Astana Economic Forum 2013: Engaging Change by Embassy of Kazakhstan to the U.S.

An official publication of the Government of the Republic of Kazakhstan

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Editor Editor-in-chief Assistant editor Contributors

Jane Douglas Barry Davies Emily Eastman Wendy Atkins, Nigel Gibson, Jahan Hoggarth, Sarah Rundell

Art director Art editors Production and distribution manager Sales director Sales manager Sales executives

Jean-Philippe Stanway Herita MacDonald, James White Elizabeth Heuchan Martin Cousens Laurie Pilate Tatyana Bondarchuk, James Johnson, Alexander Smith

Managing director Chief executive

Andrew Howard Alan Spence

Chairman

Lord David Evans

President

Paul Duffen

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An official publication of the Government of the Republic of Kazakhstan Embassy of Kazakhstan to the United States of America, 1401 16th Street NW, Washington DC 20036, US Tel: +1 (202) 232 5488 www.kazakhembus.com

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ÂŠ 2013. The entire contents of this publication are protected by copyright. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means: electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher. The views and opinions expressed by independent authors and contributors in this publication are provided in the writersâ&#x20AC;&#x2122; personal capacities and are their sole responsibility. Their publication does not imply that they represent the views or opinions of the Government of the Republic of Kazakhstan or Newsdesk Media and must neither be regarded as constituting advice on any matter whatsoever, nor be interpreted as such. The reproduction of advertisements in this publication does not in any way imply endorsement by the Government of the Republic of Kazakhstan or Newsdesk Media of products or services referred to therein.

Astana Economic Forum 2013

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www.chandler.de

MODULAR BUILDINGS MEDICAL MODULES

In 2007 and 2010 Chandler was awarded to deliver construction modules for medical centers in 10 Russian cities for a Russian Government social project called “Health”. Chandler shipped a total of 2117 oversized construction modules, 415 trailers loaded with additional equipment and chartered 65 sea-river type vessels.

MADE IN KAZAKHSTAN

Our engineering, construction and shipping company offers a full range of services for the design, manufacture, delivery and installation of modular structures. We offer our customers a variety of modern, fire-safety building materials and technologies for metal and wooden structures, vinyl windows and up-to-date climate control and ventilation systems. We fully maintain interior fit-outs of residential and industrial premises from electrical to office furniture.

Chandler Hamburg, Germany info@chandler.de +49 40 23 80 17 – 0

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Chandler Moscow, Russia info@chandler.ru +7 499 68300 – 78

Chandler Houston, USA info@chandler-shipping.com +1 305 915 – 9655

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17 YEARS

OF EXPERIENCE IN INTERNATIONAL

TRANSPORT

Chandler GmbH is a medium-sized logistic company with its head office in Hamburg and international offices in Europe, USA, Russia and Central Asia. Our first priority is to meet the special requirements of our customers. The quality of service is ensured by our highly qualified employees and partners, and many years of international experience. We use the latest technologies in order to provide smart logistic solutions. We also take into account the major points of efficiency and environmental issues as well as specific quality standards and adherence to delivery dates. – Vladimir Nekhvyadovich, CEO Chandler Group

POWER PLANTS IN SIBERIA SURGUT

Delivery of energy equipment for the construction of two power plants in Surgut, located in Siberia for General Electric in 2009. 15,000 tons/45,000 cbm of equipment from 16 countries was delivered. Chandler built the Ro-Ro jetty and heavy duty road and rebuilt 2 Ro-Ro barges to unload super heavy cargo.

NIZHNEVARTOVSK

Delivery of GE energy equipment to Nizhnevartovsk, located in Siberia during 2011-2012. 1,600 tons/10,000 cbm of equipment was delivered. Chandler built the jetty that allows cargo up to 500 tons to be transshiped as well as Ro-Ro jetty and temporary road to the building area.

Chandler Antwerp, Belgium info@chandler-shipping.be +32 3 29866 – 50

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Chandler Almaty, Kazachstan almaty@chandler-shipping.com +7 727 316 37 90

Chandler Tashkent, Uzbekistan tashkent@chandler-shipping.com +998 71 230 70 24

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Contents

Forewords

14 19

Kazakhstan has a solid commitment to attracting investors, and the steps being taken at every level to drive growth are resulting in a more competitive economy

Nursultan Nazarbayev President of the Republic of Kazakhstan

Erlan Idrissov Minister of Foreign Affairs, Republic of Kazakhstan

Engaging change Astana is playing an increasingly important role in global affairs, economics and politics

Expanding the 2013 agenda

Taking stock: commodity prices in uncertain times Kazakhstanâ&#x20AC;&#x2122;s economy has performed well over the past decade, shaking off the effects of fluctuations in global commodity prices

Innovation: an economic driving force Rapid developments in technology are reinforcing growth across other sectors, with the support of infrastructure improvements

The benefits of financial regulation Kazakhstan is keen to foster strengthened financial regulation within its economy, having learned lessons from the 2008 financial crisis that rocked world markets

The Astana Economic Forum: overview

Climbing the economic tables

Driving social development Since independence, Kazakh government initiatives have driven down poverty rates and given rise to improved social well-being, while the countryâ&#x20AC;&#x2122;s economic health has been going from strength to strength

Kazakhstan: engaging in global markets

Taking the global stage Multilateral foreign policy is playing a major role in facilitating international trade and investment aspirations, boosted by long-term relationships with global corporations

Astana Economic Forum 2013

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Philip Morris International

One of the First Foreign Investors in Kazakhstan Philip Morris Kazakhstan continuously invests into its people and has spent more than $15 million on professional development of employees. More and more locals now work in top and managerial positions in the company, while about 30 Kazakhstani citizens are based in PMI afﬁliates outside Kazakhstan. In 2010, Phillip Morris Kazakhstan was recognized by the American Chamber of Commerce as having the “Most Innovative Employee Development Program in Kazakhstan”. Over the past 20 years, the company has contributed more

than $6 million to charitable programs with primary focus on rural areas. hilip Morris International (PMI) is the leading international tobacco company with products sold in more than 180 countries. In Kazakhstan, PMI

employs around 900 people and operates a state-of-the-art

This year marks PMI’s 20 years of investment and success in Kazakhstan. PMI is proud to have been a part of Kazakhstan’s thriving economic growth and is very optimistic about its future in the country!

factory in the Almaty region. To date, PMI has invested over $400 million in Kazakhstan. With its acquisition of Almaty Tobacco Factory in 1993, PMI is particularly proud of the fact that it is one of the ﬁrst foreign investors in the country. Currently, the company manufactures a wide range of wellknown international brands such as Marlboro and Parliament for a local sale and export to other Central Asian countries. Philip Morris Kazakhstan is a signiﬁcant tax contributor to the budget of Kazakhstan. Since 1993, the company has paid more than $1.4 billion in taxes and duties.

Philip Morris Kazakhstan LLP Established:

1993

Employees:

Approx 900

Business:

Tobacco industry

Parent Company:

Philip Morris International

1 Zhansugurov Street Ily district, Otegen Batyr Village 040700 Kazakhstan, Almaty Oblast, www.pmi.com

CONTENTS

Economic growth

A new dawn for the Kazakh economy Key financial indicators are displaying the benefits of rising domestic demand, which is linked to the government’s efforts to diversify Kazakhstan’s economy

Aiming for top grades Education is key to economic growth, and programs are being deployed across the country to develop a universal system of learning that meets Kazakhstan’s wider needs

Revitalizing healthcare Healthcare standards are rising and bold initiatives are set to improve health service quality in Kazakhstan, with the economy reaping the benefits of a healthy workforce

A decade of growth and regulatory reform has created conditions for a fast-growing telecommunications market. Askar Zhumagaliev, Minister of Transport and Communications introduces the article

Enabling the free flow of trade A free-trade agreement signed in October 2011 by leaders of eight CIS states is shaping the economic future of Kazakhstan and stimulating regional trade

Industry focus

105

Harvesting growth

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Energy projects get the green light

Mining global markets A wealth of mineral reserves are waiting to be explored in Kazakhstan, and new alliances will see the country’s mineral production become globally competitive

Bridging the gap: international trade flows Kazakhstan has a long-term objective of increasing both domestic and regional trade flows through the country, and infrastructure development is at the heart of this aim

Fields of gold: oil and gas set for expansion A look into the mega-scale oil and gas projects that are gaining momentum, with an introduction by Sauat Mynbayev, Kazakhstan’s Minister of Oil and Gas

Talking telecoms: the mobile frontier

With a steadily growing agriculture industry, Kazakhstan is well placed to bring economic stimulus to Central Asia through this sector, which employs 20 per cent of the labor force

To cater for rising domestic demand, projects to update energy networks are being stepped up across the country, while it is also engaging in a pioneering international energy initiative

Investment case studies

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114

Investing in Astana Case studies highlighting major companies that have established themselves in Astana and are enjoying success while contributing to the country’s flourishing economy

Index of advertisers Astana Economic Forum 2013

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ROADMAP AS COLLABORATIVE INDUSTRY STRATEGIC FRAMEWORK TO DRIVE TECHNOLOGY DEVELOPMENT VISION IN THE KAZAKHSTAN OIL AND GAS SECTOR Under the instruction of the President through FIC, over the past three years Shell has been leading the preparation of an industry-wide Technology and R&D roadmap for the upstream oil and gas sector in Kazakhstan. The objectives of this initiative have been to assist the government in formulating technology and research priorities, to ensure a coordinated industry approach to address technology challenges and to allow us to guide the 1% mandatory spend on local R&D. The road-mapping project has benefited from the input and guidance of the IOCs operating in Kazakhstan and from Kazakh companies and institutes, such as KMG, KING, KBTU and KazNTU. It has also included extensive engagement with other industry participants through a series of discussions, visits, joint studies, and highly interactive workshops. This collaborative approach can serve as a model for future interactions between the international and local operators, service companies and academia.

The road-mapping process achieved a number of important objectives. The industry collectively identified, screened and ranked the main technology challenges based on the potential benefits that will result if the challenges are adequately addressed. Potential technology solutions were also identified and assessed in terms of impact on solving the challenge and on attractiveness to the RoK, which included consideration of local industry and R&D opportunities.

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THE ROAD-MAPPING PROCESS IDENTIFIED VALUE STREAMS WHICH INCLUDE: 1 Short-term gains through faster and broader adoption of currently available technologies; 2 Mid-term gains through adaptation technologies being practiced in other parts of the world to the specific conditions in Kazakhstan; 3 Long-term gains through innovation and development of new technologies that will also support economic diversification objectives.

Roadmapping for strategy and innovation Aligning technology and markets in a dynamic world

Robert Phaal, Clare Farrukh and David Probert University of Cambridge, Centre for Technology Management

The in-depth review of the agreed top 15 technology challenges undertaken with the advice and input from KING and KMG resulted in the development of the specific topic roadmaps for each of the 15 challenges. The topic roadmaps help identify key actions that the Government can take to accelerate the uptake of key technologies, thus contributing both to the improved performance of the upstream oil and gas sector and greater opportunities for development of local capacity.

The technology road-mapping project and the extensive technical documentation that has resulted should serve as an invaluable starting point for a sustainable technology planning and implementation process to be jointly undertaken by industry and the Government. In this way, we can identify, evaluate and select among strategic alternatives for achieving agreed technological objectives, in line with the Government's overall vision.

The roadmap that has been developed presents consistent logical sequence of activities that will lead to greater opportunities for involvement of Kazakhstan companies, define the necessary technical skills, and identify R&D opportunities for Kazakhstan universities and technical institutes.

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FOREWORD

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Astana Economic Forum 2013

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FOREWORD

Nursultan Nazarbayev President of the Republic of Kazakhstan

ince gaining independence, Kazakhstan has developed its own model of social and economic growth and its efficiency has been confirmed by fair indicators and global ratings. The recently adopted Kazakhstan-2050 long-term strategy sets the goal of joining the ranks of worldâ&#x20AC;&#x2122;s 30 most developed countries. To achieve the goal, external factors have to be taken into account that are becoming increasingly important in todayâ&#x20AC;&#x2122;s world. Nevertheless, we believe it is essential to conduct a pro-active policy and contribute to addressing global challenges. The Astana Economic Forum (AEF), organized for the sixth time, is a handy tool in these terms. The AEF has already established itself as a prestigious platform to discuss topical economic issues and find effective solutions. The Forum gives an opportunity to engage politicians, business leaders and prominent experts in a substantive discussion that helps jointly find new approaches to galvanizing social development and long-term prosperity. The G-Global initiative is being successfully promoted as part of the Astana Economic Forum. Thus, the G-Global project is a practical example of a new system of global decision-making that empowers all states and members of the expert community to express their views on an equal basis. I have no doubt that the Astana Economic Forum will continue to serve as an efficient mechanism for multiplying intellectual potential and make its own practical contribution to enhancing the prosperity of all nations.

Astana Economic Forum 2013

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«Новые горизонты развития. Алматинский завод тяжелого машиностроения» Генеральный директор АО «АЗТМ» Едигенов Жетписбай Карибаевич

Алматинский завод тяжелого машиностроения является одним из лидирующих промышленных предприятий Республики Казахстан. АО «АЗТМ» – экспортно-ориентированный машиностроительный завод, производящий высокотехнологичную продукцию, динамично развивающийся и обладающий большим потенциалом роста. На предприятии налажен полный технологический цикл машиностроения: от переплавки металлолома до выпуска готовых изделий. Завод обладает солидной материально-технической базой, имеет сильный инженерно-технический центр, способный выполнять заказы любого уровня сложности. АО «АЗТМ» изготавливает металлургическое (коксохимическое, доменное, прокатное), нефтепромысловое, горно-шахтное, энергетическое, а также волочильное и прокатное оборудование. Предприятие является единственным в Казахстане производителем волочильных и

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General Director Yedigenov Zhetpisbay Karibayevich JSC “AZTM”

трубопрокатных станов различной модификации, входит в число мировых лидеров, производящих данное высокотехнологичное оборудование. АО «АЗТМ» производит около 3500 наименований продукции и занимает 1/3 казахстанского рынка машиностроения. Завод оснащен современным высокопроизводительным оборудованием и сертифицирован на соответствие требованиям ISO 9001-2008. Предприятие имеет ряд престижных международных и правительственных наград. Продукция завода хорошо зарекомендована в более 40 странах мира. Оборудование АО «АЗТМ» работает на всем пространстве СНГ, а также во многих странах дальнего зарубежья, среди которых США, Канада, Германия, Великобритания, Франция, Япония, Южная Корея, Китай, Индия, Турция и др. Предприятием проводится активная работа по развитию своего потенциала, модернизации и расширению производства. АО «АЗТМ» входит в число участников реализуемой в Казахстане масштабной Государственной программы форсированного индустриальноинновационного развития («ГПФИИР»). Прилагаются существенные усилия по выведению предприятия на качественно новый уровень развития. Данное обстоятельство приобретает особую актуальность в связи с необходимостью повышения конкурентоспособности предприятия в условиях работы в рамках Таможенного Cоюза, предстоящего формирования Единого Экономического Пространства

с Россией и Белоруссией, а также вхождения Казахстана в ВТО. В этой связи предприятием была разработана стратегия среднесрочного и долгосрочного развития, направленная на масштабное техническое перевооружение и освоение новых видов деятельности. В соответствии с данной стратегией планируется реализация ряда крупных проектов с участием казахстанских и зарубежных компаний. В частности, на базе АО «АЗТМ» совместно с немецкой компанией «TransTec Vetschau F&E UG» планируется организовать производство штампосварных тележек для грузовых вагонов. Кроме того, совместно с фондом «Самрук-Казына Инвест» планируется модернизировать литейное и обрабатывающее производства завода с целью расширения номенклатуры выпускаемого энергетического и нефтепромыслового оборудования. Также в перспективе планируется строительство качественно нового предприятия замкнутого производственного цикла в индустриальной зоне «Алатау», неподалеку от г. Алматы. Поскольку бренд «АЗТМ» хорошо известен в Японии, куда предприятие поставило 27 трубопрокатных станов для изготовления тонкостенных и особотонкостенных труб, проводится активная работа по дальнейшему расширению деловых контактов и налаживанию новых производственных связей с японскими компаниями. Серьезный интерес к деятельности казахстанского завода проявляет одна из ведущих компаний Японии – “Mitsubishi Corporation”. Многолетний производственный опыт, солидный пакет деловых связей, профессионализм трудового коллектива АО «АЗТМ», а также расширяющиеся перспективы в новых реалиях позволяют уверенно развиваться и с оптимизмом смотреть в будущее.

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New horizons of development: the Almaty Heavy Machinery Plant The Almaty Heavy Machinery Plant is one of the leading industrial enterprises in the Republic of Kazakhstan. JSC AZTM is a dynamic and exportoriented engineering plant that produces high-tech products. It has great potential for big growth. The full technological cycle of engineering, from melting scrap to completed products, has been developed at the enterprise. The plant has a sufficient material base and also a fully equipped engineering and technical center that can carry out the orders of any complexity. JSC AZTM produces metallurgical (coke-chemical, blast furnace, rolling), oilfield, mining, energy, as well as drawing and rolling equipment. The company is the sole producer in Kazakhstan of wire-drawing and tube-rolling mills of various modifications, and one of the world leaders in producing this high-tech equipment. JSC AZTM produces about 3,500 items and takes one third of the engineering market in Kazakhstan. The plant is equipped with modern efficient equipment. It is certified for compliance with ISO 9001-2008 standards. The company has a number of prestigious international and top government awards. The plant products have a wellestablished reputation in more than 40 countries worldwide. Different kinds of the produced equipment operate in the CIS, as well as in many foreign countries, including the USA, Canada, Germany, Britain, France, Japan, South Korea, China, India, Turkey, etc.

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Nowadays, a lot of work on developing its potential, modernization and expansion is carried out on the enterprise. JSC AZTM also takes a part in the implementation of the major Kazakhstan State Program of Forced Industrial-Innovative Development (SPFIID). In addition, there are significant efforts to elevate the company to a new level of development. This fact is especially important due to the necessity of joining the WTO, and to improve the competitiveness of the company in terms of the Customs Union and the significant forthcoming formation of the Common Economic Space with Russia and Belarus. In this regard, we have developed a strategy of medium- and long-term development, aimed at large-scale modernization and the development of new businesses. In line with this strategy, the implementation of several major projects with domestic and foreign companies is being discussed. Particularly, JSC AZTM along with the German company TransTecVetschau F & E UG are planning the production of bogies for railroad freight cars. Moreover, in partnership with the Fund Samruk-Kazyna Invest, there is going to be a modernized foundry and manufacturing plant in order to expand the range of produced energy and oil field equipment. Also, there are plans to build a brand new company of full production cycle in the Alatau industrial zone, near Almaty city.

Since the brand AZTM is well known in Japan, where the company has set 27 tube-rolling mills for the manufacturing of thin-walled and high thin-walled tubes, the further work to expand business contacts and establish new industrial relations with Japanese companies is in the active phase of its progress. As one of the leading companies in Japan, Mitsubishi Corporation, takes serious interest in the Kazakh plant. Many years of production experience, a respectable package of business contacts, the professional workforce of JSC AZTM and increasing prospects in the new reality provide us with steady development and make us optimistic about the future. 050009 Republic of Kazakhstan Almaty 189 Tole Bi Street Tel: +7 727 250 82 05 +7 727 250 82 07 Fax: +7 727 379 11 70 E-mail: marketing@aztm.kz www.aztm.kz

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FOREWORD

Erlan Idrissov Minister of Foreign Affairs, Republic of Kazakhstan

extend a very warm welcome to the friends and partners of this sixth dialogue of the Astana Economic Forum. Kazakhstan is a country blessed with a diverse and dynamic population, and our host city of Astana is a great symbol of this hub of culture, heritage and tradition. In 2011, Kazakhstan celebrated the 20th anniversary of its independence, and I am proud that we continue to work tirelessly to promote regional and global relationships, which foster peace, security and economic prosperity. It is our pleasure to host this platform of international and regional dialogue. The Forum can trace its roots back to 2007, when President Nursultan Nazarbayev took steps to facilitate the economic integration of the Eurasian community. The years in between have witnessed mounting activity in our efforts to encourage broad international economic cooperation, and preparations for this yearâ&#x20AC;&#x2122;s Forum have seen a swell of activity. Work has involved creating programs for the Forum and for the first World Anti-Crisis Conference, as well as identifying speakers and inviting participants. I am in no doubt that the effort will certainly be worth it. Shared values and mutual support have become cornerstones in the mounting integration of the Central Asian region, and Kazakhstan has acknowledged the importance of integrating itself more broadly in the international community. Kazakhstan is a force for stability throughout the region, and our work is ongoing to achieve strategic relations with our global neighbors. This yearâ&#x20AC;&#x2122;s Forum offers a great and timely opportunity for exchanging views on the changes and events that are occurring globally. We are in the midst of a number of simultaneous shifts â&#x20AC;&#x201C; the multilateral system is changing, and the global economy remains under much stress. Non-state and transnational actors are threatening the stability and sovereignty of states. Yet some of these changes bring opportunities. Shifts create space for new actors, which may provide new platforms for cooperation and solidarity based on common values and ideals. This year we will see the new G-Global platform in action. It is an exciting arena for dialogue, established with the aim of initiating and maintaining an international discussion on global development, and we are proud of the network established so far. Certainly, the platform serves to continue our work in finding and highlighting robust, long-term solutions for the future world through open and profound debates. The Forum is an opportunity to look at new ways of achieving good governance, and how best to promote growth, sustainable development and achieve more swiftly the aspirations of the people. In this spirit, I welcome the world to Astana, and look forward to the discussions to be had and decisions that will be made in our drive to achieve greater global integration.

Astana Economic Forum 2013

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бизнесу комфортно в евразийском экономическом пространстве Думаю, известное выражение «бизнес не имеет границ» с созданием Таможенного союза стало особенно верным в отношениях России и Казахстана. Уже заложен организационно-правовой фундамент для работы бизнес-структур там, где рынок обеспечивает наиболее благоприятные условия. Могу утверждать, что накопленный нами опыт выхода на казахстанский рынок уверенно подтверждает эту мысль. С целью постоянного присутствия, а не «гастрольных поездок» в Казахстан мы создали дочернюю структуру со знаменательным названием «Форпост», которая будет реализовывать инвестиционные проекты и программы в этой исключительно динамично развивающейся стране. Нет сомнений, что Казахстан может стать новой точкой роста для нашей публичной компании, а привлечение и использование передового опыта ведения бизнеса на тех направлениях, на которых существует рыночная ниша, даст нам возможность занять лидирующую позицию. Компания уже наметила целый ряд перспективных проектов в различных отраслях экономики Республики. Весьма интересным для нас представляется возможное участие входящих в АФК «Система» высокотехнологических компаний, таких как концерн «РТИ», «NVision» и «Ситроникс», совместно с национальным космическим агентством Казахстана в реализации намеченной Президентом Республики весьма амбициозной задачи по скорейшему выведению Казахстана в число передовых космических держав. С учетом особого места Казахстана в мировом банке натуральных ресурсов, мы планируем участвовать в тендерах на их разведку и добычу, имея в виду как твердые ископаемые, так и углеводородное сырье. Предметом нашего пристального внимания является и географическое положение Республики, а также связанные с этим вопросы развития логистических направлений бизнеса, включая строительство

Евтушенков В.П. Председатель Совета директоров Корпорации «Система» (Россия)

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Vladimir P. Yevtushenkov Chairman of the Sistema corporation (Russia)

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и реконструкцию автомобильных и железнодорожных магистралей, грузовых терминалов и контейнеризацию перевозок. Мы готовим предложение Правительству Республики о модернизации системы оптовой торговли и переработки зерновой продукции Казахстана. Наши интересы связаны и с развитием отечественной фарминдустрии и разработкой и производством современного медицинского оборудования в Казахстане. Безусловно, не менее обширные замыслы по взаимопроникновению на рынки стран Таможенного Союза имеют все крупные российские и

казахстанские бизнес-структуры, ведь перед нашими странами стоят во многом совпадающие задачи. Особенно впечатляют перспективы использования геополитического фактора развития наших экономик. Благоприятное географическое расположение наших стран вдоль меридиана от Арктики до Аравийского моря служит актуальной предпосылкой формирования «меридианной экономики» в дополнение к «широтной» и, соответственно, определяет потребность в масштабных транспортных, информационных и телекоммуникационных услугах. Рыночные механизмы диктуют необходимость действовать сообща. В связи с этим важнейшим направлением

создания благоприятного предпринимательского климата является выработка единых подходов и унификация многих деталей ведения бизнеса в рамках гражданского, налогового, административного законодательства стран. На географической карте наши страны – соседи на протяжении более 7,5 тыс.км. Цифра весьма впечатляет! Очень важно выработать «Дорожную карту» бизнес-отношений, которая не столько указывает возможные препятствия на пути реализации инвестпроектов, сколько устраняет их, создавая синергию возможностей. Единое экономическое пространство позволяет рассчитывать на совместное создание такой карты.

Eurasian economic space – comfortable for business After the Customs Union emerged, the expression “business has no borders” acquired a new meaning in Russian-Kazakh relations. The legal framework is in place, the level playing field is ready. We are both witnesses and participants of this process. Seeking to have a firm footprint in Kazakhstan rather than a series of road shows, we established a subsidiary with a very special name – Forpost (the Outpost), which will realize investment projects and programs in this dynamically growing country. Kazakhstan can undoubtedly become a new platform for growth for our publicly listed company, while the advanced business experience in particular niche markets gives us leadership opportunities. Forpost has already penciled in a few projects within various sectors. We are considering potential joint participation by high-tech AFK Sistema companies such as RTI, NVision, and Sitronics with the national airspace agency Kazkosmos in fulfilling a very ambitious mission that was indicated by the President of the Republic to accelerate Kazakhstan’s membership in the club of space superpowers. In view of Kazakhstan’s special place in the world’s bank of natural resources, we plan to participate in exploration and

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production tenders, as well as pursuing the related logistics development opportunities, including construction and reconstruction of roads and railways, cargo terminals and container shipments. We are preparing a proposal for the Government of the Republic regarding the modernization of grain wholesale and processing systems in Kazakhstan. Our interests are also dedicated to the development of the national pharmaceuticals industry, to the design and manufacture of the advanced medical equipment in Kazakhstan. Undoubtedly, similarly ambitious plans are shared by other major Russian and Kazakh businesses, which are seeking to pursue opportunities to consolidate penetration efforts in the Customs Union markets – as our countries face quite similar challenges. The geopolitical potential of our economies is huge. Our countries conveniently lie along the meridian that spans from the Arctic to the Arabian Sea. A ‘Meridian Economic’ development factor can be added to the latitudinal one. This calls for immense sector growth in transportation, information and telecommunications. The market conditions call for a united action. A basis upon which a favorable entrepreneurial environment could be created is a universal set of approaches

that unify a variety of business issues within the framework of civil and tax codes, and administrative regulations of the two countries. Geographically, our countries are neighbors along a 7.5 km borderline – what an impressive figure! It is therefore essential to work out a Business Relations Roadmap, which – instead of pointing at major roadblocks stalling the investment projects – will rather remove them, creating a synergy for growth. The common economic space gives us hope that such a roadmap can become a reality. JSFC Sistema 13 Mokhovaya Street Moscow 125009 Inquiry Desk: +7 (495) 737-0101 www.sistema.ru

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THE ASTANA ECONOMIC FORUM: OVERVIEW

Astanaâ&#x20AC;&#x2122;s geopolitical positioning makes it the ideal host for a global economic forum

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Engaging change

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THE ASTANA ECONOMIC FORUM: OVERVIEW

Astana, Kazakhstan’s capital city, is strategically placed at the heart of Eurasia, enabling it to play a pivotal role in regional and global affairs. Since the 1990s, the city – and the nation itself – have played an increasingly important role in the world of politics and economics, aiming to engage change globally

azakhstan has worked to create regional economic alliances, forging links with the Commonwealth of Independent States, the Eurasian Economic Association, the Central Asian Economic Association and the Shanghai Cooperation Organization. Kazakhstan is also working with organizations that promote peace and economic prosperity, for example the Collective Security Treaty Organization, NATO’s Partnership for Peace program, the European Union, the Organization for Security and Co-operation in Europe, the Economic Cooperation Organization, the United Nations (UN), and the Organization of the Islamic Conference. Since independence, President Nursultan Nazarbayev has been instrumental in extending Kazakhstan’s influence, both regionally and further afield, for example he helped to establish the Conference on Interaction and Confidence-Building Measures in Asia. More recently, the government, along with the Eurasian Economic Club of Scientists Association (EECSA), created the Astana Economic Forum (AEF), a notfor-profit organization that, since 2008, has grown into a major regional and international platform for dialogue.

