Economic Newsletter on |June 2019

CONTENTS MACRO-ECONOMICS & FINANCE ...... 2 ENERGY & NATURAL RESOURCES ...... 5 TRANSPORT & COMMUNICATIONS...... 8 AGRICULTURE ...... 10 WATER SECTOR ...... 12 MEDICAL SECTOR ...... 13 EXHIBITIONS IN KAZAKHSTAN (September - October 2019) ...... 15 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, June 2019 Embassy of the Kingdom of the Netherlands MACRO-ECONOMICS & FINANCE Kasym-Zhomart Tokayev sworn in as new Kazakh president Kasym-Zhomart Tokayev has been sworn in as Kazakhstan’s new president on 12 June after his landslide victory in the 9-June election. His inaugural speech was broadcast live by the country’s mainstream TV channels, including the state-run Khabar TV. “I solemnly swear to honestly serve the people of Kazakhstan, to protect the Kazakh constitution and laws, to guarantee protection of Kazakh citizens’ rights and freedoms, and to carry out the honourable duties of the given to me,” he said in Kazakh and Russian. The ceremony was attended by the former president , who resigned in March after nearly 30 years in power but remains head of the country’s powerful Security Council and chairman of the ruling party. Tokayev was elected for his first five-year term after stepping in as interim leader to replace Nazarbayev.

Kazakh Government list According to Government.kz, the current is represented by the following officials: Kasym-Zhomart Tokayev, President , Prime Minister Alikhan Smailov, First Deputy Prime Minister – Minister of Finance Gulshara Abdykalikova, Deputy Prime Minister , Deputy Prime Minister Saparkhan Omarov, Minister of Agriculture Aktoty Raimkulova, Minister of Culture and Sport , Minister of Defence , Minister of Digital Development, Innovation and Aerospace Industry Magzum Mirzagaliyev, Minister of Ecology, Geology and Natural Resources Askhat Aymagambetov, Minister of Education and Science , Minister of Energy Alikhan Smailov, Minister of Finance , Minister of Foreign Affairs Yelzhan Birtanov, Minister of Health , Minister of Industry and Infrastructure Development Dauren Abayev, Minister of Information and Social Development YerlanT urgumbayev, Minister of Internal Affairs Marat Beketayev, Minister of Justice , Minister of Labour and Social Protection of Population Ruslan Dalenov, Minister of National Economy , Minister of Trade and Integration

Two new ministries created in Kazakhstan President of Kazakhstan Kassym-Jomart Tokayev on June 17 signed the Decree on Measures for Further Improvement of the State Administration System, the president’s press service said in a press release. The Decree establishes a Ministry of Trade and Integration which takes over the functions and authority of the Ministry of National Economy including “development and implementation of policies concerning domestic and foreign trade, international economic integration, protection of the customers’ rights.” It also assumes the functions of the Ministry of Industry and Infrastructure Development, covering such areas as technical regulation, standardization and uniformity of measurements. In addition, the Kazakh Ministry of Foreign Affairs hands over its export promotion functions to the Ministry of Trade and Integration.

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President Tokayev also signed a decree appointing Bakhyt Sultanov as a minister of trade and integration. Sultanov, 47, earlier worked as mayor of Nur-Sultan, minister of finance, minister of economy and budgeting, head of the Statistics Agency, and deputy head of the Kazakh president’s administration. The Decree also establishes a Ministry of Environment, Geology and Natural Resources, which takes over the functions and authorities of the Energy Ministry including such areas as development and implementation of national policies concerning environment protection, domestic solid waste disposal, control over natural resources management; from the Ministry of Agriculture covering water resources management and protection, water supply and forestry; from the Ministry of Industry and Infrastructure Development – exploration of mineral resources. Mr Magzum Mirzagaliyev was appointed as a minister of environment, geology and natural resource. Mirzagaliyev, 40, has been a deputy minister of energy since August 2014. Earlier, he worked as a deputy minister of oil and gas and a top manager at National Company KazMunayGas.

Kazakh reviews Government’s report on execution of 2018 budget On 5 June, Kazakh Mazhilis reviewed the Government and Accounts Committee’s report on execution of the 2018 budget. According to the Mazhilis Finance and Budget Committee, the Government provided over 9.3 trillion tenge in 2018 to finance various programs, of which 99.8% was spent. The Government budget deficit was at 729.2 billion tenge last year or 1.2% of GDP, compared with the deficit target of 883.3 billion tenge. In 2018, the Government debt amounted to 15.387 trillion tenge or 26.2% of GDP, which demonstrated an increase of 13.9% from a year earlier. In addition, in 2018 the Internal Audit Committee conducted 686 audits and identified violations worth 355 billion tenge. The report will be now reviewed by the Senate and adopted during the joint session of the Parliament, according to Interfax-Kazakhstan.

