bne:Invest in Astana - February 2014

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Content: 1 Top Stories 4 Interview 7 Feature 9 Sector 11 Chart 12 News in brief www.bne.eu

Top story

Kazakhstan’s new space centre For more than six decades, the Baikonur Cosmodrome in Kazakhstan’s southeastern desert has been the centre for first the Soviet and later the Kazakh and Russian space programmes. The construction of an assembly and testing centre in Astana is now establishing the Kazakhstani capital as a new centre for the space industry in the 21st century.

Construction of the centre, which comprises a design office, assembly and testing complex, laboratories, a training sector and other facilities, was completed between 2010 and 2013, and equipment is now being installed in time for it to open in 2015. Kazcosmos division Kazakhstan Gharysh Sapary is working with France’s EADS Astrium on the project under a deal signed in 2010.

As Kazakhstan’s space agency Kazcosmos develops a domestic space programme, one of the most important steps is the construction of the National Space Centre, a spacecraft assembly and testing centre, in Astana.

“Creation of the National Space Centre will contribute to the development of science, technology and innovation, the creation of a space cluster in Kazakhstan and will establish the capital of Kazakhstan as a centre for technology, science

The Islamic Corporation for the Development of the Private Sector is a multilateral partner of the Invest in Astana newsletter

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and education,” according to Kazcosmos’ deputy chairman Meyrbek Moldabekov.

“Presently, Kazcosmos works in two strategic directions: the first is creation and development of space infrastructure, and the second is development of the scientific and technological base of the space industry,” Moldabekov told a briefing at Kazakhstan’s Central Communications Service in December 2013.

“A number of major projects are being implemented within the first strategic direction.

These are the creation of the KazSat satellite system, establishment of a remote sensing system and construction of a plant for the design and assembly of spacecraft.”

Kazakhstan will also start producing its own satellites and related components from 2015, Moldabekov told journalists. "After the launch of the spacecraft assembly and test centre in 2015, Kazakhstani content in satellite production will increase to 55%. For instance, if a satellite costs $100m to build, around half of that sum will be spent in Kazakhstan," he said.

Kazkosmos is still in the early stages of creating a fully-fledged space industry for Kazakhstan.

Ultimately the plan is to cover all aspects of space technology from research through to the commercial exploitation of space technology.

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a year. Kazcosmos works closely with its Russian counterpart Roscosmos, and the two agencies will continue developing joint projects at Baikonur under a long-term cooperation programme agreed in 2013.

There have, however, been some rocky moments recently. Astana has several times objected to the environmental toll that Baikonur’s launch schedule – the heaviest in the world – has on southwest Kazakhstan, with matters coming to a head in 2013 when a Russian Proton rocket exploded after takeoff.

Kazakhstan’s communications satellite launch programme also got off to an unfortunate start when its first satellite, the $100m Russian-made KazSat-1, was lost in space in 2008. Despite this setback, Kazakhstan has continued with the programme, successfully launching its second satellite in July 2011. KazSat-2 has been in commercial operation since December 2011, covering the entire territory of Kazakhstan, Central Asia and central Russia.

The launch of KazSat-3 is now imminent. The satellite has been built by Russian company Reshetnev at its facility in Krasnoyarsk, and is now undergoing testing. The launch, from Baikonur, is due to take place by the end of March 2014.

Operating its own satellites will have numerous benefits from Kazakhstan. By 2015, Kazakhstan’s satellites will cover 100% of the country’s telecoms and broadcast needs. Moldabekov points out that this will not only make Kazakhstan independent of other countries; it will also save around KZT4bn ($25.7m) a year in fees to foreign satellite operators.

After the breakup of the Soviet Union, Kazakhstan inherited the world’s largest rocket launch centre, Baikonur, which is also the oldest space station still in operation. It was the site of the world’s first rocket launch – Spuntik 1- in 1957, and four years later, cosmonaut Yuri Gagarin blasted off from Baikonur to become the first person in space.

Although Russia is now building its own Vostochny In addition to continuing to work with Russia, Cosmodrome in the far eastern Amur region, it Kazcosmos has steadily expanded its range continues to use Baikonur for all manned launches. of partners. Kacosmos now cooperates with international space agencies in countries including Germany, France, South Korea, Japan, Baikonur is currently under lease to Russia until 2050, with Russia paying a leasing fee of $115m India and Israel.

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Kazakhstan's central bank to allow 19% currency devaluation Kazakhstan's central bank announced February 11 that it will allow the national currency, the tenge, to depreciate to around KZT185 to the dollar, a fall of around 19%. The bank cited several factors including the reduction in quantitative easing in the US and the fall of the Russian ruble for its decision.

