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© 2021 al-Farabi Kazakh National University

UDC 339.727.22 https://doi.org/10.26577/CAJSH.2021.v7.i4.01

D. Zh. Rakhmatullayeva* , A.B. Khajiyeva, O.R. Abduraimov

Al-Farabi Kazakh National University, Kazakhstan, Almaty



The article analyzes the attraction of foreign direct investment to Kazakhstan since the country gained independence. During the period under review (1991-2020), the authors made a macroeconomic analysis of statistical data on the dynamics of Kazakhstan’s real GDP according to the IMF, with an emphasis on the analysis of the cyclical nature of the national economy. We analyzed in detail the inflows of foreign direct investment to Kazakhstan by volume, by type of economic activity, by types of direct investors according to the databases of UNCTAD and the National Bank of the Republic of Kazakhstan.

In addition, we also analyzed the trends in attracting foreign direct investment in the CIS and Central Asia region, based on which we assessed the position of the republic in these regions in terms of at- tracting foreign direct investment. In addition, we gave a brief overview of the global situation on them, taking into account the pre– and post-pandemic crisis. The authors attempted to assess the effectiveness of government measures to improve the investment attractiveness of Kazakhstan and analyze the prospects for the development of the policy of attracting foreign direct investment to the republic based on the assessments of international experts. In conclusion, we gave the recommendations to improve the policy of attracting foreign investors to Kazakhstan.

Key words: Kazakhstan, independence, foreign direct investment, investment attractiveness.


The challenges of the times constantly impose new requirements on the participants of the world economy, regardless of their level of development and the place they occupy in it. Thirty years ago the collapse of the USSR, on the one, and the need to build an independent state with its own strong econ- omy, on the other, became the main challenge for our country. With an acute shortage of our own financial resources, we needed to make an «industrial leap forward. To solve such a difficult task, it was impor- tant to build a competent process of including the na- tional economy not only in the world economy, but also in the world capital market, which would allow the young republic to gain access to foreign capital and with its help solve its own problems.

By the end of the last century, transnational cor- porations from developed countries began to move most of their labor-intensive production in the form of foreign direct investment (FDI) to developing countries, where there is huge potential for cheap labor. As a result, the world has experienced the suc- cessful growth and development of emerging mar- kets in Southeast Asia, China, India and some Latin American countries.

According to definition of UNCTAD FDI is defined as an investment reflecting a lasting inter- est and control by a foreign direct investor, resident

in one economy, in an enterprise resident in another economy (foreign affiliate). FDI inflows comprise capital provided by a foreign direct investor to a for- eign affiliate, or capital received by a foreign direct investor from a foreign affiliate (UNCTAD 2020).

For countries with a characteristic lack of do- mestic investment capital, which includes Ka- zakhstan, external sources of financing in particular FDI are certainly necessary. Their significant ad van- tage in comparison with domestic investment is that with the inflow of FDI various external effects of FDI on economic development, such as the inflow of new technologies for the host country, new knowl- edge and experience, know-how, etc. are observed in parallel. These processes can not be provided by domestic investors for different reasons, including the comparative weakness of the economies of such countries and their weakness to external shocks. At the same time, such conditions make FDI more per- ceptible and widespread influence on the develop- ment of national economies, given that the external effects of FDI do not require additional costs from the host country. This explains the high relevance of the issue of research on attracting FDI all over the world, including in our republic. Based on this, the purpose of the study is to analyze the achievements of Kazakhstan in attracting FDI and receiving bene- fits from it over the entire period of independence of the country.


Material and methods

The article uses general scientific methods, such as the logical method, analysis and synthesis, induc- tion, generalization and comparison, as well as statis- tical methods of calculation.

First, the dynamics of the FDI inflow over the years of their attraction by decades was analyzed, with a graphic illustration of the used statistical data.

A comparative analysis of FDI inflows with the dy- namics of the country’s real GDP for the period under consideration was carried out. Analyzed the measures taken by the government of the republic to form the investment attractiveness of the country through the achievements of Kazakhstan in the FDI Index and the Doing Business ranking. The position of the republic in the Central Asian region in terms of FDI inflow was assessed, the geography of direct investor coun- tries of Kazakhstan and the structure of FDI by type of economic activity were analyzed. Global trends in FDI attraction in a pandemic situation and the global FDI outlook were also analyzed.

UNCTAD statistical databases for Kazakhstan from 1993 to 2020 (in millions of US dollars), data from the National Bank of Kazakhstan from 2013 to 2020 (in millions of tenge), the National Bureau of Statistics of Kazakhstan and NPP «Atameken» were used for the analysis.

Graphical illustrations are made in MS Excel ap- plication.

Literature review

For Kazakhstan, the strategic task of sustain- able development of the national economy since the first years of independence has been imple- mented through the massive attraction of foreign investment. From the beginning the emphasis on their attraction was made in the Strategy «Kazakh- stan-2030», then the process was marked in the Strategic Plan for Kazakhstan 2020 and the State program for accelerated industrial and innovative development of Kazakhstan for 2010-2014. Later Yelbasy outlined the main vector of the investment policy of the country which is realized for today in the Republic: «Kazakhstan has to become a re- gional magnet for investments. Our country should become the most attractive place in Eurasia for in- vestment and for the transfer of technology (Strat- egy «Kazakhstan-2050» 2012).

Many researches in the world show that the im- pact of FDI is multidimensional and affects not only the issues of economic growth and development of the national economy, they can become a catalyst for various changes in the life of the society of the coun-

try. There are studies in the economic literature, the results of which are based on large-scale empirical studies on the impact of FDI on a large number of countries; they are classics when analyzing the de- gree of study of the problem of the impact of FDI on host countries (Aitken and Harrison 1999, Kokko 2003, Blomstrom 2003, Blalock and Gertler 2008).

