Kazakhstan has developed national trade and transit policies to capitalise on the country’s position in major transregional trade routes. Among these is the development of cross-border co-operation (CBC) hubs with immediate neighbours. The “Caspian Knot” hub, covering Kazakhstan’s two Caspian Sea ports and including a special economic zone (SEZ), has received particular attention in the context of the development of the Trans-Caspian International Trade Route (TITR). This chapter analyses the development of the Caspian Knot and the SEZ/CBC strategy in the framework of Kazakhstan’s broader regional integration and trade/transit development strategies. A particular focus is on infrastructure and trade facilitation, private-sector involvement, and monitoring and evaluation of hub and SEZ performance.
Diversifying Kazakhstan’s Exports
Abstract
Since 2010, the government has sought actively to develop domestic transport and logistics infrastructure and promote exports (Box 4.1). The most recent development plans have also sought to address trade facilitation bottlenecks, such as the simplification of foreign trade procedures, and the harmonisation of border-crossing procedures (Adilet, 2018[1]). For instance, the Nurly Zhol programmes were primarily aimed at increasing the capacity of Kazakhstan’s seaports, improving cargo handling technology - for instance the construction of a multimodal ferry complex including shipbuilding and repair services in the port of Kuryk-, enhanced electronic information exchanges on cargo with Azerbaijan, and new routing systems for safe navigation reduced processing times.
Kazakhstan’s infrastructure plans build on regional initiatives such as the TITR, Transport Corridor Europe Caucasus Asia (TRACECA), Central Asia Regional Economic Co-operation (CAREC) programme, the Belt and Road Initiative (BRI), etc., to transform the country into a strategic hub between China and Europe by developing an efficient transit, export, and logistics infrastructure to attract investments and stimulate trade.
State Programme for the Development and Integration of the Infrastructure of the Transport System 2020
Replacing the 2010-2014 Transport Sector Programme, the State Programme for the Development and Integration of the Infrastructure of the Transport System 2020 aims at establishing a modern transport infrastructure, and ensure its integration into the international transport system.
Nurly Zhol 2015-19 and 2020-25
In 2014 the Ministry of Investment and Infrastructure Development set up the State Programme for Transport Infrastructure Development 2020, Nurly Zhol 2015-19, while in 2018 the President approved the decree for Nurly Zhol 2020-25. Both programmes sought to develop domestic transport networks, multimodal connectivity, and private sector participation, and to promote exports through the development of efficient transit, export and logistics infrastructure, with objectives and indicators attached to each dimension. The programmes cover all transport modes (roads, railways, ports), and provide for a mixed financing structure, combining public and private investments. Both Nurly Zhol 2015-19 and 2020-25 included for each of its dimensions several quantitative indicators that determine yearly results to be achieved, which facilitates the evaluation of the programme’s effectiveness. For the 2020-25 programme, for each indicator are additionally listed the institution responsible for the provision of data and the institution responsible for the achievement of the objective.
2030 Development Transport and Logistics Potential Development Concept (Concept 2030)
Replacing Nurly Zhol 2020-25, the “2030 Transport and Logistics Potential Development Concept” was approved in December 2022. It provides for the development of all transport sectors as well as logistics to ensure affordable, safe and inclusive mobility, to strengthen the country's competitiveness, and help make it the leading regional transit hub. The former Ministry of Industry and Infrastructure Development (then-MIID) was responsible for its development and regional and local public authorities for its implementation. Concept 2030. Such as its predecessor Nurly Zhol 2020-25, the programme comprises an evaluation framework with quantitative indicators and yearly objectives, and introduced a similar framework for qualitative indicators.
Source: OECD analysis based on (Adilet, 2022[2]; Adilet, 2018[3]; Prime Minister, 2020[4]).
In parallel, Kazakhstan has sought to develop cross-border growth poles with its most immediate neighbours. The government has prioritised regional cluster initiatives to develop economies of scale, enhance connectivity, and boost mutual trade through the North-South and East-West transport corridors (Adilet, 2022[2]). In particular, the Concept 2030 includes a roadmap to create and modernise five CBC hubs: expanding the existing CBC hub concept in Khorgos, with China, and creating the maritime “Caspian Knot” hub, as well as the “Central Asia”, “Alatau” and “Eurasia” hubs, bordering Uzbekistan, Kyrgyzstan, and Russia, respectively. This initiative aims at doubling transit cargo traffic through Kazakhstan, and better connect with the markets of neighbouring countries.
The Caspian Knot CBC hub aims at intensifying co-ordination and collaboration with Kazakhstan’s Caspian Sea littoral neighbours. The Caspian Knot, encompassing the ports of Aktau and Kuryk into a larger SEZ (Box 4.2), aims to develop trade and logistics infrastructure with littoral countries and integrate Kazakhstan into global value chains, in particular through the TITR (Adilet, 2021[5]; Adilet, 2022[2]). The knot’s infrastructure development focuses on building containerisation capacity for trade and transit of goods in both ports of Aktau and Kuryk, with a strong private-sector participation, and facilitate trade procedures. However, progress so far has remained largely domestic in scope, with a prevailing focus on competition with other countries and with trade facilitation efforts only partially harmonised with regional neighbours.
The national rail company Kazakhstan Temir Zholy JSC (KTZ) is the largest transport and logistics operator in the country. As ports are considered a subsection of railways in Kazakhstan, it has ownership stakes in the Ports of Aktau and Kuryk, as well as in logistics and transport firms, and it owns terminals and infrastructure for most transport modes.
The ports of Aktau and Bautino
Opened in 1963, Aktau Port is now operated by the Aktau International Sea Commercial Port, a subsidiary of KTZ. Major port facilities include a ferry complex, oil terminal, grain terminal, dry bulk terminal, and multipurpose terminal to export petroleum products, consumer goods, grains, and fertilisers. Historically, most cargo has been destined for Iranian ports. The Aktau North Port was established in 2014 and is operated by Aktau Marine North Terminal (AMNT), also a subsidiary of KTZ. Major port facilities include a grain terminal, general cargo terminal, and container terminal. Bautino is a small port located 150km from Aktau focusing on equipment, construction materials, and agricultural products.
The port of Kuryk
Kuryk Port, operated by KTZ Express, a KTZ subsidiary, is located approximately 60 km south of Aktau Port. Its ferry terminal has been in operation since 2017, and transit operations started in 2018. The port’s capacity is not at full potential, as the multimodal Sarzha multi-functional marine terminal (MMT) with 10mt of transhipment capacity is slated to be completed only by 2030 (Kuryk, 2023[6]).
The port primarily aims to diversify Kazakhstan’s oil export routes, although a grain terminal was completed late in 2023, thereby stepwise increasing transhipment freight capacity (Kuryk, 2023[6]).
SEZ Seaport Aktau
The 2002 decree “On creation of a special economic zone ‘Aktau Seaport’” established the area as an SEZ running until 2028. Managed by JSC Morport Aktau, it consists of 2322 hectares located on the commercial seaport territory, Aktau City and the Munailinsky district. Originally it sought to attract export-oriented investment projects, to accelerate production and adoption of innovative technologies to substitute imports, though now the focus has shifted to developing the transport and transit capacity to further integrate Kazakhstan into regional and global value chains. It incorporates part of Port Aktau, the Bautino cargo terminal, the Port Kuryk ferry terminal, and AMNT, and the inclusion of Sarzha MMT is ongoing.
Source: OECD analysis.
However, despite recent improvements, outdated infrastructure and trade facilitation bottlenecks in Kazakhstan’s Caspian ports hamper trade and transit. As outlined in Concept 2030, the ports of Aktau and Kuryk are confronted by transit capacity limitations, insufficient and inadequate vessels, and underdeveloped trade facilitation measures. The average capacity utilisation of Kazakhstan's seaports was just 31% in 2021, dropping to 25% and 20% for dry cargo and ferry terminals, respectively (Adilet, 2022[2]). This follows a wider trend within the Caspian Sea, where port utilisation rates are systematically below capacity part due to higher costs of connectivity and deficient planning, though actual capacity is also below potential due to widespread underinvestment in infrastructure expansion and renewal.
