VZCZCXRO8843
OO RUEHLN RUEHVK RUEHYG
DE RUEHTA #1211/01 1850607
ZNR UUUUU ZZH
O 030607Z JUL 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2698
INFO RUCNCIS/CIS COLLECTIVE 0548
RUEHVEN/USMISSION USOSCE 1921

UNCLAS SECTION 01 OF 03 ASTANA 001211 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EINV KZ
SUBJECT: SUBJECT:  KAZAKHSTAN - ASIA SOCIETY CONFERENCE 
FOCUSES ON ECONOMIC OPPORTUNITIES AND OBSTACLES 
 
------- 
Summary 
------- 
 
¶1.  (U) The Asia Society's Second Kazakhstan International 
Business Conference was held June 12-14 in Astana. The event 
brought together businessmen from Kazakhstan and abroad, 
government officials, diplomats, and academics to discuss 
obstacles to and opportunities for economic development in 
Kazakhstan.  Several themes resonated throughout the 
conference, including the importance of Kazakhstan's creating 
a friendlier investment climate, diversifying its economy, 
and turning itself into an engine for regional economic 
integration.  End Summary. 
 
---------------------------------- 
Prime Masimov Stresses Focus Areas 
---------------------------------- 
 
¶2. (U) In a keynote address which followed brief opening 
remarks by Asia Society President Richard Holbrooke, 
Kazakhstani Prime Minister Karim Masimov stressed that 
Kazakhstan is a reliable partner for foreign direct 
investment and seeks investors willing to explore the wealth 
of opportunities that Kazakhstan offers.  Kazakhstan is 
undertaking measures that will make it one of the 50 most 
competitive countries in the world within five years. 
According to Masimov, the government's six focus areas on the 
economic front are WTO accession, judicial transparency, 
economic diversification, sustainable growth through training 
and professional development, the fight against corruption, 
and promoting regional economic cooperation.  Masimov noted 
that the U.S. and Kazakhstan were about to launch an 
ambitious Public-Private Economic Partnership Initiative 
(PPEPI) which would bring together the governments and 
private sectors of the two countries to develop proposals for 
progress in some of these very areas.  (Note: The PPEPI was 
subsequently inaugurated in Astana on June 24. End Note.) 
 
------ 
Energy 
------ 
 
¶3. (SBU) In his address opening a panel on energy issues, 
Daniel Yergin, Chairman of Cambridge Energy Research 
Associates, spoke about the current "demand shock" for oil. 
Yergin noted that it takes years to bring new crude 
production on line and that the costs to do so have 
skyrocketed in recent years, significantly outpacing the 
overall inflation rate.  This augurs for continued high 
prices for crude.  Deputy Minister of Energy and Mineral 
Resources Akchulakov said that the Kazakhstani government is 
interested in investing in downstream capacities, such as 
petrochemicals.  (Comment: In prior post reporting, we have 
noted that petrochemicals do not appear to have much economic 
promise in Kazakhstan.  End Comment.)  Akhchulakov and 
several other panelists argued that Kazakhstan has huge 
potential in renewable sources of energy.  Diversifying the 
energy economy into non-hydrocarbon sectors is crucial for 
Kazakhstan's sustainable development, they stressed. 
 
----------------------- 
Financial Sector Issues 
----------------------- 
 
¶4. (U) In remarks opening a panel on financial sector issues, 
Finance Minister Bolat Zhamishev said Kazakhstan has been 
proactive in fighting the effects of the international credit 
crunch, and thus Kazakhstani financial institutions remain 
attractive to international capital markets.  It remains a 
top priority to transform Almaty into a regional financial 
hub, create an effective stock exchange to attract liquidity, 
and create a class of private institutional investors, he 
argued.  Adel Kambar, CEO of Renaissance Capital, emphasized 
that an active domestic pool of investors is a prerequisite 
to the entry of international investors.  Jonathan Schiffer 
from Moody's Investors Service noted that the Kashagan field 
will begin production in several years; thus it is crucial 
that Kazakhstan's non-extractive sectors raise their 
productivity in order to deal with anticipated currency 
appreciation and other negative effects from the economic 
windfall of the energy sector. 
 
----------------- 
Eni in Kazakhstan 
----------------- 
 
¶5. (U) Stefano Cao, CEO of the Exploration of Production 
Division of Italian energy giant Eni, argued in his lunchtime 
address that as a dynamic player in the upstream energy 
 
ASTANA 00001211  002 OF 003 
 
 
sector, Kazakhstan makes an immense contribution to the 
global energy balance.  Discussing his company's activities 
in Kazakhstan, he said that Eni undertakes significant 
efforts to train and retain local staff, which promotes 
sustainable economic development.  Eni has undertaken several 
social infrastructure projects to improve health and 
education for citizens.  It also brings benefits to the local 
economy through technology transfer and increased salaries 
and tax revenues.  The concept that underlies Eni's 
activities in Kazakhstan is a commitment to a common future 
and the economic growth of the country, Cao contended. 
 
