Almazing KZ Blog

Kazakhstan

is a middle-income country with an estimated gross national income per person of $5,010 in 2007 (GNI, Atlas method). It is the largest country in Central Asia and one of the most sparsely populated in the world. The country has considerable mineral wealth and vast areas of arable land. Kazakhstan inherited significant amounts of infrastructure from the Soviet times and has a relatively well-educated population.

Kazakhstan has enormous economic opportunities. The projected expansion of oil production, an abundance of other natural resources, strong oil prices, responsible macroeconomic policy, and other policy improvements set the stage for a very promising future. However, the country also faces significant risks, both in the shorter and medium term (maintaining macroeconomic and financial sector stability) and for the longer term (increasing Dutch disease complicates diversification).

Although income per person is expected to rise, some inequalities remain. In 2006 overall poverty headcount ratio (at national poverty line) was estimated at 18 percent of population. However, poverty rates exceeded 37 percent in oil-rich Kyzylordinskaya oblast and 25 percent in two other oblasts, grain-producing Akmolinskaya oblast and oil-rich Mangistauskaya oblast. The latter is leading in terms of rural poverty which was over 63 percent in 2006. The country also has some of the lowest social indicators in the Europe and Central Asia region, such as access to safe drinking water as well as incidence of tuberculosis. HIV/AIDS infection rates are increasing very fast, although from a small base.

In addition, Kazakhstan is facing a number of environmental challenges, including industrial pollution, land degradation and desertification, and the nuclear heritage of the Semipalatinsk polygon. However, significant improvements have occurred in the environmental situation in the Northern Aral Sea area, which were achieved with the construction of the Northern Aral Sea dam, Syrdarya River regulation, and the initial revival of the Northern Aral Sea.

Kazakhstan joined the World Bank in July 1992. In the first few years after independence, the World Bank focused on helping the country to implement financial and private sector reforms. After 1997, the focus shifted to public administration reform, with specific attention on improving the country's welfare and social protection policies. At present, the World Bank is assisting the country with reforming agriculture, protecting the environment, upgrading infrastructure, with the aim of fostering sustainable economic growth and reducing poverty.

Economy

Developments since independence

Following independence in 1991, Kazakhstan was one of the earliest and most vigorous reformers among the countries of the former Soviet Union. In the early years of transition, prices were liberalized, trade distortions reduced, and small- and medium-scale enterprises (SMEs) privatized. The treasury and budget processes were significantly improved. Kazakhstan scores much less favorably, however, in the areas of land reform in the rural areas, in the creation of an enabling environment for the small and medium sized enterprises, and in the elimination of corruption.

The government has established a basic framework to attract foreign direct investment (FDI) into its resource-rich oil and mineral sector. Banking reforms and state-of-the-art pension reform followed, together with the unbundling and partial privatization of the electricity sector.

More recently, a framework for public resource management was introduced. It lays the foundation for a modern civil service, as well as for the creation of a National Fund to save part of the revenues from oil and other extractive industries.
Recent economic developments 

In 2006 and the first half of 2007, the non-tradable sectors of the economy (construction, finance) became increasingly heated, reflecting extremely rapid growth in foreign borrowing and commercial credit expansion. Recent changes on international financial markets have changed the economic picture in the country. Foreign borrowing has become more limited and expensive.

The credit and construction expansion in the country has slowed considerably, implying that economic growth may be slowing as well (roughly half of GDP growth in recent two years was due to finance and construction sectors). The National Bank spent around 1/4 of its reserves defending the Tenge in August-October 2007. Much more modest capital inflows could drive the Kazakhstan balance of payments into deficit.

Supply-side constraints are also increasingly binding on growth. There are clear shortages of labor at many skill levels. Infrastructure inadequacy and bottlenecks are becoming more apparent in such forms as frequent blackouts and traffic jams in large cities. Regions outside of the two main cities and resource-rich areas may be falling behind in growth and development.
Challenges ahead 

Despite major achievements, the following issues still need to be addressed:

Managing oil revenues effectively. Good management of oil revenues and sound public spending are essential to improving competitiveness and productivity. Oil flows need to be managed to avoid inflation as well as to develop the non-oil sector.

