bne:Invest in Astana - September 2014

Content: 1 Top Story 2 Interview 6 Feature 9 Sector10 Corporate statement12 Economics & finance16 Chart17 News in brief

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Top story

Kazakhstan launches rail line to link China with Europe,

Middle East

Kazakhstan has commissioned a new east-west railway line that will cut the transit time for Chinese goods to Europe via Russia and the Middle East. In addition to rivalling sea routes for Chinese cargoes, the new line will spur the development of the Kazakhstan’s central and Aral Sea regions attracting investment in raw minerals and industrial projects.

President Nursultan Nazarbayev formally opened both the east-west Beyneu-Zhezkazgan line and the north-south Arkalyk-Shubarkol line on August 22. The two lines add a total of more than 1,200 kilometres to Kazakhstan’s rail network.

"Today we are launching two new railway lines. This has not happened before in our history. The

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work of the Zhezkazgan-Beyneu and Arkalyk-Shubarkol lines will define the lives of several regions and the entire country for many years and decades to come," Nazarbayev said at the opening ceremony in the central Kazakh town of Zhezkazgan, according to the Kazinform news agency.

The Beyneu-Zhezkazgan line will enable Chinese cargo to cross Kazakhstan along an almost straight east-west line, cutting the transit route across the country by around 1,000km. The 1,036km line, which cost KZT561bn ($3.6bn) to build, will link to the new Kazakhstan-Turkmenistan-Iran line, the Turkmen sector of which was completed in August.

Meanwhile, the north-south Arkalyk-Shubarkol line will connect bauxite and lead mines around Arkalyk to the coalmines in Shubarkol and will solve the problem of Arkalyk's remoteness from other urban and industrial centres. Both lines are part of a wide-reaching modernisation of Kazakhstan’s rail network.

One of the main goals of this overhaul is to establish Kazakhstan as a key transit state on the China-Europe cargo route. Kazakhstan hopes the direct railway link between China and Europe via the Customs Union (CU) member states of Russia and Belarus will entice exporters from central and western China to consider the trans-

Eurasian railway networks as an alternative to sea routes which cross disputed waters in the South China Sea.

Since Kazakhstan is part of the CU, which will be transformed into the Eurasian Economic Union in 2015, Chinese cargo travelling by rail will undergo customs clearance only once on the Kazakh-Chinese border, and this, the Kazakh government claims, will cut travelling time between Chinese eastern seaboard and the EU's eastern borders to just 10-11 days against up to 44 days by sea and 14 days along the Trans-Siberian railway.

In order to boost the transit of Chinese cargo by rail Kazakhstan intends to increase the capacity of the existing Dostyk-Alashankou railway corridor from the current 23m tonnes a year to 50m tonnes. In 2012, Kazakhstan commissioned the second Zhetygen-Korgas railway link to China with a capacity of 12m tonnes per year, with a prospect of increasing to 33m tonnes per year.

In addition to railway links via Kazakhstan, China is also considering the construction of a railway line to Uzbekistan via Kyrgyzstan. However, this project has been stalled because Kyrgyzstan wants the line to link its northern and southern regions, while China and Uzbekistan advocate a shorter, more direct route between China's Kashgar and Kyrgyzstan's Osh.

September 2014 Page 2


Interview

Trading corridor extended for tenge but banking sector problems persist

Kazakhstan's central bank has extended the currency trading corridor to enable the tenge to strengthen up to 8% against the dollar, in a bid to diffuse fears among the populace that the authorities are planning a second devaluation. A wider trading corridor is welcome news for the country's embattled financial sector, which is still recovering from the 2007 housing market crash and 2008 global crisis.

On September 10, the governor of the National Bank of Kazakhstan, Kairat Kelimbetov, announced that the regulator had widened the trading corridor against the dollar from KZT185 plus/minus 3 to KZT185 plus 3/minus 15. Earlier, Kelimbetov speculated that the new corridor would allow the currency to appreciate to KZT179-181 to the dollar, speculating it might even strengthen to as high as KZT170.

The National Bank devalued the tenge by 19% in February after spending billions of dollars trying to keep the exchange rate stable as the currency of Kazakhstan's major trading partner Russia collapsed. Russia accounts for around a third of Kazakhstan's total imports.

Since that February devaluation, rumours have been swirling in the country's financial capital, Almaty, about a "second wave" of devaluation, which the regulator now seems to have decided to quell by reassuring about the tenge's strength.

