Investment Potential of New Industrialization
Attracting direct foreign investments is one of the main conditions for the successful implementation of the programs of new industrialization in Kazakhstan. We ask Asylkhan Serikov, Chairman of the Committee on Investments under the Ministry of Industry and New Technologies, to share with us about the state of matters in this area.
Asylkhan Zhumagalievich, what has been the dynamics of raising FDI in the country's economy looked like in recent years? What changes has the sectoral structure undergone in connection with the launch of the AIID Program?
According to statistical data from the National Bank, foreign direct investments of $146.6 billion total were raised in the economy of Kazakhstan in 1993–2011. However, only in the last year, the receipt of FDI reached $19.9 billion that is 10 % up on 2010 ($18.1 billion).
Regarding the FDI structure by types of economic activities, in 2011 the largest inflow of capital from abroad, namely $10.8 billion, or 54.2 % of total FDI raised was directed to operations in real estate, mainly in services, provided to enterprises, as well as in geological exploration. Then, the mining industry follows with its $3.5 billion (17.7 %) of FDI and the manufacturing industry – $2.9 billion (14.5 %). For comparison, in 2010, when the mining sector received $4 billion of FDI and the processing sector $2 billion, their share in the economic activities structure were 21 % and 11 %, respectively. Moreover, the FDI attracted in the processing industry in 2011 grew by 45 %, compared to 2010. All these positive changes are evidence of the successful implementation of the state-run AIID Program.
What are the key target indicators of the investment raising program for 2010–2014? What results have already been achieved to date?
First of all, it should be noted that the sectoral program for 2010–2014 to raise investments, to develop free economic zones, and to boost exports is aimed at creation of attractive conditions for direct investments in the non-commodity export-oriented and high-tech productions, as well as at integration of Kazakhstan's economy into the global trading system through promotion of processed products exports.
The following results on target performance indicators of the sectoral program were achieved, following the end of 2011:
·Three new special economic zones – the SEZ Sary-Arka, SEZ Khorgos – Eastern Gate, and SEZ Pavlodar were created;
·Companies from the list of Global-2000, such as Lanxess AG (Germany), Marubeni Corporation, and Sumitomo Corporation (Japan), HYUNDAI (Korea), THALES, and Aubert & Duval (France) were involved in participation in Kazakhstani projects;
·In the last year’s Doing Business rankings by the Investors Protection index, Kazakhstan ranked 10th in the world, up 41 points, compared to the expectations.
In addition, in late 2011, following the approval of the National Plan for Raising Investments in the Non-Raw Material Sector and Improving the Investment Climate, considerable amendments were made to the sectoral program.
In particular, for the first time the target indicators on FDI and processed products exports for foreign missions of Kazakhstan and local executive bodies were introduced. In the development of these indicators, the experience of developed countries such as USA, Canada, Malaysia and Germany were taken into account.
We believe the active work to increase the target indicators of the sectoral program will significantly increase the flow of FDI into the country, adding to the growth of competitiveness of Kazakhstan on the world stage.
What caused the need to develop the national plan of raising investments? What are the key innovations of the plan?
In general, work to create a favorable investment climate in our country has been run since the date Kazakhstan gained its independence. Due to the conditions created, foreign companies came to Kazakhstan and launched the largest of joint projects. However, in future, in spite of the results achieved, the current investment climate should be and ought to be improved to bring it in line with leading international practices that take into account the interests and demands of the investors.
The national plan was developed by order of the President of Kazakhstan to strengthen the policy of attraction of foreign investments and the creation of the most favorable conditions for doing business throughout Kazakhstan.
As part of the approval of the National Plan, the sectoral program was expanded with additional activities that provide for further improvement of the investment climate for domestic and foreign investors. This involves the implementation of systemic measures in four main directions.
The first one is the improvement of conditions of running business in Kazakhstan and increasing the investment image of the republic. These include simplification of the procedure for issuing visas to investors from the priority countries, facilitating the procedures for registration of foreign citizens, as well as the transition to a visa free regime with the OECD member countries. These actions are scheduled to actively promote the brand image of Kazakhstan and its investment potential to improve the investment image. Also, information and analytical guides will be developed, which will become convenient guidebooks on the priority sectors of the economy for the investors.
