Overseas Business Risk – Kazakhstan

Information on key security and political risks which UK businesses may face when operating in Kazakhstan.

Political and Economic

Politics

Kazakhstan is a constitutional republic with power concentrated in the President. President Nazarbayev has been in power since his initial election, with 98% of the vote, in 1991. He has won three subsequent elections, in 1999 (79% of the vote), 2005 (91%) and 2011 (95.55%).

Whilst international observers found all Presidential elections fell short of the Organization for Security and Co-operation (OSCE)’s standards, President Nazarbayev is genuinely popular in Kazakhstan, having led the country from independence through to being the most successful of the Central Asian republics. Nazarbayev sees his greatest achievement as building an independent country without violence or a split along ethnic or religious lines. He has also overseen some of the most extensive financial and economic reforms in the former Soviet Union and decommissioned the enormous nuclear legacy left to Kazakhstan by the Russians.

Despite a separation of powers in principle, President Nazarbayev wields considerable control over all three branches of government and dictates national policy priorities. He retains the right to appoint foreign, defence, interior and justice ministers. Nazarbayev is exempt from the constitutional bar on Presidents running for office more than twice in a row and from holding membership of a political party. Indeed, he is the head of the biggest political party in Kazakhstan, Nur Otan (which translates as ‘fatherland’s ray of light’ in Kazakh).

In June 2010 legislation was passed making President Nazarbayev the lifelong ‘Leader of the Nation’. The legislation grants him and his family exemption from investigation and prosecution for life and gives him the right to veto legislation and address Parliament at will, even when he is no longer President. The legislation also foresees penalties for anyone found to insult the ‘honour and dignity’ of the President.

In December 2010, an initiative was launched to keep President Nazarbayev in power until 2020, without elections, by means of a nationwide referendum. Following widespread international concern, the initiative was sent to the Constitutional Council who found it non-constitutional. To widespread international praise, President Nazarbayev announced in March that he would stand for April Presidential elections. He won the resulting elections with 95.55% of the vote. Many opposition parties boycotted the elections in protest at the short time-frame. Indeed, one of the four resulting candidates publically voted for the incumbent himself. The next Presidential elections are due to take place in 2016.

In January 2012, President Nazarbayev launched a new 2050 strategy. As with previous development plans this focuses on the economic and social development of Kazakhstan with an emphasis on stable growth, the development of a middle class and of wider popular share ownership, and increasing emphasis on the role of innovation and new technologies.

Parliament

The Parliament of Kazakhstan is bicameral and consists of the Lower House (Majilis) and Upper House (Senate). Senators are elected by regional legislatures. The next Senate elections are due to take place in August 2014. Kassym-Jomart Tokayev was appointed the Speaker of the Senate on 16 October 2013. 32 Senators are elected by local councils (Maslikhats) for a term of three years. The remaining 15 senators are appointed by the President. 98 members of the Majilis are elected by proportional representation. The remaining nine represent the Assembly of Peoples of Kazakhstan, a body formed in 1995 to represent the different ethnic groups of Kazakhstan. This means that no House in the Kazakh Parliament is entirely elected by the public. The last Majilis elections were held on 15 January 2012.

Before 2012, the only party represented in Parliament was the President’s Nur Otan. However, following legislation enacted in 2009 which guaranteed at least two political parties in Parliament, the elections on 15 January 2012 saw three parties exceed the minimum 7% threshold (Nur Otan, Ak Zhol and the CPPK Communists). The two new parties do not provide any genuine opposition to Nur Otan.

Regional Administration

Kazakhstan is divided into sixteen administrative regions – 14 regions (oblasts) and two cities with special status (Astana and Almaty). Each is headed by an Akim (regional governor). These regional akims are nominated by the President. The local town councils, the maslikhats, are elected by public vote. On 5-9 August 2013 Akims from village to small city level were elected for the first time by local district councils (Maslikhats). Aimed at providing an impetus for localised politics, the election was intended to create accountable officials less dependent on the affairs of the central apparatus and thus more capable of solving specific problems on the ground. Higher level Akims of large cities and regional centres are still appointed by the President directly.

