Kazakhstan Seeks To Improve The Climate For Foreign Investors

July 1st, 2020

Summary:

• Increased foreign investments
• Improve safety and reduce corruption
• Establish a modern mining system

Kazakhstan has been striving to appeal to foreign investors aggressively since 2016. And it appears they are still pushing with strong momentum in 2020.

Foreign direct investment (FDI) flows to Kazakhstan are among the highest of countries in Central Asia. The largest inflow investments continue going into the mining industry.

What have they have accomplished since 2016…?

New Subsoil Resource guidelines updated in 2017 and again in 2018.

Key takeaways:

• Ease of entry regulations
• Formal classification rules amended
• “First Come, First Served” licensing procedure

International arbitration liberalized

Arbitration was not always the go-to method for handling disputes in Kazakhstan. In the case that arbitration is not pursued, the settlement usually occurred in a local Kazakhstan court. This was worry some for foreign investors due to biased settlements that resulted in favor of the localities.

The remedy was the formation of the International Arbitration Center of Astana International Financial Center (IAC AIFC). This entity launched in 2017 and handles all dispute classes regarding local and foreign parties.

The huge impact behind the AIFC is the legal models and procedures. They have adopted the United Nations Commission on International Trade Law (UNCITRAL) model. This creates a level playing field for foreign investors worried about various forms of corruption and bias.

The UNCITRAL law also gives way to more investments and business formations with legal guides for productive and safe countertrades and contract building. This opens the possibility of larger import/export deals between the U.S. and Kazakhstan.

Foreign Direct Investment (FDI) in Kazakhstan

Source: Trading Economics

In October 2018, 16 major U.S. businesses visited Kazakhstan seeking trade deals. The outcome of the trade pursuit resulted in agreements across many industries. Most businesses are names American’s are familiar with. Here are a few… Coca Cola (KO), Parker Drilling (PKNY), Exxon Mobil (XOM).

The establishment of these multinational enterprises has been tremendous in recent years. Currently, over 700 American companies are operating within Kazakhstan.

The U.S. has been one of the biggest inflow contributors to the Kazakhstan economy. However, It’s important to note the trade deficit with Kazakhstan has been continuous. The trade deficit according to the census calculations was 485.7 million for the year of 2019.  

U.S. FDI in Kazakhstan rose nearly 45% in 2018 most likely due to the attractive legal framework changes.

International Relations:

On June 23, 2020, U.S. President, Donald Trump praised Kazakhstan’s president on his first term anniversary. He also extended arms in hopes of strengthening a partnership between the U.S. and Kazakhstan.  

June 22, 2020, the Minister of Ecology, Geology, and Natural Resources of the Republic of Kazakhstan, Magzum Mirzagaliev tweeted,

“We discussed the development of a marketing strategy with IHS Markit, a leader in the development of independent expertise and a strong strategy for the organization of roadshows to attract large foreign investors in the field of exploration, to demonstrate the investment and geological potential of the country.” (Google Translation)

Kazakhstan’s engagement with IHS Markit could go a long way. Especially after the positive sentiment revolving the safety measures by the government throughout the Covid-19 pandemic.

March 9, 2020, Kassym-Jomart Tokayev enacts a Presidential Decree on a new concept of foreign policy for Kazakhstan over the next 10 years.

This Decree concept expresses concern and reparation commitments for the following, but not limited to,

1. Multilateral security and communication.
2. Physical and cyber terrorism and threats.
3. Closing the modernization gap in global growth.

Risk Factors:

• Foreign Policy changes
• Geographic disadvantages
• Lacking infrastructure (water & electricity)
• Landlocked (Negative effect on profit margins)

Quick Take: Kazakhstan Gold

The Engineering and Mining Journal (E & MJ) released an outline on Kazakhstan’s intentions of becoming a major Gold producer. One notable statement that is unfolding in truth is their commitment to holding a top 10 gold producing rank within a decade.

Source: Gold.org

Now claiming the number 13 spot according to USA today’s top 25 countries with the largest gold reserves. Kazakhstan holds a total of 386.5 tonnes as of World Gold Council’s January 2020 audit. This increase is likely deriving from the bullish gold trend. Kazakhstan being a landlocked country and many high-potential reserves and promising deposits benefit tremendously with mineral price increases. We hope to them start reinvesting into more telecommunication and infrastructure project into distressed regions.

Kazakhstan ETF’s

In 2018, Moscow kicked off their first Kazakhstan focused ETF, FinEx FFIN Kazakhstan ETF (FXKZ).

For U.S. investors, Kazakhstan’s exposure through ETFs has been limited. Currently, the only Kazakhstan exposure exists in North Shore Global Uranium Mining (NYSE: URNM) and Global X Uranium (NYSE: URA) ETF’s. With relevant stakes in companies such as Rio Tinto and NAC Kazatomprom AO.

Kazakhstan miners of interest:

Glencore (OTCPK: GLNCY)- UK based multinational mining firm. Producing a large portion of zinc along with lead, copper, silver, and gold.

Rio Tinto (OTCPK: RTNTF)– UK and Australian multinational mining firm. Interest in copper exploration with JV partner Kazgeology, to explore areas of interest in the Karaganda region.

Kaz Minerals (OTCPK: KZMYY)- Kazakhstan/UK headquartered, operating the largest copper mine in Kazakhstan, Aktogay. In 2019, Kaz expressed the commitment of another $1.2b in expansion to the open-pit mine.   Palayan

Palayan Resources Inc. (OTCPK: PLYN)- Recently announced a share agreement with Scythian Mining Group, over the Kokkus Au Project. The Kokkus project is a significant potential play with positive indications (inferred and indicated) sharing geological similarities with Russian giant gold deposit Sukhoi Log. The Kokkus project is also zoned in the Karaganda region.