KAZAKHSTAN

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
KAZAKHSTAN ECONOMIC BOOM CONTINUES IN A
FAVOURABLE EXTERNAL ENVIRONMENT
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest

• 9th largest country in the world by territory
• Geographical and geopolitical situation largely
  define politics
• Balancing between powerful neighbours
• Large area (2.7 M km2 ) with low density of
  population (5.6 persons/km2), 15.146 M
  inhabitants
• Rich in natural resources (oil, uranium,
  chromium, silver, gold, nickel, phosphor, grain,
  coal), but unfavourable climate
• Ethnically mixed population decreasing by 10 in
  the 90s, stabilises by now, incl. 50 Kazakhs,
  37 Russians. Russian is the second official
  language.
• Possible fluctuation of oil prices represents the
  major challenge to the Kazakh economy
• Per capita GDP at PPP USD 7,800 (no. 91 in the
  world), higher than Romania, Iran, Turkey, close
  to Brazil, Thailand

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest

• Political situation/1
• Independence since 16 December 1991
• Presidential state (Nursultan Nazarbayev, 66),
  1977 Secretary of the Central Committee of the
  Communist Party of Kazakhstan, first elected as
  president in 1991
• No clear mechanism for transfer of power
• Relatively quiet political scene
• 2004 parliamentary elections, governing party
  wins, Presidents daughter wins 11 of votes

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest

• Political situation/2
• Presidential elections 4 December 2005 President
  Nazarbayev re-elected with 91.15 of votes (for 7
  years)
• Social situation improving, although benefits do
  not spread evenly
• Average monthly salary grows by 17.6 in real
  terms in a year by 26.4 in nominal terms
• 12-year plan Innovative Industrial Development
  Strategy for the RK for 2003-2015
• Foresees interventionist economic policy,
  important role for the state due to imperfect
  markets

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest

• Foreign policy based on balance of interests /1
• Russia good relations, co-operation in energy
  policy, mutual investments, CIS,
• Russian language second state language
• Eurasian Economic Community, Single
  Economic Space, SCO
• EU energy policy, FDI, KZ wants to chair
  OSCE
• US support of anti-terrorist campaign,
• energy, President Bush to visit KZ in
  2006
• KZ to join to BTC oil pipeline
• China energy completion of direct oil
  pipeline,
• plan to build gas pipeline (incl. TM, UZ
  gas). Worlds largest regional thermal
• power station to be built in Ekibastuz,
  export of electricity to China,
• President Hu Jintao to visit KZ in 2006
• Shanghai Co-operation
  Organization

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest

• Foreign policy based on balance of interests /2
• India negotiations on oil exports
• WTO KZ to join in 2006
• Kazakhstan is not purely Asian. An important
  part of KZ territory is in Europe Kasymzhomart
  Tokaev, Foreign Minister of KZ

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest

• Different stages of economic development after
  1991
• Post-independence crisis
• Macroeconomic stabilisation
• Recovery in 1996 - July 1998
• Russian crisis in 1998
• 2000-2006 Economic boom led by high energy
  prices
• KZ to join WTO in 2006

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Source NBK

• Oil sectors share in GDP exceeds 20. Further
  diversification of the economy necessary, because
  of risk of external shocks

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Source NBK

• Growth of industrial output slows down in 2005,
  accelerates in 2006.
• Currency appreciation may undermine international
  competitiveness of non-hydrocarbon sector

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Source NBK

• Large investments needed in all sectors to
  maintain quick growth

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Source NBK

• Already low official unemployment rate declines
  further

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Fiscal policy
15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Source NBK

• Fiscal policy has played a major role in
  containing aggregate demand
• and inflationary pressures

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Average monthly rates, except 2 October
2005 KZT slowly appreciating against USD and
EUR. Further real appreciation expected if export
earnings continue to grow quickly. Source NBK
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest

• Oil, gas/1
• Proved reserves 29.0 bn bbl
• Kashagan deposit fifth largest in the world, the
  largest outside, the Middle East and the largest
  one discovered in last 30 years. Production to
  start in 2008, development cost USD 29 bn
• May 13, 2002 President Putin and President
  Nazarbayev sign protocol on division of Northern
  part of Caspian Sea (vs. tensions between
  Iran/Azerbaijan, Turkmenistan/Azerbaijan)
• - some major oil fields divided 50/50, others
  given to Russia or Kazakhstan, divided fields to
  be developed jointly
• 15-year agreement signed with Russia on use of
  the Russian pipeline system to export Kazakh oil
• Plan of oil and gas export to China, pipeline
  construction underway. Gas pipeline also could be
  used for transportation of Uzbek and Turkmen gas
• Largest oil producers Tengiz Chevroil JV 13.7 M
  t (23.1 of total), KazMunaiGaz (state-owned) 8.9
  M t, Karachaganakh Petrol 8.5 M t
• More difficult conditions for foreign investors
  state-owned KazMunaiGaz must own at least 50 in
  any product-sharing agreement (PSA)
• Share of KZ government in oil income raised to
  85 through progressive rent tax obligatory
  state stake

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Kazakh oil and gas condensate production in M t
2005 oil output grows by 3.4 after 15.4 in
2004 Plan by 2015 KZ should become one of
worlds top-5 oil producers
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Top world oil producers 2005 (M bbl/day)
Top world oil exporters 2005 (M bbl/day)
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Greatest oil reserves by country, 2006 (proved
reserves, bln bbl)
1includes 174.5 bn of oil sand reserves
Estimates on KZ oil reserves differ (Kashagan
field alone may contain 50 bln bbl oil, accurding
to official KZ sources)
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest

• Oil revenue represents one-third of budgets
  income
• Main export routes
• CPC (Caspian Pipeline Consortium) RU-KZ-Oman
  Mobil/Agip/BG/Rosneft/Shell opened in 2001,
  terminal Novorossiysk 1,580 km, capacity to be
  expanded to 58 M t / year
• Atyrau-Samara prior to CPC the main export road
  capacity 15 M t/year, to be increased to 25 M to
• swaps via Iran
• by rail to Russia
• by barge across the Caspian to BTC
• possibilities extension of BTC, new pipeline
  through Iran, West Kazakhstan China
• (first stage completed in 2005)
• Gas pipeline
• Central Asia Center pipeline to be modernized,
  increase capacity to grow to 100 bn c.m. per year

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest

• Development of hydrocarbon reserves in the Kazakh
  sector ot the Caspian Sea
• Division of territory with Russia
• KZ has 40-45 of total Caspian offshore
  hydrocarbon reserves ( total 125 bn barrels),
  Azerbaijan 20-25, Iran 6, TM 12-13, Russia 12
• May 2003 3-phase state program approved
• Stage 1 2003-2005 preparations for complex
  development, creation of unified database,
  construction of infrastructure, facilities,
  tendering
• Stage 2 2006-2010 quick growth of production.
• Stage 3 2011-2015 stabilisation of output.
• Offshore oil production to grow to 90 M tonnes
  p.a., gas to 63 bn cubic meters p.a.

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest

• Pipelines to China
• Total length 3000 km, construction cost USD 3 bn
• First section completed in 2003
• Second section (about 1,000 km) to be completed
  in December 2005
• Sale of Petrokaz to Chinese CNPC
• CNPC launches USD 4.18 bn bid for 100 of
  Petrokaz in August 2005 (Toronto-listed oil
  company)
• Kazakh energy minister Kazakh state wants to
  have strategic control over Petrokaz through
  KazMunaiGaz which gets 33 in Petrokaz
• KZ believes oil assets were sold too cheaply to
  foreign investors in the 1990s. It is how funding
  to claw back control (D. Loukastor, analyst)
• Petrokaz produces 7 M t of oil, owns one of KZs
  3 refineries

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest

• Other commodities
• Coal (87 M t in 2005)
• Natural gas (15 bn c.m in 2005, 39 bn c.m.
  planned for 2009)
• Grain
• Metals (copper, zinc, uranium, iron, ore, gold,
  silver)
• Gold
• KZ No. 9 in the world by gold resources
• Reasons for dropping production outdated
  technology, relatively small fields except
  Vasilkovskoye (one of worlds largest import)
• Kazakh Gold floats 25 of shares on LSE in 2005

KZ Gold production (kg)
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest

• Agriculture
• Large uncultivated territories until 1950s
• KZ to become USSRs bread-basket
• Harsh climatic conditions, sharp changes in
  agricultural output
• 2005 good year, agricultural production
  increases by 6.7, grain 9.4, livestock
  4.5, oilseed 11.1

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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
CPI/1
1994 CPI 1158,3 IPI 1923,8 1995 CPI 60,3
IPI 40,2
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
CPI/2
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Rate raised from 7 to 7.5 in February 2005, to
8 in July 2005, to 8.5 in April 2006, 9.0 in
July 2006
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Source NBK
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Share of non-CIS countries in exports 85.4, in
imports 53.2. In 2005, trade surplus grows
further (43.5), share of CIS shrinking
Source NBK
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Kazakhstan Top trading partners (2005)
Exports
Imports
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Ballooning trade surplus
Source NBK
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Oil export
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15th BACEE Country and Bank Conference 14-16
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Services deficit eats up to 40-50 of trade
surplus
Source NBK
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Largest investors in 2005 Q1-Q3, The Netherlands
(1070.6 M), US (759.5 M), France (525.0 M), Japan
(238.7 M), Liberia (237.0 M) Canada (224.0 M),
Italy (213.4 M), Russia (158.2 M), China (153.6
M), Cayman Islands (144.6 M), British Virgin
Islands (98.6 M), Switzerland (76.6M), Germany
(61.3 M) Outflow of investments to UK (-179.6
M) Total FDI y-o-y 82.8
Source NBK
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
FDI inflow by sectors
2004
2005
2006 H1
Source NBK
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Kazakhstans foreign debt (bn USD)
Gross debt grows due to borrowing by corporates
and banks, Kazakh state is net creditor
Source NBK
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Gross foreign debt per capita (USD)
With intra-corporate debt
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Reserves of the National Fund grow by 50 in 2006
Jan- Oct Return on NFs assets falls
dramatically from 7.6 in 2004 to 4 in
2005 Sources of NF surplus tax revenue of
selected companies, transfers from state budget,
income on NF assets
Source NBK
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest
Liabilities include FDI and borrowing KZ foreign
expansion starts
- banks
- energy sector (purchase of Tbilgas
in GE)

Source NBK
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15th BACEE Country and Bank Conference 14-16
November 2006, Budapest

• 2006-2008 government program
• Approved by KZ parliament on 15 February 2006
• Industrial production 5 p.a.
• GDP growth 8.5 p.a.
• Capital investment 14-15 pa.
• GDP to be doubled by 2008 companed to 2000
• Inflation at 5-7.3 p.a.
• Key areas of development
• Aerospace industry Baikonur, Baiterek complex
• Telecoms, involving foreign companies
• Energy sector modernisation, energy conservation
• Ago-industrial complex
• Transport/transit rail, power lines, transport
  corridors