SUBJECT: KAZAKHSTAN - ASIA SOCIETY CONFERENCE

UNCLAS SECTION 01 OF 03 ASTANA 001211

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV PREL ECON EINV KZ
SUBJECT: SUBJECT: KAZAKHSTAN - ASIA SOCIETY CONFERENCE
FOCUSES ON ECONOMIC OPPORTUNITIES AND OBSTACLES

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Summary
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1. (U) The Asia Society's Second Kazakhstan International
Business Conference was held June 12-14 in Astana. The event
brought together businessmen from Kazakhstan and abroad,
government officials, diplomats, and academics to discuss
obstacles to and opportunities for economic development in
Kazakhstan. Several themes resonated throughout the
conference, including the importance of Kazakhstan's creating
a friendlier investment climate, diversifying its economy,
and turning itself into an engine for regional economic
integration. End Summary.

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Prime Masimov Stresses Focus Areas
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2. (U) In a keynote address which followed brief opening
remarks by Asia Society President Richard Holbrooke,
Kazakhstani Prime Minister Karim Masimov stressed that
Kazakhstan is a reliable partner for foreign direct
investment and seeks investors willing to explore the wealth
of opportunities that Kazakhstan offers. Kazakhstan is
undertaking measures that will make it one of the 50 most
competitive countries in the world within five years.
According to Masimov, the government's six focus areas on the
economic front are WTO accession, judicial transparency,
economic diversification, sustainable growth through training
and professional development, the fight against corruption,
and promoting regional economic cooperation. Masimov noted
that the U.S. and Kazakhstan were about to launch an
ambitious Public-Private Economic Partnership Initiative
(PPEPI) which would bring together the governments and
private sectors of the two countries to develop proposals for
progress in some of these very areas. (Note: The PPEPI was
subsequently inaugurated in Astana on June 24. End Note.)

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Energy
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3. (SBU) In his address opening a panel on energy issues,
Daniel Yergin, Chairman of Cambridge Energy Research
Associates, spoke about the current "demand shock" for oil.
Yergin noted that it takes years to bring new crude
production on line and that the costs to do so have
skyrocketed in recent years, significantly outpacing the
overall inflation rate. This augurs for continued high
prices for crude. Deputy Minister of Energy and Mineral
Resources Akchulakov said that the Kazakhstani government is
interested in investing in downstream capacities, such as
petrochemicals. (Comment: In prior post reporting, we have
noted that petrochemicals do not appear to have much economic
promise in Kazakhstan. End Comment.) Akhchulakov and
several other panelists argued that Kazakhstan has huge
potential in renewable sources of energy. Diversifying the
energy economy into non-hydrocarbon sectors is crucial for
Kazakhstan's sustainable development, they stressed.

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Financial Sector Issues
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4. (U) In remarks opening a panel on financial sector issues,
Finance Minister Bolat Zhamishev said Kazakhstan has been
proactive in fighting the effects of the international credit
crunch, and thus Kazakhstani financial institutions remain
attractive to international capital markets. It remains a
top priority to transform Almaty into a regional financial
hub, create an effective stock exchange to attract liquidity,
and create a class of private institutional investors, he
argued. Adel Kambar, CEO of Renaissance Capital, emphasized
that an active domestic pool of investors is a prerequisite
to the entry of international investors. Jonathan Schiffer
from Moody's Investors Service noted that the Kashagan field
will begin production in several years; thus it is crucial
that Kazakhstan's non-extractive sectors raise their
productivity in order to deal with anticipated currency
appreciation and other negative effects from the economic
windfall of the energy sector.

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Eni in Kazakhstan
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5. (U) Stefano Cao, CEO of the Exploration of Production
Division of Italian energy giant Eni, argued in his lunchtime
address that as a dynamic player in the upstream energy

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sector, Kazakhstan makes an immense contribution to the
global energy balance. Discussing his company's activities
in Kazakhstan, he said that Eni undertakes significant
efforts to train and retain local staff, which promotes
sustainable economic development. Eni has undertaken several
social infrastructure projects to improve health and
education for citizens. It also brings benefits to the local
economy through technology transfer and increased salaries
and tax revenues. The concept that underlies Eni's
activities in Kazakhstan is a commitment to a common future
and the economic growth of the country, Cao contended.

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Economic Diversification, Entrepreneurship
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6. (U) During a session on economic diversification, Minister
of Industry and Trade Vladimir Shkolnik argued Kazakhstan's
high-quality human capital makes it well-suited to
diversifying into high-technology sectors and competing at a
world-class level. The government provides support to
specialized companies and has created special economic zones
to efficiently transfer new technologies in the non-resource
sector, he argued. Several panelists highlighted
Kazakhstan's auspicious geographic location between Europe
and Asia as facilitating economic diversification into the
transshipment sector. David Short of FedEx explained that
his company had chosen Almaty as its regional hub in part
because of the quality of Kazakhstani human capital and
infrastructure and the welcoming attitude of the government.


