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Kazakhstan Agriculture Food Manufacturing Guide for 2017

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Kazakhstan Agriculture Food Manufacturing Guide for 2017

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Kazakhstan Agriculture Food Manufacturing Guide for 2017

  1. 1. MINISTRY FOR INVESTMENTS AND DEVELOPMENT OF THE REPUBLIC OF KAZAKHSTAN Investment opportunities in Kazakhstan Agricultureandfood manufacturing
  2. 2. TheheartofEurasia The economic center of gravity and an important logistics center of Eurasia Kazakhstan is situated in the very heart of Eurasia, the largest continent, and performs the crucial roles in its development. 1) It is the economic, cultural, and geopolitical center of gravity of Central Asia, one of the fastest-growing regions in the world 2) It is the essential link connecting the biggest economies of Eurasia. The New Silk Road – an excellent network of rapid transits connecting three regions: Europe and Russia; China, Japan, and Southeast Asia; Central Asia, Caucasus, and Turkey Welcometo Kazakhstan 2
  3. 3. The youngest capital city Astana is the youngest, modern and fast- growing capital of Eurasia Before 1998, Astana was a relatively small regional city. In 2016, Astana is a modern capital city with over 800,000 people, the center of economic and cultural development of Kazakhstan, a hub for many global companies, and a winner of UNESCO’s "Cities for Peace Prize". Thelargestprojectintheworld Tengizchevroil project – almost USD 40 bn of investment until 2022 The three biggest companies – Chevron, ExxonMobil, and KazMunayGas – have joined their efforts to implement the largest ever capital project: the development of Tengiz field which is to produce up to 39 Mt of oil p.a. Internationalfinancialcenter A financial hub of Central Asia with a special legal regime "I have signed the decree on the establishment of the Astana International Financial Center. It will be based on the pillars of English law, preferential tax treatment, and independent financial court. We believe that the Astana Financial Center will become the heart of Kazakhstan’s financial infrastructure and a financial hub for the whole of Central Asia." Nursultan Nazarbayev, President of the Republic of Kazakhstan EXPO2017 Over 100 countries will come to Kazakhstan to take part in the largest international exhibition The largest international exhibition EXPO 2017 Future Energy will gather in Astana over 100 countries and over 3 million participants. From June to September 2017, EXPO 2017 Future Energy will be a platform for developing international cooperation in sustainable energy. 3
  4. 4. Investin Kazakhstan 4
  5. 5. 17.0 1.2 China 3.2 Russia 5.7 12.4 EU US Kazakhstan GDP growth rate USD, in current prices, 2005-2015, percent Source: World Bank Overthelastfewyears,Kazakhstan’seconomyhasbeengrowingat arecordpaceleavingbehindthecountriesofCentralAsia,Russia, and the European Union and slightly lagging behind only China. Alleconomic,social,andinternationalgovernment policies are implemented according to the Kazakhstan2050Strategy,aplanofsustainable long-term development. The Kazakhstan 2050 Strategy is primarily focused on reaching the top 30 of the most developed countries in the world by 2050. Fast-growing economy with a long-term plan of sustainable development +12% GDP growth rate 2005-2015 5
  6. 6. Adherence to the principles of economic liberalization: by 2020, government participation in the economy will be reduced threefold under the National Privatization Program. The best Ease of doing business ranking in the region (World Bank, Doing Business 2017):  Kazakhstan 35  Russia 40  Azerbaijan 65  Turkey 69  Kyrgyzstan 75  China 78 The efficiency of state regulation and investor support – significant improvements according to the estimates of World Economic Forum 2015-2016.  Transparency of government decisions: 30th position out of 140 (45 positions higher as compared with the 2010- 2011 report)  Investor protection: 25th position out of 140 (20 positions higher as compared with the 2010-2011 report) Institutionalefficiency–thebusinesssetuptimewasreduced from19daysin2010to5daysin2015.InRussia,forexample,this indicatormakesup11daysandinChina–31days(WorldBank). Oneofthelowestincomeinequalityindicatorsintheworld– GINIindex=26.3.Norway–25.96,Russia–41.6,China–42.2 (WorldBank). Center of stability and liberal economic agenda INVEST IN KAZAKHSTAN 6
  7. 7. Saudi Arabia 0.5Russia Canada Kazakhstan China Turkey 2.4 0.6 2.8 3.8 2.1 Indonesia Nigeria 3.6 1.3 2.2 India UAE Australia 3.2 2.3 Gross foreign investments in 2015 Percent of GDP Source: EIU 3,8% of GDP Gross foreign investments in 2015 "Over the last three years, the government has taken steps to mimic Singapore and to some extent, even the Chinese with their special economic zones. These have become like FDI magnets in emerging and frontier market economies worldwide over the last decade ..." — Forbes, 2016 Oneoftheleaders inFDIattraction 7
  8. 8. Taxregime–oneof themostfavorable intheworld 30 25 20 20 20 Turkey Russia Kazakhstan China Germany Corporate tax rate Percent 19 17 18 18 12Kazakhstan Turkey Germany Russia China Standard VAT rate Percent Source: VAT Live SOURCE: KPMG 12% Standard VAT rate 20% Corporate tax rate INVEST IN KAZAKHSTAN 8
  9. 9. Youngandfast- growingnation Russia China 37 39 Kazakhstan 43EU 30 Average population age, median Years Population growth rate in 2015 Percent Source: CIA Factbook, World Bank Russia 0.5 EU 1.5 China 0.3 Kazakhstan 0.2
