Kazakhstan Chamber of Commerce in the USA

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UAE Central Bank signs MoU with National Bank of Kazakhstan 0

Posted on November 21, 2014 by KazCham

Business Intelligence from Colibri Law Firm: Issue #96 

The Central Bank of the UAE on Sunday announced the signing of a Memorandum of Understanding (MoU), with the National Bank of Kazakhstan on cooperation and exchange of regulatory information. The agreement puts in place a mechanism for cooperation between the two banks on regulatory matters, supervision of banks and other financial institutions operating in both jurisdictions. The mechanism also covers the exchange of supervisory information in line with local laws of each jurisdiction and within the Bank for International Settlements and home/host country’s supervisory authorities, and information sharing, which would contribute to the enhancement of the financial system in the UAE and the Republic of Kazakhstan.

Mukhtar Ablyazov: a saucerful of lies, a containerful of evidence 0

Posted on December 28, 2011 by Alex

By Charles Van Der Leeuw, KZW senior contributor, Dec 14, 2011

While the quest by now state-controlled BTA bank, Kazakhstan’s one-time blue chip banking corporation, to get its one-time top man Mukhtar Ablyazov to Pentonville first, to Motroskaya later and eventually to the Kazakh gulag rages on, new evidence has been found in the form of a container full of documents which indicate all details concerning the web of more than 600 mailbox companies all over the world Ablyazov and his accomplices used to divert loans from their collateral and the collateral from the lender – meaning BTA – to their own benefit. The documents, or rather the fact that Ablyazov has lied in court over them which makes him liable to be condemned to a mid-range prison term, are at stake at an ongoing trial in London. The real issue is only due to come on the agenda a year from now. A race against time – which given the worsening situation BTA finds itself in, it is far from certain to win. The bank’s capital shortage is growing by the month, and whether provisions to pay the upcoming bond maturity term this coming January will be sufficient looks uncertain, according to news reports.

It looks very much like a soap story indeed. The sneaky business spy jumps out of his fancy car, and hides, equipped with camera and field glasses, near a fenced luxury villa, where the bas business guy is lurking. After hours, a black-windowed car slides out past the armed gorillas at the entrance. Our hero jumps in his car and pursues his prey. Vroom-vroom, zoom-zoom – in the movies boom-boom often follows but that has been avoided so far. The man in the pursued car, apparently having noticed nothing, stops at the gate of a warehouse complex. The camera zooms in on the name: Big Yellow Box. From his car, our master spy waits with his camera till his prey returns, with piles of documents (a variant to a bag full of drugs, gold or cash) under his arm. The photo camera clicks. Those documents are not just documents – they represent billions of dollars and the direction of their destination. This is where the story takes a twist: rather than in a deserted parking garage or on some spooky dock side, the continuation of the thriller is to take place in a courtroom.

The man in the villa is of course fugitive banker and master-swindler Mukhtar Ablyazov, now in court facing up to two years behind bars if convicted – not for the estimated dozen billion US dollar he diverted to accounts under his direct or indirect control from the bank, Kazakhstan’s BTA, which he once controlled, but for lying to the honourable British judge about the amounts and where on British territory and beyond they are supposed to be located these days. “Ablyazov, who fled Kazakhstan to escape prosecution and lives in the U.K., violated a 2009 court order freezing his assets by failing to reveal ownership in a Moscow skyscraper project and more than 600 shell companies used to conceal his wealth, Bloomberg wrote on November 30 quoting BTA’s lawyer as stating at the start of a two-week trial in London. “Ablyazov attended the hearing with an interpreter. “There hasn’t quite been a case like this before,” the lawyer declared at the hearing. “The bank’s primary purpose is to coerce Ablyazov into complying with the court order.”

It goes without saying that the ultimate goal of the bank, though, is to get at least part of the stolen money back on one side and get its right to the collateral covering it acknowledged by courts from Kazakhstan to the UK – including those in the Russian Federation, Ukraine, Georgia and other places where the collateral is located. Getting stolen property back, however, seems to be low on the agenda for those who are supposed to contribute to justice having its way – at least in Britain, that is. “Ablyazov has been made the subject of a worldwide freezing order on a non-proprietary basis and has also been required to state the source of the funds being used to pay his legal expenses,” The Lawyer wrote on December 9 this year. “The bank is, of course, keen to trace or follow the bonds or their proceeds. To that end it has sought and obtained wide-ranging ancillary relief in the form of disclosure and other orders. Applying an earlier decision of the court, Mr Justice Christopher Clarke said that if the defendant were to have the benefit of spending money that would otherwise be frozen, he must show that there is no possibility of the money being the subject of a claim by the bank from a tracing point of view. Notwithstanding the fact that this is a case in which judges have repeatedly said there is strong evidence of wrongdoing and a series of orders that have not been complied with, this is almost tantamount to a reversal of the burden of proof and thus a powerful order to make. Ablyazov was also ordered to answer a list of questions about his funding arrangements, it being suspected that nominees were making payments out of assets that were, in reality, his. One of Ablyazov’s colleagues, Syrym Shalabayev, is said to have concealed the proceeds of the realisation of missing bonds.”