Local financial analysts share Kelimbetov's optimism over the tenge, but warn against complacency about the behaviour of the Russian currency, which is continuing to fallin value as more sanctions from the West



are imposed. "The more we will integrate with Russia, the more we will depend on the ruble," Sabit Khakimzhanov, head of research at investment bank Halyk Finance, tells bne in an interview.

Kazakhstan, along with Russia and Belarus, is a member of the Customs Union, which will be transformed into the Eurasian Economic Union in 2015. He says the arguments offered by Kelimbetov in support of the tenge are of a fundamental nature whereas the devaluation problems of the tenge are not fundamental. "I agree with him that the tenge still has a cushion and it is undervalued against the ruble," he continues, "but our currency faces pressure because there is no certainty about and trust in the tenge and monetary policy since the fixed-rate regime is always more fragile and inflexible."

Problems in Kazakh banking systemKazakhstan's banking system is currently facing two major problems – rising non-performing loans (NPLs) and long-term funding.

Kazakh banks suffered badly from the bursting of the property bubble in 2007 because of their dependence on foreign funding, which came to a "sudden stop" as the credit crunch took hold. The banks reacted to this shock by raising interest rates and shifting the burden onto the clients. "When you shift the risks onto the clients, the quality of assets worsens," Khakimzhanov notes.

The already poor quality of commercial banks' loan portfolios worsened further as a result of the global crisis and has recovered only very slowly. Even thought the government has been preoccupied with the problem of bad loans in the past few years, the share of NPLs stood at 31.6% for the whole of the banking system as at August 1. The government has tried to solve this problem in an administrative manner by establishing schemes to buy out NPLs from commercial banks and to encourage them to write off NPLs, but these measures have largely failed. The

government has now ordered banks to reduce the share of NPLs in their loan portfolios to 15% by 2015 and 10% by 2016. Annette Ess of Standard & Poor's told a conference in Almaty on September 10 that most of the banks ("about three-quarters" of the country's 38 banks) to which S&P's assigns ratings would fulfil the 15% requirement by the end of 2014 or would be close to it.

Ess believes that banks will manage this by writing off debts, increasing the recovery of debts through the sale of security pledged on loans (though this takes time), and setting up special subsidiaries that will continue to deal with NPLs.

Khakimzhanov of Halyk Finance explains that banks will funnel bad loans from their balance sheets, but will keep them as part of consolidated balance sheets. He sees the root cause of the problem in the imperfect legislative basis - the company law, the bankruptcy law and civil laws – which creates a "certain barrier" to making the transfer of property rights easier and freer. In his opinion, Kazakhstan needs to change these laws and regulations, and strengthen the role and independence of the judiciary to solve problems in the banking sector. "Unlike the OECD countries, Kazakhstan doesn't apply regulatory impact analysis and lacks specialists and analysts because there is no demand," the analyst complains.

Transparency in the financial sector, infrastructure, reporting and corporate governances also remain major issues in the country, where the law prevents banks from holding stakes in non-financial organisations privately; as a result, banks can only acquire shares in such entities on the stock exchange. "This means banks cannot control insolvent debtors and cannot appoint an administrator. A threat of this happening usually disciplines debtor companies. In Kazakhstan, banks cannot do anything with insolvent entities," Khakimzhanov tells bne.



Without creditors exercising their right to sell assets of debtors who fail to fulfil their obligations, the quality of loan portfolios will continue to be a problem in Kazakhstan, he believes. "This means banks will issue loans only to affiliated entities because there is less risk. Only banks with administrative leverages will develop in this situation because it is impossible to establish control over debtors via courts without the trappings of power," he says.

At the moment, Kazakh banks issue loans only on security, usually assets and working capital, Khakimzhanov explains, "otherwise they will not be able to control debtors."

Capital requirementsIn order to strengthen the banking system, the National Bank intends to increase minimum capital requirements from the current KZT10bn to KZT100bn in 2019. The banks that fail to meet these requirements will have a cap placed on them over the retail deposits they can attract. The regulator explains the measure by the need to "increase the share of loans in GDP, expand the coverage of consumers with financial services, develop new high-tech services, including mobile banking and internet banking services and to switch to Basel III standards."

