Major directions in the establishment and development of investment law in Kazakhstan
Table of contents: The Kazakh-American Free University Academic Journal №1 - 2010
Author: Dautbayeva Dinara , Kazakh-American Free University, Kazakhstan
Today it is quite an authentic fact that one of the most
important directions of the governmental policy in the sphere of economic
development is attracting national and foreign investment. It is an overall
observation that the Republic of Kazakhstan has developed and is strengthening
the complex of economic, legal and organizational measures aimed at protecting
national and foreign investments. This complex of measures is designed as a set
of rules and norms according to which there is an opportunity for creating favorable
conditions for mutual investments.
Investment resources are always limited and that is why
they should be spent purposefully, which is becoming especially important in
conditions of the economic crisis. Due to this fact purposeful spending is one
of the significant factors of stabilization and a consequent rise of economy.
Investment policy, being an instrument of overcoming negative economic
circumstances, should play an important role in economy management and help to
solve problems with financial flows in accordance with the state interests
under current social and economic conditions.
The state determines investment policy because it is
allotted with political authority and is capable of implementing its will in
normative legal documents, regulating investment flows. The state influence on
this process is quite necessary; the state should be capable of protecting its
interests, which represent the destiny of the whole nation [1, p. 15].
To determine general patterns and tendencies of investment
law of our country it is necessary to examine the history of its emergence and
development as a separate legislation branch.
Legal investment regulations exist on both international
and domestic levels. Investments can be classified according to different
principles into direct and indirect investments (portfolio investments, i.e.
those which do not presuppose direct participation in company management), property
and non-property investments, state and private investments (depending on a
source of investment). International experience shows that model agreements
have recently gained popularity; these are the agreements that regulate
specifics of the state in relation to foreign investment regulations.
Effective development of investment became possible only
in the mid of the 80s of the 20th century. The countrywide developing
perestroika affected foreign economic activity. The 1986 resolution of SPCU
Central Committee Politbureau permitting establishment of joint ventures made
it possible for the state economy to accept foreign investments. This decision
was connected with two resolutions of CPSU Central Committee and USSR Council
of Ministers # 991 and #992 as of August 19, 1986 “About the measures to
improve foreign economic relations” and “About the measures to improve economic
and scientific and technical collaboration with socialist countries”. These
documents determined the transition to realizing reforms in the sphere of
foreign economic activity and forming a national system of investment legislation
Adopted on December 10th, 1990 by the Supreme Council of
the USSR the law “Fundamentals of legislation of investment activity in the USSR”, stated that agreement should become a principal document, regulating relations
between two entities of investment activity. Kazakhstan like other republics of
the Soviet Union adopted foreign investment and investment activity laws. The USSR law “About foreign investments” as of July 5th, 1991 provided the republics with the right to
use their own legislation in case it doesn’t contradict current USSR constitution and legislation. During that period Kazakhstan made the first investment
agreement, the parties of which were the Soviet Union and the American corporation
Chevron [2, p. 30].
At the same time, soviet investment legislation didn’t
last long; it was the time when the Soviet Union started to fall apart and new
independent states started to appear. This period, though it was quite short,
played a definite, or probably the most decisive, role in development of national
investment legislation of the former soviet republics in general and that of Kazakhstan in particular. It was the time that determined the fundamentals of current
In the Republic of Kazakhstan like in other former socialist
countries the formation of national system of investment legislation became
possible only during the period of their development as independent states and
transition to market economy.
The first stage is the stage of formation of investment
law, initially as a law about foreign investments. This process was initiated
with the adoption of the Law of the Kazakh Soviet Socialist republic “About
foreign investments in Kazakh SSR” as of December 7th, 1990, which was aimed
effective attraction of foreign investments, advanced technology and managerial
experience provided that there would be certain guarantees for foreign capital [3,
p.473]. The purpose of the law was to create an open type economy in the
republic and was to assist the fast transfer of the country to generally accept
in the world methods of management. At the same time, this legislative act had
severe drawbacks in investment relations regulation because it didn’t consider
all peculiarities of the development of the Republic of Kazakhstan in conditions
of market economy and didn’t reflect the interests of Kazakhstan people in conditions of gaining independence. But its adoption had certain
positive moments: first of all, it was the first document, that legally consolidated
existing investment relations in the republic; secondly, during a four-year
period this legislative act determined the order of attracting investments into
the economy of Kazakhstan which had an overall stimulating effect on foreign investment
inflow; thirdly, it was the first time that the foreign capital had certain
guarantees for its operation activities, unlike the legal acts of the 20s,
according to which the Soviet state allowed foreign investments but didn’t take
the responsibility to protect and safeguard it. Inclusion of the article
devoted to foreign investments guarantees increased the interest of potential
investors and influenced their activity.
