Kazakhstan

LB5201 -Managing Business in Global

context

Swapnil R. Humane 12669309

Munna Lal 12668305
Hoang Nhat Tan 12618888
Rishi Anand Mishra 12665858

Table of Contents
1.

Introduction .................................................................................................................................... 3

2.

Geographical Information ............................................................................................................... 3

3.

Demographic information............................................................................................................... 4

4.

Political, Economic & Cultural Attributes........................................................................................ 6

4.1 Economic Environment ................................................................................................................. 6
4.2 Political Environment .................................................................................................................... 7
4.3 Cultural Environment .................................................................................................................... 7

5.

Benefits, Costs & Risk Analysis ........................................................................................................ 8

5.1 Benefits ......................................................................................................................................... 8
5.2 Risks ............................................................................................................................................ 10
5.3 Costs ............................................................................................................................................ 11

6.

Comparative Advantage................................................................................................................ 13
6.1 Rich Natural Resources ............................................................................................................... 13
6.2 Industrial and Innovative Development ..................................................................................... 13
6.3 Investor Protection of Rights ...................................................................................................... 14
6.4 Investment Preferences and Incentives...................................................................................... 14
6.5 Favourable Business Climate ...................................................................................................... 14
6.6 Infrastructure .............................................................................................................................. 15
6.7 Kazakhstans stage of competitive development ....................................................................... 15

7.

Porters Diamond Analysis ............................................................................................................ 16

7.1 Agri-Business Sector: Grains ....................................................................................................... 18
7.2 Agri-business Sector: Meat ......................................................................................................... 19
7.3 Agri-business Sector: Dairy ......................................................................................................... 19
7.4 Chemical Sector .......................................................................................................................... 20
7.5 Logistics ....................................................................................................................................... 20
7.6 Information Technology and Business Services .......................................................................... 21

8.

Conclusion .................................................................................................................................... 22

9.

Bibliography .................................................................................................................................. 23

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1. Introduction
Kazakhstan also known as Republic of Kazakhstan is located at the central part of Asia and
Europe which is northwest of china east of Uzbekistan and south of Russia. It is one of the
countries that has been inhabited from many years and connects Europe and Asia
This report analyses Kazakhstans business environment and the factors that have helped
them to grow in a shorter span of time. Kazakhstan is one of the developing countries which
is making a rapid economic growth and is one of the developing nations. The advent of
Kazakhstan as a growing economy is attracting the investors and the companies to invest in
it, its factors such as good and stable political system, abundant natural resources, highly
educated manpower are only some of the benefits that are being avail to the investing
companies. A lot of benefits and risks are discussed in this report, in addition to this, the
sectors that will play an important role in the progress of its economy and the sectors that will
be beneficial for the coming years are discussed using the porters diamond model. The
relative comparative advantage of Kazakhstan, the factors that are unique and are not easily
imitable by other economies and which forms an important part of its growth are stated in this
report. Thus, this report comprehensively describes the attributes of the Kazakhstan that has
helped it to grow and prosper and will be beneficial to them in the near future.

2. Geographical Information
Kazakhstan is located at the central part of Asia and lies in eastern part of Europe;
Kazakhstan is covered by different countries like Russia, China, Kyrgyzstan, Uzbekistan, and
Turkmenistan, etc. The central location of Kazakhstan in the middle of European land and
also Asia is the unique feature of Kazakhstan. Kazakhstan is categorised into 14 provinces
and these provinces are subdivided into various districts. Kazakhstan is worlds largest
landlocked country, The total zone is 2,727,300 square kilometres which means it is
surrounded by land from all the sides, the area of Kazakhstan is larger or greater than the
western Europe, it is the 9 largest country in terms of area, Kazakhstan is a huge country a
shares borders by other countries, beside it has about one-third area of grassland, which is in
around eight hundred thousand square kilometre and is also the worlds largest grassland.
Kazakhstan has population of approximately 170 million people after 2011 in which 70.2%
of the population are Islam religion, 26.2% are Christian, 0.1% are Buddhist and 3.6% are
came under the others categories and its population has decreased since their independence.
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On contrary, it is opposite with most of the other countries. Its population reduced from
sixteen and half million in 1989 to approximately fifteen million in 2006. This happened
because after independence of this country most of the Russians who used to live in this
country were migrated back to Russia.
Today the capital of Kazakhstan is Astana which was transferred by government of
Kazakhstan from Almaty to Astana on 10 December, 1997 which is a blooming and modern
city mounting a marvellous and major political and cultural midpoint. In 1999 Astana was
granted as the title of world city after the decision taken by UNESCOS.

