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Analysis of construction industry in Kazakhstan

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    Kazakhstan is a young country which declared itself an independent country on 16th of December in 1991. From 2000 to 2006, Kazakhstan experienced a high economic boom with an average annual growth rate of 10 percent. The export of hydrocarbon sector played a main role in extremely high economic growth. The exploration of crude oil increased from 26 million in 1991 to 76 million in 2009. In 2009, the hydrocarbon sector accounted for 60 percent of the country’s industrial output. In addition, 72 percent of all investments of the mineral complex were allocated in the hydrocarbon sector. Since 1996, foreign investments in this sector had risen almost 15-fold. Expansion of the hydrocarbon sector sustained high economic growth and considerable foreign inflows in the county’s economy.

    On the other hand, this led to a high dependence from the export of raw materials. The majority of the state budget has filled up by petrodollars rather than by taxes. Therefore high fluctuations of oil prices affect the vulnerability of economy. However, the successful development was a result of not only favorable conditions in the oil industry. Since independence, Kazakhstan has implemented a number of comprehensive reforms that have turned the country from a planned economy into the state with the successful developing economies. Kazakhstan has relatively liberal economic relations, the modern market infrastructure, a stable national currency – tenge, and one of the most progressive financial and economic systems in the post-Soviet space. Moreover, Kazakhstan’s banking sector has made significant success since 1991. The financial system is a leader in innovation, including the creation of successful private pension funds, the National Oil Fund, which are accumulated revenue from oil export for future generations [The banking system of Kazakhstan is the most progressive in the whole CIS], 2001).

    For attracting investors, the government developed a favorable investment climate. From 2000 to 2008, the foreign direct investments significantly increased by tenfold, which is the highest investment per capita in CIS. Furthermore, in order to protect the economy and to achieve sustainable economic growth, the government developed strategic program to diversify economy and to avoid Dutch-disease. In 2010, the government spent about 67 billion dollars on different industrial projects.

    MACRO ANALYSIS OF KAZAKHSTAN
    Analysis of the political environment

    Reformation period of Kazakhstan’s political system began immediately after becoming independent. Transition to democracy commenced under the difficult conditions: The country was experiencing social and economic crisis resulted in industrial recession, hyperinflation (up to 3000%), and drastic decline in living standards. The basis for market-based economy, one of the principal economic prerequisites for democratization, was non-existent. In the wake of the USSR collapse In the wake of the USSR collapse the former Soviet states have been experiencing aggravation of their foreign relations. There was no political pluralism, multi-party system, independent mass media, NGOs in the country. There were no historically evolved democratic traditions and democratic institutions (Country profile, 2008).

    This was the context in which the new political system has started to be developed in Kazakhstan. It went through three stages: During the first stage (1990 – 1993) the principal goal was to dismantle the previous political structure: the Soviet control system and the Communist Party’s political monopoly. This stage saw the formation of the basics of the parliament-president political structure. During the second stage (1993 – 1995) a new model of Kazakhstan’s political system has been selected. The model was to reflect the political, economic, social and cultural, psychological, geopolitical and ethnic specificities of the country. The changes in the political structure were initiated in the first Constitution in 1993. A principle of separation of powers was fixed therein: the executive and judicial bodies were defined for the first time as independent branches of the government. The first alternative elections to the Parliament were held; new local government bodies – maslikhats – were elected. The third stage (1995 – 1998) brought further the evolution of the political structure – the core of which was the adoption through 1995 Referendum of the new Constitution and the election of a professional bicameral Parliament (Country profile, 2008).

    Republic of Kazakhstan is the unitary state with presidential form of government. Kazakhstan’s parliament is the supreme legislative body and consists of two chambers: the Senate (Upper House) and the Mazhilis (Lower House). The 47 members of the Senate are indirectly elected representatives of regional assemblies and appointees of the president. The Mazhilis is composed of 67 elected deputies. Both chambers are elected for a four-year period. Only one political party, Nurotan, is represented in Kazakhstan’s parliament which cannot guarantee the democratic regime. Moreover, the limited division of power may expand the public corruption and decrease transparency of the governing process. Kazakhstan is a constitutional republic with a strong personalized presidential regime. Nursultan Nazarbayev has been a president since Kazakhstan became independent. His mandate is seven years long and he has a lot of political power: only he can initiate constitutional amendments, appoint and dismiss the government, dissolve the parliament, and appoint administrative heads of regions. Nursultan Nazarbayev also has a “national leader status”, which provides him guarantees of non-persecution and the right to influence politics after possible retirement. The president and his family members have full immunity from all criminal or administrative offences he committed during the presidency or afterwards (Nurmakov, 2010).

    According to Transparency International’s Corruption Perceptions Index (CPI), Kazakhstan is among the most corruptible countries in the world, while it has won just 2.7 CPI scores in the CPI survey (CPI is based on 13 independent surveys, but Kazahhstan’s scores are detemined on the basis of seven surveys). Low transparency results in 120th out of 180 countries ranking on Corruption Perceptions Index table (CountryWatch Inc.). The Economist Intelligence Unit’s 2008 democracy index ranks Kazakhstan 127th out of 167 countries, putting it among the 51 countries considered “authoritarian” (The Economist Intelligence Unit Limited, 2008).

    Table: Transparency International’s Corruption Perceptions Index Rank
    Country/Territory
    CPI 2009 score
    Surveys used
    Confidence range
    120
    Kazakhstan
    2.7
    7
    2.1-3.3
    158
    Tajikistan
    2.0
    8
    1.6-2.5
    162
    Kyrgyzstan
    1.9
    7
    1.8-2.1
    168
    Turkmenistan
    1.8
    4
    1.7-1.9
    174
    Uzbekistan
    1.7
    6
    1.5-1.8
    Source: Economist Intelligence Unit, 2008

    However, on the other hand, the absence of party and ideological opposition may help push through economic reforms and contribute to political stability, a prerequisite for a favourable investment climate. The prime minister is the head of the executive branch of government and is appointed by the president, with the approval of the parliament.

    Despite his autocratic regime, Nazarbayev has been keeping the country stable regardless of its ethnic, religious and regional differences. In time of his governing Kazakhstan achieved impressive results in financial, economical and legislative development.

    Analysis of the economic environment

    Republic of Kazakhstan in a world economy is positioned as a country supplying to world markets a huge amount of oil, gas, ferrous, nonferrous, rare earth and precious metals, uranium products and grain. In comparison with other CIS countries Kazakhstan has comparative factor advantages in the form of huge reserves of mineral resources, which became a locomotive of national economy establishment. In the future perspective they will also be the most important source for sustainable economic growth. Scarce mineral resources are factor competitive, as they take key positions in economic development of any country and are much in demand in the world market.

    Table: Kazakhstan’s main economic characteristics 2003 – 2007

    Source: Economist Intelligence Unit, Country data

    Kazakhstan experienced one of the most severe economic contractions in the former Soviet bloc in the first half of the 1990s. Growth resumed in 1996, but the weakness of the recovery was shown when the economy slipped back into recession in 1998 as a result of the Asian and Russian financial crises, falling export prices and poor economic policy management. The turnaround in 1999 was a result of higher world oil prices and better weather, which benefited the agricultural sector. Investment by foreign firms in the hydrocarbons sector subsequently helped to increase oil production capacity and growth in export volumes. As we can see in Table 1, this resulted in annual average real GDP growth of over 10% in 2000-06, aided latterly by large rises in global commodity prices in particular, for oil and metals, Kazakhstan’s main export commodities. Real GDP growth slowed to 8.5% in 2007, owing mainly to a sharp deceleration in credit growth in the final quarter, as Kazakhstan was hit by the global credit squeeze. This in turn affected sectors such as construction (Country Profile 2008, p. 19).

    Table: Kazakhstan’s main economic characteristics 2008 – 20011

    Source: www.countryrisk.com

    Figure: GDP by sector

    Source: World development indicators, 2010

    Economic growth slowed sharply in 2008 and 2009 with rapidly falling oil prices and tightened liquidity conditions for banks as a result of the global economic crisis. On the back of substantial public foreign assets built up during the boom years and low public debt, the government responded to the crisis with a significant anti-crisis program to help mitigate the impact of the global recession. Government support and stronger activity in the mining and manufacturing sectors contributed to a growth rebound in the last few months of 2009, and economic recovery is expected to continue in the second half of 2010. Despite large government support to banks, however, the financial sector remains under stress, reflecting the banks vulnerability stemming from the combination of a low deposit base, the reliance on foreign funding, and risky lending practices. To address the banking sector’s weaknesses, it is important to continue strengthening financial sector regulation and supervision, while continued government support in lending should be well focused to avoid future bad credits. Over the longer term, improvements in the business climate and in education, health and infrastructure will boost competitiveness and encourage economic diversification (Kazakhstan Review, 2011, p. 69).

    Table: Key economic forecasts

    Source: Kazakhstan Country Forecast 2010, p. 3

    According to preliminary estimates from the Statistical Agency of the Republic of Kazakhstan (SARK), real GDP expanded by 7% in 2010, following a sharp slowdown to 1.2% in 2009. In 2010 economic performance was boosted by higher global oil prices following a sharp fall in 2009, and the ongoing recovery of the banking and construction sectors. Provisional data show that the industrial sector, which accounted for just under one-third of total GDP, expanded by 9.6% in 2010. Headline real GDP was dragged down by the performance in construction, although the 1% expansion was an improvement on the 3.2% contraction in 2009. An 11.7% contraction in agriculture also weighed on the headline growth figure (EIU, 2011).

    As a consequence of the robust performance in 2010, the government has raised its GDP forecast for 2011. On January 17th the economic development and trade minister, Zhanar Aitzhanova, revised the government’s real GDP forecast to 4-5% from 3.1%. The NBK forecasts real GDP growth of 5-6% in 2011. The IMF predicts that real GDP will expand by 5% in 2011, and the European Bank for Reconstruction and Development (EBRD) forecasts growth of 5.5% (EIU, 2011).

