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An official publication of
the Government of the
Republic of Kazakhstan
KAZAKHSTAN
Invest in
2016
P8 How the 'One Belt, On...
3INVEST IN KAZAKHSTAN 2016
FOREWORDS AND
PERSPECTIVES
8Nursultan Nazarbayev
President of the Republic
of Kazakhstan
13Erla...
CONTENTS
INVEST IN KAZAKHSTAN 20164
THE DIVERSIFICATION
DRIVE
20A clear path
Kazakhstan is intensifying
efforts to diversi...
CONTENTS
5INVEST IN KAZAKHSTAN 2016INVEST IN KAZAKHSTAN 2016
ENERGY
70Power surge
Energy market reforms are
expected to sp...
CONTENTS
7INVEST IN KAZAKHSTAN 2016
© 2016. The entire contents of this publication are protected by
copyright. All rights...
8 INVEST IN KAZAKHSTAN 2016
9
The Plan for the Nation works to strengthen public unity
and stability, to develop Kazakstan's economy in the
new global...
At the highest level of decision-making, trusted counsel and accurate intelligence make the crucial difference
between suc...
Wherever you are in the world, contact Arcanum today for bespoke intelligence at solutions@arcanumglobal.com and visit our...
13
FOREWORD
INVEST IN KAZAKHSTAN 2016
riends and partners of Kazakhstan,
it is with great pleasure that
I welcome you to I...
The U.S.-Kazakhstan Business Association (USKZBA) is an independent, non-profit organization that promotes
U.S. economic an...
15
FOREWORD
INVEST IN KAZAKHSTAN 2016
ear friends, I am delighted
to welcome you to Invest in
Kazakhstan 2016.
Kazakhstan ...
FOREWORD
INVEST IN KAZAKHSTAN 201616
ear friends,
Samruk-Kazyna comprises
the largest state-owned Kazakh
assets in strateg...
17
FOREWORD
INVEST IN KAZAKHSTAN 2016
The privatisation will reduce the number of
companies in the Group to 300, making th...
THE
DIVERSIFICATION
WORLD TRADE
ORGANIZATION
MEMBERSHIP
November 2015:
Kazakhstan becomes the
162nd member of the WTO
Pres...
THE DIVERSIFICATION DRIVE
INVEST IN KAZAKHSTAN 201620
azakhstan, which is celebrating its
25th anniversary as an independe...
TRACYBEN/SHUTTERSTOCK
21
THE DIVERSIFICATION DRIVE
INVEST IN KAZAKHSTAN 2016
LINTAOZHANG/AP/PAIMAGES
23
THE DIVERSIFICATION DRIVE
INVEST IN KAZAKHSTAN 2016
industrialization and improving logistics. ...
THE DIVERSIFICATION DRIVE
INVEST IN KAZAKHSTAN 201624
A NEW ERA
IN TRADE
RELATIONS
Accession to the World Trade Organizati...
President Nursultan
Nazarbayev and World
Trade Organization
Director-General
Roberto Azevêdo
attend a ceremony
marking Kaz...
THE DIVERSIFICATION DRIVE
INVEST IN KAZAKHSTAN 201626
27
THE DIVERSIFICATION DRIVE
INVEST IN KAZAKHSTAN 2016
n the past quarter
century, Kazakhstan has
transformed itself from
...
"The AIFC is
envisioned
to become
an analogue
of Dubai or
Singapore in
the CIS region in
terms of foreign
investments"
ARN...
DELIOTTE PERSPECTIVE
Kazakhstan’s new
Entrepreneurship Code
As volatility of global commodity prices
continues to send sho...
THE DIVERSIFICATION DRIVE
INVEST IN KAZAKHSTAN 201630
n May 2015, President
Nazarbayev unveiled
sweeping institutional
ref...
31
THE DIVERSIFICATION DRIVE
INVEST IN KAZAKHSTAN 2016
will not only encourage transparency
around electricity pricing, su...
THE DIVERSIFICATION DRIVE
INVEST IN KAZAKHSTAN 201632
33
THE DIVERSIFICATION DRIVE
INVEST IN KAZAKHSTAN 2016
RAKHIM
OSHAKBAYEVFormer Vice Minister for Investment and Developmen...
THE DIVERSIFICATION DRIVE
INVEST IN KAZAKHSTAN 201634
balance sheets from 35% in 2013 to around 8% in
the last quarter of ...
THE NEW
more container trains
transited through
Kazakhstan in 2015
than in 2014
Launched in November 2014,
the Nurly Zhol ...
THE NEW SILK ROAD
INVEST IN KAZAKHSTAN 201636
J
a further $10 billion from a BRICs-led
New Development Bank. As part of Nu...
CHINAFOTOPRESS/CHINAFOTOPRESSVIAGETTYIMAGES
37
THE NEW SILK ROAD
INVEST IN KAZAKHSTAN 2016
The inauguration
ceremony of th...
Towards
Russia
Towards
Ukraine and
Germany
Towards
Turkmenistan
and Iran
Towards Uzbekistan,
Turkmenistan and Iran
Baku Po...
Towards iwu,
China
Towards
Tashkent,
Kyrgyzstan
Semey
Ust-Kamenogorsk
Towards
ianyungang,
China
Pavlodar
Sayak
Shu
Elkbast...
getransportation.com
The GE Evolution Series Locomotive is one of GE Transportation’s most technologically
advanced diesel...
41
THE NEW SILK ROAD
INVEST IN KAZAKHSTAN 2016
Providing a massive boost to its
ambitions is Kazakhstan’s enviable
geograp...
THE NEW SILK ROAD
INVEST IN KAZAKHSTAN 201642
round a century ago, the
Trans-Siberian Railway
was Central Asia’s sole
choi...
KHORGOSGATEWAY
43
THE NEW SILK ROAD
INVEST IN KAZAKHSTAN 2016
continues through Kazakhstan, Russia and
Belarus and ends in...
QA&Q&QA&AQ
THE NEW SILK ROAD
INVEST IN KAZAKHSTAN 201644
he Panfilov District, in the
far southeast corner of the
Almaty O...
45
THE NEW SILK ROAD
INVEST IN KAZAKHSTAN 2016
DP World [works] on a management
contract. We provide guidance on how best
...
The first Kazakhstani private shipping company “Caspian Offshore Construction” LLP was established in 2003. The Company focu...
47
THE NEW SILK ROAD
INVEST IN KAZAKHSTAN 2016
world has, but Kazakhstan also has its
location. That’s the real selling po...
Kazakhstan, 060107, Atyrau oblast
Zhylyoi district,Karaton-1, Tengiz RV
Tel.: +7 712 303 3615
Fax: +7 712 303 3635
EXTRACTIVESECTORS
Predicted annual oil
production volume by 2021
Extractive sectors still attract the
most foreign direct ...
The Sarens Group is the market reference in
moving oversize cargo both vertically and
horizontally all around the world. W...
51
EXTRACTIVE SECTORS
INVEST IN KAZAKHSTAN 2016
he oil and gas sector is of enormous
importance to Kazakhstan. Oil
represe...
Invest in Kazakhstan 2016
Invest in Kazakhstan 2016
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Invest in Kazakhstan 2016
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A new era is about to start in Kazakhstan. Faced with external economic pressures and reduced oil revenues, the country’s leadership has launched two major initiatives designed to stimulate the economy – Plan for a Nation and Bright Path. Invest in Kazakhstan 2016 drills under the surface of the reforms to find out what opportunities they present for investors.

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Invest in Kazakhstan 2016

  1. 1. An official publication of the Government of the Republic of Kazakhstan KAZAKHSTAN Invest in 2016 P8 How the 'One Belt, One Road' initiative is boosting trade P36President Nazarbayev on the Kazakh opportunity P78 The new financial center with its own legal system Working with SWF Samruk-Kazyna In association with Astana Economic Forum and the Economic Initiatives Fund of Kazakhstan
  2. 2. 3INVEST IN KAZAKHSTAN 2016 FOREWORDS AND PERSPECTIVES 8Nursultan Nazarbayev President of the Republic of Kazakhstan 13Erlan Idrissov Foreign Minister of the Republic of Kazakhstan 15Kairat Umarov Ambassador of the Republic of Kazakhstan to the United States 16Umirzak Shukeyev Chief Executive Officer, Samruk-Kazyna JSC CONTENTS 20
  3. 3. CONTENTS INVEST IN KAZAKHSTAN 20164 THE DIVERSIFICATION DRIVE 20A clear path Kazakhstan is intensifying efforts to diversify its economy in order to join the world's top 30 developed economies by 2050 24A new era in trade relations Accession to the WTO and membership of the Eurasian Economic Union underlines Kazakhstan's commitment to building a world-class economy 26High-octane opportunities A new privatization plan and a series of market reforms are creating unprecedented opportunities for foreign investors 30Step change Kazakhstan has launched a stimulus plan comprised of 100 Concrete Steps to implement five institutional reforms and stimulate widespread growth 32INTERVIEW Rakhim Oshakbayev Former Vice Minister for Investment and Development 30 EXTRACTIVE SECTORS 51In the pipeline Oil and gas is Kazakhstan's leading economic sector and further discoveries will likely boost output 52The Caspian oil deal A Russian-Kazakh deal has been signed for the joint development of the Tsentralnaya structure 55Anglo-Kazakh trade steps up a gear The UK and Kazakhstan bolster ties following new agreements in the oil and gas sector 56A fourth oil refinery Another oil refinery is being built to produce high-octane gasoline and jet fuel 59IN FOCUS Kanat Bozumbayev Minister of Energy 63Major expansion at Tengiz Tengizchevroil has launched a $7.4 billion project to raise output at the Tengiz field to 854,000 barrels per day by 2021 66Digging deeper A new subsoil law, structural reforms and low production costs are liberalizing foreign investment in metals and minerals THE NEW SILK ROAD 36Paving the way for trade China's 'One Belt, One Road' initiative is strengthening Kazakhstan's position as a major Central Asian trade hub 38The strategy takes shape Infrastructure developments are enhancing transport capacity and logistical efficiency 42Rail renaissance in Eurasia Demand is fueling railway expansion and modernization 44INTERVIEW Karl Gheysen CEO of Khorgos Gateway Rail renaissance in Eurasia Demand is fueling railway expansion and modernization 56
  4. 4. CONTENTS 5INVEST IN KAZAKHSTAN 2016INVEST IN KAZAKHSTAN 2016 ENERGY 70Power surge Energy market reforms are expected to spur cross-border trading among Eurasian Economic Union states and feed the green economy 72Nuclear power plans To reduce the country's reliance on fossil fuels, Kazakhstan plans to build a least one nuclear power plant by 2025 74A green future Expo 2017 will promote Kazakhstan as a regional leader in renewable energy, advanced technology and green business OPPORTUNITIES BY SECTOR 78The Astana International Financial Center A possible regional hub for Islamic banking, private banking and reinsurance, the AIFC will have its own legal system 81Islamic finance receives a boost Popular awareness of the opportunities Islamic finance presents will determine its future success 82Harvest time Kazakhstan is opening up its agriculture sector to encourage investment 87Ripe for organic production Organic agriculture is expanding in response to growing demand at home and abroad 74 82 78 72
  5. 5. CONTENTS 7INVEST IN KAZAKHSTAN 2016 © 2016. 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, Samruk-Kazyna, Astana Economic Forum (AEF), the Economic Initiatives Fund of Kazakhstan (EIFK), or Newsdesk Media and must neither be regarded as constituting advice on any matter whatsoever, nor be interpreted as such. The reproduction of advertisements in this publication does not in any way imply endorsement by the Government of the Republic of Kazakhstan, Samruk-Kazyna, AEF, EIFK, or Newsdesk Media of products or services referred to therein. Currency conversions correct at the time of going to press Published by www.newsdeskmedia.com Twitter: @newsdeskmedia 6 Snow Hill, London, EC1A 2AY, UK Tel: +44 (0) 20 7650 1600 Fax: +44 (0) 20 7650 1609 EDITORIAL Managing Editor Jane Douglas Sub-editor Emilie Dock DESIGN AND PRODUCTION Senior Designer Ross Ellis Designer Morwenna Smith Production and Distribution Manager Elizabeth Heuchan SALES Sales Manager Laurie Pilate MANAGEMENT Chief Executive Officer Richard Linn Newsdesk Media publishes a wide range of business and customer publications. For more information please contact Richard Linn, Chief Executive Officer Cover image: Vladimir Kim/Shutterstock Images KAZAKHSTAN Invest in 2016 88Reform to build a competitive workforce A new 12-year school system and English teaching will give Kazakhstan's economy a boost 92A treatment for healthcare New private models and public-private partnerships are resulting in a system overhaul 94A knowledge economy Academia, business and capital are set to mingle at the Astana Business Campus 96Making tracks Kazakhstan offers investors a rich vein of untapped potential in its developing tourism sector GLOBAL RELATIONS 102The United States Kazakhstan has a strong relationship with the US, including in the security sphere 103China As partners in trade, commerce and diplomacy, bilateral relations with China have been expanding rapidly 104The United Kingdom Bilateral trade between the UK and Kazakhstan reached $1.2 billion in 2015 and 500 joint ventures have been launched 105Japan Over the past decade, Japan has invested over $5 billion into the Kazakh economy. The two countries are also partners in nuclear non-proliferation KEY CITIES 108Astana Kazakhstan's capital city is home to impressive architecture and an economy driven by SMEs 110Almaty Interview with Arsen Nasyrkhanov, Director of the Investor Services Center for the City of Almaty 112 Summary 114 Index of advertisers An official publication of the Government of the Republic of Kazakhstan Working with SWF Samruk-Kazyna In association with Astana Economic Forum and the Economic Initiatives Fund of Kazakhstan 108 96
  6. 6. 8 INVEST IN KAZAKHSTAN 2016
