Economic Newsletter on Kazakhstan |July 2018

CONTENTS MACRO-ECONOMICS & FINANCE ...... 2 ENERGY & NATURAL RESOURCES ...... 6 TRANSPORT & COMMUNICATIONS...... 7 AGRICULTURE ...... 10 EXHIBITIONS IN KAZAKHSTAN (September 2018) ...... 16 CONTACTS ...... 17

The Economic Section of the Embassy of the Kingdom of the Netherlands in Kazakhstan intends to distribute this newsletter as widely as possible among Dutch institutions, companies and persons from the Netherlands. The newsletter summarises economic news from various Kazakhstani and foreign publications and aims to provide accurate information. However, the Embassy cannot be held responsible for any mistakes or omissions in the bulletin.

ECONOMIC NEWSLETTER, July 2018 Embassy of the Kingdom of the Netherlands MACRO-ECONOMICS & FINANCE Kazakh economy minister notes slowing inflation, increasing investment in first half of 2018 Kazakhstan’s gross domestic product (GDP) growth reached 4.1% in the first half of the year, Minister of National Economy Timur Suleimenov said during a July 10 government meeting. The economic recovery comes as inflation continues to slow and investment is high. “Inflation has been steadily falling and reached its lowest point in the last three years. From the beginning of the year, it was 2.6%,” Suleimenov said, according to primeminister.kz. Investments in fixed assets extended their high growth trend of 25.8%. Industrial production grew by 5.2%, mining industry by 5.5% and manufacturing by 5.2%. Among the processing industries, the production of paper products showed growth of 12%, the chemical industry grew 11% and mechanical engineering output increased 17.2%. Metallurgy, refining and food production grew by 3.4%, 4.4% and 5.2% respectively. The volume of agriculture production rose 4%. The construction industry grew by 3.8% over six months. The increased rate of construction of residential buildings, industrial and social facilities, and oil and gas pipelines; the building of a gas compressor station; the reconstruction of highways; the construction of a runway in the city of Semei; and the modernisation of the Shymkent petrochemical plant all accelerated the growth of the sector. According to the minister, an increase in consumer demand and sustained business activity in the real sector of the economy triggered growth in the services. Foreign trade turnover went up 24.3% or $21 billion. Exports jumped 27%. “High production activity has had a positive impact on the labour market. Since the beginning of this year, 178,700 people have been employed [as of June 1]. Wages are growing at a moderate pace. In January to May, the average monthly salary was 152,800 tenge [$445] and grew in real terms by 0.8%. Real monetary incomes for January to April increased 1.2%,” Suleimenov added. Taking the floor, Minister of Finance Bakhyt Sultanov noted the growth in state coffers. Compared to the same period last year, the growth rate of the state budget revenues (excluding transfers) reached 112% or 407 billion tenge ($1.18 billion) more, he said. The revenue of the national budget grew by 114% or 329 billion tenge ($959.3 million), and local budgets increased 107.3% or by 77 billion tenge ($224.5 million), Astana Times reports.

Kazakhstan’s external debt is $166.6 billion As of April 1, 2018, Kazakhstan’s external debt is $166.6 billion, and its ratio to GDP - 102.2%, having improved by 2.8% since the year start, according to the press service of the National Bank of Kazakhstan. In the external debt structure, 63% is intercompany debt, 26% foreign debt of other sectors to unrelated creditors, 8% state external debt (Government and National Bank of Kazakhstan), 4% external liabilities of the sector “Banks” (STB and Development Bank of Kazakhstan JSC). In the first quarter of 2018, the country’s external debt declined by $0.8 billion. The decrease was mainly due to the repayment of external borrowings attracted from state and financial organizations of China, as well as a decrease in the market value of Kazakhstan issuers’ debt securities, and, as a result, a drop in demand for them. The exception is short-term notes of the National Bank of Kazakhstan, whose volume in non-residents’ hands amounted to $1.4 billion, having increased more than 3-fold over the period. Decrease in the first quarter of 2018 by $0.3 billion was due to the fact that the continued development of foreign loans from foreign subsidiaries was offset by early repayment of

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loans to Chinese banks, as well as decline in the market value of eurobonds of quasi- public issuers. Net external debt made $46 billion, an increase of $0.3 billion in the first quarter. At the same time, the public sector and the banks are net lenders in relation to the rest of the world, while other sectors are net borrowers, Kazpravda.kz reports.

National Fund doubles its revenue in the first half-year As of the end of June 2018, the funds of the National Fund of Kazakhstan amounted to 22.1 trillion tenge, which is 2% less than a year earlier at 22.5 trillion tenge. The average annual increase in the Fund’s funds is 18.9%. Over the past five years, the fund’s assets have doubled or increased by 10.7 trillion tenge. In the first half of 2018, revenues to the National Fund increased more than 2 times compared to the same period a year earlier, and amounted to 604.7 billion tenge. The main source of the Fund’s revenues is still direct taxes from oil sector enterprises for 1.4 trillion tenge. Due to the return of the targeted transfer from the republican budget, the fund received 8.4 billion tenge. Proceeds from the privatization of state property from the mining and manufacturing industry amounted to 8.1 trillion tenge. The only article of income, which once again records losses is investment income from the management of the Fund. For January-June of 2018, the loss amounted to 785.4 billion tenge, which is similar to the loss a year earlier. Despite a noticeable increase in revenues to the National Fund, the Fund’s expenses decreased by 9.9%, from 1.6 to 1.4 trillion tenge. The maximum expenditures for the first half of the year were fixed in 2015, then 1.9 trillion tenge was allocated from the Fund to cover total costs. The main items of expenditures of the National Fund are guaranteed transfers, for which almost 100% of all expenditures are spent at 1.4 trillion tenge. To cover the costs associated with the management of the Fund and the conduct of an annual external audit, 11.8 billion tenge was used, against 4.8 billion tenge a year earlier. Target transfers for the first six months of 2018 were not directed to funds, in contrast to the same period a year earlier for 143 billion tenge, Finprom reports.