In a commentary published on August 8, S&P said the new capital requirements would strengthen the banking sector "only if there

are simultaneous efforts to improve banking regulation, banks' risks management practices, and corporate governance". S&P believes the measures will force smaller and weaker banks to leave the market or merge with larger institutions, while the weaknesses of the sector – "the lenient banking regulation and supervision, banks' aggressive risk management practices, and sometimes deficient corporate governance procedures" – are likely to persist. It will also discourage foreign investors and niche players from entering the market, the rating agency says. Despite this, it doesn't anticipate the measure will affect Kazakh banks' ratings over the next two years.

At the moment, only five banks out of the country's 38 have a market capitalisation of over KZT100bn and six banks have capitalisation of KZT50bn-100bn, according to S&P.

Khakimzhanov of Halyk Finance is critical of the measure and says that Kazakh banking regulations should be liberalised instead of being tightened. "The regulator is now trying to regulate not what should be regulated, but with its regulation and restrictions it is trying to substitute solutions which can be adopted only for a certain financial institution," he laments. "Banks lack resources because all resources are diverted to deal with unproductive activities such as fulfilling regulatory requirements, for example maintaining capital requirements."



Russian President Vladimir Putin and Kazakh President Nursultan Nazarbayev have for some time been sparring behind the scenes over the precise significance of membership of the Moscow-led Eurasian Economic Union (EEU). Their differences on the bloc's future has become more complicated following Moscow’s actions in Ukraine.

Nazarbayev said on August 24 that Kazakhstan's membership of the EEU, which will be formed from the Customs Union (CU) of Russia, Kazakhstan and Belarus in January 2015, was the "right choice", but that Astana would use a provision of the EEU treaty to leave the free-trade bloc if it felt it threatened the country's political independence.

Speaking in an interview broadcast by the state-run Khabar TV station, Nazarbayev said Kazakh businesses needed markets to sell their products, which is why Kazakhstan should develop closer economic relations with its immediate neighbours. "This is our opportunity and we don't have other choices. Thus forming not a political but economic union is the right choice," Nazarbayev said, speaking in Kazakh. "I have

arrived at this wholeheartedly based on research and informed decision."

However, acknowledging fears that closer integration could eventually lead to political union with Russia, Nazarbayev said all members of the bloc had equal rights and could veto decisions that go against national interests. He said that if the EEU threatened the country's independence, Kazakhstan would leave the organisation. "Some fear that Russia will again invade us. But this is not true," he said. "The treaty has a provision that if we don't accept certain conditions, Kazakhstan reserves the right to leave [the organisation]. I've said this and I will repeat: if independence is threatened, Kazakhstan will never hold membership of such organisations."

Nazarbayev's warning was slow to reach the Kremlin, as the Russian media only picked up the story after excerpts of the interview were translated into Russian. But then five days later, on August 29, when asked by a student at a youth forum whether Kazakhstan would see a repeat of the "Ukrainian scenario" should it diverge from its current pro-Russian policy, Putin showered Nazarbayev with praise as a "very wise" leader who knew perfectly well that a "vast majority of Kazakh citizens favour the development of relations with Russia.”

At the same time, Putin made what appeared to be a veiled threat about the fragility of Kazakh nationhood. "He [Nazarbayev] made a unique thing. He has created a state on a territory where there had never been a state," Putin said. "Kazakhs didn't have statehood." Modern-day Kazakhstan was established as an autonomous republic of the Russian Soviet Federative Socialist Republic in 1920 and was promoted to a Soviet republic in 1936, finally winning independence only on the dissolution of the Soviet

Feature

Kazakh and Russian leaders differ on future of EEU

Photo: www.kremlin.ru



Union in 1991. The Kazakhs need the Moscow-led CU and EEU, Putin continued, "because this is beneficial for them to develop the economy and to remain in the space of a great Russian [speaking] world.”

Succession fearsPutin’s comments highlight the question of Kazakhstan’s future orientation. Nargis Kassenova, director of the Central Asian Studies Centre at Almaty’s KIMEP University, argues that Putin ducked the question about a potential “Ukraine scenario” in Kazakhstan to try to ease tensions between Moscow and Astana. “Putin wanted to calm Kazakhstan down that everything is alright and no Ukrainian scenario has yet been drafted for us," Kassenova tells bne.

However, she adds that Putin's remarks on Kazakh statehood could be interpreted as a warning to Nazarbayev and his successors not to try to change their pro-Russian policy. "If Kazakhstan after Nazarbayev takes a different path, then the situation and Russia's attitudes can change."

