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UNCLAS SECTION 01 OF 02 ASTANA 001089 
 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EINV EPET KZ
SUBJECT:  PRESIDENT NAZARBAYEV URGES FOREIGN COMPANIES TO CONTINUE 
INVESTING IN KAZAKHSTAN 
 
¶1.  SUMMARY:  On June 12, in the provincial northern city of 
Kostanai, President Nazarbayev convened the 21st plenary session of 
Kazakhstan's Foreign Investors' Council (FIC).  Nazarbayev 
encouraged foreign companies to continue investing in Kazakhstan's 
economy and discussed the country's plan for accelerated industrial 
development.  He assured foreign investors that Kazakhstan would 
continue to adhere to the principles of a market economy and protect 
private property rights, but also stressed the importance of the use 
of local content in investment projects.  The next FIC meeting, 
scheduled for December 4 in Astana, will address the involvement of 
foreign investors in Kazakhstan's plans for economic diversification 
and technological development.  END SUMMARY. 
 
21ST FIC PLENARY 
 
¶2.  The Foreign Investors' Council (FIC) is an advisory body 
established by presidential decree on June 30, 1998 to promote 
direct dialogue between the Government of Kazakhstan and foreign 
investors.  On June 12, President Nazarbayev chaired the 21st 
plenary session of the FIC, which was held in Kostanai.  This year's 
theme was "Alternative Sources of Financing for the Future Economic 
Development of Kazakhstan Under Changing Conditions in the World 
Financial Market."  Over 170 foreign business executives 
representing the world's largest transnational companies -- 
including ExxonMobil, Chevron, ArcelorMittal, LukOil, Mitsubishi, 
Total, Philip Morris, and others -- attended the plenary. 
 
KAZAKHSTAN MAKES PLAN FOR NEXT FIVE YEARS 
 
¶3.  At the FIC plenary, Nazarbayev announced that the first signs of 
an improving economic environment were already evident in Kazakhstan 
thanks to a government bailout package of more than $19 billion 
(approximately 14% of Kazakhstan's GDP).  Minister of Economy and 
Budget Planning Bakhyt Sultanov echoed Nazarbayev, explaining that 
"since the beginning of the year, foreign investment has amounted to 
44% of total investment in fixed capital, which was almost twice as 
much as the reporting period the previous year."  Sultanov 
maintained this indicates continued investor trust in the 
Kazakhstani government. 
 
¶4.  In 2010, Kazakhstan will officially launch a five-year plan for 
accelerated industrial innovation and development.  According to 
Nazarbayev, if the plan is successful, in ten years, Kazakhstan will 
generate $50 billion of value-added in manufacturing, which is 
almost 50% of the country's present day GDP.  Nazarbayev listed 
agriculture, construction, oil refining, metallurgy, chemicals, 
pharmaceuticals, power generation, and infrastructure as priority 
sectors for development over the next five years.  Nazarbayev 
estimated that Kazakhstan could immediately mobilize as much as 12% 
of its current GDP to facilitate the development plan.  He also said 
that "trading in national quotas for greenhouse gas emissions within 
the Kyoto Protocol may become one of the alternative sources of 
financing.  This may open new up opportunities in energy-saving 
technologies that will allow attraction of up to $1 billion in 
investments." 
 
CALLS REPEATED FOR INCREASED LOCAL CONTENT 
 
¶5.  Nazarbayev reiterated Kazakhstan's commitment to developing 
local content and increasing the percentage of locally produced 
goods and services utilized by foreign companies operating in 
Kazakhstan.  He reminded participants that this issue was discussed 
in detail at the December 2008 FIC meeting in Almaty, and noted some 
"positive results that have been achieved recently:  mineral 
resource companies have signed memoranda with Kazakhstani producers 
totaling 330 billion tenge ($2.2 billion) and contracts totaling 
over 200 billion tenge ($1.33 billion)."  Nazarbayev instructed the 
government and the Ministry of Industry and Trade to work closely 
with foreign investors and Kazakhstani manufacturers to increase the 
supply of domestic goods and services. 
 
NEW INVESTMENT PROJECTS 
 
¶6.  Nazarbayev acknowledged that foreign investors will have to play 
 
ASTANA 00001089  002.2 OF 002 
 
 
a critical role in achieving the ambitious goal of developing $50 
billion in value-added manufacturing in the next ten years.  He said 
that the Customs Union among Russia, Belarus, and Kazakhstan will 
create new opportunities for investment in a unified market that has 
over 168 million people and a combined GDP of $2 trillion. 
Nazarbayev assured foreign investors that Kazakhstan would continue 
to adhere to the principles of a market economy, and protect private 
property rights, as guaranteed by the Kazakhstani Constitution and 
other laws. 
 
¶7.  "A favorable investment climate in our country allowed many 
companies to increase their investments.  In the last 8 years, 
Kazakhstan received $46 billion in investments," Nazarbayev 
reported.  He referred to a series of meetings held prior to the FIC 
with foreign investors who expressed their interest in various 
sectors of economy.  "We agreed with Chevron CEO David) O'Reilly to 
double the capacity of the Atyrau polyethylene pipe plant, and 
construct a new valve plant and shipyard on the Caspian Sea.  This 
is a very good sign," he added.  Nazarbayev also hailed 
ArcelorMittal for building a pipe production plant in Aktau, and 
Saipem for working with a Kazakhstani investor to construct a 
fabrication yard.  "The Vice President of Eni has pledged to build a 
gas processing plant and gas-fired power plant in Kazakhstan," said 
Nazarbayev.  He also announced that Kazakhstan's ENRC plans to 
construct new ferroalloy facilities.  "We are very grateful for 
those projects," he concluded. 
 
INVESTORS HOPE GOVERNMENT WILL PLAY POSITIVE ROLE 
 
¶8.  Lukoil President Vagit Alekperov explained at the FIC plenary 
that his company's willingness to invest is contingent upon the 
legal environment.  "We need a stable, but at the same time a 
flexible tax system, an active role by the state in the conclusion 
of development contracts, and the elimination of bureaucratic 
obstacles to the acquisition of Kazakhstani assets by foreign 
investors."  ExxonMobil Senior Vice President Marc Albers had 
similar recommendations saying the "the Government of Kazakhstan has 
several ways to help investors, including the simplification of 
required procedures for foreign companies to enter the domestic 
market in Kazakhstan, as well as the improvement of regulations for 
the opening of joint ventures." 
 
¶9.  EBRD President Thomas Mirow acknowledged the difficulties in 
attracting investment in the current climate.  He, did however, 
praise Kazakhstan's willingness to modify its approach to meet the 
demands of a changing environment.  Eni Vice President Umberto 
Virgine reconfirmed his company's readiness to support new sectors 
of the economy and create new joint ventures.  Expressing his hope 
that the new development plan would accelerate Kazakhstan's economic 
growth, Chevron Vice President George Kirkland said that 
Kazakhstan's reaction to the global economic crisis could serve as 
an example to the world community. 
 
NEXT FIC PLENARY SCHEDULED FOR DECEMBER 
 
¶10.  The next plenary session of the FIC is scheduled for December 4 
in Astana, and will be devoted to the role of foreign investors in 
Kazakhstan's plan for economic diversification and technological 
development. 
 
FAGIN