Invest in Kazakhstan 2012 by Embassy of Kazakhstan to the U.S.

An ofﬁcial publication of the Government of the Republic of Kazakhstan

ECONOMY

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CONSTRUCTION

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OIL AND G AS

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MINER ALS AND MINING

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AGRICULTURE

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TOURISM

Editor Editor-in-chief Sub-editors Contributors

Alan Spence Barry Davies Chloé Elliott, Emily Eastman Wendy Atkins, Nigel Gibson, Audrey Russell

Art director Art editor

Jean-Philippe Stanway James White

Production and distribution manager Editorial production assistant Sales director Sales manager Sales executives

An ofﬁcial publication of the Government of the Republic of Kazakhstan

Malcolm Green Elizabeth Heuchan Martin Cousens Laurie Pilate Dalila Benabdallah, Tatyana Bondarchuk, Alexander Smith, Christoph von Kretschmer

Managing director Chief executive Chairman

Andrew Howard Alan Spence Paul Duffen

ECONOMY

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CONSTRUCTION

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OIL AND G AS

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MINER ALS AND MINING

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AGRICULTURE

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TOURISM

Pictures: Alamy, Corbis, Demotix, Getty, Reuters, Rex Features ISBN: 978-1-906940-61-4 Printed by Buxton Press Published by Newsdesk Media Inc 700 12th Street, NW, Washington DC 20005, US Tel: +1 (202) 904 2423 Fax: +1 (202) 904 2424 www.newsdeskmedia.com

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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

© 2012. 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 writers’ 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 Inc 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 Inc of products or services referred to therein.

INVEST IN KAZAKHSTAN 2012

Contents

Forewords

Nursultan Nazarbayev

Erlan Idrissov

Kazakhstan’s President Nursultan Nazarbayev has ambitious modernization plans in place to drive the country’s future development, extending freedoms and enhancing key aspects of everyday life

President of the Republic of Kazakhstan

Ambassador of Kazakhstan to the United States

Strength in diversity

Strengthening ties with the United States

Samruk-Kazyna – a focal point for foreign investors

The case for investing in Kazakhstan

Economic and social development – powered by modernization

Toward a third decade of development Economic growth and increasing levels of foreign investment are encouraging government plans for industrial development as Kazakhstan targets a third decade of success since its independence

Establishing a presence on the global stage How Kazakhstan’s government is creating new partnerships with countries around the world. Including a message from Yerzhan Kazykhanov, former Foreign Minister of Kazakhstan

The economy: dynamism and liberalization A look at how Kazakhstan’s economy is beneﬁting from a foundation of economic freedom, supported by foreign investment and government initiatives

Kazakhstan’s trade and investment is being driven by a policy of multilateralism – a strategy that is diversifying the economy, increasing trade turnover and promoting the country internationally

Businesses in the US have long been investing signiﬁcantly in Kazakhstan, which is preparing for its accession into the World Trade Organization – a development that promises valuable trade and investment beneﬁts for both nations

The country’s sovereign wealth fund continues to assume an important role in economic expansion, promoting industrial innovation and development. Including a message from Kuandyk Bishimbayev, Deputy Chairman of the Board, Samruk-Kazyna INVEST IN KAZAKHSTAN 2012

Taxation policy and FDI Kazakhstan is assessing and revising its current taxation policies, aiming for a balance between beneﬁts to social and economic development and competitive strategies for international investors

Processing and reﬁning oil and gas – key strategies Kazakhstan is expected to offer a wealth of oil and gas opportunities to foreign investors as the country implements policies designed to maximize the return on its natural resources

Special focus on oil and gas Investment opportunities sector by sector

Boosting oil and gas output Sauat Mynbayev, Kazakhstan’s Minister of Oil and Gas, highlights the sector’s commercially attractive prospects for foreign investors, and its impact on Kazakhstan’s economic performance

Natural resources are abundant in Kazakhstan, creating huge scope for international mining enterprises to explore and develop some of the world’s largest reserves

Major new projects in the pipeline An examination of government plans to increase the supply of oil and gas to fast-growing Asian markets, and the projects being planned to meet the sector’s targets for development under a state program

Extending the range of oil and gas transportation Under the government’s Strategy for Industrial and Innovative Development 2020, Kazakhstan aims to increase the sustainability of its economic growth by developing new infrastructure to extend the supply of oil and gas

Minerals and mining: an attractive proposition

Construction and real estate on the rise

The nuclear energy cycle: a case study in global strategy

With the urban population growing, the construction industry is thriving amid burgeoning demand for new residential and commercial properties

Kazakhstan’s plans to utilize uranium reserves and increase production over the next ﬁve years. Including a message from Vladimir Shkolnik, Chairman of the Board, NAC Kazatomprom INVEST IN KAZAKHSTAN 2012

Developing conventional and alternative methods of power generation

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An emphasis on alternative energy sources is fundamental to Kazakhstan’s future plans of becoming an energy superpower, with the economy set for a boost from exports of electricity

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A new network for global trade

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Kazakhstan gets better connected

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Farming and food production: meeting rising demand Agricultural programs are being implemented across Kazahkstan, boosting the industry’s potential through foreign investment and new technologies, and reducing dependence on food imports

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Bringing healthcare to everybody

Information and communications technology (ICT) is a priority for the government, which is in the process of rolling out new technologies and developing its citizens’ expertise for the maximum beneﬁt of a knowledge-based economy

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Tourism and sport – investing in leisure

Banking and ﬁnance – greater international engagement

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Investment success stories

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Index of advertisers

With substantial investment in infrastructure, new transport links are positioning Kazakhstan as a gateway to Central Asian and international markets

The ﬁnancial sector continues to make a strong recovery from the global crisis, setting foundations for Almaty to become a ﬁnancial center for Central Asia. Including a message from Grigoriy Marchenko, Governor of the National Bank of Kazakhstan

New initiatives aim to extend modern healthcare to every Kazakh citizen, creating opportunities for foreign investment in medical infrastructure and the production of equipment and pharmaceuticals

As Kazakhstan’s growing international proﬁle is reﬂected in increased numbers of tourists visiting the country, investors in the hotel and leisure industries are watching developments closely

Case studies highlighting three major foreign companies that have already invested in Kazakhstan’s ﬂourishing economy

INVEST IN KAZAKHSTAN 2012

FOREWORD

Nursultan Nazarbayev President of the Republic of Kazakhstan

t is my pleasure to welcome you to Invest in Kazakhstan 2012. At the beginning of its third decade of development, Kazakhstan is becoming a mature state that aims to improve the socioeconomic welfare of its citizens. Since gaining our independence, we have always demonstrated our commitment to the fundamental principles of open partnership and fair competition. Despite an unstable global political and economic environment, Kazakhstan shows steady growth in all sectors of its economy. Last year alone, the country’s gross domestic product grew by 7.5 percent, and attracted more than $18 billion in foreign investment. These and other advances are key to the dynamic development and stability of Kazakh society. Kazakhstan has successfully implemented a state program of industrial-innovative development, aimed at the technological modernization of the country’s economy. We are also providing support for entrepreneurship, as well as increasing the level of vocational training and employment. Kazakhstan is, by far, the most investment-friendly country in the Central Asian region. In fact, 70 percent of the total foreign direct investment in Central Asia – more than $150 billion – to date has been brought into our country. In addition, the Foreign Investors Council is established and operates successfully. It includes international companies such as ExxonMobil, Chevron, ConocoPhillips, Ernst & Young, HSBC, and many more. Kazakhstan is open for business! We are always ready to welcome new business partners that can help make a signiﬁcant contribution to enhancing the global competitiveness of Kazakhstan. I hope you enjoy the publication, and will consider doing business in Kazakhstan.

INVEST IN KAZAKHSTAN 2012

FOREWORD

Erlan Idrissov Ambassador of Kazakhstan to the United States*

ince the last edition, Kazakhstan has progressed through a truly remarkable period in its short history. We began with last December’s celebration of the country’s 20th anniversary, which provided Kazakhstan with the opportunity to remind the world of its many political, diplomatic, economic and social achievements in just two decades of independence. One of the abiding themes of Kazakh foreign policy is engagement at the broadest possible level in the pursuit of peace and prosperity, and this year has very much been a year of engagement. The Government’s domestic drive to raise living standards and promote economic and social development for the people of Kazakhstan expresses itself internationally in a multilateral foreign policy. This policy is aimed at maximizing global trade and investment relations, while simultaneously making a positive contribution towards international peace and stability – themselves prerequisites of economic growth and development. This year also witnessed the launch of the Kazakhstan-US Strategic Partnership Commission, which underpins and provides a framework for relations between the two countries under a series of headings, including nuclear non-proliferation, commercial and financial cooperation, energy and science. Kazakhstan’s decision to nuclear disarm, shortly after becoming an independent state, helped form the basis of its strong friendship with the United States, which the Strategic Partnership Commission affirms. The country’s non-nuclear status also reinforces Kazakhstan as a force for stability throughout Central Asia and, increasingly, on the global stage. This status led directly to the country hosting August 2012’s landmark event in Astana, entitled “From a Nuclear Test Ban to a Nuclear Weapons Free World”. This event was attended by more than 75 countries, as well as by the International Atomic Energy Agency and United Nations (UN) officials. This year also marked the 20th anniversary of the Conference on Interaction and Confidence Building Measures in Asia (CICA) – an initiative first proposed by President Nazarbayev. Designed to promote security and stability across the region, ministers from CICA countries met in Astana in September to help further boost cooperation between member nations. Agenda items included promoting economic development, combating environmental threats and tackling organized crime. These and other engagement activities throughout the year followed hard on the heels of Kazakhstan’s recent successful chairmanships of the Organization for

INVEST IN KAZAKHSTAN 2012

FOREWORD

Cooperation and Security in Europe, the Shanghai Cooperation Organization and the Organization of Islamic Cooperation. They also coincided with continued steady progress towards the Customs Union between Kazakhstan, Russia and Belarus, closer ties with the Organization for Economic Cooperation and Development (OECD), and Kazakhstan’s imminent membership in the World Trade Organization. Just as Kazakhstan works hard to promote regional and global relationships to foster peace and economic prosperity, it has labored tirelessly to create a domestic business climate that will maximize engagement with foreign investors to help underpin its rapid industrial development plans. This will further embrace not only the country’s vast raw material wealth and related industries, but also new, sophisticated, high-technology industries that will help to increasingly deepen and diversify the Kazakh economy.

Kazakhstan works tirelessly to promote regional and global relationships to foster peace and economic prosperity Meanwhile, such has been the success of, for example, the country’s macroeconomic management and labor-efficiency policies that Kazakhstan recently leapt higher than any other nation in the World Economic Forum’s latest global competitiveness rankings – rising 21 places to 51 out of 144 countries. With post-recession gross domestic product growth now running at an annual rate of around six per cent, the financial sector holding firm and the government’s accelerated program of innovative industrial reform generating a wealth of investment opportunities, the potential for current and prospective investors to engage with Kazakhstan has never been so great. *Ambassador Idrissov was appointed as the Foreign Minister of Kazakhstan on September 28, 2012 INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

Toward a third decade of development

Modern high-rise buildings have transformed the skyline of Kazakhstanâ&#x20AC;&#x2122;s capital. Astana, symbolizing the economic achievements of the past 20 years

INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

The ﬁrst 20 years of Kazakhstan’s independence has seen economic growth and increasing foreign investment. Government plans for all industrial sectors are aimed at continuing the success story into a third decade and beyond

his edition of Invest in Kazakhstan marks the start of the third decade of development following last year’s celebration of 20 years of independence. The country is looking ahead to a decade of further growth and the realization of medium-term development plans, as well as continuing on the path to achieving long-term development aims in Kazakhstan by 2030. The government continues to drive transformation across the country’s industrial, ﬁnancial, economic and social fabric, while pursuing a foreign policy based on multilateral diplomatic and commercial engagement. Kazakhstan President Nazarbayev’s pragmatic approach to international relations has won his country friends around the world. In order to take full advantage of trade within the region, Kazakhstan has formed a Customs Union with Russia and Belarus. The President’s decision to sign a nuclear non-proliferation treaty soon after independence, and the closure of the Semipalatinsk nuclear testing ground in 1991, have formed the cornerstone for a relationship with the United States that is now enshrined in the Kazakh-American Strategic Partnership Commission. Kazakhstan continues to make progress in its ambitions to join the World Trade Organization (WTO). The government is revising its trade regime to comply with WTO rules, including those on agriculture, trade, customs procedures, protection of intellectual-property rights, treatment of state-owned or controlled enterprises, and transparency. The government’s sound handling of the economy, and its steady approach to dealing

with the credit crisis, has contributed to a system that is praised internationally for its ability to attract foreign investors. Foreign companies have been encouraged to ﬁnd out what the country has to offer because of its sociopolitical stability that has been strengthened by democratic and market reforms, characterized by privatization, macroeconomic development and sound legislation essential for business. As a consequence of its forward-looking approach, Kazakhstan has risen up the world rankings of places in which to do business. The country is now ranked 65th by US-based think tank Heritage Foundation, putting it ahead of European power France, and above world and regional averages. Kazakhstan also ﬁnishes well above average in the World Bank’s Doing Business index, which ranks economies based on their ease of engaging in business ventures. In this it is placed 47th out of 183 nations, ahead of several European Union (EU) countries including Italy and the Czech Republic.

Avoiding the resource curse Blessed with a wealth of natural resources – from oil and gas to numerous minerals – it would be easy for the Kazakh government to follow the path of other emerging markets and focus too much on these sectors. However, it has sensibly refused to be a victim of the resource curse that has afﬂicted so many other similarly endowed economies, and has, instead forged a path that has seen new sectors emerge and blossom. With President Nazarbayev at the helm, the country has adopted a policy of diversiﬁcation, which it is feeding into many initiatives over the coming decade. The government prioritized key sectors including tourism, oil, mining and metallurgy, chemicals, nuclear power generation, engineering, pharmaceuticals, construction, agriculture, light industry, information technology (IT), biotechnology, space research/exploration and alternative energy. INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

While oil and mining remain the biggest attractions for foreign investors, the nation’s efforts at diversiﬁcation are encouraging a raft of well-known corporate names – such as hotel group Carlson Rezidor, telecoms company TeliaSonera, banking giant HSBC and retirement services provider Frontier Management – to invest in the country.

Diversiﬁcation aims The government’s plans for all sectors are achievable thanks to the strong economic foundations that it has built over the past two decades, combined with its program of infrastructure development that will deliver real results in the coming years. In the tourism sector, it is a priority to promote Kazakhstan as a top destination for travellers. Development is

The government’s commitment to alternative energies is highlighted by its planned construction of wind-power plants with a total electricity output capacity of 400 million kilowatts per hour (kWh) by 2015. It also plans to commission a number of small hydroelectric power plants by this time. The output of renewable energy sources is expected to top one billion kWh annually by 2014. Kazakhstan’s strong strategic position at the heart of Eurasia ensures that it has good links with the major markets of China, India and Russia, while also maintaining connections with the EU. Of its 889,000km of road network, 13,000km have international signiﬁcance, linking Asian and European motorways. Over the past few years, great attention has been paid to the major road repair and reconstruction programs. The construction sector is riding high, with a raft of projects involving new roads, bridges and railway infrastructure. New – and often spectacular – buildings are shooting up across the country. The Kazakhstan section of the Western Europe-Western China international road corridor is set for completion by 2015. It will pass through southern regions of the country and enter Russia via Aktobe. This new route will increase road freight volumes almost fourfold, from the current 900,000 tons to 3.5 million tons. The construction of two new rail lines – Zhezkazgan-Beyneu (1,200km) and Arkalyk-Shubarkol (200km) – is set to begin in central Kazakhstan. These two projects will provide a much-needed infrastructure boost for developing regions and will make it easier to travel across the country.

The government’s plans for all sectors are achievable thanks to the economic foundations that it has built, combined with its program of infrastructure development focused on establishing a competitive tourism infrastructure, creating national tourism products and promoting the country in international and domestic markets. In the biotechnology sector, the Kazakh government plans to develop and introduce high-tech, competitive biotechnological products for healthcare and agriculture, environmental protection, and the food-processing industry. The country is world renowned for its work in the space research industry. With the largest space complex in the world – the Baykonur Cosmodrome – Kazakhstan is well placed to become one of the world’s leading powers in space exploration by 2020. It has already developed signiﬁcant demand for various services, particularly its space communication system and high-accuracy global positioning systems. Kazakhstan’s main task going forward is to develop a comprehensive space industry, which can contribute to the country’s high-tech economy to accelerate industrial innovation, improve national security and defense programs, and contribute to scientiﬁc development. INVEST IN KAZAKHSTAN 2012

Bring in the investors Foreigners have invested heavily in Kazakhstan since its independence, particularly in Caspian oil. Such investments are among the key elements of the country’s economic success. In 2001-03, investment inﬂow surged to 13 per cent of gross domestic product and it is currently running at almost 10 times the rate of Kazakhstan’s neighbors. These many important developments mean that Kazakhstan is now one of the leading recipients of foreign direct investment (FDI) across all sectors, and is positioning itself as an even more attractive location for international business. Having won more than $152 billion in FDI since 1993, the republic really is well placed to continue building on its strong foundations.

THE CASE FOR INVESTING IN KAZAKHSTAN

US President Barack Obama and Kazakh President Nursultan Nazarbayev engaged in fruitful discussions at a bilateral meeting on March 26, 2012

Establishing a presence on the global stage

INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

Kazakhstan is working hard to integrate itself in global relations, and a positive international presence is being created through new partnerships and key strategies. Establishing global presence is essential in promoting investment in the country

rom a standing start just two decades ago, Kazakhstan has taken big leaps forward to become a dynamic regional power at the strategic heart of Eurasia, while simultaneously expanding its diplomatic presence on the global stage. The country’s decommissioning of its nuclear weapons in the early 1990s formed a firm foundation for the ever-closer relations it has since established with the United States (US). These are now enshrined in the Kazakh-American Strategic Partnership Commission (SPC), which held its inaugural meeting in Washington DC in early April 2012. During the meeting, the US expressed its appreciation for Kazakhstan’s support for coalition forces in Afghanistan, while Kazakhstan spoke in support of Afghanistan’s integration into regional economic relations and closer cooperation with its Central Asian neighbors. The SPC’s political working group outlined a joint course of action to promote non-proliferation and disarmament as a follow-up to a previous bilateral meeting between Kazakh President Nursultan Nazarbayev and US President Barack Obama in Seoul, South Korea. It also made progress on information and biotechnology, energy conservation, commercializing scientific innovations and economic cooperation. The event was a chance to reflect on the fact that, in the past year, the volume of trade between the two countries has increased by 25.7 percent to $2.7 billion. With Kazakhstan keen to attract more US companies to its shores, its national export and investment promotion agency, Kaznex Invest, along with the US-Kazakhstan Business Association, organized a road show to showcase investment opportunities and encourage direct business-to-business links. The human dimension also made progress, with the 17 non-governmental organizations (NGOs) involved in the country’s political modernization pledging to continue cooperating in the country’s development, improving its legal framework and supporting the creation of a democratic society. Kazakhstan’s membership of a number of important organizations and its participation in a series of international initiatives has provided a strong base for closer ties with

countries around the globe. For example, it became chair of the Organization for Security and Cooperation in Europe (OSCE) in 2010, with a pledge to strengthen the organization and advance dialog on future European security. It also aims to bring participating states to the west and east of Austria closer together, and to advance the OSCE’s role in strengthening security and improving cooperation across Europe. When he took the helm in January 2010, OSCE chairperson-in-office and Kazakhstan’s secretary of state and foreign minister, Kanat Saudabayev, said: “Kazakhstan is the first Central Asian and former Soviet state to chair the organization. This is evidence that the principle of equality among member states holds true, as well as recognition of the growing role of Kazakhstan in a strategically important region and in the OSCE generally.” Kazakhstan is also playing its part in the Organization of Islamic Cooperation (OIC), the largest international organization after the United Nations (UN). It became a fully fledged member of the OIC in 1995, and it has worked with the organization and its institutions since then, including cooperating with the Islamic Development Bank. Kazakhstan’s growing economic potential was recognized when it won support for its membership of the General Assembly of the OIC’s Standing Committee for Economic and Commercial Cooperation, (COMCEC). It took over as chair of the OIC in June 2011. President Nazarbayev’s keynote speech to mark this event proclaimed modernization and reforms as central to the development of the Islamic world in the 21st century. Its chairmanship has focused on tackling the situation in Libya and Syria, as well as meeting the challenges of the humanitarian disaster in Somalia.

Regional links The country maintains strong, close ties with Russia and numerous other members of the Commonwealth of Independent States (CIS). At the end of 2011, President Nazarbayev spoke proudly of Kazakhstan’s positive relations with Russia, revealing that bilateral trade had exceeded $20 billion. Kazakhstan also signed an intergovernmental protocol on economic cooperation with Ukraine in May 2012, which covers energy, transport, agriculture, science and technology and aviation. Commenting on the agreement and highlighting the benefits, first deputy premier of Kazakhstan Serik Akhmetov said: “I can say for sure that the protocol we’ve signed will contribute to the further development and strengthening of mutually beneficial cooperation between our countries in all key spheres.” INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

Kazakhstan’s efforts to promote relations locally and further aﬁeld have been noted internationally, and ‘constructive multipolarity’ in global relations has shaped the country’s alliance with organizations such as NATO and the UN Kazakhstan also enjoys close links with China, through the Shanghai Cooperation Agreement (SCO), and other Asian countries including Japan. It is cooperating with China in various areas that include the economy, trade, energy, railways and technology.

