The 21th Plenary Session of the Foreign Investors’ Council (FIC) chaired by the President of the Republic of Kazakhstan took place on June 12, 2009 in Kostanai and considered the issues of determining alternative sources of funding for Kazakhstan's economic growth in changing world financial markets.

Opening the session President Nursultan Nazarbayev noted that the venue of the session, Kostanai Region is known to be the main granary of the country as well as the region attractive for investments.

Though the first signs of recovery have surfaced the world economies are still combating the current financial challenges, Nursultan Nazarbayev noted.

Kazakhstan was the first to work-out its anti-crisis plan. It is worth noting that our Program has not turned into a static document. It’s being updated on a regular basis seeking to adequately respond to dynamic environment. In general, we have allocated more than USD 19 billion. i.e. 14% of the country’s GDP for implementation of anti-crisis measures. We could witness the first positive results thereof, the President said.

Firstly, we’ve managed to stabilize the employment rate. More than 100 thousand jobs have been created so far through budget investments into infrastructure, transport and social objects locally. Unemployment rates have been halted at 7,2%, and there is a hope that this rate will not exceed the threshold.

Secondly, despite the decrease in prices on Kazakhstan export goods, our international reserves are being stabilised at the level equal to USD 43 billion with some signs of growth.

Thirdly, Kazakhstan in general has stabilized its financial system with tendencies of growth of lending economy and disinflation.

In real sector, the problems of more than 40 thousand equity-holders are being resolved through the government support. Unequalled assistance has been rendered to the country agrarian sector which despite the crisis makes it possible to plant crops in full scale and to increase areas under crops by 1,6 million ha.

Most recently the Standard and Poors Rating Agency increased the sovereign credit rating of Kazakhstan to sustainable level. This is a good indicator that we are on the right side, the President said.

Alongside with this, the global recession proved the need to diversify the country’s economy, the President noted. This is the only right post-crisis development scenario that could secure sustainable and long-term prosperity of our citizens.

Starting the next year Kazakhstan is launching implementation of a ten-year plan divided into two five-year periods according to accelerated industrial and innovative country development. This plan shall prioritize the following sectors: agro-industrial complex, building industry and constructional materials, oil refinery and services, metallurgy, chemistry and pharmaceutics, power supply and infrastructure.

It is expected that with well-balanced mobilization of resources for the above directions our economy could add value in the amount equal to USD 50 billion, which approaches the half of the country GDP.

One of the factors to success of the planned program, including the mobilization of financial resource, is active involvement of foreign investors into its realization.

 
The President has emphasized that Kazakhstan remains committed to the principle of a market economy and the protection of the rights of private ownership, which are guaranteed by Kazakh legislation and will always be firmly observed.

– We remain committed to the policy of stable investment climate, favoured treatment for foreign investments, Nursultan Nazarbayev said.

The Head of the State has focused attention of the Council members on the following issues:

Firstly, speaking about engagement of foreign investors in the diversification of the Kazakhstani economy, the President noted, that development of the Kazakhstani content, which is absolutely necessary in the context of Kazakhstan, remains a priority. There was an in-depth discussion of this topic at the last session of the Council. The Head of the State has noted some positive results that the country has achieved to date. Extracting companies have already signed Memoranda with Kazakhstan manufacturers for a sum of more than KZT 330 billion and some specific contracts for a sum extending KZT 200 billion. As at the end of Q1, the Kazakhstani content in three major oil and gas projects with participation of foreign investors totaled 38% or USD 600 million.

The Government, the Ministry of Industry and Trade was assigned with a task to work together with foreign investors, Kazakh manufacturing companies to explore opportunities to produce new types of services and goods.

Second. Since Kazakhstan gained independence, the country has pledged to the policy of openness of investments. A favorable investment climate in Kazakhstan has made it possible for many companies not only to increase their investments, but also convinced them to invest more of their profits into other adjacent sectors of Kazakhstan economy, the President noted.

The Head of the State has provided some examples. Chevron has invested into production of polyethylene pipes in Atyrau. Recently, the agreement was reached with the management of Chevron upon two-fold extension of this plant, construction of a new plant for production of valves and fittings and shipyard on the Caspian Sea. Arcelor Mittal constructed a pipe plant in Aktau city. This company proceeds with the expansion of a smelter in Temirtau, which will increase production of steel by 5 million tons. The Saipem company has set up a constructional ironworks as a joint venture with a Kazakh investor.