AIFC registered 55 major international companies At a government press conference, governor of the Astana International Financial Center (AIFC) Kairat Kelimbetov tallied up the first three years of work and shared on plans ahead. “We have registered 55 companies. Given the plan of attracting about 100 companies by the end of the year, half of the plan has been completed, which is good news and which indicates a great interest of financial institutions and large companies around the world in the international financial center of Astana,” Kairat Kelimbetov said. Also, according to the speaker, the AIFC plans to serve not only investors who register with it, but also all the investors who will come to the capital. About 250 visas have already been issued this year through the expat center. Mention should be made that the AIFC is one of the key steps of the National Plan “100 concrete steps to implement the five institutional reforms of the President” aimed at diversifying the economy and developing the country’s financial sector, Kazpravda.kz reports.

Kazakhstan’s international reserves down

Kazakhstan’s international reserves have decreased by almost two percent to $88.7 billion in June, the press service of the National Bank of Kazakhstan announced July 9. BANKING The Chairman of the National Bank Daniyar Akishev noted that, excess liquidity is remaining in the money market, which is mainly withdrawn by the issue of notes. As of July 5, 2018, the net withdrawal of liquidity by the regulator amounted to 3.2 trillion

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tenge. The volume of short-term notes in circulation amounted to 3.7 trillion tenge. The yield on the notes was in the range of 8.11-8.29% in June, depending on the urgency. He also noted that the volume of the open position of the National Bank on direct REPO operations amounted to 198 billion tenge, on reverse REPO 183 billion tenge, on bank deposits in the National Bank 361.5 billion tenge. The TONIA rate was 8.01% July 5. Akishev reminded that, the TONIA indicator has been a benchmark for monetary policy in the last two years. Today, the indicator is close to the lower range of the base rate, which is also conditioned by excess liquidity in the base sector. “Currently, the National Bank is studying the possibility of a gradual narrowing of the range collar and cap in the second half of the year, which will increase both the degree of controllability of interest rates in the money market and the operational efficiency of monetary policy tools,” the chairman said, according to AzerNews.

Kazakhstan’s gold reserves exceed $31 billion The share of gold reserves in the Kazakh foreign reserves portfolio grew 3.3% reaching $31.2 billion as of the end of May over the same period in 2017, Finprom.kz reports. Last year, the figure was $29.7 billion. The increasing volume of gold reserves is underpinned by the rising price of gold reserves from $11.2 billion to $13.4 billion, according to the report. At the same time, foreign exchange reserves decreased from $19 billion to $17.8 billion. Kazakhstan’s gold and foreign exchange reserves consist of the National Bank reserves and National Fund resources. The fund was established in 2000 and has been accumulating revenues from Kazakhstan’s oil and other raw material exports since then. The total amount reached $90.4 billion, 3.1% lower than in 2017, said the report. The National Fund continued decreasing its resources and with such a course launched in 2015, the current reserves are estimated at $59.2 billion down by 21.9% or $16.6 billion over the past four years. The last years have witnessed an increasing demand for the yellow metal in Kazakhstan and across the globe with the United States possessing the largest gold reserves followed by Germany and Italy. Kazakhstan increased its gold reserves from 20.7% in 2013 to 42.9% in 2018, while cutting foreign currency reserves from 79.3% to 57.1% within five years, according to Astana Times.

National Bank of Kazakhstan maintains 9% base interest rate The National Bank of Kazakhstan has kept the base rate at the level of nine percent, Kazakh media reported July 9. The rates for operations of liquidity providing and taking have been stored at the levels of ten and eight percent respectively. The official refinancing rate has also been maintained at nine percent. “The decision to maintain the base rate level was largely conditioned by the continuing influence of factors that contribute to the occurrence of inflation risks. Especially, such risks are observed on the part of the external sector and budget policy,” said the Chairman of the National Bank Daniyar Akishev. The annual inflation slowed to 5.9% in June. This is the minimum level since October 2015. This parameter was influenced by the growth of producer’s costs and the rise in the cost of imports. The next decision on the base rate will be announced on September 3, 2018, AzerNews reports.

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Equity capital of the banking sector exceeds 3 trillion tenge As of July 1, 2018, the total own capital of the banking sector amounted to 3,044.8 billion tenge, having increased by 0.5% in January-June 2018. Net profit is estimated at 321.2 billion tenge. This was reported by the press service of the National Bank of Kazakhstan. The total assets of the banking sector as of July 1, 2018 amounted to 24.25 trillion tenge. In the structure of assets, a predominant share is held by loans at 51.3%, with the securities portfolio at 19.0%, cash, and refined precious metals and correspondent accounts at 12.0%. Loans for which overdue debts exceed 90 days amounted to 1.18 trillion tenge, or 8.75% of the loan portfolio. Provisions for the loan portfolio were formed in the amount of 1.9 trillion tenge, or 14.0% of the loan portfolio (at the beginning of 2018 they stood at 2.13 trillion tenge, or 15.6%). The total liabilities of the banking sector as of July 1, 2018 amounted to 21.21 trillion tenge, plus 0.4%. In the structure of banks’ liabilities, the largest share is held by customer deposits at 79.6%, issued securities at 5.8%, loans received from other banks and organisations engaged in certain types of banking operations at 2.9%. Banks’ liabilities to non-residents of Kazakhstan in total liabilities decreased compared to early 2018 from 5.56% to 5.35% to 1.10 trillion tenge, Kapital.kz reported.

