VZCZCXRO3769
OO RUEHAST RUEHBI RUEHCI RUEHLH RUEHLN RUEHPW RUEHVK RUEHYG
DE RUEHTA #1321/01 2050147
ZNR UUUUU ZZH
O 230147Z JUL 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2808
INFO RUCNCIS/CIS COLLECTIVE 0569
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE

UNCLAS SECTION 01 OF 04 ASTANA 001321 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAID PREL PGOV KZ
 
SUBJECT: KAZAKHSTAN - LAUNCH OF THE PUBLIC PRIVATE ECONOMIC 
PARNTERSHIP INITIATIVE 
 
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SUMMARY 
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¶1. (U) Special Representative for Commercial and Business Affairs 
Frank Mermoud and Commerce DAS Paul Dyck joined Kazakhstani Prime 
Minister Masimov and a delegation of U.S. and Kazakhstani public and 
private sector officials to launch the U.S.-Kazakhstan 
Public-Private Economic Partnership Initiative (PPEPI) in Astana on 
June 24. Discussion was organized around the PPEPI's six pillars. 
All sides acknowledged the need to tackle difficult issues so as to 
further improve Kazakhstan's investment climate.  Participants had 
an opportunity to directly address questions of concern to Prime 
Minister Masimov.  The launch concluded with the issuance of a Joint 
Statement, which envisions the formation of a PPEPI Coordination 
Committee and PPEPI working groups.  End Summary. 
 
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PROMOTING A HEALTHY BUSINESS CLIMATE IS KEY 
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¶2. (U) The U.S.-Kazakhstan Public-Private Economic Partnership 
Initiative (PPEPI) was launched in Astana on June 24.  The all-day 
program supported by EEB/CBA, SCA, and U.S. Embassy Astana included 
sessions devoted to each of the PPEPI's six pillars (economic 
diversification, anti-corruption, transparency, exchanges of experts 
and technology, regional integration, WTO accession) and a keynote 
address by Prime Minister Masimov, following which he answered 
questions from the audience.  In addition to the four official PPEPI 
partners -- the USG, Kazakhstani government, American Chamber of 
Commerce in Kazakhstan (AmCham), and Kazakhstan's Atameken National 
Economic Chamber -- the U.S.-Kazakhstan Business Association (USKBA) 
and Kazakhstan's Forum of Entrepreneurs also played prominent roles 
at the launch. 
 
¶3. (U) Vice Minister of Industry and Trade Edil Mamitbekov delivered 
opening remarks at the June 24 event, reminding the audience that 
the U.S. is the largest source of foreign investment in Kazakhstan. 
He expressed the hope that PPEPI would strengthen U.S.-Kazakhstan 
economic ties through "long-term dialogue," establish greater 
confidence between U.S. and Kazakhstani businesses, and contribute 
to Kazakhstan's economic diversification.  In his follow-on address, 
senior Commerce Department representative DAS Paul Dyck explained 
that the PPEPI was unique in being private-sector driven.  He 
stressed the need to further strengthen Kazakhstan's business 
climate.  Atameken's Azat Peruashev noted in his own remarks that 
the Kazakhstani government had recently adopted decisions aimed at 
reducing administrative barriers to business activity.  The AmCham's 
Ken Mack stressed that the principal aim of PPEPI should be to 
provide policy recommendations that would promote a healthy business 
environment.  He noted that for much of the audience, economic 
diversification is the most important PPEPI pillar, but the key to 
diversification, he argued, is progress on the other five pillars, 
especially anti-corruption. 
 
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ECONOMIC DIVERSIFICATION 
------------------------ 
 
¶4. (U) A session on economic diversification followed the addresses 
by Mamitbekov, Dyck, Peruashev, and Mack.  Timur Nurashev, Chairman 
of the Ministry of Industry and Trade's Investment Committee, noted 
the economic progress Kazakhstan had already made, attracting 80 
percent of all the foreign investment in the Central Asia region. 
World Bank Kazakhstan Country Director Sergey Shatalov argued that 
successful economic diversification will require legal stability, 
political stability, regulatory efficiency, and strong 
anti-corruption measures.  He contended that tax privileges and 
other investment benefits may be important at the initial stage of 
promoting investment, but in the long-run they can be economically 
distorting. 
 
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ANTI-CORRUPTION 
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¶5. (U) During a session on anti-corruption measures, Customs 
Committee Deputy Chairman Serzhan Duysembayev readily admitted that 
corruption is an "acute problem" in the customs service.  The 
Customs Committee had done an analysis and found 58 different types 
of customs-related corruption.  As a result, he explained, Customs 
was changing its procedures to decrease opportunities for 
corruption.  Yerlan Sagadiyev, an advisor to Prime Minister Masimov, 
told the audience that Kazakhstan's new Tax Code -- which is 
expected to be adopted by the end of the year -- would increase 
transparency and reduce corruption.  The economic aim of tax reform, 
he explained, was to gradually shift the tax burden from production 
to wealth.  Raimbek Batalov of the Forum for Entrepreneurs argued 
that the situation with small- and medium-sized enterprises (SMEs) 
 
ASTANA 00001321  002 OF 004 
 
 
is not sustainable.  They are hampered by corruption and the shadow 
economy.  Though the government has recently taken steps to reduce 
administrative barriers to business activity, it must do more on 
that front.  In addition, in order to assist SME development it is 
necessary to improve Kazakhstan's infrastructure, reform the tax and 
customs codes, provide better SME financing, and improve education 
and human capital. 
 
