invest in kazakhstan 2016

An o� icial publication of the Government of the Republic of Kazakhstan

KAZAKHSTANInvest 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

3INVEST IN KAZAKHSTAN 2016

FOREWORDS AND PERSPECTIVES

8Nursultan NazarbayevPresident of the Republic of Kazakhstan

13Erlan IdrissovForeign Minister of the Republic of Kazakhstan

15Kairat UmarovAmbassador of the Republic of Kazakhstan to the United States

16Umirzak ShukeyevChief Executive Officer, Samruk-Kazyna JSC

CONTENTS

20

KAZAKHSTAN Contents

CONTENTS

INVEST IN KAZAKHSTAN 20164

THE DIVERSIFICATION DRIVE

20A clear pathKazakhstan 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 relationsAccession to the WTO and membership of the Eurasian Economic Union underlines Kazakhstan's commitment to building a world-class economy

26High-octane opportunitiesA new privatization plan and a series of market reforms are creating unprecedented opportunities for foreign investors

30Step changeKazakhstan has launched a stimulus plan comprised of 100 Concrete Steps to implement five institutional reforms and stimulate widespread growth

32INTERVIEWRakhim OshakbayevFormer Vice Minister for Investment and Development

30

EXTRACTIVE SECTORS

51In the pipelineOil and gas is Kazakhstan's leading economic sector and further discoveries will likely boost output

52The Caspian oil dealA Russian-Kazakh deal has been signed for the joint development of the Tsentralnaya structure

55Anglo-Kazakh trade steps up a gearThe UK and Kazakhstan bolster ties following new agreements in the oil and gas sector

56A fourth oil refineryAnother oil refinery is being built to produce high-octane gasoline and jet fuel

59IN FOCUSKanat BozumbayevMinister of Energy

63Major expansion at TengizTengizchevroil has launched a $7.4 billion project to raise output at the Tengiz field to 854,000 barrels per day by 2021

66Digging deeperA 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 tradeChina's 'One Belt, One Road' initiative is strengthening Kazakhstan's position as a major Central Asian trade hub

38The strategy takes shapeInfrastructure developments are enhancing transport capacity and logistical efficiency

42Rail renaissance in EurasiaDemand is fueling railway expansion and modernization

44INTERVIEWKarl GheysenCEO ofKhorgos Gateway

Rail renaissance in EurasiaDemand is fueling railway expansion and modernization

56

CONTENTS

5INVEST IN KAZAKHSTAN 2016INVEST IN KAZAKHSTAN 2016

ENERGY

70Power surgeEnergy market reforms are expected to spur cross-border trading among Eurasian Economic Union statesand feed the green economy

72Nuclear power plansTo reduce the country's reliance on fossil fuels, Kazakhstan plans to build a least one nuclear power plant by 2025

74A green futureExpo 2017 will promote Kazakhstan as a regional leader in renewable energy, advanced technology and green business

OPPORTUNITIES BY SECTOR

78The Astana International Financial CenterA possible regional hub for Islamic banking, private banking and reinsurance, the AIFC will have its own legal system

81Islamic finance receives a boostPopular awareness of the opportunities Islamic finance presents will determine its future success

82Harvest timeKazakhstan is opening up its agriculture sector to encourage investment

87Ripe for organic productionOrganic agriculture is expanding in response to growing demand at home and abroad

74

82

78

72

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: @newsdeskmedia6 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 PRODUCTIONSenior Designer Ross EllisDesigner Morwenna Smith

Production and Distribution Manager Elizabeth Heuchan

SALESSales Manager Laurie Pilate

MANAGEMENT Chief Executive O� icer Richard Linn

Newsdesk Media publishes a wide range of business and customer publications. For more information

please contact Richard Linn, Chief Executive O� icer

Cover image: Vladimir Kim/Shutterstock Images

KAZAKHSTANInvest in

2016

88Reform to build a competitive workforceA 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 economyAcademia, business and capital are set to mingle at the Astana Business Campus

96Making tracksKazakhstan offers investors a rich vein of untapped potential in its developing tourism sector

GLOBAL RELATIONS

102The United StatesKazakhstan has a strong relationship with the US, including in the security sphere

103ChinaAs partners in trade, commerce and diplomacy, bilateral relations with China have been expanding rapidly

104The United KingdomBilateral trade between the UK and Kazakhstan reached $1.2 billion in 2015 and 500 joint ventures have been launched

105JapanOver 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

108AstanaKazakhstan's capital city is home to impressive architecture and an economy driven by SMEs

110AlmatyInterview with Arsen Nasyrkhanov, Director of the Investor Services Center for the City of Almaty

112 Summary114 Index of advertisers

An o� icial 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

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 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 NAZARBAYEVPresident of the Republic of Kazakhstan

TGermany, 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.


Wherever you are in the world, contact Arcanum today for bespoke intelligence at [email protected] 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

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.

13

FOREWORD


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 IDRISSOVForeign Minister of the Republic of Kazakhstan

The country makes a significant contribution to regional and global trade and security

F

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: [email protected]

USKZBA-ad3.indd 1 4/7/16 9:52 PM

15

FOREWORD


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 UMAROVAmbassador of the Republic of Kazakhstan to the United States

I encourage businesses to take advantage of the myriad opportunities in Kazakhstan

D

FOREWORD


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 SHUKEYEVChief Executive Officer, Samruk Kazyna JSC

D

17

FOREWORD


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.

THE DIVERSIFICATION

WORLD TRADE ORGANIZATION MEMBERSHIPNovember 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 FORMATIONJanuary 2015: Led by Russia and Kazakhstan, the EEU becomes active



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 POINTIn 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 PATHA 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 VECTORKazakhstan 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

TRAC

Y B

EN/S

HU

TTER

STO

CK

21



LIN

TAO

ZH

ANG

/AP/

PA IM

AGES

23



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”



A NEW ERA IN TRADE RELATIONSAccession 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 tari under WTO rules

10.6% Average import tari

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 LIBERALIZATIONKazakhstan 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

President Nursultan Nazarbayev and World Trade Organization Director-General Roberto Azevêdo attend a ceremony marking Kazakhstan's membership of the WTO

25



these hurdles to trade are still in place, the EEU will not be as effective as it wants to be.

OPENING THE DOOR TO COMPETITIONDomestically, 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 LINKSRegional 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.

27



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 OPPORTUNITIESAmbitious 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

"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

HALY K FINAN

CE



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 SCHEMESThe 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

DELIOTTE PERSPECTIVE

Kazakhstan’s new Entrepreneurship CodeAs volatility of global commodity pricescontinues to send shockwaves throughoutthe global economy, the importance ofKazakhstan’s stated goal of structuraleconomic diversification is placed ineven 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 projectsThe 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 projectsStrategic 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 Kazakhstan36, Al-Farabi Ave, Almaty Financial District, Almaty, 050059, Kazakhstan T: +7 (727) 258 13 40 (42) [email protected] | www.deloitte.kz



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 ECONOMYTalking 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 CHANGEresident 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

31



will not only encourage transparency around electricity pricing, supply and cost, but also increase investor confidence in Kazakhstan’s capital-intensive energy sector.”

CAPITAL GAINSSteps 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

1 CREATION 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.

2 ENSURING 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.

3 INDUSTRIALIZATION 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.

4 A UNIFIED NATION FOR THE FUTURE

• The consolidation and promotion of a Kazakh identity.

5 TRANSPARENCY 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.”

33



RAKHIM OSHAKBAYEVFormer Vice Minister for Investment and Development

Having 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 PICTURENotwithstanding 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’



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 REFORMSOshakbayev 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.

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 tra�ic 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%

THE NEW SILK ROAD


Ja 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 TRADEKazakhstan 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 Kazakhstan s Nurly hol program and China s 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

CHIN

AFO

TOPR

ESS/

CHIN

AFO

TOPR

ESS

VIA

GET

TY IM

AGES

37

THE NEW SILK ROAD


The inauguration ceremony of the China-Europe Block Train, which took 21 days to travel from Yiwu to Madrid via Kazakhstan

RAPID TRANSITNew 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 STAGEKazakhstan 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.

14 daysby rail

60 daysby sea

Towards Russia

Towards Ukraine and

Germany

Towards Turkmenistan

and Iran

Towards Uzbekistan, Turkmenistan and Iran

Baku PortAlat

Aktobe

Kandagash

Beineu

Uralsk

The National Industrial

Petrochemical Technological Park

Atyrau

Kashagan oilfield

Port of Aktau

RUS S I A

T U R K M E N I S TA N

U Z BE K I S TA N

Caspian Sea

I R A N

5

2

2

4

4

2

THE NEW SILK ROAD


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 PLANSAll 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.

THE STRATEGY TAKES SHAPEInfrastructure projects along the New Silk Road are gathering steam, bolstered by Kazakhstan s Nurly hol economic policy and China s 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 linesRoadsPower linesOil pipeline

Towards iwu, China

Towards Tashkent,

Kyrgyzstan

SemeyUst-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

DostykInternational border crossing

Khorgos-Eastern Gateway dry port complex

Almaty

C H I N AK Y RG Y Z S TA N

3

6

3 1

2

4

1

1

2

2

2

3

3

4

1

39

THE NEW SILK ROAD


Railway lines1 Arkalyk-Shubarkol2 Lianyungang (China)-Dostyk-

Duisburg (Germany)3 Lianyungang-Almaty-Tashkent

(Uzbekistan)4 Trans-Caspian International

Transport Route: Shihezi (China)-Dostyk-Zhezkazgan-Beineu-Aktau-Alat (Azerbaijan)

Roads1 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 lines1 Almaty-Balkhash2 Elkbastuz-Semey-

Ust Kamenogorsk3 Semey-Aktogay-

Taldykorgan-AlmatyOil pipeline1 Beineu-Bozoi-Shymkent

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

41

THE NEW SILK ROAD


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 EUROPEFirst 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

ASTA

NA

INTE

RNAT

ION

AL A

IRPO

RT

THE NEW SILK ROAD


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

Afor 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 RAILThe 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

KH

ORG

OS

GAT

EWAY

43

THE NEW SILK ROAD


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 BRIDGEIn 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.

p38 for map of key rail

routes in Kazakhstan

QA&Q&QA&AQTHE NEW SILK ROAD


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

45

THE NEW SILK ROAD


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 corridorBy 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, China has one of the biggest markets and in the middle of all that is Kazakhstan

The fi rst Kazakhstani private shipping company “Caspian Off shore Construction” LLP was established in 2003. The Company focuses on the development of auxiliary infrastructural marine fl eet involved in the development of oil and gas fi elds in the Caspian Sea. The Company off ers 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 fl eet of 41 vessels.

Company fl eet is certifi ed in accordance with ISM Code, while Company’s Quality and Environmental Management Systems are approved and certifi ed by Intertek in compliance with ISO 9001:2008 and ISO 14001:2004 standards.

Almaty offi ce: 34/95, Karasai Batyr street, Almaty 050010Republic of KazakhstanTelephone: +7 7272 59 73 33

Aktay offi ce: 39 building, “Zodiak” business-center, 17 mcr., 130000 Aktau, Republic of KazakhstanTelephone: +7 7292 59 73 33

Widening horizons. Establishing traditions.

www.coc.kz

47

THE NEW SILK ROAD


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 economicpoint 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

KH

ORG

OS

GAT

EWAY

Kazakhstan, 060107, Atyrau oblastZhylyoi district,Karaton-1, Tengiz RV

Tel.: +7 712 303 3615Fax: +7 712 303 3635

EXTRACTIVE SECTORS

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)

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 - [email protected] - 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 о т 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.

Kazachstan - with translation - final adapted size.indd 1 7/03/2016 10:34:25

51

EXTRACTIVE SECTORS


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 RESERVESCrude 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 PIPELINEThe oil and gas sector represents a huge chunk of Kazakhstan s 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 GASThe 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

1.64Mbarrels per day (b/d)

crude and condensate production in 2014

42BNcubic meters per year

gas production

345,100b/d refinery capacity

(crude distillation)

285,000b/d petroleum demand

1.355Mb/d liquids exports

CONTRIBUTION TO REAL GDP GROWTH10 +14 +10 +9+10 +10 +11 +9+3+0+8+8+6+7+420

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

14

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

EXTRACTIVE SECTORS


n November 2015, Kazakh President Nursultan Nazarbayev and Russia’s President Vladimir Putin signed a deal to jointly drill for oil and gas prospects in the Caspian Sea. The deal, signed in

Astana, allows both countries to assume sovereign rights for subsoil exploration and exploitation in previously disputed offshore areas of the northern Caspian Sea.

The Caspian Sea has already proved itself a major source of oil. The giant Kashagan field discovery in Kazakhstan’s north-eastern corner is thought to contain recoverable resources of 11 billion barrels, and reserves of up to six times that figure, making it the biggest discovery to date outside of the Middle East. Yet exploration in the Caspian Sea has been limited as a result of disagreements over seabed boundaries that are yet to be agreed by its five littoral states – Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan.

The November 2015 protocol was drafted in mid-2014, and its signing will allow the two governments to issue a license for geological prospecting and the production of oil and gas at the Tsentralnaya field on the Caspian Sea shelf.

THE CASPIAN OIL DEAL

Prospects are bright for oil and gas extraction in the Caspian Sea as a Russian-Kazakh project

spurs exploration and aims for a world drilling record

IThe license is expected to be issued without a tender or contest for a period of 25 years. The exploration phase is expected to last up to seven years.

At the signing, Putin said the agreement would “allow companies of the two countries to begin development of the large hydrocarbon deposit Tsentralnaya… We have big plans for joint extraction of oil in the Caspian.” He also emphasized that most of the Kazakh share of the anticipated oil output would be exported to international markets through Russian territory.

The Tsentralnaya structure is located approximately midway between the Kazakh port of Aktau and the Russian town of Makhachkala, and consists of an offshore oil and gas condensate deposit with an estimated 190 million tonnes of reserves. This assessment was made after the first prospecting well was drilled to a depth of 4,227 meters in 2008. To develop the field, Russia’s Lukoil and Gazprom have formed TsentrCaspneftegaz – a 50:50 joint venture company – to cover a 50% stake, while Kazakhstan’s NK KazMunaiGaz owns the remaining 50%. Together they form the Neftegazovaya Kompaniya Tsentralnaya joint venture.