Russian political analyst Arkady Dubnov also believes that Putin has signalled to Nazarbayev and the Kazakh elite that the country's security is guaranteed only if Moscow remains Astana's strategic partner. "Putin wants to see a secure successor whom he will consider as a reliable continuer of Nazarbayev's policy," Dubnov told the BBC’s Russian service.

Nazarbayev understand the consequences of angering Russia over the rights of ethnic Russians in the country. In August’s interview, Nazarbayev also warned that Kazakhstan should be careful in promoting the Kazakh language and imposing it on ethnic minorities who still largely rely on Russian in day-to-day business. More than 90% of Kazakhstan's 17.3m citizens are able to speak Russian, but only around two-thirds claim to speak Kazakh. Kazakhstan's constitution designates Kazakh as a state

language, while Russian serves as a lingua franca and is allowed in official use. "If we adopt laws to ban all languages but Kazakh, we will turn into a Ukraine," he said in reference to the Ukrainian parliament's revocation of the official status of Russian in eastern and southern regions following the ousting of former president Viktor Yanukovych. Russia has used the protection of Russian-speakers' rights in southern and eastern Ukraine as a pretext for its annexation of Crimea and continuing meddling in the eastern regions of Donetsk and Luhansk.

Since Moscow's annexation of Crimea, Astana has revived a state programme to attract ethnic Kazakhs living abroad back to the country, offering citizenship after a year of residence and a generous package to those settling along the border with Russia. Ethnic Kazakhs do not constitute an absolute majority in northern Kazakhstan, and represent less than 40% of the population in the northern Kostanay and North Kazakhstan Regions. Overall, ethnic Kazakhs account for two-thirds of the population, with ethnic Russians making up slightly more than 21%. The government estimates that around 5m ethnic Kazakhs live abroad, mainly in China, Uzbekistan, Russia, Turkmenistan and Mongolia.

Economic repercussionsKazakh authorities are trying hard to persuade the domestic public that the EEU is purely an economic and not a political union. Nazarbayev and members of his government say that the EEU will open up a market of 170m people for Kazakh businesses which, in turn, should boost economic activity. However, Russia’s economic problems, exacerbated by Western sanctions because of the Ukraine crisis, are now hitting the country’s imports: Kazakh exports to Russia fell by more than 20% to $2.5bn in the first half of 2014. Russia is also the main conduit for Kazakh trade with the West, and a further cooling of economic relations between Russia and the West would damage the Kazakh economy, directly



or indirectly, even though Nazarbayev has so far managed to evade Putin's pressure to join his tit-for-tat trade wars with the West. When in August Russia banned imports of certain foodstuffs from Europe, North America, Australia and Norway, Astana and Minsk managed to persuade Moscow not to involve them in the trade wars; in return, they promised not to re-export banned goods to Russia.

With the Western sanctions hurting the Russian economy, the Kazakh government planning

to minimise their negative impact on the economy. On August 6, Nazarbayev reshuffled his government in order to "efficiently" adapt to the changing global economic conditions amid the ongoing crisis in Ukraine. National Economy Minister Yerbolat Dossayev then told the president that the government was working on a "separate package of measures" that would be implemented in case the situation in Ukraine worsened and further sanctions were implemented. Dossayev didn't give any details of the plan but said it would be presented in September.



Kazakhstan offers to build Russia-China gas pipelineThe Kazakh government has offered to build a Russia-China pipeline through its territory to assist Moscow's pivot to the east.

As relations between Russia and the West continue to deteriorate, those with China and the other BRICS countries continue to improve. Kazakhstan's location between Russia and China puts it in a strategic location. And as a member of the Russian-led Customs Union, Kazakhstan is keen to show it’s a good member of the trade bloc.

The pipeline would be a boon for Russia as it attempts to diversify itself away from its heavy dependence on hydrocarbon exports to Europe. If built through Kazakhstan, it would also help Astana expand gas-supply networks in the country's northern and eastern regions.

Kazakh Deputy Energy Minister Uzakbay Karabalin told a press conference that the Russian side has already shown some interest in the idea. He said the two countries would establish a working group for further discussion on this issue.

"Today it is just an idea, however it has already interested the Russian side and it is a very good signal. From now on it is necessary to do everything possible for Russian and Chinese side to support the initiative of Kazakhstan," said Karabalin.

In June, the government adopted a scheme to expand gas supply networks in Kazakhstan until 2030. According to the scheme, domestic gas consumption should go up from the current 11bn cubic metres a year (cm/y) to 18bn cm/y in 2030. Karabalin said the programme aims to increase the number of settlements supplied with gas from the current 988 to 1,621, covering 12m people, or 56% of the projected population in 2030.

