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O 130335Z MAY 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5408
INFO RUCNCIS/CIS COLLECTIVE 1584
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
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UNCLAS SECTION 01 OF 05 ASTANA 000830 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
STATE PLEASE PASS TO USTR AND OPIC 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EINV EFIN EAID KZ
SUBJECT:  KAZAKHSTAN:  KAZAKHSTAN WELCOMES REVITALIZED TIFA 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY: On April 24 and April 27, Deputy Assistant United 
States Trade Representative (DAUSTR) for South and Central Asia 
Claudio Lilienfeld held meetings in Almaty and Astana to discuss the 
future of the Central Asia Trade and Investment Framework Agreement 
(TIFA) established between the five former Soviet republics of 
Central Asia.  Meetings in Kazakhstan demonstrated continued 
frustration with regional integration/cooperation attempts, and 
welcomed efforts to enhance the bilateral agenda.  Security concerns 
dominated the discussion of Afghanistan, and pleas were made for a 
coordinated international approach to regional development to 
prevent duplication of efforts and the overextension of limited 
Kazakhstani resources.  END SUMMARY. 
 
MAKING THE CASE FOR TIFA 
 
¶3.  (SBU) On April 24 in Almaty, and April 27 in Astana, DAUSTR 
Claudio Lilienfeld met with numerous Kazakhstani government 
officials, academics, as well as representatives of international 
financial institutions and foreign diplomats to discuss the Central 
Asia Trade and Investment Framework Agreement (TIFA).  In each of 
his meetings, Lilienfeld explained that USTR is reviewing its 
approach to the US-Central Asia TIFA (seeking to determine whether 
and how the regional approach can be reinvigorated), is exploring 
creating an enhanced bilateral approach to trade and investment with 
Kazakhstan, and is examining ways to facilitate regional trade and 
commerce involving Afghanistan. 
 
CONCERNS ABOUT TIFA TO DATE 
 
¶4.  (SBU) MFA Americas Department Deputy Director Alim Kirabayev 
told Lilienfeld that his government welcomed the opportunity for a 
pragmatic reorganization of the TIFA agenda, but claimed that 
outside of several international meetings, there has been little 
concrete action on TIFA taken to date.  Vice Minster of Industry and 
Trade Zhanar Aitzhanova said that she appreciates the venue TIFA has 
historically provided and looks forward to Kazakhstan's continued 
participation in it.  However, she maintained that while "it is a 
good forum for meeting and discussion, which we like, it has thus 
far accomplished little."  She said that whole TIFA process should 
be reorganized, claiming that thus far it has been too ad hoc. 
Aitzhanova shared her belief that not all TIFA members have 
demonstrated similar commitments to the initiative, which may be the 
result of different levels of political or economic development. 
"We intimidate our neighbors by just talking about our problems" she 
said. 
 
¶5.  (SBU) Samruk-Kazyna National Welfare Fund Managing Director 
Aidan Karibzhanov expressed doubts about the multi-country/regional 
aspects of TIFA because, in his view, relationships among the 
Central Asian states are worsening.  Professor Nargis Kassenova of 
the prestigious Kazakhstani Institute of Management and Economic 
Policy (KIMEP) expressed a similarly skeptical view.  Kassenova 
conceded that the financial crisis may encourage more regional 
cooperation, but that the real opportunities in that context for 
Kazakhstan lie in cooperation with China. 
 
BILATERAL APPROACH WELCOMED 
 
¶6.  (SBU) Though they expressed doubts about the multi-country 
Central Asia TIFA, Lilienfeld's interlocutors were much more 
positive about the prospects for bilateral efforts.  Vice Minister 
Aitzhanova said that Kazakhstan would very much welcome its own 
bilateral TIFA.  "I don't know if it would undermine the regional 
meeting, but if the old one is not working, perhaps it should be 
replaced" Aitzhanova said.  World Bank Economist John Litwak 
expressed support for an intensified bilateral approach with each of 
the Central Asian countries, noting that there may be little 
alternative given that "the World Bank can hardly even get the 
Tajiks and Uzbeks to talk, let alone cooperate."  According to 
Litwak, enhanced bilateral engagement may be able to identify common 
denominators for regional focus. 
 