The experience of developing countries boils down to the following benefits in the form of posi- tive direct and indirect effects of FDI in the national economy:

1. Increased productivity and growth in average per capita income in the host country.

2. Increased employment through direct and backward linkages of foreign companies with other firms, through changes in employment policies and practices.

3. The creation of new jobs in the sector of the most qualified labor force.

4. New methods of organizing management and adopting the experience of local companies.

5. Development of scientific and technological progress (STP) in the host country.

6. Stimulation of growth of export revenues by changing the structure of exports.

A reviewed of the existing literature on the im- pact of FDI on the economy of developing countries showed a large number of works about analysis and evaluation of the impact of FDI on various economic indicators, including social indicators. In light of them the researches on the impact of FDI on the social wel- fare of host countries are interesting (Rondinelli 2002, Herman et al 2004, Lehnert et al 2013, Gorodnichenko et al 2014, Choi et al 2017, Ahmad et al 2018).

Several studies (Buchanan et al 2012, Bal- tabaev 2014, Kurul 2017, Adhikary 2017, Mahmood et al 2019, Majeed et al 2021) analyze the external ef- fects of FDI in developing countries, considering the rapidly changing global trends of national economies.

Regarding the research on the impact of FDI in Kazakhstan, a research (Waikar et al. 2011) found a positive impact of FDI on its macroeconomics as a whole, but they did not consider it by sector of the economy. The study (Rakhmatullayeva et al. 2015) also found no negative impact of FDI on six socio- economic indicators in the regions of Kazakhstan.

The once of last studies about FDI in Kazakhstan (David M. Kemme et al 2021) analyzed the impact of integration of countries in the EAEU on FDI flows attracted by these countries. In addition, the authors analyzed the impact of infrastructure, royalties, the financial crisis of 2008, the situation with Russia (the introduction of sanctions against it) and other factors when analyzing data on the EAEU countries. As it turned out, the integration of countries has nothing to


do with their ability to attract FDI, thus FDI flows are more determined by subjective national factors.

Results and discussion

At present Kazakhstan has faced the challenges of the 21st century – Industry 4.0, the transition to a

«green economy», instability in oil prices, the glob-

al financial crisis, digitalization and the COVID-19 pandemic, which require new weighted decisions and competent effective policy of the country’s leader- ship. Over the 30 years of independence, our country has experienced five major economic crises (the fifth has not yet been overcome – author’s note), which have strongly influenced the dynamics of real GDP in Kazakhstan (Figure 1).

five major economic crises (the fifth has not yet been overcome – author's note), which have strongly influenced the dynamics of real GDP in Kazakhstan (Figure 1).

Figure 1. Dynamics of Kazakhstan's real GDP over the years of independence, % (IMF 2021) As can be seen from the diagram, in different years Kazakhstan's real GDP has been negatively affected by external shocks related to the situation in the world market. In the first years of independence, a decrease in real GDP was observed in 1994 – by 12.6%, which was caused by the consequences of the disintegration of the USSR and the introduction of the national currency. This decline was the largest in significance since the country gained its independence, but the competent policy of the republic's leadership made it possible to achieve the first positive GDP growth of 0.5%

already after two years.

This positive trend could have continued, but the crisis in the countries of Southeast Asia, which had a negative impact on the development of the Russian economy and led to the first devaluation of the Russian ruble, had a negative impact on the economy of Kazakhstan, which was reflected in a decline of real GDP in 1998 by 1.9%. However, in the following year the national economy began to gain momentum, and the positive dynamics of GDP growth continued until 2007, reaching a peak of 13.5% in 2001, and this phenomenon was dubbed the "economic miracle"

of Kazakhstan at that time. This trend was broken by the global financial crisis in 2008, which engulfed the entire world economy, and as a result of this negative impact the real GDP of Kazakhstan declined from 8.9% in 2007 to 1.2% in 2009.

Between 2010 and 2014, real GDP growth did not exceed 6% per year; during this period, growth peaked in 2011 (7.4%). The decline in world oil prices that began in 2014 led to the fact that Kazakhstan's economy, which exports large amounts of mineral resources and is highly sensitive to oil price volatility, began to experience difficulties, and the country's government and the National Bank of Kazakhstan decided to devalue the tenge. As a result, the country's real GDP declined to 1.1% in 2016.

In the next three years, real GDP growth did not exceed 4% annually until the onset of the COVID-19 related pandemic, which also made its corrections. The negative impact of the pandemic

-12,6 -9,2-8,2

0,5 1,7

-1,9 2,7 9,89,8 13,5

9,39,69,7 10,7 3,3 8,9

1,2 4,8 7,37,4

4,2 6 1,21,1 4,14,14,5

-2,6 3,33,9 5,8

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

Consequences of the collapse of the USSR The crisis in Southeast Asia and Russia

The global financial crisis of 2008 COVID-19 pandemic

The fall of oil prices in 2014-2015 and the devaluation of tenge

World Bank Forecast

Figure 1 – Dynamics of Kazakhstan’s real GDP over the years of independence, % (IMF 2021)

As can be seen from the diagram, in different years Kazakhstan’s real GDP has been negatively af- fected by external shocks related to the situation in the world market. In the first years of independence, a decrease in real GDP was observed in 1994 – by 12.6%, which was caused by the consequences of the disintegration of the USSR and the introduction of the national currency. This decline was the larg- est in significance since the country gained its inde- pendence, but the competent policy of the republic’s leadership made it possible to achieve the first posi- tive GDP growth of 0.5% already after two years.

