Level 1 Report On Kazakhstan August 2012

Kazakhstan
A Level One - General Country Report Petitioned by www.precedent-ilf.com

Reference work completed by Iuliya Alexandrovna Ustimenko
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August 2012
Report Petitioned by International Legal Firm Precedent
Kazakhstan Level One Report

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TABLE OF CONTENT...
Background/History................................................................................................................................................ 6 Geography............................................................................................................................................................. 23 Population ............................................................................................................................................................. 35 Government........................................................................................................................................................... 44 Economy ............................................................................................................................................................... 62 Communication................................................................................................................................................... 143 Transportation ..................................................................................................................................................... 154 Military ............................................................................................................................................................... 171 Transnational Issues............................................................................................................................................ 184 World Health Organization Profile ..................................................................................................................... 194 Amnesty International......................................................................................................................................... 205 United Nation Development Program ................................................................................................................ 205 Bibliography ....................................................................................................................................................... 217
Figure 1Artistic depiction of medieval Taraz situated along the Silk Road. ....................................................... 10 Figure 2 Inside a Kazakh yurt. ............................................................................................................................. 11 Figure 3 Kazakh's bride. ...................................................................................................................................... 11 Figure 4 Forensic facial reconstruction of Timur by M. Gerasimov (1941). ...................................................... 12 Figure 5 Kazakh's Ornaments. ............................................................................................................................. 13 Figure 6 National costumes. ................................................................................................................................ 14 Figure 7 Kazakh Autonomous SSR flag. ............................................................................................................. 17 Figure 8 Kazakh Autonomous SSR coat of arms. ............................................................................................... 17 Figure 9 Almaty, the Soviet-era capital of Kazakhstan. ...................................................................................... 18 Figure 10 Young Pioneers at a Young Pioneer camp in Kazakh SSR................................................................. 18 Figure 11 Astana - the capital of Kazakhstan. ..................................................................................................... 19 Figure 12 The Bayterek tower in Astana, the capital of Kazakhstan................................................................... 19 Figure 13 Kobyz .................................................................................................................................................. 20 Figure 14 Abay Kunanbayev. .............................................................................................................................. 21 Figure 15 Mukhtar Auezov.................................................................................................................................. 21 Figure 16 Map of Kazakhstan.............................................................................................................................. 23 Figure 17 In the steppes of Kazakhstan (Aqmola Province). .............................................................................. 24 Figure 18 Charyn Canyon in northern Tian Shan. ............................................................................................... 24 Figure 19 Geographic map of Kazakhstan........................................................................................................... 25 Figure 20 The map of Kazakhstan exhibiting its 14 provinces. .......................................................................... 26 Figure 21 Aral Sea. .............................................................................................................................................. 27
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Figure 22 Caspian Sea. ........................................................................................................................................ 27 Figure 23 The Syr Darya River............................................................................................................................ 28 Figure 24 Aksu-Jabagli. ....................................................................................................................................... 32 Figure 25 Semipalatinsks Polygon. .................................................................................................................... 33 Figure 26 Lake Balkhash. .................................................................................................................................... 33 Figure 27 Natural resources of Kazakhstan. ........................................................................................................ 34 Figure 28 Population of Kazakhstan. Data of FAO, year 2005 ; Number of inhabitants in thousands. .............. 35 Figure 29 Population by Age Group, Kazakhstan 1975 -2025............................................................................ 36 Figure 30 Life Expectancy, 1975-2025. .............................................................................................................. 36 Figure 31 Population growth rate ........................................................................................................................ 37 Figure 32 Major Ethnic Groups in 1990. ............................................................................................................. 38 Figure 33 The Parliament of Republic Kazakhstan ............................................................................................. 44 Figure 34President Nursultan A. NAZARBAYEV ............................................................................................. 45 Figure 35 Flag of Republic of Kazakhstan. ......................................................................................................... 46 Figure 36 Coat of Arms. ..................................................................................................................................... 46 Figure 37 The Political System Structure. ........................................................................................................... 48 Figure 38 Structure of Public Administration in Kazakhstan. ............................................................................. 49 Figure 39 The Parliament interior........................................................................................................................ 50 Figure 40 Senate of Republic of Kazakhstan....................................................................................................... 50 Figure 41 Mazhilis of Republic of Kazakhstan. .................................................................................................. 50 Figure 42 Administrative-Territorial System of Republic of Kazakhstan. .......................................................... 51 Figure 43 Democracy Index................................................................................................................................. 60 Figure 44 Kazakhstan's Crude Oil Export as Percentage of GDP, in Comparison with other oil producing states. .............................................................................................................................................................................. 63 Figure 45 Real GDP Growth, percent comparison. ............................................................................................. 64 Figure 46 Gross Fixed Investment, percent of GDP............................................................................................ 65 Figure 47 Population below Minimum Dietary Energy Consumption, percent. ................................................. 66 Figure 48 Output and Labor Force Structures, percent........................................................................................ 67 Figure 49 Government Budget Balance, percent of GDP.................................................................................... 69 Figure 50 Inflation, percent.................................................................................................................................. 70 Figure 51 Growth in Broad Money Supply, percent............................................................................................ 71 Figure 52 Corruption Perception Index. .............................................................................................................. 72 Figure 53 Money Supply (M2), percent of GDP. ................................................................................................ 73 Figure 54 Domestic Credit to the Private Sector, percent of GDP. ..................................................................... 74 Figure 55 Growth in Exports of Goods and Services, percent. ........................................................................... 75 Figure 56 Current Account Balance, percent GDP.............................................................................................. 76 Figure 57 Foreign Direct Investment, percent of GDP........................................................................................ 77 Figure 58 Kazakh oil prices in comparison to GDP in constant 1994 prices. ..................................................... 81 Figure 59 Kazakh oil prices in comparison to GDP. ........................................................................................... 81 Figure 60 National and Real Brent Crude Oil Prices, 1980-2009. ...................................................................... 82 Figure 61 GDP per capita in 2005 Price Purchasing Power (PPP) in US $......................................................... 82 Figure 62 Real GDP in Kazakhstan. .................................................................................................................... 84 Figure 63 Nominal gross domestic products by expenditure (% of GDP). ......................................................... 84 Figure 64 Foreign Direct Investments per Sector 1993-2009.............................................................................. 85
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Figure 65 Recent Trends in income/Expenditure inequality in developing Asia. ............................................... 86 Figure 66 Human Development Index Composition. .......................................................................................... 87 Figure 67 SWF's Risk-Return Balance of Financial Assets. ............................................................................... 88 Figure 68 Overview of Investment Approach and Transparency. ....................................................................... 90 Figure 69 Sovereign Wealth Fund Scoreboard for the NFRK............................................................................. 90 Figure 70 Cereal Yield, kilograms per hectares................................................................................................... 93 Figure 71 Oilseed Area Growth in Kazakhstan. .................................................................................................. 94 Figure 72 Kazakh Wheat and Flour Markets. ...................................................................................................... 95 Figure 73 PSD For Wheat.................................................................................................................................... 96 Figure 74 Kazakhstan: Production of Mineral commodities Part 1................................................................... 108 Figure 75 Kazakhstan: Production of Mineral commodities Part 2................................................................... 109 Figure 76 Kazakhstans Oil Production, Consumption &Export. ..................................................................... 112 Figure 77 Kazakhstans Gas Production, Consumption & Exports................................................................... 112 Figure 78 Kazakhstan Oil & GAZ - Historical Data & Forecasts. .................................................................... 114 Figure 79 Kazakhstan's Other Energy - Historical Data & Forecasts................................................................ 116 Figure 80 Key Players - Kazakhstan Oil & Gas Sector. .................................................................................... 119 Figure 81 Key Upstream Players. ...................................................................................................................... 124 Figure 82 Key Downstream Players. ................................................................................................................. 124 Figure 84 CEEs Oil Production long- term Forecast........................................................................................ 125 Figure 83 CEEs Oil Consumption long- term Forecast.................................................................................... 125 Figure 85 CEEs Oil Refining Capacity long-term forecast.............................................................................. 126 Figure 86 CEE's Gas Production long-term forecast. ........................................................................................ 127 Figure 87 Tenge banknote - national currency. ................................................................................................. 127 Figure 88 Selected Macroeconomic Indicators.................................................................................................. 131 Figure 89 The Global Competitiveness Index 2011-2012 rankings and 2010-2011 comparisons DEVELM .. 132 Figure 90 The Global Competitiveness Index 2011-2012................................................................................. 132 Figure 91 The Global Competitiveness Index 2011-2012: Basic Requirements............................................... 132 Figure 92 The Global Competitiveness Index 2011-2012: Efficiency enhancers. ............................................ 133 Figure 93 The Global Competitiveness Index 2011- 2012: Innovation and sophistication factors................... 133 Figure 94 Kazakhstans World Back Rating ..................................................................................................... 133 Figure 95 Highlights of Kazakhstans Performance. ......................................................................................... 134 Figure 96 Strength and Weaknesses overview .................................................................................................. 136 Figure 97 Kazakhstan's political SWOT............................................................................................................ 137 Figure 98 Kazakhstan's economical SWOT. .................................................................................................... 138 Figure 99 Kazakhstan's Business Environment SWOT.................................................................................... 139 Figure 100 The Global competitiveness Report - World Economic Forum ...................................................... 140 Figure 101 Global Competitiveness Index in Detail.......................................................................................... 141 Figure 103 Telecommunication services revenue by kinds. .............................................................................. 144 Figure 102 Structure of telecommunication services revenue......................................................................... 144 Figure 104 Kazakhstan - key telecom parameters 2009-2010........................................................................... 145 Figure 105 Telephone Density, Fixed Line and Mobile, per 1 000 people. ...................................................... 146 Figure 106 Telecommunication services and facilities...................................................................................... 152 Figure 107 Road map of the Republic Kazakhstan. .......................................................................................... 155 Figure 108 Percentage Share of Each Transport model..................................................................................... 158
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Figure 109 Growth Rate of Cargo Load. ........................................................................................................... 159 Figure 110 Growth Rate of Foreign Turnover. .................................................................................................. 159 Figure 111 Rail Density in Selected CAR Countries......................................................................................... 159 Figure 112 Road Density in Selected Car Countries. ........................................................................................ 160 Figure 113 Freight Volume Transported by Rail............................................................................................... 160 Figure 114 Cargo Turnover by Rail................................................................................................................... 161 Figure 115 Transit Rail Routes in Kazakhstan. ................................................................................................. 161 Figure 116 Freight Volume and Turnover Transported by Road. ..................................................................... 162 Figure 117 Length of Roads by Oblast. ............................................................................................................. 162 Figure 118 Length of Road to be Upgraded by Oblast. ..................................................................................... 163 Figure 119 Domestic Air Connectivity.............................................................................................................. 164 Figure 120 International Air Connectivity......................................................................................................... 164 Figure 121 Major Transport Corridors Passing Through Kazakhstan. .............................................................. 169 Figure 122 Key Nodes of Transport Corridors. ................................................................................................. 171 Figure 123 Organization of the Ground Forces. ................................................................................................ 173 Figure 124 Regional Commands of Kazakhstan. .............................................................................................. 174 Figure 125 Kazakh naval emblem. .................................................................................................................... 177 Figure 126 Diplomatic relations of Republic Of Kazakhstan............................................................................ 193 Figure 127 Kazakhstan: WHO health profile (part 1) ....................................................................................... 194 Figure 128 Ukraine: WHO health profile (part 2) ............................................................................................. 195 Figure 129 Percentage of the population, 1950-2050(projected). ..................................................................... 196 Figure 130 Ten leading disability groups. ......................................................................................................... 200 Figure 131 Ten leading risk factors as causes of disease burden. ..................................................................... 200 Figure 132 Main causes of mortality. ................................................................................................................ 203 Figure 133 Mr. Stephen Tull, Resident Coordinator of the United Nations in Kazakhstan. ............................. 206
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Background/History
Overview Occupying an area of more than 1 million square miles (2.6 million square kilometers), Kazakhstan is the worlds ninth-largest country. If superimposed over the United States, it would cover almost all the territory between the Mississippi River and the Atlantic Coast, yet most Americans possess a blank mental map of this sprawling Central Asian giant. Kazakhstan is the largest of five Central Asian countries that gained their independence with the fall of the Union of Soviet Socialist Republics (USSR), better known as the Soviet Union, in the early 1990s. Because of its strategic geographic location, enormous size, and rising regional importance, the somewhat remote Kazakhstan has nevertheless earned a position among major world nations. Located in the heart of Asia, Kazakhstan shares its border with some of the worlds largest and most influential countries. Despite its huge area, Kazakhstan is a landlocked country. Lack of access to the global sea (oceans) poses a major obstacle to economic development. Isolated from major trade routes in the past, Kazakhstan was a victim of, and continues to suffer from, the effects of its remote location. Today, however, the country is attempting to combine geopolitical realities based on its location with the exploitation of its abundant natural resources in hope of becoming a significant political and economic factor in the region. Kazakhstan faces two major challenges on the path to development: it must develop both a strong democratic government and a free-market economy. Both must be free from the widespread corruption that poses a huge obstacle to achieving stability in either area. Kazakh society is working to implement democratic principles and a market economy after many decades of rule by an authoritarian regime that allowed neither. Etymology The term Kazakhstani (Kazakh: , Qazaqstandqtar; Russian: , kazakhstantsy) was coined to describe all citizens of Kazakhstan, including non-Kazakhs. The word "Kazakh" is generally used to refer to people of ethnic Kazakh descent (including those living in China, Afghanistan, Turkey, Uzbekistan and other countries). The ethnonym "Kazakh" is derived from an ancient Turkic word meaning "independent, a free spirit". It is the result of Kazakhs' nomadic horseback culture. The Persian (See Indo-Iranian languages) suffix "-stan" means "land" or "place of", so "Kazakhstan" is "land of the Kazakhs". Page 6

