CONFIDENTIAL

Kazakhstan’s Economy

CONFIDENTIAL

By H.E. Yerlan AbildayevAmbassador

Embassy of Kazakhstan in Canada2011

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OVERVIEW OF KAZAKHSTAN

• Political status: Republic

• Area of land: 2.7 million sq.km

• Capital city: Astana

• Population: 16.3 million (2009)

• GDP/GDP per capita: USD 146 bln/USD 8,9 (2010)

• GDP growth: 9.0% p.a. (2003-09)

• Main religions: Islam, Russian Orthodox

• Main languages– Kazakh (state language): 64%– Russian (official/business language): 95%

• Key ethnic groups – Kazakh: 67.0%– Russian: 26.8%– Ukrainian: 3.7%– Uzbek: 2.5%

• Currency: Tenge (KZT; USD 1 = ~ KZT 146)

Mongolia

China

Kazakhstan

Afghanistan

UzbekistanKyrgyzstan

TajikistanTurkmenistan

Russia

Mongolia

China

Kazakhstan

Afghanistan

UzbekistanKyrgyzstan

TajikistanTurkmenistan

Russia

Mongolia

China

Kazakhstan

Afghanistan

UzbekistanKyrgyzstan

TajikistanTurkmenistan

Russia

Mongolia

China

Kazakhstan

Afghanistan

UzbekistanKyrgyzstan

TajikistanTurkmenistan

Russia

Source:EIU country profile

Astana City

Baiterek

Palace of Peace and Reconciliation ("The Pyramid of Peace”)

Astana City

Astana City

Almaty City at Zailiyski Alatau Mountain foothill

Borovoye

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Executive Summary

After a decade of exceptionally strong economic growth and development, Kazakhstan’s ability to withstand shocks has been tested since the onset of the global liquidity crisis in 2007. Against expectations by many, appropriate policy responses and strong financial ratios have enabled Kazakhstan, which was identified as being among the worst affected, to avoid a severe banking crisis with a run on deposits, a currency crisis and depletion of FX reserves and a recession.

External liquidity position strengthened in the beginning of 2010 as a result of improved balance of payments dynamics. Due to comfortable export prices and continuous FDI inflows in 2010, the current account of balance of payments is positive.

Long-term prospects remain good given Kazakhstan’s vast endowment of natural resources and the government policies to support the economy’s diversification through infrastructure development and improvements to the business environment.

The government’s key priorities for the next two years include the stabilisation of the financial sector, supporting the small and medium sized enterprise (SME) sector, develop the agro-industrial sector and the real estate market, advancing the diversification of the economy, boosting employment and supporting socially vulnerable groups of the population.

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Resilient fundamentals supported by a strong sovereignbalance sheet…

2003 2004 2005 2006 2007 2008 2009 2010 GDP growth rate (% change oya) 9.3 9.6 9.7 10.7 8.9 3.3 1.2 7.0

Per capita GDP (US$) 2,070 2,870 3,770 5,290 6,772 8,514 6,496 8,978

Current account (% GDP) (0.9) 0.8 (1.8) (2.4) (7.8) 5.2 6.3 2.95

Trade balance (% GDP) 11.9 15.7 18.1 18.1 14.4 25.1 13.8 19.7

Exports of goods (US$ bln) 42.9 47.7 49.5 47.9 46.1 54.4 43.1 60.0

International reserves (US$ bln) 5 9.3 7.1 19.1 17.6 19.4 18.6 28.0

Key macroeconomic indicators

…and a government’s broad ranging Anti-Crisis Plan tolimit the extent of the economic slowdown

Total anti-crisis funds allocated amount 3 029 bln tenge (20.2 bln. USD), including:

• Anti-crisis measures on 5 directions – 1 691 bln tenge (11.3 bln USD)

• Reduction of minimal reserve requirements – 490 bln tenge (3.3 bln. USD)

• Reduction of tax pressure - 500 bln tenge (3.3 bln. USD)

• Implementation of new plan of further modernization of economy and realization of employment strategy (Road Map) - 348 bln tenge (2.3 bln. USD)

Outstanding and diverse natural resource wealth supports long-term growth prospects

• The country holds about 3.2% of the world’s total proven oil reserves. Overall prospective resources are estimated at between two and three times the size of proven reserves

- Over the next decade, Kazakhstan is expected to double oil production on the back of higher production at the Tengiz field and launch of the Kashagan field, which is the fifth largest in the world by reserves

• The republic holds 1.4% and 3.4% of the total world reserves of natural gas and coal, respectively.