Thus, this period is the first stage of market relations
development in the Republic of Kazakhstan and the initial stage of development
of a new legislative system of independent sovereign state in genera and
national system of investment law in particular.
The second stage in development of investment law
started with the adoption of the Republic of Kazakhstan law “About foreign
investments” as of December 27th, 1994, which cancelled the previous aw about
foreign investments in Kazakh Soviet Republic. The new law determined major
legal and economic fundamentals of attracting foreign investments into economy
of Kazakhstan, strengthened state guarantees to foreign investments and established
organizational and legal forms of their existence and procedure of settlement
of disputes with the foreign investors involved.
The peculiar feature of the second stage in investment
law development is the fact that most of the acts and laws adopted those days
were of temporary character. At the same time, this period marked the creation
of legal basis for the current legislation which regulates market relations in
the Republic of Kazakhstan.
The adoption of the Republic of Kazakhstan law “About
state support of direct investments” on February 28th, 1997 signaled the
beginning of the third stage of investment law development and improvement. The
law is quite important because with its adoption, first, there started the
formation of special direct investment legislation of the Republic of Kazakhstan; second, investment law moved to another quality stage of its development. There
were three major directions:
- domestic investments were finally put on a par with
foreign investments (previously this regulation, though included into
investment activity law, was not used in practice due to its declarative
- the law legally vested the necessity of state support
to foreign investments made in priority spheres of economy;
- there were determined the priority spheres of economy
to attract intensively foreign investments in order to boost economic growth
and increase effectiveness of the state economy.
Before adoption of direct investment law the
legislation, first of all, served the interests of foreign investors and
created extremely favorable conditions for them, which violated not only the
interests of domestic investors but those of the state, since it was attracting
foreign investments by any means, which in the final analysis turned absolutely
inefficient and of no advantage for the republic, as foreign investments were
mostly made into subsoil usage, which was of little importance for the state
economy development and resulted only in increased expansion of subsoil by
foreign investors. Also we should not forget that foreign investors are attracted
not by subsoil per se, but by minerals deposits located on the territory of the
republic. We should also remember that minerals differ from other natural resources
by being limited in quantity and by being nonrenewable. This does not mean that
we should reject participation of foreign investors in subsoil usage, but we
should consider first of a national investors if a other conditions and parameters
Direct investment law signaled the emergence of new
investment policy in the Republic of Kazakhstan, aimed at elimination of
privileges and advantages given to foreign investors.
Thus, the main peculiarity of the third stage of
investment aw development in the Republic of Kazakhstan consisted in adopting a
block of special investment laws: direct investment law, foreign investment law
and stocks investment law. At the same time there was adopted the law on state
investments (including direct state investments, state borrowings and national
debt and others).
Consequently the period between late 1990s and early
2000s marked the significant development of investment law in Kazakhstan legislation. This historical for Kazakhstan period was characterized by
activization of policy in the sphere of external economic relations, which is undoubtedly
one of the conditions that assure economic growth and by increased role of the
state in investment policy implementation.
National economy treats the external factor not only as
the possibility to take a certain place in the world economy but also as an
opportunity to influence the development of different branches of industry,
that is why the problem of increasing effectiveness of using external economic
resources and improvement of external economic relations has always been and
remains the focal point of attention of the state [4, p. 95].