History The AEF has its roots in the early 1990s, when President Nazarbayev proposed a series of Eurasian integration initiatives, including the formation of the EECSA in order to encourage Eurasian economic integration. In 2007, Kazakhstan’s Ministry of Economy and Budget

Planning and its Economic Research Institute turned President Nazarbayev’s recommendation into a reality through the creation of the EECSA. The club includes among its ranks economists of international repute as well as influential government and business leaders. Today, AEF events are mainly organized by the EECSA and the Kazakh government. Several countries and international organizations are also involved, including the World Intellectual Property Organization, the Samruk-Kazyna National Welfare Fund, the Reinventing Bretton Woods Committee, Club de Madrid, the UN Economic and Social Commission for Asia and the Pacific, the UN Industrial Development Organization and the UN Economic Commission for Europe.

Mission The AEF aims to provide economists and other key experts, as well as representatives of the public, with a platform to discuss and find solutions to Kazakhstan’s and the world’s socioeconomic, legal and cultural issues, and to debate world economic development. In addition, the AEF makes economic development, growth and sustainability recommendations to the countries taking part in the forum as well as the Group of Twenty (G20) nations. The AEF’s other goals are to attract potential investors and partners to help with development projects; to contribute to the country’s overseas investment; to organize discussions, debates and meetings for forum participants as well as top-level officials; to organize events

focusing on the signing of memoranda and agreements by forum members; to encourage the development of information communication technology; to improve the Kazakh business and investment climate; and to contribute to the development of the country’s tourism infrastructure.

Fifth AEF During the Fifth AEF, held in 2012, the agenda focused on the challenges of – and prospects for – global economic recovery and development in the 21st century. More than 5,500 delegates representing 93 countries took part in events that culminated in more than 50 memorandums of understanding and cooperation agreements. During his opening remarks at the event, President Nazarbayev proposed a new online dialogue format for the forum along the lines of the ‘G-Global’ multifunctional internet platform project. President Nazarbayev said: “In just a few months, more than 30,000 users from 140 countries have registered on G-Global’s official website to discuss innovation, nuclear and environmental safety, ethnic and religious tolerance, and other aspects of geopolitics.” In order to ensure that developing countries have a stable and secure foundation, President Nazarbayev proposed five fundamental principles of international order, which he claimed would act as a guide for all states in the new century. President Nazarbayev added that: “Constructive economic development, in my opinion, can only be built upon five principles. These are the principles of the G-Global community.” One of the AEF’s most important achievements was the creation of recommendations for G20 countries, which were based on work by the Mexican G20 presidency in 2012. In June 2012, the recommendations were

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THE ASTANA ECONOMIC FORUM: OVERVIEW

The Fifth Astana Economic Forum addressed the challenges of global financial recovery

presented at an informal plenary session of the UN General Assembly, and were transferred to the General Secretary, Ban Ki-moon, the then President of the General Assembly of the UN, Nassir Abdulaziz Al-Nasser, and the Mexican Sherpa to the G20, Lourdes Aranda. Participants in the forum agreed that the formation of the G20 has significantly expanded the range of dialogue on reforming the global economy. However, they said that the

G-Global online The G-Global (www.group-global.org) online forum was set up by President Nazarbayev as a platform through which anyone can discuss global economic and financial systems. Governments can add their ideas to G-Global for debate, as can individual members of the public, experts and scholars. It operates in conjunction with the AEF website. According to the EECSA, the site gets more than 9,000 hits a day. The economic analysis site is second only in popularity to the Davos Economic Forum’s website, and tops search indexes.

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format now seemed inadequate. AEF made a raft of recommendations to G20 leaders that covered: 1) Economic stabilization and structural reforms as foundations for growth and employment; 2) Strengthening the financial system and fostering financial inclusion to promote economic growth; 3) Improving international financial architecture in a world that is highly interconnected; 4) Enhancing food security and addressing the volatility of commodity prices; and 5) Promoting sustainable development, green growth and the fight against climate change.

Sixth AEF This year, the Sixth AEF event expects to welcome 8,500 delegates from 100 countries. They will hear presentations from speakers including current and former heads of state, leading executives of international corporations and associations, economists, Nobel laureates and representatives of mass media from around the world. The forum will focus on five economic trends that are prevailing: ■ Commodity price setting and economic growth in 2013;

■

■ ■ ■

Infrastructure, innovation and technology; Global competitiveness; Social development; and Financial systems, risks and policy response.

The event is also set to feature what has become known as ‘dialogue of global leaders’, in addition to a number of individual interviews. Television debates are to become a standard element of the forum over the coming years. One of the highlights of the Sixth AEF will be the World Anti-Crisis Conference, which is being held in cooperation with the UN. The conference will discuss, formulate and sign the UN’s draft World Anti-Crisis Plan. The forum also intends to adopt an open letter to UN member states with recommendations for how they can help improve and develop the world economy. This will also be sent to the organizing committees of the G8 and G20 summits, the International Monetary Fund, the World Bank, the UN and the Organisation for Economic Cooperation and Development. The recommendations put forward by the AEF will be developed by leading experts in international economics, finance and communication through the G-Global virtual platform.

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EXPANDING THE 2013 AGENDA: GLOBAL COMMODITY PRICES AND GROWTH

Taking stock: commodity prices in uncertain times Global commodity prices and GDP figures are intertwined, with the price of raw materials tethered to the health of consumer markets and government spending. This can create instability for economies built on exports, yet Kazakhstan has so far navigated the financial crisis with relative success

ver the past decade, Kazakhstanâ&#x20AC;&#x2122;s economy has performed well, enjoying an average annual growth rate of nine per cent. Despite feeling the effects of weaker global demand stemming from global financial difficulties, the country has been recovering well from the economic recession, which particularly affected the rate of gross domestic product (GDP) in the first half of 2009. At this time, GDP

growth was indexed at just 1.2 per cent, and the sudden fall of oil and commodity prices thrust Kazakhstan into a recession. Yet recovery was attainable, and the International Monetary Fund (IMF) ranked Kazakhstan in the top-10 fastest-growing countries in the world. The increasingly interconnected nature of economies in a globalized world means that fluctuations in commodity prices have wide-reaching effects. Commodity prices have fallen

this year as modest economic growth fails to rouse sufficient demand to keep pace with the production of raw materials. In April, the International Monetary Fund announced a reduction in its estimates for world economic growth in 2013 to 3.3 per cent from its initial forecast of 3.5 per cent. Its eurozone predictions also worsened to a 0.3 per cent contraction. This revised forecast registered that China had recorded slower growth than was expected, which combined with disappointing financial data from the US and the continuing eurozone crisis, sent shivers through the stockmarkets, leading to a sell-off of commodities at low prices. Gold, oil and copper rates in particular were hit by the effects of the

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EXPANDING THE 2013 AGENDA: GLOBAL COMMODITY PRICES AND GROWTH

diminished growth outlook, reflecting the volatile nature of commodity prices, which are closely linked to global economic health and in particular the prospects of emerging economies, whose rapid infrastructure and market expansion drive demand.

The impact of price volatility China and the European Union are key export markets for Kazakhstan’s commodities, so their levels of demand for metals and oil will especially affect the country’s price risks. And it is the high revenues generated by commodity exports that have driven Kazakhstan’s economy over the past 10 years.

world markets and global affairs is also essential in anticipating and satisfying demand for domestic materials and products, and Kazakhstan has so far managed this task well. During the height of the global financial crisis Kazakhstan largely avoided global currency fluctuations, with its central bank managing to keep the real exchange rate of the tenge against the US dollar more or less flat. The expansion of imports, increased inflows of foreign direct investments and private-sector borrowing enabled the capital and financial account to remain healthy, and as a result the total international reserves of the government and the central bank rose by $13 billion during 2012, reaching 43 per cent of GDP, according to the World Bank. Further action was taken during this time to stimulate the economy, with monetary easing deemed an appropriate method of coping with the global economic downturn as the effects of GDP slowdown and low inflation began to emerge. The central bank cut its policy interest rate and the National Bank of Kazakhstan reduced the official refinancing rate, and resultant figures showed that consumer prices rose by six per cent during 2012. In January 2010, a Customs Union was established between Kazakhstan, Russia and Belarus. The establishment of a Customs Union involved doubling the weighted average tariff and augmenting tariff dispersion. A resultant rise in protection may take its toll on efficiency for Kazakhstan as a country reliant on imports of capital goods, but that should be balanced by the benefits of trade facilitation, says the World Bank.

A widespread drought caused grain prices to soar in 2012, putting food price security high on the agenda of both Kazakhstan and global organizations

Commodity prices are closely linked to global economic health From an import perspective, however, reduced commodity prices can stimulate growth in struggling economies by alleviating inflationary pressures, and the reduced rates of commodities such as gold present a good purchasing opportunity for the central banks of emerging economies. Kazakhstan has worked hard to diversify its economy, which has sheltered it to a degree from commodity price fluctuations. The services sector now plays a large role in economic success and helps to retain revenues from commodity exports within the country. This year, the country’s GDP is predicted to grow by five to six per cent. Kazakhstan is the largest economy in Central Asia and is widely regarded as its hub of expansion and growth. Yet, despite overall growth, Kazakhstan has registered the effects of recession, with a 1.5 per cent decline in metallurgy, reflecting reduced demand, while agriculture has seen a 17.8 per cent decline, which is attributable to unfavorable weather conditions. Globally, food prices are set to drop by 3.2 per cent, but extreme weather could drive unexpected increases in the price of wheat and corn. Monitoring

International trade For the past few years, Kazakhstan has been working towards becoming a member to the World Trade Organization (WTO), which supervises and liberalizes the process of international trade through a framework that negotiates and formalizes trade agreements. The regulation of Kazakhstan’s trade deals

is expected to develop the country’s tariff structure through downward adjustments in external tariffs of the Customs Union, according to the World Bank, and accession is anticipated by the end of 2013. The World Bank also reports that bilateral negotiations are now at an advanced stage, although discussions are ongoing on topics including Kazakhstan’s investment regime, government procurement practices, the application of tariff-rate quotas, import licensing procedures and intellectual property protection. Kazakhstan’s oil and gas industries contribute considerably to its economy, and it remains one of the world’s top oil- and gas-producing countries. The potential growth of the industry

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EXPANDING THE 2013 AGENDA: GLOBAL COMMODITY PRICES AND GROWTH

Looking at other commodity markets, 2012 brought with it a drought that impacted grain-producing countries globally. Kazakhstan has subsequently implemented strategies to protect itself from rising prices in this sector. Measures already in place include the Agribusiness-2020 program, which seeks to drive a considerable rise in domestic subsidies and agricultural investment that will increase labor productivity and enable Kazakhstan to remain competitive under challenging global conditions. It is anticipated that sustained competitiveness will make the agro-industrial sector more attractive and less risky for investors and agricultural workers.

Improving trading systems

is enormous, and plans have been outlined to increase production of oil by at least 60 per cent by the year 2020, with a particular focus on increasing its supplies to expanding Asian markets. Yet Kazakhstanâ&#x20AC;&#x2122;s economy is the most diversified in the Central Asian region, also possessing good potential for growth in other industries. Kazakhstanâ&#x20AC;&#x2122;s efforts to increase its presence in international commodity markets are crucial in achieving sustainable growth within its industries, and the government is continuing to build up fiscal reserves in the oil fund and working to keep spending under control. The World Bank reports that government spending has been on a stable trend of about 22 per cent of GDP over the past three years.

From a global perspective, the price and supply of oil and gas has been volatile in recent years. Access to reserves has been a key issue, with political constraints and high competition for proven reserves creating a difficult environment. In 2011, the unrest in the north African region and the Middle East resulted in a surge in oil prices, and the ongoing effects of the Arab Spring on global supplies remains a concern for the industry as well as importers. Increased awareness of climate change worldwide and the uncertainty surrounding energy policy continue to spark global debates, while environmentalists, governments and stakeholders, all with conflicting opinions, are driving pressure.

However, food prices worldwide remain high and volatile, putting much pressure on governments to engage in coordinated international action. At Rio+20, world leaders have pledged to increase sustainable agricultural production and productivity globally. Improving the functioning of markets and trading systems, strengthening international cooperation while promoting an open, universal and equitable multilateral trading system will have a positive effect on global food security and encourage stable prices. Kazakhstanâ&#x20AC;&#x2122;s economy is becoming increasingly flexible and efforts are unwavering in its transformation from planned economy to market economy, with substantial and momentous structural and institutional reforms being made. The stability of oil supplies from Kazakhstan coupled with a solid track-record in other commodity exports has boosted these sectors and augmented the inflow of FDI, causing a corresponding rise in income per capita. The country has managed to sustain strong economic performance, with employment expanding gradually and social indicators improving. Crucially, Kazakhstan has maintained a strong fiscal position and its development is positive. Overall, growth prospects are encouraging, not only for Kazakhstan, but for the wider Central Asian region that benefits from a stabilized economy.

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EXPANDING THE 2013 AGENDA: INFRASTRUCTURE, INNOVATION AND TECHNOLOGY

Innovation: an economic driving force

The Kazakhstan government is funding hydro, wind and solar power plant construction in order to increase renewable energy capacity

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EXPANDING THE 2013 AGENDA: INFRASTRUCTURE, INNOVATION AND TECHNOLOGY

Kazakhstan is experiencing rapid development in the areas of innovation and technology, reinforcing growth in transport, communications and tourism. This is providing a boost to the economy, which saw a five per cent GDP increase in 2012

azakhstan’s mobile phone network is set to continue enjoying the rapid growth it has experienced over the past decade. Its quartet of mobile network operators – ALTEL, Beeline (VimpelCom), Tele2 and Kcell (TeliaSonera) – has seen a steady rise in subscriber numbers since 2007, with some almost trebling their customer bases. According to mobile industry experts Wireless Intelligence, there were just over 8.5 million connections in the second quarter of 2007. By the second quarter of 2012, this figure had risen to almost 23 million connections. There has also been good growth within the transport sector, thanks to government approval of a development strategy which spans 2006-15. This strategy, which aims to improve the national transport system through the creation of a first-class network, is being implemented in two phases, which span 2006-11 and 2011-15. As a result of such infrastructure modernization, and with an increasingly prominent world profile, Kazakhstan’s tourism industry is also expanding. Tourism grew in value by 58.3 per cent in 2010 to 194.6 billion tenge ($1.3 billion) compared with 122 billion tenge ($8 million) in 2009. The government’s commitment to developing the sector was set out in February 2013 by the deputy prime minister and minister of

industry and new technologies, Asset Issekeshev. According to Issekeshev, the government’s plans for tourism over the next seven-year period include the establishment of five national tourism clusters, in addition to four national and more than 20 regional projects. The minister also stressed that the development of tourism went hand-in-hand with improving the nation’s infrastructure.

Government input State investment and public-private partnerships are playing a vital role in the country’s growth. These are being promoted by the Kazakhstan PublicPrivate Partnership Centre (PPP), which was established in 2008 by the Ministry of Economic Development

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The government has been working behind the scenes to drive innovation with both regional and global partners and Trade. The center aims to have set up PPP projects accounting for 20 per cent of total investment in the country by 2020. It says that there are already a number of PPP projects running in Kazakhstan, including three urban infrastructure schemes in Astana; two energy projects in the Aktobe region; two focusing on health and social services and road transport in the Almaty region; two for education; two for railroad transportation in East

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Samsung Electronics – smart solutions for the enterprise market Samsung offers a wide range of smart B2B services in Kazakhstan and Central Asia – from mobile to visual display solutions, providing business professionals with the devices they desire and IT decision-makers with the solutions to secure and manage them.

A glimpse into the future of commercial displays

Giving the industry a glimpse into the future of commercial displays, Samsung’s latest digital signage products are costefficient solutions for businesses, built on the newly developed Samsung Smart Signage Platform powered by a System on Chip (SoC) semiconductor. For added convenience, Samsung’s MagicInfo Premium S software allows users to manage content and devices remotely – or via a remote control – within the network.

LFD solutions

n Enterprise & Corporate Big organizations, such as banks, mobile operators and government service providers, may increase awareness of their clients by using Samsung displays in front offices, and save cost by linking all displays to one network managed from one place, all over the world. Displays with touch function allow clients to get all necessary information in interactive mode without human involvement. Large size Samsung LFD displays may bring even more value and can be utilized as multi-functional devices for video conferencing, presentations (instead of projector) and interactive whiteboard.

in usage, saves energy and is simply manageable. Our video wall with a display joint of about 5.5mm (super narrow) can be a focus of any mall or shopping center. n Hospitality Successful hoteliers know that travelers expect in-room entertainment similar to what they experience at home. However, hotel owners and managers must control costs when investing in new displays. Finding an affordable mid-range in-room display with superior performance and a slim design can be a challenge. Samsung high-performing displays include many features hoteliers need at a reasonable cost. The slim, streamlined design of these displays contributes to a pleasant ambiance and superior viewing experience. The displays include content tools to simplify content management by hotel staff. In addition, the displays help reduce costs with enhanced technology and energy-saving features.

Premium IT solutions for consumers and businesses Increasing office productivity

n Printers Samsung offers a wide range of printers and multifunctional printers (MFP) both for home and office. Corporate solutions

are represented by high-performance printer models (approximately 20-40 pages per minute) with the monthly duty of up to 80,000 pages. Samsung printers and MFPs offer a number of additional functions such as eco printing, automatic duplex printing, fax, wireless and network printing as well as toner saving mode. n Monitors Samsung also boasts high-resolution monitors with slim and narrow design, brilliant picture quality with Full HD and wide viewing angle (178*). In addition, fast response time and connectivity provide for a better multimedia experience. n Notebook PCs Corporate requirements of maximum mobility, security and durability are ensured by Samsung’s high performing NPC models with a battery lifespan of up to 1000-1500 cycles. Recently the technological giant has presented new laptop models that can also be transformed into tablets; and all-in-one desktop PCs with the possibility of touch, voice and gesture control. Those looking for simple navigation, speed, accuracy, maximum mobility and performance coupled with sleek design, will be delighted with Samsung’s ultra-thin series 9 laptops.

n Transportation Airports and railways are working 24 hours and seven days per week – Samsung professional LFD displays may work in the same range and further. The energy efficiency of LED technology allows huge savings in e-bills, and outdoor displays will provide information to passengers even if they are outside, in all weather. n In public Digitalization came to the print advertising market. Samsung digital signage solutions may replace all light boxes and bill boards. Current technologies allow a change from analogue to digital, which is cheaper

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Encrypting mobile devices

With the trend towards BYOD (bring your own device) affecting 82 per cent of business users, one of the most challenging tasks for IT decision-makers is to securely encrypt and manage employees’ mobile devices while allowing them to communicate effectively, increase productivity and use their mobile devices to access enterprise assets. Samsung is not only designing and delivering devices that delight the user and bring richness to their personal life, but is also helping the CIO (chief information officer) to solve the challenge of BYOD where device choice can no longer be mandated by a company’s IT department. In 2011, Samsung launched the Samsung Enterprise Alliance Program (SEAP) with Independent Software Vendors (ISV)

SAMSung hAS A nuMbER oF SolutionS FoR DEploying MobilE buSinESS EnviRonMEntS FoR EntERpRiSE cuStoMERS Mobile security – Protects mobile enterprise environment and companies securely. It provides the entire security ranging from encryption-protecting data in mobile devices to VPN solutions, enabling secure access to corporate networks anytime, anywhere. unified communications – Collaboration solutions help share ideas and documents between users anytime, anywhere. It features online meeting, mutual feedback sharing and instant messaging capabilities for collaboration. Message management – Synchronizes messages from Samsung mobile devices to tools used in delivering enterprise information. It automatically synchronizes emails, schedules, contacts and to-do lists wirelessly. It enables users to view messages while traveling, which translates into increased productivity. network compatibility – Provides improved performance and security to mobile business applications. It delivers advanced wireless network functionality in a WLAN environment, and reliability, security and improved VoIP in wireless network environments. virtualization – Deploys the virtual-office environment using mobile devices, giving an uninterrupted connection to enterprise data and a virtual desktop environment and enabling key business environments in your mobile devices. It provides industry-specific solutions for implementing the mobile business environments of corporate customers. Education/Samsung Smart School – With Samsung Galaxy Tab, teachers can monitor and control students’ use of their smart devices, maximizing the learning effect from interactive classes. During the class, students can give questions and instantly receive feedback from the teacher using the Samsung Smart School program. Education/Student Management Solution – A solution for teachers to prepare lectures in a student-moving environment. Teachers can identify students’ attendance through an RFID system, record students’ participation level, and manage students’ rewards and penalties. Teachers are also able to participate in teachers’ community, update and retrieve memos and the class schedule management, which helps teachers to achieve efficient class management, guide and consulting. healthcare/Mobile EMR – Medical staff can access information systems such as EMR and PACS via Samsung Galaxy Tab. The devices can help provide more precise and visually enhanced data to patients at their bedside, significantly improving their satisfaction. Manufacturing/Smart Driving – With Samsung Smart Driving, Samsung tablet solution can be the core of the smart driving of vehicle drivers. It provides a customer-centric business opportunity to car manufacturers and a safe, comfortable option to drivers. professional Services/Restaurant Solution – The Restaurant Solution supports electronic menus, which can be upgraded and optimized smartly on Galaxy Tab. Customers enjoy the order process with visual menu information including clear menu pictures and more information about the dish and its ingredients. Restaurant managers can also enjoy menu creation and management processes with an easy menu-editing feature.

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to establish an ecosystem to develop and optimize ISV solutions on Samsung products. In 2012, Samsung began expanding the program to business partners who sell and provide services for its products. Samsung is committed to creating and supporting this partner ecosystem in order to ensure that it provides the best experience and drives growth for enterprise customers.

Major partnerships

Our partners span the IT ecosystem, helping CIOs to deploy end-to-end mobile enterprise solutions. Major ISV partners include Adobe, Box.net, Citrix, F5Networks, SAP, Symantec and VMware. The Samsung Enterprise Alliance Program is designed to systematically support ISVs and Sis (system integrators) that have their own B2B solutions and services on the technical, marketing and sales side. B2B solutions, contents and services of ISV or SI partners are the basis of the mobile B2B market. The various solutions of partners are the driving force and source of the mobile ecosystem. If Samsung overlooked this principle, it would not survive in the enterprise market. We designed this program in order to develop the mobile ecosystem where our partners help each other to grow their businesses and make profits. SEAP partners benefit from an opportunity to develop differentiated mobile solutions with best-in-class technical support from Samsung, to expand solutions through our global network and acquire sales and marketing support in order to expand the market and create business areas. Samsung Electronics KZ and Central Asia 3rd floor, 36 Al-Farabi Avenue, Financial District 050059, Almaty, Republic of Kazakhstan Tel: +7 727 321 12 12 Fax: +7 727 321 13 15 E-mail: b2b-kz@partner.samsung.com www.samsung.com www.facebook.com/SamsungKZ www.facebook.com/ SamsungMobileKazakhstan www.twitter.com/SamsungKZ

30/04/2013 16:24

EXPANDING THE 2013 AGENDA: INFRASTRUCTURE, INNOVATION AND TECHNOLOGY

Reuters

The Almaty metro system was opened in 2011. Projects such as this are stimulating tourism

Kazakhstan; and one in West Kazakhstan for road transportation. Others schemes include one within health and social services and two within education PPP in the Karaganda region; one for road transport, three for rail transport and one for airports in the Mangystau region; and one in South Kazakhstan that is supporting health and social services. Although Kazakhstan is well known for its wealth of natural resources, this has not stopped the government from targeting alternative energy and making innovation in this sector a priority. According to the government, the

country has significant renewable energy sources and capacity such as hydro, wind and solar. It has surveyed 10 sites for the construction of large commercial wind power plants (WPPs) which could generate a total of 1,000 mW. The government also says that research has revealed that the southern regions of the country have a capacity of 2,500 to 3,000 solar hours each year. In February 2013, Deputy Prime Minister Issekeshev announced plans to invest in the construction of hydro, wind and solar power plants to add 1,040 mW of renewable energy capacity by 2020.

These include building 13 wind power plants with a total capacity of 793 mW, 14 hydropower plants with a capacity of 170 mW and four solar power plants that are capable of producing 77 mW.

Solar power plants These plans all aim to build on the progress Kazakhstan has already made with renewable energy. In October 2012, BISOL Group announced it was installing a two mW turnkey solar power plant in Kazakhstan after signing a contract with investor Samruk-Energo to construct and install a ground-mounted and

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EXPANDING THE 2013 AGENDA: INFRASTRUCTURE, INNOVATION AND TECHNOLOGY

sun-tracking PV system in the city of Kapchagay, Almaty province. A spokesperson for BISOL reports that the winter in Kazakhstan was quite harsh in 2012/13, causing some delay to the project. However, the installation of the two mW PV power plant has now reached the final stages, and it is expected to be completed by 15 May 2013. The BISOL PV system will be in two parts: the main, eastern section will comprise 1,400 kW of BISOL monocrystalline PV modules that are mounted on a fixed-ground substructure; the north-west part of the plant will

consist of 61 solar trackers installed with 600 kW of the PV modules. Almasadam Satkaliyev, chairman of the board of Samruk-Energo says that the share of renewable sources in Kazakhstan’s energy mix should “rise from the current 0.5 per cent to 11 per cent by 2030”. Dr Uroš Merc, CEO of BISOL Group, adds: “Investing in solar energy offers great potential and the two mW BISOL PV system will be amongst the first ones in Kazakhstan. At the same time, this PV system represents an important technological breakthrough and a technology transfer in one of the most resource-rich countries in the world. Kazakhstan’s electricity production potential using solar energy is huge; the south-eastern part of the state has more than 300 sunny days a year.” The government’s green agenda also encompasses regional initiatives that are aimed at reducing pollution. The United Nations Development Programme is involved in a pollutionreduction project together with: Almaty City Administration; the European Bank of Reconstruction and Development; the International Finance Corporation; and the US Department of Energy. This aims to reduce the growth of transportrelated greenhouse gas emissions in the city of Almaty while improving urban environmental conditions. Set to run from 2011-15, the project aims to: ■ improve public transport regulations and practices in Almaty; ■ improve public transport and airquality management in Almaty; ■ improve the efficiency and quality of public transport; ■ integrate traffic management; ■ demonstrate sustainable transport projects; and ■ enable government, industry and civil society to adapt to climate change and mitigate its impact through policies and energy efficiency measures.

Innovation across borders While firms operating in Kazakhstan have been getting on with the business of developing technology and innovation, the government has been working behind the scenes to drive innovation with both regional and global partners.

In 2011, President Nazarbayev told the UN General Assembly’s annual general debate that a global pact on information and cybersecurity was vital to deter the increasingly frequent hack attacks against governments, businesses and other institutions. He stressed the need for what he called ‘an international legal framework for the global information space’, and said this could be based on the nine elements of the global cybersecurity framework that the General Assembly adopted in 2002.