Safeguarding growth Kazakhstan’s efforts to promote relations locally and further afield have been noted internationally. This year marks the 20th anniversary of the creation of the Conference on Interaction and Confidence Building Measures in Asia (CICA), which was launched by President Nazarbayev at the 47th session of the UN General Assembly. The forum was set up to debate, consult on and adopt decisions and measures based on a consensus about the region’s security issues. “It seems that economic power is shifting towards the East, and this trend means we must safeguard our growth and well-being by boosting confidence and cooperation,” says Ambassador Bulent Tulun, chairman of the CICA Task Force at the Turkish Ministry of Foreign Affairs. “Building this cooperative security infrastructure in Asia is undoubtedly a gigantic task. Nevertheless, Turkey believes that, if we are patient, CICA can accomplish this task.” President Nazarbayev’s personal belief in ‘constructive multipolarity’ in global relations has shaped the country’s alliance with organizations such as NATO and the UN. Kazakhstan’s strong bilateral relations with NATO countries are further underpinned by its participation in the organization’s Partnership for Peace (PfP) initiative and the Euro-Atlantic Partnership Council (EAPC). NATO-Kazakhstan relations began in 1992, when Kazakhstan joined the North Atlantic Cooperation Council (which became the EAPC in 1997). It went on to take part in the PfP in 1995, and joined the PfP Planning and Review Process (PARP) in 2002. NATO and Kazakhstan cooperate on democratic, institutional and defence reforms. An Individual Partnership INVEST IN KAZAKHSTAN 2012

Action Plan (IPAP) sets out the overall programme of cooperation between the two. The PARP supports the defence-related fields of cooperation, and Kazakhstan’s focus on domestic reforms has intensified since it developed its first IPAP in 2005. The country is collaborating with NATO and the Euro-Atlantic Disaster Response Coordination Centre (EADRCC) to enhance its national civil-emergency and disaster-management capabilities. Under NATO’s Science for Peace and Security (SPS) program, Kazakhstan has been awarded grants for more than 20 scientific and environmental schemes. These grants cover developmental projects such as assessing radiological risks in Central Asia, establishing integrated water-resources management and developing new earthquake-resistant construction technologies. The country also participates in the Virtual Silk Highway project, which aims to improve internet access for academics and research communities in the Caucasus and Central Asia regions via a satellite-based network. At present, numerous institutions in the former Kazakhstan capital, Almaty, use the network, and plans are being implemented to extend connectivity to a number of other cities across the country.

Green technology Kazakhstan’s promotion of green technology policies at the UN has helped shape the environmental agenda internationally. The Green Bridge Partnership Program and the Global Energy and Environmental Strategy initiated by President Nazarbayev were included in the ﬁnal report of the Rio+20 UN Conference on Sustainable Development, which was held in Brazil in 2012. During the event, participants expressed their support for the Green Bridge program as a way of converting Kazakhstan to a greener economy by promoting technological progress, enhancing environmental management and improving the legal, economic and institutional conditions that are necessary for green investment and technologies.

THE CASE FOR INVESTING IN KAZAKHSTAN

Yerzhan Kazykhanov Foreign Minister*

azakhstan is regarded by the international community as a generator of stability in Central Asia and, increasingly, as a force for peace and security around the world. The country signiﬁed its peaceful intentions and aspirations shortly after independence with President Nazarbayev’s decision to decommission nuclear weapons and sign the Treaty on the Non-Proliferation of Nuclear Weapons. That single act brought Kazakhstan closer to many countries, particularly the United States which played a major role in the decommissioning process. Moreover, it was the beginning of a long road that led to Kazakhstan hosting this August’s milestone conference in Astana, entitled “From a Nuclear Test Ban to a Nuclear Weapons-Free World” attended by over 200 participants from more than 75 countries and over 20 organizations, including the United Nations (UN) and the International Atomic Energy Agency. Speaking at the event, President Nazarbayev urged the creation of a global anti-nuclear parliamentary assembly, and marked the occasion by launching the Kazakh initiative Atom Project – “Abolish Tests. Our Mission”, an international petition campaign designed to unite public opinion against nuclear-weapons testing.

The core of Kazakh foreign policy is multilateral engagement – very much underlined in recent years by our successful chairmanship of the Organization for Security and Cooperation in Europe, culminating in the Astana Summit in December 2010 – the ﬁrst such summit in 11 years – and the subsequent chairmanship of the Organization of Islamic Cooperation (OIC) in 2011. A key feature of Kazakhstan’s OIC chairmanship was to give increased impetus to improving relations between Muslim and Western countries. The country is also a member of the Shanghai Cooperation Organization (SCO), which also embraces China, Russia, Kyrgyzstan, Tajikistan and Uzbekistan, and it was at SCO’s 12th Summit in Beijing in June 2012 year that President Nazarbayev called for settlement of Iran’s nuclear issue “exclusively by diplomatic means” – a plea given much added weight by Kazakhstan’s non-nuclear weapons status. As part of attempts to bring peace and prosperity to Afghanistan and greater stability to the region, Kazakhstan fully supports Afghanistan’s membership of SCO, and, of course, has been, for a long time, a committed participant in the so-called Northern Distribution Network, providing logistical support to the United States and others involved in operations in Afghanistan. In a broader security and economic context, Kazakhstan is a member of CIS, NATO’s Partnership for Peace program, the Collective Security Treaty Organization, comprising Central Asian states, and has built close ties with the European Union and the United States. The relationship with the US grew rapidly after Washington became the ﬁrst country to recognize Kazakhstan’s independence in 1991, and was further cemented by its involvement in the country’s decommissioning of nuclear weapons. Earlier this year in Washington, the two countries opened a new, more formal channel of bilateral cooperation with the inaugural meeting of the Kazakhstan-US Strategic Partnership Commission, designed to enhance and framework dialogue

across a broad range of issues, including nuclear non-proliferation, energy, economic cooperation and science and technology. This year also marks the 20th anniversary of the Conference on Interaction and Confidence Building Measures in Asia – a forum proposed by President Nazarbayev at the UN General Assembly in 1992, with the first summit held in Almaty some 10 years later. The main thrust of CICA’s country membership runs from Central Asia, through the Middle East to the Far East – among them a swathe of powerful countries, including Russia, China, India, Pakistan, Iran, Thailand, Turkey and the United Arab Emirates. CICA is devoted to promoting peace, security and stability in Asia – and globally. Given Kazakhstan’s role in founding CICA, the 20th anniversary was marked in September by the holding of the fourth ministerial meeting of the organization in Astana, involving a special session attended by President Nazarbayev. Kazakhstan’s involvement in CICA is further testimony to the country’s vital role as a peacekeeper in the region, and has become a vital element of Kazakhstan’s multilateral foreign policy, forming a reliable and highly effective mechanism for preventive diplomacy in Asia. It also sets out to foster political, socioeconomic, cultural and humanitarian cooperation between Asian states. At a global trade level, the most important initiative is Kazakhstan’s progress toward becoming a member of the World Trade Organization, which will be another major signal to corporations and institutions that Kazakhstan is open for business, particularly foreign direct investment. Looking to the future, Kazakhstan intends to build on all these major and mutually beneficial relationships, to cement its reputation as a responsible participant in international relations and global trade and investment. *Mr Kazykhanov was appointed as the assistant to the President of Kazakhstan on foreign affairs on September 28, 2012

INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

The economy: dynamism and liberalization

INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

As Kazakhstan’s economic development and growth continues to peak, government strategies and foreign investment are looked upon as the republic’s ﬁnancial enablers

he dynamic pace of economic growth in Kazakhstan – which last year was running at an annual rate of around 7.5 per cent – puts the country in the company of some of the world’s leading emerging economies, which include China and India. Although it has had to contend with the global economic and financial crises, their impact was cushioned by the government’s skilled and judicious management of Kazakhstan’s macroeconomic policy, as well as high global oil and mineral prices. The economy has been further bolstered by a host of measures aimed at making it more attractive to foreign investors, including the liberalization of business taxes. Kazakhstan’s development strategy focuses on modernization and a shift towards growth generated by non-oil sources. It is based on diversification, innovation, investment in its people, and international trade integration to create jobs. It is a strategy that has served the country well since independence, and it continues to produce positive results as Kazakhstan enters its third decade since splitting from the former Soviet Union. Following January 2012’s parliamentary elections, President Nazarbayev outlined the government’s development priorities. These included improving public services and workforce skills levels, raising education standards, including vocational education, and promoting regional development and diversification in one-industry towns.

Free economy By the World Economic Forum’s Global Competitiveness Ranking for 2012-13, Kazakhstan jumped up 21 levels to settle at the 51st position (it ranked 72nd in 2011), making itself the top performer in terms of improvement in the world. Kazakhstan is ranked 65th in US-based think tank The Heritage Foundation’s 2012 Index of Economic Freedom. Its score is 1.5 points higher than in 2011, reﬂecting improvements in six of the 10 freedoms measured, including property rights, freedom from corruption and public-spending control. It ranks 11th out of 41 countries in the Asia-Paciﬁc region, and its overall score is above the world and regional averages. The nation recorded one of the 20 largest score improvements in the 2012 Index. The Heritage Foundation says: “With growth progressing, strengthening the foundations of economic freedom has become even more critical to the

country’s long-term economic prospects. Institutional shortcomings, such as a weak judicial system and widespread corruption, hold down diversiﬁcation and modernization.” Kazakhstan’s banking sector suffered during the global crisis when it was forced to use $10 billion of its oil fund revenues to support banks and companies after credit markets froze, following the collapse of Lehman Brothers. BTA Bank, the biggest lender at the time, Alliance Bank and Temirbank agreed with creditors discounts and payments extensions on debt of about $20 billion after they defaulted in 2009. However, the sector is now not only solidly reﬁnanced, it is also largely in the hands of Samruk-Kazyna, the immensely powerful state holding company which controls upwards of 70 percent of the Kazakh economy. This means that the Kazakh banking system is set to play an increasingly important role in the mobilization of domestic capital to help fuel future growth. This will be heavily underpinned by project and trade borrowing from China, Russia and a variety of Asian countries, as well as Europe, the US and, increasingly, South America.

Partnership with the World Bank Kazakhstan joined the World Bank Group in July 1992, and since then, the World Bank has become a major development partner, committing $5.6 billion to 39 projects. The International Finance Corporation (IFC), a United Nations investment agency affiliated with the World Bank, has committed a total of $404 million with 11 clients. Another World Bank member, the Multilateral Investment Guarantee Agency (MIGA), has supported a further 11 projects, bringing its exposure in Kazakhstan to a total of $399.3 million. The government is working with the World Bank on a Country Partnership Strategy (CPS) for 2012-17. The aim of the CPS is to help Kazakhstan progress with its development program, concentrating on the priorities of improving competitiveness, attracting employment, introducing higher standards and accountability for public services, and safeguarding the environment. In addition, the IFC is promoting private-sector development by providing investment and advice to support economic diversification, while the MIGA is supporting the financial and manufacturing sectors. “Over the past decade, Kazakhstan has made impressive policy strides and built a record of strong macroeconomic management, strengthened public financial management, and shifted resources towards social services and critical infrastructure to improve the lives of its population,” says Sebnem Akkaya, World Bank country manager for Kazakhstan. “The new Country Partnership Strategy aims to work with INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

Kazakhstan to broaden and deepen these achievements, to help the country grow sustainably and inclusively through diversiﬁcation, bolstering human capital, building world-class institutions, infrastructure and environmental standards. Our partnership is built on the premise of cutting-edge knowledge transfer, capacity enhancement and implementation support, bringing beneﬁts that go well beyond funding.” The CPS is being propelled by the Joint Economic Research Program, and is complemented by investment projects in selected high-impact areas.

The importance of foreign direct investment Foreign direct investment (FDI) has played a major role in helping to drive development, not only in the basic rawmaterial sectors such as oil, uranium and non-ferrous metals,

FDI by industry sector, in $ millions

12,000

10,000

8,000

6,000

4,000

2,000

19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 06 20 08 20 09 20 2Q 10 20 11

Source: Payments Balance of the National Bank of RK

but in the evolution of diversiﬁed, innovative, value-added industries. This is a core objective of government economic policy, the main aim of which is socio-economic modernization, something that President Nazarbayev re-afﬁrmed in his most recent State of the Nation address. Thanks to the favorable business climate and its political stability, Kazakhstan has attracted more than $152 billion in FDI since 1993. The country’s strong strategic position makes it an interesting proposition for would-be investors. It links the vast, fast-growing markets of China and South Asia with Russia and Western Europe by road, rail and ports on the Caspian Sea. INVEST IN KAZAKHSTAN 2012

According to KazNex Invest, part of the Ministry of Industry and New Technologies, FDI into the country rose from $1.27 billion in 1993 to a peak of $19.76 billion in 2008. It dropped back slightly in 2009 and 2010 on the back of the global economic crisis, but is now rising again, having topped $19.85 billion in 2011. Leading investors between 1993 and into 2011 were the Netherlands ($31.36 billion), the US ($21.77 billion), the UK ($10.71 billion), and France ($8.29 billion). Its successful linkup with the US, which is now enshrined in the KazakhAmerican Strategic Partnership Commission, has seen US investment in the economy growing. Good economic cooperation in the energy sector includes hydrocarbon extraction, nuclear energy production and alternative energy sources, as well as energy-saving technologies. FDI into the real estate, renting and business activities sector rose steadily throughout the 1990s. There was a dramatic surge between 2003 and 2008, before investment dropped when the global financial crisis hit. Mining Although less dramatic, FDI growth patterns were similar in sectors such Manufacturing as financial intermediation, mining, wholesale and retail trade, repair of Construction motor vehicles, motorcycles and personal and household goods. Wholesale and retail trade, Investment patterns in the repair of motor vehicles, motorcycles and personal manufacturing and construction and household goods sectors also grew, but were more Financial intermediation subdued during the period 1993-2011 (see graph, left). Real estate, renting and As Kazakhstan enters its third business activities decade of independence, it is continuing the effective market reforms and strategy of long-term development, known as Kazakhstan 2030, that have enabled it to transform from a remnant of the former Soviet empire into a leader on the world scene, enjoying sustainable economic success. Incentives to entice foreign investors include the creation of special economic zones (SEZs), such as Seaport Aktau and Astana New City. SEZs offer benefits such as: corporation tax exemption; VAT exemption on goods and services provided in SEZ territories; and in activities related to SEZ creation, VAT exemption on building and civil works for administrative and industrial facilities intended for activities related to SEZ creation; and a customs-free policy.

THE CASE FOR INVESTING IN KAZAKHSTAN

Kazakhstan has been successful in bringing levels of education into line with international standards

Economic and social development – powered by modernization Kazakhstan’s socioeconomic modernization plan is set to provide opportunities for foreign investment through the enhancement of key aspects of life, including employment, housing, education and healthcare

azakhstan’s future success will be driven by President Nazarbayev’s socioeconomic modernization plan. This is set to have an impact on key areas of everyday life – such as employment and affordable housing – and the updating and strengthening of key services including education, healthcare and the judiciary system.

All aspects of this plan will provide opportunities for the involvement of foreign capital, skills and technology in long-term trade and investment partnerships. Since the country became independent, Kazakhstan has been fully engaged in the transition from a Soviet political system to democracy, and charting its own destiny under a banner of increasing freedom. The republic has opted for a formula that has worked for other democracies, and that requires all stakeholders in society to get involved. In the mid-1990s, Kazakhstan decided to establish and maintain a strong and independent civil society. President Nazarbayev has charged the government with delivering the plan’s main elements. One of these initiatives is to provide a radically improved employment program that INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

The growth of Kazakhstanâ&#x20AC;&#x2122;s economy has led to the development of a middle class society with an increased attraction to foreign brands

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THE CASE FOR INVESTING IN KAZAKHSTAN

boosts training, encourages entrepreneurship and promotes labor mobility. Prime Minister Serik Akhmetov leads the 2020 Employment Program, which aims to increase income levels by ensuring stable employment. The Prime Minister’s office has estimated that, by 2020, more than 1.5 million people will be retrained and gain new in-demand qualifications and, as a result, new employment prospects. The Ministry of Labor and Social Protection of Population says almost 60,000 people applied to take part in this program in the first half of 2012, with just over 50,000 signing social contracts. A further 6,600 people were taken on by employers.

Growth of a middle class Kazakhstan’s rising revenues have been boosted by the export of mineral resources, which has allowed the government to implement a host of economic reforms. This has, in turn, led to the development of a middle class that is moderate, pro-democratic and pro-West in its outlook. The government considers this section of society to be a key factor in the nation’s socioeconomic and long-term political stability. These reforms include numerous state programs supporting small and medium-sized enterprises (SMEs). Between 2005 and 2011, the number of SMEs operating in the country increased by 148 percent. Currently, SMEs account for between 18 and 20 percent of gross domestic product (GDP). The government has also been successful in encouraging SMEs to set up business in rural areas. Although there is still a considerable disparity between rural and urban incomes, farmers and small agricultural companies now make up 23 percent of the total number of registered SMEs. Around 70 percent of Kazakhstan’s middle class are in the lower-middle-class bracket, with individual annual incomes of $6,000-$9,000. The remaining 30 percent fall under the upper-middle-class bracket

and boast individual annual incomes of between $9,000-$15,000. The country’s middle class has begun to use its disposable income to travel abroad and tends to follow a Western lifestyle, with a growing trend for leading fashion brands. Property consultancy ﬁrm CBRE Group’s annual report reveals that 18 global retailers set up shop in Kazakhstan’s largest city, Almaty, in 2011 – the most of the 73 countries it surveyed. Retailers’ next most popular targets in Eastern Europe and Central Asia were Moscow, Kiev and Warsaw. CBRE’s research found that international brands, such as Zara, Massimo Dutti and Bershka, are all seeking to take advantage of the Central Asian state’s fast-growing middle class and improving infrastructure. According to the annual report, a signiﬁcant factor in its attraction is the increasing average income, as well as major infrastructure improvements and new shopping centers.

Affordable housing The government has been concentrating on boosting affordable housing for those unable to buy their own homes by ramping up the building program and increasing the number of homes available for long-term lease. In 2012, the 2020 Affordable Housing scheme was launched, with the aim of constructing one million sq m of leasehold housing by

Target indicators for the 2020 Employment Program s Register 1.5 million people with the program by 2016; s Reduce the unemployment rate from 8.0 percent to 5.5 percent; s Reduce the poverty rate from 8.2 percent to 6.0 percent; s Reduce the proportion of self-employed from 33.3 percent to 26 percent; and s Improve labor productivity by 20 percent. INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

2014 and increasing construction volume to 10 million sq m by 2020. Kazakhstan Mortgage Company is developing leasehold housing as part of the program. Other areas support individual home-building and the modernization of the housing and utilities infrastructure. The development of collective regional settlements in the mold of Astana, Almaty, Aktobe, Aktau and Shymkent, which avoid reliance on single-industry local economies, is also a priority. For example, according to Kaznex Invest, the government wants to improve quality of life and welfare in the West Kazakhstan region. This will be aided by improving industrial output through increased gas and oil production and processing. Agriculture and other industrial sectors will also be developed, along with the region’s transport infrastructure. The strengthening and expansion of education, healthcare and pension programs is also an area of focus. The government recognizes the need to modernize teaching methods, improve the quality of teachers and increase access to education for young people. Another priority is to increase the availability and quality of medical services, as well as to promote healthier lifestyles. The government and the National Bank are also developing proposals aimed at improving the pension system, particularly ensuring the regulation of funds.

tobacco and alcohol-related diseases and injuries. The new State Health Care Development Program recognizes health as one of the country’s major priorities and a prerequisite for sustainable socioeconomic development.

Technology boosts Another main government target is improving the quality of public services, including developing eGovernment and boosting computer literacy nationwide. It is recognized that, in common with many emerging markets, Kazakhstan is well-placed to take the leap straight to some of the most sophisticated and user-friendly technologies available. The republic has been working closely with its European and US partners to create a legal framework that encourages non-governmental organization (NGO) development and growth. Kazakhstan’s not-for-profit legislation has been internationally recognized as among the best-developed by the Commonwealth of Independent States (CIS). The first measure was adopted in the early 1990s and gave a powerful boost to the development of civic organizations in Kazakhstan. In the mid 1990s, the government separated NGOs from government activites and commericial entities, significantly simplified the state registration process and granted them special benefit status. The modernization of the judicial and law enforcement systems has also been a priority. An action plan has been developed by Kazakhstan’s NGOs in conjunction with the government. This plan, of which 80 percent was developed by the NGOs, according to the government, was preceded by a report on human rights in the country that analyzed national legislation, law-enforcement practices and compliance with international human-rights legislation. The action plan defines the main aims of the nation’s legal policy and is intended to provide a foundation for the development of allied projects. Its goal is to align Kazakhstan’s legal system with international standards in such areas as the constitution, administration, taxation and customs, as well as civil, financial and criminal law. It envisages law-enforcement, judiciary and human-rights reforms.

The new State Health Care Development Program recognizes health as a major priority and as a prerequisite for sustainable socioeconomic development

Major education reforms Education is a high priority. In 2009, Kazakhstan was ranked top by the United Nations Educational, Scientiﬁc and Cultural Organization’s (UNESCO’s) ‘Education for All Development Index’, achieving near-universal levels of primary education, adult literacy and gender parity. This reﬂects efforts to expand pre-school access and free, compulsory secondary education. Over the next decade, Kazakhstan is embarking on further major reforms across all levels of education. Kazakhstan faces a number of challenges in restructuring the healthcare system. The country’s health outcomes lag behind its rapidly increasing overall wealth. The major causes of adult mortality are non-communicable diseases (NCDs), such as cancer, cardiovascular disease, and other INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

Kazakhstan’s efforts to diversify its economy include capitalizing on the world’s second largest stock of uranium

Strength in diversity Kazakhstan’s policy of multilateralism is paying dividends as the country makes strides in diversifying its economy and continues to advance across a range of industrial sectors

hen, in July, Kazakhstan’s athletes departed the 2012 Olympics in London with no fewer than seven gold medals, a warm glow spread across the Kazakh Steppes. In 12th place overall with a tally of 13 medals, Kazakhstan had vindicated not just the aspirations of its athletes but also the hopes of the government in supporting them. Their triumph was testimony, if it were needed, of

Kazakhstan’s determination, not just to do well in the Games, but also of its policy of multilateralism which has helped to promote the country around the world. Indeed, 2012 is likely to go down as a year in which Kazakhstan made progress on several fronts. As well as cementing its ties with America, the government in Astana pressed ahead with plans to set up a Eurasian economic union with Russia and Belarus by 2015. This is in addition to the customs union that the three countries established in 2010.

Working together Since 2009, when the customs union was agreed, trade between Kazakhstan, Russia and Belarus has increased across the board. In Kazakhstan’s case, the turnover in its trade INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

Being better connected to the rest of Asia is an advantage, particularly if, like Kazakhstan, your country has natural resources that are in demand (exports plus imports) with Russia and Belarus has risen by more than 75 percent. This compares with a modest decrease in imports from the countries of the European Union, whose economies continue to show little or no growth. Even so, Kazakhstan is far from cutting ties with western Europe. For example, the European Bank for Reconstruction and Development and the government of Kazakhstan recently agreed to work together to boost small and medium-sized businesses in both territories. The aim is to encourage such companies to thrive, and so boost trade between the two blocs.