Kazakh banks to enter Uzbek market The Kazakh National Bank and the Uzbek Central Bank signed July 10 an agreement to exchange information in the banking sector that will allow Kazakh banks to open subsidiaries and offices in Uzbekistan, said Kazakh National Bank Chair Daniyar Akishev at a press conference following the signing of the agreement. Kazakh banks, however, need to meet several requirements, which include an authorised capital stock of no less than 100 million euro ($116.87 million) for a parent bank and 100 billion Uzbek som ($12.77 million) for a subsidiary bank, as well a long-term foreign- currency issuer default rating (IDR) of B and higher given by main credit ratings agencies, such as Moody’s, Fitch or Standard & Poor’s. The two countries will be exchanging information on significant changes that affect their banking sectors as well as legal regulation and control as envisioned by national laws. “Specialists have been working on the document for several months. It creates conditions for coordination of oversight functions,” said Timur Ishmetov, Uzbek central bank first deputy chair. Akishev believes the ongoing reforms in Uzbekistan will encourage local banks to set up work there. “The big capacity of this market, large population, financial accessibility, in fact, demonstrate a huge potential of this market and probably at some point many Kazakh banks will become interested in this business,” said Akishev. Halyk Bank, one of the largest banks in Kazakhstan, which is currently going through an integration process with leading Kazakh bank Qazkom, is interested in entering its neighbour’s banking sector, said Akishev. He hopes other Kazakh banks will be encouraged to open offices in Uzbekistan. Halyk Bank Chair Umut Shayakhmetova said in May that the group is planning to expand its geography to Uzbekistan. The bank’s activities span five countries – Kazakhstan, Russia, Kyrgyzstan, Tajikistan and Georgia. “We have an interest in entering the market of Uzbekistan, because the Halyk group occupies a significant place, level and share not only within the Kazakh market, but also in the Commonwealth of Independent States,” she said in May. The bank is now collecting the documents that it will submit to the Kazakh National Bank and Uzbek Central Bank to obtain the license. Bilateral ties between Kazakhstan and Uzbekistan have been dynamically growing over the past year after Kazakh President Nursultan Nazarbayev and Uzbek President Shavkat Mirziyoyev, who set forging close ties with its neighbours in Central Asia as a

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priority since his assuming the power in 2016, agreed to step up trade and economic cooperation. The trade turnover reached $2 billion last year witnessing a 31.2% increase compared to 2016. The governments agreed in March to bring trade turnover to $3 billion in 2018 and $5 billion by 2020. Exports from Kazakhstan grew 35% in 2017 to $1.3 billion, while imports increased 25.1% to $735.2 million, Astana Times reports.

ENERGY & NATURAL RESOURCES Kazakhstan to increase oil production to over 100 million tons in 2025 Kazakhstan intends to increase oil production from the current 87 million tons per year to more than 100 million tons in 2025, Energy Minister Kanat Bozumbayev said at the roundtable “Kazakhstan’s Energy Potential — Investments into a New Stage of Development”, held as part of the Kazakhstan Global Investment Roundtable in Astana on July 3, the Kazakh Invest National Company for Investment Support and Promotion reported. “The Kashagan oilfield is expected to increase production and refining of oil. The Karachaganak development plan provides the existing level. The implementation period by 2020 is $1.5 billion. Over 30 thousand Kazakhstani citizens work at the Tengiz field as part of the expansion project. And the volume of investments in this project exceeds $38 billion. Development over the past two years has exceeded $11 billion, this year - more than $7 billion,” said Bozumbayev. In general, the energy minister recalled that Kazakhstan has the largest oil and gas reserves and coal reserves. Only the primary natural resources of the oil equivalent are estimated at 32 billion tons, which is 3.6% of the world’s reserves. Every year significant investments are made in the energy sector of the country, of which the oil and gas industry accounts for a large part. In connection with this, such large oil and gas projects as Kashagan, Karachaganak and Tengiz are successfully implemented. Investments in their development exceed $120 billion, Times of Central Asia reports.

Kazakhstan will not increase oil production in 2018 Kazakhstan is not going to increase oil production from the current 1.8 million barrels per day in 2018, despite OPEC's decision on the possibility of increasing oil production, Kazakh Energy Minister Kanat Bozumbayev said, the Interfax-Kazakhstan reported. “Production level we had will remain at 1.8 million barrels per day. It will stay the same until the end of the year. In addition, we do not need to increase,” he told reporters. At the same time, the Minister of Energy admitted the possibility of increasing oil production from next year. “Yes it is possible. While it is difficult to say how much. We will determine and announce Kashagan levels by the end of the year,” he said. Kazakhstan’s obligations in the framework of OPEC + are 1.68 million barrels per day, but the country almost always exceeded its limit and extracted about 1.8 million barrels per day due to the launch of the new project to develop the Kashagan field, Kapital reports.

Kashagan helps to develop Kazakh companies The North Caspian Operating Company NV, operator of the Kashagan field, held a series of solemn events in Atyrau to award prestigious certificates of the American Society of Mechanical Engineers to KazTurboRemont and ZhigerMunaiServis companies. For more than 15 years, NCOC has been uniquely positioned to help Kazakh companies through the implementation of international standards ISO, ASME, API, certification and training in vocational skills and many other areas.