Making progress Since the speech, Kazakhstan has made significant progress in the areas of innovation and technology. In January 2013, Russia, Belarus and Kazakhstan announced plans to establish an intergovernmental group called Venture Company – Innovation Technology Center of the Eurasian Economic Community (also known as the Innovation Technology Center). The center aims to incentivize innovation, develop intellectual property protection mechanisms, and stimulate technology transfers and commercialization. It will also screen innovation projects in member states and invest in projects that develop and commercialize innovation. Other regional initiatives designed to promote innovation include the Kazakhstan-Russian business forum, which focused on developing cooperation between Kazakhstan and the Russian Federation. A number of deals were struck at the forum, which was held in the north-eastern city of Pavlodar in September 2012 and organized by the Development Bank of Kazakhstan with the support of the Ministry of Industry and New Technologies. This includes an agreement to establish a Center of Information Technologies in the Information Technologies Park Special Economic Zone, which was signed between the National Agency for Technological Development JSC (Kazakhstan) and KE Group (Russia). An estimated $20 million is expected to be invested in establishing the center, which will house more than 60 IT specialists from around the world.

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THE AKSAI INDUSTRIAL PARK (AIP), located in the city of Aksai, West Kazakhstan Region, Republic of Kazakhstan, is functioning as a Technology Hub for the entire West-Kazakhstan region, and for the neighbouring region of the Caspian Sea, with a total territory of approximately 500.000 km².

This Project is formed to provide to International Investors and Partners a top-notch complex of facilities and services enabling them to set up their own production in Kazakhstan.

Along with the latest available equipment for mechanical, electrical works and fabrication, AIP also provides services of maintenance, logistics, marketing, certification, technical trainings, rent of production, warehouse and office facilities, laboratories and equipment. THE RESIDENTS COMPANIES which have already joined the Aksai Industrial Park provide and develop the following services and products:

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Control panels and skids (assembly and maintenance)

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Welding activities and welding training

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Al uminium scaffolding systems production

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Waste management and pollution remedial solutions

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Valve assembly, testing and revamping

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Engineering and construction of flow lines

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Testing and equipment

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Fittings and flanges production

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Heat-exchangers and boilers maintenance and revamping

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Trade skills training and development

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Accredited Laboratory for mechanical and E/I, as well as metrology and calibration services

attestation

production

and

covering

materials

and

OUR CONTACTS: Iksanova st., 184/1

E-mail: info@aip.kz

Aksai, WKO, Kazakhstan

Web site: www.aip.kz

AIP RESIDENT COMPANIES The first company in Kazakhstan, producing a block-modular equipment for oil & gas industry.  

Automation and Control Systems DCS/Telecom systems

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Engineering and production of aluminium scaffolds

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Covering systems

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Security management systems Instrumentation and Panels www.aip.kz/index.php/tematech

www.aip.kz/index.php/aluminium-technologies Creating value by waste management. 

Pollution prevention and remedial

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Energy-saving solutions

www.aip.kz/index.php/green-consortium

Garant Project LLP is a fast developing Engineering Company providing high quality services in engineering support and designing for industrial and civil constructions. 

Feasibility study

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Conceptual design

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Developing of design documentation

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Engineering support

www.garantproject.kz

PetroWeld is an integral resident of the Aksai Industrial Park, initiating innovation, modernization, quality and pre-qualified products and services for the Aksai Industrial Park, and Clients with their associated contractors in the Karachaganak Fields and the West Kazakhstan Region. 

EPC/PMC Contracting

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Welding processes

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Welding Equipment design and production

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Supply of Welding consumables and equipment

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Welding International Standards Training and certification www.aip.kz/index.php/petroweld

Consultancy, Project Financing and Negotiation of Financing, Technical Advisor Services, Engineering Services, Provision of Supervision and High-Skilled Specialised Manpower, Procurement, Expediting and Inspection Services. www.castle-oil.net Leading international producer of ball valves for onshore/offshore, low temperature. •

Floating ball valves

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Floating and Trunnion ball valves with stem extension

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Double block and bleed modular ball valves

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Trunnion mounted ball valves

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Metal-to-metal floating and trunnion ball valves

www.aip.kz/index.php/sferova

A major expert in micro tunnelling with 40 years of experience in the sectors of industrial piping, operating in Power and Oil & Gas industry. 

Pipe construction

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Plant construction

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Global service and maintenance

www.impresatrecolli.com

Kazakhstan Testing Service, with an experience of more than 10 years in the field of testing and calibration is able to offer one of the most complete lines of hydraulic test rigs and special equipment for testing and control of all kind of valves. KTS parent Company Italcontrol, represented in 5 continents, is one of the major manufacturer of testing system on the market and synonymous of quality and efficiency. www.italcontrol.net/en

EXPANDING THE 2013 AGENDA: GLOBAL COMPETITIVENESS

Climbing the economic tables

The rise of Kazakhstan up the World Economic Forum’s (WEF) competitiveness rankings is the result of its commitment to attracting investors. It also reflects efforts to drive growth in a country that is outperforming many of its neighbors

ith a ranking of 51 out of 144 countries in the 2012-13 index, Kazakhstan has climbed the table significantly from 72nd, where it sat two years ago. This is in large part a result of the $160 billion of foreign direct investment (FDI) it has attracted since 1993, with massive growth in funding across all sectors since the start of the 21st century. Furthermore, its ranking puts it above EU countries such as Hungary, Romania and Greece, as well as eight places above China, 16 above Russia and 22 above Ukraine. According to the WEF, Kazakhstan has made progress in a number of areas, particularly macroeconomic stability, where it now ranks 16th, and technological readiness, where it has

advanced from 87th to 55th. However, the organization says that the country still faces some significant challenges in terms of health and primary education (92nd), business sophistication (99th) and innovation (103rd). The Organisation for Economic Cooperation and Development (OECD) reports that Kazakhstan’s economy has expanded at an annual rate of between eight per cent and nine per cent since 2000, making it one of the fastest growing in the world. The organization says: “Kazakhstan attracts more FDI than all other Central Asian countries put together. To date, the country’s economic performance has been driven largely by its natural resources sector; the oil and gas sectors alone attract three-quarters of foreign investment inflows. However,

Kazakhstan’s non-energy sectors, with their competitive advantages, could be potential new sources for growth.” The country’s ability to attract FDI is what sets it apart from many of its competitors. “FDI inflow into Kazakhstan has recorded strong results over the past decade,” says Erlan Dosymbekov, managing partner for Kazakhstan and Central Asia, Ernst & Young. “Its success in attracting FDI can be attributed to a number of things: its ability to implement structural reforms to maintain political and macroeconomic stability; vast natural resources; the willingness and commitment of the country’s leadership to engage in an open and constructive dialogue with investors; and consistent reforms, including industry-specific programs aimed at supporting value-added activities in non-extractive sectors.” Dosymbekov adds: “FDI inflows have been and will continue to be an important driver of development in rapid-growth markets like Kazakhstan.

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EXPANDING THE 2013 AGENDA: GLOBAL COMPETITIVENESS

A worker scales a sulfur pyramid on an oil field in Tengiz, Kazakhstan, where the natural resources sector has fueled economic growth

Attracting strategic foreign investors with knowledge-intensive technology is critical for the development of priority non-extractive sectors. To attract and retain these investors, the country needs to enhance its regulatory environment, address infrastructure challenges and unlock human capital potential.”

Sector competitiveness The OECD has been working with the Kazakh government to develop a Sector Competitiveness Strategy. The organization says the country’s main competitive advantages are its location between the high-growth markets of China, India and Russia; its vast energy and agricultural resources; its nearuniversal literacy; its growing prosperity, with the per capita income doubling, unemployment halving and close to $30 billion of foreign exchange reserves; and its openness to trade, which saw exports grow from $6 billion in 1999 to more than $97 billion in 2012 and imports increase from $4 billion to

nearly $60.1 billion during the same period. As part of the strategy, the OECD has examined the competitiveness and FDI attractiveness of the country’s key non-energy sectors: agri-business (grain, meat and dairy); chemicals (fertilizers); agri-business logistics; and IT as well as business services. In the grain sector, the OECD says Kazakhstan’s advantages are its large land area and its low production and freight costs, which give it the chance to move up the value chain with more processed wheat products. In the meat sector, it believes Kazakhstan could harness its regional strengths: abundant land resources, low production, labor, processing and land costs, and access to premium markets such as Russia. Of the dairy sector, the OECD says: “The Kazakhstan dairy industry has relatively low milk production costs and can take advantage of favorable sector development trends globally. It now has an opportunity to move up the value chain into value-added dairy

products. Importantly, its government subsidy levels – as measured by Sector Commodity Transfers – are near zero.” The country is also well placed to develop fertilizer production. The OECD bases this assessment on Kazakhstan’s natural resources, revealing that it has: “deposits of between four and 15 billion tonnes of phosphate rock, significant reserves of natural gas and sulfur, and low-cost access to ammonia. Moreover, with a very low current level of fertilizer use, the country’s large potential domestic market remains untapped. It also has major market opportunities in the growing neighboring economies of Central Asia, China and India.” Kazakhstan has a number of advantages in agri-business logistics, according to the OECD: it is at the crossroads of transit routes between Europe and Asia and has a number of logistics centers and free-trade zones for warehousing and transportation. The country’s IT outsourcing is also ripe for development, with government

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Alamy

EXPANDING THE 2013 AGENDA: GLOBAL COMPETITIVENESS

Air Astana’s revenues grew by 16 per cent in 2012, bringing them to a total of $870 million

commitments to improving education helping the sector. The OECD says: “With the low cost of labor compared to key regional competitors such as Russia and existing skill levels, the IT sector is taking advantage of strong demand for its services from government, local businesses and foreign investors already based in Kazakhstan.” Regional trade is facilitated by the national airline, Air Astana, which grew its revenues by 16 per cent up to $870 million, and its capacity by 14 per cent in 2012. In the same year, the airline took delivery of two Airbus A321s, an Airbus A320 and two Embraer 190s, while retiring its entire fleet of Fokker 50s. The airline has also placed further aircraft orders that will expand the fleet up to 43 aircraft by 2020. Air Astana remains a profitable company and a net contributor to state taxes despite the difficult conditions in the airline industry. Peter Foster, Air Astana’s president, stated that: “the full year proved better than expected after a difficult first half in which profit fell by more than 80 per cent. In the second half, the strength of CIS markets, the strong performance of new services to China and Hong Kong, and non-fuel savings offset to some extent higher fuel prices, though margins have fallen. We expect 2013 to be another mixed year with continued cost pressure, though at present markets remain stable. We will continue to grow in 2013 principally from the national capital of Astana.”

During 2011-12, Air Astana was awarded four stars by service ratings agency Skytrax and was voted Best Airline, Central Asia and India. It is the only airline in the CIS and Eastern Europe to hold a Skytrax four-star rating. In addition, the airline has increased the frequency of its service between Almaty and Hong Kong.

International setting Statistics from the World Bank’s Investing Across Borders (IAB) initiative show Kazakhstan generally stands up well against its neighbors and competitors further afield. It takes nine procedures and 34 days to establish a foreign-owned limited liability company (LLC) in Almaty, which is faster than the IAB global average. Kazakhstan is continuing to make progress towards becoming a World Trade Organization (WTO) member. During a working party on the accession of Kazakhstan in 2012, members expressed the hope that the country would succeed in 2013. The meeting focused on the country’s investment regime, government procurement practices, the application of tariff-rate quotas, import licensing and intellectual property protection. The chair, Finland’s Vesa Himanen, reported that Kazakhstan’s bilateral negotiations with WTO members on market access for goods and services were advanced. Further trading advantage is found in the Customs Union (CU) between Belarus, Kazakhstan and Russia, which

was established in 2010. It expanded into the Single Economic Space (SES) in 2012, based on a comprehensive set of agreements covering subjects from the coordination of macroeconomic and fiscal policies to labor migration, energy and technical regulation. The primary goal of the SES is to promote the free movement of goods, capital, services and people. It is intended to increase competition and create equal conditions for all businesses and investors, regardless of their country of origin. The SES will reduce and ultimately eliminate the structures of national legislation at every stage of the business transaction and guarantees an overhaul of technical regulations and standards. The adoption of improved standards will ensure that the SES complies with WTO standards and that there is a high degree of compatibility with EU and ISO standards. This will facilitate technological integration between manufacturers.

Regional potential The development of the CU and the SES is crucial for the success of regional economic cooperation. It encompasses vital processes such as the trade in goods and services, movement of labor, macroeconomic coordination, financial integration, common technical regulations, and regulatory convergence. The launching of the CU and the SES means member states now have a potential customer base of 170 million.

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iStockphoto

EXPANDING THE 2013 AGENDA: FINANCIAL SYSTEMS, RISKS AND POLICY RESPONSE

The benefits of financial regulation Kazakhstan is keen to foster strengthened financial regulation within its economy, and the effects of 2008’s financial crisis are providing an ideal climate for promoting better governance

ushioned by savings built up from exporting oil and minerals during happier times, Kazakhstan was better able than some countries to withstand the difficulties that were precipitated by the financial crisis of 2008. Since then, the economy has bounced back with surprising vigor. Kazakhstan’s gross domestic product has grown by between five per cent and 7.5 per cent over the past couple of years, thanks in part to high commodity prices, which

spurred demand and boosted activity in industries such as transport, but also thanks to growth in the services sector. Yet, in common with other countries, Kazakhstan has had to rebuild parts of its financial system. BTA, which in 2008 was the country’s biggest bank, was compelled to bolster its balance sheet because of losses, along with three other institutions that were effectively bailed out following the upheavals of 2008. As a result of the lessons learnt, Kazakhstan is keen to foster a greater

awareness, particularly among emerging economies, of the need to strengthen regulation and so to ensure that banks and other financial institutions play their part in building a diversified economy.

G-Global To that end, Kazakhstan has established a new forum for discussion of global issues, including those regarding financial regulation, G-Global. Over 25,000 people from 150 countries have made observations to the G-Global website, which was set up with the help of the Kazakh government in Astana, indicating that this website has encouraged debate from more quarters than just the politicians and academics.

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EXPANDING THE 2013 AGENDA: FINANCIAL SYSTEMS, RISKS AND POLICY RESPONSE

Reuters

The Kazakh Government recognizes that tougher prudential controls are required in order to improve the quality of loan profiles

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EXPANDING THE 2013 AGENDA: FINANCIAL SYSTEMS, RISKS AND POLICY RESPONSE

Reuters

Kazakhstan is keen to strengthen regulation after it rescued several banks in 2008, including BTA

As one of the fastest-growing economies in Central Asia, Kazakhstan, of course, has its own ideas to share. After a decade or so of strong economic growth, the country can comfortably claim to be among the ranks of the middle-income nations. Indeed, the fact that Kazakhstan has embraced foreign investment and the benefits of internationalism has ensured that the average income of the country’s 16.5 million inhabitants has comfortably outstripped those of other countries within the wider Central Asia region.

Prudential controls However, the government recognizes that reforms are needed, not least among its financial institutions. Tougher prudential controls for banks are required in order to improve the quality of loan profiles. With inflation in check, the National bank has trimmed interest rates of late. Lending to industry by banks has picked up as a result of this measure. Even so, it could still be months before the Distressed Assets Fund, sponsored by the Kazakh Government, is able to manage the bad debts that it inherited from the country’s banks in the aftermath of the international financial crisis. Shareholdings in three of the

country’s banks – BTA, Alliance Bank and Temirbank – held by governmentsponsored entities could then be sold off. BTA’s external debt has twice been restructured since 2009, mainly by writing off debt or swapping it for equity. Another idea is to merge some of the country’s pension funds – a strategy revealed in January 2013 when President Nazarbayev instructed the government to merge private pension funds and use the billions of dollars worth of assets to sustain the country’s current rapid growth rates. This would not only reduce costs for beneficiaries, it would also help to boost lending by banks and encourage institutional investors to support industry over the long term, while allowing the government to avoid drawing on Kazakhstan’s strategic oil fund. Merging the country’s private pension fund assets into one state-run fund is forecast for 1 July this year. A proviso, of course, is that the funds do not swell the banks’ lending by too much or too quickly, thus contributing to yet another bubble, although, many projects require long-term funding in the local currency to help improve infrastructure.

The European financial crises certainly provides lessons for Kazakhstan and the surrounding region. As the country’s economy grows, identifying weak points where growth could stagnate is key in the formation of new financial policy and the reshaping of existing systems, while supporting stable financial centers is also crucial.

Striking a balance The need for effective regulation of banks and other forms of financial services has rarely been greater. For developing economies like Kazakhstan,

Merging the country’s private pension fund assets into one state-run fund is forecast for 1 July a combination of strict guidelines for banks, combined with a helping hand for other forms of finance, including capital markets, could provide an answer for the long term. The difficulty is striking a balance between the two and doing so when economic conditions are right.

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EXPANDING THE 2013 AGENDA: SOCIAL DEVELOPMENT

The standard of living in Kazakhstan has improved dramatically in recent times, with poverty levels plummeting by 40.2 per cent between 2001 and 2010

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Driving social development

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EXPANDING THE 2013 AGENDA: SOCIAL DEVELOPMENT

Kazakhstan’s economic health has been going from strength to strength since independence. Alongside this development, poverty rates have been falling drastically and social wellbeing improving, underpinned by government initiatives

ccording to the World Bank, the past decade has seen poverty rates in Kazakhstan decline significantly, decreasing from 46.7 per cent in 2001 to 6.5 per cent in 2010. The effects of this achievement are being enjoyed by the population as a whole, as initiatives in health, education and sport are being used for social development. In December 2012, during a state of the nation address, President Nazarbayev unveiled a development strategy leading up to 2050, which charts a long-term vision and roadmap to empower its people to be better prepared for future challenges and seize opportunities. At its heart is rule of law, good governance, a better business climate, and creating development opportunities for entrepreneurs, local governments and individual citizens. Starting this year, 2,533 village and town mayors, equating to 91 per cent of all mayors, will be elected. This change will be coupled with increased democratization and accountability at all levels, including strengthening the role of the national Parliament. The country has also taken strides to achieve its Millennium Development Goals (MDGs). It has already met some of the MDGs, including reducing poverty, improving access to primary education and promoting women’s rights, and the government has made further commitments under the MDG+ agenda. However, the UN says there is progress to be made on health and the environment. Kazakhstan is also involved in the UN Development Assistance Framework (UNDAF) to aid social development in

the country. The UNDAF plan for 2005-09 has been successfully completed and the UNDAF for 2010-15 is now in place. The goal of the UNDAF 2010-15 is to assist Kazakhstan to achieve its national competitiveness agenda with a focus on social development. The new program covers three strategic areas: ■ economic and social well-being; ■ environmental sustainability; and ■ effective governance. Kazakhstan comes a respectable 69th in the 2013 Human Development Index (HDI), which measures a country’s average achievements in three basic areas: health, knowledge and standard of living. This ranking puts it ahead of more than 110 countries, including China, Turkmenistan and Uzbekistan. The country has taken considerable steps to strengthen its healthcare system since independence. According to the 2009 figures from the World Health Organization (WHO), life expectancy at birth in the country was 59 for males and 70 for females. This compares with 62 and 74 in Russia and 63 and 66 in India. The WHO also reveals that in 2010, Kazakhstan’s total expenditure on health as a per cent of gross domestic product was 4.3 per cent, compared with India’s four per cent and Russia’s 5.1 per cent. During 2012, the Ministry of Healthcare completed the second year of the Salamatty Kazakhstan healthcare development program, which runs from 2011-15. According to Serikbol Mussinov, executive secretary of the Ministry of Healthcare, the second year of the project focused on preventing the main causes of mortality and disability.

Life expectancy increased by 0.6 years compared with 2010. The maternal mortality rate dropped by 19 per cent and infant mortality by eight per cent. The mortality rate for circulatory diseases fell by 27 per cent, deaths from accidents, intoxication and injuries by five per cent, and tuberculosis by 10 per cent. Mussinov reports that the Ministry of Healthcare, together with regional governments, have constructed 13 new facilities, including four which were built as part of a number of larger school, hospital and healthcare projects.

Access to medical services A national screening program has been introduced and the National Scientific Cardiac Surgery Centre has also been opened. The center has already successfully completed a heart transplant in addition to carrying out other high-level cardiac procedures. Mussinov adds: “We have made medical services much easier to access for people living in rural areas by rolling out 49 mobile medical units. These have treated more than 500,000 people since the beginning of 2012. We are continuing to introduce telemedicine, and currently have 186 telemedicine centers operating across the country.” Astana’s National Research Center for Maternal and Child Health, which is in the city’s medical cluster, was accredited by the Joint Commission International in 2012, confirming that it provides world-class medical services. The sector has received assistance from a number of organizations, including USAID, which has supported the country’s health sector in piloting and expanding a number of reforms to strengthen its financing, management and provision of healthcare services. The World Bank has praised Kazakhstan’s progress, saying: “The new State Health Care Development Program

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EXPANDING THE 2013 AGENDA: SOCIAL DEVELOPMENT

The government has encouraged investment in sporting attractions targeted at the domestic population as well as international tourists. Some of the most popular destinations for tourists include Shymbulak ski resort, Medeo ice-skating rink and the Schuchinsk-Borovoye resort.

Kazakhstan hosted the 2011 Asian Winter Games, raising its international sporting profile

Reuters

A competitive destination

recognizes health as... a prerequisite for sustainable socioeconomic development.” However, it warns: “Kazakhstan faces challenges in restructuring its healthcare system. The country’s health outcomes lag behind its rapidly increasing income.”

Educational standards Significant progress has been made in the nation’s education systems. The World Bank says: “Education is a high priority for Kazakhstan, and in 2009,

According to UNICEF, a number of economic, social and political reforms have helped to improve the quality of life in Kazakhstan and are laying the foundations for an education system that aims to keep pace with its European Union neighbors. The organization says that some of the country’s most notable reforms include increasing expenditure on education; developing a competitive structure within the education system; improving national regulatory systems; restructuring vocational training; developing indicators to assess the quality of child-friendly schools; opening more than 300 new schools; and developing statewide standards of educational practice. Sport is a high priority at every level. Kazakhs enjoy spectator sports that are as varied as football, wrestling, boxing and horse racing, and also participate in traditional horseback games, such as kokpar. Other popular sports in Kazakhstan include athletics, weight-lifting, cross-country skiing, cycling, ice hockey, rhythmic gymnastics, rugby, speed skating, and a type of ice hockey called bandy.

Kazakhstan is involved in the UN Development Assistance Framework to aid social development it ranked first on UNESCO’s Education for All Development Index by achieving near-universal levels of primary education, adult literacy and gender parity. These results have reflected Kazakhstan’s efforts in expanding pre-school access and free, compulsory secondary education. For the next 10 years, Kazakhstan is embarking on further major reforms.”

The creation of the 370-hectare Burabay Special Economic Zone (SEZ) in the Schuchinsk district of the Akmola region is part of national plans to develop a high-performance and competitive tourism infrastructure that meets the needs of Kazakhs and tourists across a number of activities, including sports. Kazakhstan has also been taking its place at the world’s sporting events top table, with the cities Astana and Almaty playing host to the 2011 Asian Winter Games. This major event helped the country to raise its winter sports profile globally, and encouraged the development of ski resorts around the two cities. For example, new lifts and ice rinks were built at the Shymbulak resort near Almaty in the run-up to the 2011 Winter Games thanks to the investment the event attracted. The country’s sporting achievements are respected globally. It has a long track record in producing boxing, weightlifting and cycling champions, and has made big leaps forward in rugby to be ranked 41 of 100 in the April 2013 International Rugby Board World Rankings. Building on its winter sports prowess, the Kazakhstan national bandy team lifted gold at the 2011 Asian Winter Games. Kazakhstan is also a country where sporting world records are set, particularly at the high-altitude speed-skating rink at Medeo, near Almaty, which is one of the top skating venues in the world. Its elevation to one of the world’s leading sporting nations was confirmed in 2012, when it finished 12th in the Olympic medals table, collecting as many gold medals as Australia, among which was a notable victory by the cyclist Alexander Vinokourov in the men’s 250 km road race.

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KAZAKHSTAN: ENGAGING IN GLOBAL MARKETS

President Nursultan Nazarbayev addressing the United Nations, where Kazakhstan plays an active role

United Nations

Taking the global stage

As Kazakhstan forges more long-term relationships with global corporations, its multilateral foreign policy is playing a major role in aiding the country’s international trade and investment aspirations. As a result, Kazakhstan has attracted more than $160 billion of foreign direct investment since 1993

he foreign policy aims of Kazakhstan are rooted in the objectives that were set out following its independence in 1991. President Nursultan Nazarbayev indicated that the main goal of the country’s diplomacy was to create and maintain favorable conditions for Kazakhstan’s continued development based on political and economic reforms. These reforms have molded the nation’s foreign policy priorities: impartiality and a desire to be fully involved in both international and regional events.

The country’s diplomatic efforts have helped it to develop good relations with 140 countries and become a member of 64 international political and economic organizations. In March 1992, the country was accepted into the United Nations (UN), and has since played an active role in many of its initiatives. Kazakhstan actively cooperates with the majority of governments in North America, Europe and Asia, as well as their main regional organizations, which has had the effect of stimulating investment from these regions.

The country plays an active role within organizations, including the: ■ Organization for Security and Cooperation in Europe (OSCE); ■ Economic Cooperation Organization (ECO); and ■ Organization of the Islamic Conference (OIC). Kazakhstan continues to develop regional alliances in every corner of the world because of the increasing significance of globalization and economic integration. As a result, it has increased cooperation with the: ■ Commonwealth of Independent States (CIS); ■ Eurasian Economic Association; ■ Central Asian Economic Association; and ■ Shanghai Cooperation Organization.

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KAZAKHSTAN: ENGAGING IN GLOBAL MARKETS

Total foreign direct investment, millions of dollars 25,000 22,469 20,809 19,760 19,036 19,017 16,453

20,000

15,000 10,624

10,000

8,317 4,557 4,106 4,624

5,000

6,619

4,773.9

Canada

5,234.4

Italy

5,633.6

Russian Federation

5,957.6

China

7,150.9

Virgin Islands

7,569.9

France

9,590.7

United Kingdom

11,262.9 23,335.6

Netherlands

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Kazakhstan’s commitment to nuclear non-proliferation has been the cornerstone of its relations with the US, resulting in what is now regarded as a strategic partnership between the two countries. In May 1992, representatives of Kazakhstan, Belarus, Ukraine, Russia and the US signed the Lisbon Protocol, committing themselves to the Strategic Arms Reduction Treaty. At the same time, Belarus, Ukraine and Kazakhstan, which all possessed nuclear weapons, committed themselves to the Nuclear Non-Proliferation Treaty. Kazakhstan was the first of the protocol signatories to remove its nuclear warheads from its territory, completing the process in April 1996 with the disposal of 1,416 warheads. It destroyed its last nuclear test warhead, on the Semipalatinsk test site, in May 1995. Its commitment has helped encourage strong relations with the US. At the Nuclear Security Summit in Washington DC in April 2010, US President Barack Obama praised President Nazarbayev, describing him as: “really one of the model leaders in the world on nonproliferation and nuclear-safety issues”. According to the US Department of State, Kazakhstan is currently its 78th largest goods trading partner, with $2.5 billion in total two-way trade in 2011. The stock of US foreign direct investment (FDI) in Kazakhstan was $9.6 billion in 2010, up 23.9 per cent from 2009. These companies are concentrated in the oil and gas, business services, telecommunications, and electrical

Switzerland

United States

2,782 2,107 1,852 1,271 660 984 1,674 1,233

Largest country investors, 1993 to Q2 2012, billions of dollars

energy sectors. The Department of State says: “Kazakhstan has made progress in creating a favorable investment climate [...] A US-Kazakhstan Bilateral Investment Treaty and a Treaty on the Avoidance of Dual Taxation have been in place since 1994 and 1996, respectively. In 2001, Kazakhstan and the US established the US-Kazakhstan Energy Partnership. Accession to the World Trade Organization remains a top priority for the government of Kazakhstan.”

