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Kazakhstan: Raising competitiveness

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photo_50227With the introduction of a tenge floating course and the freezing of all its project initiatives up 2018, Kazakhstan has entered a tough struggle for competitiveness with its two neighbours, Russia and China, but in spite of the hardships for the population is clearly increasing its attractiveness for European investors, who have already developed a special relationship with this leading Central Asian country. This change in financial policy will favour non-oil related industries and will stimulate much-desired diversification of the economy, which will be beneficial to Kazakhstan, which is over-dependent on oil exports.

The change of financial policy did not come as a surprise - being engaged with both Russian and Chinese economies, the Kazakh government did not have an alternative but to follow the path of its neighbours, both of which are active in the devaluation of their currencies, the rouble and yuan. Moreover, having Iran return to the world oil market, one can expect further drop in oil prices, which sustains more than half of Kazakhstan's export. Subsequently, President Nursultan Nazarbayev has suggested to revise the development agenda, based on possible oil prices of $30-40.

However, this sharp turn opens numerous possibilities for investors in non-oil industries, such as mining, especially in view of the further globalization of the country's economy – by the end of this year, Astana plans to join the World Trade Organization (WTO), which will attract direct foreign investments (FDI). Up to now, the government has excelled in creating a stable and favourable climate for businesses, including those from Europe. According to World Bank estimates, in conditions for business, Kazakhstan has overplayed China at 77th in the world, while Beijing took 90th. Designed for investors, the Kaznex Invest agency is responsible for communication between foreigners and Kazakh institutions and national companies to offer opportunities of working in different formats, including regional. Starting with a visa-free regime for a number of key European partners, with the Netherlands and France in the first ranks, and continuing to introduce tax advantages and legal protection equal with national investors, the Kazakh government has succeeded in increasing foreign direct investment as the previous year's statistics show, in spite of a general FDI decrease in Central Asia. Up to recently,  the oil and mining industries were the leaders in attracting foreign currency flows, however the new disposition promises to primarily favour mining.

From January 2015, mining has been leading in drawing FDI and its rapid growth. The transport sector has also showed much vitality – Kazakhstan's geography opens unique opportunities for multiple transport corridors, connecting Europe and Asia, in particular the New Silk Road, which ensures the reduction in the time taken to exchange goods between Shanghai and Berlin to two weeks.

These factors remain the key elements for investors' continuing interest, however it is the stability that overwhelms the other factors – through multiculturalism and well balanced linguistic policy, Kazakhstan remains the only country in the post-Soviet arena to avoid ethnic conflicts. Corruption, however, is a real plague on the economy, undermining many promising endeavours. Conscious about its dramatic consequences for the economy, the political leadership has updated its laws and launched an anti-corruption strategy for 2015-2025, with a special emphasis on the digital economy, increasing the transparency of bureaucracy and the financial system. These anti-corruption policies are included in the EU-Kazakhstan co-operation agreement, which underlines the significance of the well being of this country for Europe.

The new financial policy will not affect the existing framework and the EU will continue to co-operate with Kazakhstan within the framework of the enhanced partnership endorsed in 2014, which concerns more than 30 areas and policies.

On contrary to many other players, including some of member states, Kazakhstan has remarkably low debt levels, one of the lowest in the world some experts say,  at just 12% of GDP, allowing it to venture into its future endeavours with real optimism.

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