The National Bank of the Republic of Kazakhstan said that it would no longer maintain the tenge in its previous range of KZT145 to KZT155 to the dollar. It will now allow the tenge to trade at around KZT185 to the dollar, with a range of plus or minus KZT3.

Reasons for the decision include the reduction in quantitative easing in the US, which has led to an outflow of funds from developing economies, the bank said in a statement. The bank also cited uncertainty about the exchange rate of the Russian ruble, which has continued to weaken against the dollar since the start of 2013.

Kazakhstan's balance of payments is another factor, as although the current account remains positive, the country has seen an increase in imports in particular consumer goods.

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whose main costs are salaries paid in tenge, there is growing anger among the population, who have seen their purchasing power fall.

Kelimbetov, however, said that the devaluation had been carried out "flawlessly".

"A banker's work is not appreciated," he claimed.

"I have no doubt that we did the right thing. All the complaints will stop in a year or two."

Kazakhstan has already seen a gradual deterioration in the exchange rate since mid-2013, and expectations of a devaluation have grown, leading to further pressure on the tenge.

"The national bank ‌ was probably burning $300700m a month last year, and $2.2bn in January as pressure has increased," Jean-Christophe Lermusiaux, head of research at Almaty-based investment bank Visor Capital, told bne. "While the tenge has been kept pegged to the dollar for quite a long period of time, the ruble and other emerging markets currencies have already started to depreciate."

Following the devaluation, prices for food and consumer goods are already rising, but salaries are not expected to increase. Meanwhile, the impact on Kazakh business is likely to be mixed.

Lermusiaux points out that for the massive mining sector, where the top cost is labour, the "The need to restore the external competitiveness depreciation is "like a present". Shares in miner of the tenge exchange rate, the balance of trade Kazakhmys spiked 17.7% in London the day of of the economy, and maintain the competitiveness the NBK announcement. of domestic producers has necessitated changes to the national bank's monetary policy," the "It's a similar situation for KazMunaiGas, unlike statement said. international oil companies whose salaries are mostly dollarised," the analyst adds. "However, On February 12, central bank governor Kairat the news was a significant negative for telecoms Kelimbetov defended the decision to devalue, companies such as Kcell and Kazakhtelecom, insisting in the face of public anger that it was which have revenues in tenge but [capital the right decision due to continued pressure on expenditure] in dollars, and overall a moderate emerging market currencies. negative for the banking sector.�

While the decision has already boosted major Kazakh mining companies, such as Kazakhmys,

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Interview development and promotion of the private sector as a vehicle for economic growth and prosperity. bne: When was the ICD set up?

KAA: The ICD is a multilateral organisation within the Islamic Development Bank Group. It was set up by the IDB and its member countries in November 1999. Shareholders include the IDB, 52 member countries and five public financial institutions.

ICD expands presence in Central Asia

The ICD encourages the establishment, expansion and modernisation of private enterprises through financing private sector enterprises and projects.

The ICD also advises governments and private sector groups on enterprise policies, development of capital markets, best management practices and enhancing the role of market economy. Its operations complement the activities of the IDB. bne: What resources does the ICD have?

The Islamic Corporation for the Development of the Private Sector (ICD) is expanding its presence in former Soviet countries such as Azerbaijan and Uzbekistan, at the same time as many of these countries are developing domestic Islamic finance sectors. Khaled Al-Aboodi, chief executive officer of the ICD, outlines his organisation’s mission and activities, and how it compares to other development institutions such as the IFC. bne: What is the ICD’s mandate?

KAA: The ICD has an authorised capital of $2bn with a paid-up capital of $771m. The ICD’s capital is allocated as follows: 50% for the IDB, 30% for member countries and 20% for public financial institutions of member countries. bne: Are there restrictions on where the ICD can invest?

KAA: ICD financing is available to each and every citizen from its member countries without any distinctions, provided the project is bankable and is Khaled Al-Aboodi: The mandate of the Islamic Corporation for the Development of the Private majority private-sector owned. We are glad to serve all our member countries on an equal footing.