  10. 10. Attractivecostpositions Attractive cost positions Source: Financial Times Limited 2016 (latest available data), expert analysis Kazakhstan South Korea Malaysia Russia 133 19 54 39 62 54 401 219 China Turkey Germany Poland 20 188 13 57 12 57 31 42 11 24 5 6 7 9 12 11 8 4 0.4 1 1 1 5 1 Water Cents/m3 Gas Cents/m3 Electricity Cents/kWh Mobile Cents/min Salaries in the manu- facturing industry USD/hour 6 48 10 4 3 24 7 4 The 2015 devaluation made the cost of Kazakhstan’s production even more competitive. In future, the tenge exchange rate is expected to be stable. Average annual USD exchange rate KZT 343 222 179 152149 1514132012 I H 2016 Source: National Bank of Kazakhstan INVEST IN KAZAKHSTAN 10
  11. 11. As an EAEU member, Kazakhstan along with Russia, Belarus, Kyrgyzstan, and Armenia has a direct access to the market of 182 million consumers and ensures free movement of goods, services, capital, and workforce. Duty-freeaccesstotheEAEUmarket Belarus GDP (2015): USD 55 bn Population (2015): 9 m people Lithuania Latvia Russia Belarus Ukraine Romania Moldova Turkey Bulgaria Georgia AzerbaijanArmenia Iran Turkmenistan Uzbekistan Tajikistan Kyrgyzstan China Novorossiysk Riga Vilnius Minsk Kiev Chișinău Bucharest Ankara Baku Yerevan Tbilisi Ashgabat Tashkent Dushanbe Moscow Bishkek Kazakhstan Astana Russia GDP (2015): USD 1,324 bn Population (2015): 147 m people Kazakhstan GDP (2015): USD 174 bn Population (2015): 18 m people Kyrgyzstan GDP (2015): USD 7 bn Population (2015): 6 m people Armenia GDP (2015): USD 11 bn Population (2015): 3 m people SOURCE: EIU, IMF, IHS, UN Comtrade, local statistical agencies 182million Consumers in direct access to the market Kazakhstan is a WTO member since November 30, 2015
  12. 12. 12
  13. 13. Why agriculture and food manufacturing in Kazakhstan 13
  14. 14. Why agriculture and food industry in Kazakhstan The share of GVA of agriculture and the food manufacturing in Kazakhstan GVA Percent Kazakhstan is the 9th largest country in the world Russia China Kazakhstan ~20% of the employed population are engaged in agriculture or food manufacturing Over 210 m ha of agricultural land The 9th-largest country in the world Are agricultural in Kazakhstan >80%lands Agriculture and food manufacturing are one of the most important sectors of Kazakhstan’s economy 7.1 2014 7.4 2012 13 7.3 Total contribution to the country's GVA >7% Employment structure of Kazakhstan 2015, percent Almost 1 in 5 citizens of Kazakhstan working in agriculture or the food manufacturing 1981 Share of the employed population engaged in agriculture or food industry 14 WHYAGRICULTUREANDFOODMANUFACTURINGINKAZAKHSTAN Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, nternational Society for Horticultural Science, Ministry of Agriculture of Kazakhstan, Ministry for Investments and Development of the Republic of Kazakhstan, KazAgro, National Bank of Kazakhstan, UN Comptrade, FAOSTAT
  15. 15. The total area under agricultural crops is over 20 m ha (2015) 21.0 2015 +14%18.4 2005 Total area under agricultural crops M ha About 50 varieties of different crops grow in Kazakhstan, and according to the International Society for Horticultural Science, cultivated apples have originated in Kazakhstan 1 Estimated 2 Estimate based on the analysis of the balance of resources (production, export, import), as well as retail and wholesale sales 3 Over the last available year In 2015, the consumption of agricultural and food products in Kazakhstan totalled over USD 35 bn1. Consumption grew on average at an annual rate of over 5% (2010-15) with imports remaining high 6 7 16 20 15 36 Main types of food products consumed in Kazakhstan2 2015, percent Milk and dairy products Meat and fish Fresh and processed fruit and vegetables Other Fats and oils Flour and cereals Kazakhstan is situated between Russia and China, some of the largest importers of agricultural and food products USD >38bn Oilseeds imported by China in 2015 USD 13bn Fresh fruit imported by China in 2015 USD 7bn3 Dairy products imported by China in 2015 USD ~11bn Fresh vegetables and fruit imported by Russia USD ~4 bn Dairy products imported by Russia USD 1bn Russian imports of oilseedsRussia China Only about 25% of agricultural products produced in Kazakhstan undergo further processing, the majority of processed foods are imported The main food products consumed by Kazakhstan’s population are dairy products, flour and cereals, meat products, fresh and processed fruit and vegetables, fats and oils It is assumed that the seeds of Kazakh apples were transported along the ancient Silk Road and were later distributed all over the world where they adapted to local climate conditions 15Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, nternational Society for Horticultural Science, Ministry of Agriculture of Kazakhstan, Ministry for Investments and Development of the Republic of Kazakhstan, KazAgro, National Bank of Kazakhstan, UN Comptrade, FAOSTAT
  16. 16. Foreign direct investment (FDI) in Kazakhstan’s agriculture and food industry 0.2 2012 0.3 0.1 2011 2013 2014 20151 1.7 0.4 1 Based on the average share of GVA PP sector in the total GVA (growth, taking into account the effect of adjusting the rate of tenge and increased FDI) Share of the agriculture and food industry FDI in the agriculture and food industry GVA Percent Over the last few years the foreign direct investments in the agriculture and food industry have grown significantly and over the last 5 years they made up over USD 1.3 bn Examples of successful investments of global companies ▪ Danone Group is a leading global producer of dairy products, health products, and mineral water ▪ Danone launched an own plant in Kazakhstan to produce about 50 varieties of dairy products. Today, the plant employs more than 300 people ▪ Lotte Group is the largest South Korean conglomerate engaged in food industry, retail trade, tourism, and other sectors ▪ LOTTE acquired the majority stake of Rakhat JSC, one of the largest confectionary producers of Kazakhstan. At