Economic Newsletter on |March 2020

CONTENTS MACRO-ECONOMICS & FINANCE ...... 2 ENERGY & NATURAL RESOURCES ...... 7 TRANSPORT & COMMUNICATIONS...... 10 AGRICULTURE ...... 11 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, March 2020 Embassy of the Kingdom of the Netherlands MACRO-ECONOMICS & FINANCE What cheap oil and coronavirus does with the economy of Kazakhstan Kazakhstan’s GDP in 2020 may not show growth or even decline. Such forecasts were made by economists. According to the managing director of the Centre for Applied Economics Research Olzhas Tuleuov, the country’s economic growth rate in 2020 will be minimal since 1998. “According to updated estimates of our centre, Kazakhstan’s GDP growth for the year may be near zero with a slight margin in the negative region, which will be the minimum indicator of economic growth in the country since 1998. Such dynamics in Kazakhstan’s real GDP will be based on preservation assumptions world oil prices at an average of $30 per barrel, the slowdown in global economic growth from last year's 2.9% to 1.0%, the decline in oil and gas condensate in the country within 84-86 million tons and weakened domestic consumer and investment activity,” Tuleuov said. In addition, the expert identified two factors that will affect the changed forecast for GDP growth. “We single out the main two factors, including the shocks of external demand for export products due to a decrease in economic activity in the countries the main trade partners of Kazakhstan, as well as the shock of domestic demand against the background of the implementation of quarantine measures,” the economist added. Tuleuov also called the conditions under which Kazakhstan’s GDP could show recovery in 2021. “It all depends on how quickly external demand can recover. So if the world economy returns to its growth path above 2-2.5%, and oil prices go above $50 per barrel, then economic growth in Kazakhstan in 2021 according to our preliminary forecasts, it will be able to develop in the range of 2-4%,” Tuleuov explained. Independent economist Alexander Yurin believes that if global hydrocarbon prices remain low and quarantine in Kazakhstan continues for several months, a recession may await the country’s economy. “In March, Kazakhstan’s economy faced two very serious shocks. With a fall in oil prices, Kazakhstan’s economy lost external revenues, and quarantine measures already hit the services and population’s income quite sensitively. So far it’s not clear how long the influence of these two factors will last. If both of them have a negative impact on the economy for several months, this could well lead to a recession," Yurin emphasised. In 2021, we can expect a recovery in GDP growth, but this is unlikely. “In the event that quarantine measures do not last too long and oil prices return to pre- crisis levels, next year we can even see an increased rate of GDP growth. However, the likelihood of this scenario is very small. A more probable situation is when economic growth of the current and future years will develop somewhere near the zero mark,” Yurin added. Finam analyst Sergei Drozdov also noted that a recession in the global economy could result from the first and second quarters. The dynamics of Kazakhstan’s GDP will depend on the actions of the authorities. “The fight against the epidemic of coronavirus, which closes industrial areas and cities, stops plants and factories, disrupts export-import supplies, has already damaged the global economy and, judging by everything, according to the results of the first and second quarters, global GDP will show recessionary indicators. The fall in energy demand looks quite justified against the background, and the price war unleashed by Saudi Arabia, after Russia’s refusal to join the OPEC+ deal, puts additional pressure on the price of oil. At this stage, given the ongoing hysteria around COVID-19, it’s very difficult to assess the loss of Kazakhstan’s GDP, the extent of which will depend not least on the actions of the authorities to protect their economy,” Drozdov explained. The Minister of National Economy Ruslan Dalenov said that the government will revise the forecast for the country’s GDP growth in 2020. Calculations will be made after the end of the first quarter, LS reported.

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Kazakh government adopts revised budget for 2020 The government of Kazakhstan has revised the 2020 budget which is now based on an assumed oil price of $20 per barrel and exchange rate of 440 tenge per $1, Minister of National Economy Ruslan Dalenov said, according to Kazinform. “The assumed oil price for April-December of this year is set at $20 per barrel, exchange rate at 440 tenge per $1 and annual inflation at 9-11%,” Dalenov said at a meeting of the government. The government approved on the revised economic forecast and budget for 2020. “Revenue to the government budget, exclusive of transfers, in 2020 is expected to come to 6.414 trillion tenge or 1.672 trillion tenge less than in the previous budget. The decrease will be due to a lower revenue from mineral resources, VAT and export duties on crude oil,” Dalenov said. The minister believes that exports will decrease by $16.3 billion to $35.1 billion. Imports will decline by $7.5 billion to $26.6 billion. “Expenditures of the government budget are projected at 14.27 trillion tenge or 1.356 tenge more than in the previously approved budget. The budget deficit is expected to be at 3.5% of GDP. Non-oil deficit will account for 10.8% of GDP,” the minister said. Also, the government will allocate 315.6 billion tenge to finance support measures following the review of the macroeconomic indicators, Finance Minister Alikhan Smailov said. “These funds will be used for indexation of all social allowances and coverage of expenses associated with the exchange rate fluctuation from April 1 of this year,” Smailov said. In addition, the government will allocate 293.3 billion tenge to support the population and economy, as well as finance the measures announced by the president, according to Smailov.

Kazakh government allocated over 23 billion tenge from reserve for fight against coronavirus The Kazakh government has directed three tranches of funds totaling 23.467 billion tenge from its reserve at the fight against coronavirus, Minister of Information and Public Development Dauren Abayev has said. The money was used to fight the coronavirus and not to implement the anti-crisis measures announced by the President. “These funds were used to purchase medicines, medical devices and laboratory equipment, masks, gloves, protective suits and testing systems. Also, these are the costs of evacuation of citizens by the national emergency medicine coordination center, outfits for civil service employees, procurement of disinfectants etc.,” he said. The public fund Birgemiz (Together), established on the initiative of Kazakhstan’s First President Nursultan Nazarbayev on March 20, received more than 13 billion tenge in contributions. In addition, the Baiterek National Management Holding plans to raise more than 600 billion tenge at 6% per annum from the bond market for 12 years, Baiterek Holding CEO Aidar Arifkhanov said, according to zakon.kz.