Safety close to home The Kazakhstan government says it is the only Central Asian country to provide aid to Afghanistan. It has committed $3 million to build a highway, school and hospital, and to supply agricultural stock to Afghanistan. This country has also become one of Kazakhstan’s national security priorities. Consequently, means of improving cooperation in the following areas are being discussed: ■ trade; ■ mining; ■ international road and air links; and ■ mutual protection of investments. Kazakhstan’s pragmatic approach to foreign relations, combined with its favorable business climate and political stability, has generated a considerable inflow of FDI. According to the national agency KAZNEX INVEST, it has attracted FDI of nearly $160 billion since 1993. This level of investment has been helped by macroeconomic indicators that are driving investor confidence.

40,470.4 0

For example, it was the first of the CIS countries to be assigned an investment grade rating by Moody’s in 2002 and by Standard & Poor’s and Fitch in 2004. Furthermore, it is ranked 51st of 144 in the World Economic Forum’s Global Competitiveness Index 2012-13.

FDI background According to KAZNEX INVEST, the largest investors in Kazakhstan between 1993 and the second quarter of 2012 were the Netherlands ($40.5 billion) and the US ($23.3 billion). UK, France, China and Russia were also major investors putting in $11.3 billion, $9.6 billion, $7.1 billion and $5.9 billion, respectively. By far the biggest recipient of FDI was the mining and quarrying sector, which peaked in 2007 with investment of $5.6 billion of investment, compared with a post-independence starting point of $921.5 million. All other sectors have seen relatively stable developments in FDI, so that today no one dominates.

Diversifying the economy The government is keen to diversify the country’s economy and attract investors into priority sectors. But the OECD says the evidence from inward investment in non-extractive sectors suggests that much of the work of diversification still remains to be done. It adds: “While Kazakhstan has performed well in international comparisons, given the small size of its economy and a population of only 16 million, both FDI inflows and exports from Kazakhstan

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KAZAKHSTAN: ENGAGING IN GLOBAL MARKETS

Foreign direct investment by sector, millions of dollars* 6,000

Mining and quarrying Manufacturing

5,000

4035.9

Financial and insurance activities Wholesale and retail trade: repair of motor vehicles and motorcycles

3,000

3088.9

410.1

477.8

729.5

370.1

545.0

44.7

58.7

239.5

20.7

23.6

102.7

1993

1994

1995

1996

1997

1998

1999

246.9 2000

1796.6

832.4

1000.7 163.2

525.2 254.4

374.2

63.6

105.1

2001

2002

2003

2004

2005

642.7 169.3

3484.7 1925.6

2188.3

1402.9

1318.9

921.5

2962.5 2551.7

2123.4

2035.5

2,000

5014.2 4377.4

Construction

4,000

1,000

5568.0

5247.8

1230.2 733.2

1313.1

2007

2050.1 1556.2

1795.2

1066.5 200.3 212.2 301.4 2006

2855.4 2284.1

2008

1530.8 1025.6

568.9

422.3

414.8

2009

2010

2011

652.7 2012 (half)

source: Invest in Kazakhstan/Payments Balance of the National Bank of RK

are still highly concentrated (more than 70 per cent) in natural resources.” According to professional services firm Ernst & Young’s 2012 Kazakhstan Attractiveness Survey, 43 per cent of respondents believe the country’s investment climate will improve over the next three years. The survey says that the: “FDI-to-GDP ratio in 2010 was one of the highest among rapidgrowth markets. In 2010, FDI inflows to Kazakhstan represented one per cent of the global total FDI, while the country’s GDP is 0.2 per cent of the global GDP.”

The perception gap However, investors have not yet recognized Kazakhstan’s potential to attract a variety of industrial and knowledge-based activities. Most respondents think extractive industries, including mining and oil and gas, have the highest growth potential over the next three years. Oil and gas is seen by 30 per cent as the most attractive sector for investment in the country, with mining and metals (23 per cent), agriculture (14 per cent) and infrastructure (10 per cent) regarded as the next most promising areas. The survey results show a notable gap in the perception of Kazakhstan’s investment environment between investors who already have a local presence and those who do not yet operate in the country. Of existing investors, 85 per cent see it as the most attractive of the CIS countries. Of those who are not, only 18 per cent share this

view. Existing investors say they are largely satisfied with their investment and 92 per cent would invest there again. The roll call of companies that have invested in Kazakhstan include the likes of Chevron, TeliaSonera, Siemens, RBS, Microsoft and ArcelorMittal. US company Chevron’s relationship with the country dates back to the early days of independence, when it entered into the Tengizchevroil (TCO) jointventure partnership with Kazakh state oil company Kazakhoil (now KazMunaiGas). TCO’s total production grew from approximately one million tonnes (eight million barrels) of crude oil per year in 1993 to 25.9 million tonnes (207 million barrels) in 2010. Another successful foreign venture is the GE Evolution Series locomotives, which are assembled in Kazakhstan from kits and parts produced in the US. “GE and Kazakhstan have a long and fruitful history of working together,” says Lorenzo Simonelli, president and CEO of GE Transportation. “Since 1995, GE and KTZ [the national railway company] have collaborated to drive Kazakhstan’s economic development. The delivery of the 3,000th Evolution locomotive marks an important milestone for our relationship with KTZ and Kazakhstan, as well as being a great example of how globalization has opened up growth opportunities for GE Transportation.”

In 2012, GE Transportation and KTZ announced another landmark agreement to extend their partnership in Kazakhstan to produce passenger locomotives at the assembly plant in Astana, Kazakhstan. Starting from the first half of 2014, GE’s technically advanced Evolution passenger locomotives will be assembled in Kazakhstan, which is an important market for GE Transportation because in addition to the sale of locomotives, the company has plans to collaborate on other projects, such as service agreements and signaling projects, serving as a showcase for the region. Microsoft has been operating in Kazakhstan since 2002 and is heavily

GE and Kazakhstan have a long and fruitful history of working together investing in the development of a strong local software industry, bringing the latest IT trends and innovations, such as cloud computing, to the country. Microsoft’s business model is based on local partners and this set-up has matured into an organization embedded in a network of peer organizations. The company works with the government to ensure reliable IT infrastructure in Kazakhstan that promotes effective public services and realizes its business and social aims.

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ECONOMIC GROWTH: GOVERNMENT REFORMS

iStockphoto

A new dawn for the Kazakh economy

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ECONOMIC GROWTH: GOVERNMENT REFORMS

An increase in domestic demand combined with government efforts to diversify the economy away from its dependency on natural resources are resulting in a more sustained recovery from the global financial crisis in Kazakhstan, where key financial indicators are displaying the fruits of this labor

azakhstan’s gross domestic product (GDP) is expected to grow by six per cent in 2013, having already posted an estimated 4.5 per cent growth year-onyear in the first quarter of 2013. Signs of Kazakhstan’s economic health include its fast-growing sovereign wealth fund – National Fund of the Republic of Kazakhstan – which acts as a cushion against future economic shocks. Its buoyant service sector and steady, high inflows of foreign direct investment also add to a healthy picture going forward. Kazakhstan’s efforts to diversify its resource-dependent economy began nearly 10 years ago in 2004. Diversification proved a tough agenda to push before the financial crisis when commodity prices were soaring; despite government initiatives, non-resource sectors of the economy continued to suffer from low productivity and competitiveness. But the financial crisis prompted renewed commitment, as the sharp falls in global oil and commodity prices hit the government’s budget revenues. A post-crisis recovery program was established, putting fresh emphasis on increasing the contribution of developing sectors. “The government was heavily dependent on exports and is now trying to diversify from this,” says Gennadiy Babenko, an analyst at Renaissance Capital in Moscow. “They realize that oil is not going to last forever and that they need to concentrate on infrastructure and manufacturing.” In an effort to boost manufacturing’s share of the economy, the government has launched an industrialization

initiative seeking to add value to Kazakhstan’s resource wealth at home. One focus is to build more factories catering to new industries including car manufacturing, food processing, chemical production and energy.

Stimulating rural industry Within the program is a particular push for more manufacturing industries in Kazakhstan’s regions in order to help close the gap between rural and urban living standards. The World Bank estimates the country’s poverty rate is around five per cent in urban areas, but 10 per cent in rural locations. Manufacturing industries in the regions that can competitively produce laborintensive goods for export to neighboring countries Russia and China will be given the most support, says consultancy Exclusive Analysis in a recent report. In a bid to create jobs and better facilitate businesses coming out of the downturn, and in a nation characterized by vast distances between cities and difficult access to markets, the government plans to invest in infrastructure. It has focused in particular on building high-quality roads between Kazakhstan’s biggest cities, but it is also driving efforts to overhaul key infrastructure in selected areas, for example the Central Asia Regional Economic Cooperation (CAREC) corridor. Road projects in the CAREC include the Western-Europe-Western China (WE-WC) International Transit Corridor Project, part of the government’s longterm strategy to stimulate sustained growth and improve competitiveness.

Construction has just started on the project, which will provide an efficient transport link from Khorgos – the primary road border crossing point between Kazakhstan and China – to the city of Almaty, one of the major economic centers of Central Asia. Future economic growth also hinges on the government’s continued efforts to restructure its banking system. Kazakh lenders were hit by poor risk management and over exposure to real estate during the financial crisis. The National Bank took proactive steps to encourage banks to clean up their balance sheets last year. It set up the Distressed Assets Fund to buy problem assets from commercial banks and introduced fiscal incentives whereby banks could write off bad loans in return for tax breaks. In 2009, the proportion of Kazakh firms identifying access to finance as a major constraint to growth was 31 per cent, according to the Business Environment and Enterprise Performance Survey (BEEPS). Ratings agency Fitch says bank lending shrank to 38 per cent of GDP in 2012 from 58 per cent of GDP in 2008. Encouragingly, some Kazakh banks, including Eurasian Bank and Bank CenterCredit, are now forecasting a return to profitability, saying they expect to both grow their assets and loan portfolios through 2013. But although access is growing, it does appear to be concentrated among large firms with a strong market position, leaving some segments of the market underserved.

The lending market Kazakh banks complain that there is only a limited opportunity to lend. The lucrative business of lending to the extractive sector is rarely an option since big oil and mining groups do not tend to borrow from local banks. It is an issue that was flagged by the World Bank

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ECONOMIC GROWTH: GOVERNMENT REFORMS

Kazakhstan’s annual GDP growth rate, percentage

Kazakhstan’s government debt to GDP, percentage

10.3

9.7 9.7

10 8

5.8

6.3

7.1 5.4

7.5 7.3

8.4 6.3

6.9

8.1 5.6 5.6 5.1

4 2

1.1

1.6

4.5

11.4 10.2

10.7

10.9 9.6

8.1

-0.3

6.7

-4.5

2010

2012

6.7 5.9

-2.6

-4 2008

3.9

-2 -6

14.9

2004

2006

2008

2010

2012

Kubat Sydykov / World Bank

source: www.tradingeconomics.com | The National Bank of Kazakhstan

High-quality road construction is part of Kazakhstan’s long-term strategy to stimulate sustained growth

in its Kazakhstan Partnership Program Snapshot report: “While reported capital adequacy appears healthy and bank liquidity ample, the industry still has depressed profitability due to the lack of business opportunities for banks.” Large Kazakh corporates were recently given another avenue through which to raise funds. This year, the country will tap international capital markets for the first time in a decade, issuing 150 billion tenge ($992 million) of Eurobonds. It is a strategy to help finance the budget deficit, but also to set a benchmark against which the country’s biggest companies can raise funds in order to take advantage of investor interest in the economy and access cheaper international finance. Kazakhstan is also taking steps to boost trade. Corporations are now feeling the benefits from a Customs Union with Russia and Belarus set up

in January 2010, and the government is also pursuing accession to the World Trade Organization, accession to which is expected in 2013. In final discussions, reforms now center round the investment regime, government procurement practices, the application of tariff-rate quotas, import licensing procedures and intellectual property protection. Elsewhere, reforms in the agriculture sector have included pushing a more flexible land market and encouraging greater access to preferential credit lines for farmers. While agriculture accounts for only five per cent of GDP, it employs almost one-third of the working population. Kazakhstan’s economy faces some complex challenges. Even in the booming regions of southern Kazakhstan, sporadic power supply can still force restrictions on consumption. The remodeling of the economy from

an oil exporter to an investor-friendly country is ongoing, and weaning the economy off its dependence on oil will not be easy. Rising commodity prices and the expansion of the oil industry have been key to reviving the economy since 2009; any price fluctuations could still hit hard once again.

A solid savings base But Kazakhstan is managing to save while other economies struggle with debt – the NFRK saved more than half of oilrelated inflows in 2011, and forecasters say sovereign net foreign assets will hit 45 per cent of GDP by the end of 2014, up from 37 per cent of GDP at the end of 2011. Similarly, where many economies will struggle to squeeze any growth in coming years, Kazakhstan predicts a buoyant year. This sentiment was echoed when Fitch increased Kazakhstan’s rating to BBB+ at the end of 2012.

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ECONOMIC GROWTH: EDUCATION

Maxim Zolotukhin/World Bank

The Kazakh government is incentivizing the population to spend money on education

Aiming for top grades Kazakhstan’s efforts to build an internationally competitive education system are considered key to its economic growth, with programs being implemented to develop a universal system of learning that meets the country’s wider needs

azakhstan’s vision for its educational institutions is ambitious, but it is likely to be achieved if the current rate of progress is sustained. Plans for this sector will see vocational and technical education intertwined with the country’s economic requirements and based on professional standards of work. The Strategic Plan 2020 will place the quality of Kazakhstan’s higher education in line with the most demanding international standards, with universities working towards meeting the top global ratings. Kazakhstan is embracing the European

degree system, taking steps to attract international scholars with the aim of reviving its stagnating scientific sector. Behind the reform of its higher education system lies Kazakhstan’s desire to become more economically competitive, at the heart of which exists the need to improve the skills and training of its people through better educational institutions. Demand for higher education is strong across the country, and in March 2010 Kazakhstan signed up to the Bologna Process. Initiated by the European Commission, the process distinguishes between degrees at

Bachelor, Masters and PhD levels. The development of a network of world-class schools, universities and vocational colleges is moving at a good pace, and a new, state-of-the-art research university was established in Astana in 2010. Nazarbayev University combines the quality of leading international universities with the economic and social aspirations of Kazakhstan.

International standards The strategy of the university is to develop partnerships with several of the top 30 universities in the world and to bring the quality of their degree programs to Kazakhstan. In the long term, it is hoped that the diaspora of Kazakh scholars abroad will reduce in volume, and those students wishing to pursue graduate and post-graduate studies will remain in Kazakhstan.

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ECONOMIC GROWTH: EDUCATION

Students at Nazarbayev University’s School of Engineering, where University College London is a strategic partner

UCL

In February 2010, the university signed a contract with University College London – its first with an international partner. In the long term, Nazarbayev University is seeking partners that offer the highest potential for contributing to the social and economic development of Kazakhstan, as well as pursuing partnerships with other Kazakhstani universities in order to improve their collective international reputations. The Kazakh government has invested large sums of money into the education sector over the past few years, and is offering incentives for Kazakh citizens who spend their money on education, health and housing improvements. Explaining the Kazakhstan 2050 Strategy during a meeting of the members of the Republican advocacy groups, the minister of finance, Bolat Zhamishev, said that: “The Ministry of Finance will introduce the tax deductions for those who spend money on housing, mortgage, medical treatment, on their children’s tuition fee. The state will provide an effective mechanism of preferences through the declaration to those who spend their money on socially significant costs.” Further incentives to continue on to higher education are being offered, with a state-run education savings plan being launched this year. The plan will offer a premium rate of interest, making up between five and seven per cent of the amount deposited in addition to the interest rate offered by the bank. Personal as well as public and private investment in education is high on the agenda of the Kazakh government. Encouraging an interest in education among Kazakh citizens will improve the development prospects of the country, and this has not gone unrecognized in plans and programs laid out for the coming years. The National Innovation System will put in place a system that supports the ability and capacity of the Kazakh population to innovate and drive economic and societal growth, and is set to be fully operational by 2015. The results of implementing the National Innovation System are expected to be tangible by

2020, when the country will be able to identify outcomes of the system in developments, patents and technologies.

Intellectual Schools Under a reform program, 26 ‘Nazarbayev Intellectual Schools’ are being built in order to encourage academic excellence. It is hoped that the 6,000 graduates of these schools will go on to form the intellectual elite of Kazakhstan. At the program’s launch, President Nursultan Nazarbayev, who takes a close interest in these schools, said: “It is necessary to create the core of the national intellect, to establish schools which will become a foundation of Kazakhstan’s brainpower.” At the secondary level, students will work towards the International Baccalaureate or other internationally recognized qualifications. Lessons will be conducted in three languages: Kazakh, Russian and English, while courses are also available in Chinese, German, French and, in Semipalatinsk, Japanese. Mathematics and scientific study are also central to the curriculum, according to Kazakhstan: Surprises and Stereotypes by Jonathan Aitken. A large part of the budgets for these schools come from the Nazarbayev Fund,

which is a pocket of national expenditure designated for special educational initiatives. These schools are expected to receive three-times as much funding as regular schools, according to Aitken. It is hoped that this program will be expanded throughout the country in line with the wider acceleration of initiatives to improve educational standards and to keep step with the rising demand for enrolment. Bakhytzan Zhumagulov, minister of education, says: “Schooling is the hottest topic in the country right now… so we are having to catch up fast to meet the demand. The enrolment of schoolchildren is soaring, and as a government we are now spending six per cent of GDP on education.”

Bolashak Scholarship In 1993, the Kazakhstani government adopted the ‘Bolashak’ program, which, as President Nazarbayev explained during his state of the nation address in December 2012: “enabled 8,000 gifted young people to study in the world’s top universities”. Twenty years later, the fruits of the program are clear to see, with scholarship students this year studying 87 priority majors and conducting

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ECONOMIC GROWTH: EDUCATION

research under 110 majors at the best universities worldwide, and with up to 3,000 scholarships awarded annually. Since 2005, the scholarship has been awarded to future leaders studying for degrees at Bachelor, Masters and PhD levels, and from 2008, to those conducting academic research. Key fields of study, such as economics, engineering and medicine, are the focus of these scholarships. The funding, which is provided by the Kazakh government, covers all costs associated with study, including tuition fees, accommodation, books, medical cover, insurance, travel and so on. Scholarship students are sent to top-quality universities globally, with placements at 200 universities across 23 countries for academic programs, and 105 research centers and laboratories in 24 countries for internships. Under the terms of the Bolashak program, recipients return to Kazakhstan to work for five years following the academic scholarship, or three years following the research internship.

Strategic Plan 2020 The Kazakhstan Strategic Plan 2020 has been developed based on the experience of the first 10 years since its inception. Internationally recognized experts have given their knowledge to each priority area, creating benchmarks of where developmental progress should be each year. Under this plan, the government aims to provide children from both cities and rural areas with pre-school education. Speaking in March 2013 at a government session, Zhumagulov said: “The principal task at the moment and one of the president’s instructions is to make preschool education accessible for 100 per cent of children. I believe that our plan will work out and kids aged three to six will be covered with preschool education by 2017.” During 2012, 4,022 kindergartens and mini-centers were opened within the framework of Kazakhstan’s ‘Balapan’ Program, which has increased the engagement of children with preschool education by 65 per cent. The program is concentrated on increasing the number of children covered by early

childhood education, which falls in line with the government’s introduction of mandatory preschool education. In addition to ensuring global access to education, Kazakhstan’s prime minister, Serik Akhmetov, has proposed a system to monitor the efficiency of pedagogical work. In particular, Akhmetov expressed a need to look at the psychological work in schools in order to ensure that teaching practices are being carried out effectively. Imparting life skills through languages is also a curricular focus. Most schools teach in Kazakh, Russian and English. Furthermore, some schools teach the languages of ethnic minorities such as Uzbek, Uyghur and Tajik. With regards to post-primary learning, a 12-year system of secondary education will be implemented, and vocational technical education based on occupational standards will be developed in order to reflect the needs of employers. By 2020, the

year under the guidance of the Ministry of Education and Science. The project is offering grant funding to the sum of $22 million to 68 of the best technical and vocational colleges. Of the project funding, which totals at $33.23 million, $29.2 million is being provided by the World Bank in support of workforce productivity and enhanced skills development, while Kazakh Government co-financing is contributing $4 million. The well-skilled workforce that this project hopes to create will help meet the demands of key industries and businesses within Kazakhstan.

E-learning program In March 2013, Zhumagulov also announced that an e-learning project involving 581 organizations is expected to reach to more than five million people in Kazakhstan. Working alongside the state educational development program, the project will involve half of Kazakhstan’s educational institutions by

Behind the reform of its higher education system lies Kazakhstan’s desire to become more economically competitive government aims to permanently reduce unemployment to no more than five per cent of the population, with education as a key driving force behind this work.

Vocational education Currently, vocational training in Kazakhstan takes place both in classes and on the job, thus helping students to master the skills necessary to find work. Sayat Shayakhmetov, the deputy minister of education and science says of this effort to improve vocational training: “We are introducing the experience of Canada and Singapore. We are creating necessary infrastructure for the implementation of the program of the technical and vocational education and training, constructing world-class vocational schools”. The Project of Vocational Technical Education Modernization was launched in Kazakhstan in 2011 and runs to this

2015, with 90 per cent of institutions set to be engaged in the project by 2020. “This is a large-scale project that will cover more than five million people, including students, teachers and parents as well,” Zhumagulov said. “E-learning will be used at all levels – from kindergartens to universities and research centers.” Organizations that will participate in the e-learning system will be provided with internet access and the necessary equipment, while the project will also see every school and college organizing two computer rooms for students. Under the project, digital learning resources are currently being created for students, and its implementation is a significant step in the country’s drive towards the modernization of its education system. Kazakhstan is reforming education across all levels, thus continuing to drive both its economy and development.

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07/05/2013 18:14

Features of the market – voluntary medical insurance in the Republic of Kazakhstan Saule Jundubayeva, General Director of Interteach

An example of JSC Interteach activity The integration of Kazakhstan’s economy into the world economy and the scales and nature of activity in systems of social institutes – including systems of personal insurance – demand new approaches to organization and management. The country’s institutional operating conditions demand the development of systems that are designed to cope with insurance demand. This requires the conjuring and development of new ideas, new rules of law, fresh standard procedures and new mechanisms that work to realize these conditions. On the whole, the integration of Kazakhstan’s economy demands high-quality system transformations of the country’s medical insurance sector. The integration of Kazakhstan’s existing systems with modernization procedures to diversify the domestic economy became one of the fundamental principles in the development of personal insurance. Today, voluntary medical insurance is part of the national economic doctrine of the state. In our developed

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society, voluntary medical insurance and the related spheres (such as the pharmaceutical industry, biotechnologies and information technologies) are organically interconnected elements of sustainable economic development. Changes in ecology, the psychology of people, conditions of public health

Today, Interteach is a leading provider in the market of medical insurance and services in Kazakhstan and macroeconomic conditions and trends don’t allow the state to completely assume expenses on healthcare. The considerable part – both expenses and responsibility – bears down on consumers and insurance companies. As such, there is a freedom of choice, and therefore there is competition. The policy and strategy

of developing Kazakhstan’s insurance market as defined by the National bank applies to the Kazakh insurance market the norms and standards of the European Union in oder to preserve the constructive relations with insurance companies of CIS countries. A defining moment in the movement to market relations is achieving transparency and legality in insurance operations, and correlating the existing insurance legislation of the Republic of Kazakhstan with the norms of the European Union and those of the World Trade Organization. Among CIS countries the market of voluntary medical insurance in Kazakhstan is one of most dynamically developing, according to a report by the National bank of Kazakhstan. A certain contribution to the realization of the Uniform state program for Kazakhstan’s national health system is made by insurance company Interteach. Established in 1989 with the support of the World Health Organization, the International School of Healthcare and the company Intertich, Interteach works to promote the development of Kazakhstan, as well as large projects in the field of healthcare and medical insurance. A key factor of the company’s success is the trust and support received from the medical public, citizens of Kazakhstan, our clients and health of staff of the Kazakhstan enterprises. Today, Interteach is a leading provider in the market of medical insurance and services in Kazakhstan. Intertich is a large supplier of medical services to participants of financial, oil, gas, construction and tobacco branches. The company is present in regions where the largest projects in the field of oil prospecting, production and processing are realized: in Atyrausky, Kyzylordinsky, Aktyubinsk, Mangistausky and in southern and western areas. Medical aid stations for working personnel are implemented in Karabatan, Tengiza’s territory for both offshore and onshore projects, and representative offices function in Tashkent, Bishkek, Ashkhabad and Nebitdag.

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The system of organization and treatment control that the affiliated company “realizes Interteach Medical Assistants” has been developed to ensure the quality of services provided. For many years, work at the company has involved creating the debugged system of providing medical care. Interteach has integrated with the public health sector a health service, without which it is impossible to provide specialized medical care to citizens of Kazakhstan or expatriates in the country. The company has fulfilled the scheme of delivering primary medical and sanitary help to all regions of Kazakhstan. The stabilization and evacuation of patients is in a serious condition, but provided with private and public services the Kazakhstan air carriers and international assistance companies have made a contract with Interteach. Repatriation can be made to any point of the world. Excluding own representations abroad, Interteach has the strongest relations with a number of the European assistance companies: Europe

INTERTEACH_placed_v2.indd 45

Assistance Group, Mondial Assistance, Coris Assistance, Renaissance Insurance, Ingosstrakh, GMC Services, Aetna, Bupa, Signa and Group Generali. The company is a large supplier of medical services to oil and gas branches. It well understands essential tasks and is guided by the message of the president, in which he urges large enterprises to increase domestic contents relevant to government policy. This is directed on the import substitution of goods and services bought by investors for implementation, and is adjusted on long-term cooperation in development of the largest hydrocarbonic raw material fields. The business philosophy of Interteach is based on our clients’ confidence of uniqueness, and for everyone the company is ready to offer specialialized programs considering various preferences in medical care and qualifying standards to insurance. All packages are regularly analyzed to correspond to constantly increasing complexities and costs of treatment and to improve quality of

service. The companies and individuals can be always sure of the best council. We hope that with the joint efforts of public and private structures, and also changes of reference points of activity of insurers, the insurance market and insurance culture will grow, and so too will the extent of protection of the population of Kazakhstan from adverse events. We will drive confidence in the future.

Head Office 275 D Furmanov St., 050059, Tel: +7 (727)3 200 205, 206, 122 А Aiteke bi St., Tel: +7(727) 2588 100 Hot line: +7(727) 3 200 200 Website: Interteach.kz

30/04/2013 11:32

Healthcare provisions in Kazakhstan include not just traditional medical access, but also mobile initiatives designed to bring services to rural communities

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Alamy

ECONOMIC GROWTH: HEALTHCARE

Astana Economic Forum 2013

07/05/2013 18:23

ECONOMIC GROWTH: HEALTHCARE

Revitalizing healthcare Standards are increasing in Kazakhstan’s healthcare sector, where plans are under way to improve access to and the quality of services through bold initiatives, while the country’s economy is set to reap the benefits of a healthy workforce

he government of Kazakhstan is working to provide the requisite basic conditions for a working system of medical provision. Building on its successes, there is now work to be done in addressing regional inequities in healthcare provision and facilities, and the numbers of healthcare workers. Facing up to the challenges in restructuring its healthcare system, Kazakhstan is working hard to improve its health outcomes. The major causes of adult mortality in the country are noncommunicable diseases such as cancer, cardiovascular illness and tobacco and alcohol-related conditions. The Strategic Development Plan 2020 outlines goals that will see the total mortality rate in Kazakhstan reduced by 30 per cent, and the number of maternal and infant deaths reduced twofold, in line with the United Nations’s Millennium Development Goals (MDGs). Focusing on the quality of care provided during pregnancy, childbirth and the postpartum period, standards need to be updated in order to meet World Health Organization (WHO) recommendations, as does the provision of appropriate medical equipment, medicines and transportation. Following a 2011 WHO Regional Office for Europe report stating that

Kazakhstan’s rates of maternal and neonatal mortality were several times higher than those in the European Union, the Kazakhstani government implemented measures that successfully improved both maternal and child health in the three regions of South Kazakhstan, Karaganda and Aktobe. Encouraging women to take personal responsibility for their maternal health is a significant focus of the Kazakh government. Speaking to news website BNews.kz, the deputy head of the Kyzlorda region’s health department said: “We need to actively explain to the population that healthcare is not only a matter of the state healthcare system, but

is focused on cancer treatments, and plans for five new radiotherapy centers in Aktobe, Astana, Karaganda, Almaty and Semey have been announced, which together will serve all regions of the country. Additionally, President Nursultan Nazarbayev has backed the establishment of a National Research Cancer Center in the capital, Astana.