53

EXTRACTIVE SECTORS


In addition to the Tsentralnaya development, Kazakhstan is also planning to carry out the Eurasia project, which involves the assessment of wider basin reserves through exploration of deep-laying horizons of the Caspian Basin, both on land and at sea, located on the territory of Kazakhstan and Russia. The wider Caspian Basin’s resource potential is estimated to be up to 40 billion tonnes of oil, with as many as 20 large hydrocarbon deposits thought to exist there. It is hoped that once the project gets under way, it could lead to the doubling of Kazakhstan’s proven hydrocarbon reserves.

Kazakhstan wishes to implement the Eurasia project through an international consortium that will include major oil companies, under Kazakhstan’s project management. To this end, Kazakhstan’s Ministry of Energy said it is currently holding meetings and consultations with leading global oil, gas and service companies, including Chevron, Total, Lukoil and Rosneft, the China National Petroleum Corporation, India's Oil and Natural Gas Corporation and others, about participation in the Eurasia project. The companies are attracted by the potential world-scale reserves that are expected to be found.

To help assess and conclude the process of establishing a consortium, the Kazakh Ministry of Energy is planning round-table talks, during which representatives of interested companies would be able to review the list of benefits and preferences provided for the project's participants. The scale and timing of the project will be determined after the establishment of a consortium or strategic partnership.

DRILLING FOR A RECORDThe Eurasia project is expected to consist of three initial phases, the first of which includes the collection and processing of materials from previous years. The second phase entails large-scale research, and the final phase involves the drilling of a new support- parametric well dubbed 'Caspian 1'. The well is expected to be drilled to a depth of nearly 14-15 km, beating the current world record. Once this has been carried out it should improve the understanding of the Caspian’s deep geology, allowing better resource estimates of where and how deep to drill in order to extract reserves. The estimated cost of all three initial phases is about $500 million.

CASPIAN SEA RESOURCES IN NUMBERS

40BN tonnesEstimated oil resource potential

of the wider Caspian Basin

14-15KM Expected depth of

the new 'Caspian 1' support-parametric well

11BN barrelsRecoverable resources that the giant Kashagan field is thought

to contain

$500M Total estimated cost

of the three phases of the Eurasia project

190M tonnesOil and gas deposits estimated at the Tsentralnaya structure

Aktau

RUSSIA

KAZAKHSTAN

Makhachkala

TSENTRALNAYA STRUCTURE

CASPIANSEA

LOCATION OF THE TSENTRALNAYA STRUCTURE IN THE CASPIAN SEA

55

EXTRACTIVE SECTORS


azakhstan trades more with Europe than either China or Russia, and among its leading European partners, the United Kingdom has been growing in importance.

The UK is already among the top 10 investors in Kazakhstan. More than 500 enterprises using British capital are successfully operating in the country, including giants BP and Shell. The Kazakh-British Business Council is not only considered a platform for dealmaking, but also a bridge for exchange of experiences, knowledge and ideas.

Last year the relationship was underscored by President Nursultan Nazarbayev’s November visit to Britain, when 40 trade and investment deals worth £3 billion ($4.6 billion) were signed. These included agreements in the oil and gas sector with Britain’s Independent Power Corporation (IPC) for gas pipelines and power, William Hare Group for oil and gas installation steel superstructures, and WorleyParsons for oil and gas engineering expertise.

The first deal, with power developer IPC, relates to a major gas-to-power development in partnership with Kazakhstan’s state-owned KazTransGas. The project involves the construction

ANGLO-KAZAKH TRADE STEPS UP A GEARAround $4.6 billion worth of trade deals were signed during President Nazarbayev’s visit to the United Kingdom in November 2015, including in the oil and gas sector

K

of four gas turbine power stations with a total capacity of 1,600 megawatts, along with a 1,500-km gas pipeline worth $3.1 billion. The plans will enable natural gas to be brought to central Kazakhstan for the first time, delivering fuel to generate power where it is needed most, and making a substantial contribution to advancing the country’s gas and power sectors. The project aims to provide power for the Kazakh capital Astana and three other cities: Karaganda, Zhezkazgan and Temirtau.

THE POWER GENERATION MATRIXCommenting on the signed agreements, Peter Earl, Chief Executive Officer of IPC, said: "We are very pleased to be returning to Kazakhstan... we are looking to play our part in expanding Kazakhstan’s power generation matrix with new Clean Tech power plants in the industrial heartland of this important country.”

William Hare’s deal was signed with Intergazstroy JSC, and focuses on the creation of industrial clusters for steel structure manufacture around the giant Karachanak oil and gas field. William Hare is a family-owned business with origins in the UK, specializing in steel structure fabrication across the globe.

WorleyParsons was also successful in winning a joint venture deal with a local engineering company. WorleyParsons has supported the delivery of mega-project developments in Kazakhstan and the Caspian region for more than 10 years, both offshore and onshore, including work on the massive Kashagan development with Agip. Among its global strategic goals are to take on more contracts in areas such as Kazakhstan, where it aims to develop low-cost local delivery centres, making it the most agile domestic service provider. Its presence has been further strengthened by a number of long-term relationships with leading Kazakhstan design institutes and specialist consulting, engineering and construction companies.

EXTRACTIVE SECTORS


azakhstan is seeking the support of private capital in its refining sector, to help maintain and expand supply of domestic oil

products to ensure a greater degree of self-sufficiency. The country currently has three large oil refineries, the most modern being Shymkent, along with Pavlodar in the north and Atyrau in the south, which make up a total crude oil distillation capacity of 345,100 barrels per day (b/d). All three are being considered for privatization, as part of plans to reduce the share of public structures in the economy to 15% of gross domestic product (GDP) by 2020. Chinese firms have indicated that they

A FOURTH OIL REFINERYChina and Iran are partnering with Kazakhstan to build a fourth oil refinery, enabling the country to produce high-octane gasoline and jet fuel

Kare interested, along with investors from Russia. The refineries could be delivered to strategic investors through direct sales or placed on the stock market.

BUYING INTERESTKazMunaiGas (KMG) owns 100% of the Atyrau and Pavlodar refineries and 50% of the Shymkent refinery. Up to 50% plus one share could be sold, bringing in an active private business to the country and helping build the nation’s economy with outside capital. KMG International (KMGI) has already been snapped up by CEFC China Energy Company, which will take a 51% share and control from parent KMG at a value of $500 million-$1 billion. Among KMGI's key assets are a 100,000 b/d refinery and a 400,000 tonnes per year fertilizer plant in Romania, along with nearly 1,000 European petrol stations.

Buying interest in the Kazakh refineries has come from Rosneft and LUKoil, both of which are familiar with the plant technology and crude supply arrangements from Russia. But the strongest buying interest has now switched to China.

With China benefiting from the import of Kazakh crude, it is keen to support Kazakhstan at home

ANDREY RUDAKOV/BLOOMBERG VIA GETTY IMAGES

Kazakhstan is prioritizing domestic oil refining, reducing its dependence on Russia

57

EXTRACTIVE SECTORS


All three oil refineries in Kazakhstan are being considered for privatization and plans are under way to build a fourth refinery

AND

REY

RUD

AKO

V/B

LOO

MB

ERG

VIA

GET

TY IM

AGES

EXTRACTIVE SECTORS


also supply a new swap deal with Iran, where oil products from Mangistau are transported across the Caspian to the northern Kazakh ports of Aktau and Kuryk, while Iran reciprocates with seaborne crude oil exports from the Persian Gulf on Kazakhstan’s behalf.

Most of those exports will go to China, adding to the incentive for Chinese companies to be involved in the new refinery. Until 2010, under an earlier swap scheme, up to 100,000 b/d of Kazakh crude oil was transported through the port of Aktau to Iran, and a similar volume of Iranian crude sold in the Persian Gulf on Kazakhstan's behalf. This meant Iran did not have to incur expensive transportation costs bringing its crude from south to north for domestic refining. This lasted until former President Mahmoud Ahmadinejad suspended the deal in June 2010, against a background of western sanctions.

The initial refinery capacity is expected to be around 120,000 b/d, in line with Chinese proposals, costing an estimated $5 billion. The Iranian partners are keen for the plant to be bigger still, at as much as 240,000 b/d. Plans had previously been drawn up to expand the existing Shymkent-based refinery, but the new Chinese-Iranian project is cheaper, and finance has already been lined up with Kazakhstan’s Export-Import Bank.

Kazakhstan is continuing to prioritize the refining of domestic crude, reducing dependence on Russia – which provided 80% of the 17 million tonnes processed in the 1990s – to under six million tonnes today. With China benefiting from the import of Kazakh crude, it is keen to support Kazakhstan at home on a commercial basis. China is also seeking to revive the old Silk Road with an ambitious plan to build railways, highways, oil and gas facilities, power grids and other links across Central, West and South Asian nations, under the so-called ‘One Belt, One Road’ initiative.

NEW SWAP DEALSBut, even with the existing refineries fully operational, the country's overall annual refined product deficit is about 1.5 million tonnes, or roughly 30% of the total market. As a result, Kazakhstan is planning to construct its fourth oil refinery in Mangistau Oblast (west) in cooperation with Iran and Chinese company CITIC, which recently launched the first bitumen plant in Mangistau. The new refinery will be able to produce high-octane gasoline and jet fuel that Kazakhstan currently imports from Russia. By processing crude locally, producers would be able to save the costs of selling crude through the Black Sea terminals. The refinery could

THE NEW OIL REFINERY IN

NUMBERS

120,000 barrels per day initial capacity in line with

Chinese plans

$5BNEstimated cost of building the new

oil refinery

59

EXTRACTIVE SECTORS


KANAT BOZUMBAYEV

inister of Energy, Kazakhstan

Kanat Bozumbayev was appointed Minister of Energy in late March 2016. His remit includes the development of Kazakhstan's oil, gas and alternative energy sectors.

According to an official statement by the Ministry of Energy, Bozumbayev intends to ensure that oil companies operate more transparently in tenders for large oil and gas projects by simplifying access to the information on forthcoming tenders for potential local participants. He is also concerned with the development of local content in energy projects and encourages joint ventures.

The minister cooperates effectively with foreign partners. In April 2016 Bozumbayev

and his American counterpart, Ernest Moniz, during a meeting in Kazakhstan, signed a document concerning joint work in the energy sector.

The ministers also discussed the action plan for the year 2016, which encourages usage of alternative energy sources in Kazakhstan, emissions reduction and the improvement of nuclear safety.

ADVANCED TECHNOLOGYUnderstanding the importance of advanced technologies for the development of the energy industry, Kazakhstan carries out projects related to implementation of innovative methods of work. As instructed by Bozummbayev, a special analytical center will be created at Samruk-Energo JSC. As the chairman of the board of the company Almasadam Satkaliyev said, the center will unite the efforts of scientists and those working in industry. Together they will work on forecasting and collecting the best international technologies.

Prior to his appointment to the position of the Minister of Energy, Bozumbayev was the Akim (local government chief) of the Pavlodar and Zhambyl oblasts. Prior to that, he held positions in national companies and ministries.

He was awarded the Order of Kurmet and the title of Distinguished Energy Worker of the CIS.

Bozumbayev intends to ensure that oil companies operate more transparently in tenders for large projects

IN FOCUSIN FOCUS

2P Reserves*571m boe

539

2010 2011 2012 2013 2014

522 506582 571

1P Reserves*192m boe

192

2010 2011 2012 2013 2014

169

195 199 192

Uralsk

Darzhinskoye fi eld

Rostoshinskoye fi eld

North-western Kazakhstan

Chinarevskoye ieldRussia

BorderGas pipelineNostrum gas pipelineNostrum oil pipelineOil pipeline

KEY

Nostrum Oil loading rail terminal at Rostoshi

Gas Treatment Facility (GTF)/ Oil Treatment Facility (OTF)

Yuzhno-Gremyachenskoye fi eld

Dividend**

0.32 0.34

2012 2013 2014 2015

0.35

0.27

Production40,402 boepd

2011 2012 2013 2014 2015

13,158

36,940

46,178 44,40040,402

eserves numbers are based on an independent report by yder Scott dated ecember 2 In 2 , the Nostrum group was reorganised, and the parent company of the group became a PLC, replacing the prior LP parent. istributions such as the cash dividends shown above are now therefore per ordinary share. Prior to 2 , distributions were paid per common unit.

per ordinary share

US$ 0.27

ZM_advertising Spread_2016_Q_E.indd 1 10/03/16 11:08

Who we areNostrum Oil & Gas PLC is an independent oil and gas company engaging in the production, development

and exploration of oil and gas in the pre-Caspian Basin through our operating subsidiary Zhaikmunai LLP.

We are a simple, sustainable and successful organisation with the vision to become the leading independent oil

and gas exploration and production company in the CIS.

A simple investment case• Stable fi nancial platform with strong cash fl ows

and fl exibility• Over half a billion boe of 2P reserves

• Steady levels of production• World-class assets

• Simple business case, successful model and sustainable strategy

• Strong governance and responsibility• Experienced management team

Simple, SustainableSuccessful

Nostrum Oil & Gas PLC www.nostrumoilandgas.com • [email protected]

ZM_advertising Spread_2016_Q_E.indd 2 10/03/16 11:08

45HECTARE

land area

488METERS

quay designed for load out, berthing and outfi tting

220METERS

launch way capable of launching wide range of vessels and structures

Caspian O� shore & Marine Construction is a multi-dimensional capability fabrication yard, strategically located in the SEZ "Aktau Seaport" your one-stop shop for oil, gas and marine construction

OUR CAPABILITIESDesign, engineering, procurement, construction, testing and commissioning

• Onshore and o� shore production and process modules

• Pre-assembled units and pipe racks

• Marine vessels and barges

• Drilling rigs and production units

• Atmospheric and low-pressure storage tanks

• Pressure vessels

• Marine/non-marine structures

• Repair, refurbishment and conversion of fl oating units and ships

Marine support services

• Logistic supply base including transit accommodation

YARD FACILITIES

• Covered workshops 20,000m2

• Integrated panel line, plasma CNC cutting machines, automated welding gantry

• Fully equipped exotic pipe fabrication shops

• Blasting and painting halls

• Heavy lifting cranes up to 600 tons

• Transporters capacity up to 640 tons

• Comprehensive spread of material handling and other yard fi xed and mobile equipment

• Well protected water with easy access to marine lanes

T: +7 (7292) 571 100 F: +7 (7292) 571 110 E: [email protected]

FABRICATION AND CONSTRUCTION EXCELLENCE

TEN

GIZ

CHEV

ROIL

63

EXTRACTIVE SECTORS


engiz was the first of the big Kazakh oil accumulations to begin production. It encompasses a 2,500-square-kilometer project license area, which includes the

supergiant Tengiz field, the smaller but sizable Korolev field and several exploratory prospects.