The point the comment tries to make looks pathetic. Apart from hair-cleaving concerning the culprit’s legal rights, which are subject to abuse to begin with, the author of the article clearly misses the point where the structure of the charges is concerned. On the judge’s table are not bonds – which have been hit, as has been widely publicised for well over two years now, by Ablyazov’s diversion schemes whereas the tools he used were not bonds but loan sum and loan liability transfers as well as chain schemes diverting assets which served as their collateral in a different direction. As far as known, Ablyazov never used BTA’s own debt paper as tools to transfer either assets or liabilities to “invisible” connected parties. Any excuse for a lawyer should be able to distinguish such a thing. And the worst thing of it all is that time is too pressing for such futile and erroneous exercises. Shadows are growing longer – not just for Ablyazov but hardly less for BTA and in the process for its Kazakh peers as well.

According to news reports by Bloomberg, BTA is stuck with a capital shortage in the order of 1.1 billion US dollar. In order to prevent BTA’s dire straits from rippling through the entire sector, Kazakhstan is setting up an emergency fund to keep liquidity up at banks in the country. “The share of bad credits will decrease next year as the fund transfers some of the non-performing loans off bank balance sheets and lending grows,” Bloomberg wrote on December 8, paraphrasing the governor of the National Bank of Kazakhstan Grigory Marchenko. “Total loans may grow between 12 percent and 15 percent next year. Loans overdue by more than 90 days at Kazakhstan’s 39 banks reached 3.17 trillion tenge ($21.5 billion), or 31.4 percent of total holdings, led by BTA Bank with 1.42 trillion tenge, central bank data show. BTA may ask the Kazakh government to back its second debt restructuring or provide additional state funds to help avert bankruptcy, according to two people with direct knowledge of the matter.” This and other signs on the wall indicate little more and little less than the fact that BTA’s near future spells gloom and doom. It also looks all the more grim for it now that it has appeared that the only foreign party possibly interested in buying it out has backed off. “OAO Sberbank scrapped a plan to buy BTA Bank (BTAS), Kazakhstan’s biggest before its default in 2009,” Bloomberg wrote in a recent report, quoting Russia’s former finance minister and now Sberbank’s CEO German Gref. “For now we don’t see an opportunity to acquire this bank,” the agency quoted Gref as telling reporters in a visit to Astana on November 30. “There’s a set of reasons for it. Primarily it’s linked to how we see our strategy on the Kazakh market.” The observation’s timing was all the worse for it since the main reason for Gref’s visit appeared to be the signature of a $3 billion loan by Sberbank to the National Railway Company of Kazakhstan – something apparently no domestic bank can afford to do.

What makes it worse for BTA’s eventual fate is that a new capital injection, said to require over another 4 billion US dollar in taxpayers’ money reserves, might well draw its owner, the $80 billion Sovereign Welfare Fund of Kazakhstan Samruk-Kazyna, into financial trouble. “BTA Bank (BTAS) may ask the Kazakh government to back its second debt restructuring or provide additional state funds to help avert bankruptcy,” Bloomberg reporte on December 6 – anonymously quoting whom it dubbed “two people with direct knowledge of the matter”. “BTA may seek a capital injection of more than $4 billion, said the people, who declined to be identified because the information isn’t public. Lazard Freres & Co., which acted as an adviser to BTA during its debt reorganization in 2009, assessed the cost of another restructuring last month, the people said. Investors may be asked to absorb an estimated loss of about 80 percent on BTA bonds, the people said. The bank is preparing to submit a bailout plan to a new government that will be formed following parliamentary elections set for the middle of January, the people said, adding that BTA is considering either a restructuring or a capital increase or both. […] BTA has a $150 million coupon payment due in January, Deputy Chief Executive Officer Berik Otemurat said in a Sept. 1 interview. The people familiar with the situation didn’t say whether the bank will make the coupon payment. The Almaty-based lender faced a capital shortage of 162 billion tenge ($1.1 billion) under international accounting standards as of Nov. 1 after it set aside more money to cover souring loans, according to a statement e-mailed Nov. 28. The bank has a total of $5.2 billion of debt, Bloomberg data show.”

According to Bloomberg, BTA so far has swallowed up the staggering amount of $8.49 billion in various forms of funding from public resources. Its stock and bonds, which represent the bulk of the compensation external creditors took in exchange for a cash “haircut” through which they had to write of more than 80 per cent of the money they are owed by BTA, are currently trading at a mere fraction of their face value. For the Kazakh state, the burden is hardly less painful. Looking at the annual results of Samruk-Kazyna, the rather shocking picture shows that BTA is eating up the bulk of the Fund’s returns on all the corporate assets it manages on behalf of the state. In 2009, the situation was at its worst, with Samruk-Kazyna losing the sum of 732 billion Kazakh tenge – in the order of 5 billion US dollar or 3.5 billion euro according to current exchange rates- on BTA alone, which inflicted an overall loss of 627 billion tenge on the entire Fund. In 2010, Samruk-Kazyna was back to profit amounting to  634 billion tenge – mainly thanks to a boost in profit from the state oil and gas company of Kazakhstan, KazMunayGaz, on the back of higher oil prices on world markets, up from 182 billion tenge in 2009 to 391 billion through 2010, along with a reduction in losses for BTA to 137 billion tenge.