Diversifying the economy by improving the business environment. The country needs to attract private investment, both foreign and domestic, into non-extractive industries to increase job opportunities and incomes. To lower investment risks and the cost of doing business, red tape and rent-seeking behaviors such as licensing and inspections must be reduced, and reform of key institutions such as the tax and customs administrations must continue.

Building human capital. Given the country's acute skills shortage, it is essential to invest in education and make the system more responsive to the needs of a market economy. It is also necessary to replace the quotas on the import of skilled foreign professionals by a system that attracts highly qualified labor.

Adopting a sound agricultural policy. Adoption of a support policy that defines the degree and modalities of state intervention in agriculture is essential. Land restructuring and management will require significant attention. Policies to encourage the development of water-user associations and related water-management policies also need attention.

Developing institutions that can implement a sound spending policy. The Government needs to bolster its capacity to conduct effective project analysis, evaluation, and design, and to implement targeted social assistance and sectoral development strategies.

Improving infrastructure for a better business environment. Businesses can be helped to become more profitable if key infrastructure in telecommunications, roads, and irrigation facilities is improved.

Annual Real GDP Growth (%)
World Bank Program
The World Bank's mission in Kazakhstan is to support the country's efforts to achieve long-term economic growth that translates into more jobs and better social services for all citizens. We do so through project financing, analysis and advice that support the country's development agenda.

  Landmark Projects

Northern Aral Sea and Syr Darya
Electricity Transmission
Road Transport

Program to date Landmark Projects

Northern Aral Sea and Syr Darya
Electricity Transmission
Road Transport

Since joining the World Bank in 1992, Kazakhstan has been supported by the institution in various spheres. The Bank assisted in upgrading and modernizing the country's power transmission systems, helped increase agricultural productivity by rehabilitating deteriorating irrigation systems, and encouraged the rural community to diversify into non-traditional areas by nurturing their business skills. In addition, people in the country's western region, who have suffered from a shortage of good quality water, now enjoy better health as a result of improved water supply and sanitation.

Since 1992, total World Bank commitments to Kazakhstan have amounted to more than $2 billion for 31 projects. In fiscal year 2008, the commitments to Kazakhstan totaled almost $150 million, bringing total overall commitments for active projects to $708 million.

Going Forward

Given the country's reduced need for external financing, the World Bank program has shifted toward more focused investment loans, policy dialogue, and knowledge transfer. The second round of the three-year Joint Economic Research Program, an innovative mechanism for planning and financing analytical work, is currently being implemented by the Bank and the Government of Kazakhstan under a cost-sharing arrangement.

The Bank’s Country Partnership Strategy Progress Report (CPS Progress Report) with Kazakhstan, approved in 2008, is built on the lessons learned in earlier years and on renewed efforts to strengthen the policy dialogue.

The Bank’s strategy will focus on the following areas:  

In the last year, the once-shrinking Northern Aral Sea has filled up again and fishermen have been able to catch ten times more fish.



Prudently managing oil revenues and increasing public sector efficiency. The National Fund of the Republic of Kazakhstan was established in 2000 to prudently manage oil revenues. The Government has since focused on the optimal size of the National Fund, as well as on the level of public spending and ways to increase its efficiency. The Bank is offering best-practice experience and analytic studies on oil-fund management to help the Government manage oil windfalls.
Strengthening the Government’s capacity to identify and reduce barriers to businesses and private investors. To ensure economic diversification, the government is committed to reducing the barriers for new businesses and to maintaining the country's liberal trade regime. WTO accession and greater regional cooperation, particularly in areas such as infrastructure as well as customs and trade facilitation, are seen as vehicles to help Kazakhstan’s firms to link into the global marketplace.
Building the foundation for future competitiveness by investing in human capital and basic infrastructure. Consensus has recently been reached in the Government that capital and labor productivity must be enhanced to achieve the country’s long-term vision of development. With this aim, the Bank is helping the Government identify options for reforming railways, road management, telecommunications, and electricity markets.
Sustaining competitive growth through a focus on the environment. Kazakhstan inherited significant environmental liabilities related to past military, industrial, and mining activities. It also faces land degradation and desertification and water scarcity. The National Environmental Action Plan for Sustainable Development prepared in 1999 sets out remedial investments that are now being undertaken by the government. The World Bank supports the Government’s activities through the implementation of four ecological projects that address the management of drylands, preservation of the northern part of the Aral Sea, cleaning up the pollution of river and underground water, and industrial waste treatment.

