surprising kazakhstan

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September | October | 2008 www.peninsula-press.com

Think you know Kazakhstan?

YOU MIGHT BE SURPRISED

SURPRISINGKAZAKHSTAN

1_24_Kazaquistão_work 08/09/10 17:03

INTRODUCTION Specia l Advert is ing SupplementSpecia l Advert is ing Supplement INTRODUCTION

2 Surprising KKaazzaakkhhssttaann

he streets of Almaty, thecommercial center, and othercities throughout the countryare clogged with Mercedes,BMWs, and Porsche SUVs.

At night, the cafes and restaurants are as full asthose in any European capital, as well-heeledclientele sip white wine and cappuccinos.Throughout the land, and especially in thecapital, Astana, steel and glass skyscra-pers have shot up where once just aridgrassland stood.

This is Kazakhstan, Central Asia’s ris-ing political and economic power. In just afew years, it will be a country for other nationsin the world to pay heed to and reckon with.Kazakhstan will be a regional, commercial,and financial center along the lines ofSingapore and Dubai, and a force that plays adecisive political and economic role in the post-Soviet sphere—and beyond.

Under the iron tutelage of President NursultanNazarbayev, the expansive ex-Soviet republic of 17million—the size of Western Europe, stretchingfrom the Caspian Sea to the Tien Shan Mountains

on the Chinese border—intends to become oneof the world’s 50 most competitive nations.

Oil and gas will be the primary drivers of thisdevelopment. The country’s hydrocarbon re-serves are immense—estimated to have around

30 billion barrels of crude-oil reserves, whichplace it 11th in the world, representingsome of the largest deposits outside theOrganization for Petroleum Exporting

Countries (OPEC). By 2015, the Astanagovernment plans to triple production to

close to 3 million barrels per day. Already, Kazakhstan is considered by the

World Bank to be one of the 20 best places forcapital investment. Gross domestic product(GDP) has skyrocketed in recent years, foreigndirect investment has topped US$45 billion,and the country looks on track to join the WorldTrade Organization soon. Its banking sector isconsidered to be the most progressive in theformer Soviet Union, able to adapt and learnfrom its mistakes and, for the moment, flexi-

ble enough to weather the world banking cri-sis. But it is not all about oil. Kazakhstan is anextraction powerhouse, also thanks to massivedeposits of other major minerals, such as cop-per, gold, cobalt, and uranium. Kazakhmys, thecountry’s copper flagship, conducted a US$1billion initial public offering on the LondonStock Exchange in 2005.

Ultimately, hydrocarbons are just a meansto an end. Kazakhstan wants to develop athriving, multifaceted economy and avoid the“resource curse” that haunts so many othercommodity-based economies. The list ofpetro-states throughout the world that havereverted to authoritarianism, or whoseeconomies have withered on the vine from cor-ruption, inflation, and suffocating bureaucra-cies is depressingly long.

For this reason, President Nazarbayev hasestablished an oil stabilization fund—nowstanding at US$24 billion, where revenuescan collect offshore, not disrupt the economy,and later can finance development—and acomprehensive “Kazakhstan - 2030” devel-opment plan to grow and diversify the econ-

omy beyond the oil-and-gas sector. “Act as ifthere will be no oil tomorrow,” the Kazakhleader says.

The future looks very bright indeed. Butsome questions need to be answered first, notthe least being what type of political struc-ture the country will take, which will in turninfluence its economic progress. Kazakh of-ficials say that they are dedicated to the pathof democracy, but political trends of the last10 years have seen a steady march towardgreater authoritarianism and control.Recently passed laws allow government of-ficials the right to alter or cancel a natural re-source contract unilaterally if they believe theconditions are not being met. PresidentNazarbayev has named himself leader for lifeand is backed by a one-party parliament.

The Kazakh statesman, on the otherhand, is recognized as a stabilizing and quie-ting force in the country and region and hasdevoted his time in office to building bridgesamong nations and peoples. This is no smallmatter in politically turbulent Central Asiaand racially diverse Kazakhstan, where more

than 120 different ethnicities reside.Kazakhstan has also played a delicate balanc-ing act between its two massive neighbors,Russia and China, as well as the EuropeanUnion and the United States.

With the oil wealth has come a newfoundpolitical weight, however, and the Astanagovernment has taken tentative steps to-ward flexing its muscles in a variety ofareas. In recognition of its growingforeign-policy clout, Kazakhstanwas recently named to take overthe annually rotating chair-manship of the Organiza-tion for Security andCooperation in Eu-rope in 2010. Theappointmentwas stronglyopposed bythe Uni-

ted States in view of the country’s political recordand may weaken the OSCE’s democratic cre-dentials. But it may also spur democratic reformamong the country’s elite.

In the end, the country’s future rests with itsrapidly growing middle class. A popular theo-ry of political progress holds that democracy canonly develop—and thrive—once the popula-

tion is materially enfranchised. Then peoplehave a stake in the country’s future, take

an interest in which political decisionsare made, and demand their electoral

and civil rights. This well may bethe case with Kazakhstan,

where the population hasseized the free-market op-

portunities now availa-ble. And for the mo-

ment, the silent ma-jority seems satis-

fied with the di-rection the

country isheading.�

THE SURPRISEON THE STEPPE

T

Kazakhstan’s economy is poised for breathtaking growth in the next

decade, thanks to gargantuan hydrocarbon reserves and a prudent

economic policy. Peninsula Press takes a detailed look at this

emerging Central Asian tiger.

Surprising KKaazzaakkhhssttaann 3

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INTERVIEW Specia l Advert is ing SupplementSpecia l Advert is ing Supplement INTERVIEW

4 Surprising KKaazzaakkhhssttaann Surprising KKaazzaakkhhssttaann 5

1. On the 10th anniversary of the 2030Development Strategy, President Nazarbayevsaid Kazakhstan had gone from a period ofchaos and confusion to a period of stabiliza-tion. What are your thoughts on the country’sdevelopment during the last decade?

In the last seven or eight years, Kazakhstanhas grown at about 9 percent or 10 percent an-nually, and it is now important for us to diversi-fy in order to make our economy sustainable inthe future and create the conditions to allow thenon-oil economy to grow faster. The governmentis paying more attention to infrastructure devel-opment—investing more in roads, railways,power stations, and so on—to create an en-vironment for the business community toinvest more freely.

There are a number of obvious op-portunities. One is geography; we shoulduse our position to transport goods and serv-ices through our territory. There is fast growthin China, and the European markets need theirgoods—and the fastest way is through the ter-ritory of Kazakhstan—by rail and by road andby plane. Logistics services and infrastructure, par-ticularly on our borders with China, the CaspianSea, and Russia are an obvious opportunity.

Second, there is an increasing demand forquality foodstuffs on the international market,and 47 percent of our population lives in ruralareas. Kazakhstan can play a bigger role in thesupply of agricultural products to theinternational market. We should makeKazakhstan a hub in the region.

2. Why should Kazakhstan succeed in di-versifying its economy and escape the “petro-state” trap when so many of its peers havefailed?

Importantly, we’ve made the decision to sepa-rate the money from oil revenues from the state

budget, and we keep this under the mana-gement of Western institutions. This mo-ney does not belong to us—it belongs toour future generations. I strongly believe

that Kazakhstan can become a model econ-omy. We should develop our oil industry and usethe revenue to diversify the economy.

