Relocating Companies: Is Kazakhstan Ready to Take Them in and Establish Production at Home?

Kazakhstan became a hot spot for many companies and industries from Russia and Belarus in 2022. The trigger was the war in Ukraine and the unprecedented sanctions that followed it. Orda.kz has analyzed whether or not Kazakhstan is ready to take up this industrial potential.

Since the beginning of the war in Ukraine, many companies have realized that it has become impossible for them to continue business in Russia. For some, it was due to economic reasons, for others - ethical. Many multinational corporations, which have been present on the market for many years, have chosen to do so because of the latter reason. However, they would rather not lose the areas they have won over. They must also stay in the global financial system and supply necessary ingredients or components the import of which to Russia is currently off-limits.

Businesses in turn took notice of Kazakhstan. The Central Asian nation is a member of the common Eurasian Economic space, can freely trade with Russia, and is not under sanctions. Kazakhstan also has great transport and transit potential, which the government intends to unleash.

A priority is the development of the Trans-Caspian International Transport Route (TMTM), which will connect China with Europe. Kazakhstan now has a unique chance to get transport flows redirected through its territory. This also provides the opportunity for production facilities and large logistics warehouses to spring up despite the lack of access to the ocean. Orda has previosly written about the roadmap according to which this will be implemented.

Highly Interested Investors from Russia

Orda spoke with Askhat Bekenov, Director of the Projects Department of the Kazakh Invest national company and a respected expert in the field of construction and investment. He is engaged in attracting capital to Kazakhstan with the help of foreign institutions. He also cooperates closely with ministries and the government. Kazakh Invest employees work in countries that have a large trade turnover with Kazakhstan. The national company notes a great increase in interest in locating production facilities in Kazakhstan that started in 2022.

"Last year's geopolitical changes and the subsequent exit of foreign companies from the Russian market were not easy. At the same time, the market of the Eurasian space remains very interesting, with good purchasing power and a large population. Investors who have been working in Russia for a long time are interested in staying in this market. Due to unprecedented sanctions from the international community, these companies are forced to leave. Kazakhstan acts as an island of stability for potential investors who want to relocate their production facilities,"

Bekenov says.

Kazakh Invest told an Orda journalist that Kazakhstan has been the largest market for attracting investments over the past 20 years. Since 2018, $23-24 billion has been raised annually – the lion's share of investments in Central Asia.

"Today we have formed a pool of 394 companies from 38 countries that are interested in relocating projects. There are results for 63 companies that have either already been relocated or are working on the issue. What are these steps – registration of a legal entity, search for land plots. I can't name the companies, as there are certain obligations. All of them are from Russia, but not all of them are Russian,"

says Bekenov.

The relocation is facilitated by political stability, functioning government institutions, a straightforward investment climate, and the best, according to the expert, state support measures for the implementation of projects in the region.

Industrial Zones and Special Economic Zones

As told Orda was told in the Ministry of Industry and Infrastructure Development, today there are 33 industrial zones in the country (IZ). They are created for a period of 20 years or more on state-owned land plots. The following advantages are provided for potential investors:

• Provision of land plots;
• Provision of ready-made infrastructure;
• Absence of industry restrictions, i.e., it is possible to open both food production and metal processing.

Currently, 206 projects have been implemented in the country, while there are plans to open another 197. The infrastructure completeness is at different stages, but on average it is 70%. Fully ready-to-place industrial zone production facilities are located in Shymkent, Almaty, Turkestan, Jetysu, Kostanay, Aktobe, Abay and East Kazakhstan regions. They are ready to receive a relocating business – there is water, gas, roads, electricity and heat.

In addition to industrial zones, there are also SEZs (special economic zones). They are distinguished by a special legal regime for tax burden, foreign labour, and customs duties.

As Qazindustry explained to Orda.kz, there are now 13 SEZs in Kazakhstan's centre of industry and export. 321 projects worth 2.6 trillion KZT of private investment have been implemented in them, and about 22 thousand jobs have been created.

Companies engaged in deep processing with high-added value and strategic industries that are vital for the country can work in an SEZ. SEZs are completely state-owned, unlike industrial zones, which are not provided with benefits. A primary condition is communications. This is a basic necessity, though it's different everywhere. In some industrial zones, this is done on a "turnkey" basis. In others, you have to wait and pay. The cost of getting connected, as experts say, can reach up to half the cost of the entire project.

Not as Easy as It Seems

At the end of January 2023, President Toqayev criticized a number of the capital's industrial zones at a conference on the development of the capital. In particular, the head of state criticized the akimat for the lack of infrastructure necessary for production, including heat, water, and gas.

