Kazakhstan Chamber of Commerce in the USA

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Future prosperity through diversification 0

Posted on December 18, 2011 by Alex

In pursuit of diversification, the country has instigated initiatives to encourage the growth of non-resource sectors. By Ben Aris Oil is essential to the Kazakh economy, but to ensure long-term prosperity, the country must diversify away from raw material extraction.

The Kazakh government is well aware of the problem and had already launched an extensive modernization program, even before the 2008 global economic crisis made diversification imperative.

President Nursultan Nazarbayev laid out the main goals of Kazakhstan’s modernization program in his 2010 State of the Nation speech. The president said that a large part of the $8-billion-a-year transfers from the National Fund – a reserve fund created from oil revenues to the state – would be directed to industrialization programs. Kazakhstan will invest up to $20 billion in the non-resource sectors of the country over the next five years, but the goal is to use this investment to prepare the ground for bringing in more foreign direct investment, which, it is hoped, will then take the lead in diversifying the republic’s economy.

Projects identified

A list of priority projects has been drawn up by the state agency Samruk-Kazyna, which holds much of the state’s assets and has been consulted for much of the industrial reform policy. All in all, the industrialization program will include 162 projects, with a total budget of KZT6.5 trillion ($43 billion), and the state expects that more than 200,000 jobs will be created.

Samruk-Kazyna has adopted a two-pronged approach. First, the state agency will help existing companies to increase the value-added component of their production, and so drive the processing and associated manufacturing industries. The second line of attack is to build the infrastructure to support the creation of new businesses and technologies. For example, among the larger investments are: upgrading all three petrochemical plants in Kazakhstan by 2014; building a new gas-processing plant; finishing the Balkhash, Mainak and Ekibastus GRES-2 power stations; and building a string of locomotive plants that can supply the republic and its neighbors with new trains.

To assist with the sector-specific reforms, the president called for the simplification of the bureaucracy that surrounds setting up a business. Among other measures, the president said the costs of starting businesses in Kazakhstan should be cut by 30 percent in 2010, and another 30 percent in 2011.

A large part of this goal has already been achieved, and the World Bank says in its Doing Business 2011 report that Kazakhstan has made more progress than any other country in the world.

Other initiatives to extend this progress include: accession to the World Trade Organization; ongoing integration with other Commonwealth of Independent States (CIS) countries, in particular via the new Customs Union with Belarus and Russia; developing a law for the country’s Special Economic Zones; and creating a roadmap for entrepreneurship development up to 2020.

Michael Weinstein, director of the European Bank for Reconstruction and Development (EBRD) in Kazakhstan, which has joined the diversification effort and committed $1 billion in capital to support the

drive, praises the government’s more pragmatic approach to carrying out reforms.

“In the past, there have been various diversification programs that for one reason or another did not succeed,” he says. “ The new program is more promising. Momentum is building. There is a window of opportunity to diversify – post-crisis, but before oil prices go through the roof again.”

This is not the state’s first attempt to remake the shape of the economy, but experts believe that the new program is a lot more likely to succeed. “The government has set its sights a bit lower this time – the priority sectors that President Nazarbayev has selected are the right ones,” says Weinstein. “Rather than looking at high-tech, the government is targeting sectors such as pharmaceuticals, chemicals, petrochemicals, metals, construction materials and fertilizers – the things that the country needs.”

Key sectors that the government hopes to develop:

