bne:Invest in Astana — November 2014

bne:Invest in Astana Follow us on twitter.com/bizneweurope November 2014

Content: 1 Top Story 5 Interview 7 Feature 9 Sector 11 Corporate statement 13 Economics & finance 16 Chart 17 News in brief www.bne.eu

Top story

Photo: Astana.gov.kz

Kazakhstan appoints new defence minister Imangali Tasmagambetov, mayor of Astana and tipped as a potential presidential successor, has been appointed defence minister – regarded as a crucial post following Russia’s aggression toward Ukraine and a series of corruption scandals in the military.

account on October 22 and later confirmed by the presidential office. Tasmagambetov has previously held the posts of prime minister and mayor of Almaty, and he replaces Serik Akhmetov, who was appointed defence minister only in April after an 18-month-long stint as prime minister. Adilbek Dzhaksybekov is going to The appointments were first announced on become the new Akim of the capital, returning to Kazakh President Nursultan Nazarbayev's Twitter the position he used to occupy from 1997 to 2003.

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

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Given the importance of the defence minister's job in the wake of Russia's annexation of Crimea and its support to rebels in eastern Ukraine, Tasmagambetov's appointment as defence minister will be seen as a promotion and a sign of Nazarbayev's trust. As a competent manager, Tasmagambetov will be expected to increase the efficiency and fighting ability of Kazakhstan's armed forces, as the government became concerned over the state of the army after the Ukrainian military showed it was woefully illequipped to fight the rebels.

Former senator Gani Kasymov a links Tasmagambetov's appointment to a desire by the government to deal with corruption scandals that have rattled the Kazakh army and led to some high-profile dismissals. "Our army has been involved in selling and buying, and has been mired in corruption. There have been so many scandals and generals have been sacked in droves," Kasymov told Nur.kz new portal. "We need to draw a lesson... [Tasmagambetov] is capable of cleaning up the act."

Russian threat Russia’s annexation of Crimea has given rise to fears in Kazakhstan that Moscow could use the rights of ethnic Russians as a pretext to take over parts of Kazakh territory. In a televised interview on August 24, Nazarbayev tried to quell these fears. "Some fear that Russia will again invade us, but this is not true," he said.

Yet he warned that Kazakhstan should be careful in promoting the Kazakh language at the expense of Russian. More than 90% of Kazakhstan's 17.3m citizens speak Russian, but only around two-thirds claim to speak Kazakh.

Kazakhstan's constitution designates Kazakh

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as a state language, while Russian serves as a lingua franca and is allowed in official use. "If we adopt laws to ban all languages but Kazakh, we will turn into a Ukraine," Nazerbayev said in reference to the Ukrainian parliament's revocation of the official status of Russian in eastern and southern regions following the ousting of former president Viktor Yanukovych.

On August 29, Russian President Vladimir Putin, when asked by a student at a youth forum whether Kazakhstan could see a repeat of the "Ukrainian scenario" should it diverge from its current pro-Russian policy, Putin said Nazarbayev was a "very wise" leader who knew perfectly well that a "vast majority of Kazakh citizens favour the development of relations with Russia."

At the same time, Putin made what appeared to be a veiled threat about the fragility of Kazakh nationhood. "He [Nazarbayev] made a unique thing. He has created a state on a territory where there had never been a state," Putin said.

"Kazakhs didn't have statehood."

The Kazakh people need the Moscow-led Eurasian Economic Union, due to come into being in January 2015, Putin continued, "because this is beneficial for them to develop the economy and to remain in the space of a great Russian [speaking] world.�

Ethnic Russians made up 21.5% of Kazakhstan's 17.3m population at the beginning of 2014, according to the Kazakh Statistics Committee.

The northern and eastern Kazakh regions on the border with Russia have sizeable ethnic Russian populations where their share ranges between 35% and 50%.

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Kashagan consortium awards $3bn pipeline replacement contract The consortium developing Kazakhstan's giant offshore oil field Kashagan have selected German and Japanese companies for contracts worth $3bn to completely replace a 200km leaking pipeline network that forced production to a halt in October 2013.

“The replacement plan is under finalisation and expected to be available by the end of 2014,” Antonio Vella, head of ENI's upstream operations, said during a conference call on October 30. “The material of the new pipeline is X60 [a measure of the pipe's strength] carbon steel cladded with corrosion resistant alloy (CRA) and 100% of the pipeline material has been ordered,” he German Butting and EBK combined will supply 131.4km of pipes; the remaining 69.9km will be added. CRA materials are believed to be the sourced through Japanese JSW, sources familiar most resistant and expensive option for the replacement plan. with the deal told bne. Deliveries will start in March 2015 and continue throughout the year Considered the largest oil field ever discovered until the end of December. outside the Middle East, with recoverable The overall value of the contracts, which include reserves between 9bn and coating and other related services, is likely to 13bn barrels of oil, delays and cost overruns have hampered exceed $3bn, Reuters quoted Kazakhstan's developments at Kashagan so far. deputy Energy minister Uzakbai Karabalin as The operating consortium NCOC has saying on November 5.

