Export and import challenges in countries with economies in transition - Kazakhstan Presentation by Ambassador Stephan Nellen, Geneva, June 18, 2012

Introduction Main question of the 5th Session of the Committee on Trade:  How to increase the participation of transition economies in international trade? My example: Kazakhstan 1

Example: Kazakhstan Economy based on natural resource exploitation Oil/gas Metals Grain 2011 trade figures Imports 37,9 billion USD Exports88,3 billion USD Surplus50,4 billion USD What is so special with Kazakhstan? 2

Exports of Kazakhstan – sector distribution More than 90% of all Kazakh exports go into oil&gas, mining (metals) and agricultural (export of grain) sectors Less than 10% of exports cover other items (mainly of the processing industry) To promote non-oil/metal/grain exports, need to develop industrial sectors of the economy To promote non-oil/metal/grain sectors of economy need further investments into this sectors of economy 3

Foreign Direct Investments – Sector distribution Foreign Direct Investments (FDI) concentrated mainly in oil/metal sectors (nearly 80%) Investments in other sectors (mainly distribution – wholesale/retail, banking and finance, and construction) are not linked to exports, and is 20% only Conclusion: Need to increase strongly investments in industrial and service sectors which can produce exportable products 4

Response of the Kazakh Government Objectives:  increase investments in non- oil/metal/grain sectors  Create economic tissue of a normal economy, including SMEs, create more traditional working places  Create better conditions for export related industries in the non-oil/metal sectors Approach: Reduce imports by promoting local products („local content“ requirement) Encourage joint ventures and investments in these sectors Increase market base through Custom Union 5

Investment promotion: assessment Good policies and state programs: Investment preferences (e.g. exemption from custom duties, tax brakes) Special economic zones Support for SMEs (Road map for Business 2020) Institutional and financial support Service support Foreign Investor‘s Council under the President But: important impediments and obstacles remain 6

Impediments to foreign investments in Kazakhstan Legal environment inconsistent and partly outdated, little guidance from authorities (unfinished reform agenda) No independent judiciary Criminalization of civil disputes (taxes, custom, etc.) Difficulties with work permits Increased demands for „local content“ Antiquated, ex-soviet standards Heavy bureaucracy and high level of corruption 7

Response of the Government of Kazakhstan Establishment of a “Council under the Prime Minister to Improve the Investment Climate” Members are high officials of the Government (Deputy Prime Ministers, Ministers, high officials), large foreign company representatives of companies present in the country, and a number of foreign Ambassadors Objectives: 1) tackle practical problems in dialogue, find pragmatic solutions 2) promote longterm structural reforms with the aim to come close to relevant OECD standards 8

Future tasks of Government to promote growth of investments and trade I Encouragement of local production together with foreign actors Increase of local managerial capacity in harmony with needs of foreigns investors Increase educational level of population English as a third language Bolashak scholarship program Better implementation of strategies and programs to enhance local non oil/metal industries 9

Future tasks of Government to promote growth of investments and trade II Continue to promote service industry: Almaty as a regional financial center, tourism Participation in regional integration mechanism, e.g. “Customs Union” with Russia and Belarus, or “Eurasian Economic Space EES”, to broaden market base Accession to WTO Promotion of Free Trade Agreements (e.g. present negotiations with EFTA) 10

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