Kazakh GDP showing steady growth Kazakh GDP growth, calculated at 4% from January-May, is maintaining positive dynamics, noted Minister of National Economy Ruslan Dalenov. “The dynamics in investments outpace GDP growth rate. The growth advanced from 7.8% against 6.7% within four months. Investments in agriculture and construction rose one and a half percent. Investments in industry grew by 17.5%,” he said at a June 12 government meeting. Industrial production grew by 2% during the five-month period. “At the same time, oil exploration declined by 3.2%, which was due to the planned reparation works. The processing industry grew by 3.6%, which compensated the decline in oil production,” he said. The highest pace was recorded in light industry and drinks and machinery production, where car assembly demonstrated 46.4% growth. Domestic car production continues to grow, as the country recently announced plans to double manufacturing to meet the demand within the Eurasian Economic Union. Kazakhstan also recently began building a Hyundai car assembly plant in the Region with a production capacity of 30,000 vehicles per year. The facility will supply the domestic and neighbouring markets except for Russia, which has its own plants. Dalenov also reported 8.8% growth in the construction industry. Approximately 4.6 million square metres of housing were commissioned during the five-month period. “Forty thousand, five hundred and forty-six housing units were commissioned nationwide. The increasing construction and commissioning of housing is continuing in 15 regions of the country. Local administrations need to step up their work to meet the annual targets,” Minister of Investments and Infrastructure Development Roman Sklyar told the same gathering.

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Inflation is estimated at 5.3% as of May. The growth in fixed capital investments was 7.8%, while international reserves made $86.7 billion. The trade turnover was $28.7 billion. Exports reached $18.5 billion; imports, $10.2 billion. First Deputy Prime Minister and Minister of Finance Alikhan Smailov also reported positive indicators in budget use. The national budget received 3.8 trillion tenge ($9.9 billion) from January-May, or 105.4% of the plan. Budget payments increased by 510 billion tenge ($1.3 billion) during the same period last year. “The plan is overdone primarily because of taxes. The following key factors impacted it, including increasing export customs duty rates and the growth of production of goods and services in a range of industries,” said Smailov. Budget use was more efficient compared to the same period in 2018. This year’s 4.9 trillion tenge ($12.7 billion) exceeded the previous year by 1.2 trillion tenge ($3.1 billion). Smailov noted the ministry undertook 1,462 measures to audit 292 billion tenge ($761 million) of budget funds. The analyses revealed 48 billion tenge ($125.1 million) in financial violations, with 39 billion tenge ($101.6 million) compensated through supplying goods and services. He encouraged central and local state bodies to complete state procurement procedures in a timely manner, according to the Astana Times.

Kazakhstan’s central bank keeps key rate at 9.0% According to Reuters, Kazakhstan’s central bank on 3 June kept its policy rate unchanged at 9.0%, it said. BANKING “Inflationary expectations continue to be below annual inflation,” it said in a statement.

Kazakhstan’s remaining second-tier banks continue mergers as field reforms After the National Bank’s purge of what it identified as bad actors in 2018, Kazakhstan’s remaining second-tier banks are now undertaking mergers and acquisitions to ensure financial stability, reports Finprom.kz. The Kazakh National Bank’s measures were intended to remove unscrupulous financial institutions from the banking sector and support those that conducted a “healthy financial policy ensuring a competitive environment,” said the then Kazakh National Bank Governor Daniyar Akishev. The shareholders of Tengri Bank, AsiaCredit Bank and Capital Bank Kazakhstan met May 31 to discuss their potential merger. Tengri Bank’s assets are worth 0.5% of the banking sector, AsiaCredit Bank’s assets are worth 0.4% and Capital Bank Kazakhstan’s assets are worth 0.3%. Their combined assets would be worth approximately 1.2% of the banking sector. First Heartland Securities acquired 99.5% of First Heartland Jýsan Bank (formerly Tsesnabank) in February. The latter will continue to develop services and products for Kazakh citizens and small and medium-sized businesses, and its activities will be instrumental in implementing economic diversification initiatives and promoting sustainable economic development, reports the Nazarbayev University press service. ForteBank completed its acquisition of 100% of Kassa Nova in May 2019. “In a period of rapid development and market changes, this transaction is an effective step to strengthen financial stability and increase the liquidity of the bank,” said Kassa Nova Bank Board Chairperson Sholpan Nurumbetova in May. “Thanks to access to ForteBank’s technological solutions, we will be able to not only optimise costs but also improve the quality of services. As a result, our employees and customers will receive a full range of unique services with the most favourable and comfortable conditions.” Kazkommertsbank’s merger into Halyk Bank was completed in July 2018, in which all of its property, rights and obligations were transferred. “We have completed a large process that lasted for more than a year and a half, starting with launching discussions, due diligence procedures prior to the acquisition of Kazkommertsbank shares, completion of a transaction, and, finally, the integration and

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merger of two banks. All of the transition procedures of Halyk Bank and Kazkommertsbank to a single technological platform were completed according to schedule. Now comes a new stage in the history of Halyk Bank and the entire financial sector of Kazakhstan. Millions of customers trust Halyk Bank, and we will do our best to meet their expectations,” said Halyk Bank CEO Umut Shayakhmetova last year.