7. (U) During a session on entrepreneurship, Raimbek Batalov,
chairman of the Forum of Entrepreneurs of Kazakhstan, said
many administrative barriers curb the development of domestic
businesses. He stressed that the government needs to be more
proactive in reforming the tax code. (Note: The government
is, in fact, moving forward this year on a major tax reform
effort. End Note.) Batalov contended that private companies
have no chance when competing with state enterprises, and
said the government needs to be more transparent in the area
of public-private partnerships (i.e., government concessions
on public works projects).

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International Economic Cooperation and Relations
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8. (U) In his remarks opening a session on international
economic cooperation and relations, Bolat Nurgaliyev,
Secretary-General of the Shanghai Cooperation Organization
(SCO),outlined his organization's priorities, which, he
said, include peace, stability, and prosperity among its
member states. Openness and transparency is enshrined in the
Organization's charter, he argued. Richard Holbrooke
expressed the view that some U.S. government officials may be
overly alarmed at the SCO's intentions. Martha Olcott of the
Carnegie Endowment for International Peace noted that
significant challenges remain to maximize Kazakhstan's
attractiveness to investors. She argued that the government
needs to fight corruption, enhance property rights, and
undertake tax and judicial reforms. Zeyno Baran of the
Hudson Institute pointed to the soundness of Kazakhstan's
multi-vector diplomacy, with energy cooperation as the
primary engine of international partnership. Ambassador
Ordway highlighted the depth of the U.S.-Kazakhstani
strategic partnership. Kazakhstan is a close partner in the
areas of non-proliferation and counter-terrorism and the U.S.
is the single largest source of foreign investment in
Kazakhstan. The large number of Kazakhstani students
studying in the U.S. -- through USG-funded exchange programs
and Kazakhstan's Bolashak scholar program, as well as
independently -- is a key factor enhancing bilateral ties.

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Regional Trade and Investment
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9. (U) In his address opening a session on regional trade and
investment, Sherzod Faizev, Deputy Secretary General of the
Eurasian Economic Community (EurAsEC),noted that trade among
EurAsEc member countries has tripled since its founding.
Transit links, energy cooperation, and positive trends in
investment inflows are raising the international
attractiveness of EurAsEC. Kazakhstan Temir Zholy
(Railroads) representative Yermek Kizatov explained that
Kazakhstan is restructuring its railway sector in order to
become a more efficient component of the regional
transshipment infrastructure. Konstatin Nazarov of General
Electric emphasized that Central Asia is still at an early
point in attracting foreign investors. The region needs to

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focus on improving the investment climate and protecting the
interests of foreign investors. Haoliang Xu, UNDP Resident
Representative in Kazakhstan, highlighted the progress
Kazakhstan has made on key human development indicators,
while the rest of Central Asia has declined or stagnated.
Kazakhstan can use its financial strength to increase its
role as a donor and regional motor for integration and
development, he argued.

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Kazakhstan's Competitive Advantage
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10. (U) In closing remarks to the conference, Vice Minister
for Industry and Trade Zhanar Aitzhanova stressed the
importance of harmonizing Kazakhstan's regulations with
international standards and promoting foreign direct
investment in the non-energy sector. The latter represents a
particular challenge, since Kazakhstan competes with
neighboring economies that have natural competitive
advantages in these other sectors, she argued. Kazakhstan's
competitive advantage will therefore be its clear rules and
regulations, transparency, and predictability. Aitzhanova
concluded with a call on the business community to be active
in sharing expertise and participating in the development of
human capital in Kazakhstan, a key prerequisite for the
country's economic prosperity.

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Comment
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11. (SBU) The conference featured an impressive list of
speakers and addressed an array of salient topics. The
panel discussions were, in fact, more engaging than those at
the Asia Society's First International Business Conference,
held in Almaty in 2005. That said, attendance was
disappointing, especially on the second day (which was a
Saturday). Richard Holbrooke told the Ambassador that the
Asia Society lost at least 50 participants simply by holding
the event in Astana, rather than Almaty. In addition, this
time around, President Nazarbayev dropped out of the event
(though Holbrooke still managed a private meeting with him)
and the political opposition did not participate at all. In
sum, this second Asia Society business conference managed to
get the key issues on the table, but did not have the same
impressive impact as the first one did in 2005. End Comment.

ORDWAY