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CONNECTION TO AFGHANISTAN LOST ON MANY, UNTIMELY TO OTHERS 
 
¶7.  (SBU) There were doubts expressed about engaging Afghanistan in 
the regional TIFA.  Samruk-Kazyna Managing Director Karbizhanov 
claimed that in Kazakhstan, there is not much interest in 
Afghanistan.  "Perhaps there is a psychological barrier," he opined. 
 He sees little room for trade growth with Afghanistan, largely 
because of the poor relations between the Central Asian republics. 
Karbizhanov cited the example of a Kazakhstani cement factory to be 
built on the Afghan-Tajik border to supply northern Afghanistan with 
construction materials.  In the end, he explained, the project never 
materialized because they could not get agreements from the Uzbeks 
to provide the necessary natural gas.  According to Professor 
Kassenova from KIMEP, Kazakhstanis feel "downgraded" by direct 
association with Afghanistan, and see little benefit in enhanced 
integration.  "Perhaps" she said "there might be a greater role for 
Iran and China in Afghanistan." 
 
¶8.  (SBU) The MFA's Kirabayev noted that Kazakhstan has provided 
significant humanitarian assistance to Afghanistan, but said that 
the current security environment there is not favorable to business 
development.  MFA Asia and Africa Department Deputy Director Yerlan 
Alimbayev said that Kazakhstan will send a Vice Minister of Industry 
and Trade to participate in the May 14-15 regional economic 
conference in Islamabad, and is now researching the best means of 
providing economic support to Afghanistan.  Alimbayev said that 
commercial trade between Kazakhstan and Afghanistan also increased 
six times in 2008 to a value of approximately $1 billion (apparently 
mostly in the form of Kazakh exports to Afghanistan).  Vice Minister 
Aitzhanova, however, said that it was unlikely that Kazakhstan could 
offer any significant assistance for Afghanistan in the near future. 
 She explained that "during our periods of 10% GDP growth, we were 
very interested in channeling our excess liquidity into these 
markets."  But in the current circumstances, "everything is 
domestic" and that Kazakhstan is mostly concerned about maintaining 
its own businesses.  "So for this year, and probably next year we 
will be less enthusiastic vis-`-vis our foreign investment 
programs." 
 
AGENDA ITEMS PROPOSED FOR TIFA 
 
¶9.  (SBU) Lilienfeld's interlocutors mentioned several specific 
areas of potential focus for the regional TIFA.  These included 
assistance in developing effective marketing campaigns to attract 
international investors, fostering educational exchanges and 
in-country development of human capital, continued customs reform, 
infrastructure and public private partnership (PPP) development, and 
identification of promising growth sectors. 
 
NEW ECONOMIC REALITIES, NEW OPENNESS TO FOREIGN INVESTMENT? 
 
¶10.  (SBU) First and foremost on the minds of both Kazakhstani 
government officials and IFI representatives was the promotion of 
Kazakhstan to potential international investors.  World Bank 
economist John Litwak said that historically, Kazakhstani officials 
"have had no trouble attracting investment in oil, but there has 
been no red carpet treatment for other investors and the rest of the 
economy suffers for it."  He explained that "one of the main 
problems in the economy, outside of the resource sector, is that it 
is not clear where foreign investors would be interested. 
Kazakhstan could be doing a lot more to attract foreign firms." 
Litwak gave the example of representatives of a Singaporean 
technology firm who recently traveled to Kazakhstan but had little 
success in setting up meetings.  After contacting government 
representatives, they were directed to an individual who claimed he 
could set up the meetings at a cost of $500 per meeting. "They've 
never made a serious effort to make foreign investors feel welcome" 
Litwak said. 
 
