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Current economic situation in Kazakhstan, Jan'21, 2011


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The presentation is about current economic indicators of Kazakhstan and new accelerated innovative-industrial strategy of Kazakhstan development till 2015.

It was presented by Anuar Kuzhikayev, Embassy of the Republic of Kazakhstan to USA on 21 January 2011.

Current economic situation in Kazakhstan, Jan'21, 2011

  2. 2. Did You Know That Kazakhstan… ? <ul><li>has some 3% of the world’s raw materials and natural resource base of over $300,000 per capita (among the highest in the world, twice the level of Russia, higher than Australia) </li></ul><ul><li>has oil reserves per capita which are 5 times as high as in Russia and higher than in Iran </li></ul><ul><li>has tripled its oil production since 1990 </li></ul><ul><li>more than tripled its gas production from 12 bln. m³ in 2000 to 39 bln. m³ in 2009 </li></ul><ul><li>mined around 25% of the world’s uranium in 2009, making it the world’s largest producer </li></ul><ul><li>produced 20 mln tones of grain in 2009 which made country the 6th largest producer and the 7th largest exporter of grain worldwide </li></ul><ul><li>has 4% of the global iron reserves </li></ul><ul><li>has 8% of the world’s total zinc reserves </li></ul><ul><li>has 4% of the world’s total chrome reserves accounting 15% of global production </li></ul><ul><li>saw $50 bln of FDI over 1998-2008 , more than the $43 bln invested in Russia </li></ul><ul><li>according to WB data, has $11,526 per capita GDP and $5,021 per capita FDI (a level comparable with Central Europe) </li></ul><ul><li>has made major strides in the last couple of years in the Transparency International ratings, moving 30 places up the ranks </li></ul><ul><li>according to Doing Business 2011, among the world's economies Kazakhstan improved business regulation the most in the past year . As a result, it moved up 15 places in the rankings on the ease of doing business -to 59 among 183 economies . </li></ul><ul><li>according to Britain-based Legatum Institute, Kazakhstan is 42 nd in education and 16 th for the average workers acquiring secondary education . Literacy rate is 99.7%. </li></ul><ul><li>Kazakhstan is 8 th for the number of doctors , nurses and hospital beds available per capita, and 97% of the population has access to adequate sanitation systems. </li></ul>
  3. 3. Kazakhstan: Economy Overview <ul><ul><li>Significant achievements due to economic reforms, political stability and natural resources </li></ul></ul><ul><ul><li>GDP in 2009 reached $115.3 billion USD </li></ul></ul><ul><ul><li>Many economists expected crisis-hit Kazakhstan's economy to shrink, but, on the contrary, the country demonstrated seemingly small growth in 2009 (1.2%) and stable 4.7% growth in the 1 st half of 2010, which is considered as a great success, as most of the CIS countries have experienced a decrease in their GDPs. </li></ul></ul><ul><ul><li>Stable, focused and forward-looking government policy </li></ul></ul><ul><ul><li>Kazakhstan is committing significant effort to diversify its economy </li></ul></ul><ul><ul><li>Kazakhstan strives to increase transparency in business practices </li></ul></ul>* sources: National Bank, Ministry of Economic Development and Trade ** source: World Bank ** * as of January-September 2010 Macroeconomic indicators* 2003 2004 2005 2006 2007 2008 2009 2010 Nominal GDP ($ bn) 30.8 43.2 57.1 81.0 104.9 133.4 115.3 1H62.9 Real GDP growth (%) 9.8 9.6 9.7 10.7 8.9 3.3 1.2 8.0 GDP per capita (current $ at PPP) ** 6 , 808 7,7 42 8,6 99 9, 839 10, 895 11, 353 11,526 11,313 (F) Consumer price inflation (end-period, %) 6.8 6.7 7.5 8.4 18.8 9.5 6.2 7 .3 ** Recorded unemployment (average, %) 8.8 8.4 8.1 7.8 7.3 6.6 6.7 5.9 Current account balance ($ mln) -273 335 -1,056 -1,999 -8,321 6,279 -4,248 4,923 Trade balance ($ bln) 3,6 6,7 10,3 14,6 15,1 33,5 15,2 16,5 External debt ($ bln) 22.7 32.8 43.4 74.0 96.9 107.7 113.2 114.6 Foreign direct investments, net ($ mln) 2,213 5,436 2,117 6,663 7,966 14,783 10,501 6,353
