The United States and Kazakhstan: the Future of Our Partnership Is Very Bright
The U.S. Ambassador to Kazakhstan Mr. John Orway answers questions from Kazakhstan International Business Magazine
Mr. Ambassador, what’s your opinion about the current state of trade and economic cooperation between the United States and Kazakhstan?
Trade turnover, measured in terms of exports from the U.S. to Kazakhstan and imports to U.S. from Kazakhstan, has steadily increased, as evident in these statistics: it amounted US$560,715,000 in 2003, US$859,040,000 in 2004, and for nine months of 2005 – US$1,153,600,000. As for forecast for 2005 we anticipate a 10% increase in imports from the U.S., driven primarily by demand for consumer goods, high tech goods, agricultural equipment and others.
The United States is currently the number one international investor in Kazakhstan—volume of foreign direct investment in Kazakhstan from the U.S since 1991 is US$9 billion. Only in 2004 from the U.S. in Kazakhstan came US$1 billion of FDI. As business conditions here continue to improve, American companies will invest more in Kazakhstan. Thus the future for our bilateral economic relations is very bright.
President Nazarbayev's strong leadership and economic reform are contributing to Kazakhstan's sustained and robust economic advances. To be sure, the energy sector is a driving economic force, but wise macroeconomic and banking policies have laid the foundation for economic stability. The emphasis in the next phase on creating favorable conditions for small and medium enterprises will help diversify the economy and spread the wealth further among Kazakhstanis. As the non-energy sectors of Kazakhstan's economy grow, American investors will be drawn into the new sectors as well.
I see a bright future ahead for your country as Kazakhstan engages in more regional trade and becomes an engine for growth within Central Asia. Prosperity may also be promoted throughout Central Asia by Kazakhstani investment in neighboring countries—and as the capital available from its stable and sophisticated banking system and energy trade all stimulate growth and create jobs across borders. Afghanistan also needs to be included in Central Asian partnerships to overcome the destitution left behind by decades of tyranny, extremism, and civil war.
The U.S.-Central Asia Trade and Investment Framework Agreement (TIFA), signed in 2004, can be instrumental in promoting regional trade, and in October Secretary Rice announced the United States was providing US$400,000 toward that effort. This initiative means to compare national customs procedures in the five Central Asian countries against international standards and practices—and then identify opportunities for reduced business transaction costs if customs functions are strengthened and streamlined. This will complement similar work being carried out in Afghanistan.
Are there any obstacles that hinder the dynamic development of trade and economic relations between our two countries?
Investment by American firms will no doubt continue to grow, but strengthening economic cooperation between our two countries requires further economic reform. This reform should be directed at meeting international standards in fighting corruption and meeting WTO standards in customs valuation, intellectual property rights, and standards regime.
In the short term, serious, effective mechanisms to fight corruption would go a long way to bolster confidence among American investors, who share responsibility for transparency and accountability when they invest in Kazakhstan. USAID works with government and business associations to reduce regulatory and administrative barriers to investment, which in turn eliminates a bureaucratic layer and potential corruption. There has been incremental progress. In October, Transparency International placed Kazakhstan in 107th place out of 158 countries, with a score of 2.6 on a scale of 10 to 0, with 0 being most corrupt. This represents a marked improvement over last year, when Kazakhstan ranked 122nd out of 146 countries with a score of 2.2.
However, economic reforms alone will not guarantee lasting prosperity. History has demonstrated that political and economic freedom must advance together, and that true stability and true security are only found in democratic regimes. The United States will continue to advocate for democratic reforms in all the countries of Central Asia.
What branches of Kazakhstan's economy, from your point of view, are the most attractive for American investors? What new joint projects are being undertaken by American and Kazakhstani businesses?
Most U.S. investment comes from oil companies attracted to Kazakhstan by the prospects of high profit margins. To attract a higher volume of investment and more diversity, we need to consider instead what is keeping investment from coming in, and that is the perception of risk.
Businesses want to make money. The oil conglomerates here are willing and able to assume a greater degree of risk than smaller scale investors that operate on a narrower margin and by necessity have to be cautious about entering into partnerships. Our Foreign Commercial Service is the U.S. government liaison for U.S. businesses looking for investment opportunities overseas. Their data show that Kazakhstani enterprises are looking for U.S. partners in a wide variety of areas, including oil production services, automobile parts and repair, pharmacies, and fast food franchises. Their potential partners are holding back because of the perception of unacceptable risks—from government challenges to contracts and government intervention in foreign companies’ operations to inconsistent and arbitrary implementation of customs regulations and tax laws and a disregard for sanctity of contracts.