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History Kazakhstans history is interesting, yet, compared with some other parts of the world, not particularly complex. One might imagine that because of its size, the country must have a long and complicated past. However, the emergence of a Kazakh national identity occurred quite recently on the historical timeline. Historical literature often mentions countries that were built at the crossroads of civilizations or important trade routes. These countries are usually smaller in size, perhaps because so many others wanted to acquire a piece of them. Kazakhstan has a long and fascinating history, going back thousands of years. Some remnants are still visible today such as Great Silk Road monuments, petroglyphs and sometimes even mysterious archaeological sites. The Amazons might have originated from Kazakhstan, the first steppe nomads are supposed to have emerged from here and it is very likely that Genghis Khan was buried in Eastern Kazakhstan. In recent times more and more details about Kazakh history and culture have been re-discovered, making the country also more and more interesting for domestic and international culture seekers. Early history and Indo-European inhabitants Very little is known about the early history of the Kazakhs. Nomadic people of the steppes live a radically different lifestyle than the more sedentary (residing in one place) people of big cities. Nomads often can carry all of their material possessions on their backs and usually have not had any formal education. They do not record their history in books and they do not have libraries that store a record of their existence. Therefore, what is known about their culture and history comes from outsiders, people with whom they have been in contact. Both archeological evidence and historical documents show that the Scythians belonged to an Iranian group of Indo- European peoples. They originated in Iran and later expanded northward, moving toward the south Russian steppes in the region north of the Caucasus Mountains. Their rule lasted only until a stronger power pushed them westward, away from what is present-day Kazakhstan. Sometime around the third century B.C., Mongol-related groups overtook the region. One of them was the tribe of Alani, which later moved west toward the hills of the Caucasus Mountains. Thus, in ancient times, Kazakhstan served as the corridor for migrating peoples going both east and west. When Chinese archeologists discovered a large number of mummies in western China (an area closely connected to Kazakhstan) that were of Indo-European descent, it was a big surprise. Nobody expected to find Caucasoid (the biological race of most native European peoples) mummies that far east in Asia. The surprise was even bigger when scientists realized how old the mummies were. By using reliable dating methods, they were able to show that the mummies were more than three thousand years old. The combined aridity
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and sands of the Takla Makan desert had preserved the human remains. This discovery suggests that Indo-European migrants from the west had passed through the Kazakhstan territory and had left marks of their presence in the region long before it was documented in written historical records. Nevertheless, the territory of Kazakhstan came to be mastered by man nearly a million years ago. As early as the age of the Lower Paleolithic, ancient man settled down on these Karatau lands fit for normal life, rich with game and wild fruit. It is here that they have found ancient settlements from the Stone Age. By and by, in the centuries of the Middle and Upper Paleolithic, man came to master Central and Eastern Kazakhstan and the Mangyshlak area. As has been shown by excavations of the Neolithic settlement Botay in Northern Kazakhstan, Kazakhstan constitutes a region of horse domestication (breeding) and that of the formation of nomadic civilizations. Archeologists have revealed dwellings and numerous handmade articles of stone and ivory which present the ancient history and archeology of Kazakhstan in the Stone age in an altogether new way. As early as the Bronze Age, some four millennia ago, the territory of Kazakhstan was inhabited by tribes of the so-called Andron and Begazy-Dandybay culture. They were engaged in farming and cattle-breeding, and were fine warriors who handled combat chariots marvelously. To this day we can see images of chariots drawn on rocks where ancient people would arrange their tribal temples and sanctuaries with the firmament as their natural cover. On the surfaces of black cliffs burnt with the sun people would chisel out scenes of dances, images of sun-headed deities, mighty camels and bulls as impersonations of ancient gods. Burial mounds of noble warriors scattered all throughout Kazakh steppes are known for the magnificent size both of the mounds and burial vaults proper. Particularly famous are such necropolis in the steppes of Sary-Arka and Tagiskent in the Trans-Aral area. People of that epoch were not only fine warriors, shepherds and farmers but also skilled metallurgists. They would take bronze and manufacture axes, knives, daggers and various decorations thereof. It was they who initiated the development of copper which is being practiced to this day - they are the Zhezkazgan and Sayak copper mines of today. Ancient people lived in large settlements and ancient towns surrounded with walls and towers. These towns were inhabited by warriors and craftsmen, priests and farmers. These tribes lived on the territory of Kazakhstan for about a thousand years - from the 17th century B.C. to 9th-8th centuries A.D. Later on they were ousted by the Saks. Such was the name given to this tribe by ancient Persians. The Chinese called them "se" whereas Greeks chose to call them Scythians. They were essentially nomads, semi-nomads and farmers. Yet, first and foremost, they were excellent horsemen. In fact, Saks were the first ever horsemen in the world to master arrow-shooting at full speed. In the 5th-2nd centuries B.C., the Saks set up their first state with its center in the Zhetysu (Semirechje) in South-Eastern Kazakhstan. The kings of the Saks were at the same time high priests. Saks had a written language and a mythology of their own; they were known for their well Page 8