present, their products are sold in Kazakhstan, Russia, China, Central Asia, and Europe ▪ Lactalis is the 2nd largest European producer of dairy products and the 15th largest agricultural and food group in the world ▪ Lactalis acquired FoodMaster International’s production in Kazakhstan. The company has 3 plants, 16 retail units, and 2 own dairy farms. It is the leading producer of dairy products in Kazakhstan Production capacity – 12,000 t p.a. Production capacity – 50,000 t p.a. Production capacity – 500 t per day Production capacity – 700 m liters per year In Kazakhstan since 2010 In Kazakhstan since 2013 In Kazakhstan since 2004 In Kazakhstan since 2006 Investments of over USD 19 m Investments of over USD 16 m Investments of over USD 46 m Investments of over USD 300 m ▪ Coca-Cola İçecek is part of Coca-Cola Group and the 5th-largest plant producing Coca-Cola soft drinks in terms of sales volume ▪ Coca-Cola Içecek launched its first plant of soft drinks in Almaty in 2006 and the 2nd in Astana in 2016 16 WHYAGRICULTUREANDFOODMANUFACTURINGINKAZAKHSTAN Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, nternational Society for Horticultural Science, Ministry of Agriculture of Kazakhstan, Ministry for Investments and Development of the Republic of Kazakhstan, KazAgro, National Bank of Kazakhstan, UN Comptrade, FAOSTAT
  17. 17. 1 List of priority activities eligible for investment projects benefits can be found at the Web site of the Ministry for Investment and Development of the Republic of Kazakhstan 2 Only PRIORITY investment projects may enjoy these preferences (a project implemented on certain priority activities (metallurgy; chemical industry; petrochemical industry; machine building; production of building materials; food industry) and involving investment of at least 2-millionfold monthly calculation index – KZT 2,121 (2016) 3 The mentioned benefits do not depend on the volume of investment and are provided for the whole SEZ lifetime 4 For the period before commissioning and 1 year after commissioning of the subject of investment activity Additional information is available on the Web site of the Investment Committee of the Ministry for Investments and Development of Kazakhstan (http://invest.mid.gov.kz/) Preferences in special economic zones3 (SEZ) ▪ Free plot of land ▪ Available infrastructure ▪ SEZ management body in place – coordination and support of all internal processes (land, utilities, permits, etc.) ▪ Visa-free entry for citizens of 19 countries Production migration benefits Tax preferences Investment contract1 preferences ▪ The right to employ foreign labor without quotas or permits2,4 ▪ Visa-free entry for citizens of 19 countries ▪ Corporate income tax (CIT)2 – 0% ▪ Land tax – 0% ▪ Property tax – 0% ▪ Value added tax (VAT) – 0% ▪ Corporate income tax (CIT)2 – 0% for 10 years ▪ Land tax2 – 0% for 10 years ▪ Property tax2 – 0% for 8 years ▪ In-kind grants of up to 30% of investment in fixed assets ▪ Compensation of up to 30% of investment in construction and assembly works and equipment2 ▪ Zero import duties on – Equipment and components – Spare parts – Raw materials ▪ Zero duties on goods imported to SEZ Customs preferences Additional The development of the agriculture and food industry is a strategic priority for Kazakhstan. Kazakhstan has a wide range of preferences for international investors within SEZs (special economic zones), investment contracts, government investment programs, and sector-specific preferences State support and preferences for investors 17Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, nternational Society for Horticultural Science, Ministry of Agriculture of Kazakhstan, Ministry for Investments and Development of the Republic of Kazakhstan, KazAgro, National Bank of Kazakhstan, UN Comptrade, FAOSTAT
  18. 18. Sector preferences for investors as subsidies and other benefits Subsidies to cover the cost of mineral fertilizers and herbicides Subsidies to cover the cost of water supply services Subsidies to cover the expenses related to creating and developing irrigation systems Subsidies to cover the expenses related to purchasing raw materials Insurance subsidies related to crop farming Recovery of certain expenses associated with export of local products Investment subsidies Grants of up to 30% for investments in fixed assets incl. incurred costs related to construction, equipment assembly, and purchase Subsidies on remuneration rates related to loans and leasing Tax benefits for certain types of production Sector preferences for investors as loans Leasing of agricultural equipment Loans for certain types of capital expenditure Loans for spring irrigation and harvesting Loans for farmers' cooperatives Linking of lending to agricultural producers to the utilization of processing facilities SME microlending External loans For details, see the Web site of the Investments Committee of the Ministry for Investment and Development of the Republic of Kazakhstan http://invest.mid.gov.kz/ and the Web site of the Ministry of Agriculture of the Republic of Kazakhstan www.mgov.kz/ For details, see the Web site of the KazAgro National Management Holding http://www.kazagro.kz/ and the Web site of the Ministry of Agriculture of the Republic of Kazakhstan www.mgov.kz/ Livestock Subsidies for productivity and quality improvement Subsidies to cover certain feed-related expenses Subsidies to cover certain production-related expenses Subsidies to cover certain expenses related to purchasing pedigree cattle Dairy products Subsidies on creating and developing commercial dairy farms Subsidies to cover expenses related to creating and developing companies engaged in processing, procurement, and transportation of milk and dairy products Subsidies to cover certain feed-related expenses Subsidies