  4. 4. The Global Financial Crisis and Kazakhstan <ul><li>Impact of the global financial crisis on the Kazakhstan’s economy: </li></ul><ul><li>In September 2007, Kazakhstan fully experienced the impact of the world crisis, mostly in the following sectors of economy: </li></ul><ul><li>Financial sector </li></ul><ul><li>Small and middle-sized business </li></ul><ul><li>Housing construction </li></ul><ul><li>Agro-industrial sector </li></ul><ul><li>… as a consequence, all branches of the economy were affected </li></ul><ul><li>Government’s response: </li></ul><ul><li>In autumn 2007 , the Government promptly developed the Plan of Antirecessionary Measures for 2007-2008 and began its immediate implementation. </li></ul><ul><li>In autumn 200 8, the Government approved Anti-Crisis Program with a focus on five vectors: financial sector, real estate market, support to SME, agriculture sector and innovation-driven industrial projects. </li></ul><ul><li>Total value of the stimulus programs - $20 bln (14% of the country’s GDP). </li></ul>
  5. 5. Results of the restructuring from macro-point of view <ul><li>Indicator 01.10.2008 01.10.2010 </li></ul><ul><li>Inflation (y-o-y) 18.2% 6.7% </li></ul><ul><li>Banks’ liquidity </li></ul><ul><li>(% of total assets) 14.1% 22.6% </li></ul><ul><li>Volume of banks’ </li></ul><ul><li>assets in NB 9.1 USD bln 10.5 USD bln </li></ul><ul><li>Banking system </li></ul><ul><li>gross external debt 41.6 USD bln 17 USD bln </li></ul><ul><li>In addition, the banking system of Kazakhstan has showed its solvency; and the three problematic banks have successfully finished their restructuring. </li></ul>
  6. 6. Key Outcomes of the Anti-Crisis Package <ul><li>Significant growth of economic indicators was realized during the 1 st half of 2010 in several industries: </li></ul>Industrial production 11.0 % Foreign trade turnover 40.1% <ul><ul><ul><li>Crude oil production 5.9 % </li></ul></ul></ul><ul><ul><ul><li>Natural gas production 5.1 % </li></ul></ul></ul><ul><ul><ul><li>Coal production 6.0 % </li></ul></ul></ul><ul><ul><ul><li>Iron production 25.0% </li></ul></ul></ul><ul><li>Processing industry 19.4 % </li></ul><ul><ul><ul><li>Agriculture 1.3 % </li></ul></ul></ul><ul><ul><ul><li>Mining 5.8% </li></ul></ul></ul><ul><ul><ul><li>Export 72.2% </li></ul></ul></ul><ul><ul><ul><li>Cargo turnover 10.4% </li></ul></ul></ul><ul><ul><ul><li>Passenger traffic 10.8 % </li></ul></ul></ul><ul><ul><ul><li>Communication services 4.9 % </li></ul></ul></ul><ul><ul><ul><li>Retail sales 13.3% </li></ul></ul></ul><ul><ul><ul><li>Wholesale turnover 13.5% </li></ul></ul></ul><ul><ul><ul><li>Construction works 0.1% </li></ul></ul></ul>
  7. 7. Diversification of Economy <ul><ul><ul><li>Kazakhstan aims to achieve sustainable and balanced development of its economy in the next </li></ul></ul></ul><ul><ul><ul><li>10 years through : </li></ul></ul></ul><ul><ul><ul><li>diversification and enhancing its competitiveness </li></ul></ul></ul><ul><ul><ul><li>advancing social effectiveness of priority sectors </li></ul></ul></ul><ul><ul><ul><li>implementing investment projects which create a favorable environment for industrialization </li></ul></ul></ul><ul><ul><ul><li>building up centers of economic growth on the basis of rational territorial organization </li></ul></ul></ul><ul><ul><ul><li>ensuring effective interaction between government and business </li></ul></ul></ul><ul><li>Primary Goals of the Program of Accelerated Industrial-Innovative Development (AIID) </li></ul><ul><li>for 2010-2014: </li></ul><ul><li>GDP growth by 50% from the level of 2008 </li></ul><ul><li>Labor productivity increase in manufacturing industry by 50 % and in separate sectors by 100 % </li></ul><ul><li>Increase proportion of non- oil and gas exports by 40% </li></ul><ul><li>Reduction of energy intensity of GDP no less than 10% from the level of 2008 </li></ul><ul><li>Increase of active enterprises up to 10 % from number of operating enterprises </li></ul><ul><li>The key mechanism of the AIID is the Map of Industrialization </li></ul><ul><li>Envisages 101 industrial projects worth 6.8 trillion tenge </li></ul><ul><li>More than 130,000 temporary and 90,000 permanent jobs are expected to be created </li></ul>