3. Kazakhstan has just been granted chair-manship of the OSCE in 2010.

Achieving the chairmanship of the OSCEis a very important victory for Kazakhstan andfor the OSCE itself—as Kazakhstan is the first

country from the former Soviet Union to be-come a potential chairman. Kazakhstan mustaddress how we move forward, what steps canbe taken to make our society more democraticand to bring our political system closer to OSCEstandards. I strongly believe that it is a big chal-lenge for Kazakhstan to become an equal part-ner as a democratic society—not only econo-mically, but politically as well.

4. Kazakhstan is progressing steadily to-ward Word Trade Organization (WTO) acces-sion. How quickly and to what extent will WTOmembership alter the business landscape ofthe country?

Our economy is liberal, and because of this,the WTO accession will not create any difficul-ties for businesses here. We are already using therules of WTO and OSCE countries. There issome concern about WTO accession becauseof the fear of a lot of goods from other countriescompeting with those produced in Kazakhstan,but domestic companies are prepared.

5. Kazakhstan has worked hard to craft amultidimensional foreign policy betweenRussia, China, the EU, and the United States.

Can you elaborate on how Kazakhstan plansto balance its future relationship with eachof these four major powers?

This is a very important issue. Russia is along-term partner; traditionally, we are close—for ages we were part of Russia, and we believethat a strong relationship with Russia is veryimportant. Also, China is our neighboringcountry and is growing fast. It’s important tocreate a good relationship with them, and it ispragmatic to get the benefits of the growth ofthis country. Western investment inKazakhstan is also crucially important for us,and we are very proud that many large U.S.companies are here. It is also important tomaintain good relationships with our neigh-boring countries and across the Caspian Sea tothe Islamic world. This is a unique opportuni-ty for our country to develop sustainability andprotect the interests of Kazakhstan.

6. According to the U.S. Department ofState, 27 percent of the total foreign direct in-vestment inflows to Kazakhstan during 2006had their origin in the United States. Howwould you describe the economic relationshipbetween Kazakhstan and the U.S.?

The economic relationship with the UnitedStates started with the oil-and-gas sector and thendeveloped in the transportation sector, where someU.S. companies, for example Federal Express, areusing Kazakhstan as a hub. Companies from theUnited States in the communication sector havealso expressed interest in Kazakhstan, and I willbe going to the U.S. next year to hold a conferenceabout the non-oil-and-gas industries. We hopethat small and medium-sized enterprises fromthe United States will come to Kazakhstan to usethe fast-growing market over here. The agricul-ture and food-processing sectors have fantasticopportunities—both for Kazakhstan and for com-panies from the United States.

7. Given the president’s recent visit to Iran,what role do you feel Kazakhstan can play inpromoting a better understanding betweenIran and the international community?

You know that in 1991, Kazakhstan was thefourth-largest nuclear country in the world.The president himself made a decision to puta stop to it. We were the only Islamic countryin the world that held nuclear weapons, so weare probably the only country who can tell thestory to the Iranian government of how wepeacefully got rid of them. We are the obviouscountry, and our president is the obvious per-son to deliver this message.�

PRIME MINISTERKARIM MASSIMOVSTEWARD OF ECONOMIC GROWTH

As head of the Kazakh government since January 2007, Prime Minister Karim

Massimov has overseen the country’s economic development and charted its

course through the choppy waters of the present international economic situation.

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he Kazakhs have a traditionstretching into their nomadic pastof welcoming all visitors. Guestson the steppe—often because theywere such a rare occurrence—were

treated to generous, effusive, and sometimes over-whelming hospitality.

In later years, this has translated into a foreignpolicy that receives and accommodates all comers.Russia, China, the European Union, the UnitedStates, Iran, Japan, Pakistan, India, and even Israeland South Korea have been greeted and now haveextensive interests in the Central Asian state.

“Kazakhstan has a long tradition of hospitalityto outsiders, creating a country where everybodylives in peace and harmony building the countrytogether,” says U.S. Ambassador John Ordway. “Youcan see the results of this, a remarkably low level ofethnic tension. People of all races and ethnicitieswork together. Every foreigner gets the feeling of thatpretty quickly,” he continues. “Public opinion and aremarkable number of statistics show how tolerantthe people are and how open they are to all the dif-ferent ethnic groups that live here.”

The policy is not just about being a good host—it is also an exceedingly smart strategy. The countryneeds as many friends as it can get. Kazakhstanshares lengthy borders with two of the world’ssuperpowers, Russia and China, and lives inan unstable neighborhood rife with ethnictension, terrorism, and religious extremism.President Nursultan Nazarbayev has been a mas-ter at balancing interests.

Thanks to its oil-and-gas riches, Kazakhstan hasbecome a point of focus for the world’s economicgiants, each viewing the others jealously as they scram-ble to find new energy sources. The potential for -friction among the world’s countries has been enor-mous. All want a piece of the Kazakh hydrocarbon pie.

The Kazakh leader has turned what could be apotentially contentious situation into a boon for his

country. All outside powers now have a stake hereand are assiduously wooing the country for its strate-gic importance. China sent its Olympic torch firstto Kazakhstan when it began its tour around theworld. President Nazarbayev visited Washington,D.C., last year and met with President George W.Bush. Russia’s newly elected leader, DmitryMedvedev, made his first stop outside the countryto Kazakhstan, on his way to China. To be sure, allthe former Soviet republics in Central Asia pursuean open and multi-vectored foreign policy, in recog-nition of their own fragile positions and their needto make as many allies as possible. They all tread afine line between Russia, China, the United States,and the EU. But nowhere is this fine high-wire actperformed more successfully than in Kazakhstan.“For a country like Kazakhstan, it needs a sober analy-sis of what the international interests are and how itcan best pursue the international interests and seekpartners on the international stage,” says U.S.Ambassador Ordway. “The U.S. is one these partners,and we can help Kazakhstan in a mutually beneficialfashion achieve goals and interests in both our coun-tries. But it is not a market-exclusive relationship.

“It is important and makes Kazakhstan a valu-able partner for us if it has good relations with Russia

and China,” he adds. “We see benefits inKazakhstan having good relations with itstwo big neighbors and continuing to pursueequally good relationship with the U.S. and

EU.” And now Kazakhstan is ready for its mo-ment in the spotlight. During the last decade, theAstana government has quietly been assumingmore and more influence in the region and beyond.Kazakh banks are an economic force throughoutthe former Soviet sphere, buying up property andinvesting in businesses in Central Asia, the Caucasus,and Russia. Kazakhstan is a leading member of theCommonwealth of Independent States, the succes-sor organization to the Soviet Union, as well as theShanghai Security and Cooperation Organization,

which unites Central Asia’s states with Russia andChina. In recognition of the country’s newfound po-litical clout, the Organization for Security andCooperation in Europe, a 56-country grouping thatpromotes democracy and human rights, awarded theAstana government its rotating chairmanship in 2010.

Kazakh officials hailed the OSCE’s decision asacknowledgment of the country’s democraticprogress. “This is a very important victory forKazakhstan and for the OSCE itself,” said PrimeMinister Karim Massimov. “Kazakhstan is the firstcountry from the former Soviet Union to become apotential chairman of OSCE.”

Diplomats working with the Central Asian state,however, said that the honor was instead more forKazakhstan’s growing economic and political might,and in hopes that the country will improve eventu-ally its human rights record, which lags behindother ex-Soviet states like Ukraine and Georgia.

