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“NATIONAL EXPORT AND INVESTMENT AGENCY “KAZNEX INVEST” JSC

Ministry of Industry and New Technologies of the Republic of Kazakhstan

Investing in Kazakhstan

The Second Phase of

Industrialization

KAZAKHSTAN

“NATIONAL EXPORT AND INVESTMENT AGENCY “KAZNEX INVEST” JSC | Ministry of Industry and New Technologies of the Republic of Kazakhstan

Territory: 2.7 mln. sq. km.

Population (01.02.2014): 17.2 mln.

GDP, 2013: $ 220.3 bln.

GDP per capita, 2012: $ 12 933

Major languages

• Kazakh (state language);

• Russian (official, business

language);

• English, Chinese (young

generation).

Main ethnic groups:

• Kazakhs: 65%

• Russian: 25%

• Other: 10%

Source: The Agency of Statistics of the Republic of Kazakhstan

FDI FLOWS INTO KAZAKHSTAN

Gross FDI inflows - $ 183.9 bln.,

from which 55% were attracted between the

period 2010 – 2013 ($ 101.8 bln.)

Gross FDI inflows and outflows for the period

2005 – 2013, bln. $

Gross FDI inflows by countries for

the period 2010 – 2013, bln. $

7.9 12.1

19.4 21.3 21.4 22.2

26.5 28.9

24.1

0.3 1.3 3.2

5.0 5.4

10.5 8.0

3.0

8.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2005 2006 2007 2008 2009 2010 2011 2012 2013

Gross inflow of FDI in Kazakhstan from foreign direct investors Gross outflow of FDI abroad from Kazakhstani direct investors

2.5

4.3

3.0

4.5

5.3

8.0

9.2

7.3

31.5

Italy

Russia

British Virgin Islands

UK

France

China

Switzerland

USA

Netherlands

36.6 36.0%

26.0 25.5%

14.1 13.9%

25.0 24.6%

Professional,scientific andtechnical activities

Mining andquarrying

Manufacturing

Other activities

FDI FLOWS INTO KAZAKHSTAN


Structure of FDI by types of economic activities in bln. $ and %

2012, bln. $ 2013, bln. $

FDI in manufacturing for 2010 – 2013 in mln. $

Source: National Bank of the RK

0.0%

17.2%

15.6%

29.9%

8.7

7.3 3.4

9.6

25.1% 11.8%

33.1% 30.0%

7.3

7.3 2.8

6.7

30.4%

30.1%

11.7%

27.8%

11820 83.6%

950 6.7%

642 4.5%

718 5.1%

Manufacture of basic metals andfabricated metal products

Manufacture of food products,beverages and tobacco products

Manufacture of computer,electronic and optical products

Other sectors

MANY FOREIGN COMPANIES HAVE ALREADY INVESTED IN

KAZAKHSTAN

• SLIDE TEXT


WHY IS KAZAKHSTAN ATTRACTIVE FOR FOREIGN INVESTORS?


4 Bridge to the market of 3

billion potential customers

▪ 3 of the 5 BRICS countries are in 4 hours flight

▪ Customs Union with Russia and Belarus with a population of 170 million and a total GDP of 2 trillion. USD

▪ Open economy (trade 70% of GDP)

▪ Entry into the WTO is expected in the first half of 2014

Political stability and good

investment climate 1 ▪ A high level of trust in political

institutions and strength of investor protection (WEF 2013) in comparison with the countries of the CIS.

▪ Ease of Doing Business (50 on the list of World Bank Doing Business 2013: 22 place in the investor protection and 18 place in the payment of taxes).

