Europe and earn hard currency.

The people of Alma Ata - even his own employees - are blissfully unaware of Lee's plight. For them, this palace of opulence, created on their drab high street, must be making obscenely high profits. One day maybe it will. The profit potential is certainly enormous. For the time being though investing in Kazakhstan requires an appetite for risk - and very deep pockets.

Hashi Syedain is a freelance writer.

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