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On July 11, NCOC conducted a solemn ceremony to award the certificate of ASME to the Kazakh company KazTurboRemont. The plant is one of the contractors of the North Caspian project and performs a full range of services, from design to commissioning, for oil and gas, energy, chemical and mining industries in accordance with international quality and safety standards. As noted by the Deputy Managing Director Zhakyp Marabayev: “This year the North Caspian project celebrates its 25th anniversary, being the largest project in Kazakhstan attracting foreign direct investments. Kashagan makes a significant contribution to development economy through the creation of jobs for Kazakh specialists and the provision of opportunities for local companies. The KazTurboRemont and ZhigerMunaiService companies are a vivid example of successful cooperation with NCOC and the implementation of and their certification began in 2016 and now, having gone through a difficult way to implement the ASME standard, enterprises can be rightfully proud of the results achieved.” On July 16, the management of NCOC handed over the certificate of ASME to another Kazakh company with a long and successful history, ZhigerMunaiService. Production sites of this plant produce drilling rigs, oil and gas equipment and much more. As the head of the company Rafik Mukhatov noted: “Thanks to cooperation with the North Caspian Consortium, the company has raised its level, and due to constant training and certification the services of the enterprise are in demand in large international companies.” The process of consulting and certification lasted more than a year, and finally both companies received the certificate of U stamp authorisation from the American Society of Mechanical Engineers, which was founded in 1880 and developed the ASME standard. It allows companies to export their products to more than 100 countries. Certification for ASME and the ability to stamp means that this product has passed all the necessary list of tests and fully complies with international quality standards, and the production itself has everything for successful competition with global brands, TengriNews reports.

For more news on Kazakhstan’s energy sector, please see our Special Energy Issue, which is available on a monthly basis at the Embassy’s website: https://www.netherlandsandyou.nl/your-country-and-the-netherlands/kazakhstan.

Kazakhstan’s gold production grows 8.4% in the first half of 2018 The overall production of unwrought gold and semi-processed gold or in powder form reached 44,965 kg that is 8.4% more as compared to the same period of 2017, the MINERAL Statistics Committee of the National Economy Ministry of Kazakhstan reports. RESOURCES In the accounting period gross output of unwrought and semi-processed silver or in the powder form made 494,145 kg that is 9.3% less than in 2017, Kazinform reports.

TRANSPORT & COMMUNICATIONS Transit of container trains through Kazakhstan grew by 52% For the first half year, 1861 container train proceeded, 180 thousand TEU were transported, which is 52% more than the indicator for the same period of 2017, the press service of KTZh reports. The growth was achieved in the following directions: China-Europe by 38%, Europe-China by 55%, China-Uzbekistan by 66%, Russia-Uzbekistan by 86%, Uzbekistan-Russia by 63%. The direction of China-Europe-China accounts for 66% of the total number of container trains. “For the first six months in this direction, on average 7 container trains passed per day. In the peak period - the 4th quarter - 14-16 trains are expected to pass on average per day,”

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the Deputy General Director for Marketing and Integrated Transportation Planning of KTZh-Cargo Transportation Sagyndyk Zhumabayev said. The average route speed of container trains on the territory of Kazakhstan is 941 km per day, an increase of 53 km per day compared to the same period last year. “To increase the attractiveness of transit routes through the territory of Kazakhstan, work has been carried out to reorient container flows from the Alashankou-Dostyk railway transition to the Khorgos-Altynkol crossing, as this area has a number of advantages. The processing capacity for container cargo of the station Dostyk is 760 TEU per day, and the station Altynkol - more than 5000 TEU per day. Moreover, complicated meteorological conditions with gusts of wind more than 25 m/s make difficult work at Dostyk station and adjacent areas,” S.Zhumabayev noted. Together with the Russian railway administration, container trains were dispatched along the alternative route Dostyk-Kartaly. The attractiveness of this route lies in the relatively low cost of transportation due to the presence of double-track electrified railway lines at the Mointa-Kartaly range. For the rational use of wagons, it is proposed to form elongated container trains according to the “3-2” principle with a length of 57 conventional wagons with full container loading. This scheme allows reducing the service of one locomotive traction, increasing the composition of the train, which, accordingly, will reduce the costs for the operation of rolling stock and infrastructure. “In general, all these measures will contribute to increasing the efficiency of the organisation of transit cargo flows through the territory of Kazakhstan,” the KTZh noted, according to Kazakh Zerno.

Cargo turnover on Trans-Caspian route to significantly increase by 2020 The potential for growth in trade of the Trans-Caspian route ranges from $646 billion to $922 billion by 2020, which is equivalent to 300,000 containers in cargo capacity, according to Deputy Chairman of the Board of Kazakhstan Railways Maksat Kabashev. He added that the cargo base focused on the route is represented by the markets of Kazakhstan’s European, Chinese and Turkish trade partners. “The efficiency of the route will increase along with the increase in freight traffic, as well as, with the use of the Marmaray cargo tunnel and the connection to the system of pan- European corridors in Europe. The first train to arrive at the port of Mersin, after the completion of the construction of the new Baku-Akhalkalaki-Kars railway line, was loaded by Kazakh grain. From January to June 2018, 1,073 containers with Kazakh grain cargo were transported along this route,” Kabashev said. He added that Kazakhstan highly appreciates the historical significance of the Baku-Tbilisi- Kars railway as the central part of the Trans-Caspian International Transport Route. “The Trans-Caspian route has historically been the successor of the Great Silk Road. The Kazakhstan-Baku-Tbilisi-Kars link, as expected, will further increase the opportunities for transportation of export, import and transit cargo between Kazakhstan and Turkey in addition to road transport and sea traffic via the Black Sea,” Kabashev said, according to Kazinform.