Located in the Atyrau region, output began in 1993, and in 2012 the Tengiz project produced its two billionth barrel. The fields have an estimated 24-26 billion barrels of light, high-quality oil in place, with 6-9 billion barrels (25-39%) currently estimated to be recoverable, as well as 64 trillion cubic feet (Tcf) of gas in place.

The Tengiz field is the world's deepest developed supergiant oilfields, with the top of the reservoir at about 4,000 meters below the surface. The Tengiz reservoir is 20 km wide and 21 km long, with an oil column that measures over 1.5 km thick.

MAJOR EXPANSION AT TENGIZ

Tengizchevroil is pressing ahead with expansion plans at the Tengiz field to raise output to 854,000 barrels per day by 2021

Chevron holds 50% of Tengizchevroil (TCO) – the Tengiz operating consortium – and manages the project alongside partners Exxon, Lukoil and KazMunaigas. TCO completed its Sour as Injection and Second eneration Plant expansion project in the third quarter of 2008, bringing daily production capacity to approximately 75,000 tonnes (600,000 barrels) of crude oil and 22 million cubic meters of natural gas. Crude production for 2015 was 27.16 million tonnes (217 million barrels) – a new annual production record, according to Chevron.

GREATER OUTPUTTo increase production, the consortium is implementing a $7.4 billion project that should raise output to 854,000 barrels per day (b/d) by 2021. A Chevron spokesperson said: “Our company has had an excellent partnership with Kazakhstan since the creation of [the] Tengizchevroil joint

T

Output at the Tengiz oilfield began in 1993, and development led

to the two billionth barrel of oil being produced in 2012

TENGIZ OILFIELD IN NUMBERS

24-26BNEstimated barrels of light, high-quality oil

$7.4BN Value of the expansion

project the Tengiz operating consortium

is implementing

EXTRACTIVE SECTORS


venture in 1993. The expansion project at TCO is currently undergoing thorough and rigorous review and TCO will announce final investment decision at an appropriate time, in consultation with our partners.”

FUTURE DEVELOPMENT PROJECTSA final investment decision (FID) on the Future

rowth Project had been expected in the second half of 2015, but is on hold due to the oil price slump and consequent reduction in capital expenditure budgets. Similarly, a FID on the Wellhead Pressure Management Project, which is designed to maintain production capacity at existing facilities, has also been delayed. On the other hand, the Capacity and Reliability Project – designed to reduce bottlenecks and increase plant efficiency and reliability at TCO facilities – is under way, having gained FID approval in 2014.

The majority of TCO’s crude oil production is exported through the Caspian Pipeline Consortium (CPC) pipeline, with the balance exported via rail to Black Sea ports. Chevron has a 15% interest in the 1,505 km CPC crude oil export pipeline that runs from the Tengiz Field to the Black Sea port of Novorossiysk, Russia. The pipeline provides a key export route for crude oil produced from TCO and Karachaganak. In 2014, an average of 865,000 b/d

of crude passed through the pipeline, composed of 763,000 barrels from Kazakhstan and 102,000 barrels from Russia.

Work on expanding the CPC pipeline capacity is ongoing. The project is being implemented in phases, with capacity increasing progressively until it reaches 1.4 million b/d in 2016. At the end of 2014, capacity from Kazakhstan had increased by 230,000 b/d and the pipeline was handling nearly 90% of TCO’s total production. The expansion is expected to accommodate a portion of the future growth in TCO production.

In 2015, TCO also sold more than 1.27 million tonnes of liquefied petroleum gas and 6.85 billion cubic meters of dry gas, along with more than 2.7 million tonnes of sulphur, which is more than the 2.4 million tonnes produced in that period.

Chevron also owns and operates a polyethylene pipe plant in Atyrau. The plant’s five processing lines have a production capacity of 15,000 tons of polyethylene pipe per year, and it also produces metal-plastic pipe used in heating and hot water supply systems. In 2013, Chevron opened another plant in Atyrau that produces up to 30,000 iron-gate valves per year. Both plants are managed and operated by Kazakh employees. The plants bring new technology to Kazakhstan and supply the country with products that are currently imported. There is also potential for export.

From 1993 to 2014, Chevron said Tengizchevroil invested more than $995 million to fund social projects and programs for the community and employees in Atyrau Province. Chevron has directed resources to social infrastructure projects, schools, hospitals and clinics and to the construction of water and electric utilities.

The Tengiz oilfield is the world's deepest developed supergiant oilfield, with an oil column that measures 1.5 km thick

The majority of TCO’s crude oil production is exported through the Caspian Pipeline Consortium

TEN

GIZ

CHEV

ROIL

WOOD GROUP PERSPECTIVE

The secret to successful project delivery

very so o en an en uiry comes out of le field that leads us to uestion not what’ we e cel in, but why’. This is a uestion that’s not always easy to answer.

This was most recently demonstrated following a request from a major company from outside the oil and gas industry that had recognized our unique ability to manage and control large engineering projects to specification and budget, while at the same delivering on time and right first time to help meet a fixed project completion date. These objectives were rarely achieved in

their projects and they wanted to find out how Wood Group Mustang delivered these key objectives for clients.

This request led us to take a fresh look at the fundamentals of our project delivery execution models to answer the question.

e ng the job doneSo, executing complex projects is what’

ood Group Mustang excels in, but why’ we excel is refreshingly simple: Wood Group Mustang delivers projects not manhours.

e o er the right combination of people, get it done a tude’, and class-leading project delivery systems to provide predictable, repeatable results. As a result we have designed more oating topsides than any other engineering contractor in the world; delivered more than one million HP of compression facilities globally; and are leaders in compression, C 2 and E .

These projects are o en in very remote, harsh environments, and frequently involve building facilities that control and process highly aggressive and toxic uids and gases. These projects can pose huge challenges in design, construction and installation,

and o en need to be placed in sensitive and delicate environments.

ur projects are nearly always fast-track requiring significant overlap between

engineering, procurement and construction activities to meet tough deadlines. As a result, Wood Group Mustang is adept at quickly developing pragmatic and exible engineering, procurement and project management solutions to support the needs of the client and project stakeholders. Put simply, we focus on the total project scope, and we deliver.

Dependable and e cient ur successes to date have been well

recognized, but here at ood Group Mustang we are not resting on our laurels. e remain laser focused on improving project efficiency – especially in this low oil price environment – so that we can continue to be the go to’

people for a predictable outcome on tomorrow’s projects.

ood Group is an international energy service company operating worldwide in over 50 countries, providing engineering services to the o shore and onshore industry for processing facilities, subsea, pipelines and operations and maintenance.

ontact:David Swallow, usiness [email protected]

Wood Group Mustang is now augmenting

ood Group’s already extensive service o ering in Kazakhstan

EXTRACTIVE SECTORS


azakhstan offers a wealth of untapped resources for mining companies looking for a new source of metals and minerals. The country,

which is approximately the size of Western Europe, sits atop a vast amount of uranium, silver, gold and chrome, and its political stability and access to transport links make it an attractive site for mining investment.

The country is expected to introduce a new subsoil law in 2016, further liberalizing foreign investment into

DIGGING DEEPER

Low production costs, improved legislation and subsoil license auctions are creating unique

opportunities for investment in Kazakhstan’s mining industry

K

Sarbaisky open-pit mine of Sokolov-

Sarybai Mining Production Association

(SSGPO) JSC of ERG. SSGPO is the largest iron ore mining and

processing enterprise in Kazakhstan, and the

sixth largest globally

the mineral sector. With the improved legislation, the government aims to reduce waiting time for exploration licenses from 540 days to less than 25 days.

Kazakhstan plans to achieve these results by looking to Australian mineral exploration laws as a model and by simplifying subsoil laws, First Deputy Prime Minister Bakytzhan Sagintayev said at a June 2015 mining congress in Astana. The country plans to amend the subsoil use codex, which is slated to come into effect this year.

EURASIAN RESOURCES GROUP

67

EXTRACTIVE SECTORS


holds a majority stake. The government plans to sell stakes of at least 25% of these companies, in a bid to raise cash to counteract the impact of the declining price of oil.

The opening of these companies presents an opportunity for investors to benefit from the rapid mineral development, which is expected to take place in Kazakhstan over the next decade. In addition, the government plans to financially support the development of five more gold and mineral projects over the next five years.

LOW-COST PROJECTSThough low commodity prices are still blighting investment in mining and mineral projects worldwide, investors are looking to benefit from low-cost projects in stable environments. Kazakhstan's economy, which is in a downturn due to the drop in oil prices, offers a unique opportunity.

The Kazakh currency, the tenge, has hit record lows this year, with 374.31 equaling $1 in mid-January. However, the weakness of the tenge offers a positive investment climate for foreign investors, as it lowers the costs of mining construction and the cost of equipment, so long as these are purchased or rented within the country. Local wages are an additional benefit from the competitive currency exchange. Lowering the cost of metals production means that even in the period of less-than-stellar global market prices for precious and base metals, mining companies can still turn a profit.

and Metallurgy 2016 congress, he added. The country hosted its first 'English-style' auction of subsoil licenses in December 2015. "Roughly half of those sold were for gold deposits," Rau said.

Kazakhstan is also planning a series of structural reforms for its state-owned enterprises, which includes privatizing Tau-Ken Samruk, which oversees all mineral projects in the country, as well as Kazatomprom, the state uranium mining firm. Tau-Ken Samruk holds a 30% share in Kazzinc, of which mining giant Glencore

The government will also be issuing licenses on a first come, first serve basis, and is taking steps to convert its international mineral resource reporting standards from a Soviet-based system to the internationally recognized JORC (Joint Ore Reserves Committee) system.

There are also plans to host a legal auction for up to 100 subsoil licenses, announced Kazakh Vice Minister of Investments and Developments Albert Rau in January. The auction is expected to occur in June, at the annual Mining

MINING IN NUMBERS

25 days The new waiting

time for exploration licenses under the 2016

subsoil law

90% of Kazakhstan’s

mineral resources are underexplored

EXTRACTIVE SECTORS


Several Kazakh-focused companies with mines in the country are taking advantage of these conditions to expand their projects. One example is Central Asia Metals PLC, a London-listed entity, which said in January that it aims to increase copper production at its Kounrad project to between 13,000 tonnes and 14,000 tonnes, up from approximately 12,000 tonnes in 2015, citing positive economics.

Kazakhstan's proximity to China is also a potential boon for investors who are discouraged by capital markets in the West. Chinese companies are financing more and more projects in Central Asia, and are open to bankrolling mining projects.

Kazakh firm Eurasian Resources Group signed a deal with Chinese banks in September 2015, securing more than

$2.5 billion to finance mineral exploration for one of its projects in southern Africa. It also reached a deal with China Development Bank at the same time for at least $2 billion to develop three projects in Kazakhstan, two of which are in the aluminum and iron ore sectors.

BUILDING MINERAL ASSETSChina is not the only Asian economy to take an interest in the Kazakh mineral sector. In October 2015, Japan and Kazakhstan signed a memorandum of understanding to advance the exploration of potential mineral projects in Kazakhstan. Japan state-owned enterprise Japan Oil, as and Metals National Corporation (JOGMEC) plans to begin exploration in central and northern Kazakhstan this spring with the aim of identifying rare earth metals. Japan's electronics sector is heavily dependent on rare earth minerals, and it is looking to develop alternatives sources to rare earth mines in China.

Kazakhstan is eager to attract foreign investment into its burgeoning metals and minerals industry, and conditions are ripe for greater foreign investment in the sector.

THE 10 LARGEST MINES IN KAZAKHSTAN (OWNERSHIP IN ITALICS)

The country is expected to introduce a new subsoil law in 2016, further liberalizing foreign investment

CHELKAR AND ZHILYANSKOE POTASH MINE Kazakhstan Potash Corporation Ltd

KARATAU AND CHULAKTAU POTASH MINE Kazphosphate LLC

SARBAISKY IRON ORE MINE ENRC

LISAKOVSK GOK IRON ORE MINE ArcelorMittal

SATIMOLA POTASH MINE Satimola Ltd

SHUBARKOL COAL MINE

ENRC

CENTRAL REGION COPPER MINE

Cuprum Holding

TEMIRTAU IRON ORE MINE ArcelorMittal

VOSTOCHNY COAL MINE ENRC

BOGATYR COAL MINE Samruk-Kazyna/Rusal

ENERGY

Electricity production from alternative energy resources in 2015

New renewable energy facilities to be commissioned by 2020

Kazakhstan is transitioning to a low-carbon economy and has introduced a feed-in tari« law to incentivize the green economy.

Cross-border trading is set to rise as the Eurasian Economic Union works to establish a common electricity market. Kazakhstan is also collaborating with Japan and Russia to build a new nuclear power plant, with hopes of supplying one third of the world fuel fabrication market by 2030.

Up to 100 countries are expected to showcase the latest future energy developments at EXPO 2017 in Astana. Kazakhstan has set a target of increasing the share of electricity generated from renewable sources to 3% of total production by 2020.

22%The increase in

electricity generation from renewable

resources in 2015 compared with 2014

704MILLION KW 106

106

azakhstan, along with its partners in the Eurasian Economic Union (EEU), has pledged to reform its

energy market according to sustainable, free market principles and promote cross-border trading by establishing a common electricity market for the EEU using the country’s centralized KOREM trading platform.

The measures may also help to mitigate the impact of low oil prices on resource-rich Asian nations.

POWER SURGEThe Kazakh energy market is being reformed to promote

cross-border trading among Eurasian Economic Union states and the transition to the green economy

Prices remained resolutely low in 2015, averaging around $53 a barrel between January and October, with negative implications for both domestic consumption and investor confidence in Kazakhstan.

“A common EEU energy market will open up new opportunities for electricity and coal exports,” explains Almassadam Satkaliyev, Chief Executive Officer of Samruk Energy JSC, to Invest in Kazakhstan. “Geopolitical and economic changes will mean a sharp increase in competition among suppliers of energy for markets and for foreign investment. To compete, countries will have to be flexible in fiscal terms and local content requirements.”

SUSTAINABLE ENERGY SOLUTIONS Kazakhstan was the first country in Central Asia to develop a strategy for the transition to a low-carbon economy with the launch in 2013 of an economy-wide carbon emissions trading system.

К

ENERGY


p30 for more on the '100 Concrete Steps' program

The country remains committed to incentivizing the green economy through the adoption of a feed-in tariff law.

