The mineral resource extraction and exportation sector
Overview
Kazakhstan is said to host 95% of periodic table of elements and the commodities boom of the past five years has boosted the country's profile among foreign investors and companies alike. International interest in the country's mineral wealth has culminated in its two largest mining companies (Kazakhmys Plc and Eurasia Natural Resources Corporation Plc) entering into the FTSE100 index with a combined total asset value of in excess of £25bn. Not dissimilar to the experiences of a plethora of Russian mining giants, Kazakhstan's two leading metals companies are also surrounded by merger rumours and government politics played out through shareholder control and mining license allotments.
With the issue of global competitiveness becoming more and more key to the Kazakh government, the benefits of critical mass, efficiency and scale are currently contributing to a continued likelihood of corporate consolidation amongst mining giants both in the Russian and Kazakh mineral sectors. The main driver behind this trend will be the need for increased competitiveness and efficiency in the face of rising fuel costs and diminishing margins to keep pace with the likes of more established foreign mining entities such as Rio Tinto and Norilsk Nickel. It is likely that both private and government shareholders will view the issue of scale as central to the long-term success of their domestic producers and this could have significant implications for both the investors and operators of smaller standalone mining operations in the region.
Oil and gas services sector
Overview
Kazakhstan is home to the single largest oil field outside of the Middle East and to date oil exports already account for 60% of the country's export revenues, 35% of government revenues and 17.5% of total gross domestic product. But in stark contrast to the industry's huge economic contribution there remains a serious issue of underinvestment in the services and infrastructures that support its operation. This shortfall of investment is acknowledged by the government which is keen to see production and efficiency levels increase in the industry but feels its funding responsibilities lie within the greater macro-economic investment projects such as transport, education and health infrastructures. Accordingly, private foreign investment in oil and gas services is welcomed by the government in Kazakhstan.
Foreign businesses and investors are especially welcomed by the Kazakh government when there are clear benefits to the economy and local people as a whole. In Kazakhstan there exists a chronic shortage of local skills, and companies that can provide engineering and training programmes fare well under the current regime. Further investment in technologies and processes are needed and encouraged in the country, and whilst the government is likely to protect strategic assets such as pipelines for security reasons, it is more than willing to work with foreign businesses and investors on a wide range of projects.
Commercial and retail real estate sector
Overview
Despite recent tough conditions in the real estate sector in Kazakhstan there still exists a large and upcoming middle class who are aspirational in their living standards. This is continuing to drive a desire for new and improved residential dwellings and for more and more retail outlets. This underlying consumer growth outweighs the downside risk largely created by the temporary starving-off of foreign funding following the global credit crunch. This is a testing time for investors, banks and government alike in Kazakhstan but also a possible healthy shakedown of the funding structures that support the overall real estate and retail sector.
Given the underlying growth driver of the growing oil and mineral industries within the country - and providing that foreign investor confidence can be maintained - the country's domestic real estate sector remains an impressive investment opportunity.