ENI is ready to construct a gas processing plant and a new gas-fired power station. ENRC has reported on its activities on increasing production of metallic aluminum in Kazakhstan up to 500 thousand tons and on the construction of new plants on production of ferroalloy, construction of highways and railroads.

Examples of such cooperation help to achieve an objective to diversify the economy of the country. In this context, the President thinks that one of the important directions is to create opportunities for foreign investors to reinvest their profits.

– I believe that all members of the Foreign Investors’ Council should think of such investment opportunities and the Government should create favourable conditions for their implementation, the Head of the State said.

Third. The analysis of global trends shows that investors world-wide are looking for new spheres to invest capital. Short-term speculative investments are being re-placed by long-term investments and new growing market segments are being seached.

Kazakhstan has projects to offer in this respect. There is an attractive backbone industry such as agriculture as well as new industries, for example, renewable energy.

Besides, establishment of the Customs Union between Russia, Belarus and Kazakhstan opens new opportunities by creating one single market with the population of over 170 million people and overall GDP of almost US$2 trillion.

 
Customs clearance for goods will be cancelled between these three countries starting July 1, 2010. The Head of the State thinks it is good news for investors.

– In this regards, we agreed to suspend talks on WTO accession and to join the Organization jointly as the Customs Union, the President said.

The President urged foreign members of the Council to pull strings in international business and financial communities to attract interest of potential investors to opportunities in Kazakhstan.

– It will be a significant help from you for our economy, the President said.

– The Government should prepare high-profile investment projects secured by required infrastructure and to promote them proactively, through the Foreign Investors’ Council as well, Nursultan Nazarbayev said.

The President also spoke of the mobilization of financial resources for post-crisis development of Kazakhstan, which can be made through vast internal capabilities.

First. Attention should paid to the development of domestic capital market, especially in local currency.

It is impossible to accomplish this task without taking measures on stimulating increase of personal and corporate savings, full restoration of confidence of investors to financial institutions.

According to various estimates, the amount of available internal financial resources approximates GDP 5- 12%. It is necessary to fully utilise this potential with the purpose of reducing dependency from the situation at external markets.

Second. Currently, the state and institutions with state participation are becoming key players on financial markets. National companies and development institutions in the mid-term are expected to take the lead in attracting capital into the country’s economy.

On the one hand, it is a necessary and important instrument, but we have to bear in mind that it leads to the growth of risks in quasi-public sector.

Therefore, investment strategy of national companies and institutions, their investment plans and liabilities, by virtue of their significance for post-crisis economic development must be considered as part of the central government budget. Funds attracted must be allocated for diversification of the economy and mobilization of private business initiative.

In the long run, we should have a transparent model of attraction and allocation of capital via state channels taking into account possible risks, the President noted.

Third. Involvement of instruments of state-private partnership opens lots of opportunities both for public and private sectors. All legislative pre-requisites are in place and active steps must be taken in this direction. The government should apply this mechanism in practical implementation of major infrastructure projects.

It is important to systematize government aid measures, to promote private-public partnership instruments in the course of projects implementation at the local level, especially during construction of social, housing and utility infrastructures.

Competent application of the above mechanisms will help to ease the budget burden and to upgrade the infrastructure required for diversification of the country’s economy.

Alternative sources of financing are now emerging in the world, the President said. Trading in national quotas for greenhouse gas emissions within the Kyoto Protocol may become one of the alternative sources of financing.

Kazakhstan ratified the Kyoto Protocol this March. It opens new opportunities in energy saving technologies that will allow to raise up to $1 billion in investments.

In general, the Head of the State noted that successful post-crisis development of Kazakhstan’s economy, implementation of a five-year plan will depend upon our capacity to mobilize necessary financial resources.

The President, instructed the Government to work-out all proposals made today at the Session and addressed foreign investors:

– Your participation and initiatives are valuable in implementation of tasks set forth by me. Our joint activities would work in favour of all parties engaged. Moreover, I am confident that our cooperation will contribute to development of Kazakhstan and to enhance the welfare of its people. That’ what our people are expecting.

