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Risky Business: The U.S. Should Rethink Business With Kazakhstan

Kazakhstan has lobbied extensively to attract foreign funds, but the behavior of its kleptocratic officials and government corruption have raised alarm bells for many investors.

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Following Vladimir Putin’s invasion of Ukraine, global outrage prompted American investors and businesses of all sizes to flood out of Russia. As companies continue to divest from the Russian market, some countries neighboring Russia have been eager to attract Western investors. Kazakhstan, a strategically significant Central Asian country, has lobbied extensively to attract foreign funds, but the behavior of its kleptocratic officials and government corruption have raised alarm bells for many investors.

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Situated between China and Russia, Kazakhstan has been recognized since the Soviet era for its uniquely powerful position and wealth of natural resources. Not only does the country produce over 40% of the world's uranium, but it’s also Central Asia’s largest oil exporter. For years, these resources and their associated investments have served as Kazakhstan’s lifeline.

Despite its war chest of resources, greedy oligarchs known for siphoning off stolen assets have stopped Kazakhstan from fully integrating itself into the global market. However, in recent years, Kazakh leaders have worked overtime to rehabilitate the nation’s image on the world stage. Kazakh President Kassym Jomart-Tokayev has promised to root out systemic corruption and rapidly modernize the Central Asian country. In support of this effort, his administration established Kazakh Invest, an organization dedicated to promoting business opportunities to foreigners. Most recently, the Kazakh government has urged members of Congress to support a bill that would grant them permanent normalized trading relations (PNTR), a preferential trading status that would encourage American investment in Kazakhstan.

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Despite the Kazakh government’s public campaign to attract foreign investors, some commentators and analysts are still skeptical that the country’s leaders are serious about instituting real reform. Manfred Stamer, a senior economist at trade credit insurer Euler Hermes, highlighted how security issues continue to present serious risks to foreign firms working in Kazakhstan. Following political unrest that sparked violent protests across the country, Stamer told The Wall Street Journal that “such an event reminds investors of the risks of doing business there. You must expect that this isn’t a one-off.” Similarly, Ed Chow, a former Chevron executive, remarked, “if you are a Western oil company, your risk profile may have just changed.”

Other experts have raised serious concerns about the persistent government and judicial corruption that’s proven difficult to uproot. The United States State Department warned that “despite institutional and legal reforms, concerns remain about corruption, bureaucracy, and arbitrary law enforcement.” IntegrityRisk, a financial consulting watchdog, cautioned that Kazakhstan’s compromised legal system and corrupt bureaucratic gatekeepers make doing business in Kazakhstan risky. And there are countless examples to give credence to these concerns. 

In 2013, for instance, a Swedish arbitration panel ruled that the Kazakh government had illegally seized assets from Tristan Oil — a company backed in part by the American investment fund, Argentem Creek Partners. It awarded $500 million to Tristan Oil’s owners, but Kazakhstan has continued to fight tooth and nail, using all means possible, to keep the funds from being disbursed. In February 2022, an Italian Supreme court decision recognized the Award again, paving the way for further enforcement efforts. The fight will likely go on until Kazakhstan decides to recognize its obligations — with the new regime yet to comment on whether they intend to settle.

Also in 2013, World Wide Minerals Ltd (WWM), a Canadian company, alleged that Kazakhstan had unfairly confiscated and forcibly sold its local assets. After a tumultuous court battle, WWM was finally awarded $40 million in damages in 2020. Kazakhstan had resisted payment for seven years.

The American investor, Devincci Sarah Hourani, founder of the Caratube International Oil Company, experienced a similar ordeal in 2017. After a lengthy legal battle with Kazakh authorities, Hourani was awarded over $39 million “for the unlawful expropriation of its oil contract rights by Kazakhstan.” The Washington, D.C.-based International Center for Settlement of Investment Disputes (ICSID) found that Hourani’s oil business had had its contract unlawfully terminated by the Kazakh Ministry of Energy and Mineral Resources and Consolidated Contractors (CCC).

If Kazakhstan’s government is serious about attracting long-term investments from the West, it will need to implement fundamental changes, and that starts with taking anti-corruption seriously and honoring agreements with foreign investors. Until then, U.S. investors should rethink the risk of doing business in Kazakhstan.

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