to cover certain expenses related to purchasing pedigree cattle Cereals Subsidies on seed farming Subsidies to cover expenses related to creating and developing companies engaged in cereal processing and storage Lending against cereal receipts Subsidies for molasses production Vegetables and fruit Subsidies for establishing intensive horticultural crops and grapes orchards and vineyards Subsidies to cover expenses related to creating and developing companies engaged in fruit and vegetable processing and storage Subsidies for certain production-related expenses, including greenhouse expenses Oil-bearing crops Subsidies for creating and developing companies engaged in advanced processing of oil-bearing crops Subsidies for developing companies engaged in fat-and-oil production Subsidies to cover expenses related to creating and developing companies engaged in processing and storage of fat- and-oil products 18 WHYAGRICULTUREANDFOODMANUFACTURINGINKAZAKHSTAN Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, nternational Society for Horticultural Science, Ministry of Agriculture of Kazakhstan, Ministry for Investments and Development of the Republic of Kazakhstan, KazAgro, National Bank of Kazakhstan, UN Comptrade, FAOSTAT
  19. 19. Attractive investment opportunities 19
  20. 20. ATTRACTIVEINVESTMENTOPPORTUNITIES Note: USD 1 = KZT 221.73 (2015); USD 1 = KZT 342.80 (H1, 2016) ~30% Of the milk produced in Kazakhstan is further processed ~15% Weakening of the tenge against the ruble, 2015-16 993 709 2020 1,075 20162011 Consumption Kt 10 22 27 33 42Milk, cream Cheeses and cottage cheese Condensed milk Dry milk Butter Share of imports in consumption, 2014 Percent, 100% = 954 Kt 9 Russia 96 Russia, Belarus, France 51 Russia 40 Russia, Ukraine 79 Russia Imports by key product categories, 2014 Kt Share of imports in consumption, 2014 Percent Major importer in Kazakhstan 2012 2015 5 1824 852 Access to the growing domestic market of Kazakhstan with a high share of imports Availability of raw materials 22% Raw milk production Kt Cattle livestock structure by farm types Competitive cost of raw materials Comparison of raw milk production price excl. transport costs USD per ton, 2015 337 350 Russia Kazakhstan Agricultural enterprises 5 House-holds 20 75 Farms The historical annual growth rate (2011-15) +10% The projected annual growth rate (2016-20) +2% Kazakhstan market volume in 2015 USD 1.8bn Kazakhstan market potential by 2020 Dairy products Production of a wide range of dairy products, e.g., butter, cottage cheese, yogurt, kefir, cheeses, etc., for Kazakhstan’s domestic market with the potential for import substitution and meeting unsatisfied demand Key drivers USD 2.9bn 20
  21. 21. Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, National Bank of Kazakhstan, Federal Service of National Statistics of Russia, Ministry of Agriculture of Kazakhstan, KazAgro, NCE Atameken, Euromonitor, UN Comptrade Main costs (2015) USD 275The average monthly wage in agriculture in Kazakhstan USD 390The average monthly wage in food industry in Kazakhstan USD 70The average price of electricity in Kazakhstan for 1,000 kWh USD 20The average price for hot water in Kazakhstan for 1 Gcal Market perspectives USD 1.8bn Kazakhstan's domestic market in 2015 Consumption of milk and dairy products per capita Kg/person, 2014 Turkey 55 Russia 67 41 Kazakhstan Italy 76 ~20%Share of imports in dairy consumption 4large players With over 5% share of the domestic market incl. Danone and Lactalis USD 2.9bn Kazakhstan potential domestic market size by 2020 due to growing unsatisfied demand Access to resources ~5Mt Production of raw milk ~5%Average annual growth of cattle livestock (2013-15) Examples of major manufacturers in the segment Lactalis Group LLP Agroprodukt Aseptic Danone Group JSC Eurasian Foods Corp. Foreign participationFragmented market in Kazakhstan’s dairy segment Raw milk cost is competitive with the costs of key producers and importers in Kazakhstan Potential location 11 regions which are the most attractive for producing milk and dairy products due to favorable climatic conditions and established production base Business considerations Production of milk-bearing cattle Roads Transport and logistics hubs PortRailways Airport 300 km Astana Aktyubinsk Taraz Karaganda Shymkent Pavlodar Kyzylorda Aktau Taldykorgan Turkestan Kulsary Aralsk Baikobur Arkalyk Arys Chardara Zhetysai Shu Kapchagai Aksu Temirtau Shakhtinsk Balkhash Atyrau Uralsk Khromtau Abay Lisakovsk Talgar Shalkar Zhezkazgan Satpayev Aksai Almaty Kostanay Petropavlovsk Kokshetau Zhanaozen Rudny Kandyagash Zhitikara Kentau Taiynsha Atbasar Stepnogorsk Щучинск Kaskelen Ekibastuz Ust-Kamenogorsk Ayaguz Semey Ridder Zyryanovsk Zharkent Tekeli JOINT VENTURE GREENFIELD PRODUCTION FACILITY OR Over 1 m people 0.5-1 m people 100,000-500,000 people Less than 100,000 people Urban population 21
  22. 22. ATTRACTIVEINVESTMENTOPPORTUNITIES Note: USD 1 = KZT 221.73 (2015); USD 1 = KZT 342.80 (H1, 2016) Large fruits Grapes 66 32 2 37 51 12 Fruit imports to Kazakhstan, 2015 Volume Kt Access to the growing Kazakhstan market with a high share of imports, access to the growing Russian market Favorable weather conditions, availability of cultivated and irrigated land Competitive production price Production price, 2015 USD per ton China Belarus Poland 8 40 17 Other 35 Apricots Nuts 11 Persimmons Other 57 8 Cherries 24 628 Dried fruit and nut mixes Apples Bananas Citrus fruits 82 47 Imports 127 86 Peaches and nectarines 37 142Grapes 6 981937895 1,1261,075 162015 18 +5% p. a. 1,027 20201917 Projected fruit consumption Kt 51 107 129China Kazakhstan Turkey Overview of apple imports in Russia, 2014 Percent, 100% = USD 620 m Market in Kazakhstan in 2015 USD 0.9bn Potential market in Kazakhstan in 2020 310 569 772China Kazakhstan Poland 511 867 Kazakhstan Uzbekistan The structure of the GVA of Kazakhstan, 2015 Percent Apples Grapes Households Farms Agricultural enterprises Raw fruit Production of raw fruit for Kazakhstan's domestic market with the potential for import substitution, meeting the growing unsatisfied demand, and exports to Russia Key drivers Consumption of fruit per capita, 2015 Kg/person USD 1.2bn 22
