KAZAKHSTAN: PUBLIC-PRIVATE ECONOMIC PARTNERSHIP INITIATIVE

C O N F I D E N T I A L SECTION 01 OF 03 ASTANA 001215 SIPDIS STATE FOR SCA/CEN, EEB, EUR/ACE STATE PLEASE PASS TO USAID, USTDA, USTR E.O. 12958: 07/21/2019 TAGS: PGOV PREL ECON EAID SOCI KZ SUBJECT: KAZAKHSTAN: PUBLIC-PRIVATE ECONOMIC PARTNERSHIP INITIATIVE HOLDS SECOND COORDINATION MEETING Classified by: Ambassador Richard E. Hoagland, Reasons 1.4 (b) and (d) ¶1. (SBU) SUMMARY: The Coordinating Committee of the Public-Private Economic Partnership Initiative (PPEPI) held its second meeting on July 17 in Astana. During the meeting, the PPEPI Secretariat summarized the initiative's progress to date. The meeting revealed that there are obstacles and impediments which could ultimately challenge the viability of PPEPI in its current form. On a separate note, on July 20, the MFA complained to us about comments made at PPEPI roundtables by the head of the American Chamber of Commerce (AmCham),which is PPEPI's implementing organization. END SUMMARY. POLICY WHITE PAPERS PRESENTED ¶2. (SBU) PPEPI is designed to capitalize on the expertise of the U.S. and Kazakhstani public and private sectors to prepare economic policy recommendations that will make it easier to do business in Kazakhstan and improve the country's overall investment climate. The initiative's partners include the governments of the United States and Kazakhstan, two U.S. business associations -- the American Chamber of Commerce in Kazakhstan (AmCham) and the U.S.-Kazakhstan Business Association -- and two Kazakhstani business associations -- the Atameken Union and the Forum of Entrepreneurs. PPEPI is administered and implemented by AmCham through a grant from USAID. AmCham envisioned further funding and support from the other partners; however most of this additional support has not materialized. ¶3. (SBU) The July 17 Coordinating Committee meeting followed a roundtable discussion the previous day regarding two of PPEPI's five focal areas -- anti-corruption/rule of law and transparency. The Coordinating Committee was briefed by representatives from each of the PPEPI's five working groups, which, in addition to the two focal areas mentioned above, also cover regional economic integration, cooperation in science and technology, and economic diversification/SME development. During the Coordinating Committee meeting, the five working groups distributed white papers outlining policy recommendations. LACK OF CONSENSUS AMONG PARTNERS ¶4. (SBU) Prior to substantive discussions on the white papers, concerns were raised about the methodology utilized in developing the recommendations, and the lack of contributions from some working group members. Azat Peruashev, Chairman of the Atameken Union, stated that he "was not satisfied with cooperation with (AmCham's PPEPI) Secretariat," since Atameken was not a participant in most of the meetings of the working groups. He stated that the white papers "do not reflect a consensus view because they do not include the opinions of Kazakhstani businesses." He also complained that the AmCham attempted to engage Atameken only by email, saying, "We have a different business culture. We rely on face to face meetings and phone calls, not email and the internet." Although he acknowledged that Atameken was partly at fault for not being proactive, he placed most of the blame on poor communication between the PPEPI secretariat and its partners. (COMMENT: The lack of participation by the Kazakhstani private-sector partners was an ongoing concern and the subject of numerous discussions between EmbOffs and AmCham. AmCham representatives said they repeatedly attempted to contact the leadership of both Atameken and the Forum of Entrepreneurs, ever since the working groups were first established. To this day, Atameken has not provided its pledged financial contribution to the initiative, and its reluctance to do so may also explain its lack of participation. END COMMENT.) ¶5. (SBU) Having criticized the process of collaboration, Peruashev then highlighted what he believed to be shortcomings in the white papers. Concerning the liberalization of trade, he said that the "single window experience" was not included, despite the fact that USAID and Atameken sponsored a conference on the subject in June. He ASTANA 00001215 002 OF 003 claimed that the white paper on trade and customs placed a "negative light on the [Russia-Belarus-Kazakhstan] Customs Union and [those comments] should be excluded." Peruashev supported many of the suggestions in the SME white paper, but stated that he had other good suggestions. "Kazakhstan needs SME development in industry, rather than trade, where 80 percent of SMEs now work." A FOUNDATION TO BUILD UPON? ¶6. (SBU) This first set of white papers was prepared by an independent consultant hired by the PPEPI Secretariat to synthesize working group discussions into coherent policy papers. This methodology also led to questions regarding the extent to which the white papers were a product of each working group, rather than of the consultant himself. The PPEPI Secretariat