Kazakhstan's consumer markets are small by comparison with the markets of Europe and Asia. Consequently, most manufacturing focuses on primary commodities for export rather than on the production of consumer goods to meet domestic demand. The service sector in Kazakhstan is large and growing in the major municipal areas. However, the service sector is limited by the relatively small size of the markets and the fact that Kazakhstan's urban population is concentrated in only 10 major towns that are located at great distances from one another.
Kazakhstan's retail sales and service markets have been underdeveloped for many years. As a result of the heavy emphasis on primary commodities, little attention was paid during the Soviet period to consumer goods and services. After Kazakhstan became independent, new laws and regulations made it possible to open private businesses offering consumer goods and services. The small service sector surged ahead as business people began offering services, such as car repair, housing construction and improvement, real estate services, legal services, beauty shop services, and other small businesses that did not require substantial investment.
Because few consumer goods, such as processed foods, small appliances, clothing, and beauty products were produced in Kazakhstan, people had to import them. For a brief period of 2 or 3 years after independence there was a remarkable amount of growth in the import of clothing and household consumer goods that was conducted by shopping tours. These were trips made by individuals either by car, plane, or train to foreign countries such as the United Arab Emirates, China, or Turkey in order to purchase and bring back to Kazakhstan for re-sale large quantities of goods which are imported as luggage. In 1997 government customs agents began to apply import taxes to these goods, thereby discouraging much of this activity. In addition, because the transaction costs of such economic activity is very high, the market for these goods was eventually taken over by shipping and hauling companies that could import large volumes of foreign-made consumer goods.
While Kazakhstan is a country possessing many areas of great natural beauty and potential, the tourist industry is still underdeveloped but growing rapidly. Kazakhstan's new capital, the city of Astana, has several recently constructed world-class hotels. Kazakhstan's other major city, Almaty, has numerous major hotels that cater to international travelers. But the majority of cities in Kazakhstan have few hotels that can offer tourists accommodations and travel services that are in accordance with international standards.
Kazakhstan's banking sector has undergone substantial restructuring during the decade of independence. During the period between 1997 and 2001 the number of banks in Kazakhstan went from 129 to 48 as many small and non-competitive banks went out of business, merged, or were acquired by larger banks. During this period of restructuring, Kazakhstan's banking sector won high marks from international institutions for its rapid adoption of international standards of policy and practice. But these standards have not yet succeeded in convincing international investors and Kazakhstan's citizens that the financial services that are offered by Kazakhstan's major banks are critical to business success and personal finance. The major banks have still not managed to attract major foreign investment. According to banking industry estimates, fewer than 3 percent of Kazakhstan citizens regularly use personal banking services such as checking and consumer credit cards. As a result, most small business transactions in Kazakhstan continue to be cash transactions.
Financial markets are those in which stocks, bonds, and other forms of investment and savings can be bought and sold. In the transition from a centrally-planned economy to a liberal economy , the growth of the financial markets is critical to success. Financial markets facilitate capital formation for businesses and governments and provide a means of profitable utilization of assets for investors. Efficient financial markets also encourage a lot of otherwise idle financial resources to circulate more freely in the economy, what economists refer to as high liquidity . A well functioning financial market is an engine of savings and investment for any free-market economy.
There was great expectation that Kazakhstan would be able to rapidly develop active and vital financial markets immediately after independence. A decade after independence, however, those expectations have not proved well-founded. Kazakhstan's capital markets and stock markets have not proved attractive to foreign investors. Foreign direct investment has been concentrated in a few sectors, particularly oil, gas, and minerals development. Kazakhstan's offering of government bonds has met with interest from investors primarily because investors have confidence that the Kazakhstan government, with its long-term expected revenues from the oil, gas, and mineral sectors, will continue to make good on its promise to pay off its state debt.