Stable macroeconomic

indicators and high growth 3 ▪ GDP growth: 5.0% (IMF, forecast 2013)

▪ Low debt / GDP ratio: 13.2% (IMF, forecast 2013)

▪ Budget deficit: -2.5% (IMF 2012)

▪ Inflation rate: 6.0% (IMF, forecast 2013)

▪ Recovery of the rating to positive from stable according to the rating agency

2 Regionally attractive fiscal and

non-fiscal regime and protection

of foreign investment

▪ Attractive corporate tax rate (20%) and low VAT (12%)

▪ Fiscal and non-fiscal incentives for investors, including in SEZs

DOING BUSINESS IN KAZAKHSTAN IS MUCH EASIER THAN IN

MOST EMERGING MARKETS


Doing Business 2014

Country rank

Source: World Bank Doing Business 2014

146

143

134

116

112

96

92

68

65

63

50

21

4

1

Uzbekistan

Tajikistan

India

Brazil

Ukraine

China

Russian Federation

Kyrgyz Republic

Italy

Belarus

Kazakhstan

Germany

United States

Singapore

HIGH CONFIDENCE IN POLITICAL INSTITUTIONS AND

STRENGTH OF INVESTOR PROTECTION


35

36

37

40

41

43

50

75

84

98

100

114

115

117

128

136

146

10

10

13

19

25

41

41

41

57

57

69

69

84

84

100

100

134

The index of public trust in politicians Place in the

ranking Strength of investor protection Place in the

ranking

Source: The Global Competitiveness Report 2013-2014

1.5

1.9

2

2.2

2.2

2.2

2.4

2.4

2.7

2.9

3.3

3.4

3.5

3.6

3.6

3.8

3.8

Czech Republic

Brazil

Kyrgyz Republic

Ukraine

India

Croatia

Poland

South Africa

Russian Federation

Georgia

United States

Azerbaijan

Jordan

France

Turkey

Australia

Kazakhstan

3.0

4.7

4.7

5.0

5.0

5.3

5.3

5.7

5.7

6.0

6.0

6.0

6.7

7.0

7.7

8.0

8.0

Switzerland

Russian Federation

Ukraine

Czech Republic

Germany

Brazil

France

Australia

Turkey

India

Italy

Poland

Azerbaijan

Georgia

Kyrgyz Republic

United Kingdom

Kazakhstan

INVESTMENT INCENTIVES

• SLIDE TEXT


LAW OF THE RK DATED AS 08.01.2003 № 373-II «ON INVESTMENTS»

Preferences for investment projects in priority sectors

Exemption from customs duties on equipment,

components, raw materials and spare parts imported

for a project

In-kind

state

grants

CRITERIA for investment projects:

Corresponds to the List of priority activities

Tax allowances as per Tax code of the RK (deductions of

the value of the preference objects, and (or) further costs

to modernization up to 3 years)

Preferences for strategic investment projects *

Land , property tax 0% for up to 7 years Industrial subsidies for areas with low socio-

economic development

Corresponds to the List of priority activities

The volume of investment exceeds

50 million USD OR

Corresponds to the List of high-

technology products

SECTOR-SPECIFIC INCENTIVES IN 10 DEDICATED SEZS ACROSS

COUNTRY

• SLIDE TEXT


“National Industrial Petrochemical Technopark” SEZ

(Oil and gas industry, petrochemicals)

“Burabai” SEZ (Tourism)

“Astana new city” SEZ (mixed)

“Pavlodar” SEZ (petrochemical

industry)

“Saryarka” SEZ (metallurgy)

“Khorgos Eastern Gate” SEZ (logistics)

“Park of innovative technologies” SEZ

(IT-industry, innovations) “Chemical park Taraz”

SEZ (chemical industry)

“Ontystik” SEZ (textile industry)

“Sea Port Aktau” SEZ

(mixed)

Aktau

Atyrau

Astana Pavlodar

Karaganda

Shymkent

Taraz Almaty

ATTRACTIVE INVESTMENT INCENTIVES IN SEZS


FISCAL INCENTIVES in SEZs

• 0%Corporate Income Tax until 2020-2025 with possibility for extension

• 0% for land and property tax until 2020-2025 with possibility for extension

• VAT– 0% (for products consumed in SEZ) until 2020-2025 with possibility for extension

• Increase of marginal rate of depreciation for tax on the production of software to 40%