This positive trend could have continued, but the crisis in the countries of Southeast Asia, which had a negative impact on the development of the Russian economy and led to the first devaluation of the Rus- sian ruble, had a negative impact on the economy of Kazakhstan, which was reflected in a decline of real GDP in 1998 by 1.9%. However, in the following year the national economy began to gain momentum,

and the positive dynamics of GDP growth continued until 2007, reaching a peak of 13.5% in 2001, and this phenomenon was dubbed the «economic miracle» of Kazakhstan at that time. This trend was broken by the global financial crisis in 2008, which engulfed the entire world economy, and as a result of this negative impact the real GDP of Kazakhstan declined from 8.9% in 2007 to 1.2% in 2009.

Between 2010 and 2014, real GDP growth did not exceed 6% per year; during this period, growth peaked in 2011 (7.4%). The decline in world oil pric- es that began in 2014 led to the fact that Kazakhstan’s economy, which exports large amounts of mineral re- sources and is highly sensitive to oil price volatility, began to experience difficulties, and the country’s government and the National Bank of Kazakhstan decided to devalue the tenge. As a result, the coun- try’s real GDP declined to 1.1% in 2016.

In the next three years, real GDP growth did not exceed 4% annually until the onset of the COVID-19


related pandemic, which also made its corrections.

The negative impact of the pandemic was reflected in the President’s declaration of a state of emergency and lockdown, which together caused Kazakhstan’s real GDP to decline to 2.6% in 2020. As Figure 1 shows, the pandemic decline in real GDP was stron- ger than the decline under the influence of the 2008 global financial crisis. The country’s small and medi- um-sized businesses were hit hardest, unemployment and inflation rose, but the positive effects of the pan- demic in the form of accelerating digitalization of the economy were also observed in parallel.

Analysis of the dynamics of real GDP in Ka- zakhstan since independence showed that, despite various negative and difficult periods in the devel- opment of the young country, it has made great ef- forts to ensure sustainability and a positive track of growth and development of the national economy.

This is confirmed by the forecasts of international organizations such as UNCTAD, IMF and the World Bank. For example, according to the IMF forecast,

real GDP growth in Kazakhstan may reach 5.8% by 2023, although by 2025 the figure may decrease by 1-1.5% (IMF 2021).

From macroeconomic theory, we know about the close proportional relationship between invest- ment and GDP; moreover, according to Keynes- ian theory, investment growth has a multiplicative eff ect on increasing production in the country.

Nowadays Kazakhstan as well as all the rest of the world is experiencing the consequences of pan- demic crisis, which require new balanced deci- sions and implementation of effective policy by the country’s leadership. Despite the current situation in the world, connected with decrease in global flows of FDI, the urgency of attraction of foreign capital, especially in the form of FDI, is still high and growing to this day.

Trends in attracting FDI flows to Kazakhstan since independence are presented in Table 1, which calculates the share of FDI inflows by decade (World Investment Report 2021).

Table 1 – FDI inflows to Kazakhstan for the period 1991-2020, US$ million

Indicator 1991-2000 2001-2010 2011-2020 Total

Inward FDI 9335,3 70157,8 73736,9 153230

Share in the total volume, % 6 45,8 48,1 100

A substantive analysis of the data presented in Table 1 and illustrated in Figure 2, according to the UNCTAD statistical database, shows different dy- namics in FDI inflows to the country by year. In the first decade of independence, the total FDI inflow to Kazakhstan was US$9.3 billion, in the second decade it was US$70.2 billion, and in the third de- cade it was US$73.7 billion. As can be seen from the dynamics by decades, the FDI inflow increased 7.5 times in the second decade and almost 8 times in the third decade compared to the first one. In sum- mary, over the years of independence Kazakhstan has attracted FDI to the amount of 153.23 billion U.S. dollars (UNCTAD 2021).

These figures prove that Kazakhstan is the most attractive place to attract FDI in the Central Asian re- gion for foreign investors, and that the government of the republic is implementing an effective policy aimed at opening the national economy to the outside world. This fact is confirmed by the positive dynam- ics of values of the Regulatory FDI Restrictions In- dex (hereinafter – FDI Index), calculated by OECD since 2003 (World Investment Report 2021). The index measures the restrictiveness of host country regulations with respect to FDI, taking into account

four main types of restrictions:

– restrictions on foreign capital;

– discriminatory screening or approval mecha- nisms;

– restrictions on key foreign personnel;

– operational constraints.

The FDI index was formulated by the Investment Division and the OECD Department of Economics and is used to identify trends in product market regu- lation policy priorities. The range of values of this index ranges from 0 to 1, with the closer the index value is to 1, the more restrictions the countries have on the activities of foreign investors, and the closer the value is to 0, the more countries are open to FDI inflows. The analysis of this index is of especial im- portance for Kazakhstan, since the country has set a course to join the top 30 countries of the world by 2050, in accordance with the Message of the Leader of the Nation «The Third Modernization of Kazakh- stan: Global Competitiveness. Data for our Republic is presented in Table 2 (reduction of values means positive dynamics – author’s note).

For comparison, in OECD countries the average value of the indicator is 0.063 in 2020, which is almost 2 times lower than in Kazakhstan. However, not all


OECD member countries are widely open to foreign investors, many of them including developed countries, have values above the average, for example, Canada has the index value – 0.162. The following countries have some of the lowest values of FDI index: Luxembourg

– 0.004, Portugal – 0.007, Romania – 0.009; Germany – 0.023, France – 0.045. In Russia the index shows a value of 0.262, double that of Kazakhstan. Among the post-Soviet countries, Armenia has the lowest index – 0.019. (World Investment Report 2021)

Figure 2 – Dynamics of FDI inflows to Kazakhstan since the beginning of independence, million US dollars (UNCTAD 2021)

Table 2 – Kazakhstan’s FDI Index for the period 2010-2020

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

0.149 0.149 0.146 0.139 0.139 0.140 0.113 0.113 0.113 0.113 0.113

A comparative analysis of Kazakhstan’s FDI Index values with other countries shows the effectiveness of government policies to deal and work with foreign in- vestors, and in this regard our country has significant advantages, in relation to neighboring countries in the Central Asian (CA) region. It is important to know that the FDI Index is used to assess the restrictiveness of FDI policies for OECD candidate countries. As we know, becoming an OECD member country is an im- portant and strategic goal for Kazakhstan in the future.