  8. 8. Boosted Industrial-Innovative Development Program 2010-2014 <ul><li>Agriculture </li></ul><ul><li>2015 – 8% export share of agricultural products </li></ul><ul><li>Gross Value Added+16% </li></ul><ul><li>10000 new jobs </li></ul>Construction and Construction Materials 2015 – 80% of demand by domestic production Gross Value Added+76% Refining and O&G Infrastructure Development 2014 – 100% of demand by domestic oil products Gross Value Added+30% Metallurgy 2015 – twofold production and export Gross Value Added+107% Chemical and pharmaceutical Industry 2014 – 50% of demand by domestic production Energy including renewables 2015 – 10% decrease of economy’s energy intensity Transport and Telecommunications boost for new production across all sectors Gross Value Added+63% <ul><li>Total Gross Value Added+over KZT 7 trn. ($47.6 bln.) </li></ul><ul><li>134 projects are scheduled for 2010-2011 </li></ul><ul><li>2011-2014 are still ahead </li></ul>
  9. 9. Investment tax preferences Investment preferences Custom duty exemption State grants in kind <ul><li>Corporate income tax up to 10 years; </li></ul><ul><li>Property tax up to 5 years; </li></ul><ul><li>Land tax up to 5 years. </li></ul>Can be granted when investor imports equipment or parts to implement the investment project Can be granted as a plot of land, building, construction, machines and equipment and so on. Maximum volume of state grants in kind should not exceed more than 30% of investments in fixed assets. State support of investment
  10. 10. Special economic zones operating in Kazakhstan Astana – New City (construction materials, business) Marine port Aktau (naval transportation, marine freight) Ontustyk (textile industry, agriculture) IT-Park ‘Alatau’ (hi-tech, software) Company established in Free economic zone is exempted not only from paying corporate, land and property taxes but also from value-added tax . Petrochemical Park (petrochemical industry) Atyrau Burabay Burabay (tourism cluster)
  11. 11. Special Economic Zones <ul><li>Members of SEZ enjoy the following privileges: </li></ul><ul><li>Corporate income tax exemption; </li></ul><ul><li>Taxation rate of less than 0% when calculating ground tax; </li></ul><ul><li>Application of the 0% rate to the mid-year cost of taxable objects when calculating property tax; </li></ul><ul><li>VAT exemption on goods and services given on SEZ territories, made, or consumed in activities related to SEZ creation; </li></ul><ul><li>VAT exemption on building and civil works for administrative and industrial facilities (offices, industrial buildings, warehouses) intended for activities related to SEZ creation; </li></ul><ul><li>Customs-free policy. </li></ul><ul><li>From 2011, SEZ members enjoy extra benefits under the new law “On SEZ”: </li></ul><ul><li>VAT at a rate of 0% for goods consumed in activities to be determined by the government; </li></ul><ul><li>Exemption for up to 10 years from payment of land tenure in SEZ territory; </li></ul><ul><li>Increase from 15% to 40% in the marginal rate of depreciation used for IT software; </li></ul><ul><li>Introduction of a special process for importing foreign labor to SEZ territory; </li></ul><ul><li>“ One-stop shop” service to SEZ members. </li></ul><ul><li>For the SEZ “Astana – New City”, an additional benefit will be introduced: 100% exemption from corporate income tax; for the SEZ “Information Technology Park”:  5-year Social Security tax exemption. </li></ul>
  12. 12. Main investors of the Republic of Kazakhstan (inflow of FDI in 1993 – 1H2010) Yes, the US is one of the top investors to Kazakhstan
  13. 13. Structure of gross inflow of FDI (inflow of FDI in 1993 – 1H2010) … but , again, focus is on extractive sector