President Nazarbayev, who was recently namedthe country’s leader for life, dominates the politicalscene, while a parliament containing only his NurOtan Party ratifies his decisions. Moreover, diplomatssay that the country has yet to begin implementingpolitical reforms that were strongly suggested by theOSCE prior to assuming the chairmanship.

Prime Minister Massimov recognizes that thecountry’s democratic development is a work in progress,though he dismisses any idea that Kazakhstan did notdeserve the chairmanship. He says that the position isan opportunity for the OSCE to find common groundwith the former Soviet republics.

This is a test—both for Kazakhstan and for theOSCE,” says the prime minister. “Kazakhstan mustaddress how we move forward, what steps can betaken to make our society more democratic, andhow to bring our political system closer to OSCEstandards.

“Through adopting the reality of what ishere in Kazakhstan, I think mutually we canfind a solution,” he continues. “And this is very

Specia l Advert is ing SupplementFOREIGN POLICY Specia l Advert is ing Supplement FOREIGN POLICY


important—both for the Western world and the oldsocialist part of the world.” For the Kazakhs, a partic-ular point of pride is their voluntary renouncing of theirnuclear arsenal nearly 18 years ago. At the time, thecountry was not in any condition to assume the mas-sive political and financial burden of maintaining astockpile of warheads. Other former Soviet states, suchas Ukraine and Belarus, also took similar steps.

Nevertheless, the Kazakh decision is remark-able in a region bristling with nuclearpowers likeIndia and Pakistan, and nuclear-powerwannabes like Iran and North Korea. Add to

this the country’s extensive cooperation on crackingdown on trafficking of nuclear materials and otherweapons of mass destruction, and you have a strong,

stable, and dependable partner in the region, and ashining example to other regimes.

Kazakhstan provides a very good model of howa country can enhance its security while giving upor renouncing nuclear weapons or other weaponsof mass destruction,” says Ambassador Ordway.“President Nazarbayev said frequently that this

decision made the country more stable andmore secure.

“And this model and example is applica-ble in any part of the world where we are try-ing to prevent proliferation of weapons of massdestruction,” he adds. �

While enviably enjoying good relations both with its powerful Russian and Chinese neighbors as well being atrustworthy partner and ally to the United States, Kazakhstan understands that its position remains a delicateone. Its foreign-policy strategy blends pragmatism and ideology through skillful and sensitive management.

T

A QUESTIONOF BALANCE


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resident Nazarbayev’s re-lentless insistence on diversi-fying the economy away fromits dependence on hydrocar-bon revenues gives some

indication of just how important theyare to the country; in Kazakhstan, di-versification is policy, but oil is king.National oil production is the bedrock ofthe country’s economy, accounting for around30 percent of GDP and more than half of allexport revenues. According to the latest fig-

ures, Kazakhstan’s extractable oil reserves areestimated to be 39.8 billion barrels, equiva-lent to 3.3 percent of the global total, or halfas much as Russia’s. Kazakhstan produced

approximately 1.45 million barrels perday (bbl/d) of oil in 2007 and con-sumed 250,000 bbl/d, resulting in pe-

troleum net exports of around 1.2 mil-lion bbl/d. Production increases are planned

for up to 3.5 million bbl/d, of which 3 millionbbl/d are intended for the export market.

Production increases have grown continu-

ously during the last decade, as large-scale for-eign direct investment (FDI) from practically allthe oil majors has flooded into the country. FDItypically takes the form of a joint-venture agree-ment with KazMunaiGaz, the state-owned oiland gas company. Other channels, such as wellproduction-sharing agreements (PSAs) and ex-ploration concessions, have also proved popular.At projected exploitation rates, Kazakhstan’s oilreserves will last for the next 50 years. Foreigninvestors are limited to a 50 percent participa-tion in each offshore project with the remaining

share taken by KazMunaiGaz. Legal reforms inthe energy-and-mineral sector allowing author-ities to renegotiate concession contracts thatsought to generate more revenue and diversifythe sources of investment for the governmenthave come under criticism from some interna-tional oil companies. These reforms and othersassisted the government in its attempts to ac-quire part of British Gas’ share of the Kashaganproject and acquire a 33 percent share inCanadian-based PetroKazakhstan after it agreedto a takeover deal with China National Petroleum

Corporation. The government retorts that the orig-inal conditions were too favorable to the investors.Despite calls of foul play, these developments are notlikely to affect the long-term investment climate.

If oil is king in Kazakhstan, then the jewels inits crown are the four massive oil fields—Tengiz,Karachaganak, Kurmangazy, and Kashagan—that make up 70 percent of total production. Eachpresents its own unique set of considerations.

Located along the northeast shores of theCaspian Sea, the Tengiz field is the largest sourceof oil production in the country. It has been de-

veloped since 1993 by the TengizChevrOil jointventure, lead by Chevron. Production averagedalmost 280,000 bbl/d during 2007, and recov-erable crude oil reserves have been estimated at6 billion to 9 billion barrels. According to theconsortium, Tengiz could potentially produce700,000 bbl/d by 2010. Most of the oil fromthe field is being sent through the CaspianPipeline Consortium pipeline to the RussianBlack Sea port of Novorossiyk.

The Kashagan field is the world’s fifth largest>>

P

FUELING THEFUTUREWhile long-term strategy seeks independence from hydrocarbonrevenues, for today, at least, oil is still undisputedly king.


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in terms of reserves and the largest single fieldoutside the Middle East. Located off the north-ern shore of the Caspian, the field is operatedby Agip Kazakhstan North Caspian OperatingCompany, which estimates the field’s recover-able reserves at 13 billion barrels. According toKazMunaiGaz sources, full-scale commercialproduction is not expected to commence un-til 2013. The Kashagan deposits contain a highproportion of natural gas under very high pres-sure, while the oil itself contains large quan-tities of sulphur. Extreme weather con-ditions in the northern Caspian also re-quire special equipment.

In the north of the country, near theRussian border, the Karachaganak oil andgas/condensate field is the only onshore siteamong the big four. In 2007, the field producedmore than 250,000 bbl/d of natural gas con-densate. Karachaganak is being operated byKarachaganak Petroleum (KPO) consortium.KPO estimates the field holds reserves of up to8 billion to 9 billion barrels of oil and gas con-densate and 47 trillion cubic feet (Tcf) of nat-ural gas. Plans are to triple output within six toeight years, requiring an investment of US$10billion. The least developed of the big four, the

Kurmangazy field, is located on the maritimeborder between Russia and Kazakhstan. Thetwo nations signed a US$23 billion produc-tion-sharing agreement for the estimated 7.3billion barrel reserves. So far, the field has yetto yield significant returns.

Massive in their volumes, Kazakhstan’sabundant riches are not without challenges.It is far from the main energy markets, andwith no external ports of its own, the devel-

opment of Kazakhstan’s energy policypivots crucially on the development oftransportation routes that provide ac-cess to the markets. Kazakh crude is

transported from the country in all direc-tions, traversing Russian soil via the CaspianPipeline Consortium to the Black Sea andnorthward by train and pipeline into theRussian heartland, to the south by way of oilswaps with Iran, and finally to a lesser but in-creasing degree eastward to China. Most im-portant of these routes by far is the CaspianPipeline Consortium, which in 2007transported more than half of the total 1.2million bbl/d production. The 980-mile longpipeline connects Kazakhstan’s Caspian Sea-area oil resources with the port of Novorossiyk

on Russia’s Black Sea coast, and from there,critically, to open-sea access. The CPC projectwas developed by the governments of Russia,Kazakhstan, and Oman in conjunction witha consortium of international oil companies.The consortium has plans for a US$1.5 billionexpansion project to increase the pipeline’speak capacity to 1.34 million bbl/d, a vital stepif Kazakhstan is to be able to continue to ex-pand its production as planned.