Over 4,200 km of roads to be reconstructed in Kazakhstan in 2018 Within the framework of the State Programme Nurly Zhol, 23 road projects are being implemented with a reconstruction of 4,200 km. This was stated by Minister for Investment and Development of Kazakhstan Zhenis Kasymbek at a government meeting in Astana. “Within the state program “Nurly Zhol” in 2018, 23 road projects are being implemented with a reconstruction of 4,200 km, 22 of which are the transit projects, 10 of which are implemented at the expense of the loans from international financial institutions, with a total length of 2,900 km”, Kasymbek informed.

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According to him, construction work is being carried out at the expense of loans for the projects Zhetybai-Zhanaozen, Taldykorgan-Ust-Kamenogorsk, Aktobe-Makar, Merke- Burylbaltal and southwest bypass of Astana. “Due to the savings of the International Bank for Reconstruction and Development in July, we will begin reconstruction of the Uzynagash-Otar sections and Balkhash-Burylbaltay before the end of the year,” the minister said. He also said that on May 31, construction of a large automobile ring road on the principle of public-private entrepreneurship started with the planned completion in 2021. In addition, within the framework of the President’s Address on increasing the financing and repair of the local road network in conjunction with regional akimats, the issue of increasing financing up to 145 billion tenge was worked out, bringing it up to 150 billion tenge in subsequent years. “These measures will help cover over 4,000 kilometers of roads with repair works and by 2025 improve the local road network by 85%,” the minister concluded, Kazpravda.kz reports.

Kazakh car builders boost output, revenue The production of cars in Kazakhstan has doubled in the first half of this year, the press service of the Association of Kazakhstan’s Automotive Business (Aqaba) reported July 17. According to the data, 14,660 vehicles of all types were produced in Kazakhstan in the six months of 2018. Some 13,725 cars (+76.4%), 486 trucks (-0.2%), 153 buses (-51.1%), 210 trailers and semi- trailers (+60.3%) and 86 units of other specialized equipment (+60.3%) have been manufactured by efforts of six Kazakh production sites. The cost of the cars produced in June is estimated at 16.74 million tenge, which is 10.4% less than in May 2018 (18.68 million tenge), the message says. However, the total result of the six months of this year exceeds the same result of last year by 36.8% (88.26 million tenge against 64.50 million tenge). Kostanay-based Saryarkaavtoprom LLP automobile factory has shown the highest growth in production, which is 123% more than the results of last year (5,297 cars, trucks and buses have been manufactured in this factory for six months). Some 8,573 cars have been assembled at Asia Auto car assembly factory in Ust- Kamenogorsk city (+51.7%). KAMAZ Engineering JSC in Kokshetau city has manufactured 280 trucks, Hyundai Trans Auto LLP truck and bus assembly factory in Almaty city has manufactured 94 vehicles, Semipalatinsk automobile assembly factory (SemAZ) and Daewoo Bus Kazakhstan LLP functioning in Semipalatinsk city have finished the first half of the current year with the results of 89 and 67 manufactured vehicles, respectively, AzerNews reports.

Aktau opens sea cargo link with Iran The port of Aktau and the ports of Iran will launch container shipments in 2019, according to Deputy Chairman of the Board of Kazakhstan Railways Maksat Kabashev. He also stressed that without regular container shipments the total cargo turnover between the port of Aktau and the ports of Iran from January to May 2018 amounted to 568,605 tons. Kazakhstan Railways also plans to purchase 5,000 containers in 2018. Iran had one of the key positions in the geography of markets for export of Kazakh grain and flour in 2017 (2 million tons), along with Uzbekistan (2 million tons), Tajikistan (1 million tons) and Afghanistan (2.1 million tons), according to Kazakhstan Railways. Shipments in the direction of these countries in grain equivalent increased by 364,000 tons in 2017. Transportation of goods to Iran increased by 26% in the mentioned period. The main increase in transportation volumes occurred in November-December 2017. Iran becomes a noticeable foreign policy factor affecting the transport networks of Kazakhstan and the whole of Central Asia. In the medium term, Kazakh companies expect

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an expansion of Iran's regional role and increase of their cargo flows to the Islamic Republic. In particular, Iran is trying to direct the transit of goods from Central Asia through its territory to the ports of Bandar Abbas and Chabahar, and turn them into a transport and logistics hub, AzerNews reports.