Figure: Map of Kazakhstan

3. Demographic information
According to the statistics, at the end of 2011 population of Kazakhstan was 170 million
people of which 60% of people lives in cities and rest 40% are from rural areas and most of
the population centres are from southern, western and northern regions and in terms of
religion in Kazakhstan, Islam is the largest religion, which is followed by the Russian
orthodox Christianity, which is about 70.2% of total population and rest 29.8% religions are
from Judaism, Hare Krishna, Christian, Buddhist religion etc. Kazakhstan is a multi-lingual
country hence the common language spoken in Kazakhstan is KAZAKH language which is
spoken by about approx 64.4% of total population has the standing of the state language.
Whereas Russian, which is pronounced by usually all Kazakhstanis, is stated as the official
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language along with Kazakh and Russian language English language is also used by them
which is used routinely in business and today English is gaining its popularity among the
youth.
The official national currency of Kazakhstan is Tenge which means Balance or Scale in
Kazakhstan, was introduced on 15th of November 1993. The symbol of this currency assigned
for the Tenge is KZT. The people of Kazakhstan are the official users of this Kazakhstani
Tenge. The coins are in denomination of 2, 5, 10, 20 and 50 Tenge and were announced in
Kazakhstan in 1993. Also 50, 100 and 2 Tenge were out in 1997, 2002, 2005
correspondingly. However the exchange rate of Kazakh Tenge with compared to other major
countries currencies such as United States of America, United Kingdom and India at the end
of 2011 was
1 US dollars= 146.150 Kazakhstan Tenge
1 UK pound= 237.350 Kazakh Tenge
1 Indian rupees= 3.238 Kazakh Tenge
Moreover in Kazakhstan compulsory education must starts at the age of 3 years where they
receive some basic reading or knowledge which was intensely influenced by the Russian and
soviet education system. Therefore a high priority is given to the education system in
Kazakhstan because of which According to 2009 survey Kazakhstan was ranked number one
in UNESCOS education development index among 129 countries by achieving near
universal of primary educations which is measured by the literacy rate and combined
primary, secondary and territory ratios. According to the president education is the
significance and root of success for both individual and country development due to which
they adopted new programmes for education development for the year 2011 to 2020 these
programmes consist of various set of direction for education development which promote
sincerity, efficiency of teaching and assessment of facts which helps in decreasing the
corruption and illiteracy.
Agriculture accounts for only 4.5% of total GDP according to the world bank report which
includes forestry, hunting, fishing as well as cultivation crops and production of livestock and
it is net output of a sector after adding all the output and deducting intermediate inputs. As we
know that Kazakhstan is the largest economy in central part of Asia due to which they had
large quantity of natural resources and natural gas, Uranium, chromium, lead, zinc, copper,

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gold, silver and Kazakhstan is mostly concentrated on extraction and handing out of these
natural resources.

4. Political, Economic & Cultural Attributes

4.1 Economic Environment
After Kazakhstan became independent from the former Soviet Union in 1991, it has
undergone a significant economic transition period. The focal point of this period was the
replacement of the countrys centrally planned economy with a free-market economy. In
order to adopt this new economic perspective, numerous economic reforms and policies were
implemented. Kazakhstan underwent a series of economic restructuring efforts marked by
price liberalization and the privatization of state -owned enterprises (Griffin, 1999).
Kazakhstan is one of the major exporters of oil, natural gas, and minerals in the world. Oil
and metal exports together account for more than 70% of the total Kazakh export earnings
and they represent the main engine of the countrys impressive economic growth in the
recent years (Oleynik, 2002; Terterov, 2004). Kazakh economy heavily depends on oil
exports and this overdependence results in an unstable economic environment especially due
to frequently fluctuating oil prices in international markets. Therefore, one of the key policy
objectives for the Kazakh government is to employ an economic diversification initiative
that will encourage investment in other industries and promote a well-balanced economic
growth in every sector (Jedrzejczak & Rodriguez, 2003).

The GDP of Kazakhstan is growing at a steady pace and reached 134 billion USD in 2009.
Beginning from 2000 the GDP growth amounts to 8-10% annually. Kazakhstan has one of
the best indexes of the GDP per capita among the CIS countries.