------------------------------------------ 
Economic Diversification, Entrepreneurship 
------------------------------------------ 
 
¶6. (U) During a session on economic diversification, Minister 
of Industry and Trade Vladimir Shkolnik argued Kazakhstan's 
high-quality human capital makes it well-suited to 
diversifying into high-technology sectors and competing at a 
world-class level.  The government provides support to 
specialized companies and has created special economic zones 
to efficiently transfer new technologies in the non-resource 
sector, he argued.  Several panelists highlighted 
Kazakhstan's auspicious geographic location between Europe 
and Asia as facilitating economic diversification into the 
transshipment sector.  David Short of FedEx explained that 
his company had chosen Almaty as its regional hub in part 
because of the quality of Kazakhstani human capital and 
infrastructure and the welcoming attitude of the government. 
 
¶7. (U) During a session on entrepreneurship, Raimbek Batalov, 
chairman of the Forum of Entrepreneurs of Kazakhstan, said 
many administrative barriers curb the development of domestic 
businesses.  He stressed that the government needs to be more 
proactive in reforming the tax code.  (Note:  The government 
is, in fact, moving forward this year on a major tax reform 
effort.  End Note.)  Batalov contended that private companies 
have no chance when competing with state enterprises, and 
said the government needs to be more transparent in the area 
of public-private partnerships (i.e., government concessions 
on public works projects). 
 
--------------------------------------------- --- 
International Economic Cooperation and Relations 
--------------------------------------------- --- 
 
¶8. (U) In his remarks opening a session on international 
economic cooperation and relations, Bolat Nurgaliyev, 
Secretary-General of the Shanghai Cooperation Organization 
(SCO), outlined his organization's priorities, which, he 
said, include peace, stability, and prosperity among its 
member states.  Openness and transparency is enshrined in the 
Organization's charter, he argued.  Richard Holbrooke 
expressed the view that some U.S. government officials may be 
overly alarmed at the SCO's intentions.  Martha Olcott of the 
Carnegie Endowment for International Peace noted that 
significant challenges remain to maximize Kazakhstan's 
attractiveness to investors.  She argued that the government 
needs to fight corruption, enhance property rights, and 
undertake tax and judicial reforms.  Zeyno Baran of the 
Hudson Institute pointed to the soundness of Kazakhstan's 
multi-vector diplomacy, with energy cooperation as the 
primary engine of international partnership.  Ambassador 
Ordway highlighted the depth of the U.S.-Kazakhstani 
strategic partnership. Kazakhstan is a close partner in the 
areas of non-proliferation and counter-terrorism and the U.S. 
is the single largest source of foreign investment in 
Kazakhstan.  The large number of Kazakhstani students 
studying in the U.S. -- through USG-funded exchange programs 
and Kazakhstan's Bolashak scholar program, as well as 
independently -- is a key factor enhancing bilateral ties. 
 
----------------------------- 
Regional Trade and Investment 
----------------------------- 
 
¶9. (U) In his address opening a session on regional trade and 
investment, Sherzod Faizev, Deputy Secretary General of the 
Eurasian Economic Community (EurAsEC), noted that trade among 
EurAsEc member countries has tripled since its founding. 
Transit links, energy cooperation, and positive trends in 
investment inflows are raising the international 
attractiveness of EurAsEC.  Kazakhstan Temir Zholy 
(Railroads) representative Yermek Kizatov explained that 
Kazakhstan is restructuring its railway sector in order to 
become a more efficient component of the regional 
transshipment infrastructure.  Konstatin Nazarov of General 
Electric emphasized that Central Asia is still at an early 
point in attracting foreign investors.  The region needs to 
 
ASTANA 00001211  003 OF 003 
 
 
focus on improving the investment climate and protecting the 
interests of foreign investors.  Haoliang Xu, UNDP Resident 
Representative in Kazakhstan, highlighted the progress 
Kazakhstan has made on key human development indicators, 
while the rest of Central Asia has declined or stagnated. 
Kazakhstan can use its financial strength to increase its 
role as a donor and regional motor for integration and 
development, he argued. 
 
---------------------------------- 
Kazakhstan's Competitive Advantage 
---------------------------------- 
 
¶10. (U) In closing remarks to the conference, Vice Minister 
for Industry and Trade Zhanar Aitzhanova stressed the 
importance of harmonizing Kazakhstan's regulations with 
international standards and promoting foreign direct 
investment in the non-energy sector.  The latter represents a 
particular challenge, since Kazakhstan competes with 
neighboring economies that have natural competitive 
advantages in these other sectors, she argued.  Kazakhstan's 
competitive advantage will therefore be its clear rules and 
regulations, transparency, and predictability.  Aitzhanova 
concluded with a call on the business community to be active 
in sharing expertise and participating in the development of 
human capital in Kazakhstan, a key prerequisite for the 
country's economic prosperity. 
 
------- 
Comment 
------- 
 
¶11. (SBU) The conference featured an impressive list of 
speakers and addressed an array of salient topics.   The 
panel discussions were, in fact, more engaging than those at 
the Asia Society's First International Business Conference, 
held in Almaty in 2005.  That said, attendance was 
disappointing, especially on the second day (which was a 
Saturday).  Richard Holbrooke told the Ambassador that the 
Asia Society lost at least 50 participants simply by holding 
the event in Astana, rather than Almaty.  In addition, this 
time around, President Nazarbayev dropped out of the event 
(though Holbrooke still managed a private meeting with him) 
and the political opposition did not participate at all.  In 
sum, this second Asia Society business conference managed to 
get the key issues on the table, but did not have the same 
impressive impact as the first one did in 2005.  End Comment. 
 
ORDWAY