Erlan Hairov, Chairman of the Investment Committee of the Ministry of Industry and New Technologies, answers questions from the magazine Kazakhstan.
Mr. Hairov, what is the current situation with attraction of FDI in the economy of Kazakhstan? What changes did the FDI’s structure undergo in the last year?
According to statistic data from the National Bank, 171.2 billion of foreign direct investment had been raised in the economy of the country for the period from 1993 to 2012. However, only in the last year they amounted to about $22.5 billion, a 7% rise compared to $21 billion in 2011.
As for the structure of FDI by the types of economic activity, in 2012 the greater part of foreign investment, namely $7.6 billion, or 33.6% of the total FDI, was directed to the professional, scientific and technical activities, primarily in exploration. This is followed by the mining and quarrying sector – $4.4 billion (19.5%), finance and insurance – $2.4 billion (10.9%), wholesale and retail trade – $2.2 billion (10%), and also the processing industry – $1.9 billion (8.3%).
I would like to emphasize that since the start of implementation of the AIID program, the dynamics of FDI attraction in the processing industry has increased. So out of the total foreign investment received in the sector since 1993, more than $ 6.9 billion or 39.7% was obtained for the last three years. This clearly shows the results achieved in the framework of AIID program.
Of the total volume of foreign capital investment that have been made in the said sector since 1993, more than $6.9 billion, or 39.7% were invested for the last three years. This clearly shows the results achieved under the AIID program.
Currently, about 8 thousand enterprises with foreign participation are operating in Kazakhstan, including the companies included in the list of Fortune-500 such as Chevron, Siemens, Microsoft, General Electric, Coca-Cola, Danone, Henkel, etc.
Will you tell us about the progress of implementation of the sectoral program and the National Plan for Attraction of Investment?
In the framework of the program for attraction of investment, development of SEZ and promotion of export for 2010–2014, in the past year we have signed two agreements on promotion and reciprocal protection of investments with Macedonia and Afghanistan.
Along with that, in mid-February 2013 in Tokyo the final round of negotiations were held, where the parties worked out a final draft of the relevant agreement with Japan. The work is now in progress on its final approval.
Over the past year with the purpose to achieve the target indicators of the sectoral program, Kazakhstan attracted nine companies included in the list of Global-2000. Among them, there are French Air Liquid, Areva, EADS Group and Alstom, Korean LS Corporation, LG Chem and Korea Electric Power Corporation (KEPCO), German Lanxess AG and Japanese Sumitomo Corporation.
As you know, the implementation of the National Plan focuses on four main areas: (1) the creation of favorable conditions for operation of foreign investors in Kazakhstan, (2) the improvement of investment-related regulations, (3) the application of a system approach in working with the investors, (4) the elimination of inconsistencies with the OECD standards.
With regard to the first area (or the so-called "front group"), then, as world experience shows to attract foreign capital, the developed countries, in the first place, simplify the procedure for obtaining visas and introduce a visa-free regime with the investing countries that are selected as priority ones.
It is clear that the formation of investor’s opinion on the investment climate in the country starts from the time of its entering the country. In this regard, our ministry made a proposal jointly with the concerned government agencies (Ministry of Foreign Affairs, Ministry of Internal Affairs, and National Security Committee) to develop a list of priority countries for Kazakhstan and to transfer to a visa-free regime with them.
Such an approach makes it possible to fulfill an assignment charged by the President to them on the governmental session on January 23 of this year to attract the most talented managers from other countries. This step will facilitate the work of Kazakhstani partners with foreign investors, will reduce administrative barriers and improve the investment attractiveness of the country as well as will give Kazakhstan an additional competitive advantage in comparison with other countries of Central Asia and the Customs Union.
In the framework of simplification of visa procedures, we and the National Security Committee are working together on the issues of visa support, including the receipt of documents via an information system. This system will provide for automatic receipt of data from the Tax Committee of the Ministry of Finance regarding the absence or availability of tax debt in the submission of documents to the Ministry of Foreign Affairs.
The Ministry of Labor and Social Welfare developed regulations for issuing permits to foreign workers for employment and to employers to attract foreign manpower. They reflected approaches to simplify these procedures, including those for business immigrants.
In addition, the Foreign Ministry drafted new Regulations for issuing visas of the Republic of Kazakhstan, including those for business-immigrants.
For reference: The current legislation does not provide for the Ministry of Foreign Affairs’ competence to set the Regulations for visa issue, as this Article 25, Paragraph 3, of the Law "On Statutory Legal Acts” of March 24, 1998 requires. In order to resolve the legal conflict, the Ministry of Internal Affairs is working to amend the Governmental Resolution #148 of January 21, 2012.
The Ministry of Finance takes steps to teach the customs and border services employees in basic English. For them, a 5-month training course is organized with sessions 3 times a week in the Training Center of the Ministry of Finance.
Along with that, the Ministry of Internal Affairs jointly with the National Security Committee drafted an order for the procedure of receiving information from legal entities with regard to the foreigners they employ. The document contains the requirements to legal entities which make registration of foreign nationals. Currently, this project is under consideration with the state agencies.
