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Alex Nisengolts: I’m bullish on Kazakhstan, with caveats

In previous posts I discussed Kazakhstan’s successes and failures in improving its business climate and provided tips to potential U.S. investors about doing business in Kazakhstan in an FCPA-compliant manner.

Here are some final thoughts on this issue.

Don’t ignore genuine opportunities — provided you can still comply with the FCPA

Kazakhstan is an emerging market, and was a Soviet republic only 25 years ago. Problems with its investment climate are typical of emerging markets and post-Soviet CIS countries. All CIS countries suffer to some degree from the weak rule of law, vague and contradictory legislation, and high levels of corruption. These challenge foreign investors from countries with legislation and business practice that require clean and transparent operations.

The challenges in emerging markets also mean there is less competition, which can produce higher returns. But investors need to be patient and have a long-term perspective. Perhaps that’s why larger, well-heeled global multinationals are behind most investment in emerging markets. The bigger companies can also afford investments in compliance to better protect themselves from emerging market risks.

While foreign investment in Kazakhstan is concentrated primarily in the natural resource extraction sector, there are numerous opportunities in retail, consulting, mining, manufacturing and agriculture. The U.S. Commercial Service (USCS) and its publications are a good source of more information.

I’m quite bullish on Kazakhstan. The country has tremendous natural resources and has made significant progress since it became independent 24 years ago. If it undertakes the necessary reforms, it has a good chance to become a mature developed economy by the middle of this century.

For the near term, it is seeking to diversify its economy and is therefore open to foreign investment. And with the local currency, the Kazakh tenge, losing more than half of its value over the past two years, local assets may be available at bargain prices. There’s also high-quality local labor willing to work at a lower cost.

On a personal note, I’ve found the Kazakhs to be generally friendly, generous and tolerant people. They have a unique culture that prizes hospitality and the protection of strangers, respect for women and elders, close family ties, and openness to foreign ideas.

Members of all major religions and over 130 different national and ethnic groups live in Kazakhstan in peace and harmony. The country consistently strives to be a link between the East and the West and to reconcile opposing parties in international conflicts.

Kazakhstan has been one of the few countries to voluntarily abandon nuclear weapons and has played an active role in promoting international peace and nuclear disarmament.

The Kazakh leadership is aware of the substantial problems it has with its investment image and is serious about further reform. Although Kazakhstan was previously able to attract large amounts of foreign investment and develop rapidly thanks to high prices for its oil and metal exports, the new era of low commodity prices poses a significant hurdle to Kazakhstan’s growth prospects and long-term stability.

A comprehensive institutional reform is in process. In the next post, I’ll talk about what the Kazakh government is doing to improve the country’s business climate and reduce corruption.


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.

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