• For “Park of innovative technologies” SEZ – social tax is 0% for 5 years, under certain conditions

• For “Park of innovative technologies” SEZ – depreciation rate for software increased to 40 %

NON-FISCAL INCENTIVES

• Provision of free land in SEZ for a period of up to 10 years from registration time as SEZ tenant

• Simplified procedure for the recruitment of foreign labor

Industrialization concept 2015 – 2019

State Program of Forced Industrial and Innovative Development (SPFIID) 2015-2019 is the interdepartmental program focused on industrial development

Comments Hierarchy of Strategic Documents

Vision and strategies:

National vision – 2050

National strategic development

Plan

Concepts reflecting some aspects

of the vision

Strategic development directions

(examples):

Industrial innovation development

Infrastructure

«Green economy»

Foreign policy

Security

Social development

Authorities’ strategic plans:

Authorities’ strategic plans:

Strategic plans

Action plans

Operational plans

Long-term vision Strategy “Kazakhstan’s way – 2050: common

aim, common interests, common future”

1

Strategic Development Plan of the Republic of Kazakhstan - 2020

2

SP

FII

D 2

01

5-2

019

Infr

astr

uctu

re

Agri

culture

Serv

ices a

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tou

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Education a

nd

scie

nce

3



Key results and lessons from SPFIID 2010 – 2014

The process of diversification of the economy was

successfully launched through accelerated development of

the manufacturing industry, the increase of non-commodity

exports and FDI inflow in non-natural resource sectors

Employment in manufacturing hasn’t decreased despite the

negative influence of global financial crisis

Various tools and new policies to support industrial

development were successfully piloted

An effective system of institutes for industrial development

was created

Major projects, which are significant for the development of

national economy, were supported

A more narrow focus and concentration on the limited set of

industrial sectors are needed to achieve sustainable results

There is a need to organize adequate financial support for

the Program

It is necessary to simplify and improve the efficiency of

Program architecture

SPFIID 2010 – 2014 has enabled to start the industrial diversification and overcome the consequences of the global crisis in Kazakhstan

Key lessons from SPFIID 2010-2014 Positive strategic changes in the economy and the

system of governance

Due to the implementation of the SPFIID 2010-2014

Kazakhstan has already made a significant

progress in the industrial development

Within the next five-year program of industrial

development main focus will be made on improving

efficiency

1 1

2

3

4

5

2

3


Goals, tasks and expected results of SPFIID 2015 – 2019

The Second Five-Year Plan is aimed at forced industrial development considering new opportunities created by SPFIID 2010-2014 and lessons learned

Promote diversification and increase industry competitiveness

Program Goal

1. Increase added value and effectiveness in natural resources processing industries;

2. Accelerate manufacturing development;

3. Improve business climate for industrial development;

4. Establish the basis for the “sectors of the future” development through innovation

clusters creation and the development of innovation infrastructure;

5. Support entrepreneurship and SMEs development.

Program Objectives

Conditions:

Investment agreement with TNCs

Non-financial incentives: Financial incentives:

Investments > $20 bln. Personnel development

The cancellation of visas for citizens of OECD countries

Cancellation of registration

Attracting foreign labor under a simplified procedure for the required period

The favorable conditions for investors’ arrival on a “persona grata” principle

Stability of legislation for 10 years – guarantees of non changing

tax sphere

migration sphere

tariff sphere

New incentives

Preferential treatment

Infrastructure

Special Economic Zones


Improving of the investment climate. The ongoing work.

environmental sphere

Effect

Reimbursement of expenses after commissioning

(30%)

Guaranteed order

Implementation of “One-stop shop” principle for investors

Exemption from CIT for 10 years

• Advancement in the world rankings of competitiveness

• Improving the country's position on key parameters of doing business

• Stable economical growth of Kazakhstan • Stimulation of further economical

development

• Further stimulation of FDI inflows in country’s economy – creation of comfortable and conducive environment for it

• Increasing the investment attractiveness of country

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