In the framework of the second direction, the building up of a systemic work to raise FDI and provide support to foreign investors, there will be developed a system of interaction with foreign investors, both at the central and regional levels through establishment of specialized institutions to service investors in various sectors of the economy, as well as through strengthening the role of the intergovernmental committees, etc. Special attention will be paid to timely update and advance of the national investment website www.invest.gov.kz, which will serve as a quality benchmark for potential foreign investors and create the image of Kazakhstan as a country of large investment opportunities.
The third direction, the encouragement of the growth of domestic enterprises, involves the introduction of the image concept "National Champions", as well as the development of criteria for their selection for implementation in the state-run AIID program.
Under the fourth direction focused on the promotion of exports of non-raw material products to external markets, Kazakhstani governmental agencies abroad will render assistance in arrangement of meetings between sellers and buyers, visits of Kazakhstan’s trade missions and delegations, and the spread of information on the export potential and export enterprises of Kazakhstan abroad.
The result of all the above-mentioned activities can be significant procedural relief (including ones to get visas), creation of favorable conditions for the investors to stay in the country (including in the regions) as well as support of the investors, both at the central and regional levels.
What matters, in terms of improving the investment attractiveness of the non-raw material sectors of the economy, have still not been resolved? Are there any plans in this regard on further improvement of the legislation?
Our committee carries on continuous work to raise the investment attractiveness of Kazakhstan, to improve its investment climate and relevant legislation. Thus, the Law on State Support of Industrial and Innovation Activities was enacted in December 2011, which served also as the base for amendment of the Law on Investment.
The essence of innovation was the introduction of the concept "Strategic Project". This status is given under resolution of the Government to specific projects, for which tax exemptions (exemption from the tax on land and property for the period of up to 7 years) and industrial benefits (for the inhabited localities with low socio-economic development) are provided. Within the industrial benefits, the subsidizing of the costs of gas, electricity, land purchase and construction of buildings will be provided to the investors.
In addition, in accordance with the order of the President given by him to the Government at the extended government session on January 27th, before the end of this year a comprehensive analytical study to bring the investment policy of Kazakhstan in line with the OECD standards will be completed. Following its results, proposals will be introduced to the Government to further improve the investment climate and improve the legislation.
Thus, in Kazakhstan all necessary conditions are being created for the foreign investors today – a liberal market economy, favorable tax and customs regimes, as well as laws ensuring the protection of the investors’ interests.
The 25th plenary session of Foreign Investors’ Council under the President of the Republic of Kazakhstan will take place on May 22 in Astana. What role does this body play in relations between Kazakhstan and the international business community?
Kazakhstan pursues a policy of maximum openness and stability, which is a key to attraction of foreign companies to our country. The major investors of Kazakhstan are corporations of the United States, the Netherlands, Great Britain, France, Italy and Germany, which along with financial investments bring advanced technologies and innovations to the republic.
The Foreign Investors’ Council under the President of Kazakhstan was set up in 1998 to better interact with foreign companies operating in our country. This body serves as an effective mechanism that provides a direct dialogue with the investors and facilitates a quick resolution to problematic issues related to investment activities. At present, the Board is composed of the heads of the 30 largest foreign investor companies representing various sectors of the economy. Another five companies have an observer status at the Council.
Thanks to the FIC operation, important issues are annually discussed, and recommendations on various issues are developed, as those related to modernization of enterprises, development of local content and local personnel, improvement of tax issues, simplification of bureaucratic procedures, improvement of the investment image and transparency of the law-making process, environmental protection, and many others. Mutually acceptable solutions are taken on all these matters that enable Kazakhstan to successfully develop international economic cooperation and to adopt international best practices.
Having entered this stage of economic growth, we intend to proceed with the policy of raising investment capital, which allows introducing the latest technologies and best practices of running business in Kazakhstan.