While in terms of upstream productionKazakhstan is a big hitter, the country’s down-stream refining capacity is notably less impres-sive. It has provoked little interest from foreigninvestors due to the low domestic prices for re-fined products and remains largely in the state’shands. As demand for refined fuels grows inline with economic expansion, the nation’s threemajor oil refineries at Pavlodar in the north,Atyrau in the west, and Shymkent in the southwill not provide enough capacity. Indeed, ru-mours suggest that the government increa-singly favors bundling an obligation to buildand operate oil refineries as a condition of fu-ture hydrocarbon exploration deals withforeigninvestors. At the same time, KazMunaiGaz hasannounced its intention to acquire refining ca-

>>pacity outside Kazakhstan, along with a retailnetwork of petrol stations, although attemptsin 2006 to buy a stake in the LithuanianMazeikiu Nafta (Mazeikiai Oil) were frustrated.

Kazakhstan’s total proven natural-gas re-serves were revised upward to 100 trillion cu-bic feet (Tcf) in 2007. Natural-gas produc-tion in 2007 in Kazakhstan was estimated bythe Kazakhstan Energy Ministry at 1,037 bil-lion cubic feet (Bcf), of which more than 70percent was produced by international con-sortia at the Tengiz and Karachaganak fields.Karachaganak, which is the largest commer-cial extraction operation in the country, is es-timated to contain more than 47 Tcf of natu-ral gas—25 percent of proven reserves—andproduced 503 billion cubic feet during 2007,half of the total national production. Natural-gas in Kazakhstan is almost entirely “associ-ated” gas. At several fields, includingKarachaganak, gas is reinjected back into theground to maintain crude wellhead pressurefor liquids extraction. This gas can be recov-ered later when the liquids are exhausted.Export potential has barely been exploited, andKazakhstan currently produces only about asmuch natural gas as it consumes domestically.The official gas production target for 2015 is 1,270Bcf, with anticipated exports of around 880 Bcf.

As with oil, one of the biggest issues in thedevelopment of Kazakhstan’s natural-gas ex-port market is transportation, especially toEurope, a huge consumer of Central Asian gas.New gas pipeline routes under the Caspian Sea

are under development, while the Central AsiaCenter (CAC) gas pipeline, which serves as themain artery gas export from Central Asia intoRussia, passes through Kazakhstan, providinga potential transit outlet.

Although coal is often overlooked as hydro-carbon’s poor relative, Kazakhstan containsCentral Asia’s largest recoverable coal reserves,with more than 30 billion metric tons. Less ex-otic than its liquid cousin, the coal sector hasstill excited investors. In 2007, the ArcelorMittalGroup committed US$500 million to increasecoal production in the Karaganda region byaround 5 million tons. Equally, Bogatyr AccessKomir, Kazakhstan’s largest coal producer withaccounts of around one third of all the nation’scoal output, is in turn a subsidiary of AccessIndustries Incorporated (U.S.). Kazakhstan ex-ports almost 16 million tons to power plantsnorth of the border every year, and the Russiansthemselves are active participants inKazakhstan’s coal industry.

Undeniably, oil, and to a lesser extent gasand coal, have helped put Kazakhstan on themap and given the country the economic andpolitical weight to make its voice heard onthe global stage. Ultimately, whatever theirform, hydrocarbon resources will continueto dominate Kazakhstan’s economy and inturn orient and inform its foreign-policy de-cisions. President Nazarbayev may dream ofa future independent of oil revenues, but fornow he is surely thankful for his nation’sburied treasures. �

Q&A

Anaco

Pioneers in Oil Services

What inspired you to go intobusiness for yourself, and how haveyou diversified your activities? We came from the government sector withempty pockets but big ambitions. Anaco wasthe first private oil company in Kazakhstan, in1994. In the beginning, we just had a licenseand a contract with the government, then aEuropean bank backed us. Two or three yearslater, we started investing in service contractsand created our own servicing company,Zaman Energo. What have been the mostimportant milestones in thedevelopment of the company?Now we are producing products for the oil-and-gas sector that we created ourselves. Wehave patents in Kazakhstan, in Russia, and oursales volume is increasing. Last year, we soldseven oil heaters that are being used in theKazakhstan-China pipeline, and we arenegotiating new contracts with some othervery big companies. What is your growth strategy?In Kazakhstan, capital has become veryexpensive, so that’s why we are looking toattract strategic partners—not just for moneybut with good technology, management, andglobal experience. We are now at a stage whereI feel that we are interesting for seriouspartners, financial groups. What message would you send topotential foreign investors? Middle-size American companies are afraidbecause of the different legislation. But as anentrepreneur, I’m ready to work together withAmerican companies. ButKazakhstan is“hungry” for theseoil-and-gas fieldservices. There’s alot of money to bemade. Let’searn ittogether!

SAGAT TUGELBAYEVPresident



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How has the company evolved sincethe beginning?Since Kausar was formed, within only two years, wehave been able to expand very aggressively,acquiring a total of 21 exploration and productionlicenses. In addition to these Russian assets, we alsonow have assets in Kazakhstan and Oman. In themiddle of last year, we also branched out into theoilfield service business. An initial entry positionwas taken when we purchased a local drillingcompany. At that time, the company only had fiverigs providing service almost exclusively toKazMunaiGaz. Since this first acquisition, we haveformed a separate company, the ProTECH OilfieldServices, which now has a total of 19 rigs inKazakhstan with plans for further significantexpansion in the near future. We raised thepurchase capital, invested in new rigs, and sixmonths after we started, it was valued at 20 timesour investment. That kind of growth would be veryhard to achieve in the U.K. and clearly demonstratesthe enormous opportunities within Kazakhstan. What do you see as the mostsignificant challenges for yourcompany in the future? The biggest limitation at the moment is the lack ofpersonnel with strong technical skills. In terms offinance, legal, and IT services, it’s hard to justifyhiring an expatriate as there are some verytalented local personnel. The reason for the lack ofskilled technical personnel is that after the Sovietera, young people did not want to go intoengineering disciplines; they all seemed to want towork within the financial sector. So now, the bigchallenge is finding good technicians. We arealready planning for the future and haveestablished good links with universities. The

company actually has astructured graduatetraining program withthree students

currentlyprogressing

through it.

Even for experienced Western investors, thegrowth of SAT & Company since its inceptionin November 2000 has been truly astonish-ing. From an original share capital ofaround $10,000 in 2000, the company aimsto turn over more than US$500 million in2008. A difficult company to conceptualizein traditional terms, SAT & Company is,broadly speaking, an industrial holdingarranged into three principal areas of activ-

ity: mechanical engineering, the petrochemical industry, andinfrastructure, with special projects treated as separate entities. Eachbusiness division has evolved according to the opportunities in its particu-lar sector, and their profiles are constantly changing along with their sec-tors. Many of SAT’s activities in its mechanical engineering division, for ex-ample, have their roots in the heavy industrial complexes inherited fromthe Soviets, though many plants are adapting to emerging market forces.One such project is the KazTrubProm plant In Uralsk, already in operation,which will supply both national and foreign oil-and-gas companies withcasing pipes, tubing, and valves for oil-field construction. Indeed, withinthe engineering sphere, the huge development of the oil-and-gas fields isproviding much of the stimulus for SAT & Company’s growth.

