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State Program of Forced Industrial-Innovative Development for 2010-2014

Astana22 February 2010

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System of state planning

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Strategic Development Plan of Kazakhstan untill 2020

State Program of Forced Industrial-Innovation Development

Other state programs

Regional development programs

Sectoral programs

The strategic plans of state bodies

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TARGET INDICATORS

1. GDP growth by 50% from 2008

2. Labour productivity increase in manufacturing industry by 50 %, and in separate sectors by 100 %

3. Increased proportion of non-oil and gas exports by 40%

4. Reduction of energy intensity of GDP no less than 10% from 2008

5. Increase of active enterprises up to 10 % from number of operating enterprises

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WHAT TO DEVELOP ?

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PRIORITY DIRECTIONS

•Metallurgy and manufacture of metal products •Oil refining and oil and gas infrastructure•Chemical and pharmaceutical industry •Agro-industrial complex•Defense industry •Construction industry and production of construction materials •Transport and infocommunications •Engineering industry•Uranium industry •Light industry•Tourism•Space activity

NEW INNOVATIONS(2010-2014)

Modernization of Existing

Enterprises

Creation of new high-performance

enterprises

Selective support of enterprises in the“economic future”

1. Maintenance of productivity growth2. Creating and improving infrastructure (e /

energy, pipelines, roads)

1. The high level of performance (80-100% of the world leaders)

2. High value added3. Export-orientation4. Competitiveness in the regional market

1. Innovativeness 2. Improving telecommunications

infrastructure 3. Influence on productivity increase in

traditional sectors

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WHERE TO DEVELOP? The scheme of rational distribution of productive capacities

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Map of the balanced development of industries, infrastructure and resource bases

Budgeted balance sheet of energy

resources (electric power, oil, gas,

coal)

Budgeted balance sheet of labor

forces

Plans for the development of

pipeline, rail, road, sea and air transport

infrastructures

Long-term plans for development

of FEZ, and industrial zones

Budgeted balance sheet of the

development of mineral-raw

material base, water and land

resources

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HOW TO DEVELOP? The new approaches to the basic support policies

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Improving the business environment: need of a "new wave“ of entrepreneurship

Infrastructure and resource provision: Global expansion

Competitive professional personnel training: from stability to mobility

Direct investment: Kazakhstan is the best place for investment in the region

Development of innovation and promotion of technological modernization: focus on productivity

Technical regulation: creation of quality infrastructure

Trade policy: aggressive export, Kazakhstan is a regional broker, an expert on Asia

Fee policy: medium-term stability, enabling business planning

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INTEGRATED SUPPORT PROGRAM

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Program Productivity 2020 Productivity 2020 Export 2020Export 2020 Business Road Map 2020

Business Road Map 2020

Big and medium-sized enterprises

Small and medium-sized enterprises

Target group

MissionIncreasing productivity of existing enterprises and

creation of new industries.

Market domestic products in foreign

markets.

Development of entrepreneurship in

the regions

Republican levelRepublican level Regional level Regional level

Big, small and medium-sized enterprises

Investor 2020Investor 2020

Basic Operator

Ministry of Industry and New Technologies of the Republic of

Kazakhstan

Ministry of Economic Development and Trade of the Republic of Kazakhstan, Akims

(local mayors)

Ministry of Industry and New Technologies of the Republic of Kazakhstan

Ministry of Industry and New Technologies of the Republic of

Kazakhstan

Creation of conductive conditions for attracting

direct investment in non-oil and gas sectors of the

economy.

Investors

11 22 33 44

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INVESTMENT 2020

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Approaches to realization

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FIRST DIRECTION

STIMULATION OF INVESTMENTS

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HIGH COMPETITION for FDI in WORLD MARKET

Sources: WMM; EIU World Data;World Bank, 2008

Nominal GDP / capita (USD) Natural Resources /

GDP 1

Labour costs per hour

(USD) Geographical proximity 3Ведение бизнеса2

1 The estimated contribution of natural resources in GDP, including the extraction of natural resources, electricity, gas, water 2 The World Bank ranked by the degree of ease of doing business 3 Geographical proximity to Kazakhstan