  23. 23. Main costs (2015) USD 275The average monthly wage in agriculture in Kazakhstan USD 390The average monthly wage in food industry in Kazakhstan USD 70The average price of electricity in Kazakhstan for 1,000 kWh USD 20The average price for hot water in Kazakhstan for 1 Gcal 43 92 287 157 30 172016 1918 2020 Market perspectives ~70% Share of imports in raw fruit consumption USD 0.9bn In 2015 Kazakhstan market volume USD 1.2bn Kazakhstan's domestic market potential by 2020 due to growing unsatisfied demand Access to resources ~0.5m ha Cultivated land for fruit and vegetables 1.5m ha Irrigated land available +0.6m ha Additional by 2020 USD 2.9bn Imports of apples to Russia in 2015 Commissioning plan for irrigated land Thousand ha 35tons from 1 ha Yield apples 20tons from 1 ha Yield grapes Potential location 5 regions that are most attractive for fruit production due to favorable climatic conditions Business considerations Transport and logistics hubs Railways Roads Port Airport Fruit and vegetable storage facilities Production of fruits 300 km Astana Aktyubinsk Taraz Karaganda Shymkent Pavlodar Kyzylorda Aktau Taldykorgan Turkestan Kulsary Aralsk Baikobur Arkalyk Arys Chardara Zhetysai Shu Kapchagai Aksu Temirtau Shakhtinsk Balkhash Atyrau Uralsk Khromtau Abay Lisakovsk Talgar Shalkar Zhezkazgan Satpayev Aksai Almaty Kostanay Petropavlovsk Kokshetau Zhanaozen Rudny Kandyagash Zhitikara Kentau Taiynsha Atbasar Stepnogorsk Щучинск Kaskelen Ekibastuz Ust-Kamenogorsk Ayaguz Semey Ridder Zyryanovsk Zharkent Tekeli ▪ Modern farms in Kazakhstan demonstrate high yield ▪ Potential of exporting fruit to Russia Over 1 m people 0.5-1 m people 100,000-500,000 people Less than 100,000 people Urban population JOINT VENTURE GREENFIELD PRODUCTION FACILITY OR Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, National Bank of Kazakhstan, Ministry of Agriculture of Kazakhstan, KazAgro, NCE Atameken, National Development and Reform Commission of China, Institute of Agricultural and Food Economics Poland, Euromonitor, UN Comptrade 23
  24. 24. ATTRACTIVEINVESTMENTOPPORTUNITIES Note: USD 1 = KZT 221.73 (2015); USD 1 = KZT 342.80 (H1, 2016) Vegetable imports to Kazakhstan, 2015 Volume tons Access to the growing Russian market with a high share of imports, access to the growing Kazakhstan market Favorable weather conditions, availability of cropped and irrigated land Competitive production price 35 Turkey 52 China Other 13 Imports 520 65 Peppers Potatoes 77 165 Tomatoes 15 10 69 Cucumbers and pickles Onions and garlic Cabbages 35 3 Carrots, turnips, beets 82 Other vegetables Eggplants +1% p. a. 202019 2,2782,255 2,301 1817 2,189 16 2,233 2015 2,211 Projected potato consumption in Kazakhstan Kt 556539523507492477 2015 1716 18 19 2020 +3% p. a. Projected tomato consumption in Kazakhstan Kt Vegetables, incl. tomatoes Potatoes 64 4 32 72 23 5 Production price, 2015 USD per ton 443 450Kazakhstan China GVA structure, 2015 Percent Tomatoes Households Farms Agricultural enterprises ~47% Weakening of the tenge against the yuan, 2015-16 96tons for 1 ha Potential yield of tomatoes Raw vegetables Production of raw vegetables for exports to Russia and for Kazakhstan's domestic market with potential for import substitution Key drivers Overview of tomato imports in Russia, 2015 Percent, 100% = USD 620 m Market in Kazakhstan in 2015 USD 650mn Potential market in Kazakhstan in 2020 USD 700mn 24
  25. 25. Market perspectives Access to resources 43 92 287 157 30 17 182016 202019 Plan for the introduction of new irrigated lands Thousand ha +0.6 m ha Additional by 2020 ~1,000ha Current area of greenhouses 153 373 441 164 967 2010 Agricultural enterprises Farms 2015 Households Greenhouse area Ha +43% USD 650m Market in Kazakhstan in 2015 ~10% the share of imports in the consumption of raw vegetables USD 700m Potential market by 2020 because of the growing unmet demand USD 670m Imports of tomatoes to Russia in 2015 Potential location 14 areas that are most attractive for vegetable production due to favorable climatic conditions Business considerations Transport and logistics hubs Railways Roads Port Airport Fruit and vegetable storage facilities Production of vegetables 300 km Astana Aktyubinsk Taraz Karaganda Shymkent Pavlodar Kyzylorda Aktau Taldykorgan Turkestan Kulsary Aralsk Baikobur Arkalyk Arys Chardara Zhetysai Shu Kapchagai Aksu Temirtau Shakhtinsk Balkhash Atyrau Uralsk Khromtau Abay Lisakovsk Talgar Shalkar Zhezkazgan Satpayev Aksai Almaty Kostanay Petropavlovsk Kokshetau Zhanaozen Rudny Kandyagash Zhitikara Kentau Taiynsha Atbasar Stepnogorsk Щучинск Kaskelen Ekibastuz Ust-Kamenogorsk Ayaguz Semey Ridder Zyryanovsk Zharkent Tekeli Efficient greenhouse production in Kazakhstan due to the availability of low-cost energy sources and a large number of sunny days (more than 50% of greenhouse expenses are energy expenses, and natural solar energy is one of the lowest cost energy sources) Over 1 m people 0.5-1 m people 100,000-500,000 people Less than 100,000 people Urban population JOINT VENTURE GREENFIELD PRODUCTION FACILITY OR Main costs (2015) USD 275The average monthly wage in agriculture in Kazakhstan USD 390The average monthly wage in food industry in Kazakhstan USD 70The average price of electricity in Kazakhstan for 1,000 kWh USD 20The average price for hot water in Kazakhstan for 1 Gcal ~0.5m ha Cultivated land for fruit and vegetables 1.5m ha Irrigated land available Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, National Bank of Kazakhstan, National Development and Reform Commission of China, Ministry of Agriculture of Kazakhstan, KazAgro, NCE Atameken, Euromonitor, UN Comptrade 25