More recently, petrochemical projects have been identified as areas ofenormous potential growth. As SAT & Company’s chairman of the board, Mr.Kenes Rakishev puts it “one of our biggest projects is a new petrochemicalplant. Starting from this year, we signed a major 18-year contract with TCO(TengizChevrOil)—the biggest producer of oil and gas in Kazakhstan—to pur-chase natural gas from them, which we will use to produce around 1.5 mil-lion tons of products, such as polyethylene and polypropylene.” The invest-ment required will be about US$6 billion. SAT & Company will partner withKazMunaiGaz E&P—the huge state-owned oil-and-gas giant—andLyondellBasell Industries and receive additional support from the govern-ment in terms of infrastructure development. Mr. Rakishev, an OxfordBusiness School graduate, aims to raise most of the funds for the project inLondon’s capital markets. He is representative of the new breed of dynamicyoung managing directors in Kazakhstan, unencumbered by the old ways.“Younger managers perhaps don’t have as much experience, but we alsodon’t have the mentality from the Soviet period. We have a new mentalityand new visions, and in this case it’s a good fit since our company is alsovery young,” he states, adding, “I think that in a period like this—at a time ofliquidity crisis—it’s a good opportunity for us and for our country becausenow we understand how to move in these conditions.” It’s hard to imaginesuch financial literacy and optimism in the face of a global crisis from manyof the old guard. The mining sector has also proved to be a fertile huntingground, and the company has mining interests in Turkey, Moscow, Dubai, andJordan, as well as closer to home. “We have some gold reserves here inKazakhstan. There are not large reserves, but we are trying to consolidate themining companies here, to buy some small companies—and maybe in the futurecreate one medium-sized company with a view to issuing an IPO later down theline,” adds Mr. Rakishev. SAT & Company is clearly a company to watch. �

SAT & COMPANYOpportunity Knocks inCentral Asia

Q&A

DAVID STURTCEO

KENES RAKISHEV

Kausar Oil and Gas

Kazakh Investors Go Multinational


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Successful reforms 10 years ago pavedthe way for a decade of rapid andunprecedented growth in Kazakhstan.Further reforms should ensure manymore good years.

From Scratch, a Post-SovietFinancial Sector Emerges

Can you say more about the foreigndirect investment in the financialsector? The regulatory environment in the financialsector has always been friendly to foreign in-vestors. There have been very few limits or res-trictions. We have a number of leading banks inthe country. The first one was ABN AMRO. Sincethen, we have had the arrival of Citibank, HSBC,and a number of banks from countries withwhich we have very close relations—twoChinese banks, four Turkish banks, andSberbank [of Russia].What is the situation in the countryright now?After a period of turbulence and then a periodof stabilization, we started to lay the founda-tion for sustainable growth. But the law of eco-nomic development states that you can neverbenefit from past achievements. The environ-ment changes rapidly, and you should alwaysbe ready for new challenges. I think in 2005-2006 these new challenges showed themselvesquite openly. What were they?The rapid growth and the financial system’s ex-pansion has a side effect of the economy over-heating. The economy was benefiting not onlyfrom high world oil prices but also from metalsand a number of other Kazakh export items. Inthis situation, when the economy was still intransition, a bubble started to emerge. Themost obvious bubble was in the real estatesector, but we also can name trading activityand services. That was anew challenge.

1998 saw Kazakhstan’s fledgling economycontract 1.7 percent as the weight of a poorharvest, the East Asian financial turmoil,and the nation’s oil reserves selling at un-der US$20 a barrel took its toll. By the fol-lowing year, however, a strong economic re-covery had taken root that ushered inseven years of continual growth at abracing 10 percent underpinned bysound macroeconomic policies, anexpansive financial system, and foreigndirect investment that poured into oil andgas and mineral sectors. A friendly invest-ment environment in the financial sectorbrought big-name multinational banks tothe country, the first being a pioneeringABN AMRO, followed by Citibank, HSBC,and a number of banks from neighboringcountries such as China and Turkey. Risingoil, gas, and mineral prices swelled govern-ment coffers and entrenched the sense of

well-being, paid for social initiatives, andconsolidated economic stability. Even the“curse” of mineral wealth couldn’t derail thedevelopment script; a wise decision to setup a national fund in 2001 to collectbooming oil revenues to be invested abroad

helped general macroeconomicstabilization by sterilizing these hugerevenues from the domestic economy.

At the time, this measure was suf-ficient to generate sustainable growth,

but by 2005-2006, new challenges beganto appear on the financial landscape. Today,Kazakhstan’s financial sector is much moretightly integrated into the global financialsystem, rendering it vulnerable to the cur-rent market volatility. As the economyshowed signs of overheating, fueled by easyaccess to cheap credit, real estate priceshave ballooned. There is now a consensusthat it is time for the government, mone-

tary authorities, and financial regulators tointroduce a second wave of restructuringto ensure the continued health of thefinancial sector for the future. One of thekey objectives on the path to sustainablegrowth continues to be the creation of adiversified economic structure, whichwould serve to dampen the effects of oil-price fluctuations on the broader economy.Greater competition also needs to beencouraged through the reduction ofadministrative barriers, thus enabling thedevelopment of small and medium enter-prises.

In the short term, however, the Govern-ment has implemented a policy of softlending to alleviate the effects of thecurrent credit volatility, on the principalthat an economy in recession woulddestroy so much of the positive momen-tum built up over the previous years of

progress. Initially, US$4 billion has beenset aside from the current budget revenuesto provide loans to the construction sec-tor, small-and medium-size enterprises,and the agricultural sector, i.e., where thereal economy and jobs are threatened. Thegovernment has categorically stated that na-tional fund assets—which are to be employedonly in investment projects and strictly in ac-cordance to a Parliament-backed program—will not be used. Further measures to cush-ion the economic downturn include the post-ponement of the introduction of higher re-serve requirements for banks, the redemptionof short-term bank bonds before maturity,and allowing banks to borrow against thereserve accounts of the National Bank. Withthese measures in place, the economyshould manage a respectable 6 percentgrowth in 2008, heralding another decadeof opportunity. �

Making the Kazakh DreamHome a Reality

One of the priorities of the government’s 2030Strategy has been to promote access to better qualityhousing for Kazakhstan’s people. The solution to thischallenge, in large part, has been met by theKazakhstan Mortgage Company (KMC). KMC provides refinancing to banks and non-bank or-ganizations by purchasing mortgage borrowers’loans. It then provides a sale-of-asset liquidity facilityby signing an agreement with the partner bank to se-curitize their mortgage loans. Yet there have been some difficulties. Critics pointto distortions in the housing market and the emer-gence of speculative investors. Furthermore, withits primary objective having been achieved, thereis now some debate about the future of KMC, withcalls for it to be dissolved, amalgamated into theKazyna fund, or even privatized. However, the suc-cess of the scheme is palpable: During the last sixyears, mortgage interest rates have dropped from20 percent in 2001 to below 14 percent in 2007, loanterms have increased from three years to 20, andaccess to affordable housing loans has risen no-tably. By 2007, the total volume of outstandingmortgage loans was worth KZT 60 billion, andbonds were issued for the total amount of KZT 53billion where income on the bond is exemptedfrom taxation—making them particularly attractiveto institutional investors. In the first quarter of2008, KMC issued common shares that are listedon the Regional Financial Center in Almaty.Furthermore, a second stage of activity has begunwith the formation of the State Program forDeveloping Housing, trusted with finding solutionsto development issues in the housing sector.Whatever the final fate of KMC, it has certainly

played an important role in provid-ing ordinary people with afford-

able homes all across thecountry.