“President Nazarbayev has confirmed that it is the strategic intention of Kazakhstan to fulfill the commitments made at COP21 [the United Nations 2015 Climate Change Conference] in Paris, a clear signal to the international community that the nation is ready for a serious transition of its energy mix in the medium-term and that the use of more efficient and environmentally friendly technologies is a crucial systemic task,” states Satkaliyev.

In addition, the '100 Concrete Steps' program (see page 30) also aims to smooth out differences between electricity tariffs and reduce transmission costs in Kazakhstan’s regions. It also seeks to attract private strategic investment in energy conservation programs through the use of performance contracts.

2009 Law in support of renewables

2012Law on energy saving and energy e� iciency

2013 The concept of Kazakhstan’s transition to a green economy

2014The concept for development of fuel and energy complex to 2030

KEY MILESTONES ON THE ROAD TO A GREEN ECONOMY

71

ENERGY


SOURCE: “SAMRUK ENERGY@ JSC

ENERGY


NUCLEAR POWER PLANS Kazakhstan is collaborating with Japan and Russia to build at least one nuclear power plant on home soil by 2025 and aims to corner the world fuel fabrication market by 2030

n his Address to the Nation in 2014, President Nursultan Nazarbayev pledged his support for the construction

of a new nuclear power plant in Kazakhstan, emphasizing that nuclear energy has a pivotal role to play in reducing the nation’s reliance on fossil fuels and ensuring its long- term energy security.

“The demand for cheap nuclear energy, in the foreseeable future, will only increase,” he said. “Kazakhstan is the world leader in uranium production. We have to develop our own fuel industry and build nuclear power stations.”

INTERNATIONAL COLLABORATIONKazakhstan is committed to building one nuclear power plant and a decision on a second will likely be made in 2019, once the Eurasian Economic Union has created a single regional energy market.

Russia’s Rosatom State Nuclear Energy Corporation entered the frame in May 2014, signing a memorandum of understanding (MOU) with Kazatomprom to construct a 300-1,200 megawatt electrical capacity VVER (a Russian-made pressurized water reactor) facility, possibly near Kurchatov in the east of the country.

Kazakhstan began talks with Toshiba, owner of Westinghouse – in which Kazatomprom has a 10% share – in January 2015, to construct a $3.7 billion, 1-gigawatt AP1000 reactor on one of two potential sites: Ulken village south-west of Balkhash lake or Kurchatov in East Kazakhstan region.

In June 2015, a further agreement was signed by the National Nuclear Center and Japanese Atomic Energy Agency for stage three of a project to investigate sodium-cooled fast reactors in Kazakhstan.

This was followed in October by an MOU involving Kazatomprom, the Japan Atomic Power Company and Marubeni Utility Services to cooperate on the construction and financing of a nuclear power plant. The three parties agreed to engage in consultations, exchange experience in public relations, organize technical workshops and meetings between security experts, and undertake staff training.

That same month, Japan’s Prime Minister reaffirmed his commitment to bring nuclear power to Kazakhstan and held talks with President Nazarbayev about cooperation in the fields of excavation and fuel processing of uranium. Kazakhstan has led the world in uranium production since 2009.

I

ROB

IN P

AXT

ON

/REU

TERS

ISTO

CK IM

AGES

73

ENERGY


“Kazakhstan is the biggest economy in Central Asia, plays a major role in the international arena and is a precious partner of Japan,” said Japanese Prime Minister Shinzo Abe at the conclusion of a week-long, five-nation tour of Central Asia. “Japan will be assisting construction of a nuclear power plant in Kazakhstan,” he added.

Former Kazakh Vice Energy Minister Bakhytzhan Dzhaksaliyev said a decision will be made on a location and a strategic partner for the new facility in two to three years, with operation scheduled for 2025.

KNOWLEDGE SHARINGIn November 2015, Kazatomprom extended its 10-year relationship with “strategically important” French partner EDF by agreeing to supply the world’s largest operator of nuclear power plants with 4,500 tonnes of natural uranium concentrates during the period 2021-25.

The two countries also agreed upon a joint venture between KazMunaiGas refining and marketing JSC and Air Liquide for the production of industrial gases. The deal offers the French multinational a foothold in resource-rich Kazakhstan in return for knowledge sharing in production best practices, compliance with sustainable economic principles and increased energy efficiency in manufacturing.

In 2009, Kazatomprom and French energy giant Areva established the IFASTAR (Integrated Fuel Asia Star) joint venture with a view to marketing an integrated fuel supply for Asian customers. It was also designed to assess the feasibility of building a fuel fabrication line with a production capacity of 400 tonnes per year of fuel at the Ulba plant in Ust-Kamenogorsk, with plans for another 800-tonne line wholly owned by Kazatomprom.

FUEL FABRICATION STRATEGYThe joint venture is part of a plan by Kazatomprom to supply up to one third of the world fuel fabrication market by 2030. In December 2015, the company announced a deal with China General Nuclear Corporation (CGN) to jointly build a nuclear fuel assembly plant in Kazakhstan. Kazatomprom is also negotiating technology transfer agreements to enable it to supply fabricated fuel for Westinghouse reactors.

Kazakhstan’s commitment to international cooperation with Japan, Russia, China and France in the field of nuclear energy is a critical part of its strategy to embrace the green economy, diversify away from oil, coal and natural gas, and establish a clean, secure and competitive future energy supply.

NUCLEAR POWER IN NUMBERS

41% of the world’s uranium was produced in Kazakhstan,

in 2014

12%of the world’s

uranium resources are in Kazakhstan

23,800tonnesKazakhstan's

uranium resources

ROB

IN P

AXT

ON

/REU

TERS

ENERGY


A GREEN FUTURE EXPO 2017 has the potential to put Kazakhstan on the map as a regional center for renewable energy, advanced technology and green business

© A

DRI

AN S

MIT

H +

GO

RDO

N G

ILL

ARCH

ITEC

TURE

75

ENERGY


stana is preparing to host EXPO 2017, the next International Exhibition overseen by the Bureau International des

Expositions (BIE). The event exists to promote knowledge sharing and innovation among BIE’s 169 member states.

EXPO 2017 will be held over three months, from 10 June to 10 September. It is expected to draw between three and five million visitors, which would make it the most popular event of its kind in Central Asia.

Befitting Astana’s modern vista, the theme for EXPO 2017 is ‘Future Energy’. As Vladimir Shkolnik, former Kazakh Minister of Energy, explained in his opening speech to the Future Energy Forum in 2015 – organized by EXPO Astana 2017 and held alongside COP21 in Paris – “there has never been a better time to consider the world’s relationship with energy”.

According to the International Energy Agency's (IEA) World Energy Outlook report, energy consumption will increase by a third by 2035, fuelled by population growth and the development of emerging economies, among other factors. And our primary source of energy – fossil fuels – is having a devastating effect on the environment. The IEA has warned that the world must cut greenhouse emissions by half by 2050 to limit global warming to 2°C – the ceiling agreed by 100 countries at the Copenhagen conference in 2009.

EXPANDED COOPERATIONOrganizers of EXPO 2017 hope the event will encourage an era of expanded cooperation between public-sector organizations, the private sector, the academic community and non-governmental organizations. Discussions

A

The EXPO 2017 site will feature an 'Expo City',

comprising almost 120,000 square meters

of exhibition and pavilion space

will be held around three sub-themes: reducing carbon dioxide emissions, living energy efficiency and energy for all. Leading experts will explore key concepts such as climate change, renewable energy and ‘green business’ and showcase the latest future energy developments, including carbon capture solutions, nuclear fusion technology and decentralized energy systems.

As of April 2016, 77 countries had confirmed their participation. Overall, Kazakhstan expects a total of 100 countries to send delegations. The government is now focusing on recruiting volunteers to ensure the event runs smoothly and is developing a program to promote Kazakh culture, as well as making sure that the exposition site is ready in time.

The exhibition complex, which will operate on renewable energy and a smart grid, was designed by Chicago-based firm Adrian Smith + Gordon Gill Architecture. The two-phase implementation project involves the construction of a so-called ‘Expo City’, comprising 118,620 square meters of exhibition and pavilion space, including the Kazakhstan Pavilion. The Kazakhstan Pavilion will be the site’s central venue and will take the shape of a large glass sphere. The high-tech, grandiose structure was designed by Khuan Chew, founder of KCA International, who also designed the Burj al Arab Palace in Dubai. Once EXPO 2017 has ended, the second phase of the project will transform the venue into an office and research park. The much-anticipated Astana International Financial Center will be located there.

Winning the bid to host EXPO 2017 is a formidable achievement for Kazakhstan, as it is certain to cement the country’s position as a regional leader in renewable energy. Fourteen projects were launched

ISTO

CK IM

AGES

ENERGY


in Kazakhstan’s renewable sector in 2015 and, according to the Ministry of Energy, Kazakhstan boosted its renewable energy output by 22% in that time, bringing the total volume to 0.704 billion kilowatt hours. The country is working to increase the share of electricity generated from renewable sources to 3% of total production by 2020, and 10% by 2030.

RETURN ON INVESTMENTTo attract investment in renewable energy, the country has been developing legislation to create a favorable environment. In 2013, Kazakhstan adopted the law 'On Support of Using Renewable Energy Sources', thereby introducing a system of fixed tariffs for the next 15 years that secures return on investment and guarantees the purchase of electricity through the Settlement and Financial Center of Kazakhstan. Tariffs have been set at 22.68 tenge per kilowatt hour for electricity generated by wind farms, 34.61 tenge for solar power plants,

16.71 for small hydropower plants, and 32.23 for biogas plants.

Several projects have been launched recently. These include the greenfield 50 megawatts (MW) wind power plant at Yereymentau in central Kazakhstan, which has received a $64.9 billion loan from the European Bank for Reconstruction and Development (ERBD) and a further $19.8 million of concessional financing from the Clean Technology Fund. The loan will finance construction, connection to the power transmission grid, commissioning and launch of Wind Power Yereymentau, which is expected to offset 120,000 tonnes of carbon dioxide every year.

On in the solar power sector, the 50MW-capacity ‘Stormy’ plant officially opened in the first half of 2015 and Samruk-Kazyna Invest recently inked a deal worth $106 million with United Green Group to double capacity in a solar power plant in the Zhambyl Oblast, increasing it from 50MW to 100MW. Interest also blossomed in Qatar following talks in Autumn 2015, which resulted in several cooperation deals on solar energy and panel assembly in Kazakhstan. NC Kazatomprom JSC signed a framework cooperation agreement with Qatar Solar Energy to produce wafers and cells in Kazakhstan that would be sent to Qatar for solar panel assembly. The road to EXPO 2017 is very much green.

The law 'On Support of Using Renewable Energy Sources' introduces a system of fixed tari�s

In line with plans for a greener economy, Kazakhstan is creating a favorable environment for investment in renewable energy sources, such as hydropower

A ‘green’ economy

In 2013, President Nursultan Nazarbayev signed a decree on Kazakhstan’s transition to a ‘green’ economy. The strategy targets three goals to: improve resource productivity; enhance population well-being and environmental protection; and increase national security, including water supply.

As stipulated by the presidential decree, this will require public and private investments of approximately $3.2 billion annually until 2050 – 1% of the country’s gross domestic product.

To encourage further investment, at the 2015 United Nations General Assembly President Nursultan Nazarbayev announced that Kazakhstan would set up an International Center for the Development of Green Technologies and Investment Projects in Astana.

In 2030, wind and solar power are expected to account for 11% of Kazakhstan’s energy basket, with nuclear and hydropower yielding 8% and 10% respectively.

41 Source: World Bank Doing Business report 2016

12Change in rankChange in rank

OPPORTUNITIESBY SECTOR

Kazakhstan has renewed its drive to broaden economic activity in Kazakhstan. To boost investor confidence, the soon-to-be-established Astana International Financial Center will o� er a combination of legal and tax incentives. Meanwhile, Islamic finance is gaining traction, creating opportunities to develop new products for Kazakhstan’s Muslim population.

Education and healthcare are equally important components of the government’s diversification strategy. Businesses are also being encouraged to help boost human capital and transform the country into a tourism hotspot.

DOING BUSINESS 2016 RANK:

53DOING BUSINESS 2015 RANK:

OPPORTUNITIES BY SECTOR: FINANCE


n May 2015, President Nursultan Nazarbayev surprised many when he officially announced the establishment of the Astana

International Financial Centre (AIFC). The government had previously marketed Almaty, the country’s old capital city and business center, as a financial hub for the whole region. All the main financial institutions, from the National Bank to the Kazakhstan Stock Exchange (KASE), have long been headquartered there. However, Astana is central to Nazarbayev’s vision of a modern Kazakhstan, and the AIFC will bring along a dramatic shift of business influence from Almaty to the capital city.

THE ASTANA INTERNATIONAL FINANCIAL CENTERKazakhstan is close to creating the Astana International Financial Center, which it hopes will become a regional hub for Islamic banking, private banking and reinsurance

I

AMIX

STU

DIO

/SH

UTT

ERST

OCK

79

OPPORTUNITIES BY SECTOR: FINANCE


Almost a year from its announcement, the project is taking shape, with President Nazarbayev signing into law a bill detailing the AIFC’s principles, institutions and main incentives aimed at luring in international financial investors.

“We are confident that the Astana financial center will be the core of the financial infrastructure in Kazakhstan, and in the future [it will turn into] a financial hub of the whole Central Asian region,” President Nazarbayev said during the Astana Economic Forum in May 2015.

PREFERENTIAL TAX REGIMESet to launch in January 2018, the AIFC will be based in the buildings currently under construction to host EXPO 2017. The National Bank and the stock exchange will be relocated to the AIFC, and a combination of legal and tax incentives will come into effect to encourage local and international financial institutions to set up operations within the AIFC.

“Our focus will be based on [introducing] the principles of English law, a preferential tax regime and an independent financial court,” Nazarbayev added last May.

The AIFC will have its own legal system, which will be based on the principles, norms and cases of English law, and standards of the world’s leading financial centers, according to the AIFC law passed in December 2015. The center will also have its own two-tier court system to apply these procedural principles, which will operate independently from the country’s overall justice system. An international arbitration court will be set up within the AIFC too.

“It is expected that the system of laws which are to be developed over the next two years will bear quite some similarity to the system introduced in the Dubai

The new Astana financial center will be at the heart of Kazakhstan's financial infrastructure

International Financial Centre, in which separate laws governing, inter alia, civil law relations with and between participants of the center, the formation, governance and registration of companies, financial services, employment relations, to name a few, provide a system separate from national law,” legal firm Dentons said in September 2015.