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TRANSPARENCY 
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¶6.  (U) Leading off a session on transparency, Asian Development 
Bank Country Director Steven Wermert focused on government tenders. 
He contended that the lack of prequalification requirements for 
bidders deters prospective foreign participants who presume that 
less qualified but politically connected domestic companies are 
advantaged in the tender process.  Karl Bach, Project Manager of the 
World Bank's Central Asia Corporate Governance project, highlighted 
the importance of bringing Kazakhstani corporate governance in line 
with international standards.  He argued that progress remains slow 
on implementing accounting and corporate disclosure.  Businesses are 
especially reluctant, he said, to provide better information on 
conflicts-of-interest and related-party transactions.  Dina 
Shazhenova, Executive Secretary of the Ministry of Economy and 
Budget Planning, discussed the government's efforts to improve 
transparency through making state services more accessible, 
including through e-government initiatives. 
 
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EXCHANGES OF EXPERTS AND TECHNOLOGY 
----------------------------------- 
 
¶7. (U) In a session on exchange of experts and technology, Nick 
Olds, Country Manager for ConocoPhillips, argued that effective 
integration of knowledge and technology is critical to achieving the 
goal of economic diversification.  Atameken's Azat Peruashev argued 
for exchange of American stock market expertise with Kazakhstanis. 
USAID Central Asia Regional Director Bill Frej proposed partnering 
the 30 Kazakhstani firms selected to participate in the government's 
"30 Corporate Leaders Program" with foreign companies as means to 
facilitate technology transfer and enhance cooperation. 
 
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REGIONAL INTEGRATION 
-------------------- 
 
¶8. (U) In a session on regional integration, USKZBA's Bill Veale 
stressed the importance of transport, logistics, and trade 
facilitation in developing regional economic links.  The Lancaster 
Group's Nurlan Kapparov argued that Kazakhstan has great potential 
as a transit bridge between Europe and Asia.  He emphasized the need 
to develop railway, highway, air routes, and pipelines to maximize 
Kazakhstan's attraction as a transit corridor.  Ali Takesh of Philip 
Morris complained that differing and complex customs procedures have 
made it impossible for his company to export production from 
Kazakhstan to Uzbekistan. 
 
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WTO ACCESSION 
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¶9. (U) During a session on WTO accession, Betsy Hafner, USTR's 
Director for Russia and Eurasia, argued that low tariffs and open 
access to services markets -- two sensitive points in Kazakhstan's 
WTO negotiations -- are both good for Kazakhstan.  High tariffs, she 
contended, increase prices for consumers, increase input costs for 
producers, and encourage smuggling.  Hafner explained that open 
access to services ensures supplies of services at world prices, 
benefiting manufacturers as well as consumers.  Discussing yet 
another sensitive area, she contended that rigid controls on foreign 
labor are counter-productive, discouraging foreign investment. 
Zhanar Aitzhanova, Vice-Minister of Industry and Trade and 
Kazakhstan's lead WTO negotiator, described numerous initiatives to 
both improve the investment climate and speed Kazakhstan's WTO 
accession.  Aitzhanova highlighted current efforts to liberalize the 
financial services sector, and asked that the U.S. take into account 
the WTO accession conditions it has requested from Russia when 
negotiating Kazakhstan's accession. 
 
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MASIMOV ANSWERS AUDIENCE QUESTIONS 
---------------------------------- 
 
¶10. (U) State Department Special Representative for Commercial and 
Business Affairs Frank Mermoud introduced Prime Minister Masimov, 
thanking him for his leadership and for his participation in the 
launch event.  Mermoud noted that significant advancements in 
reducing trade barriers would benefit the public and private sectors 
 
ASTANA 00001321  003 OF 004 
 
 
of both countries.  In his keynote address, Masimov reminded the 
audience that Kazakhstan had already attracted over $80 billion in 
foreign investment and was aiming to become one of the world's 50 
most competitive countries.  Masimov stressed that the PPEPI pillars 
were all focus areas for the Kazakhstani government.  Following his 
prepared remarks, Masimov responded to audience questions, 
addressing, inter alia, fairness, transparency, and competition.  He 
also admitted the need to reduce corruption in both tax and customs 
by streamlining and simplifying procedures.  In response to a 
question about pressures on foreign businesses from regional 
authorities, Masimov acknowledged the problem, and said that the 
inconsistent application and enforcement of laws by regional 
authorities is a critical concern for the central government.  After 
the question and answer period, the AmCham's Ken Mack read out the 
agreed-to PPEPI Joint Statement, which envisions the formation of a 
PPEPI Coordination Committee and PPEPI working groups. (see para 12 
for the Joint Statement text). 
 
