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Yerlan Arinov

KAZAKHSTAN - Economy

The Dual Approach

Chairman, National Export & Investment Agency KAZNEX INVEST

Bio

Yerlan Arinov graduated from the Almaty State Automobile and Road Institute as a Civil Engineer in 1991. He then went on to complete a degree at the Market Institute of the Kazakh State Academy of Management. In 1999 he became Deputy Director of Investment Policy at the Ministry of Economy and Trade, and worked as Director of the Department of Commerce, International Cooperation, and Export Control at the same ministry in 2002. In 2006, he served as Managing Director of the Sustainable Development Fund Kazyna and Chairman of the Center for Marketing and Analytical Research. He is currently Chairman of the Governing Board of KAZNEX INVEST.

Kazakhstan has a comprehensive investment strategy supported by a wide range of state bodies. How do you describe the role and significance of KAZNEX INVEST in this picture? KAZNEX INVEST […]

Kazakhstan has a comprehensive investment strategy supported by a wide range of state bodies. How do you describe the role and significance of KAZNEX INVEST in this picture?

KAZNEX INVEST is a one-stop shop for foreign investors. Our work with investors can be divided into two major areas. The first area is informing the international business community about investment opportunities in Kazakhstan and searching for potential investors for the priority sectors of the economy. This work includes business forums, roadshows, advertising campaigns, and the national investment website. Our second task is to assist the investor, both during an examination of investment opportunities in Kazakhstan and the realization of investment projects in the country. In addition, the national plan for investment attraction was developed with the support of KAZNEX INVEST. According to this plan, KAZNEX INVEST is actively working with state authorities to establish service centers for investors in every region of the country. Most importantly, the national plan aims to build a system of state bodies, from the Ambassador of Kazakhstan through to the so-called “front group,” which includes the border and customs services, to leadership in each region. Every ambassador, minister, head of a public holding, national company, and regional governor is working to attract investment.

In which areas is KAZNEX INVEST particularly interested? From which geographies do you see increasing demand for investment?

Our agency held several successful events to present investment opportunities in Kazakhstan. In April 2012, we presented our investment climate and projects to US and Canadian companies. In the US, we were in San Francisco, New York, Chicago, and Washington, DC, as well as in Vancouver in Canada. During this roadshow, we presented priority sectors such as agriculture, machinery, chemistry, pharmacy, metallurgy, and ICT. Attracting foreign investment to these and other non-extractive sectors of the economy was the main purpose of the roadshow. We gathered more than 200 North American transnational and middle-sized companies. As a result, KAZNEX INVEST signed a memorandum of understanding (MoU) with GlaxoSmithKline and Bloomingfeld. In June 2012, our agency organized a series of roadshows in European countries: Belgium, Norway, Sweden, the Netherlands, and the UK. This roadshow was devoted to presenting the sectors of agriculture, chemicals, renewable energy, goods and services for oil and gas, and machinery, among others. Through this roadshow, we were able to attract more than 250 European companies. In fall 2012, our agency is planning to hold a roadshow in Asia, including events in Japan, Indonesia, and India.

What synergies do you create with foreign investors to facilitate the realization of industrial projects in the country?

Kazakhstan is a country that is open to foreign investment, and hence its government constantly strives to improve the business climate. In the scope of its role as a national operator on investment attraction and export promotion, KAZNEX INVEST has a great deal of governmental support, which facilitates investment attraction and export promotion. As a subsidiary of the Ministry of Industry and New Technologies, our agency does not create joint ventures with foreign investors, nor does it provide any kind of funding. Our main tasks and strengths are providing up-to-date information on all of the aspects of investing in Kazakhstan, organizing meetings with state bodies and partners for foreign investors, escorting investors to the regions of Kazakhstan, and solving any bureaucratic issues. Other than these investor-centric tasks, we do have a number of broader goals, such as generating a better investment image, conducting analytical studies, and improving investment legislation. Another factor we consider our strong point is our dual ability to handle investments and promote exports. We understand that due to the country’s population size, our domestic market alone is not very interesting for multinational companies. Therefore, most large companies enter Kazakhstan with the idea to use the country as a bridge to the Customs Union and other nearby markets. In that regard, these companies can obtain support from KAZNEX INVEST not only as prospective investors, but as exporters as well.