On January 8th, 2003 the Republic of Kazakhstan adopted the investment aw, the main advantage of which was consolidation of norms
regulating the investment relations and establishment of general legal order
for foreign and domestic investments. At the same time some peculiarities of
foreign investment legal regulations and direct investments were preserved. As
positive consequences we can mention providing guarantees for foreign investors
operating in the Republic of Kazakhstan. In particular legal protection of
investors on the territory of the Republic of Kazakhstan (absolute and
unconditional protection of rights and interests of the investors by the law
and other legal acts of the Republic of Kazakhstan and also by international
treaties ratified by Kazakhstan; right to compensation of losses occurring as a
result of adoption of inappropriate act of a state body and also as a result of
activity (inactivity) of executives of those state bodies in accordance with
the civil legislation); guarantees for using income; investors’ rights
guarantees in case of nationalization or requisition .
So, adoption of the Republic of Kazakhstan law “About
investments” as of January 8th, 2003 was quite logical. There was a necessity
to have an integrated investment law, which would consolidate in itself al
special acts regulating investment relations and referring to different legislation
branches prior to its adoption. Starting with the moment of adoption of Direct
investments state support law it was clear that the first step towards legal
equalizing of foreign and domestic investors had been made.
The fourth stage in investment aw development can be
characterized in the following way – it was the stage of establishment of
investment law as a separate legislation branch with all inherent features and
At the same time this period can be given a different
characteristic – the period of equal opportunities for foreign and domestic
investors. We should not forget though that sustainable development could not
be achieved without optimal combination of state interests and those of foreign
and domestic investments – the primary importance should be given to mutually
beneficial investments. Without appropriate legal support of foreign and
domestic investment it will be very difficult to maintain existing investments
and attract new investments into the economy of the country (and foreign
investments in the first place).
Around the investment law there grouped other legal acts
the branch belongingness of which had not been determined, which resulted in a
final shaping of investment law as a separate branch of the Republic of Kazakhstan legislation.
Analysis of the system of law resources in the Republic of Kazakhstan after adoption of the current constitution leads as to the
- legal system of contemporary Kazakhstan is most close to European continental legal system. We have the same legal resources as
the states of continental Europe. Under these conditions it is hardly possible
to change the legal system radically according to the model of the USA or the UK legal system, including the introduction of case law;
- globalization of world processes places before the
states the necessity of integration to solve global problems of humanity, that
is why appeals “to go our own way” are not promising. We have to live not in a
“special global system”, but in unity and cooperation with other world
- Kazakhstan legal system should orientate itself on the
legal standards adopted by leading world countries, European countries in
particular, at the same time we should take into consideration accumulated
prior experience, traditions and customs of Kazakhstan;
- orientation for the market economy, developed civil
society and heading for establishment of law-governed state place a greater
importance on normative agreement as a legal source. The same happens in
European continental legal system.
International normative agreements in the law sphere are
paid a special attention in the Republic of Kazakhstan. This is explained by
the fact that a normative agreement regulates mostly international legal
relations, and the theory of international agreements originated in the time of
Spinoza and Grotius whilst the theory of internal normative agreement is
evolving right now, and it is connected with the establishment of the civil
society, law-regulated state and market relations development.
Today one of the major sauces of investment law are
international agreements. At that most of them are bilateral agreements about
encouragement and mutual protection of capital investments. Only two acts have
universal meaning: Convention about regulation of investment disputes between
the states and between the citizens of other states (Washington, March 18th,
1965) and Convention about the establishment of investment guarantees
multilateral agency (Seoul, October 11th, 1985), which were ratified by the Republic of Kazakhstan. Washington convention established an international procedure of
investment disputes settlements between the state on the one part and a
individual and/or a legal entity of the other state on the other part through
establishment of International Centre for Settlement of Investment Disputes
(ICSID). ICSID goal is to provide mechanisms for conciliation and arbitration
in reference eto investment disputes.
The main goal of Multilateral investment guarantee
agency (MIGA) established by Seoul convention is to stimulate investment flows
among the countries – MIGA members and especially investment flows into the
economy of developing countries, complementing the activity of the World Bank,
International Financial Corporation and other international organizations of
financial development. To realize this MIGA provides guarantees including joint
and recurring non-commercial risks insurance concerning foreign investments
made on the territory of the developing countries. Non-commercial risks
covered by Seoul convention include currency transactions, expropriation or
similar activity, agreement violations, war and civil disturbances.
