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Economic Newsletter on

Kazakhstan |January 2019

Contents GENERAL ...... 2 MACRO-ECONOMICS & FINANCE ...... 4 INNOVATION ...... 7 ENERGY & NATURAL RESOURCES ...... 9 TRANSPORT & COMMUNICATIONS ...... 10 AGRICULTURE ...... 12 ENVIRONMENT ...... 14 CONTACTS...... 16 EXHIBITIONS IN KAZAKHSTAN (2019) ...... 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, January 2019 Embassy of the Kingdom of the Netherlands GENERAL President Nazarbayev sets tasks aimed to increase people's income and quality of life During the extended Governmental meeting on 30 January, President Nazarbayev stressed the positive dynamic of economic development in 2018 and set new tasks aimed to increase citizen's income and quality of life. In particular, the President instructed the Government to increase the share of SMEs in economy by 35% till 2025 and by 50% till 2050, to reduce the share of shadow economy by 40% in three years, to simplify the process of companies' bankruptcy and increase its transparency, to grant tax amnesty for SMEs starting from 1 January 2019 and for individuals who paid the main debt. The National Bank proposed to clear the real economy from insolvent companies and transfer their assets to profitable ones. Besides, Nazarbayev pointed out on the lack of investments in the real economy and urged the Government and National Bank to coordinate efforts to achieve the annual investment rate in fixed capital of over 30 % of GDP per year (akorda.kz, Interfax-Kazakhstan).

Brussels hosted 16th EU-Kazakhstan Parliamentary Cooperation Committee meeting On 31 January, the EU and Kazakhstan held 16th Parliamentary Cooperation Committee meeting in Brussels. The meeting was chaired by the European Parliament member Iveta Grigule and Chairman of Kazakh Mazhilis Committee on Foreign Affairs, Defence and Security Mukhtar Yerman. Two parties discussed issues of human rights, economic and social reforms, energy, regional security, countering terrorism and extremism, and many others. They also paid attention to the ratification process of the EU-Kazakhstan Enhanced Partnership and Cooperation Agreement, which is now left to be approved by the Parliaments of Cyprus, Italy and the Netherlands. Additionally, as Kazinform agency reported, during the meeting Head of Central Asia Division at the EEAS Boris Iarochevitch said that the new EU Central Asia strategy will be presented on 15 May (inform.kz).

Brussels hosted 17th EU-Kazakhstan Cooperation Committee On 30 January, the EU and Kazakhstan held their 17th meeting of the Cooperation Committee in Brussels. Two sides reviewed their cooperation in the following fields covered by the EPCA: the rule of law, good governance, the protection of human rights, economic developments and reforms, energy, transport, environment, climate action, mobility and people-to-people cooperation, education, science, civil society and regional cooperation. The Cooperation Committee also discussed EU-Central Asia cooperation including in the field of security, counter-terrorism, fighting drug trafficking and border management. The meeting was chaired by Kazakh Deputy Foreign Minister Roman Vassilenko and Deputy Managing Director for Europe and Central Asia at EEAS Luc Devigne (eeas.europa.eu).

New Deputy FM of Kazakhstan named Yermek Kosherbayev has been appointed as new Deputy Minister of Foreign Affairs of the Republic of Kazakhstan, Kazinform has learnt from the Akorda's Twitter account. Mr. Kosherbayev was appointed in accordance with the presidential decree. He was also relieved of the post of the Executive Secretary of the Ministry, according to KazInform.

EU sees direct dependency on Central Asian security, initiates more projects to stabilise region The European Union (EU), which adopted its Central Asian strategy in 2007, will be redefining the document early next year. Peter Burian, EU Special Representative for Central Asia, spoke about the main outlined changes in an exclusive interview with The Astana Times. A report with proposals for the new strategy was summarized Dec. 5 at the fifth annual Eurasian Council on Foreign Affairs (ECFA) meeting. The recommendations focused on developing regional security and soft power mechanisms, the latter including healthcare, criminal justice and anti- corruption measures. “Our main interest is to maintain the security and stability of the region to be able to achieve sustainable development and prosperity,” said Burian.

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The region borders Afghanistan to the south, which he noted is the epicentre of “many challenges [for the region,] starting from illicit drug trafficking and irregular migration and ending with threats of violent extremism and terrorism.” “When facing these threats, we are in one boat,” he added. “Central Asia is an even closer neighbour for the EU than it seems. It is obvious, that in case of any major security crisis in the region, the EU will be one of the first to face consequences.” Currently, the EU is directly involved in preventing drug trafficking through its Border Management Programme in Central Asia (BOMCA) and Central Asia Drug Action Programme (CADAP). “The EU strongly believes that only through a comprehensive approach, aiming for closer regional cooperation and synergies, is there a way to tackle these threats more effectively, and the EU will remain a reliable partner for Central Asia in these efforts,” said Burian. The EU has also been partially involved in various initiatives in countering cross-border threats discussed in the Enhanced Partnership and Cooperation Agreement (EPCA) with Kazakhstan signed in 2015 as well as at the International Conference on Countering Terrorism and Prevention of Violent Extremism in Dushanbe in May. It also supported the United Nations’ Counter-Terrorism Strategy regional joint action plan initiatives. Another priority area is strengthening economic development and stability within the region. Following the midterm review of the strategy for 2014-2020, the EU plans to allocate one billion euro (US$1.14 billion) to Central Asian states “for development cooperation… with a stronger focus on growth, investment, private sector development and job creation,” said Burian. The Silk Road Heritage Corridor is among the ongoing contributing projects. He noted the programme was initiated “to harvest the rich cultural heritage of Afghanistan, Central Asia and Iran for sustainable tourism, job creation and social cohesion.” “For the region to remain stable and fully benefit from its strategic location and potential, it needs to address existing challenges without delay; it needs to continue reforming and modernising, creating better conditions for all citizens to exercise their rights, improving the business environment and building a rules-based space attractive for investors,” he added. The EU has continued dialogue with Central Asian countries on human rights. “We have expressed concern about some negative trends we see in the region, including the shrinking space for civil society, and we intend to step up cooperation on these issues,” he said. The EU provides support in strengthening regional education and research capacity through its Central Asia Education Platform (CAEP), Central Asian Research and Education Network (CAREN), Tempus and Erasmus+ programmes and other initiatives. In the last few years, the EU has also been actively running several projects to reform criminal justice in Kazakhstan. By the end of 2018, all the results and achievements should be finalised. The projects “have contributed positively to development of national justice system reform,” noted Burian. Although the major projects will end, the EU still intends to continue its support in strengthening the rule of law. “It is important to continue the efforts in strengthening justice and the rule of law, that has its impact also in building a more resilient and sustainable community, and the EU is ready to remain a good partner for Kazakhstan in this endeavour,” he added. Reported by Astana Times.