Expanding trade routes At the same time, Kazmunaigaz, Kazakhstan’s state-owned oil and gas company, has taken its first steps away from home. Through Rompetrol, which it acquired in stages from 2007, Kazmunaigaz is to drill for oil in eastern Romania. As well as interests in downstream oil businesses in Romania and elsewhere, Rompetrol has refineries in countries such as France, Spain, Bulgaria, Moldova and Georgia. Rompetrol also recently signed a deal to establish a joint venture to set up service stations selling petrol in Ukraine. Since 2008, Kazmunaigaz has also owned rights to the Batumi oil terminal in Georgia. Not only is this Kazakhstan’s first such terminal with an outlet to the open sea, it also has plenty of capacity to expand, and so gives the state-owned company another option when developing its business. Such an outlet will come in handy as the giant Kashagan oil field in the Caspian Sea gets into its stride. Thanks to the country’s position in Central Asia, businesses in Kazakhstan already look east along what was the Silk Road. The longest section of a new pipeline carrying gas between Turkmenistan, Uzbekistan, Kazakhstan and China passes through a swathe of Kazakhstan. In all, the pipeline stretches for 1,115 kilometres and, when it reaches full capacity in 2015, will transport gas mostly from Turkmenistan. Another pipeline is expected to be completed before then and will carry yet more gas, much of it from Kazakhstan, to China. INVEST IN KAZAKHSTAN 2012

Indeed, with the economies of Asia outperforming those of Europe, it is hard to see why exporters from Central Asia would not continue to look east. Kazakhstan is no exception. As well as pipelines taking gas to China, new networks of roads and rail are taking shape. Central Asia itself has seen a ﬂurry of new roads being built. In time, these will be linked to a plethora of new motorways in Asia. China already has a reputation for building some of the world’s fastest and longest railways. It plans three main routes to connect no fewer than two dozen countries, from Singapore in the south to Germany in the west. By 2025, according to China’s railway ministry, it will take no more than a couple of days to travel by rail from Shanghai to London. It is, therefore, unsurprising that trade within parts of Asia has grown at roughly twice the rate of that between Asia and the rest of the world. Nor that Kazakhstan, which needs markets for its oil, gas and minerals, seeks opportunities where it can ﬁnd them. Nor even that the country remains wedded to its blend of multilateralism.

Connection is key Observers note, too, that the boom in roads and railways across Asia does little to undermine the attraction of maritime routes; the new infrastructure, when it is built, will simply complement the sea routes. For that reason, many in Central Asia realize that, irrespective of local customs unions, being better connected to the rest of Asia is an advantage, particularly if, like Kazakhstan, your country has natural resources that are in demand. Nevertheless, there was widespread surprise when Kazatomprom, one of the country’s import-export giants, won deals to supply companies in Japan with the minerals required to produce atomic energy. Indeed, the government in Astana has said it hopes to increase the country’s share of the Japanese market for such metals to as much as 40 percent. Kazakhstan is already one of the world’s largest producers of uranium, a metal which remains in demand despite the setback that the nuclear industry suffered in the

THE CASE FOR INVESTING IN KAZAKHSTAN

The longest section of the new Turkmenistan-China pipeline runs through Kazakhstan

wake of the Fukushima earthquake disaster of 2011. Kazatomprom has stepped up its investment in order to produce more of the metal. Needless to say, too, the deals with Japan have reinforced Kazakhstan’s position as the country with the second-largest stock of uranium, after Australia, at a time when the pace of economic growth in Asia is likely to lead to an increase in demand.

Bouncing back While Japan is still cementing its ties with Kazakhstan, South Korea has long been an ally of the government in Astana. Indeed, Kazakhstan is South Korea’s largest trading partner in Central Asia. After suffering setbacks in the aftermath of the international ﬁnancial crisis, trade between the two has recommenced at a remarkable pace, and South Korean companies now have assets in more than 300 companies in Kazakhstan. As well as exporting cars, televisions and other electronic products to Kazakhstan, South Korean companies are involved

in both the oil industry and in producing energy. In return, Kakakhstan exports raw materials, mostly copper and zinc, to users in South Korea. The country’s firms have a significant role in building coal-fired power stations in Kazakhstan, and South Korean investors have put money into building a petrochemical plant on the banks of the Caspian Sea. It has been all too easy for observers to say that, for Kazakhstan at least, the past is represented by Russia and China represents the future. As a nation with rich resources and a pivotal position between East and West, Kazakhstan has long realized that a policy of constructive multilaterism not only meets the needs of its economy, but will also guarantee a balance of trade in the future. While its links with economies in Asia present some of the most immediate benefits, the government has long been careful to nurture trade with other expanding countries, such as Brazil, India and Turkey. What is crucial is that Kazkhstan’s economy has access to the resources, both financial and technical, that it needs in order to diversify and grow. INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

Strengthening ties with the United States Kazakhstan is forging closer links with the United States as a prelude to joining the World Trade Organization, with both countries looking to take advantage of the clear trade beneﬁts and increased opportunities for US investment in Kazakh industry

azakhstan’s ties with the United States have come a long way in a relatively short time. Since 1993, businesses in the US have invested a total of $22 billion in enterprises across Kazakhstan. In addition, trade between the two countries continues to ﬂourish: in 2011 alone, it was worth $2.7 billion, an increase of more than 25 percent on the previous year. The US government has long been keen to court opportunities for investment in Kazakhstan, the ﬁrst country in the former Soviet Union to be rated an investment grade by an independent credit agency. The annual Kazakhstan-US Investment Forum, sponsored by Samruk-Kazyna, Kazakhstan’s national welfare fund, has become a beacon for both investors and analysts with an eye on Central Asia. Such links were cemented earlier this year when the two countries entered a bilateral agreement that will allow access to each other’s markets once Kazakhstan becomes a member of the World Trade Organization (WTO). US companies will then be able to expand into industries where they are world leaders, such as energy,

INVEST IN KAZAKHSTAN 2012

financial services, film and television, express delivery and computing. In return, Demetrios Marantis, deputy US trade representative, pledged to support Kazakhstan’s efforts to finalize its accession to the WTO. Once a member, Kazakhstan will have to comply with the WTO’s regulations on international trade, which cover everything from agriculture and food safety, to the application of technical standards and protection for intellectual property. Also included are rules regarding customs procedures, how enterprises that are owned or controlled by the state are managed, and the need to be transparent.

Creating a strategic partnership Keen to forge a new understanding on the way ahead for Afghanistan, Hillary Clinton, US Secretary of State, recently took the opportunity to form a Kazakhstan-US Strategic Partnership Commission. The partnership’s broad agenda ranges from non-proliferation to energy security, trade and investments, democracy and regional security, including the education of Afghans in Kazakh universities, and a determination to encourage the government in Kabul to cooperate more closely with its neighbors in Central Asia. Kazakhstan’s decision in 2010 to seek a Customs Union with Russia and Belarus gave US investors, as well as others, an opportunity for reﬂection. However, many foreign companies, including those from the US, hope that in time the customs union will open up opportunities not just in Kazakhstan, but also in Russia and Belarus. Experience also suggests that joining the WTO is likely to

THE CASE FOR INVESTING IN KAZAKHSTAN

Photo: US Department of State

Kazakhstanâ&#x20AC;&#x2122;s former foreign minister, Yerzhan Kazykhanov, in discussion with US Secretary of State Hillary Clinton, February 1, 2012

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THE CASE FOR INVESTING IN KAZAKHSTAN

Via video link, deputy US trade representative Demetrios Marantis gives his support to Kazakhstan’s accession to the World Trade Organization at the Kazakhstan-US Investment Forum held in New York in 2011

lead, in the long term, to greater increases in real incomes for Kazakhs than membership of the Customs Union alone. Central to the demand for imported goods and services of all kinds is Kazakhstan’s plan to diversify its economy away from oil. By 2015, the government hopes to shift the balance more toward sectors such as the petrochemicals, telecommunications and food-processing industries.

Major economic contribution of oil Even so, hydrocarbons will remain by far the largest contributor to economic growth. This is partly because, in less than a decade, Kazakhstan’s production of oil has more than doubled. The government relies on a delicate balance between its own state-run companies and foreign ﬁrms that operate under licence. Nowhere is this more evident than in the production of oil. In order to increase the value of the economy, the government wants to process more of its oil and minerals domestically. This cannot be achieved overnight, nor can without the help of foreign specialists and investors. INVEST IN KAZAKHSTAN 2012

As well as boosting production from the Caspian Sea, the government in Astana aims to improve the infrastructure supporting it. It is, therefore, unsurprising that half of the $146 billion-worth of foreign direct investment received from outside the country since 1991 has gone into hydrocarbons. More investment is likely. Despite a dip from 2009-10, as a result of lower oil prices worldwide and the ﬁnancial crisis that affected economies globally, demand for equipment and services to extract, process and transport Kazakhstan’s oil has recovered and is likely to remain buoyant. US companies will, naturally, be among those vying for business. Such companies may also look towards the mining industry. In addition to hydrocarbons, Kazakhstan is endowed with copious amounts of coal and iron, as well as copper, lead, zinc, gold, and uranium. Much of the equipment used to mine and process these and other minerals dates back to before Kazakhstan became independent. As a result of this, US companies in particular are examining opportunities to upgrade this machinery.

THE CASE FOR INVESTING IN KAZAKHSTAN

As a nation far from the shores of trading blocs such as the European Union and the United States, Kazakhstan will always rely on alliances with others to lubricate its trade

Many US companies may also look at Kazakhstan’s plans to boost its electricity supply. This is central to the government’s desire to modernize and diversify its economy. By 2015, the government aims to boost generating capacity to 124.5 billion kilowatts per hour (kWh), an increase on the current capacity of approximately 85.8 billion kWh. For part of this expansion at least, foreign expertise and capital may be required.

Improving health provision The same applies to Kazakhstan’s health service. The government has already taken steps to centralize the purchase of pharmaceuticals bought by the state, in order to reduce costs and improve economies of scale. Although more drugs will be manufactured locally, or bought from elsewhere in the region, there will still be a demand for medicines to treat patients with conditions such as cancer or kidney disease. Once again, US companies are at the forefront to supply these. As a nation far from the shores of trading blocs such as the European Union (EU), let alone the US, Kazakhstan will

always rely on alliances with others to lubricate its trade. It is not surprising that the country has begun to look east to China as well as west to an established powerhouse, such as the US. Plans to enlist China’s help in building a high-speed rail link between Almaty and Astana are symptomatic not just of a need to modernise Kazakhstan’s system of transport, but of a new pragmatism over trade. When Mrs Clinton raised the notion of a “New Silk Road”, she touched a nerve among traders across Central Asia. She spoke of the need for Turkmen gas fields to help meet the demand for energy from India and Pakistan; for Tajik cotton to be turned into Indian linen; and for Afghan furniture and fruit to find their way to Astana and Mumbai. In supplying new markets in the region, producers may require not just US expertise in, for example, computing or finance to make the trade a reality. There will also be a need for new road and rail links on which to transport these goods and to supplement the existing maritime routes. Across Asia, such links have already been built, or are currently under construction. The effect has been that trade within Asia has recently grown at around twice the rate of the coontinent’s trade with the rest of the world. Central Asia’s annual trade with China alone jumped from $160 million to $7 billion between 1991 and 2006. The US may be concerned that its influence within Asia may be diluted as the continent’s economies expland over the coming decades. However, through strategic alliances with countries such as Kazakhstan, there is a determination within the US to ensure that it plays a significant role in shaping the future of the Asian economy. INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

Samruk-Kazyna’s gold tower in Astana, one of two mirrored towers that are home to the National Welfare Fund’s headquarters

Samruk-Kazyna – a focal point for foreign investors Samruk-Kazyna, Kazakhstan’s sovereign wealth fund, is playing a key part in the expansion of the country’s economy, promoting industrial innovation and development

oreign corporate and ﬁnancial institutions seeking investment opportunities in Kazakhstan will need to be familiar with Samruk-Kazyna, the country’s sovereign wealth fund and the main channel for large foreign investments in particular. Also known as the National Welfare Fund, Samruk-Kazyna was established to increase the nation’s

economic competitiveness and sustainability, and to prevent ﬂuctuations in the global economy from affecting its growth. It employs more than 260,000 people, including 205 who work for the management company. The Fund’s main activity is to manage its shareholdings in national development institutions, companies and other organizations, as well as to maximize their longterm value and intensify their competitiveness on international markets. Samruk-Kazyna owns, either in whole or in part, many of Kazakhstan’s key companies, including the national rail and postal services, state oil and gas company KazMunaiGas, state uranium company Kazatomprom, Air Astana, and numerous ﬁnancial groups. The state is the sole shareholder INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

Samruk-Kazyna has played a pivotal role in promoting the rapid development and diversification of the Kazakh economy. It has improved industrial efficiency and accelerated modernization, and offers a range of financial tools through some of its subsidiaries in the Fund, which has ownership stakes in more than 43 major firms and controls numerous others through subsidiary investment funds.

The National Welfare Fund Created by the merger of two joint stock companies – Kazakhstan Holding for the Management of State Assets (SAMRUK) and the Sustainable Development Fund (KAZYNA) – Samruk-Kazyna is now estimated to control assets of $78 billion and has played a pivotal role in promoting the rapid development and diversification of the Kazakh economy. It has improved industrial efficiency and accelerated modernization not only in key areas of the economy, such as the oil industry and national transport systems, but also among small and medium-sized enterprises (SMEs), which the government sees as a source of future growth and employment. The Fund offers a range of financial tools through some of its subsidiaries, including the JSC Kazakhstan Development Bank (KDB), the Kazakhstan Investment Fund, the National Innovation Fund, the Damu Entrepreneurship Development Fund, Kazyna Capital Management, KazExportGarant, the Kazakhstan Industry Development Institute and KazAgro. KDB is a state financial development institution that provides medium- and long-term financing for investment projects and leasing operations, and trade financing for export operations in priority sectors of the economy. It offers: s Loans for investment projects: from five to 20 years, minimum value of $5 million; s Financial leasing: from three to 20 years, minimum value of $1 million; s Loans for export deals: from one to three years, minimum value of $1 million; s Project financing; INVEST IN KAZAKHSTAN 2012

s s s s s s

Guarantee issuing; Agent services for state projects; Capital subscription; Mezzanine ﬁnancing; Inter-bank loans; and Working capital ﬁnancing.

The Kazakhstan Investment Fund backs the country’s policy of industrial innovation by investing in and attracting ﬁnance for prospective projects, and providing ﬁnancial assistance to private-sector initiatives aimed at creating competitive manufacturing industries. It operates mainly by taking an equity stake in the companies in which it invests.

The National Innovation Fund Samruk-Kazyna’s activities include control of the National Innovation Fund, the main goal of which is to increase innovation and aid the development of high-tech and knowledge-intensive production processes. Its main activities include financing innovation projects, creating venture funds, developing an effective infrastructure to support innovation, providing information, analysis, process and expert support to aid innovation, commercializing technological developments and supplying service tools to support innovation. This Fund’s mission is to aid the development of high-quality SMEs in the country. This is achieved by funding prospective SMEs, contributing to the development of entrepreneurship in non-oil sectors of the economy, enhancing SME skills, and encouraging people to become entrepreneurs. The Fund operates mainly by providing finance through second-tier banks, offering subsidized interest rates, giving guarantees to banks, offering concessionary financing for leasing operations and microcredit institutions, and providing non-financial support such as training and consulting.

THE CASE FOR INVESTING IN KAZAKHSTAN

Kazakhstan Industry Development Institute This institute promotes the development of innovation in industry, and provides scientiﬁc and practical support to drive industrial policy in Kazakhstan. The national holding company’s investment and lending activities include loans for: s Buying seed and harvesting; s Purchasing agricultural machinery;

s Purchasing farm animals; s Working capital and the acquisition of ﬁxed assets; s Construction, reconstruction and repair; s Expanding the number of dairy and poultry farms, greenhouses and storage; s Producing agricultural machinery;

Kazyna Capital Management aims to attract foreign capital to establish direct investment funds, which will be the source of finance for Kazakh companies. KazExportGarant is the country’s export-credit agency. The company provides financial foundations and insurance support for export enterprises in the following areas of the economy’s non-oil sectors: export insurance for products and services, insurance for direct investment abroad, insurance for banking products (documented credits and guarantees), export trade financing and providing advice on trading abroad. As part of the government’s aims to diversify and modernize the nation’s economy, Samruk-Kazyna is involved in investing in priority sectors such as oil and gas, power supply, metallurgy, chemistry, petrochemicals, and infrastructure. It develops, implements and finances regional, national and international investment projects, both solely and together with other companies, as well as with strategic international, and/or national investors through equity and loans. Samruk-Kazyna also runs the 30 Corporate Leaders of Kazakhstan Program, which was announced in 2007 and is aimed at diversifying the economy. The Fund also runs numerous other government-assigned projects and schemes.

International investment projects Samruk-Kazyna is a key catalyst for development of new businesses – large and small, domestic and foreign. This is enshrined in its aims and objectives: s Develop new sectors of the economy and acquire economically attractive assets, both within the country and abroad; s Ensure companies have a sound policy when investing in innovation, with an emphasis on Kazakh projects; INVEST IN KAZAKHSTAN 2012

s Developing fruit and oilseed crop production using drip irrigation; s Developing fodder production; s Creating a network of cattle breeding farms; s Establishing meatprocessing complexes; s Creating a network of slaughterhouses;

s Developing the production and processing of ﬁne wool; s Processing grain; s Constructing and modernizing grain storage; s Purchasing, constructing and operating of mini greenhouses; s Rural credit cooperatives; and s Rural consumer cooperatives

s Attract national and international, public and private investment and introduce innovation into various sectors of the economy; s Carry out balanced capital borrowing in world and domestic capital markets, from strategic foreign partners; s Finance SME projects; s Set up an efﬁcient and comprehensive system of ﬁnancial and investment tools within its group of companies; s Develop inter-regional economic links, including implementing projects and schemes inside Kazakhstan; and s Ensure regional development through social-business corporations.

The People’s IPO In a speech at the Nur Otan Party Congress in February 2011, President Nursultan Nazarbayev asked the government to develop a program of initial public offerings (IPOs) for national companies owned by Samruk-Kazyna. Among the organizations lined up for an IPO are Samruk-Energy, Kazakhstan Electricity Grid Operating Company (KEGOC) and KazPost along with KazMunaiGas, Kazakhstan Temir Zholy railways and Kazatomprom. Other future IPOs are expected to include metal producers Eurasian Natural Resources Corp (ENRC), Kazakhmys, Kazzinc and Arcelor Mittal’s Karmetkombinat. Shares in the People’s IPO will be sold directly to the public, with any shares that remain unsold then being made available for purchase by pension and investment funds operating in Kazakhstan.

THE CASE FOR INVESTING IN KAZAKHSTAN

Kuandyk Bishimbayev Deputy Chairman of the Board of Samruk-Kazyna

amruk-Kazyna, officially known as the Sovereign Wealth Fund, plans to continue its sustained investment in the Kazakh economy, ensuring a stable and favorable business platform on which international institutional investors can operate. As a major investor in the market, the Fund implements major projects, some of which are included in the state development programs. Thus, in the framework of the State Program for Forced Industrial-Innovative Development of Kazakhstan, the Fund implemented 24 projects for about $20 billion. The total investment program of the Fund is about $300 billion, and is composed of about 200 projects in various sectors of the economy. Investment activities of the Fund create anchor projects that may involve the private sector, both during the construction stage and after their commissioning. The basic principle of the investment activities of the Fund is to ensure maximum participation of the private partner. Samruk-Kazyna will play a key role in the implementation of the program for forced industrialization. Investment projects of the Fund are presented in sectors such as oil-refining, infrastructure, energy, chemical industry and engineering. Between now and 2015, $6 billion will be invested in the energy industry. Projects to attract funding will include the construction of the Balkhash Thermal and the Moynak Hydro-Electric power stations. These will reduce the occurrence of power shortages, particularly in the southern regions, which have a substantial impact for both industrial and commercial users. Another $12.3 billion will be invested in the oil and gas industry. Refineries will be restored in order to increase the volume of products produced and the compliance of such products with international standards. A further $2.7 billion, directed for modernization of the Atyrau refinery, will serve to increase the yield of motor oil, as well as to increase the production of aromatic hydrocarbons of benzene and paraxylene, refining depth and conformity of products with the Euro-5 standards. This will increase trading with Europe, boosting Kazakhstan’s economy. Infrastructure continues to be a key area of investment, with 57 projects scheduled to take place from now until 2020, with a combined value of $16.5 billion. We aim to improve transport links to

facilitate exports, particularly through the construction of the Uzen State-Turkmenistan border railway line. This will have a capacity of 13 million tons per year. Between 2012 and 2015, $23 billion will be invested in the mining industry – an integral sector in Kazakhstan due to our abundance of mineral reserves. It is a sector that provides ample opportunities for overseas companies interested in investing in Kazakhstan. These are just a few examples of Samruk-Kazyna’s projects, and we hope that these will encourage further international investment, both during construction and once Kazakhstan’s new facilities and processing systems are fully operational. Together with the Government of the Republic of Kazakhstan, Samruk-Kazyna joint stock company (JSC) is launching the People’s IPO, a unique program designed to provide an opportunity for the country’s citizens to invest funds in shares of the largest national companies. The participants in the People’s IPO program were selected from the most stable companies, whose activities are not directly dependent on commodity markets. In 2012, planned IPOs will occur for shares of KazTransOil JSC, while KEGOC JSC, Air Astana JSC, KazTransGas JSC, Samruk-Energy JSC and JSC NMSC Kazmortransﬂot shall be participants of the program in 2013. The additional funds raised through IPO are proposed to be used for the modernization and expansion of these companies. Moreover, the Kazakh population will learn to be more proactive in the local economy and stock market, and as a direct result Kazakhstan’s economy is expected to grow substantially. Consequently, we believe that the People’s IPO will make the Kazakh economy a more attractive market for domestic and foreign investment. It is proposed that the implementation of the Development Strategy of Sovereign Wealth Fund Samruk-Kazyna until 2022, recently approved by the Government, will increase net income by 250 percent, and will be the indicator of the Fund’s operational performance. Due to the vast amounts of industrial opportunities we have to cultivate, we expect foreign direct investment to continue to grow at a signiﬁcant rate, and this will be championed by Samruk-Kazyna Sovereign Wealth Fund as the engine of Kazakhstan’s industrial and economic development.

INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

Taxation policy and FDI

INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

Kazakhstan is in the midst of assessing and revising current taxation policies, as the country continues to develop its economy, maintain stability and attract further foreign investment

azakhstan is aiming to strike a sound balance between raising enough tax revenue to fund the country’s social and economic development, and is ensuring its taxation strategy remains competitive for international investors. The country rolled out its current Tax Code on December 10 2008, making a number of amendments to it on January 1, 2011. Its goal is to promote further economic diversiﬁcation and to stimulate development within the economy. The Tax Code incorporates all previous amendments and interpretations, and adheres to International Financial Reporting Standards (IFRS). The new code aims to reduce the tax burden on non-natural resource extraction sectors, while simultaneously improving the administration of tax Foreign investors can operate in Kazakhstan through either a local branch of a foreign company, or a local subsidiary that is established as an independent legal entity.

Taxes and duties Foreign investors’ entrepreneurial activities in Kazakhstan are usually subject to the following taxes and duties: s s s s s s s s

Corporate income tax (CIT); Individual income tax (IIT); Mineral extraction tax (MET); Value added tax (VAT); Land tax; Property tax; Vehicle tax; Pension and social security deductions.

Kaznex Invest, Kazakhstan’s export and investment promotion agency, says both residents and non-residents who conduct their business through a permanent agency, or who earn income from Kazakh sources, pay CIT. The tax is levied at 10 percent on income from agricultural production, processing and sales; at 15 percent on non-residents’ passive income from their interests in the country, such as rents, fees and winnings; and at 20 percent on taxable income. IIT is deducted at source from employees’ salary; is levied on payments into pension funds; is paid on dividends, fees and winnings; is levied on scholarships; and is also paid on income from insurance payouts and savings interest. The tax is levied at ﬁve percent on dividend income and at 10 percent on all other income.

Sales-based thresholds MET on crude oil, including gas condensate, is fixed according to annual volumes. The rate for natural gas is 10 percent. When selling natural gas on the domestic market, MET is paid according to the annual volume extracted. It is levied on processed (enriched) mineral raw materials and coal, according to the type of mineral. MET rates for widespread mineral resources, underground waters and therapeutic muds are set. Reduced rates of MET can be applied when profitability drops below zero percent on contracts for the extraction of hydrocarbon materials. These rates apply to contracts that are classified as low-margin, high-viscous, water-flooded, low-yield or worked-out. An excess-profit tax is paid by subsoil users according to a sliding scale against each part of their net income. This corresponds to the ratio of the subsoil users’ total annual income against deductions. Kaznex Invest says the threshold for compulsory VAT registration is a sales volume which exceeds a 30,000-fold monthly calculation index during a calendar year – KZT45.36 million for 2011 ($308,908). INVEST IN KAZAKHSTAN 2012

THE CASE FOR INVESTING IN KAZAKHSTAN

According to a 2011 survey by Ernst & Young, assessing the attractiveness of Kazakhstan to investors, 81 percent of existing investors thought investing had been the right decision, but disliked the corporate taxation system

VAT rates are 12 percent on the taxable sales volume, and taxable imports, and zero percent when exporting goods. According to Kaznex Invest, land tax on legal entities is paid by the legal entities themselves. Property tax on legal entities and individual entrepreneurs is paid by the legal entities and entrepreneurs themselves. Legal entities are also obligated to pay vehicle tax. The tax rate may be set as a percentage of a monthly calculation index, depending on the type of vehicle and its specifications. Employees have 10 percent automatically deducted from their salary each month, which is paid into a pension fund. Monthly income exceeding approximately $8,897 is not subject to this compulsory pension deduction. Social security deductions are set at a rate of five percent and are paid by an employer directly from the employee’s salary. Monthly income of more than about $1,180 is not subject to these deductions. Individual entrepreneurs are also required to declare and pay five percent of their total annual income in social security deductions.

Special tax regimes As well as standard taxation, there are also a number of special tax regimes operating in Kazakhstan. One of these regimes covers sole traders whose income does not exceed 200-times the minimum wage. Tax is levied at two percent on this class of entrepreneur. A simpliﬁed declaration applies to entrepreneurs whose income does not exceed KZT10 million ($68,000), and who have 25 employees or fewer. These entrepreneurs are subject to a tax rate of three percent, and the declaration also applies to those whose income does not exceed KZT25 million ($170,000), and who have 50 employees or fewer. There is a special tax regime in place for farms, which provides a special procedure for settlements with the budget INVEST IN KAZAKHSTAN 2012

on the basis of payment of single tax (ST). This procedure covers production, processing and sale of home-produced agricultural goods and aquaculture (ﬁshery) products. Firms that manufacture agricultural goods and aquaculture products, as well as agricultural cooperatives, have their rate of CIT, VAT, social security tax, land tax, land use fee, property tax and vehicle tax reduced by 70 percent.

Investor perspective According to a 2011 survey conducted by Ernst & Young, which assessed the attractiveness of Kazakhstan to investors, 81 percent of existing investors thought that investing in the country had been the right decision. However, only 31 percent of respondents said that the nation’s corporate taxation system was attractive. According to the consultancy firm’s report: “Kazakhstan has introduced favorable tax rates in a number of areas (for example, corporate income tax has been reduced to 20 percent from 30 percent). However, investors in the extractive industries expect the tax burden to increase, thus reducing their original expectation on investment return. While tax rates are attractive, compliance costs are unreasonably high. Surveyed investors indicated that tax audits are frequent and burdensome, and the resulting claims can be excessive. High compliance costs undermine the positive effect of low tax rates, as the real tax burden should be measured by the combination of tax rates and the cost of the tax administration system. Some investors felt the tax administration system to be unpredictable and lacking in technical objectivity; some felt that regulatory authorities gave disproportionate attention to certain companies when imposing fines and penalties. Form often prevails over substance, and the size of fines and penalties may be disproportionate to the amount of unpaid tax, or the nature of the error.”

SPECIAL FOCUS ON OIL AND GAS

Boosting oil and gas output he oil and gas industry continues to be the powerhouse of Kazakhstan’s economy, both in terms of its direct contribution to the country’s economic performance and its indirect contribution through the many additional industries and services it has spawned. Kazakhstan remains one of the top oiland gas-producing countries in the world, with 5.3 billion tons of oil and 3.9 trillion cubic meters of natural gas reserves. The current oil production in Kazakhstan is 1.62 million barrels of oil per day (80 million tons per year). The potential growth of this industry is immense, and we aim to increase production of both oil and gas by at least 60 percent by 2020. The coming years will see a number of large-scale projects implemented to meet this goal, with $14.7 billion being invested into the industry from the National Fund between now and 2015. It is expected that the modernization of the Atyrau Refinery will treble the production of petrol to 1.75 million tons, and increase the production of diesel fuel to 1.6 million tons. This will not only provide enough fuel for the Kazakh population, but will also create additional resources that we will be able to export overseas. The construction of the refinery will also improve the quality of oil and, consequently, it will be possible to export this to European countries, as it will meet Euro-4 and Euro-5 standards. The gas and chemical complex at Atyrau is now due for completion, and will allow the production of chemicals never before produced in Kazakhstan. The complex is expected to produce a massive 500,000 tons of propylene and 800,000 tons of polyethylene each year. The construction of a plant on the Karachaganak field will produce yet more gas,

T Sauat Mynbayev Minister of Oil and Gas

with an estimated production capacity of five billion cubic meters annually. This will create further opportunities for exports. Despite the fact that Kazakhstan is among the 15 leading countries in oil and gas production, not all regions of our country are provided with natural gas, and this is something we need to rectify. The launch of a new pipeline system will allow the central region of Kazakhstan, including Astana, to receive a supply of commercial gas that is available for both industrial and commercial users. Early 2013 will also see the longawaited first oil from Kashagan. It is the world’s largest oil discovery in 30 years, with estimated reserves in excess of 16 billion barrels – three times that of Tengiz. Kashagan is operated under the North Caspian Operating Company, a consortium of seven partners – KazMunaiGaz, ExxonMobil, Total, Shell, Eni, ConocoPhillips and Inpex – that have collectively allocated $46 billion to the project. Production will commence at 75,000 barrels per day. After 2016 it will reach 370,000-450,000 barrels per day, and within the next five years this will increase to one million barrels daily. This will bring the output of crude oil in Kazakhstan to over 100 million tons per year, and we will attain our objective of being positioned in the world’s top five oil-producing nations. Many operations are currently dedicated to boosting oil and gas output, but there is still huge potential for the further discovery and extraction of hydrocarbon resources. With increased production of oil and gas complemented by continually improving infrastructure, Kazakhstan continues to offer a host of exciting and commercially attractive prospects to foreign investors in this vital and lucrative area of the economy. INVEST IN KAZAKHSTAN 2012

SPECIAL FOCUS ON OIL AND GAS

Major new projects in the pipeline

Kazakhstan has set targets for the continued development of its oil and gas sector, with a state program that will produce opportunities for both large and small companies s Kazakhstan looks to increase its supply of oil and gas to rapidly growing Asian markets, various large-scale projects are being planned and developed. The major Karachaganak, Kashagan and Tengiz oil and gas projects all have massive new expansion plans as part of their third-phase development. While the international oil majors will continue

to feature at the core of Kazakhstanâ&#x20AC;&#x2122;s basic resources development, the government stresses that there are many opportunities for smaller companies to become involved â&#x20AC;&#x201C; particularly in new areas, both onshore and offshore. The strategic race is on for Kazakhstan to achieve the objectives it has set out, not only for the continued rapid progress and development of its oil and gas industry, but also towards the strategies set within the state program of Accelerated Industrial-Innovative Development 2010-14. Those who have followed Kazakhstan over recent years, and witnessed its groundbreaking progress since independence in 1991, will know that President Nursultan Nazarbayev INVEST IN KAZAKHSTAN 2012

SPECIAL FOCUS ON OIL AND GAS

The Kashagan oil ﬁeld is a hub of production, placing priority on safety-enhancing technologies

established his ‘Strategy for Industrial Innovative Development, Kazakhstan 2030’ by opening the country’s doors for the rest of the world to take advantage of Kazakhstan’s untapped resources in oil, gas and minerals. In the wake of the global economic crisis, President Nazarbayev legislated to accelerate the program, given that three of the country’s largest oil and gas projects were about to enter their next phase; the magnitude of which will result in Kazakhstan being among the world’s top ﬁve major oil and gas producers and exporters by 2020.

Investment incentives Kazakhstan is three times the size of the US state of Texas, occupying over 2.7 million square kilometers in Central Asia. Ranked as one of the world’s fastest growing economies, over 90 percent of Kazakhstan’s oil and gas production exists in INVEST IN KAZAKHSTAN 2012

western Kazakhstan, where three of the world’s largest oil and gas fields reside at Tengiz, Karachaganak and Kashagan. With known reserves of over 100 billion barrels of oil and over three trillion cubic metres of gas, by 2020 these three fields present significant increased investment opportunities, particularly as the Advanced Industrial-Innovative Development program cites oil and gas production, engineering, manufacturing, machinery and innovative technologies among its key priority areas. The government – with the formation of KazSupplyChain, which brings together foreign and national entities – are offering a number of incentives to those wishing to invest in delivering projects in these priority areas. The progress made in Kazakhstan in relation to its pro-business policies has already attracted over $130 billion in foreign direct investments (FDI), and the expansion plans of these mammoth oil and gas projects are significant in driving

SPECIAL FOCUS ON OIL AND GAS

Karachaganak is one of the world’s largest gas and condensate ﬁelds

Karachaganak holds an estimated nine billion barrels of condensate and 48 trillion cubic feet of gas, and over $14 billion has already been invested into the ﬁeld the economy. There are also complementary development projects in place to improve the country’s terrestrial infrastructure, such as pipelines, the Western Europe-Western China highway and shipping and rail links, which will create the New Silk Road. The New Silk Road will connect Western China to Western Europe, and traverse the neighboring Russian and Asian provinces. As a result, the volume of Kazakhstan’s cargo transportation will increase 2.5 times by 2020.

Karachaganak is one of the world’s largest gas and condensate ﬁelds, covering an area of over 280 square kilometers. It holds an estimated nine billion barrels of condensate and 48 trillion cubic feet of gas. Over $14 billion has already been invested, and Karachaganak has the capacity to provide over 45 percent of the country’s total gas, of which just over 10 percent has been recovered so far. Due to the country’s reliance on domestic gas, it has been announced that INVEST IN KAZAKHSTAN 2012

SPECIAL FOCUS ON OIL AND GAS

An oil worker takes measurements on the Tengizchevroil oil and gas processing plant at Tengiz oil ﬁeld

over $3 billion will be invested over the next five years in the development of technologies and innovation for shale gas exploration. Coal is predicted to remain the primary source of fuel, but it is essential for initiatives to be implemented for using alternative energy sources, such as shale beyond 2030. Similarly, the government is looking at proposals for extraction of oil from clay and sands, as the geological environment means that a substantial amount of oil resides there. The Tengiz field in western Kazakhstan is one of the deepest and largest oil fields in the world, and is deemed one of the world’s oil mega-projects. The field is operated by the $40 billion JV consortium, TengizChevroil, which was formed between Chevron, ExxonMobil, KazMunaiGas and LucArco under a 40-year agreement. The next phase of expansion forecasts an increase in production to 800,000 barrels of oil per day by

2016. To facilitate this increased output, 2013 will see the commencement of the extension of the Caspian Pipeline Consortium (CPC), Tengiz-Novorossiysk pipeline, that will serve both Tengiz and Karachaganak. Further pipeline activity is to take place at Tengiz, with the second phase of the Beineu-Bozoi-Akbulak main gas pipeline construction, resulting in an increase of throughput capacity from five billion cubic meters per year to more than 10 billion cubic metres per year. Kashagan is recognized as a momentous project, not only for Kazakhstan’s energy sector, but for the entire world. Early 2013 will see the long-awaited first oil output from this offshore field. It is the world’s largest oil discovery in 30 years, with estimated reserves in excess of 16 billion barrels; three times that of Tengiz. Kashagan is operated under the North Caspian Operating Company –

Kashagan is a momentous project, not only for Kazakhstan’s energy sector, but for the entire world

INVEST IN KAZAKHSTAN 2012

SPECIAL FOCUS ON OIL AND GAS

Oil reﬁneries across Kazakhstan have been coping well with increasing capacity demands

Opportunities exist in oil and gas drilling and production equipment; field operation; oil spill response management; gathering, treatment, transportation and storage of oil, petrochemical products and natural gas; seismic interpretation and processing; pumps, valves, turbines, well-simulation and field abandonment services; fittings and valves; gas detection and control and monitoring systems; oil and gas field chemicals removal technologies; welding, pipeline construction equipment, and pipeline corrosion controls.

Continuing expansion

a consortium of seven partners: KazMunaiGaz, ExxonMobil, Total, Shell, Eni, ConocoPhillips and Inpex, who have collectively allocated $46 billion to the project. Production will commence at 370,000-450,000 barrels per day, and this will rise to one million barrels per day within the next five years. Kashagan is Kazakhstan’s first offshore field, and to date the country has little experience of offshore production and operations. This presents lucrative opportunities for small- and medium-sized enterprizes (SMEs) investors with experience in offshore production and operations. It will particularly attract those with experience in harsh deep water environments, as some of the Caspian basin formations are 15,000 feet deep, with high levels of sulphur and other contaminants. With all of these expansion projects in progress, Kazakhstan’s oil and gas markets continue to provide excellent investment opportunities for at least the next few decades. INVEST IN KAZAKHSTAN 2012

Kazakhstan continues to foster an ethos of entrepreneurship and support for SMEs, with the view to encourage FDI inflows for subcontracting. FDI creates employment, and allows the rapid exchange of knowledge in regions of close geographic proximity. The government has introduced a number of incentives to benefit the SMEs sector, such as subsidized interest on loans, loan guarantees, assistance in developing production, (industrial) infrastructure, audit exemption for the first three years of trading, professional support services, such as legal and accountancy, and training. The National Oil Fund, managed by the National Bank, was also introduced to support SMEs, and the National Industrial Petrochemical Technopark at Atyrau, one of the country’s six Special Economic Zones (SEZ), will be the location of the majority of future SMEs. Continued expansion and development of the oil refining sector also provides a mass of opportunities to SMEs involved in construction and innovative environmental technologies. Atyrau also holds SEZ status, and expansion here includes the construction of a deep oil refinery worth $1.7 billion, which will increase production of gasoline by almost three times, up to 1.7 million tonnes. As a result of this project, the production of diesel fuel is expected to grow up to 1.4 million tonnes. It is scheduled for completion in 2016. The construction of an integrated gas and chemical complex in the Atyrau region will enable Kazakhstan to produce 500,000 tonnes of propylene and 800,000 tonnes of polyethylene. The first construction phase is nearing completion, with the second phase scheduled for 2015, and it presents significant SME investment potential. With the National Oil Fund investing $14 billion dollars into Kazakhstan’s expanding onshore and offshore industry over the next three years, investors from the international oil and gas small- and medium-sized enterprizes sector should consider Kazakhstan a tremendous opportunity for prosperity as it moves towards and achieves its 2030 goals.

SPECIAL FOCUS ON OIL AND GAS

Major pipelines are under construction across Kazakhstan to facilitate domestic use and enhance opportunities for exportation

Extending the range of oil and gas transportation

INVEST IN KAZAKHSTAN 2012

SPECIAL FOCUS ON OIL AND GAS

With its abundance of natural resources, Kazakhstan continues to place emphasis on extending domestic oil and gas supplies, as well ensuring that improved infrastructure is being developed to increase export potential

he movement of basic raw materials requires the creation of appropriate transport and handling facilities. Kazakhstan is now in the process of developing a major network of oil and gas pipelines, storage and port-handling facilities, as well as related road and rail links. This requires signiﬁcant investment in partnership with foreign entities, both in terms of planning, technology and equipment, and ﬁnance. As the government’s Strategy for Industrial and Innovative Development 2020 enters its second decade, there is a clear message being communicated that the country is exerting every effort to create continued economic growth by way of an attractive investment climate. Within the strategy there exists a series of objectives that are to be achieved by 2015, as well as towards 2020 and beyond. This includes the construction of an improved overland transportation infrastructure and the development of a major network of oil and gas pipelines, storage and port handling facilities, and road and rail links which are all integrated within the New Silk Road initiative. As Kazakhstan enters the third stage of the 2011-15 strategy, completion of a series of these projects will further enhance the 2020 Business Road Map by accelerating the economical structure and export frameworks. It should not be overlooked that Kazakhstan is still a very young nation and, since its declaration of independence in 1991, it has risen to become one of the world’s strongest and rapidly growing economies, already attracting more than

$140 billion in foreign investment. However, like every country in the world, Kazakhstan also bore the brunt of the 2008 global economic crisis. President Nazarbayev’s vision for 2020 has steered the economy through these challenges and, with $44 billion to allocate from the National Oil Fund, there is a sudden acceleration towards achieving sustained economic stability and growth. A marked increase in oil and gas production underpins these developments; none more so than the first oil that will be extracted from the mammoth Kashagan field in early to mid 2013. Output is expected to commence at a rate of between 370,000 and 450,000 barrels per day (b/d), and this is set to increase to one million b/d within the next five years. This will contribute to the increased output of crude in Kazakhstan to over 100 million tons per year by 2020.

New pipeline in progress Plans are in place for a new pipeline that is to be built from the Kashagan ﬁeld. The new Yeskene-Kuryk pipeline, which is projected to carry 56 million tons of crude per year, will run from Kashagan to the Caspian Sea port of Kuryk. The crude will then be shipped by tankers to Azerbaijan along the Baku-Tbilisi-Ceyhan (BTC) pipeline, which runs to Turkey via Georgia. The Kazakhstan Caspian Transportation System (KCTS) is spearheaded by the country’s national energy company, KazMunaiGas. This vast $4 billion project is being backed strongly by the North Caspian Operating Company (NCOC) partners – particularly Total, which also has a share in the BTC pipeline. A new oil terminal is under construction to provide for large 60,000-ton-deadweight (DWT) tanker vessels. However, the KCTS is facing some opposition as Russia already transports oil along this route and is objecting to a rival in this area. Despite this, further commitment to the project was shown recently when Eni signed an agreement to build a INVEST IN KAZAKHSTAN 2012

SPECIAL FOCUS ON OIL AND GAS

Gas production and transport

Russia Karachaganak ﬁeld

Karachaganak-Caspian Pipeline Consortium (CPC) pipeline Atyrau

Kazakhstan-China gas pipeline

Yeskene

Kazakhstan Tengiz ﬁeld Kashagan ﬁeld

Kazakhstan Caspian Transportation System (KCTS) pipeline

Aktau Kuryk

Turkmenistan-China gas pipeline

Almaty

Caspian Sea

Uzbekistan

China Kyrgyzstan

Turkmenistan

Saman Depe

$288 million shipyard at Kuryk. The shipyard is expected to be able to maintain as many as 70 ships a year and build new vessels with deadweight capacity of as much as 15,000 metric tons. The ﬁnance for the project will be raised jointly by Eni and KazMunaiGas and it is forecast to be launched in 2018-19 to coincide with the second phase of oil extraction at Kashagan.

Extending the supply of gas In the meantime, looking to 2015 when oil production is expected to reach 120-130 million tons, the construction of the Burgas-Alexandroupolis pipeline will be a trans-Balkan project aimed at reducing the cost of exporting oil and gas to Europe, as well as, potentially, the United States and Asia. The Burgas-Alexandroupolis pipeline is integral to the Caspian Pipeline Consortium (CPC) expansion project and is critical to the economy as the rapid growth of demand on the oil and gas industry must be met. This pipeline will also aid the European Union as it will relieve the region of its reliance on the Organization of the Petroleum Exporting Countries (OPEC) states. INVEST IN KAZAKHSTAN 2012

The $5.4 billion CPC expansion project involves the construction of 10 new pump stations, more storage facilities and a third offshore mooring point. Replacement of an 88km section of pipeline in Kazakhstan with a larger-diameter pipe, and an upgrade of the communication and control system of this pipeline, is also part of the project. The Kazakhstan-Turkmenistan-Iran gas pipeline will run from western Kazakhstan to western Turkmenistan and into northern Iran. This project is scheduled for completion by December 2015. Another project set for completion that year is the Beyneu-Shymkent pipeline. This $3 billion venture sourced by Karachaganak, Tengiz and the forthcoming Kashagan oil fields, is projected to be operational in two phases, the first in 2013 and the second in 2015. The development and launch of the new ZhezkazganArkalyk pipeline system will allow the central region of the country, including Astana, to receive a supply of gas available to both industrial and commercial users. In addition, the commencement of the construction of the Tobol-Kokshetau-Astana gas pipeline will take place in the first quarter of 2013. This will also provide gas supplies to the

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central regions of Kazakhstan and Astana, with the capacity of the pipeline to be in excess of six billion cubic metres per year. To complement these developments, gas distribution plants at Astana and Kokshetau are scheduled to commence in 2013. These signiﬁcant pipeline projects will address the President’s emphasis on the priority to meet the country’s domestic use of gas, as well as for Kazakhstan to become a major supplier to world markets by 2030 by increasing gas production from 40 billion to 110 billion cubic metres.