RESTORING CONFIDENCEWith a generous combination of fiscal and other incentives, the AIFC aims to restore confidence among international financial investors that have steered away from Kazakhstan in recent years.

Kazakhstan became a hotspot for international banking and insurance companies in the early 2000s. Big names such as the United Kingdom’s HSBC and the Royal Bank of Scotland, and Italy’s Unicredit and Generali invested billions of dollars to gain a footprint in the rapidly growing Kazakh financial market. However, the financial crisis hit Kazakhstan hard and, eventually, the profitability of their Kazakh assets didn’t meet initial expectations.

Today, many foreign banking and insurance investors have left the country for good or dramatically scaled down local operations. Russian financial groups are the main exception.

In order to make the overall financial equation work, the AIFC will offer investors exemption from corporate tax for certain types of activities, including Islamic banking, insurance and reinsurance services, and investment management services until 2066.

Participants will also be exempt from individual taxes for incomes generated within the center and any land or property tax, and their employees will enjoy a favorable visa regime.

Currency devaluation

In the face of falling oil prices, sanctions against top trading partner Russia and the economic slowdown in China, Kazakhstan's tenge has su�ered.

Amid market turmoil, former Central Bank Governor Kairat Kelimbetov allowed the currency to float freely, resulting in a 23% drop in value. The decision provided a much-needed boost to the country's struggling resources sector, which accounts for around 60% of exports, but inflation and higher living costs continue to a�ect citizens.

Propping up the tenge has come at a cost of $28 billion in the past two years for the central bank, and the system will need to adjust to cope with future external shocks.

81

OPPORTUNITIES BY SECTOR: ISLAMIC FINANCE


ISLAMIC FINANCE RECEIVES A BOOST

ith new legislation in place, Islamic finance is slowly gaining traction in Kazakhstan, but its success depends on

popular awareness of the opportunities it presents

he Kazakh Government has long identified Islamic finance as a source of economic diversification and a means by which to attract capital from the Middle East

and Southeast Asia. Now, Kazakh authorities are adding new momentum to the development of the local Islamic finance industry through a set of amendments approved in November. The amendments are expected to unlock the potential of an Islamic finance legal framework introduced in 2009 as the government gears up for its first-ever $3 billion sovereign sukuk, due this year.

While some of the key pieces needed to expand Kazakhstan’s Islamic finance industry are falling into place, one is still missing. The country’s Muslim-majority 17 million-strong population is not familiar with the concepts of Islamic finance, which is a major hurdle for Kazakh authorities.

The 2009 law, the first of its kind in the Commonwealth of Independent State (CIS) region, set the foundation for the development of a domestic Islamic banking sector. And rules on sukuk issuance and trading were introduced two years later.

Yet, five years since the rules were introduced, Abu Dhabi’s Al Hilal Bank remains the only Islamic bank active in the Kazakh market, and its assetsmake up less than 1% of the country’s total banking assets. The sukuk market did not perform any better,

featuring only a single $76.6 million issuance by state-owned Development Bank of Kazakhstan.

However, with Islamic banks, insurers and financial companies featuring at the heart of the Astana International Financial Centre (AIFC) vision, Kazakh authorities have set out to fix some of the weaknesses that have hindered the development of the Islamic finance sector.

GROWTH IN ISLAMIC BANKING ASSETSThe amendments introduced in November allow traditional banks to market Sharia-compliant products or convert to Islamic services. At the same time, the government is drafting a bill that aims to decrease minimum capital requirements for Islamic banks to five billion tenge ($14.4 million) from 10 billion tenge for both local and foreign investors. The government is willing to make Islamic finance account for 3-5% of total banking assets by 2020.

However, these renewed efforts risk bearing little fruit if not combined with a strategy to bring customers on board. The growth of Islamic finance goes hand in hand with retail banking and interest-free products. Today, 71% of the Kazakh population has never heard of Islamic finance at all, according to a recent survey by Thomson Reuters. The success, or failure, of Kazakhstan’s efforts will inevitably hinge on raising awareness among the population over the opportunities Islamic finance can offer them.

T

ISTO

CK IM

AGES

OPPORTUNITIES BY SECTOR: AGRICULTURE


azakhstan has celebrated its 2015 debut into the World Trade Organization by providing eager foreign investors with easier access

to its land, and announcing a string of reforms, incentives and privatizations. It has also abolished bureaucratic processes and is providing funding to drive growth in food processing. The response to its worldwide marketing campaign has been immediate; projects and enquiries are flowing in from China, Russia, Iran, the United States, Israel, Italy, Japan, the Netherlands, India, the United Arab Emirates and others.

The government’s actions echoed the sentiments of Sir Suma Chakrabarti, President of the European Bank for Reconstruction and Development (the country’s largest investor), who said in June last year, “Change is necessary. New technologies, fresh capital and dynamic entrepreneurs need to come to the sector. A promising industry like agriculture should be generating greater income for Kazakhstan and insuring it against oil price shocks.”

In order to show that investors’ profitability needs are respected, the reforms include longer terms for land leasing – the limit has increased from 10 years to 25 years. Agriculture retains

HARVEST TIMELocated between large food importers, Kazakhstan is opening up its agriculture sector to encourage investment, and major companies are showing interest

its special tax regime, although the overall system is being simplified. According to The Astana Times, the Agribusiness 2020 program will continue to subsidize investments at the rate of 30-80% in priority areas.

NEW SUBSIDIES“In a crisis, every tenge is important,” President Nursultan Nazarbayev said in his annual State of the Nation address in November 2015. So, routes through which subsidies flow to farming are being simplified, transparency improved and shrinking state coffers used more productively. The Kazakhstan 2050 news agency says grain subsidy allocation will be diverted to farming generally and to subsidizing interest rates on loan and leasing agreements.

Management at the huge state wealth fund Samruk-Kazyna has been slimmed down and given an active investment role to help create new industries, including agriculture-related ones. Agriculture funding agencies KazAgro and its four 'daughters' will be transformed by mid-2017. Their finance activities will become a leasing company and the consultancies, grain storage and trading, flour and livestock production will all be privatized.

Not just food production is being incentivized. The government has

K

AGRICULTURE IN NUMBERS

25 years is the newly

increased land leasing limit, up from 10 years

14projects with foreign investors were being implemented in 2015

83



successfully sought international investment for fertilizer plants, backing for technology research and greenhouses, access to trade finance, and has won international support for vital new intercontinental export highways.

The list, according to former Minister of Agriculture Assylzhan Mamytbekov in The Astana Times, goes on. Other incentive measures include: “The development of agricultural cooperation... and new approaches to financing infrastructure [in the] agriculture sphere, including water

infrastructure, the establishment of market tariffs for water and attracting investment to the Public-Private Partnership (PPP) Concessions [law].”

Improved logistics are vital for Kazakhstan’s ambitions. One new route – opened by the joint efforts of the railway companies of China, Kazakhstan, Turkmenistan and Iran – is providing the first high-speed cargo train service from the east coast of China to Iran. These are important markets for Kazakhstan’s prime agricultural exports – wheat

Kazakhstan is among the world's top 10 producers of wheat and flour – two of its prime agricultural exports

and flour, of which it is among the world's top 10 producers. Eventually new highways will also link China and Europe.

Fast refrigerated freight is essential as neighboring China and Russia are both huge international food importers. “Chinese companies are interested in establishing joint ventures in Kazakhstan for processing agricultural products (meat, oil, grains and tomato processing plants)

Halal opportunities

With the production of halal food products expected to hit $2.5 trillion by 2020, growing at a rate of 6.5% each year, First Deputy Prime Minister Bakytzhan Sagintayev has said Kazakhstan should find its place in the global halal food market.

Dubai-based AMK Metal FZCO has been one of the first to invest in the sector, to the tune of $30 million. Its halal beef farm will have capacity for 20,000 cattle, and produce from the on-site meat-processing farm will be exported abroad.

© W

ISK

ERK

E / A

LAM

Y ST

OCK

PH

OTO



and establishing feedlots, with further promotion of the Kazakh products for export,” notes the Ministry of Agriculture.

Beef production in particular is a major area being marketed to investors, with some success. As the United States Department of Agriculture (USDA) notes, there is a “very large availability of unused pasture in the northern, central, western, and eastern regions of Kazakhstan for the grazing of cattle”. At the moment, the USDA cautions, Kazakhstan’s cattle herds are still too “concentrated in small households”.

INVESTORS MOVE IN Foreign investors are moving in to fill gaps. Meat production features high in recent project lists, which include joint ventures with Italy, Iran, Middle Eastern countries and especially China. The latter includes large Chinese multinationals Rifa Holding Group and CITIC Group Corporation. Two others, AIJU and CPFCO, are interested in cereals and vegetables. Italian meat product group Inalca Eurasia, part of food giant Cremonini, is looking to spend more than €100 million and wants to help build a Kazakh meat brand. Other Italian companies are looking at dairy, which up until now has been the investment favorite, and tomato paste, with Granarolo and Ottaviani among the interested parties.

These new investors will join an impressive list of companies that have been in Kazakhstan for years, working on food import substitution (Kazakhstan is far from self-sufficient as yet) as well as exports. These include Russian fertiliser group EuroChem, Russian livestock and grain company Rodina Agricultural, and two giant French dairy groups, Danone and Lactalis.

Kazakhstan knows what it wants in 2016: 10 new food enterprises and the upgrade of 24 existing enterprises. There is a good track record: Kazakhstan almost doubled agricultural production over the past five years and as 2015 closed, 14 projects with foreign investors were being implemented, according to the President’s website. So, while the agriculture sector is still small in relation to both the economy and Kazakhstan’s huge land mass, its prospects under the new, tough market-based approach look excellent.

Kazakhstan knows what it wants in 2016: 10 new food enterprises and the upgrade of 24 existing enterprises

Kazakhstan has potential for greater

beef production where land suitable for cattle

grazing remains unused

Innovations for a better world.

One step ahead in processing grains to food with Bühler.Bühler makes a significant contribution to global food supplies withits industrial process technologies and solutions.

Around 65% of the wheat harvested worldwide is turned into flour on Bühler mills. The company’s contribution to the global production and processing of rice, pasta, chocolate, and breakfast cereals is equally substantial.

Bühler covers the entire value creation chain, from consulting and engineering to construction and commissioning of machines and plants, right through to extensive maintenance and optimization services and training programs.

With its industrial process technologies and solutions, Bühler is helping to ensure that everyone around the world will always have access to a safe, healthy, and affordable food supply, while also setting standards with regard to energy efficiency and sustainable mobility.

Bühler AG, Almaty, Kazakhstan, tel. +7 727 311 [email protected], www.buhlergroup.com Bühler AG, Astana, Kazakhstan, tel. +7 7172 92 55 [email protected], www.buhlergroup.com

a

CE R T I F I E D

ORG A N I C

87



arly days it may be, but Kazakhstan’s organic food sector is progressing rapidly from apple farming and private vineyards towards large-scale

export projects. The Prime Minister’s website puts 2015’s exports at around $5 million. Yet the domestic market could be worth $500 million, according to Zhibek Azhibayeva of Kazakhstan’s National Chamber of Entrepreneurs.

2016 opened with news of $1.74 billion of Chinese projects, 19 in all, for organic honey, meat, tomatoes and flour production. China is one of the world’s largest organic food markets, however, the Chinese also have an eye to other export markets. According to the Prime Minister’s website, Rifa Holding Group plans to establish a processing plant in East Kazakhstan Region with an annual capacity of 17,000 tonnes of lamb and beef to supply Arab countries as well as China.

RIPE FOR ORGANIC

PRODUCTIONOrganic agriculture in Kazakhstan is expanding in

response to growing demand at home and from key trading partners, including China and Italy

E

Land-strapped Italian companies are also exploring Kazakhstan as a base for international organic food exports, for fruit, dairy, vegetables and organic fertilizer capacity. According to Russian news agency Interfax, Granarolo – Italy’s largest milk and dairy producer – is looking to establish joint dairy ventures and export to Russia, China and Iran from Kazakhstan. Another company, Ottaviani, is looking at processing and freezing vegetables in Kazakhstan.

FOOD EXPORT GROWTHSupported by the Organization for Security and Co-operation in Europe and United Nations Food and Agriculture Organization (FAO) programs, and as a result of its accession to the World Trade Organization, Kazakhstan has implemented new laws. In order to ensure nothing blocks export growth, Kazakhstan is now looking at putting in place organic monitoring and certification systems that are compatible internationally.

"We will study the international experience for further promotion of our products on the international market. It will take a year or two, not less," said Zeinulla Sharipov, Head of the Agriculture Ministry’s Economic Integration Department.

Encouragement of the organic sector is a priority for Kazakhstan. This forms part of the ‘green economy’ initiative that emphasizes efficient use of water, land and biological diversity. The Agriculture Ministry has promised to support organic producers in Kazakhstan.

FAO sees the next step as the “establishment of a central national authority responsible for development and coordination of the organic production system”.

OPPORTUNITIES BY SECTOR: EDUCATION


azakhstan is introducing new approaches in the education sector to boost its human capital potential and transform the economy

with the aim of increasing competitiveness and augmenting innovation.

The Kazakh Government is keen to promote public-private partnerships in education to support these goals, and in an investment-friendly move, in February 2016 it appointed Western-educated Erlan Sagadiev Minister for Education and Science.

In his previous post as Vice Minister for Investments and Development, Sagadiev (himself a fluent English speaker) praised plans to shift higher education teaching to English. “If the program is implemented in its full aggressive force, it will change everything. The program will create new human capital and change the marketability of the workforce in

REFORM TO BUILD A COMPETITIVE WORKFORCE The introduction of a 12-year school system and English teaching in higher education is expected to boost Kazakhstan’s human capital

K

Increasing the use of English in Kazakhstan's education system is a key part of the '100 concrete steps' program

89

OPPORTUNITIES BY SECTOR: EDUCATION


These centers, located across the country’s regions, in the capital Astana and in the commercial hub Almaty, are focused on developing the learning and expertise of teachers and promoting best practice in the school system to help transform Kazakhstan’s students into global learners.

HONING SKILLSIn recent years, Kazakhstan has been experiencing a baby boom – by 2030, the population of school-age children is predicted to double. This dramatic growth will mean that more schools and teachers will be needed, opening up favorable conditions for large-scale school infrastructure projects and the training of future teachers.