GUARANTEEINGCONTINUEDGROWTH

Surprising KKaazzaakkhhssttaann 1514 Surprising KKaazzaakkhhssttaann

Q&A

ANVAR SAIDENOVGovernor

National Bank of Kazakhstan

PROFILE

AZAMAT IBADULLAYEVChief Executive Officer

KAZAKHSTAN MORTGAGE COMPANY


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ANDREY TIMCHENKO, Kazkommertsbank Kazkommertsbank is in a pretty strong position. We have increased profits by 20 percent in theyear to April, driven by widening the net interest margin. Our cost of funding has not yet in-creased substantially, and due to the shortage of financing, we managed to increase lending in-terest rates so that the net interest margin has widened more than 1.2 percent. We have morethan enough liquidity (about US$5 billion of liquid assets) on the balance sheet to cover our ex-posure. This year, we’ll need to pay roughly US$1.5 billion and another US$1.3 billion next year.We expect to see some rise in non-performing loans, but our bad loans to total investment port-folio will still be relatively low, rising perhaps from something like 2 percent to 3 percent or from3 percent to 3.5 percent max.

GRIGORI MARCHENKO, Halyk BankSeveral banks in Kazakhstan have been borrowing too heavily from the international capital mar-kets, some with as much as 62 percent to 72 percent of their overall liabilities in foreign debt. Inour case, it’s below 30 percent. Many were also lending heavily to the construction sector in Almatyand Astana. We stopped lending to this sector in April 2006 because we saw the crisis coming.We didn’t get involved with unsecured consumer lending, which, although it’s very profitable, isat the same time a very risky business. So, our exposure to unsecured consumer loans is zero. Lastyear, the growth of the country’s banking sector was around 30 percent; our growth was 61 per-cent. So, we are quite confident with the way things are developing. We have 20 bigcustomers in Kazakhstan, and the economy is still growing strongly.

SIMEN MUNTER, HSBCHSBC is such a tremendously large and successful institution that the situation specifically inKazakhstan affects us less than many of our competitors. We aim to be seen as the best bank forbusinesses, and especially for international business. We are very good at helping people on theirway into Kazakhstan or helping Kazakhs looking to do business abroad. It is clear that the chal-lenge is on the credit side here at the moment. They are having a difficult time because of theirneed to find funding to meet these challenges, and that will for remain for some time. No onedisagrees that there was a property bubble. At HSBC, we don’t have much capital deployed inthe country this year, but hopefully next year we will. I think it’s very difficult not to see a futurein which Kazakhstan is rich and successful, and we will be here with them.

CEOS’ VERDICTPeninsula Press posed the CEOs of three of thecountry’s leading banks the following question:

“How is your bank positioned to weather the currentcredit crisis in Kazakhstan?”




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Deposit mining was started in 1997.Daily output is 270 – 280 tons

More than 80% of oil is exported to Europe

Kazakhstan’s first private oil companyestablished in 1994

6, Kurmangazy str � Atyrau 060 009 � Republic of KazakhstanPhone: +7 (7122) 762 051, 762 058 � Fax: +7 (7122) 762 057 � e-mail: [email protected] - www.anaco.kz

resident Nazarbayev’s affir-mation that Kazakhstanneeds to act today in the cer-tain knowledge that there willbe no oil revenues tomorrow

could not be clearer. Perversely, sky-high oilprices—themselves a function of high demandfor a scarce commodity—often provide boththe capital for such visionary schemes and actas a disincentive for their own execution.

Kazakhstan makes no secret of the fact thatit aims to become not just a regional, but aglobal, economic force. The president has con-tinually reiterated his aim of transform-ing Kazakhstan into one of the world’s50 most competitive countries. In themedium term, there is no escaping thefact that extractive industries are and willcontinue to be the motor that drives this am-bition. Nevertheless, ideas of economic sus-tainability have taken root in the nation’s psy-che. For these dreams to become a reality, thegovernment knows that a full-scale econom-ic diversification program must be adoptedand implemented to create favorable econom-ic and institutional conditions. Infrastructuremodernization and industrial revitalizationare at the heart of this policy, as are increasedcooperation between the public and privatesectors. The country’s legal infrastructure hasbeen reinforced and modifications made tothe tax code, transferring a greater part of thetax burden to the oil and gas companies. This,it is hoped, will provide extra resources to de-

velop the small-and medium-size businessesthat have thus far benefited disproportionate-ly little from the booming economic climate.

On the face of it, there is room for measuredskepticism. With the possible exceptions ofNorway and more recently the UAE, grand plansto diversify “hydrocarbon” economies have all toooften seen empty cities built in inhospitabledeserts. However, the European Bank forDevelopment, which focuses on private-sector fi-nancing in the country, sees real commitment.“Progress has already been made,” they claim.“President Nazarbayev himself has been willing

to take on board a lot of experiences from oth-er places, be it the Norwegian example forthe oil fund, or the Singaporean examplefor the Temasek or Samruk holdings in

Kazakhstan.” Unfortunately, Kazakhstan hasnot been immune to the ill winds of the globalcredit crisis; tighter lending policies have riskeddampening growth in the non-oil economy,thereby jeopardizing the diversification plan tar-gets, despite quick government intervention. Itis at such times of difficulty that key policy initia-tives such as Kazakhstan’s strategy for accessionto the World Trade Organization, serve to focusefforts and mobilize all quarters of the economicpanorama. It is vital that the country does not losesight of the target.

Yet, despite the inherent difficulties of thediversification program, many companies havesuccessfully made the transition to a compet-itive market economy and stand as testamentthat it can be done. Byelkamit, once a Soviet

defense production facility now produces ves-sel equipment for the oil-and-gas, nuclear, met-allurgy, and building industries. It was the firstcompany in Kazakhstan to get an InternationalStandards Organization qualification in 1997,and the first company in Central Asia to receiveAssociate of the American Society ofMechanical Engineers qualification. Today, itis a supplier to TengizChevrOil, the multina-tional oil-sector consortium headed by Chevronand the largest foreign-investment project inthe country. With only 8 percent of oil equip-ment currently needed by oil companies beingproduced in Kazakhstan, there is ample roomfor further growth.

The Kazakhstan Kagazy paper plant is an-other example. Prior to construction of theplant in 2001, 100 percent of national paperconsumption was imported from Russia andChina. Despite a lack of raw timber input ma-terials, the company estimated that it had hugestocks of used paper that were at that time be-ing exported to Uzbekistan and Kyrgyzstan.The project has been a success: the plant’s lo-cation in the south of Kazakhstan allows thecompany to cover the whole national territo-ry as well as serve as a base for exports. Today,Kazakhstan Kagazy has 25 percent of theCentral Asian market in Kazakhstan,Kyrgyzstan, Uzbekistan, and Tajikistan. Boththese examples showcase the government’spolicy of replacing imported goods with domes-tically manufactured ones and overcoming thelegacy of Soviet-era production models.