Sector (ICD) is to promote the economic The ICD operates under Islamic financial principles, development of its member countries in accordance with Sharia principles, through private which tend to be a more socially responsible and sector development. Our vision is to become a ethical financial system. Islamic finance is simply premier Islamic multilateral financial institution a complementary way of providing investments for the development of the private sector. The and financing to the business community, as can ICD’s mission is to complement the role played by be seen in Saudi Arabia or Malaysia where Islamic the Islamic Development Bank (IDB) through the and conventional financial systems work in parallel

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without any conflict. The growing awareness and success of Islamic finance is demonstrated by London’s aim to become the Islamic finance capital of Europe and by the keen interest expressed by other major OECD countries. bne: What exactly is the relation between the Islamic Development Bank and the ICD? KAA: The ICD is a fully autonomous entity and operates as the private sector arm of the IDB Group. The relationship between the ICD and the IDB is similar to that between the IFC and the World Bank. The ICD and the IFC have a fairly similar mandate, which is to further economic development of their member countries through financial support to the private sector. Both institutions are for-profit organisations working on a pure commercial basis, though with a strong development mandate. The major difference is that ICD operates under the principles of Islamic finance. One could be tempted to say that the ICD is the Islamic IFC. bne: What is the ICD’s interest in the countries of the former Soviet Union and Southeast Europe?

KAA: We are in the process of scaling up our activities in order to boost development in our member countries. We have launched several programmes such as the SME programme, the Special Economic Zone programme, and the Islamic Finance Institutions programme, which will have a multiplier effect on development.

However, the ICD’s activity is limited to its member countries. Within this region, most are in Central Asia – Kazakhstan, Azerbaijan, Uzbekistan, Kyrgyzstan and Tajikistan. We also manage a few projects on behalf of the IDB in some non-member countries in the region. bne: Are there any any regions or countries in which you are especially active?

KAA: We are increasing our investments and financing in the CIS region. Currently the total portfolio stands at $227m, with a further $127.9m

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in the pipeline for signing in 2014. The ICD has been particularly active in Uzbekistan where it has extended three lines of financing totaling $133m to local banks for onward lending to SMEs [small and medium-sized enterprises]. Nine banks qualified for the funding and as of today $78m has been successfully used to finance a total of 145 SMEs in various sectors including agriculture, industry, healthcare and oil and gas.

The ICD is also active in Azerbaijan where it has established a leasing company and an investment company, in addition to extending lines of financing worth $77m to several local banks for SME funding.

In line with our new investment strategy, we recently set up a leasing company in Kazakhstan, together with international and local investors; the company has a fully paid up capital of $28m. The ICD has also recently established a leasing company in Tajikistan together with some prominent local partners. bne: Can you give me a couple of examples of your investments?

KAA: Food security is an issue of critical importance and is a key challenge in many member countries that are not producing sufficient food for their populations. Most of our members are net importers of food. The ICD has teamed up with Robeco to launch a $600m Food and Agriculture Business Fund that will invest not only into food production but across the whole value chain. Investments by the fund into new farming methods, production technology, logistics and food handling facilities will also ensure more efficient food production, better crop yields and crucially reduce wastage during transit.

Secondly, a loss of investor confidence in global markets has significantly dried up the flow of funds to the SME sector following the global financial crisis. I believe the health of the SME sector is crucial to every country in the world. This is the sector where most employment is created and new ideas are generated. To put it simply, SMEs are the engine of the economy. In several member

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countries, we are setting up funds under our SME Programme to support and improve SMEs’ access to financing. One such fund, with a target size of 1 billion riyal ($267m) has already been launched in Saudi Arabia and several more are in the pipeline for 2014. I believe this type of fund will go a long way to support growth of the SME sector, generating many new jobs and helping to alleviate poverty in ICD member countries. bne: What are the prospects for growth and investment in the countries in which you operate?

KAA: The ICD is currently implementing a new “Channel Strategy”, which will have greater and more sustainable developmental impact, as well as generating substantial revenues for the corporation. The new strategy has four main pillars, one of which calls for the establishment of commercial banks, investment companies, leasing companies and Islamic insurance companies. As we roll out the implementation plan gradually over the next few years, the ICD will have a substantial portfolio of investments spanning across its 52 member countries. Africa holds tremendous growth potential. It’s always an exciting experiment to break into new markets; each part of the world is different and has its own challenges. bne: Islamic countries, in particular Arab countries, have been slow to invest in Central and Eastern Europe, but recently the pace has increased. What has changed?

KAA: I think the game-changing event that forced many Arab Sovereign Wealth Funds (SWFs) to

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take a closer look at their investment policies was the sub-prime crisis in the US and the ensuing global financial crisis. That caused a lot of damage to SWFs, whose mandate is actually wealth protection. What we are seeing now, with the worst of the financial crisis over, is a rebalancing of investment portfolios to diversify away from markets which were traditionally seen as less risky. With oil prices at $100 plus per barrel, substantial budget surpluses are being generated. We will see more diversification in SWFs’ investment strategies in the future, as well as more investments in local and regional markets as the pressure from demographics, especially unemployment, bears down further on local governments. bne: How do you see the relations between the Islamic world and former Soviet countries such as Russia and Azerbaijan developing?