Well-functioning transport infrastructure and trade facilitation arrangements are especially important for SMEs to engage in trade. SMEs are particularly sensitive to the spectrum of trade costs associated with customs documentation and procedures and with clearance and inspection processes, as they often lack specialised human and financial resources to deal with these constraints, and ship only infrequently or in small batches. Similarly, they are more dependent on the quality of transport infrastructure than larger firms, as they have limited resources to face logistical obstacles. As a consequence, smaller firms tend to benefit more from improvements in the overall trade infrastructure and facilitation environment than larger ones. In particular, reductions in fees and charges, streamlining of procedures and automation of border processes affect the export and import values of firms (López González and Sorescu, 2019[7]).
Kazakhstan has advanced Caspian regional integration. Kazakhstan is a founding member of the Eurasian Economic Union, a partner within CAREC programme to promote regional development, a WTO member since 2015, and the largest destination for infrastructure investments through the Belt and Road Initiative (BRI). Kazakhstan is also part of the Economic Co-operation Organisation (ECO) and the United Nations Economic Commission for Europe (UNECE), which have convened regularly to discuss the Trans-Caspian and Almaty-Istanbul Corridors since September 2022 (ECO, 2022[8]). Since June 2022, Kazakhstan, Azerbaijan and Türkiye have developed a trilateral co-operation to develop the TITR, while the three countries together with Georgia signed a quadrilateral declaration to improve the transhipment capacity and encourage global trade integration. This co-operation resulted in the November 2022 roadmap for the development of the TITR for 2022-2027 via the implementation of joint infrastructure projects, the development of new segments, and improvements in trade facilitation along the route. Kazakhstan also has signed several Memoranda of Co-operation to develop its ports in co-operation with Türkiye (Kuryk, 2023[9]), and in March 2022, Kazakhstan, Azerbaijan, and Georgia established the Eurasian Rail Alliance, a joint venture to automate logistical services and facilitate customs and border crossings. In 2018, Kazakhstan and the other four Caspian littoral countries signed the Convention on the Legal Status of the Caspian Sea, including provisions for the delimitation of the seabed and agreements on transport and economic co-operation (Box 4.4).
Kazakhstan has been actively promoting regional co-operation to develop the TITR. Since 2017, the country serves as the secretariat of the International Association Trans-Caspian International Transport Route (IATITR) (Box 4.3), to co-ordinate public actors from railway companies and private stakeholders from maritime and logistics companies (Middle Corridor, 2023[10]). The public firms Kazakhstan Railways JSC and Azerbaijan Railways Closed JSC signed a logistics co-operation document in April 2022, paving the way for closer regional co-ordination (Geopolitical Monitor, 2022[11]). In November 2022, Kazakhstan, Azerbaijan, Georgia, and Türkiye signed a roadmap for the development of the TITR for 2022-2027 to increase both trade and transit capacity along the corridor by removing bottlenecks linked to infrastructure and trade facilitation. Kazakhstan has also been actively promoting regional connectivity with public and private actors alike, and has been automatising, digitising, and harmonising its customs procedures with neighbouring countries (OECD, 2020[12]; OECD, 2023[13]).
Initially established in 2014 to increase the flow of goods along the TITR, since 2017 the international association Trans-Caspian International Transport Route (IATITR) aims to ensure the competitiveness of the TITR by developing logistical soft and hard infrastructure, unify transport processes, reduce administrative barriers, and implement an effective tariff policy.
It has eight regular members, including the national railway companies of Azerbaijan, Georgia, Kazakhstan, Türkiye, and Ukraine, as well as the ports of Aktau and Baku and the Azerbaijan Caspian Shipping Company. There are 11 associate members, including Kazakhstan’s Aktau Marine North Terminal, Kazmortransflot, and Port Kuryk, as well as regional logistics and port partners.
Source: (Middle Corridor, 2023[10]).
OECD interviews indicate that the Caspian Sea region and its economic corridors have also received renewed interest outside of the TITR (OECD, 2023[13]). The imposition of sanctions since February 2022 has limited Russia’s trading options, forcing it to look for alternative routes and destinations. Trade is increasing in Russia’s Astrakhan and Olya Caspian ports (up 14.5% year-on-year), with Iranian ports also measuring an increase in activity, though both countries’ ports remain well below their estimated capacities (OECD, 2023[14]). Kazakhstan’s port of Aktau is placed on one of the routes connecting Russia and Iran; the latter was Aktau’s main export destination before 2022. Kazakhstan is also well-placed to integrate into the International North-South Transport Corridor (INSTC), connecting Europe to markets in the Persian Gulf and the Indian Ocean through the Caspian Sea (ODI, 2024[15]; OECD, 2023[13]).
The Caspian Sea is the world’s largest inland body of water, stretching around 1200 km from north to south, with an average width of 320 km and lying between Europe and Asia, bounded by Kazakhstan, Russia, Azerbaijan, Iran, and Turkmenistan. The Volga River is the Sea’s main freshwater source, entering at the north end. While well over 100 rivers flow into the Caspian, the Volga accounts for an estimated 80% of the riverine inflow. In recent years, Russia has built 40 dams on the Volga, with 18 more are under study and construction. Critics argue that this, together with increased diversion of the Volga’s waters for Russian agricultural production, has substantially reduced inflows into the Sea.
The level of the Sea has been dropping steadily for decades, due to an imbalance between substantially increasing lake evaporation, on the one hand, and decreasing river discharge and precipitation on the other. While the levels are falling by about 6 to 7 centimetres per year, a recent study has suggested a decline by 9 to 18 meters by the end of the century, representing a decline in the surface area of the Sea of 23-34% -- equivalent to uncovering an area roughly the size of Portugal. As a result, the northern Caspian shelf, the Turkmen shelf in the southeast, and all coastal areas in the middle and southern Caspian Sea would emerge from under the sea surface, while the eastern shelf would be desiccated. According to Kazakhstan's Garysh Sapary National Space Agency, that country’s portion of the Caspian Sea already decreased by 7.1% between 2008 and 2023.
Impact on the region’s economies
The projected Caspian Sea level decline will result in major biodiversity loss, increased levels of pollution in the central basin and its surroundings, and decreased precipitation in water-stressed Central Asia, transforming the region’s natural and economic ecosystems.
A major impact will be felt through maritime trade and naval access, as port infrastructure and shipping traffic will need to adapt to receding water levels. Declining water levels will restrict the size of vessels able to operate on the Caspian Sea, adding to port congestion and threatening the viability of cargo services. For instance, the port of Aktau already reported a reduction of loading capacity of oil tankers due to shallow waters, while the authorities consider dredging work for the future. The port of Kuryk is less affected for now, having been constructed on a section of the sea where the water is deeper.
International cooperation
The issue suffers from a lack of political and scientific attention, with only very limited data and studies available, and a lack of concrete multilateral co-operation. Despite some initiatives, the legal framework for the management of the sea and its environmental and economic issues is still incomplete.
The Caspian Environment Programme was set up in 1998 by the United Nations to support regional discussions, and the region ratified the Tehran Convention in 2006, “an overarching legal instrument laying down general requirements and the institutional mechanism for environmental protection in the Caspian Sea region”. The 2018 Convention on the Legal Status of the Caspian Sea granted the Caspian a “special legal status”; as a result, neither the United Nations Convention on the Law of the Sea nor customary international rules regarding international lakes fully apply. In principle, this hybrid legal solution could lay the ground for regional institutional co-operation, but little has happened, and the other littoral states have been reluctant to address directly the issue of Russia’s management of the Volga. However, the relative decline of the traditional regional hegemons, Russia and Iran, and the littoral region’s interest in developing the TITR may pave the way for increased action.
Kazakhstan has increased its engagement with the private sector to develop its Caspian Sea ports. In particular, the country has been looking at developing joint ventures with leading international firms, in particular with UAE AD ports Group having signed a joint venture with KTZ and KMTF (Port Technology, 2023[20]). The Kazakh Caspian ports of Aktau and Kuryk partner with ports located in Turkmenistan, Iran, Azerbaijan, and Russia as well as with shipping companies, freight forwarders, customs and logistical agents, and maritime legal firms to complete the ecosystem (Port Aktau, 2023[21]).
