Harry Lepinske & the Central Asian Productivity Center sponsored another Silk Road conference & Harry asked me to fill in as a moderator of a panel discussion on Kazahkstan (KZ), so the focus of this post is on that subject. Dauren Kabiyev, the chief economist @ the embassy of KZ, provided an overview of the country. GDP/per capita has increased by a factor of 16 to $12,000/year. Foreign trade has increased to $120B/year. It’s top 5 export products are oil, gas, minerals, agriculture, & metals. It’s foreign reserves consist of $90B in gold & foreign currencies gained in its national oil fund. KZ moved up to #49 in the “Doing Business” rankings & #68 in the Index of economic freedom. KZ has the world’s 9th largest pool of oil & gas, & is the largest landlocked country in the world. It is diversifying to increase its growth of renewables, which is attracting foreign investment.
Nick Pribus, a business consultant from Chicago, brought Foodmaster to KZ. He 1st went to Moscow in 1992, & then KZ in 1993 when he worked in real estate. His model then was: buy real estate; sell real estate; repeat. Then in 2008 he moved into the 5 stages of grief:
- denial that the crisis of 2008 didn’t exist
- anger through 2009
- bargaining in 2010 @ the expense of everything else
- depression in 2011
- & finally, the comeback with undiscovered opportunities in 2012.
His contention is KZ offers the best opportunities because of its uniqueness & it’s much easier to work there because of its people, who are open, smart, & unlike many others in the region, look for win/win situations. Foreign investors don’t understand KZ-they don’t want 200 page legal documents: they want to resolve problems over dinner with a good relationship. They are not politicians for sale; they are pragmatic & straightforward. KZ is #2 in the world behind Australia based on arable land & #3 in oil & gas on a per capita basis. Beef from KZ is in much the same position as was sea bass from Chile years ago.
Attorney Alex Nisengolts from Chicago talked about “Opening a business in KZ.” Doing business in Kazakhstan (final) – Alex Nisengolts 17 May 2013 Early in his law career a mentor suggested he focus on KZ & since he met his wife there in 1994, he has built his career & family there since then. KZ has changed dramatically in the past few years with strong GDP growth of 5-7%. The middle class has grown by a factor of 8 in purchasing power parity terms. Poverty has been reduced from 46% of the population to 5% resulting in many new consumers entering the market. Investors have 3 options:
- open a representative office
- open a branch
- open an LLC/joint stock company
To set-up a business, you need the appropriate documents & a license. The currency is convertible @ the rate of 151 Tenge/US$. Big transactions must be cleared by the national bank. Transfer pricing must be done @ arm’s length. Labor is employee friendly, as hiring is not @ will. Work permits for ex-pats are limited to 30% of management & 10% of professional & skilled workers. Taxes are low with a corporate tax rate of 20% & personal income tax rate of 10%. Dividends & capital gains can be tax exempt. Tax residency rules are similar to those in the U.S. You must negotiate with the tax authorities on issues of permanent establishment & the location of management. Legislation changes frequently, so you must do robust tax & legal planning. Do your due diligence, comply with the law, & avoid tax havens.
- KZ is working on joining the WTO ASAP & the US supports this. Politicians & administrators are accessible, so get good local partners. Don’t just show up to sell-build relationships.
- Metals, & oil & gas constitute 85% of KZ’s natural resources, but they are committed to reducing this proportion to 60% in the next 5-6 years.
- Their oil fund was founded in 2000 & modeled after Norway’s program to the tune of $15B from a banking account from their oil surplus. It makes annual transfers to social programs & invests in government bonds, hedge funds, & PE funds.
- The best US travel connections to KZ are via Amsterdam & English is acceptable as the language of business in cosmopolitan Almaty.
- Opportunities are in retail & industry, as KZ needs equipment. Shopping malls are attractive, but the economy is not as scalable as in China. To take advantage of all the arable land, don’t buy land, rather invest in viable businesses-there are many inputs & outputs which still aren’t there. Special Export Zones & rapid depreciation are other opportunities.
- The central Asian customs union of which KZ is a member provides access to 170M consumers. KZ is getting financial help from the US & the World Bank.