The world’s ninth largest country, Kazakhstan occupies a vast but relatively isolated space

between Europe and Asia. Kazakhstan has a long and rich history, having evolved from a
nomad civilisation dating back to the first millennium BC through various periods of
expansion and occupation by the Soviets to its current position as a modern nation state. Its
diverse ethnic composition combines the native Kazakh people and tribes with a large
population of Russians, who each make up approximately half of the population, but remain
separated by language and religion. The convergence of these two distinct populations has
created a unique culture reliant on both agricultural and industrial ways of life. With an
abundance of natural resources and a growing economy, today Kazakhstan is an attractive
market for foreign business and investments. An understanding of this distinctive Kazakh
culture is essential for any organisation or individual wishing to do business in Kazakhstan.
Kazakh Culture - Key concepts and values
Hospitality – Traditionally a nomadic culture, hospitality has always been an important part
of Kazakh culture. Displays of generosity and welcoming behaviour are common in both
social and business Kazakh spheres. An invitation to the traditional Kazakh feast, dastarkhan,
is the most popular form of Kazakh hospitality. Sharing food and drink with family, friends
and acquaintances is an essential part of Kazakh culture and should be respected and shared.
Tradition – Kazakh traditions and culture have been passed on from one generation to
another through oral histories told by traditional Kazakh tribal leaders and elders. Much of
the traditional Kazakh culture was lost under Soviet rule but strong elements remain today
and are celebrated among family, a central part of Kazakh society. While the country is
becoming increasingly modernised and in contact with global culture, Kazakhs hold on
strongly to their traditions and culture of which they are proud.
Religion – Before the introduction of the Sunni branch of Islam in the seventeenth and
eighteenth centuries, Kazaks held strong animist and shamanist beliefs. Since Soviet rule
when many Russians came to live in Kazakhstan, the Russian Orthodox religion has had an
important presence in Kazakh society. Today, the government struggles to maintain a
Doing Business in Kazakhstan © Communicaid Group Ltd. 2007
healthy balance between the two and they generally have an equal presence in Kazakh
society. Visiting Kazakhstan or doing business with Kazakhs, it is important to be aware of
these cultural differences and sensitivities, as well as the unique traditions and customs of
each and how they influence Kazakh culture and business etiquette.
Doing Business in Kazakhstan
Conquered by Russia in the 18th century, Kazakhstan was under Soviet rule until it gained
independence in 1991. During the 1990s, Kazakhstan went through a period of economic
decline having lost ties with their largest supporter. Since then a series of economic reforms
and privatisation have allowed for tremendous growth and development into new sectors
including energy and oil which until then had been largely untapped. An abundance of
natural resources and agricultural products has also helped Kazakhstan’s economy
tremendously. Today Kazakhstan still struggles to maintain a balance between its industrial
and agricultural sectors and the amount of foreign investment and influence, but by and large
Kazakhs are enjoying a period of growth and improvement. Many are investing large sums
in nearby countries and establishing extensive international networks. As Kazakhstan strives
to open its economy and borders to the rest of the world, those wishing to invest or do
business with Kazakhs should be aware of the unique business culture and etiquette of
Kazakhstan.
Kazakhstan Business Part 1 - Working in Kazakhstan (Pre-departure)
o Working practices in Kazakhstan
• Business in Kazakhstan tends to take longer than in most Western societies, so
patience and taking time to establish relationships with Kazakh colleagues is
essential.
• Many people in Kazakhstan are Muslim so it is not uncommon for them to take
breaks from work during the day for prayer. Be aware of this as you do business
with Kazakhs and try to schedule appointments around the prayer schedule if
necessary.
o Structure and hierarchy in Kazakh companies
• Kazakh business culture dictates a strict hierarchical structure where leaders separate
themselves from the group and power is distributed from the top.
• There is generally only one key decision maker, a position occupied by the most
senior person in the company. Those in a more subordinate position represent the
business during meetings but do not have the authority to make decisions.
• The formality and structure of greetings in Kazakhstan reflect the position a person
has in society. Normally the less senior person would extend their hand first to show
respect and deference.
Doing Business in Kazakhstan © Communicaid Group Ltd. 2007
o Working relationships in Kazakhstan
• Establishing close personal contacts is key to all business dealings in Kazakhstan.
Kazakhs prefer to get to know a person before entering into business with them and
committing themselves to business decisions.
• Kazakhs tend to have an indirect style of communication which makes
understanding and getting to know them a little more challenging and timeconsuming.
Spending the time talking and getting to know each other will help the
business relationship and ensure more efficient decision-making.
Kazakhstan Business Part 2 - Doing Business in Kazakhstan
o Business practices in Kazakhstan
• In Kazakh business etiquette, initial introductions tend to be relatively informal.
Shaking hands and using first names is common, especially in more informal get
togethers outside of business.
• Generally speaking, business meetings in Kazakhstan are somewhat unstructured
and open to variation. Kazakhs are very traditionally oriented but recognise that in
order to progress they must be open to new ideas. Meetings are often a place for
discussion and new ideas.
• The negotiation process in Kazakhstan can often become very lively and involved.
Kazakhs are known for their love of argument and debate, but be sure that you never
openly contradict someone who is more senior than you.
• The exchanging of business cards is common practice. Business cards should be
translated into English and Russian. When receiving a card it is polite to take a
minute to look at it carefully before putting it away.
o Kazakh business etiquette (Do’s and Don’ts)