Kazakhstan is a huge country, the ninth largest by area in the world, and this presents problems in providing quality education for people living in rural areas. This has made the establishment and promotion of e-learning initiatives a pressing priority. Promoting e-learning will ensure equal access to the best resources and latest technological advances at all educational levels.

In today’s rapidly changing world, lifelong learning has become the norm for many workers. Extending this e-learning initiative to the general public will enable Kazakhstan’s workforce to update its skill sets and remain competitive.

Kazakhstan," he told an American-Kazakh business forum in July 2015.

Kazakhstan is midway through enacting its development program for the education sector, a project that is scheduled to run from 2011-20. Under this program, the use of English in education will be expanded, the school system will be switched to a 12-year model from the current 11-year model by 2020, and e-learning will be promoted.

COMPETITIVE GRADUATESA transition to the increased use of English in the education system is a key component of Kazakhstan’s far-reaching '100 Concrete Steps' program, unveiled by President Nursultan Nazarbayev in May 2015.

The reform program envisages English to be given an enhanced role in education in order to increase the competitiveness of Kazakhstan’s graduates in the global marketplace. This will also position Kazakhstan as an attractive option for international students.

The adoption of English presents a wide range of opportunities for collaboration with international partners in the areas of language training, upgrading the skills of university faculty and schoolteachers, and the development of testing and teaching materials.

One ongoing project has seen the British Council join forces with the state-funded Bolashak scholarship program, which covers tuition fees and living costs for students studying abroad. The project provides scholarships to civil servants based in Kazakhstan so that they can follow English courses.

In the school system, the move to a 12-year education model is seen as crucial to achieving the government’s plan for Kazakhstan to join the world's 30 most competitive countries by 2050. The 12-year model will equip learners with a high-quality education that will enable them to respond to the ever-changing demands of the dynamic smart economy.

Pilot schemes for the switch have been run in the state’s elite network of Nazarbayev Intellectual Schools (NIS) and in other selected state schools. In October 2011, the University of Cambridge became a strategic partner in Kazakhstan’s educational reform process when it teamed up with NIS to create Centers of Excellence.

THE BABY BOOM

2030 The date by which

the school-age population

in Kazakhstan will double

DPA

PIC

TURE

ALL

IAN

CE A

RCH

IVE/

ALAM

Y ST

OCK

PH

OTO

"The [English-language] program will create new human capital" ERLAN SAGADIEV MINISTER FOR EDUCATION AND SCIENCE

INTERTEACH PERSPECTIVE

Investments in human capital

Investment in human capital is one of the most important forms of investment in the majority of developed market economies.

ective social policy is a leading factor that contributes to significantly improving major indicators in the area of human capital development. n this regard, investments in human capital are a relevant dimension of state investment policy; primarily investments in areas that contribute to the

ualitative features of a person: improvement of healthcare, increasing funds for education and improving the uality of education, the development of science and the creation of innovation systems.

Investing in the development of human capital comprises a wide range of possible directions, one of which is the transformation of the social economy’s subsystem that a ects public healthcare as an element of human capital restoration and reproduction.

Currently, health is included among the priority issues being considered during discussions relating to Kazakhstan's national wealth, labor potential and labor resources.

or more than 25 years since its independence, Kazakhstan has gone through the difficult path of legal base formation, economic and social development. President Nursultan Nazarbayev noted that a healthy lifestyle and the development of medicine will increase the life expectancy of Kazakhstanis to 0 years and above ... Kazakhstan has to become one of the safest and most comfortable countries for human habitation in the world. All our actions on the way to the achievement of the Strategy 2050 main goal must follow clear principles. And one of these principles is the strengthening of Kazakhstanis’s welfare, which implies that the social well-being of ordinary people in the country should be the most important indicator of our progress towards the main goal.

At the macroeconomic level of the investigation into health as an economic category, a special term is used: 'public health as a resource'. This means health and social resources in the context of people's potential in society, which contributes to strengthened national security.

The process of enhancing human capital as part of the country's national wealth is impossible without corresponding investments. These investments contribute to the restoration and maintenance of human creative abilities; moreover, they have an impact on the formation of the future workforce generation’s human capital. In particular, these investments relate directly to preventive healthcare, availability of high-quality medical services, maintenance of a healthy lifestyle, participating in sport exercises and recreational activities.

n the micro level, investments in human capital are represented by such costs as labor-skill development, payment of the disability sick lists, costs of labor protection, corporate voluntary health insurance and payment of medical and other social services for company employees, for example.

ealth insurance is one of the most common methods used by people and companies to reduce losses from risky situations. It guarantees medical assistance to citizens in a situation where they need

Saule Jundubayeva, DBA,Chairman of the Board JSC KK H&MI "INTERTEACH"

treatment but cannot a ord it the insurance covers the cost of medical services needed as well as preventive measures for future illnesses. y investing in their employees, firms seeking to strengthen their labor efficiency increase productivity, reduce downtime and therefore strengthen their competitiveness.

Thus, investments in health capital through health insurance is the basis for human capital in general, as they extend the length of the employable part of human life, and thus slow any physical deterioration of human capital.

et investments in human capital are only productive when they are aligned with investments in modern technologies, medical insurance and production.

uman capital is closely related to how productive modern society can be

INTERTEACH PERSPECTIVE

Interteach Corporation understands the importance of investing in human capital. At this point there are more than 1,200 employees in the company. rom the first day of its operations, Interteach was and remains responsible in the selection and development of medical and administrative sta .

Interteach strives to increase labor productivity by increasing spending on acquiring the latest medical equipment, and it also attaches great importance to investments in human capital, the value of which is determined by the state of the company's health, education and professional skills.

Interteach seeks to help its employees grow and develop, in order to work closely with them on a long-term basis. It invests in human capital in three main areas:

1. Expenses on the annual training of medical and administrative sta , business training and obtaining additional education.

2. Expenses targeted towards preserving and improving the health of employees, including preventive measures such as

his or her professional growth, these factors allow them to operate e ectively and fully with the greatest impact. This is particularly important for those working in strategic areas such as health, science, education, agriculture and law enforcement.

Interteach corporation uses a responsible approach in regards to investments in human capital the main assets of the company.

ead o ce:269 Furmanov StreetAlmaty, 050059Republic of KazakhstanT: +7 7273 200 206 (205)

ound-the-clock call-center: +7 7273 200 200: [email protected]

www.interteach.kz

vaccination against u, health insurance for all employees and their families, provision of healthy and high-quality food and a convenient place for meals, and the creation of a comfortable workplace environment.

3. unning costs in the implementation of activities such as mobile telephony and the cost of gasoline, for example.

Interteach regularly encourages and rewards successful employees with certificates and awards for their contribution to the development of the company, including e ective work and special achievements. This keeps morale high and o ers material incentives for good work.

The company provides convenient working places and strives towards expansion.

Among the latest implemented projects are the opening of two health clinics, in Astana and Shymkent, which has resulted in the employment of 1 0 people.

hen an employee is in good health and feels that their company is interested in

nterteach attaches reat i ortance to in est ents in h an ca ital, the al e o

which is eter ine by the le el o its health, e cation an ro essional skills

OPPORTUNITIES BY SECTOR: HEALTHCARE


he Government of Kazakhstan launched a new 2016-19 state healthcare development program known as

‘Densaulyk’ last year, to build on the achievements of the previous ‘Salamatty’ program and further improve the national healthcare sector.

Densaulyk aims to raise national life expectancy to 73 years by 2020. It will focus on improving the availability and quality of medical services, with a particular emphasis on primary medical and sanitary care (PMSC). It will also support better management and funding through a compulsory health insurance scheme, which is due to launch in 2017.

The country’s healthcare strategy is expected to create opportunities for private investors such as pharmaceutical companies and private service providers, which currently play only a marginal role in a sector that is still dominated by public infrastructure and services.

SPENDING BUDGETSKazakhstan’s healthcare indicators have rapidly improved in recent years, thanks to national strategies including the 2010-15 Salamatty program. According to the Ministry of Healthcare and Social

A TREATMENT PLAN FOR HEALTHCAREThe private sector covers just 10% of Kazakhstan’s healthcare market, but with the development of new private models the system looks set for an overhaul

Development, life expectancy has increased to 71.6 years in 2015, up from 68.4 in 2010. The program also helped curb maternal and infant mortality, as well as reduce tuberculosis and HIV/AIDS morbidities, ministry figures show.

From a financial perspective, around 10.9% of Kazakhstan’s national budget has been allocated to the healthcare sector over the past few years. However, this only represents between 3.5% and 4.3% of national gross domestic product (GDP), according to the World Health Organization (WHO). This puts Kazakhstan behind most of Central Asia and the former Soviet republics, excluding Uzbekistan, and far from Organisation for Economic Co-operation and Development (OECD) countries, which spend an average of 8.9% of their GDP on healthcare.

The new Densaulyk program commits extra resources to improve PMSC in order to better promote prevention and avoid unnecessary hospitalizations. Family physicians will be called to provide “supervision over health of the person during all his life, taking into account features of the organism in each age period with emphasis on prevention,” according to Healthcare and Social Development Minister Tamara Duisenova.

The current system results in a high number of avoidable hospitalizations, which is in part due to its easily

T

93

OPPORTUNITIES BY SECTOR: HEALTHCARE


accessible hospital facilities. Kazakhstan ranks fourth in the world for hospital infrastructure, with 7.2 beds per 1,000 inhabitants, according to World Bank figures. Other contributing factors include the fact that any cure provided by hospitals is free of charge, whereas patients have to pay for drugs prescribed by general practitioners. This has led to people skipping visits to their physicians and seeking medical treatment through direct hospitalization.

Out of 448,216 hospital admissions in Kazakhstan in 2014, 90,737 were due to angina pectoris, 62,637 to hypertension, 39,636 to communicable diseases –including influenza – and 33,613 to kidney and urinary tract infections. Between 40% and 70% of these admissions could have been avoided through effective primary healthcare interventions, according to research from the WHO published in December 2015.

Investment into Kazakhstan's PMSC infrastructure, technology and personnel is expected to complement reforms in how the healthcare system is funded.

Organ transplantKazakh authorities have made e� orts to upgrade local transplant medicine through better technology and training for doctors.

Although they have been performed in the country since Soviet times, organ transplants in Kazakhstan made a big leap forward in 2012 when doctors in Astana performed the country’s first heart transplant and the National Coordinating Centre for Transplantation (NCCT) was established.

However, the pool of donors still struggles to match demand, with more than 3,000 people waiting for donors. Most Kazakhs are hesitant about organ donation, but attitudes are changing among the country's younger generation.

Kazakhstan has already adapted organ transplant technology from the world's leading centers. Coupled with the provision of better information, a strong and transparent legislative base and investment in promoting awareness of the benefits of organ donation, the country could be set for a marked shi¡ in perceptions.

In 2014, state resources funded 64.6% of the country’s total health expenditure, with the remainder funded by private expenditure, almost none of which was covered by private health insurance.

This led to parliament passing a law in October 2014 to introduce a mandatory health insurance scheme in 2017, which will cover PMSC treatments. The rationale is that patients, now covered financially for treatment from general practitioners will be less likely to seek unnecessary hospital treatment.

However, there is a risk that the impact of such reforms will be limited by the sharp slowdown affecting the entire Kazakh economy, at least in the short term. Healthcare spending is estimated at $9.4 billion in 2015 and $9.1 billion in 2016, down from $9.8 billion in 2014. Meanwhile, pharmaceutical spending is forecast to decrease to $1.6 billion and $1.5 billion in 2015 and 2016 respectively, down from $1.7 billion in 2014. Forecasting by Business Monitor International expects pharmaceutical spending to pick up again in 2017, reaching around $2 billion in 2019. But a shrinking public budget is not necessarily a bad thing. It will mean more room for the expansion of a more diverse healthcare system, where there is space and higher demand for private operators.

Kazakhstan ranks fourth in the world for hospital infrastructure, with 7.2 beds per 1,000 inhabitants

MIC

HEL

LE D

EL G

UER

CIO

/SC

IEN

CE P

HO

TO L

IBR

ARY

OPPORTUNITIES BY SECTOR: KNOWLEDGE ECONOMY


azakhstan has been steadfastly pursuing a series of initiatives to foster innovation in business and develop a vibrant

information technology (ICT) sector. It is also taking specific steps to liberalize its telecommunications market and reduce the economy’s reliance on natural resources by focusing on improving the country’s knowledge base and developing high-value-added services.

To this end, the country has launched a number of national programs, including the Innovation-Industrial Development Strategy for 2003-15 and the Program for De-monopolization and Liberalization of the Telecommunications Market, as well as the creation of the International University of Information Technologies in Almaty and the International Science and Technology Center in Astana.

To encourage its citizens to develop ICT skills, the government is setting up the Science Park Astana Business Campus at Nazarbayev University – an ‘innovation ecosystem’ for the interaction of business, capital, research and learning.

An intellectual innovation cluster has been active at Nazarbayev University since 2012 to monetize scientific developments by linking science and industry. This cluster comprises four elements: a business

A KNOWLEDGE ECONOMY

Demonstrating Kazakhstan’s readiness to become a regional innovation and research leader, the Astana Business Campus has been designed to stimulate the

commercialization of scientific discovery

incubator, a commercialization office, a technopark and Astana Business Campus Science Park, set to launch in 2018.

The Astana administration is confident that the business campus will be successful, as Kazakhstan already has a strong track record of attracting big companies and large amounts of foreign investment.

The campus is looking to attract visionary investors, venture capitalists, start-ups, small and medium-sized high-tech firms, service organizations as well as corporate and institutional research and development centers. Dutch High-Tech Campus Eindhoven will be Astana Business Campus Science Park’s strategic partner.

CENTRAL ASIA’S SILICON VALLEYWell known tech giants such as Phillips, General Electric, Samsung, Huawei, Hewlett Packard, and Intel – have all shown interest in becoming tenants at the business campus. Kazakhstan expects around 90 firms will join the roster as it approaches its launch date.

K

The Astana Business Campus Science Park is designed to encourage interaction between business, capital, research and learning

NAZ

ARB

AYEV

UN

IVER

SITY

Technology commercialization

In 2010, the Kazakh Government and the World Bank launched the Technology Commercialization Project. Designed to boost the contribution of science and technology in the national economy, the project sought to create a link between scientific research and private investors.

At the launch, the then Minister of Education and Science Bakytzhan Zhumagulov noted: “We express our hopes that the project will enable Kazakhstan to develop new, competitive science highly rated by international experts."

Having funded 65 projects, 40 of which produced finished goods that raised more than 900 million tenge, the project ended in December 2015.