President Tokayev instructed to support SMEs with 600 billion tenge worth soft loans, some to be exempted from income tax President Tokayev instructed the National Bank to allocate 600 billion tenge ($1.3 billion) funds to support SMEs affected by coronavirus crisis. The SMEs will be provided with one- year soft loans at the interest rate of 8 %. Tokayev also added that with the increase in funding for the “Economic of Simple Things” program, the support for domestic business will amount to 1 trillion tenge. In addition, Deputy Prime Minister Yeraly Tugzhanov informed that around 70 thousand entrepreneurs will be exempted from 10% income tax until the end of the year, according to sputniknews.kz.

Kazakhstan to spend 28 trillion tenge on healthcare till 2025 Kazakhstan will spend 28 trillion tenge on healthcare sector till 2025, according to Executive Secretary of the Ministry of Healthcare Botagoz Zhakselekeova. “In line with the 2020-2025 State Programme of Healthcare Development, till 2025 the total amount of expenses on healthcare sector is set to be raised to 5% of GDP. From 2019 to 2025, the amount of spending on healthcare will comprise 28 trillion tenge, 13

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trillion of which (or 47%) will be envisaged in the national budget. 3 trillion tenge (or 11%) will be spent from the Health Insurance Fund, and population’s expenditures will make 11.8trn tenge,” Botagoz Zhakselekeova said at a meeting in the Senate, according to Kazinform.

Kazakhstan, Singapore set up a joint fund with $50 million Kazakhstan and Singapore set up a joint venture fund. A corresponding agreement was signed in Nur Sultan. Within its framework, the participation of the holding's subsidiary, QazTech Ventures, in the Singapore Venture Fund Venture Asia Fund II with a total size of $50 million is envisaged. “QazTech Ventures with a capital of $10 million will enter this fund as an anchor investor. The jointly created fund will consider and finance promising start-up projects in Kazakhstan and Central Asia in the next 3 years,” the report said. The holding added that Pavilion Capital, a subsidiary of the Singapore financial development institute Temasek, is also the anchor investor of the fund. Within the framework of the agreement, they will conduct a three-year acceleration program of Kazakhstan Digital Accelerator. It is expected that it will contribute to the development and promotion of start-up projects and the digital ecosystem in Kazakhstan. It was previously reported that Kazakhstani start-ups will be helped to enter the markets of Singapore and Southeast Asia. In 2018, during the business forum in Singapore, two joint memorandums were signed regarding venture financing of Kazakhstani projects. QazTech Ventures is a development institution created to facilitate the development of technology entrepreneurship through venture financing, business incubation and technology consulting tools. Quest Ventures is an Asian management company founded in 2011, with headquarters in Singapore. Pavilion Capital is a private equity and venture capital investment company providing strategic support to fast-growing projects in the USA and Asia, LS reported.

There are more Chinese companies in Kazakhstan The number of Chinese companies operating in Kazakhstan is growing. As of March 1, 2020, there are 1,234 companies with Chinese capital operating in the country. This is evidenced by the statistics committee. A year earlier, their number amounted to 972. Thus, the indicator grew by almost 27%. 1,197 of this number are small enterprises, 15 are medium, 22 are large. As for industries, Chinese companies are most represented in wholesale and retail trade at 461 as of March 1, 2020. 168 Chinese companies work in construction, 96 in the mining industry, 81 in manufacturing, 76 in professional, scientific and technical activities, 33 in financial and insurance activities. 161 in other types of services. The number of Chinese companies in Kazakhstan has grown by 2.5% since January 1, 2020, when their number reached 1,204, according to LS.

Assets of the National Fund decrease by almost 500 billion tenge over two months In January-February 2020, revenues to the National Fund amounted to 363.2 billion tenge, which is 37.8%, or 220.7 billion tenge, lower compared to the same period last BANKING year. Tax revenues amounted to 358.0 billion tenge, decreasing by 37.1% compared with January-February 2019. This was reported by the Association of Financiers of Kazakhstan. While maintaining the current dynamics of revenues, total tax payments in favour of the Fund in 2020 may amount to 2,147.8 billion tenge. In 2019, total tax revenues to the National Fund amounted to 2,837.2 billion tenge. A decrease is noted for all types of tax payments. Income from CIT over 2 months of this year amounted to 121.9 billion tenge, which is 100.9 billion tenge, or 45.3%, lower compared to the same period last year. Revenues from the shared production in the oil

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sector decreased by 43.7%, or 92.4 billion tenge, to 119.0 billion tenge. Mining tax this year is lower by 16.7%, while rental tax revenues are lower by 10.4%. A significant decrease in oil exports in the reporting period was not observed. The volume of oil shipment via the Caspian Pipeline Consortium offshore terminal in the port of Novorossiysk in January-February 2020 amounted to 10.48 million tons of oil, which is 0.2% lower than in the same period in 2019 at 10.50 million tons. The CPC pipeline system accounts for more than 75% of Kazakhstani oil exports. In a breakdown of revenues by months, tax revenues to the National Fund in January of this year amounted to 51.0 billion tenge, 53.3% less compared with January 2019, and February revenues decreased by 33.3%, to 307.0 billion tenge. Over 2 months of 2020, 838.1 billion tenge of the Fund’s funds were used. 838.0 billion tenge were transferred to the national budget in the form of a guaranteed transfer, and 140.5 million tenge were allocated to cover the expenses of the Fund. Thus, the assets of the National Fund in January-February 2020 decreased by 474.9 billion tenge, to 26,565.6 billion tenge. The law On the guaranteed transfer from the National Fund of Kazakhstan for 2020–2022 provides for guaranteed transfer from the National Fund to the budget in the amount of 2.7 trillion tenge in 2020 and 2021, with a subsequent decrease to 2.6 trillion tenge in 2022 year, Kapital reported.