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developed art of world standard labeled in research papers as "animal-styled art". Respective subjects were represented by predators and herbivorous animals and the struggle there between. Sheer masterpieces made of gold and bronze serve as worthy exhibits in the best museums of the world. The linguistic situation was just as complicated. As is traditionally believed, in the course of the first millennium B.C., the population of Kazakhstan was mostly represented by native speakers of Indo-European and Indo-Iranian languages. However, of late, they are inclined to think that the tribes of the Bronze Age, particularly those of the Saks, included tribes that spoke proto-Turkic languages. In the Issyk burial mound which harbored the world-famous "Golden Man" they have found a silver bowl whose bottom bore an inscription consisting 26 characters. They have failed to read it to this day. Some think that the inscription is made in one of the Iranian languages, others insist on its proto-Turkic origin. In any case, this must be the very period that highlighted the formation of the state of mind and the language of medieval and modern Kazakhs, their physiological stereotypes, in fact, of many an element of their culture, everyday life and folk rites. Early Turkish-Mongolian Kingdoms and Arab conquest The middle of the first millennium A.D. is a fairly important stage in the history of all Turks in general and Kazakhs in particular. The period is marked with manifest changes in ethnic media: predominant now become Turkic tribes which chose the Altai as their natural center. Written sources of the 6th century register the term "Tyurk" which is pronounced as "Tutszyue" by the Chinese and as "Turk" by the Sogdians. Archeological studies of Turkic monuments make it possible to somehow compare "these" Turks with certain Turkic tribal associations.
In the Sayano-Altai region they have identified certain archeological cultures which might well be likened to early Kyrgyz, early Kypchaks or early Oguzes. In the course of not infrequent internecine wars, tribal discord, and struggles for power and pasture, a part of the Turkic tribes which inhabited the steppes and valleys of Kazakhstan moved southwards - to Central Asia (say, Tyurgeshes, Karluks, Kypchaks, Uzbeks, Oguz, and TurkmensSeldzhuks), to Asia Minor, to the Caucasus (Turkmen and Seldzhuks), and to Eastern Europe (Kangars and Pechenegs, Kypchaks-andPolovtsians, Torks-and-Oguz, black Klobuks and Karakalpakians). Page 9

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For almost two thousand years, Indo-Europeans would not rule over Kazakhstan, however. Between the end of the Scythians dominance in the third century B.C. and the beginning of Russian expansion in the sixteenth century, various Turkic-Mongolian kingdoms held rule over Central Asia. From the mountains of Altai, on the border between Kazakhstan and Mongolia, they used force to triumph over local tribes and push them further west. Later, during the fourth century A.D., Huns (another Central Asian nomadic group) rapidly expanded over much of western Asia. These fierce warriors swept westward as far as France and Germany. Invasions from Figure 1Artistic depiction of medieval Taraz situated along the Silk Road. the east continued during later centuries. Another group from the Altai region, the Turks, achieved control over Kazakhstan and established kaganates (tribal structure ruled by a supreme ruler, or khan). Evidence suggests that these institutions were well structured and organized. But, in the middle of the eighth century, Arab forces appeared in the southern provinces of Central Asia. In a short period of time they gained control over Turkmenistan and Uzbekistan, all the way to the Syr Darya River. However, they were never able to conquer the rest of Central Asia. In the northern steppes, different Turkic kaganates continued to replace each other as major powers over the region. Starting from the 4th century up to the beginning of the 13th century, the territory of Kazakhstan was the seat of West-Turkic, Tyurgesh, Karluk Kaganates, of the state made by the Oguz, Karakhanides, Kimeks and Kypchaks. All of them successively replaced one another right up to the Mongol invasion. After the invasion, i.e. in the beginning of the 13th century, uluses of the Mongol Empire of Zhuchi-Khan and Zhagatai were formed, which later gave birth to Ak-Orda, Mongolistan and finally to the Kazakh Khanate. Essentially all these states were mixed economies. Tribes of cattle-breeders had farming tribes as their neighbors, and steppes and cities supplemented each other. Such cities as Taraz, Otrar, Ispijab, and Talkhir were set up right in the middle of the Great Silk Road, which served as a reliable link joining antiquity and the Middle Ages, the West and the East: Japan, Korea and China with Central Asia, Iran, the State of the Seldzhuks, Rus, Byzantium, France and Italy. It is through the Great Silk Road that dancing arts, painting, architecture and music made their way from one people to another. Incidentally, it was the way along which various religions advanced: Manichaeism and Buddhism, Christianity and Islam, with the latter becoming predominant (starting from the 8 th century) and subsequently the solitary faith of the Kazakhs. In the late 14 th-early 15th century, on the banks of the Syrdaria River in the city of Turkestan, they erected a religious sacred place worshipped by all Turkic-speaking nations the complex of Khodja Akhmed Yasavi. Formation of oasis settlements When the Karluk Turks became rulers of Kazakhstan in the eighth century, they started organizing permanent settlements. After thousands of years of a purely nomadic culture, cities now were rising in Kazakhstan oases. Even though Arabscontrolled the southern area, they did not spread north of the Syr Darya until the tenth century, when the Karakhanids, another Turkic group, replaced the Karluks. By that time economic prosperity had drastically increased in the oasis settlements, as is evident from the size of these early cities, in which Page 10

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populations of thousands were concentrated. The acceptance of Islam, the religion of the Arabs, further helped the development of Central Asia. It brought better cultural connections with the flourishing civilizations of the Arab-controlled world. The Islamic connection helped to develop what became major centers of trade and education at Bukhara and Samarkhand in present-day Uzbekistan. Located on the famous Silk Route, these cities benefited from trade with both China and the Western world. In the thirteenth century the famous European traveler, Marco Polo, visited the region and witnessed its richness. Figure 2 Inside a Kazakh yurt. While ancient cities Taraz (Aulie-Ata) and Hazrat-e Turkestan had long served as important way-stations along the Silk Road connecting East and West, real political consolidation only began with the Mongol invasion of the early 13th century. Under the Mongol Empire, administrative districts were established, and these eventually came under the emergent Kazakh Khanate (Kazakhstan). Political changes and Mongol domination Between the eleventh and thirteenth centuries, Kazakh lands were divided among different Mongol- and Turkic-controlled areas. Not until 1218 would Kazakhstans nomads see a single major power rule over all Kazakh lands. In that year warriors led by the Mongol Genghis Khan successfully invaded nearly all of Central Asia. These Mongol warriors quickly changed the geopolitical picture of the then-known world. The ability of the Mongol hordes to invade and conquer became almost legendary. No force in the world at that time was able to stop Genghis Khans skilled horsemen. In a very brief period of time, the Mongols established the largest kingdom that the world had ever seen. Their dominance spread eastward to the Pacific Ocean, westward into Central Europe, and southward to the Indian Ocean. Everyone feared the Mongols, and with good reason. To a civilization that had just begun to transform itself from a nomadic lifestyle to one with cities and settlements, the Mongol invasion was devastating. When their destruction of the Central Asian society was accomplished, the Mongol hordes left this region. They went on to conquer Iran and southwest Asia, as well as lands and peoples in Eastern Europe. They tended to use Kazakhstan and surrounding areas as a mere stopover on the road to the west. However, there was good reason for their not staying. Central Asia offered few riches and lacked the wealth of what then was the rest of the known world. The Mongols did not consider the region to be of much importance. With the Mongol assault, cultural and economic development in the oases stagnated. Economic activity (always an indicator of cultural development) decreased and political institutions lost their significance. All political organizations came under the control of new rulers who did not bother to improve the living Figure 3 Kazakh's bride. conditions of the local peoplean approach used often Page 11