The policy envisages building new gas pipelines, doubling the total length the network to 57,500km. That would require investment worth KZT656bn ($3.6bn), Karabalin suggests.

All of which of course means more gas will need to be pumped into the pipes. Overall, the scheme will demand that the output of marketable gas must rocket from 21bn cm/y to 60bn cm/y.

Kazakhstan is already a conduit for Central Asian gas to China. The Turkmenistan-Uzbekistan-Kazakhstan-China gas pipeline - with a capacity of 55bn cm/y of gas - should help improve gas supply in the country's south. Kazakhstan's major hydrocarbons fields are located in its western regions, and in order to supply gas to consumers in southern regions and export it to China the country has built the 1,143km Beyneu-Bozoy-Shymkent route, which will supply 5bn cm/y inside Kazakhstan with the remainder heading for export. For the meantime, the south consumes mostly Uzbek gas.

Should Russia agree to build a China-bound pipeline through Kazakhstan, the government would also solve the problem of gas supplies in northern, central and eastern regions. The Russia-China pipeline may also prompt Astana to double down efforts to build a pipeline to pump gas from the giant Karachaganak condensate in the western tip of the country via Russia to northern Kazakhstan and further to the east to China via central regions. The Karachaganak-Kartaly-Kostanay-Kokshetau pipeline may be joined with the Russian pipe to boost Kazakh gas supplies to China.

Sector

Photo: www.gazprom.ru



Samruk-Kazyna looks for investors for non-core assets

Kazakhstan's sovereign wealth fund Samruk-Kazyna has entered the privatisation stage of its restructuring programme, which envisages shedding of non-core assets held by national and subsidiary companies the fund controls. On August 29 Samruk-Kazyna met potential investors in Astana to present them with its privatisation programme for 2014-2016 and explain its goals. The meeting aimed at increasing the efficiency of the privatisation programme, Deputy Chairwoman of Samruk-Kazyna Yelena Bakhmutova told potential investors. "Feedback is important to us and if the investor community shows interest the fund is ready to hold such meetings regularly," she said.

Since the launch of the programme in August the fund has already managed to sell off three enterprises for KZT835.8m, raising 80% more than it expected. In total, under the programme Samruk-Kazyna intends to transfer 106 assets worth KZT700bn, which are owned by national companies and subsidiaries, to the private sector,

including 64 by the end of 2014. This includes 23 subsidiaries of Kazakhstan's national oil and gas company KazMunaiGas.

KazMunaiGas has already put non-core assets owned by its Romanian subsidiary KMG Rompetrol on sale. KMG Rompetrol will sell its participation in Romania-based Palplast Sibiu, Rominserv Valves Iaifo Zalău and Global Security Systems. The objective is to identify potential investors by the end of the year, says Alexey Golovin, KMG Rompetrol's corporate development and communication director.

Palplast Sibiu is one of Romania's main producers of pipes and fittings for water supply and natural gas networks, irrigation systems and special applications. Rominserv Valves Iaifo Zalău specialises in designing, manufacturing and marketing a wide range of industrial valves made of iron and steel. Global Security Systems provides security and protection for industrial

Corporate statement



facilities in the oil industry – refineries, oil pipes, filling stations, oil depots and oil products, as well as other industrial and service facilities.

Golovin explains that by disposing these non-core assets KMG Rompetrol, which is part of KMG International (KMGI), will be able to focus on activities around its core business: refining and marketing. "KMGI represents the main platform for KMG activity and operations in Europe, with the core operations in Romania," he tells bne. The company owns two oil refineries, a petrochemical unit producing polymers, a network of over 744 distribution points, 230 liquefied petroleum gas (LPG) stations, 9,000 fuel tank distribution points, three LPG bottling stations and seven depots in the country. "The fuel produced in Romania reaches the Rompetrol stations in Moldova,

Bulgaria and Georgia, as well as other countries in the region, such as Turkey, Ukraine, Greece and Serbia," Golovin notes.

These three companies raise a combined $25m in revenue a year and employ around 1,000 people between them.

KazMunaiGas International is not expecting to earn much from the sale of its non-core Romanian assets, but it believes it will help achieve goals set by the privatisation programme: raise the efficiency and transparency of its core operations. "Taking into account the size of these companies, we do not expect huge transaction values," Golovin tells bne. "The funds raised will be spent on supporting our current operations and on future developments."