KAZAKHSTAN 2030WEANING A COUNTRY OFF OIL

Officials hope that “Kazakhstan – 2030,” the country’slong-term development program, will turn the CentralAsian state into a multifaceted economy that avoids theproblems faced by other natural-resource-rich nations.

Arguably, the most important element ofthe diversification strategy, however, is infra-structure. Neither Byelkamit nor KazakhstanKagazy would have stood a chance withoutthe means to receive raw materials or get theirproducts to the market. So far, 80 key trans-port infrastructure projects have been ear-marked for more than US$30 billion of fi-nancing. From 2009, work will begin to con-struct toll highways in Kazakhstan, a first inthe CIS and a good example of increasing pri-vate-sector investment in public schemes.Indeed, 70percentof all infrastructure invest-ments come from the private sector.International companies are also showingsigns of interest in the non-oil and gas sector.American giant General Electric has jointly setup a locomotives factory in Astana with localfirm Kazakhstan Temir Zholy to constructtrains and wagons. It is hoped that the presenceof a prestigious household name such as GE willencourage greater participation from abroad.

Attention is also being given to potentialeconomic hot spots. The Special EconomicZone in Shymkent aims to create a textile clus-ter in the south of the country close to theUzbekistan border. Greater integration of re-gional industrial centers to the Caspian Sea isalso of paramount importance for political aswell as economic reasons. For landlockedKazakhstan, the Caspian is a vital artery toEurope. Indeed, it is the only way west with-out crossing Russian territory. With huge oilreserves located beneath its waters, there arestill some unresolved sovereignty issues in theCaspian involving Azerbaijan and Russia. Aproject to double the capacity of Kazakhstan’smost important port in the area, Aktau, areunder way and should be completed by 2012.Aktau is the country’s most important termi-nal, processing about 10 million tons of oiland about 2 million tons of dry cargo a year.

Power generation and transmission proj-ects are also being favored. Kazakhstan

Development Bank is currently involved inthe construction of the Moinak hydropowerstation in the south of the country and themodernization and extension of the Ekibastuzpower station in the north. The constructionof a new power station project in Balkhash inthe east is much needed to alleviate chronicpower shortages in the region. Balkhash is oneof Samruk Holding’s “breakthrough” projects,requiring US $4.7 billion in investment. Otherinvestments under review include metallurgicworks for aluminium and steel production,petrochemical plants, and investments in theagriculture sector. If even half of these projectscome to fruition, they will constitute a significantstep toward President Nazarbayev’s Kazakhstan– 2030 objectives. The risk is that if oil and gasprices stay at current levels for a sustained peri-od or rise—as they are expected to do—the gov-ernment may fall into complacency or becomedistracted. That to date it has shown no signs ofdoing so is worthy of admiration.�

P

Development Bankof Kazakhstan

Republic of Kazakhstan, 01 00 00Astana city, 6, 35th street, "Kazyna Tower"

Tel. : +7(7172) 79 26 00 — Fax. : +7(7172) 79 26 38E-mail: [email protected] — website www.kdb.kz E

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“Telecommunication is like breathing; you’ll onlyknow about it when it’s cut off.” Suchstatements give a good insight into the thoughtpatterns of Veysel Aral, who in November of lastyear was appointed CEO of GSM Kazakhstan, thecountry’s largest mobile telecommunicationsprovider, with more than 7 million subscribers ina country of 15 million citizens. Established in1998, GSM Kazakhstan—or K’cell, as it iscommercially known—has been the leadingplayer in Kazakhstan’s mobile communicationssector since its inception. With this precedentbehind him, the new CEO is very clear about howhe sees the company’s future: “Telecommu-nication will continue to play a key role in thediversification of the economy in Kazakhstan,with its huge potential of creating added valuefor the country.” On closer examination, the colorful, Turkish-bornMr. Aral is somewhat of a natural choice to headsuch a pivotal position in Kazakhstan’smulticultural environment. Encouraged by hisfather from an early age to “learn English andbecome an engineer,” he is infused with apassion for Turkish Ottoman history. Initiallytrained as a telecommunications engineer withthe Turkish National Railway, he then cut histeeth with Ericsson in prickly markets such asIran, Turkey, Pakistan, and Azerbaijan beforetaking up the post in Kazakhstan. Thatexperience has left him in no doubt about theimportance of the sector. “Today, anyone who isnot connected to some means oftelecommunication is isolated from the rest ofthe world,” he reflects. Luckily, K’cell can call ona strong shareholder and managementstructure behind it. It is part of the TeliaSonerafamily of companies, Scandinavia’s largesttelecommunications operator, which through its

affiliates and investments is successfullyoperating in rapidly developing countries acrossthe region. Mr. Aral was also quick to recognizeKazakhstan’s own special set of conditions.“Geographically, Kazakhstan is a huge country,and technically this makes our work morechallenging.” The importance of K’cell to the country’sprosperity cannot be underestimated. In thisregard, K’cell’s objectives and PresidentNazarbayev’s vision for the country are well instep. “One of the president’s most importantstatements is that he wants to diversify theeconomy, and telecommunications play animportant role in that. At K’cell, we believe thatcommunication is one of the main needs of asocial individual and for the prosperity of ourpeople.” K’cell is committed to providing high-quality cellular communication available to all ofKazakhstan’s citizens. It also aims to provide 100percent coverage on highways and trunkrailways of national and internationalimportance. In order to achieve this, K’cellinvested more than US$200 million in thetelecommunications sector in 2007, puttingup 961 new communication sites, and has setan aggressive target of 1,300 more by the endof 2008. “By 2007, we had covered all citieswith more than 5,000 in population, and nowwe will concentrate on givingcoverage to settlements of2,000 or more citizens,”explains Mr. Aral, declaringwith pride that K’cell’snumber of subscribershas reached 7 millionand will surpass 8million before theend of 2008.

Mr. Aral’s experience in the region also gives himan insight to the opportunities. “Kazakhstan isamong those countries where there are moremobile subscribers than fixed-line subscribers.The population is young, open to technology,and very quickly integrating into the globalizedworld.” In 2007, the mobile penetration level was80 percent. By the end of 2008, Mr. Aral expectsit to exceed 100 percent. These figures, heinsists, show that Kazakhstan is now a maturemarket, yet he underlines constant innovationas the cornerstone of the company’s ability toadd value. Currently, the company is preparingfor the implementation of a third-generationcellular network—3G. “With this new technology,we will be able to offer 3G services based onhigh-speed data transfer methods like video call,mobile TV, video channel, and the mobileInternet. We believe that this technology will bevery useful, especially for the businesspeople

and entrepreneurs ofour country.”

K’cellDialing into the Global Village

With more than 7 million subscribers, GSM Kazakhstan—or K’cell as it is commercially known—has beenthe leading player in Kazakhstan’s mobile communications sector since its creation in 1998.

Kazakhstan’s Sustainable Development Fund is a key stabilizer in the country’s economy and a maindriver behind the government’s diversification strategy

A major implication of economicglobalization is that if developingcountries rely heavily on naturalresources, they are destined tobecome trapped in low-value-addedactivities. Such is the premise for thefoundation of Kazakhstan’sSustainable Development Fund,Kazyna. It’s objectives are clear: toraise productivity by diversifying the economicbase away from oil; to enhance education andindustry-specific skills; to promote innovation,research, and creativity; and to supportentrepreneurship. To achieve this, Kazyna brings together the

country’s many establisheddevelopment institutes to bettercoordinate their efforts ofsupporting and facilitatingsustainable growth. Previously, eachof these agencies filled a gap thatthe private sector was unable orunwilling to ocuppy in an economytransitioning from communism.

