2007 INVESTMENT CLIMATE STATEMENT - KAZAKHSTAN

UNCLAS SECTION 01 OF 16 ASTANA 000146

SIPDIS

SCA/CEN - O'MARA
EB/IFD/OIA

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ETRD EFIN ECON EINV PREL OPIC KTDB USTR
SUBJECT: 2007 INVESTMENT CLIMATE STATEMENT - KAZAKHSTAN

REF: A. 07 State 158802


1. The following information is provided in response to reftel
request.

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 2007, foreign investors had invested a
total of about $58.3 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 an enduring perception that
Kazakhstan is becoming less open to investment.
Four major pieces of existing legislation affect foreign investment.
These are: 1) the 2003 law "On Investment"; 2) the 1997 law "On
Government Procurement;" 3) the 2001 Tax Code; and 4) the 2003
Customs 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.
Since 1997, there has been a growing trend to favor 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. The 2005
"Production Sharing Agreements (PSA)" law, which applies primarily
to Kazakhstan's offshore oil development projects, binds companies
to similar local context provisions.
In December 2006, amendments to the Subsurface Law further tightened
the government's application of local content requirements,
requiring companies to meet local content benchmarks annually,
rather than on average over the lifetime of a project. More
recently, an amendment signed in October 2007 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.
President Nazarbayev, however, said publicly that the amendment
would not be used retroactively, but rather only with respect to new
contracts. (Note: The amendment was not invoked during recent
negotiations to restructure the Kashagan field consortium.)
These requirements are being challenged in connection with
Kazakhstan's forthcoming WTO accession negotiations, as they appear
to breach GATT and GATS rules and the Agreement on Trade Related
Investment Measures. They also appear to contradict the 1994
U.S.-Kazakhstan Bilateral Investment Treaty, which states in Article
II, paragraph 5, that "neither party shall impose performance
requirements...which specify that goods be purchased locally..."
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, protects U.S. investor
access to international arbitration. Additionally, the RK

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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 domestic law
of the RK over its international agreements However, Kazakhstan
amended this law in February 2007, eliminating this contradiction..
Finally, in December 2004 Kazakhstan adopted a law "On International
Commercial Arbitration" (see "Dispute Settlement" for full
discussion).
The 2003 law contains investment incentives and preferences based on
government-determined sectoral priorities, and provides for
investment tax preferences, customs duties exemptions, and in-kind
grants. The law also provides exemptions for customs duties on
imported equipment/components if Kazakhstan-produced stocks are not
available or do not meet international standards.
Amendments since made to the 2003 law, which came into force in May
2005, eliminate five-year corporate income tax exemptions and
replace them with a modified set of ten-year exemptions. Customs
duties exemptions are limited to equipment that is destined for use
in production processes exclusively in Kazakhstan.
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 is
defined by transaction prices that differ from market prices by a
certain percentage. 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 investors.
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 branches 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
Kazakhstan.
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.
In 2004, the government adopted amendments to the law governing oil
and gas exploration, assigning to the state a right of first refusal
on the purchase of shares in Production Sharing Agreements (PSAs) in
the extractive industries. The law as written applies to
pre-existing as well as future contracts and thus, in the
government's view, supersedes any pre-emptive rights consortium
partners might have negotiated in the original contracts.
The "pre-emption law," which has its origins in the government's
attempt to purchase British Gas (BG)'s stake in the Kashagan oil
field, is a disturbing development in the area of contract sanctity.
Although the government has not yet tested the law in practice, its
apparent willingness to override contractual arrangements through
fiat is discouraging. 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 to the
Subsurface Law signed in December 2006 also assign the government
the right to exclude companies from participating in oil and gas
investment program tenders if it is similarly considered in the
interests of "national security." Tax experts consider Kazakhstan's
tax laws to be among the most comprehensive in the former Soviet
Union. The latest Tax Code, which entered into effect on January 1,
2002, 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. This code is an improvement over its predecessor and a
step forward in establishing a transparent and effective tax system.
Starting January 1, 2007, the value-added tax (VAT) will be set at
14%, and the personal income tax rate increasing to 20%.
Furthermore, employees' earnings are subject to a regressive "social

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tax," ranging from 7% to 20% for Kazakhstani employees and 5% to 11%
for "foreign specialists." The corporate tax rate is flat at 30%. In
addition to all taxes levied on Kazakhstani entities, non-residents
must pay 15% of net income or 20% of commercial revenues. However, a
non-resident might have a right to recuperate this money, if a
relevant bilateral tax treaty exists and covers the respective tax
provision. The Tax Code contains a description of this procedure.
Certainly, this requirement creates unnecessary complications and
impedes business activity. Foreign firms operating in Kazakhstan
frequently report harassment by the Financial Police via unannounced
inspections and other methods. In 1998, the government limited the
number of visits that can be made by government bodies to small
businesses in the course of a year, but tax inspections were
excluded from this limitation. A "moratorium" on inspections of
small and medium firms decreed in late 2002 has never been fully
observed; it resulted in at 50% decrease in the number of audits,
but, reportedly, no reduction in overall penalties assessed. The
2002 Tax Code provides a basis for improvement because it limits the
powers of tax authorities and defines the rights of taxpayers more
clearly.
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. Since 2001, the annual number of work permits has been
subject to a government-established quota. In January 2003 the
government issued a decree (no. 55) which sets forth new procedures
for the annual determination of this quota. Local authorities submit
estimates of the required number of foreign work permits for the
upcoming year to the Ministry of Labor and Social Protection. The
Ministry then establishes the quota and issues permits based upon a
proven lack of qualified Kazakhstani citizens to fill the positions
in question. In 2003 the government set the work-permit quota at 14%
of the active labor force. The quota has steadily increased: in
2005, 0.32%.; in 2006 0.55%, and in 2007 0.8%. The quota assumes an
active labor force of 8 million people.