KAA: Azerbaijan has strong historical ties with the Islamic world through its proximity to Turkey and Iran. Azerbaijan also has close ties with Russia given that it was part of the Soviet Union, as were five other Organisation of Islamic Conference (OIC) member states. The Russian Federation has a substantial Muslim population and Russia gained observer status in the OIC in 2005, which was also of strategic importance to forge mutually beneficial ties between Russia and the Islamic world. As this part of the world opens up further, I see relations between the Islamic world and both Russia and Azerbaijan getting stronger in the future… It’s not a zero sum game!

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Feature announced a non-binding agreement to sell BTA to Kazkommertsbank and Kazakhstani investor Kenes Rakishev, with the fund retaining a minority stake. KKB has since confirmed the $1bn deal will go ahead.

The deal was announced just days before the end of 2013 – the deadline set by President Nursultan Nazarbayev to sell off the three banks that were taken over as the crisis financial crisis swept through Kazakhstan.

Progress but no clean slate for Kazakh banks in 2014 Kazakhstan entered 2014 with a banking sector that has edged closer to shuffling off the legacy left from the 2008 financial crisis, with deals to sell off the state's holdings in three nationalised banks close to completion and targets set to bring down the heavy burden of non-performing loans.

However, problem loans are still by far the highest in the Commonwealth of Independent States and a recent skewing of growth towards consumer lending means the sector still has a lot of issues to work through this year and beyond.

Sovereign wealth fund Samruk-Kazyna's announcement in December 2013 that it had finally found a buyer for BTA Bank, Kazakhstan's largest bank before the crisis, was a major milestone for the sector. Previous attempts to sell off the troubled bank first to Russia's Sberbank then to Kazakhstan's Halyk Bank fell through.

However, on December 23 Samruk-Kazyna

Of the three – BTA, Alliance Bank and Temirbank – the former looked to be the most difficult to shift, as 80% of its total loan book is composed of 90day overdue loans, according to Visor Capital, and many of these are unlikely ever to be recovered.

Earlier in December, Samruk-Kazyna had already announced another deal to sell stakes in Alliance Bank and Temirbank to Verniy Capital owner Bulat Utemuratov. The fund has sold a majority stake in Temirbank while keeping a controlling stake in Alliance Bank, in a deal that is expected to receive regulatory approval in 2014.

While Samruk-Kazyna met the deadline, this is not the end of the story for the three banks, as Agris Preimanis, senior economist for Central Asia at the European Bank for Reconstruction and Development (EBRD) , points out. "While the consolidation and sale of state stakes in banks can be positive, what's really key is that after the sale the banks have enough capital and are viable in the long term, and that the new shareholders are really committed and ready to provide capital when and if needed," he says.

In addition, Kazakhstan's government and central bank are still struggling with the legacy of nonperforming loans (NPL). At 35.8% of Kazakhstan's loan portfolio, or $30.7bn, the proportion of NPL is among the highest in the world.

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In November, Kazakhstan's newly appointed central bank governor, Kairat Kelimbetov, announced that the bank's main target would be to bring down NPLs. The bank is currently in talks with banks with the aim of lowering the proportion of NPLS to 15% by January 1, 2015 and 10% by January 1, 2016. New legislation to make it easier for banks to write off bad debts and for companies to declare bankruptcy is due to be prepared by June 2014. "Kazakhstan's banking sector is in a very difficult situation with significant structural problems and a level of NPL seen in very few countries. Against that backdrop, I am quite positive about the re-energised efforts to tackle NPL since the appointment of the new central bank governor," Preimanis tells bne. "Overall, we expect to see some progress on tackling structural problems in the sector within the next year, but this will be the start rather than the end of the process."

mounted steadily during 2013. Preimanis agrees that there are "some early signs of overheating" within the sector. However, he notes that, "This has been picked up by the central bank, which has already issued some new regulations. While growth in consumer loans may not be a problem per se, continued growth could increase the banks' sensitivity to slowdowns in the economy."

Meanwhile, a potential new problem has arisen, namely that consumer lending grew at an alarming pace over the last two years. The International Monetary Fund (IMF) warned in June that the volume of consumer loans was rising at around 40% a year, albeit from a relatively low base figure.

In the meantime, although there are wide variations from bank to bank, as a whole the banking sector is not able to contribute substantially to the growth of the economy while so many are still working through their pre-crisis legacy of bad loans. "To develop the non-extractive sector, a functioning financial sector is needed.