  7. 7. 9 The Plan for the Nation works to strengthen public unity and stability, to develop Kazakstan's economy in the new global reality he world is currently going through a difficult stage of development. Let's have no illusions: there will be no easy economic or geopolitical solutions for anyone. However, the situation could have been much more dramatic for us, were it not for balanced political decisions, new laws and strategic programs adopted over the course of the past three years. In particular, our strategic goals and tactical aims – Strategy 2050, Nurly Zhol, Plan for the Nation, and so on. Since the beginning of the year, Kazakhstan has been living in a new legal and institutional environment. This environment was formed by 59 newly passed laws and more than 400 government decrees. Yesterday's plans became today's reality. New opportunities now lay open to every citizen of Kazakhstan, similar to those enjoyed in the most developed countries of the world. The national economy has a new investment drive. Our country is now ranked 41st out of 189 in [the IMF's] Doing Business rating. Kazakhstan's labor market efficiency is ranked 18th out of 140. We have opened a green corridor for international investors. The agricultural sector has already attracted investors from NURSULTAN NAZARBAYEV President of the Republic of Kazakhstan T Germany, Italy and China, who plan to participate in building two large-scale milk farms and a factory in Akmola Region. There are also plans to construct several modern meat processing factories with a total output of 37,000 tonnes per year in the East Kazakhstan, Aktobe, West Kazakhstan and Kostanay Regions. Investments in these projects total 66 billion tenge. A multimodal Eurasian transcontinental corridor is emerging in Kazakhstan as an integral part of global logistics. Kazakhstan's zone in the Chinese port of Lianyungang alone will increase the freight transit through our territory sevenfold. The European Commission has lifted all restrictions on Air Astana flights to European Union countries. We are implementing a new state healthcare program. A new law has laid the foundations for a joint system of implementation and commercialisation of scientific projects. Five of our scientific projects are already being commercialised. Six of Kazakhstan's colleges have received 425 million tenge in modernisation grants from the World Bank. This is an important push in our drive to bring free craftsmanship training to all. A new educational and scientific program has got underway. It has been re-targeted towards lifelong education and its vector has been changed to reflect the labor market demands. This approach will aid workforce mobility and productivity. International certification standards are being introduced in our universities, extramural education gives way to distance learning. 100% of children will receive primary education. In 2017 we will gradually start to introduce three-language education. By the year 2020 we will complete the transfer to a 12-year school system. Every school graduate will have a chance to get their first craftsmanship qualification free of charge. Scientists believe that by 2020 half of the world's population will be children of the digital age. The new generation of schoolchildren will live, study, and work in a digital world. Therefore we have to persist in introducing new technologies to schools, otherwise we simply won't be able to tackle modern educational challenges. Already, 2,500 of our schools have an internet connection, and a further 1,500 are in the pipeline. The Plan for the Nation works to strengthen public unity and stability, to develop Kazakstan's economy in the new global reality. It brings us closer to our main aim for the century – to be one of the 30 world-leading countries – and gives our society strength, dignity and assuredness. Excerpts taken from President Nazarbayev's speech at the opening session of the new Parliament on 25 March 2016. INVEST IN KAZAKHSTAN 2016
  8. 8. At the highest level of decision-making, trusted counsel and accurate intelligence make the crucial difference between success and failure. Arcanum provides governments and select private companies with the actionable intelligence necessary to devise strategies and long-term capabilities that turn risks into reward. Our worldwide presence, deep regional expertise and insight have made Arcanum one of the world‘s most trusted partners of government leaders and agencies, as well as top corporations across the globe. With years of experience in Kazakhstan, we know how to leverage our vast network of close relationships on behalf of clients — to deliver and sustain results.
  9. 9. Wherever you are in the world, contact Arcanum today for bespoke intelligence at solutions@arcanumglobal.com and visit our website at www.arcanumglobal.com. Our work is underpinned by first class strategic advice provided by our parent company RJI Capital, www.rjicapital.com. Abu Dhabi | Hong Kong | London | New York | Paris | Tel Aviv | Washington, DC | Zurich
  10. 10. 13 FOREWORD INVEST IN KAZAKHSTAN 2016 riends and partners of Kazakhstan, it is with great pleasure that I welcome you to Invest in Kazakhstan 2016. This year we celebrate 25 years of independence. It has been a remarkable quarter century and its importance we are yet to fully comprehend. Great progress has been made and the country now makes a significant contribution to regional and global trade and security. Kazakhstan’s recent accession to the World Trade Organization and its participation in the Eurasian Economic Union is evidence of the country’s growing engagement in international affairs. We are committed to developing economic partnerships that will expand our trade and create new opportunities for our economy. Regional integration is also a key priority, which is why we are working with our neighbors to improve transport links across Central Asia. This year, we commemorate 25 years since the Semipalatinsk nuclear testing site was closed. Nuclear disarmament continues to be of great importance to us and we are working tirelessly with the global community to stop nuclear weapons tests and bring an end to the proliferation of weapons of mass destruction. The Atom Project (Abolish Testing, Our Mission) is raising awareness of the human and environmental devastation caused by nuclear weapons testing. It is encouraging citizens to petition their leaders in this regard, and already people from more than 100 countries have supported this call for action. An important milestone in 2015 was the signing of an agreement with the International Atomic Energy Agency to set up a low-enriched uranium (LEU) bank in Kazakhstan. Expected to begin operations in 2017, the LEU bank will guarantee the safe supply of low-enriched uranium to the agency’s member states and will support the peaceful development of nuclear energy. It is this kind of leadership that will support Kazakhstan’s bid to secure a seat as a non- permanent member of the UN Security Council 2017-2018. We have the experience, political will and resources to make a meaningful contribution to addressing the challenges facing the UNSC. As we are all aware, the world is facing geopolitical tensions and turbulent conditions in international financial markets. Strong leadership, clear direction and cooperation are necessary to overcome these challenges. I look forward to strengthening dialogue with our international partners and witnessing sustainable growth both at home and abroad. ERLAN IDRISSOV Foreign Minister of the Republic of Kazakhstan The country makes a significant contribution to regional and global trade and security F
  11. 11. The U.S.-Kazakhstan Business Association (USKZBA) is an independent, non-profit organization that promotes U.S. economic and commercial cooperation with Kazakhstan. Since 1999, USKZBA has engaged industry leaders and policymakers from the United States and Kazakhstan to foster a positive business and investment climate in Kazakhstan, one which enables companies to be productive and the country to grow and prosper. Membership in the Association is open to businesses, trade associations, non-governmental organizations, trusts, foundations, and individuals with a principal office or residence in the United States; others may be admitted at the discretion of the Board of Directors. Benefits of membership include invitations to members-only events featuring visiting Kazakhstani government officials, representatives of regional organizations, and U.S. government officials; and access to exclusive analysis of the business and investment climate in Kazakhstan and a network of investors, industry leaders and experts on doing business in Kazakhstan. Members-only events have included a reception and dinner in honor of President Nursultan Nazarbayev; regular events on Capitol Hill for high-level Kazakhstani officials to meet with key Members of Congress; working luncheons with Kazakhstani officials, Central Bank representatives, and the lead negotiator on Kazakhstan’s WTO accession; briefings with U.S. Ambassadors to Kazakhstan and other senior U.S. government officials. » Seek to understand and help shape policy directions that facilitate economic competitiveness and a productive business climate in Kazakhstan through dialogue with U.S. and Kazakhstani government leaders. » Encourage dialogue between visiting Kazakhstani officials and U.S. government counterparts, and host events at which the officials can meet with USKZBA members. » Provide a forum for the exchange of views and information between U.S. and Kazakhstani business and government leaders. » Furnish timely information and analysis to members regarding the investment climate, business practices, and governmental initiatives and policies in Kazakhstan. » Be an effective, collective voice for U.S. business interests in Kazakhstan. » Cooperate with other regional and international business organizations to foster economic growth in Kazakhstan and throughout the Caspian and Eurasian regions. » Promote awareness of Kazakhstan in the United States, in support of members’ business interests. USKZBA OBJECTIVES: Ambassador William Courtney (U.S. ret), President Sarah Frese, Executive Director www.uskzba.org For more information on Kazakhstan and its investment climate, or USKZBA membership and activities, contact: uskzba@uskzba.org
  12. 12. 15 FOREWORD INVEST IN KAZAKHSTAN 2016 ear friends, I am delighted to welcome you to Invest in Kazakhstan 2016. Kazakhstan enjoys dynamic strategic partnerships and welcomes business from across the world. International ratings confirm that it is one of the most attractive emerging markets for doing business. In the past decade, the country has attracted $215 billion in foreign direct investments (FDI), making it the largest recipient of FDI inflows in Central Asia. To build on this progress, President Nazarbayev has launched ‘Plan for the Nation’ – a 100-point blueprint to further develop and diversify the economy and carry out political reform. Measures outlined in this plan will cement Kazakhstan’s reputation as an economic powerhouse and regional trade hub, and bring it closer to joining the ranks of the top 30 global economies by 2050. Kazakhstan’s regional economic contributions are steadily expanding. The New Silk Road initiative, in particular, is driving the construction and improvement of transport links that will transform Kazakhstan from a landlocked country into a ‘land-linked’ country, serving as a bridge between Asia and Western Europe. We are also supporting regional and international projects in the energy sector. Astana is finalizing preparations to host EXPO 2017, an international exhibition focused on developing future energy ideas. It is hoped that the EXPO will spur domestic innovation and the use of advanced technologies. In addition, the International Financial Center, due to open in 2018 in Astana, will open up the country’s banking sector to foreign investment. It will provide a new court for financial and investment dispute, governed by English law. Maintaining and expanding relations with partners such as the United States is a key facet of our development agenda. The US is Kazakhstan’s second-largest source of FDI. Moreover, in November 2015 US Secretary of State John Kerry made an official visit to Kazakhstan, during which he expressed his support for the newly launched Central Asia + the US (C5+1) framework, which will promote stability and development in the region. Kazakhstan’s accession to the World Trade Organization will undoubtedly strengthen its ties with global trading partners, as export barriers are lifted and sectors such as telecommunications become more open to foreign investment. I look forward to seeing how partnerships evolve and I encourage businesses to take advantage of the myriad opportunities in Kazakhstan. KAIRAT UMAROV Ambassador of the Republic of Kazakhstan to the United States I encourage businesses to take advantage of the myriad opportunities in Kazakhstan D
  13. 13. FOREWORD INVEST IN KAZAKHSTAN 201616 ear friends, Samruk-Kazyna comprises the largest state-owned Kazakh assets in strategic sectors such as nuclear, mining, oil and gas, communications, logistics and other industries. It consists of more than 500 companies employing more than 350,000 people. The Fund’s mission states that asset optimisation and creating new industries are its main goals. In late 2014 Samruk-Kazyna launched a large- scale transformation program announced by President Nursultan Nazarbayev. Throughout 2015 the Fund conducted a comprehensive analysis of its business processes and portfolio companies, and in 2016 the transformation of the corporate center and two major subsidiaries, KazMunayGas and Kazakhstan Temir Zholy began. The companies’ organisational structures have been revamped with priority given to business; all the functions and processes are now designed to promote the UMIRZAK SHUKEYEV Chief Executive Officer, Samruk Kazyna JSC D