    Table: Kazakhstan’s trade balance

    Source:DG Trade, 2011

    Employment
    Rapid economic expansion since 1999 has stimulated employment growth. Annual average unemployment was 597,200 (7.3% of the labour force) in 2007, compared with 950,000 in 1999 (13.5%). Employment in sectors such as construction which, at 381,000 in 2004, had more than halved since 1990 is likely to be understated in the official data, as informal employment, particularly in residential construction, predominates. The downturn in the residential sector in 2008 is nevertheless likely to have resulted in lay-offs. Long term unemployment remains high particularly in the former heavy industrial areas of northern Kazakhstan.

    Table: Employment in Kazakhstan

    Source: UN, FAO Yearbook; World Bank, World development indicators; Financial
    & Economic Research International

    The Soviet legacy means that the workforce is unevenly skilled and there is a paucity of experienced managers. Kazakhstan operates a quota for the employment of foreign labour, which is established annually by the government as a share of the domestic labour force. For 2008 the quota was set at 1.6% of the economically active Kazakh population. The authorities have placed increasing pressure on foreign investors to train and employ local workers, and to ensure that these workers are granted the same remuneration packages as expatriate workers (Country Profile 2008, p. 22).

    Table: Prices and earnings

    Source: Economist Intelligence unit

    Following the economic shock of independence, Kazakhstan was initially forced to adopt an inflationary policy mix, with loose fiscal and monetary stances. A tightening fiscal stance from 1994 enabled the NBK to reduce inflation, but prices began to rise again after a devaluation of the tenge in 1999, following the Russian financial crisis of 1998. Annual inflation reached 20.4% in March 2000, before being brought below 10% by 2001 as monetary policy was tightened. Since 2005 mounting foreign-exchange inflows, renewed fiscal relaxation, and rising global food and energy prices have led to a renewed acceleration in inflation, so that annual inflation reached 20% in June 2008. In the early years of the current decade the oil boom led to rising real wages. However, since the end of 2007 a combination of higher inflation and slowing economic growth have resulted in the stagnation of year-on-year real wage growth, which has even turned negative in some months. The stability of the tenge has nevertheless been an important factor in raising living standards, and, outside Russia, GDP per head and monthly wages are the highest in the Commonwealth of Independent States (CIS) in US dollar terms. One indication of relative prosperity is the large number of illegal immigrants into Kazakhstan from neighbouring Central Asian republics, especially Uzbekistan. Uzbek workers man the building sites of Almaty and Astana, and cross illegally into southern Kazakhstan to pick cotton. Jobs in Kazakhstan pay salaries some five times higher than those in Uzbekistan, and these salaries are paid in a freely convertible currency (Country Profile, 2008, p. 22).

    Current reforms in the sphere of employment prioritize the effective use of human resources with respect to satisfying economic and social interests of every individual, of the economy and society in general. They aim to increase the quality of state programmes on the labour market, to ensure the access of self-employed and unemployed population to these programmes by stimulating their motivation to work and improving the system of professional training, re-training and raising professional skills. The reforms include the creation of new jobs in prospective branches of industry under joint state- private partnership; the development of small and medium business sector through their broader access to financial markets; the development of self-employment and other income-generating forms of economic activity among the population. It is necessary to reach a balance between flexible employment policies and social protection in this sphere.

    Analysis of the socio-cultural environment
    Kazakh represent more than half of population of Kazakhstan (53%), while there is also a lot of Russian people (30%), some Ukrainian (4%), Uzbek (3%) and German (2%) (Kazakhstan Country Forecast, 2010, p. 10).

    Almost half of Kazakhstan’s people are Muslim (47%) while Russian Orthodox religion is also highly represented (44%). There is small percentage of Protestants in Kazakhstan too. (Kazakhstan Country Forecast, 2010, p. 10).

    It is important to know that unlike other countries in the region, Kazakhstan’s government does not mix religion with politics, and as a result, women’s lifestyles are not as restricted as those found in other predominately Muslim countries.

    Table: Human development indicators

    Source: http://hdrstats.undp.org/en/countries/profiles/KAZ.html

    Human Development Index (HDI) was introduced as an alternative to conventional measures of national development, such as level of income and the rate of economic growth. The HDI represents a push for a broader definition of well-being and provides a composite measure of three basic dimensions of human development: health, education and income. Kazakhstan’s HDI is 0.714, which gives the country a rank of 66 out of 169 countries with comparable data. The HDI of Europe and Central Asia as a region increased from 0.534 in 1980 to 0.717 today, placing Kazakhstan below the regional average. The HDI trends tell an important story both at the national and regional level and highlight the very large gaps in well-being and life chances that continue to divide our interconnected world (International human development indicators; http://hdrstats.undp.org/en/countries/profiles/KAZ.html).

    Analysis of the technological and infrastructural environment

    Kazakhstan justifies the expansion of presidential power referring to the successful Asian model. In these countries political reforms takes a back seat to economic growth, “once economic recovery is ensured, political democracy will be introduced”. In contrast to Turkmenistan and Uzbekistan, Kazakhstan has a considerably high economic transformation process. The information on the Figure 3 relates to the contribution of each sector to total growth of the country. As we can see the GDP growth reached a peak at 13.5 percent in 2001. The high growth was derived from a dramatic increase in construction and agriculture sectors. In 2001, the government adopted the new law, which strengthened the legislative framework for the introduction of private ownership of land and development of mortgage in construction sector. The second peak was in 2006 at almost 11 percent. Beside a service sector, the construction and industry sectors provided almost 50 percent of total GDP growth. From 2003 to 2006, we saw a gradual rise in construction sector and it became another main engine of growth. Then, since 2007 there has been a rapid fall in this sector due to a big impact of world financial crisis. In 2008, contribution of construction sector to GDP growth dropped five-fold.

    Figure: Contribution to growth by sectors, (%)

    Source: A. Samambayeva, Industrial cluster development in Kazakhstan, 2010, p.24

    Between 2000 and 2007, share of industry in GDP decreased from 33.2 percent to 28.3 percent, while the contribution of construction rose almost twice. During this period, commercial banks began to increase its external borrowing which led to a substantial increase in gross external debt. It amounted to 108 billion dollars in the end of 2008. The private sector reached 97.8 percent in total external debt which was not guaranteed by the state. As a result, the economy acquired a form of “housing bubble”.

    As we can see on the Table 3, the external dept boosted almost nine fold from 2000 to 2009. It reached 111,326 million dollars in 2009. Between 2000 and 2008, there was a stable growth in GDP. Its number considerably raised from 18,294 million dollars in 2000 to 132,299 million dollars in 2008. Then, we noticed a dramatic decline in this number.

    After almost a decade of rapid expansion, economic indicators substantially dropped in 2008 under the pressure of the global financial crisis and economic slowdown. Restricted access to international capital markets nearly halted domestic lending and triggered a slump in real estate. Due to a high integration in global economy Kazakhstan’s economy one of the first has been damaged by financial crisis. The price inflation remained stable from 2000 to 2006 and it moved into double digits in 2007. The authorities responded to the shocks by supporting banks’ capital, adopting financial policies to sustain growth, and adjusting the exchange rate.

    Analysis of the legal environment
    Kazakhstan’s legal environment continues to remain complex and challenging despite notable reforms to its legal system. Over the last few years there have been significant improvements in crucial areas such as securities legislation, concessions, derivative transactions, competition, insolvency and anti-money laundering legislation.. Notwithstanding such improvements, Kazakh commercial laws still fall short in certain respects of standards that are generally acceptable internationally. In company law, the major shortcomings are found in the legislation on “disclosure and transparency” and on “ensuring the basis for an effective corporate governance framework”. The Insolvency Law appears to be relatively weak in addressing reorganisation processes, liquidation processes and the treatment of estate assets. The means of enforcement of security rights provided by the law seem adequate on the books, yet in practice, enforcement is reported to be problematic due to deficiencies of the court system, uncertainty regarding the enforcement mechanisms, incidents of non-compliance of the government with enforcement rules and decisions, difficulties in locating and ensuring control of the pledged assets and possible application of exchange control rules to repatriation of enforcement proceeds (Strategy for Kazakhstan, 2010, p. 20).

    Kazakhstan has attempted to enhance economic and trade relations with its former Soviet neighbors. In May 2001, it founded the Eurasian Economic Community (EurasEC) with Belarus, Kyrgyzstan, Russia, and Tajikistan, which announced in Fall 2005 plans to merge with the Central Asian Cooperation Organization (CACO), the result of which is the addition of Uzbekistan to EurasEC. The bloc is effectively functioning as a free-trade zone, and talks are under way to form a customs union in preparation for longer-term plans to create integrated markets for energy and agriculture, and a common currency. Kazakhstan is currently in negotiations with Russia, Belarus, and Ukraine to establish the CES, a project that has been delayed owing to political conflict between Russia and Ukraine. In April 2006, the four countries signed a series of agreements aimed at establishing a customs union. Ukraine signed on to just 11 of the 38 documents, and that country’s negotiators contend that there is no point in proceeding until the members have joined the WTO, because commitments made in negotiations to join the global trade body could limit the ability of various member states to comply with agreements reached among the four CES partners. Nevertheless, the other three members have proceeded, and announced in October 2007 their intention to form a trilateral customs union by 2011 (Country report, 2010). Taxation

    The corporate tax rate in Kazakhstan is 30 percent, although companies with land as the key productive asset are taxed at 10 percent on income derived from land use, and a zero percent rate is applied to companies operating in special economic zones. In addition to corporate tax, branches of non resident companies also are expected to pay branch profits tax of 15 percent of net “after-tax” income. Individual tax rates are progressive rates and are as high as 20 percent. As well, there is a 15 percent withholding tax on dividends. Capital gains are taxed as income, however, gains from securities are not treated as taxable income but are, instead, subject to a tax rate of 15 percent. The rate of value-added tax (VAT) is 15 percent. VAT is applicable to all goods, work, and services, including imports into Kazakhstan. No VAT is paid on exports except to other Commonwealth of Independent States (CIS) countries, where by agreement, exports are fully taxed and imports are not taxed (origin principle). There are exceptions for the lease and sale of land and residential buildings, financial services, public infrastructure projects and international transport.