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4.2 Political Environment

The economic restructuring efforts undertaken by Kazakhstan after its independence were
also accompanied by various reforms in the political arena. Kazakhstan became a
constitutional republic with a strong emphasis on the principles of national identity, political
stability, and democracy. Unlike other Central Asian countries, Kazakhstan is now stable
both politically and socially due to its unbelievable political leadership. The political leaders
in Kazakhstan have been quite successful especially in sharing their vision with the people of
Kazakhstan.

Moreover, the emphasis on social and ethnic diversity by the political

leadership in Kazakhstan has also contributed to the current political climate where numerous
civic organizations and movements find representation. The country also adopted policies
allowing political opposition and the right to assemble as well as promoting the freedom of
civil institutions (Oleynik, 2002).

4.3 Cultural Environment

The foundations of the unique Kazakh culture can be traced back to the countrys rich history
and significant geographical location in Eurasia. Throughout the history, Kazakh lands were
at the center of the major trade routes such as the Silk Road and provided significant
geopolitical value to many civilizations that settled in the area. Thus, theKazakh culture
evolved as a synthesis of a diverse group of ethnic and social influences in the region.

Above all, Kazakhstan is the only former Soviet Union republic where the indigenous ethnic
group is not a majority of the population (Oleynik, 2002). This results in the countrys current
ethnic and cultural diversity. Unlike some other former Soviet Union republics, Kazakhstan
has never faced any ethnic conflicts since its independence from the former Soviet Union in
1991. This is because Kazakh people have traditionally shown respect for the differences
existing among the various ethnic groups living in the country. One of the most critical
elements of the Kazakh business culture is building and maintaining personal relationships
and networks (Terterov, 2004). For Kazakh business people, establishing trust and strong
bonds with the business partners is very important in any level of business. Such intangible
aspects of business are considered more valuable than the actual contracts. For this reason, in
contrast to the Western business etiquette, negotiations tend to continue for a longer period of
time until close relationships are built with the other parties. Besides, the Kazakh society
reflects the characteristics of a vertical culture (Terterov, 2004). Understanding the Kazakh

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culture is necessary for multinational businesses to avoid costly mistakes and achieve success
in this unfamiliar market environment.

5. Benefits, Costs & Risk Analysis

When assessing for the analysis of the economy of a country, we need to assess the benefits,
risks and the related costs of setting up business in the country and moreover the analysis
gives us the information of economic and the road ahead for the country.

5.1 Benefits
After gaining independence from the Soviet Union in 1991, Kazakhstan has gained a lot of
attention from all over the world in terms of investment and trade. After independence, it has
made efforts to move from the earlier soviet central economy to free market economy, and
has been successful in doing so. After independence, Kazakhstan has entered into economic
transition movement, which can be seen through their economic restructuring efforts and
various reform initiatives in the way of doing business. It is believed that the increasing
foreign investment with the help of the reforms and technology has provided a catalyst for
economic transition in Kazakhstan.
The Kazakhstan government aims to attract more number of foreign direct investments in the
immediate future. And it is currently trying to help import the latest technology and products
and management know how to utilise it in their business infrastructure to improve it further.
As a country, Kazakhstan has the following benefits:

Kazakhstan currently is improving its business environment and in doing so it is

transiting form the previously imposed Soviet central economy to free market
economy, where in it is providing lot of opportunities to foreign investors to put their
investment in the country. Kazakhstan underwent a series of economic restructuring
efforts marked by price liberalization and the privatization of state-owned enterprises
(Griffin, 1999).

The location of Kazakhstan is of great benefit, because strategically it lies in Eurasia,

means even though it is in Asia, it is closer to Europe as well, which provides access
to countries in both continents, therefore simplifying the access or transport related
activities.

Kazakhstan has also embraced economic policies aiming to stimulate its economy by
promoting free trade practices, supporting small and medium-sized businesses,
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encouraging foreign direct investment, and increasing R&D in non-oil industries as

well as in technology-based sectors, in addition to modernizing its energy industry
(Jedrzejczak & P, 2009)

The country is encouraging the service sector firms to support the other industries
thus providing impetus to the economy.

