Foreign Direct Investment

Since declaring independence, Kazakhstan has passed a series of reforms to liberalize its economy and attract foreign investment. However, regional conflicts, sanctions imposed on Russia, and negative growth prospects have more recently deterred foreigners from investing in the region. According to UNCTAD's World Investment Report 2024, FDI inflows into the country stood at USD 3.22 billion in 2023, roughly half of the level recorded one year earlier. At the end of the same period, the total stock of FDI stood at USD 157.19 billion. During the year, Kazakhstan entered into a power purchase agreement with TotalEnergies (France) for a USD 1.4 billion onshore wind farm and battery energy storage system. Between January and September 2024, the net inflow of FDI into Kazakhstan's economy dropped 32.3 times year-on-year, falling from USD 2.3 billion to just USD 72.9 million, according to data from the National Bank. Substantial amounts of capital were withdrawn from Kazakhstan in 2024 when net FDI outflows included USD 1 billion to the U.K., USD 353 million to the U.S., USD 244 million to China, and USD 148 million to France. These outflows were largely attributed to capital repatriation, repayment of loans to foreign parent companies, and the withdrawal of profits or dividends. Figures from the same source show that the mining and quarrying sector is the one receiving the most FDI (51.6% of the total stock at the end of October 2024), followed by financial and insurance activities (13%), manufacturing (8.3%), and trade (6.9%). The main investing countries are the Netherlands (23.3%), the U.S. (19.6%), Russia (7.7%), the UK (6.1%), China (5.5%), and France (5.4%).

Kazakhstan is reputed to have a very good investment climate, and several international companies have established their regional headquarters in the country. In general, the government has been gradually improving the business climate for foreign investors, with the Ministry of Foreign Affairs’ Investment Committee and Kazakh Invest providing assistance to investors looking to do business in the country. By law, both foreign and domestic firms can establish and own businesses in Kazakhstan. While no sectors are fully closed to foreign investors, there are restrictions, such as a 20% cap on foreign ownership of media outlets and a 49% limit on domestic and international air transportation services. In 2016, Kazakhstan removed the 49% foreign ownership limit on telecom companies, except for KazakhTeleCom, though foreign investors still need a government waiver. There are no restrictions on foreign capital in banking and insurance, but offshore companies face limits in these sectors. Foreign ownership of pension funds and agricultural land is prohibited, and foreign citizens and companies cannot own private security businesses. Despite institutional and legal reforms, challenges such as corruption, excessive bureaucracy, arbitrary law enforcement, and limited access to a skilled workforce persist in certain regions and sectors. Furthermore, the government's inclination to expand its regulatory involvement in investor relations, promote import-substitution policies, restrict the use of foreign labour, and intervene in companies' operations remains worrisome for foreign investors. Moreover, due to Kazakhstan's lengthy border and deep economic connections with Russia, the investment climate in Kazakhstan is impacted by Russian aggression against Ukraine and the resulting sanctions imposed on Russia. Kazakhstan lacks a screening system and specific legislation addressing the national security implications of FDI. Overall, the country ranks 78th among the 133 economies on the Global Innovation Index 2024 and 68th out of 184 countries on the latest Index of Economic Freedom.