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Saipem, an oil contractor controlled by Italian already spent more than $50bn, five times early projections, and full field development costs over ENI, which holds the consortium operatorship for the 40-year concession timeline are now forecast the development of phase 1. at $136bn.

The consortium now aims at resuming production in 2016 when the pipeline will be fully Ballooning costs have gone hand in hand with recurring delays, often associated with the field's replaced, although initially “the contribution will be a fraction of the normal [phase 1] 370,000 size and technical complexity. Initially planned barrels per day (b/d) production,� Vella said on to come online in 2005, production did not start October 30. until September 2013.

However, operations were forced to a new, abrupt halt only a few weeks after kicking off when leaks came to light in the 200km pipeline network carrying corrosive and poisonous hydrogen sulphide (H2S), known in the industry as sour gas, from the offshore field in the Caspian to onshore facilities.

An internal inspection indicated potential cracks at the welds of the pipeline spools as well as on some at the pipeline bodies, and the consortium opted for full replacement of the leaking pipes originally supplied by Japanese companies Sumitomo and JFE and installed by Italian

Kashagan is expected to peak at some 1.6mn b/d once it reaches full production stage. In the few weeks it produced oil during September and October 2013, production did not go beyond 70,000b/d.

NCOC currently includes Eni, ExxonMobil, Shell and Total, holding 16.8% each, Kazakh national oil and gas firm KazMunaiGas with a 16.87% stake, China's CNPC and Japan's Inpex with, respectively, an 8.33% and 7.6% stake. NCOC is transitioning towards a new joint venture renamed North Caspian Joint Venture (NCJV) that will become Kashagan's new operator.

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Interview internet penetration exceeded 20% of the population. With 4.7m active internet users, the country passed this threshold in 2010 when the penetration rate reached 27%.

Customs Union boosts Kazakh e-commerce Kazakhstan's oil-based economy has struggled because of stagnation in the sector and falling demand for Kazakh goods in the country's major trade partners, Russia and China.

However, there are new sectors of the economy such as e-commerce that have been helped

by Kazakhstan's membership of the Customs Union (CU) with Russia and Belarus.

Kazakhstan's membership of the CU, which was set up in 2010, has led its trade deficit with Russia and Belarus to increase several fold. But there are a number of areas where Kazakhstan's membership of the free-trade bloc has spurred the development of new sectors. In addition to car making (Kazakhstan is set to assemble up to 50,000 cars this year), one such area is e-commerce.

Market players say that the free movement of goods between Russia and Kazakhstan has made it easier to bring goods imported to Russia on to Kazakhstan without needing to undergo customs clearance at the Kazakh border.

Konstantin Gorozhankin, chairman of the Association of E-Business of Kazakhstan, says that e-commerce began to take off after

Gorozhankin says e-commerce is currently showing one of the highest rates of growth in Kazakhstan: the sector grew 80-90% a year on average in the past three years to reach sales of $600m in 2013. "An analysis of online cheques has shown that the sector has grown by 88% this year so far," he tells bne in an interview.

"Should we exclude online ticket sales of Air Astana, which has a large market share, the market grew by 286%." With sales totalling $80m a year, the national air carrier accounts for 12-15% of the e-commerce market.

Lots of potential Kazakhstan still has potential for e-commerce to double or triple every year over the next two to three years, after which the market will mature, Gorozhankin predicts. However, e-commerce still only constitutes a tiny share of total trade in goods and services in the country. According to the Kazakh Agency for Communications and Information, this share stood at 2% in 2013, but is expected to increase to 10% by 2020.

Gorozhankin believes the Kazakh population and businesses have not yet fully realised the potential of e-commerce. Even well-established players in this area such as Air Astana sells only 7% of its tickets online compared with Lufthansa's 90%. He explains that the population is not familiar with online purchases and a majority of customers do not trust online trade or simply is not aware of it.

"Our people's attitude to shopping is still old fashioned when they have to feel and touch a good like at the bazaar before they buy it,� he says.

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Out of $600m in online trade, Kazakh customers spent only 10% on purchases from local online traders, Gorozhankin says, blaming this on a sluggish local market that does not offer a choice of goods at cheap prices compared to welldeveloped foreign traders. US-based retailers account for two-thirds of total Kazakh online purchases, the EU and UK for 14%, and Russia for 8%, according to his figures.

