Sanctions impacting trade routes through Russia have increased Kazakhstan's demand for alternative shipping options, including the Trans-Caspian International Transport Route (TITR), also known as the Middle Corridor.
As of October 1, 2023, Kazakhstan's total stock of foreign direct investment reached $173.4bn. Of this, $44.8bn was from the United States, although actual U.S. investments in Kazakhstan's hydrocarbons sector are likely higher due to indirect investment routes through other jurisdictions, U.S. State Department disclosed in its report on the country's investment climate.
The hydrocarbon sector remains a cornerstone of Kazakhstan's economy, but the government is actively working to diversify its economic base. The Government of Kazakhstan (GOK) engages with foreign investors through formal channels, such as the President’s Foreign Investors Council, and maintains bilateral dialogues. Kazakhstan's membership in the World Trade Organization (WTO) and the Eurasian Economic Union (EAEU) reflects its commitment to international trade and economic integration.
Impact of Geopolitical Events
The ongoing conflict between Russia and Ukraine, along with the resulting Western sanctions against Russia, has had a notable impact on Kazakhstan's investment climate. Kazakhstan shares extensive economic ties and a long border with Russia, which necessitates careful management of its economic policies in response to these sanctions. Despite the challenges posed by the conflict and sanctions, Kazakhstan's economy has shown resilience, largely due to favorable commodity prices. The war has disrupted supply chains but also created new trade opportunities for Kazakhstan as Western companies seek alternatives to Russian and Belarusian markets.
Kazakhstan is focusing on expanding its external trade and developing alternative transport routes. One such route is the Trans-Caspian Middle Corridor (TITR), which is designed to enhance Kazakhstan's trade capacity and provide alternatives to traditional trade routes affected by sanctions.
Economic Reform Agenda
President Kassym-Jomart Tokayev’s economic reform agenda aims to promote industrial development, support local producers, and improve the business climate. Key initiatives include increasing privatization, addressing monopolistic practices, and implementing major tax reforms set to take effect in 2025. Despite these efforts, challenges persist, including corruption, excessive bureaucracy, and limited access to a skilled workforce in certain regions.
Foreign investors have expressed concerns about the government’s import-substitution policy, restrictions on foreign labor, and increased regulatory interventions. There is a call for improvements in the rule of law, investment in human capital, and enhancements in transport and logistics infrastructure. Additionally, foreign firms seek a more open and flexible trade policy, a favorable work-permit regime, and consistent tax administration.
Middle Corridor
Sanctions against Russia have affected trade routes, leading to increased demand in Kazakhstan for alternative shipping options. The Trans-Caspian International Transport Route (TITR), also known as the Middle Corridor, has become a vital alternative to traditional routes disrupted by sanctions. This corridor connects Asia with Europe, passing through Central Asian countries such as Kazakhstan, Uzbekistan, and Turkmenistan, and the Caspian Sea, Azerbaijan, Georgia, and Türkiye before reaching Europe. The Middle Corridor provides a more direct land route from China to Europe, circumventing longer maritime routes.
In response to sanctions-related risks, Kazakhstan's oil, uranium, and metals sectors are increasingly utilizing alternative routes. This includes shipping fuel through seaports in Georgia, Latvia, and Estonia, redirecting a portion of oil exports from the Caspian Pipeline Consortium (CPC) to Caspian seaports, and using the Middle Corridor for a vital portion of uranium shipments.
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