EBRD Is Kazakhstan’s Partner for Reform

ChakrabartiIt is a pleasure to be back in Kazakhstanto co-chair the Foreign Investors’ Council meeting on June 12 with President Nursultan Nazarbayev.

And I am particularly pleased to be here so soon after the European Bank for Reconstruction and Development has signed a Memorandum of Understanding to form a new strategic partnership with Kazakhstan. We expect this partnership to make a major impact on the future level of investments in this country and on the speed of crucial reforms, including the diversification of the economy.

Unlike many other countries, Kazakhstan has been growing steadily in recent years. However, looking at the world that is still battling with the consequences of the financial crisis, and with parts of our region under stress from recent political tensions, one can see that commodity-propelled growth is not enough.

In order for Kazakhstan to escape the Middle Income Trap – in other words to attain a higher and sustainable level of income–it needs to improve the business climate and corporate governance, and develop a broader industrial base. This is a priority for President Nazarbayev and the task he set for his government of reformers, led by Prime Minister Massimov.

I am very pleased that the new government hit the ground running with the reform agenda, and one of their very first steps was to invite the EBRD to be partners in this process, to join the Partnership for Re-Energising Reform in Kazakhstan. The Partnership will promote industrial development, diversification and competitiveness, in line with Kazakhstan’s Industrialisation Strategy.

Following on from President Nazarbayev’s announcement in February that about a trillion tenge would be provided to boost reform and investment, Prime Minister Massimov and his cabinet came up with a ground breaking idea to engage the support of the EBRD and other international financial institutions.

The government set asidehalf a trillion tenge, or 2.7 billion dollars,for co-investment and technical cooperation with the EBRD and other international financial institutions.This will allow us to significantly increase our own investments in Kazakhstan, which last year amounted to 450 million dollars.It will also provide a mechanism to leverage the EBRD’s private sector know-how.

Under the Partnership, we will focus on the following areas:

Business climate and corporate governance

If Kazakhstan is to attract investment and progress on its industrialisation programme, it needs to offer investors a good business climate and protection of their rights.

The investment climate in Kazakhstan is already improving. As we speak, measures are being approved under a new foreign investment law. It includes simplification of the visa regime, the introduction of state guarantees against changes in legislation for foreign investors, increased access for foreign investors to foreign arbitration – to mention just a few of the measures. This work needs to continue.

A month ago in Ukraine, I signed a long-awaited agreement with the government to create a position of independent business ombudsman. This ombudsman will be the interlocutor of the government on behalf of businesses and raise issues such as corruption. There is already an institute of business ombudsman in Kazakhstan, although based on a different model. We are eager to share our thinking on this function and look for other ways to improve corporate governance.

Rebalancing of the role of the state towards a larger private sector

The government is already making steps towards a larger role of private initiative and private capital in the economic development of the country. Transition to the free market economy model, with a stronger private sector role, is at the very heart of the EBRD’s mandate.

We will facilitate foreign direct investment in various non-oil and gas sectors, such as manufacturing, logistics, agriculture and the food industry.

Importantly, we will also enhance ourcooperation with the government on the new PPP legislation. Once that legislation is in place, enablingpublic-private partnerships to operate, investors – including the EBRD – will be able to finance infrastructure projects of national importance, such as the Almaty ring road.

Banking sector

A strong banking sector is important for all areas of the economy, and we remain committed to its strengthening.

One of the problems that need to be addressed inthis sector is the serious issue of non-performing loans. We are already in dialogue with the National Bank on this point.

Sustainable energy and resource efficiency

We will intensify our work in this areain line with Kazakhstan’s Green Economy Strategy. We are already invested in a number of projects – from financing ecologically clean public transport to energy efficiency improvements in private sector companies. We aim to set industry standards by developing pilot wind and solar renewable projects. We are already working on the first wind farm in Kazakhstan.

Regional development

Regional development is, of course, key for inclusion – for bringing growth to as large a portion of the population as possible – and also for the diversification and industrialisation of the economy. We will offer increased support to municipalities, especially outside the two largest cities, in their drive to modernise and reform public utilities and transport. As this issue of Astana Times goes to print, I will be in Kyzylordameeting with the Minister of Regional Development and the Akim. We are already working on several projects there, from transport to water management.

Small and medium-sized businesses

The government sees SME financing and improvement of competitiveness as a priority, and so do we. We have already provided credit lines worth over 100 million dollars to Kazakh banks and microfinance institutionsfor on-lending to small and medium sized businesses, we are working on 200 million dollars more. A critical component of this support is capacity building at the level of banks and microfinance institutions.

We also have a small business advisory servicewhich– through seven offices in Kazakhstan –helps enterprises with know-howtransfer. This SME advisory work is already being co-financed by the government of Kazakhstan. Under the Partnership,we are hoping to significantly boost these services.

Local currency

Only weeks ago, the National Bank gave us access to the tenge equivalent of one billion dollars. This is key for providing longer-term financing in tenge to SMEs, larger corporates and municipalities, which need protection from foreign exchange risks.

All these priorities are shared by the EBRD and the government of Kazakhstan.

Today, Kazakhstan is choosing the path toeconomic reform, competitiveness and cooperation.And I am proud that we as the EBRD are here to accompany Kazakhstan in this journey.

The author is President of the European Bank for Reconstruction and Development.

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