  • Agriculture. The territory of Kazakhstan is the size of Western Europe and agriculture has huge potential. The basics are already there, but most of the supporting infrastructure is not. The state  plans to increase productivity in agriculture and processing of agricultural products by a factor  of two by 2014, through the application of new equipment and new technologies. At the same  time, the state would like to increase exports of agricultural products to Russia, Belarus, Central  Asia and Middle Eastern countries. “ Building the value chain in agriculture is important. The agriculture sector is difficult to invest in, but we  hope [the EBRD’s participation with] investment  will encourage other companies to become more transparent,” says Weinstein.
  • Infrastructure.  Support for infrastructure of all types is crucial. In the energy sector, the EBRD  and other international organizations helped to finance the construction of a new north-south power line to address the imbalance between the ends of  the country, while the state is also investing in additional power-generating capacity.
  • Industry.  The state will use various means to boost non-oil production and hopes to increase the share of non-oil exports to 45 percent from 27 percent in 2010. Three new locomotive plants are in operation, or close to it, and more engineering projects are in the pipeline. At the same time, the state will encourage investment to decrease energy consumption per GDP unit by 25 percent, while increasing productivity in processing industries by a factor of two. The main focus will be on boosting the share of processing industries in GDP to  at least 13 percent – from 11 percent in 2009 – and increasing the share of innovation-driven enterprises to 20 percent from four percent.
  • Construction materials. Construction and real estate were major economic drivers before the crisis, but development still relies heavily on imports. Another plank of the diversification program is to develop the domestic construction materials sector. The president called for raising the share of domestically produced construction materials to 80 percent by 2014.
  • Pharmaceuticals. President Nazarbayev is keen to develop a domestic pharmaceutical industry and in early 2009, launched an ambitious program aimed at raising the volume of domestically produced medicines consumed to half of the total by 2014. This means building many new plants in a relatively short time, and the government is actively looking for foreign investment to facilitate the program.  The furthest advanced project is that of Chimpharm – by far the biggest domestic player – to build a new tablet factory in Astana. This will be the first plant of any kind to be located in the new capital. The Kazakhstan Development Bank has already provided the funding and is also backing a second project to expand production facilities in Shymkent. Other players – including GlobalPharm, Nobel AFF and Romat – are reportedly planning new lines or new plants.
  • “Industrial development is our chance in the new decade for new opportunities for our country,” said President Nazarbayev, in his State of the Nation speech.

SOURCE: Invest in Kazakhstan, 2011, p. 35-37

Fitch upgrades Kazakhstan on rising oil production 0

Posted on November 27, 2011 by Alex

By Robin Paxton

* Fitch upgrades Kazakhstan to BBB, outlook positive

* Cites strong balance sheet, GDP growth, oil growth

* Second ratings upgrade for Kazakhstan in Nov

* Analyst forecast more upgrades possible

ALMATY, Nov 21 (Reuters) – Fitch Ratings upgraded Kazakhstan’s sovereign credit rating to BBB on Monday, the second upgrade this month for Central Asia’s largest economy, where expanding oil and metals production are creating a widening buffer against economic shocks.

The Fitch upgrade takes Kazakhstan’s long-term rating a second notch into investment-grade territory and carries a positive outlook based on projected annual GDP growth of 6 percent until 2013. Analysts forecast another upgrade soon.

“Kazakhstan’s sovereign balance sheet has strengthened, with sovereign net foreign assets affording a growing cushion against revenue shocks,” Charles Seville, director in Fitch’s sovereign team, said in a statement.

Kazakhstan’s economy, at more than $150 billion, is the largest among the ex-Soviet republics of Central Asia. In 20 years of independence, the country has attracted more than $120 billion in foreign investment, mainly in the resources sector.

Fitch, which previously rated Kazakhstan BBB-, said the main risks came from commodity markets and uncertainty about who might eventually succeed long-time President Nursultan Nazarbayev.

Fitch expects the country’s net foreign assets to reach 49 percent of gross domestic product by the end of 2013, up from 37 percent of GDP at the end of last year.

It forecast the government would record a budget surplus of 6-7 percent of GDP in the period from 2011 to 2013.

The Fitch upgrade moves Kazakhstan level with Russia and above troubled euro zone countries such as Portugal and Greece, which have skidded from A ratings since the euro debt crisis began two years ago.

It follows a Standard & Poor’s upgrade on Nov. 7 to BBB+, three notches into investment-grade and above Russia’s BBB.

“Unlike Russia, which drastically increased the government’s expenditure appetite, Kazakhstan channels a bigger part of its oil revenues to the National Fund,” said Julia Tsepliaeva, head of market economics for Russia and CIS at BNP Paribas.

She said the fund, replenished by windfall oil export revenues, was likely to continue growing by $10 billion to $15 billion annually in the medium term.

“The oil price threshold for Kazakhstan’s budget is relatively low at $80 a barrel (of Brent crude) versus Russia’s $125-126 a barrel,” Tsepliaeva said. Brent crude is currently trading at nearly $107 a barrel.

Fitch said that “credible projections” for the expansion of mining and oil production in Kazakhstan underpinned one of the strongest growth outlooks among the major emerging markets.

Kazakhstan, four times the size of Texas, holds slightly more than 3 percent of the world’s recoverable oil reserves and plans to raise crude output by more than 60 percent to 132 million tonnes by 2020.

The country of 16.6 million people also has ambitious plans to more than double gold output by 2015, while copper miner Kazakhmys is planning to bring large new deposits into production in the middle of this decade.