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throughout history by conquering peoples, including those during the era of European colonization. The first person to recognize the military and political supremacy of nomadic peoples was the fourteenth-century Arab historian, Ibn Khaldun. Khaldun observed that nomadic peoples and their highly mobile and warlike culture almost always won when in conflict with the culture of sedentary oasis people. When nomads brought their lifestyle into urban areas, however, the result almost always was a decline in prosperity, order, and well-being. Khaldun also noticed that within one generation, conquering nomads themselves would be absorbed by the urban way of life. Born into a sedentary culture, children of nomads had a different outlook than that of their ancestors. In the case of Kazakhstan and the rest of Central Asia, Ibn Khaldun certainly was right. It took Kazakhstans oasis tribes a number of years to start rebuilding their culture after the Mongol conquest. Meanwhile, Genghis Khan died and left an enormous empire to his descendents to divide and rule as their own kingdoms. Once they settled down in a particular area, the Mongols began to slowly change. They often learned and accepted the culture of the local people, making their mark on the culture and social life of Kazakh tribes, while the tribes accepted some elements of everyday Mongol life. With peace, the oasis settlements once again began to develop economically. The western kingdom, of which Kazakhstan became a part during the thirteenth century, came under control of Genghis Khans grandson, Batu Khan.His kingdom was spread between the Siberian plains on the east and Poland on the west. The Central Asian provinces, called the lands of the Golden Horde, were also included in Batu Khans empire. However, every time a huge empire exists, challenges often appear. One, called the White Horde, appeared in south-central Kazakhstan and coexisted with the Golden Horde (although paying tribute). Toward the end of the fourteenth century, the two hordes became united for a short period of time. This unification of Central Asia with the rest of what once was Batu Khans empire stimulated development in Kazakh lands. Around that time, what became the Kazakh national identity began to take form. In the oases, urban people once again began to organize their societies and develop their economies. At least a century would pass, however, before the Kazakhs would become a fully developed nationality or possess a strong sense of self-identity. Timurs conquests Soon other invaders entered the region of Kazakhstan and made their influence felt. When Timur, or Tamerlane, the Turkic leader, and his forces conquered Central Asia in the last decade of the fourteenth century, the Golden and White Hordes ceased to exist. Timur created a large kingdom and established its capital in Samarkand. Today Samarkand is in eastern Uzbekistan, just south of Kazakhstans border. Timur not only won over Mongolian kingdoms, but continued westward and ultimately defeated even the Ottoman Empires sultan Bayazid in the battle of Ankara in 1402.
Figure 4 Forensic facial reconstruction of Timur by M. Gerasimov (1941).
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Circumstances in Central Asia after Timurs death in 1405 allowed the creation of several more hordes, this time led by Turkic tribes. One of them was Uzbek khanate, the first independent institution of local tribes in many years. The khanates boundaries spread from the southern deserts of Kyzyl Kum and Muiun Kum northward to the southern Siberian taiga forest. Basically, it covered the central and eastern area of present-day Kazakhstan. The 15th through 17th centuries During the 1430s, Abul Khayr (14281468) established himself as a leader of Uzbek khanate. During his reign, dynastic rule was the norm, as was fighting with outsiders. Finally, in the second part of the fifteenth century, Abul Khayrs grandson became strong enough to take control of the khanate. Tribal differences between the Kazakhs and Uzbeks, both of whom were living in the same region, caused antagonisms that continued through the end of the century. In their attempts to achieve control of cities on and near the Syr Darya, local strongmen kept the whole region in permanent turmoil. Because of the ongoing political chaos in the region, it is impossible to determine a precise date for the formation of the Kazakh khanate. Historians generally agree that it Figure 5 Kazakh's Ornaments. happened sometime around the turn of the sixteenth century. Once it was formed, the Kazakh khanate was ready to spread its influence over its Central Asian neighbors. The most logical expansion was toward the south. There, they could continue the battle with Uzbek leaders for dominance over the Syr Darya and various trade routes. As was mentioned previously, the early sixteenth century was the period during which the modern Kazakh identity began to form. The fact that inhabitants of the Kazakh khanates area belonged to the same cultural group was in their favor. All of them used Turkic languages to communicate. Using a neutral language was essential during the early stages of expansion, and doing so helped to further spread the khanates influence and political control. Since Kazakhs belonged to one territorial unit, they were able to recognize themselves as one nation, or one homogenous group of people. They were able to distinguish their own ethnicity (culture and sense of self-identity) from that of their neighbors, most importantly the Uzbeks. In this context, it is important to understand the nature of the Kazakh khanate. It was not a political unit with rigid boundaries but rather a union of tribal groups with different ancestry (although sharing a common language) occupying a geographical area with vague and ever-changing boundaries. Page 13

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During the 17th century Kazakhs fought Oirats, a federation of western Mongol tribes, including Dzungars. The beginning of the 18th century marked the zenith of the Kazakh Khanate.During this period the Little Horde participated in the 17231730 war against the Dzungars, following their "Great Disaster" invasion of Kazakh territories. The Dzungars seized the pastures of the defeated Kazakhs, taking many captives, and slaughtering entire clans. Under the leadership of Abul Khair Khan, the Kazakhs won major victories over the Dzungar at the Bulanty River in 1726, and at the Battle of Anrakay in 1729. Ablai Khan participated in the most significant battles against the Dzungars from the 1720s to the 1750s, for which he was declared a "batyr" ("hero") by the people. Kazakhs were also victims of constant raids carried out by the Volga Kalmyks. The last Kazakh Khanate The Kazakh khanate would form federation-type organizations with a primary goal of providing military protection for tribes and clans. At the same time, on the historical time-scale, Europe was experiencing the early beginnings of nation-states. Such states were a product of the political unification of a single ethnic group or nation. In a nation-state, the nation (a territory occupied by a nationality of peoples) becomes a self-governed political unit (state) as well. In the Kazakh steppes, however, people were divided into tribes and clans that often were not closely related to each other. Under these circumstances, political changes often happened quickly. The many changes in political dominance, territorial control, and ethnic conflict present a nightmare for modern historians who attempt to unravel the regions very complex history. During the sixteenth century, Kazakhs divided into three hordes: the Greater, Middle, and Lesser. This process of political transformation was based simply on geographical circumstances. Historians agree that because of the vast size of the territory they occupied, Kazakhs divided the land into different political units. Although divided administratively, however, they continued to preserve the same cultural characteristics and sense
Figure 6 National costumes.
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of unity. This unity lasted until the eighteenth century and the first encounters with the Russians. Even though Kazakh independence lasted only until the beginning of the eighteenth century, the people of Kazakhstan were able in the process to build a strong sense of ethnic identity. Russian intervention When the Kalmyks invaded and occupied some Kazakh lands in the second part of the seventeenth century, it became obvious that the khanate would not survive. Until the 1730s, the Kalmyks were in position to control all of Kazakhstan. Finally, searching for protection from the Kalmyks, the Kazakhs asked the Russian tsar (czar) for help. This act marked the beginning of Russian imperialism in Central Asia. The tsar used the opportunity to expand Russias influence toward the Kazakh steppes by sending military help and later annexing the territory. During the next two centuries, Russian military expeditions built a number of fortresses in south Siberia and north Kazakhstan (which later became important towns). Kazakhs became increasingly dependent upon the Russian military presence. Beginning with its annexation of the Small Horde during the eighteenth century, Russia slowly but successfully spread its control over Kazakhstan. Many Russian settlers (most of whom came with the military) began to realize the agricultural potential that Kazakh land offered. During the reign of Catherine II, many Russian Cossacks were sent to the frontier. There, they protected the interests of the Russian Empire and helped continue its eastward spread. Kazakhs and Cossacks should not be considered the same group of people. Kazakhs, as has been discussed, emerged as an ethnic group of Asian stock. Cossacks, on the other hand, served as a military order of European origin. They were ethnic Slavs who practiced Orthodox Christianity. Cossacks still exist in Russia today, although their significance is not as great as it once was. During tsarist times, Cossacks were usually given land and other privileges in exchange for military service. They were, as they proudly said, responsible to nobody but the Russian tsars. In the 19th century, the Russian Empire began to expand into Central Asia. The "Great Game" period is generally regarded as running from approximately 1813 to the Anglo-Russian Convention of 1907. The tsars effectively ruled over most of the territory belonging to what is now the Republic of Kazakhstan. The Russian Empire introduced a system of administration and built military garrisons and barracks in its effort to establish a presence in Central Asia in the so-called "Great Game" between it and the British Empire. The first Russian outpost, Orsk, was built in 1735.
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Semipalatinsk and Ursk-Kamenogorsk were all built over a three-year period in the 1700s. Russia enforced the Russian language in all schools and governmental organizations. Russian efforts to impose its system aroused the resentment by the Kazakh people, and by the 1860s, most Kazakhs resisted Russia's annexation largely because of the influence it wrought upon the traditional nomadic lifestyle and livestock-based economy, and the associated hunger that was rapidly wiping out some Kazakh tribes. The Kazakh national movement, which began in the late 19th century, sought to preserve the native language and identity by resisting the attempts of the Russian Empire to assimilate and stifle them. 19th century In the nineteenth century, Russian colonization increased and peasants from European areas increasingly started moving toward newly controlled Asian territories. The steady stream of European Russian peasants moving eastward in search of lands continued into the twentieth century. During the 1860s, the government established new administrative divisions that divided Kazakhstan in several regions. European colonizers used this opportunity to claim and occupy the best agricultural land in the northern portions of Kazakhstan. Todays demographic picture of the rural areas in Kazakhstans north and northwest still reflects the impact of Russian colonization. By the end of the nineteenth century, Kazakhstan had over 500 settlements populated mainly by Europeans. From the 1890s onwards, ever-larger numbers of settlers from the Russian Empire began colonizing the territory of present-day Kazakhstan, in particular the province of Semirechye. The number of settlers rose still further once the Trans-Aral Railway from Orenburg to Tashkent was completed in 1906, and the movement was overseen and encouraged by a specially created Migration Department ( ) in St. Petersburg. During the 19th century about 400,000 Russians immigrated to Kazakhstan, and about one million Slavs, Germans, Jews, and others immigrated to the region during the first third of the 20th century. Vasile Balabanov was the administrator responsible for the resettlement during much of this time. The competition for land and water that ensued between the Kazakhs and the newcomers caused great resentment against colonial rule during the final years of Tsarist Russia, with the most serious uprising, the Central Asian Revolt, occurring in 1916. The Kazakhs attacked Russian and Cossack settlers and military garrisons. The revolt resulted in a series of clashes and in brutal massacres committed by both sides. Both sides resisted the communist government until late 1919. Kazakhs, most of whom still practiced a pastoral nomadic lifestyle, did not consider settled farming to be an alternative to their existing way of life. Yet they were rapidly losing their pastureland to the Russian farmers. Since independent Kazakh political institutions did not exist outside of Russian supervision, there was nothing that could stop this process. In addition to this already alarming situation, Page 16

