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 (96.5%).

Whilst international observers found all Presidential elections to fall short of the Organization for Security and Co-operation’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.

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 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 applause, President Nazarbayev announced in March that he would stand for April Presidential elections. He won the resulting elections with 96.6% 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.

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 will take place in August 2012. 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.

Since 2007, the only party represented in Parliament was the President’s Nur Otan. This is because no other party was able to pass the 7% threshold during the last elections. 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 7% threshold (Nur Otan, Ak Zhol and CPPK Communists). It remains to be seen whether the two new parties will 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.

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.

OSCE Chairmanship

Kazakhstan fought tirelessly to become the first Central Asian state, indeed, the first former Soviet state, to hold the one-year chairmanship of the Organization for Security and Co-operation in Europe (OSCE) chairmanship in 2010. Some argued initially that Kazakhstan’s human rights and democracy record fell short of the standards required for a credible Chair. Then Foreign Minister Tazhin secured the bid at the 2007 Madrid OSCE Ministerial Meeting when he committed his country to legislative reforms in the fields of media, political parties, elections and local self-government. Resulting reforms in early 2009 were deemed by many to be purely cosmetic and to fall short of making any genuine difference in the areas identified.

Kazakhstan held the OSCE Chairmanship from January until December 2010. As the Chair, it generally performed. Kazakhstan particularly impressed in its role during the 2010 crisis in neighbouring Kyrgyzstan. Kazakhstan fought as hard as it had for the Chairmanship to host the first OSCE Heads of State Summit since 1999, which took place in December 2010 (attended by the Deputy Prime Minister). Again, the Summit organization was impeccable, although some felt that the resulting Astana Declaration, re-affirming the OSCE’s core values, lacked real substance.

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. The Jehovah’s Witnesses in Almaty are facing obstacles in the construction of a new Kingdom Hall and are being subject to a lengthy ‘expert analysis’ of their publication ‘Watchtower’; the implication being that is constitutes a threat to the security of the state. The Grace Church in the east of the country is just one example of an organisation that suffers frequent raids for tax inspections and other purposes.

Foreign Policy

As a former Soviet state, the last country to declare independence from the USSR, and its direct neighbour, Kazakhstan maintains strong links with Russia. China is another powerful neighbour. However, Kazakhstan carefully balances its relations between East and West and the Muslim world and the rest. It likes to package itself as the country that can reconcile different groups, and, in many ways this is true. During the OSCE Chairmanship, Kazakhstan showed itself to be able to play a moderating role between Russian and the West, and, more recently, during the SCO Summit, mediated between Russian and Chinese attempts to assert the leading influence in the Central Asian region.

Political situation

The political situation in Kazakhstan is stable. Public demonstrations are only permitted when authorised. Nonetheless a series of small, unauthorised and peaceful demonstrations have been taking place monthly since January 2012 in Almaty. The focus of these demonstrations continues to shift but a central theme is freedom of assembly.

On 16 December 2011, the 20th anniversary of independence celebrations in the town of Zhanaozen were disrupted by rioting. This quickly spread in the city and resulted in multiple buildings being burnt down and police officers shooting dead 17 protesters (16 in Zhanaozen and 1 in nearby Shetpe). Striking oil workers, who had been demonstrating in the main square since the summer, were involved but the circumstances behind the outbreak of violence, and exactly who instigated it, are not clear.

The Kazakhstani government’s reaction to these events is still ongoing but has resulted in the prosecution of a number of police officers for excessive force and of demonstrators for their parts in the riots. They have also arrested several opposition politicians whom they accuse of being involved in the trouble. As of 14 May these individuals have not been brought to trial.

Economy

Basic Economic Facts (for 2011)

GDP: US $ 178.3 bn

GDP per head: US $ 10,694

Annual GDP Growth: 7.5%

Inflation: 8.3%

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 2011 Kazakhstan produced 1, 75 million barrels of oil a day or 1,6% of world production. Kazakhstan’s oil production is set to swell with the start of commercial production in Kashagan (2012/2013) and a projected rise in output from the Tengiz field. 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 2011 Kazakhstan produced 33.6 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).

Kazakhstan now feels that it has weathered the financial crisis and according to the government, its economy grew at an annual rate of 7% in 2010 and 7.5% in 2011. 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.

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

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 recog¬nition 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’ associa¬tions. 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 more than 15 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.

Bribery and Corruption

Businessman working at a computer

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, last year saw a number of incidents which caused internal concern.

On 17 May 2011, a suspected suicide bomber attacked the National Security Committee office in the north western city of Aktobe. The Kazakh authorities believe the attack was undertaken by a member of an organised crime group. The attacker died at the scene and two people were injured.