Local market players complain that purchases from US-based Amazon or China's Alibaba do not make a positive contribution to the Kazakh economy and only support jobs abroad. Kazakh citizens can now import goods from third countries tax free if the value of their orders does not exceed 造1,000 or weigh no more than 31kg per month.

Russian companies on the ground Gorozhankin believes that the CU has paved the way for major Russian online retailers to enter the Kazakh market, where they operate as local companies.

One of such companies that seized the opportunity offered by the common market is the Russian Lamoda online fashion retailer, which arrived in Kazakhstan in 2010. The company ran its businesses in a trial mode in 2011 and 2012, and adopted its strategy for the Kazakh market in 2013, says Lamoda.kz's operations director, Dmitry Solomko. "In 2013 we studied the local consumer needs and adapted processes to offer high-quality services with quick deliveries. We realised that the market was ready to use the internet in new ways as a platform to buy our goods," he says.

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Echoing Gorozhankin regarding Kazakhs' shopping attitudes, Solomko explains that his company started a service in which customers could cancel orders and return goods on the spot after seeing them. He also says different delivery options such as a 24-hour delivery have proven popular with Kazakh online shoppers. This helped the company pass a threshold of 1,000 orders per day at the beginning of 2014, with the average value of an order nearing $100. "The month-onmonth growth was over 12% on average in 2013.

It is a few percentage points smaller now but we can still see a good dynamic," Solomko boasts.

Lamoda.kz, which sells about 2m items of clothing from 900 mass-market brands, operates from its base in Moscow, with 24-hour delivery services in Kazakhstan's main cities of Almaty and Astana. It now offers direct delivery services in the country's 17 cities and towns and uses the Kazpost national operator to deliver orders in towns and villages where it does not have presence, Solomko explains. The company now employs 200 people in Kazakhstan against 30 in 2012, and opened a collection point in Almaty this year where customers can try their purchases.

Citing the inconveniences that orders from Amazon or other foreign websites create for Kazakh shoppers in terms of consumer protection and delivery times, Solomko is upbeat about the development prospects for local e-commerce players in Kazakhstan. "In contrast to foreign websites, we treat our clients as the main source of information on how we should behave on the local market and since the client sets the rules we are ready to adapt to them," he concludes.

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Feature goods. It is fast becoming a major destination for top-end luxury products," Muller-Otvos said. "We see a lot of potential here in Kazakhstan and look forward to realising that potential together with our new partners here in Almaty."

Muller-Otvos said that the BMW-owned imageconscious brand had picked as its Kazakh partner Astana Motors, which is already operating dealerships for BMW, Toyota and Hyundai, because it shared "the ethos of our founding fathers". "I have full confidence that we have chosen the most appropriate partner here in this country," he said.

Rolls-Royce drives into cashstrapped, petrol-scarce Kazakhstan The ultra-luxury car brand Rolls-Royce has ridden into oil-rich Kazakhstan's commercial capital of Almaty, lured by the lingering gleam of an economic boom experienced in the noughties.

Unfortunately, Rolls-Royce’s first showroom in Central Asia is opening even as the economy continues to struggle and the country is plagued by petrol shortages.

At a news conference "celebrating such a landmark occasion" in Almaty on October 30, Torsten Muller-Otvos, Rolls-Royce Motor Cars’ CEO, said the country's oil-fuelled boom had created increasing demand from discerning customers for pinnacle luxury products such as Rollers. "[Kazakhstan] has witnessed a surge in the number of high-net-worth individuals and is also experiencing strong demand for luxury

While it has taken pains to carefully choose a dealer to market Rollers in Kazakhstan, the company could have a bigger problem with the "very special clientele" who will own and drive the cars.

Bad drivers The driving habits of wealthy and influential people, mostly close to government, and their relatives has periodically caused public indignation in Kazakhstan.

Last December, for example, a 24-year-old son of a senior manager at the Expo 2017 national company in Astana knocked down six people standing on the pavement in Almaty with his four-wheel drive, killing one on the spot.

After the incident the young man drove away from the scene; he was eventually fined for an administrative offence, while criminal charges against him were dropped. This sparked outrage on social media. The handling of the case was seen as a "flagrant manifestation of corruption" in the country's justice system, and prosecutors in Almaty were forced into appealling the court ruling. As a result, the driver was jailed for 45 days on administrative charges.

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This and other traffic incidents involving officials or their relatives have even spurred President Nursultan Nazarbayev to demand tougher punishment for children of government officials and public servants who violate the law. "I'd like to stress that there are many cases when traffic accidents involve children and relatives of well-known people. Everyone is equal before the law, which is why in such cases both children and parents should be punished more harshly," Nazarbayev said in March.

