Kazakhstan announces its aspiration to become a trilingual nation, with Kazakh as the State language, Russian as the language of interethnic communication, and English as the language of successful integration into the global economy and community.

[Harold Schiffman]

During the Soviet period, Kazakhstan was an agrarian economy supplying
raw materials to the former Soviet Union. The most striking feature of
Kazakhstan's economic development during its sixteen years of
independence has been the transition from central command planning to
a market economy system. The first few years of Kazakhstan's
independence were characterized by economic decline (mainly due to the
destabilizing influence of the disintegration of the Soviet Union): by
1995, real GDP had dropped to 61.4 per cent of its 1990 level. This
economic deterioration was worse than that experienced during the
Great Depression of the 1930s.

Since 1992, Kazakhstan has actively pursued a programme of economic
reform to establish a free market economy through deregulation and the
privatization of State enterprises. At the same time Kazakhstan has
pursued a consistent policy of making itself more attractive to
foreign investors in order to increase foreign direct investment
(FDI). Having stood at $1.3 billion in 1993, FDI had reached $10.4
billion by 2006, the equivalent of 80 per cent of total investments
made in the economies of Central Asian countries.

There was a positive trend of growing investment in the non-raw
material sector of the economy (from $350 million in 1993 to $8.1
billion in 2006). In 2006 the major investors were the Netherlands
(29%), the US (16%), the UK (11.5%), France (4.2%), Japan (3%), and
Germany (3%).

The number of companies with foreign capital also increased (1,865
registered joint ventures in 1999 and 7,000 in 2005).

The legal framework aimed at strengthening country's investment
attractiveness has been steadily improved. The law "On Investment",
elaborated on the basis of two previous laws and adopted in January
2003, stipulates the equality of investment terms for both foreign and
domestic investors, guarantees protection of investors' rights, and
provides dispute settlement mechanisms with the participation of
investors. Amongst the investment privileges provided for by this law
is preferential taxation, realized either through exemption from
customs duties or in the form of natural grants from the State.

The law "On Special Economic Zones" (SEZ) adopted in 1996 aims to
bring about a balanced distribution of foreign investments throughout
the country.

At present there are four operating zones in Kazakhstan: Astana - New
Capital City, Aktau Sea Port, the Information Technologies Park, and
Ontustyk (South) Textile Park. The Tax Code provides tax privileges
for the companies operating in zones that qualify for exemption from
land and property tax.

The efforts of the Government of Kazakhstan to improve the country's
investment climate have been supported by the international community.

In 2002, in accordance with anti-dumping legislation, the Government
of the United States relieved Kazakhstan of the stigma of "non-market
economy" status. The factors on which the U.S. Trade Department made
its decision included convertibility of national currency, free level
of wages, human rights protection, and levels of foreign investment,
State ownership, corruption, and barter transactions. The World Bank
report "Business in 2005: Removing obstacles for growth" placed
Kazakhstan in Group 5 (also including Germany, Denmark, New Zealand,
Switzerland and Singapore) for protection of investors' rights.

Under the authority of the President, the Council of Foreign Investors
provides an effective mechanism for dialogue between foreign investors
and the Government. As a consultative and advisory body, the Council
promotes the efficient and prompt discussion of issues related to
investment operations and the improvement of the investment climate.
The Council consists of heads of international economic and financial
organizations, foreign companies and corporations.

Although Kazakhstan has huge natural resources, mainly oil, gas and
minerals, as a land-locked country it needs to develop multiple
transportation routes and a modern infrastructure if it is to benefit
from them fully. Alongside the presence of rich natural resource
deposits, significant industries were developed in Kazakhstan during
the Soviet period. These include metal-processing, chemicals, textiles
and food-processing.

Kazakhstan's chief imports are energy products, machinery and
equipment, vehicles, and food. The importation of industrial machinery
and technology increased in the late 1990s.

The main economic priority for Kazakhstan is to avoid over-dependence
on its oil, gas and minerals sector while at the same time using these
natural assets to build a modern, diversified, highly-technological,
flexible and competitive economy with a high value-added component.
Diversification of the economy, the introduction of international
technical, financial and business standards, accession to the WTO,
promotion of corporate governance, greater transparency and
accountability, education, and a concerted administrative reform have
been identified as the key motors for economic strategy.

As part of the drive to cut bureaucracy, the Government is introducing
"e-government" mechanisms in all major sectors. Along with a number of
other result-oriented administrative reform steps, this measure is
regarded as an important tool in the fight against red tape and
corruption.

In the last two years (2005–2007), 18 Kazakhstan companies have been
listed on the London Stock Exchange (7 on the main market, and the
rest on AIM).

Since 2005 Kazakhstan has been implementing the UK's Extractive
Industries Transparency Initiative, with the aim of delivering a clear
signal to the international investor community and financial
institutions that the Government of Kazakhstan is committed to
bringing about greater transparency, further improvements in the
investment climate, higher levels of accountability and good
governance, and the promotion of greater economic and political
stability throughout the country, on the basis of the principles of
decentralization, industry specialization, free market competition,
and transparency.