    Companies formed in Kazakhstan under Kazakhstani law are taxed on worldwide income. Income earned by a foreign company or person through a permanent establishment in Kazakhstan is taxed in Kazakhstan. Branches of foreign entities are taxed on Kazakhstani source income (where services are performed, not where paid for). Income from a Kazakhstani source to a non-resident and not related to a permanent establishment, is taxed at the source of the payment, and further, on the total income without deductions, excluding labor that is taxed as personal income. Tax payment is based on the calendar year, with annual declarations due by the end of March of the following year (and tax payment within ten days of declaration). Annual financial statements are due on April 30 following the reporting year.

    A new tax code came into effect on January 1st 2009, which has cut the rate of corporate tax from 30% to 20%, and lowered the rate of value-added tax (VAT) from 13% to 12%. A withholding tax is levied at a rate of 20% on payments made to non-residents, and VAT applies to import values, inclusive of customs and excise duties. Effective from January 1st 2011 personal income has been taxed on a progressive scale, instead of at a flat rate of 10%. Personal income tax will remain at 10% for those earning up to Tenge 250,000 (US$1,700) per month, but will rise to 15% for those earning Tenge 250,000-500,000 per month and to 20% for those earning above Tenge 500,000 per month (Economist Intelligence Unit, 2011).

    Analysis of the industry

    At the beginning of the millenium Kazakhstan’s construction industry experienced a real boom and presented a lot of opportunities for investors. The country created a dynamic and competitive market and managed to attract considerable foreign investments in the industry. In 2001, construction companies in Kazakhstan completed construction works worth USD 1.5 billion. The number of construction companies increased from 7,764 in 2000 to 9,144 in 2001 (http://ozs.mofcom.gov.cn/table/kaza/construction.pdf).

    Most of the companies in the sector are private (56%), and foreign companies account for 28%, and the state-owned companies – for the rest 16%. Currently, there are 153 joint ventures with foreign companies and 102 enterprises with 100% foreign capital, operating as affiliates. Almost all industrial enterprises and organizations in the construction industry have been privatized in accordance with the State privatization program (http://ozs.mofcom.gov.cn/table/kaza/construction.pdf).

    The main sources of investment in the industry have been the construction companies’ internal resources (58%) and foreign investment (30%). The state capital expenditure accounts for the rest 12%. Several regions of Kazakhstan are considered as having a great potential for construction business. The new capital – Astana – is currently fast growing. The government has allocated funds for building new residential and administrative buildings, entertainment and sport centers, reconstruction of transport infrastructure, water supply system. The estimated total cost for building the new capital is about $6 billion. To stimulate investment, the government grants certain
    exemptions and tax holidays to companies investing in housing and public utilities construction in Astana. The construction industry serving Astana is growing quickly, and construction materials for Astana and its outlying regions are in short supply. Housing for government employees there remains in short supply. A former capital, Almaty, remains a business and cultural center of the country. The city is dynamically developing. New business centers, hypermarkets, cultural centers, roads, and other objects are being constructed. The oil-rich Kaspian region in the west is seeing fast pace growth. All kinds of cultural, administrative and business objects are planned and currently being built. For example, the offer of living quarters is far behind of demand, making the prices to climb high. Considerable foreign investments has been attracted to construction projects in Astana and in some key sectors of industry (petrochemicals, metallurgy, and mining industry), however the industry still needs substantial foreign investment (http://ozs.mofcom.gov.cn/table/kaza/construction.pdf).

    In 2001, 73% of USD 3.7 billion investments in construction were used for industrial construction, in particular oil and gas sector (54%), processing industry (10%), and transport and communications (9%). Foreign companies invest primarily in construction of mining facilities (85%). Most of the foreign investment is made in the West-Kazakhstan oblast (60%), Atyrau oblast (13%) and Mangistau oblast (9%). Turkey has been very active in Kazakhstan, with more than ten Turkish construction firms presently operating in the country. The EBRD, Asian Development Bank (ADB) and the Islamic Bank have agreed on a number of projects for the rehabilitation of the Almaty-Astana motor way. In the oil and gas sector, U.S. engineering firm Bechtel is undertaking a de-bottlenecking project in the Tengiz oil field, a land infrastructure project at the Karachaganak gas field, and an EBRD-financed Aktau seaport reconstruction project. Many engineering projects are expected in the oil and gas sector, especially in pipeline construction. Such projects will require engineering and construction services.

    One of the most fast growing construction industries is construction of residential buildings. In 2001, 1,493 thousand sq. meters of residential housing were constructed, 23% up from the previous year figure. The most active regions in terms of the construction of residential buildings are South-Kazakhstan oblast (19%), city of Almaty (16%), and city of Astana (14%). The number of apartments made available in 2001 increased to 1,626, 15% up from the previous year figure. Another aspect of construction industry is high level of construction materials import. Only 47% of the construction materials used in Kazakhstan are available domestically. Locally produced materials include cement, bricks, wooden doors, windows, steel doors, and soft and iron roofs. All other materials are imported, mainly come from Turkey, China, and Germany. In recent years, the country has posited a substantial growth in the production of construction materials and different types of constructions due to the dynamic development of the construction industry. Average annual growth of this sector is about 35%. According to most western specialists’ estimates, Kazakhstan today has strong chances of economic success, as the country is abundant with mineral resources and human capital. The economy is expected to continue growing in the near future. Subsequently, that will continuously raise demand for the construction works (http://ozs.mofcom.gov.cn/table/kaza/construction.pdf).

    Construction grew extremely strongly from 2004 until mid-2007, owing to the oil boom. It was the fastest-growing sector in 2005, increasing by nearly 40%” although this was in part a result of base effects and some erosion of the shadow economy in this sector. The government’s decision to spend over US$1bn on buildings in the new capital city, Astana, together with an ongoing expansion in oil pipeline capacity, provided an important boost to construction. Local production of cement, steel and pre-fabricated buildings rose, reversing a trend of falling materials output at a time of rising construction activity, which had forced Kazakhstan to resort to imports. Despite the increase in residential and commercial space, property prices rose rapidly until 2007, before the credit squeeze took hold. Activity in the construction sector slowed sharply in the second half of 2007 under the impact of the credit crunch, which also prompted property prices to fall. Over the course of 2006 the average cost per square metre of property was up by 34% year on year, and in the former capital, Almaty, the average price rose by 72% in this period. Prices went up by 30% in 2007 (and by 53% in Almaty), but by August 2008 overall prices had dropped by 5% year on year,
    and those in Almaty were down by almost 15% (Country Profile 2008, p. 21).

    Market potential (volume and value)
    Kazakhstan has been in negotiations with the WTO since 1996, primarily trying to keep maximum protection for the export oriented agriculture. Jensen and Tarr built a 57 sector CGE model, which includes features such as barriers to foreign investment and local content requirement policy. The Dixit-Stiglitz framework, as an alternative to Armington CES, is employed for business services and imperfectly competitive sectors, for example the oil sector. Lower tariffs and reduced barriers provide for increased import variety in imperfectly competitive sectors which rises total factor productivity due to the Dixit-Stiglitz externality effect. The main result of their study is that the economy will gain about 3.7 percent of GDP in the medium term and up to 9.7 percent in the long run from WTO accession. Export-intensive sectors will gain due to improved access conditions to the foreign markets, while tariff-protected domestic industries which do a little exporting will likely to be the biggest losers. Decomposing these gains shows that a 50 percent discriminatory tax cut, applied to foreign services providers with the exception of water and air transportation (25 percent cut) and financial services (100 percent cut) is responsible for more than 70 percent of total gain from the WTO accession. The country already has practically free trade (or most favoured nation tariffs) with most of its neighbours and completed a great deal of liberalisation after gaining independence. Hence, a 50 percent reduction in all tariffs adds only 0.2 percent of GDP in terms of welfare gain. Improved market access for metal producers (export price up by 1- 1.5 percent) implies increase in welfare by only 0.3 percent of GDP. Finally, the removal of local content requirement in the oil industry will likely to increase welfare by 0.5 percent of GDP (SAM and CGE Modeling Analysis of Kazakhstan, 2009).

    The Kazakhstan market is dynamic and changing. Since the independence from the Soviet Union in 1991 the market has been engaged in still ongoing series of reforms. Wage increases and substantial expansion of bank credit have fuelled private consumption spending. Local markets are of growing interests as consumption and buying habits change (ADB, 2007).

    Today is Kazakhstan responsible for four per cent of world’s oil and gas reserves and energy exports are the main reason for high economic growth rates. Kazakhstan’s major trading partners include Russia, Italy, Switzerland and China. Trade with Finland, although still quite modest, is increasing. The Kazakhstan market attracts FDI mainly to the oil and natural gas sector, but also a wide range of other activities, such as transport, services, infrastructure equipment and engineering (Northern Dimension Research Centre, 2007).

    Kazakhstan’s major trading areas include Europe, the CIS countries and Asia. The country’s exports to CIS countries increased 33.8 per cent and imports from CIS increased 33.5 per cent in 2006 compared to previous year. Exports to non-CIS increased 39 per cent while imports from non-CIS increased 35.6 per cent. The importance of EU- countries in the Kazakhstan foreign trade is increasing each year (Spiridovitsh, 2007).