It indicates that the breathing space Samruk-Kazyna thus got in 2010 could well result in a reverse in the upcoming year if the Fund would be forced to allow another blood-letting operation topping $4 billion, with external creditors’ breath getting hotter at the same time. Even if all the money that could be recovered under the authority of Britain’s courts of law should be returned, $5 billion is the best BTA could hope for. Part of it, though, will have to be written off against the loss of rights to collect loans’ collateral, most of which is located on Russian territory with minor assets scattered over other former Soviet republics. Meanwhile, the trial with the aim to settle the frozen assets’ ownership rights is only set to start in November 2012 and expected to last for at least four months. Following appeals against any verdict by any party involved is likely to cause at least another full year of delay for the verdict’s eventual execution. By that time, even if convicted for contempt of court momentarily, Ablyazov will be out of prison again – and the containerful of evidence discovered by our brave investigator might will have changed location more than once.

SOURCE: http://www.kazakhembus.com/index.php?mact=News,cntnt01,detail,0&cntnt01articleid=823&cntnt01origid=15&cntnt01returnid=201

Bouncing back 0

Posted on November 04, 2011 by Alex

This year sees Kazakhstan well on its way toward a robust recovery. By Ben Aris

Kazakhstan is rebounding swiftly from the worldwide economic downturn, with the country’s economy looking set to surge due  to the advent of fresh oil and gas from the Kashagan offshore field.

Kazakhstan went into the 2008 crisis early. The republic’s banks had been enjoying triple-digit growth for several years, largely funded by loans and bonds drawn from the international credit markets. So, as the US subprime mortgage crisis unfolded and the credit markets dried up in 2007-08, the Kazakh banks were among the first to suffer.

However, thanks to swift action from the National Bank of Kazakhstan (NBK) and more than $4 billion in liquidity support to the banking sector, Kazakhstan came through the storm.

First in, first out. After commodity prices – particularly oil – started to recover in 2010, so too has the economy. But the republic is not out of the woods yet and a lot of clean-up work remains to be done. The banking sector still has a backlog of non-performing loans (NPL), though the strong performance of the country’s energy and mining sectors resulted in stronger-than-expected growth in 2010.

Banking regains buoyancy

The situation in the banking sector is gradually returning to normal after agreements on debt restructuring at BTA Bank, Alliance Bank and TemirBank. Having fallen hard during the crisis, Kazakhstan’s banking sector is now poised to outperform most of those in neighboring countries as it bounces back, according to investment banks such as Renaissance Capital.

Thanks to a progressive reform program in the previous decade, the structure of the Kazakh financial sector is still one of the best in the former Soviet Union and should return to growth once the issue of debt restructuring is resolved. Analysts estimate it will take around another two years for the problems of NPL to be fully worked out.

In the short term, commodity prices will determine exactly how the rest of 2011 pans out. But the unrest in North Africa in the first quarter of the year has already driven oil prices – the key contributor to Kazakhstan’s financial health – higher than most had been forecasting at the start of the year. This boost buys the government more time to drive through its wide-ranging reform program.

Kazakhstan’s economy grew by seven percent in 2010 and is forecast to continue its recovery in 2011 in the four to five percent range. The services sector is estimated to account for 51.8 percent of the country’s GDP in 2010, with industry comprising 42.8 percent, and agriculture at 5.4 percent.

The oil price is expected to average in the order of $90 for 2011, and this will give a boost to budget revenues. Meanwhile, the government is maintaining its extremely conservative oil-price assumption of $65 in the budget, which will almost certainly give it plenty of room for maneuver.

In general, as the economy begins to recover, so too should the public finances. Budget revenues totaled $30 billion in 2010 – up 46.5 percent from 2009, and 6.5 percent above 2010 government projections – and the budget deficit was set at $5.5 billion (4.1 percent of GDP).

A robust recovery is expected to lead to an improvement in the government’s fiscal position. The state budget for 2011-13 has been adopted with a much lower deficit of 2.8 percent in 2011, based on additional revenues of $2.8 billion from a doubling of the oil export duty in 2011 to $40 per metric tonne.

In the clearest sign yet of a return to economic normality, the NBK ended its control of the exchange rate in February and returned to a managed float system. The Kazakh currency, the tenge, is expected to remain relatively stable against the dollar throughout 2011, although there may be some slight appreciation, say analysts.