¶11.  (SBU) According to Samruk-Kazyna's Karibzhanov, the role of 
international companies will become more important than ever for 
Kazakhstan.  He claimed that "the government has lost the ability to 
 
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really attract foreign investment."  According to Karibzhanov, the 
government will again promote special incentives for big business. 
"We really need some big names" he said, adding that growth over the 
next few years will likely be dependent on the ability of industry 
to attract export-import financing.  Karibzhanov said the government 
increasingly recognizes the need to create the necessary conditions 
for foreign investment, and admitted the government previously had 
an arrogant attitude built on oil and gas-fueled economic growth. 
"If you look at the last ten years of growth, you see that not a 
single new plant has been built.  Only upgrades of existing 
Soviet-era facilities.  We need to define the competitive advantages 
of the country."  Karibzhanov conceded that the financial crisis 
could be somewhat fortuitous given that "you never find the answers 
when you have plenty of money, but now the government is 
brainstorming" on issues such as anti-corruption measures, reformed 
regulatory frameworks, and refined stable tax structures. 
 
¶12.  (SBU) Some of Lilienfeld's interlocutors argued that creating 
the conditions for foreign investment is far easier said than done. 
At a luncheon hosted by the Ambassador, German Embassy DCM Wolfgang 
Brett said that Kazakhstan is a difficult market for potential 
German investors.  "Kazakhstan is very large and sparsely populated, 
though it promises access to greater Central Asian markets. 
However, to date it has failed to provide this access and alone does 
not present significant commercial potential outside the extractive 
sector" he maintained.  These factors combined make it very 
difficult for him personally to recommend Kazakhstan to German 
investors.  World Bank economist John Litwak claimed the government 
is actually too focused on addressing its ratings in the World Bank 
Doing Business Report, and argued that given the nature of Kazakh 
clan structures, the need to have influential local connections will 
likely remain an impediment to foreign investment. 
 
INFRASTRUCTURE:  A STRATEGIC AREA FOR DEVELOPMENT 
 
¶13.  (SBU) The EBRD remains one of the biggest proponents of 
infrastructure development in Kazakhstan and is currently 
participating, along with the World Bank, in financing portions of 
the Kazakhstani segment of the ambitious China-Europe transportation 
corridor.  However, at a meeting in Almaty, EBRD Senior Banker and 
Corporate Sector Head Tomas Bravenec told Lilienfeld that despite 
Kazakhstan's expectations for private international investment to 
fund its infrastructure development plans, not a single Public 
Private Partnership (PPP) has operated successfully in Kazakhstan to 
date.   In a separate meeting, Astana-based EBRD Senior Banker Ulf 
Hindstrom explained that Kazakhstan is in need of massive 
development of its rail, road, and communications infrastructure. 
Hindstrom said that the Kazakhstani government is putting 
significant resources into developing possible PPPs, but "they are 
trying to reinvent the wheel, and placing far too high expectations 
on the private sector."  According to Hindstrom, the government 
currently has over $4 billion in tenders for roads, but private 
money for these projects does not currently exist.  Unless the 
tendering process is vastly improved, Hindstrom believes the 
government will need to finance these initiatives itself. 
 
ASSISTANCE REQUESTED IN DEVELOPING POTENTIAL 
 
¶14.  (SBU) According to Samruk-Kazyna's Karibzhanov, the government 
could use international assistance to identify promising economic 
sectors for development.  He said such promising sectors could 
include agriculture, food processing, and pharmaceuticals.  More 
important, he said, is gaining the support of President Nazarbayev 
himself in attracting large international companies with brand 
names, with the hopes that they will then develop associated 
industries.  "Nazarbayev needs this to demonstrate that the markets 
are attractive.  We need to produce something internationally on the 
local level -- meaning not just an upgrade of Soviet-developed 
sectors," Karibzhanov maintained. 
 