    Table: Major trade partners in 2006, min USD

    Source: Kazakhstanika, 2007

    The most recent report from the Heritage Foundation’s Index of Economic Freedom rated the country as “moderately free” and ranked it 83 out of 179 countries, well above neighbouring Russia and China and just below the global average (Index of Economic Freedom World Rankings, 2010). This score is one point lower than last year’s, primarily reflecting purported declines in freedom from corruption and respect for property rights. The Foundation’s report scored Kazakhstan highly in trade freedom, fiscal freedom, government size, and labour freedom. Nevertheless, challenges to economic freedom still remain.

    Corruption increases the cost and difficulty of doing business for foreign and local firms especially it relates to customs system. According to Transparency International the Global Coalition, Kazakhstan was ranked 120 places in 2008 in comparison to 145 in 2009
    (Corruption Perceptions Index 2009, 2009). It showed noticeable improvements and government’s attempts to create a favourable environment for investors and local enterprises. In spite of progress against corruption, it remains quite widespread, and the judiciary is often perceived as an arm of the executive branch rather than as an enforcer of contracts and guardian of property rights.

    According to The Global Competitiveness Report 2009–2010, Kazakhstan ranked the 67th place as opposed the 66th in 2007–2008. It showed a moderate decrease by one point in country’s competitiveness although Kazakhstan has set an ambitious goal to become one of the 50 most competitive countries (The Global Competitiveness Index 2009–2010 rankings and 2008–2009 comparisons, 2010). On the other hand, the World Bank’s Ease of Doing Business Report showed a slight increase in doing business in Kazakhstan. There was a significant improvement in dealing with construction permits. Kazakhstan ranks the 143th place in 2010 compared to 177th in 2009. Similarly, we noticed a considerable progress in the paying taxes. It soared by 9 points (Explore Economies, Kazakhstan, 2010).

    Since 2010, Kazakhstan has become the first country from the former Soviet Union with chairs in the Organization for Security and Cooperation in Europe. In addition, Kazakhstan plans to launch the project to improve the business environment for up to four years, which is sponsored by USAID. The project promotes economic development by providing assistance to strengthen the capacity of public and private sectors to participate in effective dialogue. Moreover, it is aimed at developing modern free market, improving the implementation of legal reforms in business and public administration, and to reduce costs and remove barriers to the development of small and medium businesses.

    Currently, the government attempts to revitalize the construction market. For stabilization of the situation, they invested 17 billion tenge to complete the most problematic construction. In addition, they improved the legislative and institutional bodies of the construction sector. As a consequence of tightening the rules for construction organizations, their
    number declined significantly, leaving only the strongest and biggest companies on the market. Today, in the construction market there are more than six thousand companies.

    Figure: Number of construction organizations

    Source: A. Samambayeva, Industrial cluster development in Kazakhstan, 2010

    Table: Economic indicators

    Source: Renaissance portal, 2011

    Big project in 2009 was building South West roads. The proposed objective is to upgrade and reconstruct road sections between Aktobe/Kyzylorda Oblast border and Shymkent, and thus increase transport efficiency and improve road management and traffic safety in Kazakhstan. The project is to be finished by the end of year 2013.

    Figure: Funds, intended for project South West roads

    Source: World Bank, 2011
    Demand in this developing market goes beyond the few best prospect sectors that this report is able to cover. Kazakhstan’s strategic aspiration is to become a modern, diversified economy with a high value-added and high-tech component, and they are cognizant of the need for foreign expertise to accomplish this. The government is investing $5.4 billion in 2011 for innovative industrial projects and a total of $15 billion between 2011 and 2013 (Doing business in Kazakhstan, 2011). Most attractive market segments

    Porter’s 5 forces

    Key drivers of demand

    Tight lending conditions will have a dampening effect on domestic demand for the foreseeable future, a factor that will hold the inflation rate close to
    the 2010 level next year. The current account balance recorded a deficit of $3.4 billion in 2009, as the decline in exports greatly outpaced the fall in imports, resulting in a near halving of the trade surplus. However, foreign direct investment (FDI) inflows totaling $12.6 billion were more than sufficient to cover the shortfall. Exports grew by 45% (year-on-year) in the first half of 2010, reflecting the effect of higher prices and increased output of oil, while imports were slightly down compared to the same period in 2009, a fact that underscores the weakness of domestic demand. Higher levels of profit repatriation will result in a markedly larger income deficit, but the current account balance is forecast to show a surplus of $7.6 billion (or nearly 6% of GDP) in 2010. The pace of export growth will slow in 2011, as demand factors contribute to the stabilization (and a possible small decline) in the average price for oil, but the continued sluggishness of imports growth will ensure another sizeable current account surplus next year (Country report, 2010).

    Table: Kazakhstan trade with main partners

    Source: IMF(DoTS), 2011
    Industry dynamics (past growth and estimation of future trends)

    Table: Investments in construction

    mln.tenge

    2003
    2004
    2005
    2006
    2007

    Republic of Kazahstan
    955.431
    1.181.794
    1.828.058
    2.074.660
    2.731.501
    Akmolinskaya
    7.478
    8.666
    15.955
    29.634
    81.418
    Aktubinskaya
    93.637
    103.327
    141.554
    137.250
    188.319
    Almatynskaya
    29.750
    37.612
    75.574
    74.921
    102.402
    Atyrauskaya
    307.178
    403.122
    667.405
    662.038
    715.839
    Zapadno-Kazakhstanskaya
    104.413
    77.313
    85.881
    91.721
    169.627
    Zhambylskaya
    24.546
    12.385
    13.034
    15.085
    18.990
    Karagandinskaya
    43.926
    71.071
    120.979
    95.608
    92.954
    Kostanaiskaya
    20.867
    29.940
    35.800
    44.792
    65.508
    Kyzylordinskaya
    48.061
    35.803
    49.429
    57.038
    95.442
    Mangistauskaya
    42.756
    64.312
    82.030
    131.305
    192.141
    Yuzhno-Kazakhstanskaya
    24.023
    31.741
    54.519
    63.821
    107.681
    Pavlodarskaya
    15.736
    28.402
    43.840
    76.202
    94.006
    Severo-Kazakhstanskaya
    5.442
    6.449
    22.055
    19.738
    20.424
    Vostochno-Kazakhstanskaya
    28.434
    27.998
    54.358
    81.476
    87.936
    Astana city
    100.039
    158.916
    219.391
    294.102
    375.065
    Almaty city
    59.145
    84.738
    146.254
    199.929
    323.749

    Source: Asian development outlook, 2010

    Table: Construction activity main indices dynamics

    The volume of contraction works
    Total area of built residential buildings
    Total area of residential buildings built by independent builders

    mln.tenge percentage to previous year

    thsd. square metres
    percentage to previous year
    thsd. square metres
    percentage to previous year
    1990
    11
    92,2
    7869

    1164

    1991
    18
    76,7
    6130
    77,9
    1133
    97,3
    1992
    261
    44,2
    5046
    82,3
    1122
    99,0
    1993
    3058
    69,8
    3856
    76,4
    1057
    94,2
    1994
    41546
    78,9
    2322
    60,2
    764
    72,3
    1995
    77624
    61,5
    1663
    71,6
    628
    82,2

    1996
    61965
    63,1
    1407
    84,6
    699
    111,3
    1997
    65454
    103,3
    1344
    95,5
    851
    121,7
    1998
    74803
    105,1
    1132
    84,2
    803
    94,4
    1999
    71250
    88,8
    1105
    97,6
    843
    105,0
    2000
    150677
    178,5
    1218
    110,2
    910
    107,9

    2001
    253690
    159,6
    1506
    123,7
    1094
    120,2
    2002
    388977
    141,2
    1552
    103,1
    1159
    105,9
    2003
    424994
    104,0
    2111
    136,0
    1432
    123,6
    2004
    527793
    117,9
    2591
    122,7
    1781
    124,3
    2005
    817821
    147,4
    4992
    182,4
    2505
    145,2
    2006
    1441236
    128,6
    6245
    125,1
    3680
    146,9
    2007
    1617464
    105,7
    6679
    107,0
    3856
    104,8
    2008
    1784954
    101,9
    6848
    102,5
    3527
    91,5
    2009
    1821819
    96,8
    6403
    93,5
    3089
    87,6
    Source: Asian development outlook, 2010

    Economic prospects
    GDP projected to grow modestly by 2.5% in 2010 and 3.5% in 2011, as the global recovery consolidates. Oil prices expected to move up to average $82 a barrel in 2010 and $86 in 2011, and oil production expected to increase by 4.6% or to 80 million tons in 2010, which continues to grow by 5.0% or to 84 million tons in 2011. Construction will likely face difficulties still, as the property market adjusts, though it should post moderate growth as infrastructure and oil sector investment expand (Asian development outlook, 2010).

    Public expenditure will continue exceeding non-oil sector private investment over the forecast period. Even though fiscal space stayed tight in 2010, the government persists in its expansionary policy to maintain a high level of social outlays and investments in infrastructure. Total expenditure and net lending together are expected to grow by 4.6%. At the same time, total revenue and grants are expected to contract by 3.6% in view of tax concessions and continued slow growth. The budget envisages a fiscal deficit of 4.9% of GDP in 2010. The budget will continue to be boosted by a transfer of T1.2 trillion from the NFRK. Inflation forecast was at 6.8% in 2010 and 6.5% in 2011 on the assumption that domestic demand remains weak, and access to credit stays tight due to the time needed to resolve the domestic banking problems. Even though global commodity prices will edge up, moderate appreciation in the exchange rate will help offset external price pressures. The current account forecast to be in surplus in 2010 and 2011. Exports were expected to increase by 30% in 2010, due to higher prevailing oil prices, and then advance by about 13% in 2011 on about a 5% strengthening in both oil prices and export volumes in conjunction with some further gains in non-oil exports as the global recovery strengthens further. Since domestic demand will gradually come back throughout the forecast period, imports will increase moderately (Asian development outlook, 2010).