Full text of the President’s speech can be downloaded here.

In the course of the FIC session, Asset Issekeshev, Minister of Industry and Trade of the Republic of Kazakhstan, has presented new members of the Council - Peter Voser, Chief Executive Officer, Royal Dutch Shell Plc; Oleg Deripaska, General Director of the United Company RUSAL; Tetsuro Terada, Executive Vice President, Europe, CIS, Middle East and Africa, Mitsubishi Corporation, and Lars Nyberg, President and CEO, TeliaSonera. New members of FIC on the Kazakh side included Grigoriy Marchenko, Chairman of the National Bank and Kuandyk Bishimbayev, Assistant to the President.

In addition, Asset Issekeshev reported on the status of implementation of the Minutes of the 20th FIC Plenary Session.

Thomas Mirow, President, European Bank for Reconstruction and Development, has focused on the main topic of the session in his speech. He explored the issue on today’s agenda: In the wake of the deep global financial crisis, how to reconnect to existing funding sources and how to find alternative sources of finance? To overcome the crisis we will therefore have to correct mis-developments in both source and recipient countries. Thomas Mirow said that in order to overcome the crisis it is necessary to correct mis-developments in both source and recipient countries.

In his speech, the President of EBRD has provided analysis of foreign direct investments (FDI) in Kazakhstan. In his speech, Thomas Mirow poised a question: How to ensure that bank lending to Kazakhstan picks up again and to ensure that bank lending contributes to the economic diversification in a stable way? Answering the question, the President of EBRD noted that it is necessary to improve financial sector by applying comprehensive solution to the problems in the banking sector, by developing the Kazakh banking system in a more sustainable manner, by further improvement of local banking specialists qualifications, by forming an adequate legal framework under which procedures for insolvency or bankruptcy. This will enable and speed up the necessary restructuring of troubled companies and open the doors for more mergers and acquisition activities as well as allow banks to restore lending.

In addition, Thomas Mirow spoke about development of the domestic capital market and new approaches for searching alternative sources of financing, namely, developing leasing, insurance and pension funds, private equity funds and the use of the Kyoto Protocol mechanisms.

In conclusion, Thomas Mirow noted that in today’s more testing times EBRD remain committed long-term partner for Kazakhstan and will continue to work together both with Kazakh partners and international investors to develop alternative sources of financing economic development of Kazakhstan.

A speech on the main theme of the session was delivered by Bakhyt Sultanov, the Minister of Economy and Budget Planning of the Republic of Kazakhstan.

Bakhyt Sultanov has informed participants of the Session that the Government has adopted and started implementing the Plan for stabilisation of the economy to ensure macroeconomic and financial stability and stimulate further economic growth and is taking a number of other systemic actions.

Over US$19 billion, including US$10 billion, allocated from the National Fund, have been provided to support the economy.

These funds have been allocated to take actions to achieve five objectives, including more sustainable financial sector through further capitalisation of the system-significant banks, support for the property market and small and medium-sized businesses, agribusiness development and implementation of innovative, industrial and infrastructure projects.

In this connection, Bakhyt Sultanov emphasized that the government taking the anti-crisis actions, supports consistently the development and stability of the traditional tools of financing the economy through banking sector. At the same time, nowadays it is important to pay attention to getting financing in other ways, too.

Bakhyt Sultanov told about a number of sources of alternative sources of financing.

First: Diversify the sources of financing the economy

Examples of such sources can be a long-term loan in the amount of US$10 billion borrowed from China and a loan of US$ 3.5 billion China borrowed from international financial institutions for the construction of the road Western Europe - Western. In addition, negotiations to get financing from the Arab countries to implement big investment projects are being held, the Minister said.

Second source: Increase the amounts of foreign direct investment and use new tools of financing

The Minister Bakhyt Sultanov noted the increase in foreign direct investments and development of new mechanisms for financing. Since the beginning of the year foreign investment in fixed assets has reached 44%, and their amount rose by 2.4 times versus the relative period of a prior year. For instance, Korean investors are going to participate in the construction of Balkhash HEPP.