Kazakhstan is on positive trend of advancing economic freedom. The country is one

of the first to return to the path of steady economic expansion since 2009, partly
because of ongoing policy reforms that have enhanced regulatory efficiency. (The
Heritage, 2012)

The Country to promote investing and to encourage business has kept the low tax
rates for the business, it ranks 60th in terms of business freedom and the rate in terms
of business freedom is increasing. (The World Bank, 2012) The regulatory framework
has undergone a series of reforms in recent years to facilitate growth and the number
of procedures to establish a business has been streamlined.

The strength of Kazakhstan is its abundant mineral resources, which removes the need
for dependency on other countries for natural resources. The abundant mineral
resource can help them to establish mining industries and manufacturing and
production industries.

Kazakhstan is ranked as the 12th nation in the world in terms of proven reserves of oil
and condensate. Therefore promoting energy industries in the country. Thus proving
highly beneficial for investing business as well as the country.

Kazakhstan has an advantage of having a well educated manpower, the percentage of

literacy in the country is more than 90% and this really benefits them. Education has
always remained a priority for Kazakhstan. (I, 2010)

The government of Kazakhstan readily supports the investing and provides with
numerous benefits to facilitate for investing and establishing a business, this can be
considered from the statistics where Kazakhstan which holds 47th place in terms of
establishing business from all over the world. (American Chamber of Commerce in
Kazakhstan., 2004)

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5.2 Risks
The country when has number of benefits also do have some risks considering the business,
these risks would be an hindrance for the economic development of the company, and the
countrys economic strategy would be to minimise the risks for overall development. The
risks in terms of Kazakhstan primarily stem from the old Soviet regime and some are due to
the internal system and other are due to the geographical conditions. Some of the risks in
Kazakhstan are as follows.

Lagging systems

Even though the economy of Kazakhstan is transiting towards a more free market
economy, still some problems and challenges exists in the system in the areas of
deregulation, privatization, and the legal environment.

It has successfully implemented some reforms in the sectors such as banking and
finance, but still changes are required to eliminate the rules and restrictions that apply
to foreign direct investment especially in construction, energy, and mining sectors,
that prevent the industries in this sector to grow further.

The Government needs to do some privatisation, as it still controls the majority of the
large enterprises mainly in the heavy industries.

Low quality infrastructure

The infrastructure is outdated and needs immediate privatisation in order to compete

with other nations in terms of infrastructure and production facilities, and this can be
done either through government intervention or support or through the privatisation
that will help facilitate foreign direct investment and modernise the system.

Low efficiency and quality

The manufacturing industries suffer in their low productivity and poor quality. As in
the old system it was concentrating more on quality rather on quality, this seems to
still exist in the system. Rather on efficiency the output is given more importance.

The low quality production is also due to outdated infrastructure which is under
control of the government. Since these production facilities takes longer times to
produce and give low quality products, and moreover do not operate at full capacity.

Transportation

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In geographical terms, Kazakhstan is a very large and sparsely populated country in a

remote landlocked location; it has population dispersed all over the country. The
network of railroad and roadways is weak.

The lack of infrastructure can be seen in terms of less developed transportation

networks; although majority of the cities of the country is connected still it lacks
modern highway and railroad network system and not organised and reliable.

These under developed transportation system contributes to delays in inter flow of

goods and material products, which increases a added burden for the business
operating and those who have to rely on transportation for efficient operation of their
business. Thus disruption of supply chain and distribution networks.

Under development of human resources

Even though the literate percentage in Kazakhstan is high still it is under developed
because they lack the understanding and knowledge of market economy
fundamentals. They still apply and use the age old skill used in the soviet era.

The managers of the enterprises are mainly from Kazakhstan and they continue use
and implement the socialist ideas in their business environment. In order to adopt the
new economic system, managers need to taught and train on the underlying principles
of market economy.

Overdependence on oil export

Kazakhstan is a country which has a large deposit of oil and natural gas, and it relies
heavily on this resource for export and it contributes in larger terms in the economy,
but due to fluctuating prices in the oil prices it affects heavily to the Kazakhstan
economy.

Even though there is large deposit of oil resources in the country, still to maintain an
overall balance in the economy, it has to look over all types of industries and select a
strategy that will help them to achieve this balance and grow and prosper.