However, environmental and political risks threaten the Caspian Sea’s trade and transit potential. The level of the Sea has been declining steadily for many years, and research suggests that this process could accelerate over the course of the century (Box 4.4). While the impact on shipping and trade of declining sea levels has not yet been quantified, they could pose an important long-term threat to Caspian ports’ viability and discourage firms from relocating there to take advantage of the CBC hub and SEZ. In Kazakhstan, weather conditions already cause frequent and long port closures at Aktau, while so far the Port of Kuryk has been less affected. Other significant downside risks include uncertainties surrounding the evolution of international sanctions against Russia and Belarus, secondary sanctions on third countries and the potential partial lifting of sanctions allowing for the Northern Corridor to resume full operational capacity.
Diversifying trade and transit across new corridors will require sufficient private and public-sector involvement for Kazakhstan to develop its domestic trade and transit infrastructure and intensify regional integration. Kazakhstan will need to ensure it achieves its objectives to continue to evaluate, select, modernise, and expand prioritised transport infrastructure, attract qualitative public and private investments, facilitate trade, harmonise legal and regulatory standards, and intensify regional co-operation. The CBC hubs, and in particular Kazakhstan’s Caspian ports of Aktau and Kuryk, and the surrounding SEZ (“Caspian Knot”) are an integral part of this ambition.
Based on recent OECD work, and interviews with public and private stakeholders in Kazakhstan (see Methodology), this chapter focuses on three key dimensions to support the development of Kazakhstan’s Caspian Sea Ports: (i) national and regional co-operation to develop Caspian port infrastructure and improve trade facilitation measures; (ii) private-sector involvement in infrastructure projects to address Caspian ports’ needs; and (iii) monitoring and evaluation of existing measures in Kazakhstan’s Caspian SEZ.
Challenge 3.1: Insufficient regional integration efforts in relation to trade facilitation and infrastructure slow down transit development through Kazakhstan’s Caspian ports
Uneven progress in Kazakhstan’s port and multimodal infrastructure development delays transit improvement in the Caspian Sea
Outdated port infrastructure in Aktau and Kuryk keep ports operating well below their potential capacities and below the levels needed to handle increased traffic. The current throughput capacity of Kazakhstan’s main Caspian Sea port of Aktau is estimated at 15mt (rising to 21mt when combined with the port of Kuryk), slightly above Azerbaijan’s port of Alat but well below the capacity needed to absorb cargo traffic of the Northern Corridor (Table 4.1) (OECD, 2023[13]). Businesses report that the loading equipment in the port of Aktau is outdated and lacks sufficient large cranes to meet modern standards, while the new port of Kuryk lacks the necessary loading equipment and is limited to servicing only rail cargo from foreign ferries, though it can service both hinterland rail and automobile (USAID, 2022[22]; ADB, 2021[23]) Interlocutors during an OECD field visit to the port of Aktau also mentioned Kazakhstan’s relative inexperience in dealing with containerised freight as a challenge.
Insufficient vessel capacity and regularity in the Caspian Sea add to the challenges. Ferry and vessel limitations on the Sea have been dramatically exacerbated by the increase in traffic demand observed since 2022. In addition, the frequency of services varies greatly depending both on weather conditions and on full load of ships, with ships only leaving the port if loaded at full capacity, regardless of the initial schedule. So far, only two companies, Kazakhstan’s KazMorTransFlot (KMTF) and Azerbaijan Caspian Shipping Company (ASCO), are operating routes across the Caspian Sea. Vessel fleet therefore remains limited, which has been an issue due to increased traffic demand since 2022 (OECD, 2023[14]). Kazakhstan has started addressing the issue, with Concept 2030 and the 2022-27 TITR Roadmap setting out actions to build new vessels, however, it is estimated to take at least three years for vessels to be constructed and start operations. In the meantime, KMTF recently started diversifying its activity with three container ships and two dry cargo ships operating between the Ports of Aktau, Kuryk and Alat.
Kazakhstan’s Caspian sea ports lack fully functional multimodal road and railway networks. The ports of Aktau and Kuryk benefit from some multimodal road-rail-maritime infrastructure, yet lack for instance an integrated freight planning management system between rail and terminal operators (OECD, 2023[14]). Further improvements are prevented by the absence of a national body in charge of multimodal transport planning, the lack of co-operation between road and railway agencies, and limited investments: just 2% of Kazakhstan’s planned public transport infrastructure investments in 2019 was allocated to intermodal infrastructure (Observatory of Economic Complexity, 2024[24]; ITF-OECD, 2019[25]).
Sparse trade facilitation co-ordination with neighbours and restrictive regulations in Kazakhstan’s logistics services further add significant barriers to trade and transit
Most of Kazakhstan’s Caspian infrastructure and trade facilitation strategies remain national in scope. For instance, Concept 2030 has not been amended to include measures to co-operate or align investment plans with neighbouring countries, in particular to improve the functioning of the TITR. The absence of a regional integration framework also translates into lacking cross-country consultation about rail freight and port development plans (ADB, 2021[26]), even if discussions exist between state-owned railway and port institutions, notably through the TITR international association, TRACECA and the World Road Transport Organisation (IRU) (IRU, 2023[27]).
Cross-national electronic exchange of data remains limited. OECD interviews indicate that though Kazakhstan and other countries are working on digitalisation of customs information as well as harmonising and simplifying requirements, most software solutions are developed only with the domestic market in mind. OECD interviewees point to a general lack of co-ordination among development partners on trade facilitation initiatives across Eurasia; this further exacerbates a scattered trade facilitation landscape. This is also reflected in Kazakhstan’s relatively low score on the OECD Trade Facilitation Indictors in relation to internal and external border agency co-operation, and documents submission (Figure 4.2). As a result, cross-national electronic exchange of data remains limited, and creates delays and duplication of procedures for traders and shippers.
Scores per trade facilitation indicator ranging from 0 (worst) to 2 (best)
Note: 2 is the maximum score. A - Information availability, B - Involvement of the trade community, C - Advance rulings, D - Appeal procedures, E - Fees and charges, F - Documents, G - Automation, H - Procedures, I - Internal border agency co-operation, J - External border agency co-operation, K - Governance and impartiality.
Source: (OECD, 2023[28]).
Interoperability issues slow cargo transit and reduce the attractiveness of trans-Kazakhstan transit corridors. Barriers include the absence of a unified multimodal bill of lading and the lack of real-time transit shipment tracking, which reduce the speed of cargo handling, make operational planning more difficult, and raise both costs and transport times. Concept 2030 identifies these and other constraints to trade growth, including non-competitive tariffs compared to road and rail freight in boxcars and imperfect tax and industry legislation for the development of multimodal transport, but no specific actions seem to have been taken to address these so far.
Digitalisation and streamlining of maritime procedures are lagging behind. The relatively low level of digitalisation in seaports leads to dwell times of 5 to 12 days, which extends too much the duration of a journey already slowed down by a relatively old fleet (World Bank, 2023[29]). As of 1 January 2024, the Convention on Facilitation of International Maritime Traffic (FAL) of the International Maritime Organisation (IMO) entered into force in Kazakhstan; this should improve maritime transport and transit in ports, and it will make the Single Window for data exchange mandatory in ports, but its full effects will only materialise in the medium term (IMO, 2023[30]).
OECD interviews highlighted the existence of some demand-side barriers to the effective digitalisation of maritime and trade facilitation measures. In particular, interviewees in the Port of Aktau indicated that some shippers and firms prefer offline administration and filling out paperwork, posing a potential barrier to the streamlining of procedures. This attitude is indicative of a larger trend across Central Asia, where the private sector indicates that digitalisation brings new challenges compared to the more familiar paper-based procedures, citing in particular the lack of knowledge about new tools and a lack of experience in working with them (Ranosys, 2021[31]; OECD, 2023[14]). This trend is true not only for firms, but also for government officials, as digital procedures, for instance for customs, require new sets of skills and adequate training. The more so that the absence of co-ordination between countries leads to the coexistence of different digital standards (UNECE-UN/CEFACT, 2024[32]; OECD, 2023[33]).