Revamping railways Railways have seen major development in recent years and will continue to receive attention as Kazakhstan attempts to maximize its location in the heart of Asia. In his State of the Nation Address, President Nazarbayev instructed further improvements to the infrastructure in this region through

the construction of the Zhezkazgan-Beyneu and the Arkalyk-Shubarkol rail lines, set for completion by 2016. The Zhezkazgan-Beyneu will facilitate the ease of transportation to the Persian Gulf states from central Kazakhstan. This in turn will ease commercial opportunity and a reduction in rail tariffs. This new route will enhance the economic development in the central regions of Ulytau, Irgiz, Aral, Shalkar, Baiganin and Beyneu. The Arkalyk-Shubarkol line will provide a mode of transportation from central Kazakhstan to Russia and western Europe. Projects also continue to expand the CPC network. Stretching over 1,500km, the network carries over 31 million tons of oil annually (tpa); 28 million tpa of which comes from Kazakhstan. The next phase of development will commence in 2013 on the Tengiz-Novorossiysk pipeline, aiming to satisfy the increased output from Tengiz and Karachaganak, as well as

The development of pipelines will increase output from the major oil ﬁelds surrounding the Caspian Sea

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The port of Aktau, the sole ice-free sea port in Kazakhstan, is vital for oil transportation across the Caspian Sea

that of Kashagan. When the project is completed in 2015, the pipeline network will be able to transport 67 million tpa. The 1,510km Beineu-Bozoi-Akbulak Main Gas Pipeline at Tenzig will undergo the construction of its second line over the next two years. This will result in an increase of throughput capacity from five billion cubic metres per year, to over 10 billion cubic metres per year. As a result, the southern regions of Kazakhstan will be supplied with domestic gas. The pipeline will also enhance the provision of gas to the localities along its route. Moreover, the Zhambyl State District Power Plant will operate more effectively with greatly enhanced supplies of gas. The ultimate benefit will be to the consumers in the region, who will experience stability in pricing as a result of the hugely increased supply. There are to be expansion opportunities at “the Aberdeen of the Caspian”, namely the port of Aktau, with plans in place to develop a fleet of Aktau-Baku Roll-On/Roll-Off (Ro-Ro) vessels. While some projects, such as KTCS, are being held back until after 2015, this project is progressing as a result of the need to address the challenges of transportation across the Caspian Sea by way of support of the New Silk Road initiative. INVEST IN KAZAKHSTAN 2012

Over land, the mammoth task of connecting western China with western Europe through Russia will continue. The next phase of the Western Europe-Western China highway in Kazakhstan will be commissioned in 2013. So far, $3 billion has already been allocated to the construction of this road corridor, which will run through Aktobe, Kyzylorda, Zhambyl and South Kazakhstan. As a vast state, with a limited number of seaports due to the country’s geographical positioning, Kazakhstan has had to strive harder than most economically robust nations to focus on improvements on infrastructure. However, with the aid of bilateral and multilateral funding, Kazakhstan already boasts the modern port of Aktau on the Caspian Sea, improved roads and railways to link Kazakhstan’s principal cities (many previously accessible only via Russia), and enhanced transit links with China. However, there are still key areas that are to be developed in the short term. The New Silk Road initiative is a behemoth of a work in progress, but in attaining many of the milestones projected by 2015, it will transform not only the sustainability of Kazakhstan’s socioeconomic development, but it will open the door to a host of foreign investment opportunities towards 2030.

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Processing and reﬁning oil and gas – key strategies

Kazakhstan is investing heavily in the recovery and reﬁning of its oil and gas. Industrial policy intends to maximize the country’s return on its natural resources, and there is plenty of scope for foreign investors to participate

he development of upstream processing and refining is a key tenet of industrial policy, designed to maximize the return on the country’s oil and gas wealth and play a crucial role in the modernization and diversification of the economy. Oil-refining, petrochemical production and processing are all key areas in which foreign investors can participate, staying in complete harmony with Astana’s industrial vision.

Being among the world’s top oil- and gas-producing nations, Kazakhstan currently has an average daily recovery of around 1.6 million barrels of oil, and has natural gas reserves of around 2.5 trillion cubic metres. This equates to the daily extraction of over 200,000 tons of oil and condensate. With plans to increase this to 15 million tons by 2015, and an overall projection of over 60 percent by 2020 to 100 million barrels of oil and 48 trillion cubic metres of gas, the processing and reﬁning industry presents a host of lucrative opportunities for continued foreign direct investment (FDI) for the next decade at least. The expansion plan’s main objectives for Kazakhstan’s reﬁning sector bear emphasis on the development and growth of the small and medium-sized enterprises (SMEs) investing in these sectors. Under the Accelerated Innovative-Industrial INVEST IN KAZAKHSTAN 2012

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Atyrau is playing host to some of Kazakhstan’s major expansion projects

Development program, SMEs will be located at the National Industrial Petrochemical Technopark at Atyrau. The park is set to be a centre of excellence for construction, training, innovation and new technologies, as well as being in the hub of the major expansion projects at Atyrau, Karachaganak and the long-awaited ﬁrst oil recovery from Kashagan. Investment will contribute signiﬁcantly to facilitating the recovery of known reserves, and will develop a robust petrochemical industry in Kazakshtan. This will lead to economic growth,

sustainability and increased export activity, underpinned by an increase in oil production and the processing of heavy oil into high-quality motor oil and petrochemical products. The port of Atyrau is one of the six Oblasts in Kazakhstan with SEZ (Special Economic Zone) status. The SEZ provides beneﬁts in terms of corporate tax, land tax, property tax and value-added tax. With Kazakhstan’s reliance on imported machinery and equipment, there are exemptions on customs duties and process technologies licences. INVEST IN KAZAKHSTAN 2012

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At present, there are three oil refineries in the country: the Atyrau Oil Refinery, launched in 1945, the Pavlodar Petrochemical Plant, launched in 1978, and the Shymkent Oil Refinery, launched in 1985. Inherited from former Soviet rule, these refineries have been processing to capacity and are in need of refurbishment. The National Oil Fund has provided a $14 billion investment program to expand and upgrade the refineries, also to be spent partly on constructing new plants.

A trio of megaprojects Integral to the 2020 Business Road Map, this investment further promotes support to SMEs by way of incentives that champion the processing industry, increasing its share in gross domestic product (GDP) to 12.5 percent, and three megaprojects are under way to make this happen – namely the construction of a deep conversion plant at Atyrau, the development of the Atyrau Gas Chemical Plant and the construction of a gas processing plant at Karachaganak.

Also at Atyrau, the second megaproject is the $6.3 million construction of an integrated gas and chemical plant. The first phase of the plant will produce over 500,000 tons of propylene and 800,000 tons of polyethylene – products never before produced in Kazakhstan. The second phase of this project encompasses the construction of an ammonium-carbamide plant, as well as cyclohexane and polyutherane production. Scheduled for completion in 2016, this complex will facilitate the manufacturing of household products for export and domestic use. Karachaganak is one of the world’s largest gas and condensate fields, covering an area of over 280 square kilometers. It holds an estimated nine billion barrels condensate and 48 trillion cubic feet of gas. Over $14 billion has already been invested in the field, which provides more than 45 percent of the country’s total gas. With President Nursultan Nazarbayev’s vision to decrease emissions in the environment and create sustainable economic development, Karachaganak will be the site of the third megaproject; the construction of a $3.5 billion gas-processing plant. The plant will have a capacity of 5.5 billion cubic metres of natural gas, which is scheduled for completion by 2019. It will deliver its projected reserves via the network of pipelines to be constructed across Kazakhstan and the Caspian Sea, fulfilling the country’s objectives of becoming one of the world’s largest exporters of gas. Other projects include the construction of a fertilizer chemical plant in the Zhambyl Oblast, while development of the phosphate-rich Karatau basin from 2017 will launch the production of around 1.4 million tons of phosphoric and azotic minerals per year. Reconstruction and upgrading works at Shymkent, built in 1985 and currently regarded as Kazakhstan’s newest refinery, are scheduled to take place by 2014, in order to increase the refining capacity to six million tons of oil per year, and to increase the refining depth by 90 percent. In line with Atyrau and Pavlodar, the objective is also to improve the quality of fuel production to Euro 4 standard. Works will mainly include the reconstruction and reformation of the catalytic facilities. On completion, Shymkent will process 75 percent of Aktobe’s and 25 percent of Kumkol’s oil. The works scheduled for upgrading Pavlodar are similar to that of Shymkent, with a view to increase capacity to 7.5 million tons per year from its existing six million tons of diesel

Atyrau plays a critical role in the national economy development strategy, and has good international investment opportunities Atyrau plays an equally critical role in the national economy development strategy as it does in opportunities for investment to the international community. The $1.7 billion Atyrau deep-oil conversion plant will commence in March 2013, and is scheduled for commission in 2015. Licensing agreements have been signed with French companies Axens and Prosernat, American UOP, Italian Foster Wheeler and Russian JSC, Omskneftehimproekt. The plant will enable the oil conversion ratio to increase to 87 percent, which will see the production of crude oil increase to 5.5 million tons per year by 2016. This ﬁgure includes 1.7 million tons of motor fuel, 1.6 million tons of gasoline, and 244,000 tons of aviation fuel. The subsequent increase in output of light oil products will also increase by 77 percent, and fuel processing will be improved to meet Euro 5 standard, which deﬁnes the acceptable limits for emissions from vehicles. INVEST IN KAZAKHSTAN 2012

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Karachaganak will be the site of Kazakhstan’s third megaproject – the construction of a $3.5 billion gas-processing plant

fuel, jet fuel and fuel-oil residue. As with Shymkent, the improvements at Pavlodar will increase production in light petroleum and improve fuel quality. It is predicted that the overhaul of the refineries at Shymkent, Pavlodar and Atyrau is aimed to meet the domestic demand for fuel by 2030. Pavlodar Refinery will benefit from refurbishments, such as an isomerisation unit, a cat-cracked gasoline hydrodesulfurisation unit, an alkylation unit, a sulphur production unit and a sour waste stripping unit. Upon completion of these projects, the INVEST IN KAZAKHSTAN 2012

reﬁneries at Atyrau, Shymkent and Pavlodar will be producing in excess of 10 million tons per year. With the vision of President Nazarbayev to strategically create a fully integrated sustainable economy, supported by a sophisticated communications network, advanced technologies and a transportation infrastructure that will link western China with western Europe, Kazakhstan’s processing and reﬁning industry will offer a host of lucrative opportunities to foreign investors for many years to come.

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Kazakhstan’s mineral wealth will be crucial to its economic future

©ENRC

Minerals and mining: an attractive proposition

Kazakhstan boasts some of the largest reserves of raw materials in the world and the country’s government is committed to supporting the expansion of mining enterprises

azakhstan’s world-leading deposits of minerals and raw materials mean there is an abundance of natural resources for international mining companies to discover and develop. The country’s mining sector is responsible for 16 percent of gross domestic product (GDP) and it is one of the world’s leading producers of chromium, gold, arsenic, coal and beryllium. Copper and gold have been the chief attractions to date, but zinc and lead are also drawing in new investment.

The statistics speak for themselves: the country is sitting on around three percent of the world’s raw materials with a per capita natural resource base of more than $300,000 – among the highest in the world – twice that of Russia and higher than that of Australia. It boasts four percent of global iron reserves, eight percent of the world’s zinc reserves and four percent of chrome reserves. Estimates suggest that Kazakhstan is home to the world’s second largest reserves of lead, the third largest of manganese and the ﬁfth largest of copper, as well as ranking in the global top 10 for coal and gold deposits.

Major supplier of uranium Kazakhstan has been an important source of uranium for more than 50 years and is well placed to supply the high-quality fuel demanded by the growing number of nuclear power plants INVEST IN KAZAKHSTAN 2012

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Kazakhstan’s main sources of coal are the Karahanda and Ekibastuz basins

globally. It has the world’s second largest uranium reserves, with total resources estimated at more than 1.5 million tonnes. Between 2001-10, its annual uranium production grew from 2,000 tonnes to more than 17,800 tonnes. It was the world’s leading uranium producer in 2011, producing almost 35 percent of the total global output. More mines are being developed, with the aim of reaching an annual output of 30,000 tonnes by 2018. The state-owned nuclear holding company, Kazatomprom, is the country’s sole uranium mining, reprocessing, and export and import operator.

Karaganda and Ekibastuz coal basins and the Shubarkol mine – and in the north, in the Torgay coal basin. Around 45 percent of the reserves are regarded as recoverable. Kazakhstan exports around 30 percent of its coal, mainly to Russia and Ukraine. The remainder is used by the domestic power-generation industry (80 percent of power is coal-based), as well as the iron and steel industries. According to the Kazakh Ministry of Industry and New Technologies, the country aims to be producing 134 million tonnes of coal per year by 2015 and to increase production by 150 million tonnes annually by 2020. Kazakhstan has more than 400 coal deposits, of which one-third is classiﬁed as brown coal or lignite deposits. Most production is sourced from two main basins – the Karaganda Basin, which supplies coking coal from underground mining operations, and the Ekibastuz Basin (the third largest basin in the former Soviet Union), which supplies fuel to the power-generation sector.

Kazakhstan exports around 30 percent of its coal. The remainder is used by the domestic power industry

A growing force in coal BP’s 2012 Statistical Energy Survey put Kazakhstan’s coal reserves in the region of 33,600 million tonnes, 3.9 percent of the world total. It ranks eighth in the world for production after China, US, Australia, India, Indonesia, Russia and South Africa. The industry is a priority investment sector. Most of its mines are located in the center of the country – in the

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Kazakhstan transports coal from mines for use in Russian power stations. The country is currently upgrading its transport network

One of the country’s highest-grade coals is found in the Karazhir deposit. This contains reserves of more than one billion tonnes, a large proportion of which can be excavated by the open-pit method. There is active production at 53 mines across the country – including 15 in the Karaganda coal basin – operated by 34 companies (one joint venture, ﬁve foreign and 28 local ﬁrms). The major producers are: Bogatyr Access Komir, Shubarkol Komir, Mittal Steel Temirtau, the Eurasian Energy Corporation, Maykuben West, Karazhira Ltd, the Kazakhmys Corporation and Gamma. INVEST IN KAZAKHSTAN 2012

Bogatyr Access Komir, which lists Rusal and JSC Samruk-Energo as its shareholders, has been steadily increasing productivity since Kazakhstan’s independence. Its new transportation scheme has enabled it to improve the productivity of its main mine equipment by 20 percent. This has been further boosted by a number of other major schemes, including modernizing production, improving mining techniques and training staff to work under commercial market conditions. Shubarkol Komir was acquired by the Eurasian Natural Resources Corporation (ENRC) in April 2012. Commenting on

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It is expected that, as a result of a number of joint projects, investment in the mining and smelting industry will top KZT 1.72 trillion ($11.5 billion) by 2015 and lead to the creation of more than 3,000 extra jobs the acquisition, ENRC’s chief executive ofﬁcer, Felix J Vulis, said: “I am very pleased that we have concluded this strategic transaction. The acquisition of this high-quality thermal coal asset means we are well placed to meet the growing energy needs of our businesses in Kazakhstan.” In 2012, the Kazakh authorities approved plans by base and precious metals exploration and development company Orsu Metals to develop a mining and processing complex at its Karchiga Project in the East Kazakhstan Oblast region. This allows the company to commence construction and mining in the area. Dr Sergey Kurzin, executive chairman of Orsu, says: “The Kazakh authorities’ approval is another important milestone in the development of the Karchiga Project. It is one of the most important steps in the permit process in Kazakhstan, which will allow Orsu to proceed with construction and mining at Karchiga.”

Government support for mining The government has pulled out all the stops to implement signiﬁcant measures aimed at supporting the expansion and optimization plans of the country’s largest mining and smelting companies. Comprehensive modernization plans have been introduced for six strategic enterprises – Aluminium of Kazakhstan, SSGPO, TNK Kazchrome, Kazakhmys, Sat & Company and Kazphosphate. It is expected that, as a result of a number of joint projects, investment in the industry will top KZT 1.72 trillion ($11.5 billion) by 2015 and lead to the creation of more than 3,000 extra jobs. The government has also unveiled systematic plans to support the industry’s small and medium-sized businesses. In 2011, as part of its Road Map for Business – 2020, the state approved 782 loan applications worth KZT 238.5 billion ($1.6 billion), including loans to 101 mining and smelting projects that added up to KZT 52.6 billion ($351.2 million).

Kazakhstan enjoys good relations with the European Union, which is the country’s biggest trading partner and provides a vital link to Europe and its demand for raw materials. However, its proximity to China, with all the opportunities that being so close to this economic powerhouse brings with it, is opening up even more investment and sales avenues for Kazakhstan and its abundance of valuable natural resources. Furthermore, with its transport infrastructure improving, it is well placed to bring its products to market, putting the country at a huge advantage when compared with its African competitors. London-listed copper producer Kazakhmys, which was established in 1930, is based primarily in Kazakhstan. It says its operations in the country mean it is ideally positioned to enjoy the growth opportunities of Central Asia and serve many of the world’s largest markets, as well as to respond to customer demand. The firm says: “As a land rich in natural resources, with strong transport links and substantial foreign investment, Kazakhstan provides us with every opportunity to grow.” With the mining sector advancing, opportunities for foreign companies are also appearing in areas such as base and precious metals post-processing, as well as mining equipment replacement and repair, and technology upgrades. As the local regulatory structure becomes more favorable to foreign businesses, many of the mining sector’s major international players are likely to increase their presence significantly in the country’s minerals industry. For example, Rio Tinto is among the international firms to have staked a place in the local market, with an office in Almaty and a new office in the capital, Astana. In 2012, it announced plans to invest about $100 million in copper exploration in the north of the country. This followed its 2011 establishment of an equal joint venture with Tau-Ken Samruk – the holding company for Kazakhstan’s sovereign wealth fund Samruk-Kazyna which has a stake in some of the country’s largest metal and mining companies – to tap into the nation’s mineral resources. INVEST IN KAZAKHSTAN 2012

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The Bayterek Tower – the most iconic of recent constructions in Astana

Construction and real estate on the rise

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Kazakhstan’s construction industry is thriving, with new commercial and residential buildings rising at a rapid pace

s Kazakhstan’s urban population continues to grow, there is a burgeoning demand for both new commercial and residential properties. Projects are being revitalized as the banking sector gradually recovers and the property market begins to pick up again. Against this backdrop of cautious optimism, a whole raft of new developments is taking place, with residential, ofﬁce, commercial and mixed-use schemes springing up in the major cities of Astana, Almaty and Atyrau. With large infrastructure and industrial projects also planned for western Kazakhstan, there are plenty of opportunities throughout the country for overseas construction companies.

Skyscraper boom The transformation of cities such as Astana and Almaty into stylish locations with futuristic buildings is helping to revamp Kazakhstan’s image into that of a truly modern and global nation. If the height of buildings is any reflection of a country’s aspirations, Kazakhstan’s recent boost in skyscraper construction surely reflects its ambitious goals. Visitors to the new capital, Astana, report that this once provincial outpost has been transformed into central Asia’s most cosmopolitan city since 1990. Its development is impressive: 1,700 cranes are working on 650 separate sites across a city that, just a decade ago, had a population of only 280,000, but today is home to approximately 700,000 people. A total of KZT 1.5 trillion ($9.9 billion) is being invested in construction projects in the area, dwarfing the spend in Dubai, Brasilia and Canberra.

The most impressive of the completed large-scale buildings in Astana is the Bayterek Tower, also known as the ‘Tree of Life’. It stands midway down a 1.5-kilometer-long boulevard lined with flower beds, sculptures and fountains. Large buildings line either side of this thoroughfare. It has gained symbolic status in the country, much like the Eiffel Tower in France. The striking Norman Foster-designed Khan Shatyr Entertainment Center, which holds 10,000 people, has captured the imagination of visitors. This immense structure – which covers an area larger than 10 football stadiums – features schools, hospitals, shops, sports centers and concert halls. Motor vehicles are banned, with a network of canals providing the main travel routes through the complex. The center’s upper floor features a man-made jungle and beach, as well as a pool. Another Foster marvel in the city is the Palace of Peace and Reconciliation Pyramid. Not to be outdone, Almaty has also been making its architectural mark with a series of futuristic buildings, including Foster’s Almaty Twin Towers. As the banking sector recovers, more money is being poured into Kazakhstan’s construction market. The Agency of Statistics says that KZT 4.65 billion ($31 million) was invested in fixed capital for construction in 2010, and KZT 5.0 billion ($33.3 million) in 2011. The country is on target to enjoy an even stronger 2012, with KZT 2.52 billion ($16.8 million) already invested in the first seven months of the year, comparing favorably with the KZT 2.34 billion ($15.6 million) recorded for the same period of 2011.

Increase in housing According to the Agency of Statistics, residential construction by independent builders has been steadily rising. At the beginning of the 21st century, an estimated 910,000 sq m of housing was built. This ﬁgure rose steadily to a peak of 3.85 million INVEST IN KAZAKHSTAN 2012

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sq m in 2007. There has been a decline since the global ﬁnancial crisis, with 2.97 million sq m constructed in 2010. However, it is back to its pre-recession heights again with 3.57 million sq m being built in 2011. These ﬁgures match the agency’s statistics for total area of residential buildings constructed, which were 1.21 million sq m at the start of the century, rising to 6.84 million sq m in 2008, before a small drop to around 6.40 million sq m in 2009 and 2010, then another rise to 6.53 million sq m in 2011. There is not only high spending on bigger, better and brighter building projects. The government has also made the provision of high-quality, affordable housing a priority. This is enshrined in the Kazakhstan 2030 Development Strategy, which acknowledges the importance of addressing housing needs at the national level.

Affordable leaseholds As part of its commitment to building more affordable homes, in 2012 Kazakhstan launched the Affordable Housing 2020 scheme. It aims to construct about one million sq m of leasehold housing by 2014 and increase construction volume

Housing and Utilities, said: “The average monthly leasehold payment for apartments built through the program will be KTZ 30,000 to KTZ 50,000. This is signiﬁcantly less than the standard mortgage payments of KTZ 86,000 for the same apartments. These payments are quite affordable for ordinary people on average incomes.”

