Institute for War and Peace Reporting | Giving Voice, Driving Change

Astana Clamps Down on Investors

Planned legislation seems likely to have a sharp impact on the freedom of overseas companies to run their operations in Kazakstan
By Dosym Satpaev

Kazakstan's government is planning to tighten up on foreign investors so that more of the profits from the country's huge mineral and oil wealth are kept at home. New legislation to ensure equal rights for foreign and local investors should reach the statute book by the beginning of next year, according to the Interfax information agency.

"For a long time it's been apparent that foreigners enjoy better rights and tax breaks than local businessmen," an expert from the Centre of Socio-economic Studies, Oljas Duisenov, told IWPR.

A tightening of investment regulation has been anticipated for some time by leading Kazak businessmen and the media they own. "It's no secret that various financial-industrial groups which are well represented in government have strengthened their influence in recent years," said the independent political scientist Akhmed Makhmutov. "They now have sufficient muscle to lobby for their interests."

Confrontation is building up sharply between local financial concerns and foreign investors as Kazaks seek greater access to the highly profitable extraction and sale of raw materials.

"Because extra money has been flowing into Kazakstan, efforts began last year to start a development bank and an oil foundation," noted Mikhail Leskin, economic correspondent of the newspaper Business-Courier. "But when they started looking for investment funds they found the most profitable areas were tied up by foreigners who enjoyed preferential conditions under the investment law of 1994."

Pressure to review the old legislation is now building up from government institutions in concert with local business groups and the media that belong to them. According to the chairman of the Kazak Invesment Committee, Dulat Kuanyshev, the new law will replace one on foreign investment and one on state support for investment. He said the new legislation would enable the government to select the best and biggest of the investors.

A sign of the new mood came when the media accused several companies in the Caspian Sea area of polluting the environment. Such violations and poor treatment of local workers are key issues in the drive to increase control over overseas operations.

Critics find no shortage of complaints. According to Makhambet Khakimov, head of the enviromental NGO, Kaspiy Tabigaty, an oil well accident in 1998 in the Atyrau region killed more than a million ducks and seagulls.

Local environmentalists say that in April last year a power cut at another field caused a hydrogen sulphide leak which led to the deaths of huge numbers of seals and sturgeon. Another company has been accused of illegally burying toxic waste.

Meanwhile, tension in the labour market between foreign investors and local staff has cast a cloud over a number of foreign companies. Kazak trade unions have been actively enlisted in this struggle.

At a meeting of the Council of Foreign Investors on December 8, President Nursultan Nazarbaev assured overseas businessmen that their investments would be safe. But some experts believe adoption of the proposed new law would give Kazak authorities power to nationalise any company it liked on grounds of environmental damage or poor treatment of local workers.

Because the authorities have long turned a blind eye to such violations, they find it easy to suddenly notice them and clamp down. This pressure on overseas companies could not have begun without the agreement of Nazarbaev who had long been working to attract overseas investment.

Commentators are divided over the reasons behind the change of policy. Some believe Nazarbaev was responding to Western accusations of human rights violations and corruption. Others think the policy was forced on him by powerful industrial-financial groups at home.

Nevertheless, it seemed unlikely the government would wish to get rid foreign investment entirely. Such a policy would cause serious conflict with states that have economic interests in Kazakstan - countries such as the USA, UK and Russia.

Dosym Satpaev is IWPR project editor and Tolganai Umbetalieva is an expert with the Kazak Institute for Strategic Studies