  14. 14. 17 FOREWORD INVEST IN KAZAKHSTAN 2016 The privatisation will reduce the number of companies in the Group to 300, making the holding’s structure much leaner company’s successful growth on the market. So far, the transformation has helped to create a new employee grading system and a new concept of procurement, to make a transition to a new format of the Fund’s sponsorship role. Naturally, the transformation of Samruk- Kazyna began in a period of global crisis. The new reality forces companies to be flexible, adapt to changes and find reserves to win amongst fierce competition. Our Fund is learning how to be leaner and more flexible. The 2014-20 privatisation program allows the Group’s companies to release non-core assets and focus on their main areas of business. In 2014-15, 38 assets were sold for a total of more than $300 million, which can be invested in new ventures. The privatisation will reduce the number of companies in the roup to 300, making the holding’s structure much leaner. As part of the transformation, the Fund’s investment strategy has been revised. It will be based on two principles: long-term approach to investment and greater efficiency of investment in new industries that we will choose for the company. A passive administrator in the past, the Fund will now become an active investor. In this regard, great changes are taking place in corporate governance. In 2015 the Fund adopted a new Corporate overnance Code, developed jointly with the Organisation for Economic Co-operation and Development in accordance with the best international business standards. The new code focuses on such key areas as company management through professional boards of directors, risk management, sustainable development, greater transparency and fair treatment of shareholders. We are convinced that the proclaimed principles, properly implemented, will soon make our companies sustainable and adaptable to change. INTERNATIONAL PARTNERSHIPS Despite the global recession, Samruk-Kazyna continues to establish international business relations. Since 2013 we have been cooperating actively with the government and business community of the United Kingdom, and with the Portuguese authorities. The Fund actively cooperates with international organisations such as the Boao Forum for Asia, the World Economic Forum and the International Forum of Sovereign Wealth Funds (IFSWF). Since 2013, the Fund has been co-chairing regular meetings of the Kazakhstan-China Business Council. Its third meeting in December 2013 in Beijing was attended by more than 500 representatives from the two countries’ government agencies and their biggest companies and financial institutions. There are a number of bilateral projects in the areas of innovation, logistics and renewable energy currently underway. The Fund also oversees the interaction of the Kazakh business community with foreign business circles under the auspices of the Kazakh-Korean Business Council, Kazakh-Swiss Business Council and Kazakh- Spanish Business Council. For many years our partners have included major international corporations, and we are ready to develop productive cooperation at an international level.
  15. 15. THE DIVERSIFICATION WORLD TRADE ORGANIZATION MEMBERSHIP November 2015: Kazakhstan becomes the 162nd member of the WTO President Nursultan Nazarbayev has launched a new Plan for the Nation, which aims to diversify the economy. An ambitious wave of privatizations forms part of this strategy. Investors have been invited to purchase stakes in 65 of the country's largest state- owned companies. Adding impetus to this plan is Kazakhstan's recent accession to the World Trade Organization and the formation of the Eurasian Economic Union. DRIVE EURASIAN ECONOMIC UNION FORMATION January 2015: Led by Russia and Kazakhstan, the EEU becomes active
  16. 16. THE DIVERSIFICATION DRIVE INVEST IN KAZAKHSTAN 201620 azakhstan, which is celebrating its 25th anniversary as an independent country, has drafted several anti-crisis plans and is making industrialization a cornerstone of its economy. “A different era is about to start,” President Nursultan Nazarbayev said in his most recent State of the Nation address, hinting that slower growth is only a sign of change. Russia’s ruble crisis and the global strengthening of the US dollar have hit commodity prices, remittances and overall economies across Central Asia. In the past 18 months, windfalls from oil and gas sales have shrunk dramatically and energy companies have had to abandon projects in the Caspian region. Against this negative economic backdrop, Kazakhstan’s leadership has designed a set of reforms that will allow the country to overcome current hardships. After all, as Nazarbayev pointed out, Kazakhstan has “successful experience in overcoming economic difficulties”. A TURNING POINT In mid-2015, Nazarbayev unveiled the ‘100 Concrete Steps to Implement Five Institutional Reforms’ program (also called Plan of the Nation), which addresses specific issues and builds on the country’s Nurly Zhol (Bright Path) stimulus plan, drafted in 2014. The program’s ultimate goal is to lead Kazakhstan into the 30 most developed countries in the world by 2050. A CLEAR PATH A quiet revolution is taking place in Kazakhstan as the government launches a series of reforms to stimulate growth across industries, increase domestic competition and expand global cooperation As outlined in the plan, five institutional reforms will modernize the public sector, assist Kazakhstan's transition to a three-level justice system, facilitate industrialization and economic growth in sectors other than the extractive industry, help develop the national identity and strengthen the public sector’s accountability. In the words of Foreign Minister Erlan Idrissov: “a quiet revolution is taking place in Kazakhstan”. Since January 2016, the Plan of the Nation has lifted bureaucratic barriers to the development of small and medium enterprises – an effort in line with the country's joining of leading economic blocs, such as the World Trade Organization (WTO) and the Eurasian Economic Union. It is not coincidental that Nazarbayev chose to deliver his annual State of the Nation speech on the day Kazakhstan joined the WTO. It is symbolic of Kazakhstan's outreach and a will to further integrate its economy both regionally and globally. EASTERN VECTOR Kazakhstan is located, both geographically and diplomatically, at the center of the New Silk Road – a project that major global powers are interested in reviving. China in particular sees Kazakhstan both as an important transit country for its goods destined for Europe and as a reliable trade partner. The success of Beijing’s ‘One Belt, One Road’ initiative, for example, requires Kazakhstan’s cooperation. Both countries signed agreements worth $24 billion in 2015, mostly geared towards K Astana's skyline has changed dramatically in recent years, with urban development a key tool in Kazakhstan's drive to become one of the world's 30 most developed countries
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  18. 18. LINTAOZHANG/AP/PAIMAGES 23 THE DIVERSIFICATION DRIVE INVEST IN KAZAKHSTAN 2016 industrialization and improving logistics. Zhang Hanhuey, China’s Ambassador to Kazakhstan, said last year represented “the ‘boom’ of our cooperation”. Enhanced cooperation with its eastern neighbors could help Kazakhstan protect itself from the negative impact of the economic downturn that is affecting emerging markets across the globe. The extractive industry is still a crucial part of Kazakhstan’s economy and new reforms in this area will help this sector improve its flexibility during an era of low commodity prices. The coming online of the giant Kashagan oilfield, the decision to build a new oil refinery and the country’s first nuclear power plant, and the reforms in the electricity market will boost competitiveness in the local energy market and strengthen Kazakhstan’s position as an important regional and global supplier of hydrocarbons. Diplomacy has played an important part in the development of Kazakhstan’s energy sector and last year was no exception. In October 2015, Nazarbayev and his Russian counterpart Vladimir Putin signed a breakthrough protocol for the joint exploration of a Caspian oilfield. Only weeks later, Nazarbayev flew to London and secured contracts, mostly in the energy sector, worth several billions of dollars. The year 2017 will also mark an important date for Kazakhstan’s efforts to reduce reliance on fossil fuels and build a future on renewable energy sources. EXPO 2017, to be held in Astana next year under the theme 'Future Energy,' is testimony to Kazakhstan’s commitment to ‘go green’. PRIVATIZATION AND DIVERSIFICATION Reforms have been designed to help fuel growth in sectors other than the extractive industry. In particular, the finance, agriculture, education and tourism sectors are poised to expand substantially over the coming years. Through the establishment of new institutions and foreign direct investment Kazakhstan will diversify and improve its market- based economy in line with the most developed economies in the world. Indeed, since 2010, the manufacturing and chemical industries have grown by 1.3 times and 1.7 times respectively. In the same period, production of engineering industry goods has more than doubled and their exports have tripled. The country's state-owned enterprises are vast, accounting for around 40% of the country’s gross domestic product. The privatization plan, unveiled in October 2015, will see state enterprises sell off shares in international markets, thus taking a leap forward towards more transparent corporate governance, increased domestic competition and fruitful cooperation with global firms. Auctions will be held for stakes in the many companies owned and managed by Samruk-Kazyna, KazAgro and Baiterek Holding. With such changes in the economic landscape, the new era appears to have begun. President Nazarbayev shakes hands with Chinese President Xi Jinping. In 2015, the two countries signed trade agreements worth $24 billion In the words of Foreign Minister Erlan Idrissov: “a quiet revolution is taking place in Kazakhstan”
  19. 19. THE DIVERSIFICATION DRIVE INVEST IN KAZAKHSTAN 201624 A NEW ERA IN TRADE RELATIONS Accession to the World Trade Organization and membership of the Eurasian Economic Union are set to liberalize trade in Kazakhstan I BALANCING TARIFFS 6.1% Kazakhstan's average import tariff under WTO rules 10.6% Average import tariff within the EEU n early 2015, the Eurasian Economic Union (EEU) treaty entered into force, signaling Kazakhstan’s intent to stimulate economic integration within the Commonwealth of Independent States (CIS). Kazakhstan, Russia and Belarus, the founding members of the EEU, were joined by Armenia and, in August 2015, Kyrgyzstan. Three months later, and after nearly two decades of negotiations, Kazakhstan finally acceded to the World Trade Organization (WTO), a move that crowns the government’s efforts to integrate the country into the global economy. Undoubtedly, Kazakhstan’s agreement with the WTO is a major achievement. President Nursultan Nazarbayev called the accession to the WTO “a milestone in the history of independent Kazakhstan”. And Foreign Minister Erlan Idrissov said the success in the negotiations shows “the country’s commitment to building a world-class and diversified economy”. The challenge now is balancing the requirements of the WTO, the EEU and national economic interests. Kazakhstan is the first member of the EEU to accede to the WTO since the former came into existence on 1 January 2015. This means Kazakhstan’s bilateral agreement with the WTO will affect the EEU. Indeed, the WTO accession treaty specifically tasks “Kazakhstan and/or the competent bodies of the Eurasian Economic Union” with setting new tariff barriers, as agreed by Kazakhstan during the negotiations. TRADE LIBERALIZATION Kazakhstan had already set the tariff for over one third of the WTO list of products at a level below that of the EEU. Under WTO rules, Kazakhstan’s average import tariff will be 6.1%, against the EEU’s average of 10.6%. The EEU is eager to follow Kazakhstan’s lead and lower tariffs further to comply with WTO regulations. In October 2014, Russian President Vladimir Putin said that the EEU would work with the WTO. And in October 2015, EEU heads of state indicated that they wanted to harmonize their tariffs with Kazakhstan’s new commitments. Russia, Armenia and Kyrgyzstan were already members of the WTO under different commitments. Despite the progress made, there is still a lot of work to do in the EEU to turn it into a powerful regional economic bloc. The Union is still negotiating a common export tariff and it has planned to delay the regulation of energy trade until 2024. As long as