Building on this achievement, the Kazakh Government signed a loan agreement to launch a five-year Promoting Productive Innovation Project. The World Bank is to provide $110 million, 40% of which will fund scientific research that demonstrates the potential for commercialization.

95

OPPORTUNITIES BY SECTOR: KNOWLEDGE ECONOMY


The business campus will create an innovation ecosystem for like-minded visionaries and companies to work side by side, together inspired by their shared interests and goals.

A RANGE OF FACILITIESIt has been designed to look and feel like a small town, and residents will have access to the modern technological labs and other facilities of Nazarbayev University. When completed, the first stage will include an ICT cluster, a geological cluster, a biomedical engineering cluster, and a social and business cluster. These will be comprised of pilot, laboratory and industrial facilities, office space and storage

Kazakhstan already has a strong track record of attracting big companies

units. The social and business cluster will also include a congress hall, a hotel, an athletics center, apartment buildings, conference halls and shops.

The second and third stages of setting the campus up, from 2018 onwards, will oversee the development of research and production operations within the above-mentioned clusters. Management efficiency will also be a key focus area.

The campus should help Kazakhstan meet its goal of creating a green economy, with half of its energy sourced from renewables by 2050. President Nursultan Nazarbayev put forward the ‘Green Bridge’ initiative during the 66th session of the United Nations General Assembly in 2012 to mobilize international cooperation to reform administrative and market mechanisms and develop sustainable business, green technology, and investment. Under the auspices of the UN, Kazakhstan has also launched an International Center for the Development of Green Technology and Investment Projects in Astana.

OPPORTUNITIES BY SECTOR: TOURISM


ocated along a branch of the Silk Road, Kazakhstan was once at the heart of this ancient trade route. Now it is once again in a prime

position to attract visitors from far and wide; Russia, China, India and the Middle East are all within four hours’ flying time.

Travel industry insiders believe that there are significant opportunities for investors in this up-and-coming sector in Kazakhstan. “This is an area of investment just opening up,” says Steven Hermans of Caravanistan, a specialist travel website for Central Asia.

The Kazakhstan Government has made the tourism sector one of the keystones of its plan to diversify the economy away from oil and gas. It aims to transform the country into a major player in the areas of resorts, skiing and adventure tourism and has set up numerous incentives to attract visitors and investment. By 2020, it hopes that this sector will account for around 4% of gross domestic product, up from the current 0.3%.

MAKING TRACKSWith its alpine and desert landscapes and opportunities for adventure travel, Kazakhstan offers investors a rich vein of untapped potential in its developing tourism sector

L

ISTO

CK IM

AGES

Winter sports

Almaty will cement its place as a prime winter sports destination by hosting the Winter 2017 Universiade, or University Olympiad, for student athletes. Almaty is located just 30 minutes away from the peaks of the Ile-Alatau mountains, making it the perfect base for a variety of outdoor activities for the colder months.

New facilities are being constructed for the Universiade, while existing ones have been revamped. The iconic Medeu ice-skating stadium, the world’s highest outdoor rink, will host the speed skating and the Shymbulak Ski Resort will be home to alpine skiing events.

Universiade will ensure Almaty inherits a magnificent legacy of state-of-the-art winter sports facilities right on its doorstep.

97



Once a crumbling Soviet training base, Shymbulak Ski Resort has been transformed into a prime tourist spot

The Medeu ice-skating stadium is the world's highest outdoor rink

ISTO

CK IM

AGES



In 2014, a visa-free regime was put in place for visitors from 10 countries that have made significant investments in Kazakhstan, enabling tourists to come without visas for stays of up to 15 days. The scheme has been expanded to cover 19 countries and it will remain in place until at least the end of 2017.

To encourage investment, Kazakhstan has introduced a range of tax breaks and other incentives. Investors putting at least $20 million into non-extractive projects are being offered exemption from corporate and land taxes for 10 years, an eight-year freeze on property tax and the opportunity to recoup some capital investments, as well as exemptions on work permits for foreign personnel.

FIVE TOURIST CLUSTERSTourism is one of the sectors singled out for development in Kazakhstan’s ambitious '100 Concrete Steps' reform program, unveiled by President Nursultan Nazarbayev in May 2015. The country is keen to attract ‘anchor investors’ – strategic partners with a successful track record in developing tourist clusters.

Kazakhstan has identified five priority zones for development – the capital

Astana and commercial hub Almaty for business tourism, East Kazakhstan region for eco-tourism, cultural tourism in South Kazakhstan and cultural and beach tourism in West Kazakhstan.

Strategic partners will provide financial backing and expertise to develop and manage facilities such as hotels and restaurants around the country.

The Shymbulak Ski Resort outside the commercial capital of Almaty is an example of how a rundown resort can be transformed into a prime tourist destination. The crumbling Soviet-era infrastructure at Shymbulak, once the main training base for the Union of Soviet Socialist Republic’s Olympic downhill skiers, has been redeveloped to such a high standard that it has even received a royal seal of approval: the United Kingdom’s Prince Harry visited with friends in 2014 to enjoy the finest ski and après-ski experience in the region.

The resort was redeveloped by Capital Partners, a firm with an international presence in tourism projects in Turkey, Russia and other countries. The project was a multimillion dollar venture that ran from 2008-10. Shymbulak's revamp has been a catalyst for the development

More hotel facilities are needed to meet the rising demand in o�-the-beaten-track destinations

With horse and mountain biking

trails crossing Kazakhstan's national

parks, adventure tourism o�ers great

opportunities for investors

p108 for more on capital

city Astana

SHU

TTER

STO

CK

Stock photo ID:15627917Upload date:November 8, 2012

Horseback RidingPeopleTravelMountainMountain RangeMotionExplorationTravel DestinationsKazakhstanCulturesLandscapeGroup Of PeopleActivityMajesticAdventureFreedomDeterminationHorizontalOutdoorsAsiaAnimalTouristHorseRoughUncultivatedDayValleySunlightScenicsAdultColor ImageThree PeopleMalesMenOnly MenJockeyPhotographyTourismAdults OnlyRiding

Couple of bicyclists traveling among green hills and looking at snowy mountainsImage ID:307968167

trail, bike, mountain, biking, two, adventure, rider, leisure, travel, sporty, ride, valley, kazakhstan, assy, active, summer, hills, bicyclist, biker, people, plateau, cycle, holidays, almaty, lifestyle, healthy, young, trip, nature, couple, bicycle, youths, vacation, turgen, journey, sporting, sport, happy, summertime

99



TOURISM REVENUE IN 2014

$234m

TOTAL PRODUCT SALES AND FINANCIAL/ECONOMIC SERVICES:

$570m

$81m

Activities from tour operators, tour agents and

other organizations:

Recrea

tional,

ente

rtain

men

t,

cultu

ral a

nd sports

activi

ties

$248m

Accommodation:

of other ski resorts, such as Ak Bulak and Tabagan in the foothills of the Ile-Alatau mountains around Almaty.

OFF THE BEATEN PATHAway from the ski slopes, adventure tourism offers great investment opportunities. “The adventure tourist spends much more than the beach tourist, and the potential in Kazakhstan is big, and practically untapped,” says Hermans.

From rafting and fishing on its lakes and rivers to mountain climbing and heli-skiing, Kazakhstan is ideal for adventure tourism. Horse riding, hiking and mountain biking trails cross the country’s national parks, but more hotel and leisure facilities are needed to meet the rising demand in these off-the-beaten-track destinations.

STAYCATIONS ON THE RISEAnother growth area is domestic tourism. Between 2012 and 2014, the number of domestic tourists staying in hotels in Kazakhstan shot up by a quarter, from 2.5 million to just over 3.1 million, according to government statistics. In 2015, Kazakh resorts welcomed more than 450,000 domestic visitors.

In times of economic insecurity, this upward trend in ‘staycationing’ – holidaying at home – is expected to continue, creating myriad opportunities for investors to step in and meet rising demand for new and improved facilities.

Lake Burabay in the north of Kazakhstan, near Astana, has attracted investment from Turkey's Rixos Hotels, which operates a premium-class resort on the lake's shore.

In the south-east, Lake Alakol is being developed with the state financing major infrastructure upgrades, including a new airport to accommodate flights during the summer period. This has brought on board local investors such as Koktem Group to build several hotels by Lake Alakol. The lake is the second-largest inland salty reservoir in Kazakhstan, with water comparable to the Black Sea.

ISTO

CK IM

AGES

KAZAKHSTAN’S TOP TRADING PARTNERS, 2015 (% World, based on total trade)

GLOB ALUnited States

2.4%

EU 2841.3%

Russia19.2%

Turkey2.7%

Belarus0.7%

Uzbekistan2.2%Ukraine

2.6%

Kazakhstan’s role in the global arena has steadily developed since it gained independence in 1991. It has become a world leader in nuclear disarmament and is a key business partner in Central Asia. Kazakhstan also enjoys strong, long-lasting strategic partnerships promoting peace, security and trade with the United States, China, the United Kingdom and Japan, among many others.

President Nursultan Nazarbayev has said that “In 2016, Kazakhstan will continue to implement its multi-vector balanced foreign policy and continue the course of integration into the global economy.”

GLOB ALRELATIONS

China13.9%

South Korea1.8%

Japan1.9%

GLOBAL RELATIONS


Kazakhstan exported

$0.4bnin goods and services

to the US in 2015

Kazakhstan imported

$1.4bnof US goods and services in 2015

he US and Kazakhstan maintain a strong, wide-ranging bilateral relationship. They created a total of

$1.8 billion in two-way trade in 2015. They share a commitment to core

security issues: nonproliferation; countering extreme terrorism; and maintaining regional stability. Last September, President Nursultan Nazarbayev visited New York for the United Nations General Assembly. On the sidelines of the event, he and President Barack Obama discussed nonproliferation and the crisis in Ukraine. Two months later, US Secretary

of State John Kerry visited Astana and praised e� orts to promote international peace. While in the region, he launched the C5+1 ministerial dialogue.

Both countries are members of the UN, Organization for Security and Cooperation in Europe and World Trade Organization. Kazakhstan is also part of the North Atlantic Treaty Organization’s Partnership for Peace program.

The upcoming EXPO 2017 in Astana is likely to strengthen collaboration between the two countries. Kazakhstan is looking to attract investment and technology from US firms to stimulate research and development in the renewable energy industry.

UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED STATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATESSTATES

$22bnBetween 2005 and 2015,

US firms invested

into sectors of the Kazakh economy including oil and gas, business services,

telecommunications and electricity

1992The year Kazakhstan and the US signed a bilateral

investment treaty

T

103

GLOBAL RELATIONS


Kazakhstan imported

$5.4bnof Chinese goods and

services in 2015

Kazakhstan exported

$5bnof goods and services

to China in 2015

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

ACH

INA

CHIN

A

ilateral relations between China and Kazakhstan have grown exponentially over the past two decades. They are firm partners in trade,

commerce and diplomacy.The Central Asia region is key to China’s

‘One Belt, One Road’ initiative and, as such, Kazakhstan has become a major recipient of Chinese investment. Kazakhstan was one of the first countries to express support for the initiative and the two countries are working together to build and improve infrastructure along several trade routes running from western China to Europe.

In 2014, construction started on a $100 million Sino-Kazakh railway logistics

center in eastern China. A railway line now links Lianyungang City to Almaty. Cargo train services also operate from China into Kazakhstan through the Khorgos Gateway – a free trade zone located on the border.

A large network of oil and gas pipelines connects the two countries and allows for fruitful energy cooperation. A commissioning ceremony recently took place to celebrate the creation of a third line on the Kazakhstan-China gas pipeline. It connects Turkmenistan, Uzbekistan, Kazakhstan and China.

During Chinese Premier Li Keqiang’s visit in December 2014, China and Kazakhstan signed $14 billion worth of deals, committing to cooperate on infrastructure, energy and housing deals. In March 2015, Kazakh Prime

Minister Karim Masimov’s visit to China resulted in further deals worth another $23.6 billion, with agreements signed on building industrial capacity in the steel, oil refining, hydropower and automobile sectors.

President Nazarbayev's visit to Beijing on 30 August-1 September then resulted in further deals worth $23 billion. In December 2015, the two countries also signed a $4 billion agreement covering business operations in energy, petrochemicals, uranium mining and telecommunications.

China has also committed to take part in EXPO 2017 and Kazakhstan has declared 2017 as the year of Chinese tourism.

Kazakhstan’s trade with China totaled $10.4 billion in 2015.

$100mIn 2014, the construction of a

Sino-Kazakh railway logistics center began in Lianyungang

B

$14bnin deals were signed during Premier Li Keqiang's visit to

Kazakhstan in 2014

GLOBAL RELATIONS


he United Kingdom is among the top five largest investors in Kazakhstan.

In 2012, the UK included Kazakhstan among its

priority countries for the development of trade relations, and Kazakhstan included the UK in its list of six priority countries from which to attract investment. Kazakh and British companies have worked on 500 joint ventures and, in 2015, $1.2 billion passed between the two countries in bilateral trade.

Several entities have been established to boost bilateral relations. These include the Kazakh-British Trade and Industry Council; the British-Kazakh Society; and the British-Kazakh Bar Association.

The main UK exports to Kazakhstan are related to oil and gas; education; financial and business services; healthcare and medical equipment; architecture and design services; and mining.

Kazakhstan is also seeking greater cooperation with the UK in other areas. It is looking to the City of London’s experience as a global financial center ahead of the Astana International Financial Center launch. It is also seeking closer ties in the technology sector, innovative industrial production, engineering and the ‘green economy’.

In November 2015, President Nursultan Nazarbayev made an o� icial visit to the UK, during which he and David Cameron signed more than 20 new agreements valued at $5 billion. These are reported to include the development of four new gas plants and a steel production facility.

UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED UNITED KINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOMKINGDOM

$1.2bnPassed between the countries in bilateral

trade in 2014

T

$5bnof new agreements were signed during President Nazarbayev's visit to the

UK in 2015

$11.7bnThe UK has invested

in foreign direct investment in Kazakhstan since 2005

"By bringing together our two diverse economies, broad international cooperation and shared commitment to reform, I believe our relationship can become even stronger"-David Cameron

$5bnJapan has invested

into the Kazakh economy in the

past 10 years

105

GLOBAL RELATIONS


JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

JAPA

NJA

PAN

apan and Kazakhstan share important priorities in foreign policy and are partners in nuclear disarmament, non-

proliferation and the peaceful use of nuclear energy.