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COMMENT 
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¶11. (SBU) Earlier concerns, particularly on the part of the AmCham, 
that the Kazakhstanis would try to turn the launch event away from 
the ambitious aims of PPEPI and into yet another routine investment 
conference proved to be unfounded.  Instead, there was a clear 
understanding that the PPEPI is not about directly cutting business 
deals, but rather about proposing policy changes that, if 
implemented, will ultimately lead to more foreign investment, 
economic growth, and economic diversification.  The Kazakhstanis 
were, in fact, very accommodating in agreeing to almost all of the 
requests of the USG and AmCham regarding both the format of the 
launch event and the substance of the PPEPI Joint Statement.  This 
included enshrining all six original PPEPI pillars in the Joint 
Statement and ensuring all were covered at the launch.  Prime 
Minister Masimov also delivered on his promise to reserve a time 
block to answer participants' questions following his keynote 
address.  That the Kazakhstanis have become much more open to 
seriously discussing tough, uncomfortable issues related to the 
investment climate was best evidenced by the remarks of Customs 
Committee Deputy Chairman Duysembayev, who minced no words about 
corruption in the customs service.  Our next step should be to move 
forward expeditiously in forming several PPEPI working groups, so as 
not to lose the momentum from the successful launch event.  End 
Comment. 
 
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JOINT STATEMENT 
--------------- 
 
¶12. (U) The following is the full text of the PPEPI Joint 
Statement. 
 
BEGIN TEXT 
 
JOINT STATEMENT ON THE U.S.-KAZAKHSTAN PUBLIC-PRIVATE ECONOMIC 
PARTNERSHIP 
 
Astana, June 24, 2008 
 
Building on the United States-Kazakhstan strategic partnership and 
recognizing the fundamental role of the private sector in creating 
sustained economic growth, the Governments of the United States and 
Kazakhstan have established the Public-Private Economic Partnership 
to invest our public and private sectors in a shared vision of 
stability, prosperity, and reform in Kazakhstan. 
 
The Partnership will propose policy reforms and other actions to 
remove impediments to, and create opportunities for, successful 
investment in Kazakhstan.  It is intended to advance the following 
objectives: 
 
(1) Development of robust anti-corruption measures; 
 
(2) Economic diversification, with a special emphasis on small- and 
medium-sized enterprises; 
 
(3) Transparency and good governance, in particular measures that 
improve the investment climate by reducing corruption, removing 
administrative and legislative barriers, and strengthening the rule 
of law; 
 
(4) Scientific and technical cooperation and exchanges of 
specialists between universities, research institutes, and private 
business; 
 
(5)  Highlighting the advantages that membership in the World Trade 
Organization will give to American and Kazakhstani investors and 
traders as well as positive impact on bilateral trade relations and 
 
ASTANA 00001321  004 OF 004 
 
 
the overall economies of both countries; 
 
(6) Regional economic integration that will bolster the 
independence, sovereignty, and security of the countries of the 
region, ensuring their sustainable development and prosperity. 
 
The Governments of the United States and Kazakhstan, The American 
Chamber of Commerce in Kazakhstan, the Chamber "Atameken" are 
expected to be Partners in the Partnership.  The Partnership also 
welcomes the support and participation of U.S. and Kazakhstani 
private companies and business associations. 
 
The Partnership is intended to advance the key objectives mentioned 
above and facilitate dialogue on reform through working groups, 
consisting of one or more representatives of each of the Partners, 
as well as experts from international institutions and the private 
sector.  The working groups will formulate proposals on legislation, 
policies, strategies and programs for achieving the Partnership 
objectives which will be submitted to the two Governments for 
review. 
 
In accordance with objectives of the Partnership, the Coordination 
Committee, consisting of six people, including one representative of 
each of the Partners as well as Ambassador of the Republic of 
Kazakhstan to the United States and the U.S. Ambassador in the 
Republic of Kazakhstan is to coordinate the activity of the working 
groups. 
 
At a minimum, the following working groups are to be created: 
 
(1) on issues of economic diversification and small and medium 
business development; 
(2) on securing transparency and creating conditions for efficient 
economic activity; 
(3) scientific and technical cooperation; 
(4) on issues of regional economic integration; and 
(5) on issues relevant to the reduction of corruption and the 
improvement of the investment climate. 
 
In order to maintain a permanent dialogue within the framework of 
the Partnership, the United States and Kazakhstan plan to conduct a 
Kazakhstani-American Forum on the issue of Public-Private Economic 
Partnership on a regular basis every 1-2 years. 
 
END TEXT 
 
ORDWAY