In its turn, the Department of Information Technologies of the National Security Committee is working out an algorithm of interaction between the Integrated Information System "Berkut" and the e-government portal for electronic registration of foreign nationals.
In the framework of the second area that is focused on the improvement of the investment climate and perfection of investment laws in Kazakhstan, in 2012 the amendments were made to the Law "On Investment", providing for expansion of a batch of investment preferences in terms of exemption from customs duties on imports of spare parts, raw material and materials.
In the course of adoption of the Law "On State Support of Industrial Innovation", additional incentives were provided for strategic investment projects, namely:
· Tax exemptions on the land and property, in the manner prescribed by the tax laws of Kazakhstan;
· Industrial concessions in inhabited localities with a low level of socio-economic development.
Finally, in February 2013 amendments were made to the Law "On Free Economic Zone" regarding the setting up of special economic zones on a territory which is in private ownership.
The third area focuses on the application of a system approach in the work with foreign investors. In the framework of this activity, the Commission on Investment was set up last year, and the institution of investment ombudsmen has been set up this year. At the regional level, investor servicing centers (mainly on the basis of SEC within the structure of local administrations) are organized to a greater or lesser degree in 15 regions of the country. For every local administration (akimat), sectoral public agency and embassy of Kazakhstan the target indicators are set with regard to attraction of investment and exports.
In the framework of the fourth area, in 2012 amendments were made to the sectoral program to bring Kazakhstan’s investment policy in line with the OECD standards.
· Reducing barriers in certain sectors of the economy (telecommunications, mass media, banking, transport)
· Improving the practice of interaction with the international arbitration;
· Ensuring the stability of the laws for investors in the processing sector;
· Bringing activities in line with the market principles of corporate governance in state-owned enterprises and enterprises with state participation.
Currently, the Ministry of Economy and Budget Planning is working to improve the policy pursued for each of the above-listed areas. I am confident that more favorable conditions for business and investors will be created in Kazakhstan.
Along with that, we also plan to continue our collaboration with the OECD. In particular, now a joint project is under discussion, aimed to provide support to us in implementation of the recommendations given by the OECD.
Speaking about the activities of the Committee, in 2012 we held 16 events related to investment, in which domestic and foreign business communities took part. Six of them were held abroad and the other 10 domestically. Following their outcomes, 147 bilateral agreements worth more than $14 billion were signed. Also, in the context of the Fifth Astana Economic Forum, we organized an exhibition of industrial and innovative projects.
In addition, last year, with the purpose of targeting the attraction of large foreign companies for joint implementation of investment projects under the AIID Program, we organized four onsite events for the presentation of investment opportunities in the format of "road shows": On April 10–14 in New York, Washington, DC , Chicago, and San Francisco (USA), and Vancouver (Canada), on June 5–11 in Stockholm (Sweden), Oslo (Norway), The Hague (Netherlands), Brussels (Belgium) and London (UK), on December 5–11 in New York, Washington and San Francisco, and on December 13–16 inKuala Lumpur (Malaysia).
Your Committee is the working body of the Foreign Investors Council (FIC) under the President of Kazakhstan. What role, in your opinion, is the FIC now playing in relations between Kazakhstan and the global companies?
Established under the Presidential Decree of June 30, 1998, the Foreign Investors Council under the President of the Republic of Kazakhstan is a key mechanism for ensuring direct dialogue with the investors operating in our country, allowing to quickly solve problems connected with their investment activities.
FIC members are the heads of agencies from the Kazakhstan side and top managers of foreign companies operating in Kazakhstan from the foreign side. Members of FIC are annually approved by the Head of the country after consideration of candidates proposed by foreign investors.
The plenary meetings of FIC with participation of the President are held on an annual basis. The topics of their agenda involve the most topical issues from the point of view of the country’s development. Thus, the theme of the current meeting is "The Innovative and Technological Development of the Republic of Kazakhstan 2020".
FIC members from the foreign side provide consulting assistance in the development of policies and strategies. This approach allows to effectively implement the tasks set by the Head of the country and to improve the legal framework of the country.
The Investment Committee is the working body and the main coordinator of FIC’s activities. From the foreign side, the ‘Kazakhstan’s Foreign Investors Council’ Association coordinates the activities of FIC.
At present, we are jointly collaborating to optimize and improve the activity of FIC’s working groups. For example, earlier, five working groups were in the structure of FIC; every such working group has three subordinated subgroups. Now, the consideration of all issues will be concentrated in three working groups:
· Working group on implementation of the investment policy (legislative group)
· Working group of foreign investors to promote the innovative and technological development and diversification of the economy of Kazakhstan (industrial and innovative group);
· Working group on issues of operating activities of foreign investors (group on operating activities).
This transformation will make it possible for the joint working groups to expand their possibilities in becoming a real platform for addressing problems of any foreign investor, even if such investor is not a FIC member.