• Kazakhstan possesses all known useful minerals including major deposits of ferrous and non-ferrous metals, uranium and gold

• Kazakhstan is also a significant exporter of grain, ranking among the world’s leading ten exporting countries

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New measures of the Government for the industry development

The Program of forced industrial-innovative development of Kazakhstan for 2010-2014 (PFIID)

Main goal of PFIID – maintenance of diversification and competitive recovery of Kazakhstaneconomy for a long period

PFIID Objectives:

- consolidation of business and government effort and concentration of state resources ondevelopment of priority sectors of economy;

- forming of favorable macroeconomic and investment climate and forming of efficient institutions and mechanisms of government and business interaction

Within the framework of PFIID the Industrialization Map is being implemented

In present the preliminary portfolio of 115 investment projects with amount of 11,26 trln. tenge has been selected.

Expected results:

-sustained pace of economic development with the annual EVA growth approx. to 50%

- competitive recovery of economy and structural shifts in economy and industry in benefit toproductions with high-technological products and high added value

- improvement of growth rates of working efficiency and shifts in the structure of GDP with increase of share of manufacture up to 14,5%

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Largest projects of Industrialization Map

Agriculture: Construction of grain elevator complex in Mangystau oblast, 7 bln. tenge

Construction industry and production of construction materials: Construction of cement plant in EKO, 19.5 bln tenge

Oil processing, infrastructure of oil & gas sector: Modernization and reconstruction of Atyrau Oil processing plant, 395 bln. tenge

Metallurgy and production of finished metal products: Reconstruction of Taraz metallurgy plant, 12 bln. tenge

Chemical and pharmaceutical industry: Construction of Gas-Chemical complex in Atyrau oblast, 945 bln. tenge

Energy: Construction of Balkhash thermal power-station, 375 bln. tenge

Transport and telecommunication infrastructure: Reconstruction of “Astana-Schuchinsk” automobile road, 114 bln. tenge

Others: Locomtive-assembly planti in Asana, 21 bln. tenge

In purpose of realization of industrial, innovative, infrastructure projects it is projected to attract credit lines of “Eximbank” of China and China Development Bank in amount of $ 13 bln. and“Vnesheconombank” of Russia in amount of $3 bln.

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Multi- annual foreign investment projects ensures sustainability of FDI inflows despite the global crisis

Kazakhstan has become a regional leader in attracting FDI, with the EU and the US amongst the largest investors in the country. Overall FDI in January – September 2010 - 13 bln USD

FDI inflows have become increasingly diversified, flowing into various non-oil sectors of economy such as metallurgy manufacture and financial sector.

Despite the crisis FDI inflows will continue to come into projects of oil & gas sector development.

Creation of a Customs Union

1. Increase of trade turnover between countries (Belarus, Kazakhstan and Russia). For local enterprises the market will expand to around 170 mln people.

2. As a result of unification of customs tariffs on goods from third countries, the weighted average tariff almost doubled. This will promote the decrease of reliance on imports.

This will give the chance to Kazakh goods to penetrate the markets which were firmly occupied by goods from third countries (particularly, from China) due to the difficulty of price competition.

3. Improving the investment and business climate in Kazakhstan (lower VAT, employment taxes) should help to secure foreign inflows to non-oil sectors aimed at common market.

4. The customs union will be a stimulus for cooperation of complementary enterprises and creation of vertically-integrated corporations in Russia, Belarus and Kazakhstan.

5. Unification of tax tariffs will lead to its growth for Kazakhstan, and with additional investment attracted would lead to increase state budget revenues

Perspectives of Customs Union (CU) in framework of EurAzECPerspectives of Customs Union (CU) in framework of EurAzEC

Kazakhstan’s Top 10 Trade Partners in 2010

Countries Export (mln USD) Import (mln USD)

Russia 4820,4 11006,2

China 10122,1 3964,5 Italy 9576,8 1580,6

France 4433,1 501,3

Netherlands 4161,0 301,8

Germany 1749,7 1828,2

Austria 2528,7 222,2

Canada 2439,1 217,2

USA 868,1 1313,1

Britain 1379,5 724,7

Turkey 1234,8 616,3

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THANK YOU…