  20. 20. President Nursultan Nazarbayev and World Trade Organization Director-General Roberto Azevêdo attend a ceremony marking Kazakhstan's membership of the WTO 25 THE DIVERSIFICATION DRIVE INVEST IN KAZAKHSTAN 2016 these hurdles to trade are still in place, the EEU will not be as effective as it wants to be. OPENING THE DOOR TO COMPETITION Domestically, Kazakhstan’s WTO accession meant dropping several measures that favored local companies. This is particularly important in Kazakhstan’s extractive sector. Export subsidies for agricultural products were also eliminated, which sets an example for other developing countries in the region. Kazakhstan also had to abandon industrial subsidies that are contingent upon export or on the preferred use of domestic goods. Exports will consequently not be favored by any of the former rules that gave local companies a preferential path. It is within this framework that Kazakhstan’s Minister of National Economy Yerbolat Dossayev ruled that the crude oil export tariff be made more flexible in accordance with the global price of oil. Previously seasonal and adjusted according to local production and refining output, the oil export tariff will now be ‘unpegged’, in a similar way to the tenge. Lastly, Kazakhstan’s agreement with the WTO stipulates “price controls will not be used for the purpose of affording protection to domestic products”. Looking at Kazakhstan’s biggest international trade partners, the European Union tops the list, followed by Russia and China. The growing importance of non-FSU states in Kazakhstan’s trade balance is an important sign of the country’s ability to diversify its customer base for exports and its foreign suppliers. The WTO membership is set to catalyze the establishment of new economic links. STRONGER LINKS Regional trade is crucial too. Kazakhstan is looking to re-establish strong ties within the FSU region and the formation of the EEU is a decisive step in this direction. Membership of the WTO and EEU creates different opportunities for Kazakhstan. With accession to the WTO, Kazakhstan has essentially opened its market to the world, slashing subsidies and promoting free trade. The EEU signifies the creation of a new regional market that could boost trade among commercial and political partners that used to enjoy stronger ties. WTO membership is one of Kazakhstan’s long-held ambitions and a milestone in the country’s young history. After the necessary harmonizing of WTO and EEU rules, membership in both organizations will help Kazakhstan achieve greater diversification and deeper integration in the regional and global economy.
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  22. 22. 27 THE DIVERSIFICATION DRIVE INVEST IN KAZAKHSTAN 2016 n the past quarter century, Kazakhstan has transformed itself from a stolid Communist-era bureaucracy into one of the world’s top 20 oil-producing countries, home to an emerging, educated middle class and, until recently, recording an annual average gross domestic product growth rate of 8.3%. Faced with a perfect market storm comprising the global oil price slump, the negative impact of the sanctions imposed on Russia following the Ukraine crisis and the economic slowdown in China, President Nursultan Nazarbayev has pushed through an ambitious program of reforms aimed at limiting Kazakhstan’s reliance on hydrocarbons, and incentivizing foreign direct investment (FDI) in Central Asia’s largest economy. PRIVATIZATION DRIVE Central to that strategy is sovereign wealth fund Samruk-Kazyna’s plan to sell stakes of at least 25% in 43 state- owned companies with a capital value of 2.5 trillion tenge ($8.1 billion) via initial public offerings (IPO) in 2016-17. The businesses due to go public include the oil and gas company KazMunaiGas, the uranium giant Kazatomprom, the railway operator Kazakhstan Temir Zholy and the mining firm Tau-Ken Samruk. HIGH-OCTANE OPPORTUNITIES Ambitious privatization and market reforms combined with a host of multi-sector investment opportunities make this the ideal time for foreign companies to secure a stake in Kazakhstan’s future Stakes in electricity firms united under the fund's Samruk-Energo division will also be put up for sale and Samruk-Kazyna has announced plans to privatize 182 "non-core assets" through auctions. INVESTMENT TARGETS “Labor costs in Kazakhstan have halved thanks to tenge depreciation; this and the continuously improving access to Russia’s and China’s consumer markets provide excellent FDI opportunities,” states Arnat Abzhanov, the Chairman of Halyk Finance, Kazakhstan's largest investment bank. “Two companies stand out as strong IPO-able stories in their current condition. Kazatomprom enjoys some of the lowest uranium production costs in the world, robust operational cash flows and predictable revenues due to long-term forward off-take contracts for its uranium concentrate sales. “Recognized by international agencies as the best company in Central Asia INVESTMENT IN NUMBERS $24BN Foreign direct investments in Kazakhstan in 2014 182 The number of non-core assets that Samruk-Kazyna plans to privatize $6.5BN Total investment in Kazakhstan by the European Bank for Reconstruction and Development Samruk-Kazyna has announced plans to privatize 182 “non-core assets” through auctions I
  23. 23. "The AIFC is envisioned to become an analogue of Dubai or Singapore in the CIS region in terms of foreign investments" ARNAT ABZHANOV CHAIRMAN, HALYK FINANCE HALYK F IN ANCE THE DIVERSIFICATION DRIVE INVEST IN KAZAKHSTAN 201628 in 2012-15, Air Astana offers flights to more than 60 domestic and international destinations, has a strong management team and certainly benefits from the oil price plunge, which led to lower air fuel expenses. “Investors should also take a close look at both National Company KazMunaiGas (KMG) and Kazzinc. KMG controls more than a quarter of Kazakhstan’s oil and gas production and has regular cash flows denominated in foreign currency, an obvious benefit in light of the substantial tenge depreciation. “Kazzinc is a large copper, zinc and gold producer controlled by Glencore. The firm’s low leverage combined with reduced production costs allows Kazzinc to sustain a healthy EBITDA [earnings before interest, taxes, depreciation and amortization] margin.” INCENTIVIZATION SCHEMES The 2050 Strategy and the 100 Concrete Steps (see page 30) plan unveiled by President Nazarbayev in 2012 and 2015 respectively call for widespread economic, social, judicial and political reforms. The government has extended its visa-free regime to 19 countries and is offering a capital rebate of 30% after five years for investments exceeding a certain threshold. Investors are also exempted from payment of the corporate income tax and land tax for 10 years, and the property tax for eight years. “Kazakhstan’s status as an attractive destination for FDI was underlined in 2015 when it climbed 12 points to 41st place in the World Bank’s influential Doing Business report,” says Janet Heckman, European Bank for Reconstruction and Development (EBRD) Director in Kazakhstan. “As part of the Kazakhstan Government’s Nurly Zhol countercyclical stimulation policy, significant funds are being made available for road upgrade and rail logistics projects, airports and the major seaport at Aktau on the Caspian Sea as well as for various associated construction materials. “Kazakhstan has enormous land mass and myriad opportunities for investment in agribusiness and secondary agribusiness. The Kazakhstan Government is also committed to the transition to the green economy through the adoption of a feed-in tariff law incentivizing investment in renewable energy.” Astana is preparing to host EXPO 2017, where a global gathering will showcase developments in green, renewable and sustainable energy. The event is expected to draw significant investment into the country and stimulate long-term sustainable economic development. “Following the EXPO 2017 event, the Kazakh Government plans to launch the Astana International Financial Center (AIFC) at the exhibition’s premises,” says Arnat Abzhanov, Chairman of investment bank Halyk Finance. “The AIFC is envisioned to become an analogue of Dubai or Singapore in the Commonwealth of Independent States region in terms of foreign investments, public securities listings and a financial court system governed by English law,” Abzhanov continues. “For listed securities, look for growth stories like Halyk Bank, and for dividend stories such as... KazTransOil, Kcell, KEGOC and Kazakhtelecom,” he advises. “In the equity universe, open positions in listed companies as KMG E&P, Nostrum Oil & Gas and KAZ Minerals once the commodity cycle reverses. “In the fixed income space, investors should consider high-yield Eurobonds out of Kazakhstan.” WESTERN BUSINESS PRACTICES In 2015, a one-stop shop for investment was set up in Astana in collaboration with PricewaterhouseCoopers to limit administrative and bureaucratic barriers in Kazakhstan. Meanwhile, EBRD is working with financial lobbying group TheCityUK to promote Western best business practices. “These include independent judiciaries based on English law, the adoption of English as the language of the financial center, international judges, arbitration in Kazakhstan through the financial center, and best practices governing capital markets, derivatives and corporate governance,” says EBRD's Heckman. By pushing through this raft of reforms, Nazarbayev has signaled his intent to tackle such issues and make good on his promise to position Kazakhstan among the top 30 global economies by 2050. p78 for more on the Astana International Financial Centre
  24. 24. DELIOTTE PERSPECTIVE Kazakhstan’s new Entrepreneurship Code As volatility of global commodity prices continues to send shockwaves throughout the global economy, the importance of Kazakhstan’s stated goal of structural economic diversification is placed in even sharper focus. Accepting that there are several nonvariable and fundamental factors that render Kazakhstan less attractive as a destination for certain foreign investors (such as the country’s geographic remoteness and a small and widely dispersed population), the government continues to push forward reform and legislative innovation with a view to creating an investment climate that is increasingly attractive to investors. Some of the principal components of legislation targeted towards facilitating value-driving new investment have, as of 1 January 2016, now been consolidated into a new 'Entrepreneurship Code'. The Entrepreneurship Code sets out three categories of investment project: • Investment projects; • Priority investment projects; and, • Strategic investment projects. Under each type of investment project qualifying investors are able to access a suite of investment preferences and incentives including both taxation based and nontaxation based reliefs. The non-taxation reliefs available are primarily in the form of exemptions from customs duties, access to state grant funding, investment subsidies and the overarching stability of the applicable investment regime. Investors are able to determine the appropriate nature of investment projects and contractually secure their qualification for all associated investment preferences via the conclusion of an investment contract with the Kazakhstan authorities. The range and impact of incentives and reliefs available increases in direct proportion to the economic importance or strategic state interest of the projects in question. It should be noted that in the case of each type of investment project, the preferences and reliefs available are only accessible to domestic investors (such as Kazakhstan entities) who may be individuals or corporates. It is, however, also important to emphasise that local companies held by foreign shareholders do qualify as Kazakhstan entities and so are eligible to apply (subject to meeting the other application criteria) for all associated investment preferences. Investment projects may involve a diverse range of activities relating to the creation, development or enhancement of production operations, including public-private partnership ventures. Investment preferences available for investment are limited to customs duties exemptions and exemption from VAT on imports in addition to the potential availability of state material grant funding. Priority investment projects The first key point to note in relation to the preferences available for priority investment projects is that preferences are only available to: a) Newly established entities; b) Investments of in excess of (approximately) $11.5 million. The list of projects that qualify as priority investment projects is set out in domestic legislation but covers an extremely wide range of activities in terms of (inter alia) agribusiness, infrastructure, education, healthcare, technology, construction, pharmaceuticals, tourism, automotive and chemicals. The investment preferences available for these types of projects include: • Custom exemptions; • Natural grants (being temporary and zero cost transfers of land, buildings, machinery and equipment, computers, measuring and control instruments and devices, vehicles (except passenger cars) and industrial implements); • Tax exemptions: • Corporate income tax liabilities reduced by a rate of up to 100%; • A zero coefficient applied to land tax rates; • Property tax at 0%. • Investment grants (reimbursement of up to 30% of the actual costs of construction and installation work and purchase of equipment, excluding value added tax and excise taxes). Strategic investment projects Strategic investment projects are defined as those projects that significantly impact upon the economic development of Kazakhstan. The list of strategic investment projects was originally determined by the Government in 2009 (and is set out in Decree No.1293 of 1 September of the same year). The total number of strategic investment projects comprises 30 projects that mainly relate to the construction and development of strategic assets and interests in certain regions of Kazakhstan, such as the reconstruction of hydropower stations, heat power stations and oil refineries; the construction of pipelines, gas chemical facilities and others. Strategic investment project preferences include significant (and long-term) reliefs from CIT, land tax and property tax and an overall stability of the applicable investment preference regime. The application process for investment preferences and procedure for concluding associated investment contracts has also been centralised within the Ministry of Investment and Development where a 'one-stop-shop' approach has been put in place to streamline and simplify all associated application processes. Article written by Anthony Mahon, Tax Partner, Deloitte in Kazakhstan Deloitte in Kazakhstan 36, Al-Farabi Ave, Almaty Financial District, Almaty, 050059, Kazakhstan T: +7 (727) 258 13 40 (42) almaty@deloitte.kz | www.deloitte.kz