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the nomads received another near fatal blow. A Russian land grab, called Stolypins Agrarian Reform (19061912), reserved over 40 million acres of Kazakhstans land for agriculture. From Russian Empire to Soviet Union The early twentieth century provided further challenges to the Kazakh dream of independence. Kazakhstans political establishment at the time enjoyed many benefits from its connections with the Russian aristocracy. At the same time, the position of ordinary people worsened. When World War I struck in the early 1900s, and the Russian tsarist government decided to draft young Kazakhs into military service, riots erupted. Until 1916, Kazakhs had been excluded from military service in the Russian army. But, because of Russias losses in the war with Germany, the country desperately needed to draft more soldiers. When the Russians turned to the Kazakhs for troops, tens of thousands of people participated in the resistance against Russian military garrisons. Led by the Alash Orda political party, Kazakhs attempted to take advantage of what appeared to be a golden opportunity. Russia was deeply immersed in its own internal political turmoil. In February 1917, political chaos in Russia erupted into a full-scale revolution. The Kazakhs hoped to use Russias internal disarray to gain their own autonomy. As happened in other provinces of the Russian Empire, however, Kazakhstans attempt to become independent was short-lived.
Figure 7 Kazakh Autonomous SSR flag.
Kazakhstan as a Soviet Republic During its 1917 revolution, Russia was taken over by the rebel Bolsheviks (communists). A group of secular nationalists called the Alash Orda attempted to set up an independent national government. This state lasted less than two years (1918-20) before surrendering to the Bolshevik authorities, who then sought to preserve Communist control under a new political system. By 1920, the Bolsheviks had gained control over the Kazakh region and incorporated it in to a new country, the Soviet Union. Kazakhstan became part of the Kyrgyz Autonomous Republic formed by the Soviet authorities, and in 1925 this entitys name was changed to the Kazakh Autonomous Soviet Socialist Republic. Soon, the steppes would become the destination for other types of European settlers. The Soviets began sending various political Figure 8 Kazakh Autonomous SSR coat of arms. prisoners there. They also sent people from a number of ethnic groups that were being displaced from their homes in the European regions of the USSR. After 1930, the Soviet government began forcing the nomadic Kazakhs to settle on collective and state farms, and the Soviets encouraged large numbers of Russians and other Slavs to settle in the region. During this period (known as Stalins collectivization), Kazakstan endured repeated famines. At least 1.5 million Kazakhs and 80
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Figure 9 Almaty, the Soviet-era capital of Kazakhstan.
percent of the republics livestock died. Thousands more Kazakhs tried to escape to China, Afghanistan, Iran, and Turkey; however, most of them starved in the attempt. The final political transformation of Kazakhstan within the Soviet Union came in 1936, when the Soviet government created the Kazakh Soviet Socialist Republic, with borders matching todays Kazakhstan. Later, during and after World War II, the Kazakhs further lost influence over their republics affairs. Both political and economic decisions were made in distant Moscow, regardless of local concerns, by the Communist government. The Soviet regime continued to send hundreds of thousands of people to Kazakhstan for resettlement. In 1947, two years after the end of the war, the Semipalatinsk Test Site, the USSR's main nuclear weapon test site, was founded near the city of Semey. During the so-called Virgin Land campaign (1956-1964) a significant part of Kazakhstans territory was put to the plow for the cultivation of wheat and corn. Also during this period, industrial development was initiated in Kazakhstan and benefited from the countrys abundance of natural resources. Economic development was accelerated by the military industry and the space program, which were promoted by the Soviet government. During this period of intensive industrialization and agricultural development, many non-Kazakhs arrived in the country. By the 1970s Kazakhstan was the only Soviet republic in which the eponymous nationality was a minority in its own territory.One negative consequence of such intensive industrialization and agricultural development was significant industrial and agrochemical pollution. The Soviet government also used Kazakhstan as a testing ground for nuclear weapons, which raised concerns about radioactive pollution in the Semipalatinsk region where the weapons were tested. Until the end of the Soviet Unions rule in 1991, Kazakhstans political existence was very tightly tied to Moscow. During the 1980s, however, it became increasingly apparent that Kazakhstan would eventually gain greater autonomy, possibly even independence. In December 1986, mass demonstrations by young ethnic Kazakhs, later called Jeltoqsan riot, took place in Almaty to protest the replacement of the First Secretary of the Communist Party of the Kazakh SSR Dinmukhamed Konayev with Figure 10 Young Pioneers at a Young Pioneer camp in Kazakh SSR. Gennady Kolbin from the Russian SFSR. Governmental troops suppressed Page 18

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Figure 11 Astana - the capital of Kazakhstan.
the unrest, several people were killed and many demonstrators were jailed. In the waning days of Soviet rule, discontent continued to grow and find expression under Soviet leader Mikhail Gorbachev's policy of glasnost. Independence In 1986, Soviet leader Mikhail Gorbachev replaced a native Kazakh with a Russian as head of Kazakhstans government. When this happened, rioters took to the streets of Almaty, Kazakhstans capital city. The police finally regained control, but not until hundreds of people had lost their lives. Several years later, in 1990, the Union of Soviet Socialist Republics began to break up. In 1991, the Soviet Union dissolved as a political entity. In December 1991, Kazakhstan proclaimed its independence the last of the former Soviet Republics to do so. With independence, voters elected a native Kazakh, Nursultan Nazarbayev, to lead them toward the twenty-first century. Caught up in the groundswell of Soviet republics seeking greater autonomy, Kazakhstan declared its sovereignty as a republic within the Union of Soviet Socialist Republics in October 1990. The years following independence have been marked by significant reforms to the Soviet-style economy and political monopoly on power. Under Nursultan Nazarbayev, who initially came to power in 1989 as the head of the Communist Party of Kazakhstan and was eventually elected President in 1991, Kazakhstan has made significant progress toward developing a market economy. The country has enjoyed significant economic growth since 2000, partly due to its large oil, gas, and mineral reserves.
Figure 12 The Bayterek tower in Astana, the capital of Kazakhstan.
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Arts and Architecture Since the Kazakh language did not have a written form until the nineteenth century, most of the cultural history was preserved and passed down from generation to generation in oral form. Traveling singers and storytellers called akyns used music to tell about past times, heroic war stories, or love stories. They would visit settlements accompanied with other performers and entertain the public. On holidays and at Figure 13 Kobyz festivals, akyns organized poetry competitions. They would compete with one another in an event called aytis, which is one of the Kazakhs most popular folklore events. The importance of akyns to the Kazakh tradition is evidenced by the fact that the countrys national holiday is the birthday of one its greatest poets, Zhambyl Zhabayev. Kazakh music employs more than 50 native instruments. One of them, the bowed-string kobyz, is considered to be an ancestor of European string instruments. It is believed that the kobyz is one of the oldest instruments in the world still in widespread use. Developed by shamans in ancient times, the kobyz is still one of the most popular instruments in Kazakhstan. In the twentieth century, especially during the Soviet era, Kazakhstan experienced a tremendous increase in the development of music, ballet, opera, and theater. Today, the country hosts many different international events. Some spotlight Kazakh culture, but many others focus on traditions introduced by Russians, Germans, Koreans, Uighurs, and others. Throughout most of Kazakhstans history, its architecture, such as the yurt, was traditional. In urban centers, stylish departures from traditional forms were limited to sacred sites, such as churches or mosques. This changed in the twentieth century, especially during the period of rapid urban expansion introduced by the Soviets. A distinctive architecture, called the Socialist realism style, produced chainlike units of bold, gray, concrete buildings of monumental size. During the past few years, however, different designs have appeared in Almaty and in Astana, where the government is building the newly established capital. Russian settlers in Kazakhstan also had an effect on Kazakhstani architecture. Small A-frame houses, Russian orthodox churches, and many new wooden buildings went up as Russians settled the area in the eighteenth and nineteenth centuries. Large Soviet apartment blocks went up in all of the cities across Kazakhstan. Arranged in small microdistricts, these buildings were usually five or six stories high and had three to four apartments of one, two, or three bedrooms each per floor. The villages and collective farms of Kazakhstan were of a different kind of Soviet architecture. Small two- to three-room, one-story houses, usually painted white and light blue (the light blue is thought to keep away evil Page 20