Kazakhstan has an absolute advantage in at- tracting FDI in Central Asia, as evidenced by the UNKTAD statistics database at the end of October 2021: in the period from 1992 to 2020 Kazakhstan attracted FDI totaling $ 153.23 billion, which is 69% of the total amount of FDI in Central Asia. The

curves in the chart (Figure 3) clearly demonstrate this fact. From the beginning of independence until 2008, the rate of FDI inflows to the CA region is almost identical to that of Kazakhstan.

Based on the data on FDI inflows (in current prices, million US dollars) to the Central Asian countries as a whole and the data on FDI inflow to Kazakhstan for the period from 1992 to 2020, in- clusive, the «Share of FDI inflows to Kazakhstan in total FDI in CA countries» was calculated for the specified period. The visualization of this indicator can be seen in Figure 3, which clearly shows Ka- zakhstan’s leadership in attracting FDI among other CA countries.

President of the country K.K. Tokayev continues the active policy on stimulation of FDI in the country,


Figure 3 – Comparative dynamics of FDI inflows to Kazakhstan and Central Asia for the period 1992-2020, million US dollars (World Investment Report 2021)

outlined by Elbasy. Today the policy on attraction of FDI to Kazakhstan has undergone significant changes and has become more targeted and aimed at stimulat- ing the inflow of FDI on the basis of a new systematic approach outlined in the National Development Plan of Kazakhstan until 2025 and in the National Invest- ment Strategy of Kazakhstan. This approach is aimed at «further creating favorable conditions for attracting and retaining investment by increasing the level of pro- tection of investors’ rights, improving infrastructure, as well as increasing the transparency of the regulation of investment activities (National Plan 2018).

The main document in the field of FDI regulation in the republic is the state program «National Invest- ment Strategy» (NIS GP), adopted in 2015 and later complemented by the support of such programs as

«Business Road Map – 2020», National Export Strat- egy, Digital Kazakhstan, etc. The main operators are the Ministry of Foreign Affairs of the Republic of Kazakhstan, KazInvest NC JSC, Kazakhstan In- dustry and Export Center JSC (KIEC JSC), QazTech Ventures JSC.

The purpose of the National Investment Strategy of the Republic of Kazakhstan is to create a favorable investment climate and attract investment, focused on improving efficiency (NIS GP 2015). To achieve these goal three main directions were identified:

1. Improvement of the investment climate of Ka- zakhstan.

2. Realization of effective operational measures and development of new approaches to attraction of investments.

3. Compliance of the privatization plan and pub- lic-private partnership mechanisms with the priori- ties of foreign investment attraction.

Within these directions the following tasks were identified (NIS GP 2015):

– creation of favorable conditions for attracting investments;

– increase the level of protection of investors’


– improvement of trade logistics and develop- ment of production and marketing relations between foreign investors and local companies

– improvement of institutional mechanisms to at- tract, accompany and support investors;

– forming proactive approaches to attracting and retaining investment;

– ensuring the participation of foreign investors in the privatization process;

– attracting investment in public-private part- nership (PPP) projects.

All of the above tasks to date are actively imple- mented and have high performance, as evidenced by the data of the National Statistics Bureau of the Agency for Strategic Planning and Reforms of the Republic of Kazakhstan (NSB ASPR RK 2021), which indicated in a Table 3.


Table 3 – Results of the implementation of the «National Investment Strategy» GP by 2021

Indicator 2015 2016 2017 2018 2019 2020

The volume of external investments in fixed assets of the non-

resource sector of the economy, billion tenge 752 779 837 1 029 1 235 1 075

Growth, % - 3,6 7,5 22,9 20,0 -13,0

The content analysis of the data in Table 3 shows that over the six years of implementation of GP NIS the volume of external investments in fixed capital raised by 43.0%. This is a very significant result for the national economy, indicating a gradual and consistent change in the focus of interest of foreign investors in the republic, proving the effectiveness of PPP projects and a positive trend towards diver- sification of the national economy. Of course, the indicator showed a decrease in 2020, which is quite explainable by the negative consequences of the pandemic crisis.

The results of the NIS GP and the clear-cut work of its main operators – KazInvest NC JSC, KCIE JSC

– are confirmed by the reduction in the FDI Index for Kazakhstan (OECD, 2021), as well as an increase in the country’s position in the «Doing Business»

rating. Kazakhstan, according to the results of «Do- ing Business-2020» report, ranked 25th in the world (WB 2021), improving its position in the ranking by 3 points, compared to 2019 (Table 4).

Out of 10 indicators taken into account by the World Bank experts, the best positions of our country are in contract enforcement (4th place in the world);

the lowest values – in international trade (105th place in the world). The results of last year’s rank- ing put Kazakhstan in first place among the EAEU member countries (NPP Atameken 2021).

Table 4 – Structure of the index of Doing Business in Kazakhstan in 2020 (WB 2021)

Indicators DB 2013 DB 2020

Starting a Business 30 22

Dealing with Construction Permits 145 37

Getting Electricity 87 67

Registering Property 18 24

Getting Credit 86 25

Protecting Minority Investors 22 7

Paying Taxes 18 64

Trading across Borders 186 105

Enforcing Contracts 27 4

Resolving Insolvency 54 32

Analysis of the indicators of the Doing Business index for doing business in the republic makes it pos- sible to assess the effectiveness of government mea- sures and the implementation of adopted programs.