  25. 25. THE DIVERSIFICATION DRIVE INVEST IN KAZAKHSTAN 201630 n May 2015, President Nazarbayev unveiled sweeping institutional reforms aimed at strengthening the statehood of Kazakhstan and securing its place among the world's top 30 economies by 2050. Unprecedented in ambition and scope, the five institutional reforms and the 100 Concrete Steps to execute them aim to advance professional government apparatus; the rule of law; industrialization and economic growth; identity and unity; and, last but not least, transparent and accountable government. Around two thirds of the changes relate to business, including reducing Kazakhstan’s reliance on fossil fuels in favor of modern, diversified energy provision that incentivizes foreign investment. ENERGIZING THE ECONOMY Talking to Invest in Kazakhstan, Almassadam Satkaliyev, Chairman and CEO of leading energy provider Samruk Energy JSC, explains that “Renewable and alternative energy sources will, by 2050, provide 50% of Kazakhstan’s electricity.” STEP CHANGE resident Nazarbayev s five institutional reforms and 100 Concrete Steps to implement them have the potential to remodel Kazakhstan's economy into one that is modern and market based “This, coupled with the diversification of the coal-dependent economy, is at the core of the new policy initiatives. “Step 50, entitled ‘Reorganization of the electricity industry, implementation of single purchaser model’, will smooth out differences between electricity tariffs in Kazakhstan’s regions “Step 51, ‘Enlargement of regional distribution companies’, will improve the reliability of the power supply, and reduce the cost of electricity transmission in the regions and to consumers," he explains. “Step 52, entitled ‘Implementation of the new tariff policy in the power sector’, is designed to encourage long- term transparency and investment in Kazakhstan’s developing energy industry,” adds Satkaliyev. The introduction of a modern, westernized capacity market system will also ensure that there is sufficient electricity generation capacity available around the clock to meet projected levels of demand. “New power plants and modernization of existing infrastructure are both needed,” notes Satkaliyev. “The replacement of the ‘cost-plus’ structure I
  26. 26. 31 THE DIVERSIFICATION DRIVE INVEST IN KAZAKHSTAN 2016 will not only encourage transparency around electricity pricing, supply and cost, but also increase investor confidence in Kazakhstan’s capital- intensive energy sector.” CAPITAL GAINS Steps 24 and 69-73 relate to the creation of the Astana International Finance Centre (AIFC). The new commercial hub will be home to the National Bank, the Kazakhstan Stock Exchange, a financial court with international judges and a legal framework based on English law. Scheduled to begin operation in January 2018, the AIFC aims to rank among the top 10 Asian financial centers and top 30 world financial centers under the Global Financial Centres Index by 2020. The civil service reforms will include target indicators for regulatory authorities and performance-based monitoring for civil servants, while the establishment of an accountable In brief: Kazakhstan’s �ive institutional reforms 1CREATION OF A MODERN AND PROFESSIONAL CIVIL SERVICE • Developing meritocracy in the civil service. • New anti-corruption measures and Ethics Code. • International managers recruited from the private sector. 2ENSURING THE RULE OF LAW • Creation of an impartial judicial system. • New arbitration court to adjudicate on commercial disputes. • Establishment of AIFC with legal framework based on English law. 3INDUSTRIALIZATION AND ECONOMIC GROWTH • Support for small and medium-sized enterprises (SMEs) and scaling back state-owned industrial sector. • Kazakhstan as a transcontinental transport and regional logistics hub between China and Europe. 4A UNIFIED NATION FOR THE FUTURE • The consolidation and promotion of a Kazakh identity. 5TRANSPARENCY AND ACCOUNTABILITY OF THE STATE • Budget and public body transparency. • Local government accountability with devolved control over budgets. state agenda includes open access to statistical, budget and financial data not protected by law. Under ‘industrialization and economic growth’, the Kazakh Government aims to encourage strategic investment in the agricultural and construction sectors through amendments to the Land Code and by replacing Soviet-era construction norms and provisions (SNIP) with ‘Eurocode’ standards. Implementation of the 100 steps program began in earnest in January with around 60 new laws entering into force encompassing positive changes in public service transparency and accountability. In an editorial published in July 2015 entitled Kazakhstan: 100 Steps Toward a New Nation, Minister for Foreign Affairs Erlan Idrissov confirmed the government’s commitment to institutional reforms. “By setting a goal of becoming one of the 30 most developed countries, Kazakhstan has raised its sights very high,” he stated. “This detailed program shows that, despite the current storms, the country is determined not to be blown off course.”
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  28. 28. 33 THE DIVERSIFICATION DRIVE INVEST IN KAZAKHSTAN 2016 RAKHIM OSHAKBAYEVFormer Vice Minister for Investment and Development H aving forged a successful career in both the public and private sectors, Rakhim Oshakbayev possesses an intimate and unique understanding of the Kazakhstan economy. Before becoming Vice Minister, he was a Project Manager for the International Finance Corporation, Director General of the Analytical Center of Economic Policy under the Ministry of Agriculture, Managing Director of Kazakhstan’s Samruk-Kazyna National Welfare Fund and, most recently, Deputy Chairman of Atameken National Chamber of Entrepreneurs. He has spent this spring in Washington, DC on the Rumsfeld Fellowship program – a six-week professional exchange at the Central Asia-Caucasus Institute at Johns Hopkins University’s School of Advance Studies. Oshakbayev’s time as Vice Minister from August 2015 to this March coincided with the downturn in crude oil prices. When asked what were the three most important implications of this dramatic fall, he notes “the high volatility of the exchange rate; the weak state of the financial sector, including the limited availability of credit; and the rising non-oil deficit in the state budget”. He adds that, unfortunately, “these developments are felt most strongly by small and medium enterprises (SMEs)”. With respect to the exchange rate, Kazakhstan’s National Bank at first tried to maintain a fixed exchange rate, but developments in Russia and around the world exerted pressures on Kazakhstan’s economy that ultimately forced the Bank to readjust its monetary model in August 2015. The Central Bank of Kazakhstan moved the tenge from a managed float to a free-float. Consequently, the average monthly exchange rate swung from 187 KZT/USD in July 2015 to 345 KZT/USD in March 2016. During the summer of 2015, the ruble continued to depreciate under pressure from falling oil prices. While the average ruble/dollar exchange rate in INTERVIEWINTERVIEW June 2014 was 34.39, by June 2015 it was 54.59. In the same period, the average Kazakh tenge (KZT)/dollar exchange rate rose only slightly, from 181.48 to 183.61. This created a disparity that discouraged SMEs in Kazakhstan from using locally manufactured products, as cheaper Russian equivalents were favored. More importantly, as Oshakbayev emphasizes: “It became harder for Kazakh SMEs to continue normal business with their Russian partners.” Meanwhile, the Chinese economy began to show signs of stagnated growth. Beyond financial indicators, the weaker tenge reduced government budget revenues, forcing it to rebalance the 2016 budget based on an average oil price of $30 per barrel, down from the original $90. The collapse in world oil prices also prompted the government to tap into the National Fund. “According to March 2016 statistics published by the National Bank of Kazakhstan, the total value of the National Fund amounted to $64.3 billion, which is 17% less than its August 2014 level of $77.2 billion,” Oshakbayev points out, adding that, even in 2016, “Fifty-seven percent of state budget will be covered by oil- related revenues.” These factors – the fall in global oil prices, and economic recessions with Kazakhstan’s primary trading partners Russia and China – created monetary, structural and financial volatility and ultimately prompted the move to free-float the tenge in August 2015. However, Oshakbayev stresses that, in spite of the short-term volatility, this move was necessary for the long-term development of Kazakhstan’s financial system. THE LONG-TERM PICTURE Notwithstanding the developments in 2014-15, Oshakbayev notes that Kazakhstan’s financial sector still faces serious, long-term challenges. First, while the state has successfully reduced the amount of non-performing loans (NPLs) on banks’
  29. 29. THE DIVERSIFICATION DRIVE INVEST IN KAZAKHSTAN 201634 balance sheets from 35% in 2013 to around 8% in the last quarter of 2015, additional measures must be taken to ensure long-term financial stability, as many of the underlying assets are of poor quality. The NPL cleaning process has also pressured banks’ capital ratios. “The growth of money supply actually stopped in mid-2013, and since mid-2014 has decreased by 1.5 trillion tenge or almost 20%,” says Oshakbayev. “Lending in the economy has fallen by 357 billion tenge since January 2015 while interest rates, denominated in tenge, have sharply increased from 10% to 19.1%, in line with monetary pressures in order to cover risk premiums.” The recent uncertainty has provided an impetus for diversification and new economic development policy. As Vice Minister, Oshakbayev helped to conceive several state programs and roadmaps, emphasizing the importance of development based on trade liberalization, a reduction in state participation in the economy, and recognition of the need to foster SMEs and human capital development. In one industry- focused program, Oshakbayev set out to improve the investment climate and change the state from an active participant to a more supportive role that interferes minimally with natural market processes. His approach to policymaking was driven by his experience in business. “As a former representative of Kazakhstan’s business community, I know the importance of financial and structural conditions," says Oshakbayev. “Arguably, these factors are more important than state programs themselves.” Oshakbayev also sought to eliminate barriers and bottlenecks for the manufacturing industry, particularly with respect to market-access and Oshakbayev is optimistic about the future stabilization and development of Kazakhstan’s economy achieving a regional competitive advantage with respect to costs. He opposed programs that use taxpayer funds to support a particular business entity and therefore distort free-market by eliminating competition. “While it is important for the government to support business, it is also important for the government to allow free market forces to work. Supporting weak and failing enterprises with low investment returns that have substantial market share not only impedes macroeconomic growth, but presents a barrier to entry for smaller, independent and potentially more efficient actors to gain market entry.” SIGNIFICANT REFORMS Oshakbayev is optimistic regarding the future stabilization and development of Kazakhstan’s economy. The country's ranking on the World Bank’s Doing Business Index has consistently improved over the past few years, reaching the 41st spot in 2015, and there is a genuine willingness and desire by government officials to implement significant reforms. President of Kazakhstan Nursultan Nazarbayev recently adopted the so-called Plan of the Nation, ‘100 Concrete Steps to Implement Five Institutional Reforms’, which prioritizes the creation of a modern and professional civil service, upholds the rule of law, advances industrialization and economic growth, and advocates measures to ensure the state’s transparency and accountability. “Overall, Kazakhstan’s economy has achieved enormous success since 1991,” Oshakbayev says confidently. No country experiences a perfect growth trajectory, and Kazakhstan certainly has significant challenges ahead. But, according to Oshakbayev, these problems are normal for an upper-middle income developing economy, and can be solved as long as the country remains willing, open and eager to realize the necessary reforms. “We still have work to do,” he says.