One of the most difficult economic challenges that the country faces is coping with inflation. Consumer price inflation in Kazakhstan in 2010 was in line with Renaissance Capital’s 7.7 percent forecast and was mostly driven by growing global commodity and food prices. The major driver was food prices, which grew 10.1 percent and contributed half of the increase, while services and non-food products grew 6.8 percent and 5.5 percent respectively, with roughly equal contributions.

On the back of the brightening economic picture, Fitch Ratings revised its sovereign rating on Kazakhstan to ‘positive’ at the start of 2011, while Standard & Poor’s raised its sovereign rating one notch to ‘BBB’.

Kazakhstan is slightly behind countries such as Russia and China – where growth is expected to slow over the medium term – but in terms of development, it should continue to close the gap on its bigger cousins to the north and east. The medium-term prospects for strong growth are very good. “GDP was up more than we expected in 2010, owing to the recovery in prices for commodities including oil, gold, copper and uranium,” says Jean-Christophe Lermisiaux, head of research at Visor Capital. “And there is no reason to see this changing for the foreseeable future.”

However, he adds that there are disparities between the natural resources sector and other sectors of the economy – in particular the banking sector, which is “still convalescing”.

Energy potential

Oil and gas remain the engine of the economy. Kazakhstan is already among the top 20 oil producers in the world, and production continues to pick up. Close on the horizon is the launch of the first phase of Kashagan Field – the world’s largest offshore oil-and-gas project – which is expected on, or possibly ahead of, schedule in the first half of 2013. The start of production from this field will be a game-hanger, as it will massively boost the country’s production and increase its geopolitical standing.

However, the development of the extractive industries is shifting from simply lifting production levels to expanding distribution, increasing efficiency and adding more value. The major event in the oil-and-gas industry in recent years has been the opening of the Central Asia-China gas pipeline and new oil pipelines linking oilfields from western Kazakhstan to China. Arguably, building pipelines to new markets has a bigger impact on the economy than finding new and bigger fields – Kazakhstan’s eastern neighbor remains the primary market for its raw materials.

As well as underpinning global demand for commodities, China accounts for 30 to 40 percent of Kazakhstan’s exports. Construction of the Western Europe-Western China highway, and the planned rail link from Zhetigen near Almaty to the Chinese border, will allow Kazakhstan to further increase its exports.

The strong performance of the natural resources sector in 2010 has not been matched by an expansion across the board, and the country is unlikely to see the kind of consumer boom that it enjoyed in the run-up to the global economic crisis – especially in the real-estate sector.

Banks have remained cautious when making loan decisions, and clearing the backlog of unfinished real-estate projects is only now nearing completion. The collapse of the property market was painful and hit the financial sector hard, as it was heavily exposed to this market. However, helped by government funds allocated through the anti-crisis program, most of the lost ground has been recovered. As the sector slowly returns to health, property developers are likely to start considering the first post-crisis projects in 2011.

“2010 was a transition year for Kazakhstan; 2011 will be the year of big decisions,” says Lermisiaux.

SOURCE: Invest In Kazakhstan 2011, p. 25-26

Kaspi Bank shareholders to set up new holding company 0

Posted on October 23, 2011 by Alex

Kaspi Bank, Kazakhstan’s eighth largest bank, said on Monday that the National Bank of Kazakhstan had approved an application of its shareholders to create a new Kazakhstan-registered holding company to manage their banking assets. Caspian Financial Group, the new  holding  company, will replace Dutch  Caspian  Group BV, which held roughly 95% of shares in the bank.  Just like the Dutch investment vehicle, the new holding will be jointly owned by the Baring Vostok Private Equity Fund III and Kaspi’s chairman, Vyacheslav Kim.

“The main and only activity of the holding will be the ownership and management of its financial assets. At the moment, it is [only] Kaspi Bank, but we do not rule out the possibility of expanding the range of financial services offered to our clients,” Kaspi Bank CEO Michael Lomtadze was quoted as saying in the statement.

SOURCE: http://silkroadintelligencer.com/wp-content/files/srikznewsbrief_oct19_2011.pdf

Kazakhstan Daily News Roundup – September 8, 2011 0

Posted on September 08, 2011 by Alex

HEADLINES:

Kazakhstan to shun Morgan Stanley, Goldman Sachs in “people’s IPO” program
(SRI) – The National Bank of Kazakhstan will not allow investment banks Morgan Stanley and Goldman Sachs to bid on advisory contracts as the Kazakh government is moving forward to select banks to manage the individual listings of the so-called “people’s IPO”, Bloomberg reported on Wednesday.

Karachaganak dispute could be solved within a month – Kulibayev
(SRI) – Timur Kulibayev, head of the state-owned holding and investment company Samruk-Kazyna, said on Wednesday the Karachaganak oil field dispute could be resolved within one month, the Kazakhstan-Novosti news agency reported.