Under Kazyna, they work in harmony to launch”breakthrough projects” that will have sustainablelong-term impacts on the economy. Such projectsbroadly fall into two categories: infrastructure andthe creation of export-oriented goods and services.Naturally, Mr. Dunaev, the chairman, is upbeat

about the current investment environment. “Thereare many opportunities today in Kazakhstan.Territorially, Kazakhstan is a huge country, and it issituated between two giant global markets, Chinaand Europe, and Russia as well, of course.”Integrated transport infrastructure projects aim tocreate the conditions to facilitate East-West tradepassing from China through Kazakhstan to delivergoods to Europe; in essence a revival of the historicSilk Road. The results so far add credibility to hisoptimism; Kazyna’s investment portfolio grew fromUS$1.2 billion at the beginning of 2005 to US$3.5billion by the start of 2007. By 2008, totalinvestment is expected to surpass US$6 billion,rising to US$10 billion by 2009. �

KAZYNAPlanning for When the Wells Run Dry

ARMAN DUNAEV

INTERVIEW

VEYSEL ARALChief Executive Officer

Q&A

ZHANAT ZHAKANOVPresident

Development Bank of Kazakhstan

Using Oil Revenue to Diversify away from the “Hydrocarbon Curse”

What is the DBK’s mandate?The bank was founded to diversify the economy. This year, we plan to invest about US$3billion in sectors that are not related to oil, gas, and mining. We have already allocatedUS$1 billion to 150 investment projects, mostly in infrastructure and industrial sectors:processing, the petrochemical industry, machinery, metallurgy, agribusiness, etc. Wealso have some large-scale power stations and power-transmission projects, which area priority for us right now. What are your investment criteria? Our ideal investment structure for domestic projects is to have a local investor, a strate-gic foreign investor, and a large foreign company with brand, experience, and technolo-gy. A good shareholder structure would be 20 percent to 30 percent of equity to whichwe would then provide 70 percent to 80 percent of debt. We also invest in projectsabroad if they help the development of Kazakhstan’s economy. Each dollar that we putinto the project attracts about US$3.50 from other sources, including investors and co-lenders. In these terms, DBK is a very powerful tool to attract investors.How is the DBK perceived internationally as aninvestment partner? We are a quasi-sovereign institution. We are fully owned byKazyna, which is in turn fully owned by the state. This is very im-portant for investors because we have all the necessary sup-port in terms of capitalization and budget finance, yet thebank is independent in operating and business decisions.


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Azuat Peruashev, head ofthe Atameken NationalUnion of Entrepreneurs,says that his organization ismore than a business group.

Mr. Azuat Peruashev, the chairman of thepowerful Atameken National Union ofEntrepreneurs, explains the role of the organization.“Because businesses are sometimes tempted to behavebadly with competitors in order to maximize short-termprofit,” he says, “the first aim of the union is the revelation,formation, and expression of the consolidated interests ofKazakhstan’s business community.” Effectively, Atamekenviews business as a social movement of consolidated inter-ests in which all businessmen have common fundamentaltasks. “One of our objectives is to form and bring to lightthose tasks, where there is a misunderstanding and reluc-tance in participating in this process,” he elaborates. Otherobjectives include the protection of the interests of privatebusiness from external threats; to help Kazakh businessesbecome members of the world’s entrepreneurial communi-

ty through active participation in interna-tional forums and associations; and, lastly,to establish principles of corporate socialresponsibility. More than just a traditionaldefender of social economic values,Atameken is concerned with challengingthe way its citizens fundamentally think.“I met politicians from different countries,

and they couldn’t recognize Kazakhstan today. Not in termsof buildings, but in terms of how people think. A rapid im-provement of the culture has taken place; styles of dress-ing and behavior have changed.” Mr. Peruashev believesthat it is ultimately more important to transform the way ofthinking in the country than any one specific project. “If weform the right way of thinking, building roads is not a bigdeal. We have almost reformed our consciousness. Thiscountry has a market economy, which becomes strongerafter the crisis.” On a recent trip to the United States, Mr.Peruashev was fascinated by the “direct link between man-agers’ and ordinary workers’ salaries with company’s over-all profitability.” He will be a vocal campaigner for progressfor many years to come.�

Aytekin Gultekin,chairman of the Turkishfirm Sembol Construction,is a man who not onlyovercomes difficulties, hewelcomes them.

“My partner and I don’t like routinethings,” he says. “We like challenges. Feeling thatyou are doing something, adding and creatingvalue, is more important than money.”In Astana, Gultekin has found his ideal canvas.The capital on the steppe allows the Turkish-bornGultekin to test his abilities in an ever-changingenvironment and to help forge Kazakhstan’sidentity and its image in the world abroad. In addition to building and operating the RixosHotel, one of the capital’s flagship establish-ments, Sembol was the lead firm in the construc-tion of the Pyramid of Peace—Astana’s 30,000-square-meter meeting center and monument tointernational understanding, designed by inter-

nationally renowned British archi-tect Norman Foster. Gultekin saysthat despite such logistical chal-lenges as needing 20 days to bringin materials overland fromIstanbul, the project was complet-ed in record time.Now Sembol has embarked on an-

other historic undertaking: the gargantuan“Khan Shatyry,” or “Khan’s Palace”—a NormanFoster-designed glass and steel “city under atent,” with apartments, office space, shops,restaurants, sports facilities, and even a sandbeach. “I think Astana is one of the fastest-growingcities in the world. We are happy to participatein this growth,” Gultekin says. “When we open theproject, it will be another promotion forKazakhstan. It will show that there is this kind ofknowledge in Kazakhstan, and people are tryingto build something different from anything donebefore.” �

ATAMEKENA Unifying Force

SEMBOLBuilding New Oases out on the Steppe

AZUAT PERUASHEV AYTEKIN GULTEKIN

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PhotographyPeninsula Press

SEZ “Ontustik”A t e x t i l e p a r a d i s e a t t h e h e a r t o f C e n t r a l A s i a

SEZ 'Onustik' is the Special Economic Zone of the region of Shymkent in south Kazakhstan. Given the presence of raw materials,

the tradition, the expertise of our workforce and the strategic location of Shymkent at the crossroads of Central Asia, we are creating a textile paradise.

16 08 02, Republic of Kazakhstan � South Kazakhstan region, Shymkent � Lenger highway, 7km

Tel.: +7 (7252) 922 002 / 003 / 004 � E-mail: [email protected] � Web-site: www.Textilezone.kz

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OHTYCTIK

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Shymkent

Almaty

Astana


Trans Ast Ltd L.L.C. was founded in 2002 to cater for the growing demand for inland heavy

transportation in Kazakhstan. Since then, business in our company has expanded

to construction - of buildings, highways and railways. We are also exploring new opportunities

in our neighboring countries such as China, Uzbekistan and Kyrgystan.

Trans Ast Ltd L.L.C.16-6 Imanova St, Astana, Republic of Kazakhstan

Tel: + 7 71 72 32 01 47, Fax: + 7 71 72 32 76 20

trans

Turning heavy into light since 2002


surprising kazakhstan

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