Top 10 challenges of doing business in Kazakhstan

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Between 2001 and 2010, Kazakhstan posted an annual average GDP growth rate of 8.3% thanks to its international appeal as a business destination. But like other former Soviet Republics, Kazakhstan is still developing a transparent and effective business culture that is attractive to foreign investment, which is why having local help on board is crucial to the success of business ventures

Carlos Gutierrez, the former Secretary of Commerce in the US, believes that strategically, politically and economically, Eurasia has become the place in which to do business. At the heart of this economic transformation sits Kazakhstan, which has performed far better than the regional average in Eastern Europe and Central Asia on the ease of doing business. The political stability, coupled with a strong vision in the formulation and execution of the country’s economic development, has positioned Kazakhstan as the regional leader in Central Asia.

However, there are still several hurdles to overcome for businesses looking to start a business in Kazakhstan or expand operations in the country. Having local expertise on board can streamline processes and make the transition far more rewarding.

Starting a Business
The World Bank and International Finance Corporation produce annual reports documenting the ease of doing business in a country to give policy makers an idea of where their economy stands in the aggregate ranking and what can be improved. Kazakhstan is clearly a country that is in tune with its business environment and ready to implement change where it needs to be.

In 2013 Kazakhstan ranked in 25th place in the world for ease of starting a business, a leap of 30 places from the previous year. Taking only 19 days and six procedures, it is a relatively painless procedure, although there are tricky steps.

Dealing with Construction Permits
Construction permits can be quite a minefield for companies unfamiliar with the environment, taking 189 days to obtain and an exhausting 32 procedures. Obtaining an architectural planning assignment (APZ) takes 30 days and can be an unfamiliar piece of legislation for outside businesses, and typifies the many processes involved with construction permits.

Getting Electricity
Getting electricity is a process that involves several boards and processes, taking 88 days on average and six procedures. However, the cost of getting connected is only 71.1% of income per capita, significantly lower than the 627.8% average in Eastern Europe and Central Asia.

Registering Property
Registering property is a time consuming task in Kazakhstan, taking 40 days in total. The lion’s share of this is taken up obtaining a technical passport of the property and registering the title at the Registration Service Committee, which takes over 30 days combined.

Getting Credit
Kazakhstan has strengthened its legal framework for secured transactions by introducing new grounds for relief from an automatic stay during rehabilitation proceedings, which has simplified the process of getting credit. However, it is still a laborious process.

Protecting Investors
In July 2009, Kazakhstan adopted amendments to the Joint Stock Company Law and the Law on Accounting & Financial Reports, which require greater corporate disclosure in company annual reports and provided more investor protection. The country has maintained this strong regulatory environment since, including moves to increase the legal requirements for disclosure in related-party transactions.

Paying Taxes
Businesses operating in Kazakhstan are required to pay seven tax payments a year, taking an average of 188 hours. Corporate income tax and social tax take up some 145 hours in total, and are tricky to file correctly.

Trading Across Borders
The cost of trading across borders is quite substantial, costing double that of neighbouring countries and four times as much as the OECD average. Taking 81 days to export is also significantly higher than the 10-day norm, and the same barriers are evident for imported goods.

Enforcing Contracts
Enforcing contracts is a streamlined procedure, taking significantly fewer days than the regional and OECD average.

Resolving Insolvency
Although it doesn’t take a great deal of time to resolve insolvency, the recovery rate is far lower than the OECD average. The cost, as a percentage of the estate, is 15%, which is higher than the regional average of 13% and the OECD average of 9%.

TMF Group
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Kazakhstan or just want to streamline your Kazakhstan operations, talk to us.