More than quarter of Kazakh economy in shadows as amnesty launched

More than a quarter (28.6%) of the Kazakh economy is thought to be operating in the shadows, according to the chairman of the State Statistics Committee, Alikhan Smailov, but a government amnesty should bring more capital into the light.

"Last year, the country's GDP amounted to KZT35 trillion and the shadow economy made up 28.6% of the GDP of the country," Smailov said at a government meeting in August.

According to the National Bank of Kazakhstan, the country's GDP stood at KZT34,100bn in 2013, or some $222bn.

Kazakhstan will launch an amnesty for shadow capital and undocumented property on September 1 that will last for the end of this year and is hoped to bring some $12bn of capital into the light.

According to the amnesty law, Kazakh citizens, ethnic Kazakh migrants and permanent residents of Kazakhstan will be able to deposit undeclared cash in special savings accounts at commercial banks for five years at market interest rates (up to 10.5% for tenge-denominated deposits). Alternatively, they will be able to invest it in government securities, bonds issued by banks and state companies, shares floated as part of the "People's IPO" programme and stocks traded on the Kazakh Stock Exchange.

This money must remain on deposit for five years before it is declared "white." However, if the depositor wants to withdraw their money earlier they must pay a 10% income tax on the cash.

This is the third amnesty run by the government in its attempt to reduce the size of the shadow economy. The first amnesty in 2001 saw around 3,000 Kazakh citizens legalise a total of $480m in a 20-day campaign. In 2006-2007, $5.3bn ($3bn in money and $2.3bn in property) was declared in the second campaign.

Transparency International placed the country in 140th place out of 177 countries examined in its Corruption Perceptions Index 2013.

Economics & finance



EDB places bonds in Kazakhstan

The Eurasian Development Bank (EDB) placed its tenge-denominated securities to the tune of KZT20bn in Kazakhstan in August.

The placement was made on August 18 at the Kazakhstan Stock Exchange (KASE) through a special auction. The bonds have a coupon rate of 7.2% per annum and will mature in five years.

Kazakh pension funds reach over $20bn under management

A successful reform of the pension system in Kazakhstan during the 1990s has meant the pension funds of the country continue to grow and have accumulated over KZT4.2 trillion ($20bn) of assets under management as of August 1 this year.

Indeed, the amount of money under management is a problem. As Kazakhstan has notably failed to follow through with reforms to its domestic capital markets – particularly to the stock market – there are a few assets for the pension funds to invest into other than sovereign bonds. Access to pension money sloshing around the economy is also partly responsible for the pre-crisis real estate bubble.

However, post-crisis the government has finally begun to talk about reforming the stock market and introducing alternative securities for pension funds to invest into.

Kazakh economic growth 4.1% so far this year, seen at 5% next year

Kazakhstan to raise minimum capital requirements for banks

Economic growth hit 4.1% in January-August, according to Minister of National Economy Erbolat Dossayev, reported Azernews.

“Today the Statistics Committee has prepared operational data according to which GDP growth for 8 months made 104.1%,” said Dossayev.

Kazakhstan's government approved the economic forecast for 2015-2019 last month with a forecast for real GDP growth in 2015 of 5%, followed by 5.6% in 2016, 6.8% in 2017, 5.8% in 2018 and 6.5% in 2019.

The government predicts that nominal GDP to grow from KZT45 trillion (182 tenge/$1) in 2015 to KZT72.8 trillion in 2019.

National bank of Kazakhstan said it will raise the minimum capital requirements for banks in order to shore up the stability of the sector in August.

While the Kazak banking sector has largely recovered from the instability caused by the 2008 financial crisis, the sector has started to look a bit wobbly again more recently. Fears of a second devaluation, caused by the rapid fall of the Russian ruble, have led clients to withdraw money from banks, which is undermining the stability of the sector.

The National Bank noted that to cover for a rising share of credit in gross domestic product, the expansion of coverage of consumers with financial services, depreciation and developments of new hi-tech financial services, the additional investments and high level of capitalization of a banking system are required.



Kazakh banks reduce external debt by $2.4bn

Kazakhstan's banks have reduced their external debt by $2.4bn over the course of this year, according to Deputy Minister of Finance of Kazakhstan Ruslan Dalenov, reported Tengrinews.

As of January 1, the sector's external debt was $11.2bn, Dalenov said on Twitter.