Dynamics of foreign reserves of Kazakhstan over five years As of February 1, 2020, the country’s gold and foreign currency reserves amounted to $29.3 billion. Over the year, a decrease by 4.2% from $30.6 billion was recorded. For comparison, as of February 1, 2015, gold and foreign currency reserves amounted to $29 billion. Thus, over 5 years, the reserves decreased by 1%. The assets of the National Fund also decreased since 2015 by almost 15%. As of February 1, 2015 they amounted to $71 billion, and as of February 1, 2020 to $61.1 billion. Kazakhstan’s international reserves for the indicated period decreased by 10.2% from $100.7 billion as of February 1, 2015, to $90.4 billion as of May 1, 2019. Revenues to the National Fund halved. The investment income of the National Fund exceeded $4 billion, LS reported.

Al Rayan Investment LLC is working on a process to establish a fully-fledged and digital bank in the AIFC Al Rayan Bank (a wholly owned subsidiary of Masraf Al Rayan QPSC), which has previously received the certificate of incorporation is initiating the process of establishing Al Rayan Bank in AIFC. Al Rayan Bank is a wholly owned subsidiary of Al Rayan Investment. The bank intends to be the first full-fledged digital bank in AIFC that will focus on the development of Islamic banking products and investments facilitated by the application of cutting edge fintech products. , Governor of the AIFC notes that the presence of such a reputable and well-known financial institution in AIFC demonstrates the trust of the international business community in our financial centre. “We hope that Al Rayan Bank will significantly contribute to the development of the Islamic finance industry in Kazakhstan as well as the region and promote AIFC as the international Islamic finance hub”. Adel Mustafawi, the Group Chief Executive Officer of Masraf Al Rayan Q.P.S.C. (the parent company of Al Rayan Investment) added, “Al Rayan Investment has chosen Kazakhstan and particularly the AIFC, as the first market for international expansion. Kazakhstan represents a new hub for Islamic finance in Central Asia, which offers considerable potential; while AIFC represents the optimal platform for us as it is established on the same international best practice regulatory principles as our home domicile, the Qatar Financial Centre. This should expedite our ability to offer our world-class products and services in such a promising market,” according to the press service of AIFC.

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Small and medium-sized businesses already provide almost 30% of Kazakhstan’s GDP As of February, 1.59 million small and medium-sized enterprises were registered in the country, 0.7% less than by February 2019. There were 83.2% of active SMEs, or 1.33 million, 4% more than a year earlier. Among the existing SMEs, 19.7% accounted for small legal entities, 0.2% for medium-sized enterprises, 16.1% for peasant and farm enterprises, and 64% for individual entrepreneurs. The role of small and medium-sized enterprises in the country is growing from year to year. In 2017, the gross value added of SMEs amounted to 14.3 trillion tenge, or 26.8% of the country’s GDP, in 2018 already to 17.6 trillion tenge, or 28.4% of GDP, and over three quarters of 2019 to 13.1 trillion tenge, or a record 29.5% of the GDP of Kazakhstan. Despite the growing role of small and medium-sized enterprises in the country’s economy, lending to the small business sector is noticeably losing momentum. For example, the value of loans to small companies amounted to only 2.11 trillion tenge last year, 10.8% less than a year earlier. This is only 15.2% of the total volume of loans to the economy, against 18.1% a year ago, and 29.3% of loans to legal entities, against 30.3% at the end of 2018. The total value of lending to the economy by banks of Kazakhstan, on the contrary, increased by 5.9% on-year. Despite the general weakening of the segment, some banks still consider SMEs a priority area of credit support. Lending to small and medium-sized businesses for any purpose is offered by 22 banks out of 27 banks of Kazakhstan. ATFBank has the lowest annual effective rate in the segment, from 13.2%. Also among the best offers are the products of Halyk Bank from 14.2% and 14.8%, and Jýsan Bank from 15%. Only ATFBank and Bank CenterCredit are ready to provide the amount without restrictions to small and medium-sized businesses. Among the banks limiting the offer, the maximum loan amount was indicated by Halyk Bank and Jýsan Bank at up to 5 billion tenge. The Eurasian Bank and Bank of in Kazakhstan indicated a loan amount of up to 25% of equity. The maximum loan term in the segment is up to 120 months at KZI Bank and Bank CenterCredit. This is followed by the most popular term of up to 84 months. 11 second- tier banks offer loans for such a period, including the leaders in interest rates, ATFBank, Halyk Bank and Jýsan Bank. Banks offering the best conditions for SMEs were also the most responsible lenders of the past year. For example, ATFBank is the leader in reducing the volume of overdue loans among the TOP-10 of the second-tier banks of Kazakhstan. As of the end of 2019, loans with a delay of more than 90 days at ATFBank totaled only 67.1 billion tenge, 21.3% less on-year. For comparison, in total in the banking sector, NPL 90+ grew by pessimistic 18% compared to the final results of 2018, and by 15.9% in the TOP-10 STBs. They improved the quality of the portfolio and reduced overdue loans in 5 STBs out of the largest ten. Among the leaders in terms of delay reduction are Halyk Bank, at minus 13.4% on-year, to 311.5 billion tenge. Loan portfolios for the periods under review increased both at ATFBank and at Halyk Bank, that is, a reduction in the volume of toxic assets was accompanied by an increase in the credit activity of financial institutions, Ranking Kazakhstan reported.

