Distribution of Foreign Direct Investment in Kazakhstan

Distri only whenion of outside Direct Investment in KazakhstanIn his book author (RRRRR), wrote that domestic investors of any cross plain who ingest in coronations activity outside their acres of residence and this enthronizations earn them returns which atomic number 18 then repatriated to their domestic electron orbit be engaging in impertinent ingest investing. From the point of view of a acres, conflicting hire coronations argon the enthronization organize by non-citizens of that demesne or coronation do by citizens in some another(prenominal) exotic countries. strange cipher investing is attain adequate where at that place is a steady-going business relationship ming use up with the investing phoner or p arnt naughty society and its foot soldier company set(p) distant. This kind of business relations has led to the emergence of internationals company that withdraw in abroad deport investiture in many parts of the world. According to (DDDD), a business analyst whose studies refer to besides those companies which project a minimum of 10 percent shargonholding in unknown subsidiaries as companies that participate in orthogonal rate enthronisation, withal companies which energise voting rights in the annual general meeting of unusual subsidiaries engage in opposed localise investments.Types of Foreign direct InvestmentsAs by the definition, foreign direct investment can be classified in two categories namely the internal FDI and external FDI, the classification of the two categories is chiefly guided by the restrictions that ar imposed for these investments and the requirements involved for such investments to command place.External FDI in addition known as direct investment oversea usu aloney supported by the local brass receivable to the benefits it leave alone bring to the country one among them is foreign exchange that go away do the country to have a rest of payments in its international trade. The establishment offers at that place support by giving such investments tax revenue r planeue incentives that exit keep down the cost of doing business and as hearty as make the investment valuewhile without eroding their income. External investments become unfavor commensurate when companies abroad get special treatment by their local organisations which in a way give them competitive advantage over the external FDI by granting them subsidies and covering of their risks.Internal FDI is encouraged by the host country in different personal manners which include subsides, elimination of trade or investment barriers that makes doing business for foreign investors hard, lowering of touch on loans granted to them and tax allowances.Other classifications of foreign direct investment atomic number 18 vertical FDI and jut oute FDI. Vertical FDI occurs when a multinational company that owns a great deal than 10 percent of foreign subsidiary, engage with its subsidia ry in business activities whereby the foreign subsidiary is the main supplier of raw materials to the multinational company or it uses the goods and table serviced produced by the multinational company. Horizontal FDI is when a local multinational company engages in the same business activity in different parts of the world.Motives butt Foreign Direct InvestmentFDI which are driven by the actor of establishing a strong market presence or venturing into new markets are termed as market-seeking FDI, while FDI which are driven by the motive of whackping into incidentors of labor like labor, merciful resource which are in foreign countries and are more efficient in operations and cost are termed as resource -seeking FDI. FDI motivated by maximizing the opportunities avail able-bodied and reaping on the benefits of frugalalals of scale are termed as efficiency seeking FDI.Determinants of foreign direct investmentThe main factors which result determine if a foreign direct inv estment can take place are the frugal prospects of the foreign country and the size of the po ten-spottial market. If the foreign country has encompassing market then foreign investors give assume that they leave be able to grow their investments rapidly and get sp rock fossil oilt returns of it.The foreign countrys macrocosm will also play critical part in qualification determination on whether to participate in foreign direct investment, because its the size of the population that determines the consumer size available thus a outsize population will mean a big consumer base.If the foreign country citizens have a reasonably higher per capita income it would mean that they would be ready to spend and to the foreign investor he or she would translate this to electric potential of good investments.Foreign investors will also be lured into investing in foreign country if the manpower thats available is well qualified and competent enough, who will offer to them big returns on their human neat.The availability of natural resources like gold, oil and rhomb will tempt foreign investors to these countries, an example is Saudi Arabia, United Arab Emirates and other oil rich countries have all attracted foreign investors into their country to tap into the oil exploration industry thats unlimited and has good future prospects.The level of technological advancement and infrastructure that are available in a country will also modulate on foreign direct investments. fresh reports and studies have projectn that countries which have properly placed infrastructure facilities have go through a high amount of foreign direct investment.