15,322 2.9 10.9Hungary 41

6,605 6.4 3.9Bulgaria 45

17,301 N/a 11.0Estonia 22

17,583 6.5 9.6Slovakia 36

8,513 15.0 3.3Kazakhstan 70

13,845 5.5 12.0Poland 76

18,488 54.5Saudi Arabia 16

3,931 8.9 2.6Ukraine 145

4,824 N/a 1.8Azerbaijan 33

11,826 12.3 3.8Russia 120

1,035 4.2 1.0India 122

3,258 9.7 2.2China 83

2,934 N/a 7.3Georgia 15

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Competition for Kazakhstan

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Kazakhstan GDP rate is 2 times larger than the economies of other countries in Central Asia combined

Kazakhstan has joined the Customs Union with Russia and Belarus, i.e. market with a population of more than 170 million people. A combined GDP of 2 trillion USD is opening to investors

Investment climate in Kazakhstan is the most favorable in the CIS

Kazakhstan has the most liberal tax regime among the countries of the Customs Union

INVESTMENT CLIMATE AND OPPORTUNITIES

Type of tax Republic of Kazakhstan Russian Federation Republic of Belarus

Corporate income tax 20% 20% 24%

Value added tax12% 18% 20%

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Exemption from payment of customs duties on imports of equipment, components and spare parts, raw materials in accordance with the Law of the Republic of Kazakhstan "On Investments".

State natural grants in accordance with the Law of the Republic of Kazakhstan "On Investments"

Favorable tax regime and granting of preferences (within the SEZ and individual Investment agreements)

Ensuring minimum long-term public order and order of national companies

Support measures under the Road Map "Business - 2020" subsidy assistance of interest rates on loans partial loan guarantees development of industrial infrastructure staffing

STATE SUPPORT MEASURES

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SECOND DIRECTION

INVESTORS SERVICE SUPPORT / ASSISTANCE

IN ATTRACTING INVESTMENT

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WORLD EXPERIENCE

Country, the name of the agency (IPA)

Options CommissionThe annual budget, staff

The legal form and method of financing

Malaysian Industrial Development Authority (MIDA) Building image

Search and generating investmentPre-investment support (maintenance) of the investorInformation activities on the investment opportunities and export products

State agency coordinates and partly controls several ministries, submits proposals to the parliament, affects the regions

$ 91 million, more than 600 employees

Public agency, fully funded by the state, has 19 overseas offices

Korea, Invest Korea

Coordinates investment activities, affects the governors through the preparation of reports, evaluates the work of the regions

$ 234 million Organization, totally funded by the State

Australia,

Austrade Coordinates investment activities in the government and regions, states investment projects, makes recommendations to the Parliament and the Prime minister, supports all foreign economic relations

$ 185 million,

1841 staff The Ministry of Trade and Investment, fully funded by the State, does not receive commissions from investors, has 110 offices in 60 countries

Currently, investment promotion agencies are successfully operating in more than 160 countries.IPA is an important mechanism to attract FDI, which acts as a key element in shaping the image of the country as a recipient

of investment, improving investment climate and attracting foreign investors.

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Tools: Informational and promotional activities to promote investment

opportunities of Kazakhstan (business forums, road show, printed materials, news reports in international media)

Informational and analytical activities (accounting function, database, research)

Measures to accompany foreign investors National investment interactive web site of the Republic of Kazakhstan

and Investment Atlas of the Republic of Kazakhstan

Operator for work with foreign investors – «KAZNEX INVEST»

CUSTOMER SUPPORT DIRECTIONS

For foreign investors: Search for Kazakhstani partner Accompany investor Organization of meetings with the government

representatives Presentation of update information on projects

and the law

For Kazakh business Search for investor

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PRODUCTIVITY- 2020

Approaches to realization

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1.Optimization of productivity and business processes

2. Accelerating and cheapening of new products assimilation

3. Cheapening and accelerating of development process of own new products

The budget programs on financing of management technologies introduction, service support through the design office and

technology parks

Innovation grants to purchase technology, conduct research and development work, service and

financial support through the design office

Innovation grants for conducting research and development work,

patent, service support through technology parks, design office

services, tax preferences

Assistance for enterprises to improve their

effectiveness through cost reduction

4. Information support

Service support through technology parks, instructional materials “To

assist enterprises”