STRI, ranging from 0 (lowest level of regulation) to 1 (highest level of regulation).
Note: The maximum score 1 represents the highest level of regulation, often in relation to a total state monopoly, which is for instance the case for rail freight transport under Kazakh Temir Zholy (KTZ) in Kazakhstan.
Source: (OECD, 2022[34]).
Kazakhstan’s monopolistic logistics service provision prevents the entry of transnational multimodal transport operators. KTZ Express JSC is the single transport operator authorised to provide unified logistics services for multimodal cargo transport. In addition, logistics cargo-handling, logistics storage and warehouse related services are, by international standards, heavily regulated sectors (Figure 4.3), while the national railway company, a state monopoly, owns most of operations at the ports of Aktau and Kuryk. This monopolistic situation negatively affects competition and Kazakhstan’s ambitions to diversify its trade corridors (OECD, 2022[35]; OECD, 2022[34]).
Recommendation 3.1: Develop co-operation mechanisms on the domestic and transnational level to develop Caspian port infrastructure and improve trade facilitation
Action 1: Formalise a development plan for Kazakhstan’s Caspian Sea ports
Develop a national port masterplan to align port infrastructure development with national trade and transit goals, while addressing issues linked to the preservation of the Caspian Sea and adaptation to falling water levels. The government should develop a national port development framework, with a long-term horizon (at least 10 years) to lay out key infrastructure and trade facilitation objectives corresponding to the country’s trade and transit strategies, and determine projects, and sources of financing. This document should be developed through an iterative process and be fed into the country’s overall development strategies. Dublin’s 2040 Port Masterplan provides a good example on how this can be developed (Box 4.5). Such masterplans should also be an occasion to assess the need to adapt existing port infrastructure to falling Caspian Sea levels, including plans for dredging to deepen port depth, or adapt vessels, and to encourage investments in climate-resilient infrastructure. Kazakhstan can achieve this by enlarging spatial planning frameworks, infrastructure project and policy appraisals through Strategic Environmental Assessments and Environmental Impact Assessments and adopting stricter regulatory and economic standards (OECD, 2020[36]).
Dublin’s 2040 Port Masterplan
The 2040 Masterplan provides a framework for core operational and growth principles, to achieve sustainable growth, investor certainty, and national policy alignment to facilitate seaborne trade in goods and passengers, setting out a series of objectives on port functions, investments, regional integration, and more. Adopted in 2012, the 2030 Masterplan has:
informed Ireland’s National Ports Policy and Transport Policy;
allowed planning and permitting authorities to determine policies and project proposals;
fed into the National Planning Framework and National Development Plan 2018-27;
built upon studies carried out to identify the best options to improve throughput capacity based on projections in logistics, transport modes, and freight developments;
enjoyed broad consultation processes that fed into the initial design and subsequent reviews, including large-scale consultation exercise (public meetings, seminars, information leaflets and public meeting to engage the local community); and
undergone an iterative process: the 2017 review analysed developments in economic projections, project progress, and in policies and strategies impacting on planning, transport and the environment.
Infrastructure options in the Masterplan are selected and advanced based on the Port’s ability to finance them through a series of “bite-sized” project investments, keeping debt at an acceptable level and avoiding speculative investments.
Source: (Dublin Port, 2018[37]).
Individual port plans should be developed to operationalise the national port masterplan, and co-ordinate with Caspian littoral neighbours. Once the masterplan set, its objectives need to be operationalised individually for the Ports of Aktau, Kuryk, and the Caspian Knot to avoid underutilisation of capacity and duplication of facilities. Individual plans should be developed by the port authority, and integrate the objectives, projects, and investment plans of all relevant actors, including the port management or operating company, and private firms operating in the port (cargo handling, storage, and distribution). The port authority should also develop the plan by taking into consideration the plans for the development of other Caspian sea ports such as Baku/Alat, since it represents a key stage for connectivity to Georgia, Türkiye and the European Union, or the port of Turkmenbashi, the only intra-TITR complement or, potentially, competing port (World Bank, 2022[38]). These individual plans could also form the basis for a regional dialogue on the preservation of the Caspian Sea, and the ensuing adaptation and mitigation of economic activities to avoid an environmentally detrimental race to the bottom triggered by competition amongst Caspian Sea ports (OECD, 2023).
Action 2: Intensify co-ordination within existing frameworks
Kazakhstan should continue formalising regional dialogue around a regional integrated strategy for rail, road, and port networks. The government should prioritise doing so first with the Caspian Sea littoral countries, before extending to the other countries along the TITR. Kazakhstan, in collaboration with regional neighbours, should aim at increased collaboration on existing and planned transport infrastructure strategies to avoid duplication of efforts. In particular, a cross-country public-private dialogue could help identify blockages, prioritise actions and investments, and address bottlenecks. As a first step, Kazakhstan could consider expanding its participation in the IATITR, or the co-ordination committees organised by ECO/UNECE or TRACECA/IRU to focus on Caspian-specific bottlenecks.
Kazakhstan should appoint a single oversight body to co-ordinate public and private transport and transit actors nationally and co-operate with partner countries on a transnational level. This body would be an already existing agency or Ministry, and should be entrusted with a broad mandate to cover all transport modes (rail, road and maritime), and address infrastructure, trade facilitation measures, and regional co-operation. The body would take part in regular meetings with relevant ministries, private sector actors, and the National Trade Facilitation Committee, as well as meet with representatives of regional organisations and initiatives (TRACECA, CAREC, BSEC, OTS, TITR Association). It would also be entrusted with the supervision of the implementation and application of the agreements and related guarantees, while reporting mechanisms for the public should be added to ensure transparency.
The oversight body should also be entrusted with risk supervision for the development of trade and transit infrastructure, and especially in relation to the preservation of the Caspian Sea. In particular, it should assess the different risks related to the development of Kazakhstan’s TITR sections as well as Caspian Sea infrastructure, by mainstreaming spatial planning frameworks, Strategic Environmental Assessments and Environmental Impact Assessments, and stricter regulatory and economic standards into infrastructure planning to encourage climate-resilient infrastructure investments (OECD, 2020[36]). The body would also provide access to relevant information to domestic and foreign actors (ministries, state-owned enterprises, regulators, private sector firms, business associations, NGOs) involved in infrastructure planning, and liaise with international and regional platforms active in the preservation of the Caspian Sea. In particular, the oversight body should ensure that planned activity and infrastructure does not further damage the Caspian Sea nor its littoral.
Action 3: Advance trade facilitation co-ordination with neighbours and set an enabling framework for the development of a trans-national logistics services sector
The government should advance regional standardisation of trade and transit requirements, especially for trans-Caspian Sea traffic. Regional standardisation is a cornerstone in Kazakhstan’s ambition to shift from transit country to regional transport and logistics hub. Developing interconnected transit information systems and procedures with other countries in the region and harmonising customs documents and requirements are the most pressing steps in that direction. In particular, in the framework of the Caspian hub, electronic data exchange across the Caspian Sea could benefit from a global transit document and digital support solutions, while the implementation of a Trans-Caspian port community system could be studied (OECD, 2023[14]). Kazakhstan could also move to fast-track the paperwork for ships entering and leaving the ports and reduce duplication of administrative processes for ships that return to port multiple times a month using the same routes (e.g., Aktau-Makhachkala or Aktau-Alat).
Kazakhstan should further streamline and digitalise port processes. Digitalisation of authorisations for ship arrivals and departures would both simplify procedures and enhance control and monitoring of vessel movements by registering all arrivals and departures in a single electronic platform. In the Caspian Sea, this could build on the pilot common digital data transmission system for cargo transport between the ports of Baku, Aktau, Kuryk and Turkmenbashi as part of the OSCE “Promoting Green Ports and Connectivity” project. During the OECD visit to Aktau, stakeholders suggested that trade document submission could be enhanced by better connecting port and government electronic platforms such as the electronic government one-stop shop egov.kz.
