Opportunity knocks: Kazakhstan has a huge privatization plan. But don’t forget the FCPA

I witnessed an amazing era of development in Kazakhstan when I moved to Almaty in 1994 as a legal advisor on a USAID-sponsored legal reform project.

Despite the great promise of those earlier years, this ex-Soviet republic with huge oil and metal deposits and a once-thriving exports with China and Russia is now facing a prolonged economic slump.

The price of oil and other commodities have crashed. Tax revenues have fallen by almost 20 percent and the national currency, the Kazakh tenge, is now worth less than half of its value two years ago. These are tough times for Kazakhstan’s 17 million people.

Making matters worse is an economy dominated by state-controlled industries. According to Kazakhstan’s long-time president, Nursultan Nazarbayev, the country’s sovereign wealth fund, Samruk-Kazyna, controls over 40% of the national GDP through a network of more than 500 subsidiaries. The total number of enterprises owned by the state exceeds 7,000.

President Nazarbayev has touted massive privatization as a free-market path to lift Kazakhstan out of its economic morass. His plan includes public placements on unspecified stock exchanges and competitive tenders open to both local and foreign investors.

The privatization program will cover all companies owned by the state, and the government will seek help and guidance from the OECD and multilateral financial institutions, the president said.

Already the largest economy in the Central Asia and the Caucasus, Kazakhstan has traditionally welcomed foreign investment. It boasts the highest FDI-to-GDP ratio in emerging Europe and the Central Asia region. Clearly the proposed privatization would create enormous opportunities for more foreign investors.

Beyond the financial rewards, in the New Great Game tussle for influence in Central Asia, Kazakhstan is an important prize, and the United States has a vested interest in seeing it develop and prosper.

But there’s no denying that the Foreign Corrupt Practices Act will influence Kazakhstan’s upcoming privatization and continued development.

In the next post, I’ll look at the impact of the FCPA on prospective investments into Kazakhstan by American and U.S.-listed multinational companies.

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Alex Nisengolts is a Chicago attorney focusing on cross-border M&A, electronic discovery, and investments and operations in Kazakhstan. He first traveled to Kazakhstan in 1994 as a legal advisor on a USAID-sponsored legal reform project and has been involved in Kazakh matters for the past two decades, for U.S. and Kazakh law firms and as a manager and senior manager for a Big Four international accounting firm. He can be reached here.