Expanding infrastructure Increasing investment in infrastructure projects is keeping pace with Kazakhstan’s commercial and residential property boom. The country’s commitment to upgrading its road network, much of which was constructed during the Soviet era, has been assisted by various global agencies. For example, in 2012, the government received a loan from the International Bank for Reconstruction and Development (IBRD) toward the cost of the proposed new East-West Roads Project (Almaty-Khorgos section): Western Europe-Western China International Transit Corridor. It intends to use part of this loan for the construction of the Almaty-Kokpek-Chunja-Koktal-Khorgos road. In Astana, infrastructure development is continuing at a considerable pace. A number of overpasses and roads have been completed, two bridges are under construction, as well as 22 schools, a medical center, a concert hall with the capacity to seat 3,500 people, designed by Italian architect Manfredi Nicoletti, and a three-kilometer-long Green Water Boulevard. Construction of the Nokian tire plant and the Nissan and General Electric assembly facilities are under way. A light railway line with a connection to the international airport has also recently been built. Landscaping work is also in progress to make Astana greener: 400 hectares will be transformed into parks and squares across the city, while 40,000 hectares of forest have already been planted around Astana to create a green-belt area. The Free Line Distribution company’s plans for a logistics center, which is being created as part of the government’s 2020 Business Road Map, is also in the pipeline. The Damu Fund, Free Line Distribution and the National Bank of Kazakhstan will sign an interest-rate subsidy agreement on KZT 3.5 billion as part of the scheme. This guarantees the company a subsidized interest rate of seven per cent. In August 2012, Italian oil and gas multinational Eni SpA, a partner in Kazakhstan’s biggest oil ﬁeld, and state oil producer KazMunaiGaz National, won approval to build a KZT 43 billion ($288 million) shipyard in Kuryk on the

Increasing investment in infrastructure projects is keeping pace with Kazakhstan’s commercial and residential property boom to 10 million sq m by 2020. One part of the program is the development of leasehold housing under the supervision of the Kazakhstan Mortgage Company. Other areas of the program support individual home building and the modernization of the housing and utilities infrastructure. In the ﬁrst stage of the scheme, which was completed in July 2012, regional housing construction plans were developed in Astana and Almaty. During the second stage, which ran from July until August 2012, all Kazakhstan’s regions worked with the Agency of Construction, Housing and Utilities to develop their own housing plans. Local authorities are providing information about the building plots in their regions and their engineering and utilities infrastructure. Speaking at a scheme workshop in May 2012, Serik Nokin, chair of the Agency for Construction, INVEST IN KAZAKHSTAN 2012

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The magniďŹ cent new 3,500-seat capacity concert hall in Astana, designed by Manfredi Nicoletti

Caspian Sea. This will have the capacity to maintain 70 ships each year, and build new vessels with a deadweight capacity of 15,000 metric tons.

Advances in agriculture Other recent construction projects include the creation of 13 vast greenhouses across the country for vegetable production. This was backed by funds from government agricultural investment agency KazAgroFinance. The facilities include: in the Akmolinsk region, LLP Greenhouse Technologies of Kazakhstan, with an area of 3.56 hectares; in Karaganda, LLP Green Technology at three hectares; in the Aktyubinsk

region, LLP Izet Greenhouse, at three hectares; and in Astana, LLP AstanaEcoStandart, at three hectares. Planting is about to start in the 5.1 hectare LLP Green Land Alatay greenhouse in the Almaty region. Two additional greenhouse complexes are set to be completed in South Kazakhstan in 2012 and 2013. There is also a scheme to construct a network of smaller greenhouses across the country. An estimated 50 mini-greenhouses are currently under construction in the Almaty region, with another 104 in the Zhymbyl region and 100 in the Southern Kazakhstan region. These projects are being supported by a micro-loans banking program. INVEST IN KAZAKHSTAN 2012

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A uranium pellet to be used as nuclear power-plant fuel at the Ulba Metallurgical Plant in Ust-Kamenogorsk, Kazakhstan

The nuclear energy cycle: a case study in global strategy

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Having forsworn nuclear weapons in 1991, Kazakhstan has since established nuclear industrial policies designed to utilize reserves for economic growth

azakhstan is the world’s largest producer of uranium, accounting for around 33.9 percent of global production, and possesses around 19 percent of the world’s uranium reserves. Current plans call for continued increases in production for the next ﬁve years, with future rates of extraction based on anticipated international market requirements and the evolution of the country’s mining policy and practices. The country’s national nuclear industry company is Kazatomprom, established in 1997 to oversee uranium exploration and mining and all other nuclear-industry-related activities, including uranium conversion, enrichment and fuel fabrication, as well as the import and export of nuclear and nuclearrelated materials. Moreover, Kazatomprom embraces foreign participation in all of its diverse activities. Of the 16 uranium mines currently active in the country, roughly one-third are wholly owned by Kazatomprom, and the remaining two-thirds are owned by joint ventures between Kazatomprom and a range of foreign investors – some of which hold majority stakes – such as Canadian companies Cameco and Uranium One in Inkai JV and Betpak Dala JV respectively. Other international companies that have had signiﬁcant involvement in the expansion of uranium mining include France’s Areva in the Kartco JV, Japan’s Sumitomo and Kansai in the Appak JV and Japan’s Marubeni, Tepco,

Chubu, Toshiba, Tohoku and Kyushi. China’s National Nuclear Corporation and the China Guangdong Nuclear Power Company also participate as equity partners in Kazakh uranium mining – hardly surprising given forecast predictions that China could be responsible for some 20 percent of global uranium demand by 2020.

Mining for uranium Kazakh uranium production is dominated by in-situ leach (ISL) mining, which began some 40 years or so ago, gradually phasing out most hard-rock mining. This process is dependent on huge amounts of sulfuric acid, which fell into short supply following a ﬁre at a sulfuric acid production plant in 2007, resulting in production cutbacks despite additional imports of sulfuric acid from China and Russia. The response was the launch of a series of new acid-production plants, largely driven

Current plans call for continued increases in uranium production for the next ﬁve years, based on market requirements by foreign participation, including in the immediate wake of the ﬁre at a Canadian plant, fed by emissions from the Kazakhmys Balkhash copper smelter. Other operations subsequently included an Italian plant at Stepnogorsk and Kazatomprom’s joint venture with Uranium One, as well as interest from Japan to construct a plant supplying the Western-region mines of Irkol, Karamurun and Kharasan. Foreign participation once again features strongly in Kazakhstan’s plans to become a major supplier of nuclear fuel pellets and INVEST IN KAZAKHSTAN 2012

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Nuclear power could underpin the country’s overall industrial development plans, acting as a major source of revenue by exporting power to neighboring countries Driven by foreign investment, Kazakhstan has launched a series of new acid-production plants

fabricated fuel. A focal point of these ambitions is the Ulba Metallurgical Plant in Ust-Kamenogorsk, a world-scale facility, which, in partnership, with France’s Areva and others is set to become a major supplier of nuclear fuel, initially to China and Japan.

Becoming a global supplier By 2030, Kazatomprom’s plans are such that the organization could be supplying over 30 percent of the global fuel fabrication market by 2030. Part of this plan involves Kazatomprom supplying fabricated product to reactors built by INVEST IN KAZAKHSTAN 2012

Westinghouse, a company in which it owns a 10 percent stake – a further example of the organization’s upstream ambitions. Despite its vast uranium reserves and historic association with the nuclear sector, nuclear power has featured little in Kazakhstan’s energy generation mix. Indeed, the country’s only nuclear energy plant, the BN-350 reactor at Aktau, commenced decommissioning in 1999. That said, the country is weighing up its future plans. Given Kazakhstan’s nuclear-weapons-free status, its proven commitment to nuclear safety and security, and the development to date of its nuclear industry and technology,

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T Vladimir Shkolnik Chairman of the Board, NAC Kazatomprom

his year’s 15th anniversary of Kazatomprom, the country’s national nuclear industry operator, coincides with Kazakhstan further consolidating its position as the world’s largest producer of uranium, with over 30 percent of world output and rapidly expanding not only its exports of uranium, but also its presence at all stages of the nuclear fuel cycle. The signiﬁcance of the successful development and growth of Kazatomprom, however, goes far beyond its achievements in the nuclear industry, both domestically and internationally. Nationally, it is representative of Kazakhstan’s fundamental industrial aspirations and strategy that have evolved since independence. Internationally, it speaks of Kazakhstan’s increasing presence on the global stage, especially as it ﬂows from President Nazarbayev’s nuclear disarmament program of the early 1990s, which resonates powerfully through the corridors of nuclear diplomacy. When Kazatomprom was established by Presidential decree in 1997, it comprised an exploration company, three mines and the Ulba metallurgical plant, all which were operating much below their potential, with outmoded equipment and working practices. Heavily in debt, workers’ wages were sometimes delayed. But with strategic vision, investment, restructuring and the development of key international partnerships with, among others, Westinghouse, Areva, Cameco Corp, and Sumitomo Corp, Kazatomprom was transformed into one of the world’s largest energy corporations – and came to epitomize Kazakh industrial policy and ambition. It now comprises more than 70 enterprises, employing 24,000 workers and with an international presence in all parts of the world

– it currently operates three research reactors – Kazakhstan is, in every sense, well placed to create a major nuclear power-generation capacity. If Kazakhstan wished, this could not only fundamentally underpin the country’s overall industrial development plans, but could also act as a major source of national revenue by exporting power to Kazakhstan’s neighboring countries. Meanwhile, further conﬁrmation of Kazakhstan’s nuclear standing in the international community comes with its plans to open the world’s ﬁrst-ever low-enriched uranium bank in 2013, under the auspices of the Vienna-based International

where nuclear power plants are in use – Asia, Europe and North America. Moreover, Kazatomprom has not simply advanced by relying on increased mining and further exports of uranium in its basic form – of which the country possesses some 15 percent of the world’s known reserves, – but by diversifying in all aspects of the nuclear production cycle and developing a major globally accepted scientiﬁc and technological presence. This policy is very much in line with one of the Government’s fundamental industrial objectives – to

Kazatomprom has a strong commitment to work with foreign partners achieve accelerated economic growth by adding value to extracted natural uranium at every possible stage of the supply chain, and in the process developing increasingly sophisticated technologies that, in themselves, become valuable industrial and business assets. Signiﬁcantly, the extent, momentum and sophistication of Kazatomprom’s research, diversity and advancements have made it a focal point of research in sources of renewable energy, including the development of photovoltaic solar modules and wind turbines. Lastly, what Kazatomprom has so far achieved is also representative of another strong theme of the country’s industrial development strategy – a strong commitment to work with foreign partners, both within Kazakhstan and internationally.

Atomic Energy Agency (IAEA). Designed to store around 60 tons of low-enriched uranium in gaseous form, the facility will provide countries operating nuclear power plants with a secure means of accessing fuel, and in the process obviate the need for them to enrich their own uranium. The contents of the fuel bank, which is to be located at Ulba Metallurgical Plant, will be owned by the IAEA and made available at internationally agreed prices, under a system of tightly policed controls. By doing so, this will make a signiﬁcant contribution to non-proliferation of potentially lethal nuclear materials. INVEST IN KAZAKHSTAN 2012

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Kazakhstan aims to generate enough power to supply the entire country and create further opportunities for exportation

Developing conventional and alternative methods of power generation

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President Nazarbayev’s plans to develop Kazakhstan into an energy superpower are being put into place with a focus on alternative energy sources undamental to future economic growth is the development of a new generation of power stations and a modern, unified national grid system. This will enable Kazakhstan to become a significant exporter of electricity to neighbouring countries, particularly China. Kazakhstan’s objective of exporting as much of its oil and gas as possible is one of the key factors driving the country’s all-encompassing power-generation policy, which takes in a swathe of options that include nuclear power. The capacity of renewable energy sources (including hydropower, wind energy and solar energy) is significant in Kazakhstan. President Nursultan Nazarbayev’s vision towards a future of Kazakhstan becoming an energy superpower, built on the foundation of a 20-year master plan, is rapidly becoming a reality. Within the Action Plan for Development of the Electric Power Industry towards 2015, there are a number of major regional strategies in place, with the aim of developing a nation that has a fully integrated source of conventional and alternative power, both for domestic use and for exportation.

Inviting foreign investment There are signiﬁcant opportunities for foreign investment following a pledge that the business environment of Kazakhstan will make it possible to invest in the development of renewable energy sources with minimal risk. Such is the scale of opportunity across every spectrum of renewable energy, members of the international community with expertise in the renewable energy sector are urged to come forward. The Government of Kazakhstan has projected an investment requirement in the renewable energy sector of $64 billion by

2030, and seeks to foster relationships with countries that have experience in promoting energy-saving technologies, managing sustainable energy resources, and developing the use of renewable energy in order to achieve the sustainable supply of non-extraction energy. The non-conventional energy industry has garnered high priority for the future of the country’s sustainable economic development, due to the ever-increasing demand for energy needed to supply a population of 16.8 million scattered across 11 million square miles. Coal is used to generate over 80 percent of the electricity supply and, as studies indicate, there are 150 billion tons of known reserves. There are currently only ﬁve operational hydropower plants on the Irtysh river, which provide roughly 12 percent of electricity generation. While this is a gesture towards alternative energy sources, it is widely acknowledged that now is the time to plan for the future. Kazakhstan holds 0.5 percent of the world’s water reserves, and this has underpinned a strategy for the construction of 100 small hydropower stations. One objective, in line with the Kyoto Protocol, is to reduce emissions and create a cleaner environment towards 2030 and beyond. The other is the recognition that, by encouraging investors to develop alternative energy sources, the economy will be protected from future price increases in oil and gas as global demand is impacted by diminishing hydrocarbon energy reserves. By 2030, there will be 19 new renewable and sustainable energy facilities across the country, as well as the completed $7.8 million refurbishment of six existing facilities. The second phase of upgrading the power stations of the National Grid is under way and is expected to run until 2017, at a total cost of $333 million. This is funded by the European Bank for Reconstruction and Development (EBRD) and is a key aspect of protecting the efﬁciency and security of energy. INVEST IN KAZAKHSTAN 2012

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Under the United Nations Development Programme (UNDP) Market Development Initiative, an extensive feasibility study was undertaken in order to develop renewable energy in Kazakhstan. The UNDP Wind Power Market Development Initiative is a full-scale project to promote the development of the wind energy market. Research revealed that the vast open rural areas of the country are the perfect environment for developing wind energy, with wind speeds in some areas of up to six miles per second. Under the advice of the UNDP, investors are encouraged to become involved in constructing up to 300 wind farms by 2015, and 2,000 farms by 2030. The UNDP research projects also found that the capacity of solar energy in the southern regions of the country is between 2,500 and 3,000 sun hours per annum. While there are currently two major solar power stations in Kazakhstan, more are planned, including one in Aksai and one in Talgar. In recognition of the efﬁciencies of solar energy, a number of private installations exist in the densely populated, oiland gas-rich western region of Kazakhstan, with the largest covering 70 square miles at Almaty.

Exploiting the potential of biofuel The biofuel sector is an area that the Government of Kazakhstan is keen to develop, as there is currently only one producer, Biohim, which has plants in production in northern Kazakhstan. Although production costs are 50 percent lower than those in Europe or the US, there has been some resistance to the concept of biofuel in the past, mainly due to the country’s food-security interests and the belief that grain should be used for food and not as an energy source. There is considerable private-sector interest in the biofuel industry in Kazakhstan, and the government is keen to encourage investment to achieve its goal of constructing 40-50 biofuel plants across the country. Kazakhstan does not currently have a nuclear power industry, but plans are afoot to construct a plant at Lake Balkhash. There is a strong belief that Kazakhstan could become a leader in the export of nuclear energy and studies have shown that there is potential for up to three nuclear power stations in the country, which could result in the country becoming independent by relying less on imported energy. Predictions also indicate that if there was a transition to integrating nuclear fuel, the project would go out to tender with a timeline of works commencing in 2020. The construction of the Lake Balkhash Thermo Power Station is a milestone in the evolution of Kazakhstan’s energy generation. This $4.7 billion project will see the launch of its INVEST IN KAZAKHSTAN 2012

ﬁrst phase in 2013, with the second phase being launched in 2015. The plant will have a capacity of 1,320 megawatts, producing over nine billion kilowatts (kW) of electricity. Moreover, the construction at Lake Balkash is expected to alleviate the demands on the restricted supply of electricity in the southern regions of Kazakhstan. There are four other major projects in place in Kazakhstan, including the third phase of construction of the Ekibastuz Power Plant, which will be launched in 2013 at a project cost of $600 million. The construction of the Alma substation,

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The capacity of solar energy in the southern regions of the country is between 2,500 and 3,000 sun hours per annum

which will be connected to the Kazakhstan National Electric Grid via 500 and 220 kilovolt (kV) lines, is scheduled for completion by 2015 at a project cost of $200 million, $122 million of which will be ﬁnanced by the Government of Kazakhstan. In order to supply energy to Astana’s industrial zone, an additional substation will be constructed at Oskarova at an investment cost of $71 million. The Government of Kazakhstan has predicted that a renewable energy economy will increase energy efﬁciency by up to 60 percent, save water by 50 percent and reduce waste

by 30 billion tons. The Green Bridge is President Nazarbayev’s vision for a global green economy, which will champion economic stimulus not only in the economy of Kazakhstan, but also that of other nations. His Global Energy and Environment Strategy, endorsed at the UN Environment Summit ‘Rio+20’ in June 2012, communicates this vision and how to manage the transition from conventional to renewable energy beyond 2030. Foreign investors have the opportunity to become part of this journey and inﬂuence the sustainability of future economies and environments. INVEST IN KAZAKHSTAN 2012

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Almaty, Kazakhstan’s former capital, remains a hub of commercial and ﬁnancial activity and will beneﬁt from new, improved transport links

A new network for global trade

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With infrastructure strategies in progress and transport-development projects implemented, Kazakhstan is poised as a trade gateway for the whole of Central Asia, ready to support new markets and accept further foreign investment

s money is invested into Kazakhstan’s infrastructure, new transport links are being implemented and development is gaining momentum amid mounting strategic activity. With access to popular trade routes and export channels established to exploit the republic’s enviable location, Kazakhstan has the means and potential to become a key link in the global transit network. The government is seeking to encourage exportation of the country’s produce and coveted natural resources via these improved transport routes, reducing its dependence on imports. Kazakhstan intends to become a nation sustained by its own resources and supported by further international investment and increased exports. The Western Europe-Western China highway, part of the New Silk Road initiative, will boost the country’s export potential by engaging it in a growing transit network. The highway has created 34,400 jobs in Kazakhstan, and this number is set to increase as it extends through the country, reaching completion in Kazakhstan in 2013. A key development strategy is modernization, and the New Silk Road project represents this. Historically used as a trade route, the Silk Road hosted the fusion of cultures, traditions and ideas from East and West. Recent years have witnessed the rebirth of the Silk Road, with the auspicious initiative creating a vast network of roads and railways throughout Central Asia. Conducive to markets and trade, the network will assist Kazakhstan in shifting its main export produce to non-oil products, which will ease its reliance on ultimately ﬁnite natural resources. New economic growth will integrate Kazakhstan into international trade, creating jobs and diversifying the country’s economy.

New opportunities Kazakhstan is especially keen to attract US and Canadian companies to investment projects commissioned under the accelerated industrialization program. In April 2012, the Kazakh-US Strategic Partnership Commission was implemented, which will enhance bilateralism between the two nations. “Silk Road is a very important initiative for Kazakhstan. It is important that the United States is taking

steps towards creating this initiative – it means that we are creating new transportation corridors that would be very important for the sovereignty not only of Kazakhstan, but of all five countries of Central Asia,” Ermukhamet Ertysbayev, President Nursultan Nazarbayev’s advisor for political affairs, told Silk Road Newsline. The country intends to embrace this opportunity, using the new route to expand its role in the global trade network and benefit economic growth prospects. Kazakhstan is seeking a move away from the oil and gas sectors – despite boasting the world’s 11th largest oil reserve – and is utilizing its unique position, branding itself an investment and trade gateway for all of Central Asia. “Once implemented, the project will result in nearly a twofold increase in cargo transit traffic through Kazakhstan by 2020,” says President Nazarbayev.

Improving access to foreign markets The New Silk Road will create stronger regional and global ties, and the revision of counterproductive trade policies and ineffectual laws will encourage more investors to bring money to Kazakhstan. The US is a key supporter of the initiative, and trade liberalization, enforced regulations and clearer policies conducive to successful trade will draw further international support. Kazakhstan’s global investment potential is huge, and the country is an attractive investment opportunity for ﬁrms seeking a stake in one of the most dynamic emerging markets. Robert Blake, US assistant secretary of state for South and Central Asia, says: “Kazakhstan took the lead in supporting the New Silk Road vision, supporting projects such as the Central Asia Regional Economic Cooperation transportation corridors across Kazakhstan that would link China with Europe, and will also create a North-South Highway linking Central and South Asia.” The New Silk Road and general transport and transit improvements will be an enabler in restoring the region back to its historic trade glory – a progressive development in the future of Kazakhstan and its neighboring nations. The landlocked countries of the region will beneﬁt from improved access to foreign markets, and investment in the region will see Central Asia’s economy peak. Despite the introduction of new highways, Kazakhstan is limited by transport shortfalls. Aktau City’s seaport, on the Caspian Sea, is struggling to meet growing export demands, and plans for a new terminal are under way to support this increased demand – especially for the country’s wheat and grain produce. Kazakhstan is among the world’s top 10 wheat exporters, and has ambitious, yet achievable, export quotas in INVEST IN KAZAKHSTAN 2012

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place. Rafail Galyamov, head of the Ak Bidai sea terminal, advocates the plans for another terminal, noting that the current terminal has been consistently working at full capacity to meet Iran’s increasing demand for grain. Yevgeny Aman, executive secretary of Kazakhstan’s Ministry of Agriculture, says: “We hope to be able to export a total of 15 million tons of grain in the current marketing year. Kazakhstan has already exported around 7.5 million tons since July 1, 2012. Flour makes up 34 percent of this.” In the past marketing year, Kazakhstan exported 5.9 million tons of wheat and ﬂour, and with improved transport systems this ﬁgure is predicted to increase annually.