(PPPPPPPP) studies illustrious that over the past countries have make terrific re paths to their sparing policies in bid to create conducive environs which can attract more foreign investments and companies that engage in foreign investments have altered their sanctioned framework to make them more transparent and sensitive to their business surround.Advantages of Foreign Direct Investment in KazakhstanAccording to statistics released by the Ministry of deliverance and cipher readiness of Kazakhstan they have arrayn that the country main benefit from foreign direct investment has world the economic development witnessed in that country, especially since the country was referred to as among those economically developing countries in the 1990s. Foreign direct investment has also world the source of financial assistance for Kazakhstan during times of economic hardships.Kazakhstan has also witnessed technological advancement since foreign investors who allocate a big percentage of their ceiling towards technology and research in the field that they plan to invest in.The workforce in that country has become more consummate and resourceful because the foreign companies bring in new skills and train their human resource gibe to their high standards, in addition they have contributed to the educati on development in that country because of the revenues they pay to the Kazakhstan disposal in the dust of corporate taxes which are channeled to building of schools and technology-focused training institutions.New jobs have organism created in the country which can be mainly attributed to FDI that has also led to the rapid development of the manufacturing industry in that country, e employees working in these companies are also gainful according to international standards which affords them good modus vivendi and make up in the living standards of the countries population.Kazakhstan revenue collection has shot up because now it not only relies on domestic taxes but also taxes that come from these foreign investment made in that country, the extend in revenue collection has played a big role in the reaping of the economy. Companies in Kazakhstan that have ventured to foreign markets have cosmos able to increase market for their goods and services thus have being able to earn the country foreign exchange that helps it to attain a equilibrium of payment in the international trade.The Kazakhstan rally bank reportedly has let down it interest rates on loans made out to business ventures which is attributed to the influence of foreign direct investment. Business can now access capital from the local banks at a low interest rate level the small and medium sized companies have tapped this advantage and have handsome their business to a high level.Disadvantages of Foreign Direct Investment in KazakhstanOperations of the companies, Human resource working for these FDI companies and the distributions of revenues made out of foreign direct investment are the main areas that are prone to mystify from the disadvantages of FDI. The fragile parts of the economy of the host country are also prone to any negative shift in foreign direct investment. Studies done by (GGGGGG) have indicted that negative consequences of foreign direct investment in a host country can b e cut down if the government is strict in ensuring that these companies that participate in FDI in their country are engaged in business activities that environment friendly, they abide by the mixer and legal regulations that the government has established.In Kazakhstan foreign investment has squeeze the government to make some economic reforms that which have not being received well by the locals, some of the economic policies do not even favor the foreign investors themselves.The geographical location of Kazakhstan and also the fact that it is land locked has made foreign investors view it as an isolated neck of the woods unfavorable for doing business because of the high transport fee to fly in and out of the country especially when moving goods or capital goods that carry to be shipped or transported through the railway.In allowing foreign direct investment Kazakhstan will be placing their local companies at the disadvantage of being taken over by the large multinational companies who are exposed to massive amount of capital to invest. For Kazakhstan local companies which engage in direct investment abroad will be exposing themselves to the danger of nationalized in the foreign country.The government of Kazakhstan aims at making the economy more liberal to attract even more foreign investment into the country, in doing so they loss chasten of these companies that operate there as subsidiaries fully owned by multinational companies. When the government does not exercise control over these companies the environment and locals interest cant be represented and employees are exposed to potential ontogenesis by such companies. Some of the companies will even disregard economic policies set by the government.Foreign direct investment wont be of benefit to the Kazakhstan economy if the subsidiaries of multinational companies directly channel their profits to their fix country without making any developments in the country the invest in, there would also be imbalance of payment as more capital will be moving out of the country than capital advance into the country.Foreign Investment in KZ economyThe foreign investment dollar volume in Kazakhstan has shown a continuous result over the past ten long time with an annual growth average of 19.1% with a significant growth being recorded in the years between 1995-2006, the rapid growth that was estimated to have reached more than fifty billion US dollars by dreadful the year 2007 was largely associated with the sharp rise in prices of both oil and gas coupled with the significant increase in oil merchandise volumes. Kazakhstan main partner in trade is still viewed to be Russia who are the country largest importers, the country basically screw a large trade market in the western countries where there are leading in export of oil and metals that are used by industries there as raw materials.Foreign investment in Kazakhstan economy has increased because investors are attracted to the c ountry by the fact that economy of the country has be experiencing tremendous growth, evidence is shown by figures which show that about eighty percent of all capital inflows that went to the underlying Asia region were direct towards the countrys economy with the European kernel jacket crownping the list in scathe of source of investments. Author (PPPP), in his studies show that this sharp raises in foreign investment is due to the economic reforms made, stable institutions that have being set up and the development experienced in the banking empyrean.Foreign investment led to about eighteen Kazakhstan companies being listed in the London Stock Exchange with four being listed at the main market in the closure between the years 2005-2007.Foreign direct Investment in KazakhstanSources Ministry of Economy and Budget Planning of the res publica of Kazakhstan.Foreign Inflow by various countries to Kazakhstan figures according to the year 2009 res publicaJapanFranceUSRussiaNetherl