Political Parties

Most opposition parties appear to be the vehicle for the views of one individual; often those that have fallen from favour with the President, rather than groups affiliated with the political ideologies we identify with the UK. Given lack of independent media and freedom of assembly, and the lack of concrete policies, these groups find it difficult to attract widespread support. Some have encountered long-standing administrative difficulties in obtaining registration necessary for operating as a political party.

Religion

Kazakhstan’s treatment of some minority religious groups is a cause for concern. Groups such as evangelical Christians, Jehovah’s Witnesses, Hare Krishnas and Ahmadi Muslims are treated with suspicion by the authorities. State propaganda has singled out such groups as sects and sometimes even suggested they are a threat to state security. Such groups frequently suffer censorship of their literature, raise, fines for unregistered activity, and, in some cases imprisonment.

Minority religious groups such as non-mainstream Islamic and evangelical Christian congregations often face administrative difficulties. In October 2011, President Nazarbayev signed a new law on religion. The government stated that that the new law was a much-needed update that would allow Kazakhstan to effectively regulate the increased number of religious groups in the country while protecting Kazakh citizens from extremist ideology.  International observers and NGOs, such as Forum 18 and Freedom House, have criticised the law for its requirement that every religious group in Kazakhstan must undergo an onerous registration process, and are concerned that this restricts the freedom of religion and belief in Kazakhstan. Any unregistered religious activity is illegal and there is no legal basis for any religious group with fewer than 50 worshippers – which in practise penalises non-traditional religions (such as Jehovah’s Witness etc). The law also requires all imported religious literature to be cleared by the State Agency for Religious Affairs (SARA). It is not yet clear, however, how rigorously the new law’s provisions will be interpreted or implemented.

Foreign Policy

As a former Soviet state, and the last country to declare independence from the USSR, Kazakhstan maintains strong links with Russia, with which it shares the longest single-stretch land border in the world. China is another powerful neighbour. However, Kazakhstan carefully balances its relations between East and West and the Muslim world and the rest. It considers itself to be a Eurasian state rather than a Central Asian one, and portrays itself as a country that can reconcile differing groups and points of view. During its OSCE Chairmanship in 2010, Kazakhstan showed itself to be able to play a moderating role between Russian and the West. More recently, in 2013 Kazakhstan hosted a significant international conference on Afghanistan and two sets of talks between Iran and the US, Russia, China, the UK, France and Germany on its nuclear programme. In November 2012, Kazakhstan was elected to sit on the United Nations Human Rights Council in Geneva.

Political situation

The political situation in Kazakhstan is stable. Public demonstrations are only permitted when authorised.

16 December 2012 saw the first anniversary of clashes in 2011 between security forces and protesters in the western towns of Zhanaozen and Shetpe which resulted in 17 deaths and more than 75 wounded The authorities’ response to these events evolved over the course of 2012: it acted quickly to resolve further strikes; began a long term effort to resolve high unemployment in single industry towns; and prosecuted and imprisoned local and police officials, demonstrators and political party activists. These trials were criticised by domestic and international observers for evidentiary shortcomings and flawed verdicts. The most recent trial concluded in September with the imprisonment of Vladimir Kozlov, the leader of the unregistered Alga party, who was associated with the Zhanaozen events.

  • The Government of Kazakhstan continues to achieve positive improvements in its Human Rights’ record, including in: gender equality, torture prevention and wider rule of law issues. However, in other areas, Kazakhstan continues to receive criticism on Human Rights from international institutions, NGOs and foreign governments, especially on freedom of religion and belief and freedom of, expression, speech, mass media and assembly. The UK regularly raises human rights concerns with the Kazakh government bilaterally and multilaterally.

  • More information on political risk, including political demonstrations, is available in the FCO Travel Advice.

Economy

Basic Economic Facts (for 2012)

GDP: US $200bn

GDP per head: US $12,100

Annual GDP Growth: 5%

Inflation: 6%

Key exports:  Uranium, petroleum, gas, grains, and metals.