  26. 26. ATTRACTIVEINVESTMENTOPPORTUNITIES Note: USD 1 = KZT 221.73 (2015); USD 1 = KZT 342.80 (H1, 2016) ~47% Weakening of the tenge against the yuan, 2015-16 Access to the growing Kazakhstan market with a large share of imports (e.g., share of imports in processed vegetables1 ~82%); access to the growing Russian market Resource balance in 2014 Kt Projected consumption Kt Consumption 224 Exports 25 229 Production 19 Imports 252247242238233228224 2014 171615 1918 2020 +2% p. a. The production price of raw tomato 2015 USD per tons 443 450 China Kazakhstan Italy Other China 26 11 63 Overview of main tomato paste exporters to Russia Percent, 2015 Availability of raw materials Competitive production price Over 9Mt Fruit and vegetables produced annually Competitive production price compared to that of major importers in Kazakhstan and Russia Processed fruit and vegetables Production of processed fruit and vegetables, e.g., canned or frozen fruit and vegetables, fruit and vegetable pastes, vegetable sauces, purees, juices, concentrates, and other for Kazakhstan's domestic market with the potential for import substitution, as well as for exports to Russia Key drivers Market in Kazakhstan in 2015 USD 0.7bn Potential market in Kazakhstan in 2020 USD 1.4bn 1 Excluding potatoes 26
  27. 27. Main costs (2015) USD 275The average monthly wage in agriculture in Kazakhstan USD 390The average monthly wage in food industry in Kazakhstan USD 70The average price of electricity in Kazakhstan for 1,000 kWh USD 20The average price for hot water in Kazakhstan for 1 Gcal Market perspectives Access to resources Consumption of processed fruit and vegetables per capita Kg/person, 2015 13 23 36 39 +117% Germany Canada Ø 28 Kazakhstan USA ~82% The share of imports in processed vegetables, except potatoes USD ~0.2bn Imports of tomato paste to Russia in 2015 Over 9m tons Fruit and vegetables produced in Kazakhstan Potential location 14 regions that are most attractive for vegetable production and 5 areas which are most attractive for fruit production due to favorable climatic conditions Business considerations Кентау 300 km ~0.5m ha Cultivated land for fruit and vegetables Astana Aktyubinsk Taraz Karaganda Shymkent Pavlodar Kyzylorda Aktau Taldykorgan Turkestan Kulsary Aralsk Baikobur Arkalyk Arys Chardara Zhetysai Shu Kapchagai Aksu Temirtau Shakhtinsk Balkhash Atyrau Uralsk Khromtau Abay Lisakovsk Talgar Shalkar Zhezkazgan Satpayev Aksai Almaty Kostanay Petropavlovsk Kokshetau Zhanaozen Rudny Kandyagash Zhitikara Kentau Taiynsha Atbasar Stepnogorsk Щучинск Kaskelen Ekibastuz Ust-Kamenogorsk Ayagu z Semey Ridder Zyryanovsk Zharkent Tekeli Transport and logistics hubs Railways Roads Port Airport Fruit and vegetable storage facilities Production of vegetables Production of fruit and vegetables Production of fruit ▪ Low proportion of local production ▪ Potential for export of vegetables to Russia Over 1 m people 0.5-1 m people 100,000-500,000 people Less than 100,000 people Urban population JOINT VENTURE GREENFIELD PRODUCTION FACILITY OR USD 0.7bn Market in Kazakhstan in 2015 USD 1.4bn Potential market by 2020 because of the growing unmet demand Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, National Bank of Kazakhstan, National Development and Reform Commission of China, Ministry of Agriculture of Kazakhstan, KazAgro, NCE Atameken, Euromonitor, UN Comptrade 27
  28. 28. ATTRACTIVEINVESTMENTOPPORTUNITIES Note: USD 1 = KZT 221.73 (2015); USD 1 = KZT 342.80 (H1, 2016) Availability of cultivated land. Competitive cost of oilseeds and vegetable oils in Kazakhstan compared to China Access to Kazakhstan's domestic market with a high share of imports, and access to China's growing market of oilseeds, vegetable oil products, and fat-and-oil products Oilseeds resource balance Kt, 2014 Vegetable oil resource balance Kt, 2014 573 1,016 41 Exports Production 1,548 Consumption Imports 119 48 329 Imports Consumption 400 Exports Production 122 239 211 256 12 352 248 (67%) 371 2011 113 (32%) Production 13 144 (36%)153 (42%) 400 364 Imports 2014 Vegetable oil imports Mt, (percent of the total consumption) Total oilseed consumption in China Mt, (percent of the total consumption) 2014-15 2015-16 57 105 (65%) 2013-14 56 162 59 167162 Production 103 (64%) 111 (67%) Imports Oilseeds and fat-and-oil products Key drivers Production of vegetable oils for the domestic market with potential for import substitution, and production of oilseeds incl. sunflower, rapeseed, soybean, flax and safflower seeds, and of vegetable oils for exports to China Market in Kazakhstan in 2015 > USD 0.7bn Potential market in Kazakhstan in 2020 ~ USD 1bn China's imports of oilseeds ~ USD 38bn 28