BUSINESS AND ECONOMY:

Central bank to buy up entire Kazakh gold output until 2014-15 (SRI)

Kazakhstan to add BRIC currencies to diversify its foreign reserves (SRI)

Egypt buys Kazakh wheat at tender (SRI)

On the move: Atameken Union (SRI)

Real estate transactions jump 15.2% in August (SRI)

Outflow of speculative capital from Kazakhstan reached $3 billion this summer – central bank(SRI)

RESMI Group sells Respublika Pension Fund to a group of private investors (SRI)

Kazakhstan to boost railway equipment manufacturing to KZT300 billion by 2015 (SRI)

Indicators – September 7, 2011 (Reuters)

POLITICS:

Kulibayev reiterates intention to stay clear of politics (SRI)

Playing language issue as a political card unacceptable – Nur Otan (Interfax)

Majilis deputy Alzakov demands urgent measures to tackle religious extremism (Interfax)

REGIONAL:

Tethys loses bid for Afghan oil blocks to Chinese state-owned oil company (Proactive Investors)

Global Insider: South Korea-Central Asia relations (World Politics review)

SOURCE: http://silkroadintelligencer.com/2011/09/08/kazakhstan-daily-news-roundup-september-8-2011/

IFC Agreement with Kazakhstan’s Central Bank Supports Local Currency Lending to Businesses 0

Posted on September 06, 2011 by Alex

The Financial, September 1, 2011

Almaty, Kazakhstan — IFC, a member of the World Bank Group, signed an agreement with the National Bank of Kazakhstan to expand IFC’s capacity to provide local currency loans to companies operating in Kazakhstan and support growth of the country’s private sector.

The swap agreement will allow IFC to hedge its exchange rate and currency risks, increasing IFC’s ability to offer financing to businesses in local currency. Being able to borrow in Kazakh Tenge is important for companies that do not generate foreign exchange revenues and therefore face risks when borrowing in dollars or other international currencies.

“We consider the Cross-Currency Swap Agreement between the National Bank of Kazakhstan and IFC as a tool to further develop the capital market in the country,” said Grigori Marchenko, Governor of the National Bank of Kazakhstan. “It will open new long-term sources of funding for local companies contributing to the sustainable economic growth of the Republic of Kazakhstan.”

Shanker Krishnan, IFC Deputy Treasurer and Head of Derivative Products, said, “Local currency financing is critical for companies working in Kazakhstan’s non-extractive industries. With support from the National Bank of Kazakhstan, IFC will be able to offer its local clients long-term financing without burdening them with exchange rate risks.”

IFC hopes to replicate this initiative in other Central Asian countries that do not already have a swap market to facilitate local-currency lending.

As IFC’s largest client in Central Asia, Kazakhstan had received commitments of close to $1.1 billion in IFC funds and almost $300 million in syndications as of June 30, 2011. IFC’s investments in Kazakhstan have been mainly in the financial services, manufacturing and services sectors. Kazakhstan became a member of IFC in 1993.

SOURCE: http://www.kazakhembus.com/index.php?mact=News,cntnt01,detail,0&cntnt01articleid=771&cntnt01origid=15&cntnt01returnid=201

Kazakhstan Daily News Roundup – September 1, 2011 0

Posted on September 01, 2011 by Alex

ENERGY:

Chinese joint venture buys Kazakh gas field
(SRI) – A Chinese joint venture has agreed to buy the rights to explore and develop the Pridorozhnoye gas field in southern Kazakhstan for $20 million, Chinese newswires reported on Tuesday.

BUSINESS AND ECONOMY:

“People’s IPOs” to expand Kazakh investment universe
(bne) – The range of publicly traded equities for Kazakhstan-focused funds to invest in has so far been limited mainly to the commodity and banking sectors. But the planned “People’s IPO” program is set to change that, ushering in an age of exchange-traded funds.

Russian authorities complete investigation of BTA’s fraudulent real estate deal in Moscow
(SRI) – Russia’s Interior Ministry has completed a preliminary investigation of several Russian businessmen accused of being involved in a $730-million fraud scheme surrounding land deals of Kazakhstan’s BTA Bank in Moscow, RIA Novosti reported Wednesday.

Barclays close to selling Russian subsidiary to Kazkommertsbank – report (SRI)

Kazkommertsbank posts $81.3-million net profit in H1; non-performing loans grow (SRI)

IFC signs currency swap agreement with National Bank of Kazakhstan (SRI)

Indicators – August 31, 2011 (Reuters)

SOCIETY:

Kazakhstan says detains extremists, foils “terror” (Reuters)

REGIONAL:

Uzbekistan shows off Central Asia’s first high-speed train (AFP)

Tajikistan shows off world’s tallest flagpole (Reuters)

SOURCE: http://silkroadintelligencer.com/2011/09/01/kazakhstan-daily-news-roundup-september-1-2011/

Kazakhstan Daily News Roundup – August 24, 2011 0

Posted on August 24, 2011 by Alex

ENERGY:

No deficit of petroleum products in Kazakhstan – Mynbayev (SRI)

No talks with Korea on building nuclear power plant – Minister (SRI)

BUSINESS AND ECONOMY:

People’s IPO to raise up to $500 million; slated to begin in 2012
(SRI) – Kazakhstan could raise up to $500 million in its “people’s IPO” as it plans to start floating shares in several national companies in the second or third quarter of 2012, Minister of Economic Development and Trade Kairat Kelimbetov said on Tuesday.