Development program The State Health Care Development Program 2011-15 (Salamatty Program) identifies improving health and healthcare as one of the country’s major priorities, and a prerequisite for sustainable socioeconomic development. Piloting and expanding reforms are considered to be of high priority in managing the country’s healthcare financing and provision of services, as are strengthening the legal and policy frameworks in the sector. The program has a particular focus on reinforcing the public health systems that are in place for tuberculosis (TB) and HIV, in addition to promoting the integration of the systems into the general health network in collaboration with the Global Fund to Fight AIDS, Tuberculosis and Malaria. Through its Strategic Development Plan 2020, the government has ambitions to reduce the incidence of TB by 20 per cent, while life expectancy is set to increase from 68 to 72 over the coming seven years. Mobilizing healthcare to promote better access is also high on the agenda of the Kazakhstani government. The

Life expectancy is set to increase from 68 to 72 over the next seven years a personal responsibility of each person. To prevent and reduce maternal and infant mortality rates is a big job.” However, further efforts are needed, and the government’s healthcare development program has several core objectives, including furthering reductions in overall mortality rates and cutting the incidence of HIV communication rates in the 15 to 49 years age group. Specifically, the program

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07/05/2013 19:36

ECONOMIC GROWTH: HEALTHCARE

sector in order to help reduce domestic production costs incurred by increasing levels of medicine consumption and rising expectations of access and quality from its citizens. Currently, domestic pharmaceutical companies in Kazakhstan are producing around 34 per cent of the volume of medicines consumed in the country, however, the government wants this figure to reach 50 per cent within the next three years.

Infant mortality is set to be reduced twofold under Kazakhstan’s Strategic Development Plan 2020

Maxim Zolotukhin / World Bank

Pharmaceutical production

vastness of Kazakhstan means that many rural communities have limited access to health services, but measures are being implemented to address this disparity. For example, the Salmatty Kazakhstan train operates around the country, providing a range of diagnostic services at numerous stations. The government is also deploying vehicles and aircraft specially equipped for delivering medical services to provide healthcare access to as many people as possible.

Encouraging healthy living Improvements in diagnostics and treatment of numerous diseases are occurring in parallel with the country’s drive to promote healthy lifestyles. Advertising campaigns aimed at discouraging substance abuse are becoming increasingly prevalent, and the major ‘Health Festival 2012’, designed to emphasize and promote the benefits of healthy living and participating in sport, took place in Astana’s Zheruiyk Park. Sporting events

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were organized alongside opportunities for free consultations with doctors. The Kazakhstani government regards preventative healthcare as being of high importance. The government is working to create as many opportunities for individuals to participate in healthy pursuits as possible. With good health directly related to rising income levels, the economic benefits of sustaining a healthy population are vast. Health investment is generally a promising policy tool for economic growth, as with rising standards of general health among a country’s population, worker productivity increases, absenteeism is reduced, education becomes more consistent and improves. To support its work in improved services, Kazakhstan is investing in revitalizing its healthcare system under plans that will see the country’s market share of domestic pharmaceutical producers rise to 50 per cent by 2014. The government remains committed to raising Kazakhstan’s market share in this

Imports of medicines into the country are currently worth around $939 million annually, and in its drive to increase the market share of the domestic industry, the Kazakhstani government is investing substantial sums of money into projects designed to boost domestic capacity. Despite receiving initial criticism that deemed its plans to be over-ambitious, the government is upholding its target and working tirelessly towards its achievement. The fast rate of expansion in healthcare and medical programs demands a system of selfreliance in order to boost the resource base of the country and support its underlying industrial development and diversification plans. Although healthcare is free across Kazakhstan, health insurance in pension funds is increasingly common as citizens take more control over their personal health. Furthermore, tax incentives are being offered to citizens who spend their money on medical treatment in efforts to develop this sector. Kazakhstan’s healthcare system is in a state of transition, and its development is gathering pace in correspondence with the country’s economic growth. The relationship between good health and economic growth is significant, with income intrinsically linked to both. At its most basic, poor healthcare promotes long-term poverty, while good healthcare creates a population capable of taking advantage of all available economic opportunities. Achieving a state of equilibrium between health, healthcare and economic growth is key to accomplishing sustainable development, and Kazakhstan is certainly set on this course.

Astana Economic Forum 2013

07/05/2013 18:23

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11/4/13 12:58:54

ECONOMIC GROWTH: FREE-TRADE ZONES

Enabling the free flow of trade

The free-trade agreement that is now in place between key CIS countries opens up the possibility of Kazakhstan supplying oil to the member states

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Astana Economic Forum 2013

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ECONOMIC GROWTH: FREE-TRADE ZONES

In October 2011, leaders of eight of the 11 CIS states – Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan and Ukraine – signed the St Petersburg free-trade agreement, shaping their economic futures and stimulating regional trade

ased on principles established by the World Trade Organization (WTO), the aim of the free-trade agreement (FTA) is to scrap export and import tariffs on a number of goods and guarantee conditions for free trade in the CIS, while creating favorable conditions for further economic integration. Kazakhstan’s former prime minister, Karim Massimov, said the FTA was made possible by the strong political will of the CIS governments: “Since 1994, there have been debates over a possible freetrade zone within the CIS, but something prevented us from reaching the finish line. We have now signed this important and long-awaited document, which will enable us to boost trade among CIS nations and attract new investments into member states. Coupled with the initiatives already adopted with regards to the Customs Union and the Common Economic Space [Russia, Belarus and Kazakhstan], this agreement offers fresh opportunities and a new direction for our further development.” Many aspects of the CIS FTA reflect ideas voiced by President Nursultan Nazarbayev back in 1994 of a postSoviet Eurasian union. The treaty, which replaces previous bilateral and multilateral free-trade agreements between CIS member states, was legally ratified by the president in 2012, putting Kazakhstan in a strong position to continue its economic expansion.

AGP/Corbis

Long-term plans The FTA has been a long time coming. CIS member states signed a free-trade deal back in 1994, but it was not ratified

by all nations. The latest one is seen as providing a foundation for long-term trade and economic relations within the CIS. Russia’s then prime minister, Vladimir Putin, gave it strong backing, saying that not only would it create better conditions for business among the nations, but also make their economies more competitive. According to Putin, total trade among the CIS members reached $134 billion in the first half of 2011, up by 48 per cent year-on-year. Putin added: “If today we are developing at such a pace without actually having this treaty, then just imagine how quickly our trade might be growing, if such a zone were operational.”

Borders opening The FTA provides for free movement of goods within CIS territories and eliminates export and import duties on a number of goods. It also contains exemptions that will ultimately be phased out. In addition, it gradually decreases export customs duties and abolishes quantitative restrictions on mutual trade between the CIS FTA member states. It grants a number of subsidies plus special protective, antidumping and compensatory measures covering mutual trade. Disputes between the FTA member states will be settled at the Economic Court of the CIS. At the discretion of a member state, a dispute arising out of WTO rules can also be settled under the procedures of the WTO. According to the US Department of Agriculture’s Foreign Agricultural Service, in addition to trade tariffs, bans and restrictions, the FTA also covers

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07/05/2013 18:35

Understanding alternative energy sources in Kazakhstan Agaisha Ibrasheva Legal Director, Legal Services, Tax & Legal Department

Olesya Kirilovskaya Legal Consultant, Legal Services, Tax & Legal Department

With layers of smog hanging over an increasing number of our cities and the scale of the threat posed by global warming more widely understood, the need to reduce environmentally harmful emissions and find viable alternatives to rapidly depleting fossil fuel reserves has never been more acute. Some individual countries, in conjunction with global initiatives to reduce emissions and find alternative energy sources, are introducing unprecedented environmental regulation at government level. Examples of this international cooperation include the United Nations Framework Convention on Climate Change and the Kyoto Protocol. Kazakhstan, as part of its environmental obligations, has focused on increasing payments for excess emissions, creating new emission categories and developing new regulatory conditions for the issue of emission permits. With this in mind, the government has this year set a new tenfold charge for any emissions exceeding generally established quotas. Sulphur, which until recently was classed as an industrial waste product, has been recategorised as an emission, so that any disposal or storage of it in open conditions is subject to an increased charge. In addition, production and consumer waste disposal permit applicants are now required to have: waste management programmes in place detailing the amount and composition of waste to be generated and disposed of; storage, recycling, burial, reclamation or destruction methods; measures to ensure

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gradual waste volume reductions and deadlines for all of the above. Sulphur disposal permit applicants need to have programmes in place to reduce sulphur stockpiles and any environmental impact that stockpiling may have. These programmes must be agreed with the local authorities for the area where the sulphur is kept, and with the environmental protection authorities. These new requirements strengthen Kazakhstanâ&#x20AC;&#x2122;s environmental law by encouraging users of natural resources to take measures to prevent, reduce and respond to environmental pollution; reducing waste, while attempting to foster a spirit of international cooperation in environmental protection. Kazakhstan is only starting its journey of transitioning to alternative or renewable energy sources, of which it has an abundance, such as: solar, wind and hydro power; soil, surface water, river and water reservoir geothermal energy; biomass, biogas and other organic fuels used to generate electricity and heat. Kazakhstan has drafted a Concept for the Transition to Sustainable Growth 2007-24 that is designed to develop the countryâ&#x20AC;&#x2122;s economy by supporting ecologically friendly forms of energy generation, such as renewable sources and secondary raw materials. As part of the Concept, the government has set and monitors production targets for electricity generation using renewable energy sources. It goes without saying that the development and use of alternative energy

sources is a costly exercise, which is why the government offers investment concessions to investors planning, building and operating renewable energy sources, and also the right to reserve and acquire land for the construction of their facilities. In addition, guarantees have been made that any energy produced using renewable sources will find a buyer. Thus, by implementing these measures Kazakhstan has taken an important step in protecting the global environment by reducing its own environmentally harmful emissions and by working to actively support renewable energy sources. At Deloitte Caspian, we provide a full range of professional services to clients, including advice to help companies deal with the environmental issues discussed here, along with other related issues. Furthermore, Deloitte Caspian advises clients on the tax and legal consequences of their emissions.

Deloitte 36 Al Farabi Ave Almaty Republic of Kazakhstan Tel: +7 (727) 258 13 40 Fax: +7 (727) 258 13 41 almaty@deloitte.kz www.deloitte.kz

10/4/13 12:04:17

epa/Corbis

ECONOMIC GROWTH: FREE-TRADE ZONES

President Nazarbayev talks to Russian premier Putin at the CIS summit. Kazakh trade with Russia increased by 57 per cent in the first quarter of 2011 following the signing of the Customs Union

rules of origin, government procurement, freedom of transit, special safeguards, antidumping and countervailing measures, subsidies, technical barriers to trade, sanitary and phytosanitary measures, money transfers, customs administration, agreements on customs unions, free trade and border trade, and dispute settlement.

its neighbors. One of the most notable measures is the Customs Union (CU) between itself, Russia and Belarus, which was set up in January 2010 in order to strengthen economic integration between the three countries. The goal of the CU is to facilitate trade and investment across the three countries, and also with other countries. The elimination of internal customs borders and the harmonization of legislation is already delivering huge benefits for the trading partners. By ensuring free circulation of goods and providing traders with a bigger market in which to do business, the CU is making the trio of countries more attractive to investors.

The free-trade agreement gradually decreases export customs duties For Kazakhstan, the CIS FTA strengthens its right to apply export duties to several types of goods, including oil products, ferrous and nonferrous metals, rapeseed and sunflower seed, natural gas and other gases. The creation of a free-trade area for CIS countries also opens up new opportunities for the country to supply oil and gas to FTA signatories. In April 2013, Ukraine’s Prime Minister, Mykola Azarov, said that the FTA may lead to a deal that will give free access to the main fuel pipelines in the CIS and open the way for Ukraine to get deliveries of oil and gas direct from Kazakhstan. Kazakhstan has made several other moves to improve trade relations with

Solid foundations According to Kazakhstanlive.com, the country’s online information centre, the union is off to a good start, with trade volumes doubling year-on-year and customs procedures between the three states improving. In the first quarter of 2011, Kazakh imports from the CU grew by 46.7 per cent to top $ 3.2 billion, while its trade with Russia soared by 57 per cent compared with the same period in 2010. Exports totaled at $1.9 billion during the same period.

In addition, the CU has confirmed Kazakhstan’s success in attracting investment from foreign companies, which are taking advantage of its favorable business climate to use the country as a base from which to sell their products in Russia. The latest step in the three countries’ integration process came in January 2012 with the creation of a Single Economic Space (SES) promoting the free movement of goods, services and labor.

An attractive proposition Membership of free-trade zones and customs unions is an attractive option for the government, which is keen to develop its non-extractive sectors, diversify its economy and promote the export of its many highly marketable products. Kazakhstan’s US Embassy points out: “A unified customs tariff within the CU will expand the regional market and promote Kazakhstan’s exports. Future customs policies will allow the importing of raw materials and equipment with reduced duties to aid the development of investment projects. The CU has created a unified commodity market, which already had a total GDP of about $2 trillion back in 2008, and has a population of 180 million. This large market makes Kazakhstan even more attractive for foreign investors who already consider it as one of the best in our part of the world.”

Astana Economic Forum 2013

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07/05/2013 18:38

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24/04/13 09:07

INDUSTRY FOCUS: OIL AND GAS

Introduction

G Sauat Mynbayev Minister of Oil and Gas

lobal competitiveness is a key aspect of this yearâ&#x20AC;&#x2122;s Sixth Astana Economic Forum, and one that is of particular interest to the expansion of our oil and gas sector. This year, the moratorium on development of new oil and gas fields in Kazakhstan will be lifted under the umbrella of the Kazakhstan 2050 strategy. Currently, a list of subsoil areas is being prepared, for which development licenses will be issued to potential investors after the cancellation of the moratorium. At the same time, proposals are being drafted to simplify the procedures for issuance of licenses. We hope that these measures will make the region even more attractive for investors. We have been discussing prospects for bilateral energy cooperation with Russia. In particular, we are looking into the implementation of joint projects in exploration, production, processing and marketing. Our relationship with China is going from strength to strength, and we expect the construction of our Beineu-Bozoi-Shymkent pipeline, which will be a part of the Kazakhstan-China pipeline, to be completed by the fall of 2014. Many international companies are showing an interest in huge natural wealth of Kazakhstan. Today, the explored natural gas reserves in Kazakhstan are estimated at 3.8 trillion cubic meters. Our natural gas resources, including those offshore in the Caspian Sea, are calculated at 6.7 trillion cubic meters. The Astana Economic Forum held under the aegis of Eurasian Economic Club of Scientists and the Government of Kazakhstan can rightly be considered an enormous project in Central Asia and Eurasia, a dialogue venue in its own way for exchange of opinion on economic and social issues. At the time of the Sixth Astana Economic Forum, it is important to reflect on the foundations of our economy â&#x20AC;&#x201C; in both the regional and international arenas. The Forum provides a platform for cooperation and making longterm deals and agreements among our countries and organizations. I would like to wish the participants and guests at the Sixth Astana Economic Forum a fruitful exchange of views and successful discussions.

Astana Economic Forum 2013

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07/05/2013 18:41

INDUSTRY FOCUS: OIL AND GAS

Reuters/Corbis

KazMunaiGas, the national oil and gas company, oversees the development of most offshore projects

Fields of gold: oil and gas set for expansion

The two decades of growth that Kazakhstan has witnessed are marked by new milestones in the oil and gas sector, as its mega-scale projects are gaining momentum. With the country having a greater input into regional and global affairs, this sector is set to have even brighter prospects in the future

he oil and gas sector’s landmark projects – the Kashagan, Tengiz and Karachaganak oilfields – are about to undergo vast expansion works. With the developments going according to plans, Kazakhstan may soon join the ranks of the world’s top five oil exporters. This year will mark the launch of oil production at the giant Kashagan offshore field. The oilfield will increase

Kazakhstan’s output substantially. Named after a 19th century Kazakh poet, the Kashagan oilfield is located in the Kazakh sector of the Caspian Sea, and 4,200 m below water. With estimated reserves of over 12 billion recoverable barrels of oil, it is the world’s largest oilfield discovery for three decades. The Kashagan oilfield is developed by the North Caspian Operating Company (NCOC), comprising of

Eni, Shell, ExxonMobil, Total and KazMunaiGas (KMG), along with a smaller number of other key investors. The development of the Kashagan field is taking place under extremely complex geological conditions: shelf area, a large depth and high reservoir pressure greatly complicate its exploration. Going on-stream around the middle of 2013, phase 1 initial production of the project is expected to reach 60,000 barrels per day, increasing by 2015 up to 300,000 barrels per day, and by the end of phase 1 (2020-21) leveling at 370,000 barrels per day. During its top production period, Kashagan’s oil production capacity may reach one to 1.5 million barrels per day, and it

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07/05/2013 19:38

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INDUSTRY FOCUS: OIL AND GAS

is expected to peak by 2021. With Kazakhstan’s current oil production of 1.76 million barrels per day, the impact of Kashagan’s development will undoubtedly be huge. Located in north-western Kazakhstan is the world’s deepest operating super-giant, Tengiz field. Kazakhstan’s largest producing oilfield, with an output of around 600,000 barrels per day, Tengiz accounts for nearly a third of country’s total oil production. In development since 1993, the Tengiz oilfield is operated by Tengizchevroil. The scheduled $20 billion expansion of Tengiz oilfield will increase its production by almost half, delivering 844,000 barrels per day by the year 2020. As summarized by the Kazakh prime minister, Serik Akhmetov, the Tengiz expansion and launch of Kashagan “will enable Kazakhstan to boost oil production output up to 120 million tons per year from current 82 million tons”. These measures come in time, as last year saw a decrease in oil production since 2011. In 2012, Kazakhstan produced a total of 79.2 million tons, 1.1 per cent down on 2011. Operated by Tengizchevroil, the development of Tengiz oilfield is expected to begin in 2013, with the employment figures rising to more than 9,500 people in the peak of construction, which is planned for 2016-17. Mineral-rich Kazakhstan is also home to one of the world’s largest gas condensate reservoirs, Karachaganak. Discovered in 1979, it holds an estimated 2.4 billion barrels of condensate and 450 billion cubic meters of natural gas. Located in the north-west of Kazakhstan, Karachaganak represents a real challenge for the operating companies, with extreme temperatures (+/-40 degrees Celsius) and highpressure drilling requiring cutting-edge technology combined with years of expertise. Karachaganak is operated by Karachaganak Petroleum Operating (KPO) consortium, which includes the companies BG Group, Eni, Chevron, Lukoil as well as KazMunaiGas. The Karachaganak field is currently producing over 70 million cubic meters

Workers at a rig over the Kashagan oilfield, which has the potential to vastly increase Kazakhstan’s oil production when it reaches its peak in 2021

of gas per day, with the majority of the condensates exported to the West and some of the oil and raw gas sold locally or regionally to neighboring Russia.

Domestic demand Increased domestic demand for energy has created the need to expand production facilities at Karachaganak. Plans are currently in place to invest $3.7 billion in gas processing plant, which could increase its supplies up to five billion cubic meters by 2021, according to Bloomberg. The expansion will help satisfy domestic markets, including Astana and northern regions of Kazakhstan from 2017.

Both of these onshore oilfields have been on-stream for many years, yet according to experts, both fields are phenomenally big and hold colossal oil and gas reserves, thus harboring huge potential for increases in production. First discovered in 1899, recoverable oil reserves in Kazakhstan are currently estimated at 5.3 billion tons. A significant part of the oil and gas projects in Kazakhstan are carried out as joint ventures with KazMunaiGas, the national oil and gas company. Created in 2002, KMG represents the state’s interests in domestic and international projects. Pursuing national policy for the oil and gas sector, KMG oversees compliance

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08/05/2013 13:31

Reuters

INDUSTRY FOCUS: OIL AND GAS

export capacity is of high priority. Developing additional capacity in Kazakhstan’s pipeline system will also help to remove its dependence on Russia. Responding to demand for increased exports, Caspian Pipeline Consortium (CPC) is planning to nearly double its capacity. Jointly owned by Transneft, KMG, Chevron and LukArco, CPC’s $500 million expansion will increase the pipeline’s capacity from its current 730,000 to 1.4 million barrels per day. Phase 1 of the project will add an extra 210,000 barrels per day and is due for completion in early 2014. Kazakhstan’s current biggest investor, China, strengthened its position in Kazakhstan’s oil and gas sector by securing exports through construction of the Kazakhstan-China pipeline. Running from Atyrau port in northwestern Kazakhstan to China’s Xinjiang region, the pipeline has a capacity of 240,000 barrels per day. Built in segments, it started as Kazakhstan’s first oil pipeline in 1991. With the launch of the Kashagan oilfield, the pipeline capacity will be expected to increase up to 400,000 barrels a day. Agreements have already been signed between Kazakhstan and China for the pipeline’s expansion plans. Growing energy demands in China also create a requirement for more gas export channels. In December 2012, the China Development Bank provided a $1.8 billion loan to Beineu-Shymkent Gas Pipeline LLP (owned by KazTransGas and CNPC), to finance gas pipeline construction. The new gas pipeline will connect all major Kazakh pipelines, including Kazakhstan-China, into a single network, connecting the gas-rich western parts of the country with the densely populated central, eastern and southern regions. Completion of phase 1 of the project is expected in October 2013. Atyrau-Samara is another major oil pipeline in Kazakhstan. Running northwards from Atyrau, it feeds into Russia’s Transneft pipeline system, which enables the export of Kazakh oil from the Black Sea to European

markets. Joining the Baku-Tbilisi-Ceyhan (BTC) pipeline across the Caspian Sea, Kazakhstan supplies up to 500,000 barrels per day in tankers sailing from Aktau. With one million barrels a day, BTC is one of the world’s largest and successful pipelines. Through BTC, Kazakh oil reaches Mediterranean and other European markets. Kazakhstan Caspian Transportation System (KCTS) is a new and ambitious project that will facilitate the construction of a new onshore pipeline from Eskene in western Kazakhstan to Kuryk, near Aktau. With the capacity of 600,000 barrels per day, the pipeline will feed into a proposed new oil terminal with the capacity of 760,000 barrels per day. As a complex system, KCTS

Recoverable oil reserves in Kazakhstan are currently estimated at 5.3 billion tons

with oil extraction regulation, trade contracts and the development of most of the offshore activities, where the organization also owns a minimum 50 per cent stake (in new projects).

Exporting oil and gas Accounting for the majority of country’s exports, Kazakhstan oil and gas is reaching world markets through pipelines to Europe via Russia, by barge and pipeline to the Mediterranean via Azerbaijan and Turkey, by barge and rail to Batumi, Georgia, on the Black Sea, and also by pipeline to China. With the government plans in place to increase oil production, expanding

will also include new port facilities and a maritime link to Baku, where a new transfer station will connect Kazakh crude oil with the expanded Baku-TbilisiCeyhan pipeline. The works on KCTS are not expected to begin before 2020. According to the country’s officials, Kazakhstan is also considering the possibility of transporting oil through Azerbaijan’s export pipelines. With negotiations under way, Kazakhstan is waiting for the commencement of oil production in the Kashagan offshore field. With the significant increase in volumes, the capacity of the existing pipelines might not be sufficient. Kazakhstan will have to export its oil production in new directions. “The route through Azerbaijan has never been ignored, and it is also among the likely directions,” said the deputy prime minister of Kazakhstan, Bakytzhan Sagintayev. “The most important thing now is to determine which way the oil will go. If the existing volumes of transportation through the railway network in Azerbaijan are enough, we will keep them.”

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Zhanros Drilling – a leader in gas and oil for southern Kazakhstan Alexei Myltykbaev General Director

Zhanros Drilling LLP is the biggest private service company in the oil and gas industry of southern Kazakhstan. The company was established by its General Director Alexei Myltykbaev in 1990. Having started by supplying oil equipment and building access roads,

Zhanros Drilling quickly grew into a crossdivisional service company with more than 1,000 employees. The company has its own industrial bases and offices in Kyzylorda, Atyrau, Aktau and Almaty. In the past seven years, the company has accomplished many projects: over 200 wells were drilled, 380 wells were completed and about 3,000 wells were worked over. Hundreds of kilometers of oilfield roads have also been built.

Geographical spread

Zhanros Drilling worked in almost half of the oilfields in Kazakhstan. It has drilled many wells and completed a lot of work-

overs in the South Torgai basin, Atyrau and the Mangystau regions. The company drilled wells for gas storage in the Taraz region, wells in the Almaty region, as well as in eastern Kazakhstan.

Successful business

Zhanros Drilling is well known for its successful development both in Kazakhstan and internationally. The key factors that lay the foundations for the sustainable and productive business that is Zhanros Drilling are: n Professional solidarity of the multinational team of workers and specialists; n Modern tools and equipment and continuous upgrades of the technical base; n Adherence to the API standards, and; n Implementation of international safety standards: CT PK OHSAS 18001-2008 ‘Management System for Occupational Safety and Health’, CT PK ISO 140012004 ‘Environmental Management System’, CT PK ISO 9001-2001.

Works and services

Russia Uralsk Atyrau

Astana

Zhanros Drilling

Aktau

Kyzylorda Uzbekistan Turkmenistan

Zhanros_placed.indd 44

Almaty China Kyrgyzstan

The company’s own industrial bases in oilfields and reliable logistics make it possible for Zhanros Drilling to quickly and efficiently fulfill the following jobs: n Drilling of oil and gas wells as deep as 4,000m using mobile drilling rigs ZJ-20, ZJ-30 and ZJ-40. A stationary US drilling rig, National 1320, designed to drill 7,000m-deep wells is being prepared for launch. The entire drilling process is always monitored with highquality deviation tools and laboratory control. Drilling mud is cleaned by SWACO equipment. Zhanros drills wells in an environmentally friendly pit-free way with cuttings utilization; n 18 Russian workover rigs A-50 and A-80 are always in operation; n Well compression with 10/251 unit; n Logging and testing of wells, and; n Nondestructive testing of pipelines and drill pipes with modern US-made equipment. The company regularly invites specialists from Russia, Canada and western Europe to share the experience, improve qualification of local personnel, and adjust technological processes.

30/04/2013 16:26

Zhanros’s main partners - PetroKazakhstan and EBRD

Risks insurance

CNPC – AiDanMunai, Kolzhan LLP, JSC Intergas Central Asia, Samek International LLP, Halliburton and North Caspian Petroleum (NCP LLP). In the 2011 State Directory of the Russian Federation, Zhanros Drilling was included in the ‘Integration’ section as a large and reliable partner that is among the best companies in Kazakhstan.

Social responsibility

Zhanros Drilling’s strategy and prospects

Taking into account the high risk of the performed services and works, Zhanros Drilling has the following types of insurance: employer liability insurance, environmental insurance, professional indemnity insurance, and civil liability insurance for the operation of dangerous facilities. Zhanros Drilling LLP has always been and continues to be committed to corporate social responsibility. The company arranges a weekly food supply to Baby house, purchases clothes for graduates of an orphanage school named after Makarenko, holiday presents for elderly and disabled people, sends young children to summer camps, builds mini football fields with artificial surfaces and supports talented children. This is only some of the company’s contributions to the welfare of society. Alexei Myltykbaev has been awarded many times with letters of commendation for his positive impact in regional development by Kyzylorda Akimat. He has also received letters of thanks from the regional branch of the ‘Atameken’ union for sponsoring social projects among younger generations.