"Since 2017, the Akimat has not brought communications to Industrial Park No. 2. There is not even a design specifications and estimates documentation yet. In fact, today potential investors act as petitioners, they give up, and they leave. As a result, Astana does not receive significant amounts of investment,"

Toqayev

The akimat is trying to correct the situation, but they note the rapid growth of Astana. The city's infrastructure isn't keeping pace with it.

Qazindustry explained to Orda.kz that the problem is not ubiquitous. There are exemplary industrial zones in the country with all the necessary communications such as the state industrial zone "Almaty". A correspondent spoke with one of the residents of the zone located in the Alatau district, who wished to remain anonymous. Dulat said that, in principle, it is convenient to work in the industrial zone – there is a one-stop centre where you can work out necessary issues. But you have to connect to communications on your own. It is necessary to coordinate paperwork with QazTransGas to get hooked up to a gas pipeline, water – with the city and district water utility, and electricity – with the industrial zone.

How an Industrial Zone Is Structured

Another zone, which Orda visited, is located in the village of Bayserke, Ili district of the Almaty region. This (DAMU Logistics) is the first private industrial zone in Kazakhstan. It was founded in 2008. The zone covers an area of 230 hectares. There are warehouses, production facilities, a container terminal and even its own railroad dock and locomotives. Building materials are delivered and cargo is shipped through here. Among the residents are Galanz bottlers, Danone, Samsung, Bosch, Waikiki, Wildberries, Golden Apple, Kronospan and many others. Some store products here, others produce, and there is even the production of rolled metal.

The Deputy Director of DAMU Logistics, Arman Shaimergenov, told Orda that the entire territory is divided into a logistics zone and an industrial park. A Class A warehouse complex with an area of 110 thousand square meters and a container terminal with an area of 290 thousand square meters are located in the logistics zone. There are manufacturing enterprises in the industrial park.

Industrial zone zoning is determined by sanitary standards. Food production facilities are therefore located separately from others. The company both leases and sells the land in ownership. It is not possible to buy plots in state-owned ones immediately. At first, they are leased for up to three years, and after construction is completed, the land can be purchased.

DAMU Logistics Industrial Zone is located along the Western Europe – Western China highway. In relative proximity is the "One Belt, One Road" highway, which serves as a link between Russia and China, and the international airport and the Jetysu railway station.

"Our founders visited different countries and looked at how industrial zones are arranged there, learning from experience. In addition to the sale of plots, they realized that they could be serviced – everyone benefits here: both our company and residents who do not have a headache with the maintenance of plots. There are necessary communications (light, water, sewerage, gas), security, lighting, roads, fenced territory. That is, for many investors, it is a matter of comfort, security, prestige that they are in our zone, with a good location, the possibility of buying land immediately and the level of services. This, in my opinion, is a better solution for an investor than to be somewhere on your lonely site and run networks for two or three kilometres,"

Shaimergenov says.

Any questions can be solved by the management company, being the one-stop centre for industrial zone residents. This way problems are solved faster. This is a service for which companies are willing to pay and overpay. There is also competition between them and the state industrial zones because of investors and residents. However, the akimat understands that they can send investors to private zones so they stay in the region. Thus, there is a positive trend in establishing partnerships.

"There are disputes between owners and third parties, but they can seek help from our management company to resolve them. At the same time, everything is solved in the shortest possible time, we are like a link,"

says Shaimergenov.

According to the deputy director of DAMU Logistics, after the outbreak of the war in Ukraine, the number of applications from Russia and Belarus has more than doubled. There are queues for a number of sites. A popular Russian manufacturer of sweets is moving to the industrial zone in the near future. Shaimergenov says that in order to give impetus to the development of private industrial zones, the only thing missing is benefits for their residents for production to develop more actively at the initial stage as well as subsidies for bringing additional infrastructure. This may contribute to the emergence of new private industrial zones.

Industrial Zones' Contribution to City Development

Orda asked a well-known specialist in urban studies, Svyat Murunov, about what other benefits industrial zones give a country and its cities.

• They free up expensive land in the city centre or residential areas.
• Industrial zones help to embody the idea of a poly-centre – people do not work in one place and do not go to the centre.
• Suburban development is important. Thanks to industrial zones skilled and other jobs appear outside the city, local residents can work close to home.
• Taxes to the local budget. They pay taxes in the region, and this gives revenues to local budgets.
• The city is building production chains, which is a guarantee of its well-being.

Murunov also adds that it is necessary to create research centres together with enterprises, where they will improve developments.

Kazakhstan now has unique opportunities, though how it will manage them is critical. "Catching the wave" is necessary for landing strategic investors. The ability to get them to stay in the Central Asian nation is currently present.

Original Author: Maksim Skopin

DISCLAIMER: This is a translated piece. The text has been modified, the content is the same. Please refer to the original article in Russian for accuracy.