Compared to 2013, all but two indicators have a significant decrease, which improves the country’s business climate for foreign companies.

The importance of the «Doing Business» rank- ing is increased by the fact that since 2012 it includes the «FDI per capita» indicator, which makes it also a tool for assessing the investment climate of the coun- try. Therefore efforts to improve the indicators in this

rating, will contribute to the growth of not only eco- nomic, but also other beneficial effects of FDI in the country. Because in a broader sense, FDI includes a full list of intangible assets: production technologies and know-how, other objects of intellectual property, managerial, marketing experience and skills, knowl- edge of world markets and opportunities of access to them and some others (Rakhmatullayeva 2015). This is supported by a large number of foreign empirical studies on the role of FDI in host countries, proving that it is an important source of capital, complements domestic private investment and tends to be related.


Information on foreign investors investing FDI in various economic activities in Kazakhstan is pre- sented in Figure 4. The Netherlands (46% of total

FDI inflows), the United States (29%) and France (10%) are by far the largest direct investors (Na- tional Bank 2021).

Figure 4 – Share of FDI by large investors, % (NB)

In fact, the geography of countries for FDI in Ka-

zakhstan is very broad and includes 89 countries from different continents of the planet. Table 4 presents 20 countries with FDI in excess of $500 million (Table 5).

Table 5 – Geography of countries of FDI in Kazakhstan, million US dollars (NB 2021)

No Name of countries FDI inflows No Name of countries FDI inflows

Netherlands 60 076,0 11. Luxembourg 1 316,2

USA 39 492,8 12. UAE 1 196,4

France 13 394,1 13. South Korea 1 176,6

China 5 248,8 14. Turkey 1 060,5

Japan 5 908,5 15. Germany 1 000,2

Russia 4 826,6 16. Canada 942,8

Hong Kong 4 052,0 17. Cyprus 938,7

Great Britain 2 987,7 18. Singapore 669,5

Virgin Islands (British) 2 555,4 19. Belgium 615,3

Switzerland 2 255,8 20. Bermuda (British) 548,6

As Table 5 indicates, the top 20 investors include developed countries in Europe, North America, and Asia. FDI in these countries differs by type of economic activity. It is well known that

the prevailing part of FDI is directed to the oil in- dustry of the country, nevertheless, there are FDI inflows in other spheres of the national economy (Table 6).

Table 6 – Dynamics of growth in net FDI inflows by type of economic activity, %

Type of economic activity 2016 2017 2018 2019 2020 Change by


Mining and quarrying 2 147,1 4 418,5 4 889,3 2 088,2 2 330,4 +11,6%

Manufacturing industry 163,5 342,5 -132,0 864,5 487,7 -43,6%

Electricity, gas, steam and air conditioning 1,6 -248,8 390,3 -40,1 78,3 +295,3%

Water supply; sewerage system, control over the

collection and distribution of waste 4,6 -4,6 9,0 10,7 36,2 +238,3


Construction 1 044,8 -138,5 234,9 462,7 386,1 -16,6%

Wholesale and retail trade; car and motorcycle repair 322,8 366,0 381,1 677,1 289,5 -57,2%

Information and communication 132,0 93,9 -423,8 -131,3 136,3 +203,8%

Financial and insurance activities 52,0 429,8 -375,9 405,7 848,7 +109,2

Real estate transactions 175,9 126,4 -120,6 8,7 -193,8 -2327,6%

Professional, scientific and technical activities 4 689,0 -22,2 266,4 375,5 -42,3 -111,3%

Administrative and support services activities 140,8 169,2 -18,9 10,3 -28,2 -373,8%

Education, health and social services, arts,

entertainment and recreation 16,7 -9,0 -7,8 3,7 11,1 +200,0%

Note – the «-» sign means an outflow of investments.

As Table 6 indicates, the volume of FDI inflows in different years varies greatly by economic activ- ity, according to the National Bank of Kazakhstan.

There are both positive and negative trends by years in different spheres, which is due to both internal and external reasons. In the years of devaluation of the national currency, the indicator of net FDI inflows in many areas of economic activity decreased compared to the previous period, and the values of the indica- tor in recent years were strongly affected by external shocks.

The growth of FDI in mining, transport, finan- cial services, telecommunications and energy in 2020 has compensated for the decline in FDI inflows in construction, metallurgy and trade, which have been particularly affected by the effects of the pandemic.

Most of the FDI in the country’s major oil and gas sector was related to the Tengiz mega-project with Chevron (USA), which is expected to be completed by 2022. The QazTechna bus plant project was also put into operation, and the construction of the Dou- bleStar rubber and tire plant with Chinese capital began in 2020. In the field of telecommunications, a new international project with Russia was launched.

According to macroeconomic theory, investment is the most sensitive component of aggregate demand, highly dependent on investors’ optimism, the coun- try’s domestic policy, the country’s vulnerability to external shocks and other reasons that increase in- vestment risks for foreign investors.