Attracting inward investment Kazakhstan’s Ministry of Foreign Affairs is continuing its work to attract further investment from abroad. Embassies around the world have organized trade missions, and export contracts worth more than $100 million have been signed. Kazakhstan has received annually increasing investment interest since 1994, and the republic has good capacity for further foreign direct investment (FDI). Developments in the rail industry are also positive, with Kazakhstan’s 100th locomotive produced in 2011. Built to transport freight along the Aktogai-Semei route, and

The assembly plant plans on broadening its export channels, and has already completed its first transaction to sell locomotives abroad. Yermek Kizatov, vice-president of Kazakhstan Railways, explains: “The plant has signed its first contract with Tajikistan on the delivery of new locomotives. Later, we will supply locomotives to other Commonwealth of Independent States (CIS) countries.” Production of passenger cars began at the plant in 2011, and a recent collaboration between Kazakhstan and Spanish train manufacturer Talgo launched “Tulpar-Talgo” passenger cars. In July 2012, Kazakhstan announced plans to build high-speed railways across the country – creating jobs, improving transit links and encouraging travel. Tulpar-Talgo’s director general, Stanislav Podavets, highlighted the benefits: “Increase in speed of movement on Kazakhstan’s railroads will reduce travel time and increase traffic flow.”

International standards of aviation In April 2012, a new international airport in Astana was commissioned. Kazakhstan’s largest airport, Almaty International, has hired Lufthansa Consulting to plan the new development, assist in anticipating future capacity demands and gauge realistic usage figures from growth forecasts. Throughout 2010, the airport transported 3.8 million passengers and 63,000 tons of airfreight, and the new airport will be a key element in economic expansion. As these plans were announced, Kazakhstan’s Ministry of Transport and Communications also released strategies designed to ensure that the country’s civil aviation industry maintains international standards. These include plans to implement audits of individual airports, which will verify the current standards of service quality. There is further positive aviation news, with Kazakhstan’s leading airline, Air-Astana, set to spend over $1 billion on new Boeing planes. They will take delivery of the Boeing 767s and 787 ‘Dreamliners’ from 2013 to 2017, replacing and updating the airline’s current fleet of passenger jets. The benefits of the new planes are numerous – fuel and operation costs will be reduced, new manufacturing processes will create less waste and passenger comfort will increase. The landmark deal will help to support more than 160,000 American manufacturing jobs in Washington and South Carolina, increase US exports and, ultimately, bestow Air Astana with the coveted status of a global airline.

Embassies around the world have organized trade missions, and export contracts worth more than $100 million have been signed manufactured under the General Electric (GE) company’s license, it has set a high standard for Kazakhstan’s next generation of freight transport. The Astana-based assembly plant, which produced the GE Evolution Series anniversary locomotive, has progressed from assembling one locomotive in six months to constructing six to eight machines every month. At full capacity, the plant can produce around 100 locomotives annually, sustaining 600 jobs. This venture is part of the strategy for Accelerated Industrial-Innovative Development of Kazakhstan in 2010-14, which aims to stimulate industry to diversify and modernize Kazakhstan’s economy. INVEST IN KAZAKHSTAN 2012

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Cellular phone and internet usage has become more accessible, with a tenfold increase in people getting connected

Kazakhstan gets better connected

As the population makes increasing use of information and communications technologies, the government is ensuring that it develops the expertise to maximize the economic beneﬁts

ICT is a priority for the government, which wants to develop a competitive, national, export-oriented sector. According to KazNex Invest, Kazakhstan’s investment and export promotion agency, the country’s software market is likely to expand further, offering real potential for investors.

azakhstan is in the process of rolling out new-generation information and communications technologies (ICT), designed to create a knowledge-based economy with maximum global interface. It’s a strategy that’s going to provide ever-increasing opportunities for international telecoms and information technology (IT) companies and consultants.

Growth in ICT literacy

Statistics reveal the spectacular growth in the country’s ICT market has been since 2005. Seven years ago, the industry was valued at $195.3 million, leaping to $649.7 million by 2008, and to more than $1 billion by 2010. In recent years, Kazakh citizens have become increasingly ICT literate. According to KazNex Invest, mobile phone INVEST IN KAZAKHSTAN 2012

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penetration was at 35.6 percent in 2005. By 2010, this had increased to 118.9 percent. Internet technologies saw a similar increase over the same time period, with two percent of inhabitants online in 2005, rising to six percent by 2010. The number of people with access to a computer has also risen, from an estimated 2.3 percent of inhabitants in 2005 to 7.3 percent by 2010. Figures from the United Nations Conference on Trade and Development (UNCTAD) also make for positive reading. According to its studies, Kazakhstan is among the top 20 economies in terms of the growth in the number of internet and cellular-phone users per 100 inhabitants. Over the past ﬁve years, the country has seen a quadrupling of the number of mobile-phone subscribers, and an almost tenfold rise in the number of people using the internet.

four main players in the market: ALTEL; Beeline (VimpelCom); Tele2; and Kcell (TeliaSonera). This quartet of mobile network operators (MNOs) has seen a steady rise in subscriber numbers since 2007, with some experiencing a more than threefold increase. 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 had risen to almost 23 million.

Commitment to progress Stockholm-headquartered MNO TeliaSonera, which part-owns Kcell, has been building its presence in Kazakhstan. It has acquired a bigger stake in Kcell in recent months from state telecoms operator Kazakhtelecom. As part of the deal, TeliaSonera is selling about 25 percent of its Kcell shares in an initial public offering (IPO). The IPO process has already begun and is expected to be completed during 2012. The MNO will ultimately own a 61.9 percent stake in Kcell. In 2012, TeliaSonera announced plans to acquire wireless systems operator Alem Communications for $170 million. In addition, the company is planning to take a minority stake in KazTransCom, the owner of the country’s nationwide ﬁber-optic network, together with Visor Group. “A high-speed, high-capacity telecoms infrastructure is essential for supporting industrial and business growth,” says Irene Krohn, media relations manager at TeliaSonera. “We believe that modern communication services, such as 3G and 4G, will support Kazakhstan’s ambitious plans to become a transportation, information and technology hub in Central Asia.” At a conference in Astana in May 2012, Petro Draganov, UNCTAD deputy secretary general, encouraged the Kazakh government to continue creating the conditions to encourage innovation and to use technology as a fundamental driver of the country’s economy. UNCTAD is currently advising Kazakhstan on implementing its national Innovative Development Strategy, aimed at developing the ICT sector, to boost the prosperity of the nation and its people. The government has shown an interest in using UNCTAD’s expertise and IT tools to promote efﬁcient eGovernment. In particular, the chairman of the State Customs Committee, Mazhit Yessenbayev, is looking at drawing on UNCTAD’s long-term experience in implementing ICT in the

Modern communications services will support Kazakhstan’s ambitious plans to become a transportation, information and technology hub Speaking after the ‘Government Innovation Technologies: Towards the Economy of the Future’ conference, which was held in Astana in September 2011, Andrew Beklemishev, country manager for the event organizer, IDC Kazakhstan, said: “Government support and transition represent some of the main factors behind the growth of the country’s IT market in the next ﬁve years.” IDC notes that Kazakhstan’s ICT market, the largest of the Central Asian countries, expanded by 32 percent in 2010 and is set for further signiﬁcant growth over the next few years. “We have every reason to believe that the Kazakh government’s strategy and investments can potentially put Kazakhstan on a par with the emerging economies of the BRIC [Brazil, Russia, India and China] and VISTA [Vietnam, Indonesia, South Africa, Turkey and Argentina] countries in terms of growth potential,” commented Philippe de Marcillac, IDC’s executive vice president, international business units, who gave a keynote address at the event. Kazakhstan’s cellular network is poised to continue the rapid growth it has enjoyed over the past decade. There are INVEST IN KAZAKHSTAN 2012

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State grants are now available for studying ICT at Kazakh universities to enable the country keep pace with international standards in technology

customs sector, through its Automated System for Customs Data (ASYCUDA) Programme. The Ministry of Transport and Communications is working with regional councils and communication services providers to develop wireless internet access in public places. It says 406 new public places provided wireless connections in the ﬁrst quarter of 2012, bringing the number of access points across the country to 1,894. This includes a total of 1,137 free-access points, compared to 1,067 in 2011.

Incentives to study Kazakhstan offers investors in the ICT sector a number of incentives. There is also an increasing number of state grants to study ICT in Kazakh universities. This ensures that there is IT expertise at degree and vocational-training levels, with people educated and trained to internationally agreed standards. The National Innovation Fund (NIF) and the Science Fund are offering venture-ﬁnance-based grants for projects

that are aimed at developing internet access across the country. Steps are also being taken to broaden access to telecoms services and technologies. Radio-frequency spectrum is being freed up at 450MHz to develop telecoms networks. Furthermore, no less than 50 percent of 3kHz-400GHz radio-frequency bands will be redistributed from the ‘joint-use’ to the ‘civil-use’ category. The government offers attractive terms for foreign direct investment for those considering entering Kazakhstan’s booming ICT market, including: development of infrastructure at the Alatau IT Park Special Economic Zone; appropriation of land grants for data warehouse construction projects; state support for development of the internet; increasing public services provided via the eGovernment web portal; state ﬁnancing for internet-based social projects, including a children’s network; as well as the development of Alatau IT Park’s research and development capabilities to support the work of leading Kazakh universities. INVEST IN KAZAKHSTAN 2012

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Almaty, Kazakhstan’s former capital, is positioning itself as a leading ﬁnancial player in Central Asia

Banking and ﬁnance – greater international engagement

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Kazakhstan’s bold response to the global ﬁnancial crisis continues to pay dividends and has set a foundation for the expansion of its banking sector, with the country perfectly placed to become a regional ﬁnancial center for the rising economies of Central Asia

he Kazakh banking and financial sector has made a strong recovery from the depths of the global economic crisis, with the government acting decisively to restore confidence in the industry. Kazakhstan’s banking sector remained stable in 2011, and banks started to lend again after almost three years of stagnation in the domestic credit market. The volume of lending rose during the year by 15.7 percent, to $58.7 million. National currency loans increased by 29.6 percent, while foreigncurrency lending fell by 3.4 percent. Improvements in the economy that year, and particularly the financial health of many borrowers, meant 2011’s loan portfolio deterioration was a significant factor in the absence of new loans replacing bad debts.

Combating the crisis According to the World Bank, Kazakhstan weathered the global financial crisis as a result of its flexible response, which combined fiscal relaxation with bank-stabilization measures. It says: “The authorities supported output with stimulus programs directed at agriculture, small business, infrastructure and construction; an exceptional drawdown from the ample holdings in the oil fund permitted the relaxation to be financed by off-budget operations. The three major problem banks were recapitalized and, through negotiation, their external debt was reduced by more than $10 billion. Total official fiscal and banking support amounted to $17 billion. Meanwhile,

the central bank extended liquidity support and deposit insurance was greatly bolstered, resulting in renewed confidence in banks.” The Kazakh government’s decisive approach to macroeconomic and financial-sector management contributed to a quick recovery in output. “The economic expectation has become broad-based, with a revival in agriculture and construction,” says the World Bank. However, it warns: “Although bank liquidity is ample, non-performing loans (NPLs) remain at about 33 percent of all loans. Unresolved non-performing loans constrain investments and operations of affected firms, the majority of which are in the non-oil sector. The government is improving the insolvency regime, and in 2011 developed a strategy to reduce the burden of the NPL on the banking system. Meanwhile, solvency problems constrain banks’ ability to provide fresh credit, and pose risks to public finances. The BTA bank (formerly the biggest in Kazakhstan) defaulted again in January 2012. It had performed poorly, in part due to its inability to realize income on the two thirds of its loan portfolio that were classified as non-performing, and due to the still-high cost of funding. Tax code amendments that facilitate debt write-offs for loans to qualified borrowers are helpful, and efforts are under way to facilitate debt workouts. In addition, the authorities strengthened the regulatory framework through measures to discourage foreign-currency lending and increase the minimum capital requirement.”

Building trust To improve people’s trust in banks and revitalize the personal savings market, the guarantee on deposits has been increased to $33,367 per person. In recent years, the National Bank has also carried out an additional capitalization of the Kazakhstan deposits insurance fund. The two measures helped to increase deposits by 19.7 percent INVEST IN KAZAKHSTAN 2012

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Kazakhstan’s strategic location at the heart of Eurasia will help to further underpin its role as a regional ﬁnancial center. The former capital, Almaty, is ideally suited to be the ﬁnancial hub of Central Asia

during 2009 (9.7 percent without the effect of the country’s 2009 currency devaluation), by 11.6 percent in 2010 and by 14.3 percent in 2011, standing at a total of $56.0 billion. Kazakhstan’s rapidly increasing involvement in global finance and commerce is providing major new opportunities for financial service companies and banks to establish operations in the country, supporting their trade and investment activities. For example, the Kazakh-based subsidiary of global banking giant HSBC, HSBC Bank Kazakhstan, has been active in the country since 1998. It has expanded its operations significantly in recent years, and now has branches in locations across the country, including Almaty, Astana, Atyrau and Altau. Today, HSBC Bank Kazakhstan is an established provider of financial services, offering a range of retail and wholesale banking solutions for personal, corporate and institutional clients. It launched its Retail Banking and Wealth Management service in 2008, which has doubled in size over the past three years. In September 2010, HSBC bought the retail banking assets of the Royal Bank of Scotland’s Kazakhstan business. Under the terms of the agreement, HSBC acquired personal-customer loan and credit-card portfolios, together with four branches, 80 ATMs and two support offices. Today, HSBC Bank Kazakhstan employs more than 700 people.

Poised for privatization A signiﬁcant area of activity in recent years has been initial public offerings (IPOs) for national companies that are owned by the republic’s sovereign wealth fund, Samruk-Kazyna, which controls around $70 billion of assets in banks, state energy companies and other major industries. The fund oversees the government-ordered program of IPOs, and is responsible for assessing the privatization potential of organizations. Among the nationally owned corporations working toward an IPO are: power-generator Samruk-Energy, electricity-grid operator KEGOC and postal service KazPost, along with INVEST IN KAZAKHSTAN 2012

oil-and-gas company KazMunaiGas, nuclear fuels and power provider Kazatomprom, and Kazakhstantemirzholy railways. Future IPOs are expected to include metal producers Eurasian Natural Resources Corp (ENRC), Kazakhmys and Kazzinc.

Movement on the markets Kazakhstan’s capital markets have been developing steadily since the foundation of the Kazakh Interbank Currency Exchange in the early 1990s. The Exchange is located in Almaty, and today the Kazakhstan Stock Exchange (KASE) is a universal financial market, which can be defined by – and conditionally divided into – five major sectors. These are foreign currency, government securities, shares and corporate bonds, repo operations, and derivatives. During 2011, the Kazakhstan Stock Exchange registered 93 equities issues and 238 bonds issues, and January 2012 saw the Exchange’s total trade volume reach $200.1 billion – 108 percent of gross domestic product (GDP). This figure was only slightly down on 2010’s total trade volume of $206.5 billion (140 percent of GDP). The total assets of Kazakhstan’s insurance industry reached $2.6 billion on January 1 2012. Total insurance premiums increased considerably to a substantial $1.2 billion. Three factors in particular suggest that Kazakhstan’s insurance sector has clear potential for further development: s high level of capitalization (net worth increased by 10.8 percent to exceed $1.5 billion in 2011); s reduction in risks associated with external reinsurance (insurance reserves now exceed $853.5 million); s the small proportion of defaulted securities in insurers’ investment portfolios. As of January 1, 2012, there were 8.1 million accounts for compulsory pension contributions, holding $17.6 billion in savings, an increase of 17.4 percent since the start of 2011.

INVESTMENT OPPORTUNITIES SECTOR BY SECTOR

Grigoriy Marchenko Governor of the National Bank of Kazakhstan

he Kazakh economy is sending an increasingly positive message to foreign investors, as it continues to expand strongly out of recession, and measures implemented to ensure ﬁnancial stability start to take effect. For the ﬁrst half of 2012, economic growth reached 5.6 percent, marking a continuation of the strong advance following the international

financial crisis. Inflation is running at less than five percent – the lowest level for well over a decade, during which the average level was more than seven percent. The tenge has moved within a stable corridor of plus/minus two percent against the dollar, and is likely to continue to do so – providing a solid base for exporters to plan and build sales. This positive macroeconomic background is further supported by the country’s foreign debt position, which, net of inter-company debts, amounts to a very manageable 35 percent or so of gross domestic product. Allied with the debt-neutralizing effect of the country’s gold and foreign-exchange reserves, this ensures that there are no concerns surrounding Kazakhstan’s long-term ability to pay its bills. Economic recovery and financial stability have followed in the wake of an action plan agreed between the government, the National Bank and the Financial Supervisory Agency, designed to underpin the country’s top four banks, boost public investment in industry, support small and medium-sized enterprises (SMEs), assist the agriculture sector and boost housing construction. This plan has encouraged economic activity, and the National Bank has played an important role. A key element in the further stabilization of the domestic banking sector will involve the

There were more than 38,000 voluntary pension accounts, with a total of KZT1.2 billion invested. Kazakhstan’s strategic location at the heart of Eurasia will help to further underpin its role as a regional financial center, offering banking and commercial services to bordering countries. Kazkhstan’s former capital, Almaty – situated between Dubai and Hong Kong – is ideally suited to be the financial hub of Central Asia, and the Regional Financial Centre of Almaty city (RFCA) has greatly helped in positioning Kazakhstan as a leading player in the region. The RFCA, which is already recognized as a main driving force behind Almaty’s growing financial weight in the region, was implemented to create favorable conditions

National Bank applying Basel 111 regulatory measures, consolidating bank supervision and regulation, and introducing measures that will promote the sustainable development of the banking sector, as well as enhancing investors’ rights and security. In order to increase the Kazakhstan population’s trust in banks, and to activate the depositary market, the amount of individuals’ deposits coverage had been increased to five million tenge. The National Bank carried out an additional capitalization of the Kazakhstan deposits insurance fund. A strong, well-supervised banking sector will be vital in Kazakhstan, attracting the financial resources to fund and fuel the country’s five-year accelerated industrial innovation plan. The plan, through development and diversification, has been designed to cut the country’s level of dependence on oil revenue. During the banking crisis, the government helped stabilize the banking system by acquiring shareholdings in BTA, Temir, Alliance and others, through the Sovereign Wealth Fund – SamrukKazyna JSC. Going forward, however, the National Bank favors an exit of the state from financial organizations, and anticipates the financial sector regaining its independence – assuming that appropriate buyers become available, either nationally or internationally.

and good opportunities for large ﬁnancial organizations, providing loans, insurance services and ﬁnancial services to large regional business projects.

Key player in Islamic finance More than two decades after gaining its independence, Kazakhstan is also making bold moves to become a regional center for Islamic finance. The majority Muslim republic was the first post-Soviet state to introduce legislation to aid the development of Islamic finance, which it hopes will enable it to become the region’s main Islamic banking hub by 2020. Since the introduction of these initiatives in 2009, several international and local Islamic financial institutions have opened in Kazakhstan, including the UAE’s Al Hilal Bank. INVEST IN KAZAKHSTAN 2012

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Despite the challenge of continued dry weather, Kazakhstan’s farmers enjoyed a successful harvest this year

Farming and food production: meeting rising demand The Kazakh government is focused on boosting and sustaining its agriculture sector through programs designed to increase annual gross output and reduce its reliance on imports

ast potential exists in Kazakhstan’s agriculture and food-processing industries, which the country hopes to realize via foreign investment and technology. The government’s program for boosting agriculture, initiated in 2002, has been extended until 2014 under the Program of Agro-Industrial Complex Development to provide ongoing support for producers and to invest in infrastructure projects in rural areas.

Although the annual gross agricultural output of Kazakhstan has doubled over the past decade, the sector’s percentage contribution to the country’s gross domestic product (GDP) has gradually reduced, accounting for less than ﬁve percent in recent years (from 13 percent in the mid 1990s), due to rapid expansion of the oil, gas and minerals industries. However, with the current and forthcoming expansion of the farming and food-processing sectors, strong and sustained growth in Kazakhstan’s agribusiness market is expected, with average annual growth of 9.4 percent forecast until 2016, according to Business Monitor International. During 2012, Kazakhstan experienced drought across large parts of its territory. It was not alone in being affected by dry conditions, as similar weather patterns in the world’s INVEST IN KAZAKHSTAN 2012

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The government is providing support to cattle farmers as livestock numbers increase in order to meet demand for meat and dairy products from home and abroad

biggest grain-producing countries, such as the United States and Russia, contributed to rising prices worldwide. The Ministry of Agriculture put in place urgent measures for the storage and supply of grain and cattle fodder to tackle the consequences of the extended dry period in the worst-affected provinces and cities – notably the Kostanay, Akmola, Aktobe provinces in the north, and the central Karaganda city – and to prevent price rises for bread and flour. Other assistance for farmers included the provision of additional diesel fuel and the leasing of 760 combine harvesters and other machinery from KazAgro, without the need for any payment in advance. In order to prevent grain deficit next year, the authorities have reserved 50,000 tons of seed to be provided to farmers in 2013. Despite the drought, 13 million tons of grain has been harvested across Kazakhstan this year, with the country’s surplus from 2011 being sufficient to ensure that domestic

demand was covered. As a result, Kazakhstan made record exports of 12.1 million tons – including 8.4 million tons of grain and 2.6 million tons of ﬂour.

Accessing new markets Traditionally, the countries of Central Asia have been the main markets for Kazakhstan’s grain exports, and the country is on course to be the dominant producer in the region. “The potential of Kazakhstan for grain production and the export of grain and flour gives us reason to consider Kazakhstan as a guarantee of food-supply security for the whole region. I think that we could share these developments with our neighbor countries,” says Yevgeniy Gen, president of the country’s Union of Grain Processors and Bakers. However, the market size of Kazakhstan’s near neighbors is insufficient for the country to fulfill its full export potential. Greater prospects lie in China – not only a sizeable market itself, INVEST IN KAZAKHSTAN 2012

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but one that opens up the prospect of exports to the countries of south-east Asia via its trade routes. The government has also placed importance on accessing the markets of North Africa and the Middle East. Demand from these emerging markets is expected to drive grain production to 22.1 million tons per year, according to Business Monitor International. Under the Program of Agro-Industrial Complex Development, expansion of grain storage facilities is in progress, with the opening of two new granaries and six other facilities this year. The new developments will increase the total volume of grain that can be stored to 1.5 million tons. As Kazakhstan continues its drive to exploit the potential of its agricultural sector, the country has increased its crop fields by another 1.4 percent over the past year, to 21.5 million hectares. It has also invested heavily in new technologies to save water and other resources, which have now been applied to more than three-quarters of the country’s crop fields. Such measures have helped to ensure that grain was harvested from 79 percent of crop areas, at an average yield of 8.3 centners per hectare. Throughout the drought period, the government has been conscious of the threat of rising grain, flour and bread prices, and has instigated price-setting measures to prevent profiteering at a regional level. Looking to the longer term, state-run research organization KazAgroInnovations is working with the Australian Center for Plant Functional Genomics to create new varieties of grain with increased drought resistance.

meat imports and boosting export potential. The plan requires expansion of cattle herds and improvement in their genetic composition. This has been achieved by importing thousands of heads of cattle, with 12,000 to be received in 2012 alone. The past year has seen an expansion of 14.6 percent in the number of cattle, with a subsequent 10.7 percent increase in meat production and a 13.5 percent rise in milk yield. Further government support for cattle farmers includes a new network of feed yards, set for completion this year, and the modernization of the country’s veterinary system. Poultry production has also seen a recent uplift, following rapid decline in the years after the break-up of the Soviet Union. A new complex to produce almost 5,000 tons of poultry meat per year opened in the south in December 2011, while Israel’s Management Agriculture Development (MAD) Corporation has invested $108 million in ﬁve poultry farms in the north. In July of this year, KazAgroFinance approved 85 investment projects worth $500 million. The projects, to be implemented late this year and throughout 2013, will focus on the priority areas of food processing, and the expansion of dairy and poultry farming, greenhouses, modern vegetable storage facilities and irrigation technologies.