Major trading partners – exports: 16.7% China, 7% Italy, 9.3% Russia, 8.9% Netherlands, 5.9% France, 5.5% Switzerland.

Source: International Monetary Fund (IMF)

Kazakhstan holds the Caspian Sea region’s largest recoverable oil reserves. At the end of 2010, Kazakh proven oil reserves amounted to around 5.3 billion tonnes (39.8 billion barrels) which is about 2,7% of global reserves. In 2012 Kazakhstan produced 1, 728 million barrels of oil a day or 1.6% of world production. Kazakhstan’s oil production is projected to increase to 2 million barrels of oil a day by 2014 due to the start of commercial production in the supergiant Kashagan oilfield, although production was suspended in October 2013 following gas leaks which are currently under investigation. Oil production is also likely to rise with new on / offshore finds. Kazakhstan’s oil reserves are therefore larger than those of Qatar, the US and Canada and it will soon be one of the world’s top oil producers.

Kazakhstan’s gas reserves are 1.8-1.9 trillion cubic metres (tcm). In 2012 Kazakhstan produced 40.1 billion cubic metres (bcm), a figure which has steadily been increasing year on year. Kazakhstan’s main priority is to increase gas production to supply its growing domestic needs.

By 2020, Kazakhstan expects to be exporting 100 million tonnes of oil a year. However, to do this, Kazakhstan will need around $100 billion plus of investment. The UK is playing an important role in the development of the extractive sector in Kazakhstan both through investment in mega oil and gas field projects, but also in developing the Kazakh workforce through education and training, research and development, investment in the local economy and a wide range of diversified industries.

Since 1999 strong oil and other raw material prices combined with strong macro-economic performance and financial health have helped to sustain a period of economic growth. However, like others, Kazakhstan is feeling the continued impact of the global economic slowdown.  GDP growth was 1.2% in 2009 (down from 8.9% in 2007).  The Government responded to the slowdown by devaluing the tenge and taking majority shares of the worst hit banks (BTA and Alliance). However, at the moment the government is preparing the sale of its stake in these two commercial banks.

Kazakhstan now feels that it has weathered the financial crisis and according to the government, its economy grew at an annual rate of 7.5% in 2011 and 5% in 2012 and is expected to grow by 6% in 2013. Nevertheless, Kazakhstan continues to face a number of challenges. Average unemployment is expected to stay at 6-7% and the budget will remain in deficit of 2-3% of GDP for the next few years. The banking sector also remains vulnerable. Although the President continues to stress the importance of diversification, the economy is more reliant on the energy sector than ten years ago.

Business and Human Rights

Kazakhstan is a member of the International Labour Organisation (ILO) and has ratified 19 of its conventions so far including the two core conventions on child labour (Minimum Age Convention in 2001 and Worst Forms of Child Labour Convention in 2003). The government condemns child labour and has committed to take stronger measures to tackle it. Kazakhstan’s Labour Law prohibits the employment of minors under 16.

The 2008 ILO’s report on migration in Kazakhstan noted a supporting of temporary labour only, particularly for skilled specialists and workers. The government allows employers to hire foreign workers for no more than one year. Non-discrimination, including on ethnic grounds, has gained wide recognition but temporary labour which limits the worker by permit to the permit to the employer tends to restrict migrant workers’ employment rights.

Trade unions exist in Kazakhstan, but temporary labour migrants are not entitled to establish trade unions and have limited opportunities for participating in the already existing workers’ associations. Trade unions are often created by specific companies and can be influenced by the management. Trade union activists can also be subject to intimidation and sometimes face legal action. In recent years Kazakh workers have become more assertive at the grassroots level about using collective action to secure their rights. A long running strike, by oil workers in Zhanaozen during 2011, tragically ended in December 2011 after violent clashes between protestors and police left 17 people dead.

Given that all public jobs require knowledge of the Kazakh language, only 5 percent of government jobs are held by non-Kazakhs, even though approximately 30 percent of the population is ethnic Russian. Such policy has led to Kazakh dominance of the economy, and decreases the opportunities for social and economic promotion for non-Kazakh communities. Many women in Kazakhstan face significant challenges in securing employment, gender-based wage disparities and unequal treatment in the workplace.