Kazakh mortgage companies set lending record in first quarter Kazakh mortgage companies doubled their assets over the last year, reaching 546.3 billion tenge ($1.43 billion) at the end of April. Approximately 50.8% of that total is the share of the loan portfolio in assets in the first quarter of this year. That number is a first quarter record, reports finprom.kz. Mortgage companies have been increasing their share in the country’s economy. The share of mortgage companies’ assets in the gross domestic product (GDP) was 0.9% at the end of April, against 0.4% in 2018. The first quarter increase is associated with the appearance in June 2018 of the Baspana Mortgage Company. Although new in the market, Baspana had 285.4 billion tenge ($748.45 million) in assets, which is a 52.2% share of the market at the end of April. The company’s loan portfolio was 76.6 billion tenge ($200.88 million), which is 27.6% of the market share. The loans that Baspana issued increased two-fold from the end of 2018. Kazakhstan Mortgage Company (KMC) has 259.6 billion tenge ($680.79 million) in assets that accounts for 47.5%, the second biggest, in the market. The company’s loan portfolio indicators are, however, volatile this year, reports finprom.kz. The company had a 4.4% decrease in loans compared to the end of 2018. Express Finance is the third biggest with 1.4 billion tenge ($3.67 million) in assets. Its loan portfolio totalled 522.3 million tenge ($1.37 million) at the end of April. According to finprom.kz, state housing programmes have facilitated the growth of the mortgage market over the past year. Mortgage loans reached 200.2 billion tenge ($525.02 million), which is a 55.7% increase year-on-year. At the end of April, the amount of mortgage lending totalled 1.4 trillion tenge ($3.67 billion), which is an increase of 24.8% over the previous year. One of the primary factors for the growth is the 7-20-25 state programme, which constituted a 7.4% (39 billion tenge or $102.28 million) share of mortgage loans in 2018. In the first quarter of 2019, the share of mortgage loans under the programme reached 11.6%. Another factor that facilitated mortgage lending is a reduction in interest rates. At the end of April, the weighted average of second tier banks’ interest rate on mortgages was 8.1%, against 10.5% in 2018.

ENERGY & NATURAL RESOURCES OPEC notes decline in oil production by Kazakhstan in April to 1.6 million barrels per day OPEC has noted a decline in oil production In Kazakhstan in April by 0.23 million barrels per day to 1.6 million barrels per day, including LNG, according to AFK. The main reason for the decline in production is the shutdown of work at the Kashagan field since mid- April for scheduled maintenance. However, technical work was completed 10 days ahead of schedule, and work at the field was resumed on May 19. Meanwhile, it is expected that the level of oil production in Kazakhstan in 2019 will average 1.74 million barrels per day, including LNG, which is 0.07 million barrels per day lower compared to 2018. In the

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second half of 2019, the planned closure of Tengiz fields for 42 days and Karachaganak fields for 28 days for maintenance is scheduled. After a significant increase by 2.91 million barrels per day in 2018, the increase in the level of oil production in 2019 by non-OPEC countries is slowing. This year, growth is expected at 2.14 million barrels per day, which corresponds to the May forecast. In particular, it is predicted that oil production in the United States in 2019 will increase by 1.83 million barrels per day, after rising by 2.26 million barrels per day in 2018. Restricting further growth in US production is a factor in the limited infrastructure capacity for the transportation of oil in the Permian basin. Also a high level of gas flaring and discharge can be a problem for American shalers. At the moment, the level of gas flaring and discharge significantly exceeds the legal norms, which, according to the Norwegian consulting company Rystad Energy, can significantly limit the growth of oil production in the Permian basin.

Kazakh oil production rise to come from three fields An increase in oil production will be achieved from three major projects, Energy Minister Kanat Bozumbayev has said, according to KazTag. In the long term, the main increase in oil production will be achieved from three major projects (Kashagan, Tengiz and Karachaganak), which make up 60% of the country’s output, Kanat Bozumbayev told a public meeting on 20 June. He said that following repair work at the Kashagan field, which was carried out from 14th to 19th May, output had risen to a record 400,000 barrels a day, even though it had been planned to reach this level only at the end of this year. “At the same time, we expect our partners to decide by the end of this year on a strategy for full-scale development with a view to completely opening up the potential of Kashagan. “As regards the development of nearby offshore blocks of fields Kalamkas-Sea and Khazar on the synergy principle, partners are studying options for joint development,” he said. “In general, the environment for investment in offshore geological exploration has been made more attractive. Provisions for preferential treatment in the Tax Code have created the conditions for this. And so, in the medium term we expect work to be stepped up on such offshore projects as Isatay, Abai, Zhenis, Aktoty and Kairan,” he said. He said that 29 million tons was expected to be extracted from the Tengiz field this year, and after the implementation of the future expansion project in 2024, output is expected to increase to 39 million tons per year. “A new port has been built on the Caspian Sea (Prorva port), and a third-generation plant and raw gas injection facilities, an oil recovery system and a well drilling system are under construction. With the project's cost being about $37 billion, $12 billion are local content. Today, the purchase of goods, work and services from domestic enterprises amounts to $7 billion,” the minister said. As for the Karachaganak field, there might be a decrease in production given the “gas factor” growth. “We are addressing a number of issues such as the construction of facilities as part of projects to extend the production level of 11-12 million tons per year in the long term, and the completion of the basic design work. This will allow us not to reduce the extraction rate from the field in the long run,” Bozumbayev said. According to information from the Ministry of Energy, in the first five months of this year, oil production amounted to 36.5 million tons, that from these three major projects 21.7 million (Kashagan – 4.24 million tons, Tengiz – 12.48 million tons and Karachaganak – 4.97 million tons). This year, 89 million tons of oil is expected to be extracted.