Kazakhstan should incentivise the development of a competitive logistics sector. In the framework of the Caspian Knot, the government should consider developing a modern and competitive logistics industry in tandem with port development. More broadly, within the framework of the CBC hubs, the government should incentivise the private sector to establish modern logistics centres providing efficient cargo handling, storage, and distribution. These could work as pilot projects to open up the logistics sector to competition, rationalise regulation in logistics and related services sectors, align it with regional neighbours, and allow for transnational logistics players enter the Kazakh market. In addition, the government should also support professional training and higher education in the field of logistics and transport (OECD, 2023[13]).
Challenge 3.2: Sparse private sector inclusion in Kazakhstan’s Caspian ports slows down their development
The complexity of the Caspian knot governance structure prevents adequately identifying and addressing port infrastructure and development needs
The governance framework of CBC hubs and SEZs is complex and predominantly vertically driven. SEZs in Kazakhstan have a complex institutional set-up, with the national government formulating industry and sectoral development plans, including defining CBC hubs and SEZs strategies, industries, and their locations (OEC, 2022[39]). The then-MIID sets the overall development objectives and implements the underlying economic policies. This includes SEZ programmes and their legislative framework covering cross-cutting topics such as tax regimes, customs regulations, trade agreements and security measures. In turn, their implementation requires the collaboration of ministries (then-MIID, MNE, MOF, MFA), specific departments (Transport, Customs), industrial development agencies, and local and regional akimats. All SEZs and industrial zones (IZs) are co-ordinated by the JSC Kazakhstan Centre for Industry and Export, also known as QazIndustry, which seeks to attract investments by improving the general business environment in SEZs. The operating costs of SEZ management companies and the provision of infrastructure facilities are funded largely by the then-MIID, the Samruk-Kazyna National Welfare Fund, Baiterek National Management Holding and, to a lesser extent, by akimats. Once created, SEZs in Kazakhstan are managed by a JSC that is owned by a government body or a state-owned enterprise.
Source: OECD analysis.
The governance structures involving Kazakhstan’s Caspian ports, the Caspian Knot, and SEZ Aktau remain vague. Despite falling under the purviews of then-MIID, MFA, and MTI (Figure 4.4), the interdependencies between the three administrative layers are not clearly set out in legislation, creating uncertainty and significant overlap with respect to key development topics such as infrastructure investment planning, public-private partnerships (PPPs), stakeholder participation, and public-private dialogue. In particular, CBC hubs are not addressed in the December 2022 amendments to the 2019 law on SEZs and IZs, while Concept 2030 does not address the CBC-SEZ relationship, either (Adilet, 2022[2]; Adilet, 2022[40]; Adilet, 2019[41]). While Concept 2030 indicates that the government seeks to appoint the Caspian Knot’s management company and develop, approve, and sign investment agreements, it remains unclear how the management will function and how it will interact with the Port of Aktau, the Port of Kuryk, the Sarzha MMT, and SEZ Aktau, which is governed by the Mangystau region as the only shareholder.
As a result, co-operation between all CBC hub actors remains largely ad hoc. At the national level, cross-level co-ordination has progressed, with a working group gathering relevant vice ministers, managers, and local administrations chaired quarterly by the MTI to report on the five CBC hubs’ progress, identify issues and decide on solutions and next steps to address bottlenecks. However, private sector participation seems to be absent from these meetings, and more generally from SEZ strategy design and implementation. In addition, at the level of individual CBC hubs, no structural co-operation mechanisms seem to exist. For instance, for the ports of Aktau and Kuryk, information exchange arises on an ad hoc basis between the two management companies, KTZ and Semurg Invest. As a result, stakeholders report difficulties in adequately identifying and addressing port infrastructure and development needs.
Private-sector participation remains low in Kazakhstan’s Caspian ports
Kazakhstan has developed a structured legal and institutional framework for Public Private Partnerships (PPPs) at both the national and regional levels, revolving around the 2006 Law “On Concessions” and the 2015 Law “On Public Private Partnership”, amended in January 2023, and providing an expansive definition of PPs. This legal grounding has been complemented by several institutions with the mandate to support PPP project preparation and review, including the Kazakhstan Project Preparation Fund providing support to line ministries and regions for commissioning studies (design, feasibility) and preparing project documentation (tender documents, and contracts), and the Kazakhstan PPP Centre, reporting to the MNE, supporting the development of PPP policy and legislation, and assessing the economic efficiency and budget affordability of PPP projects proposed by line ministries. Most line ministries have also created their own PPP units for developing PPP projects, which has been also done by regional governments.
The government has prioritised PPPs as a delivery mode for both economic and social infrastructure, with however limited impact at the national level due to financing challenges (both low demand from the domestic banking sector, and unwillingness from international investors to accept exposure to the domestic currency).
Recent work by the OECD and the EBRD however suggest that Kazakhstan’s overall PPP framework could be strengthened. Priority areas of attention and reform pertain to the dominance of public institutions which tends to limit market entry opportunities for competitors; capacity building (particularly during the project preparation phase); transparency and accounting of contingent liabilities; and transparency and competition in procurement contract, in particular on contract management implementation and monitoring.
Source: OECD analysis based on (EBRD, 2023[42]; Ruiz Rivadeneira and Garin, 2019[43]).
Despite the existence of a comprehensive PPP framework to finance investments, PPPs remain rare for transport projects. Since the 2006 Law on Concessions and the 2015 PPP Law, Kazakhstan has supported better defining interactions between state agencies, local authorities, local executive bodies, and the private sector within a PPP framework covering private-sector involvement in state asset management and enhanced investment attraction (Box 4.6) (UNESCAP, 2018[44]; ITF-OECD, 2019[25]) However, only 3% of Kazakhstan’s 1,357 PPP-funded projects are in transport infrastructure and only three large scale transport PPP projects are ongoing, all in and around Almaty Almaty (UNESCAP, 2018[44]; ADB, 2022[45]; KZPPP, 2023[46]). Concept 2030 notes that PPPs will be used to develop the infrastructure of seaports and attract private investment to create transport and logistics infrastructure, but it presents neither an investment plan nor defined a list of projects along with estimated required funds.
Maritime PPP projects remain very limited in Kazakhstan. The last roundtable discussion on PPPs in Aktau SEZ was held in 2016, while no PPPs in Kazakhstan’s Caspian ports seem to be active so far, with the exception of an MoU signed in December 2022 between UAE-based AD Ports Group and the then-MIID to help develop its international trade and transit corridors the MIID to help develop its international trade and transit corridors (Port Technology International, 2023[47]). Stakeholders interviewed by the OECD indicated that this absence may prevent building the necessary knowledge and expertise required to implement Kazakhstan’s port infrastructure development strategies.
Although the government has started to withdraw from port operation while retaining ownership, private-sector representation in port management remains insufficient. Kazakhstan has been looking to increase private participation in port infrastructure development, e.g., in Aktau Maritime North Terminal (AMNT) and the Sarzha MMT, but neither partnership falls under a PPP model (Adilet, 2022[2]). On the other hand, building on the successful co-operation in the management of SEZ Khorgos–East Gate since 2013, the UAE-based port operator Dubai Port World (DP World) signed a management agreement in 2014 with the Port of Aktau, followed by an MoU with Mangystau region in 2017, to add shipping capacity, create a logistics area, and attract private investment to develop SEZ Aktau’s infrastructure (Seatrade Maritime News, 2017[48]; albawaba, 2017[49]; Astana Times, 2014[50]). The following year, DP World acquired a 49% stake in the SEZ from the Mangystau region. Yet OECD interviews indicated that DP World seems to have withdrawn from the port of Aktau, and that foreign involvement today is limited to advisory services on container hub development. As a result, private sector involvement in the management of Kazakhstan’s Caspian ports seems limited to two international companies (Table 4.2).