  29. 29. Main costs (2015) USD 275The average monthly wage in agriculture in Kazakhstan USD 390The average monthly wage in food industry in Kazakhstan USD 70The average price of electricity in Kazakhstan for 1,000 kWh USD 20The average price for hot water in Kazakhstan for 1 Gcal Market perspectives USD 0.7bn Kazakhstan's vegetable oils market size in 2015 ~30% Share of imports in vegetable oils consumption 1.0bn USD Potential market of Kazakhstan in 2020 due to the growing unmet demand Access to resources 2.3m ha Cultivated lands for oil- seeds in Kazakhstan <20% The share of the largest market player in Kazakhstan’s fragmented market +3% Annual market growth, 2012-15 in China ~USD 38bn Import of oilseeds to the Chinese market in 2015 ~USD 0.2bn Imports of fat-and-oil products to the Chinese market in 2015 1.5m ha Irrigated lands available +0.6m ha Additional by 2020 665 2,300 2004 2014 Cultivated lands for oilseeds Thousand ha 1.6m tons Oil seeds produced in Kazakhstan Potential location 11 regions that are most attractive for oilseed production due to favorable climatic conditions Business considerations 300 km Production of oilseeds Roads Transport and logistics hubs PortRailways Airport Astana Aktyubinsk Taraz Karaganda Shymkent Pavlodar Kyzylorda Aktau Taldykorgan Turkestan Kulsary Aralsk Baikobur Arkalyk Arys Chardara Zhetysai Shu Kapchagai Aksu Temirtau Shakhtinsk Balkhash Atyrau Uralsk Khromtau Abay Lisakovsk Talgar Shalkar Zhezkazgan Satpayev Aksai Almaty Kostanay Petropavlovsk Kokshetau Zhanaozen Rudny Kandyagash Zhitikara Kentau Taiynsha Atbasar Stepnogorsk Щучинск Kaskelen Ekibastuz Ust-Kamenogorsk Ayagu z Semey Ridder Zyryanovsk Zharkent Tekeli Over 1 m people 0.5-1 m people 100,000-500,000 people Less than 100,000 people Urban population JOINT VENTURE GREENFIELD PRODUCTION FACILITY OR Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, National Bank of Kazakhstan, report of the U.S. Department of Agriculture on foreign agricultural services, Ministry of Agriculture of Kazakhstan, KazAgro, NCE Atameken, Euromonitor, UN Comptrade 29
  30. 30. ATTRACTIVEINVESTMENTOPPORTUNITIES Note: USD 1 = KZT 221.73 (2015); USD 1 = KZT 342.80 (H1, 2016) Sugar resource balance in Kazakhstan Kt, 2014 Gluten consumption by industry Kt p.a. Access to the growing GFS sweeteners market in Kazakhstan and the growing gluten market in the Middle East 170 167 169 171 176 181 188 199 203 207 213 220 229 239 13 388 396 409 2017П 2018П20162015 11 381 1412 424 12 Sweetened soda 2020П 442 Juices 15 2019П2014 11 379 3% 2% 7% Projected CAGR Percent, 2015-20 3% 33% 41% 1,030 4% 11% 10% 2012 61% 820 45% 27% 9% 2005 52% Baking 4% Aquaculture 2015 Pet food 1,230 Other 165 515 350 Imports Exports Production 3 Consumption Wheat resource balance in Kazakhstan, 2014 Kt Availability of raw materialsCompetitive cost of raw materials ~47% Weakening of the tenge against the yuan, 2015-16 The production price of flour, 2015 USD per tons 432 489China Kazakhstan 12,996 Imports Production 11 13,007Consumption Exports 4,208 Energy drinks Production of sweetened drinks Thousand liters Review of the main buyers of Chinese gluten Derivatives of processed wheat and other cultures such as starch and gluten Production of derivative products of wheat, potato, soy, and other cultures, such as starch and sweeteners as glucose-fructose syrup (GFS) for use as sugar substitutes in Kazakhstan's domestic market, and such as gluten for potential exports to Europe and the Middle East Key drivers Saudi Arabia, Yemen, Oman, Australia, Singapore, Malaysia, Vietnam, Korea, Norway, and other European countries The volume of the GFS market of Kazakhstan in 2015 USD >130m The volume of wheat gluten imports to the Middle East and European markets in 2015 USD 2.6bn 30
  31. 31. Main costs (2015) USD 275The average monthly wage in agriculture in Kazakhstan USD 390The average monthly wage in food industry in Kazakhstan USD 70The average price of electricity in Kazakhstan for 1,000 kWh USD 20The average price for hot water in Kazakhstan for 1 Gcal Market perspectives USD 130mn The GFS sweeteners market in Kazakhstan in 2015 ~30% Share of imports in sugar consumption USD 160mn Potential of the GFS sweeteners market in Kazakhstan Access to resources ~13Mt Availability of raw materials of wheat Competitive production price of wheat and flour compared to that of major manufacturers in Kazakhstan and Russia USD 2.6bn The volume of wheat gluten imports to the Middle East and European markets in 2015 +4% Average market growth in the Middle East and Europe +0.6m ha Additional by 2020 1,5ha Availability of irrigated lands ~3.5Mt Flour produced in Kazakhstan Potential location 11 regions that are most attractive for wheat production due to favorable climatic conditions Availability of grain elevators almost in every region for potential cultivation Business considerations 300 km Elevators Production of wheat Roads Transport and logistics hubs PortRailways Airport Over 1 m people 0.5-1 m people 100,000-500,000 people Less than 100,000 people Urban population JOINT VENTURE GREENFIELD PRODUCTION FACILITY OR Source: Committee on Statistics of the Ministry of National Economy of Kazakhstan, National Bank of Kazakhstan, National Development and Reform Commission of China, Ministry of Agriculture of Kazakhstan, KazAgro, NCE Atameken, Euromonitor, UN Comptrade 31
  32. 32. ATTRACTIVEINVESTMENTOPPORTUNITIES Note: USD 1 = KZT 221.73 (2015); USD 1 = KZT 342.80 (H1, 2016) Key drivers Meat production by types of farms Kt, 2015 In farms and small household farms in Kazakhstan, cattle and other livestock species are primarily kept and fed on natural pastures. The meat of these animals is non-GMO Horsemeat 101 73% 2% 73% 25% Lamb 144 25% 2% Beef 417 75% 19% 7% Meat production by types of farms Thousand heads Positive trends in the growth in number of all types of livestock Production of meat products for consumption in the domestic market and for export to China and Russia Meat products 6,033 2013 14 +2.8% p.a. 2015 6,1845,851 ~180m ha Area of pasture lands in Kazkahstan in 2014 According to the data of the Ministry of Agriculture of Kazakhstan, the cost of pasture-fed and pasture-fed beef in Kazakhstan is: ~110,000 tenge/ton or ~500 USD/ton Competitive cost of pasture-fed cattle 2,999 +4.7% p.a. 201514 2,835 2013 2,735 +1.3% p.a. 18,016 14 17,915 2013 17,561 2015 2015 +7.7% p.a. 14 1,938 1,785 2,070 2013 171166161 2015142013 +2,9% p.a. Cattle Including cows Sheep and goats Horses Camels According to the Ministry of Agriculture of Kazakhstan, Kazakhstan developed a broad plan and strategic road map for the development and promotion of Kazakhstan's meat brand "KazMeat" Farms Households Agriculture enterprises 32