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Hevel starts building 100MW solar plant in Kazakhstan The Russian firm Hevel Group has started the construction of the 100MW Nura solar power station located in the of the Republic of Kazakhstan, PV tech reports. The commissioning of the project is scheduled for 2020, and electricity will be supplied to the national grid. Hevel is working on the Nura plant as well as the 4.95MW Sarybulak project and the 3MW Kapshagay plant with a capacity of 3MW. The projects will be using capital from Hevel itself, complemented by debt financing from the Eurasian Development Bank. Hevel is also working on a 50MW solar project in the city of Kentau of the Turkestan region, as well as a 20MW plant in . “For the construction of solar power plants, we plan to use both our own heterojunction bifacial solar modules with a capacity of over 375W, as well as foreign equipment. Our plans are to further expand the portfolio of projects in Kazakhstan, ”said Igor Shakhray, general director of the Hevel group of companies.

Russia’s LUKOIL to launch another project in Kazakhstan LUKOIL, Russia’s 2nd largest oil company, will add another project in Kazakhstan to its portfolio, said Kurmangazy Iskaziyev, Deputy Chairman of the Management Board for Exploration, Production and Oilfield Services at Kazakhstan’s state company KazMunaiGas, Trend reports. Iskaziyev made the remarks at the 26th International Caspian Oil & Gas Conference in Baku, Azerbaijan on May 31. According to him, the company will sign an agreement with KazMunaiGas on a new offshore unit on the Kazakh shelf of the Caspian Sea next week. He stated that the agreement on the I-P-2 sea unit will be signed on June 5-6 during the forum in St. Petersburg. Iskaziyev noted that this is an agreed model contract that is to be signed with the government. “We have now passed the general stage and agreed on all commercial issues. All that remains is to sign the agreement,” he said. The companies will have equal shares in the project. The initial investment is estimated at $70 million, which will be spent on seismic works and drilling one exploration well. In April, LUKOIL signed a contract for the exploration and development of the Zhenis block adjacent to I-P-2 in the Caspian Sea. The company has been present in the Kazakh market since 1995 and participates in the Kumkol, Karachaganak and Tengiz projects, as well as in the Caspian Pipeline Consortium.

North Huajin Chemical Industries to invest in carbide plant construction in Kazakhstan Chinese company North Huajin Chemical Industries Incorporated is to invest into project CHEMICALS realization on the territory of Kazakhstan’s Chemical park special economic zone, & MINERAL Trend reports. RESOURCES The company will invest in carbide plant construction worth $600 billion in Taraz city of Kazakhstan’s Jambyl Region. The estimated output volume of the plant is 800,000 tons of product a year. The North Huajin Chemical Industries Incorporated company is among 500 largest organizations worldwide by oil, gas and chemical products manufacturing.

Kaz Minerals receives another $600 million for the construction of the mine An additional $600 million will be allocated to the project to expand the Aktogai ore mining and processing complex. According to the financial structure, the loan was granted for a period of 15 years.

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“The total amount of financing of Kaz Minerals Aktogay by the bank, taking into account the first loan in the amount of $300 million, issued in December 2016, is $900 million,” the financial structure explained. According to the project, it is planned to build a second processing plant for the processing of sulphide ore and related infrastructure for $1.2 billion. “After commissioning of the Aktogay II project, the enterprise’s capacity will increase from 25 million to 50 million tons of ore processing per year. The annual production of copper from sulphide ore will increase to 170 thousand tons in the period from 2022 to 2027 and 130 thousand tons later, that is, the increase will be 80 thousand tons and 60 thousand tons, respectively,” the bank added. According to Kasim Mukhanbetov, a senior banker at the DBK directorate for work with clients, the company took up $300 million to complete the construction of a sulphide ore processing plant at the Aktogay deposit. “In October 2017, the company reached the level of design production, after which it was decided to build a second enrichment plant to double the capacity,” a bank representative said. In turn, Kaz Minerals Chief Financial Officer, John Hadfield, noted that is the main market. “The copper concentrate produced at Aktogay and Bozshakol mines is attractive for Chinese copper smelting companies due to the absence of harmful impurities such as arsenic and iridium,” Hadfield stressed. It is expected that 997 jobs will be created. In 2018, they reported on the construction of a large processing plant at the Aktogay copper deposit, LS Kazakhstan reported.