Indicators – August 23, 2011 (Reuters)

METALS AND MINING:

Kazakh central bank to buy more gold to boost reserves
(SRI) – The National Bank of Kazakhstan plans to fully exercise its preemptive right to buy all refined gold produced in Kazakhstan to replenish its gold reserves, Interfax reported on Tuesday, citing a statement issued by the central bank.

Central Asia Metals: A mine developer with laser-focus on cash generation (Proactive Investors)

POLITICS:

Succeeding in Kazakhstan
(bne) – When Nursultan Nazarbayev won April’s Kazakh presidential election with a resounding majority, the issue of who would suceed the septuagenarian appeared to have been put on the backburner for the time being. But three months later, Nazarbayev’s visit to Germany for medical treatment has put it firmly back on the agenda.

SOCIETY:

Independent Kazakh TV claims government is behind a slew of disrupting audits (SRI)

SOURCE: http://silkroadintelligencer.com/2011/08/24/

 

EXPECTATIONS ABOUT KAZAKHSTAN’S ECONOMY: OUTLOOK BY INDEPENDENT EXPERTS 0

Posted on August 19, 2011 by Alex

based on Q3 2011 “Kazakhstan and Central Asia Business Forecast”

by Business Monitor International, Ltd (BMI)

 

Political Outlook

 

President Nursultan Nazarbayev has been in office since the late Soviet era, and continues to dominate the political landscape, having been re-elected to another five-year term in April 2011 with 95% of the vote. In addition, his Nur Otan party dominates parliament. However, because Nazarbayev is 70 years old, the succession question is gaining in importance. Kazakhstan under Nazarbayev has actually been a major success story among ex-Soviet states, mainly because of the country’s vast oil and gas wealth, which has led to high levels of foreign investment, rapid economic growth, and a per capita GDP of almost US$10,000. At the same time, Kazakhstan has prevented the formation of opposition forces that could challenge the regime. While many Kazakhs would probably welcome a more democratic political system, anecdotal evidence suggests that Nazarbayev enjoys genuine public support, and citizens would probably not wish to jeopardise their country’s economic success.

Kazakh Foreign Minister Yerzhan Kazykhanov met with his Chinese counterpart Yang Jiechi on May 14 to discuss bilateral cooperation. Meanwhile, the National Bank of Kazakhstan has announced that it plans to diversify its foreign exchange reserves into Chinese yuan; and major Kazakh resource firm Kazakhmys (which generated 48% of revenues from China in 2010) is aiming to complete a secondary listing in Hong Kong. The deepening of ties between Kazakhstan and China has sparked fears that Beijing may establish too much control over its north-western neighbor, with Kazakhstan’s leading opposition party Azat attempting to organize protests against growing Chinese influence. BMI expects such fears will continue to surface given the two countries’ close economic relationship, but doubts this will spill over in any meaningful way.

 

Economic Activity

 

BMI maintains its upbeat assessment of the Kazakh growth story for the coming quarters, with first quarter real GDP growth of 6.9% largely in line with our forecast for economic expansion of 7.2% and 6.9% in 2011 and 2012 respectively. Such growth will be driven by continued development of the nation’s vast natural resources and the positive spillover effect this will have on non-resource sectors.

Building upon the robust 7.0% expansion witnessed in 2010, the Kazakh economy expanded at a healthy 6.9% y-o-y clip in the first quarter of 2011. The reading is in line with experts’ expectation that the Kazakh economy will enjoy robust growth through coming quarters, and affirms the BMI’s forecast for 7.2% real GDP growth in 2011, followed by a 6.9% expansion in 2012.

Global macroeconomic conditions certainly remain conducive to a continuation of the rapid expansion the Kazakh economy has registered both prior to and following the global financial crisis. Economic growth in Asia remains firm whilst the US and European recoveries remain on course. In turn, Brent crude is hovering above the US$100/bbl mark and metals prices are at levels comparable to those seen prior to the global economic downturn. Such a landscape bodes very well for Kazakhstan.

Recovery in external macroeconomic conditions over the past 18 months has resulted in a dramatic rebound in demand for commodities and thereby Kazakh exports (minerals and metals account for more than 75% of exports). The first quarter of 2011 saw quarterly Kazakh exports rise by an impressive 35.9% y-o-y to US$18.5bn, not

far below the US$21.3bn all-time high set in Q308. With the global economy set to continue expanding for the foreseeable future (the US recovery is a mere two years old), BMI forecasts continued gains in Kazakh exports through coming quarters.