  30. 30. THE NEW more container trains transited through Kazakhstan in 2015 than in 2014 Launched in November 2014, the Nurly Zhol economic policy seeks to revive the Silk Road and transform Kazakhstan into a major conduit for trade. New railway lines, roads, pipelines and logistic terminals are under construction and existing ones are undergoing improvement to encourage freight traffic from Asia to Europe and the Middle East, through Kazakhstan. China is playing a lead role in delivering these infrastructure projects, under the auspices of the ‘One Belt, One Road’ initiative. This is giving new impetus to bilateral relations between China and Kazakhstan, with both countries investing heavily in the modernization of transport assets along the New Silk Road. SILKROAD 1.7m TEUs The volume of containerized cargo expected to pass between Asia and Europe via Kazakhstan annually by 2020 57%
  31. 31. THE NEW SILK ROAD INVEST IN KAZAKHSTAN 201636 J a further $10 billion from a BRICs-led New Development Bank. As part of Nurly Zhol, Kazakhstan itself has pledged to pour $9 billion into infrastructure in the country. The potential for boosting trade between Kazakhstan and China alone is enormous. CHINA-EU TRADE Kazakhstan Temir Zholy (KTZ), the state railway company, has invested $900 million in the Khorgos dry port and hopes to capture 6% of the trade between China and Europe by 2020. Currently, 98% of this trade goes by sea. The new road and rail links will also provide a massive boost for Kazakhstan’s other sectors. Perishable goods such as fruit and vegetables, for example, will have a viable way of reaching profitable European markets. A key aim of Nurly Zhol is to help diversify the Kazakh economy away from its heavy reliance on the extractive industries. Meanwhile, Nazarbayev is determined not to ignore any of his landlocked nation’s potential trading partners. In an article published in The Financial Times in November 2015, Nazarbayev wrote: “We have very good relations with our neighbors Russia and China, Europe is our biggest trading partner and we count the ust four years ago a Chinese academic’s vision of a new Silk Road linking China to Europe seemed fanciful to observers in the west. But within a year, Chinese President Xi Jinping was in Central Asia proposing Wang Jisi’s ambitious vision under a broader project named ‘One Belt, One Road’, which promised transportation links through Kazakhstan to Europe, but also included economic development along its route and further maritime links from China to South-East Asia. Not only did Kazakhstan embrace the idea, but a year later President Nursultan Nazarbayev announced Kazakhstan’s own massive infrastructure development plan: 'Nurly Zhol', or 'Bright Path'. Nurly Zhol provides for roads and other transport facilities that will link up the rest of the country with the New Silk Road route in the south of Kazakhstan, which runs through Almaty to the west. It will also ensure investment in key projects along the Silk Road route, such as massive expansion of the Khorgos dry port transhipment area (see page 44). Already, the modern caravan has started rolling along the New Silk Road. Although the road sections of the two countries’ PAVING THE WAY FOR TRADE Kazakhstans Nurly hol program and Chinas One Belt, One Road’ initiative share a vision that will transform Kazakhstan into a major trade hub visions have still to be completed, in 2015 the Port of Rotterdam welcomed its first arrival by rail of containers from China. The rail route has shortened the journey time for goods from China to 14 days, against the average of 60 days that the journey would have taken by sea. Nazarbayev announced at the beginning of this year that the road route of the New Silk Road through Kazakhstan would be completed by the end of December. These developments have not come cheap. The Chinese government announced several financial commitments, including a $40 billion Silk Road Fund to be focused on projects in the Central Asian region. This is also being supported by $50 billion in funds from the Asian Infrastructure Investment Bank – a China-led development institution that has 57 founding governments – and The potential for boosting trade between Kazakhstan and China alone is enormous
  32. 32. CHINAFOTOPRESS/CHINAFOTOPRESSVIAGETTYIMAGES 37 THE NEW SILK ROAD INVEST IN KAZAKHSTAN 2016 The inauguration ceremony of the China- Europe Block Train, which took 21 days to travel from Yiwu to Madrid via Kazakhstan RAPID TRANSIT New Silk Road rail links have reduced shipment times between China and Rotterdam United States as a strong friend. We remain determined to put trade and multilateral cooperation, not geopolitics, at the center of international relations.” THE INTERNATIONAL STAGE Kazakhstan has just joined the World Trade Organization, and hopes to gain membership of the Organisation for Economic Co-operation and Development (OECD). The country is a member of the Shanghai Cooperation Organisation – a grouping whose core members include China, Kazakhstan, Russia and other Central Asian republics – as well as being a member of the Eurasian Economic Union, which was originally signed by Belarus, Kazakhstan and Russia, who have since been joined by Armenia and Kyrgyzstan. With EXPO 2017 just around the corner, however, Kazakhstan is looking to the west to underpin its ambitious aim to develop a world-class financial center. The Astana International Finance Centre, announced by Nazarbayev in 2015, is proposing not only tax incentives for foreign participants, but also that business dealings in the special economic zone will be governed by English law and adjudicated by an independent English judiciary. 14days by rail 60days by sea
  33. 33. Towards Russia Towards Ukraine and Germany Towards Turkmenistan and Iran Towards Uzbekistan, Turkmenistan and Iran Baku Port Alat Aktobe Kandagash Beineu Uralsk The National Industrial Petrochemical Technological Park Atyrau Kashagan oilfield Port of Aktau RUSSIA TURKMENISTAN UZBEKISTAN Caspian Sea IR AN 5 2 2 4 4 2 THE NEW SILK ROAD INVEST IN KAZAKHSTAN 201638 he scale of Kazakhstan’s challenges are matched by its ambitions. The landlocked nation is the ninth-largest country in the world and it is also a commodity exporter, relying for the majority of its revenues on the export of oil and gas, metals, chemicals and agricultural produce. But to develop its industries and to diversify into new sectors that will leave it less vulnerable to commodity- price fluctuations, it needs to upgrade its infrastructure. Poor infrastructure has been one of the complaints put forward by foreign investors, who have often had to invest in their own in and around their projects. AMBITIOUS SPENDING PLANS All that is changing, however, and fast. As part of Kazakhstan’s Nurly Zhol new economic policy, outlined by President Nursultan Nazarbayev in 2014, spending on infrastructure is being given top priority. The vision was ambitious, especially so because the price of oil had already fallen from a high of above $100 a barrel to around $80 – a level from which it continued to fall. However, Kazakhstan has allocated money that it accumulated in its sovereign wealth fund and is holding its nerve. THESTRATEGY TAKES SHAPE Infrastructure projects along the New Silk Road are gathering steam, bolstered by Kazakhstans Nurly hol economic policy and Chinas One Belt, One Road initiative T Electricity, oil pipeline, rail and road infrastructure projects all form part of Nurly Zhol; use this map to visualize those discussed in the next two articles Key: Railway lines Roads Power lines Oil pipeline
  34. 34. Towards iwu, China Towards Tashkent, Kyrgyzstan Semey Ust-Kamenogorsk Towards ianyungang, China Pavlodar Sayak Shu Elkbastuz Kostanay Arkalyk Karaganda Zhezkazgan Shubarkol Petrioavlovsk Kyzylorda Taldykorgan Balkhash Shymkent Aktogay Arys EXPO 2017 site and Astana Airport Chemical Park Taraz Dostyk International border crossing Khorgos-Eastern Gateway dry port complex Almaty CHINAK YRGYZSTAN 3 6 3 1 2 4 1 1 2 2 2 3 3 4 1 39 THE NEW SILK ROAD INVEST IN KAZAKHSTAN 2016 Railway lines 1 Arkalyk-Shubarkol 2 Lianyungang (China)-Dostyk- Duisburg (Germany) 3 Lianyungang-Almaty-Tashkent (Uzbekistan) 4 Trans-Caspian International Transport Route: Shihezi (China)- Dostyk-Zhezkazgan-Beineu- Aktau-Alat (Azerbaijan) Roads 1 Almaty-Ust Kamenogorsk (South East-North East) 2 Astana-Aktobe-Atyrau-Aktau (Central-West) 3 Astana-Almaty (Central-South) 4 Astana-Ust Kamenogorsk (Central-East) 5 Atyrau-Astrakhan (West-Russia) 6 Karaganda-Zhezkazgan- Kyzylorda (East-Central-South) Power lines 1 Almaty-Balkhash 2 Elkbastuz-Semey- Ust Kamenogorsk 3 Semey-Aktogay- Taldykorgan-Almaty Oil pipeline 1 Beineu-Bozoi-Shymkent
  35. 35. getransportation.com The GE Evolution Series Locomotive is one of GE Transportation’s most technologically advanced diesel-electric locomotives to date. Fuel-efficient and environmentally friendly, Evolution Series freight and passenger locomotives are engineered to generate more horsepower and tractive effort for higher speeds and better haulage capability. With a commitment to quality, the Evolution Series Locomotive reduces lifecycle costs in harsh operating environments with increased reliability, all while helping to reduce greenhouse gas (GHG) emissions. Imagination at work Adaptable, Flexible, Powerful
  36. 36. 41 THE NEW SILK ROAD INVEST IN KAZAKHSTAN 2016 Providing a massive boost to its ambitions is Kazakhstan’s enviable geographical position sandwiched between China, the world’s largest manufacturer, and Europe, the largest consumer market. Chinese President Xi Jinping’s announcement of the ‘One Belt, One Road’ – an adaptation of the historical Silk Road providing not only new roads but also investment in projects along its route – is offering another source of funding for Kazakhstan’s infrastructure. LINKING CHINA TO EUROPE First up on the New Silk Road’s progress through Kazakhstan is construction of phase two of the dry port complex of the transport and logistics zone on the Kazakh- Chinese border – the so-called Khorgos- Eastern Gate – which is expected to be completed later this year. The port expects to handle 200,000 containers annually in 2016, and 500,000 annually by 2020. Road projects generally have been given top priority. These include sections of the New Silk Road linking China and Western Europe, but also Astana-Almaty (Central-South); Astana-Ust Kamenogorsk (Central-East); Astana-Aktobe-Atyrau- Aktau (Central-West); Almaty-Ust Kamenogorsk (South East-North East); Karaganda-Zhezkazgan-Kyzylorda (East- Central-South); and Atyrau-Astrakhan (West-Russia). (See map for a visualization of the roads). Construction is continuing and 7,100 km of roads will have been built or reconstructed by 2020 under Nurly Zhol. The latest data from the Ministry for Investments and Development indicate that since the beginning of the project, more than 1,800 km of the route has already been completed. Nazarbayev announced in February that the work was scheduled for completion by the end of this year. Having already won the right to host EXPO 2017, Kazakhstan has also earmarked money for projects that will support the influx of visitors, such as the construction of a new airport terminal at Astana and reconstruction of the runway. The old passenger terminal at Astana has already been demolished to make way for construction of the new building and the work is scheduled for completion before EXPO 2017. Work continues at the National Industrial Petrochemical Technological Park in Atyrau, in the west of Kazakhstan, and the Chemical Park in Taraz in the south, near the border with Kyrgyzstan – part of Kazakhstan’s plan to diversify its economy away from oil. However, oil is still of crucial importance to Kazakhstan’s economy. Commercial production at the Kashagan oilfield is set to begin in late 2016 and the expansion of the Caspian Pipeline has been completed. Work on the Beineu-Bozoi-Shymkent gas pipeline is set to be completed by December 2017 (see map). Energy infrastructure has also been given priority, particularly two projects: the construction of high-voltage lines linking Eklbastuz-Semey-Ust Kamenogorsk and a further project linking Semey- Aktogay-Taldykorgan-Almaty. A 322-km overhead line bringing a stable supply of electricity to Almaty from the Balkhash thermal power plant was completed at the end of April last year (see map). Major modernization work continues on Kazakhstan's railways, which will connect north to south and east to west. The European Bank for Reconstruction and Development (EBRD) organized a syndicated financing package last year for Kazakhstan Temir Zholy, the country’s rail operator. But talk to any foreign businessmen who have visited Kazakhstan in the past two years, and they will tell you that the country is focusing on EXPO 2017, the theme of which is Kazakhstan’s commitment to ‘greening’ its economy, and that any building project associated with the expected arrival of five million visitors is being given top priority. Major modernization work continues on Kazakhstan's railways, which will connect north to south and east to west The construction of a new terminal and reconstruction of a runway at Astana International Airport will bring its annual capacity to seven million passengers by 2017 ASTANAINTERNATIONALAIRPORT