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spirits), adorn the countryside in Kazakhstan. The government built all houses, and there was no individualizing, excessive decorating, or architectural innovation. Public space was very important to the Soviets; in fact, nothing was privately owned, including one's home. Large collective farms were formed, transforming small villages into working communities, all with the same goal. Large squares and parks were built in almost every town and city. Everything belonged to the people, through the Communist apparatus in Moscow. Times have certainly changed, as has the architecture in these post-Soviet days of independence. The old buildings, and the people who designed and built them, still exist. Some parts of Kazakhstan are in good repair and upkeep, while other parts look like an old amusement park that hasn't been used in years. In some cases cranes and forklifts stand in the exact places they were in when independence was declared and government money ran out. Rusted and covered in weeds and grass, much of the Soviet architecture and the people occupying it are in desperate need of help. This picture is further complicated and contrasted by the introduction of new buildings and new wealth by some people in Kazakhstan. Oil money, foreign investments, and a new management style have created a whole new style in Kazakhstan. Almaty and Astana both have five-star high-rise hotels. The big cities have casinos, Turkish fast food restaurants, and American steak houses; modern bowling alleys and movie theaters are opening up amid old and decaying Soviet buildings. Private homes are also changing; sometimes next to or between old Soviet-style one-story austere houses, new two- and three-story houses with two-car garages and large, fenced-in yards are being built. Figure 14 Abay Kunanbayev. Literature Most of Kazakhstans early literary works were written in Arabic in mosques and religious schools. Writing in the Kazakh language did not begin until the second half of the nineteenth century. The development of a domestic Kazakh literature, therefore, is quite recent, a tradition less than 150 years old. The great Kazakh poet Abay Kunanbayev (18451904) is commonly called the father of Kazakh literature.He played a leading role in establishing the Kazakh literary tradition. Many people regard Kunanbayev as the most famous Kazakh in history. Kunanbayev was one of the first members of Kazakhstans secular elite. He was a well-educated composer and educator as well as a poet. Some of his poems were critical of the traditional Kazakh way of life. Kunanbayev also greatly admired Russian culture. He strongly supported a close friendship between the Russians and his own people. His writings helped pave the way for the Soviet-imposed economic, social, and political changes of the twentieth century. Kunanbayevs ideas were best expressed in his collection of essays called Edifications. After his death, another great playwright, author, and novelist, Mukhtar Auezov (1897 1961), followed Kunanbayevs path, becoming a leading figure of Kazakhstans Soviet-era literature. However, during the period of Stalins leadership in the Soviet Union, many representatives of the Kazakh vanguard, led by Akhmet Baytursunov, were sent to prison because of their writings. became a recognizable group in the mid-fifteenth century, when Qasym-Khan ruled the country.
Figure 15 Mukhtar Auezov
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Etiquette Etiquette and cultural norms related to acceptable and unacceptable behavior vary between urban and rural Kazakhs.As a rule, rural Kazakhs tend to follow the cultural norms more strictly. Kazakh men always shake hands with someone they know when they see each other for the first time in a day. Usually the younger man initiates this, and shows respect by extending both hands and shaking the older man's hand. Both Kazakhs and non-Kazakhs remove their shoes when inside a house. Guests always remove their shoes at the door and often put on a pair of slippers provided by the host or hostess. Central Asian streets often can be very dusty or muddy, so wearing shoes indoors is a serious social offense. Greetings are also very structured in Kazakhstan.In Kazakh culture, elder women and men are greeted with certain phrases showing respect. A Russian system of patronymics is still widely used. Kazakhs can be superstitious, and whistling inside a house is unacceptable in almost all Kazakh homes. It is believed that whistling inside will make the owner of the house poor. In general smoking by women is not accepted, especially in rural areas, and women who are seen walking and smoking at the same time are considered prostitutes. Kazakhs, and many other people from the former Soviet Union, often don't smile at people in public except to those they know. Kazakhs rarely form lines when boarding crowded buses. Many people in Kazakhstan treat foreigners with a visible degree of skepticism. With the work of the Peace Corps and many other international groups and companies, the image of a foreigner as a spy is starting to fade. Nevertheless Kazakhstani people will often stare at foreigners as they walk by. Public affection between friends is very common. Women and girls often hold hands as they walk; boys wrestle and often hook arms or walk with their arms around each other. Kissing cheeks and embracing is perfectly acceptable between good friends. Conclusion The nation that inhabited the territory of Kazakhstan would avidly absorb and assimilate all the ideas and achievements of various civilizations, making - in its turn - its own contribution to the treasury of world culture, be it economy or handicraft or music: among numerous accomplishments one may name the mobile dwelling "yurta", saddles and stirrups for horses, combat arts on horse-back, carpet ornaments and silver jewelry, sweet melodies and music reminding one of the impetuous gallop of steppe horses. All these factors have determined the integrity and continuity of the ancient and medieval history of Kazakhstan.
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Geography
Coastline: 0 km (landlocked); note - Kazakhstan borders the Aral Sea, now split into two bodies of water (1,070 km), and the Caspian Sea (1,894 km) Maritime claims: None (landlocked) Climate: Continental, cold winters and hot summers, arid and semiarid
Figure 16 Map of Kazakhstan.
Location: Central Asia, northwest of China; a small portion west of the Ural (Zhayyq) River in eastern-most Europe Geographic coordinates: 48 00 N, 68 00 E Map references: Asia Area: Total: 2,724,900 sq km Country comparison to the world: 9 Land: 2,699,700 sq km Water: 25,200 sq km Area - comparative: Slightly less than four times the size of Texas Land boundaries: Total: 12,185 km Border countries: China 1,533 km, Kyrgyzstan 1,224 km, Russia 6,846 km, Turkmenistan 379 km, Uzbekistan 2,203 km
Terrain: Vast flat steppe extending from the Volga in the west to the Altai Mountains in the east and from the plains of western Siberia in the north to oases and deserts of Central Asia in the south Elevation extremes: lowest point: Vpadina Kaundy -132 m highest point: Khan Tangiri Shyngy (Pik KhanTengri) 6,995 m Natural resources: major deposits of petroleum, natural gas, coal, iron ore, manganese, chrome ore, nickel, cobalt, copper, molybdenum, lead, zinc, bauxite, gold, uranium Land use: arable land: 8.28% permanent crops: 0.05% other: 91.67% (2005) Irrigated land: 35,560 sq km (2008) Total renewable water resources: 109.6 cu km (1997) Page 23

