KAZAKHSTAN: VICE MINISTER OF TRADE DISCUSSES

UNCLAS ALMATY 003028

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR SCA/CEN - MUDGE, DEHART

E.O. 12958: N/A
TAGS: PGOV PHUM PREL KDEM KZ
SUBJECT: KAZAKHSTAN: VICE MINISTER OF TRADE DISCUSSES
DIVERSIFICATION, REGIONAL TRADE POSSIBILITIES WITH DAS
FEIGENBAUM



1. (SBU) Summary: During an August 25 meeting in Astana
with SCA Deputy Assistant Secretary Evan Feigenbaum, Vice
Minister of Industry and Trade Askar Batalov described
Kazakhstan's economic diversification strategy and
highlighted the promise of, and obstacles to, greater
regional trade. Of the seven economic "clusters" the GOK
had chosen to spur economic diversification, Batalov
elaborated on the oil services sector, acknowledging that
the most serious obstacle was not international oil
company cooperation, but rather raising the quality of
Kazakhstani goods and services to meet international
standards. Batalov, DAS Feigenbaum, and Ambassador Ordway
also discussed the potential of the Kazakhstani textile
sector, including the idea of establishing a center for
intermediate textile production in southern Kazakhstan,
processing regional cotton for export to Pakistan or
China. End Summary.

Diversifying the Economy
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2. (SBU) Batalov opened the meeting by describing GOK
efforts to diversify Kazakhstan's economy by promoting
exports in sectors other than oil. The GOK had begun the
process in the mid-1990's, he explained, by extending a
system of privileges to companies willing to invest in
other sectors. More recently, the GOK had contracted a
study which identified 42 sectors of the economy with
competitive potential. Of those, seven "clusters" had
been chosen as "pilot" sectors for a three-year
development plan. Batalov described progress in the "oil
services" sector, telling DAS Feigenbaum that the GOK goal
was to raise Kazakhstani content in that sector from its
current 5% to 50% within seven years. The Ministry was in
the process of negotiating MOUs requiring companies to
develop proposals to use more local content. "The major
oil and mining companies are cooperating," the Minister
said, leaving the challenging task of raising Kazakhstani
production and services to meet international standards.

Potential in Regional Trade
--------------


3. (SBU) Asked by DAS Feigenbaum to reflect on the
possibilities for increased regional trade, Batalov
identified three major international markets for
Kazakhstani trade: China, India, and Russia. The GOK had
recently created the "Kazyna" Fund, he said, in part to
help promote investment - both domestic and overseas - in
sectors where delayed returns or high risk discouraged
private capital. Among its many services, Batalov said,
Kazyna provided export guarantee insurance, similar to
that offered by the American EXIM Bank. Batalov
acknowledged that, despite these programs and the GOK's
determination to increase non-oil exports, progress had
been slow. Language and cultural differences, for
example, posed barriers to trade in China, Pakistan, and
Afghanistan, though Batalov cited the possibility of
entering the latter market by partnering with Tajik
intermediary companies.

Kazakhstan's Textile Industry: Competitive or Not?
-------------- --------------


4. (SBU) DAS Feigenbaum expressed puzzlement that
Kazakhstan had chosen textiles as a key sector for export
growth, in light of heavy Chinese competition.
Batalov explained that the GOK had established a Free
Trade Zone in Southern Kazakhstan, and hoped to attract
Uzbek and Turkmen cotton for processing and export to
Europe. DAS Feigenbaum suggested Pakistan, a major
textile producer and exporter, was much closer than
Europe. He asked whether Pakistan's industries might not
represent a more logical export target. Ambassador Ordway
voiced the possibility of exporting intermediate products
- textile fibers - for further processing in China.
Batalov expressed skepticism of the Pakistan market,
citing "high risk of investment." Instead, he suggested
that the GOK hoped to attract the major "name brand
manufacturers" to locate clothing production centers in
Kazakhstan itself.

ORDWAY