According to the BCG, for Kazakhstan to date, the issue of foreign investor retention in the country is strategically important and so far remains a «weak»

link in the overall chain of measures to deal with FDI (BCG Report 2019). Therefore, for Kazakhstan today the task is not to attract FDI, but to retain the capital of direct investors in the domestic market is more rel- evant, given the significant volume of repatriation of profits of foreign companies from the country. World practice proves that the multidimensional impact of FDI on the economic development of the host coun-

try depends largely on the original conditions prevail- ing in the national economy, on the policy of foreign investors themselves and directly on the policy with regard to FDI in the host country. At the same time it is important to note that foreign companies, to a large extent, themselves predetermine the direction of FDI behavior and its impact on the host country’s economic development. Thus, this influence largely depends on the strategy of the company itself, the na- ture and form of its interaction with the state and do- mestic business. Reflection of current situation with repatriation of large volumes of profit from invested FDI is one of the important tasks of current invest- ment policy with foreign investors in Kazakhstan, which should also contribute to the task of diversi- fication of the national economy. In this regard, it is important to analyze the conclusions of existing theo- ries and models of FDI and «learn lessons» from the experience of those countries that have managed to achieve a high level of economic development and increase the competitiveness of the national economy with the help of foreign capital.

Thus, for effective investment policy in the field of FDI it is necessary to constantly improve the pro- cess of state regulation of the economy, including ef- fective measures of the state to improve the invest- ment climate of all regions of Kazakhstan, not only raw material ones. State investment policy should provide not only attraction of FDI, but also its tar- geted use on strategically important innovative direc- tions of development. All this is successfully realized in the republic today, however Kazakhstan did not avoid the negative influence of the coronation crisis, which engulfed the whole world.

Over the past two years, the global economy has been ravaged by the COVID-19 pandemic, which has caused FDI flows to decline sharply by 35% in 2020, compared to 2019. According to UNCTAD ex- perts, this is almost 20% below the 2009 low after the global financial crisis, and the drop in FDI was much sharper than the drop in GDP and trade. It should be

Continuation of table 6


noted that the pandemic crisis had a stronger impact on FDI in developed countries than in developing countries, where FDI declined by 8 percent versus 58 percent (see Figure 6). Meanwhile, the relative sta- bility of developing countries’ FDI flows was mostly

due to Asian investment (FDI inflows to China and Hong Kong actually increased by 6%), thanks to sus- tained economic growth, efforts to promote invest- ment, and the ongoing liberalization of investment in these countries (World Investment Report 2021).

Figure 6 – Global FDI inflows by regions of the world, before and after the pandemic, million US dollars (UNCTADStat 2021)

The impact of the pandemic on global FDI was con- centrated in the first half of 2020, and while certain types of FDI recovered to a large extent in the second half of the year, nevertheless investment in new projects, which are more important for developing countries, has continued its negative trend since early 2020 until now. In the transi-

tion region, including the CIS, pre-existing problems and economic sensitivities, such as heavy reliance on invest- ment in natural resources (among some large CIS coun- tries), have worsened. Inflows more than halved in the CIS, to their lowest level since 2003, and this drop was significantly greater than the global average (Figure 7).

Figure 7 – The country’s share of FDI inflows in the total volume of FDI in the CIS region (UNCTADStat 2021)

Although these negative trends have been ob- served overall, only three countries in the region registered higher FDI inflows in 2020 compared to 2019 – Kazakhstan, Belarus, and Montenegro (World Investment Report 2021).


According to UNCTAD experts, despite the overall decrease in FDI inflows to the CIS region, the Republic of Kazakhstan was an «exception» – FDI


inflows to the country increased by 35%. This was because Kazakhstan launched two new projects in 2020:

– A rubber and plastic products plant with an in- vestment of $192 million (with the PRC),

– airport terminal project with an investment volume of 244 million U.S. dollars (Netherlands- Russia).

In addition, the republic has adopted a package of measures to combat the effects of the pandem- ic, which includes preferential loans, support for agriculture, tax incentives, and low-interest loans and targeted financing. The point is that from the beginning of 2021 the state reimbursement of up to 20% of expenses on construction and assembly works of investment projects as well as on pur- chase of equipment within the framework of such projects has been introduced in Kazakhstan. Be- cause of the introduction of these measures, proce- dures for public procurement at the conclusion of investment agreements have been greatly simpli- fied. In addition, the Government of Kazakhstan offers special investment contracts for companies investing in the country’s healthcare industry com- plex. Such companies are offered tax preferences, exemption from customs duties, state subsidies (covering up to 30% of all costs) and investment subsidies.

Thus, the situation in our republic is more opti- mistic relative to other CA and CIS countries (except Russia). However, despite this, it is necessary to take into account the global forecasts in the field of FDI offered by UNCTAD experts, who believe that, de- spite the countries’ efforts to restore their economies,

a return to the pre-pandemic levels of FDI inflows in the coming years is unlikely for the following rea- sons (World Investment Report 2021):

– Slow economic growth rates affecting FDI in- flows;

– The limitations of the pandemic, which hinder rapid diversification of the economy;

– Economic sanctions and geopolitical instability in some parts of the region.

Analysis of the experience of past recessions in FDI flows (e.g. after the 2008 global financial crisis) shows that a real recovery of investment may take a long time. Policy responses that shape the future in- vestment landscape will be important factors. Global FDI flows are expected to increase partially by 10- 15% in 2021, but this is still below the pre-pandemic period, and the outlook is bleak – a full recovery of FDI is not guaranteed, as it tends to lag other macro- economic indicators.

To conclude, let us cite the assessments of inter- national organizations on Kazakhstan’s FDI achieve- ments, for example, the OECD noted, «Kazakhstan’s good performance in attracting FDI in a region with a higher level of accumulated investment in gross domestic product than most neighboring countries.»

The U.S. Department of State in its review of the in- vestment climate around the world notes that «Ka- zakhstan has made significant progress in building a market economy and has achieved significant results in its efforts to attract foreign investment» (Dodonov 2021). On this basis, the success of the National In- vestment Strategy implemented in the country and the results of thirty years of efforts to attract foreign capital can be called a success story of Kazakhstan.


