Role of law enforcement agencies in investment attractiveness of RK

Review of figures in the 2017 World Bank Doing Business in Kazakhstan report and other data that relate to the ease of doing business show that law enforcement plays an important role in the ranking. We would like to highlight the importance of law enforcement agencies in the process of improving the investment attractiveness of Kazakhstan

Фото: © Depositphotos.com/aremafoto

Since gaining independence Kazakhstan has made impressive economic progress. However, certain legal and administrative barriers including issues related to the work of law enforcement agencies still have an adverse impact on the foreign investment climate.

A number of provisions of Kazakh legislation concern potential investors. in particular with respect to the so-called “grey” areas of law, i.e. rules and regulations which could be interpreted widely. Ambiguity in law increases risks for foreign direct investment (“FDI”) projects. Grey areas include non-transparent procedures for application for licenses.

According to the Doing Business Report published by the World Bank group, Kazakhstan is in 35st place (190 participants) The country’s ranking is impressive considering that in 2016 Kazakhstan was 51st (The place is adjusted in 2016 from 41st). But, in order to achieve its ambitious plan to become one of the 30 world leading economies in this difficult economic environment, the Government may wish to change its approach to law enforcement policies. Kazakhstan has to adopt a number of administrative and legislative tools to create an investor friendly climate.

Kazakhstan has an overall score of 75 points and is placed between Japan and Romania.

Very good news this year is that Kazakhstan is in a list of the 10 economies improving the most across three or more areas. It’s the fourth time in the last 12 years that Kazakhstan is included in the list of greatest improvers.

This study shows that the role of law enforcement agencies is crucial in improving Kazakhstan’s investment attractiveness.

Countries compete for foreign investment. Investors pay attention to matters such as the level of state intervention in business and the power of law enforcement agencies to stop unsanctioned audits of businesses. Best world practices need to adopted by Kazakhstan.

It’s important to consider the pros and cons of the Kazakhstan law on foreign investment. The majority of publications on FDI focus on investment in developed countries (i.e. countries of Western Europe, USA). Only limited research is dedicated to investment policies in transitional economies. Research about legal protection for foreign investors in the countries with civil law system (La Porta, 1998) concluded that investors in countries with civil law systems are less protected than in countries with an Anglo-Saxon system of law. This reduces a country’s attractiveness.

According to the Doing Business in Kazakhstan 2017 report, most  categories [indices] improved. However, some decreased (ability to obtain credit, tax system) or did not improve (ease of registering property and ability to enforce contracts).

In the availability of credit ranking, Kazakhstan is in 75th position (down 5 positions). The index includes strength of legal rights, depth of credit information, credit registry coverage and credit bureau coverage.

Kazakhstan’s tax system is in 60th position (57th in 2016, The place is adjusted in 2016 from 18th). The problems relate to the number of taxes and contributions, as well as time-consuming processes.

The registering property and enforcing contract indices are unchanged.

Registering property includes the number of procedures, time, cost and quality of land administration.

Enforcing contracts includes time, cost and quality of judicial processes indices.

Another factor adversely impacting Kazakhstan’s investment attractiveness is its complicated licensing process.  According to statistics published by the Committee of the General Prosecution Office there were 219 claims related to unlawful activities in 2015.

The Survey shows that the level of corruption in Kazakhstan remains high. The country’s position in the 2015 Corruption Perception Index of Transparency International is 123rd (189 countries). A number of measures, shown in the graph below, are used to assess the level of corruption.

Kazakhstan has to introduce and more importantly implement new laws to improve the country’s position in the Transparency International report.

Economic crime is similarly problematic. The table below shows the most common types of economic crime in the last 5 years.

Concluding, law enforcement activities combatting corruption and economic crime, as well as creation of a transparent and non-complicated system of licensing and administration are crucial to improve the investment climate. 

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Об авторах

Michael Ahern, PwC Partner, Tax and Legal services

Dariga Tokpayeva, PhD, LLM, Candidate of legal sciences PwC, Legal services

 

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