NEXT UPGRADE?

Moody’s is now alone among the three main ratings agencies in leaving Kazakhstan’s status unchanged this year.

Moody’s, which declined to comment on its future plans, currently rates Kazakhstan Baa2, also two notches into investment grade, with a stable outlook. Its rating was last revised in April 2010.

Grigory Marchenko, the outspoken central bank governor, said after the S&P upgrade that Kazakhstan deserved an A-grade, citing the $42 billion National Fund that dwarfs external debt of less than $4.5 billion.

“We expect the new upgrade to BBB+ coming soon,” said Tsepliaeva at BNP Paribas. “A further rating upgrade to A-club is likely to take more time.”

Yevgeny Popov, asset management department director at Troika Dialog, said the upgrade would increase investor confidence in Kazakhstan at a time when markets elsewhere were coming under pressure.

“If Kazakhstan can preserve the policies that have taken it to this point, there’s every chance that agencies might look at raising its rating further given time. The conditions are there,” Popov said.

Fitch said that further strengthening of the sovereign and external balance sheets, as well a “major clean-up” of the banking sector, might also trigger another upgrade.

The agency said the Kazakh economy should be “relatively resilient to slower growth in major advanced economies”. The main risk, it said, was from a severe downturn in commodity prices or external demand.

Other risks include the succession to 71-year-old Nazarbayev, the only leader independent Kazakhstan has ever known, or some other “domestic or regional political shock”.

Kazakhstan will hold snap parliamentary elections on Jan. 15-16 that will dilute the monopoly of the ruling Nur Otan party in the docile legislature. (Reporting By Robin Paxton; Editing by Ruth Pitchford)

SOURCE: http://www.kazakhembus.com/index.php?mact=News,cntnt01,detail,0&cntnt01articleid=801&cntnt01origid=90&cntnt01category_id=6&cntnt01returnid=90

Kazakhstan Credit Rating at S&P Exceeds Russia’s on Budget 0

Posted on November 16, 2011 by Alex

Nov. 9 (Bloomberg) — Kazakhstan has a higher debt rating at Standard & Poor’s than Russia for the first time since 2005 as the central Asian nation spends less of its commodities- fueled wealth than its northern neighbor.

S&P on Nov. 7 raised Kazakhstan’s foreign-currency debt one level to BBB+, the third-lowest investment grade, on par with Ireland, South Africa and Thailand and two levels above Brazil. The ratings company, which cited the effect of rising commodity exports on the fiscal and current-account surpluses, has a stable outlook for its assessment.

Kazakhstan holds 3 percent of the world’s crude reserves, compared with 5.6 percent for Russia, according to Bloomberg data. Lower government spending makes Kazakhstan less reliant on revenue from commodities than Russia, Julia Tsepliaeva, chief economist at BNP Paribas SA in Moscow, wrote in an e-mailed note yesterday. The oil price sufficient for Kazakhstan to balance its budget is $75 per barrel, compared with as much as $126 for Russia, she said.

‘Expenditure Appetite’

“Unlike Russia, which drastically increased the government’s expenditure appetite, Kazakhstan channels a bigger part of its oil revenues to the National Fund,” Tsepliaeva said.

The Russian government is boosting social spending and pledged to raise military salaries by 170 percent next year as voters head to the polls in parliamentary elections on Dec. 4 and a presidential vote in March.

Kazakh crude output will almost double over the next decade and an $8 billion cap on spending from the oil fund means that the nation is saving about half of its revenue from the fuel each year, S&P said on Nov. 7.

The cost of protecting Kazakh debt against non-payment for five years using credit-default swaps was 240 basis points yesterday, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Russian CDS was at 210 basis points.

The Kazakh central bank expects further upgrades to the country’s sovereign rating, eventually reaching an A grade, Chairman Grigori Marchenko told reporters in Almaty today. The bank views S&P’s decision “as the first step on the road that rating agencies must take,” Marchenko said.

The nation’s currency, the tenge, which is managed by the central bank, gained 0.13 percent last month against the dollar and traded little changed today at 148.03 per dollar, Bloomberg data show. While the currency will probably gain in the near term, it won’t appreciate beyond 145 per dollar, Marchenko said.

