Diversification of economy – key to post-crisis development

ASTANA. June 17. KAZINFORM /Muratbek Makulbekov/ - The significant event of the last week was the XXI Plenary Session of the Foreign Investors’ Council in Kostanai. The subject of the discussion at the meeting reflected the situation in the country given current global downturn – “Alternative sources of funding for further economical development of Kazakhstan in terms of instability in the world financial markets.
The report delivered by Minister of Industry and Trade Asset Issekeshev with regards to implementation of the last protocol of the XX Plenary Session of the Council opened the sitting. The President of the European Bank of Reconstruction and Development Thomas Miroff speaking about the “Internal measures for enlarging the access to traditional and alternative sources of funding” noted that Kazakhstan succeeded to attract sizable capital from abroad, but the internal ones are hardly used. Therefore EBRD recommends Kazakhstan to look for another innovative ways of funding of economy.

Bakhyt Sultanov, the Minister of Economy and Budget Planning, reported on the real opportunities of funding Kazakhstan's economy. According to his report today the negative tendency of investments reduction has been overcome – the speed of investments growth in April increased to 136,9% compared to the same period of the last year. The Minister pointed out four directions of funding.

First – diversification of funding resources of the economy. Because of sustainable development of economy Kazakhstan succeeded to attract long-term loans from strategic partners and investor-countries. A credit of 10 billions of US dollars is coming from China. The procedures of getting loan from international financial institutions of more than 3,5 billions of dollars are finishing. Negotiations to attract capitals from Arab countries for large-scale investment projects are held now.

The second direction is increasing of the volume of direct foreign investments and development of new mechanisms of funding. Mr. Sultanov noted that from the beginning of the year 44% of investments into the capital stock are from foreign sources. Their volume comparing with similar period of the last year grew to 2,4%.

The third direction is mobilization of internal resources of enterprises and economy as whole. Corrections to the Tax code decreasing tax burden on the non-oil-and-gas sector of economy will give an opportunity to free significant capitals for enterprises, which can be used for development of production. This year corporate income tax reduced from 30% to 20%, value added tax from 13% to 12 %.

The fourth direction is development of alternative instruments of investment attraction to the economy. The Minister noted the importance of Islam funding introduction, and necessary legislative base for such funding is already created. Moreover there is public - private cooperation institute developing in our country now, 7 contracts for implementation of large projects estimated as 200 billions Tenge were concluded.

Performers – foreign members of the Council noted dependence of Kazakhstan economy upon the situation in the world markets of energy and raw materials. The weakness of Kazakhstan's banking system makes the state support the ratings of investment level of the country with the help of budget money. Some of speakers, for example, Fiona Paulus – the Head of energy and natural resources division of the “Royal Bank of Scotland”, told that there is a danger of financial dependence strengthening from prices for oil as a result of tax burden on non-product sector of economy. F.Paulus by samples of Canada, Chili, SAR and Kazakhstan showed the connection between the level of development of the financial sector and sustainable economy.

Speaking after F.Paulus President of OSS “Lukoil” Vagit Alekperov assured President Nursultan Nazarbayev that he and other members of the Council maintain the program of Kazakhstan participation in public purchases, and participation of national companies and subsurface users. Moreover he told that the company promises to execute all demands of the Kazakhstan government, particularly ecological – full utilization of associated oil gas is one of the “Lukoil” priorities in Kazakhstan.

Executive director of the “JP Morgan” Murad Megalli recommended to the Kazakhstan government to check out all assets in different sectors of economy in order to determine the list of companies and projects, for which private contributions or increase of private capital would be favorable.

Head of the company “Arselor Mittal” Lakshmi Mittal told that the Government of Kazakhstan succeeded to stabilize the situation in the financial sector, and as a result there would be economy growth in Kazakhstan already this year. Mr. Mittal informed that his company plans to implement the projects of utilization of the coalmine methane, reduction of domain gas to produce heat and electric power. He also thinks that the source of economical growth is protection of environment.

Alexander Mashkevich the stockholder of the Eurasian corporation of natural resources asked the members of the meeting not to give in to negative mood. He noted that not financial resources are becoming inaccessible but the forms of funding change. Particularly, he informed that transport division of the ENRC logistics corporation takes part in concessionary project of the “Korgas-Jetygen” rail-road construction. He thinks that on the basis of this project optimal model of public and private cooperation could be created, which will serve for further development of the country.

Vice-president of the Asian Development Bank Jau Shaou noted that to implement such large-scale projects high professional level of participants needed and firm political will of authorities of the country.

After the Council’s members finished the floor was taken by President N.Nazarbayev, his speech has drown a great interest.

The President said that Kazakhstan was one of the first to elaborate own anti-crisis program, which didn’t become statistical document. The program was constantly added according to changing circumstances. Its adequacy and efficiency were positively estimated by respectable experts of the world. In general to implement the anti-crisis actions 19 billions of US dollars were invested, which is 14% of GDP of the country. And there are already positive results appearing, the President noted.

At the same time the crisis once again confirmed the necessity of diversification of our economy, President said. It is the only correct way of post-crisis development, which can provide sustainable and long-term prosperity of citizens.

Therefore starting from the next year we begin to implement a 10-years plan – divided into two 5-year periods of enforced industrial innovative development of the country, President said.

After that the President noticed that Kazakhstan was always opened for investments and continued to do so. Efforts to create favorable investment climate bear fruits. Many foreign companies working in Kazakhstan already invest to related sectors of economy. The President pointed out that new opportunities for foreign investors are opened because of formation of the Customs Union of Kazakhstan, Russia and Belarus. This means creation of the uniform market with population more than 170 millions of people and total GDP of about 2 trillions of US dollars. Customs registration of goods between 3 countries will be cancelled from July 1, 2010.
In this connection we agreed that we end negotiation processes to enter the WTO, in order to enter the WTO together, told N.Nazarbayev.

Second, considering that the key player in financial markets becomes state and institutes with government participation, we ought to expect that in mid-term perspective public companies and development institutes will be the main channel for an attraction of investment to economy.

As it leads to concentration of risks in the quasi-public sector, the investment policy of public companies and institutes, their investment plans and duties should be considered together with the public budget.

Third, big opportunities for private and public sectors open the use of instruments of public-and-private partnership.

Finally the President addressed to foreign investors with call-up to cooperate with Kazakhstan.

“Our cooperative work should become mutually advantageous for all parties” concluded the President.


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