AGRICULTURE Kazakh agricultural industry increases exports In 2017, exports of agricultural products from Kazakhstan increased by 12.5%, including of processing products – by 10.7%. This was primarily due to the huge work of agricultural producers, as well as the measures taken by the Ministry of Agriculture to open new markets. For instance, the work on harmonising the veterinary and phytosanitary requirements of importing countries resulted in a 34.3% increase of exports of domestic agro-industrial products to China. Last year, 7,700 tons of soybeans worth $3.1 million, as well as a first batch of 228 pedigree horses were exported to China for the first time. On average, exports of frozen fish, vegetable oil and oilseeds increased three-fold. In addition, there are permits for the export of frozen lamb, wheat, wheat bran, rapeseed meal from Kazakhstan to China. This year, we plan to agree on veterinary requirements for beef, pork and some types of cereals, legumes and melons. These measures are expected to result in an increase in exports to China of at least 20-30% next year. The removal of supply barriers made it possible to export live sheep worth $287,000 and 509.86 tons of lamb worth $2.8 million to Iran in 2017 for the first time. Our exports of other products to this country increased too: rapeseed export increased 7.8 times and reached $10.5 million, barley – 1.4 times to $127.8 million, legume vegetables – 1.9 times to $6.2 million. We renewed our exports of sunflower seeds (11,700 tons worth $4.5 million). This year we plan to coordinate with Iran the requirements for beef and live cattle exported from Kazakhstan. In September 2017, a positive conclusion was received from the Ministry of Environment, Water and Agriculture of the Kingdom of Saudi Arabia on removing restrictions on the supply of cattle and small cattle (sheep, goats) from Kazakhstan to that country. Currently, negotiations are under way with the Saudi side on the development and harmonisation of a veterinary certificate for the export of cattle and small cattle for slaughter and breeding. Barriers have also been removed on the supply of meat, meat products and chicken eggs to the United Arab Emirates. As a result, 34.2 tons of frozen beef and 24 tons of lamb were exported to the UAE for the first time in 2017. This year, negotiations will also be held with the veterinary and phytosanitary services of Israel, Turkey, Gulf countries, Japan and the European Union countries on the possibility of supplying Kazakhstan’s agricultural products. Meanwhile, despite the positive indicators on exports of agricultural products in 2017, there are still problems that remain unsolved. One of them is the small range of products: 50% of exports is wheat and flour. The reasons behind it are the weak awareness of our businesses about the possibilities of supplying products to new markets, the lack of modern production facilities, the underdeveloped transport and logistics infrastructure and poor promotion of brands of domestic agricultural products. To solve these problems, first of all we need to explore the potential markets. We should determine which countries our products can be exported to, as well as the volumes, prices, routes, transportation costs, veterinary and phyto-sanitary requirements for Kazakhstan’s products.

ECONOMIC NEWSLETTER, July 2018 Embassy of the Kingdom of the Netherlands

An analysis of export markets, products and requirements of importing countries (the EAEU and EU states, Iran, China, the UAE, Afghanistan, Hong Kong, Israel, India, Kuwait and several other countries) resulted in the production of a register of priority export markets and agro-industrial products. The document is published on the official website of our ministry (mgov.kz) and can be used by agro-industrial entities, as well as by local executive bodies in their work with agro-industrial entities. Secondly, in cooperation with governmental agencies and organisations we need to create an informational and analytical database of agricultural exports and the Agricultural Exporters Support Centre. All of this will contribute to the creation of a unified system of supporting exports, creating favourable conditions for domestic producers and reorienting Kazakh agricultural enterprises to new markets. In addition, in order to increase agricultural output that meets international requirements, we need to continue our work on attracting transnational corporations and anchor investors. Investment projects are being currently developed. These include projects on the construction of a food and semi-finished products factory, a meat-processing plant in the Almaty region, a factory on processing and producing camel and mare’s milk powder in southern Kazakhstan and plants for the production of extruded forages and baby food. Following the example of developed countries, we need to introduce the post of an agricultural adviser or attaché in Kazakhstan’s diplomatic missions in priority countries (China, Iran, European countries, Australia and Canada). Work in this direction has already begun, and at present the matter is under consideration of the Ministry of Foreign Affairs. To solve transport and logistics issues, we need to determine operating terminals, storages, warehouses, wholesale distribution centres that are necessary for construction. The adoption of measures requires the stimulation of production and promotion of organic products, including through exhibitions and presentations and the development of a brand of organic products. These and other problems were raised in the government. The Ministry of Agriculture and other interested state bodies and organisations have already been given instructions with specific deadlines for execution, Astana Times reports.

Kazakhstan increased grain exports 1.6 times Since the beginning of the year, Kazakhstan has shipped 4.2 million tons of grain for export, which is 1.6 times higher than the same indicator in 2017. Flour was exported for 1.2 million tons, which is 8% more than in the same period last year. Recently, a train loaded with flour was sent to Afghanistan from Kostanay via a new railway line. The length of the route Kostanay-Bolashak–Serhetabad is more than 3,500 km. The train consists of more than 50 wagons with a cargo weighing 3,300 tons net. Flour is also exported to Afghanistan along the route through Uzbekistan. Products of Kazakhstan agricultural producers are mainly exported to Uzbekistan, Tajikistan, Afghanistan and Iran, Kapital reports.

Kazakhstan goes organic in bid to build niche in grains market Kazakhstan is tapping growing consumer demand for organic crops to help it better compete in the food-export market. The country wants to use much of its vast uncultivated lands to grow soybeans and other non-genetically modified crops for markets such as China and the European Union, Agriculture Vice-Minister Gulmira Issayeva said. By offering non-GMO and pesticide-free produce, it hopes to carve out a niche in a crops market dominated by giants such as Russia, Australia or USA.