Intervention in business to be considered emergency measure Rasul Medetov, Head of the Department of Civil Service Affairs and Anti-Corruption in the Aktobe Region, and Wei Yuxiang, General Director of CNPC-Aktobemunaygas, signed an agreement on the anti-corruption support of investors for a total of KZT3.7 trillion. This is another company that participates in the Protecting Business and Investments project. Rasul Medetov stressed that the goal of “Protecting Business and Investments” is to improve the business climate and eliminate administrative barriers. “I would like to emphasise that, in accordance with the instructions of the Head of State, on behalf of the Agency’s Chairman, today protection of business is identified as one of the main priorities in the work of the anti-corruption agency. Business needs protection. Any intervention in the business will be considered as an emergency and appropriate measures will be taken,” Rasul Medetov said.

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In turn, representatives of CNPC - Aktobemunaygas assured that thanks to such projects, foreign investors are much easier and more efficient to conduct their business. To date, the Department has signed 24 investment agreements on anti-corruption support for a total amount of 4 trillion 163 billion tenge, according to Kapital.kz.

MACRO-ECONOMICS & FINANCE Kazakhstan's GDP increases 4.1% in 2018 According to preliminary data, the GDP growth of Kazakhstan made 4.1% in 2018, according to the Kazakh National Economy Ministry. Last year November 13 National Economy Minister Timur Suleimenov said that the GDP growth reached 4.1% during January-October 2018. In 2017 the GDP growth hit 4%, as reported by Kazinform.

World Bank forecasts Kazakhstan’s growth to ease to 3.5 percent in 2019 The growth rate of Kazakhstan’s economy will decrease to 3.5 percent this year as oil production growth levels off and further fiscal consolidation efforts continue, according to the World Bank’s Global Economic Prospects: Europe and Central Asia Darkening Skies report. Global growth is expected to slow to 2.9 percent. “International trade and investment are moderating, trade tensions remain elevated and financing conditions are tightening. Amid recent episodes of financial stress, growth in emerging market and developing economies has lost momentum and is projected to stall at 4.2 percent this year,” said the report. Activity in Europe and Central Asia is estimated to have slowed to 3.1 percent in 2018, reflecting weakness in Turkey in the second half of the year. Russia and other oil exporters maintained steady growth in 2018 as oil prices rose. Higher than expected oil production supported Kazakhstan’s 3.8- percent growth rate. Turkey is forecast to experience weak activity and slow to a 1.6-percent pace due to high inflation, high interest rates and low confidence, dampening consumption and investment. Growth in the eastern part of the region is also anticipated to slow as large economies including Kazakhstan, Russia and Ukraine decelerate. “Several countries in the region appear vulnerable to shifts in investor sentiment and a fall in commodity prices, as reflected by their high current account deficits and non-diversified structure of their economy. Regional growth is expected to slow in 2019,” World Bank lead economist for Central Asia Julio Revilla told The Astana Times Jan. 17. Increases in policy uncertainty could undermine confidence in the region and impact growth. A slowdown or reversal of ongoing reforms remains a risk in many countries in the region. Tensions concerning Syria or Ukraine could trigger new sanctions on Russia affecting Central Asia and an escalation of trade restrictions could have a negative impact on the region, as the Euro area and China are the largest trading partners for all countries in the region. “Also, a growth slowdown could decrease outward remittances from Russia and Kazakhstan to Uzbekistan, Tajikistan and Kyrgyzstan, as they have particularly benefited from those economies. With respect to remittances as a share of GDP, the Kyrgyz Republic and Tajikistan are still leading the region, at 35 percent and 32 percent, respectively,” he said. Revilla added the Kazakh government maintained social stability by significantly intervening in the market during the economic downturns in 2008-2009 and 2015-2016. “To reverse the current trend of productivity stagnation, the government should put forward and must be committed to decisive structural reforms to unleash the sheltered potential of the genuine private sector,” he said. The government should give priority to three areas of reform to be able to reach its long-term aspiration to be among the 30 most developed countries in the world. “[First], the structural policy agenda, thus, should decisively be focused on encouraging private sector entrepreneurship in non-oil parts of the economy,” said Revilla.

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Secondly, the competition policy programme should strengthen competition-supporting institutions and fully decentralise the decision-making process to allow for free flow of resources and technology. Finally, priority should be given to strengthening the investment climate. “Kazakhstan is an attractive investment destination for a host of FDI (foreign direct investment) projects seeking to access the country’s rich natural resource base. Kazakhstan’s real challenge, however, is to attract more export-oriented, efficiency-seeking FDI. Efficiency-seeking investments provide a composite bundle of capital stock, know-how and technology that enables an economy to upgrade and diversify its production capabilities to achieve economic diversification. Attracting and retaining efficiency-seeking FDI will require the strengthening of both Kazakhstan’s international competitiveness and its investment climate,” he said. Reports the Astana Times.