TRANSPORT & COMMUNICATIONS China’s $1.9 billion Belt-and-Road Rail Project goes off track A planned light-railway system that was the most high-profile project in Kazakhstan of China’s Belt and Road infrastructure program has hit a wall. A series of concrete columns snaking through the capital, Nur-Sultan, are the only visible evidence marking the route of the $1.9 billion railway project that was supposed to start operating in 2020. China Development Bank halted lending last year after the collapse of the bank where funds it had provided were deposited. Kazakh officials now say they will have to borrow domestically to complete the work. ’s largest energy producer is a key element in Chinese President Xi Jinping’s “project of the century” to revive ancient Silk Road trading routes with massive infrastructure projects connecting China with Europe and Africa. Kazakhstan turned to China for billions of dollars in investments to help reboot an economy that grew just over 1% in 2015 and 2016, its slowest since 1998, after oil prices slumped, rocking the nation’s banking sector. China hasn’t said why it stopped funding the project. Calls to China Development Bank’s press service went unanswered. “One factor” in China’s decision to halt lending is that $258 million of the $313 million it had provided hasn’t been spent on the project, the Nur-Sultan mayor’s office said in an emailed response to questions. China Development Bank had lent the money to Kazakhstan’s state-owned TOO Astana LRT, which hired a consortium of Chinese companies to carry out construction on the light-rail network. The Kazakh capital, previously known as Astana, was renamed after leader-for-life Nursultan Nazarbayev in March. Astana LRT deposited the funds in Bank of Astana but didn’t disburse them. Less than a month before the central bank revoked Bank of Astana’s license in September 2018, the liability for the deposit was transferred to the Finance Ministry’s Problem Loan Fund. China Development Bank stopped financing the project in October.

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Kazakhstan has pledged to repay China Development Bank in line with the loan agreement, according to the mayor’s office. So far, the Problem Loan Fund has released 3.3 billion tenge ($8.6 million) to Astana LRT to pay the contractors in February, it said. “From the very beginning, many observers have been questioning the project’s valuation,” said George Voloshin, a Paris-based analyst for Aperio Intelligence Limited. “I am sure that many financial analysts would be surprised, if they had that level of access, at the figures at which Astana LRT had been initially assessed, both in terms of how much it would cost to build the infrastructure and how quickly the loan could be paid back.” Kazakhstan is working on restructuring the Chinese loan, which is protected by a state guarantee, Ruslan Meirkhanov, head of the Finance Ministry’s state borrowing department, said in an interview. The mayor’s office, not the ministry, will be responsible for completion of the railway project, and will raise funding in tenge to reduce currency risks, he said. There’s also the question of whether the population of the capital needs the project, according to Voloshin. “Astana LRT is probably that white elephant, that is, something that costs much and presents little relevance for the population of Nur-Sultan,” he said.

Trans-Caspian backbone project Agreement approved by Government of Kazakhstan The intergovernmental agreement on laying the fiber-optic backbone cable line through the bottom of the Caspian Sea between Azerbaijan and Kazakhstan on the Trans-Caspian backbone project with the participation of the internet backbone provider AzerTelecom, which connects Azerbaijan to the international Internet network, was approved by the Government of Kazakhstan, Trend reports. The intergovernmental agreement ‘On organization of activities by communication operators of Azerbaijan and Kazakhstan in relation to the joint construction of fiber optic transmission lines along the bottom of the Caspian Sea on Azerbaijan-Kazakhstan route, their ownership, and use’ signed on 19 March 2019, was ratified by the Azerbaijani parliament in April this year and was approved by President Ilham Aliyev. On May 17, the above-mentioned agreement was approved by the government of Kazakhstan as well. In accordance with the document, the laying of the Trans-Caspian backbone cable will be carried out by AzerTelecom Company, a subsidiary of the country’s first mobile operator Bakcell from the Azerbaijani side, and from the Kazakhstan side, it will be carried out by Kazakh telecommunication operators - Transtelecom and KazTransCom companies. For this purpose, a Consortium has been established and formed a Joint Working Group in connection with laying of the Trans-Caspian line with the total length of 380-400 km, as well as a joint contract has been signed for its construction. The Trans-Caspian backbone project, implemented within the Azerbaijan Digital HUB program of AzerTelecom Company, envisages the creation of a digital telecommunication corridor (Digital Silk Road) between Europe and Asia. The purpose of the project is to create a digital corridor that will pass through Azerbaijan and Kazakhstan from Europe to China through Azerbaijan-Kazakhstan route and, thus, transmit Internet traffic to Central Asia and China. The TransCaspian fiber-optic highway project implemented within the framework of the Digital HUB program, will have a very special role in the development of a fiber-optic cable infrastructure of a large region in the whole, in providing high-speed Internet access and advanced digital services to Caucasus, Central Asia and South Asia, as well as to other surrounding regions. Implementation of the project will also contribute to the “Belt and Road Initiative” (BRI) project, initiated by China and will transform Azerbaijan into a telecommunication corridor of the Belt and Road Initiative (BRI). AzerTelecom is one of the largest telecommunication operators in Azerbaijan and the South Caucasus region and is the subsidiary of Bakcell Company, the country’s first mobile operator and the fastest mobile internet provider. AzerTelecom was founded in 2008 and provides various services to local and foreign companies in the telecommunication sector.

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AzerTelecom is currently implementing the “Azerbaijan Digital Hub” program to turn the country into a Regional Digital Center, in addition to the status of the Energy and Transport Center owned by Azerbaijan. The purpose of the Digital Hub program is to turn the country into a Digital center for the Caucasus, CIS, Central and South Asia, the Middle East and surrounding regions.

