Foreign Investors’ Council: New Format of Partnership
In advance of the 27th Plenary Session of Foreign Investors’ Council, we asked Mr. Galymzhan Pirmatov, the Chairman of Kazakhstan Foreign Investors’ Council Association’s Governing Board and the Co-Chairs of the FIC Working Groups to tell our magazine about the outcomes and the future plans of the Council for 2014.
Galymzhan Pirmatov, Chairman of the Board of the Association "Kazakhstan Foreign Investors' Council", President of “Cameco Kazakhstan”
As far as we know, the operation of the Foreign Investors Council under the President of Kazakhstan underwent optimization and reorganization last year. What has caused the need for the alterations and how has it affected the performance of FIC?
The Foreign Investors’ Council (FIC) is an advisory and consultative body chaired by the President of the Republic of Kazakhstan. It was established in 1998 to promote direct dialogue between the government and foreign investors to effectively deal with problematic issues related to investment activities in the country and to improve the investment climate in the country. The goal of the FIC is to develop recommendations and proposals to the President and the Government of Kazakhstan on key aspects of investment policy and economic development of the country.
Over the years of its operation, the FIC has been the main platform, integrating the Government and key investors in a constructive and constant interaction. Given the current realities, the amendments concerning the organization of the FIC activities were introduced in the Regulations on the FIC under the Presidential Decree #603 of July 24, 2013. In particular, three joint working groups were set up to:
- implement the investment policy;
- promote the contribution by foreign investors to innovation and technological development and diversification of Kazakhstan’s economy;
- solve issues related to the operating activities of foreign investors.
The powers and the composition of the Committee for Operating Activities of the FIC have expanded. Now its mandate includes the consideration of changes in the composition of the FIC, the monitoring and regulation of activities of the working groups of the FIC, including action plans and progress reports.
In addition, interim sessions of the FIC will now be chaired by the Prime Minister of Kazakhstan. All these alterations are aimed at improving the efficiency of the Foreign Investors’ Council’s operation.
Will you tell us about the most important issues that are currently being raised by the FIC?
The FIC in the framework of the sessions of its Working groups considers important issues that are of concern to foreign investors. The topics of some recent discussions dealt with the Environmental Code, rules to attract foreign labor, protection of intellectual property rights, as well as improving tax and customs administration.
How has the investment climate changed in Kazakhstan in recent years?
As part of operation of the working group to improve the investment image, the Ernst & Young Company has prepared an analysis of the investment attractiveness of Kazakhstan, based on a study of opinion of groups of investors in various sectors of the economy, those potential and operating in the country.
In the context of this research, investment attractiveness is determined by two factors: the confidence of investors in Kazakhstan in terms of running business and their opinion on the country's ability to compete in attracting foreign direct investment.
Over the years, Kazakhstan has demonstrated strong performance in attracting FDI, especially in the extractive industries. To implement ambitious plans to diversify the economy of the country, foreign direct investment are needed, which involve not only the contribution of funds, but also the transfer of knowledge, high-tech equipment, as well as providing opportunities for workforce capacity growth. For investors, characterized by high mobility on an international scale, the decision about choosing a location for investment depends mainly on the stability, transparency and predictability of the business environment, proximity to markets, availability of infrastructure, and level of professional skills.
In this context, Kazakhstan is one of the three most attractive countries in the CIS for investment. 35% of the investors that took part in the poll believe that the investment climate has improved in recent years. They note that the leadership of the country pursues the policy of open dialogue with foreign investors and is committed to a coherent policy of reforms, aimed at building a transparent and competitive market environment.
What measures, in your opinion, should the government take to improve the competitiveness of Kazakhstan in terms of attracting FDI?
The country's leadership pays a great deal of attention to improving the investment climate in the country. As you know, in February this year the President has set the task to implement a package of incentives to create more favorable conditions and to attract foreign investors, in particular, global companies to participate in projects with high added value in Kazakhstan.
At the moment, the Government is considering a number of measures to improve the competitiveness of Kazakhstan, including the improvement of the visa regime and the establishment of contract stability related norms and laws for investors. We are determined to work together with the Government in this direction.