Oil producers dominate Kazakhstan's top 25 foreign taxpayers Forbes Kazakhstan presented the ranking of the largest non-state foreign taxpayers in the framework of the rating of 50 private companies. The total amount of taxes paid and other obligatory payments to the budget of the top 25 companies in 2017 amounted to 1.94 trillion tenge, which is 74% more compared to the previous year. This is 27% of the total taxes received by the state budget, which amounted to 7.15 trillion tenge. The growth was largely due to an increase in tax payments from the oil giant Tengizchevroil of 1.13 trillion tenge, which is 649.24 billion tenge, or 2.35 times more than in 2016. Last year TCO showed a decline of 33.5%, having paid 481.83 billion tenge against 724.72 billion tenge in 2015. In the first three quarters of 2018 the company has already paid 1.54 trillion tenge in taxes, which is the largest volume of this period for the last five years. The rise in prices for the main product also increased the tax payments of the Kazakhstan branch of Karachaganak Petroleum Operating BV by 2.6 times, to 181.23 billion tenge against 70.24 billion in 2016. It is worth noting that payments to Tengizchevroil and Karachaganak Petroleum Operating BV include individual income tax, social tax and VAT on projects. The branches of BG Karachaganak Limited, Agip Karachaganak B.V., Chevron International Petroleum Company and LUKOIL Overseas Karachaganak B.V. pay CITs withheld from the source of payment of non-resident income. The oil and gas sector is also represented in the ranking by the Sino-Dutch Maten Petroleum, which is not related to the consortia mentioned. The aggregate payments of these participants accounted for 78.7% of the total taxes paid by the top 25. In general, of the 25 companies represented, 12 or 48% operate in the extractive sector. Including 7 in the oil and gas industry and 5 in the MMC. The largest foreign taxpayer in the MMC is Kazzinc, which paid 49.66 billion tenge to the budget, which is 88% more than 26.4 billion tenge in 2016. This year, the number of participants from the metallurgical industry increased with the appearance of Voskhod Chrome owned by the Turkish holding Yildirim Group in the list with taxes at 17.6 billion tenge, and the Swiss Nova Zinc at 5.75 billion tenge. In aggregate, the MMC companies paid KZT108.52 billion, or 5.6% of the top 25 payments. Tobacco manufacturers paid 136.15 billion tenge, or 7%. Tax payments by JTI Kazakhstan and Philip Morris Kazakhstan grew by 20% and by 21% respectively, amounting to 68.74 billion and 67.41 billion tenge, respectively. Oilfield services companies contributed 52.97 billion tenge, or 2.7% of all payments, telecommunications paid 49.60 billion tenge, or 2.63%, representatives of the food industry paid 47.34 billion tenge, or 2.4%, and the only construction company paid 17.27 billion tenge, or 0.9%. KaR-Tel became a newcomer of the ranking, which was again included in the register of major taxpayers this year by the State Revenue Committee of the Ministry of Finance. However, the tax payments of the largest telecom operators in 2017 decreased significantly. In general, four ranking companies, including representatives of the telecom of Kcell and KaR-Tel, showed a decrease in payouts by 52% and 48% respectively, to 27.03 billion and 22.58 billion tenge, respectively.

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Payments of the Italian branch of Saipem SpA, Saipem Kazakhstan decreased by 49%, reaching 9.9 billion tenge against 19.36 billion a year earlier, and JV Katko by 12% to 19.27 billion tenge against 21, 98 billion, respectively. Reported by Forbes Kazakhstan.

Kazakhstan to open 10 more trade missions abroad - Minister of Industry Kazakhstan ranks the 50th among the world's largest exporting countries, according to Minister of Industry and Infrastructure Development Zhenis Kassymbek says. "119 countries of the world consume the products manufactured in Kazakhstan. The key markets for us are China, Central Asia, EAEU and EU countries. As per preliminary data, in 11 months of 2018, domestic products export increased by 26.4% and made $54.7bn. The share Kazakhstani export at the EU markets is 52%, at Chinese market is 10%, at the EAEU market is 10% and at the Central Asian market is 5%," the Minister posted on his Facebook account. He noted that Kazakhstan is a leading country in supply of uranium, copper, titanium, ferroalloys, yellow phosphorus, flour, cotton oil, wheat and flax seeds. One third of the products exported abroad falls on non-primary sector of economy. "In 11 months of 2018, we observed 28% growth in Kazakhstani products supply to the Central Asian countries. The cumulative volume of exports to these countries made $2.6bn. We have recently exported the first batch of 30 home-made micro- buses to Tajikistan. In total, Hyundai TransCom Kazakhstan plans to export 300 buses to Dushanbe. Last year, Kazakhstan signed a contract with Afghanistan on supply of home-produced rail tracks. At the President's instruction, a package of measures will be launched to increase non-primary exports. 500bn tenge will be envisaged for financial and service support measures in 2019-2021," the Minister adds. According to Zhenis Kassymbek, one of the key tools of Kazakhstan's exports promotion will be the establishment of a wide range of trade missions. "In 2019, we plan to additionally open 10 trade missions in Russia, China and CA countries. The trade missions will let us settle the problems in overcoming administrative and trade obstacles and will help expand the range of promising buyers and set effective routes of supply. These measures are aimed at increasing the share of non-primary exports in the country's total exports," he added. Reported by KazInform.