Third source: Mobilise internal resources of businesses and of the economy

This direction is being implemented by reducing tax burden. This year the corporate income tax was reduced from 30% to 20% and value added tax was reduced from 13% to 12%. There are tax exemptions for investors in all the industries. In general, reduction in taxes will allow businesses to invest in their own development, the Minister thinks.

Fourth source: Develop alternative tools of attracting investors in the economy

This direction is being implemented by developing Islamic financing tools, attracting investments through public private partnership and other measures.

Bakhyt Sultanov has information participants of the session that the government, the National Bank and the Agency for Financial Supervision in accordance with the President’s assignment began drafting the Concept for the Post-Crisis Financial Sector Development Priorities. The priorities will include the mobilisation of internal sources of finance by improving the efficiency of use of pension assets and insurance assets, by developing the stock market and by improving the tools of assigning funds in the economy.

Full text of Bakhyt Sultanov’s speech can be downloaded here.

Foreign members of the Council, who delivered speeches at the session, shared their visions of alternative sources of funding for Kazakhstan's economic growth in current conditions and other issues of investment policy of Kazakhstan. The session was moderated by David Wilkes, Partner, Ernst & Young CIS, Head of Advisory Practice in Kazakhstan, Chairman of the Board, Kazakhstan Foreign Investors’ Council Association. The following members of the Council from the foreign side delivered speeches on the main topic of the session agenda:


Fiona Paulus, Head of Energy and Resources, Royal Bank of Scotland, has provided detailed analysis of the impact of the world economic crisis and the collapse in oil prices on the economy of Kazakhstan, its current economic and financial situation and what lessons should be learned.

A key weakness for Kazakhstan has been its banking system, Fiona Paulus noted. It is the weak state of the financial and banking sector and its dependence on external finance that has constrained Kazakhstan’s economy and is negatively impacting on the ability of its companies to raise finance, RBS representative said.

It is necessary to improve banking regulation, to build a strong local pension and investment funds system, develop strong local capital markets, both debt and equity, to stimulate the development of a local consumer debt markets.

In conclusion, Fiona Paulus has expressed confidence that Kazakhstan will emerge from this crisis wiser and better able to weather future storms in view of start of the banking reforms.

Lakshmi Mittal, Chairman of the Board of Directors and CEO, ArcelorMittal in his speech spoke about the impact of the Kyoto Protocol on the recovery of the steel industry and foreign investments in Kazakhstan.

Head of ArcelorMittal thinks that Kazakhstan is on track to achieve positive growth of its economy in 2009. Government intervention in terms of state aid has become a successful financial tool to achieve sustained investment, employment and training support, environmental protection initiatives, research and development, and rescuing and restructuring of companies for social or regional policy considerations.

Recent ratification of the Kyoto Protocol will help Kazakhstan attract foreign investment aimed at projects that will reduce greenhouse gases, Lakshmi Mittal thinks.

In addition, head of ArcelorMittal informed that local management and the administration of Karaganda Region have recently signed a memorandum for a concept study to generate power at Shaktinsk, based on methane extracted from the company’s mines.

– According to internal forecast, ArcelorMittal Temirtau projects will attract about $100 mln of investment in the next two years (out of the published figures of $150-300 mln) and up to $150 mln (out of the published figures of $500-600 mln) till 2012. ArcelorMittal has already started the search for partners and investors by committing to implement these projects between 2010 and 2012, Lakshmi Mittal said.

— I am confident that Kazakhstan will emerge from this crisis even stronger than before and remain the most competitive economy in the region, Lakshmi Mittal said.


Vagit Alekperov, President, LUKOIL OJSC, noted that the global economy is still experiencing the impact of the global crisis, which is characterized by the decline in oil consumption and oil prices. In this situation, all the major primary producing countries including Kazakhstan are looking for the ways to minimize the losses in the budget from oil price decline.

One of the main solutions is to intensify development of the existing hydrocarbon fields, head of Lukoil said.

Further production growth could be obtained through reduction of the tax burden on oil companies, as well as further development of service market, Vagit Alekperov noted.

