Foreign direct investment in Kazakhstan plummets to all-time low

Between January and September 2024, the net inflow of foreign direct investment (FDI) into Kazakhstan’s economy plummeted 32.3 times year-on-year (YoY), dropping from $2.3 billion to just $72.9 million, according to data from the National Bank. This figure marks the lowest level recorded since the regulator began publishing data in 2005. Economist Galymzhan Aitkazin was the first to spotlight this alarming trend.

As defined by the International Monetary Fund (IMF), FDI involves an investor exercising control over a company in another country. Kazakhstan’s National Bank calculates FDI by including foreign ownership in company capital, reinvested earnings and debt instruments.

In 2023, the net inflow of FDI had already halved YoY to $3.4 billion. The highest recorded FDI inflow occurred in 2008, when it reached $14.3 billion. In contrast, 2005 previously held the record for the lowest figure at $2 billion.

Russia has been Kazakhstan’s largest source of FDI since 2023. From January to June 2023, Russian investments totaled $931.9 million (more recent data is unavailable). However, this represents a 21.4% decrease YoY. Other major investors in 2023 included Singapore, Luxembourg, Switzerland and Cyprus. The bulk of investments were concentrated in wholesale and retail trade, finance, insurance and manufacturing.

On the other hand, substantial amounts of capital have been withdrawn from Kazakhstan in 2024. In the first six months of the year, net FDI outflows included $1 billion to the U.K., $353 million to the U.S., $244 million to China and $148 million to France. According to Aitkazin, these outflows are largely attributed to capital repatriation (the process of bringing investments back to the country of origin), repayment of loans to foreign parent companies and the withdrawal of profits or dividends.

In the first nine months of 2024, the outflow of FDI from Kazakhstan reached $1.5 billion, compared to an inflow of $701.5 million during the same period in 2023. The net FDI position, the difference between total FDI abroad and total FDI received by the country, stood at -$1.6 billion, an improvement from -$3.2 billion in 2023.

«The current net external FDI position is a complete disaster,» Aitkazin said. «On the one hand, we are witnessing capital withdrawal and a decline in investments in the commodity sectors as major projects have been completed, with no new ones on the horizon. On the other hand, uncertainty about the investment climate and business environment, driven by the ongoing revision of the Tax Code and increased regulatory pressure from the government on major international businesses, also plays a significant role.»

Gross FDI inflows amounted to $12.7 billion in the first three quarters of 2024, marking a 35.7% decline YoY. Despite this downturn, Kazakhstan ranked sixth globally in macroeconomic development and FDI attraction at the end of 2023, according to the IMF and fDi Intelligence, a leading source of information and analysis on global investment trends.

This figure only reflects foreign investors’ interest in Kazakhstan’s economy and does not account for capital outflows, Aitkazin explained. In 2018, former President Nursultan Nazarbayev set a goal to increase FDI inflows to $30 billion by 2025. The largest gross FDI inflow to Kazakhstan was recorded in 2012 at $28.8 billion, while the smallest occurred in 2015 at $15.4 billion.

In August 2023, analysts from the National Bank highlighted that the cabinet was using an inaccurate metric to evaluate the effectiveness of FDI attraction. The regulator noted that the indicator excludes capital outflows, yet it «consistently demonstrates positive results.» Representatives from the National Bank claimed that data on gross FDI inflows alone is insufficient to provide an accurate picture of the true investment landscape.