EBRD looks back on 2018 Kazakhstan results in renewable energy For the European Bank for Reconstruction and Development (EBRD), 2018 was another successful year in Kazakhstan. The bank allocated $541 million to the country’s economy for 26 projects. It has set ambitious goals for 2019, reinforcing support for the global development programme for the period through 2030 and focusing on renewable energy. EBRD invested in a wide range of public and private sector projects and supported Kazakhstan’s aspiration to consolidate its position as a regional leader in renewable energy sources, directing funds to a number of green energy projects. Nomad Solar received a $35-million loan in tenge to construct a 28-megawatt solar power station and the bank granted a $10.4-million loan in the local currency to build a 50-megawatt solar power station in Baikonur. A $22-million loan in tenge will support construction of a 40-megawatt solar power station in the Karaganda region, the first project in Kazakhstan by Chinese company Risen Energy. EBRD also provided CenterCredit Bank with a $45 million financial package. More than 60 percent of the loan will be used to support lending to micro, small and medium enterprises, especially those run by women, outside of the major cities of Almaty and the capital. Last year, the bank continued to work towards achieving its climate finance goals, directing 36 percent of its total investment towards green economy. The bank is on track to reach the goal of allocating a 40-percent share of investment in green economy by 2020. At their annual meeting in Jordan in May, EBRD shareholders asked the bank to achieve greater efficiency in using existing capital to increase investment in existing countries to help achieve Sustainable Development Goals (SDGs) that the international community pledged to achieve by 2030.

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EBRD responded to the request by presenting a plan to exert even greater pressure in its regions. Its President, Sir Suma Chakrabarti, assigned staff to increase the quality and volume of the bank’s investments in the next two years and is confident it will achieve these ambitious goals. In 2018, the bank overcame significant economic problems in a number of countries to maintain an impressive level of investment and support reforms. It financed 395 projects worth 9.5 billion euros (US$10.8 billion), which is very close to the record 9.7 billion euros (US$11 billion) in 2017. For 2019, EBRD has set goals to support the global development agenda, according to the Astana Times.

Kazakhstani businessmen become hostages of Tsesnabank It seems that the problems of Tsesnabank have not been resolved. Despite multi-billion dollar support from the regulator, the financial institution continues to experience problems. Their hostages are bona fide entrepreneurs, whom the bank delays making payments and puts them on the verge of breaking contractual obligations. They faced the first delays in payments through Tsesnabank as early as last fall. And here, a new problem appeared. “We sent to our partner a payment for a large amount, several tens of millions of tenge,” one of the entrepreneurs told. “However, the payment to the addressee was not received. They don’t give us an official answer about the reason for the delay, but they slowly explain that they simply don’t have money. They conduct small payments, up to a million tenge. Anything bigger gets stuck. The bank management meets with some frequency and makes decisions, what obligations to fulfil, what to postpone. And we can do nothing about it. After all, if we decide to withdraw the payment, then this operation will also get frozen. As a result, our entire business is under threat, because our partner will not fulfil his obligations without payment, and our work is completely paralysed." In July-August 2018, Tsesnabank experienced a massive outflow of money from deposits. To solve the problem, the bank had to attract a short-term loan of the National Bank of Kazakhstan in the amount of 150 billion tenge ($405,525,967). Shortly thereafter, in September 2018, the chairman of the board in Tsesnabank changed, Ulf Vokurka was appointed. Commenting on the information on delays in paying deposits and making payments, he said in an interview with one of the Kazakhstani publications: “The bank has been subjected to powerful information pressure, which has caused an artificial stir in some regions and cities. The number of requests for early withdrawal of funds from deposits has sharply increased. As you understand, such actions can destabilise the work of any bank.” To enhance the sustainability of Tsesnabank, which is one of the main financial institutions operating in the agricultural sector of Kazakhstan, on September 19, 2018, the Kazakh government and the National Bank of Kazakhstan approved a mechanism for buying out an agricultural loan portfolio from Tsesnabank in the amount of 450 billion tenge. In addition, the shareholders of the bank themselves announced plans to recapitalise at their own expense in the amount of 40 billion tenge. However, recent events suggest that these measures were insufficient, and entrepreneurs continue to experience problems because of the bank, according to Kazakh Zerno.

INNOVATION Aqkol becomes first smart city in Kazakhstan The SmartAqkol project has entirely digitised all consumer and public services in Aqkol, making the small city 100 kilometres north of Astana Kazakhstan’s first smart city. Aqkol, formerly known as Alexeyevka, used to be a small provincial town with population of just over 13,000 people and lacking things as simple as public lights. In just six months, however, it has been transformed into a modern, safe, comfortable city. Head of Tengri Lab Alimzhan Yessetov presented the progress on SmartAqkol to Kazakh President Nursultan Nazarbayev Jan. 18 during his visit to the first smart city in the country. According to Yessetov, the SmartAqkol project created a smart city that “is not inferior to any European city.” The project covers almost all vital areas that can be monitored and analysed. In

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addition to public order, road and fire safety regulations, the new city system also monitors ecology, public services, and assessments of children at school, all in one situational centre. “The task that I have always seen is to manage Kazakhstan as a company or enterprise, from a single centre… Not demagogic chatter of who, where, what they will do, but a vertical, concrete, tough management gives a good result in terms of the economy and in general,” Nazarbayev said. The smart city now works to provide better safety and comfort for its citizens. Any deviations or emergency information passes through a single situation centre. Then, based on the evidence at hand, the centre’s analysts can advise local administrations to take measures as quickly as possible. The centre collects data from GPS-trackers, sensors, road cameras and surveillance cameras throughout the city. “Our specialists programmed all video cameras in the city to automatically detect massive clusters of people, things left without supervision, violations of traffic rules. After the high-profile incident in Kerch, we added the ability to automatically detect weapons,” says Yessetov referring to a mass shooting at a polytechnic college that left more than 20 people dead in October 2018. The equipment throughout the city has many useful features and updates frequently, allowing quick responses. Videokonspekt technology processes data and hourly video content coming from all over the city that otherwise would be hard to track. The analytical tool can process the data from one hour of video in one minute and highlight any element such as a car, a pedestrian, colour, direction, clothing or other indicators, says Yessetov. The city is being monitored day and night with the help of high-resolution and thermal imager cameras. Municipal buildings can only be entered using electronic identification. The digitised city does not fear hackers, as it was designed with strict security in mind. Cameras now register many minor offences that people could usually get away with. Among the first noticeable improvements was the decreased number of drunk people on roads. Although some fear a totally digitised city could be like George Orwell’s “1984” come to life, Managing Director for Innovation at Kazakhtelecom Nurlan Meirmanov says that isn’t the case. The examples of the system at work show that the smart city “is not a control, but an analysis mechanism,” he said. Such systems allow problems to be foreseen, detected and responded to before they become dangerous. Previously, special controllers had to wander around individual houses to collect data about water and energy consumption. Now, each apartment and house in the city has smart metres that read and collect data automatically. The operators in the situational centre found a few patterns associated with pneumonia occurrences. The specialists found a correlation whereas temperature drops in houses increased the likelihood of people attending hospitals. Then, with the help of eco-sensors, they determined that lower temperatures, in fact, somehow make the air quality of the town worse. Their research is still ongoing. Operators have built a thermal map of the city to identify problem areas. They believe that the health of the Aqkol population could be improved if the akimat updates the heating system. Smart traffic lights and street lights cut electricity costs by three times. Residents have also installed solar panels. In general, residents say, the city has really changed. It now has warm bus stops with gadget chargers, more public lighting, more paved roads and free public wifi that can be accessed from any point in the city. “The city is clean, we have a gorgeous square, we have a great new railway station, lighting everywhere. We lived our lives in the dark. I was born here, and all my ancestors were born here… There used to be a lot of abandoned houses, vacant lots where grass grew. Now they allocate a lot of money, build a lot,” said city resident Galina Salikhova. The new project has been presented, but it is still being developed. Glitches sometimes cause systems to fail to send data, and some residents have had to go report their energy consumption themselves. Also, in spite of the comprehensive surveillance, some vandals have damaged some of the public improvements, cutting charging wires and breaking the doors in a few warm bus stops, according to the Astana Times.

