Clare Nuttall in Astana -

Kazakhstan's capital Astana is increasingly becoming an industrial centre as well as the country's seat of government. Government support in the form of tax breaks and other incentives has brought in a growing number of international manufacturing companies to the capital, which has seen a subsequent steady rise in investment.

When the Kazakh government decided to move the capital from cosmopolitan, temperate Almaty to Tselinograd, a small city in the northern steppe, it seemed the main claim to fame for the new capital - renamed Astana in 1998 - would be as a contender alongside Ottawa and Ulaanbaatar for the title as the world's coldest capital. Instead, it has become known for its exotic architecture, as billions of dollars were poured into construction works that has earned it the nickname "Dubai of the steppe", as an icy version of the Middle Eastern city.

Indeed, investors from the Gulf are among the largest in Astana, where the Abu Dhabi Plaza is set to become Central Asia's tallest building when it is completed in 2014, and the 14th highest in the world. The KZT165bn ($1.1bn) development is set to become another Astana landmark alongside the Ministry of Transport and Communications Ministry (dubbed "the lighter"), the egg-shaped national archives, and the giant tent housing the Khan Shatyr shopping centre.

But while Astana started out as Kazakhstan's administrative capital, with the former capital Almaty remaining the business centre, the national and municipal government have been pushing to turn the city into a industrial hub for northern Kazakhstan.

Makings of the future

The establishment of the Astana New City special economic zone (SEZ), and a package of government tax and financial incentives has brought a growing number of international companies to set up manufacturing operations in the city. It has the further advantage of being in the north of the country, much closer to fellow Customs Union founder Russia than Almaty.

The volume of investment into Astana has steadily increased in recent years. In the first seven months of 2012, Astana received KZT295.1bn worth of investment, a 16.2% increase compared with the same period of 2011. According to the official forecast for 2012, total investment of up to KZT600bn is expected this year.

The Astana New City Special Economic Zone (SEZ) has been working with investors since its launch in 2011, managing both the new business and administrative centre on the left bank of the Esil river, and an industrial zone. The SEZ was set up under a presidential decree covering the period until 2027, with a mandate to manage investment into new housing, offices, retail and trade centres, industrial space and the infrastructure underpinning construction of the new city.

To encourage businesses and construction companies to set up in Astana, investors at the SEZ receive a variety of tax and customs preferences, including exemptions from corporate profit tax, land tax and VAT on building materials. A "single window" centre was set up to provide support and information services for investors, according to Meder Maselov, head of the Astana akimat (city authorities) department for administration of the SEZ. "At present there are 41 projects in development in the industrial zone, with total investments of over KZT150m. Seven investors in the manufacturing sector have already launched projects worth a total of KZT55.1bn," Maselov tells bne.

Two of the first investors were in the rail sector, where Kazakhstan's national rail operator Kazakhstan Temir Zholy is carrying out a multi-billion-dollar investment programme. GE Transportation opened a locomotive assembly plant in the city under a joint venture agreement with KTZ in late 2010, which was followed by Tulpar Talgo, a joint venture between KTZ and Spain's Talgo to produce railway carriages. By the end of 2012, a third factory is due to be set up under an agreement with France's Alstom.

Investments are also being made into other sectors. "Under the plan for further development of the Astana New City SEZ, we have a new set of priorities for the industrial park, including production of machines, electronics and instruments, chemicals and pharmaceuticals, and in the energy and [nformation, communications and technology] spheres," says Maselov. "We will be actively working to attract international companies to these areas."

The industrial park is now being expanded, and a new innovation park added. In total, the SEZ is being expanded from 7,093 hectares to 7,562. This will require extending infrastructure for roads and utilities to new areas as Astana - whose population has more than doubled from around 300,000 in 1997 to 775,000 in June 2012 - expands out onto the steppe. While the new city does not yet have the transport problems of Kazakhstan's congested former capital Almaty, the city planners are also investing into a high-speed light railway for the city; along with the Abu Dhabi Plaza, this is the largest ongoing investment in the city.

The light railway will cost a total of KZT355.8bn to build. Construction of the first stage of the 42.1-kilometre-long railway started this year, and will connect the airport to the Abu Dhabi Plaza, with additional lines planned between the plaza and the railway station. To fund the second and third stages, there are plans to approach international financial organisations, Maselov says.