Kazakhstan’s Economic Overview and ADB Operations 03 September 2017 Giovanni Capannelli Country Director, Kazakhstan Resident Mission Asian Development Bank www.adb.org / adbkarm@adb.org

Key Economic Indicators  Kazakhstan 2014 2015 2016 2017 (project.)* GDP growth (%) 4.4 1.2 1.0 3.0 Inflation (%) 6.7 6.6 8.5  8.0 Current account ($ bln)  6.0  -5.8 -6.4  -3.4  Exchange rate USD/KZT, average 179.3 222.8 337.9 330 Oil Brent $/brl 99 52.4 44.0 50-60 *ADB estimates.

An Economy that Follows Oil Exchange rate Economic growth

Medium/Long Term Growth Drivers Economic diversification agriculture, manufacturing, services/renewables Structural reforms governance, civil service, human capital development, privatization, competition, deregulation Private sector development targeted 50% contribution of SMEs to GDP by 2050 Trade expansion EAEU, BRI, regional connectivity, economic corridors, etc.

National Development Strategy Kazakhstan 2050 Strategy To become one of the 30 most advanced economies in the world. Medium-Term Strategy: Third Modernization of KAZ Accelerate technological upgrading and digitalization. Improve business environment and expand the private sector. Stabilize the macroeconomic environment. Enhance the quality of human capital. Support institutional change, ensure security, and continue the fight against corruption. Green Economy Concept Increase renewable energy generation; promote energy efficiency; and decrease CO2 emissions. Reflect SDG targets, COP21 commitments, and other global obligations in government strategies and plans. 6

Less State in the Economy Privatization of over 780 companies Reducing the state’s share in the economy to 15% of GDP by 2020 Strengthening “Yellow pages” principles (limit government’s share in private sector) Transformation of Samruk Kazyna into efficient company with high-level corporate standards (215 companies planned for privatization) Improve efficiency of KazAgro and Baiterek and limit their operations in private sector

FDI Flows to Kazakhstan, 2005-2016 Source: NBK As of December 2015, total foreign investment in Kazakhstan reached $198.5 billion, of which $125.1 billion were net FDI FDI structure by sector Natural-resource based sectors (mining, geological exploration) 61% Manufacturing industry 12% Financial and insurance services, wholesale trade, construction 27%

Opportunities and Challenges for FDI in Kazakhstan Natural resources New strategy for renewable energy Labor market Favorable business environment Eurasian Economic Union / Belt and Road Initiative Challenges Political risk Governance, bureaucracy Global and regional competitiveness Rule of law Institutional coordination

Asian Development Bank Founded in 1966 67 members 48 in Asia-Pacific 19 outside the region Lending 2016: $31.7 Bn - Energy: $10.4 Bn - CW Asia: $8.2 Bn TA Grant 2016: $320 Ml KAZ joined in 1994 - Astana office (1999) - Almaty office (1997)

ADB Strategic Priorities Inclusive Growth Environmentally Sustainable Growth Regional Integration

Energy Priorities and Trends Sustainable energy and low carbon development Accelerate clean energy development Maximize access to energy for all Promote policy reforms in the energy sector to support low carbon development Increasing energy sector lending $16 billion pipeline (2018-2020)

Clean Energy Projects Solar and Wind Hydropower Concentrated Solar Thermal Power Solar Rooftop Program Solar-Wind-Diesel Hybrid Off-grid Prepaid Solar Photovoltaic

ADB Operations in Kazakhstan During 1994-2016 Kazakhstan received a total of: 30 sovereign loans ($5 billion) 8 private sector loans ($455million) 85 technical assistance projects ($37million) Key Sector of ADB operations Transport Finance Agriculture and irrigation Water Supply and Sanitation Energy

ADB 2017-2021 KAZ Partnership Strategy Support economically diversified, socially inclusive, and environmentally sustainable growth Strategic Pillar 3: Sustainable Growth Strategic Pillar 2: Inclusive Development Strategic Pillar 1: Econ. Diversification Promote energy efficiency and the use of renewables; support adaptation and mitigation efforts to foster green growth and lessen the vulnerabilities associated to climate change Address infrastructure bottlenecks, support service delivery across the country, and strengthen governance and institutions to reduce spatial inequalities and improve the quality of life Improve access to finance and promote private sector development to enhance competitiveness and support the production of tradable goods and services Cross-cutting priorities: Macroeconomic Resilience, Regional Cooperation and Integration, Support to Project Finance and Public-Private Partnerships, and Gender Mainstreaming 15

Energy Sector Priorities for KAZ Expected Outcomes Decreased energy intensity of GDP Increased renewable energy generation Reduced carbon dioxide emission levels Areas of Assistance Energy efficiency Electrical power transmission Air pollution reduction Private sector operations and PPPs Corporate governance reforms and privatization Knowledge support, capacity development, and policy dialogue