VZCZCXRO1934
PP RUEHAST RUEHDBU
DE RUEHAST #0029/01 1030702
ZNR UUUUU ZZH
P 130702Z APR 06
FM USOFFICE ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 0099
INFO RUEHTA/AMEMBASSY ALMATY PRIORITY 0093
RUEHAH/AMEMBASSY ASHGABAT 0014
RUEHEK/AMEMBASSY BISHKEK 0016
RUEHDBU/AMEMBASSY DUSHANBE 0018
RUEHBUL/AMEMBASSY KABUL 0013
RUEHNT/AMEMBASSY TASHKENT 0014
RUEHMO/AMEMBASSY MOSCOW 0015
RUEHVEN/USMISSION USOSCE 0039
RUEHAST/USOFFICE ASTANA 0101

UNCLAS SECTION 01 OF 03 ASTANA 000029 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SCA/CEN (J. MUDGE) 
USOSCE FOR D. BROWN AND J. DUNLOP 
 
E.O. 12958: N/A 
TAGS: ECIN EINV ENRG KDEM PGOV PHUM PREL OSCE PINR
WTRO, KZ 
SUBJECT: KAZAKHSTAN: NAZARBAYEV OUTLINES PLAN TO MAKE KAZAKHSTAN ONE 
OF WORLD'S 50 MOST COMPETITIVE COUNTRIES 
 
REF: ALMATY 1095 
 
¶1. (U) Summary: In his annual state of the nation address 
delivered on March 1, President Nazarbayev presented his 
"Strategy for Kazakhstan's being among - the world's 50 most 
competitive countries."  In his introductory statement, he spoke 
of the key components of his vision: the market economy, the 
social safety net, a democratic society, national security, and 
international relations.  While Nazarbayev's speech touched upon 
all of these issues, his focus was clearly on economic 
modernization.  End summary. 
 
 
 
The Market Economy 
 
------------------ 
 
 
 
¶2. (U) President Nazarbayev stressed diversification of the 
economy, calling for realization of "breakthrough projects" and 
achieving world market competitiveness in selected "niches."  He 
strongly endorsed extending government support and credit 
assistance to stimulate imports of high-tech equipment and 
exports of goods other than raw materials.  Noting that such 
exports have remained at the level of $2 bn. for almost a 
decade, Nazarbayev called it "necessary" to achieve an increase. 
 At the same time, he promised to continue to maintain 
"transparency and stability in conditions of cooperation with 
multinational corporations" in the natural resource sector.  In 
regard to energy, Nazarbayev said the focus "must now be on 
diversifying and ensuring stable channels for supply of 
Kazakhstan's energy resources to the world markets." 
 
 
 
¶3. (U) A key aspect of President Nazarbayev's economic program 
is Kazakhstan's integration into the world economy.  "We must be 
prepared for intense competition and use it to our advantage," 
he declared.  Nazarbayev expressed support for Kazakhstan's 
active participation in various economic organizations and for 
WTO accession, which "is going at full speed."  He called for 
the development of a commercial high-tech sector, an effort in 
which the Innovation Fund would play a key role.  (Note:  The 
state-owned National Innovation Fund was established in May 2003 
to encourage economic diversification and industrial-innovative 
development.  End note.)  This, Nazarbayev said, would enable 
Kazakhstan to acquire intellectual property ownership. 
Consequently, he continued, Kazakhstan needs to improve 
protection of copyrights and trademarks by strengthening 
criminal and administrative measures against infringement and 
implementing "a broad-based public campaign aimed at building 
intolerance to pirated goods." 
 
 
 
¶4. (U) President Nazarbayev also addressed the issue of 
infrastructure, saying that "the major task for Kazakhstan's 
transport-communications complex remains integration into the 
Eurasian transportation system."  The integration process, he 
said, "must take full advantage of the country's geo-strategic 
position as a transit bridge between Europe and Asia." 
Nazarbayev called for the creation of at least two or three 
aviation hubs to establish "quality links" between Europe and 
Asia.  He said that improved infrastructure is needed to develop 
Almaty as "the principal financial center of the Central Asian 
region" and Astana as "a modern capital of the Eurasian space." 
Nazarbayev also spoke of creating "academic centers" and 
"technological parks" and directing the development of the 
country's scientific potential to link applied research with 
commercial business.  The state must "abolish legislative, 
administrative, and bureaucratic obstacles to business 
initiative." 
 
 
 
¶5. (U) President Nazarbayev charged the Government with a number 
of concrete tasks, particularly in the area of taxation.  The 
value added tax, he said, should be lowered by 1% in 2007 and 
 
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another 1-2% in 2008-2009.  (Note:  The value added tax is 
currently set at 15%.  End note.)  Starting in 2008, the social 
tax is to be reduced by 30%, which "should serve as a stimulus 
for employers to raise employees' wages."  (Note:  The social 
tax is a progressive tax paid by the employer on employees' 
wages.  End note.)  Starting in 2007, a single unified tax rate 
is to be introduced for small businesses.  (Note:  Small 
businesses are currently subject to a progressive tax.  End 
note.)  At the same time, a 10% personal income tax is to be 
introduced, with partial exemptions for low income earners. 
Nazarbayev emphasized the importance of maintaining fiscal 
discipline and using monetary policy to limit inflation.  He 
also called for various legislative measures aimed at 
strengthening the institution of private property, including 
imposition of economic, administrative, and criminal liability 
for breach of contract, protections for minority shareholders, 
stronger anti-monopoly provisions, and guarantees against 
re-nationalization.  Furthermore, Nazarbayev urged the 
development of a program for floating national companies' 
securities on capital markets. 
 