Kazakh IT startups attract $76 million in investments in two years Kazakh IT startups have attracted nearly 29 billion tenge ($76.3 million) since 2018. Astana Hub, the capital’s international technopark of IT startups, contributes to the country’s Digital Kazakhstan programme designed to build secure digital infrastructure, incorporate digital technologies into the country’s economy, digitise government services and train Kazakh specialists, noted Minister of Digital Development, Innovations and Aerospace Industry Askar Zhumagaliyev. It launched in February 2018 and has now 100% occupancy, noted the minister. More than 260 projects involving nearly 1,000 entrepreneurs have completed Astana Hub incubation and acceleration programmes. The hub also hosts 16 research and development centres representing such companies as CISCO, Huawei, IBM and Intellisense. “Innovators have access to consultations, technical expertise, equipment and software,” he said. It seeks to attract at least 67 billion tenge ($176.4 million) by 2022, increase local content in IT companies up to 70% and contribute to creating ten IT companies by 2025 with a market capitalisation of $1 billion. Zhumagaliyev said the law on venture financing adopted in October 2018 is an important factor in developing an innovation ecosystem providing financial support to startups, among other goals. The document introduces state support mechanisms provided through QazTech Ventures and QazAngels business angels club. QazTech Ventures, a subsidiary of Baiterek National Holding, was established in May after the National Agency for Technological Development was changed. The new company is tasked with supporting development of private capital market through venture financing, supporting private business incubators and providing technology consulting services and training programmes. QazTech Ventures and QazAngels will create two venture capital funds, he added. IT companies also enjoy a special regime including tax preferences and simplified visa and labour procedures. The investments are regulated by the Astana International Financial Centre and its English common law principles. “These simplified procedures are accessible to all IT companies. In addition, for Astana Hub participants, there are special conditions to attract foreign specialists. These include exemption from taxes and work visas for up to five years. We received 120 applications and 52 companies of those are being registered,” said Zhumagaliyev. IT hubs are opening across Kazakhstan with the support of local officials. “Given such dynamics in the ecosystem growth in the capital, we plan to share the experience with startups in Kazakh regions,” he added. Astana Hub and the ministry plan to launch a regional road show programme in September that will include visits to all 14 regions and three cities of national significance, according to the Astana Times.

AGRICULTURE Kazakhstan to expand export of agriculture products to China A delegation of the Kazakh Agriculture Ministry led by Vice-Minister Gulmira Issayeva is holding talks with Chinese counterparts in Beijing. In particular, the sides discussed possibilities of export of Kazakhstan’s pork, camel milk and wool, and some other

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agricultural products to the Chinese market. Furthermore, China's Cofco Trading company intends to increase imports of Kazakhstan grain and flour to China. In addition, Kazakhstan plans to open a pavilion of agriculture products in Xinfadi – China’s largest agricultural products wholesale centre based nearby Beijing, Interfax-Kazakhstan reports.

Another sugar plant to be built in Kazakhstan Some 70 hectares of territory was allocated for the construction of a sugar plant in Kazakhstan’s Aksu city of , Trend reports. “Russian company Bma Russland developed the feasibility study of the project, the technical specifications on connection to engineering networks systems were also received. Currently the budget and design documentation is being developed,” the report said. “Furthermore, the negotiations with potential investors, i.e. companies from Russia, China and Spain are taking place,” reads the message. The construction of the plant is to be finished by 2021. The preliminary cost of the project is estimated to be $150 million. Furthermore, Pavlodar region possesses all necessary resources for the project realization, i.e. cheap electricity, large river and an increase of irrigated land area. “The plant is to process up to 6,000 tons of beets and to manufacture 100,000 tons of sugar per day, which accounts for 20% of Kazakh market demand. The manufactured product is also to be exported to Russia, China and Europe,” the statement said.

Modern slaughterhouse opens in Turkestan The slaughterhouse is located on the territory of the central livestock market Nur Assem and is equipped with modern freezers manufactured in Russia that allow to achieve maximum freezing capacity. Over 20 people are engaged in slaughtering. Production capacity of the enterprise is 70 tons of meat per day, according to KazakhZerno.kz.

Indian VENKY’S is ready to invest in the poultry industry of Turkestan Oblast A large Indian poultry company, VENKY’S is ready to invest in the development of poultry industry in Turkestan Oblast. VENKY’S supplies poultry meat to 90% of the Indian market and is interested in possible cooperation with poultry breeders in Turkestan, KazakhZerno.kz informs. The company established in 1971 actively cooperates with its colleagues not only in India, but also in the USA and Europe, where it is mainly known as VENKY’S. the company is engaged in poultry breeding, egg and egg powder production and vaccines for the poultry sector. Indian poultry producers plan joint projects together with Ordabasy Kus LLP and Shymkent Kus LLP in Turkestan Oblast.