Kazakh Surplus

The Kazakh budget surplus will widen this year to 1.7 percent of gross domestic product and stay at the same level next year, compared with 1.4 percent last year, the International Monetary Fund said last month. Russia will post a deficit of 1.1 percent this year and 2.1 percent in 2012, from a 3.5 percent shortfall in 2010, the Washington-based lender forecast in October.

Russia’s budget was 1.1 trillion rubles ($35 billion) in surplus in the first nine months, equal to 2.8 percent of gross domestic product, the Finance Ministry said on Oct. 13. Boosting military salaries will cost taxpayers 900 billion rubles ($30 billion) from 2011, according to Alfa bank, the country’s biggest private lender.

Government Spending

Government spending in Kazakhstan will account for 22.8 percent of economic output next year, compared with 37.7 percent in Russia, according to IMF forecasts. Kazakh government debt will be 13.8 percent of GDP next year compared with 12.1 percent for Russia, the lender said.

“Kazakhstan’s budget is much more durable than that of Russia’s, with a much lower oil price required to balance the budget,” Tim Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London, said in an e-mailed note. “Kazakhstan also benefits from huge potential for hiking oil and commodity production.”

The economy of the biggest energy producer in central Asia will expand 6.5 percent this year and 5.6 percent in 2012, fueled by demand for its crude oil, according to the IMF’s World Economic Outlook database.

Russia’s economy will grow 4.3 percent this year and 4.1 percent in 2012, less than previously forecast because of a worsening outlook for oil prices, the IMF said in September.

Moody’s, Fitch

Moody’s Investors Service rates Kazakhstan one level lower at Baa2, while it maintains a Baa1 rating on Russia, a step higher. Fitch Ratings has Kazakhstan at its lowest investment grade, BBB- compared with BBB for Russia, its second lowest.

“S&P’s action is in line with our long-standing call on Kazakhstan, outperforming Russia economically and in the credit space in the medium term,” Alexander Morozov, chief economist for Russia and the Commonwealth of Independent States at HSBC in Moscow, said in an e-mailed note. “Decent macroeconomic performance and policies are still rewarded.”

A doubling of oil production and net foreign direct investment that will average about 4 percent of gross domestic product a year will feed annual per capita GDP growth of 6 percent from 2011 to 2014, S&P said.

‘Political Uncertainties’

Still, S&P said it weighed its decision “against political uncertainties and a stronger, but still weak, financial sector.”

Kazakh President Nursultan Nazarbayev’s reported hospitalization in Germany in July raised questions about succession in the former Soviet nation, which he has ruled since 1989. In April, he won elections with 95.5 percent of the vote. Kazakhstan lies along strategic energy transit routes for China, Russia and the U.S.

The nation’s banks are still reeling from the global financial crisis that followed the collapse of Lehman Brothers Holdings Inc. Kazakhstan used $10 billion from its oil fund to support banks and companies after credit markets froze two years ago. BTA Bank, the biggest lender at the time, Alliance Bank and Temirbank agreed with creditors’ on discount and extension of payments on about $20 billion of debt after they defaulted in 2009.

Kazakhstan is considering selling its first foreign- currency bonds in more than a decade next year, which may well pave the way to its first sovereign Islamic debt, Deputy Finance Minister Ruslan Dalenov said in an Oct. 26 interview.

The S&P rating upgrade “opens possibilities for rating growth of all companies and residents in the country and decreases interest rates on international loans,” the Astana- based Economic Development and Trade Ministry said in a statement posted on Kazakh government website.

–With assistance from Nariman Gizitdinov in Almaty. Editors: Balazs Penz, Andrew Langley, Paul Abelsky.

SOURCE: http://www.kazakhembus.com/index.php?mact=News,cntnt01,detail,0&cntnt01articleid=794&cntnt01origid=15&cntnt01returnid=201

National fund receipts from oil sector enterprises in 2009 exceeded size of fund transfers 0

Posted on May 18, 2010 by KazCham

Astana. May 17. Kazakhstan Today – The National fund receipts from the oil sector enterprises in 2009 have exceeded the size of the fund transfers for the republican budget. The Minister of Finance of Kazakhstan, Bolat Zhamishev, informed of execution of the republican budget for 2009 today at the government meeting and the Accounting Committee for Control over Execution of the Republican Budget, the agency reports.

“Despite the difficult economic situation, National fund receipts from the oil sector enterprises have exceeded the size of the National fund transfres for the republican budget in 2009 by 24.8,%” B. Zhamishev informed.

SOURCE: http://kt.kz/?lang=eng&uin=1133435041&chapter=1153517205



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