MINISTRY OF NATIONAL ECONOMY OF THE REPUBLIC OF KAZAKHSTAN INVESTMENT OPPORTUNITIES IN KAZAKHSTAN

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1 MINISTRY OF NATIONAL ECONOMY OF THE REPUBLIC OF KAZAKHSTAN INVESTMENT OPPORTUNITIES IN KAZAKHSTAN London, 2014

2 Strategy Kazakhstan-2050 and Concept of entering top 30 most developed countries Kazakhstan by 2050 will be a top-30 developed nation with a high GDP per capita, productive, sustainable economy, a growing population of highly educated citizens with a high income and a high quality standard of living. KPIs 2050 target level Development of knowledge economy sectors Accelerated development of knowledge economy infrastructure Development of human capital Vision of Kazakhstan in 2050 Institutional modernization Strengthening integration to the global and regional economy Economic prosperity of individuals GDP per capita of constant 2005 USD at PPP Diversification of economy Share of oil and gas in exports in percent Labor productivity GDP per worker of constant 2005 USD at PPP Innovation R&D expenditure as percent of GDP Business environment Country rank in the Doing Business Index Corruption Country rank in the Corruption Perception Index Government Effectiveness Country rank in the Government Effectiveness Index ,5% Life expectancy Life expectancy at birth in years 84 2

3 Dynamic and steady economic growth Economy has grown tenfold In terms of GDP growth Kazakhstan currently holds the leading position among CIS countries GDP growth in some CIS countries in % $23 bn. $232 bn. 3,5% 1,3% 0,9% Kazakhstan Armenia Russia Belarus In absolute terms GDP of country increased from $23 bn. to $232 bn. in 2013 Common market of the Customs Union and the Common Economic Space is $2 trln. and about 170 mln. people Kazakhstan is one of the five fastest growing economies in the world with GDP growth of 6% in 2013 and estimated 4,3% in

4 Forecast for Economic Development of Kazakhstan for : steady growth despite global challenges INDEX GDP, bln. US dollars ESTIMATION FORECAST ,4 236,9 267,4 302,3 339,2 382,5 GDP per capita, thousand US dollars GDP growth rate, % 12, ,5 15,1 16,8 18,7 20, By 2019 the economy of Kazakhstan will grow by 1,65 times in comparison to 2013, and by 17 times since 1993 By 2019 GDP per capita will growth by 1,64 times An average rate of growth will be 5,6%, above the average of the world economy of 3.7% 4 4

5 Investment climate: a set of systematic measures have been implemented to improve the business environment to reach 50th position in Doing business rating by 2017 ITALY RUSSIAN KAZAKHSTAN CHINA KAZAKHSTAN RUSSIAN CHINA ITALY ITALY KAZAKHSTAN RUSSIAN CHINA Doing Business Taxation Protecting Minority Investors The Global Competitiveness Index Trade barriers Transparency of government policymaking

6 Investment Preferences Tax benefits Corporate Income Tax 0% for 10 years Land tax 0% for 10 years Property tax 0% for 8 years Investment compensation Up to 30% of capital investment Stability of tax and tariffs For 10 years (excepting VAT and excise taxes) Long term tariffs for 5 or more years Customs privileges Customs duties 0% on the import of: equipment and its components, spare parts, raw materials and supplies Migration benefits No quotas and permits for foreign employees Visa-free travel for 10 OECD countries 6

7 Investment Support ONE-STOP-SHOP SERVICE SUPPORT Information, consulting, organizational and other assistance to the investors INVESTORS PROTECTION Foreign Investors Council chaired by the President Council for improvement of investment climate chaired by the Prime Minister Investment Ombudsman Institution SPECIAL ECONOMIC ZONES 10 Special Economic Zones (SEZ) that provide a comfortable regulatory conditions for doing business on its territory STATE IN-KIND GRANTS Land plots, buildings, machinery and equipment in property 7

8 Prudent spending policy resulted in modest debt and stable rating Public debt of the Republic of Kazakhstan on 1 st of October 2014 was 29 billions of USD dollars, or 21% of GDP National Fund assets amounted to 94,6 billions of USD dollars or 42,7% of GDP as for December 1, 2014 October of 2014, the Government issued sovereign bonds for 2.5 billions of USD dollars, first time since Investors had shown high interest to the bonds with bids exceeding 11 billions of USD dollars, Credit ratings: Baa2 (Moody s) and BBB+ (S&P and Fitch) 8

9 Economic diversification continues to be at the heart of economic policy Government continues to conduct structural reforms to achieve a balanced growth Key objectives Development of infrastructure and service sector Improve business climate for industrial development Support entrepreneurship and SMEs development State Program of Accelerated Industrial and Innovative Development for State Program of Accelerated Industrial and Innovative Development to be implemented in Government Program of service sector development until 2020 Diversification is where investments are welcome the most Increase added value and effectiveness in natural resources processing industries Accelerate manufacturing development to achieve a balanced economic growth A step change in labour productivity which is a key driver of long-term output growth 9

