Investors look to tap booming Kazakhstan

For a country that until recently few people could easily find on a map, attention is now turning to the Central Asian republic of Kazakhstan. The former Soviet state is preparing to welcome a series of multinational investors and developers keen to tap into the potential of a still-booming economy.

"Ikea is planning to open two megastores, each with more than 100,000 sq m," said Bahitbek Katen, Managing Partner of commercial property specialists NAI Kazakhstan Aristan in the former capital, Almaty.

"We are also expecting major investment in commercial property from Hong Kong and Korean groups in several new cities which are under development."

The oil and mineral-rich nation has risen to international prominence as energy and natural resource prices have soared.

Kazakhstan has one of the richest deposits of uranium in the world, besides chromium, lead and zinc, among other minerals.

Gross domestic product in the country has risen by more than eight per cent per year in the past six years, with commercial real estate values exploding – class A office space in Almaty has jumped from $400 (Dh1,468) per sq m in 2002 to $6,000 per sq m today.

The commercial property market is, however, suffering from the effects of the global credit crunch, since many developers took highly leveraged positions in recent years and questions over future financing arrangements are now being raised. At least $40 billion has been borrowed from international banks in recent years.

In many ways, Kazakhstan is an economic and social model for the post-Soviet era. Although it has many ethnic minorities and religions, including Russians, Tatars, Uzbeks and Ukrainians, there is very little ethnic discord and the government of Nursultan Nazarbayev has kept the country stable, while enjoying rapidly improving economic conditions. As a predominantly Islamic country, Kazakhstan has attracted investors from the Middle East and has developed Islamic financial instruments to suit groups such as sovereign country funds.

Yet for some international corporations the country has been hard to categorise – neither truly Asian, European or Middle Eastern, it somehow slips in between all these groupings. This country of 15 million people living in an area the size of Western Europe certainly welcomes foreign investment. "At the moment real estate is the only means of diversifying out of energy and mining," says Katen. "We expect to see a great deal of activity in the coming years.

"For example, the office and retail stock in the main economic centre of Almaty is expected to double in the next two years."

Almaty can be compared with Dubai, according to Katen, as a rapidly expanding international centre in an oil rich state.

He believes Kazakhstan's government should draw on the example of the Middle Eastern state and encourage more free market development and remove some of the bureaucratic obstacles to commercial development that currently deter some investors.

"We need to see more transparency in areas such as planning approvals," says Katen.