Mega-project “New Silk Way”. President Nursultan Nazarbayev held the 25th plenary session of the Foreign Investors Council

May 23. Kazpravda

By Vladimir Kuryatov

Mega-project "New Silk Way". President Nursultan Nazarbayev held the 25th plenary session of the Foreign Investors CouncilThe focus at the present development stage in Kazakhstan’s economy is tapping its transit potential. The President OK’d a scaled project “New Silk Way”, based on five pillars: speed, service, cost efficiency, security and stability. The meeting discussed specific ways of transforming the country into an international trade, logistics, business and financial hub.

Why Kazakhstan?

The meeting was attended by representatives of large foreign companies, international organizations, the Kazakh government and national companies. Opening the meeting, the President informed about the changes in the Council’s membership and thanked it for the work.

He then listed the achievements in the 14 years since the Foreign Investors Council (FIC) was established. Kazakhstan economy has grown more than 2.5 times in real terms to reach USD 186 billion. In 2011 the GDP went 7.5% up, labor efficiency in the manufacturing industry – 20% up, foreign trade turnover – 40% to make USD 126 billion.

– The twentieth anniversary of independence last year saw significant progress in diversification and transition to innovation economy. During these years 70% of the total foreign direct investment in Central Asia have been brought to Kazakhstan, nearly USD 150 billion. Last year alone, investments totaled 18 billion – Nursultan Nazarbayev cited.

The economy industrialization program is progressing. In 2 years about 400 new productions were built, whose output by date is worth more than USD 3 billion.

Another 220 projects are under implementation, over 30 of which are large industrial facilities with a total investment ranging from USD 300 million to over 1bn. The investment in manufacturing over the last three years totals USD 8.5 billion.

– I must admit that we largely owe these accomplishments to our foreign partners – said the President, thanking all the Council members for their part in improving the investment climate and in economic development of our country.

To buttress the achievements, a new development strategy-2020 was adopted along with a number of important government programs. The President believes of large is able to meet more ambitious goals.

He suggested launching a scaled New Silk Way project. Kazakhstan has to restore its historical role and become a major business transit hub of the Central Asian region and a bridge between Europe and Asia. This mega-project will result in doubling of the transit cargo flow via Kazakhstan by 2020 and then further increase to at least 50 million tons.

– Why Kazakhstan? The President listed the advantages: firstly a convenient geographical position. Our country, situated in the heart of the Eurasian continent, connects the major markets of China, Europe, Russia, CIS and provides transport routes to Central Asia and the Gulf states. It is beneficial to investors, guaranteeing connection between production and consumers. Through Kazakhstan run major transcontinental routes North- South, West – East, Southeast Asia – Central Asia.

Second advantage is constant growth in freight traffic. All this traffic links the now second world economy – China with EU countries and the CIS. It is expected that by 2020 the trade transactions’ volume between Kazakhstan’s neighboring countries will grow 1.5 times to reach USD1 trillion. The annual trade volume between the Old World and China is currently over 500 billion at an average annual growth of 8%. By 2020 it is to reach 800 billion.

– Transit route from China to Europe via Kazakhstan has a distinct advantage: it is much shorter than the sea route through the Suez Canal, – said N.Nazarbayev.

The third advantage is direct access to the markets of the Customs Union. This July Single Economic Space will be in full operation to ensure a free movement of capital, goods and labor.

Fourth – a favorable investment climate. In the Doing Business ranking Kazakhstan is 47th, and in the “Investor Protection” indicator it has moved 34 positions up. The Government is tasked to achieve the most advanced standards of OECD countries in this area.

Fifth advantage is political and economic stability.

Five pillars

Addressing the opening up prospects, the President gave an answer to another question: How do we go about implementing such an ambitious project?

– My vision is creation in Kazakhstan’s key transport corridors of a set of international hubs: trade-logistics, financial-business, innovation-technological and tourism – he offered.

According to him the competitive advantage of the suggested New Silk Way project will be based on five pillars: speed, service, cost efficiency, security and stability” that must yield a synergistic effect.

The main constituent of the “New Silk Way” – transport and logistics hub – will be developing around the following projects. First, on the basis of NC “Kazakhstan Temir Joly” a multimodal transport and logistics company of world scale is under creation.

Second, “A-class multifunctional logistics centers will be constructed throughout the way from China to Russia, in the Special Economic Zone “Khorgos- Eastern Gate”, in Almaty, Aktau, and Aktobe. They will be the western gate to the Caspian region, Russia and further to Europe.

Third, Kazakhstan is building a transcontinental routes North- Europe – Western China. It will be completed by 2015 and reduce the time of goods movement from China to Europe by motorway nearly 3.5 times compared to the sea routes.

Fourth, the capacity of the country’s railway network will be boosted through the currently constructed 1200-km- long Zhezkazgan – Beineu and Arkalyk – Shubarkol lines. This is on top of the already built railways Uzen – Turkmenistan – Iran – Persian Gulf and Korgas – Zhetygen – second railway crossing to the Caspian Sea.

Fifth, all the way from China to Russia, that is, to SES “Khorgos – East Gate” to Almaty, Aktau and Aktobe, multifunctional logistics “A” class centers will be built.

Development of business activities, services for foreign nationals in Almaty will create around the city additional conditions for the tourist hub formation.

The bulk of investment will then be directed to development of ski resorts for winter recreation and Kapshagai resort for the summer season. The potential of lakes Balkhash and Alakol needs be tapped too. The Foreign Ministry is considering visa exemption for 34 countries.