Such robust external demand conditions are spurring industrial activity in Kazakhstan, with industrial production rising at a 6.4% y-o-y clip in April. Summit Atom Rare Earth Co, part owned by Kazakh state uranium miner Kazatomprom, has announced plans to begin production of 1,500 tonnes of rare earth oxides per year. Production will be sourced from the treatment of uranium tailing, while the company will embark on a search for rare earth deposits across Central Asia. BMI experts believe that successful development of a rare earths industry in Kazakhstan would represent a positive development for the country’s business environment, adding to the attractiveness of Kazakhstan as a destination for FDI .

However, strength is not only being seen in mining and quarrying, up 4.0% y-o-y in April, but also in Kazakh manufacturing, up 8.5% y-o-y in April. Strong demand for the commodities produced by Kazakhstan’s extractive industries has considerable positive spillover effects in terms of gross fixed capital formation and wider economic activity. Such a trend is clearly reflected in the Kazakh labor market, which continues to tighten – unemployment came in at a mere 5.5% in April. With the Kazakh labor market in such good condition observers are optimistic that private consumption will also be a strong contributor to real GDP growth in 2011-2012.

Also supportive of such a dynamic will be the government’s decision to open up the fiscal taps (which it certainly has room to do, given that its budget is based upon the assumption that oil averages US$65/bbl). On January 1, pension payments were increased by 30%; while, from July 1, state workers will receive a 30% pay rise – developments that bode very well for private consumption growth in 2011. Growth will also receive a boost from the government’s ambitious investment plans, which entail

projects equal to KZT8.1trn (more than 35% of GDP) within the next 24 months. However, while such expansionary policy will boost growth, it will also add to the inflationary pressures faced by the National Bank of Kazakhstan – which will respond by allowing the tenge to appreciate through to end-2011.

With the Kazakh economy expanding firmly and inflationary pressures rising, the Kazakh authorities are likely to tighten monetary policy over the course of 2011. Beyond the interest rate hike implemented by the National Bank of Kazakhstan on March 9, BMI sees further hikes ahead, forecasting the bank’s refinancing rate at 8.50% by year-end (implying a further 100 basis points of hikes), while hikes to the deposit rate (currently 0.5% on one-week money) are also likely. Increases in bank reserve requirements can also be expected.

Furthermore, BMI forecasts meaningful appreciation of the Kazakh tenge through 2011-2012, as the National Bank of Kazakhstan allows the national currency to strengthen in order to quell inflationary pressures. The Kazakh economy certainly appears ready for such a policy stance, with unemployment at just 5.5% while consumer price inflation is already running at relatively elevated levels – coming in at 8.4% in April.

Kazakhstan’s central bank has to intervene in the foreign exchange market to the tune of hundreds of millions of dollars each month in order to surpress the value of the tenge. Holding down the tenge using such means not only ensures higher imports costs but also results in elevated tenge liquidity. With inflation already fairly high, BMI does not believe such policy can be sustained. BMI experts forecast that the tenge will be allowed to appreciate to KZT140.00/US$ by end-2011, with further gains expected in 2012.

The most obvious risk to BMI’s upbeat stance on the Kazakh economy and thereby the tenge is a fall in commodity prices. The tenge is very much a commodity currency, and oil exports in particular are of crucial importance to the currency’s value. A very sharp decline in the price of oil would no doubt undermine the tenge, due to the less-positive impact oil would then have on the Kazakh economy.

BMI’s base scenario already foresees oil prices moderating somewhat, with Brent crude forecast to return below the US$100/bbl through the latter half of 2011, and BMI’s Kazakhstan forecasts reflect such an assumption. Therefore, only a dramatic move lower in oil prices (of approximately 75%) would seriously alter BMI’s upbeat outlook and the tenge’s trajectory. Such a move in oil prices was witnessed during the global financial crisis, but experts believe an event of comparable magnitude would be required for such price movement to be repeated. Obviously there are numerous potential catalysts for this outcome, such as a European fiscal and banking collapse or an outright Chinese property market crash, but these are very much low-probability tail risks rather than our core scenario.

 

The Kazakh Economy to 2020:

developing non-oil sectors is key to sustaining growth

 

The Kazakh government’s drive to diversify the non-oil sector and invest in developing strategic industries, as well as the national infrastructure, supports BMI’s favorable long-term outlook for the economy. Moreover, BMI experts believe the growing integration of Kazakhstan into global markets will help reduce the impact of external shocks and put the economy on a more sustainable growth path.

Despite notching up a stellar 9.3% average annual rate of economic growth over the course of 2000-2008, Kazakh growth will settle on a lower path through to 2020 owing to the severity of 2009’s recession, combined with a protracted period of deleveraging. BMI experts forecast annual growth to average 6.6% throughout the forecast period. Coming from a higher base and investing heavily in developing the national infrastructure and non-oil sectors, Kazakhstan will further consolidate its position as the regional powerhouse in Central Asia over the long term. For the less-developed economies in Central Asia, this will mean more employment opportunities, cross-border investments and demand for primary and processed exports for Kazakh industries.