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ECONOMIC NEWSLETTER, March 2020 Embassy of the Kingdom of the Netherlands ENERGY & NATURAL RESOURCES US agency ups Kazakhstan’s 2020 oil output Kazakhstan will produce 2.03 million barrels of oil and other liquids per day in 2020, Trend reports with reference to the February Short-term Energy Outlook (STEO) of US Energy Information Administration (EIA). According to the EIA’s forecasts, this figure increased from 2.02 million barrels per day in the previous report. “Kazakhstan has been producing 2.03 million, 1.85 million, 1.96 million and 2.02 million barrels of petroleum and other liquids per day during the first, second, third and fourth quarters of 2019, respectively,” the report said. “EIA also estimates that Kazakhstan’s petroleum production will be 2.03 million barrels per day in the first quarter of 2020 (2.03 million in the last report), 1.99 million barrels per day in the second quarter of 2020 (1.99 million in the last report), 2.03 million barrels per day in the third quarter of 2020 (2.02 million), and 2.06 million barrels per day in the fourth quarter of 2020 (2.06 million in the last report),” the statement said. EIA reports that Kazakhstan’s daily petroleum and other liquids production stood at 1.96 million barrels as of 2018. At the end of 2018, OPEC and a number of non-affiliated countries (Kazakhstan being one of them) decided to extend the agreement on reducing oil production, which has been in force since the beginning of 2017. The countries agreed to reduce their production by a total of 1.2 million barrels per day from the level of October 2018. A decision was passed in Vienna on July 2, 2019, regarding the extension of the agreement on the reduction of oil production by the countries of OPEC and non-members of the cartel until the end of the first quarter of 2020. Kazakhstan has supported the decision to reduce oil extraction by additional 500,000 barrels a day within the framework of OPEC+ agreement under the decision made during the 7th OPEC and non-OPEC Ministerial Meeting held in Vienna, Austria, on December 6, 2019. Thus, current liabilities of Kazakhstan within the agreement are 1.843 million barrels a day compared to 1.86 million barrels a day previously, MENAFN reported.

Oil production on Kashagan in Kazakhstan decreases to 300 thousand barrels per day due to unscheduled repairs An equipment failure occurred at the Kashagan offshore field, daily production dropped to 300 thousand barrels. At the moment, production at the field is 300 thousand barrels per day. Before repair, production exceeded 400 thousand barrels per day. “The Kashagan operator plans to restore the previous daily production by March 30-31 or earlier, by March 29,” the source added. The Ministry of Energy confirmed the information about the equipment failure, but could not clarify the current production volume at the field. “On March 24, equipment at the Kashagan field malfunctioned. At the moment, repairs have been completed and production is increasing,” the Ministry of Energy explained. Kashagan is the first offshore oil and gas field in the Kazakhstan sector of the Caspian Sea, as well as the largest international investment project in the country, In Business reported.

Kazakhstan risks losing $28 million in gas export Kazakhstan may receive $28 million less from gas exports in March 2020 due to a decline in exports, the energy ministry said. If previously the planned export volume for March 2020 was 23 million cubic metres per day, now it is reduced to 18.5 million cubic metres per day. “If gas is maintained at this level until March 31 of the current year, lost revenue for March could reach $28 million,” the Ministry of Energy noted. Now the supply of oil and gas in Kazakhstan is quite diversified. The main volumes of oil produced in Kazakhstan are traditionally exported to European Union, Southeast Asia and the USA. Diversification of export routes of Kazakhstani oil allows redirecting oil volumes 7

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to other EU countries, India, China and so on in case of unforeseen circumstances or a more attractive price, LS said.

Caspian Pipeline Consortium reduces oil shipment in February 2020 by 0.35% The Caspian Pipeline Consortium is summing up the work in February 2020. In February, the Russian division of the Caspian Pipeline Consortium reduced oil shipments at the offshore terminal by 0.35% to 4.875 million tons. This follows from a message on the CPC Panorama corporate magazine website 2.385 million tons accounted for oil from the Tengiz field, 947 thousand tons for oil from the Karachaganak field, 1.1 million tons for oil from the Kashagan field, as well as 123.9 thousand tons from other Kazakhstani producers. In total, Kazakhstan producers shipped 4.561 million tons of oil in February, another 314.5 thousand tons of oil shipped from Russia, TASS reported. Kazakhstan increases oil refining by almost 5% Kazakhstani refineries increased gasoline production by 15.5%. In 2019, the total volume of oil refining at the , and refineries amounted to 16.079 million tons of oil, 4.8% more than in 2018, when 15.341 million tons of oil was refined. In 2019, refineries increased gasoline production by 15.5%, to 4.551 million tons, diesel fuel by 7.8%, to 4.81 million tons, jet fuel by 1.6 times, to 625 thousand tons, liquefied gas by 2.6%, up to 3.196 million tons. Fuel oil production decreased by 3.2%, to 2.721 million tons. In July 2019, Kazakhstan began supplying gasoline to Tajikistan. It was assumed that export volumes will be in the range of 60-70 thousand tons of AI-92 and 10-15 thousand tons of AI-95 per month. Earlier, Kazakhstan did not export gasoline and diesel fuel abroad. The country was banned from exporting light petroleum products until January 1, 2019 in accordance with an intergovernmental agreement with Russia, from where gasoline and diesel fuel were imported duty-free to Kazakhstan. In October 2019, the parties signed a protocol amending the agreement regarding the lifting of the embargo on the export of Kazakh gasoline outside the customs territory of the Eurasian Economic Union, Oil and Capital reported.

Eni’s 48-MW wind farm in Kazakhstan put into operation The 48-MW Badamsha wind farm in the region of Kazakhstan has commenced commercial operation, its owner Italian oil and gas major Eni SpA has informed. The project was implemented by Eni’s local renewable energy unit ArmWind LLP, which secured the capacity in Kazakhstan’s third auction for wind power. Badamsha will be capable of generating around 198 GWh annually and avoid the release of some 172,000 tons of CO2 per year, Eni said. The project will be followed by Badamsha II, a 48-MW extension to the original wind farm. Eni, in a joint venture with General Electric, secured the extension in an online reverse auction in Kazakhstan’s Northern Zone in 2019. Eni was also awarded a solar project, its first in Kazakhstan, last year. In a tender held by JSC Kazakhstan Electricity and Power Market Operator (KOREM), the Italian group won 50 MWp of solar photovoltaic (PV) capacity, which will be installed in the region of Turkestan, Renewables Now reported.

One more renewable station planned in Kazakhstan In it is planned to implement another green project worth 19 billion tenge. This was reported in the regional department of energy and housing and communal services. A new wind farm should appear in the Ulanovsky district. Its capacity will be 24.15 MW.