To help it on its way to realizing its ambitious goals, Kazakhstan has
officially announced its aspiration to become a trilingual nation,
with Kazakh as the State language, Russian as the language of
interethnic communication, and English as the language of successful
integration into the global economy and community.

Kazakhstan is taking active steps to increase the sustainability of
its economy. Using foreign best practices, particularly Norway's
policy on utilizing oil surplus profits, Kazakhstan created the
National Fund, which is used as a mechanism to control inflation, make
efficient investments, and as a financial "pillow" in case of
fluctuations of the world economy.

Recent events on the US home mortgage markets were a good test for the
financial system of Kazakhstan, showing up the effectiveness of the
domestic financial regulators, particularly of the National Bank,
which managed to minimize the effects of the crisis. The long-term
forecast for economic growth remaines positive.

Development Institutions


A number of economic institutions for sustainable development have
been created in Kazakhstan, united by the development fund "Kazyna".

The purpose of Kazyna is to increase and stimulate investment and
innovation activities. Kazyna is pursuing a two-pronged strategy: on
the one hand building on Kazakhstan's industrial capacities, and on
the other developing innovation and hi-tech activities that will
create value-added products.

Kazyna was established as an "umbrella" holding company and principal
shareholder in seven development institutions.

The first of these is the Development Bank of Kazakhstan, which
provides both short-term and long-term loans. The principal aim of
this institution is to provide credits strictly focused on social
areas. The best way of doing this, of course, is to follow similar
policies to those of benchmark institutions such as the EBRD, but
locally. Other institutions in this category range from the National
Innovation Fund, which is focused on grants for R&D and
venture-funding, and on the injection of equity into suitable projects
by the Investment Fund, through to dedicated "think-tanks" on markets
and policy analysis such as the CMAR (Centre for Marketing and
Analytical Research).

Other key agencies include the Small and Medium Enterprises Support
Fund, which provides loans for small and medium-sized enterprises that
remain an essential part of economic activity and employment in
Kazakhstan. Another is the more outward-looking KazInvest, which
furnishes information and assistance to potential investors. Kazyna's
capabilities are rounded off by the State Insurance Corporation's work
in arranging terms for Kazakh exporters and investors alike.

Kazakhstan is taking specific measures to diversify and modernize its
economy in order to avoid raw material specialization. The share of
the industrial, agricultural, service, financial and innovative
sectors of the economy is steadily increasing. A significant number of
State programmes are targeted at diversification, notably the
Innovative Industrial Development Strategy 2015, the "30 corporate
leaders" programme, and the Regional Financial Center of Almaty.

The Innovative Industrial Development Strategy aims at promoting rapid
economic modernization through the removal of structural problems,
reconstruction and creation of new industries, development of the
atomic industry, introduction of innovative technologies, and
development of infrastructure, tourism, transportation etc.

Priority production projects have been proposed by the experts from
the Center of Marketing and Analytical Research of Kazakhstan.
Textile, food, beverages, agricultural products processing, furniture
and leather producing are also of a primary importance.

The main goal of the "30 corporate leaders" programme is to accelerate
the modernization of the economy and to make it more competitive by
developing corporate leaders and implementing "breakthrough" projects.
This programme is based on "PPP" principles (public-private
partnership).

Kazakhstan intends to become a financial hub for Central Asia and
beyond, offering companies a diversified investment platform on which
to raise equity finance on the national and international markets. The
Regional Financial Centre was established by President's decree on
July 7, 2006 in Almaty the former capital of Kazakhstan and the
country's largest city.

The activities of the Regional Financial Centre of Almaty (RFCA) are
aimed at attracting foreign investment, developing the region's
securities market and ensuring its integration with international
capital markets, facilitating Kazakh investment in international
securities markets. The RFCA provides a special legal regime for
registered market participants. The RFCA's special trading floor
provides tax benefits and economic incentives both to domestic and
foreign RFCA participants. The RFCA has an International Advisory
Board of local and foreign experts to advise on matters related to
RFCA strategy and development. The members of International Council
include former World Bank Chairman James Wolfenson, former President
of the Singapore Stock Exchange Lim Choo Peng, and heads of such major
companies as Deloitte, Numis, Renaissance Capital, ABN Amro Bank, and
Bracewell and Guiliani.

On 1 September 2007, 128 issuers of stocks and bonds had been
registered on the RFCA with a total capitalization of $71.8 bln.

The RFCA recently signed Memorandums on Co-operation with the stock
exchanges of Frankfurt, London, Korea and Hong Kong. The RFCA is
planning to co-operate with the NYSE and NASDAQ stock exchanges. The
RFCA is set to become a financial hub for the Central Asian and
Caspian regions, the CIS countries and Western China region.

Another significant factor of economic sustainability is the level of
political stability in the country. In spite of being situated in a
relatively stressful region, Kazakhstan maintains inter-ethnic and
religious tolerance, and has a high level of predictability in the
executive, legislative and judicial branches of power. Representatives
of more than 130 ethnic groups and religions live in Kazakhstan and
the Government has succeeded in creating favorable conditions for the
peaceful coexistence of all citizens of Kazakhstan.







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