(Business in Kazakhstan, 2011)

5.3 Costs
The cost of investing in a country has to be considered in terms of the return of investment
and return of sales. The total budget and the investment, in all the total cost has to be
considered and also the profit from the investment to be anticipated before. The ease of
starting a business and operating in an economy by recording all procedures that are legally
required or commonly done in practice by an entrepreneur or an investor to start up and
formally operate and also the time and cost required to complete these procedures are to be
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considered. The total number of days required to complete the procedures should be less and
also the minimum paid up capital should be less.
Kazakhstan ranks 47th in the world in terms of doing business (The World Bank, 2012)

Figure: How Kazakhstan ranks on Doing Business topics (The World Bank, 2012)

The above diagram shows the number of different procedures that investor or an entrepreneur
encounters while starting a business in Kazakhstan. It shows the rank of Kazakhstan in the
procedures, the number 1 is the best in terms of doing business and the rank in the various
procedures varies, while the overall rank is 47th.
The total cost of starting and operating a business varies depending on the type of business.
The number of days to start a business is 19 and the number of procedures is 6 and cost(% of
income per capita ) is 0.8 and the minimum paid up capital required (% of income per capita)
is 0.0. So it can be said that the cost required is not much and the return is higher considering
the support of government. Over the years the Kazakhstan government has reformed its
economic structure or strategy to facilitate an easier setup for the investors and the
entrepreneurs.

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6. Comparative Advantage
6.1 Rich Natural Resources
One of the main treasures of Kazakhstan is its natural resources. Kazakhstan is at the 6-th
place in world reserves of natural resources. Out of 110 elements of the periodic table, 99
were discovered in the bowels of Kazakhstan, 70 explored, 60 extracted and used: oil, gas,
uranium, zinc, tungsten, barium, silver, lead, chromite, copper, fluorides, molybdenum, and
gold. Mineral resources base of Kazakhstan consists of 5004 deposits, the forecasted cost of
which is about 46 billion USD.
So far only 160 oil and gas deposits have been explored in Kazakhstan, and withdrawn oil
stock account for 2, 7 billion tons. However, not all of these deposits, not to mention the
entire pools, are explored. In the event of their competent use and operation Kazakhstan in its
oil potential won't yield to Saudi Arabia, Kuwait, and United Arab Emirates. Satellite
pictures of the past years, as well as ground investigations suggest that main operating in the
West Kazakhstan oilfields adjacent to Caspian Sea coastline - Tengiz, Prorva, Kalamkas,
Karazhanbas - are just an "outskirt" of the deep oil pool.
Kazakhstan is also rich in deposits of chemical raw materials: richest deposits of potash and
other salts, borates, bromine compounds, sulphates, phosphate chalks, deposits of the most
varied raw materials for paint and coatings industry. Huge reserves of sulphur in the
composition of complex ore allow widely organizing the production of sulphuric acid and
other chemical products extremely essential for economy. There are unlimited opportunities
for production of almost all types of petrochemical synthesis products (especially ethylene,
polypropylene and rubber material), synthetic detergents and soap production, feed
microbiological protein, chemical fibre, cement, synthetic resin and plastics.

6.2 Industrial and Innovative Development

Kazakhstan has established base institutional elements of industrial development:

National fund, which ensures economic stability;

Development institutions accompanying the process of diversification;

Dialogue platforms for interaction and coordination of government and business

actions.

The National program of forced industrial and innovative development for 2010-2014 was
adopted in 2010, main goals of this are: creation of new export-oriented high-tech industries,
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infrastructure development, reinforcement of the national innovative system, enhancement of

local personnel qualification.
Within the frame of forced industrial and innovative development, the work is carried out to
establish attractive conditions for investors ready to implement projects in the following
priority sectors of economy:

Oil refining and infrastructure of oil and gas sector, ore mining and smelting complex,
nuclear and chemical industries with subsequent transition of rough manufacture to
higher processing stages;

Mechanical industry, construction, pharmaceutical industry

Agricultural sector, consumer industry, tourism;

Information and communication technologies, biological technology, alternative

power, space activities.

6.3 Investor Protection of Rights

To attract overseas capital into the economy of the Republic of Kazakhstan, to reduce
investment risks, to provide the system that guarantees the protection of foreign investments,
overseas investors are given the national status, i.e. foreign and domestic companies have
equal conditions for investment activities.

6.4 Investment Preferences and Incentives

Attraction and effective use of foreign investment is one of the main courses of mutually
beneficial trade and economic cooperation between the Republic of Kazakhstan and other
countries.
Kazakhstan aimed at creating favourable conditions for successful operation of local and
foreign investors in the republic, investment attraction to non-oil and gas sector.