DO shake hands with your Kazakh colleagues when arriving and leaving business
discussions. When greeting a female colleague however, you should always wait for
her to initiate the handshake.

DO accept an invitation to a traditional Kazakh meal, as hospitality is one of the most
important parts of Kazakh culture and getting to know your business counterparts on
a more personal level is paramount for successful business interactions.

DO show respect towards your Kazakh business associates by taking a sensitive
approach to proper behaviour and cultural gestures. Be aware in particular that a
number of Kazakhs are Muslim and therefore, using the left hand to pass something
to them, for example, could bring shame to the individual and should be avoided.

DO dress suitably and in a conservative manner. This is especially important for
businesswomen, who should wear modest clothing.
Doing Business in Kazakhstan © Communicaid Group Ltd. 2007
 DON’T assume that business will always be conducted in Russian, the predominant
language of use in Kazakh business. The issue of which language to use is a hot
political topic and one which is frequently debated in Kazakh society. Always check
in advance which they will be using and have your materials translated and an
interpreter ready.
 DON’T assume that all Kazakhs are of the same religion or ethnicity since the
population is divided almost equally between native Kazakhs and Russians. While
some sensitivity exists between the many religious groups and ethnicities, people are
relatively tolerant and open.
 DON’T expect a written contract for every decision or deal made. If you are on good
terms with a Kazakh and have a solid relationship of trust and mutual
understanding, often a handshake is enough to ‘seal the deal’.
Kazakhstan Culture Quiz - True or False
1. Sharing meals, hunting and having BBQs are common ways of building rapport with
your Kazakh counterparts.
2. Social class separates society in Kazakhstan.
3. Kazakhs place a high importance on family traditions and respecting their elders.
4. There are few women present in Kazakh business.
5. When invited to someone’s home, it is polite to remove your shoes at the door.
Culture Quiz - answers
1. True. Most of these are traditional ways of spending time together but still an
important part of building relationships in Kazakhstan.
2. False. Certain divisions exist based on traditional tribal affiliations but there is also a
growing division between classes as some Kazakhs become wealthier through oil and
industry investments while others are left behind.
3. True.
4. False. While women typically have a more traditional role in the home, minding the
children and preparing the food, they are increasingly becoming employed in
important positions. No matter their role, women should be treated with respect.

5. True.

* Source: CIA World Factbook 2007