Kazakhstan aims to develop its livestock sector, reducing or removing its dependence on meat imports and boosting export potential

Looking toward livestock In his 2012 State of the Nation address, President Nursultan Nazarbayev emphasized the export potential of meat. “The worldwide demand for food will increase annually. We cannot lose this opportunity. The Government renders support to the agrarian sector. It is crucial to accelerate the implementation of the project on cattle meat export potential development.” A government project has been in operation since 2011 to promote the introduction of a new system to process livestock products, with the aim of developing the country’s livestock sector, reducing or removing Kazakhstan’s dependence on INVEST IN KAZAKHSTAN 2012

Food production and processing The food-processing sector holds some of the greatest potential for investment in Kazakhstan, as the country seeks to generate added value from the expansion of its agricultural capacity. Traditionally, Kazakhstan has relied heavily on imports for its domestic food needs, with food processing still accounting for only seven percent of industrial output due to a lack of capacity in the sector. Efforts to address this imbalance have seen food production in Kazakhstan rise by 5.9 percent over the past year, as domestic demand for processed products increases in line with the country’s economic growth. Government plans for developing dairy farming are predicted to increase production of processed dairy products, such as cheese, by as much as 50 percent, while the growth of the livestock sector is expected to boost demand for meat products that are becoming affordable to more consumers.

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Kazakhstan is seeking to develop production of pharmaceuticals with the aid of foreign investment

Bringing healthcare to everybody Initiatives to extend modern healthcare to all of Kazakhstan’s citizens are achieving positive results, while programs to promote changes in lifestyle are encouraging healthier living

he growth in the quantitative and qualitative availability of medical and healthcare services, coupled with the promotion of healthy lifestyles, continues to gather pace under the Salamatty Kazakhstan – 2015 Healthcare Development Program, creating many new opportunities for foreign companies to invest in medical infrastructure and the manufacture of medical equipment and pharmaceuticals.

The Healthcare Development Program is not only aimed at improving healthcare services for the people of Kazakhstan, but is an integral part of the government’s overall policy of underpinning sustainable demographic and social development. Its positive impact is reflected in several key statistics. Life expectancy in Kazakhstan is soon expected to reach 70 years, compared with 69.1 years in 2011 and 68.4 years in 2010. During the first five months of 2012, the birth rate and natural population growth rose by 2.0 percent and 6.3 percent respectively, while the mortality rate fell by 4.3 percent. In addition to further increasing life expectancy, core objectives of the Program include further reductions in overall mortality rates – especially child and maternal mortality rates – additional cuts in the incidence of tuberculosis and the INVEST IN KAZAKHSTAN 2012

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An increasing number of cardiac operations are taking place at new facilities in Almaty and Astana

retention of HIV communication rates in the 15-49 year age group within a range of 0.2 percent to 0.6 percent. The Program also features a major campaign to combat cardiovascular disease and, more recently, has increasingly focused on cancer treatment.

Boosting cancer treatment The campaign to improve cancer treatment recently took a major step forward with the announcement of plans for ﬁve new radiotherapy centers in Aktobe, Astana, Karaganda, Almaty and Semey, which together will serve all regions of the country. Meanwhile, plans for the creation of a National Scientiﬁc Cancer Center in Astana continue to evolve – an initiative personally backed by President Nazarbayev. INVEST IN KAZAKHSTAN 2012

Kazakhstan’s commitment to fighting cancer was further underlined by its hosting of the 7th Congress of CIS oncologists and radiation therapists in Astana in September – an event that focused on the latest diagnostic and treatment technologies. The first heart transplant operation in Central Asia was carried out in August this year in Kazakhstan at the National Scientific Cardiosurgery Center of the National Medical Holding in Astana. Moreover, around 600 children a year are now undergoing cardiac surgery, compared with around 400 each year in the recent past. Such operations are centred on new facilities in Almaty and Astana, with the latter increasingly taking its planned place as the country’s center of medical excellence, designed to drive healthcare and medical progress and reform nationwide.

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The evolution of the country’s medical infrastructure continues to gather pace, and it is here that investors will ﬁnd opportunities to participate in the health sector

Given the country’s huge land mass, the government is mobilizing all possible means to bring medical services to the population – in some cases quite literally. The Salamatty Kazakhstan train operates around the country – during September this year, for example, it focused on the Pavlodar district, providing a whole range of diagnostic services at a range of stations en route. Specially equipped vehicles and aircraft are also deployed in the effort to extend the availability of medical services to as many people as possible.

Promoting healthier lifestyles Improvements in diagnostics and treatment are proceeding hand in hand with moves to promote healthy lifestyles, including advertising campaigns aimed at discouraging

smoking and alcohol and drug abuse, while the recent summer saw, for example, a major event entitled “Health Festival 2012” take place in Astana’s Zheruiyk Park – an event that was designed to emphasise the value of healthy living and sport. Preventive healthcare is regarded very much as a co-responsibility of both the government and the individual, with the former seeking to create as many opportunities as possible for individuals to participate in healthy pursuits, particularly in sport. It is hoped that the resounding success of Kazakh athletes at the London Olympic Games, where the country finished 12th in the overall medals table, will provide further positive encouragement to young Kazakhs to pursue a wide range of sporting activities. The evolution of the country’s medical infrastructure continues to gather pace, and it is here that foreign investors will increasingly find opportunities to participate in the Kazakh health sector. With the assistance of such institutions as the World Bank and European Bank for Reconstruction and Development, the country is evolving a new generation of hospitals, medical and research centers. Moreover, it is seeking to develop and enhance domestic production of pharmaceuticals and medical equipment, where appropriate with foreign partners. Currently, Kazakhstan is around 90 percent dependent on imported supplies, a position that the country needs to address as rapidly as possible, given the expansion of healthcare and medical programs, and the intrinsic need to boost its own medical and pharmaceutical resource base as part of the country’s underlying industrial development and diversification plans. INVEST IN KAZAKHSTAN 2012

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Tourism and sport – investing in leisure

Known as ‘the little brother of the Grand Canyon’, the Charyn Canyon, 200km east of Almaty, is one of the top tourist attractions in Kazakhstan

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As Kazakhstan’s economy and country proﬁle continue to rise, a new focus is being placed on tourism. The region has much to offer, and recent developments have made the country more accessible to all travelers

peak to many would-be travelers to Kazakhstan and they will report that the country appears to be one of the last undiscovered places to visit. However, as the country raises its proﬁle in the international sports and business arenas, it is also becoming an increasingly popular location for mainstream tourists – as well as for investors in the hotel and leisure industries. Kazakhstan offers a cultural and topographical experience that continues to attract visitors from around the world. From the rugged mountain range on Almaty’s doorstep to the seemingly endless rolling steppe, it is a country of great scenic contrasts and beauty. Its reinvention as a prosperous and modern Eurasian nation has been picked up on by all the international tourist guidebooks. Lonely Planet, for example, gives it a glowing verdict, reporting: “The leafy commercial and social hub, Almaty, has an almost European feel with its quality hotels, slick boutiques, chic cafés and streets thick with BMWs and Mercedes. Astana, in the north, is being transformed at quick-ﬁre speed into a 21st century capital with a unique mix of Islamic, Western, Soviet and wacky futuristic architecture.” The country has a wealth of attractions for tourists. Astana and Almaty offer city-based experiences for the sophisticated traveler, while those in search of stunning vistas and adventure pursuits head to Tian Shan, Altay Mountains or Aksu Park. Kazakhstan’s vast number of mosques boast impressive architecture, while those with an interest in history will not be disappointed by the Chorsu Bazaar or the Great Silk Road that passes through this former Soviet state.

Tapping into tourism Kazakhstan’s government believes that tourism is one of the sectors that is most important for the development of its economy, particularly as it is an industry that has been largely ignored over the years. The government is working to promote this sector through infrastructure development projects that will see the construction of new roads, railways and hotels and older resorts revamped. The country has been a full member of the United Nations World Tourism Organization (UNWTO) since 1993.

It has since signed tourism agreements with Turkey, Iran, China’s Xinjiang Uygur Autonomous Region, Moldova, Hungary, Israel, Kyrgyzstan and Egypt. New border posts have also been opened on the railway routes, linking it with China and Turkmenistan and making it easier for travelers to visit the region. The Ministry of Industry and New Technologies manages the nation’s tourism industry. Part of the ministry’s remit is to ensure operators in the sector comply with national legislation introduced in 1992. This covers virtually all types of tourism and speciﬁes the legal, economic, social and organizational fundamentals of tourism activities in the country.

Flying high Kazakhstan is also boosting its airlines and airports. The state’s main airline, Air Astana, joined the US Airlines Reporting Corporation (ARC) in late July 2007. This means that all 22,100 ARC-accredited travel agents across America are able to issue Air Astana tickets between the US and Kazakhstan and beyond. The operator, while not yet offering ﬂights to the US, provides an extensive network of air services through its partner airlines, enabling them to offer services through cities such as New York, Washington, Los Angeles, Denver and Miami. This network connects the Air Astana hubs of Almaty, Astana and Atyrau through numerous European, Asian and Middle-Eastern gateways, including London, Amsterdam, Frankfurt, Moscow, Bangkok, Seoul, Beijing, Delhi and Dubai. Air Astana also has extensive reciprocal ticketing agreements, allowing its customers to combine its services with more than 70 of the world’s airlines, including Lufthansa, KLM Royal Dutch Airlines and United Airlines. At the beginning of 2012, Almaty International Airport – the country’s largest airport handling more than three million passengers each year – started to plan its expansion to accommodate future growth. Lufthansa Consulting was commissioned to design a development plan that would help it to meet future capacity demands and forecast growth in both passenger numbers and cargo over the next 20 years. With Kazakhstan considered one of the last remaining ‘exotic’ countries to visit, independent travelers looking for something different are increasingly opting to explore the country. The number of arrivals has risen steadily in recent years. According to its Agency of Statistics, the nation welcomed 31,246 non-resident travelers in 2009, a ﬁgure which had grown to 36,096 by 2011. INVEST IN KAZAKHSTAN 2012

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Kazakhstan’s hotel stock is constantly improving, driven in part by growth in other sectors which is encouraging more business arrivals, particularly in its major cities of Astana, Almaty and Atyrau. Total bed capacity has been rising steadily countrywide. In 2009, the Agency of Statistics estimated that there were 49,849 beds available for travelers to Kazakhstan. By 2010, the bed count had risen to 55,918, and by 2011, it had reached 58,768. Darren Blanchard, senior director for business development at Carlson Rezidor Hotel Group, which operates the Radisson Blu and Park Inn by Radisson brands, comments: “Kazakhstan is a dynamic country that is rapidly emerging and growing in strength, and this ﬁts very much with the vision we have for Carlson Rezidor brands. Certainly, doing business in Kazakhstan offers great reward for investors and companies who, like ourselves, are ready to support and bring expertise to such developments.” Following the signing of a management agreement between Hilton Hotels and Astana Development Group, the global hotel operator has taken steps into the Kazakhstan market by announcing plans to open a major new hotel during 2014. Hilton Garden Inn Astana is being built in the heart of the capital, on the banks of the river Ishim. Part of a mixed-use development, the hotel will offer 229 bedrooms and provide easy access to Astana International Airport.

country. With an impressive snow quality that can compete with some of western Europe’s less predictable resorts, this is an area that is ripe for development.

Going for gold Kazakhstan’s sporting prowess is well known globally. The country has long had a good record in boxing and weightlifting, but its elevation to one of world’s leading sporting nations was conﬁrmed in 2012 when the Olympic team ﬁnished 12th in the London 2012 medals table. As well as solid performances in its traditional areas of strength, it also stunned the Games’ host nation, Great Britain, when Kazakh cyclist Alexander Vinokourov powered to victory, beating local favorite Mark Cavendish in the men’s road race.

Global player Kazakhstan has also been taking its place at the top table of various world events, which in turn has been helping to drive more visitors to the country. In December 2010, Astana hosted the Organization for Security and Cooperation in Europe (OSCE) Summit and, in 2011, Astana and Almaty welcomed visitors to the Asian Winter Games. Events such as these create a surge in visitor numbers and, together with the positive image of the nation broadcast internationally, encourage Kazakstan to continue improving its stock of hotels in order to boost the quality of tourism services. For example, the Asian Winter Games has helped the country not only to raise its winter-sports proﬁle globally, but also to encourage the development of ski resorts around Astana and Almaty. These will provide a major boost for local communities in a sector that is under developed in Central Asia, and where there are currently only two international-standard ski resorts. A cash injection into the Chimbulak resort near Almaty ahead of the 2011 Winter Games saw new lifts built and ice rinks created, and this approach could be replicated in other locations across the INVEST IN KAZAKHSTAN 2012

Cyclist Alexander Vinokourov won gold in the men’s road race at the London 2012 Olympics

Kazakhstan’s 2012 Olympic medal tally

Athletics Boxing Cycling – road Wrestling Weightlifting TOTAL

GOLD 1 1 1 0 4 7

SILVER 0 1 0 0 0 1

BRONZE 0 2 0 3 0 5

TOTAL 1 4 1 3 4 13

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Investment success stories A look at some of the major companies that have invested in Kazakhstan, and the lucrative sectors in which they are active – from telecoms and technology to hotels and hospitality

Siemens Global technology giant Siemens has been active in Kazakhstan since 1994, when it established its first office in the country. In 1999, it set up the regional subsidiary LLP Siemens (a limited-liability company under Kazakh law) in Almaty. The company says it is a solid player in the Kazakh economy, investing extensively in its employees, of whom 98 percent have been recruited locally. It has also opened offices in Astana, Aktau, Atyrau and Temirtau In Kazakhstan, Siemens operates across three economic sectors: industry, energy and healthcare. Siemens has been involved in a number of projects to improve Kazakhstan’s national infrastructure, including a scheme by Siemens Mobility Division to provide a postal sorting center for national operator, KazPost. Siemens has also supplied components for 22 passenger locomotives for the state railway operator, Kazakhstan Temir Zholy. It has delivered equipment and integrated solutions for Aluminium of Kazakhstan, state nuclear operator Kazatomprom and steel and mining company ArcelorMittal in Temirtau. Another noteworthy project is the high-voltage frequency converter supplied to the Kegatch oil field for national oil transporter KazTransOil by Siemens’ Drive Technologies Division. The company’s Osram lamps illuminate the Baiterek Independence

Siemens has supplied Kazakhstan with advanced medical equipment

complex, the Senate building, Supreme Court and many other public buildings in the capital, Astana, as well as municipal and residential complexes throughout Kazakhstan. Its Industrial Automation and Drive Technologies Divisions have built a hot-rolling mill stand for ArcelorMittal. The company’s Mobility Division is now involved in a project to build eight tram and trolleybus traction substations in Almaty for state-owned transport operator AlmatyElectroTrans. This aims to improve the city’s transportation system as well as its green credentials. Additionally, Siemens has rolled out several energy-efﬁciency projects in Kazakhstan. For example, it provided high-voltage equipment and computerized 68 substations for electricity-grid-operating company KEGOC to guarantee a stable power supply during the ﬁrst stage of the

upgrade to the country’s national power distribution system. Another key project is the 220/110/10kV Ermensay substation in Almaty – the first time a complete switchgear with 220kV sulphur hexafluoride insulation was delivered to Kazakhstan – and the equipment was assembled in the country using project management experience of local engineers in relay protection and automation. Siemens’ Oil & Gas Division has partnered with key oil and gas companies in Kazakhstan. In 2006, the company installed two 45MW gas turbines on the Kalamkas gas field for oil and gas exploration firm Mangistaumunaigas. In 2010, the Caspian Pipeline Consortium ordered gas turbines for the Caspian pipeline extension project. Siemens has also extended a project to service two gas INVEST IN KAZAKHSTAN 2012

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turbines previously installed by the consortium. Another important project in which Siemens is involved is the delivery and implementation of a system of automatic control, monitoring and ﬁre protection for a pipeline in western Kazakhstan. In 2009, the company supplied Kazakhstan with advanced medical equipment – in particular, a magnetic resonance tomography unit (RT 3 Tesla Verio) for the Diagnostic Centre in Astana. At the end of 2009, Siemens’ Kazakh subsidiary started up a Diagnostics Division. It had already established a network of partners in preparation for starting its ﬁrst projects in Astana, Aktau and Pavlodar.

Siemens has been involved in a number of other impressive projects in Kazakhstan over the past couple of years. It played a key part in the seventh Asian Winter Games, which took place in Astana and Almaty in 2011, providing the events with high-voltage equipment and lighting systems. During the 2011 ﬁnancial year (October 1, 2010-September 30, 2011), Siemens’ sales to customers in Kazakhstan topped €69.8 million, and new orders totalled an impressive €128.9 million. Siemens currently employs more than 220 people in the country. Highlights of the year include the launch by the company’s Industry

Solutions Division of a turnkey project to build a steel-bar milling plant in Kostanai for Evraz Caspian Steel. Continuing work on constructing a hot briquetted iron (HBI) plant in Rudniy for iron-ore mining company SSGPO has also been a prominent project, and its Mobility Division signed a contract with AlmatyElectroTrans for the delivery and assembly of traction substations for tramway and trolleybus lines in Almaty. A 3kV AC test line was also ordered for a passenger coach factory, and the company’s Osram lamps division completed lighting projects for the Asian Winter Games, including for the ice stadium in Astana and for the Chimbulak ski slopes in Almaty.

the vision that we have for the Carlson-Rezidor brand,” says Darren Blanchard, senior director of Business Development at the group. “Certainly, doing business in the country offers great rewards for investors and companies like ourselves, who are ready to support and bring expertise to such developments.” Doing business in the country isn’t without its challenges, however.

“Undertaking logistics in new markets, especially one as vast as Kazakhstan, is always a challenge, but it’s something that Carlson Rezidor have a lot of experience of. We do this by being flexible, using our resources and being culturally sensitive,” says Blanchard. “More specifically, challenges are thrown up by the country’s rapidly changing laws. But again, by being flexible and dynamic we are able to adapt accordingly.” Blanchard believes there are big opportunities for companies like his in Kazakhstan: “There is a greater need and desire for high-quality restaurants, extensive conference suites and banqueting facilities in order to facilitate high-level conferences and weddings.” He adds: “We still see many opportunities in Kazakhstan, and apart from the obvious potential for further development in Astana and Almaty, we are keen to find partners for hotel developments in Shymkent, Karagandy, Aktobe, Aktau and Atyrau.”

The Radisson Hotel Astana, part of the Carlson-Rezidor hotel group

Carlson-Rezidor Hotel group Carlson-Rezidor has been operating in Kazakhstan for many years and opened its current ﬂagship property – the Radisson Hotel Astana – in the capital almost six years ago “Kazakhstan is a dynamic country that is rapidly emerging and growing in strength, and this ﬁts very much with INVEST IN KAZAKHSTAN 2012

INVESTMENT OPPORTUNITIES SECTOR BY SECTOR

TeliaSonera TeliaSonera operates in Kazakhstan through its subsidiary, Kcell, which is the country’s leading provider of mobile communication services “With its sizeable and young population, promising economic growth potential and a great need for a high-quality telecommunications infrastructure and services, Kazakhstan was an attractive country for investment for TeliaSonera back in 1998, when we became a founding partner of GSM Kazakhstan/Kcell,” says Tero Kivisaari, president of the Eurasia business area at TeliaSonera. Kivisaari adds: “TeliaSonera and Kcell are committed to supporting Kazakhstan on this journey, with a telecommunications infrastructure and services that have become indispensable

for the country’s citizens and businesses. Its population and prosperity are growing. Very high literacy rates and levels of education suggest a promising future with highly qualiﬁed human resources. With its large territory that’s almost the size of continental Europe, Kazakhstan has and will continue to have a great need for a high-quality telecommunications infrastructure and services. Its demand for internet access and data-transfer services is growing, so we are developing the next generation of infrastructure to provide the population with high-quality, high-speed mobile internet. “We see Kazakhstan taking steps to modernize its pipeline, road and railway infrastructures, which are of strategic importance for the continued successful industrialization of the country. It will be equally vital for it to have a high-speed, high-capacity

telecommunications infrastructure to support industrial and business growth. We believe that modern communication services, such as 3G and 4G, will support Kazakhstan’s ambitious plans to become a transportation, information and technology hub in Central Asia. “The government of Kazakhstan obviously realizes the important role mobile communications are playing in the development of the country’s economy and society. The licenses it issued for Mobile Network Operators (MNOs) include conditions that oblige them to ensure that all settlements with a certain minimum population get network coverage within a certain time frame, which Kcell has successfully complied with so far. “In 2010, the government issued 3G licenses to all MNOs in the country, which has helped to signiﬁcantly boost internet usage and access to online information, including social media. “TeliaSonera and Kcell are supporting the government’s Alatau Technology Park project, which is the equivalent of Silicon Valley in the US. It is being built close to Almaty, and aims to make Kazakhstan a regional technology and IT hub for Central Asia. “Although there has been some progress in providing a qualiﬁed workforce for the ICT industry, Kazakhstan still needs to develop relevant education programs, and professional consulting and staff-training programs, especially in the area of innovation. Kcell is supporting the country on this front, by investing in setting up and developing universities, sponsoring industry conferences and fairs, and running various programs for young people, to encourage them to get educated, innovate, adapt to modern business realities and take an active part in their communities.” INVEST IN KAZAKHSTAN 2012

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