While consumer loans are rising, corporate loans are down and [small business] lending is meagre," Preimanis says.

This is a lucrative business for Kazakhstan's banks, which typically charge interest rates in the range of 25% to 40% a year on consumer loans, and a growing number of Kazakhstanis are keen to take out loans for anything from a new washing machine to a lavish wedding party.

However, concerns within the government

While no formal cap has yet been introduced, at a press conference in Almaty on February 3 Kelimbetov said the bank had agreed with commercial banks not to allow consumer lending to rise by more than 30%. "We have agreed with second-tier banks to reduce the overheating in the consumer loan segment. Consumer lending shouldn't grow by more than 30%... it's early to be talking of some precise timing or some precise rate," Kelimbetov said, according to Tengrinews.

This is less problematic for the oil and gas and mining sectors, which do not typically rely on bank finance, but for the non-extractive sectors that the Kazakhstani government is actively trying to encourage, it is still very hard to obtain finance.

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Sector expected CAGR of 9.0%. Several other countries from the Eurasia region including Russia, China, Turkey and Azerbaijan are also among the top 10 growth markets.

Globally, airlines are expected to see a 31% increase in passenger numbers between 2012 and 2017, with total passenger numbers reaching 3.91bn by 2017. This represents a strong rebound in global demand, following CAGR of just 4.3% between 2008 and 2012, due to the international financial crisis.

Strong growth to continue in Kazakhstan’s air transport sector 13 new air routes are due to be launched in Kazakhstan in 2014, according to the ministry of transport and communications (MTC), as the country continues to be one of the fastest growing air transport markets worldwide.

The MTC announced on January 27 that 15 international air routes from Kazakhstan were launched in 2013, bringing the total number of international routes to 79. A further 13 routes are due to be opened this year.

"The fact that the Asia-Pacific region – led by China – and the Middle East will deliver the strongest growth over the forecast period is not surprising. Governments in both areas recognize the value of the connectivity provided by aviation to drive global trade and development," said Tony Tyler, IATA's director general and CEO, in a statement.

Kazakhstanis have increasingly large disposable incomes as GDP per capita has risen steadily in recent years, reaching $12,116 as of 2012, according to the World Bank. The country has also seen an increase in visitors, in particular business travelers, as the economy has expanded.

In its latest figures for the first half of 2013, national carrier Air Astana reported that it had A report from the International Air Transport increased its passenger numbers by 11% on year Association (IATA) reveals that Kazakhstan is to 1.698m. During the year, the company launched second only to neighbouring Uzbekistan in terms new routes including flights to from Astana to of the expected growth in demand for international Bishkek, Kyiv and Orenberg. In December, Air air passenger transport over the next four years.

Astana announced it had taken delivery of four new planes – two Boeing 767-300ERs, an Airbus IATA's Airline Industry Forecast 2013-2017 A320 and its eighth Embraer E-190 airliner – forecasts a compound annual growth rate (CAGR) bringing its fleet to a total of 30 aircraft. of 10.3% in Uzbekistan between 2013 and 2017, making it the world's fastest growing market.

Work to make the domestic air transport market more competitive, potentially by opening it up to Kazakhstan, which topped the list in IATA's 2012 forecast, is now in second place worldwide with foreign carriers, is also underway. Kazakhstan's

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Agency for Protection of Completion is working with the MTC and the Eurasian Economic Commission on making the domestic air market more competitive. Research carried out in 2013 revealed that air tickets in Kazakhstan are more expensive than those for comparable journeys in Russia.

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Kazakhstani airlines from the list by the end of the year. While this did not happen, there are hopes that Kazakhstan will manage to exit the list before long.

The Kazakhstani authorities have been working with the International Civil Aviation Organisation (ICAO) to improve safety standards. Following Almost all carriers registered in Kazakhstan remain an audit by the ICAO, Kazakhstan introduced on the EU's list of banned airlines, despite efforts 80 amendments, 69 of which related to safety to exit the blacklist. The updated list, issued on issues, to existing legislation on aviation. Following December 5, includes all airlines registered in inspections, Kazakhstani airlines have now been Kazakhstan, with the exception of Air Astana, which re-certified, a process that resulted in six carriers can operate within the EU "under restrictions and losing their certificates. conditions", the EU statement said.

Meanwhile, reconstruction of Kazakhstan’s regional airports is continuing. Work has already The Kazakh government has been working for several years to exit the blacklist by improving been completed at several regional airports in safety standards, training staff and renovating addition to the international airports at Astana and regional airlines. In September, Deputy Transport Almaty. In November 2013, the international Aulieand Communications Minister Azat Bekturov Ata airport in the southern city of Taraz was the told Tengrinews that Astana aims to remove all latest renovated airport to open.

