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June, 2006

Zashev, Peter - Vahtra, Peeter
KAZAKHSTAN AS A BUSINESS OPORTUNITY - INDUSTRIAL CLUSTERS AND REGIONAL DEVELOPMENT
Electronic Publications of
PanEuropean Institute, 6/2006

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Conclusions

As suggested by the above description of the industrial clusters, significant regional disparities exist when it comes to the business potential of different regions in Kazakhstan. Therefore one may conclude that investors would have to accommodate these disparities and made a careful examination of where their investments would yield a higher return.

With no surprise the former capital Almaty is leading at number 1 position. That is a logical consequence of city that has been the capital of Kazakhstan for most of its history with the consecutive development of its infrastructure and industry and continuing conglomeration of people. Investors could be equally interested in the opportunities to enter the Kazakhstan market in Karagandinskaya and EasternKazakhstanskaya regions. The other regions need not be neglected. Astana city being the new capital is set to keep an intensive growth pace. As also seen in Table 5 the other regions have their particular strengths and weaknesses and thus their potential must be reviewed and further analyzed on basis of investors’ particular interests.

There are plenty of opportunities for generating successful business in Kazakhstan. A combination of high oil and metals prices, a willingness of the government to purposefully diversify the economy and significant governmental development programs are providing considerable opportunities. There is an apparent need for future reformation of the current natural resourcebased and concentrated economic structures, in order to create a broader base for economic development in the country. Reportedly, the current focus is on formation of various industrial clusters in the country, including oil and gas machine building, petrochemical cluster, textile industry, metallurgy, food industry, and tourism, among others. The implementation of the cluster mechanism is hoped to advance efficient distribution of investment resources and promotion of innovative technologies, eventually leading to higher value added production. In addition, authorities are basically quite friendly and welcoming towards foreign investments as a vital ingredient in the process of economic diversification.

The risk side of the medal is more in a long term perspective. The presidential regime is not based on democratic principles and the opportunity for cronyism and mismanagement of governmental funds, programs and initiatives is immense. In addition no one may forecast reliably how long the oil and metals prices will be at these exceptionally high levels. To some extent, the ruling political elite are still interested in preserving the industrial status quo and securing the shortterm revenues from the energy sector on the expense of longterm structural development.

Neither of these should really mean that Kazakhstan is not a good business opportunity. Quite the opposite – the country has never been so attractive from foreign investor’s point of view. Interestingly it is mostly US investors who have noticed it and are trying to increase their presence at the market. EU companies in general and Finnish companies in particular are still to discover Kazakhstan as a market opportunity. There are significant arguments to predict that those engage in a coherent and sustained effort to enter the market could be richly rewarded.

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