Asked by bne whether Rolls-Royce would apply the same diligence to its Kazakh customers as to its partner and whether he wasn't worried that some of them might generate headlines, Muller-Otvos said that he saw the same pattern of ownership as the carmaker has in other markets: 80% of Roller owners worldwide are business owners who are "pillars of economic growth," with the rest being celebrities. "We welcome every customer at Rolls-Royce," he said. "Somebody who wants to fulfil his dream to buy a Rolls-Royce is a desired outcome for us and we are not, in a way, safeguarding [our cars from] what might be his background."

However, observers in Kazakhstan point out that as well as business leaders and celebrities, Kazakh officials and government agencies with their insatiable appetite for huge and expensive cars could also be customers for Rolls-Royce – even at a time of economic belt-tightening due to lower-than-expect global oil prices. Tenders posted by local government departments and some ministries on the state purchases website often welcome bids to purchase cars worth millions of tenge (tens of thousands of dollars) for courtesy purposes to ferry esteemed

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visitors around. One tender posted by the South Kazakhstan Region administration this summer advertised the purchase of a car for KZT12mn ($65,000). Muller-Otvos said the price of a typical Roller starts from ¤250,000 – not out of the reach of a particularly lavish ministry.

Belt-tightening With an engine size of around 6,000cc, petrol-gulping Rolls-Royces cruising across Kazakhstan's congested cities will surely expose government hypocrisy.

In September in the midst of acute petrol shortages, Energy Minister Vladimir Shkolnik urged local motorists to stop "carrying the air" and pool cars. "We should be saving [petrol] as the rest of the world does. I call for this. If there is a possibility, then don't drive a huge SUV to work... but neighbours get into one car to drive to work," Shkolnik said. "Let's be more prudent.

One should replace their cars with smaller ones, in particular this concerns all kinds of officials and people driving alone in SUVs and carrying the air."

But the calls made by Shkolnik, whose ministry is responsible for energy security in the country, appear to have fallen on deaf ears. The president of Astana Motors, Nurlan Smagulov, blamed a Soviet mentality for people being ashamed about wealth and hailed Rolls-Royce's arrival in Kazakhstan as sign of it "becoming a civilised country". "We [still] feel shame about opulence," said Smagulov, who bragged about owning one of the first three Rollers the new outlet has sold. "We should stop feeling ashamed... and we should get rid of complexes and phobias.”

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Sector

"People's IPO" price of grid operator KEGOC set at $2.8 per share The price of shares of Kazakhstan Energy Grid Operating Company (KEGOC), which will be floated as part of the "People's IPO" programme, has been set at KZT505 ($2.8) per share, the company's chairman, Bakytzhan Kazhiyev, announced in Astana on November 4.

"In line with a November 30, 2014 government resolution, a stake of 10% minus a share will be floated on the Kazakhstan Stock Exchange," Tengrinews quoted Kazhiyev as saying. "The price per share is set at KZT505. Bids to buy company shares will be accepted between November 5 and December 3. From December 19 they will be in free circulation."

He noted that a priority in acquiring shares would be given to private investors amongst Kazakh citizens. "Bids will be accepted without restrictions. All retail investors bidding for up to

14,000 shares will be satisfied fully if demand doesn't exceed supply," Kazhiyev said.

Regardless of the size of a bid, shares will be allocated first to smaller bids, so bidders asking for more than 14,000 will be able to buy shares only until a balance is reached between demand and supply, the head of the national power grid operator explained.

Ahead of the IPO, Kazhiyev also explained the company had borrowed over $1bn from international financial institutions to carry out investment projects. "The company's debts total about $600mn now. I would like to say that we have significant funds in foreign currency on our company accounts that make it possible to service loans over the next 12 to 18 to 24 months," he noted. "Moreover, tariff formation

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of electricity generated in the country (it transmitted 41.4bn kWh of power in 2013), held road shows to present its "People's IPO" programme in Astana on November 5 and in He noted that KEGOC's profits decreased to Almaty on November 7. Within two days of the KZT588mn ($3.25mn) in January-June from KZT4.3bn ($28mn) posted in the first half of 2013, beginning of subscription for KEGOC shares, due to external factors such as a 19% devaluation Kazakh citizens placed bids to acquire 182,000 shares, which the deputy chairwoman of the of the tenge in February.