Murat Munbayev, Co-Chair of the FIC Operations Working Group from foreign side,General Manager, Strategic Planning and Analysis, “Tengizchevroil”
What objectives and tasks are set before your Working Group by Foreign Investors’ Council?
Foreign Investors’ Council chaired by the President of the Republic of Kazakhstan Operations Working Group is functioning since November of 1998. Though, after the reforms of the Foreign Investors’ Council (FIC) in 2013, all FIC Working groups were restructured and in October 2013 the FIC Operating Committee adopted a new regulation of the Operations Working Group. The working body of the joint working group is the Ministry of Industry and New Technologies of the Republic of Kazakhstan.
The main goal of the joint working group’s activity is realization of the tasks assigned to the Foreign Investors’ Council chaired by the President of the Republic of Kazakhstan. In order to achieve this goal our Working Group is set tasks on developing recommendations on:
- provision of continuous dialogue between the Republic of Kazakhstan and large foreign investors;
- enhancement of investment attractiveness of the economy of the Republic of Kazakhstan in priority areas of activity of the Council;
- issues of joint strategy and actions coordination of the government bodies on attraction of foreign investments;
- elimination of systemic, administrative and bureaucratic barriers in realization of investment projects;
- environmental protection;
- investment climate improvement.
How you estimate results of your Working Group activity for last year?
The first meeting of the Working Group in the framework of the new Action plan was held in December last year. As part of the Action plan, the Working Group regularly hosts meetings both with the foreign and Kazakh side. The latest event in the activity of the Working Group was the roundtable on attracting foreign manpower in March of this year. During the meeting, members of the Working Group from the foreign side developed a list of recommendations on:
- changes in the Rules for attracting foreign manpower;
- changes in Environmental Code;
- regulation of greenhouse gases;
- synchronization of environmental legislation with the legislation of Kazakhstan on subsoil and industrial safety;
- energy conservation and energy efficiency.
What questions are on the agenda for your Working group in 2014?
The tasks the Operations Working Group is aiming to work at in 2014 are Improvement of measures on environmental protection and creation of favorable investment climate. In order to accomplish these tasks, the Working Group is currently working jointly with the Ministries of the Republic of Kazakhstan on several projects:
- improvement of approaches on waste regulation and classification, including man-made mineral formations;
- participation and expert assistance in the preparation of the draft Strategy of Kazakhstan’s transition to the "Green economy";
- improvement of legislative acts on foreign manpower engagement;
- Improvement of the Labour Code of the Republic of Kazakhstan “Secondment" –corporate translation;
- regulation of employment agencies;
- consideration of the possibility of simplifying entry and stay procedures, including issuing visas to foreign investors.
Cambell Keir, FIC Innovative-Technological Development and Economy Diversification Working Group Co-Chair, Director General, "Shell Kazakhstan Development B.V."
What objectives and tasks are set before your Working Group by Foreign Investors’ Council?
We see the principal objective of the Innovative-Technological Development and Economy Diversification Working Group is to work jointly with the Ministry of Industry and New Technologies and other relevant ministries to establish a collaborative platform for discussing and advising on policy measures and addressing specific issues to make sustainable contributions in assisting the Government to implement its industrialization and diversification agenda. The Working Group is a two-way street, a dialogue based on exchange of ideas and conversation with the aim to develop a common understanding and build shared vision of Kazakhstan’s industrialization and diversification policy and the role that the foreign investors can play.
Particular focus is placed on specific initiatives and programs that the foreign investors can undertake to support innovation and diversification and what special incentives and encouragement measures the government can introduce to support them. The government has developed a number of enabling mechanisms such as economic zones, industrial parks, special grants and it is important to understand how these measures can be effectively used to encourage foreign investments.
There are other important issues to be considered such as development of local technical expertise through training and professional education and measures to support small and medium size companies by reducing administrative barriers.
How you estimate results of your Working Group activity for last year?
I think that the Working Group overall has seen some good results but there is much more to do. This was the first year that we started working in the new re-organized KFICA format of 3 working groups, instead of 6 previously. As a result of this change, the scope of work of the Working Groups has been considerably broadened. Understandably, we have been off to a slow start because of the new organization in place and it took some time to sort out organizational issues but we are picking up the pace since.