— I would like to note that we consider the requirements related to increasing local content quite fair and are ready to meet these requirements. Establishment of national oil servicing companies using foreign capital and technology, international certification of Kazakhstan products, implementation of modern programs for retraining of specialists will contribute to increase the local content. Investment companies, and LUKOIL in particular, are ready to support Kazakhstan within their powers in resolving these issues, Vagit Alekperov said.

Vagit Alekperov noted that hydrocarbon producing countries need to achieve today is to prevent sharp reduction of investments into oil and gas sector, which in a few years’ time will result in weakening of their positions in the global energy market. To resolve this issue there is a need for a stable and at the same time flexible taxation system, proactive position of the state in conclusion of new contracts for development of hydrocarbon fields, elimination of bureaucratic obstacles that prevent foreign investors from purchasing assets in Kazakhstan.

Murad Megalli, Managing Director, Regional CEO (Middle East, Turkey and Central Asia), JP Morgan expressed appreciation to the leadership of Kazakhstan for maintaining productive dialogue with the international financial community in these most challenging economic times of the post-war era.
Murad Megalli noted that one of the key observations coming from the current crisis is that the ongoing deleveraging of private sector will need to come not only from reduction of debt stock as such, but equally from formation of stronger equity capital base. As the cycle turns, it is critical for the Government of Kazakhstan to ensure that both the financial and the corporate sectors build sufficient – and symmetrical - equity to respond to future challenges.

 
— Even though we see signs of improvement, in the short term, the international equity capital markets are likely to remain closed for Kazakh corporate issuers. Traditional emerging market investors are currently extremely cautious, shell-shocked by the massive destruction of equity and wealth globally, and the extreme stress in the credit markets over the past year. Although the crisis is probably far from over, economic and financial conditions are shifting in a manner that suggests that a recovery is on the horizon. The drag from tighter credit conditions appears to be fading, as demand for credit has adjusted downwards and as aggressive policy actions have helped to support investment supply. Stable flows of foreign direct investment, in particular in the energy sector, and uninterrupted availability of bilateral funding at sovereign and quazi-sovereign levels attest to the fact that investor appetite toward Kazakhstan is re-emerging, the representative of JP Morgan said.

Murad Megalli has urged the Government to undertake a careful holistic review of its ownership rights in various industries. The objective of this exercise would be to identify companies and projects which could benefit from allowing or increasing private ownership without compromising the ability of the state to control them by using the public markets as they come back both for straight equity as well as equity linked instruments such as convertible and exchangeable bonds. The latter instrument suffers some limitations under current regulations, a topic that could be reviewed in light of the access these instruments would provide to a new equity investor universe.

Murad Megalli noted that given that equity valuations are yet to recover, the Government would probably be ill-advised to proceed with any such initiatives immediately; however, once market conditions eventually stabilize, the benefit of having such plan available becomes evident. By raising primary equity, companies would gain access to capital required for de-leveraging and growth. This would also have a positive effect in terms of bringing greater transparency and improving corporate governance.

Further the discussion of the main topic of the session and other important issues of investment climate and investment policy of the Republic of Kazakhstan was held. This part of the session was interactive: members of the Council jointly discussed issues raised.

Umberto Vergine, Executive Vice President, Exploration and Production Division, Eni S.p.A., commented on the role of international oil companies in stimulating development of the economy. In particular, Claudio Descalzi spoke about the approach to international business based on the principle of mutual co-operation with hosting countries through long term partnerships, sharing of knowledge and support to social and economic development as an integral element of wider energy investments, which was called “the Eni model”.

The model is based upon:

a) an integrated approach to promoting the full realization of local potential, both in terms of energy and infrastructure, and to sustaining the growth of new and diverse industries;

b) the strengthening of relationships with local companies and the formation of long term Joint Ventures to pursue new opportunities locally and abroad;

c) the fulfilment of local needs by ensuring a stronger National supply of energy; and

d) Training and social investment to maximise stakeholders benefit

In his comments, George Kirkland, Executive Vice-President, Upstream and Gas, Chevron Corporation, noted that Kazakhstan’s response to the crisis is exemplary. The leadership of the country moved promptly to support financial institutions, industry and commerce, and employment of citizens.