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“The initiator of the project is Spain Consulting. The estimated cost of the project is 19 billion tenge. The period for its implementation will be determined after determining the investor,” they said. The design estimates have already been developed. The department added that a positive opinion of the state examination has already been received. The launch of the Turgusunskaya HPP-1 in Altai region is expected this year. The project is estimated at 11.5 billion tenge. The capacity will reach 24.9 MW. In 2019, a solar power station in the Zharma region was commissioned. The capacity of the object is 30 MW. Earlier it was reported that East Kazakhstan region also plans to implement a project to build a wind station for 28.8 billion tenge. Currently, an investor is being sought, LS reported.

Kazakhstan plans to produce 120 million tons of coal in 2020 In January-February 2020, the country's mining companies produced 18.3 million tons of coal. 10.4 million tons were shipped to energy-producing enterprises, 936.8 thousand MINERAL tons of coal were shipped to industrial enterprises. 1.4 million tons were shipped for RESOURCES household needs and the population. The export of raw materials amounted to about 4.6 million tons, the press service of the Ministry of Industry and Infrastructure Development said, according to Kapital. In 2020, Kazakhstan plans to mine 120 million tons of coal. Of these, 82 million tons will be delivered to the domestic market of the country, 38 million tons for export. “Coal is shipped to energy and industrial enterprises at selling prices of opencast mines under direct contracts. The bulk of coal for domestic consumers and the population is sold through commodity exchanges. The price of coal for household needs and the population consists of the price of shipment of the mine, within 3-6 thousand tenge per ton, depending on the conditions of development, railway tariffs for transportation, maintenance of rolling stock, exchange value of coal, and also the margin of intermediary organisations and individuals delivering coal to the population,” the department explained. Last year, the Roadmap for the development of the coal industry of Kazakhstan for 2019- 2021 was developed and approved, as well as the Plan of the need for coal products for household needs and the population for the period 2019-2020 was formed. As of March 20, 2020, the provision with coal reserves in relation to the general plan is 99.7%. Administrations of Aktobe, East Kazakhstan, Zhambyl, West Kazakhstan, , , , Pavlodar, , Turkestan regions, the cities of Almaty and Shymkent fully provided schedules for the annual supply of coal for the municipal sector. Administrations of WKO, Kyzylorda, Kostanai, Pavlodar, Akmola, Almaty, Zhambyl, East Kazakhstan regions and the cities of Nur-Sultan, Almaty and Shymkent fully provided schedules for the annual supply of coal to the population.

Kazatomprom closes down southwest Kazakhstan’s reactor During a public hearing of the feasibility study on the environmental impact of decommissioning of the BN-350 fast reactor in Kazakhstan, Bulat Zhumakanov, representative of regional utility MAEK-Kazatomprom, said residents in Mangystau province, where the reactor is sited, will continue to pay for its maintenance. The BN-350, a sodium-cooled industrial fast neutron reactor, was physically launched in 1972, and was connected to the Mangystau power system in 1973. In 1998, it was closed down and formally began decommissioning the following year. MAEK-Kazatomprom has supplied of Kazakhstan with electricity, heat and water since 1967. It is responsible for three gas and oil power plants with total installed capacity 1330MWe, a desalination plant and for decommissioning the BN-350 reactor.

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According to representatives of the development company, METR, preliminary information, puts the total cost of decommissioning the BN-350 at 125 billion tenge ($330 million) excluding inflation. Zhumakanov said this year Kazakhstani Wealth Fund Samruk-Kazyna has allocated 1.2 billion tenge for the maintenance of the reactor. However, funds will still be taken from local residents through the electricity tariff for repair work. An application has been made to the federal budget, but whether money will be allocated from the republican budget in future “remains open”, he said. The tariff has been in place for 20 years and residents have been pressing the government to provide the necessary funding. Decommissioning of the BN-350 reactor is planned in three stages: Bringing BN-350 switchgear into a safe storage state (10 years). Long-term safe storage (50 years). Partial or complete dismantling of equipment, buildings and structures, burial of radioactive waste (specified by the project). From 1999 to 2016, with the financial support of the US government, nuclear fuel was removed, primary circuit sodium was treated to remove from caesium radionuclides, a project was implemented to process the used fuel, to passivate sodium residues in the first circuit, and other work. The decommissioning process must be continued and cannot be delayed, said representatives of MAEK-Kazatomprom. The tanks in which radioactive waste is stored have been in operation since 1972, and need upgrading. Some 3000 cubic metres of liquid radioactive waste, mainly sodium and caesium-137, which has a half-life of 30 years, are stored at MAEK-Kazatomprom, Nuclear Engineering International reported.

TRANSPORT & COMMUNICATIONS 2.6 thousand km of to open for traffic in 2020 About 2020 billion tenge are provided for the implementation of projects for the construction and reconstruction of roads of national importance in 2020. It is planned to open traffic on 2.6 thousand km of roads along the routes Karaganda-Balkhash-Kapshagai, Aktobe-Atyrau-Astrakhan, Taldykorgan-Ust-Kamenogorsk, Kalbatau-Maykapshagai, Merke-Burylbaytal, -, -Otar-Kokok Petropavlovsk-Kurgan, Kostanay-Denisovka. In total, construction work will cover 4 thousand km of roads. To restore and maintain the technical condition of the national network, it is planned to cover 1.5 thousand km of roads with overhauls and secondary repairs. 59 billion tenge are provided for these purposes. As part of the overhaul, work will continue on the implementation of significant facilities, including the transfer of 280 km of roads to asphalt concrete pavement. Also in 2020, it is planned to complete the broadening of the road section in the Altyn Orda market area near Almaty. Thus, the share of national roads in good and satisfactory condition this year will be increased to 89%, and the length of roads of the I and II technical categories will increase to 36%. In 2019, traffic was opened on 641 km of roads on -Karganda-Balkhash- Kapshagai, Nur-Sultan-Pavlodar, Pavlodar-, -Petropavlovsk-c. RF, Beineu- Akzhigit, Taskesken-Bakhty, Schuchinsk-Zerenda, -Makat, Zhetibay- . In total, as part of the development of the road industry in 2019, construction and reconstruction covered 4.4 thousand km of national roads.