Samruk-Kazyna sovereign wealth fund, Yelena In response to President Nursultan Nazarbayev's Bakhmutova, hailed as a "wide response" to the "People's IPO" programme. "We hope after our criticism of poor efficiency at the national grid Kazhiyev blamed tariff regulation, but reassured road shows a significant number of bids will be placed to buy the share," Bakhmutova said. that the company had adopted a long-term programme to boost efficiency "to become In order to boost sales of its shares, KEGOC competitive". In terms of the reliability of power supplies to consumers, the company was on par announced that it would channel up to 40% of its profits to pay dividends. At the same time, with the best global companies, he noted. authorities remain cautious about the success of the programme, as the chief of the country's Standard & Poor's announced on November 7 central bank, Kairat Kelimbetov, suggested that it had revised its outlook on the company that KEGOC shares that would not be bought from stable to positive, affirming its 'BB+' longup by the population would be purchased by term corporate credit rating. “The 'Positive' the Single Accumulative Pension Fund (ENPF), outlook means that KEGOC rating may be upgraded within the next 12 months," the rating which sits on pension assets worth KZT4.3tn ($23.8bn). agency said in a statement. "The outlook was revised due to analysts' expectations regarding "After the wrapping-up of the results of the possible improvement of financial indicators of 'People's IPO' the remaining shares will be KEGOC in 2015 following the increase in tariffs, bought up by the ENPF. As a result, even if which will boost the company's capability to not directly but through their pension savings manage financial risks."

Kazakhs will still be co-owners of the power grid company. We will invest money in the shares of The national power grid company, which this enterprise because we are confident about operates 24,500km of power lines and 77 its credibility," Kelimbetov said. master substations, transmitting almost half [formula] fully covers our liabilities on servicing the loans."

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Corporate statement Yertys Service was sold for KZT703.8m, 15% more than the asking price; Kazykurt-Yug for KZT960.5m at a 60% premium; and the sale of MAK-Ekibastuz raised KZT1.02bn, exceeding expectations by 260%. Four investors showed interest in acquiring Yertys Service, seven in Kazykurt-Yug and six investors competed for the purchase of MAK-Ekibastuz. The first two companies are involved in preparing railway tanks for petroleum products and the third firm specialises in overhauling auxiliary train cars and in repairing and servicing diesel and electric trains.

National railway operator sells three non-core assets as part of Samruk-Kazyna plan Kazakhstan's national companies run by the Samruk-Kazyna sovereign wealth fund are successfully undergoing restructuring under the fund's transformation programme, which envisages getting rid of non-core assets held by companies that the fund controls. On October 16, Samruk-Kazyna announced that the country's national railway operator, Kazakhstan Temir Zholy (KTZh), successfully sold three companies of its group on the Finance Ministry's electronic platform on October 10.

"Seven companies owned by KTZh were put for sale on electronic tenders," a statement from Samruk-Kazyna quotes Serikbek Yelshibekov, general director of Samruk-Kazyna Contract, as saying. Four subsidiary companies – BAS Balkhash 2004, Birzhan-Atyrau, Gazyr-Mangistau and Ak Beren limited liability partnerships – didn’t find new owners, but three firms – Yertys Service, MAK-Ekibastuz and Kazykurt-Yug – were sold for a combined KZT2.6bn ($14.2m), Yelshibekov announced.

Under the comprehensive privatisation plan for 2014-2016, Samruk-Kazyna will privatise 106 non-core assets, including 64 this year. The privatisation programme aims at reducing the state's involvement in the country's economy and transferring a larger share to the private sector.

The plan also envisages increasing the efficiency and transparency at the state-owned companies that the sovereign wealth fund manages.

As part of the programme, KTZh will shed 34 assets, including 25 this year. The national railways operator is now preparing six companies for sale, of which four – BAS Balkhash 2004, Birzhan-Atyrau , Gasyr-Mangistau and Ak Beren – are involved in repairing and servicing trains, while ATB+ repairs railway electric equipment, and Kaskor-Service offers shipment and loading services.

A representative of the press office of KTZh tells bne that under the rules laid down by the Kazakh government, these assets will also be sold on electronic tenders via the web portal of the state-owned property register.

The new owners will have to maintain the specialisation of these assets for at least a year, the press service explains.

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Having released these companies into the private sector, KTZh expects them to be able to compete for contracts to supply goods and services it needs in order to improve transparency and get the best

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value for its money, the representative of the press office says. The railway operator plans to spend funds raised from selling non-core assets on its investment projects, the representative added.

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Economics & finance year period – including up to 30% investment cash-backs, corporation and property tax exemptions and visa-free entry for foreign workers.

To qualify, investments must exceed $20mn with recipient firms formed less than 12 months before and based outside Kazakhstan’s existing special economic zones. While some incentives were introduced in July, specific tax assistance will be valid from January 1, 2015.

Photo: Azamat Aliev

Kazakh government to offer 30% cash back to boost FDI, says Sagadiyev

Speaking at a panel hosted by Norton Rose Fulbright, Sagadiyev highlighted the Kazakh government’s intention to divest from noncore, non-strategic businesses over the coming decade. “With 30 companies already privatized this year, we are looking to sell over 650 more.”