According to the National Bank of Kazakhstan, the external debt of the banking sector was reduced by 17% in 2013.

The National bank of Kazakhstan has been trying to encourage the sector to deleverage, as some in the population are now over-borrowed. The NBK introduced new regulations on April 1 that bans banks for making new loans to citizens whose existing loans exceed 50% of their monthly income.

Kazakh trade turnover with Customs Union members falls 23%

Kazakhstan's trade turnover with the other two member states of the Customs Union - Russia and Belarus - has decreased by 23% due to the worsening economic situation in Russia, a Tengrinews.kz journalist reports, citing Alikhan Samilov, head of the Statistics Committee of the country's National Economy Ministry.

In the first half of the year, the trade turnover with the Customs Union totalled around $9bn, a fall due to the economic slowdown in the neighbouring Russia. The drop stands at 23% compared with the first half of 2013, he told a briefing at the Presidents Service for Public Communications.



Kazakhstan to build the tallest skyscraper in Central Asia

Modern office buildings have been springing up all over Kazakhstan's capital Astana for a decade as the country's wealth grows, leading some to dub the city as “Manhattan on the Steppe.”

Internationally acclaimed architects such as Norman Foster have been pressed into service to create some of the more spectacular buildings in the city. However, new plans for Central Asia's tallest skyscraper will take construction to a new level entirely – and literally.

Ground has already been broken on the Abu Dhabi Plaza, which is due for completion in 2016. The project is being developed by Aldar Properties, Abu Dhabi’s largest real estate developer, at a cost of $1.6bn, mostly funded by the Abu Dhabi government. Private investors from the United Arab Emirates have also put some money in.

When it is finished, the 500,000 square metre complex will contain five high-rise towers as well as residential and shopping space. Standing at 320 metres it will easily be the tallest building in Central Asia. In 2017, the building will be extended to include a Ritz-Carlton hotel, the chain's second hotel in Kazakhstan, as well as a couple of other five-star hotels.

The project is part of a makeover for the city, which is due to host the Expo 2017, an international exhibition to which more than 5m visitors are expected.



Chart

Kazakhstan managed to maintain its 50th place in the World Economic Forum's Global Competitiveness Index ranking for 2014 that was released in August.

The WEF placed Kazakhstan in the "transition" category, but concluded it was moving from the "effective development" stage to the "innovation

developments" stage as the country's economic development continues unabated.

The WEF said that the country's biggest advantages were macroeconomic stability, but its weakest points include health and primary education, the development of the financial market, the competitiveness of its companies, and innovation.

Kazakhstan maintains 50th place in WEF Global Competitiveness Index



China to build its first Industrial Park in Kazakhstan

China has announced it will build its first industrial park in Kazakhstan as part of China's silk Road economic belt project, the Chinese Xinhua news agency reported.

Covering a land area of 400 hectares in the Caspian port of Aktau, the investors into the project include: Xinjiang Sanbao Industry Group, a foreign trade enterprise, and the construction investment and development company under the Urumqi Economic and Technological Development Zone (UETDZ).

Kazakhstan has been significantly raising its investments in Central Asia, with an eye to tapping into the region's fast growth and abundant natural resources.

Kazakh regions face petrol shortages

Drivers in Kazakhstan are running out of petrol as the country's reserves fell to only one week's worth of reserves during August. Some regions suffered worse than others, but drivers in Almaty, Kostanay and Rudniy were hit the most. In the Caspian port city of Aktau the 95 petrol stations simply closed their doors while waiting for deliveries.

The Kazakhstani authorities have been trying to distribute gasoline in order to keep the country moving. But officials from the largest supplier of petrol, KazMunayGas Onimderi has reported

that current reserves in the gas stations of the country will be enough for only a week.

At the start of September, KazMunaiGas Onimderi signed an agreements with Russian companies Bashneft, LUKOIL and others, to import 34,000 tons of oil products, including 10,000 tons of AI-92 gasoline, 5,000 tons of AI-95 gasoline and 19,000 tons of diesel fuel, to deal with the crisis.

Kazakhstan on track for a bumper harvest, 1m tons of grain already in

Kazakhstan is on track for a bumper harvest and as of 1 August had already brought just under 1m tons of grain in, the Kazakh Agriculture Ministry reported in August.

This year Kazakh farmers were yielding 11.6 tonnes per hectare, four tonnes per hectare less than the same period of last year, according to the Ministry. However, the lower yields won't prevent Kazakhstan from bringing in what is hoped to be a bumper harvest of an estimated 17m tonnes in bunker weight.