    These estimates point to a substantial trade surplus, though a pickup in income payments on direct investment in the oil sector held the current account surplus to about $2.8 billion in 2010 and $4.6 billion in 2011 (2.3% and 3.3% of GDP, respectively). The main downside risk to the forecast is in weaker oil prices. In addition, it is important that ongoing negotiations on foreign debt restructuring by the defaulting banks be concluded soon so that more normal financing conditions for investment and consumption can reassert themselves. If economic recovery in the Russian Federation is slower than expected, export demand will be crimped (Asian development outlook, 2010).

    Development challenges
    The economy is still narrowly based, with economic activity and investment concentrated in the hydrocarbon and mining sectors. The current crisis has underlined the need to accelerate polices to diversify the production base
    beyond these sectors and their immediate feed-in industries. In this context, under the state program for advanced industrial development and industrialization, the government plans to implement 162 projects totaling T6.5 trillion (about $45 billion) in investments during 2010–2014. For its part, the thin financial market requires deepening through improvements to the capital market’s infrastructure and through revamps to the banking system. Moreover, it is critical to strengthen bank supervision to monitor risk-management and asset-valuation practices, if another round of asset boom and bust is to be avoided (Asian development outlook, 2010).

    The Innovation Industrial Development Strategy: 2003-2015 (Strategy) was announced by the Republic of Kazakhstan in 2003. The Strategy formulates the state economic policy through 2015 and aims to support sustainable economic development through non-extraction oriented economic diversification. The Strategy provides over $1 billion in foreign direct investment opportunities available to the international business community in identified economic sectors. The Strategy’s goals in the manufacturing and construction sector include:

    Average annual growth rate targets of 8-8.4% in manufacturing industries through 2015. A labour productivity increase of 300% through improved machinery, processes, and technology by 2015. Development of the Kazakhstan Investment Fund to encourage investment flow into the domestic manufacturing industry. Investment tax preferences, state in-kind grants and guarantees (provided in the Law of the Republic of Kazakhstan “On Investments”) to investors in fixed assets of enterprises in the priority sectors (Kazakhstan Market Information, 2005).

    Market entry barriers

    Four major acts of legislation affect foreign investment in Kazakhstan. These are: 1) the 2003 law “On Investment;” 2) the 2003 Customs Code and the Customs Code of the Customs Union, expected to be approved by July 2010; 3) the 2007 law “On Government Procurement,” with 2008 amendments; and 4) the 2008 Tax Code. These four laws provide for non-expropriation; currency
    convertibility; guarantees of legal stability; transparent government procurement; and incentives in certain priority sectors. However, inconsistent implementation of these laws and regulations at all levels of the government remains a significant obstacle to business in Kazakhstan (Country report, 2010).

    Transparency of the Regulatory System
    Transparency in the application of laws remains a major problem in Kazakhstan and an obstacle to expanded trade and investment. Foreign investors complain of inconsistent standards and corruption. While foreign participation is generally welcomed, some foreign investors point out that the government is not always even-handed and sometimes reneges on its commitments.

    Opportunities for public comment on proposed laws and regulations are sporadic and generally limited. Contradictory norms often hinder the functioning of the legal system. While Kazakhstan recently has defined more clearly which laws take precedence in the event of a contradiction, stability clauses granted investors under previous versions of the Foreign Investment Law or other legislation may not necessarily protect investors from changes in the legal and tax regulatory regime.

    Foreign/Free Trade Zones/Ports
    A system of tax preferences exists for enterprises engaging in prescribed economic activities in the “special economic zones.” As of December 2009, the six such established zones were the “New Administrative Center” in Astana, the Seaport of Aktau, the Alatau Information Technology Park (near Almaty), the Ontustik Cotton Center in south Kazakhstan, the international tourism zone “Borabay”, and Atyrau Petrochemical Cluster. In the second half of 2006, the government took steps toward establishing the Almaty Financial Center, a legal and institutional framework aimed at making Almaty the financial capital of Central Asia. The plans, which remain in very early stages of implementation, include tax privileges for major participants in the financial marketplace, such as investors, broker-dealers, and issuing corporations. The legal framework for the Almaty Financial Center includes a specialized court with jurisdiction over civil disputes between the
    Financial Center’s participants (including cases on restructuring of financial institutions) (Country report, 2010).

    Tariff and Non-tariff Barriers

    Structural Barriers
    Structural barriers to trade in Kazakhstan include a weak system of business law, a lack of an effective judicial system for breach-of-contract resolution and an unwieldy government bureaucracy. Many companies serving the Kazakhstani market report significant logistical difficulties. In addition, there is a burdensome tax monitoring system for all companies operating in Kazakhstan, which may affect U.S. firms that decide to operate through a representative office. Many companies report the need to maintain excessively large staffs in Kazakhstan to deal with the cumbersome tax system and frequent inspections. The tax authorities have, on occasion, initiated criminal cases against local employees of foreign firms. Though the Customs Code has provisions for WTO-compliant customs valuation methodologies, in practice customs administration remains a problematic aspect of trade. U.S. exporters to Kazakhstan have consistently identified the requirement to obtain a “transaction passport” to clear imported goods through customs as a significant barrier to trade. This regulation is designed to steam capital outflows and money laundering by requiring importers to show copies of contracts and other documentation to legitimize and verify the pricing of import/export transactions. Though new regulations have simplified the practice, the requirement is still seen as retarding the growth of trade. The impact of the newly-created Customs Union between Russia, Kazakhstan and Belarus is also yet to be determined as the Customs Code will come into force July 1, 2010. Widespread corruption, present at all levels of government, is also seen as a barrier to trade and investment in Kazakhstan. It reportedly affects nearly all aspects of doing business in Kazakhstan, including customs clearance, registration, employment of locals and foreigners, payment of taxes, and extends even to the judicial system (Country report, 2010).

    Service Barriers
    Foreign banks and insurance companies are limited to operating in Kazakhstan through joint ventures with Kazakhstani companies. Oil and gas procurement regulations stipulate that oil companies must purchase services only from Kazakhstan-based companies unless the required service is unavailable in Kazakhstan (Country report, 2010).

    Corruption and other Bureaucratic Obstacles
    Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law. It is important for companies, irrespective of their size, to assess the business climate in the relevant market in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the foreign country and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel (Country report, 2010).

    Main market entry barriers

    There are numerous transparency problems connected with the customs regime in Kazakhstan. These include the following:

    Granting customs exemptions stipulated in the Law on Foreign Investment continues to be problematic. Although such exemptions were stipulated in the original law of 1994, Customs has failed to issue any regulations or instructions for its implementation. Instead, Customs decides claims in an ad-hoc manner, which has resulted in inconsistent and unclear application of the law. According to investors, it is very difficult sometimes to get Customs to accept that certain imported goods are for personal use. Kazakhstan has adopted the international tariff nomenclature as the basis of its Tariff Schedule. However, the government has not published the Tariff
    Schedule in full. According to businesses, this leads to unnecessary delays in processing and increased costs for importers. Certain disputes between importers and customs officers connected with customs classification might be avoided if the importers had access to the full tariff schedule (up to nine digits). Each year customs issues a number of orders, regulations and instructions of general application. Neither customs nor any other entity publishes these administrative documents in any systemic way. To the extent that these rules have been distributed to the public, customs has relied in the past on general media or private legal information services, which have published only selective customs rules, and then not necessarily in a timely manner. In late 1996, customs took a positive step toward improving dissemination of the legal information when it began to publish a bulletin for sale to the public for approximately $4.00. Unfortunately, due to lack of funding, publication of the bulletin has not been regular. Customs does not generally consult industry for its views on proposed new regulations and procedures, or amendments to existing requirements. Generally, customs develops a rule in whole, and announces it to the trade community without the possibility of modification, often shortly in advance of the effective date. The result frequently is a rule or procedure that involves difficulties and controversy in implementation, which may not have been foreseen by customs but which might have been avoided had the trade community been consulted. Because the trade community is not forewarned about the new rules sufficiently in advance to adjust, it can suffer unnecessary delays and costs (Country review, 2011).

    In May 2007, Kazakhstan passed a new Labor Code, encompassing all the preceding legislation under a single umbrella and retaining key provisions of all the previous labor laws. The Labor Code extended minimum mandatory vacation time from 18 to 24 days, provided an outline of labor unions’ and labor representatives’ rights, and toughened rules governing the dissolution of labor contracts (Country report, 2010).

    Kazakhstan has an educated and technically-competent workforce. However, the demand for specialized skilled labor created by the simultaneous development of several major oil fields in western Kazakhstan has exceeded
    locally-available supply. Foreign investors increasingly cite a lack of skilled workers and technical professionals. Management expertise and marketing skills are also in short supply. Many large investors rely on foreign workers, particularly from Turkey, to fill the vacuum. In turn, the Kazakhstani government has made it a priority to ensure that Kazakhstani citizens are well-represented on foreign-enterprise workforces, and is particularly keen to see Kazakhstanis hired into the managerial and executive ranks of those enterprises. In late 2006, the government discussed measures to limit the inflow of foreign workers, particularly unskilled, and pressure large foreign investors to hire and train Kazakhstanis. Since 2001, the quota system has required employers to search for local workers prior to the issuance of work permits for foreigners (Country report, 2010).