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Freshwater withdrawal (domestic/industrial/agricultural): total: 35 cu km/yr (2%/17%/82%) per capita: 2,360 cu m/yr (2000) Natural hazards: earthquakes in the south; mudslides around Almaty Environment - current issues: radioactive or toxic chemical sites associated with former defense industries and test ranges scattered throughout the country pose health risks for humans and animals; industrial pollution is severe in some cities; because the two main rivers that flowed into the Aral Sea have been diverted for irrigation, it is drying up and leaving behind a harmful layer of chemical pesticides and natural salts; these substances are then picked up by the wind and Overview
blown into noxious dust storms; pollution in the Caspian Sea; soil pollution from overuse of agricultural chemicals and salination from poor infrastructure and wasteful irrigation practices Environment - international agreements: party to: Air Pollution, Biodiversity, Climate Change, Desertification, Endangered Species, Environmental Modification, Hazardous Wastes, Ozone Layer Protection, Ship Pollution, Wetlands signed, but not ratified: Climate Change-Kyoto Protocol Geography - note: Landlocked; Russia leases approximately 6,000 sq km of territory enclosing the Baykonur Cosmodrome; in January 2004, Kazakhstan and Russia extended the lease to 2050
With an area of 2,700,000 square kilometers (1,000,000 sq mi), Kazakhstan is the ninth-largest country and the largest landlocked country in the world. It is equivalent to the size of Western Europe. In the Soviet Union period, Kazakhstan lost some of its territory to China's Xinjiang and some to Uzbekistan's Karakalpakstan. It shares borders of 6,846 kilometers (4,254 mi) with Russia, 2,203 kilometers (1,369 mi) with Uzbekistan, 1,533 kilometers (953 mi) with China, 1,051 kilometers (653 mi) with Kyrgyzstan, and 379 kilometers (235 mi) with Turkmenistan. Major cities include Astana, Almaty, Karagandy, Shymkent, Atyrau and Oskemen. It lies between latitudes 40 and 56 N, and longitudes 46 and 88 E. While located primarily in Asia, a small portion of Kazakhstan is also located west of the Urals in Eastern Europe. Kazakhstans physical geography is dominated by two primary factors: its area and location. Because of its huge size the country has a considerable variety of land features. Mountains along the southeastern border tower to nearly 23,000 feet (7,000 meters); yet in the west, in a depression north of the Caspian Sea, the elevation plunges to more than 400 feet (122 meters) below sea level. The terrain extends west to east from the Caspian Sea to the Altay Mountains and north to south from the plains of Western Siberia to the oases and deserts of Central Asia. The Kazakh Steppe (plain), with an area of around 804,500
Figure 17 In the steppes of Kazakhstan (Aqmola Province).
Figure 18 Charyn Canyon in northern Tian Shan.
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Report Petitioned by by International Legal Firm Precedent
Kazahstan Level One Report

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Figure 19 Geographic map of Kazakhstan.
square kilometers (310,600 sq mi), occupies one-third of the country and is the world's largest dry steppe region. The steppe is characterized by large areas of grasslands and sandy regions. In the countrys midlatitude continental interior, location contributes to a climate marked by general aridity, hot summers, and cold winters. Precipitation varies between arid and semi-arid conditions. Although Kazakhstan is not connected to any of the worlds oceans, the country does have hundreds of miles of shoreline and beaches. In the west, it borders the worlds largest lake, the Caspian Sea (geographers recognize the water body as a lake, but its large area gives the impression of its being a sea). Important rivers and lakes include: the Aral Sea, Ili River, Irtysh River, Ishim River, Ural River, Syr Darya, Charyn River and gorge, Lake Balkhash and Lake Zaysan. Kazakhstan is physically a beautiful country and a considerable variety of natural features, however, can be found to satisfy even the pickiest travelers. In this chapter, attention will be focused on those physical features and conditions that are of greatest importance to the country and its people. A continental location Kazakhstan occupies a large area in the interior of the Eurasian landmass. Because of its central position, nearly all of the country is at least 1,550 miles (2,495 kilometers) from the closest ocean. In fact, the so-called world polethe point of Earths land surface located the greatest distance from an oceanis in the Trans-Ili Alatay Mountains in the countrys eastern region. It is with good reason that Kazakhstan and its neighbors are called Central Asian countries. They are clustered in the very heart of the huge Eurasian landmass and Asia proper. Only Kazakhstan and its larger northern neighbor, Russia, span the thousands of miles between China and Europe. Page 25

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Borders The western border of modern Kazakhstan extends westward to the delta of the Volga River, the longest river in both Europe and Russia. The southern ridges of the Ural Mountains, the ancient and traditional border between Europe and Asia, extend into northwestern Kazakhstan. (The Urals form a natural division between Russias European provinces and Siberia.) Kazakhstan and Russia share one of the worlds longest oundaries 4,253 miles (6,846 kilometers) in length that begins just a few miles from Mongolia and reaches not far from the Russian cities of Astrakhan and Volgograd (previously known as Stalingrad). Most of the boundary runs through southern Siberia and the Turanian Lowlands. The eastern border with China and southeastern border with Kyrgyzstan mostly follow the high Tian Shan and western Altai mountain ranges. The southwestern border with Uzbekistan and Turkmenistan passes almost completely through an arid landscape. Here, the parched surfaces of the Kyzyl Kum and Kara Kum (Kum means desert) are broken only by the rapidly vanishing waters of the Aral Sea. All together, Kazakhstan stretches over 1,900 miles (3,060 kilometers) from east to west and 1,200 miles (1,930 kilometers) from north to south. Administrative divisions Kazakhstan is divided into 14 provinces (Kazakh: , oblstar). The provinces are subdivided into districts (Kazakh: , awdandar). Almaty and Astana cities have the status of State importance and do not relate to any province. Baikonur city has a special status because it is currently being leased to Russia with Baikonur cosmodrome until 2050. Each province is headed by an Akim (provincial governor) appointed by the president. Municipal Akims are appointed by province Akims. The Government of Kazakhstan transferred its capital from Almaty to Astana on December 10, 1997.
Figure 20 The map of Kazakhstan exhibiting its 14 provinces.
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Landforms Rolling lowland plains are the dominant landform feature of Kazakhstan. However, more than 23,000 feet (7,000 meters) separate the countrys highest and lowest points of elevation. In the southeastern corner, near the border with Kyrgyzstan, snowclad Khan-Thengri peak soars to an elevation of 22,958 feet (6,998 meters). In the west, at Karagiye in the Caspian depression (see next paragraph), the elevation drops to 433 feet (132 meters) below sea level. The dominant land feature of western Kazakhstan is the huge depression occupied by the Caspian Sea. The region includes the Syrt and Turanian lowlands. The sea itself occupies the lowest part of the depression, which originally was filled with water during the last Ice Age. Since the end of the Ice Age some 10,000 years ago, the Caspian has been shrinking. It is in an area that receives Figure 21 Aral Sea. little precipitation, and evaporation is high because of the desert heat. Only one large river (the Volga) flows into the sea. The result of this shrinkage is the expansion of a desert landscape covered with sand and clay, serving as reminders that the now dry land was once a seabed. The longest boundaries4,253 miles (6,846 kilometers) in length that begins just a few miles from Mongolia and reaches not far from the Russian cities of Astrakhan and Volgograd (previously known as Stalingrad). Most of the boundary runs through southern Siberia and the Turanian Lowlands. The eastern border with China and southeastern border with Kyrgyzstan mostly follow the high Tian Shan and western Altai mountain ranges. The southwestern border with Uzbekistan and Turkmenistan passes almost completely through an arid landscape. Here, the parched surfaces of the Kyzyl Kum and Kara Kum (Kum means desert) are broken only by the rapidly vanishing waters of the Aral Sea. All together, Kazakhstan stretches over 1,900 miles (3,060 kilometers) from east to west and 1,200 miles (1,930 kilometers) from north to south. North of the Caspian depression, the Ural Mountains reach a short distance into Kazakhstans northwestern region. The area is one of heavily eroded hills and low mountains. Traveling about 375 miles (600 kilometers) east from the Caspian Figure 22 Caspian Sea. Sea, one reaches another large body of water, the Aral Sea. It occupies a depression in the Turanian Lowland. This low-lying plain covers most of westPage 27

