EBRD is the largest investor in Kazakhstan outside of the oil and gas sector, having invested approximately $6.7 billion over the past 20 years. Janet Heckman, director of EBRD adds, “EBRD’s new investment for 2014 will be around USD $750 million. We are very bullish about Kazakhstan, particularly this year, as it has been a year of reform.” Since the beginning of the 2nd quarter when the new government came into office, it has been one reform initiative after another. EBRD has been working closely with the government on the new foreign investment legislation that includes all of the necessary incentives to really be attractive about domestic and international business in the country. This legislation was signed by President Nazarbayev in June of this year and adds an element of stability to an investor. “While investors love tax incentives, if there isn’t stability and rule of law in a country, you won’t have investments”, Ms. Heckman explains. This new legislation guarantees 10 years of stability for key investors in areas like taxes, tariffs, and legislations, which is critical in order to avoid significant shock after an investment is made.
EBRD also works closely with the government and IFC to put in place all of the necessary legislation for effective public-private partnerships (PPPs) for large infrastructure projects in Kazakhstan. Janet explains, “We are very positive about the economy. As a large test case, the government is launching the Ring Road Around Almaty that is approximately a $700+ million infrastructure project. This project will be launched on December 9th at the EBRD headquarters in London.
One of the biggest issues in Kazakhstan today is the relatively small market of only 17 million people. This year, however, the government has made significant efforts to open up opportunities for Kazakhstani companies and companies based in Kazakhstan through first accession to the Eurasian and Economic Union. Furthermore, through the enhanced partnership agreement signed with EU on October 9th and through the efforts made to join WTO that will most likely be completed this year. Ms. Heckman explains, “The effect of this is breaking down borders and barriers to trade and opening up the opportunities for companies that manufacture in KZ to avail to the much larger market in the region. We have also seen important tariff reforms that allow industries like renewables, hydropower, wind, solar, etc. at affordable rates.”
Being a large country sitting between Europe and China, Kazakhstan needs to be placed in a regional scenario. Upon completion of the infrastructure roads and rail, transit time will decrease by approximately 15 days between Western Europe and Western China. “If I were a company looking to invest in KZ, the areas that I would look at would be anything infrastructure related, construction materials like cement and isolation, and logistics such as hubs in terminals and airport infrastructure.” – Janet adds. As Kazakhstan is a country that is focusing on energy efficiency and green economy, it is also important to look at industries in those areas. There are now the right tariffs in place for effective renewable projects and energy efficiency.
Another important area is the financial sector. “Kazakhstan has a unique resource which is its people. Over the last number of years, approximately 10,000 students were sent abroad under the “Bolshak” program to study in the best universities in the west and the US. In Almaty there are the 4 big accounting firms, each of them employing about 400-600 people. This shows that there is a good base of highly educated people who are skilled in finance, accounting, investment banking, brokerage, etc..” In regards to the agribusiness, there are big opportunities not just in grain and wheat but also in the secondary production areas.” – Ms. Heckman explains.
The national bank and the government are focused on helping to develop the capital markets and working closely with EBRD on corporate governance. “We are completing the first part of our efforts on corporate governance and will be extending that to next include the finance sector.” In terms of Rule of Law, EBRD and other institutions are working towards ensuring that the right legal framework is in place as it is important to have the right types of companies available in the capital market. The government is now in the process of privatizing some state owned companies for the first batch of companies that come under the Sovereign Wealth Fund which is why it is critical to have the right companies to invest in.
With 63 people in 7 offices, EBRD is also actively working in the regions as they require work in all areas of infrastructure and there is significant opportunity for developmental work. “We have been the most active in the Kyzylorda Region which is a large center for gas and minerals and next week we will be signing our 6th project there. We are currently also working with some of the small and medium companies who are suppliers to the large companies.” Janet adds.
The concern with people of Kazakhstan lies with the gas and oil prices and also with the effect of the economic slowdown in Russia and Western Europe. Like any country nowadays, what happens in Kazakhstan can be a reflection of what happens in the rest of the world. The key thing now is to continue the reform efforts to focus at this time of declining state revenue on what the private sector can do. The private sector is more efficient in any project than the public sector. In order to ensure the best value for use of state funds, it is important to continue to work closely with the international financial institutions to ensure best in kind project procurement policies. Janet explains, “EBRD’s projection for this year is growth of somewhere between 4% to 5%. We are also projecting 5.1% for next year in 2015. There are not a lot of countries in the world right now, emerging or non-emerging markets, where you have this type of growth and investment opportunities.”
With a strong track record of success already, Kazakhstan’s economic growth shows no signs of slowing down. Particularly for US viewers, it is important that they come to Kazakhstan and see for themselves. “Kazakhstan is open for business and EBRD is ready to assist with investment advice and opportunities.” Janet concludes.