The government of Kazakhstan has confirmed plans to provide generous financial incentives to foreign investors in newly-formed firms, while pledging to reduce state involvement in the broader economy.

Sharing a border with Russia, China and the Caspian Sea, Kazakhstan is well-positioned to appeal to investors wanting to tap into the growth opportunities across Eurasia, and is the leading economy in a region set to produce 10% of the world’s oil and gas by 2020.

Cash-backs of up to 30% will be available for firms investing in entities less than a year old in 14 core sectors – including mining/metallurgy, construction, agriculture and pharmaceuticals – according to Yerlan Sagadiyev, deputy minister of investments and development.

These latest government efforts to encourage foreign investment follow the successful issue in early October of Kazakhstan’s first Eurobond since 2000, which raised $2.5bn in the form of 10- and 30-year instruments and was heavily over-subscribed.

“We aim to make Kazakhstan one of the top 30 investment destinations in the world,” Sagadiyev said during an investment conference in London. “Our ministry’s job is to deliver a package of measures that will take us there.”

Fitch affirms Kazakhstan's sovereign ratings at ‘BBB+’ Fitch Ratings affirmed Kazakhstan's longterm foreign and local currency Issuer Default Ratings at ‘BBB+’ and ‘A-‘ respectively. The rating on Kazakhstan's senior unsecured foreign currency bonds was also affirmed at ‘BBB+’. The outlooks on the long-term ratings

Sagadiyev and his colleagues outlined new legislation to encourage both domestic and foreign investors in Kazakhstan over an 8-10

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is stable. The country ceiling is affirmed at ‘A-‘ and short-term foreign currency IDR at ‘F2’.

The affirmation of the ratings reflects Kazakhstan's strong sovereign balance sheet underpinned by past prudent management of the public finances. This allows Kazakhstan to absorb the impact of the falling oil prices and a slowdown in GDP growth in its two main trading partners, namely Russia and China. The country's National Oil Fund accumulated $76bn or 36% of GDP at the end of October, which is a solid financial base that can be used in case of turbulences in the economy. Fitch expects the reserves to grow albeit at a slower pace.

At the same time, the agency noted that devaluation carried out in February undermined confidence in the local currency and exposed the weakness of the monetary policy framework.

Moreover, the external shocks dented confidence further and pressured growth prospects. Thus, Fitch expects GDP to expand by 4% in 2014-2016, down from 6% in 2013. Fitch also assumes that the government's fiscal policy responses to a less favourable external environment will combine higher drawdown from the National Oil Fund to fund economic support programmes, spending cuts and higher borrowings. As structural strengths, Fitch names high income per capita and a strong track record of growth as well as a large natural resource endowment. Structural weakness are: low quality of governance and underdeveloped institutions as well as high commodity dependence.

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Kazakh central bank again refutes possible devaluation of currency No devaluation of the national currency, the tenge, is planned, Kairat Kelimbetov, head of the National Bank of Kazakhstan repeated at a press conference in Almaty in November.

He added that he hoped for the stabilisation of the economy and he believed that the tenge was strong enough not to bow to pressure stemming from the weakening Russian ruble.

Kelimbetov explained that the risks expected were presently happening and this prompted people to ask questions about a new devaluation. However, according to him, the devaluation in February (by 19%) was made in order to address the risks that may come in the "next three years".

Kazakhstan devalued its currency in February by 19% explaining the move by the weakening Russian currency. This prompted exchange traders to expect another wave of devaluation as the Russian currency is reaching historical lows against the dollar these days.

At the same time, the poor way the NBK conducted the devaluation in February, namely a lack of communication with the market, has undermined confidence in the predictability of its policy.

Despite, the calming words of Kelimbetov, analysts see growing pressure on the tenge stemming from the weakening ruble and developments in Ukraine.

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Kazakhstan to lure high-end tourists with caviar baths In a race to attract tourists to the oil-rich Central Asian country, tour operators in Kazakhstan are targeting high-end travellers with offerings such as black caviar baths, as backpackers prefer much cheaper destinations such as Kyrgyzstan or Mongolia.

In an attempt to boost tourism, Kazakh authorities have abolished visas for nationals from 10 rich countries that are the largest investors in Kazakhstan. In the year from July 1, nationals from the UK, the US, Germany, France, Italy, the Netherlands, Japan, South Korea, Malaysia and the UAE can visit Kazakhstan visa-free for a period of two weeks.