ECONOMIC NEWSLETTER, July 2018 Embassy of the Kingdom of the Netherlands

As the world’s largest landlocked country, moving crops to top importers is pretty costly. So rather than trying to compete with low-cost growers, Kazakhstan aims to grow more organic crops that can be sold at a premium. There’s room for growth because about half of its farmland is uncultivated, and the country plans to boost non-GMO soybean output at least 10-fold in the next seven years, Issayeva said. “We can use these hectares for starting ecological production,” Issayeva said in an interview in London. “It’s our advantage. We cannot compete by price with USA, Australian and Canadian agricultural products, but we can be a competitor in the organic markets.” The organic food market is worth more than $90 billion globally and has grown in Europe and USA in recent years. More consumers are opting for healthier foods and ingredients grown sustainably without the overuse of pesticides and chemical fertilizers, which have raised health and environmental concerns. As demand rises faster than the amount of available land, there are concerns about new sources of supply, industry group IFOAM Organics International has said. Kazakhstan hopes to export much of its produce to the EU, the second-biggest organic market worth about $35 billion, Issayeva said. China has also shown an interest in buying Kazakh soybeans, she said. “We present Kazakhstan as an organic country, ecological country and therefore we want to be producing non-GMO, free from some chemical pesticides,” Issayeva said. “We want to use only natural means of production.” Still, Kazakhstan’s organic industry is relatively small. Less than 1% of the country’s agricultural land is dedicated to organic cultivation, compared with almost 15% in Italy or about 7% in Portugal, according to a survey by the Research Institute of Organic Agriculture. Other countries are also increasingly turning toward organic farming. Production is growing in Ukraine, where the number of organic-certified farms doubled in two years through 2016, according to the country’s Organic Federation. The nation, which exports everything from grains and pulses to wild berries and nuts, could become a leading supplier of organic grains, adviser Agritel said last month, according to Bloomberg.

Kazakhstani potato growers forecast average yield The difficult weather conditions of the current agrarian season have affected the producers of potatoes. This crop is less dependent on weather due to irrigation, but still, extreme temperature fluctuations had its effect. The Shans farm of the Abay district is one of the largest potato producers in the Karaganda region. It is grown here on an area of 1000 hectares of irrigated land. Last year, they harvested 320 quintals per hectare, but this year they expect a more modest harvest, about 250 quintals per hectare. The reason is unfavourable weather conditions. “The spring turned out to be cold, and we had a hard time. We planted potatoes two weeks later than usual. This negatively affected the development of plants. And now, in the middle of July, the weather does not please us, as it's hot in the daytime and cold at night, the temperature drops to 8-9 degrees. This is bad, because the tubers grow at night, but in this conditions they cannot develop normally. So, the two-week lag remains to this day. We can only hope that August will be hot, and nature will catch up with this lag. If this does not happen, then the yield will not please us. Anyways, we apply modern agrotechnologies, and we will get the middle level in any case. We now give top dressing to shorten the growing season,” Igor Zhabyak, the head of the farm, says. However, despite the difficulties, Igor Zhabiak is sure that the population of the region will be fully provided with local potatoes at reasonable prices. Last season, the authorities of the Karaganda region applied the mechanism of price containment

ECONOMIC NEWSLETTER, July 2018 Embassy of the Kingdom of the Netherlands

through the conclusion of memorandums with the largest producers. Agrarians committed to reserve 5% of the crop at a fixed price of 50 tenge per kilogram to the needs of local retail chains, and to supply the right volume to the market at peak times. This practice has fully justified itself, so it will continue this year. As for prices, they should stay at about last year’s level. After all, the cost price of potatoes has changed little. “Yes, energy carriers have risen in price, and they have pulled prices for everything else,” Igor Zhabyak notes. “In the past year, the cost of potatoes per kilogram was calculated at the level of 30-35 tenge, and in the current we forecast about 38-40 tenge.” Traditionally, during harvesting, potatoes will be sold at about this price, and then will start to slowly rise due to storage costs. But still, the price will remain within reasonable limits due to the formation of the Stabilisation Fund in the region and the receipt of a sufficient amount of the crop by the farmers. The production of potatoes in the Karaganda region covers the region's own need by two to three times, depending on the yield, Kazakh-Zerno reported.

Eastern Kazakhstan introduces smart technologies in crop production The head of the agriculture department Askar Zhakupbaev, speaking at a briefing at the Infocentre of the East Kazakhstan region, announced major improvements to be made in the region’s agro management. “The ultimate goal of the ongoing modernisation of the agricultural sector through the introduction of smart technologies should be to increase labor productivity and increase exports of processed agricultural products by at least 2.5 times within the next 5 years,” he said. Today, in the field of their implementation, as it became known, carried out with the involvement of researchers from the State University of Shakarim in Semipalatinsk, an Agricultural Experimental Station and an experimental farm of Oil crops. Specialists of these organisations, first of all, are engaged in the transfer of new technologies to the agro-industrial complex, adapting them to new conditions. - In the field of crop production, farms began to introduce elements of precision farming using satellite navigation systems (GPS), which are installed in 125 aggregates that conduct crops and spray them. The cartography of the fields is continuing with the purpose of drawing up schemes for the content of macro and microelements in the soil. Sensors are installed on the fields to monitor the condition of crops and other parameters. It is planned that the work on the formation of electronic maps of fields on the entire arable land area will be completed in the first decade of July this year. For today, it is held at 90%, - said the head of the agricultural department. In addition, in the region, he said, the system of accounting for agricultural machinery is successfully implemented with the creation of a single electronic database and its registration under the program Digital Kazakhstan. 12 million tenge was allocated from the regional budget for the project. Its start is scheduled for August 1, according to Kazakh Zerno.