  14. 14. Customs Union with Russia and Belarus <ul><li>On November 27, 2009 leaders of Kazakhstan, Russia and Belarus signed final agreements on the trilateral Customs Union, effective from January 1 st 2010 </li></ul><ul><li>Common external tariff between members of Customs Union, effective from January 1 st 2010 </li></ul><ul><li>Customs Code of the Customs Union, effective from July 2010. </li></ul><ul><li>Further economic integration process assumes that CU member-states will reach unified customs territory that will include free movement of labor and capital, effective as of July 2011. </li></ul>
  15. 15. Favorable Tax Legislation <ul><ul><ul><ul><li>Kazakhstan has the most liberal tax regime among the countries of the Customs Union. </li></ul></ul></ul></ul><ul><li>Corporate tax will be gradually reduced: </li></ul><ul><ul><ul><li>20% - since January 1st , 2009 </li></ul></ul></ul><ul><ul><ul><li>17.5% - since January 1st , 2013 </li></ul></ul></ul><ul><ul><ul><li>15% - since January 1st , 2014 </li></ul></ul></ul>T ype of tax Republic of Kazakhstan Russian Federation Republic of Belarus Corporate income tax 20 % 20% 24% Value added tax 12% 18% 20%
  16. 16. WTO accession remains to be a priority <ul><li>Entering WTO </li></ul>Kazakhstan began the process of accession to the WTO in January 1996 since the official application for the accession WTO and CU negotiations moved in parallel. The pace for creating the CU showed more flexibility from the Governments of Russia and Belarus. Creation of Customs Union Establishment of CU doesn’t “close WTO doors”. Kazakhstan has continued its individual track. Negotiations with the United States and European Union are at the final stage. Negotiations with the US on goods market access have been finalized.
  17. 17. Official Points of Contact SME Development Fund ‘DAMU’ Development Bank of Kazakhstan Investment Fund of Kazakhstan National Innovation Fund Export credit Insurance Corporation ‘ KazExportGarant’ National Export and Investment Agency ‘KAZNEX INVEST’ Ministry of Industry and New Technologies ( ) ‘ Samruk-Kazyna’ National Welfare Fund ( ) ‘ KazAgro ’ National Holding ( www. ) Investment Portal ‘ Kazinvest’
  18. 18. Samruk-Kazyna National Welfare Fund <ul><ul><ul><li>Established in the midst of the global economic crisis Samruk- Kazyna is aimed to sustain the development of national economy and stabilization of financial system </li></ul></ul></ul><ul><ul><li>Samruk-Kazyna defines strategy for state owned assets and is the main instrument for implementation of government policies </li></ul></ul><ul><li>Key player of the industrial and innovation development program </li></ul><ul><li>Promotion and implementation of large-scale investment projects in the framework of the diversification of the economy </li></ul><ul><li>Implementation of effective corporate governance according to the best international practices in corporate management and financial control </li></ul><ul><li>Effective tool in implementation of the Anti-crisis program: </li></ul><ul><li>– primary role in stabilization of financial sector by means of direct participation in 4 largest commercial banks of the country </li></ul><ul><li>– primary role in stabilization of the real estate market </li></ul><ul><li>– direct support of the small and medium size businesses </li></ul><ul><li>– manages mortgage refinance program </li></ul>
  19. 19. Foreign Investors Council chaired by the President of Kazakhstan
  20. 20. 3 BASIC REASONS TO INVEST, TRADE AND PRODUCE IN KAZAKHSTAN Favorable Investment Climate <ul><li>Political & social stability </li></ul><ul><li>State support and guarantee of investments ( Kazakhstan has signed agreements on mutual investment protection) </li></ul><ul><li>Large mineral & renewable reserves (#1 Uranium Producer in the world) </li></ul><ul><li>Hub Europe <-> Asia </li></ul><ul><li>Large & fast growing neighbor markets (up to 500 million consumers) </li></ul>1. Natural resources Markets 2. 3.