Conversion and Transfer Policies
--------------
There are minimal restrictions on converting or transferring funds
associated with an investment into a freely usable currency at a
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

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permits non-residents to pay wages in foreign currency. Foreign
investors may convert and repatriate tenge earnings made inside
Kazakhstan.
The National Bank has established procedures and licensing
arrangements to cover bank payments and transfers relating to
capital movements. Inward capital flows are basically unrestricted.
However, a resident company in which there is foreign investment
exceeding $100,000 must register the transaction for statistical
purposes. There are restrictions on capital movements when a
non-resident sells or disposes of an interest in a resident company
to another resident company. These are dealt with under the
licensing arrangements of the National Bank.
The procedure for licensing foreign currency transactions related to
capital movements is governed by Regulations Number 129 and 130 of
the Procedure for Licensing Activities Related to the Use of Foreign
Currency of April 24, 1997.
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 country 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.
The following types of capital movements from residents to
non-residents are subject to licensing:
--investments of residents in the business of non-residents abroad.
(The professional activity of authorized banks on the securities
market -- e.g., broker and dealer activity with state securities of
non-residents -- is exempted.);
--transfers from residents to non-residents of property, including
real estate transactions; and
--the repayment of loans extended by residents to non-residents for
a period of more than 180 days. (Obtaining licenses is sometimes
very slow.)
The Customs Committee and the National Bank require 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 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
debt.

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" 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
expropriation.
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

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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
Kazakhstan.
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 regulating 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 group 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
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.

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It contains a detailed list of creditors' rights and prescribes a
mechanism for their enforcement. 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 in 2007 it
signed 76 contracts for a total of about $1.65 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.
In 2006-2007, the government created fourlarge 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 also 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. 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. The Kazakhstani government is hoping
to complete WTO accession negotiations by the end of 2008.
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.

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Kazakhstan permits the importation of goods from EEC partners and
certain developing or less-developed countries either free of duty,
or at a reduced rate. There are no special requirements for engaging
in trade-related activities. In keeping with internationally
accepted practices, registration as an entrepreneur, legal entity,
or branch/representation office is required.

Right to Private Ownership and Establishment
--------------
Foreign and domestic private entities have the right to establish
and own business enterprises and to engage in all forms of
remunerative activity. Private entities can freely buy and sell
interests in business enterprises. However, state-owned enterprises
do sometimes enjoy better access to markets, credits, and licenses
than private entities.
Kazakhstan's constitution provides that land and other natural
resources may be owned or leased by persons who are Kazakhstani
citizens according to conditions established by law. The 2003 Land
Code allows citizens of Kazakhstan to own agricultural land and
urban land with commercial and non-commercial buildings and
complexes, including dwellings and land used for servicing these
buildings. Under the 2003 Land Code, only Kazakhstani citizens
(natural and legalized) and Kazakhstani companies may own land. The
Land Law does not allow private ownership for the following types of
land:
-- land used for national defense and national security purposes;
-- specially protected natural territories, resorts, recreational
land and territories of a historical and/or cultural significance;
-- forests, water reservoirs (lakes, rivers, canals, etc.),
glaciers, swamps, etc.;
-- public areas (urban or rural settlements);
-- main railways and public roads;
Short-term land leases may last for up to five years. The maximum
period for long-term land leases are 49 years. Foreigners may rent
agricultural land for up to 10 years. Foreigners may also own
agricultural land through either a Kazakhstani-registered joint
venture or a full subsidiary.