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Chart Kazakhstan to see rising immigration Kazakhstan is expected to see a substantial increase in immigration, mainly from other Central Asian republics, after Astana relaxed its regime for migrant workers from February 1. Forecasts of an increase in migration reflect both Kazakhstan’s economic prosperity, as well as tougher restrictions in Russia – currently the top destination for economic migrants from the CIS region.

“[M]igration into Kazakhstan will likely increase in the next few years due to immigration restrictions in Russia and skyrocketing populations in Central Asia,” forecasts the Stratfor report.

There is also a demographic impetus; all five Central Asian republics have outstripped UN population growth forecasts, with the region’s population doubling since 1980.

According to a report from Stratfor, almost all migrants from Uzbekistan, Kyrgyzstan and Scarce opportunities at home have encouraged Tajikistan travel to Russia and Kazakhstan to work, economic migration to the extent that remittance payments now account for 48% of Tajikistan’s drawn by higher salaries than they can make at home. Although migrants are typically paid between GDP and 31% of Kyrgyzstan.

10% and 50% less than local workers, this is still much high than in their home countries.

While there have been many opportunities for migrant workers in particular in the Kazakh and Russian construction and agriculture sectors, Kazakhstan’s economy has rapidly outstripped Stratfor warns that, “Increased flows of foreign those of its southern neighbours, with GDP workers will strain the Kazakh economy and per capita expected to reach $20,000 by 2016. could preclude some Kazakhs from competing Unemployment reached a record low of 5.2% in with cheaper foreign labor.”

2012, according to government statistics.

Central Asia population projections

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News in brief Kazakhstan to invest over $1bn in exploration Kazakhstan plans to boost spending on exploration to $1bn by the end of the decade, it announced on February 4, as it seeks to avoid production falls.

idb.com/irj/portal/anonymous/icd_news_en) to finance construction of a new aluminium extrusion plant currently being build by Kazakh-Turkish joint venture Aluminum of Kazakhstan (ALKA).

The ICD, the private sector arm of the Islamic Development Bank Group, said in a statement that it will provide $10m to finance the production lines of the plant and raw materials for the first year of production. The total cost of the project is $22m.

The country will spend KZT161bn ($1bn) on geological exploration between 2015 and 2019, Kazakhstan's chief geologist told a press conference in Astana. The investment is part of wide-reaching According to the ICD, the project "will contribute plans to discover new oil, gas and mineral deposits, to the development of Kazakhstan’s economy by in a bid to ward off any risk of declines in production. launching local production from a first integrated plant in Kazakhstan that produces state-of-the-art "The priority will be placed on new technologies aluminum profiles for buildings, car industry, solar PV and world-class expertise," the Ministry of Industry panels and other applications according to the latest and New Technlogies' Bazarbai Nurbayev, told European standards." It will also create 150 jobs. journalists, according to Kazinform. Contracts have been signed with "internationally reputed partners", "We are delighted to sign this agreement which he added. we hope will boost aluminum production, supply and trade," said the ICD's CEO Khalid Al-Aboodi.

In March, several top government officials "This project will also lead to the creation of discussed the need for greater investment into jobs, transfer of technology and promotion of mining exploration. While several major new sustainable practices. The agreement represents projects are underway, including Kazakhmys' an important element in the corporation's strategy huge greenfield copper projects at Bozshakol and as a catalyst for private sector development."

Aktogay, the government wants more to be done to prevent a future falling off in production.

Last year, officials also announced the launch of the "Eurasia project", which aims to double Kazakhstan's resource potential. The plan is part of Astana's target to become one of the world's top ten countries in terms of hydrocarbon reserves.

Kazakhstan: ICD to support construction of aluminium plant The Islamic Corporation for the Development of the Private Sector (ICD) has agreed (www.icd-

Kazakhstan to modernise waste management Kazakhstan's Prime Minister Serik Akhmetov has given the go ahead for a new state programme to manage solid waste, which will include using household waste to produce bio-energy.

The proposal from the environment ministry (www.eco.gov.kz/new2012/en/2014/01/101-22/) includes ensuring that 90% of solid waste from households is collected by 2020, which will require investing in new dustbins and waste collection trucks.

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Kazakhstan will also build new sanitary landfills, and waste will be sorted before going to landfill, with biodegradeable waste used to produce energy.

are already plans to build 13 wind farms, 14 hydropower plants and four solar power plants by 2020.

"In this case, starting with 5% in 2020 it is planned to increase the share of waste used to produce "green" energy to 30% by 2050," Environment Minister Nurlan Kapparov told a government meeting on January 28.