ECONOMIC NEWSLETTER, January 2019 Embassy of the Kingdom of the Netherlands ENERGY & NATURAL RESOURCES Kazatomprom's net profit quadruples Currently, Kazakhstan's Kazatomprom JSC develops 14 of 56 explored deposits with balance reserves of uranium. Today the company, which is the world's largest producer of natural uranium, is engaged in mining in the Turkistan, Kyzylorda and Akmola regions of Kazakhstan. "All uranium products of Kazatomprom are exported. Over the past months of this year, the products were exported to China, India, France, Belgium, Sweden, Ukraine, Brazil, and the US," the company said. İt should be noted that the consolidated net profit of Kazatomprom for the first half of 2018 amounted to 115.02 billion tenge, which is almost 4 times more than in the same period last year (30.17 billion tenges). The company also said that the nuclear fuel cycle products of Kazatomprom include nuclear fuel components in the form of uranium dioxide fuel pellets and low enriched uranium powders. Kazatomprom is the world's biggest producer of natural uranium with priority access to one of the world's largest resource bases. The company is Kazakhstan's national operator for the export and import of uranium and its compounds, nuclear power plant fuel, special equipment, and technologies. The National Welfare Fund Samruk-Kazyna holds 85.08 percent of Kazatomprom shares, while 14.92 percent is in free circulation on the Astana International Exchange and the London Stock Exchange, as reported by Kazinform.

SSMPA of ERG increases iron ore production in 2018 by 19% Sokolovsko-Sarbayskoye Mining and Production Association (SSMPA), part of the Eurasian Resources Group (ERG), increased the production of iron ore by 19% to 12.5 million tonnes in 2018. "In general, there was an increase in all production indicators in 2018 compared to the same period of 2017. In 2018, about 8 million tonnes of concentrate and more than 4.5 million tonnes of pellets were produced," the company reported. Meanwhile, in 2017, the production of concentrate was 6.6 million tonnes, the production of pellets amounted to 3.9 million tonnes. "There is a positive trend in ore mining. In 2018, over 30 million tonnes were mined, in 2017 this figure was 21 million tonnes of ore," the company stated. Sokolovsko-Sarbayskoe Mining and Processing Association, part of the Eurasian Group (ERG), is the largest iron ore mining and processing enterprise in Kazakhstan, as reported by ABC TV (Kazakhstan).

Karaganda opens new solar energy station The Karaganda region has started its large-scale transition to green technologies. The 100 MW solar power station, recognized as the largest one in Central Asia, was put into operation in Saran. 307,000 voltaic panels are stretching over 164 ha to convert solar power to electrical energy. The solar panels can produce about 10-15 MW even on the cloudiest day. The operating life of the panels is 40 years. The solar plant is the private project. A group of the European companies has invested USD 137 mln into the project. According to Governor of the region Yerlan Koshanov, 33 large investment projects worth KZT 1 trln are being implemented in the region so far. 17 projects are being realized with participation of foreign presence. The same day the investors from the EU and the Karaganda region's administration signed a memorandum. The businessmen expressed their readiness to invest USD 500 mln into the development of alternative energy sources in years to come. It is planned to build three or four more green energy facilities there, according to Kazinform.