The Soros Foundation reported in 2009 that Lesbian Gay Bisexual Transgender (LGBT) people in Kazakhstan also face discrimination and prejudice and that the majority regard it as necessary to conceal their sexual orientation identity from people in the workplace in order to retain their jobs and avoid hostility from bosses and co-workers.

In October 2013 Kazakhstan was confirmed as an EITI (Extractive Industries Transparency Initiative) compliant country. EITI is aimed at bringing about greater transparency and accountability over the management of revenues from natural resources, and sets a global standard for transparency.

Bribery and Corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

In 2012, Kazakhstan was ranked 133 out of 176 countries in the Transparency International’s corruption perception index (CPI). Kazakhstan was ranked 120 in 2011, 105 in 2010, 120 in 2009 and 145 in 2008.

Visit the Business Anti-Corruption portal page providing advice and guidance about corruption in Kazakhstan and some basic effective procedures you can establish to protect your company from them.

Read the information provided on our Bribery and corruption page.

Terrorism Threat

Until 2010, Kazakhstan was largely unaffected by terrorism. However, the last few years have seen a number of incidents which have prompted a strong government response.

  • 17 May 2011: A suicide bomber (subsequently identified as a member of a radical Islamist sect) blew himself up inside the National Security Committee (KNB)’s main office in Aktobe, injuring four other people – the first ever recorded case of a suicide bombing attack in Kazakhstan.

  • April 2012: Two separate trials convicted 47 defendants of organising bombing attacks on government buildings in Atyrau on 31 October 2011, and sentenced to terms from five to fifteen years. The terrorist group Jund al-Khalifah (‘Soldiers of the Caliphate’) claimed responsibility for the attack.

  • 14 August 2013: A court trial of six suspects who allegedly plotted to blow up a newly built Opera House at its opening ceremony and other locations in Astana early July concluded with multiple prison sentences.

Read the information provided on our Terrorism threat page.

Protective Security Advice

The Centre for the Protection of National Infrastructure also provides protective security advice to businesses

Most visits are trouble-free. However, mugging and theft occur in cities and rural areas. Foreigners can be targeted.

There have been violent attacks and muggings on the expatriate community in Atyrau and Aktau in western Kazakhstan, and in Astana and Almaty. Attacks have largely taken place at night, in and around local nightclubs and bars or when arriving at home late at night, as the majority of apartment buildings have dark stairwells and no lifts. Avoid walking alone and where possible pre-arrange transport. Keep valuables in a safe place and out of public view. Avoid travelling in unofficial taxis, particularly at night and alone, or if there is another passenger already in the car.

Robberies have occurred on trains, so always lock railway compartments on overnight trains.

Passenger lists on aircraft are not always kept confidential. There have been instances of people being met from an aircraft by someone using their name and then being robbed.

Local travel

The following territories of Kazakhstan are closed until 2015. You may only enter if prior permission has been received from the Foreign Ministry and the Interior Ministry, with the agreement of the Kazakh National Security Committee:

  • the Gvardeyskiy urban-type village in Almaty region (south eastern Kazakhstan) 

  • the town of Baykonur

  • the districts of Karmakchi and Kazalinsk in southern Kyzylorda region

Travelers should note that along the Uzbek-Kazakh border, Uzbek Border Stations are subject to unadvertised closure at any time. Please check our Travel Advice for Uzbekistan before planning any visits to that country.

Road travel

If you wish to drive in Kazakhstan you should apply for an International Driving Permit

Russia, Kazakhstan and Belarus are a single Customs Union so if you’re planning to travel overland in your own vehicle make sure your customs declaration and temporary import license are valid for the entire period of stay in all 3 countries. Your import license can be extended for up to a year if necessary by contacting the customs authorities in any of the 3 countries.

Service stations can be limited outside the main cities. Make sure you take all you need for your journey including water. Make sure your vehicle is properly maintained and in good condition for lengthy journeys.

