Clare Nuttall in Almaty -

In an economy dominated by the natural resources sector and next door to the world's largest manufacturer, diversifying the economy is no easy task. KazNex Invest, Kazakhstan's investment and export promotion agency, is trying many different ways to make this happen - including by lobbying for a humanitarian aid depot to be set up in the country.

KazNex Invest hopes to create a new market for Kazakh producers to supply a depot that will serve the wider region. Kazakhstan is part of a large high-risk zone spanning Central Asia, the Caucasus, Afghanistan, Iran and western China. The biggest danger is from earthquakes; Almaty and Bishkek are both among the world's most earthquake-vulnerable cities. However, there are also numerous other risks both man-made (wars, revolutions, ethnic conflicts) and natural (floods, mudslides and drought). "Lack of preparedness for disasters results in an increased number of deaths. We want to increase preparedness by setting up a depot for humanitarian supplies, such as first aid kits, blankets and emergency shelters," says Saule Akhmetova, advisor to the chairman of KazNex Invest's managing board. "We have proposed that Kazakhstan host this depot - the country is politically stable, has good relations with the other countries in the region, and north Kazakhstan is located outside the seismic zone."

KazNex Invest also hopes that the creation of the depot in Kazakhstan will provide a new market for local companies to provide supplies. The agency has already helped local companies to become suppliers to the Manas airbase in Bishkek, which supports Nato operations in Afghanistan.

More than natural resources

Set up in 2006, KazNex's original aim was to help Kazakh companies operating outside the natural resources sector to export their products. In 2010, it was also made responsible to attracting investment to the country and renamed KazNex Invest. "The priority for the government is investment not into raw materials - which accounts for almost 80% of foreign investment - but into manufacturing," Akhmetova tells bne. "We want to see more foreign investment outside the natural resources sector. This will also lead to a higher level of exports from Kazakhstan. As the domestic market is small - just 16m people - companies need to export if they are to grow and take advantage of economies of scale."

Timur Nurashev, vice chairman of KazNex Invest, says there has been an increase in interest in Kazakhstan. "We see 10 delegations of potential investors from Europe, Asia, the US and the Middle East every week," he says. "Since we started work on attracting investment in May 2010, we have met with more than 150 companies looking to invest in Kazakhstan. Of these, probably 70% will not invest, but the remaining 30% are in close negotiations."

According to Nurashev, the greatest interest outside the natural resources sector is in electricity production and related areas, followed by metallurgy, light industry and construction materials.

He also considers that Kazakhstan is becoming more investor friendly, citing the recent World Bank "Doing Business" report that put Kazakhstan among the top-10 reformers. The Kazakh government also plans to set up a new body to serve as an ombudsman for foreign investors. It will be chaired by Prime Minister Karim Massimov, and will include representatives of both government and the Foreign Investors' Council.

For local producers, there are also a number of factors affecting their ability to break into international markets, according to KaxNex Invest's research. "We want our companies to be competitive but if you take, for example, a Kazakh company and a German company, both of them hoping to start exporting to a new market, they are not competing on an equal basis. German companies have a supportive operating environment that our companies lack," says Akhmetova.

She points out that although some support and information services are available in Kazakhstan, because demand is low they tend to be expensive. "Often a company plans to export its products, but finds the process so difficult and expensive they give up, because it is easier trade inside the country, even though the domestic market is small."

One major problem for Kazakh companies is a lack of information about international markets, what to produce and pricing - either the information is not available or is prohibitively expensive. Second, is the lack of skills and expertise. KazNex Invest has for several years been taking groups of Kazakh businesspeople to visit the production facilities of top international companies, which in some cases has resulted in significant changes in their operations. "Many of our companies are not aware of world standards and need to see for themselves how international companies operate," says Akhmetova. "Of course, we still have our critics, but it is a remarkable thing when people start changing their way of thinking."