GUIDELINES AND FACILITATING TOOLS OF DEVELOPMENT OF LABOUR PRODUCTIVITY

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WORLD EXPERIENCE IN SUPPORTING DEVELOPMENT OF LABOUR PRODUCTIVITY ACTIVITIES

In Canada there is a policy of development of labour productivity in three key directions:

Tax subsidies for investment in new equipment – renovation of basic funds is the key driver The creation of technology transfer centers for the rapid spread of the best world technologies and practices in the country Stimulation of the labor migration to provide rapidly growing regions with skilled workers

• Reimbursement of expenses on implementation of researches and developments for enterprises • Promotion of cooperation among the scientific organizations and private sector

Finland is grant funding of innovation, aimed at qualitative improvement of development of labor productivity

Finland is grant funding of innovation, aimed at qualitative improvement of development of labor productivity

In other regions of the country there are grant programs through which companies can apply for reimbursement of services to 40% of the costs for purchasing services from consulting companies, which increase labor productivity (industries – IT, agribusiness, biotechnology, manufacturing)

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GRANTS

Grants for project feasibility study

Principle of grants co-financing

Grant for research and development work

Grant for technology transfer

Grant for patenting

Grant for startup

Share of the state: 80%, Duration: 6 monthsDevelopment result: project feasibility study, contracts of intent, memorandumTerms: Guarantee of own funds (banking, escrow) 20%

Share of state : 80%, Duration: 24 monthsDevelopment result : The act of introducingTerms: Guarantee of own funds (banking, escrow) 20%, a preliminary agreement on implementation

Share of state : 80%, Duration: 12 monthsDevelopment result: The act of introducingTerms: Guarantee of own funds (banking, escrow) 20%, Productivity increase

Duration: 12 monthsDevelopment result: patentTerms: Positive report, payment to patent office

Share of the state: 90%, Duration: 12 monthsDevelopment result: start-up companyTerms: Presence of innovative ideas

Exis

ting

type

s of

gra

nts

New

type

s of

gra

nts

Grant for staff development Share of the state: 80%, Duration: 6 monthsDevelopment result: new skills in staff, qualification certificatesTerms: Guarantee of own funds (banking, escrow) 20%

Grant to expand product lineShare of the state : 80%, Duration: 12 monthsDevelopment result: new products, servicesTerms: Guarantee of own funds (banking, escrow) 20% 19

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MODEL OF DESIGN OFFICE ACTIVITY

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Determination of requirements for engineering products

National company/ major consumer of engineering

products

JSC «Center for Engineering and Technology Transfer»

and Design office

Acquisition of design-technical documentation

Search for companies to develop new products

Technical preparation of production

Certification of products

Machinery enterprise Manufacturing of quality products under the agreement with the National company

Goods nomenclature

Technical documentationEngineering services

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MODEL OF TECHNOLOGY PARK ACTIVITY

Conducting of the Forum with participation of business and government representatives

Formation priorities

Competition and selection of applications with involving of expert committee

Business consulting, providing with office, assistance in patenting

Formation of a pool of prospective projects for industrial output

Services of laboratory and engineering complex

Free for innovators in technology park

Venture financing and attracting of investors

Launching of new products

Analysis of needs of the innovative ideas customers

Search for potentially commercialized innovative ideas

Commercial elaboration of innovative ideas

Providing of additional high-tech services by technology parks

Financing of innovative projects and start-up companies

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Export - 2020Approaches to realization

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SERVICE SUPPORT OF EXPORT

FIRST DIRECTION

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Trading missions in foreign countries Meeting «Sellers and Buyers»Selection of specialized foreign exhibitionsNegotiations with potential buyers

Composition of a database of purchasersEstimation of conformity of production to requirements of purchasersParticipation in humanitarian exhibitions

SERVICE SUPPORT TOOLS OF EXPORTAbout 350 companies are involved in the sphere of Kazakhstan's non-oil and gas productsIn which annual stable exporters are 260 companies

In 2009 at the allocated budget of $2 millions with assistance of KAZNEX it concluded export contracts for the sum $120,0 millions (fiberglass pipes, fabricated metals, a fillet of a pike perch, sanitary production, textiles, etc.)

worldwide distribution of the annual directory of export productionPresentation of domestic brands in foreign countriesPlacing in specialized foreign catalogues