ECONOMIC NEWSLETTER, January 2019 Embassy of the Kingdom of the Netherlands TRANSPORT & COMMUNICATIONS Five trends in Kazakhstan’s digital advertising market in 2019 The decrease in agency profits and the infusion of record funds for advertising on the YouTube video platform is noted by the gurus of the advertising market in Kazakhstan. At the same time, experts named expenses for the services of bloggers and influencers as one of the most popular lines in the budget. The CEO of Select Communication Group, Viktor Eliseev, told about the main trends in the advertising market. Recently, the advertising market in Kazakhstan has grown a bit. According to the monitoring of the advertising activity of the TNS agency and the expert evaluation of sales houses, 2017 ended at 41 billion tenge, which is a 13% increase compared to the previous period. More than 46 billion tenge was predicted in 2018. Now the market is closing, and the picture will clear up in early 2019. Despite the fact that in 2018, the leader in the media share is television with a coverage of 72% of the audience, Kazakhstanis began to watch TV less compared to last year. At the moment, the trend is negative at minus 9%. Next comes the Internet with coverage of 67%. If we talk about the advertising market from the advertiser's point of view, it is clear that with a growth of 30-40%, the share of online advertising is growing the most. The main money here is held by large international players such as Google and YouTube, Facebook and Yandex. If we talk about the market share, then about 75% and 25% of Google and Yandex, respectively. Over the past year, the volume of targeted advertising on social networks has increased, indicating the growth of small and medium-sized businesses. We can say that expenditures for the Internet are transferred mainly from the budgets of the press and other media. Most of people in Kazakhstan watch TV, which is more than 49% of time, but about 69% of advertisers' budgets are spent on television. The Internet is another story. The share in the budget today is closer to 13%, and the share of consumption of time was more than 35%. From the point of view of attitudes towards advertising, according to MMI Kazakhstan, a rather large interest is shown in promotions, sweepstakes, advertising on the Internet. However, television advertising is trusted 2 times more than on the Internet, in a ratio of 30% against 17%. The dependence on one or another media of different strata and representatives of generational groups was very strongly differentiated. It is clear that the most active young generation trusts the Internet, and a completely different story looks like with the generation of “55+”. Their share on the Internet is minimal at 5%, and the largest on television at 55%. On the contrary, speaking of the generation Z - consumers under the age of 17 years, their share on TV is no more than 30% and about 17% on the Internet. If we talk about time on the channels, Kazakhstani viewers watch about 197 minutes a day on TV, on the Internet they spend about 153 minutes per user. Messengers become communicators of the present and the future. They received a new functionality with the possibility of payment, the ability to conduct sales, registration, polls. The importance of instant messengers is not fully appreciated. Therefore, direct communications via instant messengers become important. 80% openness of push-notifications in messengers suggests that this channel of communication with its target audience is already much more efficient than, for example, email-marketing, not excluding the importance of the latter, but at the same time the main metric of communication efficiency in communication between people and the person in the messenger. It is also worth noting that communication between a person and a person in the Human to Human format will be more efficient than the B2B or B2C format and in the near future the most expensive communication channel, because it will be an opportunity for the final sale and completion of the transaction through communication in various instant messengers, according to Kapital (Kazakhstan).

Tele2 AB quits Kazakh market The Swedish company Tele2 AB has announced its intention to sell its stake in Mobile Telecom Service (Tele2), the Tele2 Group-Kazakhtelecom joint venture, to Kazakhtelecom. The closing is expected in approximately six months.

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The Dec. 12 agreement, whereby Kazakhtelecom will purchase 75 percent of Kcell from Telia Company and Fintur, gives Tele2 AB the opportunity to exercise its put option and sell its shares in the joint venture to Kazakhtelecom. Tele2 AB filed a put option notice with Kazakhtelecom Dec. 28 to initiate the process. “The put option price is based on a fair market value principle and will be determined through an agreed valuation process, based on standard methodology, including independent third-party advisors,” according to a statement on Tele2 AB’s website. The joint venture will continue its work and Tele2 AB will continue its management until the transaction is closed. An 87-billion tenge (US$ 229.51 million) shareholder loan from Tele2 to the joint venture is to be fully repaid at the time of closing. The joint venture represented 9 percent of Tele2 Group revenue from January-June 2018. In 2010, Kazakhtelecom sold 51 percent of its shares in Kazakh mobile operator Mobile Telecom Service to Tele2 Group. In March 2016, Tele2 Group and Kazakhtelecom completed a transaction to merge subsidiary mobile operators Altel (Altel 4G) and Tele2. According to the terms of the agreement, Kazakhtelecom and Tele2 received 51 percent and 49 percent of the share capital and 49 percent and 51 percent of the voting shares of the joint company, respectively. When Tele2 Group leaves the Kazakh market, Kazakhtelecom will control three (Altel, Kcell and Tele2) of the country’s four mobile operators. Kazakhtelecom is the largest fixed-line operator in Kazakhstan. The company’s main shareholder is the Samruk Kazyna Sovereign Wealth Fund with 45.9 percent of the authorised capital (52.03 percent of ordinary shares). Founded in 1993, Tele2 Group is an international telecommunications company serving 13 million subscribers in nine countries, as reported by the Astana Times.

Qatar Airways launches cargo flight to Almaty Almaty International Airport received the first cargo flight of Qatar Airways, one of the three largest airlines in the world. Pharmaceuticals, spare parts, electronics arrived in Almaty on the BOEING 777-200. This was reported by the press service of the airport. "Connection between Doha and Almaty is another step in the development of a regional aviation hub based on Almaty International Airport and expanding economic cooperation between Qatar and Kazakhstan," the report said. The airline also plans to deliver to Doha the cargo generated and consolidated in Almaty from the regions and neighbouring countries of Kazakhstan. At the initial stage, the Doha - Almaty flight will be operated with a frequency of two flights a week. "This cooperation will allow the airport of Almaty and the industry as a whole to adopt the most advanced experience in the field of air cargo transportation," the information says. Almaty Airport is the largest in Kazakhstan, was built in 1935. The sole shareholder of the company is Venus Airport Investments B.V., registered in Amsterdam, as reported by ABC TV (Kazakhstan).

Iran receives first China cargo shipment via Kazakhstan This is the first time China exported its commodities via land to Iran through the Central Asian country of Kazakhstan to be later sent by sea, Trend reports citing IRNA. The first cargo shipment sent from the far-eastern China has made its way to Iran through Kazakhstan. The cargo that includes bicycle and industrial machinery parts, wallpaper, brake pads, among other items, was sent from the Ningbo Port in the East China Sea on December 18. It was put on freight trains towards the Khorgos on the border with Kazakhstan. The shipment continued its journey through the Kazakh territory via raidroad to Port of Aktau on the eastern bank of the Caspian Sea. From there, it was loaded into 42 containers on Diba bulk carrier heading for the Caspin Port in Anzali Free Zone.