Despite having spots of natural beauty from snow-capped mountains to alpine lakes and from ski resorts to modern architectural gems like British architect Norman Foster-designed Khan Shatyr in Astana, dubbed as the world's tallest tent, the country has so far failed to capitalise on tourism because of vast distances between attractions, and the high costs of accommodation and air travel: out of 6.84mn foreigners who visited Kazakhstan in 2013, only

56,617 specified tourism as the purpose of visit, according to official statistics. By comparison, next-door Kyrgyzstan claims to have attracted 2mn tourists to Central Asia's prime beach destination Lake Issyk-Kul alone this year.

Under a blueprint to develop the tourism industry in Kazakhstan until 2020, the Investment and Development Ministry and UKbased THR Consulting have devised plans to turn the $3.3bn Kenderli resort on the shores of the Caspian Sea into a luxury tourist destination.

According to these plans, Kenderli will offer services such as black caviar spas and dancing with seals as one of its top five tourist services.

The resort will also provide more mundane activities like golf, hot air balloon flights and dinners on water, according to Tengrinews.

Kenderli is expected to draw 642,000 tourists a year by 2020, including 333,400 from abroad.

Russia is designated as the primary supplier of caviar bathers, with Kazakhstan itself being a secondary source of tourists for the resorts.

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Chart Kazakh banks increasingly rely on deposits This month’s chart shows that customer deposits (including corporate and retail) represent the largest funding source for Kazakh banks, accounting for 73% of the banking system’s total funding, as of June 1.

While customer deposits as a proportion of total funding have increased from 64% in 2010, the share held by issued securities has decreased to 7% from 15% in 2010.

The chart also shows that the share of loans in total funding has fallen significantly. This trend began in 2007 as the global credit crunch that preceded the full-blown financial crisis in 2008 crisis shut the international capital markets for Kazakh banks, drying up foreign funding.

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News in brief Kazakhstan's international reserves top $105bn

January-September, KMG E&P decreased oil production to 9.217mn tonnes from 9.228mn tonnes seen in the same period of the previous Kazakhstan's international reserves – the National year. Last year, the company increased output by Bank's forex and gold reserves and funds of the 2% y/y to 12.4mn tonnes.

National Oil Fund – stood at $105bn, the country's central bank chief, Kairat Kelimbetov, told the KMG E&P is the main oil producing subsidiary of Kazakh parliament's upper chamber, the Senate, national oil and gas holding KazMunaiGas. The on November 6. latter approached KMG E&P in summer with an offer to buy out the remaining shares of the He said the central bank's forex and gold reserves company and to de-list it from the LSE. The move is seen by some analysts as a preparatory step for increased by 14.4% to $28.3bn between January listing of KMG holding. and October, while the funds of the National Oil Fund went up by 8.5% to $76.8bn in the given period. "Since the beginning of 2014, the country's international reserves, including the National EU major investor in Fund's foreign currency reserves, increased by 10% to $105.1bn as of October 31, 2014," Kazakhstan in past nine years Kelimbetov told senators.

with nearly $100bn

KazMunaiGas E&P posts record profit from currency devaluation in Jan-Sep

The EU is Kazakhstan's largest investor with nearly $100bn invested in the country in the past nine years, according to the Kaznex Invest national agency for exports and investment.

KazMunaiGas Exploration & Production's net profit jumped by 160% y/y to KZT242bn ($1.357bn) in January-September as revenues increased by 14% y/y to KZT690.3bn, the company reported.

Asel Yergaziyeva, the agency's chairwoman, told a news conference in Astana on November 6 that EU countries had invested $95bn in Kazakhstan between 2005 and June 2014, while the US and China had invested $19bn and $11.8bn respectively.

The main reason for such a good result is a devaluation of the national currency - the Kazakh government devalued the tenge by around 20% in February, which led to an increase in revenues of export-oriented companies. The company's capex grew by a meagre 1% to KZT92bn.

She noted that about 130 investment projects worth $21bn had been carried out in the processing sector and about 70 projects worth $36bn were in the pipeline.

The effect of the devaluation on the company's financial indicators is even more striking if production data are taken into account. In

The structure of foreign direct investment (FDI) has also changed in Kazakhstan since 2010, Kaysar Zhumabayuly, spokesman for the

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Investment and Development Ministry, told the news conference. FDI in the insurance and financial sectors fell by 22% and 60% respectively in 2010-H1/2014 compared to 2005-2009, he said.

At the same time, FDI in the processing industry increased by 153% in the given period, he said.

Kazakh parliament approves amendments to central budget The Kazakh parliament approved on November 6 amendments to the central budget caused by slowing GDP growth and declining oil prices.

According to National Economy Minister Yerbolat Dossayev, GDP will increase by 4.3% this year, down from originally planned 6%. The revision came after months of repeating pledges from the authorities that GDP growth planned for this year would be achieved.