Protection of Property Rights
--------------
Secured interests in property (fixed and non-fixed) are recognized
under the Civil Code and the 2003 Land Code. Mortgage lending has
grown dramatically in the past several years. A credit bureau
system does exist, but is in very early stages of development. The
National Bank has created a national mortgage agency, which issues
bonds secured by mortgages purchased from banks. All property and
lease rights for real estate must be registered with special
government-owned Real Estate Centers, which exist in cities and
rural district centers.
In principle, Kazakhstan's Civil Code protects U.S. intellectual
property. In addition, the U.S.-Kazakhstan Trade Agreement, which
came into force in 1993, obliges Kazakhstan to protect intellectual
property rights (IPR). In 2004, Kazakhstan ratified the 1997 World
Intellectual Property Organization (WIPO) Copyright Treaty and the
WIPO Performances and Phonographs Treaty, and amended the Copyright
Law to affirmatively protect pre-existing works and sound
recordings. In 2005, Kazakhstan amended its Criminal and Civil Codes
to make IPR crimes easier to prosecute and to toughen penalties for
violators. The 2005 amendments played a significant role in USTR's
2006 decision to remove Kazakhstan from the Special 301 Watch list.
While Kazakhstan has demonstrated a commitment to improving its IPR
regime, substantial weaknesses, particularly in the area of civil
dispute resolution, still remain.
Patents and trademarks: Patent protection is available for
inventions, industrial designs and prototypes. Patents for
inventions are available with respect to processes and products that
are novel and have industrial applications. However, patent
protection for certain types of products and processes -- such as
layout designs and plant variety - is not yet available. The
National Institute of Intellectual Property performs formal
examination of patent applications.
Patents for inventions are granted for a period of 20 years; patents
for industrial designs are granted on a preliminary basis for five
years. This period may be extended for an additional 10 years if the
preliminary patent is converted to a patent. Prototypes are granted
a five-year initial period of protection, with the possibility of an
additional three-year extension. Unsuccessful applicants have the
right to appeal decisions of the National Institute of Intellectual
Property and the Committee for Intellectual Property Rights.
Kazakhstan is a member of the Moscow-based Eurasian Patent Bureau
and the Munich-based European Patent Bureau.
Trademark violation is a crime. Enforcement has historically been
questionable, but U.S. companies are generally confident that their
trademarks are protected in Kazakhstan. Still, imported counterfeit
goods can commonly be found at local markets. There are marked
disparities in fees charged to domestic patent and trademark
applicants, as compared to foreign applicants. Applications for
trademark, service mark and appellations of origin protection should

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be filed with the National Patent Office and approved by the
Committee for Intellectual Property Rights. Trademarks and service
marks are afforded protection for a period of 10 years from the date
of filing.
Copyrights: The Law on Copyrights and Related Rights was enacted in

1996. The law is largely in conformity with the requirements of the
WTO TRIPS Agreement and the Berne Convention.
In late 2006, the government stated its plans to provide customs
officials with ex officio authority to seize counterfeit products at
the border. However, appropriate legislation has not been passed.
Complicating the issue is the government's concern that granting ex
officio powers may exacerbate corruption at customs checkpoints.
Amendments to the Administrative, Criminal and Civil Procedural
Codes have been adopted to bolster IPR enforcement capabilities. IPR
enforcement measures, while still somewhat sporadic, are
increasingly robust. Prosecutions, under both the Criminal and
Administrative Codes, have led to a steady legitimization of the
domestic trade in copyrighted material. Progress in IPR protection
through civil courts is less pronounced as the judicial system
develops the expertise necessary to resolve the more complex civil
disputes.
Illegal software development and manufacture generally is not
conducted in Kazakhstan; Russia and Ukraine are believed to be the
major sources of bootleg software to the local market.
Kazakhstan ratified the Berne Convention for the Protection of
Literary and Artistic Works in 1998 and the Geneva Phonograms
Convention in 2000.

Transparency of Regulatory System
--------------
Transparency in the application of laws remains a major problem in
Kazakhstan and an obstacle to expanded trade and investment. Foreign
investors complain of changing standards and of corruption. While
foreign participation is generally welcomed, some foreign investors
point out that the government is not always even-handed and
sometimes reneges on its commitments. Although the Investment
Committee of the Ministry of Industry and Trade was established to
facilitate foreign investment, it has had limited success in
addressing the concerns of foreign investors.
Opportunities for public comment on proposed laws and regulations
are sporadic and generally limited. Often, contradictory norms
hinder the functioning of the legal system. While Kazakhstan has
recently defined more clearly which laws take precedence in the
event of a contradiction, it has become clear that stability clauses
granted investors under previous versions of the Foreign Investment
Law or other legislation may not necessarily protect investors from
changes in the legal and tax regulatory regime. The 2003 Investment
Law holds that contracts signed subsequent to its enactment may be
subject to amendments in domestic legislation and international
treaty provisions that change "the procedure and conditions of the
import, manufacture, and sale of goods subject to excise duties As
an additional complication, oblast authorities may create additional
bureaucratic encumbrances, especially in the licensing and issuance
of permits..
Kazakhstan, by law, will provide compensation for violations of
contracts that were properly entered into and guaranteed by the
government. Where the government has merely "approved" or
"confirmed" a foreign contract, Kazakhstan's responsibility is
limited to performing administrative acts necessary to facilitate
the subject investment activity (acts "concerning the issuance of a
license, granting of a land plot, mining allotment, etc.").
Kazakhstan's institutional governance is weak , further adding to
the problems of transparency in commercial transactions. Senior
government officials have a large say in minor and major
transactions, and decisions are often made behind closed doors.
A 1995 Licensing Law established the legal framework for licensing
activities in Kazakhstan. It requires the relevant agency to issue a
license within one month of a company's submitting all required
documents. The law was further amended in 1998, 2005, and January

2007. The 2007 amendments simplified procedural requirements for
issuing licenses, reduced the number of licensed activities from 426
to 100 and introduced a mechanism to help prevent the extension of
this list by other legal acts. However, licensing remains a
problematic area for business, particularly for small- and medium-
sized enterprises.

Efficient Capital Markets and Portfolio Investment
-------------- --------------
Kazakhstan's efforts to create a sound financial system and a stable
macroeconomic framework have been notable among former Soviet
republics. Much progress has been made in creating and implementing
an adequate legal framework. In comparison with other parts of the
economy, reform of the financial system has been deeper and more
effective. The financial system has started to mediate financial
resource flows and direct them to the most promising parts of the
economy. Official policy is clearly supportive of credit allocation
on market terms and the further development of legal, regulatory and
accounting systems that are consistent with international norms.