representatives described the white papers as general frameworks that the working groups can now refine and revise to their liking. Deputy Prime Minister Yerbol Orynbayev, the senior Kazakhstani government representative to PPEPI, stated that, given the short period of time that PPEPI has been active, the working groups did a "good job," but he added that the recommendations must be more detailed and specific. He declined to participate in the subsequent press conference, although we do not know if this was because he was pressed for time. ¶7. (SBU) The Ambassador reminded everyone that the PPEPI is a public policy experiment still in its early stages, and noted that all the partners still have time to revise and refine the white papers. AmCham President Ken Mack confirmed this, but maintained that while there is always room for improvement, the working groups have made good progress and established a foundation on which they can build. Peruashev assured his partners that Atameken representatives will participate more actively to refine the white papers, and proposed that Atameken host the next round of working group meetings. WHAT NEXT FOR PPEPI? ¶8. (SBU) Orynbayev stated that he would distribute the white papers to appropriate government officials and agencies for comment, and requested a month to receive their feedback. The other partners agreed to use this time to review and comment on this first iteration of policy recommendations. Orynbayev also stated that it was too early to judge the final results of this process, and suggested that an action plan be developed based upon the recommendations in the white papers. GOVERNMENT COMPLAINS ABOUT MACK'S COMMENTS ¶9. (SBU) The MFA called in Pol-Econ Chief on July 20 to complain about remarks the AmCham's Ken Mack made during the July 16 PPEPI roundtables in which, among other things, he apparently complained about the level of corruption in Kazakhstan; called for the establishment of a completely independent anti-corruption body; maintained that companies do not want to invest in the country's non-energy sectors; and said Kazakhstan is too quick to bring criminal charges against foreign companies and executives for tax and other legal violations. MFA Americas Department Deputy Director Alim Kirabayev told Pol-Econ Chief that Mack's remarks, which had received wide press coverage, were "not in the spirit of our strategic partnership." ¶10. (SBU) Responding to Mack's specific points, Kirabayev maintained that Kazakhstan is, in fact, doing a lot to fight corruption; it passed new anti-corruption legislation in 2008, established a special government anti-corruption commission, and is implementing an anti-corruption plan. Furthermore, Kazakhstan is continuing to attract significant investment in its non-energy sectors, and does not stand alone in providing for criminal liability for legal violations by corporations, since the United States does too. Kirabayev noted that Mack is a private citizen and does not speak on behalf of the U.S. government, but asked that the Embassy pass Kazakhstan's concerns about Mack's remarks directly to Mack. The ASTANA 00001215 003 OF 003 remarks have already gotten attention up to the level of Prime Minister Masimov, he added. (COMMENT: We saw nothing in Mack's remarks that was clearly factually inaccurate, but he made his points quite bluntly -- which is likely what caught the government's attention. We informed Mack, who is out of the country, about the government's concerns by email. END COMMENT.) ¶11. (C) COMMENT: The PPEPI will need to overcome several challenges if it is to achieve its objectives. The initiative is testing the capacity of AmCham to implement the program. AmCham lacks experience implementing a project which requires such broad participation and the management of potentially conflicting interests. Moreover, the failure of some of the private-sector partners to provide promised financial support has meant that AmCham has not been able to hire additional personnel to staff the PPEPI Secretariat, as originally expected. This staffing issue will be further exacerbated with the departure of AmCham's lead program manager at the end of July. It is also not clear whether AmCham has buy-in for PPEPI from its broad membership, since very few AmCham member companies and organizations have thus far participated in the PPEPI working groups. ¶12. (C) COMMENT CONTINUED: Despite the problems, PPEPI retains the support of Kazakhstani's senior leadership, including Prime Minister Masimov (see septel). Deputy Prime Minister Orynbayev remains the government's lead PPEPI representative, and PPEPI has a renewed commitment from at least one of its private-sector partners -- the Atameken Union -- to increase its involvement in the working groups and contribute to the white papers. The next phase of the initiative, including obtaining feedback and input from the government and the Kazakhstani private sector, should provide a gauge about whether PPEPI can continue in its current form, or whether it will need a major reworking to succeed. HOAGLAND