The answer to the second part of the question concerning new joint ventures corroborates this line of reasoning and also shows hope for the future. The U.S. Marriott Corporation has broken ground in Almaty for a new luxury hotel. Another investor from California is setting up a venture fund to provide loans for smaller enterprises like fast food partnerships, which offer enormous potential in the burgeoning new capital of Astana, as well as in Almaty and other cities across the country. Kazakhstan's economy is the most promising in Central Asia; progress made since this country’s independence portends an increasingly favorable investment climate. Investment is evolving from large scale businesses like oil and gas production and luxury hotels to the venture fund that will provide feeder capital to smaller enterprises and assume some of the risk. The pace of evolution will depend on how rapidly and effectively economic reforms address corruption, contract sanctity, and transparency.
Today we see serious changes in Kazakhstan's investment policy directed at increasing the state's role in the energy field. Can this negatively influence the attractiveness of Kazakhstani oil for American companies?
A good friend of mine, a former ambassador to Russia, used to say, "Capital is a coward." Investors will not risk their money where they see rules being changed in the middle of the game so one partner can try to secure more winnings for itself. A level playing field requires strict adherence to the principle of contract sanctity.
Our position is that partners should abide by the terms of legally and mutually agreed upon contracts. As long as the state’s rights in the energy sector are clearly defined by law, and the state respects the principle of contract sanctity, American companies can reliably assess the risks and rewards of investing in Kazakhstan and make their own decisions.
When Secretary Rice was here last month, she made a very good point—that economic development and prosperity derive not from the creativity of government, but from the creativity of people. When the latter’s creativity is unrestricted, they are free to pursue their aspirations and dreams. The same principle would likely apply to people pursuing their business aspirations in Kazakhstan.
It is known the United States would like Kazakhstan to be a partner in the Baku-Tbilisi-Ceyhan project, while our government is taking a more cautious approach to this issue. What is your opinion?
Over the next decade, the volume of Kazakhstan’s oil exports is expected to grow dramatically. Every senior Kazakhstani official I have discussed this issue with realizes that this will require expanding current routes and acquiring additional routes, and in this context consider access to the Baku-Tbilisi-Ceyhan (BTC) pipeline to be very important. The United States has long supported the development of multiple pipelines from the Caspian region, including both the Caspian Pipeline Consortium through Russia, and the the Baku-Tbilisi-Ceyhan (BTC) pipeline. Kazakhstan has also recognized the importance of diversifying its export routes. The Kazakhstani and Azerbaijanii governments appear to be near agreement on terms for transporting Kazakhstani oil to market via the BTC pipeline. We welcome this development and hope that the parties will sign the agreement soon. At the Kazakhstan International Oil and Gas Exhibition in October, Energy Minister Shkolnik expressed hope that it would be signed soon.
For the United States, the BTC pipeline means more Caspian oil on global markets and more countries sharing the advantages of a diversified oil supply. We see this project bolstering global energy security, enhancing regional cooperation, and expanding international investment opportunities.
How do you estimate the chances of Kazakhstan regarding accession to WTO? Is the United States providing any assistance to Kazakhstan in this regard?
As far as "chances of accession" are concerned, it's not a question of if, but when, and the timetable is up to Kazakhstan. Kazakhstan has signed protocols with many countries this year, including China, Turkey, South Korea, and Pakistan. When Secretary Rice was here in October, she said bilateral economic cooperation requires further reforms, including those necessary to meet WTO accession requirements. We commend and support President Nazarbayev's determination to join the WTO as rapidly as possible. We will continue to work closely with our partners in Kazakhstan to help them identify and put in place the necessary economic, legal, and policy reforms that are prerequisites for all WTO members.
We want to see Kazakhstan take its place as a fully integrated member of the global trading system. We are convinced that WTO accession benefits all involved parties and is critical to Kazakhstan’s broad-based development. WTO accession will deliver important benefits to the people of Kazakhstan by connecting them to markets around the world, promoting diversification of the Kazakhstani economy, and ensuring continued economic development, growth, and reform.
You arrived in Kazakhstan a year ago. What’s your impression about our country? How do you see its future?
I have a very positive impression of Kazakhstan. I’ve had the opportunity to visit a number of different regions, from Chimkent to Petropavlovsk, and from Aktau to Ust-Kamenogorsk. Naturally, I’ve spent a lot of time in Almaty and Astana as well. I must say that wherever I have gone, I have been equally impressed by the diverse, scenic beauty of the landscape and the talented, hospitable people who inhabit it. Kazakhstan has been blessed with natural resources, and with its people. I am convinced that the country has an exceptionally promising future as long as it continues to make wise economic decisions, to live in peace and harmony with its neighbors and the world, and to build a just and democratic society. There are some very strong challenges ahead. The country’s impressive macro-economic reforms can only produce true prosperity if individual entrepreneurs have the scope to create new and growing businesses free of over-regulation, unpredictable tax regimes and collection practices, and corruption. The country’s enviable social and political stability will be durable only if truly democratic institutions grow and flourish, giving an equal voice to all elements of society. I think that Kazakhstan can and will accomplish much, and we in the U.S. look forward to continuing and further developing a strong partnership in the years to come.
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