Thus, Washington and Seoul conventions concern only two
particular issues: investment disputes settlement and foreign investors
insurance and consequently cannot provide an overall settlement of
international investment relations.
Within the frame of international legal regulations
settlements on a regional level are realized in accordance with the following agreements
– CIS agreement “About collaboration in the sphere of investment activity” as
of December 23rd, 1993. Among bilateral agreements, which are a more flexible
instrument of investment relations regulation, it is worth mentioning an
agreement about mutual encouragement and protection of foreign capital
investments. The main goal of such agreements is in providing equally favorable
conditions for capital investments, establishment of possibilities for unimpeded
withdrawal of a part of an income and non-commercial risks guarantees.
International legal investment protection is more
effective for attracting investments than having similar guarantees fixed in
national legislation. But, nonetheless, another constituent part of foreign
investments regulations is a national legal part.
In spite of development of investment law, there are
unfortunately some drawbacks and gaps remaining. Thus, we cannot but mention
the fact that there hasn’t been created an effective legal basis for
realization of the Republic of Kazakhstan law “About investments” and international
normative legal acts ratified by the country.
From the point of view of T. Sokolova “the significant
unresolved issue is the creation of the set of normative legal acts and
programs that reinsure foreign investments through decreasing juridical and
political risks guarantees” [6, p. 41].
These kinds of problems, as we think, demonstrate to the
investors the interest or the absence of interests of the state executive
organs in attraction and protection of investments and consequently the
investors. Currently assessment of state investment attractiveness is
determined by the level of investment legislation development, while the key element
in assessment is existence of legal acts describing preferences and guarantees
of both legal and financial investors, who implement investment projects in
priority sectors of economy.
We have to state the fact that general declamations are
not enough since to generate an inflow of foreign investments it is necessary
to have an integrated legal, economic and political stability.
Besides, there is a negative influence of the lack of
integral state policy of attracting foreign investments, in particular on the
legislation level there are no fixed priorities concerning branches and types
of investments, there are no defined mechanisms of guarantees especially concerning
types of property. [6, p.41].
Of no small importance is the factor of law enforcement
practice, which currently negatively affects investment activity starting from
false bankruptcy and ending with failure to implement judicial decisions and
other juridical acts.
Analysis of major stages of investment law development
showed that one of the problems is a wrong interpretation of law and its norms.
Considering this we should share the point of view of Y. Abdrassulov according
to which “the reason causing this fact is that law enforcement practice getting
more complicated due to fast development of social political and economic
relations in all states.” Emergence of new states on the world political map
and significant changes in constitutional systems on the one hand and an active
process of word and regional integration on the other hand determined the necessity
of developing new approaches to interpretation and implementation of legal
norms, in the basis of which there should lie absolutely different criteria of
interpretation results truth considering priorities of human rights and
freedoms, new methods and techniques of revealing the contents of legal norms.
Law interpretation is one of the traditional problems of juridical science,
since interpretation of legal norms is the process that occurs in any case when
it is necessary to define the meaning of normative statutes. Interpretation of
law results in juridical consequences not only in the sphere of law
enforcement, but in law realization in general. Moreover, interpretation
exceeds the frames of law reinforcement, since interpretation is important not
only for law reinforcement but also for lawmaking, scientific and educational
law analysis» [7, p.3].
Fundamental elements of Kazakhstan current legislation
improvement should be as follows:
- adaptation and unification of Kazakhstan national
legislation laws to the conditions of factual participation in international
investment organizations, expansion of practice of bilateral and multilateral
agreements on investment guarantees and mutual protection;
- reconsideration of the system and mechanism of state
support for domestic and foreign investors, including the support during the
whole period of the investment project realization;
- determination of opportunities for emergence latent
risks which occur during investment projects insurance;
- detailed regulation of investment project business
plans, its structural elements, standards, legal peculiarities of its
realization as a fundamental stage of investment projecting;
- reconsideration of the procedure of investment
disputes settlement, assertion of Kazakhstan to all international mechanisms of
investment disputes settlement.
There is no doubt, however, that everything mentioned
above is just a part of all important elements providing stability to
Kazakhstan legal system in the sphere of investment activity.
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Table of contents: The Kazakh-American Free University Academic Journal №1 - 2010