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ECONOMIC NEWSLETTER, March 2020 Embassy of the Kingdom of the Netherlands

In Kazakhstan, there are 4 paid roads with a total length of 682 km. Over the past year, fees amounted to 5.4 billion tenge. In December 2019, an Agreement was signed on the installation and maintenance of a system for charging a fee of 11 thousand km. Under the agreement, it is planned to install a charging system in reconstructed sections with a length of 5.7 thousand km, Kapital reported.

Talgo trims activity in Kazakhstan The chairman of the board of the national railway grid Kazakhstan Zholy JSC Sauat Mynbaev spoke about the reasons for the closure of the Talgo railway project in Kazakhstan at a briefing in Nur-Sultan, Kazpravda.kz reports. “The contract is closed due to economic reasons. First, Talgo wagons have lesser number of seats - at least three times as compared to standard wagons. Accordingly, the cost of a passenger seat is 2.5 times higher than standard wagons. This affects the economy of passenger transportation,” said Mynbaev. He noted that Talgo trains have an advantage in the form of increased speed, but the final speed still ultimately depends on the main railway lines. Therefore, according to Mynbaev, it cannot be said that Talgo is realizing its high-speed potential in full in Kazakhstan.“The basic contract provided for the delivery of about 600 Talgo wagons. To stop all this is a difficult question, because our partners have the legal right to a full contract,” continued Sauat Mynbayev. According to him, Talgo will continue to operate the wagons and maintain them until the end of the contract. “In addition, we have 62 unassembled car sets at the plant. They will be assembled because money has already been paid for them. The Talgo car fleet will be replenished thanks to these cars,” he concluded, Kazakhstanskaya Pravda reported.

AGRICULTURE Kazakhstan to impose the quotas for wheat and flour exports In April 2020, Kazakhstan will impose the quotas for export shipments of wheat and wheat flour. The reporting decision was made during the meeting of the Cabinet of Ministers of Kazakhstan, on March 30. According to preliminary information, the quota volumes in April will total 200,000 tons of wheat, and 70,000 tons of wheat flour. The authorities will fix the volumes by the corresponding memoranda, which the Ministry of Agriculture will sign in the coming days with the Grain Union of Kazakhstan, the Union of Grain Processors and Bakers, NC Food Contract Corporation JSC, local administrations of oblasts, etc. As a reminder, to date the authorities do not limit the volumes of wheat exports from Kazakhstan. At the same time, since March 22 the country completely banned the foreign shipments of wheat flour. For the first 8 months (July-February) of 2019/20 MY, Kazakhstan already exported 2.8 million tons of wheat and 988,000 tons of wheat flour, APK Inform reported.

Kazakhstan bans export of groceries and vegetables During the state of emergency in Kazakhstan, several types of food products are prohibited from being exported. This was announced by the Minister of Trade and Integration . It is necessary to prevent interruptions in the supply of socially significant goods to the population. “On March 22, during the state of emergency in Kazakhstan, a ban was introduced on the export from the country of several types of socially important goods, including buckwheat, wheat or wheat-rye flour, sugar, potatoes, carrots, turnips, beets, onions, cabbage, sunflower seeds and sunflower oil,” the minister said.

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ECONOMIC NEWSLETTER, March 2020 Embassy of the Kingdom of the Netherlands

“As the president said, any attempts to speculate will be harshly suppressed. The state will determine the objectively necessary list, according to which it will introduce state regulation of prices for some socially significant goods,” Sultanov added. President Tokayev instructed to approve the objectively necessary list of socially important goods, according to which state price regulation will be carried out, LS reported.

Kazakh farmers still in dire need of domestic agricultural machinery The turn of state bodies towards equipping the agro-industrial complex with Kazakhstan- made equipment made it possible to create adequate conditions for agricultural engineering in the country. According to the report on the implementation of the strategic plan for 2017–2021 for 2019: - funds in the amount of 27 billion tenge were allocated from the budget in 2019 for preferential leasing of buses and agricultural machinery. The delivery of 1,350 units of buses has been funded and 267 units of agricultural machinery were transferred; - 37 agreements on the industrial assembly of agricultural machinery were concluded; - a utilization fee for agricultural machinery and a mechanism for stimulating the production of agricultural machinery were introduced. The recycling fee does not apply to equipment of the brands including CLAAS, Lemken, John Deere, AGCO, Case New Holland, Green Plain, Codaf SRL, Same Deutz Fahru, Scarabelli Export S.R.L., Nettuno, Pedrotti s.p.a., Myrtech, Agrokonsultos Grupe, Bauer, Agro-Matadex, Animals, Farming, Stable Equipment, PRONAR, Yanmar, Kubota, Kverneland, Irrifrance, Sampo Rosenlew LTD, Bourgault. In fact, the collection applies primarily to domestic equipment and importers from the CIS. Since 2018, a leasing financing program for updating agricultural equipment from the Development Bank of Kazakhstan has been operating in Kazakhstan. In 2019 alone, DBK- Leasing financed the purchase of more than 270 units of domestic-made tractors and combines by Kazakhstani farms. In addition to DBK-Leasing programs, leasing programs of KazAgroFinance also work. The company claims to occupy 90% of the country’s agricultural leasing market. KazAgroFinance, unlike DBK-Leasing, finances the purchase of equipment not only of Kazakhstan production, and the company’s direct contribution to Kazakhstan engineering is not specified. The efforts of the state have an obvious effect. In the segment of agricultural machinery for the first month of this year, the country’s factories produced 74 tractors, against 67 a year earlier, and 50 machines for preparing and cultivating the soil, against 43 a year earlier. In 2019, jump-like growth was noted in all categories. 897 tractors were produced, more than in the previous two years combined. The output in the sector after two years of stagnation is approaching pre-crisis values. The production of equipment for soil preparation and cultivation also increased by 14.6%, to 956 machines. 512 headers and 381 combines were produced. Tractor production is concentrated mainly in East Kazakhstan and Kostanay regions. Large plants such as the SemAZ PalAZ Automobile Assembly Plant SemAZ, Agromashholding work in Kostanay. Agricultural machines used for soil preparation or cultivation are assembled mainly in North Kazakhstan, Kostanay and Akmola regions. The Kokshetau combine plant Vector, localising the production of Rostselmash combines, the Petropavlovsk Agroremmash, the Petropavlovsk Tractor Plant and many others work here. In monetary terms, in January 2020, production in the field of engineering in Kazakhstan as a whole reached 92.98 billion tenge, which exceeded last year’s figures by more than 20%. This is 11.2% of the total production volume of the processing segment in monetary terms, and 4% of the total industrial production in the country. The main production volumes in the mechanical engineering segment are concentrated in the production of

