HIGH EXPECTATIONS

Kazakhstan 2011 | ECONOMY | INTERVIEW

TBY talks to Kairat Kelimbetov, Minister of Economic Development and Trade, on the integration of Kazakhstan into the global economy, prospects for the Customs Union, and economic diversification and the role of foreign investors.

Kairat Kelimbetov
BIOGRAPHY
Kairat Kelimbetov became a member of the Supreme Economic Council in 1996, and in 1997 went on to hold positions at the Agency of Strategic Planning. In 1998 he was appointed Head of Social and Economic Development of the Administration of the President. He also served as Chairman of the Agency for Strategic Planning, and First Vice-Minister of Finance. From 2002 to 2006 he was the Minister of Economy, and before becoming the Minister of Economic Development in 2011 he worked as the CEO of Kazyna Sustainable Development Fund and Head of Administration of the President.

Kazakhstan is considered a success story in terms of engaging with the global market place. What have been the defining elements of the country's vision with regard to integration into the global economy?

Since independence, President Nazarbayev's policy has been to diversify the economy and create ties with trading partners. This policy has been successful and well balanced. We work in cooperation with the EU, which is Kazakhstan's biggest trade partner. We would like to be a platform and a hub for European activity in Central Asia. We have had long and fruitful relations with Russia and other CIS countries, and that has kept economic relations positive. With the implementation of the Customs Union, we are moving closer to the Belarusian and Russian economies. We hope to expand this into a Eurasian Economic Community and Unique Economic Space in the future. We also have very strong relations with our neighbor China, and we are working on large-scale projects to build gas pipelines and a highway from China to Europe across Kazakhstan. We are also cooperating with our eastern neighbor under the Shanghai Cooperation Organization. In relation to foreign economic relations, we have attracted $120 billion of FDI over the last two decades. Among our investors are large US companies like Chevron, and very influential European companies such as Total and ENI.

In 2010, GDP growth reached 7%. We anticipate similar growth over the upcoming years. GDP per capita will also be around $15,000. These figures outstrip all the other Central Asian countries combined.

Additionally, in 2010, Kazakhstan took over the OSCE chairmanship, and the annual OSCE meeting was held in Astana in 2010, which was a superb opportunity to show off the development Kazakhstan has undergone. A recent European Bank for Reconstruction and Development (EBRD) meeting held in Astana also showed off the investment potential of the country. Nearly 2,500 guests and participants were in attendance.

“We would like to be a platform and a hub for European activity in Central Asia."

What were some of the key measures the government took to alleviate the effects of the global financial crisis on the local economy?

Kazakhstan felt the first signs of the financial crisis before other CIS countries because its banking sector was very closely linked to the financial institutions of Western countries. From the beginning of 2007 we experienced problems in the financial system when Lehman Brothers collapsed. Steps were taken by the President to join the two funds, Samruk and Kazyna. Additionally, $10 billion was allocated for anti-crisis measures, and this played a big role in strengthening the economy. We have used the financial resources of our National Stabilization Fund, which is an analog of the Government Pension Fund of Norway, to store extra oil revenues. The national welfare fund Samruk-Kazyna, after becoming the anti-crisis operator of the government, did a great job in solving the problems of the banking sector, the construction sector, SMEs, and the industrial sector. These sectors of the economy suffered the most from the crisis. The four largest banks in the country have avoided financial problems, and some of them even avoided collapse during this period. I should mention that they had debts of more than $40 billion. We started discussions with creditors on restructuring the debts of the banks, and after 18 months of discussions agreements were made. We have stabilized the finance sector of the country and kept the trust of the population in the banks.

In 2008-2009, the most pressing issue for entrepreneurs was the rise in interest rates on credits. The state conducted a refinancing of earlier granted credits and a lowering of rates on new loans for business start-ups and development. It supported more than 10,000 businesses, creating and maintaining more than 19,000 work places over the last four years. Construction and real estate companies received finance from the anti-crisis operator, and this has helped to stabilize and boost the sector.

How would you assess Kazakhstan's strengths and prospects in the Customs Union?

The Customs Union is a big event in the economic lives of Kazakhstan, Belarus, and Russia. It has brought a new dynamic to our relations. The implementation of the Customs Union began in 2010, and according to the latest statistics internal trade has grown 30% between Russia, Belarus, and Kazakhstan. It is a huge market of 170 million people, and Kazakhstan's large companies and SMEs will get an opportunity to export their products to this large market. All companies will be granted equal access to infrastructure, to the market, and to new technologies, promoting joint projects and joint ventures. This will be key in developing our competitiveness. It is absolutely evident that the Customs Union will give us more opportunities.

According to the World Bank's Doing Business 2011 report, Kazakhstan is one of the top reformers in the world. What were some of the key policy decisions taken and reforms made to achieve this improved status?

We have done all we can to create a comfortable and easy environment for investors to operate within. This has been accomplished by creating predictable rules for investors. There has also been an increase in the number of economic and business conferences held here in Kazakhstan, and this has been positive. The special Foreign Investment Council under the President works to achieve these goals, and all key investors meet twice a year and discuss the challenges that are faced and solutions are found. We are striving to create a better investment climate. We are now also working to improve the legal atmosphere and develop the visa regime, as well as the customs regimes. In terms of improving business procedures, a program is being implemented by the government to reduce bureaucracy. The number of licenses and permissions required to operate a business will be cut. This will help to attract more investment, both domestic and foreign.

Kazakhstan has a comprehensive agenda to diversify its economy through accelerated industrialization. In which non-prime sectors of the economy does Kazakhstan have the strongest competitive edge?

Having recovered from the crisis, Kazakhstan is now moving into a post-crisis development phase, with a large emphasis on infrastructure and investment projects within the framework of diversifying the economy. Kazakhstan's post-crisis concentration will also be on motivating large investors and national companies to launch joint strategies and mutually linked industrial projects. We will also continue to focus on investment projects in basic industries such as oil and gas, mining, uranium, and the chemical industry. Now, our main task is to use our competitive advantages in the raw material sectors; for instance, if we have an oil and gas resource, we should develop a refinery, and develop the petrochemical and chemical sector. Likewise, we have to develop a modern metallurgy sector to complement the mining sector. Also, we should develop the atomic energy sector to take advantage of our uranium reserves. Kazakhstan has one of the world's largest reserves and is on track to become the world's largest uranium producer. In accordance with basic industries we need to develop all the required infrastructure, including transport, telecommunications, and electricity supply. Both directions help to build up a strong and competitive economy. The most promising sector of our economy is the agriculture sector. This country is among the top 10 exporters of grain in the world. In that respect, we aim to be a big exporter of agri-food products and grain to our powerful neighbors such as Russia and China.

How much of a role do you see for foreign investors in this industrialization process?

Among the investors that are involved in our industrialization program are Western as well as Eastern companies. We have taken great strides to attract foreign investment, and through a joint venture with General Electric we have constructed a locomotive factory in the capital. Additionally, European companies such as Alstom, Finmeccanica, and Siemens are looking to play a part in the development of infrastructure projects in Kazakhstan. Areva is another company looking to establish a joint venture here, knowing that it can export its products easily to India and China. Through a reorganization of our financial sector, the development of transport infrastructure, and investment in core industries, we expect even more interest from foreign companies.

Additionally, Kazyna Capital Management is responsible for attracting investments and creating joint ventures with foreign companies. Such joint ventures have been established with the Abu Dhabi Investment Authority and Citic Group from China at values of $500 million and $1 billion, respectively.