ECONOMIC NEWSLETTER, January 2019 Embassy of the Kingdom of the Netherlands

This is the first cargo that arrives in from the eastern-most part of China through the Kazakhstan corridor. Previous shipments used to be sent via the Indian Ocean arriving at the southern Iranian Port of Bandar Abbas in the Persian Gulf. Ningbo is a city in the northeast of Jijiang Province of China, 25 kilometers east of the Sea of China as one of the most important industrial and commercial ports of the country. It is considered as a small sample of Shanghai in the Chinese economy and its port has been ranked second in terms of operational capability in commercial shipments. The capacity of the multi-modal transit route is estimated to be at 10 million tons of cargo. It also cuts short both the distance and the costs incurred. Anzali is Iran's only free zone in the north and connects the country to the Commeanwealth of Independent States (CIS), Russia and other Caspian Sea nations. 'This is a great opportunity for Iran,' Said Mostafa Salari, governor of the norther Iranian Gilan Province, who received the ship accompanied by local officials and some lawmakers. 'The Caspian Port in Anzali is exempt from the problems that southern coasts are facing,' added Salari, referring to the difficulties in port use and other maritime services that have been caused by renewed US sanctions on Iran when Donald Trump Administration walked out of the 2015 international nuclear treaty with Iran. The Caspian Sea is shared by Russia, Kazakhistan, Azerbaijan and Turkmenistan, all of which have reiterated their support for the nuclear deal in the face of the unilateral US sanctions that went into effect last November. The Iranian official siad he hopes cargo transit through this new route increases so Tehran can upgrade its foreing trade, according to Kazinform.

AGRICULTURE Kazakh Ministries of Foreign Affairs, Agriculture to strengthen cooperation in investment and export areas The implementation of a joint plan of activities between the Ministry of Foreign Affairs and the Ministry of Agriculture on attracting foreign investment in the agro-industrial complex of Kazakhstan and the development of trade until 2020 was reviewed. The issues of promoting the export of Kazakh agricultural products and attracting investments in the agro-industrial sector of the economy were discussed by the Deputy Prime Minister, Minister of Agriculture Umirzak Shukeyev and Minister of Foreign Affairs Beibut Atamkulov, the press service of the Ministry of Foreign Affairs reported. "During the meeting, issues of enhancing cooperation in the framework of the state program of development of the agro-industrial complex of Kazakhstan for 2017-2021 were discussed," the report said. According to the information, the meeting reviewed the implementation of a joint plan of activities between the Ministry of Foreign Affairs and the Ministry of Agriculture on attracting foreign investment in the agro-industrial complex of Kazakhstan and the development of trade until 2020. After a detailed review of this plan, it was decided to update the measures in connection with the strengthening of the activities of the Ministry of Foreign Affairs of Kazakhstan in the investment and export direction. "Particular attention was paid to the implementation of investment projects in the agricultural sector, in particular in the field of crop production, the assembly of agricultural machinery and equipment, as well as the involvement of large TNCs for the development of production and processing of milk, dairy products and meat production," the press release noted. The heads of ministries drove attention on the importance of close cooperation with international organisations in the field of agriculture, in particular with the Food and Agriculture Organisation of the United Nations (FAO), the Islamic Organisation for Food Security, the Organisation for Economic Cooperation and Development and others. The heads of departments agreed to hold special trainings for employees of Kazakhstan’s embassies in countries of export interest to domestic farmers on the development of the

ECONOMIC NEWSLETTER, January 2019 Embassy of the Kingdom of the Netherlands

agricultural sector, in particular, on the promotion of the products of the agro-industrial complex of the country in foreign markets. The need to increase information support for agricultural exports, the organisation of press tours for foreign media and information campaigns on the issues of Kazakhstani agro-industrial complex was underlined. The Ministry of Foreign Affairs and the Ministry of Agriculture intend to introduce into practice the regular holding of such meetings to enhance cooperation in promoting the export of Kazakhstani agricultural products and attracting investment in the agro-industrial sector of Kazakhstan, as reported by ABC TV (Kazakhstan).

One more large-scale poultry farm to be built in Akmola province A poultry factory with a capacity of 50 thousand chickens will be built this year in the Atbasar district of the Akmola region, Deputy Head of the district Abai Bekbayev announced. "Poultry and eggs are in high demand in the market. For the factory, we have prepared a site, documents, design and layout. The construction of the facility will begin in the spring of this year," said Abai Bekbayev. According to him, a farm producing 50,000 chickens with a further increase up to 100,000 will be built on the outskirts of the city. 30 people will be employed. It is to be recalled that the largest project, the construction of the Makinsk poultry factory, was launched in the Akmola region last year. According to Malik Murzalin, Governor of the region, the poultry farm will cover 30 percent of imports in Kazakhstan, reported by Kazinform.

In 2017/18 MY, Kazakhstan doubled exports of durum wheat In the 2017/18 marketing year, the export volumes of hard wheat (durum) from Kazakhstan totaled 579.5 thsd tonnes, up more than 2 times compared with the previous season, reported the Customs Control Committee at the Ministry of Finance of the Republic of Kazakhstan. In 2017/18 MY, the EU countries (in particular, Italy) became the main buyers of the Kazakh grain. The supplies totaled 340.8 thsd tonnes of durum wheat, against 191.3 thsd tonnes in 2016/17 MY. Also, the exports to Turkey significantly increased (up 6 times), and reached 181.7 thsd tonnes. According to IGC analysts, in 2017/18 MY the global trading volumes of durum wheat totaled 8.5 mln tonnes. Although Kazakhstan is not among the main countries-exporters of the grain, its share in the market segment continues annually growing, and already reached 7%, as reported by APK Inform (Ukraine).