    Recommendations for overcoming market barriers

    Kazakhstan has been negotiating the terms for its membership in the WTO since January 29, 1996, and by 2009 measurable progress had been made. Kazakhstan has signed bilateral agreements on market access for goods and services with twenty three WTO members, and is close to completion with three more, the United States, EU, and Chinese Taipei. Working Party deliberations are focused on a draft Working Party report, and Kazakhstan has prepared or had submitted draft legislation to implement WTO agreements in many key areas, e.g., customs practices, sanitary and phytosanitary (SPS) regulation, technical barriers to trade (TBT), and licensing. Progress towards completing of the WTO accession should provide an opportunity to reduce existing trade barriers, push forward internal reforms and thus have its effects on the market. This would also affect the foreign trade flows as well as FDI inflow and thus provide business opportunities for an increasing number of foreign companies (Kazakhstan trade summary, 2010).

    Import policies
    In 2006, Kazakhstan, Russia, and Belarus announced plans for the formation of a trilateral customs union. Russia, Belarus, and Kazakhstan intensified consultations and negotiations in early 2009, and officially signed legal agreements for the creation of the customs union on November 27, 2009 in
    Minsk. Based on the agreements, a common external tariff (CET) was enacted effective January 1, 2010. As a result of its membership in the customs union, Kazakhstan increased the tariff rate on some 5,400 tariff lines. According to the customs union agreements, Kazakhstan will retain some flexibility in applying the CET regime. Kazakhstan is allowed to apply tariffs that differ from the CET for 409 tariff lines, but must bring them in line with the CET after a transition period. All tariffs must be at the CET by 2015 (Kazakhstan trade summary, 2010).

    U.S. exporters to Kazakhstan have consistently identified the requirement to obtain a “transaction passport” (providing information on, inter alia, the importer, contract details, the local bank of the importer/exporter, and the foreign partner) to clear goods through customs as a significant barrier to trade. The transaction passports are designed to stem capital outflows and money laundering by requiring importers to show documents that verify the pricing of import/export transactions. Kazakhstan amended the Law on Currency Control in August 2009, thereby changing the ceiling on transactions from $10,000 to $50,000. Despite some internal Kazakhstani opposition to the transaction passport system, the National Bank of Kazakhstan insists that it is necessary to control capital movement and prevent capital flight. Although Kazakhstani officials are addressing the problematic structure of Kazakhstan’s customs control agencies, customs administration and procedural implementation remains a significant barrier to trade. Kazakhstan continues to work to streamline its customs process while preparing for implementation of the customs union Customs Code. Recent reforms include customs declaration rights for foreign citizens (bypassing the current legal requirement for the participation of domestic brokers), ex officio authority for customs officials, and standardized practices for the valuation of goods. These amendments were approved on December 9, 2009, and came into force on January 1, 2010 (Kazakhstan trade summary, 2010).

    Government procurement
    Some potential U.S. suppliers have raised concerns about the lack of transparency and efficiency in Kazakhstan’s government tender process. Corruption and lack of transparency remain major challenges for both local
    and foreign companies. During the first half of 2009, Kazakhstan adopted regulations and amendments to several laws, including the Law on Government Procurement, designed to increase the proportion of local content in government procurement procedures. The exact proportion of the required purchase of local goods and services is calculated according to a specific formula which was approved by Kazakhstan’s Foreign Investor Council. It will be applied to domestic and foreign operators in Kazakhstan, including government agencies, state-owned enterprises, national holding companies such as Samruk-Kazyna, and subsoil users. According to new tender requirements, proposals that include significant proportions of locally produced goods and services will receive preferential treatment. Conversely, those making tenders without them will be charged administrative fees and may face administrative prosecution. The Kazakhstani government is elaborating its official concept for the development of Kazakhstani content. A mandate of substantial increases by 2014 in the local content share of Kazakhstani-produced goods (up to 50 percent) and Kazakhstani-produced services (up to 90 percent) is expected (Kazakhstan trade summary, 2010).

    Intellectual property rights (IPR) protection
    As part of its efforts to accede to the World Trade Organization, Kazakhstan is modernizing its IPR legal regime. In 2009, Kazakhstan adopted several amendments to its IPR law, including the legal recognition of vendors who own rights for the distribution of print and digital media. This amendment allows licensed vendors to seek damages from unauthorized dealers selling pirated merchandise. Kazakhstan also amended its patent law to re-define a patent holder, including detailed descriptions of the relationship between an employer and an employee with respect to an employee’s invention. Although domestically produced pirated films and music are available in Almaty and Astana, largely as a result of decreasing costs of making copies, the vast majority of pirated goods in these regions appear to be imported predominantly from Russia and China. Pursuant to statutes enacted in November 2005 that authorize stiffer penalties for infringers, the authorities have conducted numerous raids against distributors of pirated products. The government’s efforts have helped to expand the Kazakhstani market for licensed, non-infringing products. Customs controls could be
    applied more effectively against imported infringing goods. Further progress is needed in the realm of civil enforcement, which is serving as an increasingly prevalent method of IPR enforcement in Kazakhstan. Although civil courts have been used effectively to stem IPR infringement, judges often lack expertise in the area of IPR, which is a significant obstacle to further improvement in Kazakhstan’s IPR climate (Kazakhstan trade summary, 2010).

    Services barriers
    In accordance with Kazakhstan’s law “On National Security,” foreign ownership in telecommunications services may not exceed 49 percent and foreign ownership of individual mass media companies, including news agencies, is limited to 20 percent. Foreign banks and insurance companies are limited to operating in Kazakhstan through joint ventures with Kazakhstani companies. For certain professional services, including auditing, architectural, urban planning, engineering, integrated engineering, and veterinary services, commercial presence is allowed only in the form of a juridical person. The U.S satellite industry has complained that the government of Kazakhstan has given preferential treatment to Kazakhstan’s national satellite (Kazsat 1, now defunct) in the past and may adopt licensing procedures for VSAT (very small aperture) antennas that would be overly burdensome and expensive. Kazakhstan plans a new national satellite in 2011 or 2012. The U.S. satellite industry also argues that Kazakhstan should not restrict the transport of video programming via foreign satellites, or limit the entities with whom it can contract directly for these services (Kazakhstan trade summary, 2010).

    Investment barriers
    Kazakhstan’s 2003 Law on Investments provides the legal basis for foreign investment in Kazakhstan. In general, U.S. investors have concerns about the law’s narrow definition of investment disputes, its lack of clear provisions for access to international arbitration, and certain aspects of investment contract stability guarantees. The vast majority of foreign investment in Kazakhstan is in the oil and gas sector. The government remains eager to do business with international companies, but increasingly has emphasized the
    importance of “local content” in purchases of goods and services for petroleum operations (Kazakhstan trade summary, 2010).

    SWOT ANALYSIS

    Country level

    Strengths
    The government has sought to emphasise the need for the peace and security that has been lacking in Central Asia since independence. Foreign pressure for civil and political stability is likely to be strong given high levels of investment. President Nazarbayev renewed his political mandate following the early parliamentary election in August 2007, paving the way for further market-oriented reforms. Due to a commendable post-independence reform effort, coupled with sound fiscal and monetary policies, Kazakhstan is considered to have one of the best-performing economies in the Commonwealth of Independent States. Developments in the hydrocarbons sector and sustained high commodity prices will continue to drive overall growth. Weaknesses

    President Nazarbayev and his clan exercise control over all aspects of the country, particularly the political system and the economy. Parliamentary elections in August produced a pro-presidential one-party parliament, undermining previous steps in the direction of democratic progress. Moreover, Kazakhstan has yet to hold elections deemed open and fair by international observers. Tighter international credit conditions have seen the Kazakh banking sector stop short of a crisis. The ensuing second-round effects will weigh on non-energy driven growth. This will further increase Kazakhstan’s reliance on energy exports over the medium term. Greater state intervention remains a concern, with the government demanding increasingly restrictive contracts for foreign oil companies operating in the country, and the temptation for bribe-taking hard to resist. Opportunities

    Russia is open to closer co-operation with Kazakhstan, particularly in energy security and military matters. This will help Astana balance the challenge of China, the emerging superpower on its eastern border. Kazakhstan’s
    chairmanship of the OSCE in 2010 will lift its international profile and ascribe the country a more important role in regional security issues. The government’s development strategy for 2003-15 aims to diversify the economy by the time oil output peaks, by facilitating investment in the non-oil economy. The extensive energy reserves in the Caspian basin and Kazakhstan’s vast territory should increase the republic’s attractiveness to Western powers as a potential trade partner, at a time when neighbouring states are hit by political turmoil. The main opportunities are in the area of engineering services for the construction of facilities in oil and gas (offshore and onshore field development, transport pipelines, oil refining, gas processing and petrochemicals,…), notably in relation to the development of the huge fields of Tengiz, Harachaganak and Kashagan. There is a growing demand for all types of construction services: construction, renovation and conservation of industrial and public utilities and residential buildings, design and assembly services. There is a need for the full range of civil engineering, construction and engineering activities including: research and development, all aspects of design, design and build, management contracting, construction management, tunneling and tunnel lining, foundation engineering, mining and facilities management. Many opportunities exist in the continuing expansion of the new capital city, Astana, and in strengthening and diversifying the country’s infrastructure: there are plans for upgrading, expanding or building new ports, airports, roads and power distribution grids. Threats

    Efforts to diversify energy export markets away from Russia, could weigh on the long-standing bilateral ties between the two countries. Rumours of a power struggle within the political elite could translate into a growing threat to stability. Import volumes are set to rise significantly over the next few years due to the need for capital imports for large projects, and increased demand for consumer imports resulting from rising real incomes. President Nazarbayev’s plans to develop interregional economic ties, with a common market in a Eurasian Union, will struggle to get off the ground amid regional instability and conflicting interests over limited resources. Source: Kazakhstan country forecast, 2010

    Industry level
    Strengths
    Employment and training opportunities in the field of construction Private sector housing boom and commercial building demands
    Construction of the multi building projects on the feasible locations in the country. Good structured national network facilitates the boom of construction industry. Low cost well- educated and skilled labour force is now widely available across the country. Sufficient availability of raw material and natural resources in the country is supportive for the industry. Real estate development is on high and it is attracting the focus of the industry towards construction Flexible specialization and high-product quality, high-innovative potential Flexibility and strength of large firms

    Embedded skills/tacit knowledge
    Weaknesses
    Chances of natural disadvantage are there.
    Distance between construction projects reduces business efficiency. Training itself has become a challenge.
    Changing skills requirements and an ageing workforce may accentuate the skills gap. Improve in long-term career prospects is highly required to encourage staff retention and new entrants. External allocation of large contracts becomes difficult.