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The lack of the status of international prevented the airport from establishing direct flights with foreign countries, forcing the local population to travel abroad via Almaty or Astana, one-and-a-half hours away by air from the city.

The change in status was possible after the airport building and infrastructure underwent reconstruction to meet international standards, the newspaper said.

Home to the world's largest space launch site Baikonur and the Kumkol group of oil fields, developed by subsidiaries of China's CNPC, the airport plans to launch flights to link the region with Russia, China, Turkey and the UAE - top destinations for Kazakh travellers.

Flights to Moscow are expected to be launched by the end of this year, the newspaper added.

Kazakh uranium producer Budget revenues are being expected to total KZT3.94tn, which is KZT420.7bn below the number trebles y/y profits in Jan-Sep set in the original version. If transfers from the Kazakhstan's national uranium operator National Oil Fund are included, revenues will Kazatomprom made an operating profit of KZT28.4bn reach KZT6.107tn. This comprises KZT325bn for injection into the fund of stressed banking assets. ($157mn) in January-September against KZT9.3bn ($60.4mn) in the same period of 2013, according to incomplete financial statements published by Spending is projected at KZT7.19bn, which is Kazakhstan Stock Exchange on November 3.

KZT65.5bn up in comparison to the original budget plan. Thus, budget deficit is expected In a statement on October 28, Kazatomprom said to reach KZT1.083tn or 2.6% of GDP. In original it produced 3,160 tonnes of uranium in the third plan, budget deficit was KZT178.3bn smaller and quarter of 2014. The company produced 3,207 tonnes accounted for 2.3% of GDP. in the same period of 2014. It also said Kazakhstan produced 5,700 tonnes of uranium in the given Southern Kazakh airport said to period against 5,762 tonnes in the third quarter of 2013. The country's total output of uranium reached become international 16,730 tonnes of uranium in January-September 2014 against 16,331 tonnes in the same The airport in the southern Kazakh city of period of 2013.

Kyzylorda has acquired international status in order to tap into international routes passing the Aral Sea region, the local Kyzylordinskiye Vesti newspaper reported on November 6.

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Kazakhstan hopes to transit 8% of China-Europe trade Kazakhstan hopes it will be able to lure up to 8% of China-Europe trade to transit through its territory after it completes its section of the Western Europe-Western China transport corridor, according to forecasts made by Yerlan Karin, director of the state-run Kazakhstan Institute for Strategic Studies.

"New transport projects will enable Kazakhstan to count on increasing the volume of transit freight traffic to up to 8% of total trade between China and the EU," Karin said. According to the pundit, China's trade with the EU will increase from the current $500bn to $800bn by 2020, with freight traffic growing to 170mn tonnes.

Kazakhstan is building the 2,800km-long $5bn Western Kazakhstan-Western China road, which will link China with Russia and further with Europe. The construction of the road is expected to be completed in 2015. And in August Kazakhstan launched the Beyneu-Zhezkazgan west-east railway line that has cut a transit time for Chinese goods to Europe via Kazakhstan by over 1,000 km. The new line will also link China with Iran along the newly-built KazakhstanTurkmenistan-Iran line along the Caspian Sea. The line is expected to be commissioned by the end of this year.

Copper major Kazakhmys announces completion of restructuring, changes name Copper major Kazakhmys announced completion of restructuring and the change of name to KAZ Minerals, the company announced. The restructuring was first announced on February 27.

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As a result of restructuring, KAZ Minerals will retain mining and processing assets in the eastern part of the country and Bozymchak mine located in Kyrgyzstan. KAZ Minerals will also control projects with the major growth potential: Bozshakol, Aktogay and Koksay. At the same time, Cuprum Holding will take control over mature assets in the Zhezkazgan and Central regions of Kazakhstan.

Kazakhmys decided on the restructuring after a series of scandals that ruined the company’s reputation and led to the company's de-listing from the LSE.

Kazakh Prosecutor confirms citizens are fighting in Syria and Iraq The Prosecutor General confirmed information about a number of Kazakh citizens taking part in combat activities in Syria, Iraq, Afghanistan and also in south-eastern Ukraine. The Prosecutor did not provide any numbers of the fighters.

At the same time, the prosecutor informed that special state agencies launched criminal proceedings against people engaged in fighting.

Moreover, the prosecutor also informed that some Kazakh citizens are continuing to try to leave the country to fight abroad including with the help of people recruiting and sending volunteers to war zones. The prosecutor issued a warning against them and declared that each such case will be thoroughly investigated.

Significantly, the rare statement from the prosecutor indicates that the problem of Kazakh citizens leaving to fight abroad is growing. At present, no reliable figures of Kazakh fighters are available.