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The National Bank has demonstrated a willingness to pursue monetary
tightening in response to inflationary pressures. In 2006, it raised
the refinancing rate twice as well as toughened reserve requirements
for second-tier banks. Capital inflows and commodity exports have
enabled the National Bank to accumulate foreign exchange reserves,
and at the same time to lower interest rates and maintain inflation
in the single-digit range.
As of the middle of December 2007, the net gold and hard currency
reserves of the National Bank stood at $18.1 billion; the total gold
and hard currency reserves of Kazakhstan, including the National
Bank reserves and reserves accumulated in the National Fund, reached
$39 billion. The National Bank has pursued market-based policies
that have contributed to financial sector development and to
exchange rate stability. In 1999 the National Bank created a deposit
insurance system in order to attract the nearly $1 billion in cash
it estimated people were hoarding at home. Since then, private
deposits have grown thirty nine-fold, from less than $300 million in
November 1999, to $11.87 billion in November 2007.
Most domestic borrowers receive credit from Kazakhstani banks.
However, foreign investors find the margins taken by local banks and
the collateral required for credit to be very onerous. It is usually
cheaper and simpler for them to use retained earnings or borrow from
their home country. The Kazakhstani Stock Exchange is struggling to
gain momentum and, as such, not yet a realistic source of funds (see
below). Since 1998, Kazakhstani banks have placed Eurobonds on
international markets and obtained syndicated loans, the proceeds of
which have been used to support domestic lending. Leading
Kazakhstani banks have been able to obtain reasonably good ratings
from international credit assessment agencies. The National Bank and
the Financial Supervision Agency (FSA) supervise the banking system
and have overseen a steady consolidation and strengthening of it.
The global liquidity crunch, which hit in late summer 2007,
presented a substantial challenge to the Kazakhstani banking system,
which had come to rely heavily on external borrowing over the
preceding five-year period. Kazakhstani banks had been directing
much of the borrowed funds into the country's construction and real
estate sectors, particularly in the form both of construction
financing and for mortgages for new housing in Astana and Almaty.
The sudden global liquidity dry-up abruptly left some leading
Kazakhstani banks unable to continue their aggressive external
borrowing, forcing them to curtail their domestic lending activity.
While policymakers widely saw this development as a healthy
correction in view of the preceding liquidity glut, the National
Bank of Kazakhstan and the government introduced measures in late
2007 to provide liquidity to the banking system and inject capital
in the cooling construction sector.
Since 1999, a market for debt securities has been rapidly developing
in Kazakhstan. Several dozen bank and non-bank corporations - large
and small - have issued bills, notes and bonds with maturities
ranging from three months to seven years. Earlier issues have
matured and been redeemed; so far, there have been no defaults.
Rates for borrowers have declined on average from approximately 16%
in September 1999 to approximately 9% in 2006. Maturities have
increased from 1.5 years to up to 10 years during the same period.
Kazakhstan's pension system reform has boosted the bond market by
creating a pool of capital. The market for fixed-income securities
has grown from $74,000 in September 1999 to over $14.7 billion in
October 2007.
In 2007, the yield rate on middle-term government notes was 6.35%.
Longer-term government notes (with maturities up to 10 years) were
offered at 7.0%.
The Kazakhstani Stock Exchange (KSE) has been in operation since

1997. As of December 2007, there were 69 listed companies with 31
"A-listed" stock issues; 38 companies with "B-listed" stock issues;
and 5 non-listed issuers. There are also 62 "A-listed" and 26
"B-listed" corporate bond issues. Inadequate financial records
prevent many other companies from being put on the exchange.
Moreover, company managers fear diluting control of their
enterprises by selling more shares.
As of October 1, 2007, total capitalization of the KSE was $71.95
billion, or 70.7% of GDP Though there has been a slight decline of
capitalization over the second half of 2007, a continued annual
growth in both the absolute value of total capitalization and
capitalization relative to GDP has occurred for the last three
years.
Trading on the KSE is overwhelmingly dominated by block trades,
liquidity is low, and the spreads are extremely wide. In 2006,
several large Kazakhstani companies issued initial public offerings
on the London Stock Exchange (LSE). In compliance with a 2006 law
requiring any foreign IPO by a Kazakhstani company to be accompanied
by a domestic issuance, these companies also offered shares on the
KSE. However, despite these offerings and the Kazakhstani pension
funds' (see below) tentative moves to invest in KSE-traded shares,
the exchange remains in a very early stage of development. Due
largely to Kazakhstani companies' recalcitrance to dilute ownership
and provide extensive disclosure, the Kazakhstani debt market is
substantially more developed. The plans for the "Almaty Financial
Center" (see below) aim to spearhead the development of Kazakhstan's

