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The Republic of Kazakhstan intends to exclude machinery industry goods from the national procurement regime. Prime Minister Olzhas Bektenov signed a Government resolution to this effect on March 16. According to the document, foreign companies will be barred from participating in Kazakhstan’s procurement of machinery, metallurgical products, and several other sectors for a period of two years. The Ministry of Industry and Construction of the Republic of Kazakhstan, in coordination with the National Chamber of Entrepreneurs of the Republic of Kazakhstan “Atameken,” is expected to approve a list of goods, works, and services outlined in paragraph 1 of this resolution within 10 working days. This list will include codes corresponding to the unified classification of goods, works, and services, and will be submitted to the authorized body for state procurement.

The impact of implementing these measures in Kazakhstan includes:

  1. Promotion of Domestic Industry: By restricting foreign participation in state procurement of machinery goods, Kazakhstan aims to bolster its domestic manufacturing sector.
  2. Support for Local Businesses: These measures provide opportunities for local businesses to thrive by ensuring their involvement in government procurement processes.
  3. Increased Self-Reliance: Kazakhstan’s move toward self-sufficiency in key industries like machinery and metallurgy may enhance its economic independence and reduce reliance on imports.

The exclusion of machinery industry goods from Kazakhstan’s national procurement regime could have several implications for the investment climate in the country.

Let’s explore these impacts:

The new measure taken by the Kazakhstan government to exclude machinery industry goods from the national procurement regime can have mixed impacts on the investment climate in the country.

On one hand, this move might encourage domestic production and boost the growth of local industries, which could potentially attract more local and foreign investments in the manufacturing sector. However, on the other hand, this decision might discourage foreign companies from entering or expanding their presence in the Kazakhstani market due to restrictions on participating in public procurement processes for machinery and related sectors.

This exclusionary policy could lead to reduced competition and innovation, as well as potential supply chain disruptions for existing investors who rely on imported machinery components or technology.

Additionally, the ongoing geopolitical tensions between Russia and Western countries might indirectly influence the investment climate in Kazakhstan due to its proximity and economic ties with Russia. Depending on the severity of sanctions and countermeasures, some investors might perceive increased risks associated with doing business in Kazakhstan, leading them to either delay or avoid making new investments altogether.

Nevertheless, there are opportunities for Kazakhstan to position itself as an attractive alternative for investors looking to circumvent the negative effects of the Ukrainian conflict on the Russian market. Despite the recent political instability and social unrest witnessed in early 2022, the Kazakhstani government has been working to address the underlying issues and promote a stable investment climate. Efforts to streamline trade procedures, improve transparency, and enhance the overall ease of doing business in the country can contribute positively to the investment climate.

Furthermore, the government’s commitment to comply with international sanctions against Russia, coupled with promised economic and political reforms, could help restore investor confidence over time.

However, several persistent challenges remain, such as corruption, excessive bureaucracy, arbitrary law enforcement, and limited access to a skilled workforce in certain regions. Additionally, the government’s increasing regulatory role, preference for import substitution policies, limitations on foreign labour usage, and intervention in company operations continue to raise concerns among foreign investors.

Improving the rule of law, enhancing human capital development, upgrading transportation and logistics infrastructure, adopting a more open and flexible trade policy, easing work permit regulations, and refining tax administration practices are key areas where improvements would significantly benefit the investment climate in Kazakhstan.