The country's first industrial scale wind farm is planned in the Yereimentau district of the northern Akmola region, around 150 kilometres from the capital Astana.

"The aim is starting from 10% to increase the collection of bio-waste to 80% by 2050," Kapparov added.

More wind power investments planned Construction of three wind power plants is due to start in Kazakhstan's western Mangystau region by the end of this year, the region's governor has announced as an increasing number of regions across Kazakhstan start looking to wind power generation.

"We have plans to implement three investment projects on construction of wind power plants in Tupkaragan and Karakiyan areas," regional governor Alik Aidarbayev said in a speech on January 23.

While it has substantial oil and gas resources, the Mangystau region lacks generation capacity and relies on imports of electricity from other parts of Kazakhstan. Wind power is one of the options being considered to make up the shortfall; Mangystau is also one of three areas identified as possible sites for nuclear power plants.

The Kazakh government is keen to increase use of wind power and other forms of alternative energy such as solar and hydropower generation.

In June 2013, the government set the target of generating 50% of its electricity from renewable energy sources by 2050, which is expected to require some $3.2bn of investments a year. There

The European Bank for Reconstruction and Development (EBRD) is considering funding the 50 MW power plant planned by state-owned SamrukEnergy, and may provide up to ¤54m.

Elsewhere in Kazakhstan, OurOffset Kazakhstan is planning to build a $235m wind farm in South Kazakhstan Oblast, local media reported in November 2013. There are also plans to invest in wind power capacity in the Zhambul region.

Kashagan restart date still unclear – Minister The date when production will resume at Kazakhstan's giant offshore Kashagan field is not yet known as tests are still ongoing, oil and gas minister Uzakbai Karabalin said January 16. The international consortium developing the field is expected to face fines both for missing production deadlines and for environmental damage.

Tests on the gas pipeline from the field have been completed and are now being analysed, with 27 violations already revealed, Karabalin told a press conference at a Kazenergy event in Astana.

Meanwhile, tests on the oil pipeline from the field, in the Kazakhstani sector of the Caspian Sea, are still in progress.

The long-awaited start of production at Kashagan took place on September 11, but just two weeks later, was suspended for two weeks due to a gas pipeline leak. After being put back into operation on October 6, the field was only producing for three days before shutting down again on October

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9 due to another leak between Island D to the Bolashak processing plant.

total of 83 million tonnes this year - up from 81.7 million tonnes in 2013.

When the tests are completed, the international consortium developing the field will submit its plans to repair the pipeline network to the Kazakh authorities. However, the time it will take to repair the pipelines is not yet known.

Kashagan, which was discovered in 2000, is the world's largest oilfield discovery in the last 30 years, with recoverable reserves of around 13 billion barrels of oil. The field is being developed by an international consortium comprising ENI, KazMunaiGas, Shell, Total and ExxonMobil each with 16.81% and Inpex with 7.56%. ConocoPhillips held an 8.4% stake, but in 2013 sold its shareholding to China's CNPC.

"Only after we get all the data, will we be able to say exactly how much time it will take to eliminate the problems encountered and subsequently resume of oil production. It all depends on how quickly the analysis will be performed and how quickly will then take the necessary measures," Karabalin told journalists.

Work may take longer than previously expected, as due to the unprecedentedly mild winter in Kazakhstan, the Caspian is not fully frozen in the Kashagan area. Usually in winter, trucks can drive across the ice to the artificial islands built to exploit the field but this year this is not possible.

The Kashagan consortium will be fined for environmental damage that caused by the accident that forced the field to suspend oil production. "In the first instance, penalties will be imposed for environmental violations. The Ministry of Environment has already held several meetings with the developers. The environmental fines will probably be announced by the end of this month," Karabalin said.

The consortium also faces penalties for missing production deadlines, under the terms of its agreement, which are confidential. However, Karabalin acknowledged that penalties imposed by the Kazakh government could be contested by the Kashagan consortium, who "might have different views".

Kazakhstan needs new oil refinery – president Kazakhstan needs to build a new oil refinery to address shortages of gasoline, diesel and other fuels, President Nursultan Nazarbayev said in his annual address to the nation on January 17.

"The country needs more gasoline, diesel fuel and jet fuel. It is ridiculous, Kazakhstan is an oil producing country. We should immediately construct a new oil refinery," Nazarbayev said in the address, according to Tengrinews.

Kazakhstan's three major oil refineries at Atyrau, Pavlodar and Shymkent are currently being modernised and expanded, to increase capacity, expand the range of products, and boost output to comply with Euro 4 and Euro 5 standards.

