Kazakhstan is firmly on international investors' radar screen

Jan 27, 2003 01:00 AM

Kazakhstan's economic improvement in the last three years is helping its leaders paint the country as the up-and-coming former Soviet republic in which investors should invest their money. In 2001, foreign direct investments there surpassed those in Russia, totalling $ 2.76 bn, compared with the $ 2.47 bn in Russia.
Last fall, the rating agency Moody's upgraded the country's credit rating to investment grade, making it the only former Soviet republic to "graduate" in that category. This put it firmly on the international investors' radar screen. A delegation of senior officials from the country addressed a 100-strong businessperson audience in Singapore hoping to attract new investors.

Kazakhstan's transformation since the break-up of the Soviet Union in December 1991 has been considerable, albeit charting a roller-coaster course. Economic output fell steadily from 1991 onwards and by 1998, the country had lost a third of its pre-independence GDP, mainly as a result of the collapse of demandfor its traditionally heavy industrial products. The decline was further exacerbated by the Asian and Russian economic crises of 1997-1998.
But 1999 was a turning point for the country's economic performance as sound macro-economic policies started to bite. After a period of stabilization and active privatisation, the country's gross domestic product, which grew modestly in 1999, started to gather momentum to grow 9.6 % in 2000 and 13 % in 2001.

Last year, GDP is estimated to have grown 9.5 %, Deputy Prime Minister Kari Asimov said, with the share of the private sector in GDP nearing 70 %. "This rate of growth over the last 3 years is quite impressive," Asimov noted. "The investment climate makes the country attractive for investors from all over the world. Favourable external and internal economic conditions, including significant progress in reforms as well as legislation for foreign investments give a significant support to the process," Grigory Marchenko, governor of the National Bank of Kazakhstan, added.
The country's economic growth has come with a reduction in inflation, which has steadily fallen from a runaway 2,200 % in 1993 to 13.2 % in 2000 and 8.4 % in 2001. Last year, the annual average inflation rate decreased further to 5.9 %, Marchenko estimated. "This year and next, the National Bank of Kazakhstan will be aiming to keep the inflation rate within a 4-6 % range, and reduce it to 3-5 % in 2005," Marchenko told investors.

Foreign debt as a percentage of GDP has also fallen from 24 % of GDP to the low teens, while the country's international reserves increased 25.1 % in 2002 to hit $ 3.14 bn. The country is benefiting from rich natural resources, with the two largest oil discoveries of the last 20 years made there. Tengiz, with an estimated 6-9 bn tons of reserves is operated by ChevronTexaco, while Kashagan, with 7-9 bn barrels of estimated reserves, operated by a consortium of large western companies.
Without Kashagan, the total proven oil reserves of the country are 2.2bn tons, Massinov underlined. Last year, Kazakhstan produced 47 bn tons of oil and the country is planning to increase this production to 150-170 bn tpy by 2015, making it one of the top 10 producers in the world.
Indeed, the US State Department has noted in a report that with the potential, recoverable reserves reaching 200 bn barrels of oil, the Caspian region may become one of the most significant new payers on the global oil market by the next decade.

Some analysts are sceptical of Kazakh government claims. They caution growth in recent years has been heavily influenced by high oil prices and by a surge of US oil company investment in the region, and that the country remains relatively poor, with GDP per capita at purchasing power parity of $ 5,900 (according to the CIA World Fact Book). The Kazakh deputy prime minister, Massimov, said to the Singapore audience that his government wants to turn the country into a regional economic tiger, and aims to strengthen the economic fundamentals and improve the quality of life to the level of medium-developed countries.
That said, Massimov also recognized the challenges faced by a country so dependent on oil and commodities price changes. The metals, oil and gas and mineral sector together account for more than 80 % of export. "We need to diversify our industry and encourage foreign direct investments toward new sectors, instead of commodities," Massimov said.

Yerbol Orynbayev, deputy minister for economy and budget planning, added: "Now Kazakhstan is at a completely new stage of development in investments. It is necessary to transit from quantity of investments to its quality."
Orynbayev added that state investment policy would be aimed at encouraging and supporting export oriented high tech enterprises.

Source: United Press International
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