In which regions and for which sectors does Kazakhstan have competitive advantages?

In the last two years, new types of engineering products were exported to the EU market. Kazakhstan is set to specialize in exporting machinery products to countries other than the CIS. Taking into consideration the criteria to comply with international trade standards, global demand, raw material security, and the production capacity and profitability of exports, it is possible to identify potential export markets. Kazakhstan is traditionally strong in metallurgy, oil and gas extraction, and wheat production. Recently, however, we have started to gain experience in the production of machinery and equipment. In terms of drilling equipment, exports are promising for Turkey, the UK, and the UAE. Batteries and electrical equipment also have great potential in these markets.

How would you evaluate Kazakhstan’s experience within the Customs Union and the overall process of Eurasian economic integration?

We see the initiation of the Customs Union in 2010 as a mostly positive event for Kazakhstan. There are three main benefits for Kazakhstan. The first benefit is the expansion of the market. One of Kazakhstan’s weaknesses is its small population and domestic market. With the Customs Union, there is a unified market of 170 million consumers. A second factor is the increased amount of trade, and commodity turnover has greatly increased. Thirdly, we are seeing the development of more industries, such as machinery. For example, compared with 2009, automotive production increased by more than 2.5 times in 2011. This growth happened due to unified customs tariffs, which have increased competitiveness in the domestic market. However, an event of this magnitude creates challenges in addition to opportunities. In our field of work, one of the main challenges is the redirection of investment flows from Kazakhstan to other Customs Union members. To prevent the occurrence of such a problem, the government constantly strives to improve the investment climate. According to the Organization for Economic Cooperation and Development (OECD), Kazakhstan is more open to FDI than other CIS countries. In the FDI Restrictiveness Index, which measures statutory restrictions on FDI in different countries, Kazakhstan is ranked 14th with a score of 0.14, which is a non-OECD average. The World Bank also measures the conditions for business ventures in different countries. According to the Doing Business 2012 report, Kazakhstan was positioned 47 spots ahead of the other members of the CIS. Furthermore, the country ranked 10th worldwide in terms of investment protection. After the establishment of the Customs Union, the growth rate of mutual trade with other Customs Union countries has become faster than that of non-member state imports. In 2011, the export growth rate was 211% and import activity grew by 182% in comparison with 2009. Although Kazakhstan’s balance of trade with the Customs Union countries is still negative, this is mainly due to the fact that Kazakhstan sends products for export to foreign countries and acquires the necessary goods primarily in the markets of neighboring countries. In 2011, the share of imports from the CU countries was 44% of total imports. For two years, the country’s export of Kazakhstani high value-added products increased significantly. For example, 99% of bearings exports, 90% of battery exports, and 66% of phosphinate exports are destined for Customs Union countries. In line with the state investment and export promotion program, KAZNEX INVEST is supporting domestic enterprises to promote the export of Kazakhstani goods to foreign markets and encouraging foreign investors to consider Kazakhstan. In particular, KAZNEX INVEST provides informational and analytical support to local enterprises and foreign investors, such as market analyses. The agency also identifies potential buyers, provides financial assistance in entering foreign markets, and offers assistance in establishing an enterprise in Kazakhstan.

What is your outlook for the rest of 2012 and beyond?

In 2H2012, we plan to continue our activities concerning the presentation of investment opportunities in Kazakhstan. We have intentions to conduct roadshows in Japan, India, and Indonesia, as well as business forums in Brazil, Spain, and Switzerland. In addition, we are preparing a 30-second video about investment opportunities in Kazakhstan. In the fall of this year, viewers will be able to see this informational video on the world’s leading channels. In 2011, we filmed a similar video and broadcasted it on CNN, BBC, and Bloomberg. Regarding the improvement of legislation, we would like to mention that experts at the OECD have analyzed our regulatory framework, which defines the business environment, and compared it with the standards of the OECD as well as with international best practices. As a result, OECD experts offered 12 recommendations to improve our investment legislation. At the moment, KAZNEX INVEST is considering the desirability and feasibility of these recommendations. By the end of 2012, we will have a vision that guides the continuation of our work to improve the regulatory framework for investment.

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