In his speech, Chevron representative told that four infrastructure planks are particularly important in building a sturdy platform for investment– and in helping achieve the goal of making Kazakhstan one of the 50 most competitive economies in the world:

1) Open markets: A level and transparent playing field will maximize the free flow of energy, trade and investment – and significantly attract international investment. Kazakhstan’s early accession to the World Trade Organization will clear the way for job-building exports and will more fully integrate Kazakhstan into the international economy.
2) Sound policies: In particular, stability and security are essential to ensuring that investment commitments continue into the medium and long term.
3) Rule of law: Uniform, consistent and enforceable laws, and a robust body of case law, will help create a stable commercial environment. Bilateral investment treaties provide excellent reinforcement.
4) Effective development strategy: Applied technology and increased human capacity – education and training, job creation and health care – go hand in land with increased investments.

In conclusion, George Kirkland expressed confidence that by pursuing the four mentioned infrastructure planks Kazakhstan will continue to grow for the benefit of all its citizens.

In his speech, Alexander Machkevitch, Shareholder, Eurasian Natural Resources Corporation PLC (ENRC), spoke about different models of private public partnership being currently applied in Kazakhstan for implementation of large-scale infrastructure projects. In particular, Alexander Machkevitch informed about one of the breakthrough projects in Kazakhstan’s transport sector, where ENRC participates in. In 2008, transport division ENRC Logistics became the successful tenderer for the Project “Construction and operation of new railway line Korgas-Zhetygen”, which is included into 30 corporate leaders of Kazakhstan Program. The Project involves construction of new railway line at a length of some 300 km. This project provides the basis for the following development of international trade relations between China and Kazakhstan and intensifies transit potential of the country. Alexander Machkevitch has also suggested a number of recommendations to improve project implementation.

Xiaoyu Zhao, Vice President (Operations 1), Asian Development Bank in his speech raised a question on the measures the Government of the Republic of Kazakhstan should undertake to attract major experienced investors and finance into PPP projects in sectors such as roads, rail, power and airports as well as the role of ADB and other international financial institutions in this process.

In conclusion, Xiaoyu Zhao has invited session participants to the Business Development Forum of the Central Asian Regional Economic Cooperation group (CAREC) to be held in Urumqi on 31 August and 1 September, 2009. The main theme of the Forum will be CAREC: Rebuilding the Silk Road with Public Private Partnership.

Peter Tils, Managing Director, CEO Central and Eastern Europe, Deutsche Bank Frankfurt, spoke about issues related to emissions trading under the Kyoto protocol in his speech. Head of Deutsche Bank Frankfurt recommended that Kazakhstan obtains emissions trading permits under the Kyoto protocol having performed necessary procedures.

Fawzi Kyriakos-Saad, Chief Executive Officer of Russia, countries of CIS and Turkey, Member of the EMEA Operating Committee, Credit Suisse, talked about comprehensive communication strategy with international investor community.

Having noted that the response of the Kazakh authorities to the economic challenges over the last 18 months was to a great extent appropriate, with the implementation of a counter-cyclical fiscal policy and a well managed devaluation of the Tenge, Fawzi Kyriakos-Saad recommended to implement comprehensive communication strategy with investors. It may enhance the long-term sustainability of access to Eurobond markets for Kazakh issuers and increase the level and clarity of communication in order to ensure positive long-term investors sentiment towards Kazakhstan.

Tetsuro Terada, Executive Vice President, Europe, CIS, Middle East and Africa, Mitsubishi Corporation in his comments proposed the following issue for the discussion on next FIC session “Improvement of SME credit”. Speaking about slow speed of utilization of US$1.0 billion provided by the Kazakhstan Government for the development of SME business and allocated through SME Fund DAMU (26.5% of the fund is utilized as of April 2009), Tetsuro Terada recommended to enhance the structure and system for an efficient utilization of the funds.

James T. Hitch III, Managing Partner, Baker& McKenzie – CIS, Limited in his speech poised some questions about actual implementation of the Islamic Financing Law adopted by Kazakhstan in February 2009 with a purpose of clarifying a number of outstanding issues concerning this new law.

Mustafa Koç, Chairman of the Board of Directors, Koç Holding, in his speech that regional development banks such as the Asian Development Bank also will play a key role in securing financing to emerging markets especially for infrastructure projects. The World Bank, IFC and EBRD may also contribute to the development of public and private sector projects in Kazakhstan.