However, shortages of some fuels are expected while the programme is being carried out.

In September 2013, the Kazakhstan Fuel Association (KFA) claimed that the domestic gasoline market was in crisis in advance of the temporary closure of the Shymkent refinery.

State oil and gas company KazMunaiGas is already planning to draw up a feasibility study to build a The Kazakh government is currently forecasting fourth oil refinery by 2015, Tengrinews reports, citing production of two million tonnes of oil at Kashagan the managing director of Kazakhstan's sovereign in 2014, while the country is expected to produce a wealth fund Samruk-Kazyna, Malik Salimgiriyev.

bne:Invest in Astana February 2014

Kazakhstan improves performance on economic freedom index Kazakhstan has improved its performance on the Heritage Foundation's 2014 economic freedom index (www.heritage.org/index) following progress in the investment and business climate, though is held back by a continuing high level of corruption.

Kazakhstan is in 67th place on the conservative think-tank's annual index, which ranks 178 countries according to indicators including regulatory efficiency, rule of law and economic openness. It is ranked 11th among the 42 countries in the Asia Pacific region.

According to the Heritage Foundation, in the last 17 years, Kazakhstan's "economic freedom has advanced by 22 points, one of the 20 best improvements recorded by any country", following improvements in regulatory efficiency, market openness and other areas.

However, the report notes that improvements are needed in other areas. "Looking ahead, deeper structural reforms will be critical in overcoming

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challenges associated with the need to reduce dependence on the energy sector and achieve more diversified growth. Property rights and freedom from corruption remain far below average world levels," the report says.

Rankings vary widely across the Eurasia region, with Georgia in 22nd place overall and 12th place in the European region. Georgia has been one of the highest risers on the table in the last 19 years, advancing from the "repressed" to "mostly free" category.

At the other end of the scale, Turkmenistan is in 171st place, just seven places higher than lowest ranked country North Korea. "Charting a downward path of economic freedom in recent years, Turkmenistan continues to be mired in the ranks of the "repressed" economies. Reforms intended to improve the business and investment climates have been largely undermined in practice," the Heritage Foundation says.

Uzbekistan is only slightly higher in 163rd place, despite improvements in business freedom and the control of government spending in the last year.

Astana Open for Business

Kazakhstan’s modern, high-tech capital has become a centre of manufacturing and innovation.

Infrastructure

Location

∙ Astana has newly-built transport and communications infrastructure and utilities as well as a modern international airport ∙ Construction of a light railway linking the airport, railway station and business centre started in 2012

∙ Astana is in the heart of the Eurasian landmass, on the crossroads of Europe and Asia ∙ The Western Europe – Western China international transport corridor will cut road transit times across Kazakhstan ∙ Kazakhstan has launched a comprehensive overhaul of its railway infrastructure, building new domestic and international links

Business environment ∙ Kazakhstan was one of the highest climbers on the World Bank’s 2013 Doing Business index, rising seven points to 47th place ∙ The government is committed to working with businesses to further improve the business climate ∙ WTO accession is expected in late 2012 or early 2013

Population ∙ Kazakhstan has a fast growing population with rising income levels ∙ As of July 2012, Kazakhstan’s population stood at 16.79 million ∙ Astana’s population has risen from under 300,000 in 1997 to 758,000 in July 2012

Tax and customs regime ∙ Favourable tax and customs regime for companies investing in Astana New City, including exemptions from corporate profit tax, land tax and VAT on building materials ∙ “Single window” information service for investors ∙ Stable tax regime for international investors

Facilities

High-tech

∙ New residential buildings, offices and shopping centres built to international standards ∙ World class sports facilities built for the 2010 Asian Winter Games hosted in Astana and Almaty ∙ Haileybury International School opened in Astana in 2011

∙ Astana aims to become a hub for high-tech manufacturing and innovation ∙ OpenWiFi project to provide free wireless internet in public places ∙ High-tech pilot projects launched in health and education sectors

Mayor’s office of Astana city, Investor’s service center Entrance 5, 28, Kabanbay avenue, Astana, Kazakhstan

Customs Union ∙ Kazakhstan was a founder of the Customs Union alongside Russia and Belarus ∙ Investors in Kazakhstan have access to a market of over 160 million consumers

Fast-growing economy ∙ Kazakhstan’s economy has achieved steady growth for the last decade. The IMF forecasts 5.5% GDP growth in 2012 rising to 5.7% in 2013

Tel: +7 (7172) 57-89-85, 57-89-86, 57-89-87 e-mail: iscastana@gmail.com www.investinastana.kz