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ECONOMIC NEWSLETTER, March 2020 Embassy of the Kingdom of the Netherlands

vehicles, machinery for the agro-industrial complex and the mining industry, and other similar special equipment. However, it will be necessary to make a lot of efforts to develop the agricultural machinery manufacturing industry. Despite the growth and optimistic beginning of the current year, last year Kazakhstani companies covered only 12.8% of demand, that is, more than 87% of the market was left to importers, according to Energyprom.

Shredder for agricultural machinery appears in Kazakhstan Kazakhstan wants to arrange recycling of agricultural machinery. The project is estimated at 3 billion tenge, with reference to the press service of the operator ROP. The construction of a plant for the disposal of obsolete agricultural machinery is already under consideration. The cost of creating a waste processing cluster will be 3.2 billion tenge. The complex will include a shredder unit for the processing of agricultural machinery, cars and heavy vehicles. “The project has been previously agreed and supported by the Ministry of Ecology, Geology and Natural Resources. The plant will meet all modern standards in the field of waste collection and processing,” the report said. They also want to include plastic waste processing enterprises from vehicles accepted for recycling. In the future, they plan to collect and dispose of inoperative electronic equipment, process used tires, used oils and produce heating oil. It is expected that 300- 350 new jobs will be created. To implement this project, they want to conduct a competitive selection of investment proposals. It is planned that the plant will be built in the Kostanay industrial zone. “This year, we are considering the opportunity to begin developing a project for the cluster’s territory, and from 2021 it is planned to begin construction work, purchase and installation of equipment necessary for the cluster,” the press service added. According to the Ministry of Agriculture, 145 thousand tractors and about 38 thousand combines are registered in Kazakhstan. The average depreciation of the entire agricultural machinery fleet is 76%. “Since 2019, in exchange for agricultural machinery that has been decommissioned, owners can receive discount certificates in the amount of 1.5 million to 3 million tenge for the purchase of new tractors or combines of domestic production. The collection and disposal of obsolete cars and passenger vehicles is carried out at the factory in Karaganda,” the operator summed up, according to LS.

Grain harvest in Kazakhstan in 2020-21 marketing year set to reach to 18.3 million tons In its March report, the International Grain Council published the first forecast for grain production and consumption in Kazakhstan for the 2020-21 marketing year. The grain harvest in Kazakhstan in the next season will grow to 18.3 million tons. In the 2019-20 season, this indicator was estimated at 1.8 million tons less. A year earlier, local farmers collected 19.2 million tons of grain. The initial grain reserves in the country next year, as of March, will increase by 0.4 million tons compared to the previous season, to 2.7 million tons. Last year, this indicator was higher by 0.5 million tons. Grain supply in Kazakhstan in the next season is projected at 21.1 million tons. This is 1.2 million tons ahead of this year. In 2018-19 MY the supply amounted to 22.5 million tons. According to the March report, the export potential of grain in 2020-21 MY is expected to reach 8.9 million tons. This season, foreign deliveries promise to be 1.7 million tons more modest. Last season, 1.7 million tons of grain were delivered abroad. Grain import in the country during the period under review may decrease to 0.1 million tons. This year, Kazakhstan will purchase about 1.1 million tons of grain abroad. A season earlier, the volume of purchases amounted to 0.2 million tons.

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ECONOMIC NEWSLETTER, March 2020 Embassy of the Kingdom of the Netherlands

Consumption of grain crops in the country in 2020-21, according to the March IGC data, will remain at the level of the current season, at 10 million tons. In the past, the volume of use was 0.4 million tons less. According to the latest data, carry-over grain reserves in the coming season will decrease to 2.1 million tons compared to 2.7 million tons expected at the end of the current season. A year earlier, the final reserves in the country amounted to 2.3 million tons, Kazakh Zerno reported.

Number of chickens decreases in 9 , and increases in 5 In January and February, the number of chickens in Kazakhstan decreased. In different regions, the dynamics had a different orientation. In five regions, the number has increased, but in nine of them the number has decreased, which yields a general negative result. By the beginning of 2020, there were 45,197.1 thousand chickens in Kazakhstan and in January to February 1, it had decreased to 45,015 thousand, by 182.1 thousand or 0.4%. By March 1, the number had decreased and reached the level of 44,583.9 thousand with a decrease by 431.1 thousand or 1%. As a result, over two months the number of chickens in the republic decreased by 613.2 thousand or by 1.4%. The most significant decrease was recorded in three regions. This is by 393.1 thousand chickens, from 8,078.9 to 7,685.8 thousand goals, by 305.1 thousand, from 4,008.8 to 3,703.7 thousand, and by 125.8 thousand, from 4,614.4 to 4,488.6 thousand. An increase in amounted to 420.3 thousand chickens, from 4,266.8 to 4,687.1 thousand, and in East Kazakhstan region to 158.1 thousand, from 3,875 to 4,033.1 thousand. The largest poultry region in Kazakhstan is . As of March 1, 10,334.8 thousand chickens were kept there. The next five largest livestock are in Akmola region at 7,685.8 thousand, Kostanay region at 4,687.1 thousand, North Kazakhstan region at 4,488.6 thousand, East Kazakhstan region at 4,033.1 thousand, and Karaganda region at 3703.7 thousand, Kazakh Zerno reported.