— Build Operate and Transfer (BOT) projects could be useful in tapping private capital for non-energy infrastructure projects. It would be interesting to hear from the Kazakh Authorities whether they have any existing BOT projects under consideration. For other new projects, development of public-private partnership programs could also be encouraged, Mustafa Koc said.

Karl Johansson, Managing Partner, Ernst & Young CIS, in his speech recognized the importance of the topic of the session in terms of finding solutions to the challenges faced with the global liquidity crisis to help finance and sustain Kazakhstan’s vision for continued economic growth and to diversify its economy in order to strengthen its ability to become one of the top 50 competitive economies in the future.

The Ernst & Young CIS partner recommended introducing further tax incentives in the short to medium term to increase the attractiveness of Kazakhstan for new investments. In particular, he recommended reducing the withholding tax rate on interest. This would reduce the cost of serving foreign debt and increase the attractiveness of debt financing through the liquidity crunch and attract financing to Kazakhstan, Karl Johansson noted. Germany, Hungry, the Netherlands, Italy and Russia are examples of countries, which have a reduced withholding tax rate on interest, he told.

Besides, in light of the current global economic downturn, Kazakhstan, along with other modern market economies, must assess the current and ongoing solvency and future stability of its banking system and therefore its ability to support a functioning economy through the economic cycle, Karl Johansson noted.

— It is critical that banks undergo a stress test to know what different recessionary environments would imply for earnings, assets, capital and capital requirements to ensure that capital and business planning is appropriate on an individual bank level and further assists your macro-economic decision making as the key stakeholder in the economy. Assessment of the banking system and undertaking remedial measures will only help to shore investor confidence and jump-start flow of credit into Kazakhstan, Karl Johansson said.

Jean-Claude Kunz, President EEMA & PMIDF Region, Philip Morris International, Inc., suggested improving FMCG trade through microfinance programs similar to those implemented by the governments in India and Indonesia that could be considered in Kazakhstan. Jean-Claude Kunz has proposed the Kazakh Government to support the program through initial investments by Samruk-Kazyna and/or affiliated banks.

Arnaud Breuillac, Senior Vice-President Continental Europe & Central Asia, Total spoke about the stability of the fiscal and legal environment in oil and gas industry.

— The stability of the fiscal and legal environment is essential to maintain the attractiveness of the Republic of Kazakhstan and this is particularly essential in today's environment, Arnaud Breuillac said.

The representative of Total noted the difficulties to launch new oil and gas projects under the new legislation.

Mark W. Albers, Senior Vice-President, Exxon Mobil Corporation noted that investors and government can work together to promote the development of local industries and hence generate additional organic economic growth of Kazakhstan.

In particular, Mark W. Albers recommended the following to the Government of the Republic of Kazakhstan:

• By aligning with us up front on the objective we both seek in the development of national industry, and then giving us time and allowing us to use our tried and tested systems to promote the formation of effective joint ventures;

• By simplifying the procedures by which companies can enter the country and set up business, particularly in the streamlining of the processes to establish joint ventures; and

• By partnering with investors on establishing local infrastructure to build a skilled national workforce to build a sustainable step-change in the country’s competitiveness.

Special Working Group to prepare the 21st Plenary Session of the Foreign Investors’ Council, which includes representatives of FIC member-companies and governmental authorities, has prepared Analysis Paper and Recommendations of the Working Group to determine alternative sources of funding for Kazakhstan's economic growth in changing world financial markets. Full text of the Analysis and recommendations can be downloaded here.

Within the framework of the 21st Plenary Session the Head of State, Nursultan Nazarbayev, had a number of bilateral meetings with the session participants: Thomas Mirow, the President of the European Bank for Reconstruction and Development, and Oleg Deripaska, General Director of the United Company RUSAL.

The next FIC plenary session will take place in Astana on December 4, 2009. It’s topic will be "Involvement of Foreign Investors in the Diversification and Technological Development Policy of  Kazakhstan".

(Based on the materials of the Kazakhstanskaya Pravda newspaper, an official website of the President of Kazakhstan and speeches of the session participants).