With population forecast to reach around 17.5 mln by 2020 and GDP per capita reaching US$28,509, the consumer will become instrumental in driving growth dynamics over the long term. The opportunities available for retailers to exploit are likely to see foreign retail operators from Russia, and potentially China, starting to build up a market presence in Kazakhstan. Moreover, with the government keen to develop its banking and financial sectors, BMI expects to see an increase in credit availability for the consumer, particularly credit cards and overdraft facilities, which will extend to the poorer sectors of the retail market and thus allow for an expansion in consumption possibilities for Kazakh households. As a result of these dynamics, BMI expects consumer spending to contribute around one-third of economic growth. Since the government is likely to continue working towards reducing the economy’s dependence on oil over the long term (with the current correction in global energy prices hammering home the consequences of relying on oil and gas to drive growth), observers expect to see further diversification away from the oil sector. Key industries are likely to include retail, manufacturing, construction and finance. As a result of this diversification drive, investment in fixed capital will continue to buoy economic growth over the long term. Moreover, in much the same way that increased credit availability will spur consumer spending, BMI expects to see a broader and more sophisticated array of financial products coming to the market, which will facilitate investment (particularly with regard to hedging risks, leveraging and gaining exposure to new markets) and business transactions.

Kazakhstan’s ever-growing prominence in Central Asia will also facilitate investment into the wider region. The development of the country’s physical and financial infrastructure will attract more foreign investors wanting to increase their exposure to frontier markets such as Tajikistan and Kyrgyzstan without having to base operations in these countries. Similarly, the economic development of these countries (as well as Turkmenistan and Uzbekistan) will see demand for imported capital grow, allowing Kazakhstan to become an export platform to these countries.

Although BMI believes that domestic demand will increasingly become the driving force of growth, oil and gas will remain an important export earner, helping to bolster domestic demand. Indeed, it will be the recycling of energy export revenues to the non-oil sectors that will be key to broadening the economy. Moreover, although experts believe that Astana will remain reliant on Moscow purchasing its energy output over the medium term, Kazakhstan’s growing economic and political clout may allow it to expand export routes away from Russia further down the line. In this respect, Kazakhstan is the most likely of the Central Asian states to supply energy to European markets over the long term. While BMI does not believe this will mean a shift in Kazakhstan’s foreign policy agenda towards euro-Atlantic institutions, it expects to see new trade relations emerging, with the EU likely to take a greater share of Kazakh exports.

Despite maintaining a long-term favorable outlook for the economy, BMI cautions that there are risks to Kazakhstan’s ability to meet its growth potential. For one, much will depend on the government’s ability to attract foreign investment – and investment into the right sectors, too. To this end, the government’s ongoing squabbling with the international consortium developing the Kashagan oil field, as well as its increasing influence over the energy sector through equity acquisitions, may deter the more risk-averse long-term strategic investor. Nevertheless, oil exports may provide some of the hard cash Kazakhstan still needs to import technical expertise and more sophisticated management practices.

 

If you are interested to learn more about “Kazakhstan and Central Asia Business Forecast Report” or any Country/Industry reports by BMI please contact Matthew Thompson, Business Development Manager, “Business Monitor International” T:+44 (0)20 7246 1433 M:+44 (0)7983 473 767 Email: mthompson@businessmonitor.com)

 

Business Monitor International – DISCLAIMER

All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.

SOURCE: http://www.kazakhembus.com/index.php?mact=News,cntnt01,detail,0&cntnt01articleid=758&cntnt01origid=90&cntnt01category_id=6&cntnt01returnid=90

 

Kazakhstan Daily News Roundup – August 16, 2011 0

Posted on August 19, 2011 by Alex

BTA Bank reshuffles management
(SRI) – Kazakh lender BTA Bank has appointed Marat Zairov the new CEO, replacing Anvar Saidenov . Saidenov has been named chairman of the board of directors, the bank said in a statement on Monday.

ENERGY:

Caterpillar to provide generators for Kazakh section of Asian Gas Pipeline (SRI)

Max Petroleum: Drilling begins at the UTS-3 appraisal well at Block A, Kazakhstan (Proactive Investors)

BUSINESS AND ECONOMY:

Kazakhstan may raise official inflation target – central bank
(SRI) – The National Bank of Kazakhstan may raise its inflation target for 2011 from the current 6.0-8.0%, as consumer prices in the country are rising fueled by rapid economic growth and soaring commodity prices, the central bank said in a statement last week.

Kazakh H1 trade surplus grows to $28.3 billion (Reuters)

Indicators – August 15, 2011 (Reuters)

METALS AND MINING:

ArcelorMittal Temirtau increases investment into coal division
(SRI) – ArcelorMittal Temirtau, the largest metallurgical enterprise in Kazakhstan, plans to invest $160 million into its coking coal division this year, up from $90 million in 2010, the company said in a statement on Monday, the Kazakhstan-Novosti news agency reported.

POLITICS AND SECURITY:

Kazakhstan’s Islamist threat? (The Diplomat)

CSTO informal summit opens in Astana (Interfax)

SOURCE: http://silkroadintelligencer.com/2011/08/16/

 

 

 



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