Reliable partners

At present, the major part of the works Zhanros Drilling performs is for PetroKazakhstan JSC. Other partners include such well-known companies as JSC KazMunaiGas, Turlan Barlau LLP, JSC

Zhanros_placed.indd 45

Today, the oil-industry service market is highly competitive. This is why Zhanros Drilling is constantly moving ahead to new achievements. As a contractor of western company MaxPetroleum, Zhanros Drilling has bought eight per cent of its shares. ТОО «Zhanros Drilling» — самая крупная частная сервисная компания в нефтяном бизнесе южного Казахстана. Компания основана ее нынешним генеральным директором Алексеем Мылтыкбаевым в 1990 году. Начав с заказов на поставки нефтяного оборудования и строительства дорог ТОО Zhanros Drilling быстро выросло в сервисную компанию широкого профиля с численностью работников более 1000 человек, с собственными базами и офисами в городах Кызылорде, Актау, Атырау, Алматы.

In 2011, after successfully going through a strict selection process in addition to international audit, Zhanros Drilling became the first private company in Kazakstan to receive a credit line from the European Bank for Reconstruction and Development to finance the purchase of new drilling rigs and equipment for advanced workover technologies. This has allowed the company to perform works with higher efficiency and less impact on the environment. At the beginning of 2013, a new contract with the EBRD for $22.5 million had started. Zhanros Drilling LLP looks into the future with confidence and optimism. The company is always open to new contacts and mutually beneficial cooperation.

Head office 5A, Aiteke bi, Kyzylorda, Kazakhstan, 120001 Tel.: +7 7242 261215 Fax: +7 7242 261080 E-mail: zhanros@mail.ru Website: www.zhanros.kz

30/04/2013 16:26

INDUSTRY FOCUS: OIL AND GAS

Reuters

A planned $20 billion expansion of Tengiz oilfield will increase its production capacity by almost half

Kazakhstan has two domestic natural gas distribution networks; one in the west, serving the country’s producing fields, and one in the south, which largely carries imported natural gas to the regions where it is consumed. The lack of domestic pipelines connecting Kazakhstan’s natural gas mines to the country’s industrial region between Almaty and Shymkent has stunted the development of the country’s natural gas sector. Southern Kazakhstan receives a lot of its natural gas supplies from Uzbekistan through the TashkentShymkent-Bishkek-Almaty pipeline, even though the country exports gas from its north-western region. Kazakhstan’s pipeline network comprises 11,000 kilometers of pipelines, 22 compressor stations and three subterranean storage facilities. The main pipeline connections are the Central Asia Center pipeline, the Bukhara-Ural pipeline, Bukhara-Tashkent-Bishkek-

Almaty pipeline, and the TurkmenistanChina pipeline. The country serves mainly as a transit country for natural gas pipeline exports from Uzbekistan and Turkmenistan to Russia and China. The continuous improvement of export infrastructure also encourages further exploration, and a number of companies are doing just that, with KMG leading exploration in the Caspian Sea.

Refineries Kazakhstan currently has the ninth largest proven reserves of oil, according to official Kazakh Government figures. In order to support the increase in oil production, Kazakhstan is addressing oil refinery and transport infrastructure expansion. Since gaining independence, oil refining has not received the same high levels of FDI influx as other sectors in the Kazakh oil and gas industry. To date, Kazakhstan has three oil refineries – Pavlodar (KMG), Atyrau

(KMG) and Shymkent (jointly owned by KMG and CNPC). Built during Soviet era, with a total capacity of 14 million tons of oil per year, the three refineries were failing to meet growing domestic demand. However, a $6 billion upgrade program by KMG will see the refineries increase their combined annual capacity to an estimated 19.5 million tons by 2015, helping to serve the domestic market. Planned construction of a deep oil refinery in Atyrau will enable 2.4 million tons of crude oil to be processed each year by 2016. As part of the state program of Accelerated Industrial-Innovative Development 2010-14, the significance of this project is important not to only for the oil refining industry, but also for the oil and gas sector as a whole. The development of the refining industry in Kazakhstan will not only increase the input of oil production to gross domestic product (GDP), but will also facilitate greater utilization of Kazakh oil, and will improve the quality of its products. For landlocked Kazakhstan, increasing the output of existing refineries will also help supplement fuel supplies from Western Kazakhstan to hungry domestic markets in the south-eastern part of the country. Kazakhstan’s mega-scale contracts require a huge influx of foreign investment. The government’s favorable relationships with world superpowers – Russia, China, the US and Europe – create an encouraging investment environment, offering the sector stability and enabling access to natural resources. Most investments in the Kazakh oil sector take the shape of joint ventures. The government’s decision to offer exploration blocks to KMG first, letting the state firm negotiate with potential partners rather than issuing blocks via an open licensing process, was initially seen as bad practice and the state taking control over the oil and gas sector. However, KMG signed exploration agreements with Total and Statoil in June 2010 for two offshore Caspian blocks. State-to-state deals with state-owned oil companies, particularly Russian and Chinese, are now prevalent. And the increasing oil prices gave rise to changes in regulation.

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INDUSTRY FOCUS: OIL AND GAS

number of contracts have been signed, including with Russia and Azerbaijan, to define Kazakhstan’s sea borders and property rights to fields located under the sea, and to ensure that the interests of investors operating in the Caspian Sea region are protected.

Strong international relations The flexible pursuit of both multi-vector foreign policy and special relations with Russia has proved successful. Flexibility in foreign policy attracted a range of foreign economic partners. The policy has yielded results in the oil and gas sector, where companies from the US, Russia, China and Europe are present at all major fields. The results

of this approach are also visible in the multi-directional export channels for Kazakhstan’s oil and gas resources. Largely attributed to President Nazarbayev’s refined diplomatic skills, the country is benefiting from equally good relationships with the West and the East. “Kazakhstan likes to strike a geopolitical balance between Russia and China and the West, and be friends with everyone. You can even see this distribution within the projects,” says Dominic Lewenz, director of the oil and gas research at Visor Capital. As Central Asia’s largest economy, Kazakhstan accounts for 80 per cent of FDI into the region. And there are no signs of fading interest from PA

The 2004 and 2007 amendments to the Subsoil Law allowed the state a pre-emptive right on any assets put up for sale in the country, thus securing the option for the state of buying stakes in any of the projects, and a right to make changes to existing contracts that could result in a substantial change in the economic interests or threat to Kazakhstan’s national security. Applied only to “significant and strategic” oilfields, Kazakhstan ensured that contracts operated in country’s best interests. “The country realizes that in a world where energy sources are limited and commodity prices are high, it has to secure a better position in order to benefit from its own resources,” says oil and gas analyst Jamal Orazbayeva, Westhouse Securities. Kazakhstan’s liberal economic agenda, accelerated economic growth and contingency plans have resulted in a very low government debt, $85 billion of assets and a strong current account surplus. This healthy financial standpoint is also reflected in the country’s GDP figures. In the first nine months of 2012, Kazakhstan’s GDP grew by 5.2 per cent compared with the same period in 2011, and it is estimated that growth for 2013 will reach five to six per cent. Slowed by the eurozone crisis and the Chinese economy recording lower than expected growth in the second half of 2012, the boost to Kazakhstan’s economy is expected as the offshore Kashagan oilfield comes online in June 2013. According to Visor Capital: “Kazakhstan is in a very healthy macroeconomic position and would still accumulate reserves if the oil prices drop below $100 or even $80 per barrel.”

Geopolitics in the region Since gaining independence in 1991 and benefiting from the pro-Western leadership of then new president, Nursultan Nazarbayev, who led the country out of Soviet stagnation, the focus of Kazakhstan’s oil and gas policy has been to encourage foreign direct investment (FDI) in the sector. Much emphasis has been put on creating a stable legal environment for investors in the Caspian Sea region. A

The newly built Karachaganak-Uralsk natural gas pipeline serves domestic markets, which have been underserved by Kazakh resources in the past

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INDUSTRY FOCUS: OIL AND GAS

Kazakhstan’s oil and gas sector in statistics Kazakhstan’s oil production and consumption, 2000-2013 Other

Italy

26%

25%

Million barrels per day

Kazakhstan’s liquid fuels exports by destination, 2011

Switzerland

China

16%

Austria

Netherlands

12%

France

2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0

Forecast

Oil supply Net exports

Oil consumption 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

source: Kazakhstan’s Customs Control Committee of the Ministry of Finance, EIA, Eurostat

source: US Energy Information Administration, Short-Term Energy Outlook, September 2012 *2012-2013 data are EIA forecasts

Trends in global demand for oil and gas World natural gas consumption, billion of cubic meters

World oil demand, million barrels per day

3500

93 92 91 90 89 88 87 86 85 Q1 2011

3000 2500 2000 1500 1000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 source: BP

the investors, as showcased by new contracts signed recently between KMG and foreign companies. Worth almost $375 million, the new contracts are also expected to create 675 new jobs.

Expanding local knowledge Large-scale projects are often designed to bring in expertise and training for Kazakhstan nationals. Yet, as noted earlier this year by the Kazakh Prime Minister Serik Akhmetov, foreign companies tend to bring in specialists from abroad, leaving a large number of Kazakh specialists unemployed. This assertion was echoed by Visor Capital: “The Kazakh government really wants to encourage the domestic services market. However, the bigger and more cutting-edge projects like Kashagan, Tengiz and Karachaganak will always require a number of very experienced foreign specialists with over 30 years’

experience and who tend to work on a global basis. To find those skills locally (wherever you live in the world) would prove a significant challenge.” Analysts suggest that one of the solutions is for the government to encourage activities at the older onshore fields that have the capacity to employ much greater numbers of local staff. Developing the local service industry for oil and gas projects, building up the country’s manufacturing base and developing its supply industry are very high on the government’s agenda for the improvement of this sector. Analyst Matthew Shaw from the energy consultancy Wood Mackenzie explains: “Building up a service sector in the oil and gas industry, which is Kazakh owned, is a very sensible strategy and it is a major focus for the government and the international companies that operate in Kazakhstan.”

Q1 2012

Q1 2013 source: International Energy Agency

As part of the contract with companies like Baker Hughes, which provides services for the Karachaganak oilfield, come responsibilities for training Kazakhstan nationals and developing infrastructure in order to support growth of the oilfield and encourage Kazakhstanis to take on roles that have managerial responsibilities and to be able to build a technical expertise.

Efficiency in operations The local knowledge of Kazakh staff also has a significant role to play in advancing the quality of services. “Management’s ability to deal with local conditions and requirements is important. Management that understands the intricacies of doing business in Kazakhstan is a critical factor in effective operations,” says analyst Jamal Orazbayeva from Westhouse Securities.

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Developing socially responsible operations in the oil and gas market Mr. Seitzhanov Serikzhan President of “SOUTH-OIL” LLP, Doctor of Technical Sciences South Oil, LLP was established in 1999. Currently, the company is considered to be one of the most successful and fastest-developing companies in the Republic of Kazakhstan’s oil and gas market. In 2001, South Oil, LLP and the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan signed a contract for exploration of hydrocarbon materials and a contract for exploration and production of hydrocarbon materials. Since the company began actively developing fields, it has had considerable production capacity and modern equipment, which enables the workforce to promptly perform any task put forward by the company management. The company owns several organisation departments, has branches in Astana,

Kyzylorda (an administrative building, a railroad dock, a temporary storage warehouse, a hotel, and a sports and entertainment centre is currently being constructed), a representative office in Terenozek village and Kyzylorda oblast (a pipeline terminal that can transship crude oil and oil products). A large portion of the company’s investments is directed into the execution of contractual obligations, such as prospective drilling, development and production wells, improvement of well operations, development of discharge lines, above-ground works, construction of a shift camp (residential buildings, a canteen, a hotel for visiting guests, a gymnasium and a bath house), a turning shop, storage depots for commodities and materials and a garage for a car fleet. Construction operations of more than 100 km intra-field and service roads have been simultaneously provided. The Central Processing Facility began operations in December 2008, producing commercial oil. A modular group pumping station was put into operation for injection of industrial water with the purpose of maintaining reservoir pressure in wells.

In 2010, the company tied-in Atassu Alashankou at a length of 1.9 km. This enabled the company to reduce operational expenses concerning oil production and sales of oil many times. KAZ FRAK, LLP, the associated company of South Oil, LLP put gas treatment facilities into commission in

In 2012, South Oil, LLP took the decision to provide free medical treatment for its staff at its therapeutic sanatorium for health support in Almaty 2011 with an associated gas disposal capacity of 100 million cubic metres of gas a year. The finished product from the gas treatment facilities is stabilisation petrol and commercial propane butane. In spite of the finished product, the cyclic process facility produces isolated methane from associated gas, which is used by South

Oil, LLP to provide further gas recovery in the gas turbine power plant (EG-6000 and PAES-2500) for generating electricity for in-house loading on the oil field. In 2012, a booster compressor station and a metering station were put into commission for pumping oil within the contractual territory, via the crude oil pipeline to the Central Processing Facility. Furthermore, connection of almost all operating wells is being planned within the oil field pipeline, which will create considerable savings in terms of transportation and other expenses. Seitzhanov, Serik Seitzhanovich, the President of the company, is an honoured worker of the Republic of Kazakhstan, a Doctor of Engineering Sciences, and an acting member of the International Academy of Sciences, Education, Industry and Art (based in the US). Intensive works concerning field development were initiated in 2003, when he assumed office.

An award-winning president

Seitzhanov, Serik Seitzhanovich was awarded with an Exploration Survey Expert Badge in 2006, and an Honourable Explorationist Badge in 2008 for the works performed. He was awarded a Commonwealth Star Medal in 2008 for great contribution and mutually beneficial cooperation between the Russian Federation and the Republic of Kazakhstan. In 2010, on the occasion of the Independence Day of the Republic of Kazakhstan, he was awarded a Parassat Medal by Nursultan Nazarbayev, the President of the Republic of Kazakhstan. He was also awarded a Partnership Leader-2012 Diploma at the 4th International Forum under professional education and business: dialogue with partners held in Astana. Seitzhanov, Serik Seitzhanovich was also awarded Gold Medal SPI, named after J.A.Chaptal for dynamic development and effective management in the International Contest organised in Paris, France, in May 2011. In 2012, South Oil, LLP took the decision to provide free medical treatment for its staff at its therapeutic sanatorium for health support in Almaty, in response to the fact that company’s operations are carried out under unfavourable climatic and ecological conditions. This decision was made with the intention of ensuring that the company’s employees are in good health. Personnel numbers have increased up to 729 over the last 10 years. The company, carrying out its obligations concerning social

development, has invested 715.3 million KZ tenge for the period 2003 to 2012 for the development of the region. In September 2011 a sports complex with a lawn tennis court worth 410 million KZ tenge was opened in Kyzylorda by South-Oil, LLP, with the personal participation of Nursultan Nazarbayev, the president of the Republic of Kazakhstan. South Oil, LLP was awarded a KAMKORLYK statuette by N. Ashimov, the Mayor of the South Kazakhstan Oblast in December 2008 for its contribution to the social development of the South Kazakhstan region. By participating in the contest for social responsibility in business, South Oil, LLP won the category of ‘The best social project of the year’ in 2008 for construction of a school in Chilik village, Otyrar region, and was awarded Paryz Gold Statuette of President Nursultan Nazarbayev. In 2009, a sports palace with an indoor ice rink was reconstructed jointly by the South Kazakhstan Oblast Mayor’s Office and South Oil, LLP in Shymkent. It is the only ice rink of its size in the southern part of Kazakhstan to date. The company is planning the construction of a gas turbine plant, 87 mW, in Kenlyk, Kyzylorda Oblast; construction of a five-star hotel in Shymkent; and construction of a sanatorium in the Aral region on the bank of Kamystybas Lake for 300 persons. Also under its programme for social responsibility in business, South Oil, LLP, has since 2003 given more

than 700 million KZ tenge to charitable causes and as aid to poor people. The company foreshortens that developing production in accordance with international quality standards will constantly increase the volume of oil production based on the implementation of innovative technology. The company also aims to expand the scale of business it conducts, and accordingly to establish South Oil, LLP as one of the acknowledged leaders of the Kazakhstani oil and gas industry. Our strategic aim is to give every encouragement to the government’s development of economic potential and its social programmes through simultaneously taking care of the environmental protection, prosperity, safety, and health of own company’s personnel and members of their families. “SOUTH-OIL” LLP Legal Address: 160813, South Kazakhstan Region Sairam district, Tassay, Village Kyzylsay Postal address: 160000, Shymkent city, Tole-bi 25 Tel: +7 (725)2549122, +7(725)2551314 Fax: +79725)2551315

INDUSTRY FOCUS: MINERALS AND MINING

Mining global markets

Only about 15 per cent of Kazakhstanâ&#x20AC;&#x2122;s explored reserves are currently in production, but the government is working to catch up with global mining industries

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INDUSTRY FOCUS: MINERALS AND MINING

Kazakhstan has a wealth of mineral reserves waiting to be exploited. With the government augmenting its efforts to attract foreign investment into the sector, new alliances are being formed with international partners that will see the country’s mineral production become globally competitive

ENRC

ith demand for minerals linked to global economic prosperity, the sector has experienced price volatility, fluctuating in step with the winding road towards global economic recovery. China’s fortunes in particular have been mirrored in this sector, as its remarkable demand for raw materials has stimulated mining in recent years, but the country’s growth is not without its ups and downs. Despite the bumps in the road, there is still much room for development in this perennially valuable sector, which is always one of the first to recover when consumer spending regains momentum and government infrastructure schemes drive construction projects. When it comes to global mineral reserves, Kazakhstan has enviable supplies. Exploiting proven resources of copper, iron ore, gold, manganese, chromite, lead, zinc, coal and uranium has already helped turn its $185 billion economy into the largest in Central Asia. Yet in many ways the mining industry, which already accounts for up to 27 per cent of the country’s gross domestic product, is only just beginning to harness its mineral riches. Ultimately, Kazakhstan will sit alongside the world’s major natural-resource exporting countries, such as Australia and Canada. The upsurge in its mining industry only began more than 20 years ago after the break-up of the Soviet Union, which ushered in structural and economic reforms that included privatizing stateowned industries and courting foreign investment. It is getting progressively

easier to do business in Kazakhstan, and foreign mining groups, keen to benefit from the country’s proximity to markets in China and India, are starting to increase their operations there. In turn, Kazakhstan is determined to nurture its investor climate in order to draw the funds and expertise it needs to fully realize the potential of its mining sector.

Untapped potential Kazakhstan’s abundance of riches includes the uranium reserves that are second only to Australia’s, one-third of the world’s chromium deposits and the third and fourth largest global deposits of zinc and lead respectively. Kazakhstan is in the global top-10 producing countries for coal, bauxite and iron ore. Yet although the investment potential is obvious, only about 15 per cent of the country’s explored reserves are currently in production. Only 75 out of 282 identified gold deposits and 19 out of 55 iron-ore deposits are operational, and Kazakhstan receives just one per cent of global foreign investment in metals exploration. According to government figures, the country spends an average of $20 on geological exploration per square kilometer, compared with $167 in Australia and more still in Canada. According to the Ministry of Industry and New Technologies (MINT), just $19 million has been invested in exploration in the past eight years. In an effort to catch up with other global mining industries, the government implemented a mining and metallurgy program, which forms part of the Accelerated Industrial-Innovative

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«Богатырь Комир» – день сегодняшний и перспективы Виктор Щукин, Генеральный директор ТОО «Богатырь Комир». Victor Shyukin, Bogatyr Coal Llc Director General

Экибастузское каменноугольное месторождение известно не только в Казахстане, но и далеко за его пределами. Почти 60 лет назад, в декабре 1954 года, началось его промышленное освоение. Компания «Богатырь Комир» ведет добычу угля открытым способом на двух крупнейших разрезах месторождения: «Богатырь» и «Северный», запасы угля которых составляют около трех миллиардов тонн. За годы эксплуатации угольного бассейна было добыто свыше двух с половиной миллиардов тонн топлива.

cовместное предприятие

С 2009 года ТОО «Богатырь Комир» является совместным предприятием ОК РУСАЛ и ФНБ «Самрук Казына».

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Разрезы «Богатырь Комир» самые крупные в Республике Казахстан, их суммарная мощность составляет 42 миллиона тонн, в том числе, разреза «Богатырь» - 32 миллиона, разреза «Северный» - 10 миллионов тонн. Сегодня «Богатырь Комир» является ведущим предприятием Казахстана по добыче и реализации угля. На его долю приходится 46 процентов добываемого в стране энергетического угля, что обеспечивает 70 процентов потребностей энергетики республики.

обеспечение энергосистемы топливом

В совокупности с высоким производственным потенциалом, которым сегодня располагает компания, угольные разрезы «Богатырь Комир» можно рассматривать как основную действующую и наиболее перспективную топливную базу электроэнергетики не только Республики Казахстан, но и Российской Федерации. Сегодня компания «Богатырь Комир» поставляет уголь на 11 электростанций и промышленных предприятий Казахстана и 6 электростанций России, крупнейшие

из них - Экибастузские ГРЭС-1 и ГРЭС-2, Акмолинские, Алматинские, Карагандинские ТЭЦ, а также российские Рефтинская, Троицкая, Верхне-Тагильская и Серовская ГРЭС.

Стратегия развития компании «Богатырь Комир»

Цель: обеспечение растущих потребностей энергетики Казахстана и России в экибастузских углях на основе технического развития производства. Задачи: n рост производственной мощности; n повышение качества продукции; n сокращение эксплуатационных затрат; n повышение производительности труда; n замена изношенного оборудования; n уменьшение загрязнения окружающей среды. Направление развития: n внедрение автомобильноконвейерной технологии с усреднением угля; n модернизация действующего производства; n рационализация порядка отработки запасов.

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Bogatyr Komir – present and future prospects Ekibastuzskoe coal field is known not only in Kazakhstan, but also far beyond. Its industrial development started more than 55 years ago in December 1954. Bogatyr Komir company performs opencast mining in the two largest sections of deposit in Kazakhstan: Bogatyr and Severny. Coal reserves are estimated at about three billion tonnes, and during the years of exploitation in the coal basin more than 2.5 billion tonnes of fuel has been mined.

Joint venture

Bogatyr Komir has been a joint venture between UC RUSAL and the Samruk Kazyna Kazakhstani National Welfare Fund since 2009. Currently, Bogatyr Komir mines are the largest in the Republic of Kazakhstan. Their total capacity is 42 million tonnes of coal, and these include the Bogatyr section, which has a capacity of 32 million tonnes, and Severny, which has a capacity of 10 million tonnes. Today, Bogatyr Komir is a leading enterprise in Kazakhstan for coal mining and supply.

Covering the energy system

Its share in the total volume of Kazakh coal production amounts to 46 per cent, which covers 70 per cent of the total fuel demand of Kazakhstan’s energy system. Kazakhstan has high production potential, and the coal mines of Bogatyr Komir can be seen as the main and most promising fuel supplier for the power industries of Kazakhstan and the Russian Federation. Today, Bogatyr Komir supplies coal to 11 power plants and industrial enterprises in Kazakhstan, as well as to six power plants in Russia, the largest of them being Ekibastuz TPP -1 and -2, Akmola, Almaty, Karaganda CHP, as well as Russian Reftinskaya, Troitskaya, VerkhneTagilskaya and Serovskaya TPP.

The development strategy of Bogatyr Komir

The purpose of Bogatyr Komir is to meet the growing needs of Kazakhstan and the Russian Federation in Ekibastuz coal on the basis of the technical development of production.

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Its objectives are to: n increase productive capacity; n improve product quality; n reduce operating costs; n improve productivity; n replace worn equipment, and; n reduce environmental pollution.

«богатырь комир» Bogatyr Komir www.bogatyr.kz

The direction of developments aims to: n introduce auto-conveyor technology of extraction and averaging of coal; n modernise existing production capacities, and; n rationalise order of mining stocks.

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INDUSTRY FOCUS: MINERALS AND MINING

International partnerships Kazakhstan’s Kazgeologiya and the British-Australian mining group Rio Tinto, which has an office in Almaty in southern Kazakhstan and has plans to open another in Astana to focus on its copper and uranium projects, recently signed agreements around their $10 million joint-venture copper project in the Balkhash-Saryshagan in the northern province of Karagandy. Kazakhstan’s minister for industry and new technologies, Asset Issekeshev, speaking in February 2013 at the signing of the deal, said: “We need technology that can operate at great depths [...] We hope that, after working with Rio Tinto on new technologies, we can put them all over Kazakhstan.” Other agreements with foreign partners have included a venture

A land digger works at the Bogatyr coal mine in Ekibastuz. Kazakhstan is one of the top-10 coal-producing countries worldwide

Known recoverable resources of uranium Country

Tonnes uranium

% of world

Australia

1,673,000

31%

Kazakhstan

651,000

12%

Canada

485,000

Russia

480,000

South Africa

295,000

Namibia

284,000

Brazil

279,000

Niger

272,000

207,000

China

171,000

Jordan

112,000

Uzbekistan

111,000

Ukraine

105,000

India

80,000

1.5%

Mongolia

49,000

Other

150,000

World total

5,404,000 source: World Nuclear Association

between Kazakhstan’s resourcedevelopment firm Zaman Group and Korean steelmaker Pohang Iron and Steel Company to produce the materials needed to make steel. Partnerships to develop the uranium industry have also started to pay off, helping Kazakhstan to become the world’s largest uranium producer in 2012, with a global uranium production volume of about 37 per cent. State-owned Kazatomprom is working with foreign partners including France’s AREVA and Canada’s Cameco. Japan has also strengthened its economic ties with Kazakhstan, with much of its investment being ploughed into mining uranium and rare earth minerals. Sumitomo Corporation and Toshiba have set up a joint venture with Kazatomprom to develop these rare metals, which are used in newgeneration computers, turbines and cars. In another development in the uranium sector, the Nuclear Power Corporation of India Limited signed a joint venture with Kazatomprom to supply it with uranium. One of the biggest obstacles to further expansion is conditions in the

KPA/Zuma/Rex Features

Development of Kazakhstan for 2010-14. Under this state program, the government anticipates attracting strong foreign direct investment (FDI) into the mining industry. It is a strategy that is beginning to pay off.

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INDUSTRY FOCUS: MINERALS AND MINING

Getty Images

Kazakhstan boasts the world’s second-largest reserve of uranium. Here, uranium pellets fill fuel rods at the Ulba Metallurgical Plant in Ust-Kamenogorsk

international uranium market. Spot uranium prices are low because of the Fukushima disaster, and any increase in Kazakhstan’s production could put further pressure on prices.