Poultry producers of Kazakhstan have developed a programme for the development of the industry for 10 years The working commission consisting of representatives of large poultry enterprises jointly with the Union of Poultry Farmers of Kazakhstan has developed the Poultry Industry Development Program for the next 10 years. According to this program, the production of poultry meat will reach 740,000 tons by 2027. According to the Committee of Statistics of the Ministry of Energy of Kazakhstan, the poultry enterprises show stable growth. So, in 2008 the GDP amounted to 35 billion

ECONOMIC NEWSLETTER, July 2018 Embassy of the Kingdom of the Netherlands

tenge, or 3.5 times more than in 2016. Growth in poultry meat production in the period from 2000 to 2017 amounted to 3.2 times, commercial eggs to 5.7 times. The share of production of poultry meat in 2017 by specialised enterprises comprised 94% or 168,400 tons, peasant farms, as well as personal subsidiary plots produced 4% or 11,600 tons. The share of poultry farms in egg poultry farming is 75% or 3.8 billion, peasant farms, as well as personal subsidiary plots produced 25% or 1.2 billion pieces. Import of poultry meat in 2017 amounted to 49%, the egg import is not significant. As the president of the Union of Poultry Breeders of Kazakhstan, Sharipov Ruslan Ismailovich, said, self-sufficiency for poultry meat is 51%, for a commercial egg is 100%. The export of poultry meat increased 7.8-fold from 2014, to 11,000 tons, and the commodity egg increased from 3 million to 280 million eggs. Deliveries are made to Russia, Kyrgyzstan, Tajikistan, Uzbekistan and Afghanistan. “Poultry farms go to foreign markets themselves, paving the way. Potential markets are China, UAE,” Ruslan Ismailovich stressed. The poultry producers of Kazakhstan have all the prerequisites to develop the export potential. At the same time, the developed program of the industry assumes improvement of state support programs, stimulation of exports, protection of the domestic market and quality improvement, promotion of a consumption culture of cool the meat of public policy, stimulation of deep processing of poultry products with high added value. Strengthening and improvement of customs and veterinary control of imported poultry products into the territory of Kazakhstan, reduction of biosafety risks. According to the head of the union, all these measures, as well as a number of other measures that depend on the republican programs of state support, will stimulate the development of exports of poultry products. The program stipulates that the export of poultry meat will amount to 50,000 tons by 2021, and by 2027 it will amount to 150,000 tons. For eggs, export will be 800 million pieces by 2021, and by 2027 it should reach 1.5 billion eggs. The growth of poultry meat by 77% will be achieved through the creation of new projects and the expansion of existing poultry farms. This is primarily the commissioning of the Makinsk poultry farm for 50,000 tons, the expansion of the production capacity of the Alele Agro to 100,000 tons and a number of other enterprises. 23% is due to modernisation and increased productivity. The 32% increase in eggs is due to the creation of new projects and expansion of existing ones, and 68% due to modernisation, increase of productivity and growth of personal subsidiary plots, Kazakh-Zerno reports.

Kazakhstan keen to boost poultry meat output Kazakhstan intends to increase poultry production to 740,000 tons by 2027, the Kazakh media reported July 11. The relevant measures have been envisaged in the program of development of the poultry industry for the next 10 years. The program has been developed by representatives of large poultry enterprises together with the Union of Poultry Farmers of Kazakhstan. In addition, it is planned to increase egg production to 7.5 billion eggs by 2027, according to the program. The program also envisages that, the export of poultry meat will amount to 50,000 tons by 2021, and 150,000 tons - by 2027. The growth of poultry meat production by 77 percent will be achieved through the creation of new projects and expansion of existing poultry farms, the Union of Poultry Farmers of Kazakhstan said in a statement. These are primarily the commissioning of the Makinsk poultry farm (50,000 tons), the expansion of production capacity of Alel Agro JSC to 100,000 tons and a number of other enterprises. The self-sufficiency for poultry meat is 51%, and for commercial eggs-100% in Kazakhstan, AzerNews reports.

ECONOMIC NEWSLETTER, July 2018 Embassy of the Kingdom of the Netherlands

Prime Minister Bakytzhan Sagintayev meets with Cedar Meats CEO Within the framework of the second Kazakhstan Global Investment Roundtable, Prime Minister of the Republic of Kazakhstan Bakytzhan Sagintayev held a meeting with the CEO of Cedar Meats Tony Cairoz, Kazpravda.kz learnt from the PM press service. During the meeting, the outlook for coop in the agro-industrial sector, in particular in the field of agricultural processing, the increase in export-oriented production of meat and meat products were considered. Tony Cairoz said that Cedar Meats plans to fulfill in Kazakhstan a project for construction of a meat processing complex and a feedlot site. 80% of the output is planned to be exported to the Russian Federation, China, the United Arab Emirates, Iran, and others. Cedar Meats is an Australian company specializing in production of premium meat and meat products. The company's divisions operate in 14 countries around the world and distribute their products around the world (Europe, North and South America, Southeast Asia, China, Africa).

ECONOMIC NEWSLETTER, July 2018 Embassy of the Kingdom of the Netherlands EXHIBITIONS IN KAZAKHSTAN (September 2018) KazBuild International Exhibition Construction and Interiors, Windows, Doors and Facades, Ceramics and Stone 4 – 6 September 2018, Almaty Organizer: Iteca www.kazbuild.kz

Aqua-Therm Almaty Kazakhstan International Exhibition for Heating, Ventilation, Water Supply and Swimming Pool Equipment 4 – 6 September 2018, Almaty Organizer: Iteca www.aquatherm-almaty.com

Transit-Kazakhstan Kazakhstan International Transport and Logistics Exhibition 18 – 20 September 2018, Almaty Organizer: Iteca www.transitkazakhstan.kz

Astana Leisure International Tourism Exhibition 26 – 28 September 2018, Astana

Organizer: Iteca www.leisure.kz

Kazakhstan Security Systems International Security and Civil Protection Exhibition 26 -28 September 2018, Astana Organizer: Astana Expo KS www.astana-expo.com

Exhibitions dates are subject to change. For a complete overview and more information on exhibitions in Kazakhstan, please visit: www.iteca.kz www.expocentralasia.com www.tntexpo.kz www.atakentexpo.kz http://10times.com/

ECONOMIC NEWSLETTER, July 2018 Embassy of the Kingdom of the Netherlands CONTACTS

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