Why Will Investors Not Come?

Akorda is desparately trying to attract foreign investments to Kazakhstan. The money, however, are coming primarily to the resource sector and usually from a limited number of large corporations. Smaller investors are not willing to invest in the country fearing the disrespect for the law and the arbitrary rule at all levels of power.

One must give credit to Akorda: much has been done in the matter of attracting investments starting from the visa-free regime for the citizens of dozens countries to the cardinal easing of the legislature on the resource use and from holding the Astana EXPO-2017 exhibition to creating the de-facto offshore area in the capital.

To those who wish to learn more on the subject, we recommend to read the press release on the meeting of Prime Minister of Kazakhstan with investors from 30 countries in the framework on the Kazakhstan Global Investment Roundtable forum that took place on December 5, 2017 in Astana and Bakytzhan Sagintayev’s report.

Unfortunately, despite all the efforts, even though, in 2017, the flow of foreign investments has increased, they are still primarily affecting the resource sector. At the same time, Nazarbayev has set the goal of the accelerated development of the non-resource sectors. To achieve this goal, Kazakhstan must be able to attract a different type of the foreign investor, the so called “mass investor”.

The “mass” investor, however, due to their relatively small capital and the lack of an opportunity to employ a special staff of attorneys and lobbyists, is much more sensitive to the “earthly” problems than large corporations. The incorrect moves of Kazakhstan officials, the “bullying” of the regulatory agencies, law-enforcement agencies, and the gangland, the disagreements with employees and local populations are, to them, of a critical nature. As for the delays in solving the problems by the state agencies, they are deadly.

Akorda is incapable of freeing the foreign investor from these negative possibilities since the existing authoritarian political system and practices, on the one hand, enable Nursultan Nazarbayev and his circle to preserve their reign, on the other hand, generate authoritarianism at all the levels of the state governance on a daily basis. This happens because the use of arbitrary rule “upstairs” generates the use of arbitrary rule “downstairs”.

On the surface, it looks like delegating the presidential authorities from “upstairs” to “downstairs” when governors are held responsible for everything that happens in their regions including the things that are definitely beyond the scope of local governors’ authorities, when the presidential orders are not discussed but implemented, when the political will prevails over everything including the law and the morals. As a result, in Kazakhstan, the subjective factor plays the crucial role and solving individual problems mainly depends on the lobbying possibilities including using of corruption schemes.

We will confirm our theses citing an example of a business case. Note that we have chosen the case randomly simply due to the fact that the information on that case was near at hand.

In Karaganda region, there is a porphyry copper deposit called Bayskoye. It is located 20 kilometers away from Karagayly village and 230 kilometers away from the regional center. Judging by its size (106 ton of the C1 class porphyry copper), the deposit is a medium one. If is being developed by VOEX COMMERCE joint venture that includes Swiss company Avangarde Investments SA (50% participation interest), Balkhashmed LLP (40.1% participation interest), and Sary-Arka National Company (9.9% participation interest).

VOEX COMMERCE is operating on the basis of the contract signed on September 3, 2013 for the period of five years. In accordance with it, the contractor had to completed exploration works and assess the deposit resources and then to put then onto the state’s books. To complete this task, the company was given three years. However, according to one of the co-owners, Avangarde Investments SA, VOEX COMMERCE  is currently involved in illegal porphyry copper extraction selling it for give-away prices while masking this activity as pilot-commercial production.

The problem of the foreign investor that owns half of VOEX COMMERCE is that they de-facto do not have any rights. And, according to our sources, VOEX COMMERCE is in fact in control of  certain Mukhit Omar. This person as Head of AB Metalls located in Balkhash town had earlier been accused of embezzling state funds in the amount of approximately 200 mln tenge and, in December 2016, he was extradited from Saudi Arabia on the request of Kazakhstan Public Prosecution Office. However, for reasons unknown, Mukhit Omar was able to leave the Almaty jail and, starting from June 20, 2017, can be found in the international wanted list.

According to our sources, his liaisons with the powerful local siloviks had played certain role in it. Allegedly, these siloviks had had participation interest in this shady business operations of stealing heating oil from a Kazakhmys facility. Particularly, the list of the siloviks include Head of VOEX COMMERCE Talgat Bukebayev (who, incidentally, is an ex-colonel and an employee of the Public Prosecution Office).

It is not surprising that, when Avangarde Investments filed a request to conduct an examination of VOEX COMMERCE to the Karaganda Public Prosecution Office, it had little effect. In response to the foreign owner’s activity, the shareholders, at an early meeting held in March 2017, voted to redistribute the shares among the participants consequently decreasing the Swiss company’s participation interest from 50% to 0.2%.

According to another source, certain Aleksandr Kochurin is also the one interested in VOEX COMMERCE continuing producing porphyry copper and selling it for give-away prices. Allegedly, he is a brother-in-law of Vladimir Kim, a Kazakhstan “copper oligarch”, a billionaire, President and a large shareholder of KAZ Minerals PLC  and the majority shareholder of Kazakhmys Corporation.

So, the case clearly shows that the foreign investor has nothing to set against the conglomerate of the private interests of the people doing profitable shady businesses and having useful liaisons in the law-enforcement agencies and even in Akorda itself. For this reason,  Avangarde Investments has found itself in a deadlock situation that can be helped only by a direct intervention of the Kazakhstan Public Prosecution Office or influential state officials.

It is highly unlikely, however, that such an interference is to take place. And even a miracle happens, this interference cannot be of a massive-scale due to the existence of the numerous intra-elite collisions, red tape, and the lack of the Public Prosecution Office personnel resources. Therefore, it is not surprising that foreign investors (except for those operating in the countries similar to Kazakhstan in their political structure and mentality) prefer to avoid the country despite the passionate appeals of Akorda to invest in its economy. And, judging by the aforementioned case, they are quite right to do so.

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