KazakhExport provides insurance protection for Green Capital Kazakhstan Kazakhstan's subsidiary of Sberbank of Russia opened a credit line of Green Capital Kazakhstan for the amount of over 5.1 billion tenge for the project, including the purchase, supply and installation of a turnkey greenhouse complex of the Dutch KUBO Greenhouse Projects B.V. with an area of 6.7 hectares The KazakhExport national company provided insurance for this loan. According to Deputy Director General of Green Capital Kazakhstan, Michael Hondars, KUBO Greenhouse Projects B.V. invested in the project $20 million for its part. According to KazakhExport, the project is designed for three phases until 2020. As part of the first stage, in December 2018, 6.7 hectares were put into operation, from which it is planned to receive 3.5 tonnes of vegetables per year. Products will be exported mainly to Russia. “The fifth generation greenhouses are unique in two aspects. First, work automation allows you to meet all the requirements for growing tomatoes of European quality. Secondly, the heat resistance of the greenhouse will allow growing abundant yields of heat-loving crops in the very cold weather,” the company said in a press release. The Export Insurance Company KazakhExport is a subsidiary of the Baiterek holding. KazakhExport supports the growth of exports of non-commodity goods, works, services in priority sectors of the economy and the formation of the practice of financial-insurance and non-financial support for Kazakhstan enterprises. Green Capital Kazakhstan was established in 2017. The main activity is greenhouse business. Reported by ABC TV (Kazakhstan).

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Kazakhstan halts meat import from Primorsk, Russia Kazakhstan has introduced a temporary ban on the import of meat from Primorsk Territory of the Russian Federation because of information about the outbreak of foot and mouth disease in the region, Kazpravda.kz reports. The temporary import restrictions are imposed from January 14, 2019, on beef, pork, lamb, milk and dairy products, including finished products that have undergone heat treatment, the RK Ministry of Agriculture reported. The Agriculture Ministry duly notified the International Epizootic Bureau, according to the Kazakhstanskaya Pravda.

Restrictions on transit of poultry meat through the Russian Federation to Kazakhstan lifted Following the meeting of the Deputy Prime Minister - Minister of Agriculture of Kazakhstan Umirzak Shukeyev with the Deputy Chairman of the Government of the Russian Federation A. Gordeev, restrictions on the transit of poultry meat through Russia to Kazakhstan were lifted, the press service of the Ministry of Agriculture of Kazakhstan reported. "On January 22, 2019, at the meeting in Moscow, the Kazakh side raised the issue of lifting restrictions on the transit of poultry meat from third countries to Kazakhstan by the Rosselkhoznadzor. We recall that Russia imposed temporary transit restrictions on November 20, 2018," the message said. The Russian side confirmed the lifting of restrictions on the transit of poultry meat through its territory in Kazakhstan under two conditions. Entrepreneurs who import poultry meat in transit through Russia to Kazakhstan must enter information into the Mercury system in order to ensure traceability of traffic. Second, reloading and temporary storage of poultry products should be implemented only at the enterprises certified by the EAEU for storage of livestock products. To date, certification of 6 Lithuanian enterprises for the storage and sale of livestock products, which are included in the Register of organisations and persons engaged in the production, processing and (or) storage of controlled goods imported into the customs territory of the EAEU, has been carried out, reported by ABC TV (Kazakhstan).

ENVIRONMENT EU and Central Asia determine future cooperation in environment and water resources management Climate change mitigation and promotion of a green economy in Central Asia were at the center of attention at the 6th European Union – Central Asia High-Level Conference, which was held on 24- 25 January 2019. The conference reaffirmed the commitment of the EU to continue work in the region and contributed to formation of future EU programs to assist the countries of Central Asia in the field of environment, climate change and water resources. The conference brought together ministers and high-ranking diplomats in charge of environmental, climate change and water policy policies in Central Asia, the European Union and EU member states, to continue the work that has been done since the previous High-Level Conference. Milan in 2015. Ambassador Peter Burian, EU Special Representative for Central Asia, said: “I am pleased to see that cooperation between the EU and the countries of Central Asia is strengthening in all areas. The EU and partners in Central Asia need to build relations taking into account the new dynamics in regional cooperation and expand joint efforts for addressing common challenges for the region, such as sustainable and transboundary water management, adaptation to climate change and mitigation of nature protection activity and a transition to closed-loop economy. To this end, the EU is ready to share its experience and advanced technologies.” The conference was organized within the framework of the EU-Central Asia Platform for Cooperation on Environment and Water, which covers the following priority areas: environmental management, closed-loop economy, sustainable production and consumption, climate change and water management. Chaired by the EU, Italy as the lead country under the Platform, and Uzbekistan as the host country, the participants exchanged views and identified priorities for future

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cooperation between the EU and Central Asia on a wide range of issues related to the environment, climate change and water resources. The State Committee of the Republic of Uzbekistan on Ecology and Environmental Protection emphasized formation of a completely new atmosphere of cooperation and the observed dynamic development of regional cooperation in Central Asia, a significant strengthening of cooperation in solving priority environmental problems of the region. It was noted that there is need to develop and implement a concrete projects in the field of environmental protection within the EU-Central Asia cooperation platform, including supporting the Multi-Partner Trust Fund for Human Security for Aral Region, strengthening regional cooperation within the framework of IFAS, water conservation and rational use of limited transboundary water resources, attracting investment and external financial and technical assistance for the implementation of innovative solutions of low-carbon development, reduction of environmental pollution, etc. The Italian Ministry of the Environment, Land and Sea Resources reaffirmed Italy’s commitment to strengthening full-fledged relations with Central Asia on key issues such as the environment, climate change and water resources, while emphasizing the importance of working together with the EU to achieve specific sustainable development goals and a prosperous future in this region, given its growing strategic role in the international arena, reported by the Uzbekistan Daily.

ECONOMIC NEWSLETTER, January 2019 Embassy of the Kingdom of the Netherlands CONTACTS

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ECONOMIC NEWSLETTER, January 2019 Embassy of the Kingdom of the Netherlands EXHIBITIONS IN KAZAKHSTAN (2019)

ECONOMIC NEWSLETTER, January 2019 Embassy of the Kingdom of the Netherlands