Thereby before the year 2020 a full-fledged international innovation-technological hub will have been built on the basis of the currently operating IT Park, hosting 121 companies on its territory.

– We will continue to invest in development of world-class infrastructure and apply additional benefits and guarantees, in particular through the placement of state orders for R&D. Work will continue to develop in Almaty a modern transport infrastructure and service cluster, meeting the world standards, – said Nursultan Nazarbayev.

Almaty, The President believes, should become a leader in the country in adopting the “technologies of the future”, in the level of safety, environmental friendliness and convenience for foreign nationals.

– We will provide a complete package of services on a facilitated scheme – from obtaining visas and various permits, contacts with authorities to registration of companies, – he pledged.

Another task is to create in Almaty an International Commodity Exchange in partnership with the exchanges of Asia and Europe, to service all the traffic flows through Kazakhstan. The growth of trade turnover should give impetus to the development of the Regional Financial Center of Almaty.

The President assigned the Government to discuss the above directions together with members of the Foreign Investors Council and work out an action plan for the project “Kazakhstan – New Silk Way ” by the year- end.

He also proposed to review at every FIC meeting the implementation of investment policy in Kazakhstan and development of local content. The next meeting of the Council will be devoted to innovation development.

To unlock the potential

In the subsequent reactions the president of the European Bank for Reconstruction and Development Thomas Mirow said that the strategic location of Kazakhstan, making it a bridge between Europe and Asia, brings some benefits the country. But in order to successfully develop the existing potential as a trade and financial hub, it is necessary to take certain measures. In particular, development of transport infrastructure should be paid more attention to. For all the improvement in this area, he said a lot has yet to be done. By 2020, Kazakhstan plans to repair and construct 16 thousand kilometers of roads, with half the funds for these purposes to be attracted from private investors. In this regard, public-private partnerships come to the foreground and, consequently, an improved legal framework for the implementation of the initiatives.

Another important area is the investment attractiveness of Kazakhstan. According to the EBRD president, our country is the leader in Central Asia in this indicator. However, there are problems. International studies show a number of bottlenecks and holdbacks, such as bureaucratic hurdles that arise when crossing the border, including customs clearance and other checks.

– Kazakhstan needs to speed up reform in the customs administration and step up the anti-corruption policy -T. Mirow opined. He believes of large’s IPO is promising. – The EBRD is working with Kazakhstan in all these areas. We are ready to cooperate further.

Minister of Economic Development and Trade Bakytzhan Sagintayev talked on transport and communication infrastructure development- the backbone of trade and logistics system and progress of major infrastructure projects.

Almaty and Astana are to develop into international commercial and business hubs, and Shymkent, Aktobe and Aktau will be national hubs. A national transport logistics company is to be established within JSC “KTZ” to centrally regulate this system.

It is also planned to develop warehousing of “A” class, which, as the foreign investors point, Kazakhstan badly needs. By 2015 the market of potential contract logistics is to make, as estimated, USD 800 million.

Vice-President of the Asian Development Bank, Lakshmi Venkatachalam said the ADB will provide funding for construction, including private facilities, and logistics infrastructure.

According to her, the viability of transport corridors depends on a number of competitive advantages, where geographical location is a key only in solution of many other related issues. She also made several recommendations, including to more actively involve the private sector in the development of transport infrastructure.

Alexander Mashkevich-a shareholder of ENRC said in the transport sector there are bottlenecks and public-private partnership would help address them. He welcomed the efforts of JSC “KTZ”, aimed at increasing traffic.

Together with China “Dostyk – Green Corridor” project is under implementation. This year shuttle trains will be run to China.

According to experts, fulfillment of the tasks will increase Kazakhstan’s GDP in 2014 to USD 200 billion.

The “General Electric” CEO Lorenzo Simonelli said he is proud that his company contributes to the industrialization process in Kazakhstan. This cooperation is beneficial for both parties.

– Kazakhstan continues its emergence as a modern state, and “General Electric” is ready to assist in the modernization and development of the industry.

“BG Group” CEO Frank Chapman praised Kazakhstan’s achievements too.

– I well remember the first meeting of the Foreign Investors Council in 1998. Since then, Kazakhstan has made an amazing way to become an undisputed leader of the Central Asian region. He largely attributes it to the President’s policy for strong partnerships with international investors.

He proponed to simplify the customs procedures, expand the application range of modern technologies such as electronic declaration of goods and payment of customs duties.

For all the comments, the investment climate in Kazakhstan is excellent, said the board chairman of Sberbank of Russia German Gref, who made an overview of the economic development of our country in 10 years and named the most attractive investment sectors of Kazakhstan economy: chemical and petrochemical industry, food sector, metallurgy, machinery and equipment, hydrocarbon energy, and business services.

During the meeting comments were made by other Council members and there was a presentation of the research company “Ernst & Young” on the investment attractiveness of the republic that finds Kazakhstan one of the three most attractive markets in the CIS.

The Foreign Investors Council is a good dialogue venue, according to the president of American Chamber of Commerce Kenneth Mack, an important element of successful cooperation. The Government responds to the signals of foreign investors, duly addressing the arising problems.

At the end of the plenary session, Nursultan Nazarbayev presented awards to foreign investors: “For direct investment” – to ENRC, “For a long-term strategic partnership- BG Group, “socially responsible company” – METRO Cash & Carry, and the top prize- to “TCO”.

Kazakhstan President invited the participants to the next meeting, scheduled May 22 next year, as well as the VI Astana Economic Forum on 23-24 May 2013.