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financial markets. In 2007, the Almaty Financial Center officially
announced that it would merge its efforts to create an effective
equity market with the KSE, thereby signaling that there will be
only one stock exchange in Kazakhstan in the foreseeable future.)
The Financial Supervision Agency (FSA),Kazakhstan's main financial
regulator, has broad authority over the banking and insurance
sectors, as well as the stock market. The FSA is financed from the
National Bank's budget and subordinated to the President of
Kazakhstan.
In 1998, the government introduced an accumulation pension system
that requires all employed persons to contribute 10% of their salary
to accumulation pension funds. As of November 2006, the 14 funds (13
private and one state-owned) operating in Kazakhstan held
approximately $9.6 billion in assets. Asset management companies
invest the contributions on behalf of the pension funds. While the
government provides specific restrictions on how the pension funds
may invest, these restrictions were relaxed in 2006, allowing some
involvement in Kazakhstani equities. Still, the pension assets must
be invested primarily in specific categories of instruments, such as
government bonds and A-listed securities. The largest concentration
of investments is in dollar-denominated Kazakhstani Eurobonds.
Custodian banks hold pension assets. The government plans to sell
some shares of state enterprises on the national stock market,
partly to provide a more profitable alternative vehicle for the
investment of pension fund assets.
There appear to be no "cross-shareholding" or "stable shareholder"
arrangements used to restrict foreign investment in private firms
through mergers and acquisitions. Joint stock companies may not
cross-hold more than 25% of each other's stock unless they have an
exemption codified by law and may not exercise more than 25% of the
votes in a cross-held joint stock company. Kazakhstani law
recognizes companies as "related" if one company or legal entity
holds more than 20% of the shares of another. However, the owning
company may not vote more than 25% of the total shares at the
general meeting of shareholders of the related company. The general
meeting must approve various corporate actions, such as mergers and
acquisitions. This rule applies to all persons, domestic or foreign.

There have been very few hostile takeovers in Kazakhstan, primarily
because there are few publicly traded firms. Defensive measures are
not targeted toward foreign investors in particular. Current
legislation provides a legal framework for takeovers. The Civil Code
requires a company that has purchased a 20% share in another company
to publish information about the purchase.
The mutual investment fund industry remains small but is growing
rapidly. As of October, 1 2007, total assets of the mutual
investment funds amounted to $1.16 billion, representing a 302%
increase when compared to October 2006 figures. Despite a reduction
from 37.1% in October 2006 to 15.77% in October 2007, Kazakhstani
corporate securities remain a significant share of the consolidated
mutual fund investment portfolio.
The 1998 Law on Joint Stock Companies provides the basis for the
regulation of open and closed-type joint stock companies. It also
contains clauses to protect investors in often-abused circumstances,
such as:
-- issuance of additional shares;
-- maintenance of charter capital and restrictions on payments of
dividends;
-- re-purchase by a company of its own shares;
-- debt-to-equity conversions;
-- fiduciary duties imposed on company officers;
-- proxy votes;
-- independent audit; and
-- the determination of asset values during the sale of company
property.
The Law on Joint Stock Companies also regulates tender offers for
stock of open joint stock companies by requiring the purchaser to
notify the Financial Supervision Agency and the target company of
their intention to purchase 30% or more of the target company and,
after such purchase, to make an offer to all remaining shareholders
to purchase their shares at the average price during the last six
months before the purchase.
There are no laws or regulations specifically authorizing firms to
adopt articles of incorporation or associations that limit or
prohibit foreign investments. The Law on Joint Stock Companies,
however, allows charter limits on the number of shares or votes that
one shareholder may have.
In March 2007, the Government accepted amendments to legislation
regarding the protection of minority stockholders' interests. The
enactment of this law was prompted by numerous violations of
minority stockholders' interests. In addition, this step was driven
by the Government's intention to promote the development of stock
exchange.
Standards, including sanitary and phyto-sanitary standards, are
promulgated solely by the Committee for Technical Regulation and
Metrology (Gosstandard). Proposals for adoption, amendment, or
abolishment of state standards are normally prepared by technical
committees constituted by Gosstandard, and may include producers,

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scientific and engineering associations, and technical experts.
Foreign participation in the standardization process is regulated by
international multilateral and bilateral agreements.

Political Violence
--------------
There have been no incidents of politically-motivated violence
against foreign investment projects. Kazakhstan has been stable
since independence. Politically-motivated civil disturbances remain
exceptionally rare. Kazakhstan has good relations with its
neighbors. The government continues to express concern over the
security of its borders with Kyrgyzstan and Uzbekistan, which it
views as vulnerable to penetration by extremist groups.
Kazakhstan's 2007 parliamentary elections took place without
significant violence or unrest. President Nazarbayev's Nur Otan
party won every seat in the lower house of parliament with an
overwhelming majority of the votes. In its assessment, the OSCE
noted that the election did not meet a number of OSCE commitments
and international standards for democratic elections. Although
opposition groups denounced the election as fraudulent, there were
no significant demonstrations against the announced results. The
next parliamentary election is scheduled to take place in 2012.
The February 2006 murders of a prominent opposition politician and
his two associates were perceived by opposition parties as
politically motivated. The former chief of staff of the Senate was
convicted in August 2006 of having ordered the murders; prosecutors
charged that he was motivated by personal animosity.