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© 2021 al-Farabi Kazakh National University

UDC 910.2 https://doi.org/10.26577/CAJSH.2021.v7.i4.02

Amit Sharma*1, Haiping Lu1, Cungki Kusdarjito2

1 Zhejiang Yuexiu University, China, Shaoxing

2 Janabadra University, Indonesia, Yogyakarta

*e-mail: amsfga@hotmail.com


India and China are among the fastest growing emerging market economies; and have experienced rapid rise in trade and tourism in recent years. This guided the choice of the two countries for in-depth analysis.

This is a rare study which empirically explores the association of tourism, with trade, and GNP.

Tourism has multi-dimensional ramifications relating to dissemination of innovation, technology, organi- zation, and managerial techniques. These in turn promote productivity and propel growth in countries.

The paper examines the association between Sino-Indian trade and Sino-Indian tourism and the association between Indian trade and Indian tourism with the world. The following methods have been used to examine the above association: Summary statistics, innovative form of t-statistics to determine significance of difference between sample mean and median, econometric models comprising Dicky- Fuller tests and regression. Thus, the study uses Karl Popper dictum that «No theory can pass muster as finally acceptable without repeated testing with different data sets so data relating to Indian tourism and its trade relation with China and the world are used. Detailed theoretical background for specifying the relationship between the core variables has been used. The empirical analysis finds Outbound/Inbound Sino-Indian tourism to be a direct function of Sino-Indian trade while trade emerges as a function of GNP. The ratio of Sino-Indian tourism to India’s world tourism has also been found to be a positive function of the ratio of Sino-Indian trade to India’s world trade. Besides Indian world tourism is also a positive function of India’s world trade. Therefore, both Sino India trade and India’s world trade along with tourism has great potential for future growth. The study covers a period of 19 years from 2000-01 to 2018-19.

Key words: Indo-Chinese, tourism, trade, GNP, RWM, econometric-modeling.


China and India have a long history of Trade, Tourism, and cooperation, despite the mighty Hi- malayas dividing the two giants. Ashok Maurya the great Indian King sent scholars, preachers, and teach- ers across Asia to spread Buddhism. Subsequently many Chinese scholars and travelers visited the an- cient Indian universities such as Nalanda, Taxila and other Buddhist centers to study Buddhism. Gradu- ally religious-cultural exchanges were complimented by trade relations through silk route. Eventually silk route trade gave way to full commercial and business relations (Mohan Malik, 2011), through sea-routes.

There are references of these in the Song (960-1278), Yuan (1279-1368), and the early Ming dynasty (1368- 1644) periods. Besides, India and China were the two most developed economies of the world till the Middle Ages which prompted Marx to eulogize Asian mode of production. Prakash, S. (2003).

India exported coral, pearls, glass, and fragranc- es to China, while China exported silk products to

India. This exchange was not just confined to com- modities, music and dance, culture and manufactur- ing technology also made their way to China from south Asia. Historically peace and stability along the Silk Road, have been an important contributor to trade and prosperity.

The economic and cultural exchanges along with the great migrations caused an emergence of a com- plementing culture along the Silk Road. This culture covers a vast area from East Turkistan (China) to to- day’s Turkey in the West and to India in the South.

This entire belt is a melting pot of cultures, coun- tries, religions, ethnicities, and socio-political struc- tures. This could be the catalyst in the emergence of the Silk Road as an important sub-global economic region given its population of more than one and a half billion with median age of approximately 24 years a critical factor in economic development of any region (Rani, S., & Tuteja, G. (2015))

Sino-Indian cooperation extended into the politi- cal arena when Indian and Chinese revolutionaries joined hands with each other against the imperialist


powers like East India Company (1857-59) and the Manchu-led Qing dynasty (1644-1912) as well as the Japanese invaders in 1930’s, Indurthy.,R. (2016).

Silk route trade between India and China symbo- lized the contribution of peaceful cooperation and collaboration for prosperity in India and China. Trade is postulated as an engine of economic growth Mar- shal, (1892). Trade may be interpreted in a wider sense to include softer items like language, literature, philosophy, culture, traditional modes of health and education besides commodities and finance. Effect of trade on softer items goes far beyond economic gains and has lasting effect on people and governments.

Like trade, tourism also promotes growth through its has multiple forms and purposes such as religious tourism, health tourism, education tourism, enter- tainment and holidays, and commercial tourism. The Silk Road symbolizes a complimentary identity by the fusion of cultures from the Yellow River Valley to the Mediterranean Sea (Behera.S. 2002). A study by Mcdermott and Mornah (2015) found culture as an important determinant of international business and a significant factor to explain the pattern of interna- tional business and the decisions to trade and invest.

The above background has prompted the authors to select this topic for empirical research.

Objective of the Study

The focus of the study is to establish a link be- tween trade and tourism which envelops implicitly services and culture.

1. To determine the current status of Sino-Indian Trade.

2. To determine the relation between tourists, ex- change and trade between China and India;

3. To estimate the linkage between trade and in- come between India and China.

4. To determine a link between India’s global tourism and global trade

Current Sino-Indian Trade

After a brief lull in trade relations India and China officially resumed trade in 1978. Sino-Indian bilateral trade, which was as low as US$1.8 bn in 1999-00, reached US$72.3 bn in 2014-15, making China In- dia’s largest merchandize trading partner. In 2014-15, India’s exports to China were US$11.93 bn, whereas India’s imports from China were US$ 60.43 bn, result- ing in a trade deficit of US$48.5 bn for India. China accounts for 3.85% of India’s global exports while it accounts for 13.48% of India’s global imports. This trade imbalance needs correction for long term sus- tainability without going into payments problems or diversion of export earnings from other sources. The above statistics has further increased 2015-2019.