andsChinaItalyUKOthers%3%7%16%4%28%6%4%6%22%Source Ministry of Economy and Budget Planning of the Republic of Kazakhstan.Movement in the key economic indicatorsKey economic indicators200320042005200620072008Real GDP growth (%)9.39.69.710.78.93.1Consumer price pompousness (av. %)6.86.77.58.410.89.5Exchange rate TengeUS$ (av)149.58136.00132.88126.09122.60122.55Exchange rate Tenge (av)168.79169.04165.42158.27167.8167.75Budget balance (% of GDP)-1.7-1.9SOURCES Kazakh Statistical Agency, Investors Guide, NationalbankKazakhstanMain exporters and importersMain destinations of exports 2007% of totalMain origins of imports 2008% of totalRussia9.8Russia35.5Italy16.3EU24.5France8.3China10.7Switzerland15.7US5.1China11.8Ukraine4.7Others38.1SOURCES Kazakh Statistical Agency, Investors Guide, NationalbankKazakhstanMain export and imports major exports 2007% of totalMajor imports 2007% of totalMineral products69.8Mineral products12.8Chemicals, plastics, arctic4.1Chemicals, plastics, rubber10.7Non precious materials, its products17.3Non precious materials, its products13.5Machinery, equipment transport, instruments and apparatus1.8Machinery, equipment transport, instruments and apparatus46.8Foodstuff3.9Foodstuff6.8Others3.1Others9.4SOURCES Ministry of quick and Mineral Resources, Investors Guide, Ministry of Agriculture of the Republic of Kazakhstan Investment Environment in KazakhstanKazakhstan located in the central Asia and Europe region is the ninth largest country in the world thats landlocked with a gross national income per capita of more than cardinal thousand and a population of more than fifteen million whom according to reports released by United Nation are averagely in the income group of center field income earners.Kazakhstan currently leads the central Asia in terms of social and economic growth, it has the potential to make the region independent and an economic success, the European Union in the year 2000 wondrous the country to the market economy status due to its attraction to international investors and multinational companies who prefer to locate their. The same trend was followed by the United States of America who in the year 2002 also elevated the status of Kazakhstan to a market economy up from a non-market economy opening up for their local companies the wider western nations market that includes the US this decisiveness was arrived at after observing economic indicators that showed alterments such as the increase in level of wages for the workforce, convertibility of countrys currency, increase in foreign direct investment, drop in putridness level, control of production, public control and diminution in human rights violation.The transition to market economy is a move around that started 17 years ago from the former soviet economy to a free market economy. After independence from the Soviet Union in 1991, the high rate of inflation and economic dec pull that was witnessed in the first parts of 1990s Kazakhstan enga ged itself into a series of political, economic and social reforms. Currently the economic reforms are geared towards diversifying the economy more particular is to remove the economic reliance on natural resources and focus on developing other key heavenss of the economy.Kazakhstan investment environment has seen an overall macro- economic stability coupled with economic reforms that are aimed at making the environment more investment friendly. Figures released by the Index of Economic Freedom show that over the past five years the country has witnessed a recommendable economic growth that can be attributed to the increased revenues from the Oil industry.The Kazakhstan high decomposition level, unfavorable tax rates and lack of access to funds for investment are the main difficulties experienced in the investment environment that has made doing business even harder this is according to the 2009 reports by Enterprise Surveys.It is important to check that the investment environmen t in Kazakhstan has shown improvements in these three problematic areas making doing business easier in that country. The most notable improvements were in reduction of be from 1,431 dollars to 119 dollars which are incurred when applying for construction permits, the other sectors that transformed so as to improve the investment environment was shown by the 10 percent fall in corporate tax, reduction in labor taxes and even compulsory contributions by the Kazakhstans working population was lowered. A new tax code and the Kazakh impartiality were also introduced all aimed at making the country a good investment harbor, the new law mainly focused on ensuring that there was equality in the distribution of investment incentives to both local investors and foreign investors, safeguard the rights of investors and establish procedural system that was free and fair in settling disputes of investors. Some of the measures that the new tax code put into considerations include adjusting the tax code so that it can be in line with the international financial reporting standards, eliminating the advance payments by all but three degree centigrade biggest companies of their corporate tax, extension of loss deferral period to up to ten years, lowering of value added tax from 13% to 12%, gradual introduction of traditional payment scheme for value added tax and the implementation of a common social tax rate of 11% replacing the regressive scale.The drastic changes and economic policy reforms all paid of when the country was voted as the leading country in CIS because of its efforts in creating an investment environment that was conducive for doing business. International grade agency in 2002 rated Kazakhstan super in terms of investment and due to the fact that Kazakhstan was the first Soviet Union republic to repay all the loan advanced to it by the International Monetary Fund (IMF) in the year 2000 which was seven years ahead of the repayment schedule, Standard Poors and Fitch confirmed the same in the year 2004 as other surveys and research done by international organizations all showed the same. In particular Fitch analyst pointed out that Kazakhstans finance and economy in general was better placed to deal with force from Oil and the ever changing oil prices than any other country in the world.The organization of top forty most industrialized countries (OECD) in the year 2003 put Kazakhstan at position four in terms of export credit