Corruption
--------------
Although the Kazakhstani Criminal Code contains special penalties
for accepting and giving bribes, corruption is prevalent throughout
Kazakhstan. The Ministry of Interior, the Financial Police, the
Disciplinary State Service Commission, and the Committee for
National Security (KNB) are responsible for combating corruption.
The government has taken some measures to address corruption and
increased its attention to the problem through educational and
public awareness efforts. President Nazarbayev publicly deplored
corruption and encouraged media to report about it. Some lower and
middle-ranking officials and minor political figures have been
penalized on corruption charges.
Transparency International has a national chapter in Kazakhstan. The
government has signed on to the Extractive Industries Transparency
Initiative (EITI).
U.S. firms have cited corruption as a significant obstacle to
investment. Law enforcement agencies have on occasion t pressured
foreign investors perceived to be uncooperative with the government.
The government and local business entities are widely aware of the
legal restrictions placed on U.S. business abroad (i.e., the Foreign
Corrupt Practices Act).
In 2003 in the United States two American citizens were charged with
violating the Foreign Corrupt Practices Act in a case that received
significant international media attention. The two allegedly
channeled tens of millions of dollars in bribes to two senior
Kazakhstani officials during the 1990's in order to facilitate oil
deals for American companies. One is currently serving a jail term.
The second defendant, James Giffen, was indicted in 2003 and is
awaiting trial in the United States.

Bilateral Investment Agreements
--------------
The United States-Kazakhstan Bilateral Investment Treaty came into
force in 1994. In 1992, the United States and Kazakhstan signed an
Investment Incentive Agreement.
In 1996, the Treaty on the Avoidance of Double Taxation between the
United States and Kazakhstan came into force. However, an ongoing
dispute with a U.S. investor raises concerns with the government's
tax treaty compliance. Since independence, Kazakhstan has ratified
treaties on the avoidance of double taxation with 41 countries.
Kazakhstan has bilateral investment agreements in force with forty
countries, including the United States, Great Britain, Germany,
France, Austria, Russia, Korea, Iran, China, and Turkey.

OPIC and Other Investment Insurance Programs
--------------
The Overseas Private Investment Corporation (OPIC),an independent
U.S. Government agency that provides project financing, political
risk insurance, and a variety of investor services, has been active
in Kazakhstan since 1994. OPIC is seeking commercially viable
projects in the Kazakhstani private sector. OPIC offers a full range
of investment insurance and debt/equity stakes.
Kazakhstan is a member of the Multilateral Investment Guarantee
Agency (MIGA).

Labor
--------------
The 1999 Labor Law and the Constitution guarantee basic workers'
rights, including the right to organize and the right to strike.

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Teachers, miners and workers at a variety of enterprises have
conducted occasional strikes for generally short periods during the
past several years. In September 2006 the death of 41 miners in an
explosion at Mittal Steel Termirtau's "Lenin" coal mine triggered an
unprecedented wave of strikes. Mittal's striking coal miners were
joined by steel workers which shut down operations at each of the
eight coal mines owned by the company for a week. The strike ended
after Mittal agreed to substantial raises. Subsequently, two U.S.
companies operating coal mines in Kazakhstan raised wages 25-30% in
order to avert threatened strikes.
The 1996 Law on Labor Disputes and Strikes lays out the procedure
for resolving disputes. However, the law also restricts strikes by
requiring, inter alia, that a peaceful attempt at a solution first
be made, that two-thirds of the labor collective must approve the
strike, and that the employer must be warned 15 days in advance in
writing. In addition, strikes for political purposes are forbidden.

A separate 1992 Law on Collective Bargaining Agreements sets out the
basic framework for concluding such agreements. There are instances
of unions successfully negotiating collective bargaining agreements
with management.
In May 2007, Kazakhstan passed a new Labor Code, encompassing all
the preceding legislation under a single umbrella. Key provisions
of all the previous labor laws were retained. The Labor Code
extended minimum mandatory vacation time from 18 to 24 days,
provided an outline of labor unions' and labor representatives'
rights, and toughened rules governing the dissolution of labor
contracts.
The 1993 Law on Professional Labor Unions provides a legal guarantee
against limitations of labor. It also grants socio-economic,
political and personal rights and freedoms as a result of membership
in a union and prohibits the denial of employment, the denial of
promotion or termination of employment on the basis of such
membership. Kazakhstan also joined the International Labor
Organization (ILO) in 1993. As of January 2007, Kazakhstan has
ratified 16 ILO conventions, including those pertaining to minimum
employment age, forced labor, discrimination in employment, equal
remuneration, and collective bargaining.
Kazakhstan's economy has grown steadily in the last five years.
Preliminary 2007 GDP growth is estimated at 8.7%. (The highest
year-on-year rate was 13.5% in 2001.) Although incomes and consumer
spending have risen across the board, in the 3rd quarter 2007 the
minimum subsistence wage is still only $83.. per month; with 13.8%
of the population receiving income below that level. Starting on
January 1, 2008, the minimum pension will be $65.45 per month. By
government estimates, in the 3rd quarter of 2007 unemployment was
7%.
Kazakhstan has an educated and technically competent workforce.
However, the demand for specialized skilled labor created by the
simultaneous development of several major oil fields in western
Kazakhstan has exceeded locally available supply. Foreign investors
increasingly cite a lack of skilled workers and technical
professionals. Management expertise and marketing skills are also in
short supply. Many large investors rely on foreign workers,
particularly from Turkey, to fill the vacuum. In turn, the GOK has
made it a priority to ensure that Kazakhstani citizens are
well-represented on foreign enterprise workforces, and is
particularly keen to see Kazakhstanis hired into the managerial and
executive ranks of those enterprises. In late 2006, the government
discussed measures limiting the inflow of foreign workers,
particularly unskilled, and pressuring large foreign investors to
hire and train Kazakhstanis. Since 2001, the quota system has
required employers to search for local workers prior to the issuance
of work permits for foreigners (see section A.1.). U.S. companies
are strongly advised to contact locally-based law and accounting
firms, as well as the U.S. Commercial Service in Almaty, for the
latest information on work permits.
Employers' reliance on foreign labor in the face of persistent
poverty in rural Kazakhstan became a political issue in 2006 and