More than 10 billion tenge to be allocated to improve irrigation in Kazakhstan A project to improve irrigation and drainage systems is being launched in Maktaaral district of the Turkestan region, Kazakh Zerno reports. The project, which will be financed by 70% from the national budget and by 30% from the World Development Bank, plans to put in order 223 canals, 208 discharges and 149 vertical drainage wells on a total area of almost 40 thousand hectares. The work will take place in three stages. The first stage involves bringing to order the irrigation system and vertical drainage wells in Enbekshi and Zhanazhol rural districts, including overhaul of 147 kilometres of canals, 49 wells and more than 190 kilometres of water discharge. More than 10 billion tenge is allocated for these purposes. Restoring the system of vertical wells will not only save the fields from secondary salinisation, but also will not allow groundwater to flood settlements during the rainy seasons and the melting of snow.

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For example, the operation of four vertical drainage wells in the district centre Myrzakent will not allow groundwater to flood 8 thousand hectares of land.

Kazakh growers develop new varieties of vegetables for greenhouses The Kazakh Research Institute for Horticulture showed varieties of Kazakhstan breeding, bred by scientists of the Research Institute. Including varieties of cucumbers and tomatoes, intended for growing in greenhouses, Kazakh Zerno reports. “Kazakhstan does not have its own varieties specifically for greenhouses. These are the first breeding works, this year they are performing well in the greenhouse. Our goal is to provide the whole of Kazakhstan with scientific support. We want the country to be independent from imports, to have its own varieties, technology. We need to develop our own agriculture,” the main scientific secretary of the Kazakh Institute of Horticulture Balnur Kabylbekova explained. Another advantage of Kazakhstan varieties is the relative cheapness compared to planting materials brought from abroad. According to her, in some cases, prices for imported seeds are 10 times higher than their Kazakhstan counterparts. The Kazakh Research Institute of Horticulture provides farmers with seed materials of vegetable crops, as well as planting material for potatoes.

More than 2,000 head of cattle imported to Pavlodar Region Cattle from Russia and the Czech Republic were imported to the Pavlodar Region for its animal husbandry development, Kazinform reported June 10. The 2,485 head (including 691 head of Simmental cow) were imported from Russia’s Bryansk, Kemerovo, Krasnoyarsk, Novgorod and Tomsk regions, as well as the European country. The region plans to purchase 10,191 head through the end of the year, with the current buy representing 17.6 percent of the target. The imports are being completed with the assistance of the Sybaga state program. The imported livestock were purchased by the Terenkol (326 head), Irtysh (312 head) and Bayanayul (280 head) districts of the Pavlodar Region. The cost per head depends both on the species and the exporting country. According to Agrarian Credit Corporation data, Angus cow species are 750,000 tenge ($1,944); the balance are approximately 650,000 tenge ($1,685). The cost is divided between the farms (such as ASTYK-PV) and state subsidies, with 225,000 tenge ($583) per breeding head and 175,000 tenge ($453) per purebred head. The Pavlodar administration is aiming to eventually increase the region’s meat export rates, said Regional Agriculture Administration deputy head Marat Shugayev. Pavlodar region, which exported 1,348 tonnes of meat in 2018, plans to increase the rate to 2,300 tonnes this year. The region exports beef to Russia and mutton to Arab countries. Negotiations with China for meat exports started in March, but due to Chinese regulations, a decision might take a while, he added. The region currently has 27 large and medium dairy farms with a total capacity of 9,244 head of cattle. The Sybaga programme is focused on providing farms with animal husbandry loans, particularly for importing cattle, according to the regional akimat (administration). The 4- percent interest loans are executed through the Agrarian Credit Corporation and Agriculture Financial Support Fund. With the programme’s assistance, 1,800 head of cattle were imported into the region last year.

WATER SECTOR Kazakh government plans significant improvements to country’s drinking water supply by 2023

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

The water supply will be improved this year for 126,800 people in 68 Kazakh villages. Approximately 90.2% or 16.5 million people out of Kazakhstan’s 18.4 million population have access to the centralised water supply. Minister of Industry and Infrastructure Development Roman Sklyar said at a June 4 government meeting that it is planned to increase this indicator to 97 percent this year and to 100% by 2023 to improve the quality of life. In rural areas, 6.5 million people or more than 84% have access to centralised water supply services. Other villages use local water sources. The ministry intends to reach an indicator of 88% this year and to cover 100% of the population with appropriate infrastructure by 2023. “We will set the integrated water purification systems to provide small villages with a population of less than 200 people with drinking water. This will cover 1,333 villages. The centralised water supply will be installed in 1,274 villages with a population of more than 200 people. Overall, 1.2 million people in 2,607 villages will be provided with water supply services that meet sanitary standards,” he said. The ministry developed a mechanism to attract additional funds to solve this issue. “We will bring the wastewater treatment standards to European Union’s environmental standards. This will reduce costs by up to 30% according to experts. We will introduce energy efficient technologies to produce biogas production and sludge processing. The public-private partnership will contribute to the modernisation of cooperatives of apartment owners in cities within three years,” he said. Minister of Agriculture Saparkhan Omarov said Kazvodkhoz company manages 33 group water lines, which run more than 12,000 kilometres. The company will build and reconstruct the water pipelines as part of the state regional development programme for 2020. Some 1,035 kilometres of water pipelines were built and 1,441 kilometres of networks were reconstructed in 2011-2018. As a result, the water supply was improved in 268 rural areas with a population of 553,000 people. “Overall, pipe failures in water networks decreased from 75% to 56%. Some 2,281 kilometres of networks are in need of reconstruction,” he added. This year, 14.6 billion tenge ($38 million) was provided for 12 water pipeline projects and eight projects will be completed this year. The single operator will be responsible for the construction and reconstruction of all pipelines and intra-settlement networks in the villages. This will exclude intermediaries who purchase water from water pipelines at a subsidised rate and sell it with added value. European Bank for Reconstruction and Development (EBRD) for Kazakhstan Director Agris Preimanis said the housing and utilities sector is one of the priorities of EBRD’s work in Kazakhstan. More than 30 billion tenge ($78 million) were invested in 12 projects related to water supply and wastewater sector in the South Kazakhstan Region. The quality of drinking water improved and the water supply increased.

