Kazakhstan: Seeking infrastructure investment

OVERVIEW

Gleaning from his earlier Soviet era experience, President Nazarbayev had recognised at the very onset that accelerating Kazakhstan’s economic and industrial growth would require a) Substantial FDI (foreign direct

investment); b) Use of superior technology; c) Trained and motivated human capital d) Goodwill and participation of advanced industrialised nations, e) And... most particularly proactive partnership from Western Europe and USA, f) Plus the empathy of two super-power

neighbours.

Narazbayev also realised that Kazakhstan would be COMPETING directly with other, more prominent nations, for a share of available FDIs. Consequently, Kazakhstan had to become visible in the global arena and be perceived as a stable, ambitious economy worthy of trust and FDI dollars.

Foreign Direct Investments (FDI) pursue two necessary factors (i) social/political stability and (ii) potential for generating lucrative ROI.

Kazakhstan’s carefully structured domestic policies have thus prioritised political stability and accelerated economic growth. This consequently empowered Nazarbayev’s aspirations about playing a much larger, VISIBLE and influential role in the regional and global economy.

Having suffered the dangers/ ravages of nuclear testing he also perceived that Kazakhstan had earned the moral authority to espouse the cause of nuclear disarmament. Surrendering nuclear arsenal also generated respect and visibility in the global arena for a young, aspiring nation. This was a careful, rational decision. For what would the common Kazakh folks have gained by owning nuclear-bragging rights.

The combined impact of all these factors created the foundation-platform for acquiring the goodwill and trust of the financial sector and serious investors.

The World Bank 2017 Doing Business report ranked Kazakhstan as the 35th easiest economy to operate in out of 190 economies it considered, climbing six places from the 2016 ranking. In the same report, Kazakhstan is ranked third in “Protecting Minority Investors”. In the Constitution of Kazakhstan, foreign investors are guaranteed the same rights and obligations as Kazakh nationals. Foreign investors are ensured under the Investment Code equality between local and foreign investors, protection of investor’s rights, arbitration of disputes, guarantees against nationalisation and the right to repatriate profits.

PRIORITY SECTORS

Kazakhstan’s major mineral reserves

The State Programme for Accelerated Industrial and Innovative Development (SPAIID) 2015–2019 is the second five-year national industrialisation plan. The programme was developed in accordance with long-term priorities of the Kazakhstan 2050 strategy. In the first five years of the SPAIID (2010-2014), Kazakhstan’s economy attracted US$125 billion in foreign direct investments. The manufacturing sector received 70% of all foreign direct investments which increased industry productivity in real terms by 60%. Investors operating in priority sectors of the economy were given basic incentives such as customs, tax preferences and state land grants. SPAIID 2015-2019 has taken into account numerous barriers and will eliminate obstructions for foreign investors, which include weak guarantees to protect and support long-term investment, complex procedures for obtaining entrance visas and permits for foreign labour to stay in Kazakhstan, and lack of awareness of foreign business circles about investment prospects in Kazakhstan.

Six priority sectors of the secondary industry were identified for rapid development focus: 1. Metallurgy Kazakhstan is home to almost 100 identified elements with 60 more under active recovery. The metallurgy sector supports more than 35% of the processing industry volume. Kazakhstan possesses an estimation of 30% chrome ore deposits, 25% of manganese ore, 1.2% of iron ore, 5.5% of copper, 10.9% of lead, 2% of zinc, and 8% of silver , of the world’s reserves. a. Ferrous metallurgy Ferrous metallurgy accounts for 13% of the secondary industry in Kazakhstan. Focus: production of high quality materials, new types of steel and expanding product line of highly alloyed steel.

b. Non-ferrous metallurgy Key sector of the secondary industry that forms Kazakhstan’s export potential. Focus: creation of new or increasing of existing industries to produce priority commodities (copper tubes and wires, aluminium bars and structures, barrels, drums, tanks, etc.) that will reduce imports and increase exports of the sector. producing industry. Focus: Expansion of competitive production capacity and product differentiation, building into global value chains.

3. Petrochemical industry a. Oil refining Significant share of total manufacturing output of 13.8%. Focus: Maximise Kazakhstan’s resource potential to provide the domestic market with quality refined products, gas products and petrochemicals and to increase export to the macroregion countries.

b. Petrochemical industry A new, promising economic sector in Kazakhstan that manufactures and produces plastics using base petrochemical products for various purposes, e.g. construction materials and packaging. Focus: Implementation of existing resource potential and favourable market situation to develop petrochemical industry

4. Engineering a. Manufacturing of vehicles, spare parts, accessories and motors. A new economic industry which holds a significant share in total volume of mechanical engineering in Kazakhstan. Focus: Establishment of competitive large-scale automobile vehicles manufacturing and improvement of local content.

b. Electrical equipment Focus: Improvement of competition of enterprises in sector and growth in production required for domestic and external markets.

c. Railway equipment manufacture Kazakhstan is one of few countries that possess large wagon and locomotive fleets with a large prospect for developing a competitive railway equipment manufacturing sector. Focus: Development of new markets for railway equipment sale and improvement of production of components and accessories.

5. Construction materials a. Manufacture of machinery and equipment for mining industry Focus: Growth in production of competitive products and diversification of product range.

b. Constructional materials production Focus: Creation of conditions in Kazakhstan for production of constructional materials with high value added with due account for requirements of industrialised methods Aktau Almaty Khorgos Dostyk Urumqi of construction.

6. Food industry a. Food production A strategically important industry that ensures food security for the nation and is closely related to agricultural production as a raw material supplier. Focus: Create conditions in order to improve competitiveness of the sector.

b. Agricultural chemistry Focus: Development of agrochemical sector by encouraging domestic demand and export potential development.

c. Manufacture of agricultural equipment Focus: Differentiation and expansion of competitive products in demand at domestic and external markets and building global value chains.

BOOSTING LOGISTICS

In line with the long-term economic policy outlined by President Nursultan Nazarbayev, the SEZ Khorgos Eastern Gates was legally designated to carry out trade and logistics as its priority activities. SEZ Khorgos Eastern Gates is situated next to the border of China and will become the main cargoconsolidation and distribution centre for the Eurasian continent. KTZ Express, a subsidiary under Kazakhstan Temir Zholy, was established in 2013 to support the activities at SEZ Khorgos Eastern Gate, with a multimodal transport system.

The required transit time between China, Europe and Middle East via sea route is 45 days. The SEZ Khorgos Eastern Gate cuts the time by 10 to 15 days via railroad and land. The expected construction of more than 1,500km of new rail routes will increase the volume of exports to Russia, Europe and Baltic countries; China, Japan and the countries in Southeast Asia; Central Asia, over Caucasus, Black Sea, Persian Gulf and Turkey.

Facilities • Dry port Total area: 129.8ha Objective: To enhance the connectivity of major destinations in Central Asia, Europe and China using advanced technological systems and equipment.

The linking point between the East and the West, it is located at the exact break of gauge between Chinese and Kazakh rail: High-speed container trains Chengdu (China) – Lodz (Poland): 10,564km/13-14 days Chongqing (China) – Duisburg (Germany): 10,769km/16 days Zhengzhou (China) – Hamburg (Germany): 10,500km/13-14 days Lianyungang (China) – Ablyk (Uzbekistan/Almaty): 6,050km/5-6 days High-speed international