2007. The debate revolved around the underlying causes of some
violent incidents between Kazakhstani and foreign workers. The
tension was epitomized by a major October 2006 brawl that involved
over 400 workers. Policymakers often point to disparities in wages
and working conditions between Kazakhstani and foreign workers.
Employers retort that the domestic lack of skilled labor frequently
necessitates management of Kazakhstani laborers by foreigners.

Foreign - Trade Zones/Free Ports
--------------
A system of tax preferences exists for enterprises engaging in
prescribed economic activities in the so-called "special economic
zones." As of December 2007, four such zones had been established:
the "New Administrative Center" in Astana, the Seaport of Aktau, the
Alatau Information Technology Park (near Almaty),and the Ontustik
Cotton Center in south Kazakhstan.). In addition, a separate
preferential tax system exists for enterprises manufacturing high
value-added goods, regardless of location.
In the second half of 2006, the government took steps toward

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establishing the Almaty Financial Center, a legal and institutional
framework aimed at making Almaty the financial capital of Central
Asia. The plans, which are still in very early stages of
implementation, include tax privileges for major participants in the
financial marketplace: investors, broker-dealers, and issuing
corporations. The legal framework for the Almaty Financial Center
includes a specialized court with jurisdiction over civil disputes
between the Financial Center's participants

Foreign Direct Investment (FDI) Statistics
--------------
Annual Gross Foreign Direct Investment Flows by Country of Origin
(Millions of Dollars; nominal)
1993-20052006 2007(1st half) Total
USA 11,841.2 1,694.7 802.2 14,338.1
UK 4,378.7 852.5 255.2 5,486.4
South Korea 1,880.9 248.6 116.6 2,246.1
Italy 2,468.3 376.1 212.6 3,057
Canada 1,481.2 437.1 273 2,191.3
Switzerland 2,021.5 234.6 367.9 2,624
Netherlands 4,940.1 2,877.3 1,170.6 8,988
China 1,680.5 359.5 171.6 2,211.6
Turkey 906.9 92.9 141.9 1,141.7
Russia 1211.1 490.9 219.0 1,921
Japan 1005.1 342.6 169.7 1,517.4
Others 6,970 2,559.9 3,033.6 12,563.5
TOTAL 40785.5 10,566.7 6,933.9 58,286.1
Source: National Bank of Kazakhstan

Annual Gross Foreign Direct Investment Flows by Sector (Millions of
dollars; nominal)
1993-2005 2006 2007 (1st half) Total

AGRICULTURE, 15.7 37.3 1.3 54.3
HUNTING AND
FORESTRY

MINING AND 22,286.2 2,323.1 2,126.4 26,735.7
QUARRYING

mining of coal 39.8 0.0 0.0 39.8
and lignite,
extraction
of peat

extraction of 20,406.3 2,003.4 1886.3 24,296
crude
petroleum
and natural
gas

mining of 146.5 162.4 83.7 392.6
uranium and
thorium ores

mining of 884.6 149.1 156.2 1,189.9
metal ores

other mining
and quarrying 50.9 8.3 0.1 55.5 114.8

MANUFACTURING 5,066.4 644.4 326.1 6,036.9

including but
not limited
manufacture of
food products, 644.7 51.9 19.8 716.4
beverage and
tobacco products

manufacture of
coke, refined
petroleum
products 508.2 -15.8 -192.8 299.6
and nuclear
fuel

manufacture of 139.8 17.9 7.9 165.6
chemicals
and chemical
products

manufacture of 32.9 7.9 12.3 53.1
rubber and
plastics
products

manufacture of 85.9 26.2 13 125.1

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other
non-metallic
mineral products

manufacture 3,068.7 423.9 385.8 3,878.4
of basic metals:
manufactures 405.7 1.4 1.6 408.7
of ferrous
metals

manufacture of 2,649.3 419 381 3,449.3
basic precious
and non-ferrous
metals

manufacture of 13.9 3.4 3.3 20.6
fabricated
metal products
except
machinery
and equipment

manufacture 21.4 4.2 0.1 25.7
of machinery
and equipment

manufacture 431.1 39.7 20.4 491.2
of electric
and computing
machinery

manufacture of 11.8 72.4 53.9 138.1
transport
equipment

manufacture, 5.0 0.7 1.6 7.3
n.e.c

ELECTRICITY, 699.2 26.6 5.3 731.1
GAS AND WATER
SUPPLY

CONSTRUCTION 416.1 378.4 243.8 1,038.3

WHOLESALE AND 1,122.8 760.9 618.7 2,502.4
RETAIL TRADE,
REPAIR OF
MOTOR VEHICLES,
MOTORCYCLES
AND PERSONAL AND
HOUSEHOLD GOODS