Note: OECD’s definition of private or public companies is used here. The OECD defines private firms as “organisations that engage in profit-seeking activities and have a majority private ownership (i.e., not owned or operated by a government)”
Public-private dialogue (PPD) seems to be missing in port and CBC hub development
Dialogue with the private sector remains insufficiently formalised and integrated in strategic planning and implementation. OECD interviews indicate that formal PPD arrangements and consultations in relation to port and CBC hub development remain an exception, and when existing, they mainly apply to specific projects rather than the development of comprehensive strategies. For instance, the government held a town hall meeting in 2022 with Kuryk inhabitants to discuss the development of the Caspian Knot CBC and the enlarged SEZ Aktau. However, it remains unclear whether and how feedback has been integrated into the design of the Caspian Knot strategy. In general, OECD interviews indicate that public-private dialogue depends on the discretion of policy implementing agencies and, if it occurs, methodologies are not sufficiently transparent to evaluate its influence on the policy cycle.
Environmental considerations exist, but they are not formalised yet. Since the Nurly Zhol 2015-19, the importance of a cautious approach to environment was voiced. The practice was followed in the 2020-25 strategy with some broad objectives on the importance of green transition and green freight, but without a concrete framework to act upon. The Concept 2030 established December 2023 as a deadline for the drafting and the adoption of a roadmap on the use of green technologies in freight, yet it seems to be still in development (Adilet, 2022[53]). In addition, the Law on Special Economic Zones contains an obligation to carry out an environmental impact assessment only before the set-up of an “industrial zone of regional importance”, and in the case of a request for extending its territory, and not for each SEZ project (Adilet, 2019[54]).
Information-sharing by non-governmental stakeholders remains limited. On the institutional side, CBC hubs and in particular the Caspian Knot and the SEZ Aktau lack institutional reporting or feedback mechanisms to engage with regional non-governmental and private-sector representatives. For instance, the board of SEZ Aktau is limited to SEZ and Mangystau representatives; it does not convene public discussions (SEZ Pavlodar, 2022[55]). On the other hand, co-operation issues are exacerbated by a lack of trust and a reluctance to share information by private and non-governmental stakeholders (ITF-OECD, 2019[25]).
Recommendation 3.2: Develop an institutional framework and practices to increase private sector participation in the development of the Caspian Knot
Action 4: Simplify the governance structure of Kazakhstan’s CBC hubs, and enhance co-ordination between line ministries and with the private sector
The government should clarify the institutional relationship between the Caspian Knot, SEZ Aktau and the Ports of Aktau and Kuryk. A mapping of all strategic stakeholders, public and private, involved in these different structures should be carried out to identify clearly their responsibilities and interrelationships. On the public side, this should include the institutional roles and responsibilities of entities such as the MNE, then-MIID, MTI, MFA, MOF, and executive agencies such as KPPPC, while for the private sector, it should cover key actors involved in transport and infrastructure development (ADB, 2022[45]). Based on this mapping, the government can streamline overlapping mandates, and clarify institutional relationships between all layers of governance. It can also publish the streamlined governance structure in the investor guide of SEZ Aktau, to provide greater clarity to potential investors.
The government should enhance co-ordination between the roadmaps for the Caspian Knot and the broader investment promotion, and transport and logistics infrastructure strategies. Once all relevant actors at each level of the Caspian Knot are identified, the government should ensure co-ordination across the respective public entities overseeing SEZs and CBCs to avoid policy misalignment, and duplication. For instance, the authorities could consider regular thematic meetings at the operative level to address cross-cutting issues faced by these zones and promote the sharing of good practices (CAREC-ADB, 2018[56]; OECD, 2020[57]). Given the centrality of the Caspian Knot in Kazakhstan’s plans to develop the TITR, SEZ and CBC policies need to be integrated within the country’s broader transport development and investment strategies.
Action 5: Develop an institutional environment conducive to greater private sector participation in infrastructure financing and development
Kazakhstan should improve the enabling environment for infrastructure investment to secure private sector participation. As outlined in the OECD Principles for Private Sector Participation in Infrastructure, successful private participation in the infrastructure sector of a country depends in large measure on the quality of the national investment climate. The business climate has improved in Kazakhstan in recent years, but issues remain in relation to corporate governance, restrictions on foreign investment, and contract enforcement (OECD, 2023[58]; OECD, 2024[59]; OECD, 2023[13]). In the framework of the development of its CBC hubs, addressing these issues is a key priority. For the Caspian Knot in particular, where infrastructure projects involve separate jurisdictions, as in Aktau or Kuryk, the government should develop projects with clear objectives and underpinned by formal agreements and dispute resolution mechanisms (OECD, 2020[36]).
The government should allow for feasibility studies for infrastructure construction projects. Current legislation prevents national or local budgets from financing feasibility studies and estimation documentation for infrastructure construction projects, hampering the development of missing infrastructure. Allowing them to finance such work would be an important step towards a structured dialogue for infrastructure development, allowing participants to define projects based on their suitability, and design PPP modalities where needed (ADB, 2022[45]). More broadly, the government should introduce a broad dialogue around PPPs including all relevant actors to balance national and regional objectives, as South Korea has done (Box 4.7).
South Korea has launched 19 PPP port projects since the implementation of the 1994 PPP law, establishing a “landlord” port model where the government provides basic infrastructure, harbour and hinterland facilities as well as road and rail access, while entrusting port and logistics operations to the private sector.
Busan New Port was established in 2003, began operations in 2006, and was incorporated into Busan-Jinhae Free Economic Zone in 2020, making it the largest free trade port in South Korea (2.83 million m2). Port performance was adapted to changing demand by:
introducing active risk management for PPP ports, involving rigorous risk analysis and a risk-sharing structure between private and public actors;
involving private parties (port operating and shipping companies) from the planning to the implementation stage of a project;
including private sector feedback into a consistent National Seaport Construction Plan to prevent under- or overcapacity or individual ports; and
developing general good governance principles to secure long-term sustainability of the port, including a degree of flexibility in contractual agreements to deal with operational volatility, and active involvement of operating and shipping companies to reduce demand-side risks.
The governments should also continue to promote regional integration initiatives around the Caspian Knot. For the private sector to engage more actively in the development of the hub’s infrastructure, the government should support initiatives to innovation and entrepreneurship around the ports and the SEZ (Box 4.9). For instance, it could support linkages between local SMEs and national or international multinational enterprises to boost GVC integration, and entrepreneurship development programmes (OECD, 2023[14]).
Action 6: Develop a comprehensive public-private dialogue mechanism (PPD)
The government should introduce formal feedback mechanisms to allow for timely discussion of infrastructure and other development needs. Public and private actors in the Caspian Knot (akimats, investors, firms) should regularly assess gaps between strategies and their implementation, and identify key challenges faced on the ground (ADB, 2021[61]; World Bank, 2014[62]).. For instance, they could convene in the form of regular (for instance annual or bi-annual) meetings between port and infrastructure operators, business associations having a stake in trade and transit, and line agencies and ministries (Box 4.8). A formal mandate, for instance a MoU, should clearly address the purpose of the PPD, and lay out its objectives (OECD-World Bank, 2015[63]; World Bank, 2014[62]). Other reporting channels to maximise private sector participation could also be developed: steering committees with private sector representatives, formal communication lines, or market sounding exercises to provide feedback on a project.
In 2018, Atlantis SEZ (ASEZ) established the Community Stakeholder Network (CSN), the first elected community network for SEZs in South Africa. The partnership was formalised in 2020 through a Community Facilitation Agreement which outlines the obligations of both parties. The CSN:
is the main institutional interlocutor for all institutional actors (e.g. the National Department of Trade, Industry and Competition, the Provincial Department of Economic Development and Tourism, and the City of Cape Town);
represents different sectors and functions as a conduit of information between the ASEZ and the Atlantis community;
provides capacity building activities to its members to ensure they are well equipped to achieve their mandate; and
is supported by an independent facilitator to assist in governance, skills development, community engagement, and conflict resolution.
The CSN has already contributed to shaping ASEZ policy priorities, for instance youth skills development (training, mentoring and exposure to ASEZ firms to meet labour needs.
Source: Adapted from (Atlantis SEZ, 2023[64]).