6.5 Favourable Business Climate

In Kazakhstan, close enough attention is drawn to all issues of favourable business climate
for investors: the reduction of administrative barriers and simplification of procedures,
enhancement of the efficiency of law and judicial systems, improvement of customs and tax
administration.
In the past two years, Kazakhstan leads the list of 10 countries, which achieved the greatest
success in creating a friendly environment for business.
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6.6 Infrastructure
One of the key factors for effective development of economic sectors is the availability of an
adequate communication and transport infrastructure, thus Kazakhstan is constantly working
on the improvement of its own infrastructure.
Owing to the investment attraction into various economic sectors, Kazakhstan will continue
rapidly develop its infrastructure within the next five or ten years.

6.7 Kazakhstans stage of competitive development

Success of competitive development policy mostly depends on the stages of macroeconomic
development, which actually creates primary conditions for the transition to a higher level of
development of the national economy (Rogacheva, 2008). Huge differences exist in
competitiveness structure of each country, because it is impossible for a country to be
competitive in all or most of the fields (Rutkauskas 2008: 91). Consequently, countries pass
through these four stages in creating competitive advantage of their nation and in enhancing
its economic prosperity. World Economic Forum defines three stages of economic
development: factor driven stage, efficiency driven and innovations driven. There are also
two transitive stages defined. Countries are allocated to the stages of development based on
two criteria. The first is the level of GDP per capita. Second criterion measures the extent to
which countries are factor driven. The main indicator is the share of exports of mineral goods
in total exports at the market exchange rates.
Many of these features characterize Kazakhstan economy. Kazakhstan has comparative factor
advantages in the form of huge reserves of mineral resources. The main source of GDP
growth is still export of commodities and products with a weak degree of industrial
processing (Rogacheva, 2008). Increasingly, oil and gas activities in Kazakhstan are being
developed which have, for example, spawned important industry players in the petrochemical
sector. Furthermore, new technologies are being applied in oil extraction and recovery,
suggesting emergent, innovation-driven activity (Rogacheva, 2008). These features show that
the growth of Kazakhstan becomes dependent on investment in new technologies. This lets
increase competitiveness and reach investment-driven stage of development.

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7. Porters Diamond Analysis

Many theories have been developed for the International Trade. Starting from 16-18th
century, when balance of trade was considered important -at that time, nations prosperity
was determined from Trade, Gold and Silver. Increasing of gold was considered an increase
in the prosperity of the nation. Countries imposed several barriers to discourage import of
goods and encourage export. However, later this theory did not remain effective and another
perspective was needed to understand the trade.
In the 18-19th century, low production cost gained the support and it was considered
important for the competitiveness of a country. Classical economy (Jan-Baptiste Say, Adam
Smith, Thomas Malthus, David Ricardo et al.) became popular. Classical economy believed
that nations which can produce at a lower cost gained competitive advantage over other
countries. When 20th century began, low production cost of classical economy was not
considered sufficient to understand trade. J. Schumpeter (1942) emphasized the importance
of entrepreneurship and innovation to explain the trade. According to him, these two factors
can increase the competitiveness of a country by creating new knowledge.
Porter studied all these theories and came up with the idea of a diamond model; he included
four main factors in his diamond model which were factor conditions, related & supporting
industries, demand condition, and firm strategy and rivalry. He said that these four factors
create the environment for the organizations in which they compete and helps them to
innovate rapidly. According to him only innovation and entrepreneurship can destroy balance
of economy. Therefore, innovation is most important to create competitiveness. Porter
emphasized that country should focus on productivity growth in order to gain
competitiveness.
Let us analyse the Business Environment of Kazakhstan from the perspective of Porters
diamond model.
Factor Conditions:
1. Kazakhstan has one of the lowest costs of electricity in the world.
2. It has the basic workforce to support any industry.
3. Kazakhstan has built some modern airports in last few years which provide travellers
all the necessary features. The immigration process has been kept very simple and less
time consuming. Almaty and Astana are two very beautiful international airports and