HOTELS AND 115.3 10.2 43.5 169
RESTAURANTS

TRANSPORT690.6 301.3 48.5 1,040.4
STORAGE AND
COMMUNICATION
land transport 378.8 23.6 20.6 423

including
transport
via pipelines 360.3 19.4 20.6 400.3

water -12.2 4.1 0.6 -7.5
transport

air transport 24.9 3.2 1.1 29.2

supporting 152.3 187.4 29.5 369.2
transport
activities

post and 146.8 83 -3.2 226.6
telecommunication

including 145 81.1 -4.0 222.1
telecommunication

FINANCIAL 494.2 375 201.6 1070.8
ACTIVITY

REAL ESTATE, 9,223.3 5,610.1 3,271 18104.4
RENTING
AND BUSINESS
ACTIVITIES

Including

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but not limited
real estate
activities 105.1 29.1 30.6 164.8

legal,
accounting, book-
keeping and
auditing 143.2 -22.5 49.6 170.3
activities,
tax consultancy,
market research,
business and
management
consultancy
geological 8,739.5 5,487.5 3,167.6 17,394.6
exploration and
prospecting
activities

EDUCATION, 295.3 99.5 47.5 442.3
HEALTH AND
SOCIAL WORK

ACTIVITIES, 360.8 0.0 0.0 360.8
N.E.C.

TOTAL 40, 785.5 10,566.7 6,933.9 58 286.1
Source: National Bank of Kazakhstan

FDI as a Percentage of GDP
2005 2006 2007(1st half)
11.58% 13.05% 15.5%
Source: National Bank of Kazakhstan

Kazakhstani Direct Investment Outflows
Millions of US dollars, nominal
Country of
Destination 2004-2005 2006 2007(1st half) Total
Austria 0.4 0.3 0.1 0.8
Azerbaijan 0.0 3.2 3.4 6.6
Armenia 2.8 0.7 0.0 3.5
Afghanistan 0.1 -0.1 0.0 0.0
Byelorussia 3.4 1.5 0.1 5.1
Bulgaria 0.0 0.0 0.7 0.7
Dominican Republic 0.0 10.0 0.0 10.0
France 0.0 0.0 3.0 3.0
Great Britain 15.5 -3.7 82.1 93.9
Virgin Islands 43.225.4 78.9 147.5
Germany 217.3 0.2 10.4 227.9
Georgia 1.9 66.0 9.2 77.1
Hong Kong 0.0 0.0 60.0 60.0
Israel 0.0 0.4 0.0 0.4
India 0.0 0.1 0.1 0.2
Iran 0.0 0.0 0.3 0.3
Italy 0.1 0.0 0.0 0.1
Canada 5.8 37.3 0.0 43.1
Cayman Islands 0.0 0.5 0.0 0.5
Cyprus 0.0 0.8 88.8 89.6
China 6.0 7.1 34.5 47.6
Kyrgyzstan 57.4 102.8 55.4 215.6
Latvia 1.9 0.0 0.3 2.2
Lithuania 0.0 -5.0 0.0 -5.0
Luxemburg 0.0 9.5 1.7 11.2
Malaysia 0.0 0.8 0.7 1.5
Marshall Islands 0.0 0.0 96.0 96.0
Isle of Man 6.6 0.0 0.0 6.6
Mongolia 0.1 0.0 0.0 0.1
Netherlands 17.5 639.4 17.6 674.5
Nigeria 0.0 0.0 0.1 0.1
Arab Emirates 0.0 1.4 37.7 39.1
Russian Federation 127.2 183.3 198.1 508.6
Seychelles 28.3 0.0 0.0 28.3
Singapore 0.0 2.4 61.7 64.1
South Korea 0.0 0.0 1.1 1.1
Spain 0.0 0.0 1.0 1.0
USA 8.1 3.2 0.4 11.7
Tajikistan 0.1 12.3 10.7 23.1
Thailand 0.0 0.0 0.2 0.2
Turkey 41.2 3.9 318.3 363.4
Uzbekistan 8.0 86.0 14.3 108.3
Ukraine 10.1 2.0 8.7 20.8
Check Republic -4.00.2 2.0 -1.8
Switzerland 127.1 77.1 157.5 361.7
Estonia 0.0 0.0 0.0 0.0
Other
Countries 6.5 4.0 0.7 11.2
TOTAL 732.6 1,273.0 1,356 3,361.6
Source: National Bank of Kazakhstan

ASTANA 00000146 016 OF 016



Investments as of 2007
--------------
The oil and gas sector accounts for approximately 71.5% of the $58.3
billion that has been invested in Kazakhstan, with U.S. firms
consistently ranking as the largest foreign investors. U.S. firms
with noteworthy investment in Kazakhstan's petroleum sector include:
Chevron, ExxonMobil, and ConocoPhillips. Other major foreign
investors in this sector include: LucArco, Agip, Shell, Inpex, Eni,
Total, British Gas, Lukoil, Mitsubishi and the Chinese National
Petroleum Corporation (CNPC).
Other major US investments include: AES (over $200 million in power
generation),Access Industries (coal mining),Philip Morris (over
$320 million in tobacco processing),and General Electric
Transportation (locomotive modernization facility). Non-petroleum
foreign investors include Mittal and BAE Systems.

ORDWAY