  37. 37. THE NEW SILK ROAD INVEST IN KAZAKHSTAN 201642 round a century ago, the Trans-Siberian Railway was Central Asia’s sole choice for rail exports. Today, direct cargo trains move regularly between a rapidly rising number of cities across Kazakhstan, China, Eurasia and Europe. As Chinese rail routes grow westward, trade between China, Kazakhstan and Central Asia is booming. Today, shippers to and from China enjoy a growing range of route choices, streamlined customs rules and faster crossing times. For Kazakhstan, the largest landlocked country on the planet, rail connections are playing a big role in its effort to position itself as an efficient and fast transit bridge. Kazakhstan is seeking to attract as much land-based China-Europe trade as possible. The expansion of Kazakhstan’s rail networks, the modernization of its stations and infrastructure and the development of transnational container shipping are all helping it establish a competitive position. Kazakhstan is the vital overland link for China’s ‘Belt and Road Initiative’. The new China-Europe Silk Road and the trains that travel its routes are RAIL RENAISSANCE IN EURASIA Kazakhstan’s expanding railway network is creating newer and faster routes between China, Central Asia, Europe and the ersian ulf leading a renaissance in the regional transcontinental rail transport sector. Twelve Chinese and nine European cities now serve as hubs for these 12,000 km or more direct transcontinental train lines. A test container train recently transited Kazakh territory from Iran to the eastern Chinese city of Yiwu. The new route will be the first to speed cargo deliveries from eastern China to Gulf markets via Kazakhstan. It will cross the Chinese- Kazakh Alashankou-Dostyk border station, and will then go through Kazakhstan into Turkmenistan and Iran. The line will stretch over more than 9,000 km, with a transit time of 10 days – three times less than the present maritime route. On 14 January 2016, Kazakhstan agreed on preferential cargo tariff rates with Azerbaijan, Georgia and Ukraine A for shipments via the Trans-Caspian International Transport Route. The signatories of the related protocol also promised to take comprehensive steps to facilitate movement on the route and boost cargo turnover. BETTING ON RAIL The Trans-Caspian route traverses China, Kazakhstan, Azerbaijan, Georgia and Turkey and continues on to Europe. It is an instrumental part of the New Silk Road program as well as the Nurly Zhol economic plan. The route uses Kazakhstan’s new Zhezkazgan-Beineu line, the Aktau Port, as well as the Georgia-Turkey Akhalkalaki-Kars railway. On 3 August 2015, the ‘Nomad Express’ test container arrived by ferry at Baku International Sea Port in Alat from Aktau Seaport. The container started from Shihezi, China, and took five days to travel more than 3,500 km to the Aktau Caspian Sea Port via the Dostyk crossing, before being loaded on to the ferry to Alat. Prime Minister Karim Massimov ended his most recent trip to China in December 2015 by launching the first container train on the Lianyungang route, which Kazakhstan is seeking to attract as much land-based China-Europe trade as possible
  38. 38. KHORGOSGATEWAY 43 THE NEW SILK ROAD INVEST IN KAZAKHSTAN 2016 continues through Kazakhstan, Russia and Belarus and ends in Duisburg, Germany. While there, he inspected the joint Kazakh- Chinese logistics terminal at Lianyungang. A regular container service is also set to run to Almaty and Tashkent in Uzbekistan as well as to the Caucasian region. Specifically, three container trains will start deliveries to these locations early this year, and will later increase to five trains. In yet another related development, during a recent meeting between railway officials from Iran, Turkmenistan and Kazakhstan, the three parties pledged to reduce transport tariffs and boost mutual trade. The Iran-Turkmenistan- Kazakhstan railway is one of the most central economic initiatives of Eurasian intergovernmental grouping the Economic Cooperation Organization. It was launched in 2014 and links the eastern coast of the Caspian Sea to the western sea coast and the Persian Gulf. In addition, in September 2015, national rail company Kazakhstan Temir Zholy JSC (KTZ) said the country would overhaul eight railway stations across the country. The company had already completed the refurbishment of another nine stations in 2015, a company message states. The container yard at Khorgos Gateway on the border with China. Kazakhstan is upgrading its railway network and regulatory environment to strengthen its position as a transit state Railway stations are typically renewed annually to enhance infrastructure and passenger services. However, this year, as the rail sector grows in importance, the stations’ facades, roofs, interior and exteriors will all be redone, their landscapes beautified, and their utility systems repaired. THE EURASIAN LAND BRIDGE In August 2015, KTZ also said it would transit 42,000 containers overall via the China-Europe-China route, a level that is almost 40 times greater than in 2011. KTZ President Askar Mamin said during a special session dedicated to Transport Workers’ Day that the growing container transport volume moving from China to Europe and the other way around during 2014 led to a 13.7% increase in company revenue compared with the year before. "Transit traffic accounted for 25% of the company’s total revenues," Mamin noted. “The goal is to increase this figure to 50% over the medium-term." In the summer of 2015, the European Bank for Reconstruction and Development (EBRD) said it would provide $300 million together with a group of international banks to help modernize and restructure KTZ. $150 million will come from EBRD and the remaining $150 million will be syndicated via the banks. The funds will refinance KTZ's Eurobonds, and the EBRD will work with KTZ to reform the tariff system as well as transform the company’s business operations. EBRD Managing Director for Turkey and Central Asia, Natalia Khanjenkova, said KTZ would continue to adopt sustainable energy technology, which has been an ongoing part of their long- term cooperation plan. Khanjenkova noted that the syndicated financing package demonstrates confidence from investors, both in KTZ and in Kazakhstan. p38for map of key rail routes in Kazakhstan
  39. 39. QA&Q&QA&AQ THE NEW SILK ROAD INVEST IN KAZAKHSTAN 201644 he Panfilov District, in the far southeast corner of the Almaty Oblast near the Chinese border, might at first seem to be the edge of the world. And indeed it was until around five years ago for transnational shippers going east to west or vice versa, due to the different rail gauges on the Chinese and Kazakh sides of the border. But today, a colossal new trade capital is rapidly forming in this once barren outpost in the town of Zharkent, and with the pace of its current transformation, the area will not be recognizable in a few short years. Karl Gheysen, Chief Executive at the Khorgos Gateway SEZ, is helping to build this new gate connecting east and west. DP World manages Khorgos East Gate via an agreement with Kazakhstan Temir Zholy JSC, the KARL GHEYSENChief Executive Officer, Khorgos ateway country’s national railway company, and Khorgos is poised to make Kazakhstan the most important regional shipping state – not just for Central Asia, but for the entire Eurasian continent. Q. How did the idea for the Khorgos Eastern Gate come about and how does the DP World contract work? President Nursultan Nazarbayev had the idea for the Silk Road 15 years ago, and he asked President of Kazakhstan Temir Zholy JSC Askar Mamin to set up a trade corridor going through the Khorgos pass. The President knew a long time ago that Kazakhstan was well positioned to act as a rail bridge from east to west. After doing some analysis, Mr Mamin decided to approach DP World as he knew what we had done for Dubai. We were very enthusiastic and saw the potential to help transform Khorgos right away. T
  40. 40. 45 THE NEW SILK ROAD INVEST IN KAZAKHSTAN 2016 DP World [works] on a management contract. We provide guidance on how best to develop the economic zone, the dry port and things like that. [Khorgos] is a 100% Kazakh-owned government project. It is 100% owned by Kazakhstan Temir Zholy. Q. How would you describe the Khorgos Eastern Gate and its goals? What Kazakhstan is trying to do is kind of a mini version of the historic evolution of Dubai. But we didn’t come just to make containers move in an efficient way. The reason we came is the concept of having a port and a free zone combined. That’s what you have in Dubai. Next to the port [of Dubai], the Sheikh of Dubai developed an economic zone with all the normal benefits. But they were one of the first to do it on such a scale. And because the economic zone developed, the port started developing, because they needed to feed into that economic zone. Because the port was growing, the zone was growing. They cross-fed each other. That was the master plan. The big boom we see now – that started 25 years ago. With the Silk Road, this is what we are doing at the border of Kazakhstan. You have trains coming from China, and they come to Europe in one transit zone. Then you have an ‘event’, because there is a change in the gauge, which means there is an interruption in your chain. Even if it’s a one-minute interruption, it’s an event, and you have to change the trains to a different rail. The project, the vision, is really the dream of President Nazarbayev. Along with making the new capital, he wanted to have the Silk Road. His plans coincided with the Chinese ‘One Belt, One Road’ initiative. What Kazakhstan wants to do is create an east-west corridor. Based on that corridor, they want to develop a new market – a new region. They want to position Central Asia as a destination, not just as a transit place. Q. How would you describe the greatest benefits of the corridor By giving you the real example of the Toyota Motor Company. Toyota’s cars are all made in the Japan region. From this region, they go to one deep seaport in China, where they consolidate all the cars. From there they put all the cars on a ship, from the east side of China. By sea you go below India, through the Suez Canal, through the Mediterranean, around Spain, through the channel between England and Belgium. Then you go all the way up to Finland, and in Finland you offload the cars. That’s how they supply Europe. In Finland they put them on a rail car. From Finland, they go by rail across the border to St Petersburg and to Moscow. They go from Moscow down to Kazakhstan, and the regional distributor for Toyota in Almaty. If you show that on the map, you’ve done a tour of the world. And, up until five months ago, that is how they supplied Kazakhstan. Up until recently that was the most cost-efficient and safe way to supply Kazakhstan. You circle all the way around until you almost reach where you started. And it’s so obvious to see that if you just make that link, it’s done. The first target is the corridor going straight from east to west, because it’s much more efficient than going by sea to Europe. Going by ship from Japan to Europe takes 45 days. Going by train takes 14 days. Q. What about cost effectiveness? If you go from port to port, sea freight is always cheaper. But goods are not made at the port, and people don’t live at the port. It’s much faster going by rail to Europe. And if you take pre-carriage and on-carriage [time-related costs], then the prices level out and you go much faster. hat about the Eastern ate itself, for investors and shippers? Simply said, it is a free zone, where people have no VAT, no taxes, all the benefits like that. People who invest in warehouses get a free land lease for 10 years, all the normal advantages that any economic zone in the Russia is the biggest country. India has one of the largest populations,Chinahasone of the biggest markets and in the middle of all that is Kazakhstan