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have all the facilities for the international travellers. (Airports in Kazakhstan, Airlines
in Kazakhstan, 2012)
4. Due to rich natural resources, Kazakhstan has a good amount of capital investment.
5. Physical infrastructure is still very poor to support the industries.
6. Communication infrastructure is also very poor but it is likely to improve in next few
years as announced by Kazakhstans Ministry of communication that they will
achieve 100% broadband coverage by 2013. (TeleGeography, 2012)
7. Although Kazakhstan scores high on literacy rate but there is a shortage of
entrepreneurship and managerial skills.
8. There are significant barriers to obtain the credit.
Demand Conditions
1. Kazakhstan has a small population due to which big companies dont see a very good
demand condition.
2. Standard-setting procedures are very weak which set low standards for competition.
3. Regulations on environmental quality and IT are also very weak.
Context for Firm Strategy and Rivalry
1. Kazakhstan has modest formal tariffs as compared to neighbouring countries to attract
foreign companies.
2. Labour market rules are very flexible.
3. Foreign competition faces significant barriers.
4. Government still dominates most of the business groups which does not encourage the
internal competition.
5. Favouritism by government for few businesses and corruption also pose significant
barriers for other businesses.
6. There are very few foreign companies outside the extraction industries due to which
other businesses dont see much competition.
Related and Supporting Industries
1. There are very less number of clusters and most of them are focused on industries
which are narrow and does not have full potential of growth.
2. Cluster formation is inhibited by the legacy of planned economy.
There are two more aspects which can affect or change these four factors drastically. First is
government, government of Kazakhstan is very stable and strong. It has shown continuous
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commitment towards growth and the fact that Kazakhstan has been one of the 10 fastest
growing economies in the world in last decade proves the governments role.
One major chance which can affect the whole economy in a drastic way is that Almaty is still
the main financial hub of the country and also the largest city of Kazakhstan. However, it lies
in one of the most earthquake prone zones and history of this city makes it vulnerable for any
such event. Due to this reason, Kazakhstan changed its Capital from Almaty to Astana in
1997 but an earthquake in Almaty will still affect the country and can be a huge burden on
the economy. (OECD, 2009)
Based on Porters diamond model we can say that Kazakhstan has competitive advantage in
some of non-energy sectors as well; however, these sectors still remain untapped and have a
huge potential of growth with some challenges which need to be overcome.
The key non-energy sectors which we can name are:
1. Agri-business(with special emphasis on the grain, meat and dairy sectors)
2. Chemicals (with a focus on fertilizers)
3. Logistics for Agri-business
4. Information Technology and Business Services

7.1 Agri-Business Sector: Grains

Agri-business: Kazakhstan can take the advantage of its extensive arable land, the prospect of
high regional demand, and ever increasing domestic production to grow agri-business.
Kazakhstan can especially compete with the world in meat, grain, and dairy sub-sectors.

Strength: The grain produced by Kazakhstan is of high quality. Kazakhstan comes in

top five when it comes to wheat production while it also maintains its position in top ten
exporters of grain. Low production cost and its large area provide an opportunity to gain
the competitive advantage.

Challenge: Access to finance is still difficult. If Kazakhstan has to grow this business it
needs to make finance process easier for growing businesses. Less use of machinery and
other efficient resources is another challenge as it would require good amount of
investment but farmers do not have the support to get finance and credit. Apart from that
farmers do not use modern techniques. Additionally, foreign retail chains also do not get
attracted due to low demand and low standards of quality.

Recommendations: Government should try to develop strong links between processors

and farmers. They should also try to invite foreign retail chains by providing some initial
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benefits which would improve the overall supply chain and standards. They should try to
promote the export of wheat so that farmers see great incentives in the production of
wheat.

7.2 Agri-business Sector: Meat

Strength: The global demand for meat has been increasing for the last few decades and
the average spending on meat consumption has also increased due to increased buying
power of consumers. Kazakhstan can get a major pie of this share due to its large land
area, livestock animals, low cost, low processing and access to few big markets like
Russia, and China.

Challenges: Despite less population consumption is higher than production. Inventory of

cattle is very less relative to the size of the country and vast pasture area. Low standard
of production is a problem in this sector as well. Businesses often cite low finance and
less marketing as two major problems.

Recommendations: Modern retail chains can be useful to develop this business. Need to
provide easy finance to develop businesses. They should also try to implement high
standards of meat production to encourage foreign importers. For this, they need to
educate farmers.

7.3 Agri-business Sector: Dairy

Strength: The cost of milk production in Kazakhstan is low as compared to other

countries. Kazakhstan can position itself as a major producer of milk and milk related
items with more focus on dairy farming.

Challenge: Kazakhstan has lost a major market when it separated from Soviet Union.
Quality of milk produced is low and does not meet the international standards. Dairy
stock and milk production is dominated by small farmers with 85% of total share. Lack
of finance is a challenge for this business as well.