More than 45% of total Indian exports to China comprise primary goods like mineral fuels, cotton, copper, and rare earth while Indian imports comprise mainly nuclear appliances, chemicals, and electri- cal machinery from China (Panda, B. & Reddy, D., R., K. (2016). The top five export partners of India in 2019 were (USD B/Share percentage): 1. USA (54.29: Share 16.79%); 2. UAE (29.54: 9.14%); 3.

China (17.28: 5.35%); 4. Hong Kong (11.48: 3.55%) and 5. Singapore (10.74: 3.32%), whereas top five import partners of India in the same year were 1.

China (68.4: 14.28%); 2. USA (34.92: 7.29%); 3.

UAE (30.31: 6.33%) 4. Saudi Arabia (27: 5.64%); 5.

Iraq (22.1: 4.61%) (World Bank, 2019). Clearly the potential to make this trade grow is immense given the size and the growth rates of the two economies.

However, the historical political legacy of the past remains an impediment to commerce.

A Study by (Rani,S & Tuteja, G., 2015) empirically found India‘s trade potential with China and other ag- gregated countries/blocks on the silk route. The trade intensity index was less than unity implying huge un- tapped potential of trade. They further found that trade among most countries on this route is underrepresent- ed, as most have under 1 trade intensity (max being 1).

The reason for future potential is accounted by the fact that India and China were closed economies till 1980s because of which trade was highly restricted but open- ing of both economies has thrown up huge opportu- nities for future growth. Technological advances have transformed non-tradable commodities and services like health, education, telecommunication, financial services and so on into tradable commodities. There- fore, there is huge scope for Sino-Indian trade to be diversified to include the above for mutual prosperity.

It is further argued that this would provide impetus for cross border trade as envisaged in the «One road-one belt» (OBOR) concept.

Material and Methods

The study uses the following statistical methods of analysis:

a. Tools of Descriptive Statistics for assessment of current status of (i) economic development as measured by net national income, (ii) level of Indo- China trade comprising imports and exports, and (iii) Inbound and Outbound tourists to and from China to India, and the world (iv) nature and pattern of inter- temporal distribution of the values of the above vari- ables; and

b. As the study uses time series data, three versions of Random Walk Model (RWM) in conjunction with Dickey-Fuller test of stationarity are used. Following three are the versions of Random Walk Models:


RWM without Drift

RWM with Drift (Constant)

RWM with Drift and Stochastic trend

Where is the first order difference of , is the coefficient of drift, , where is the root of the equation and is time. If and statistically significant, equation is out of unit root circle; regression estimate of the equation will yield genuine rather than pseudo results. This requires to be negative and statistically significant, that is, . If this condition is not satisfied, then the time series is non-stationary, and it is likely to yield spurious re- sults.

If and statistically significant, equation is out of unit root circle; regression estimate of the equation will yield genuine rather than pseudo results. This re- quires δ to be negative and statis- tically significant, that is, . If this condition is not satisfied, then the time series is non-stationary, and it is likely to yield spurious results.

The study uses linear regression functions for es- timating relations between dependent and indepen- dent variables involved in the system.

c. Sources of Data: The paper covers a period of 19 years from 2000-01 to 2018-19

1. World Bank and IMF,

2. Economic Survey of India and Ministry of Commerce, Govt. of India

3. China’s Government Data 4. India tourism statistics d. Policy Implications

1. For Government trade policy 2. For Tourism

3. For Businesses

The Analysis of Empirical Results is reported in the Appendix in Tables 1 and 2.

Results and Discussion

As a preliminary step of data analysis, results of descriptive statistics comprising are mean, standard error of mean s, median, standard deviation S, vari- ance , and coefficients of skewness and kurtosis,

minimum and maximum values are analyzed. These results reflect the nature of distribution of the values of a given variable. Most of the tests of statistical analysis assume that the values of the variables are normally distributed. Therefore, tools of inferential statistics are not distribution free; results of summa- ry statistics facilitate the evaluation of the assump- tion that the values of the variable are normally dis- tributed. The assumption is tested by t statistics of the significance of the difference between the values of mean and median such as:

Results of summary statistics reflect the status of income, tourism, and trade. If the distribution is not normal it is likely to be skewed and high values are likely to be concentrated around a narrow space near mode. This may also suggest the time series may not be stationary.

The study uses the above modified t test to evaluate whether the difference between mean and median dif- fers significantly on the assumption that mean, median and mode coincide at the midpoint of the normal dis- tribution. This may however be verified by RWM. As the t statistics has low power and small sample spread relative to RWM the stationarity of the distribution is tested by Dickey-Fuller test also. The coefficients of skewness and kurtosis highlight whether the distribu- tion is normal or divergent from normal. Skewed dis- tribution is likely to be non-stationary. Stationary time series is characterized by constancy of its mean and variance, while covariance is not affected by the point at which it is calculated. This paper also assesses sta- tionarity by RWM.

The following table contains the t statistics of exports to China, Imports from China, Total Trade with China, Departures from India, Arrivals in India and Total Tourists (India-China).

Table 1 – Descriptive statistics of Indo-China trade and tourism.

Variables t-statistics

Exports to China -0.1386

Imports from China 0.6562

Total Trade with China 0.4275

Departures from India -0.3681

Arrivals in India 0.5754

Total Tourists (India-China) -0.0783

GNP of India 0.51


Table 4 – Structure of the index of Doing Business in Kazakhstan in 2020 (WB 2021)
Table 3 – Results of the implementation of the «National Investment Strategy» GP by 2021
Table 5 – Geography of countries of FDI in Kazakhstan, million US dollars (NB 2021)
Table 6 – Dynamics of growth in net FDI inflows by type of economic activity, %

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