The government should also consider creating a detailed public consultation process around the development of the Caspian Knot. If successful, the Caspian Knot and the SEZ Aktau can affect positively the economic performance of surrounding areas. However, this also requires including the expectations, concerns, and needs of the broader business and non-business communities in the policy cycle. The government should therefore develop a structure dialogue platform with local communities to gather their inputs and feedback. In particular, in relation to the development of both Caspian Sea ports, the example of European ports, where initiatives focused on the good co-habitation with local communities, could be followed (ESPO, 2022[65]).
The information gathered should be integrated in the policy cycle for the further development of the Caspian Knot. The outcome of the PPD should be integrated throughout the design and implementation stages of Concept 2030 and the TITR 2022-27 Roadmap, to adapt plans to evolving infrastructure and other development needs, and ensure there are no omissions in the policy documents. At the local level, inputs gathered should also be included into individual port masterplans by the port managing authority. The government should also use these regular meetings to engage with stakeholders, keeping them updated of relevant policy developments and collect their feedback on infrastructure and investment promotion policies.
Challenge 3.3: The performance of Kazakhstan’s SEZs and CBC hubs cannot be assessed, preventing timely adjustments to their operational structure
The lack of harmonisation of benefits within and across zones creates operational difficulties for firms
SEZs and CBC hubs are a core element of the government’s industrial diversification policy. Most recently, the National Investment Strategy 2023-2026 emphasises boosting the volume and value added of exports, by increasing labour productivity, developing new production facilities for higher value-added products, and gradually locating more production within Kazakhstan, including through the development and promotion of SEZs (Prime Minister, 2022[66]). SEZs are part of the broader national investment promotion and facilitation framework involving national and regional policies and institutions. Each of Kazakhstan’s 13 SEZs and 37 IZs has a specific sectoral orientation, with a special legal regime and dedicated infrastructure, including ready-made production sites to help reduce investors’ capital costs and accelerate investment decisions (QazIndustry, 2023[67]; OECD, 2017[68]).
Kazakhstan has made significant progress in integrating Aktau SEZ within the broader industrial development framework. Existing for more than two decades, SEZ Aktau is one of the country’s oldest, and most productive SEZs together with SEZ Astana-New City and SEZ Park of Innovative Technologies in Almaty (CAREC-ADB, 2018[56]; Prime Minister, 2022[69]). The port of Aktau and its Bautino cargo area have been the zone’s most recent inclusion. As of 2022, 46 private companies active in manufacturing, warehousing and logistics, and tourism development were registered in SEZ Aktau. According to QazTrade, the zone has attracted KZT 263.5bn (2022 USD 579.7m) of investments, of which 63.7% is foreign, with infrastructure investments amounting to KZT 7.8bn (USD 17.2m) for public funds and KZT 33.4bn (USD 73.5m) for private ones. In comparison, the SEZ Khorgos on the Kazakhstan-China border declared in 2020 having 28 private companies working on 41 investment projects worth KZT 259.5 bn (2020 USD 622.8m) (JSC Khorgos, 2020[70]). In contrast, in 2022 the SEZ Pavlodar attracted KZT 81.24 bn (2022 USD 178.7m) in investment, but only a fourth of them (KTZ 21.45 bn or 2022 USD 47.19 m) were foreign ( (SEZ Pavlodar, 2022[55])). The 2019 law on SEZs and the 2022 amendments have widened the customs and tax advantages and non-fiscal incentives available to firms operating in SEZ Aktau, including an SEZ-specific Single Window for dealing with customs and tax matters (Adilet, 2022[40]; Adilet, 2018[3]; Adilet, 2022[2]; UNCTAD, 2019[71]).
However, the absence of tax benefit harmonisation between SEZ Aktau and the Caspian Knot CBC hub worries the private sector. Kazakhstan’s current tax code does not provide for tax preferences in the Caspian Knot, which creates de facto differential treatment between developers and operators from SEZ, and other private sector actors active in the Caspian Knot. This situation carries the risk of distorting domestic competition around the zone (Box 4.9), as indicated in OECD interviews by actors active in, or considering activity in, the container hub and other port infrastructure.
OECD interviews also pointed towards remaining legislative hurdles deterring activity in SEZ Aktau and the Caspian Knot CBC hub. Interviewees cited mostly the length of approval for applications to conduct SEZ activities, which can take up to a year, and the incompatibility of SEZ legislation with operations. For instance, operators in the Port of Aktau face issues in transiting containers in their temporary warehouses as SEZ regulations require all cargo to be processed within 24 hours, whereas given their capacity, port operators need 24-72 hours to do so (Prime Minister, 2022[69]).
SEZ rationale: developing a growth engine at the regional level through spillover effects
In theory, the set-up of a special economic zone aims at creating more favourable conditions in a small area so as to kick-start the development of a region and support a country’s competitive agenda. Three main reasons stand out:
Addressing market failures by making specific activities that generate significant positive externalities - and that the market on its own is likely to under-supply - more attractive to the private sector through favourable conditions (e.g. fiscal, regulatory, material, etc.).
Compensating for state failures by creating regulatory, tax and other institutional conditions that are more favourable in the SEZ than in the wider economy, governments seek to compensate for weak institutions and contracting environments to attract investment (particularly FDI).
Addressing infrastructure bottlenecks in specific places, where governments expect to be able to develop and diversify exports and/or foster the development of clusters.
In practice however, special zones often reflect the will of governments to force the pace of a given sector’s development or force the rooting of specific activities in a given setting disregarded by investors. As a result, a common pitfall among zones is that they create competitive distortions -reflecting political priorities for a given sector or region – rather than spillovers with their host region and the country at large (e.g. dissemination of knowledge and technology and co-operation between industrial firms and universities).
International experience with special zones is mixed: additionality vs. distortive advantage
SEZs have been used by a few countries including China (Wang, 2010[72]), Mauritius (Charitar and Narrainen, 2009[73]), Vietnam, Bangladesh and some Central American countries (Farole, 2011[74]) as an instrument for broader economic transformation. Successful zones have managed to develop positive economic spillovers with host regions and create activities that would not have developed in the absence of SEZ privileges (additionality). However, in most other cases, zones have become offshore enclaves generating investments and jobs inside their territory, without broader impact on host economies (Farole, 2011[74]; FIAS, 2008[75]). International experience shows that zone design, and the state of domestic institutions, are the most important elements to generate spillovers and additionality:
Successful zones build on countries’ existing comparative advantages rather than trying to force the emergence of new ones.
Zone programmes require a high degree of policy consistency, across both time and policy domains (Charitar and Narrainen, 2009[73]).
The quality and reliability of infrastructure, and a good business environment matter more than fiscal incentives to attract investors (Farole, 2011[74]). In general, privately owned and operated zones tend to offer better infrastructure and amenities at lower cost (FIAS, 2008[75]).
The development of downward linkages to domestic economic activity often requires the coordination of complementary economy-wide policies (e.g. skills development, knowledge-sharing and cluster policy) with zone development (FIAS, 2008[75]).
Design must also be cautious not to undermine the competitiveness of domestic firms near to but outside the zone and help limit segmentation in domestic labour markets.
Source: Adapted from (OECD, 2014[76]).
The absence of clear objectives and performance assessment complicates identifying and addressing issues
The government monitors the operations of SEZs. OECD interviews indicated that the then-MIID evaluates SEZs along three dimensions: performance indicators such as investment and export volumes, infrastructure development, and zone development. Kazakh Invest also screens the state of SEZ infrastructure, and together with then-MIID and regional akimats, monitors compliance with the terms of reference of contracts. This monitoring is based on data collected through the SEZ management companies, responsible for collecting the annual reports of their zone users and reporting them to Kazakh Invest.
However, a more mature output-oriented monitoring system needs to be included in the policy cycle. The current monitoring of SEZ activity favours an operational approach over an outcome-based analysis of SEZ performance in attaining policy objectives. Neither Concept 2030 nor other government strategy or policy documents related to SEZs and CBC hubs set out clear objectives, evaluation or reporting requirements such as key performance indicators (KPIs). While public agencies publish yearly reports on programmes implemented and activities undertaken in SEZs, Kazakhstan does not formally use outcome-based indicators to assess activities. In addition, it is unclear how the current monitoring of SEZ activity feeds into the policy cycle and, in particular, into Kazakh Invest’s SEZ strategy and policy development or QazIndustry’s mandate to improve the overall SEZ business environment. Finally, a lack of regular user and investor surveys – both by public agencies and SEZ management companies – to evaluate obstacles to activities or investments further impedes effective SEZ and CBC policy design.