 
 
The Social Safety Net 
 
--------------------- 
 
 
 
¶6. (U) As a second priority, President Nazarbayev called for 
strengthening the social safety net.  The state, he said, will 
not spare resources in supporting socially vulnerable segments 
of the population.  He tasked the Government with raising 
pensions for a number of selected groups, such as WWII veterans 
and their families.  Nazarbayev said that social policy needs to 
be brought into compliance with market forces, targeting stable 
employment as the key objective.  He urged the adoption of an 
environmental code and a labor code as well as international 
standards of social responsibility for businesses.  He discussed 
the importance of improving housing, educational, and healthcare 
infrastructure.  Finally, President Nazarbayev said that 
Kazakhstan's circumstances are favorable for accepting inflows 
of foreign labor.  He called for a one-time amnesty for migrant 
laborers, as well as a mechanism to attract highly educated, 
professional workers to Kazakhstan on a permanent basis. 
 
 
 
A Democratic Society 
 
-------------------- 
 
 
 
¶7. (U) President Nazarbayev named "further development of 
democracy and modernization of the political system" as another 
priority.  He noted, however, that it is necessary to balance 
"the general patterns" shared by prosperous democratic states 
with "the important cultural and historical traits and 
traditions" of Kazakhstani society.  Nazarbayev said that "the 
unity" demonstrated by the citizens in electing him last 
December leaves no doubt about the society's "consolidation," a 
precondition for the country's stable development.  He went on 
to speak about "the anxiety, even fear at times" that 
Kazakhstanis experienced during the campaign, a phenomenon, he 
added, that "some were, apparently, counting on."  "We all 
recall," he remarked, "the sigh of relief our citizens breathed 
after the election." 
 
 
 
¶8. (U) Nazarbayev said that the absence of well-established 
democratic traditions and society's tendency to mistake 
permissiveness for freedom pose threats to the country's 
stability.  Therefore, he continued, democratic traditions must 
be not only developed but also protected.  The key to this, he 
stated, is enforcement of law and decisive prosecution of 
behavior such as slander, bribery, and violence.  Nazarbayev 
welcomed NGOs' role in Kazakhstan's development, but said that 
 
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they will not be permitted to act outside the law. 
 
 
 
National Security 
 
----------------- 
 
 
 
¶9. (U) Discussing national security, President Nazarbayev 
emphasized the creation of a professional army and the struggle 
against religious extremism, international terrorism, and drug 
trafficking.  He spoke of regional cooperation on these issues, 
including anti-terrorist initiatives under the umbrella of NATO. 
 Nazarbayev then turned to discussing corruption as "a threat to 
national security and social stability."  He called for 
legislative amendments to bring transparency to the financial 
activities of state and private enterprises.  He spoke in favor 
of an amnesty on capital and property taken out of legal 
domestic circulation, with the exception of funds directed 
toward illegal activities, such as drug or weapons trafficking. 
The plan calls for a 10% tax to be charged on the equities being 
legalized.  Those who took capital out of circulation but fail 
to take advantage of the amnesty and pay the tax will be 
prosecuted, said Nazarbayev. 
 
 
 
International Relations 
 
----------------------- 
 
 
 
¶10. (U) The final priority cited by President Nazarbayev was 
"further realization of a balanced and responsible foreign 
policy."  This called for developing a strategic partnership 
with Russia, strengthening mutually beneficial cooperation with 
China, strengthening senior-level relations with the U.S., 
developing cooperation with the European Union, closer 
coordination with neighboring Central Asian states, and 
developing relations with the countries of the Muslim world. 
Regarding the U.S., President Nazarbayev spoke of "a long-term 
and stable partnership characterized by broad cooperation on the 
issues of ensuring international energy security and stability, 
combating terrorism and religious extremism, and continuing 
democratization." 
 
 
 
Comment 
 
------- 
 
 
 
¶11. (SBU) Comment:  President Nazarbayev's speech was long on 
economic reform, and there is ample evidence that Astana's 
prudent macroeconomic policies will continue.  Nazarbayev's 
elevation of intellectual property protection was a particularly 
encouraging note, given the importance of this issue for WTO 
accession.  In comparison with last year's speech, this annual 
address was much shorter than expected on democratic reform. 
Rather than break new ground, he stuck to the usual theme of 
following a "Kazakhstani path" to democracy.  Senior sources in 
Astana tell us that the political uncertainty associated with 
the Sarsenbayev murder led to the decision to minimize the 
attention paid to it this year.  The President's opening remarks 
to the Democratization Commission a few weeks later (see reftel) 
had the kind of detail that we had expected in this speech. 
 
End comment. 
TRACY