They are also relatively strong economic partners. In the past 10 years, Japan has invested about $5 billion into the Kazakh economy. And in 2015, trade turnover between the two countries amounted to $1.4 billion.

In October 2015, Japan’s Prime Minister Shinzo Abe ended his tour of Central Asia in Kazakhstan. During the visit, President Nursultan Nazarbayev explained that many Japanese companies already have a commercial presence in Kazakhstan, the majority of which operate in the natural resources exploration and extraction market. Nazarbayev added that 50 joint ventures are currently functioning and six joint projects worth $700 million have been completed.

Economic ties are likely to grow, thanks in part to Kazakhstan’s recent accession to the World Trade Organization. “The Japanese Government will push for private investment and will support infrastructure-building as well as human resource development. By doing so, business opportunities surpassing 3 trillion yen ($24.9 billion) will be created,” said Abe.

Abe also reiterated Japan’s readiness to share expertize for the construction of a nuclear power plant in Kazakhstan. Furthermore, Japan’s Oil, Gas and Metals National Corporation (JOGMEC) and Kazgeologiya National Geological Exploration Company inked a deal to begin exploration work for rare earth metal in Kazakhstan’s Karaganda and Kostanai regions.

$700mSix joint projects worth

have been completed

J

$1.4bnTrade turnover between

Kazakhstan and Japan in 2015

KEYASTANA

Astana became Kazakhstan’s new capital city in 1997. The managed transfer to a new administrative center enabled planners to create a city in symbiosis with its surroundings. This is reflected in the distinct skyline that you see today. The city’s transformation continues as it prepares to host EXPO 2017 and launch the Astana International Financial Centre.

Almaty, the former capital city, is known as a hub for business. Its large population, many academic institutions and logistics links have created a fertile environment for investment.

CITIES

ALMATY

KIR

ILL

DO

ROK

HO

V/G

ETTY

IMAG

ESN

UTE

XZLE

S/G

ETTY

IMAG

ES

BRE

ND

AN S

MIA

LOW

SKI/

AFP/

GET

TY IM

AGES

KEY CITIES: ASTANA


n 1997, the provincial city of Akmola (which means 'white grave' in Kazakh), replaced Almaty as the new capital of the Republic

of Kazakhstan. A year later, by presidential decree, the city was renamed Astana, the Kazakh word for 'capital'.

Astana has since transformed from an industrial town with 327,000 inhabitants, into a global metropolis with over 868,000 residents. The city’s gross regional product has ballooned by a factor of 65, and industrial production has risen by 17 times. Between 1997 and 2015, total investment into Astana reached nearly $100 billion.

The city is also visually impressive. Japanese architect Kisho Kurokawa designed the Astana master plan based on

FROM SMALL CITY

TO MODERN CAPITAL

In the 18 years since it became Kazakhstan's capital, Astana has blossomed into a modern city with five universities, a diverse economy and a World Expo

the principles of “symbiotic architecture” – an urban environment in harmony with the surrounding natural system. Kurokawa, working closely with President Nazarbayev, designed a modern, global city that would feature neighborhoods and architectural styles from all over the world, making newcomers feel at home. British architect Norman Foster designed five buildings in the city, including the iconic 60-meter-tall transparent tent – the Khan Shatyr.

However, it is the projects within Astana that focus on the development of human capital that render the young capital an exciting place to do business.

In the capital city the government is naturally the largest employer, but hardly the only one. Over 126,000 people, or over 30% of the city’s workforce, are employed

IIN NUMBERS

868,000 Inhabitants

$100BN in investment between

1997 and 2015

ISTO

CK IM

AGES

ISTO

CK IM

AGES

ISTO

CK IM

AGES

109

KEY CITIES: ASTANA


in 98,739 small and medium enterprises (SMEs). According to Astana Akim (local government leader) Adilbek Dzhaksybekov, SMEs generate 61% of the city’s economy – representing one of the highest shares of SMEs in Kazakhstan.

A CENTER OF INDUSTRYIn addition to SMEs, Astana is home to industry. The Astana industrial park contains 58 productive assets, including a GE locomotive factory, Talgo passenger train factory, Alstom electric locomotive production facility, concrete product manufacturer Maksat ABK LLP, and a Polish building insulation company.

There are five major universities in Astana, including Nazarbayev University, which offers 16 undergraduate degree

The master plan for Astana was mapped out by Japanese architect Kisho Kurokawa. Other famous names have since contributed to its striking skyline, including Norman Foster

economic zone designed to attract investment to Kazakhstan, develop the country’s capital markets while ensuring their integration into the global financial system, foster markets for insurance and Islamic finance, and promote the growth of financial services in accordance with international best practices. AIFC investors receive various benefits, exemptions on corporate income tax, individual income tax, land and property taxes, free office rent for two years and a simplified labor regime, including a special visa arrangement for foreign employees. Spearheaded by former Chairman of the Central Bank of Kazakhstan Kairat Kelimbetov, the AIFC will operate under English Law, with English as its official language.

THE WORLD'S GAZEToday, the foremost project in Astana is the World EXPO 2017, with the theme Future Energy. EXPO 2017 will bring together representatives from over 100 countries and 14 international organizations to share new technologies. After the event, infrastructure associated with the EXPO will be absorbed into Nazarbayev University and the AIFC. The EXPO will also house an International Center for the Development of Green Technologies and Investment Projects, under the auspices of the UN.

Perhaps the most visible icon of Astana is Bayterek tower – a 105-meter-high metal structure holding a golden glass orb that symbolizes the tree of life from Kazakh folklore, in which the bird Samruk lays a golden egg that possesses the mysteries of human desires and the formula to happiness. In many ways, this metaphor describes the relationship between Astana and Kazakhstan – the capital city is the golden egg that possesses the institutional framework for the country’s future sustainable growth.

programs, more than 20 graduate programs, and three executive and non-degree professional programs. Nazarbayev University maintains strategic relationships with 12 universities around the world, including the University of Cambridge and University of College London in the United Kingdom and the University of Pennsylvania in the United States, enabling students to access world-class faculties. Considering that the average age in Astana is 30, the city’s educational institutions are integral to the intellectual development of Kazakhstan’s core cadre of civil servants and business leaders.

One of the newest projects is the Astana International Financial Center (AIFC), which was established by presidential decree in May 2015. The AIFC is a special

QA&Q&QA&A

KEY CITIES: ALMATY


lmaty, the former capital of Kazakhstan, is the country’s largest city with about two million inhabitants and an

economy that generated 8.5 trillion tenge ($25 billion) in 2015. Within Kazakhstan, Almaty is known as the business city, as it is home to the Central Bank of Kazakhstan, more than 40 universities and hundreds of franchises and global companies. Almaty is a metropolis of entrepreneurs – nearly 34% of the city’s gross domestic product is generated by small and medium-sized enterprises (SMEs), and they constitute approximately 77% of all registered entities in the city.

ARSEN NASYRKHANOVDirector of the Investor Services Center for the City of Almaty

Arsen Nasyrkhanov, Director of the Center for Servicing Investors for the city of Almaty speaks to Invest in Kazakhstan 2016 about Almaty’s economy and future investment opportunities.

Q: What is the Investor Services Center (ISC)?The ISC acts as the intermediary between potential foreign investors, local businessmen and government agencies. There is an ISC in all of Kazakhstan’s 14 oblasts [administrative regions], plus the cities of Almaty and Astana, following a decree by the Prime Minister in February 2012. The ISC coordinates the logistics of foreign delegations to Almaty. We walk them through the regulatory process and

AAN

DRE

Y RU

DAK

OV/

BLO

OM

BER

G V

IA G

ETTY

IMAG

ES

Franchises such as Burger King are symbols of Kazakhstan's development and also provide knowledge transfer

111

KEY CITIES: ALMATY


help connect them to potential in-country partners. Our primary goal is to make investors feel comfortable.

hat are the benefits of investing specifically in AlmatyAlmaty is already a great place for business, given its access to logistics networks, its educated workforce and an established business culture. At the ISC, we are excited to promote the Almaty Industrial Zone (AIZ). The zone stretches over 500 hectares, is located in the Alatau neighborhood of the city and was designed to attract investment for industrial production.

The AIZ is a free economic zone wherein registered enterprises are exempt from paying property taxes and receive other tax benefits. Companies registered in this zone can also acquire long-term visas for foreign workers. While there are local content requirements, the zone offers benefits to enterprises that prioritize ‘made in Kazakhstan’ component parts over foreign-made equivalents – assuming equal quality.

Based on a study we conducted that identified 86 sectors in which Almaty could develop a competitive advantage, the ISC has formulated 48 investment projects andis actively seeking financial investors and project partners. Such projects include factories for manufacturing gas boilers, polycarbonates, cables, suitcases and other industrial and consumer goods. While each investment project has its own specifications, payback period and investment qualifications generally, they are in the range of $5-10 million.

Since 2015, Starbucks, cDonalds and Carrefour have opened franchises in Almaty. The city already has many global brands, including food outlets aul, ardee s and Burger King. What other franchises do you anticipate will come to Almaty?Franchises are important to Almaty’s economy and they are not only powerful marketing symbols that signify the city’s development, but they are also mechanisms for technology transfers. Each company has its own standards, procedures and ways of doing business. For example, the opening of Starbucks was the first café in Kazakhstan to offer coffee exclusively ‘to-go’. Most of Kazakhstan’s cafés focus on a sit-down

service, offering coffee to-go tangentially. In this respect, franchises introduce new technologies, management styles and operational methods for employees, as well as a new type of dining format and business-consumer interaction for residents of Almaty.

Q: How does the Almaty government prioritize Kazakhstan’s transition to a ‘green economy’?We have several municipal projects that prioritize efficiency and conservation. We are planning to transition city lighting to use more efficient LED models in order to reduce power consumption. Currently, about 40% of city lights use outdated incandescent bulbs, and need to be replaced by LED models.

Moreover, while Almaty already has a recycling system, we are working to promote a recycling culture where residents separate different sorts of trash so we can process and recycle waste accordingly. In particular, we see great potential for recycling plastic bags. There are new technologies that can produce plastic bags using recycled bags to produce 41% of the new bag.

Q: What is your advice for prospective investors in Almaty?Kazakhstan has achieved a lot over its 25-year history as an independent state, but it is still developing. Often, investors are introducing a product that is new to Almaty – and Kazakhstan for that matter – that we do not even have in our trade nomenclature. We lack the relevant regulations to oversee that product’s trade, taxation, production and distribution. We are excited and willing to implement the project, but doing so requires amending the legislative framework. This requires time, and patience is key.

Starbucks was the first café in Kazakhstan to oª er coª ee exclusively ‘to-go’

AND

REY

RUD

AKO

V/B

LOO

MB

ERG

VIA

GET

TY IM

AGES

AND

REY

RUD

AKO

V/B

LOO

MB

ERG

VIA

GET

TY IM

AGES

Top: Shoppers enter the Mega mall

Bottom: The charging bull at the entrance to Almaty's financial center

INVEST IN KAZAKHSTAN 2016: SUMMARY


NOW A MEMBER OF THE WORLD TRADE ORGANIZATION, KAZAKHSTAN IS LIBERALIZING TRADE

THE ‘100 CONCRETE STEPS’ PLAN WILL THE ‘100 CONCRETE STEPS’ PLAN WILL LEAD KAZAKHSTAN TO BECOME ONE LEAD KAZAKHSTAN TO BECOME ONE OF THE WORLD’S 30 MOST DEVELOPED COUNTRIES BY 2050

State-owned enterprises account for 40% of GDP. A privatization drive is under way

The country is developing meritocracy in the civil service; creating an impartial judicial system; supporting SMEs; and improving state transparency and accountability

Shrinking public budgets in the healthcare sector are creating space for more private involvement, which currently accounts for just 10% of services

Tourism is forecast to account for 4% of GDP by 2020

A new 12-year school system is being introduced The law ‘On Support of Using

Renewable Energy Sources’ encourages investment in

solar, wind and hydro power projects

Japan and Russia are involved in building a nuclear power plant in Kazakhstan by 2025

41st

in the World Bank’s Doing

Business report

Kazakhstan ranks

KAZAKHSTAN ROUND-UP

113

INVEST IN KAZAKHSTAN 2016: SUMMARY


Twelve Chinese and nine European cities now serve as hubs for the 12,000km of transcontinental trains along the China-Europe New Silk Road

90%of Kazakhstan’s

mineral resources are under-explored THE AGRIBUSINESS THE AGRIBUSINESS

2020 PROGRAM WILL 2020 PROGRAM WILL SUBSIDIZE AGRICULTURE SUBSIDIZE AGRICULTURE

INVESTMENTS AT THE RATE OF 30-80% IN

PRIORITY AREAS

Kazakhstan and Russia have signed a deal to jointly drill for oil and gas prospects in the Caspian Sea

The Astana International Financial Center is due to launch in January 2018

Domestic and foreign demand for organic products is driving growth in organic agriculture

China and Iran are working with Kazakhstan to build a fourth oil refinery

The crude oil price fell to

$25a barrel in

January

PLANNED ENERGY MARKET REFORMS INVOLVE ESTABLISHING A COMMON ELECTRICITY MARKET FOR THE EEU

PLANNED ENERGY MARKET REFORMS

for the 12,000km of transcontinental trains for the 12,000km of transcontinental trains


INDEX OF ADVERTISERS

AIR ASTANA 02

ARCANUM 10

BAKER & MCKENZIE 12

BUHLER GROUP 85

CASPIAN OFFSHORE & MARINE CONSTRUCTION 62

CASPIAN OFFSHORE CONSTRUCTION 46

DELOITTE 06 & 29

FLUOR 54

GE 40

GLOBALINK 115

INTERTEACH 90 & 116

KIOGE KAZAKHSTAN 18

NOSTRUM OIL & GAS 60

PARTEX OIL AND GAS 86

SARENS GROUP 50

SENIMDI KURYLYS 48

TRANSLATORS GROUP 22

UKRAINE INTERNATIONAL AIRLINES 80

US-KAZAKHSTAN BUSINESS ASSOCIATION 14

WOOD GROUP MUSTANG 65

T: +7 727 2588880 [email protected] www.globalinkllc.com | |

Globalink is truly a single source for worldwide freight forwarding and project logistics services. Our strength is being a one-stop solution and having a global network. No matter how great or small your transportation and logistics needs are, you can always trust Globalink to take the load off your mind. Our global network extends across 65 countries. This means we have people on the ground in every major market ready to serve you.

One Stop Solution

invest in kazakhstan 2016

Economy & Finance