Instructional materials «an aid for exporters»Countries export guidebook

Analytical support of exporters

Search of partners and buyers

Promote the humanitarian aid in the market

Optimal routes of export deliveries

Target informing of foreign buyers

Informational aid

Calculation of logistics of optimal export routesInstructions on procedures of customs registration and preparations invoice documents

Detailed analysis of structure of countries import on the level of 4 signs CNFEA (Definition of potential commodity markets) Positioning of Kazakhstan's concrete products in the market at the level of 10 signs of CN FEA (Basis for export strategy of the enterprise)

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EXPORT GRANTS

Second direction

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ГРАНТЫ ЭКСПОРТЕРАМ

Product registration abroad, expenses connected with

registration procedures

Product certification abroad, expenses connected with certification procedures

Opening of the foreign representations, trading

Points, expenses under the office maintenance

Participation in the specialized exhibitions, expenses on rent of the area,

Registration payment

Goods promotion abroad,branding, goods advertising

Expenses for registration of MP in Uzbekistan is $16 thousands./ per 1 unit of drug. JCS Chimfarm registrated 50 drugs (Pentalgin, Analgin, Tsitramon, Ascorbic acid and others.). Value of export – $4,945 ml.

JCS JV Belkamit – receiving of certificates ASME (США), NB – $23,6 thousands, Value of export – $2,0 ml. (Vessels, capacities, metal structures)

LLP Tekstiline – opening representative Switzerland $30,5 thousand. Value of export – $2,0 mln. (ready sportwear).

JSC «Aktyubrentgen» - Participation in an exhibition Public health services – 2009, Moscow city - $20,2 thousands. Value of export -$1,256 ml. (X-ray devices).

JCS Rakhat – realization of PR-campaigns, Expenses for working out and Design of packing (for entering in China market) – $27,7 thousands, Value of

export – $4,209 ml. (candies, chocolate)

Co

mp

ensa

tio

n o

f ex

pen

ses

Examples:

АО СП “БЕЛКАМИТ” Машиностроительный завод

BYELKAMIT JSC JV Machinery building plant

J O I N T S T O C K C O M P A N Y

Size of grants: 50% of confirmed expenses, but not more than established maximum limits of the applicants

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MECHANISMS OF GRANT PROVISION

Ministry of Industry and New Technologies of the Republic of Kazakhstan – PROGRAM ADMINISTRATOR

JSC «KAZNEX» - Program operator

1. The announcement of competition in mass-media

2. Reception of requests and expertise of documents 3. Preparation of the conclusion for the Commission4. Signing contracts with exporter

IEC via grants (MINT, MF, MEDT, MA, deputies of government, NDP «NurOtan», Non-governmental organization «Forum

industrialists», TIC, NEC «Атамекен»)

1. Consideration of the conclusions2. Decision-making

Exporter of non-oil and gas economy

I. Conclusion

I. Request II. Compensational contract

II. Sollution

Challenge:

To provide transparency mechanism Granting of export grants

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TRADE FINANCING, INSURANCE AND CREDITING

THIRD DIRECTION

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ОGENERAL CONDITIONS OF FINANCIAL SUPPORT

Funding stream: preexport• Amount of financial baking:

- JSC “Entrepreneurship Development Fund “DAMU” up to $ 1 ml.;

- JSC “Development Bank of Kazakhstan” over $ 1 ml.• Interest rate: rate (7%) + rate of the bank (до 3%)+ remuneration of operator (up to 2%) =

12%• 5 pilot projects will be implemented in 2010

Funding stream: trade Amount of financial backing: - JSC “Kazakhstan Export Credit Insurance Corporation” up to $ 1 ml. Terms: from 12 till 18 months Interest rate : CIRR (2,38%) rate + rate of insurance (1,5%)+ rate of the bank (3%) =6,88%• Potential participants of the program: existing and newly established export-oriented enterprises, priority - SMEs.• 10 pilot projects will be implemented in 2010 ________________________________________________________________

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MECHANISM FOR FINANCING EXPORTERS

Cost for Bank of importer = 1,5%(insurance)+2,38%(CIRR)+3%(margin of bank of exporter) = 6.88%

Advantages:1. unsecured lending2. 2-fold reduction in lending rates3. Receipt of export earnings immediately in connection with shipment of goods4. Stimulating demand of foreign buyers5. JSC “Kazakhstan Export Credit Insurance Corporation” will be reorganized in Export and Credit Agency

from January 1, 2012

ImporterExporter

(apply to the bank with shipping documents)

JSC “Kazakhstan Export Credit

Insurance Corporation”

Bank of exporter

Bank of importer2. Letter of credit

1. Export contract with delay in payment

3. Delivery

4. Insurance 1,5% year.

4. CIRR tied deposit = 2,38% year.

Margin of the bank 3% year.