The domestic landscape Domestic mining giants include Eurasian Natural Resources Corporation, Kazakhmys, Glencore’s majority-owned Kazzinc and Kazatomprom. The growing number of international groups includes ArcelorMittal, AREVA, Cameco, Severstal and Rio Tinto, but several lesser-known Kazakh firms, such as Gornoe Buro and Bogatyr Komir, also have operations. Gold and copper producers include Frontier Mining, Central Asia Resources and Orsu Metals Corporation. In other sectors, Sunkar Resources is developing a phosphate fertilizer project that is targeting key agricultural markets within China and Russia. While obstacles to investment do exist in Kazakhstan, the climate gets easier every year. Encouraging signs of change include comments by President Nazarbayev to lift the four-year moratorium on issuing new mineral exploration licenses. According to the World Bank’s Ease of Doing Business Rankings, Kazakhstan moved up to 49th

place out of 185 this year – from 56th in 2012, and in the same year, the World Bank also listed the country among the 20 most attractive countries for investment. It was also the first of the Commonwealth of Independent States to get an investment sovereign rating. A recent report by consultancy Exclusive Analysis flags up changes: “The Ministry of Industry and New Technologies had issued instructions to develop proposals on simplifying the process for granting resource use rights and access to geological information, as well as other measures to encourage investment in geological exploration activities. These include recommendations that five per cent of the total taxes collected by the government on subsoil resource extraction, about $400 million, be allocated to geological exploration.” Efforts to bring the industry up to international standards can also be seen in the establishment of the new Ministry of Regional Development. Exclusive Analysis believes that this drive to ensure that the mining industry better fosters broad economic development

will result in more scrutiny of whether mining projects contribute to local job creation, as well as their sustainability and competitive export capacity. The consultancy said: “It is very likely that with this purpose the Ministry of Regional Development will cajole both domestic and foreign mining companies into supporting educational, health and infrastructure upgrade projects.” Mining companies are likely to face more stringent enforcement of environmental

Known reserves are still unexploited and potential reserves unexplored regulations and control over working conditions, according to the report. While investment in Kazakhstan’s mining sector has been buffeted by the global economic slowdown, continued investment, combined with the country’s infrastructure, which is better than many of its competitors, means that the investment opportunity is obvious – particularly with known reserves still unexploited and potential reserves yet to be explored.

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08/05/2013 10:01

INDUSTRY FOCUS: TELECOMMUNICATIONS

Introduction

Veni Markovski

I Askar Zhumagaliev Minister of Transport and Communications

nvestment in transport and communications across Central Asia is a key driver of economic growth, and I look forward to discussing these topics in detail at this yearâ&#x20AC;&#x2122;s Astana Economic Forum. Kazakhstan is continuing to attract investment into its transport and communications infrastructure. New transport links are being implemented, and as we work to utilize our natural resources I anticipate our country becoming a key link in the global trade network. Modernization is hugely important in our drive towards further growth and development, and will enable investors in the region to harness the potential on offer. The New Silk Road initiative is due for completion in the near future and promises improve regional connectivity and integration, with great potential for immense reward. I am hugely encouraged by the increased regional consensus around this initiative. We will become better connected through new and improved roads, bridges, electrical transmission grids, railways and pipelines. Trade liberalization is further driving regional integration, and includes improved regulatory regimes, transparent and efficient border clearance procedures, coordinated policies and the reduction of non-tariff trade barriers to accelerate the flow of services, people and goods throughout the region. Kazakhstan currently has plans to expand its ferry fleet in order to increase the volume of transported goods, while meeting the growing needs of the country for cargo transportation. Dynamic growth and opportunity are linchpins of expansion in Kazakhstan and the surrounding region. Top-quality infrastructure will be an enabler of progressive development, and will impel us in our mission to remain a hub of commercial and financial activity. Integration is reliant on the ability to communicate with ease and efficiency, and in March this year there was signed a memorandum on cooperation in information and communication technologies between the Ministry of Transport and Communications of the Republic of Kazakhstan and the Ministry of Communications and Information of the Republic of Belarus, at the Astana-Kazakhstan IT Forum. I hope that as we align our interests in information and communication technologies, we will together advance regional cooperation and give new life to our respective sectors. The ICT market in Kazakhstan has seen spectacular growth since 2005, and our people are becoming increasingly technology literate. We are poised to continue the development trend that we have recently been enjoying, and anticipate this growth rippling through the entire region. Reliable telecommunication networks play an important role in supporting industry and business. The introduction of high-speed network connection to 4G technology contributes to the development of telecommunications infrastructure, creating an information environment for the socio-economic and cultural development of society. I look forward to this annual forum, where we are given the opportunity to define the development pathway of Kazakhstan and the surrounding region. We will vocalise our priorities in the world community, and identify how this will drive the economies of Central Asia.

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iStockphoto

INDUSTRY FOCUS: TELECOMMUNICATIONS

Talking telecoms: the mobile frontier The global telecommunications market is expanding, while in Kazakhstan a decade of growth, regulatory reform and insufficient landline penetration have created conditions that make its mobile market one of the world’s fastest growing

lobal mobile broadband connections will grow by 27 per cent in 2013, according to Market Research Reports Inc, while Gartner forecasts that worldwide telecom services will remain the largest IT spending market in 2013. These statistics indicate the buoyancy of this market, which still has a lot of room for expansion in emerging markets.

In Kazakhstan, with mobile penetration now registering at well over 100 per cent of the population, competition in the sector has shifted to cell phone operators vying for market share on the quality and speed of their mobile offering rather than just tariffs. Elsewhere within the sector, the government is aiming to improve internet access as well as broadband penetration, pledging to foster software and IT

services in a telecoms industry that is considered to be crucial to the broader economic development of the country. “The advanced telecommunications infrastructure should become a competitive advantage in the process of attracting investors,” said President Nursultan Nazarbayev in a speech that he made recently. “We should accelerate the process of 4G introduction and make the prices of telecommunication services and the internet speed competitive and affordable.” Mobile penetration had exceeded Kazakhstan’s fixed-line services by 2004, with demand so strong that by 2006 the government auctioned its third

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Tele2 continues to develop its presence steadily in Kazakhstan The European discounter operator Tele2, which started commercial activities in the Republic of Kazakhstan in 2011, continues growing and developing steadily, capturing the national telecommunications market and the hearts of Kazakhstani people. Having started from a two per cent market share, under heavy opposition from two other players and with one of the highest interconnect rates, the mobile operator Tele2 managed to become a trendsetters of the cellular market, whose actions are closely monitored by competitors. Recently published performance results of the company in Kazakhstan also command respect. For example, in the beginning of 2012, the mobile operator Tele2 made final procurements in Southern and Western regions of Kazakhstan, thereby confirming their status as a national mobile operator. After 12 painstaking months, the operator achieved a phenomenal subscriber base that has increased 2.5 times, amounting to 3.4 million of subscribers. No one operator in Kazakhstan has ever displayed such an incredible growing subscriber base. Mats Granryd, President of Tele2 Group, stated in his speech that: “Tele2 Kazakhstan is again the group’s outperformer. The company continued to benefit from a solid customer momentum and the broad awareness that it offers the best prices in the market together with a strong data and value proposition. Nevertheless, good intake is still counterbalanced by relatively low usage. All the conditions – namely good network and data services – are now established to encourage our customers to use more of our services.”

A growing network

Proving these words are the results of network building: in 2012, Tele2 carried on building its network actively, and has erected 1,000 new base stations, thus, three-times increasing coverage, which now includes 80 per cent of the republic’s citizens. Thanks to successful integration of the seventh release of ‘HSPA+’, combined with a four-times increase of transport channel capacity, the Tele2 Technical Directorate accelerated mobile

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internet access speeds for their users by up to 21 megabyte per second. Taking into account the low costs offered by Tele2 for high-speed mobile internet access services and high-access speeds for users, the national portal PROFIT.KZ named Tele2 as the Kazakhstani operator offering the best Price-Quality mix. Providing Kazakhstan’s people with peak access speeds of up to 21 megabytes per second and low traffic cost of 0.31 tenge per megabyte, Tele2 has augmented the Kazakhstani people’s perception of mobile internet access. Owing to the operator’s efforts, the consumption of mobile internet by Tele2 users for 2012 alone has increased more than nine to 10 times. It should be noted that the range of services using mobile access is increasingly broad, and includes: banking, E-commerce, health, transport, information technologies, E-government – contributing to their development. Moreover, mobile services can help in solving another problem – giving equal chances to citizens in using ICT, including equal access to the internet. One more figure that characterizes the quality of mobile internet services provided by Tele2 is average daily mobile traffic by subscribers, which has exceeded 18 terabytes.

Reducing prices for consumers

No less impressive advances have been displayed by the company in the area of voice services. Until recently, Kazakhstan for a long time occupied an unfortunate leading place among CIS countries with the most expensive mobile services. The reason for this lay in a lack of competition, affording consumers few real opportunities for savings. Research that was conducted by an independent Russian agency ComNewsResearch stated that until 2011, the highest prices for mobile services among CIS countries were in Kazakhstan – one minute of talk time cost Kazakhstanis 113 per cent more than it did Russians, and was three-times more expensive than Kyrgyz subscribers were paying. After two years of operation, the average cost

of talk time has been decreased twofold in the country, making Tele2 vey popular with the Kazakhstani people. ‘Hands off Tele2’ – precisely these words were heard in internet forums and in social networks following some unsuccessful attempts that were made to defame the company. In the 12-month period 2012, the Tele2 team, headed by Andrei Smelkov, managed to attract 2,042,000 new subscribers – two-times more than in 2011. The total subscriber base of Tele2 as of 31 December 2012 is 3,412,000 subscribers, which is 2.5 times higher than in the previous year. Such rapid growth was made possible by the massive and comprehensive work of the Tele2 team, which worked at a consistently high level throughout the year.

A profitable enterprise

The hasty growth of Tele2’s subscriber base has had a positive effect on the financial results of the company, whose profits during the fourth quarter of 2012 were $44 million, having increased by an impressive 83 per cent as compared with the comparative figure for 2011. The company’s total annual profit is $140 million, having increased by more than 2.6 times. Further development plans according to the top management will remain unchanged. Tele2 will continue capturing the Kazakhstani market in order to reach a 30 per cent share of the Kazakhstani cellular market in the medium term. No matter how the situation changes, Tele2 is confident that the Kazakhstani and foreign market awaits step changes in the competition that is unavoidable. Stronger pressure by global competition will require the players to give up their previous ‘easy times’. This is because further growth is only possible on the condition of maximum internal intensification, including the use of such resources as: capital, labor and knowledge. Tele2 is an example of a small yet successful company, which in practice demonstrates how enhancing the competition in one industry can have a positive effect on the general development of a country’s economy.

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INDUSTRY FOCUS: TELECOMMUNICATIONS

Getty Images

Chief executive of mobile operator Kcell during the company’s initial public offering, which raised $525 million, indicating investor enthusiasm for the telecoms sector

GSM license. It is now preparing the ground ahead of issuing 4G licenses in order to allow greater traffic and speeds for mobile users. Two mobile groups, KaR-Tel, Russian operator VimpelCom’s Kazakh subsidiary that operates under its Beeline brand, and KCell, which is majority owned by Swedish group TeliaSonera’s, have both trialed Long Term Evolution (LTE) in the country.

Mobile traffic “At present we observe a vigorous growth of mobile traffic,” said Aida Dossayeva, the corporate communications director for mobile operator KCell, speaking after the successful trial. “New communication technologies need to be introduced in order to satisfy growing needs of subscribers for mobile data communications and meet their expectations of high speed.” Kazakhstan

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has four cellular networks but the market is still concentrated, with two-thirds of it controlled by KCell and KaR-Tel. In 2010, a campaign to bring down mobile tariff rates was launched by the Ministry of Transport and Communications. As a result, interconnection prices have fallen, activation rates have been abandoned and per-second billing introduced with the minimum call rate offered by operators Beeline, KCell and Tele2 all falling, says the ministry. Investor enthusiasm for the sector was evident when KCell’s initial public offering (IPO) raised $525 million at the end of 2012. Kazakhstan’s much anticipated first telecoms IPO from the country’s biggest mobile phone operator was a test case for other service providers and indicated enthusiasm among Russian, UK and US investors

for the sector. KCell has 12.7 million subscribers accounting for 47.7 per cent of Kazakhstan’s total mobile market. Kazakhstan has also witnessed a growth in internet activity, with 49 internet users per 100 people. Broadband access, as opposed to dial-up, has also grown enough to put Kazakhstan ahead of its regional rivals, with fixed broadband provision growing at a faster rate than expected. Fixed broadband subscribers in the country accounted for 7.36 people out of every 100 in 2011, according to the WorldBank. The government has said that it aims to increase average broadband speeds across Kazakhstan to 16mbps by 2015. A number of operators are also investing in the development of optical fiber services, forging ahead with plans to introduce advanced internet protocol services such as IPTV, delivering

Astana Economic Forum 2013

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INDUSTRY FOCUS: TELECOMMUNICATIONS

iStockphoto

Satellite communication is being brought on-stream in Kazakhstan alongside traditional transmitters, such as the Kok Tobe tower, in order to satisfy demand

Kazakhstan is a challenging market for fixed-line operators with its vast area and relatively small population of 16.5 million. It is one reason why fixedline penetration is still relatively low at 27 fixed lines per 100 inhabitants, but this has grown from 2008 levels when only 23 per cent of the population had access to landlines in the city and only eight per cent of the rural population. Six operators provide fixed-line services to about 4.5 million subscribers but despite the opening up of the market, the bulk of services are still provided by state-owned Kazakhtelecom. The long waiting list for fixed-line services is one reason for the explosive growth in mobile.

Customs Union advantage television services through internet protocol rather than through traditional terrestrial or cable formats. Russia’s VimpelCom, one of the world’s largest integrated telecoms services operators offering wireless and fixed broadband services ran a commercial IPTV pilot in Kazakhstan last year. The platform was provided by China’s ZTE Corporation.

Market innovation Kazakhstan’s geography has been one of the biggest challenges to greater telecoms, and internet, penetration. But signs of operators overcoming this include national operator Kazakhtelecom recently announcing it had covered 70 per cent of the rural Aktobe region with its wireless network. The company has overcome the challenge presented by Kazakhstan’s vast landmass and diverse geography by using a variety of technologies. It plans to deploy 900 base transceiver stations by the end of 2013. Other telecoms infrastructure is also coming on stream via satellite. This includes communications satellites to meet domestic demand for TV and radio broadcasting and telephony. Kazakhtelecom subsidiary, service provider JSC Nursat’s new broadband satellite IP network will provide broadband for the corporate market. “This will allow us to expand our

network reach and capacity in an effort to meet the rising demand in corporate broadband connectivity services,” Nursat’s general manager Kenes Shangereyev commented recently. Other players include Kazakh flagship satellite television network Kazakh TV (formerly CaspioNet), which is available throughout Europe, Central Asia, the Middle East and north Africa and is now about to show in the US following a partnership with global broadcaster Globecast. The Kazakhstan government is making efforts to boost internet use beyond facilitating the laying down of supportive infrastructure. The government pledged to have 60 per cent of socially important public services provided in electronic format by the end of 2012– a target that it met. Kazakhstan is ranked 38th in the UN e-government ranking among 190 countries and shares second place with Singapore in terms of e-participation, a measure of the opportunities for online communication between citizens and the government. Boosting internet access to Kazakhstan’s small and medium sized businesses is another key area that the government highlights.

Other areas the government is keen to develop include domestic manufacturing of telecoms products, in addition to information communication technology (ICT) equipment and software, and IT services to take advantage of Kazakhstan’s Customs Union. According to figures that were issued by the Ministry of Transport and Communications, the government aims for ICT to account for 3.8 per cent of GDP by 2014, up from 3.3 per cent in 2009.

Investor enthusiasm for the sector was evident when KCell’s initial public offering raised $525 million Key to success is more research and development – most telecoms products and components are still imported. Attempts to address this include national technopark Alatau, near Almaty, also a designated special economic zone. The development of Kazakhstan’s telecoms market dates back to 2003 when the Agency for Information & Communication was charged with creating optimal conditions for infrastructure development and a competitive telecoms market; 10 years on the agency can look back with a sense of real achievement.

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Thales Alenia Space

A history of successful cooperation over more than 15 years on Kazakhstan’s satellites

Mr. Victor Lefter, President of RCSC and Mr. Andrian Yelemessov, the Kazakh Ambassador to Italy, visit the KazSat 3 communications Ku-band and payload satellite in integration at the Thales Alenia Space Satellite AIT Center in via Tiburtina (Rome).

hales Alenia Space manufactured KazSat-1 and KazSat-2 with Ku-band Payloads for

the Republican Center of Space Communication (RCSC), National Satellite Operator as the ﬁnal customer. Currently, Thales Alenia Space is supplying the KazSat-3 communications satellite payload, and TCR subsystem in cooperation with JSC “ISS – Reshetnev Company”, leading satellite manufacturer in Russia, which also provides the Express-1000 platform as responsible for whole satellite. Following other important projects on the

Thales Alenia Space, the European leader in satellite systems, and a major player in orbital infrastructures, is at the heart of the highest performance satellite technologies in both civil and defense sectors.

young generation. These products are in line with Kazakhstan’s strategy of development for the domestic, and export telecommunication markets. European leader in satellite systems and a major player in orbital infrastructures, Thales Alenia Space is a joint venture between Thales (67 percent) and Finmeccanica (33 percent). Formed in 2005, the company has 7,500 employees in France, Italy, Spain, Belgium, Germany and the United States.Thales Alenia Space has over 40 years’ experience in the design, integration

international market, namely Amos-5, Telkom-3

testing, operation and commissioning of innovative

and Yamal-401, Express-AT1, Express-AT2 and

space systems. Featuring cutting-edge technolo-

Express-AM8, the combination of ISS and Thales

gies, these systems meet the needs of commer-

Alenia Space products and skills is a natural part-

cial, government, scientiﬁc, defense and security

nership to serve major customers in Kazakhstan.

customers from around the world. The satellites

The partnership with the Russian industries began

and payloads designed by Thales Alenia Space

in the early 1990s, marketing jointly satellites ba-

set the global standard for space systems that

sed on the Express-AM platform.

provide communications and navigation services,

Thales Alenia Space conﬁrms its continuing support and cooperation for the development of Kazakhstan’s telecommunications satellite systems, focusing on the potential use of Ka-Band development for innovative services. Thales Alenia Space is proud to be the main and initial European partner in Kazakhstan for all telecommunications satellites, providing the beneﬁts of broadband deployment across the country, and training the

Thales_placed.indd 3

monitor our environment and the oceans, help us better understand climate change, and drive scientiﬁc progress. Thales Alenia Space is also a leading supplier to the International Space Station, and a pivotal player in space systems designed to explore the Universe. The company is one of the world’s leading manufacturers of communications satellites, platforms and payloads, offering a complete range of solutions, from high-performance components to turnkey systems.

30/04/2013 11:35

INDUSTRY FOCUS: TRANSPORT AND INFRASTRUCTURE

Upgrades to road networks in Kazakhstan will further open up the country as a trade route between western Europe and China

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Getty Images

Bridging the gap: international trade flows

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07/05/2013 19:16

INDUSTRY FOCUS: TRANSPORT AND INFRASTRUCTURE

Kazakhstan is working towards a long-term objective of increasing trade flows through the country, placing transport and infrastructure in the developmental spotlight

aintaining world-class standards within transport and infrastructure remains high on the Kazakhstan government’s agenda, as it drives access to new markets and diversifies the national economy, to the benefit of both domestic industries and the wider Central Asian region. Kazakhstan’s roads span 148,000 kilometers, with transit traffic predominantly passing through en route between the countries of Central Asia, Russia and China. Investment and strategic project activity is combining to capitalize on Kazakhstan’s enviable location, which boasts access to popular trade routes and export channels. The western Europe-western China highway is part of the New Silk Road initiative, which will boost the export potential of Kazakhstan by making it part of the growing transit network in the region. Modernization is key to Kazakhstan’s development strategies, and establishing a vast network of roads and railways will enable the country to shift its main export produce to non-oil products. China in particular is engaged in developing the transport networks of Central Asia, occupied with activities that include upgrading roads, constructing tunnels and bridges in Kyrgyzstan and Tajikistan, building turnkey hydro-electrical stations, and delivering railway materials. China has become the main trading partner of Central Asia, and is helping to stabilize the economies within the region. In 2012, it was announced that the World Bank will provide a $2 billion loan for the Kazakhstan South-West Roads Project, which will help to

upgrade the trade route linking China to Russia and western Europe, via Kazakhstan. The project will deliver economic stimulus to some of Kazakhstan’s poorest provinces, and bring significant economic benefits to the Central Asian region. Speaking about the loan, Sergei Shatalov, World Bank Country Manager in Kazakhstan, said: “Upgrading this key road will give a major stimulus to the Kazakh economy because construction of new stretches of the road and rehabilitation of the existing sections will create about 35,000 new jobs, and will generate substantial indirect benefits to most of the population in the Kazakh provinces of Kyzylorda and South Kazakhstan Oblasts, which are the poorest parts of the country. The road will improve access to markets for the local communities living along the corridor, and stands to benefit some three million people living in the neighboring provinces.”

Reducing journey times As well as road upgrades, the government is placing focus on improving travel times and distances across Kazakhstan. The drive time between Almaty and Astana – Kazakhstan’s two main business and government hubs – is set to be reduced, as the country’s Ministry of Transport and Communications plans to build a new motorway that will cut the traveling distance between the cities by 200 kilometers, reducing the travel time from 10-12 hours to seven-eight hours. The road will comprise four lanes, and is expected to be completed in 2017. Speaking about the development,

President Nursultan Nazarbayev said: “The full Astana-Almaty-Balkhash motorway will be 1,057 kilometers long. The existing road from Almaty to Yekaterinbug will connect Astana with Balkhash. In order to reduce the length of the motorway, we have taken the decision to build a big bridge in Balkhash with a total length of six to seven kilometers to reach Kapshagai and then drive further to Almaty.” Two further government-approved road projects are due for completion in 2019, which will connect Astana with Aktau and Ust-Kamenogorsk.

Regional relationships Kazakhstan is well connected with the wider Central Asian region, boasting 14 railway connections with other countries within 14,200 kilometers of railroads. The Druzhba-Alashankou cross-border railway between Kazakhstan and China and the Serakhs-Meshkhed between Turkmenistan and Iran offers new transit corridors along the New Silk Road, encouraging trade and broadening regional relationships. Furthermore, the vastness of Kazakhstan and its economy being centered on raw materials means that most freight traffic relies on a good railroad network. The country has plans to modernize the main railroad routes in line with its economic growth strategies. In the first quarter of 2013, construction began on the high-speed Astana-Almaty railroad, which will reduce the traveling time between the two large cities from 12 to five hours, and is due to be completed in 2015. The contract was awarded to Systra, a consulting-engineering firm that will oversee the design and construction of the railway. The trains will run at a maximum speed of 350 kilometers per hour, carrying five million passengers annually. Jointly built by China and Kazakhstan, the route will use the most

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Alstom in Kazakhstan – getting the population and economy moving

First freight locomotive KZ8A, which is one of the most powerful of its kind in the world

Since the adoption of the strategic development plan back in 1997, Kazakhstan has joined the five fastestgrowing markets in the world and has transformed itself into an independent state with a robust economy that is attractive for investment and open to new technologies. The country embraced the knowledge and experience offered by international companies. As a world leader in transport solutions, Alstom is proud to be helping Kazakhstan to achieve its ambitious tasks.

Kazakhstan today

Due to consistent economic policy that is focused on market opening, industrialisation and localisation of new production based on modern technologies, the country’s GDP grew by over 16 times, with a yearly GDP growth rate of 7.6 per cent. This placed the country among the 50 biggest economies in the world by GDP volume. As part of the industrialisation programme, circa 400 investment projects worth

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1.8 trillion tenge ($12 billion) were implemented and 44,000 jobs created. Kazakhstan has attracted more than $160 billion of international investment over the past 15 years. Having isolated transport infrastructure development as one of the main drivers of economic advancement, Kazakhstan established itself as a transport hub in the heart

Alstom is proud to be helping Kazakhstan to become a top-30 economy by 2050 of Asia, building the new Silk Road between Europe and western China, creating a mainline railway corridor. Alstom has not only witnessed how the country reinvented itself, but is part of these impressive transformations. Being an acknowledged transport expert, Alstom

provides solutions for increasing mobility and establishing business links between different areas of the country, which is known for its long distances between population centres. The company has been deploying its latest technology to help the country modernise and develop its rail infrastructure and signalling systems, and has been introducing a totally new means of transport – LRT. Covering 14,000km, the Kazakh railway network is the world’s third longest, using 1,520mm track gauge (Russia and CIS) and represents a substantial market. The Kazakhstan policy of welcoming international partnerships enabled two joint ventures to be created between Alstom and local companies. The first joint venture for the production of locomotives was established in 2010 between Kazakhstan Temir Zholi (KTZ), with 50 per cent shares on one side, and Alstom and its Russian partner Transmashholding (TMH) on the other, with 25 per cent shares each. The Kazakh party adopts a pragmatic and careful approach when

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choosing modern products for local market in order to make sure that the country gets the best product at the right time. The first big step for Alstom in importing modern products and the latest technologies to the Kazakh market was made in 2011, with an order for 295 electric locomotives. The contract, totalling €1.3 billion ($1.7 billion), included 95 passenger locomotives (KZ4AT) and 200 freight locomotives (KZ8A), which is one of the most powerful freight locomotives in the world.

Setting records

The government’s commitment to creating transparent and comfortable conditions for foreign investment and technologies, as well as establishing partnerships, brought quick and tangible results, for example, this policy made it possible for Alstom to set a double record when building the freight locomotive and its production plant. It took just 19 months for the first loco to be developed and supplied, and it took just 12 months to build the plant from scratch in Astana – the plant opened last December. Both locomotives incorporate Alstom technology, such as the traction system, as well as a number of other components manufactured by Alstom and TMH in Russia. The plant itself is part of the state localisation programme, supported by Alstom. The production of locomotives will be localised gradually, and will be accompanied by an increase in local jobs. The 10 pre-series locomotives are being manufactured at Alstom’s Belfort facility in France; the others will be built at the Astana site. The number of staff will increase from around 50 qualified people now to 650 personnel by 2016. Moreover, one job at Alstom means three jobs for its suppliers. Another joint venture was established between Alstom, Kamkor and KTZ in the sphere of signalling, specifically for the production of point machines, in Almaty in January 2013. This joint venture followed a €90 million ($116 million) order to supply 10,000 point machines over a 10-year period starting in 2013. The point machines are essential to the rail network as they enable trains to change tracks. Again, the first point machines will be imported from Alstom’s plant in Italy, and the production of a large share of components will be gradually localised. Believing in human resources as a strategic asset, Alstom has established a training center for staff participating in local projects. As a focus on better education is seen by the Kazakhstan

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government as a top priority and a source of future success, there is an expectation for a new generation of well-prepared engineers that large companies could recruit for further development. Another important consideration for Kazakhstan is concern for the environment. Kazakhstan wants to become ‘greener’, and the country is hoping to boost its environmental programmes following the announcement that it will host EXPO-2017 in Astana, which will demonstrate cutting-edge technologies and energy solutions. The exhibition itself demands some extra attention for transport, as during the

Alstom, which has over 100 years’ experience in transport, helps its customers to reduce their operating costs, reduce delivery and transportation time, increase safety and improve environmental and economic performance. The company is proud to be helping Kazakhstan to become a top-30 economy by 2050, when the country fully renews its production assets, and to provide its best transport products and services, with a view to raising the mobility of the population and developing neighbouring regions, including high-speed transportation between Astana and Almaty, if there is such a need. Alstom is deeply involved

President Nazarbayev, KTZ President Askar Mamin, Alstom CEO Patrick Kron and TMH president Andrey Bokarev at the Astana plant opening ceremony, December 2012

exhibition the city will need to provide modern and comfortable transportation for 6 to 7 million people from all over the world, thus adding to Astana’s need to optimise urban transport and decrease its congestion and emissions level. To address this issue, the city is going to introduce a new environmentally friendly and accessible transport system for Astana residents and city guests – light rail transit, or LRT, supplied by Alstom. The LRT vehicles are completely modular, combining the latest knowledge of modern engineering based on Alstom flagship’s model, Citadis. Designed to reach a maximum speed of 75kph, it can run at an average speed of 25kph. Citadis is 98 per cent recyclable and has a 100 per cent low floor, providing easy access for disabled or elderly people and for passengers with prams. It can be equipped with WiFi internet connections and will have a unique exterior and interior design. Over 1,500 LRT vehicles by Alstom run in 40 cities around the world and have moved over 4 billion passengers.

into the modernisation of infrastructure in Kazakhstan and greatly respects and supports Kazakhstan’s consistent policy to implement the best technologies in the most critical areas of the economy, such as transportation, which is vital for Kazakhstan’s development as one of the fastest growing countries. Future cooperation will bring us all more projects and opportunities to ensure Kazakhstan’s prosperity and success. Alstom Central Asia Floor 16, 27 Syganak St Beijing Palace, Astana Kazakhstan 010000 Tel: +7 717 279 9263 +7 717 279 9266 Fax: +7 717 279 9261 E-mail: Alstom.kazakhstan@promtell.kz

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INDUSTRY FOCUS: TRANSPORT AND INFRASTRUCTURE

Reuters

Kazakhstan’s Aktau Port on the Caspian Sea handles millions of tons of oil and cargo shipments annually

advanced Chinese technology, as well as new-generation locomotives and cars. Upgrades and new routes are much needed across Kazakhstan, and work is ongoing to achieve this end, thus encouraging the movement of people and freight. In 2012, freight volumes reached 294.7 million tons, and 675,000 kilometers of railroads were repaired. Developments in Kazakhstan’s rail industry are solid, and the country’s

Kazakhstan is preparing itself to welcome high numbers of visitors for EXPO 2017 by constructing a new major railway station in Astana. Work is due to begin in 2014, with the station located so that passengers coming into the capital can enjoy panoramic views of the Left Bank. The new station will serve the high-speed Astana-Almaty line, and in-keeping with the EXPO’s sustainable-energy theme will generate low carbon emissions. It will be equipped to handle passenger traffic of 35,000 a day, and is designed to represent the culture and architecture of Kazakhstan, with an arch over the station representing the immense scale of Astana and giant windows baring impressive views of the capital.