LEGAL ENVIRONMENT REMAINS A CHALLENGE 
 
¶15.  (SBU) Remarking on the challenges the legal environment poses 
 
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to foreign investment, World Bank economist Litwak said the 
"government gives good lip service (to the legal environment), and 
it looks good in writing.  But when it comes to actual 
implementation they are lacking."  Vice Minister Aitzahnova echoed 
this statement saying that the USTR National Trade Estimate provided 
a lot of constructive criticism, and admitted that "our (legal) 
framework is good, but our problem is enforcement." 
 
POSSIBLE ROLE FOR PPEPI 
 
¶16.  (SBU) Several interlocutors drew parallels between the goals of 
TIFA and the U.S.-Kazakhstan Public-Private Economic Partnership 
Initiative (PPEPI).  Doris Bradbury, Executive Director of the 
American Chamber of Commerce in Kazakhstan, which currently 
implements the PPEPI, and Lilienfeld agreed on the likely importance 
of close collaboration between USTR's bilateral work with the 
Government of Kazakhstan and PPEPI in order to prevent duplication 
of efforts.  Vice Minister Aitzhanova repeated that call.  She 
argued that multiple initiatives can become problematic for her 
staff.  Rather than running parallel initiatives, "We think it is 
better to have one framework.  We are a small government with a 
limited number of English speaking people."  She said, "our Prime 
Minister is very committed to the PPEPI, and this can be our broader 
framework."  Aitzhanova also encouraged Lilienfeld to consider the 
ADB-organized CAREC model for regional integration, and possible 
TIFA collaboration within it.  Aitzhanova said that Kazakhstan 
supports CAREC because it offers a unique framework that "is working 
because it has resources attached to it." 
 
CUSTOMS UNION REMAINS A PRIORITY, BUT NOT AT WTO EXPENSE 
 
¶17.  (SBU) Vice Minister Aitzahnova readily acknowledged that 
Kazakhstan is actively working to create a customs union with Russia 
and Belarus, but not at the expense of its efforts to enter the WTO. 
 (NOTE:  Aitzhanova said that Kyrgyzstan has also expressed an 
interest in joining this customs union, which might require the 
Kyrgyz to restructure some of their existing WTO agreements.  END 
NOTE.)  According to Aitzhanova, Uzbek Foreign Minister Norov 
recently told her that Uzbekistan is not currently pursuing WTO 
because it wants first to diversify its economy.  Aitzhanova, 
however, emphasized that she believes WTO accession will be a vital 
component of Kazakhstan's efforts to diversify.  Responding to 
Lilienfeld's remark that she must be very busy with WTO, Aitzhanova 
said with a smile that it was "mostly due to your government, I 
should add."  Aitzhanova went on to explain that in the negotiation 
process with the United States, she has limited staff and resources. 
 "We are traveling all the time."  Aitzhanova proposed using the 
bilateral TIFA process to sensitize the WTO negotiators to specific 
conditions and challenges in Kazakhstan; "each country has its own 
institutional capacity," she argued.  Aitzhanova ended the meeting 
by reiterating Kazakhstan's commitment to entering the WTO, adding 
an indirect request for patience: "We need expertise, time to study 
and adapt." 
 
¶18.  (SBU) COMMENT:  Overall, Lilienfeld's meetings revealed intense 
skepticism about the prospects for progress on the 
regionally-focused Central Asia TIFA, though there was wide support 
for stepping up bilateral engagement.  This is consistent with our 
experience on other issues -- such as regional water and energy 
cooperation.  Though the Kazakhstanis are supportive of greater 
regional cooperation across a range of issues, they believe that 
there are serious political impediments to bringing this about.  END 
COMMENT. 
 
¶19.  (SBU) COMMENT CONTINUED:  The comments on Afghanistan reflect 
the existing divide between the former Soviet states and the 
remainder of South and Central Asia.  Top leadership understands 
that former Soviet Central Asia cannot build a wall to its south, 
but there is no great enthusiasm to embrace it either.  The current 
"Path to Europe" accurately reflects where Kazakhstan's government 
would like its future to lie.  Nonetheless, it also grudgingly 
recognizes that embracing Europe may require giving a hug to the 
south as well.  END COMMENT. 
 
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MILAS