    Lack of clearly defined processes and procedures for construction and its management. Creating a joint rapid reaction force for the purpose of suppressingany eruption of violence from Islamic Afghan rebels Economic deterioration associated with a prolonged downturn in oil and gas prices that in combination with an increasingly inhospitable business climate would discourage private investment Intensified political maneuvering and the increased threat of social unrest would increase the incentive to engage in reckless spending that would trigger bouts of currency instability, resulting in higher average annual inflation of 11.5%. Slow adoption of technology and resistance to change in economic environment Dependency on external actors for sales, inputs and know how, limited scope for local
    activites to create competitive advantage Opportunities

    Continuous private sector housing boom will create more construction opportunities. Public sector projects through Public Private Partnerships will bring further opportunities. Developing supply chain through involvement in large projects is likely to enhance the chances in construction. Renewable energy projects will offer opportunities to develop skills and capacity in new markets. More flexible training delivery techniques are now available. Financial supports like loan and insurance and growth in income of people is in support of construction industry. Remote areas in the country are easily accessible and plenty of land is available in the country. Threats

    Long term market instability and uncertainty may damage the opportunities and prevent the expansion of training and development facilities. Current economic situation may have an adverse impact on construction industry. Political and security conditions in the region and Late legislative enforcement measures are always threats to any industry in Kazakhstan. Infrastructure safety is a challenging task in construction industry. Lack of political willingness and support on promoting new strategies. Natural abnormal casualties such as earth quake and floods are uncertain and can prevent the construction boom. Inefficient accessibility in planning and concerning the infrastructure and signs. Danger of new expansion to Russia

    Source: Kazakhstan country forecast, 2010
    Main risk sources and types of risk

    Industry Risks
    Kazakhstan has sixth place in the Risks section of our ratings. Its sixth position for Industry Risks, behind Romania, is due to the limited progress in terms of market deregulation.

    Country Risks
    For the Country Risks environment Kazakhstan is ranked eighth, ahead only of Ukraine. The highest score is for long-term policy continuity, which reduces
    risks for private firms. Long-term economic growth has a mid-range score, alongside legal framework. However, openness and physical infrastructure are worse than the regional norm.

    Political Risk
    According to the Committee to Protect Journalists, since taking over the chair of the Organisation for Security and Economic Development, Kazakhstan has continued to suppress human rights and media freedoms, having previously promised to push through with reforms in these areas. The media watchdog went as far as to say ‘Kazakhstan has compromised the organisation’s international reputation as a guardian of these rights’. Despite efforts to reform the economy in recent months, it is not foreseen that a concomitant liberalisation of the political system in Kazakhstan for the foreseeable future, with the government expected to maintain a firm grip over the legislature and the media.

    The Political Risk Index is calculated using an established methodology by CountryWatch’s Editor-in- Chief and is based on varied criteria including the following: political stability, political representation, democratic accountability, freedom of expression, security and crime, risk of conflict, human development, jurisprudence and regulatory transparency, economic risk, and corruption. Scores are assigned from 0-10 using the aforementioned criteria. A score of 0 marks the highest political risk, while a score of 10 marks the lowest political risk. Stated differently, countries with the lowest scores pose the greatest political risk.

    Table: Political risk index
    Country
    Assessment
    Kazakhstan
    6
    Kyrgyzstan
    5
    Tajikistan
    4,5
    Uzbekistan
    4
    Source: Country review, 2011

    Economic Risk
    The Asian Development Bank has said that it will provide US$800mn to Kazakhstan in order to help improve transport infrastructure. Approximately 800km of roads will be targeted with the funds, particularly within the oil and mineral-rich areas in order to improve the country’s standing as a regional freight route. Currently, many of the roads are in an undeveloped state, precluding efficient trade within the area. However, once developments have been complete, this should help boost Kazakhstan’s overall trade potential within the Central Asian region and also with Europe.

    Table: Economic activity

    Source: Kazakhstan power report Q1, 2011, page 31

    Table: Forecasts of risk to international business

    Source: Kazakhstan country forecast, 2010, p.2

    Sovereign risk
    Positive: The Economist Intelligence Unit has revised its outlook to positive. The budget deficit narrowed as a percentage of GDP in 2010. Higher oil prices will support budget revenue in 2011-12. The government will continue drawing on the National Fund of the Republic of Kazakhstan (NFRK, the sovereign oil wealth fund), reducing the need to borrow.

    Currency risk
    Stable: Higher global oil prices compared with 2009-10, and rising foreign investment, will support the tenge in 2011-12. The authorities do not want the currency to appreciate too swiftly or too sharply in 2011, for fear of creating an unattractive operating environment for non-oil companies.

    Table: Overview of risk on march of 2011
    Sovereign risk
    Currency risk
    Banking sector risk
    Political risk
    Economic structure risk
    Country risk
    BB
    BB
    B
    B
    BB
    BB
    Source: EIU, 2011

    Table: Risk factors and their exposure in future

    Source: Kazakhstan country forecast, 2010, p.28

    Strong performance in the oil and mining sectors, and the global and regional economic recovery, are driving real GDP growth; that said, uncertainty about the short-term outlook remains significant. Debt-related problems in the banking and corporate sectors continue to represent the main risk factor. Kazakh banks have not yet fully recovered from the debt overhang, and risks associated with non-performing loans are still high. These difficulties are likely to constrain credit conditions, thus impacting negatively on domestic demand and reducing the beneficial effects that external factors have on the economy. In the short term, reinvigorating domestic demand, reducing the banking system’s debt burden and fostering economic diversification will be the most important and urgent priorities for the Kazakh authorities. The IMF predicts modest growth (by local standards) of 5.0% in 2011, owing to the dampening impact of weak domestic demand. However, D&B’s forecast is more optimistic, as they expect real GDP growth to come in at 7.5% in 2011, driven by strong commodity prices (D&B country riskline report, 2011).

    Positively, in December 2010 the Kazakh government completed the first phase of the country’s Programme of Accelerated Industrial and Innovative Development (PAIID) for 2010-14, which has so far launched 80 new industrial projects. Through this plan, the authorities are implementing a series of projects included in the long-term Development Plan 2020. The main aims of the PAIID are to accelerate the country’s technological modernisation and the development of domestic technologies. According to the authorities, the launch of these new projects will create more than 150,000 permanent and about 200,000 temporary jobs, thus boosting employment and domestic consumption; that said, we remain cautious about this programme, in view of considerable lead times and bureaucratic inefficiencies that are likely to mar its implementation (D&B country riskline report, 2011).

    Figure: The economic freedoms of Kazakhstan

    Source: http://www.heritage.org/index/Country/Kazakhstan#trade-freedom

    Analysis of main competitors, and their strengths and weaknesses (C-analysis)

    In order to increase the competiveness of Kazakhstan according to the Industrial-innovation program it was planned to create new enterprises, which are equipped with high technologies (imported or using local know-how). Presently the second stage of industrial-innovative strategy is realized. Some efforts are made for development of processing industry, and creation of techno parks, clusters and incubators. Adaptation process of Kazakhstan to the world tendencies of scientific-technological and industrial integration is on the beginning stage, even though it is completely clear that integration into global innovation sphere is the main factor of national sectors development of high technologies. International scientific and technological partnership contributes to the increase of companies’ competiveness and promotion of high technologies on domestic market. For most of Kazakhstani enterprises the main goal of innovation development is a partnership with world producers. One of the most effective strategies is a long-term cooperation and alliance with world leaders. The partnership of Kazakhstani companies with foreign partners shows that the
    further they advanced by the way of understanding problems and advantages of entering world markets, the more stable is their financial and economic position. Development of national science and innovation activities follow more and more economic advisability. In conditions of globalization no country can put aside tendencies of the world development as connection and comparable evaluation in a system of the world economic relations turn into one of the most important factors determining competiveness of national economy (Rogacheva, 2008, p.85).

    In 2005 Kazakhstan was ranked for the first time in Growth Competitiveness Index (GCI). The World Economic Forum’s GCI is the most widely recognized assessment of competitiveness, covering 125 countries. The GCI evaluates 103 parameters, a mixture of hard data (facts and statistics) and management perceptions (collected through executive opinion surveys), to assess the quality of the macroeconomic and microeconomic environment. These parameters are organized into nine “pillars” of competitiveness: institutions, infrastructure, macroeconomic framework, health and primary education, higher education and training, efficient markets, ability to harness benefits of existing technologies, sophistication of production processes, and innovation. Kazakhstan took the leading (61st) position among all CIS countries. Comparative analysis shows that by Microeconomic environment index (MEI) Kazakhstan takes 41st place in the world, passing ahead Czech Republic (46th place in the world), Slovakia (49th place), Poland (53rd place), Bulgaria (62nd place), Hungary (63rd place) and all CIS countries. However, two other components – Technological index (77th place) and Index of public institutions (76th) – are the most vulnerable for Kazakhstan. These indicators show an urgent need to strengthen the innovation, as well as information and communication components of national economic growth, to decrease the corruption level and to increase the level of law compliance in Kazakhstan. Regarding the dynamics it is necessary to mention that in 2005 Kazakhstan took 61st place in the world by Index of competiveness growth and 51th place by Index of global competiveness, but in 2006 by this indicator (IGC) Kazakhstan was on 56th place and in 2007 – on 61st place (Rogacheva, 2008, p. 85).