  33. 33. Potential location 13 regions that are most attractive for meat production 300 km Production specialization on meat Presence of processing plants in the region Presence of feedlots in the region Market perspective USD ~2,3bn Volume of imports of cattle to China in 20151 Access to the resources ~180m ha Pasture lands in Kazakhstan in 2014 According to estimates of the Ministry of Agriculture of Kazakhstan, consumers in China are willing to pay 40% more for branded, organic, pasture-fed beef Business considerations USD ~1,5bn Volume of imports of cattle to Russia in 20151 USD ~4 bn Meat production in Kazakhstan in 20151 Development of a Kazakhstan meat brand The wealth of nomads LCsRailways Airports Roads Ports Aksai Aktyubinsk Taraz Almaty Shymkent Kyzylorda Aktau Turkestan Kandyagash Aralsk Arkalyk Arys Chardara Zhetysai Shu Kapchaga y Ayagoz Atbasar Temirtau Shakhtinsk Balkhash Semey Atyrau Khromtau Lisakovsk Talgar Shalkar ZhezkazganSatpayev Astana Ust-Kamenogorsk Karaganda Pavlodar Kostanai Petropavlovsk Kokshetau Taldykorgan Zhanozen Ekibastuz Rudni Kulsary Baikonur Zhitikara Kentau Zharkent Tekeli Aksu Taiynsha Stepnogorsk Uralsk Abai Schuchins k Ridder Zyryanovsk Kaskelen 1 Based on assessments of the Ministry of Agriculture Over 1 m people 0.5-1 m people 100,000-500,000 people Less than 100,000 people Urban population JOINT VENTURE GREENFIELD PRODUCTION FACILITY OR Main costs (2015) USD 275The average monthly wage in agriculture in Kazakhstan USD 390The average monthly wage in food industry in Kazakhstan USD 70The average price of electricity in Kazakhstan for 1,000 kWh USD 20The average price for hot water in Kazakhstan for 1 Gcal Source: Ministry of Agriculture of Kazakhstan, National Bank of Kazakhstan 33
  34. 34. ATTRACTIVEINVESTMENTOPPORTUNITIES Note: USD 1 = KZT 221.73 (2015); USD 1 = KZT 342.80 (H1, 2016) Production of organic and non-GMO products Meat production by types of farms Kt, 2015 In farms and small households farms in Kazakhstan cattle and other livestock species are primarily kept and fed on natural pastures. The meat of these animals is non-GMO Key drivers 73% 25% 2% Lamb 144 2% 417 75% Beef 7% 19% Horse meat 25% 73% 101 Households Farms Agriculture enterprises Production of organic products and products without GMO for consumption in the domestic market and for exports to China and the EU, incl. ▪ Meat products such as beef, lamb, pork, horsemeat and other meats ▪ Halal products, such as beef, mutton, horsemeat, and other meats ▪ Dairy products, such as cow, horse, and camel milk ▪ Oilseeds and oils-and-fats products ▪ Grain and fodder crops ▪ Fruit and vegetables In 2015, Kazakhstan adopted a law on production of organic products that is fully in line with the globally adopted organic market regulation. Within the existing technical regulations system, there is a separate area of certification for organic production (in 2015) "The existence of significant land and other natural resources, as well as the existence of a traditional culture of land cultivation without the extensive use of synthetic fertilizers and pesticides creates a huge opportunity for the development of [the organic and non-GMO] segment of the market" – UN FAO about Kazakhstan ~68 m ha Land potential in Kazakhstan for organic livestock production ~14 m ha Land potential in Kazakhstan for organic crop production Production of organics crops Kt, 2014 Based on Ministry of Agriculture of Kazakhstan estimate 9 48 85 160 Fodder crops Oilseeds Grains Pulses 34
  35. 35. Business considerations Potential location Specialization by region in Kazakhstan Market perspective Access to the resources ~68m ha For organic livestock production According to UN FAO surveys, Kazakhstan consumers highly value organic products and 69% of respondents are willing to pay a higher price for these products >1,5m ha Availability of irrigated lands ~14m ha For organic crop production Organic products export (food and beverages) USD millions per year Astana Aktubinsk Ust- Kamenogorsk Karaganda Pavlodar Kostanay Aktau Kokshetau Taldykogan Semey Atyrau Uralsk Zheskagan Saratov Astrahan 230 202 182 385 85 Tashkent 218 705 355 Bishkek 1 534 138 316312 489 332 845 141 209 225 Chelaybinsk Kurgan Petropavlovsk Омск Taraz Almaty Shymkent Kyzylorda хх Population, thousands Railways Vegetable farming Rice Vegetable production regions Cotton Agriculture Melons Horse- breeding Meat and dairy cattle Pork Camels Sheep 602 761 China 1,197 Spain Netherlands Italy 1,832 JOINT VENTURE GREENFIELD PRODUCTION FACILITY OR Main costs (2015) USD 275The average monthly wage in agriculture in Kazakhstan USD 390The average monthly wage in food industry in Kazakhstan USD 70The average price of electricity in Kazakhstan for 1,000 kWh USD 20The average price for hot water in Kazakhstan for 1 Gcal Source: Ministry of Agriculture of Kazakhstan, National Bank of Kazakhstan, UN FAO, FIBL, IFOAM 2016, Euromonitor International, European Central Bank 35
  36. 36. KAZNEX INVEST is Kazakhstan’s investment promotion agency and Unified Coordination Center for development of special economic zones. It supports foreign companies and private investors that are interestedinsettingupbusinessinKazakhstanandservestheexisting foreign investors helping them to expand and develop their business. HowKAZNEXINVESTcanhelp Headoffice 2, Kunayev St., 010000, Astana, Republic of Kazakhstan Tel: +7 (7172) 91 90 40, ext. 1001 Fax: +7 (7172) 91 90 50 info@kaznexinvest.kz www.kaznexinvest.kz Call Center of the Investment Committee of the Ministry for Investments and Development oftheRepublicofKazakhstan Tel: +7 (7172) 75 45 40 callcentre@cominvest.kz Information www.invest.gov.kz 36
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