10 New Economic Policy Nurly Zhol a way to the future In November 2014, President of the Republic of Kazakhstan Nursultan Nazarbayev in his annual address introduced New Economic Policy Nurly Zhol a way to the future, which is based on a countercyclical principle IMF World Bank RECOMMEND to invest in infrastructure to stimulate domestic demand as a way to revive output growth Infrastructure development is a cornerstone of NEW ECONOMIC POLICY Responses to challenges of the world economy while increasing productivity and stimulating economic activity in the long-term Investment in infrastructure is a tool to mitigate risks associated with Middle Income Trap 10

11 Infrastructure development plan is a cornerstone of New Economic Policy Nurly Zhol a way to the future DIRECTIONS OF INFRASTRUCTURAL DEVELOPMENT IN KAZAKHSTAN Support of SME development 7 1 Building new logistical infrastructure and modernizing the existing Social infrastructure development 6 NURLY ZHOL A WAY TO THE FUTURE 2 Modernization of industrial infrastructure 3 Development of energy infrastructure Development of housing infrastructure 5 4 Modernization of utilities, water and heat supply infrastructure 11

12 Institutional Development in collaboration with International Financial Institutions In May 2014, the Government of the Republic of Kazakhstan signed Partnership framework agreements with 4 international financial institutions (WB, EBRD, ADB, IDB) in order to strengthen cooperation to promote sustainable development and growth of the Republic of Kazakhstan. Structural reforms will be conducted in the following 8 directions: 1. Financial Sector development 2. SME development and improvement of business climate 3. Science and innovations 4. Human capital and labor market 5. Attraction of investments to the economy and PPP 6. Sustainable development, transport infrastructure 7. Support in implementation of structural reforms 8. Regional collaboration and integration Total portfolio of investment projects, institutional loans and technical support with IFIs amounts to $13.5 billion $2,7bn IFIs IFI $1,8bn Government of RK $9,0bn Third parties Republic of Kazakhstan World Bank Group European Bank for Reconstruction and Development Asian Development Bank Islamic Development Bank 12

13 Infrastructure development Centre-North (Astana Petropavlovsk) Small Astana Ring Road Centre-West (Astana-Aktobe-Aktau exit to Russia through Atyrau) Centre-East (Astana - Oskemen) to Europe Astana Almaty-Oskemen to China Aktau sea port access to Caspian sea Almaty Centre-South (Astana - Almaty) Khorgos customs point BIG ALMATY RING ROAD (BAKAD project) 13

14 The development of the railway sector and logistics Russia To Europe Borzhakty-Ersai 14 km 9,5 bln. tenge construction period transportation volume to mln. tonnes Astana Almaty Shu 124,5 km 39,7 bln. tenge construction period transportation volume to ,5 mln. tonnes To Russia Zhezkazgan China Aktau (DP World) Ersai Borzhakty Beineu Shu Khorgos (DP World) Uzbekistan Almaty Ferry complex in Kuryk: Terminal area: 20,6 hectares Project cost: 16,4 bln. tenge Construction end: December 2016 Transhipment volume: 4 mln. ton/year Zhezgazgan - Beineu: 1200 km construction period Existing r/w - New &uderconstruction r/w Loopline (Railway) of Almaty concession 61,1 km 27,9 bln. tenge construction period

15 BAKAD is the biggest project in Kazakhstan Key pilot project Largest PPP project in Kazakhstan Pipeline of road projects, link of Western Europe-Western China transnational highway Capital investments: 124,47 bln. KZT (~680 million USD) / 20 years BTO contract BAKAD St. Petersburg RUSSIAN FEDERATION mln. BELARUS 9.5 mln. Aktobe KAZAKHSTAN 17 mln. ALMATY MONGOLIA 2.8 mln. TURKEY 74.9 mln. IRAN 77.4 mln. PAKISTAN mln. INDIA 1.3 bln. CHINA 1.4 bln. Lianyungang Western Europe Western China corridor (8,445 km) Western Europe Western China corridor on the territory of Kazakhstan (2,787 km) 15

16 PPP in Kazakhstan: legislation aspects LAW ON CONCESSIONS Operates in Kazakhstan since 2006 Amended legislation of Kazakhstan on PPP was developed with the participation of EBRD, WB Amendments to the legislation on PPP Availability payment, Consumption warranty Long-term tariffs for PPP projects Minimum equity request is decreased to 10% of the cost of concession project Direct agreement, step-in-rights New types of contracts (BOT, BOO, O&M, DBFO and other mixed contracts) Transparent procedures: two-stage tenders Institutions supporting PPP projects were developed and divided to National level (Kazakhstan PPP Center) and Regional level (regional PPP centers) NEW LAW ON PPP Institutional PPP, including shareholders agreement, option agreement, direct talks, LCC, PPP in innovations 16

17 BAKAD project: key points Availability payment payment of the Government covering investment costs, OPEX, REPEX, tax, cost of capital, FX and traffic risks costs and other Availability payment bln. KZT (1,9 bln. USD) BAKAD based on international experience Direct agreement (state-creditor-concessionaire), arbitration, step-in rights - protection of creditors Currency risk compensation additional payment to compensate for devaluation of Tenge vs US Dollar Termination payments - compensation payments due to concessionaire default, Grantor (Government) fault or termination, prolonged Force Majeure The project was prepared under consultation of the International Finance Corporation and the European Bank for Reconstruction and Development 17