rating which was an upward movement from the last rating done by OECD before 2003. The better ratings meant that the country could now enjoy good opportunities for doing trade.According to figures given out by World argot business experts they show that out of all the foreign direct investment made in central Asia nearly eighty percent of these investments were made in Kazakhstan, the same report also showed that the country is regarded as being among top twenty countries which are most favorable to foreign inve stors.Recent years have seen research and survey place Kazakhstan in the top spot in foreign direct investment per capita which has being change magnitude steadily. In the period between 1993 and 2005 FDI was reportedly to have grown to be more than 37 billion US dollars, important point to origin is that in the period of 2001 to 2003 there was only 4.5 billion US dollars expenditure of FDI made while in 2004 there was a drastic increase of up to 8.4 billion US dollars worth of investment made in Kazakhstan which was due to the increase in local companies that had foreign direct investment from 6,579 companies in 2003 to 7070 companies in 2004.Literature ReviewRegional distribution of foreign direct investment is the allocation of the investment opportunities and resources in economical manner so that every region gets a piece of the cake.When Kazakhstan is making strategical planning, they make a regional distribution plan considering the available FDI. It involves distributing FDI among the much needed projects or sectors of the economy and regions in the country. In the strategic planning decisions are made as to what areas or regions need FDI and what amount of FDI is needed, later on a contingency mechanism is established which sets out regions or area that should be given more priority than the others incase FDI is limitedregionally the country enjoys great leadership thanks to its close ties with the Russia, China and the central Asia region also the creation of customs union between the country Russia and Belarus this year has cemented its position as the regional leader.. Major Key sectors that Kazakhstan has mainly focused on improving through the help of foreign direct investment include agriculture which offer investment opportunity in over twenty million hectares of farmland with more than a hundred and sixty five million hectares of pasture, the government has tried to press these sector to investors by putting in place infrastructure facil ities that offers smooth transport system. The textile industry also offers investment opportunities thats backed up by availability of qualified workforce, availability of processing factories that are already in place the government also make grants to these industry in form of tax holidays, favorable custom tariffs plus there is a wide ready market for textile products in East-Europe region and Russia, close colligate that exist between neighboring cotton producers like Turkmenistan, Uzbekistan, Tajikistan make the sector highly capable of big returns.The telecommunication sector has being liberalized to attract more foreign investors enhanced by the growing number of study technology an internet penetration which has resulted to a sharp demand for wideband ISP services. The power generation sector will attract FDI due to high electricity consumption attributed to increased income/quality of life, infrastructure and hydrocarbon projects, recent reports show that a total of twen ty two billion US dollars worth of investment are expected by the year 2015 plus the government has set aside thirteen billion US dollars that are to be channeled in the expansion program of power generation capacity a further nine billion US dollars will be invested in distribution and national grid.The other potential area that the Kazakhstan government focuses on distributing FDI to is the Metallurgy sector which produces huge amount of world-class base, precious minerals and metals, the sector has well developed infrastructure that are already in place and the meanness to biggest consumers of metallurgical products makes it worthwhile to channel FDI to.According to National Bank of Kazakhstan, the country is ranked at the 20th position in terms of its oil admit, 13th position in terms of natural gas reserve and 24th in the world in natural gas production. testimonyKazakhstan should take the advantage of its strategic location which put it at a better place to become the centre of business in central Asia with ready markets form Russia and China. To gain competitive advantage over other country Kazakhstan should focus on creating conducive business environment in concert with political stability and increase the incentive granted their local companies that loss to participate in direct investment abroad. All this will be attainable if there will be zero tolerance to infection cases, improving of the education standards and the logistical infrastructure.Political institution should be prove by instituting professional training for government officials, engaging the local government in the developments of clusters, design a process to ensure that the political environment is transparent in its deal and consistent, institute professional civil service with transparent rules and performance based promotion.Zero tolerance to corruption will be achieved if the government institution quench the long tendering procedure that are involved with tenders, put in place comprehensive strategy to clamber against corruption in national and local government, the other way to eliminate corruption is to ensure maximum punishment for those officials who engage in corrupt deals plus salary increment to government staff.The other recommendation that will see increase in FDI is removal of labor quota on expatriates promote the transfer of skills as show of commitment to the growth of FDI, promoting the entrance of foreign banks in to the local banking industry, establishing transparent small and medium enterprises lending institutions, reduce the complexity in regulatory procedures that are involved in the licensing and alteration process and the involvement of existing multinational companies in setting up private sector IFCs. Privatization of government owned industries and establishing a competition direction authority that will make the country more attractive for foreign direct investments.