    Suggestions for market entry / recommended market entry strategy (if the company should not enter/do business argument why not) The following four primary strategic priorities will guide the Bank’s business: fostering diversification of the economy through inter alia focusing on supporting value-added industries, including via promoting FDI, and supporting financial restructuring of economically-viable companies, including through participation in commercially-oriented investment funds; contributing to the transformation of the financial sector through shoring up partner banks’ Tier I and II capital, working with the restructured systemic banks, including helping them to restore private ownership, contributing to the development of local capital markets, and helping to bring about pension reform; fostering modernisation in the infrastructure sector by facilitating restructuring of the national railway company, and supporting viable PPP’s in the road sector, as well as by broadening the Bank’s new involvement in the municipal sector; and implementing the Sustainable Energy Action Plan in the power and energy sector through investment in modern and “clean” generation and transmission companies.

    General Industries: opportunities in the sector are relatively scarce, as Kazakhstan’s economic development is skewed towards primary industries, but are important to further the goal of economic diversification, as well as of promotion of FDI in the non-oil sector. In this regard, the Government’s recently adopted Five-Year Diversification, Industrialisation and Innovation Programme, which was conceived as an extension of the Government’s crisis response programme, may present a window of opportunity for the EBRD to ramp-up its engagement in the sector. To that end, the Bank will seek to support potential foreign investors and local companies in the sub-sectors that GOK has designated as priority for the industrialisation and diversification purposes, and which are also those on which the Bank has historically focused in its engagement in the GI sector. These are basic construction materials (e.g., cement, asphalt, rock-wool, concrete), chemicals (particularly those utilised in the country’s oil sector and metallurgy), fertilisers, pharmaceuticals (production, wholesale and retail), basic metal constructions (mostly producing basic components for the hydro-carbon industry, such as tubing), and rail transport components
    (freight wagons and components, as well as locomotives, production of which has recently attracted reputable foreign partners, such as General Electric). Given the relative paucity of viable investment opportunities in existing industrial and manufacturing companies, many of these opportunities will likely present themselves in the form of green- and brown-field projects, which the Bank will consider subject to strong and high-integrity sponsors, proven technology, competent management, reasonably assured off-take, and viable financial structure. The Bank will also work with local commercial banks to identify existing companies in need of working capital and refinancing as a result of the financial crisis. Given the relatively small size of the sector, the Bank will also consider scaling–down in order to support smaller GI projects on a selective basis. CONCLUSION

    For objective identification of economic development of a country in the system of the world competitive dimensions it is important to define the level and quality of national economy growth and development. According to classification of economic development stages, the current economic level of Kazakhstan allows to classify it as mixed factor- and investment-driven type of development. A basic for this conclusion are substantial reserves of mineral resources, which cause on the first stage of entering the world market domination of raw materials direction through attraction of considerable investments in mining industry under inefficient development of processing industry. The economy remains heavily reliant on natural resources (indicative of a factordriven economy). Generally for the last 16 years structural changes in economy are corresponding with tendencies of transformation processes in CEE, Baltic States and CIS countries. However because of accumulative potential of raw material orientation Kazakhstan’s economy trends to one-sided development with dominating development of extracting industries. Considerable profits from raw material sectors generate a “Dutch disease” in the country and their high profitability make investments in industry unattractive. As a result of it raw material specialization increases more and more what makes Kazakhstan a commodities adjunction of developed countries. Moreover it increases its economic vulnerability, import dependence, currency pressure on domestic financial system, and by this creates structural imbalance and decreases
    competitiveness of national economy. The main source of GDP growth is still export of commodities and products with weak degree of industrial processing. Some pockets of the Kazakhstani economy remain in the factor-driven stage and others are pushing forward into the investment driven stage of economic development. The country is investing in its infrastructure, encouraging and capitalizing on foreign economic participation, and producing basic goods and services. The economy remains heavily reliant on natural resources (indicative of a factor-driven economy), but this is offset by economic activity in other value-adding areas such as banking and other services. In order for Kazakhstan to move to the next stages (investment-driven and innovation-driven stages) there is a need to change economic mechanism, enhance stimulating inflow of investments and scientific-and-technological advance to processing industry, directing accumulated financial recourses in country for innovation development of processing industry and cluster development of economy in order to deliver for export competitive finished goods of processing industries instead of raw material goods. Transition of Kazakhstan economy from stage of factor advantages (mostly, natural) to the stage of competitive development naturally assumes development of system measures on its technological adaptation and integration into world reproduction processes by the way of developing a process of the world division of labor. In order to join 50 the most competitive countries of the world within the next few years it is necessary for Kazakhstan to make a surge in development of productive forces and technologies of production, to solve a problem of strengthening of innovative and information and communication components of economic growth, and also considerable decrease the corruption level and increase level of law compliance.

    INTRODUCTION OF COMPANY DATOBA
    Datoba Construction LLP is a wholly Kazakh owned entity first registered in 2004. Although a young company it has actually been created from the Godbeer Group specifically for the purpose of carrying out construction works for projects where Kazakh ownership is a part of the qualifying criteria. Although the company is completely standalone it does never the less work within the framework of the Godbeer Construction Group benefiting
    from over ten years of operating in Kazakhstan and having available all of the Group resources. In this way Datoba Construction Ltd is able to undertake major contracts in excess of 50 million USD. The present workload includes a large marine facility which has been commissioned by our Client to be constructed at Bautino. The workscope includes the engineering design, procurement and construction management of the project. Additionally Datoba Construction Limited has recently achieved full ISO 9001 accreditation (www.datoba.kz).

    The Godbeer group of companies is unique; it is the only British managed organisation with over twelve years experience of undertaking construction projects in the Republic of Kazakhstan. In 1974 David Godbeer – founder of the organisations – registered in the UK, Godbeer Stanford and Partners (GSP), a consulting engineering practice based in South Wales. The practice quickly developed, with commissions in the UK public and private sectors, as well as work throughout the Middle East. In 1993 Taylor Woodrow International invited GSP to be involved with a project in Atyrau. This was the origin of the decision to establish an operation in Kazakhstan and even though the construction business at that time was quite depressed the partners nevertheless considered it to be the right time to invest in a sector promising so much potential. However the vagaries and logistics of doing business in Kazakhstan especially in the early nineties demanded changes to the original approach, and the need for innovative solutions. Hence the Godbeer Construction Group (GCG) was registered in Almaty to function as the head office and was awarded the first turnkey project in 1995 (www.datoba.kz).

    Kazakhstan rules and regulations relating to construction procedures can be onerous and possibly cause delays. To help minimise this risk the Joint Venture, Pris Godbeer LLP was established in 1995 between GCG and Pris, a local company offering architectural and engineering design services. Since then GCG has engaged similar organisations to provide adaptation and approval services, in this way GCG can provide the complete construction service from conceptual feasibility through to completion of the construction works. With the success of GCG and with a number of key GSP
    staff working in Almaty it was decided in 1996 to restructure the UK operation to provide services specifically for the Kazakhstan market. Hence GSP was closed and for flexibility two companies established namely, Faith Property Services Ltd (FPS) a British registered entity and Faith Management Services (Ltd) an off shore registered entity. Both these companies are structured to perform procurement duties under contract to the Kazakh business. FPS also operates other UK based Godbeer investments including hotel and restaurant facilities. This diversity of activities compensates for what can be fluctuating levels of business from Kazakhstan as well as substantially contributing to growth and long-term stability. Companies wishing to participate in oil, gas and mining related projects are generally required to be at least 50% Kazakh owned and at least 90% of employee’s should be of Kazakh origin. GCG has always complied with the latter but is nonetheless solely owned by David Godbeer a British national. Hence in 2004 Datoba Construction LLP (DCL) was registered as a solely owned Kazakh entity licensed and structured to provide exactly the same services as GCG but specifically directed at construction in the oil, gas and mining sectors. In summary the various Godbeer entities have evolved and will continue to evolve specifically for and in response to Kazakhstan market demands to providing a professional, quality and commercial solutions for construction projects (www.datoba.kz).

    Table: Projects and experience in the Republic of Kazakhstan Projects and Experience – Republic of Kazakhstan
    Column1
    Column2
    Project
    Contract
    Value
    Atash Marine Base, Bautino
    Design and Build
    50.0 million US$
    Gallaher Cigarette Factory
    Design and Build
    25.0 million US$
    Desalination Plant, Bautino
    Design and Build
    5.0 million US$
    HSBC Bank Offices Almaty
    Design and Build
    1.2 million US$
    Steppe Gold Mining Camp Mizec
    Design and Build
    4.5 million US$
    Heineken Offices
    Construction
    0.6 million US$
    Alcan Factory
    Construction
    0.5 million US$
    Ferrel-Nickel Mine
    Consultants
    24.0 million US$
    Chimbulak Ski Resort
    Construction
    1.5 million US$
    CAT Offices Almaty
    Construction
    1.3 million US$
    British Council Offices Almaty
    Design and Build
    0.8 million US$
    British Embassy General Works Almaty
    Construction
    0.7 million US$
    Union Texas Offices Almaty
    Design and Build
    1.3 million US$
    Exxon Offices Almaty
    Design and Build
    0.6 million US$
    SOS Clinic Amaty
    Construction
    0.7 million US$
    Wool Topping Plant
    Design and Build
    4.5 million US$
    Borax Mine Infrastrucure
    Design and Build
    15.0 million US$
    British Airways Almaty
    Design and Build
    0.3 million US$
    Warehouse Almaty
    Consultants
    11.0 million US$
    Source: http://www.datoba.kz

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