  41. 41. The first Kazakhstani private shipping company “Caspian Offshore Construction” LLP was established in 2003. The Company focuses on the development of auxiliary infrastructural marine fleet involved in the development of oil and gas fields in the Caspian Sea. The Company offers a wide range of services in vessel management, operation and maintenance, as well as supervision of construction of new and modernization of existing vessels. The Company manages total fleet of 41 vessels. Company fleet is certified in accordance with ISM Code, while Company’s Quality and Environmental Management Systems are approved and certified by Intertek in compliance with ISO 9001:2008 and ISO 14001:2004 standards. Almaty office: 34/95, Karasai Batyr street, Almaty 050010 Republic of Kazakhstan Telephone: +7 7272 59 73 33 Aktay office: 39 building, “Zodiak” business-center, 17 mcr., 130000 Aktau, Republic of Kazakhstan Telephone: +7 7292 59 73 33 Widening horizons. Establishing traditions. www.coc.kz
  42. 42. 47 THE NEW SILK ROAD INVEST IN KAZAKHSTAN 2016 world has, but Kazakhstan also has its location. That’s the real selling point. Which manufacturers will come here? For one, the Chinese companies will do final assembly at Khorgos, and then the product becomes ‘Made in Kazakhstan’. So legally, your product is made in Kazakhstan. If your product gets the stamp – Made in Kazakhstan – you are inside the Eurasian Economic Union, which is Kazakhstan, Kyrgyzstan, Russia, Belarus and Armenia, the whole Customs Union. You have direct access to that whole region. The New Silk Way is not just one road; it is a concept of interconnected corridors. Kazakhstan is now making a logistics center [around those corridors]. The Port of Aktau is also developing. We are creating corridors to Iran, Turkey, Europe, Finland and the Baltic States. It’s all about connecting all of these corridors together. If you look at the map of this part of the world, Russia is the biggest country. India has one of the largest populations and China has one of the biggest markets, and in the middle of all that is Kazakhstan. In the middle of that, is Khorgos. Q. What could be the economic reach of this project? Part of what Nurly Zhol [Kazakhstan’s public spending strategy] means is the development of certain regions of Kazakhstan that were previously not very interesting from an economic point of view. We are creating an international economy through the Silk Road. It is about diversification away from oil and gas. I believe that over the long term, the Silk Road will prove to be the savior of the economy. There is no country in Europe that could place such an emphasis on its geographical position as Kazakhstan can. Q. What kind of response are you getting so far? At least twice a week I have foreign investors or journalists [visiting], now they have started coming from all over the place. In May 2016, the entire project [economic zone] will be completed and commissioned. And then, investors will come to start to construct their warehouses and factories. Contracts and MoUs are already signed. All the pieces are coming together now. At the Dry Port, the trains have started coming on a daily basis… The fact that we already have trains coming is showing people the project is getting real; it is coming alive. The trains started coming in July last year. Since then, the entire logistics world is waking up and saying, ‘wow, this is really happening’. So now they are saying, ‘we have to be part of this. Can we open an office here? How do we do it?’. Once completed, the Khorgos Gateway Inland Container Dock will spread over a 240-hectare area KHORGOSGATEWAY
  43. 43. Kazakhstan, 060107, Atyrau oblast Zhylyoi district,Karaton-1, Tengiz RV Tel.: +7 712 303 3615 Fax: +7 712 303 3635
  44. 44. EXTRACTIVESECTORS Predicted annual oil production volume by 2021 Extractive sectors still attract the most foreign direct investment in Kazakhstan. With 30 billion barrels of recoverable reserves in giant fields such as Tengiz, Karachaganak and Kashagan, and further potential discoveries in the Caspian Sea, investment is unlikely to falter. Notably, British firms have signed deals to share expertise and build gas pipelines and steel superstructures. The refining sector is also set for growth, as work continues on a refinery modernization program and Kazakhstan partners with China and Iran to build a fourth oil refinery. Moreover, low production costs, improved legislation and subsoil license auctions present opportunities for mining companies looking to build mineral assets. 92m tonnes Source: BP Statistical Review of World Energy, 2015 Share of fossil fuel energy production, 2014 36% Coal production 53% Oil production 11% Natural gas production (all values in million tonnes/ oil equivalent)
  45. 45. The Sarens Group is the market reference in moving oversize cargo both vertically and horizontally all around the world. With a presence in 60 countries, Sarens counts 4200 strong in its mission to become the global leader in crane rental services and heavy lifting & Special Transport projects. Sarens has been present and operational in Kazakhstan for the past 12 years. Our success lies in the fundamental principles of good operation, efficiency, tailored approaches to individual customer needs, and the provision of simple solutions to complex tasks. Our cutting edge technical equipment and top professionals enable us to actively contribute to the industrial development of Kazakhstan. With experience in projects such as the Expo which is planned for 2017, Sarens has become the reference in Kazakhstan. WWW.SARENS.COM - INFO@SARENS.KZ - T +7 7122 76 34 25 NOTHING TOO HEAVY, NOTHING TOO HIGH Компания Саренс является мировым лидером по перемещению крупногабаритных грузов в вертикальном и горизонтальном направлении в любой точке земного шара. Мы имеем филиалы в 60 странах, численностью 4200 специалистов, способствующих становлению компании мировым лидером в сфере предоставления услуг по аренде кранов, в реализации грузоподъемных и транспортных проектов. Саренс присутствует на рынке Казахстана уже более 12 лет. Успех нашей компании заключается в основополагающих принципах грамотного у п р а в ле н и я , э ф ф е к т и в н о й р а б от ы , индивидуального подхода к каждому клиенту и поиск простых решений сложных задач. Наше современное техническое оборудование и профессиональные кадры способны вносить вклад в индустриальное развитие Казахстана. Благодаря участию в проектах ЕХРО 2017 Саренс зарекомендовала себя в Казахстане.
  46. 46. 51 EXTRACTIVE SECTORS INVEST IN KAZAKHSTAN 2016 he oil and gas sector is of enormous importance to Kazakhstan. Oil represents about two thirds of exports on average, along with 30% of gross domestic product and almost one third of government budget revenues. In the years up to 2014, the petroleum sector expanded its share of foreign investment to 35%. The crude price fall from more than $110/barrel in mid-2014 to around $25/barrel in January 2016 has had a significant impact on Kazakhstan’s oil-dominated economy. And while prices are expected to recover, the longer-term outlook has softened due to the shorter life cycle of US shale oil production, which can be quickly switched back on as prices rise – unlike conventional projects with their much longer lead times. The situation has led to a contraction in the global capital available for oil and gas investment, and a dampening of the short-to-medium-term growth prospects of the Kazakh economy. RECOVERABLE RESERVES Crude production rose steadily in the decade up to 2014 to stand at around 1.64 million barrels per day (b/d) before levelling off. Most of the country’s 30 billion barrels of recoverable reserves are conveniently located in a few giant fields, notably Tengiz, Karachaganak and Kashagan. Kazakhstan’s IN THE PIPELINE The oil and gas sector represents a huge chunk of Kazakhstans economy, but the country is still considered to be underexplored fields are, however, notoriously difficult to develop, with high temperatures, pressures and sulphur content. The Tengiz and Karachaganak fields currently dominate output, while the giant Kashagan field is expected to start in late 2016 after several years of delays. The country is considered relatively underexplored with further potential giant fields to be found, especially in the Caspian Sea. MEETING DEMAND FOR GAS The country’s gas production has risen sharply over recent years to more than 40 billion cubic meters (bcm). Associated gas makes up more than half of the total, which is produced along with crude from oil and gas fields. The country now has 14 gas processing plants, with a total capacity of 19 bcm/year. It is implementing a program to cut gas reinjection, which is currently used to boost crude production. It is hoped this, and fresh production from Kashagan, will provide sufficient supply to cover an increase in domestic use, and lift export potential above 30 bcm/year. Kazakhstan has been steadily increasing the throughput of its three refineries in recent years, reducing reliance on petroleum product imports. In 2014, throughput reached 17.4 million tonnes, up 9% on 2013. Most production goes to domestic use, with the remainder exported to regional markets. The country also acts as an important crossroads for oil and gas exports from other countries. A total of 65 million tonnes of oil was transported through the KazTransOil system in 2014. Chinese investors, led by state oil giants CNPC and Sinopec, have become increasingly important in the past few years, alongside more established western majors including Chevron, Exxon, Total, and Eni. Shell’s merger with BG consolidates the two companies’ positions in the country, while long-term partners from Russia include Lukoil and Rosneft. State-owned KazMunaiGas Group (KMG) partners all investors as national operators. TKAZAKHSTAN OIL AND GAS STATISTICS 30BN recoverable barrels of crude oil reserves 1.5TR cubic meters of natural gas reserves 1.64M barrels per day (b/d) crude and condensate production in 2014 42BN cubic meters per year gas production 345,100 b/d refinery capacity (crude distillation) 285,000 b/d petroleum demand 1.355M b/d liquids exports CONTRIBUTION TO REAL GDP GROWTH 10+14+10+9+10+10+11+9+3+0+8+8+6+7+4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 6+3+7+2+5+1+2+1+1+2+2+1+0+1+015 10 5 0 Oil and gas sector, % ■ Rest of the economy, % ■ Source: OECD/IMF

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