On 24 May 2011 there were reports of an explosion in Astana which killed two people. The local authorities investigated the incident.

On 30 June 2011 there was a fire fight between security forces and an armed group in the Temir District of Aktobe Oblast. Further standoffs occurred in the following days, reportedly resulting in the deaths of three police officers and ten members of the armed group.

On 31 October 2011 there were reports of two explosions in Atyrau, western Kazakhstan. One man, who reportedly blew himself up, was killed. No other casualties were reported.

On 12 November 2011 an armed attack took place in the southern Kazakh city of Taraz resulting in the death of seven people.

Read the information provided on our Terrorism threat page.

Businessman reading newspaper

Protective Security Advice

Most visits are trouble-free. However, as in most major cities mugging, sometimes violent, and theft occur in both cities and rural areas and foreigners can be a particular target.

There have been a number of violent attacks and muggings on the expatriate community in Atyrau and Aktau in western Kazakhstan. At least 10 were reported to the British Embassy in Kazakhstan in 2009. More recently there have been assaults reported in Astana and Almaty involving western nationals. Attacks have largely taken place at night, in and around local nightclubs and bars or when coming 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 with friends, colleagues or official taxi firms. 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 subsequently being robbed especially travelling to provincial airports.

As in many major cities, other incidents of crime (involving both foreign and local people) have included theft from vehicles waiting at traffic lights or parked cars, copying of cash or credit cards at fraudulent ATM machines, and spiking of drinks in bars, restaurants and nightclubs. Keep personal belongings, especially your passport, safe and out of sight, as several incidents of passport theft have been reported in the last year.

See the FCO victims of crime abroad page.

Read the information provided on our Protective security advice page.

Local Travel

You may travel to most places in Kazakhstan, but travel to any 'closed territories' or secure areas requires advance permission from the relevant authorities.  Some military/restricted areas are not clearly marked so care should be taken when travelling away from normal routes.

Travellers 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.

Local Travel - Road Travel

International driving licences are valid in Kazakhstan. However if you are resident in Kazakhstan you are advised to obtain a Kazakh driving license after six months residency.

Service stations and petrol/water access can be limited outside the main cities. Make sure you take all you need for your journey. You should ensure that your vehicle is properly maintained and in good condition for lengthy journeys across Kazakhstan. Many cars are not safely maintained and do not have rear seatbelts. In some remote parts of Kazakhstan animals can be seen regularly on the roads and can be especially difficult to see in the dark. You should not use local buses or mini-buses as maintenance of these vehicles is generally poor. Driving can be erratic and care should be taken crossing roads as pedestrian crossings are rarely respected.

Many roads are poorly maintained and road works or damaged roads are often not clearly signposted and in winter, roads are often hazardous due to snow and ice.

Local Traffic Police only have the right to stop vehicles if an offence has been committed.  Travellers should note that a Traffic Police Official should start immediately to complete official papers relating to any alleged offence.

See the FCO driving abroad page.

Local Travel - Air Travel

The EU has published a list of air carriers that are subject to an operating ban or restrictions within the community. With the exception of Air Astana Airlines, all Kazakh airlines are refused permission to operate services to the EU because they do not comply with internationally accepted safety requirements. You should avoid flying with the airlines subject to the EU operating ban. If you already have a flight booked with any of them and it is part of a journey, which commenced in the EU you should consult your travel agent. You should check the European Commission website to see whether this will affect your travel.

It is not known whether maintenance procedures on aircraft used for internal or regional flights are always properly observed or whether passengers are covered by insurance. However, the situation is constantly changing; there you should check these issues with the carrier in addition to the EU website noted above.

Local Airlines do not always adhere to schedules and you are advised to check your actual departure or arrival time in advance. You should keep hold of your baggage tags, as you will be required to show them when you leave the destination 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.

Patent processes in Kazakhstan can be long and a backlog of applications exists. Application for patents of overseas inventions must be made within 1,5 years of filing the first foreign application. 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 agency on intellectual property. 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 significant 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. The total quantity of drugs seized in 2009 was 28 tons, no change from 2008 where there was a 19% increase on the previous year. The Central Asian Republics recognize the drugs threat but have only a limited capacity to tackle it., although Kazakhstan is the best equipped. Drug seizures in Central Asia increased tenfold between 1995 and 1999 and almost tripled between 1999 and 2000. Porous borders and ineffective boarder management hinder the counter-narcotics effort, but the European Commission, OSCE, UN, IOM and US Government are implementing boarder 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 official statistics, there were 49,795 registered drug addicts in Kazakhstan as of the start of 2011, which 8 per cent less than the previous year. However, during the last decade the number of drug users in Kazakhstan has increased substantially. UNODC estimate that the real figure is probably higher and that 70% of these are injecting drug users. 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.