Many roads are poorly maintained and road works or damaged roads are often not clearly signposted. Driving standards can be erratic. In some remote areas there are often stray animals on the roads. These are especially difficult to see in the dark. In winter, roads can become hazardous due to snow and ice and in particularly bad weather exit routes from major cities are closed.

Local traffic police only have the right to stop vehicles if an offence has been committed, but you should obey any request from the police to stop. The police officer should complete official papers relating to any alleged offence.

Many cars are not safely maintained and do not have rear seatbelts.

Don’t use local buses or mini-buses as they are poorly maintained.

Take care when crossing roads as pedestrian crossings are rarely respected.

With the exception of Air Astana, all Kazakh airlines have been refused permission to operate services to the EU because they do not comply with internationally accepted safety requirements. Only certain specified aircraft in the Air Astana fleet are permitted to fly into the EU. You should avoid flying with the airlines subject to the EU operating ban.

The International Air Transport Association publishes a list of registered airlines that have been audited and found to meet a number of operational safety standards and recommended practices. This list is not exhaustive and the absence of an airline from this list does not necessarily mean that it is unsafe.

In 2009 an audit of Kazakhstan’s Civil Aviation Authority by the International Civil Aviation Organisation found that the level of implementation of the critical elements of safety oversight in Kazakhstan was below the global average.

A list of incidents and accidents in Kazakhstan can be found on the website of the Aviation Safety network.

Local airlines don’t always run to flight schedule. Check your actual departure or arrival time in advance. Keep hold of your baggage tags, as you will need to show them when you leave the airport.

Intellectual Property

IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, then you should consider registering your IP rights in your export markets.

Patent and trademark law is subject to change. Manufacturers and traders are strongly advised to patent their inventions and register their trademarks in Kazakhstan, and to do so through a patent or trademark agent.

Kazakhstan operates under a “first to file” and not a “first to use” jurisdiction, meaning it is important to register as soon as possible to protect industrial property rights (such as trademarks, inventions, utility models and design) in Kazakhstan. Patents are granted for the period of 10-20 years from the date of filing the application depending on the item subject to patent. Patents are granted by governmental Committee on Intellectual Property rights under the Ministry of Justice of the Republic of Kazakhstan. After being granted a patent, patentee is liable to pay annual patent fees.

Regulations for the protection of IPR exist in Kazakhstan.

Refer also to the website of the World Intellectual Property Organisation (WIPO)), and the Madrid Protocol for the international registration of marks.

Read the information provided on our Intellectual Property page.

Organised Crime

Drugs

Kazakhstan is a transit route for Afghan grown and produced opium and heroin. Most of this northern flow is aimed at the growing domestic drugs market in Russia, but Central Asia is becoming a transit route for some Afghan heroin trafficked to Europe. There is also increasing evidence of international crime gangs working in Kazakhstan, often with contacts in Germany and the Baltic States. According to Kazakh Government statistics, in the last four years the amount of drugs seized from illicit trafficking has remained stable. In 2011 the total weight of drugs seized was 34 tonnes. The Central Asian Republics recognize the drugs threat but have only a limited capacity to tackle it, although Kazakhstan is the best equipped to deal with it. Porous borders and ineffective border management hinder the counter-narcotics effort, but the European Commission, OSCE, UN, IOM and US Government are implementing border projects.

Kazakhstan is a sizable producer of illicit cannabis and ephedra, with the largest location of wild growing cannabis in southern Kazakhstan. Precursor chemicals (acetic anhydride) are produced of which the vast majority is for legitimate purposes, but some is diverted for heroin production. According to Kazakhstan’s 2012 National Report on the Drug Situation, at present it is very difficult to obtain an objective picture of drug consumption among the general population and among specific groups (young people, prison inmates etc) because of the lack of a good quality epidemiological study in the country. However, during the last decade the number of drug users in Kazakhstan has increased substantially. There has been an increase reported HIV cases – 13 500 cases in 2009 compared to 9 378 cases in 2007.

Read the information provided on our organised crime page.

More information is available on overseas business risk in a range of markets.

UK Trade & Investment Contact:

Fiona.Kushvid@fco.gov.uk

Countries: Kazakhstan
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