"Today there are 210 grain storage centers with a total storage capacity of about 13.9m tonnes in the republic", the statement also says. "Moreover, farmers have capacities which allow to store 11m tonnes of grain and thus, the total capacity for grain storage available is 24.9m tonnes", the statement concludes.

In order to improve the sector further the state is promising to support agriculture with an investment of KZT30bn this year.

News in brief



Kazakhstan to invest $200m in mining industry development

The Kazakh government says it will invest more than $200m in developing the mining sector, particularly in the eastern city of Zhezkazgan, President of Kazakhstan Nursultan Nazarbayev said on August 22.

Kazakhstan's deserts are rich in raw materials, and while it is best known for its oil production, its mineral resources and probably even larger.

"Over the past years due to the depletion of copper ore we were faced with difficulties, and Zhezkazgan copper smelter was forced to stop. I ordered the government to develop a special program under the Economic Development of Zhezkazgan industrial region. Some $240m were allocated for resettlement in other places from the villages standing on the ore bodies," Nazarbayev said.

Legendary Almaty bazaar under threat

The legendary Barakholka bazaar in central Almaty is getting a face lift as retail continues to expand in Kazakhstan on the back of the emerging middle class and rising incomes, reports EurasiaNet. However the authorities seem to want to close down the sprawling open-air market and replace it with something a bit more modern.

The commercial capital's Barakholka bazaar is actually made up of several markets selling everything from furniture to fur coats, stretching along a traffic-choked highway for 8km.

The authorities are trying to bring the open-air haggling into a more regulated and organised regime. They hope to replace the bazaar with new purpose-built glitzy malls. The trouble with bazaars is that they are mainly cash-based and so extremely difficult to regulate and tax.

In addition to the official push to clean up the business in the bazaar, the site has been ravaged by several fires, which traders have speculated were started on purpose in order to slowly close the market down. The authorities seem to see the bazaar as an eyesore and want to get rid of it as part of their bid to host the 2022 Winter Olympic Games in Kazakhstan.

The attack is seen as part of the wider anti-corruption campaign that Kazakh President Nursultan Nazarbayev launched on August 6 and has been gathering pace. Some 16 of the bazaar's 60 markets have already been bulldozed.

Turkish hotel group to build $3.3bn resort on Caspian shore

Turkey's RIXOS Group has signed off on a deal with Kazakhstan's sovereign wealth fund to develop a holiday resort worth over $3.3bn on the Caspian Shore, the Committee for Tourism in the Ministry of Investments and Development said in a statement.

Kazakhstan's sovereign Samruk-Kazyna Real Estate Fund has signed a deal with the Turkish firm to build the first stage of the Caspian-based Kinderley resort zone in August.

"The first stage of the project envisages construction of 2 hotels (holding 4 and 5 stars respectively), an aqua park and a raft of cottages. The sides are working on a joint roadmap and schemes to finance the project," the ministry's statement says.

All told the complex will contain over 20 hotels, 8,000 villas and 40,000 cottages that can cater to more than 640,000 tourists, with 70% of them being foreign. Construction work is supposed to be completed by 2020 at a total cost of $3.3bn and should generate an estimated $800m a year in revenues.



UK ex-PM Tony Blair's wife lands consulting job in Kazakhstan

The wife of former British Prime Minister Tony Blair, Cheryl Blair, has landed a lucrative job advising the Kazakh government and President Nursultan Nazarbayev.

A high-powered lawyer, Mrs Blair says her law firm Omnia Strategy will provide consultancy services to the government, causing an outcry from civil liberty and human rights groups which point to Kazakhstan's less-than-perfect human rights and press freedoms record. Specifically, Mrs Blair will review Kazakhstan's “bilateral investment treaties.”

Her husband. Tony Blair, is already an adviser to the Kazakh government.

US cinema chain brings 3D movies to Kazakhstan

The US cinema chain RealID is hoping to tap into rising box office sales in Kazakhstan by bringing in a chain of 3-D movie theatres to the country.

RealD is a leading supplier of 3-D technology and has deals to install its equipment in seven cinemas in Kazakhstan, as part of a push into the Central Asian countries.

Cinema box office sales have been going growing strongly and Kazakhstan is the third largest film market in the Soviet Union after Russia and Ukraine.


Documents

bne:Invest in Astana - September 2014