Important area of focus for the foreign side was on the review and discussion of the implementation of the Action Plan and results of activities in progress within the framework of the President Nazarbayev’s instructions given at the 26th Plenary Session of the Foreign Investors’ Council.
I am pleased to mention that several companies have successfully worked to meet their commitments as per the Action plan. For example, Philip Morris is undertaking an important project aiming to introduce best innovative practices in agriculture. Shell is working on the implementation of the “Road map of technological development of the oil and gas industry in Kazakhstan”. BG Group has been implementing a number of important programs to make a sustainable contribution to development of local content in Aksai.
What questions are on the agenda for your Working group in 2014?
In 2014 the particular focus of the Working Group as well as the KFICA members in general is on the Concept of the State Program of Accelerated Industrial and Innovative Development (SPAIID) 2015–2019. This is a very important policy document that will set the direction of the industrialization and diversification agenda until 2020. It is vital that the document receives a thorough review and the industry both national companies and foreign investors have the opportunity to provide their feedback and recommendations. It is in our common interest to make the Program a success.
Among other key issues that the Working Group has been working this year, I would like to mention, are the measures on local content development, issues of investment attractiveness in the power industry and fostering R&D, technology, innovation in the oil & gas sector, skill and professional development.
Erlan Dosymbekov, FIC Investment Policy Working Group Co-Chair, Managing Partner in Kazakhstan and Central Asia, “EY”
What objectives and tasks are set before your Working Group by Foreign Investors’ Council?
The scope of the investment policy working group includes a wide range of issues on enhancement of legislation in accordance with international standards, improvement of tax and customs administration, investment promotion and facilitation. This is important for both foreign and domestic investors as improvements in these areas will positively affect the business dynamics in Kazakhstan.
We value the established constructive dialogue with state authorities and their commitment to work on solutions mutually acceptable to investors and the state. Currently the working group focuses on several aspects to improve the investment climate.
Protection of intellectual property rights is on the agenda in connection with the integration initiatives and law enforcement practices in the Customs Union countries, and the need to ensure fair competition for Kazakhstani producers and exporters, ensure effective mechanisms of trademark protection, strengthen the interaction of state authorities in their fight against counterfeit products. In March 2014, the working group held an interactive roundtable, following which the state authorities and business representatives identified further steps, including consistent application of parallel import legislation, customs protection of intellectual property, establishment of the CU unified customs register, and identification of the possibilities for extraterritorial investigations of parallel imports and counterfeit by the customs authorities of the CU countries. The working group proposes to strengthen cooperation with international organizations on intellectual property issues, particularly in the area of interaction of state authorities with representatives of business and industry organizations. The plans also include a joint meeting with the Supreme Court of the Republic of Kazakhstan and the Ministry of Justice in order to discuss the current practice of judicial proceedings regarding violation of intellectual property rights.
In light of the integration initiatives, the work is continued to unify the law enforcement practice in the CU countries and improve the customs administration, in particular enable Kazakhstani companies to declare the export or import in Kazakhstan under contracts with residents of the CU countries, as well as clarify legislative regulation of certain issues on the use and disposal of conditionally released goods.
While the tax rates in Kazakhstan are competitive, the system of tax administration requires improvement. Comprehensive efforts in that direction are taken by the state authorities, business and development institutions. The working group proposes steps intended to address a number of challenges such as the principle of taxation certainty, improvement of the VAT refund tax audit practice, harmonization of tax and civil procedural legislation and other measures to ensure protection of taxpayers' rights.
Improvement of environmental permitting system is another important issue. Proposals from the foreign side include a number of measures intended to increase the effectiveness of the permitting system and elimination of excessive administrative burden for investors and the state. The proposals cover consultations to assist applicants in preparation of the documents, submission of documents as a single package to a single authority based on "one-stop shop" principle, improvement of law application practices and a series of recommendations to ensure an integrated approach and transparent interaction between the regulators and business.
Attraction of strategic investors will play a significant role in unlocking Kazakhstan's economic potential. Improvement of institutional environment, transparency and predictability are important factors of investors' confidence. In 2014 the working group will continue to make its contribution to improvement of legislation and its administration, as well as strengthening mechanisms of state interaction with the investment community.