Recommendations: If Kazakhstan has to move up the value chain, they need to increase
the standard of milk production, increase the number of livestock animals. They should
also try to organize the dairy sector so that small farmers are encouraged to participate
and share a common platform as these small farmers cannot access the foreign markets
by themselves.

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7.4 Chemical Sector

Strength: Kazakhstan has a clear advantage for the production of fertilizers. They have
all the required resources, natural gas, 4-15 billion tonnes of phosphate, sulphur, and
ammonia. Moreover, the domestic production for fertilizer is very less. With low cost
production of fertilizers, they can easily import it other countries in Central Asia, China,
and India.

Challenge: Government provides huge subsidy to local farmers to purchase agricultural

chemical produced locally. This does not motivate the local producers to improve their
quality. They use outdated technologies to produce fertilizers. Additionally, foreign
investors have less awareness about the low cost fertilizers of Kazakhstan.

Recommendations: This sector has a huge potential of growth if Kazakhstan leverages

domestic production, use modern technologies. They need to set high standard of
production in order to get the recognition from foreign buyers. They should open the
market for foreign investors and allow the competition so that overall competitiveness of
this sector increases. In order to attract foreign investors, first of all they need to create
awareness about this sector among the foreign business community.

7.5 Logistics

Strength: A good logistic industry often works as the supporting industry for other
businesses. This will be true in case of Kazakhstan as well. This can grow into a main
and attractive industry as Kazakhstan is situated at the border of Asia and Europe. They
can develop several logistics centres and have the potential to become a hub for
production warehousing and transportation of goods.

Challenge: Currently, transport system of Kazakhstan does not support the other
industries so well due to poor infrastructure and roads. Kazakhstan is able to produce
items at a lower cost in several industries as compared to other countries, however, due
to high transportation cost in transporting items from one place to another, overall cost of
the item increases and items do not remain so competitive. High custom levies and
significant barriers to custom clearance post major challenge. Workers are not trained in
logistics and use outdated technologies. Especially, outdated technologies in cold chain
logistics pose a challenge for Agri-business as well.

Recommendations: They need to invest more in order to improve the infrastructure and
roads which will create the opportunity for growth of logistics business and other
businesses. Reduce the custom clearance procedures. Investment in Human Resource
Development can create further opportunities.
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7.6 Information Technology and Business Services

The government of Kazakhstan seems committed to improve education sector especially IT.
Government is also committed and promises to provide 100% broadband coverage by 2013.

Strength: Literacy rate is already very high and a combination of these factors can create
extensive opportunities in the field of IT outsourcing with cheap labour available in
Kazakhstan as compared to other key regional competitors.

Challenge: Kazakhstan does not score very high when it comes to innovation. Very few
people have formal IT education and their skills often do not match the industry
standards. There is lack of co-operation between government and multinational
companies.

Recommendations: Policy makers and multinationals should come closer and discuss
the industry barriers. Government is committed to ensure that 60% population of
Kazakhstan is computer literate by 2020; this should be supported by improved
infrastructure. FDI should be allowed in this sector to increase the transfer of knowledge
as Kazakhstan scores very low in terms of innovation.

Finally, as the innovation is most important to create competitiveness and Kazakhstan ranks
very low in innovation and sophistication sub-index, it may be harmful for them in the future.
Businesses often notices the factors like corruption, an inefficient bureaucracy, uneasy access
to finance as major challenges. All these factors discourage entrepneurship, and affect the
competitiveness in a negative manner.
Hence, the macroeconomic stability can be termed as the main strength of Kazakhstan and
innovation capability as main weakness.
Although economy of Kazakhstan has grown tremendously in last decade but it mainly came
from its natural resource businesses. The country is making serious attempt to improve the
infrastructure, and trying to encourage and capitalize foreign economic participation. (OECD,
2009)

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8. Conclusion
Thus through this report it can be concluded that Kazakhstan is a growing economy and
providing good prospectus for the companies and investors to invest and provide them an
opportunity to gain profit through the venture. Kazakhstan through their impeccable and
excellent strategy and by adopting to the changes and responding in a positive manner has
been able to grow at an exponential rate and this looks to continue in the future, hence by
expanding their outlook towards other businesses and sectors it will be able to becoming one
of the dominant and developed country. Thus, it can be said that the economy of Kazakhstan
is still progressing towards an efficiency driven economy.

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