Kazakhstan is well connected with the wider Central Asian region Astana-based assembly plant has gone from producing one locomotive in six months to constructing six to eight machines every month. Under the umbrella of the Accelerated IndustrialInnovative Development of Kazakhstan strategy 2010-14, the plant is able to produce around 100 locomotives annually, sustaining 600 jobs. The scheme aims to stimulate industry to diversify and modernize the country’s economy. Undoubtedly, this will affect the economic outlook of the Central Asian region, reinforcing Kazakhstan’s position at the heart of the region’s development prospects.

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A logistics center The station will also meet the challenge of coping with mounting volumes of passengers and cargo along the international transport corridors, following comments from the State Architecture and Urban Planning Department Board that Astana may become a major transportation and logistics centre of continental importance, and a crucial focal point along the new international

transport corridor that will connect western Europe and East Asia. In addition to enviable road and railway developments, Kazakhstan boasts 21 airports – 15 of which are international – and in April 2012, a new international airport was commissioned for Astana. Lufthansa Consulting has been hired to plan the development, and the new airport will be a key element in the economic expansion of the country.

International standards As these plans were announced, the Ministry of Transport and Communications released strategies designed to ensure that international aviation standards are upheld, which include audits of individual airports that are designed to confirm their existing standards of service quality. The country’s seaports, and in particular Aktau Port on the Caspian Sea, also hold international significance, handling millions of tons of oil and cargo shipments annually. From JanuaryFebruary 2013, the port transshipped 1.5 million tons of oil cargo – an increase that shines positively on the shipping prospects of the country and of the wider region. The countries of Central Asia will surely benefit from improved transit links to Kazakhstan’s internationally connected seaports.

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GE Transportation

GE and KTZ â&#x20AC;&#x201D; A powerful rail partnership since 1995 GE Transportation forged a partnership in Kazakhstan nearly 20 years ago that has strengthened the countryâ&#x20AC;&#x2122;s critical rail infrastructure, increased its manufacturing base, bolstered local employment and helped establish the country as a center of excellence in the locomotive industry. What began in 1995 with modernizing TE10 locomotives expanded in 2009 as GE and Kazakhstan Temir Zholy (KTZ) celebrated a new locomotive assembly plant in Astana for Evolution Series Locomotives. Today, this plant is producing Evolution Series locomotives for Kazakhstan and the entire CIS region and is now preparing to produce Evolution Series passenger locomotives, the most technologically advanced diesel-electric, heavy-haul locomotives modified for higherTM

speed passenger service. GE also is part of a joint venture to manufacture Evolution Series diesel engines in Astana for rail, marine and stationary power customers in the CIS region in a new 97,000-square-foot facility scheduled to begin operations in 2014. And the partnership continues.

Evolution Locomotive built for Tajikistan Railways

KTZ Astana Assembly Plant

To learn more, visit www.getransportation.com.

GE imagination at work

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INDUSTRY FOCUS: AGRICULTURE AND AGRIBUSINESS

Reuters

The government initiative KazAgroInnovations is working with Australian scientists to develop varieties of grain that are extra tolerant to drought

Harvesting growth

Kazakhstan is well placed to bring an economic stimulus to the Central Asian region through its agriculture industry, which is growing steadily as a result of investment interest and solid governmental development programs

azakhstan is a country that is rich in land resources, with more than 74 per cent of its territory suitable for agricultural production. Agriculture is considered to be one of the countryâ&#x20AC;&#x2122;s key economic sectors, representing 5.5 per cent of gross domestic product (GDP) and

employing more than 20 per cent of the labor force, with 43 per cent of the population living in rural areas. The government is focused on growing and sustaining the agriculture sector, and has extended its program for boosting agriculture under the AgroIndustrial Complex Development Program to 2014. The initiative aims to provide

support for producers and investment for rural infrastructure projects. The Kazakh government has also pledged $20 billion of agricultural investment to support the development of the agro-industrial sector by 2020. Speaking in October 2012 to a business council on the expansion of Kazakhstanâ&#x20AC;&#x2122;s agriculture sector, then executive secretary of the Ministry of Agriculture, Yevgeny Aman, said that Astana wants to increase production by 1.5 times its current levels over the coming eight years. This announcement followed the disappointing harvest of

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INDUSTRY FOCUS: AGRICULTURE AND AGRIBUSINESS

Large amounts of cotton are exported from Kazakhstan, while the agriculture sector as a whole represents 5.5 per cent of GDP

Planning for the future

next eight years. Head of the Kostanay Research Institute of Agriculture, Valentin Dvurechenski, said: “No other country in the world produces summer wheat of the same quality as Kazakhstan does. However, the agro-processing is underdeveloped in our country. For this reason, we need to increase the labor productivity in agriculture three to four times. This is what the Agribusiness-2020 program aims at. “We joined the Customs Union and plan to access the WTO. The new program will help us to be competitive under the current conditions. Fulfillment of the set tasks will allow Kazakhstan to make a breakthrough in agriculture.” In particular, the Agribusiness-2020 program will assist the development and processing of agricultural products, improving the quality of manufactured products. The program will also provide state support in the form of subsidies for expenses incurred in processing agricultural raw materials and in the production of ready-made products. Furthermore, the program places special emphasis on creating the conditions for increased competitiveness among

Following the drought of 2012, the Ministry of Agriculture put in place urgent measures for the storage and supply of grain and cattle fodder. Dry conditions negatively impacted grain-

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2012, when drought caused serious damage to grain crops. “Exploring opportunities to support farmers, we have chosen four areas: financial recovery, increasing the availability of goods and services to farmers, development of national systems for [insurance], and increasing the efficiency of public administration,” Aman said. Throughout the drought period, the government remained acutely aware of the threat of rising grain, flour and bread prices. To counter this threat, price-setting measures were put in place in order to prevent profiteering at a regional level. With regard to measures in the longer term, state-run research organization KazAgroInnovations is working with the Australian Center for Plant Functional Genomics to create new varieties of grain that have increased drought resistance characteristics.

The livestock industry is growing gradually, with meat output rising by three per cent during 2011-12 producing countries around the world, and Kazakhstan is taking action to protect itself from rising global prices. Specifically, the Ministry of Agriculture took steps to control the consequences of the extended dry period in the worstaffected provinces and cities – notably the Kostanay, Akmola and Aktobe provinces in the north, and Karaganda. Measures have also been put in place to prevent grain deficits in 2013, with the authorities reserving 50,000 tons of seed to be provided to farmers this year. The Agribusiness-2020 program seeks to drive a substantial increase in subsidies and investment, with state subsidies to farmers rising over the

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agribusiness entities, which will make the agro-industrial sector more attractive and less risky for both workers and investors. Labor productivity per employee will increase threefold under the program, and export earnings will rise by 20 per cent. During a session that he chaired, Prime Minister Serik Akhmetov said that the program will also “help to ensure food sovereignty on the basic foods at the level of 80 per cent”.

Modernizing the sector Creating the conditions to attract private investments into Kazakhstan’s agriculture sector is a key driver of the country’s economic growth. Mounting levels of investment will promote the development of related industries, stimulating a multiplying effect across Kazakhstan’s economy. Modernization is a focal point for those charged with developing the country’s agriculture sector – notably regional governors and non-governmental organizations, tasked with establishing an interagency commission for addressing any issues that emerge in the course of implementing the program. Regional governors were specifically charged with providing every agricultural enterprise and every farmer with access to the instruments and mechanisms

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INDUSTRY FOCUS: AGRICULTURE AND AGRIBUSINESS

Reuters

Kazakhstan’s State Program for Livestock Development sets out plans for the country to be producing 180,000 tons of beef for export by 2020

of the program. “The president placed special importance to the necessity of large-scale modernization of the agricultural sector of the country,” Akhmetov said at the meeting. “The first steps towards its modernization should be adoption of the new program. We have fulfilled this instruction of the president. The main task now is its consistent implementation.” Since the breakup of the Soviet Union, Kazakhstan has taken great strides in increasing its agricultural productivity. Investment has been made in a variety of areas, including grain-storage infrastructure, livestock breeding and greenhouses. Strong and sustained growth across Kazakhstan’s agribusiness market is anticipated, with the expansion of the farming and food-processing sectors ongoing. Business Monitor International has forecast an average annual growth rate of 9.4 per cent until 2016. Many of Kazakhstan’s agricultural sub-sectors of are experiencing growth. The livestock industry is growing gradually, with meat output rising

by three per cent during 2011-12. The country continues to export large amounts of cotton, leather and wool, and it is widely acknowledged that Kazakhstan’s agricultural exports may reach the levels of Eastern European countries within the next few years.

Domestic expansion From 2010-11, National Holding KazAgro allocated $629.3 million for 86 projects, including the construction of poultry farms, meat-packing factories, greenhouses, feedlots, infrastructure for grain exports and the development of processing industry. In early January 2012, 32 projects that were worth a combined $193 million were completed, having created 2,000 new jobs. While domestic growth is certainly welcome, exporting Kazakhstan’s agricultural produce has proven to be challenging, with many of the country’s near neighbors having small markets that are unable to provide the level of demand required. Greater prospects lie in China, which not only has a sizeable market, but also opens up the

prospect of exports to the countries of south-east Asia through its trade routes. The Kazakh government has also placed importance on accessing the markets of North Africa and the Middle East, with demand from these emerging markets expected to drive grain production to 22.1 million tons per year, according to data from analysts Business Monitor International. Establishing strong foundations for the industry and having contingency measures in place will enable Kazakhstan’s agriculture sector to reach its full potential, thus achieving export deals with international partners and creating jobs across the country. Kazakhstan remains an important producer and exporter of agricultural products in the region, despite global price fluctuations, and continues to consistently meet domestic food demands, with production rising steadily. Government programs remain focused on reducing the country’s reliance on imports and so becoming self-reliant, as well as a contender in the international arena.

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INDUSTRY FOCUS: POWER

With challenging targets for reducing its greenhouse-gas emissions, Kazakhstan is investing in its huge wind-power potential

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Energy projects get the green light

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INDUSTRY FOCUS: POWER

Kazakhstan is moving full-steam ahead with projects to update its energy generation and transmission networks in order to cater for rising domestic demand, while it is also taking part in a pioneering international energy project

ncreasing energy output is a major challenge for a nation that plans to reduce carbon dioxide emissions, promote energy security and reduce energy consumption, but Kazakhstan is well equipped to meet it head on. The country is working with partners both in the region and further afield to address some of these issues. It is a member of the European Union INOGATE energy program, which has four key aims: enhancing energy security; convergence of member state energy markets based on EU internal energy market principles; supporting sustainable energy development; and attracting investment in energy projects.

Efficiency measures Kazakhstan’s economic development has been marked by huge energy consumption and carbon dioxide emissions. Now, it is working with external organizations such as the United Nations Development Programme (UNDP) to develop strategies for cutting its consumption of fossil fuels, while continuing to build up economic output. This is essential for a country whose industrial sector accounts for about 62 per cent of total electricity consumption, according to Dena, the German energy agency. The country has taken far-reaching steps, including 2011’s Energy Efficiency Act, which established funding for energy-saving measures, created a state energy register to control usage and imposed energy-conservation and efficiency regulations. For example, all enterprises – state and private – with an

annual energy consumption in excess of 1,500 tons of hard coal units have to audit their energy usage and establish efficiency programs as well as energymanagement systems. Kazakhstan has also launched a fund for loans to promote energy efficiency and investment in renewable sources – the Kazakhstan Sustainable Energy Financing Facility (KAZSEFF). This is aimed at private industrial companies that want to invest in energyefficiency and renewable projects to reduce costs. Since its 2008 rollout, KAZSEFF has organized a number of conferences across the country focusing on industrial modernization and energy efficiency and, as a result, 25 projects have been approved. These are expected to save approximately 320 GWh a year, the equivalent of 27 million kg of crude oil, or the energy consumption of

to meet the government’s target of a renewable energy capacity of 1,040 MW by 2020, detailed in its 2012-13 action plan on development of alternative and renewable energy sources. In addition, President Nursultan Nazarbayev has set a 2050 goal of at least 50 per cent of all the power consumed in Kazakhstan coming from renewable sources. Wind is one of the most advanced types of renewable energy supply. The UNDP has drawn up a ‘wind atlas’ of Kazakhstan, and 10 construction sites for wind power plants (WPPs) have been earmarked for development. The nation’s solar energy generation capacity has also been investigated, and it is estimated that the southern regions of Kazakhstan could provide as much as 2,500 to 3,000 hours of sunshine each year.

Energy tariffs The next step is for Kazakhstan to use its energy tariffs to cover the cost of replacing or modernizing its power plants. KAZSEFF says: “The gradual movement towards cost-covering energy tariffs is an economic requirement to generate funding for necessary investments in replacement and modernization of the existing power plants and infrastructure. “In the past, energy tariffs were still so low that they played an insignificant role in costprice calculations. Companies prioritized income-generating investments and paid only little attention to energy savings. It is assumed that increasing energy prices will provide a major incentive for rationalizing energy use and stimulating investments.” The country’s national power grid operator, Kazakhstan Electricity Grid Operating Company (KEGOC), was established in the 1990s and is owned by Samruk-Kazyna. KEGOC says that, since its creation, it has been

Southern Kazakhstan could provide 2,500 to 3,000 hours of sunshine a year 120,000 domestic households. Annual savings in greenhouse-gas emissions are equivalent to 120 flights around the world by a Boeing 737 airplane. The government is committed to increasing Kazakhstan’s use of renewable power sources as part of a balanced, diversified approach to the country’s energy needs. The country produced six per cent more renewable power in 2012 than in 2011. This progress will have to continue if it is

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INDUSTRY FOCUS: POWER

will serve to bring down energy prices for consumers while improving the quality of electricity services. The country is also expanding its uranium production for nuclear power. According to the World Nuclear Association, in 2009, Kazakhstan became the world’s leading producer of uranium, mining close to 28 per cent of the total global output. This share rose to about 37 per cent in 2012. The country has signed a host of nuclear power agreements with partners in the region, including three joint ventures with Russia in 2006 for new nuclear reactors and uranium production and enrichment. In 2011, Kazakhstan’s Kazatomprom and Russia signed the second stage of an agreement on uranium exploration and a feasibility study for a Kazakh nuclear power plant.

Kazakhstan has agreed to host a uranium ‘bank’ in order to reduce nuclear proliferation

Reuters/Corbis

Low enriched uranium

improving its electricity tariff policy; in 2010 it introduced a uniform rate for all categories of service users, and says that this will improve “transparency of tariffsetting and [the] pricing mechanism [...] It will ensure non-discriminatory access to the National Power Grid.”

Modernization Kazakhstan’s power-generating facilities and infrastructure are in urgent need of an upgrade. More than 90 per cent of the country’s gas turbines, almost 60 per cent of its steam turbines and 33 per cent of its steam boilers have been in use for at least 20 years. “Necessary investments are not limited to the energy producers but also [apply to] the final users,” according to KAZSEFF. “Kazakh industrial companies are consuming a significant[ly] higher volume of energy for production purposes (up to five times [more]) than similar companies in western countries, mainly because of the use of obsolete technologies and equipment.” A range of measures to beef up the country’s energy infrastructure is now being implemented, encompassing numerous construction projects.

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These include a gas-turbine power station in Kyzylorda; Alma substation and Monkay hydropower station in Almaty; a gas-turbine power station in West Kazakhstan; and an energy block at Ekibastuz-2 hydropower station, Pavlodar. Other improvements include the expansion of Atyrau power station; construction of a transformer substation in Almaty; and reconstruction of energy blocks at Ekibastuz-1 as well as the Aksu hydropower stations, Pavlodar. Kazakhstan has also built a new electricity transmission line with support from the World Bank. This provides energy to about three million people in South Kazakhstan and doubles the energy distributed from the north of the country to the southern regions. The World Bank says that the system, in creating an ‘energy bridge’ via Kazakhstan between Russia and Central Asia, is also furthering regional integration by promoting trade. The transmission line has also sparked greater competition by allowing low-cost energy generators to compete for customers in the southern part of the country. Competition, of course,

The country has also agreed to host a reserve of low enriched uranium (LEU), or an international LEU bank to encourage nuclear nonproliferation. Owned by the IAEA, the bank will help to assure a supply of LEU for power generation. Should an IAEA Member State’s LEU supply to a nuclear power plant be disrupted, and the supply cannot be restored by the commercial market, it may call upon the bank to secure LEU supplies. According to the World Nuclear Association, Kazakh nuclear power plans include proposals for a new nuclear power plant near Lake Balkhash in the south of the country, north of Almaty, and for a unit at Aktau in the west. In 2012, the government reviewed its draft master plan for developing Kazakhstan’s power generation. According to this plan, by 2030 about 4.5 per cent of its electricity should be produced using nuclear reactors. The government is considering plans for a new nuclear power plant at Aktau, which already has existing infrastructure and experienced personnel from a reactor that operated from 1973 to 1999. Kazatomprom is inviting international bids to build the new plant, with two VBER-300 reactors likely to be required.

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INVESTMENT CASE STUDIES

Investing in Astana A review of companies that have successfully invested in Kazakhstan’s capital and gained a share of domestic markets as a result, also focusing on what those companies give back to Kazakhstan

Chevron Chevron is one of the world’s pioneering integrated energy companies and the largest private oil producer in Kazakhstan, with stakes in the two biggest oilproducing projects in the country: Tengiz, which is the world’s deepest operating super-giant oilfield, and Karachaganak, which is Kazakhstan’s second-largest producing petroleum reserve In 1993, the Tengizchevroil (TCO) joint venture partnership was formed between Chevron and Kazakhoil, now KazMunaiGas – the state oil company. TCO has expanded over the years, but Chevron became the first major Western oil firm to enter the newly independent Kazakhstan. The Kazakh government granted TCO a 40-year right to develop the Tengiz and Korolev oilfields in the Caspian Sea. The Tengiz field is one of the world’s largest, with estimated recoverable reserves of between six and nine billion barrels.

Infrastructure expansion In 2008, TCO completed the Sour Gas Injection and Second Generation Plant – a $7.4 billion expansion project that increased TCO’s crude oil production capacity by around 80 per cent and took five years to complete. Between 1993 and 2010, Chevron made more than $25.7 billion of direct investments into the Kazakh economy, including capital investments and operational expenses. In the same period, TCO made direct financial payments of around $48 billion into the country’s economy. In December 2010, Chevron and other shareholders sanctioned the final investment of $5.4 billion to expand the Caspian Pipeline Consortium pipeline,

In 1993, the Kazakh government granted Chevron a 40-year right to the development of the Tengiz oilfield

which creates a critical export route for crude oil from TCO and Karachaganak, carrying the oil from Western Kazakhstan to a terminal in the Black sea. In July 2011, a ceremony was held to mark the start of the construction phase of the Caspian Pipeline Consortium extension project, which will see capacity of the pipeline increase from 730,000 barrels to 1.4 million barrels per day and is expected to reach its peak in 2015. Chevron has under taken the long-term commitment of assisting in the diversification of the economy

of Kazakhstan. Throughout its time operating in the country, Chevron has employed local people, purchased Kazakhstani goods and services, paid tariffs and fees to state-owned companies, distributed profit to Kazakhstani shareholders and paid taxes and royalties to the Kazakh government. The company is also firmly engaged with the Kazakh community. Chevron has implemented programs that strategically invest in the longterm future of the communities and businesses that make up Kazakhstan.

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INVESTMENT CASE STUDIES

In 2002 Microsoft began operations in Kazakhstan, creating new opportunities within the country’s information and communications technology (ICT) industry. Basing its business model on local partners, Microsoft is today investing much into the development of a strong domestic software industry, working to raise the standard of ICT education, trends and innovations across the country Microsoft is contributing to the transformation of education and learning and is fostering local innovation, driving job creation and opportunities and increasing competitiveness and performance. The company’s ‘Partnership in Education’ program is being implemented as part of the ‘Agreement on Cooperation in the Field of Development of Modern

Microsoft’s presence has grown in the Kazakh ICT marketplace since 2002, and the company is contributing to improvements in information access in the country

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Information Technologies in Education’, which is designed to increase the amount of information available in the country’s educational institutions. Signed in December 2004 by Kazakhstan’s Ministry of Education and Science, the agreement was renewed for a further five years on the original agreement in September 2009, meaning it will continue to provide assistance in realizing creative potential through the use of ICT to both students and educators. To date, more than 14,000 Kazakh teachers have received training on the use of ICT under the program. Microsoft entered Kazakhstan during strong economic conditions, and over time it grew from a small, emerging subsidiary into a mediumsized organization. Building a reliable ICT infrastructure lies at the core of Microsoft’s ambitions for the country, and its corporate mission is to support the Kazakh government in this endeavor.

Implementing a robust infrastructure will ensure the development of effective public services that will enable the country to realize its goals in the business and social spheres. As well as investing in ICT development, Microsoft prides itself on its social responsibility and corporate citizenship programs. It upholds high standards of conducting business, and supports numerous projects and organizations that work to expand opportunities. Building a diverse economy built on strong, innovative industries is a core objective of Microsoft, while empowering people through the use of ICT is also a central aim. Microsoft is continuing to make significant contributions to Kazakhstan’s ICT industry and cooperates with schools, universities and governmental organs in order to support the development agenda of the country.

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Microsoft

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INVESTMENT CASE STUDIES

GE Evolution Series locomotives are assembled in Kazakhstan from kits and parts that are produced in Pennsylvania, US, and in 2012, GE Transportation and national rail company Kazakhstan Temir Zholy (KTZ) announced another agreement to produce passenger locomotives at the assembly plant in Astana, Kazakhstan As from the first half of 2014, 110 GE Evolution passenger locomotives will be assembled in Kazakhstan. The locomotives are technologically advanced diesel electric, heavy-haul units that are modified for higher speed passenger service. The passenger locomotives are designed to operate at 160 km per hour and will have features that are configured for passenger service within Kazakhstan and the surrounding areas. “GE and Kazakhstan have a long and fruitful history of working together,” says Lorenzo Simonelli, president and

HSBC In 1999, HSBC Bank Kazakhstan opened for business in Almaty, providing services and solutions to financial institutions as well as corporate clients and facilitating the process of conducting domestic and international transactions “HSBC has become a reliable partner for local and international customers in Kazakhstan, who benefit from our international experience... and ability to provide professional support to Kazakh businesses entering global markets. We have also developed a retail banking footprint that is successfully growing, and is serving local customer needs. HSBC sees continued excellent opportunities for development of our business in the country and we have strong ambitions to build our business further,” says Lars Reiding, HSBC’s chief executive officer in Kazakhstan. Part of the HSBC Group, HSBC Bank Kazakhstan has undergone considerable expansion since 2007, with

CEO of GE Transportation. “Since 1995, GE and KTZ have collaborated to drive Kazakhstan’s economic development. “The delivery of the 3,000th Evolution locomotive marks an important milestone for our relationship with KTZ and Kazakhstan, as well as being a great example of how globalization has opened up growth opportunities for GE Transportation.” Joint Stock Company (JSC) Lokomotiv currently operates 404 GE-modernized locomotives and has taken delivery of

150 Evolution locomotives from a previous order. The assembly and use of GE locomotives also enables KTZ to pursue its growth plans within the country and the wider region. Kazakhstan is an important market for GE Transportation because in addition to the sale of locomotives, GE Transportation has plans to collaborate on other projects, such as service agreements and signaling projects, so that Kazakhstan will serve as a showcase for the region and beyond.

GE Transportation has strong ties with Kazakhstan, both as an industry partner and sales market

new branches opened in Astana, Atyrau and Aktau, as well as a second branch in Almaty. Strong investment has been made in the people and infrastructure of the bank, which has enabled HSBC Bank Kazakhstan to offer relationship management services supported by online capabilities and strong processes. As well as offering retail and wholesale banking solutions for personal clients, HSBC Bank Kazakhstan caters to corporate clients, providing lending and trade finance solutions. In 2008, Retail Banking and Wealth Management (RBWM) was launched, and since then it has doubled in size. Its client base is rapidly growing and branch presence is expanding, and the personalized banking and wealth management services offered by the bank provide exclusive benefits and privileges to certain customers. HSBC Bank Kazakhstan upholds an excellent reputation among large corporate companies and leading international businesses, providing financial and banking support to a range of clients.

GE Transportation

HSBC Bank Kazakhstan acquired the retail banking assets of the Royal Bank of Scotland’s (RBS) Kazakhstan business in September 2010. The acquisition included RBS’s credit card and personal customer loan portfolios, four branches, 80 ATMs and two support offices. HSBC Bank Kazakhstan has grown considerably over the years, and today it employs more than 700 people. It offers a range of services to clients, including Global Banking and Markets products both within HSBC Bank Kazakhstan and via offshore booking through HSBC Bank PLC, and is a recognized market leader. The bank facilitates strong relationships between businesses and market authorities and ensures that clients are up-to-date with market changes that may affect them. HSBC Bank Kazakhstan lends and invests responsibly, supports education and youth in order to drive the development and prosperity of Kazakhstan, and is committed to achieving long-term success for its clients, as well as the country’s economy.

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Index of advertisers Air Astana .................................................................................................................. 104 Aksai Industrial Park ....................................................................................................36 Almaty Heavy Machinery Plant – JSC AZTM .................................................................16 Alstom ....................................................................................................................... 100 Atlantic Council ............................................................................................................18 Baker & McKenzie .......................................................................................................... 4 Bogtyr Komir................................................................................................................ 86 Chandler GmbH ............................................................................................................. 6 ConocoPhillips..............................................................................................................78 Deloitte ........................................................................................................................ 64 Ernst & Young .................................................................................................................2 GE Transportation.......................................................................................................103 Grundfos Kazakhstan LLP............................................................................................115 HSBC.............................................................................................................................. 8 Interteach .....................................................................................................................56 JSFC Sistema – Forpost ................................................................................................ 20 Kimberly-Clark .............................................................................................................. 61 LG .................................................................................................................................26 Partex Oil and Gas ....................................................................................................... 80 Philip Morris International ...........................................................................................10 Samsung ............................................................................................................. 32 & 116 Shell.............................................................................................................................. 12 South Oil LLP ................................................................................................................82 Tele2 .............................................................................................................................92 Thales Alenia Space ..................................................................................................... 96 Veritas Caspian .............................................................................................................70 Zhaikmunai ................................................................................................................. 66 Zhanros Drilling LLP .....................................................................................................74

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