Finally, the economic and environmental aspects of operations in the Caspian Knot, especially in relation to declining water levels in the Caspian Sea, must be taken into account. In Kazakhstan, as in the other Caspian Sea littoral countries, assessments of risks and vulnerability of the region’s ecosystem and economic activities to sea-level decline are largely absent, and have been exacerbated both by the perception of periodic Caspian sea level fluctuations as a self-regulating phenomenon and a spatial optimism bias where not all communities have the same perception of the impact of sea level decline (Prange, Wilke and Wesselingh, 2020[16]). The recent acceleration shoreline recession in Kazakhstan, however, seems to have triggered a change, with the city of Aktau declaring a state of emergency during the Summer of 2023, followed by an acknowledgment of the issue by the Minister of Environment and the creation of the public Kazakh Scientific Research Institute of the Caspian Sea in early 2024. The Institute is entrusted with the conduct of environmental monitoring and research for the Kazakh section of the Caspian, and the strengthening of cooperation with other littoral states for the conservation of the Sea (Rferl, 2023[17]).
Recommendation 3.3: Integrate monitoring and evaluation of CBC hubs and SEZs into the policy cycle
Action 7: Develop a formal performance-based monitoring and evaluation (M&E) framework for SEZ and CBC hub activity and integrate its outcomes in the policy cycle
The government should develop indicators measuring the outcomes and impacts of SEZ and CBC hub activities. More complex and outcome-oriented evaluation tools would allow the monitoring process to better inform the government about strategic choices to further enhance and target incentives to the development of SEZ and CBC hub activities. To the extent possible, the evaluation framework should include an assessment of impact relative to what would have occurred in the absence of SEZ and CBC hub privileges (additionality), as well as an assessment of effects in terms of employment creation or investment generation in the surrounding regions (spillovers) (Box 4.9). The implementation of qualitative and quantitative KPIs would enable an assessment of the cost-effectiveness of operations, the rate of return on services provided, and the regular review of progress.
The government should use external KPIs to incorporate feedback from SEZ and CBC hub stakeholders. Such an approach would allow measurement of users’ appreciation of the regulatory, tax, and infrastructure services they received, ensure that the service offer met business needs, identify new needs, and inform line ministries to feed into national investment, trade, and transit strategies. External KPIs could be set as part of a multi-year contract between SEZ and CBC hub management companies and line ministries, including quantified objectives, and regular annual or infra-annual reporting. The value feedback scheme should be run with a specific budget, financing a dedicated internal team, and should cover private sector focus groups and roundtables, reports to analyse and propose solutions for specific needs, and a long-term evaluation of the efficiency of services in terms of business generation and job creation.
This monitoring should be complemented by internal KPIs to assess the efficiency of SEZs and CBC hubs in reaching national policy goals. Efficiency of SEZ and CBC hub activity should be rigorously defined through a set of KPIs, based on quantitative and qualitative indicators, including macroeconomic indicators (e.g. total exports, or share of SMEs in total exports), and purely output-based indicators, such as the number of new business contracts concluded after having benefitted from a SEZ incentive, or average additional turnover. The further introduction of regular surveys of businesses to adapt the priorities and objectives of SEZ and CBC hub policies can help inform the government when expanding the CBC hub concept to other locations and prolonging the benefits of SEZs.
In China, the performance of economic and technological development zones and high‐tech development zones is regularly evaluated since the 1996 Administrative Decree from the Ministry of Science and Technology. Zones experiencing management issues or slow development results need to rectify their performance within a time limit, failing which they lose their special status.
Since 2016, ministries evaluate SEZs for their innovative capacity and economic performance on 5 categories: industrial capacity, technological innovation, regional integration, environmental protection and administrative efficiency), and 53 indicators including:
Traditional indicators (industrial output, revenue, productivity, GDP, R&D expense, FDI inflows, value of foreign trade and number of listed companies)
Sustainability-oriented indicators (numbers of vocational training institutions, consumption of energy and water, emissions, recycle rate, etc.)
An exit system is applied to the five lowest ranking SEZs for two consecutive years, while the top 30 zones and top ten in each category are published yearly. An online single-window approval system for investment facilitation is also an indicator for administrative efficiency and encourages SEZs to develop their single windows/OSSs.
Source: Adapted from (UNCTAD, 2019[71]).
The government could also develop and use KPIs assessing the economic and social performance of its SEZs and CBC hubs. Since international investors seem increasingly concerned with more rigorous environmental and social standards, an international framework on eco-industrial parks (EIP) has been developed by UNIDO, World Bank Group, and GIZ to help countries and zones apply principles of eco-industrial development and develop an “economic and social” competitive advantage over other locations competing for the same investors. The framework’s performance requirements cover four dimensions, including environmental and social performance, with associated KPIs Kazakhstan could take inspiration from (World Bank, 2019[77]).
Kazakhstan should generalise the use of monitoring strategies and KPIs to inform SEZ and CBC hub policy development. Once the assessment framework of zone activities is designed, its outcomes should be integrated in the policy cycle to help understand and adjust their effectiveness and realign priorities, policies, and funds as needed (Box 4.10). In the context of the CBC hub development, a constantly evolving national and international trade and transit environment requires public and private actors to reassess and realign priorities regularly. For instance, for the Caspian Knot and SEZ Aktau, KPIs included in port masterplans should be regularly reviewed based on progress, macro-economic developments, and stakeholder feedback. Finally, the work of the Kazakh Scientific Research Institute of the Caspian Sea should be regularly shared with policymakers to be integrated in the discussion and development of all infrastructure and other development plans for the Caspian Knot. Such an integrated approach is also an important element to help secure policy consistency in zone and CBC hub design (Box 4.9).
Action 8: Use SEZs as a “policy lab” to ease the operational environment for business
Kazakhstan could develop non-tax incentives benefitting both to companies active in SEZ Aktau and the CBC hubs. Kazakhstan’s successful non-tax business and investment facilitation efforts in SEZ, could be extended to all businesses operating in surrounding CBC hubs to avoid creating competitive distortions. The extension of simplified investment approval processes and expatriate work permits, removal of requirements for import and export licenses, or accelerated customs inspection procedures would level the playing field between businesses and contribute to the competitiveness of the CBC hubs.
The government could also gradually reduce income-based tax incentives in SEZ Aktau while introducing expenditure-based incentives in the broader Caspian Knot. Recent OECD work shows that most studies do not find that investment tax incentives (reduced corporate income tax rates and exemptions) have a significant positive impact on facilitating more investment as they tend to attract mostly investors, which would have invested anyways. On the contrary, expenditure-based tax incentives (tax credits and allowances) tend to have a larger impact on investment decisions since they support investors, which might not have invested otherwise by reducing their costs (OECD, 2022[78]).
More broadly, Kazakhstan’s existing SEZs could be used as a policy testing ground for broader tax and regulation easing reforms across the country. The optimal policies for a country’s context remaining mainly unknown ex ante, a policy trial (tax policy, regulations, administrative facilitation, etc.) within a SEZ can hint towards reforms that can and should be generalised to the rest of the economy (IGC, 2019[79]; OECD, 2010[80]; OECD, 2014[76]). Following a positive cost-benefit evaluation - based on a rigorous outcome-based monitoring- of a specific incentive that generated positive outcomes in one or more SEZs across Kazakhstan, such as the simplification of customs procedures or the introduction of environmental impact assessments, the policy could be made available economy wide. The 2023 then-MIID roadmap for SEZs, allowing for the differentiation in providing investment preferences in SEZs, could open the door to piloting regulatory projects within the confines of Aktau SEZ or other SEZs before mainstreaming them among other SEZs, CBC hubs, or throughout the country (Prime Minister, 2022[69]; QazIndustry, 2023[67]).
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