Market of processed and canned fish and seafood in Kazakhstan is covered by imports by more than a half In January 2020, Kazakhstan processed and packed fish, crustaceans and mollusks worth1.4 billion tenge, according to the information of the Constitutional Court of the Ministry of National Economy of Kazakhstan. Growth including inflation amounted to 2.1%. In January last year, the indicator was equal to 1.5 billion tenge. In January-December 2019, the output in the processing and canning sector of fish, crustaceans, and mollusks amounted to 20 billion tenge, which meant a decrease in production by 2.7%. For comparison, in January-December 2018, the amount of production reached 23.1 billion tenge, with production growth by 8.3%. The total market for fish products in Kazakhstan is about 66 thousand tons, of which 45 thousand tons are fishery and 7.4 thousand tons are fish. 30 thousand tons are exported, 43.5 thousand tons of products are imported. In the medium term, there is the potential to increase the volume of the domestic market to 120 thousand tons, which will reduce imports thanks to the cultivation of trout and Atlantic salmon, while increasing export volumes to world markets. Commercial fishing in Kazakhstan is carried out by more than 1 thousand subjects of fisheries, for which 1,646 fishery reservoirs and their sections are assigned. The industry employs 11 thousand people. Fishing is carried out mainly in the Caspian and Aral seas, in the lakes of Balkhash and Zaysan, in the Bukhtarma, Kapshagai and Shardara reservoirs, in the Alakol system of lakes, in the rivers Zhayik and Kigash. The main fishing regions are at 13.1 thousand tons, 29.2% of the total, East Kazakhstan region at 8.2 thousand tons, 18.3%, at 7.4 thousand tons, 16, 4%, Almaty region at 6.6

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ECONOMIC NEWSLETTER, March 2020 Embassy of the Kingdom of the Netherlands

thousand tons, 14.6%, Mangistau region at 2.3 thousand tons, 5.2%, and Turkestan region at 2 thousand tons, 4.5%. Fish farming is dynamically developing in Kazakhstan. Over the past 7 years, the volume of fish grown has increased 9 times, from 800 tons to more than 7 thousand tons. 180 fish farms are engaged in fish farming in the country, where more than 1 thousand people are employed. In January 2020, Kazakhstani companies produced 1.7 thousand tons of fresh, chilled or frozen fish, 19.2% more than in January 2019; the production of fish, caviar and its substitutes prepared or preserved in another way amounted to 666 tons, a decline in production by 4.6% was noted. The main producers of fish, caviar and its substitutes, prepared or otherwise preserved, are the West Kazakhstan region at 274 tons, Turkestan region at 193 tons, and East Kazakhstan region at 51 tons. 518 tons of fish were produced in these regions, which is 77.8% of the total production. The Kazakhstani fishing industry could not fully meet the demand for processed fish, crustaceans and mollusks. In January-December 2019, needs were covered by local production by 45.3%. Retail prices vary significantly by region. On average, cold smoked mackerel in February this year cost 2,091 tenge per kg, salted herring cost 915.76 tenge per kg, sprats in oil at 509.3 tenge per 240 g. Mackerel and sprats were the cheapest in Kyzylorda, the cheapest herring is in Pavlodar. Most of all, mackerel and sprats cost residents of Taldykorgan, and salted herring for residents of the capital. Prime Minister Askar Mamin noted the need for systematic measures for the development of the country's fisheries and instructed to prepare a draft Concept for the development of fisheries of Kazakhstan by April 1. “To consider the lifting of the ban on fish farms to operate in water protection zones of rivers, as well as to reduce fees for fish using water resources, providing only payment for actual water costs. To improve the mechanism of payment for the use of fish resources, including lowering payment rates,” Mamin said, according to Energyprom.

Kazakhstan further develops sugar industry The Minister of Agriculture, Saparkhan Omarov, reported on the level of production and the supply of sugar and apples to the domestic market. The sugar industry is growing. The number of sugar beets increased from 345,000 tons to 486,000 tons, with an increase in yield from 285 to 325 quintals per hectare. Sugar self-sufficiency in recent years has doubled, from 7% to 14%. In January of this year, Kazakhstan imported more than 40,000 tons of sugar from Russia. Further development of sugar beet production will occur due to the expansion of sown areas, including in the northern regions of the country, and the restoration of additional irrigated land. In addition, it is planned to modernize existing factories and commission two sugar plants, which are located in Pavlodar and Zhambyl regions. New factories will be able to produce up to 216,000 tons of sugar annually, Kazakh Zerno reported.

Kazakhstan depends highly on import for roses, tulips Rose is still the most popular flower in Kazakhstan. In 2019, 73.5 million units were imported into the country, and their cost amounted to $29.2 million. The main deliveries were from Ecuador at 55.8 million units for $23 million, Kenya at 7.3 million units for $1.8 million, Colombia at 6.8 million units for $2.9 million, and the Netherlands at 2.9 million pieces for $1.2 million. On the second place are tulips, which are the traditional gift of the upcoming holiday. During the year Kazakhstan received 16 million bulbs for $1.5 million. The main supplier of these flowers is the Netherlands at 15.5 million pieces for $1.5 million. Poland brought to the country 500 thousand bulbs for $57 thousand.

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ECONOMIC NEWSLETTER, March 2020 Embassy of the Kingdom of the Netherlands

On the third place are chrysanthemums at $5.1 million for 11.9 million pieces. Almost all were imported from the Netherlands at 11.8 million units for $5 million. In 2019, imports of carnations amounted to 6.3 million pieces for $1.1 million, lilies to 1.4 million pieces for $630.2 thousand, hyacinths and daffodils to 343.9 thousand pieces for $1.1 million, and orchids to 230.5 thousand units for $199.2 thousand, according to LS.

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ECONOMIC NEWSLETTER, March 2020 Embassy of the Kingdom of the Netherlands

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