5. Payment on shipping documents

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COMMERCIAL FINANCING AND RECURRENCE SCHEME FOR OBTAINING CREDITCOMMERCIAL FINANCING AND RECURRENCE SCHEME FOR OBTAINING CREDIT

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Republican Management Center

Republican Management Center

Constantly updated list of priority investment projects with elements of monitoring, management and identifying the necessary point measures of state support.

Mobilization of labour and financial recourses;Personal control of timely implementation of investment projects put into operation this year.

Map of Industrialization

Map of Industrialization

Export-orientation;Manufacture products with high added value ; High productivity of labour;Reduction of energy consumption ;Development of Kazakhstani content;Development and implementation of innovations and advanced technologies .

Selection of projectsSelection of projectsBusiness initiativeBusiness initiative

Accounting systemAccounting system

ImplementationImplementation

WORK ON PROJECTS: TOOLS OF ACCOUNTING AND MONITORING OF PROJECTS

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STRUCTURE OF PROJECTS DATABASE

Meaning Amount of the projects

Amount of investment, mln. tenge

Private means, mln. tenge

Loan proceeds, mln. tenge Jobs

Republican Map 97 6 397 999 793 501 5 604 499 64 360

Regional Map 65 119 711 49 850 69 861 10 223

General total 162 6 517 710 843 350 5 674 360 74 583

Database of investment projects - 324 projects

Database of investment projects - 324 projects

Republican map97 projects

Republican map97 projects

Regional Map 65 projects

Regional Map 65 projects

Kazakhstan’s Map of Industrialization - 162 projects

Private initiative Budget infrastructure projects

Projects of national holdings

Projects with direct foreign investment

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Attractive projects – 162 projectsAttractive projects – 162 projects

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Main page of the Base Map of Industrialization. It reflects the summary on investment projects of the Republic of Kazakhstan – dynamics of projects introduction per year, key indicators of projects’ realization, deployment of projects in Kazakhstan

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EVOLUTIONARY DEVELOPMENT OF ECONOMY

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1 stage. Modernization of base economy(increase of depth of raw materials processing)

Ensure put in operation of building and planned to construct republican and regional investment projectsIndustry and regional development programs has been developed and approved.Laws on industrial policy, FEZ, etc. have been developed.

2 stage. Creation of new economy (high-production of works)

Start of the construction of new ventures with world leading companies participation in the niches identified by the master - plans. Stimulus measures( FEZ development, an increase in non-oil and gas export, foreign investors) has been elaborated.

3 stage. Formation of the base of «future economy»

Aerospace, Biotechnology, IT, Alternative Energy

Preparatory period

Preparatory period

Preparatory period

Cont

ributi

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pro

ducti

vity

gro

wth

2009 2010 2011 2012 2013 2014

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ROAD MAP - 2020Approaches to realization

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General scheme of realization Aim of the program is the creation of permanent job for account of

entrepreneurship development in the regions

Ministry of Economic Development and Trade of the Republic of Kazakhstan allocates general limits of financial packing for each region– Limits defines on the basis of : 1) share of the region in population size; 2) share of the

region in output of SME products. Local executive bodies allocate general limits on directions of program realization

on its own authority (with the approval of Ministry of Economic Development and Trade)– subsidization of interest rates on loans– partial loan guarantees– development of industrial infrastructure– service support to conduct of business– training, youth practices and social jobs (component will be introduced in 2011)

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Basic principals of the program

Decision on projects funding is made by the financial organizations

Regional Coordinating Council makes a decision only on the possibility of subsidies and guarantees

The entrepreneur can be provided with integrated support within all tools of the program

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