MEDICAL SECTOR Turkish company to invest nearly $286 million to build two multi-regional hospitals in Kazakhstan The Turkish YDA Holding company will invest 110 billion tenge ($286.24 million) in the construction and equipment of two medical facilities in Petropavlovsk and Turkestan. The construction is to be completed by 2022. The Akim (Governor) Kumar Aksakalov and YDA Company Holding Chair Arslan Hussein signed June 12 a document on the construction of a multi- regional hospital for 500 beds with a consultative and diagnostic centre in Petropavlovsk. The hospital complex will replace seven older, single-disease facilities.

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

Another multi-type hospital will be built in Turkestan. Turkish company chair, Turkestan Region Akim and BI Holding CEO Aidyn Rakhimbayev signed a document on the cooperation in the construction of a multi-type regional centre for 610 beds. The hospital plans to open oncology and cardiology departments, a perinatal centre and an ambulance station, among other facilities. Hussein said Kazakhstan has a favourable investment climate and all conditions to realise the projects. The projects closely align with regional long-term health infrastructure development plans. The projects will be built as part of Aleumettіk Qamqorlyq (Social Care) national programme and in line with the instructions given by Kazakh President Kassym-Jomart Tokayev. The projects will update the country’s healthcare infrastructure, meet domestic demand, improve the quality and availability of medical services and create centres for medical tourism. Founded in 1954, YDA Group has grown into one of the leading conglomerates in Turkey. It holds construction and contracting companies, such as AKSA Construction and YDA Construction. YDA Group has had projects in Kazakhstan, Ukraine, the United Arab Emirates, Russia, Saudi Arabia, Afghanistan and Moldova since 2000s. It has experience in build-operate-transfer and public private partnership infrastructure projects, particularly for city hospitals, in Turkey and abroad in addition to its real estate investment projects.

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ECONOMIC NEWSLETTER, June 2019 Embassy of the Kingdom of the Netherlands EXHIBITIONS IN KAZAKHSTAN (September - October 2019) KazBuild International Exhibition Construction and Interiors, Windows, Doors and Facades, Ceramics and Stone 4 – 6 September 2019, Almaty Organizer: Iteca www.kazbuild.kz

Aqua-Therm Almaty Kazakhstan International Exhibition for Heating, Ventilation, Water Supply and Swimming Pool Equipment 4 – 6 September 2019, Almaty Organizer: Iteca

www.aquatherm-almaty.com

TransKazakhstan / Translogistica Kazakhstan International Transport and Logistics Exhibition 18 – 20 September 2019, Almaty Organizer: Iteca www.transkazakhstan.kz

Mining and Metals Central Asia Central Asian International Mining Exploration and Mining Equipment Exhibition 18 – 20 September 2019, Almaty Organizer: Iteca www.miningworld.kz

KAZCOMAK Kazakhstan International Road and Heavy Construction, Communal Machinery Exhibition 18 – 20 September 2019, Almaty Organizer: Iteca www.kazcomak.kz

Kazakhstan Security Systems International Security and Civil Protection Exhibition 1 – 3 October 2019, Nur-Sultan Organizer: Astana Expo KS www.astana-expo.com

PromStroiAstana Kazakhstan International Construction Exhibition 2 – 4 October 2019, Nur-Sultan Organizer: Atakent Expo www.buildexpo.kz

Powerexpo Almaty Kazakhstan International Energy, Electrical Equipment and Machine Building Exhibition 23 – 25 October 2019, Almaty Organizer: Iteca

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

www.powerexpo.kz

KAZTYREEXPO International Exhibition of Tyres and Tyre Fitting Equipment 17 – 19 October 2019, Astana Organizer: Iteca www.kaztyre.kz

KazAgro Kazakhstan International Exhibition and Forum for Agriculture and Food Industry 23 – 25 October 2019, Nur-Sultan Organizer: Expo Group www.expogroup.kz

KazFarm Kazakhstan International Exhibition for Cattle Breeding, Meat and Dairy Sectors 24 – 26 October 2018, Astana Organizer: Expo Group www.expogroup.kz

Astana Zdorovie 2019 Kazakhstan International Exhibition on Healthcare 30 October – 1 November 2019, Nur-Sultan Organizer: Iteca www.astanazdorovie.kz

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

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

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