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central Kazakhstan. It is mainly an arid to semiarid landscape that gradually increases in elevation toward the north and east. Kazakhstans south-central border area is one of deserts interrupted by occasional green oases. The largest sandy desert is Kyzyl Kum, which continues southward into Uzbekistan. The countrys most important river is the Syr Darya. This exotic stream,(a river that flows throughout the year in a desert environment), flows northward from the high, snow-covered mountains of Kyrgyzstan. It forms a large oasis, with thousands of acres of irrigated crops, before its then meager flow drains into the Aral Sea. A landscape composed mainly of arid Figure 23 The Syr Darya River. lowlands continues from the Aral Sea eastward to Lake Balkhash (Balqash). Balkhash, although quite large in area, is very shallow, with a depth averaging perhaps 15 feet (5 meters). The lake occupies a basin of interior drainage. With no outflow, much of its water is saline. Where several small rivers flow into the lake, however, the water is fresh. This explains the strange occurrence of a lake that is comprised of both fresh water and salt water! Southeastern Kazakhstan is a land of high, rugged, heavily glaciated mountains. Several ranges, including the Kirgiz, Tian Shan, and Altai, reach into the country. These highlands are home to an estimated 200,000 glaciers. They vary in size, but most of the glaciers are small, with an area of no more than half a square mile (1 square kilometer). A few glaciers are as large as 4 square miles (10 square kilometers). The northeastern one-third of Kazakhstan is an area of hills, plateaus, and low mountains. Ice Age glaciers scoured basins now occupied by lakes that dot the landscape. Kazakhstans soils vary widely in quality and characteristics. Approximately 12 percent of Kazakhstan has soils that are suitable for agriculture. In much of the western, southern, and central portions of the country, soils are alkaline, sandy, and often salinevery poorly suited for agriculture. In the eastern and southeastern upland areas, soilwhere presentis of better quality, presenting an opportunity for high-yield farming. Most of Kazakhstans more than 7,000 streams flow into lakes, or simply evaporate in the parched desert. Very little stream water leaves the country. Only three major riversthe Irtysh, Ishim, and Tobolflow northward to join larger Russian rivers that ultimately drain into the Arctic Ocean. Weather and Climate Arid deserts and semiarid steppe (short) grasslands dominate Kazakhstans landscapes. Scientists agree that because of unwise agricultural policies followed during the long era of Soviet control, the countrys desert landscapes will continue to expand.The creation of desert conditions by unwise human practices such as overgrazing or the farming of marginal land is called desertification. Desertification most frequently occurs in areas of semiarid (dry continental) climates. If grasslands continue to be overgrazed and farmland continues
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to be eaten away by wind and water erosion, it is estimated that as much as 60 percent of Kazakhstan will be covered by desert in the next few decades. Currently, some 44 percent of Kazakhstan is classified as desert. This is just one example of the many ways in which climate is critical to both the physical and cultural geography of the country. Weather and climate are the single most important elements of physical geography. Temperature and moisture are the primary influences on natural vegetation, animal habitat, soil formation, and surface water features. Each of these, in turn, represents the natural resource base that is available to the human population. These are the elements upon which we depend for our very survival. Weather is defined as the daily condition of the atmosphere; climate is the long-term average condition of the day-to-day weather. Kazakhstans climate is influenced by several key factors: distance from the sea, continental location, and elevation. The countrys distance from the sea contributes to its isolation from maritime weather influence, in particular from any oceanic source of atmospheric moisture. As a result, precipitation is sparse throughout nearly all of the country. In the bone-dry west, only rarely do moisture-bearing air masses penetrate the area, bringing temporary relief to an otherwise parched landscape. Kazakhstans continental mid latitude location contributes to its temperature extremes as well, including hot summers and cold winters. Because temperatures decrease with increased elevation, temperatures throughout much of the country are strongly influenced by this control. Mountains also influence precipitation, often being considerably wetter than surrounding lowlands. And because of the lower temperatures at higher elevations, there is less loss of moisture from evaporation. Kazakhstan falls within three climatic zones: arid (desert), dry continental (steppe), and highland (conditions varying with elevation and exposure to the sun). Arid conditions, with parched desert landscapes, characterize 40 to 50 percent of the country. Here, annual precipitation amounts to less than 10 inches (25 centimeters) and all farmland must be irrigated. Another roughly 40 percent of the country falls within a broad belt of dry continental climate that spans much of Central Asia. Here, 10 to 20 inches (25 to 50 centimeters) of moisture is adequate to support the steppe grasslands that make excellent pasture, and some dry farming (farming without use of irrigation) is possible. Conditions are very similar to those of western North and South Dakota and Montana east of the Rocky Mountains. Finally, in the mountainous regions, temperature and moisture can vary greatly over very short horizontal distances. Vertical distance, or elevation, is the primary control of temperature, moisture, and vegetation cover. Some areas receive up to 30 inches (800 millimeters) of precipitation a year, most of which falls as snow. Since there is no large water body to moderate temperatures, Kazakhstan is subject to drastic temperature variations during the year. Summers are hot, with temperatures often climbing over 90 F (32 C) throughout much of the country and soaring as high as 110 F (43 C) in the southwestern deserts. Winter temperatures often fall well below zero (18 C). During the winter, when frigid, high-pressure Page 29

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Siberian air masses penetrate the region, temperatures in the north can drop to 50 F below zero (46 C). The continental climate allows the stabilization of air masses over Kazakhstan for long periods of time. This condition often provides for clear days with a lot of sun. The average annual number of sunny days for most of Kazakhstan is 200. Vegetation and Wildlife Climatic zones with different amounts of precipitation host different species of flora (plant life) and fauna (animal life). In western Kazakhstan, where a lack of significant precipitation exists, species have had to adapt to life in an arid environment with very high air and surface temperatures during the summer months. In the mountains and the countrys northern areas, the situation is quite different. There, species have had to adapt to conditions of extreme cold that occur during the long winter months. Very little of Kazakhstan is forested. Woodlands, found mainly in the cooler, wetter mountainous areas, cover only about 4 percent of the countrys total land area. There is almost no woodland whatsoever in the western desert and steppe region. The desert surface is dominated, where plants exist at all, by scattered xerophytic (drought-resistant) plant species. Most are small and scattered across the desert floor, often in clumps. Such plants are well adapted to desert conditions. Very small leaves and very long root systems are two of many characteristics that help such desert plants survive. Desert life centers on those few areas where precious water supplies create an oasis environment (an oasis is any place in a desert region where good water is available by any means). In the desert, larger plants and trees are found only in these oasis areas. Irrigated farming and pasture herding of livestock are the primary economic activities found in these widely scattered islands of green in a sea of desert yellow and brown. In the semiarid regions, precipitation is adequate to support a short-grass ecosystem called steppe. Here, too, life can be very difficult. For centuries, this has been home to nomadic peoples whose culture is fine-tuned to those challenges posed by the natural environment. Nomads are people who do not have a fixed place of residence. Rather, they follow their grazing herds. Rather than random wandering, nomads follow a very rigid schedule and route of migration. They know that staying in one place too long will Page 30

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cause the grassland to be ruined by overgrazing. Basically, their route is determined by seasonal variations in available food and water for their herds in each location. For example, many nomads practice transhumance, by which they herd their livestock into cooler, wetter uplands during the summer months and back onto the lowland plains during the winter. Today, pastoral nomadism is a vanishing way of life. As has happened throughout the steppe region of the United States, waving fields of grain crops (particularly wheat) have replaced much of the native steppe grasslands. Southern Kazakhstan is home to wormwood, a strong smelling plant that produces a bitter-tasting oil used in making absinthe (a liqueur). As a matter of fact, more than 500 native plant species grow only in Kazakhstan. Tree species such as cedar, larch, and spruce can be found in the mountains, especially at higher elevations. In general, Kazakhstan is home to thousands of plant species and hundreds of different forms of animal life. Open country sparsely populated with humans creates an environment that is ideal for the development of wildlife. While in many parts of the world conservationists have problems preserving animal species from extinction, in Kazakhstan many of them are increasing in number. The wolf population, for example, has increased in size over time to over 125,000 animals. In fact, during recent years, many farmers have complained that wolves are destroying their livestock. Wildcats, boars, goats, bears, deer, and the famous snow leopard, together with many bird species, including the golden eagle, live in the Kazakhstan mountains. Desert fauna is more sparse than that of the steppes and mountains but includes scattered populations of such large animals as the famous Bukhara deer, gazelles, and wild boars. Most desert wildlife, however, is small in size. Like desert flora, all animals must be well adapted to desert conditions. An estimated 150 species of fish inhabit Kazakhstans several thousand lakes. The most sought-after are sturgeon, roach, herring, trout, perch, and carp. Because of ineffective environmental policies leading to overfishing, many lakes and rivers have experienced a decline in fish populations. The most significant environmental degradation and loss of fish resources has happened in the Aral Sea. This water body was once a major source of fish. Today, because of pollution and shrinkage of the lake itself, most of the fish species have died out. The country is attempting to restore the quality and quantity of water in the Aral Sea, but it will take decades to bring the water and fish production back to a satisfactory level. Kazakhstan has nine nature reserves, developed in an attempt to preserve some of the countrys natural treasures. The reserve system is a continuation of environmental decisions first implemented by the Soviet Union beginning in the 1920s. The goal is to allow nature to restore itself to its earlier natural form. Kazakhstans people take great pride in these reserves and their beauty. The mountains of south Kazakhstan are home to two of the reserves, Aksu-Jabagli and Almaty. Page 31

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Aksu-Jabagli was founded in 1927 and is a UNESCO (United Nations Educational, Scientific, and Cultural Organization) biosphere reserve. The breathtaking canyon of the Aksu River is an erosion-caused scar cut some 1,500 feet (457 meters) deep and is home to hundreds of species of birds, insects, and animals and some 1,300 species of plants. Almaty reserve is located in the southern Tian Shan Mountains. It is known for the great variety of natural features that are being preserved, ranging from snowcapped mountain peaks and glaciers, to 450-foot (15meter)-high, crescent-shaped barchan sand dunes.Among its many animal species are rare snow leopards. The reserve is perhaps best known for its remarkable singing sands, called so because they produce an organ-like sound when the wind is blowing from the west, or when people walk over their surface. Western Kazakhstan also has several reserves. The Ustiurt reserve is located in the Karagie depression 433 feet (132 meters) below sea level. Desert landscapes and sizzling hot temperatures are major characteristics of this reserve, which is the countrys largest. Barsa Kelmes reserve is located on an island in the Aral Sea. The name, translated, means, land of no return. The island is home to the kulan, the worlds rarest hoofed animal. Other reserves include the Marakol and West Altai reserves, both located in the Altai Mountains of eastern Kazakhstan. The Kurgaldjino reserve, located in central Kazakhstan, also is of international importance. It preserves natural feather grass steppe and is recognized as a place of exceptional natural beauty. The reserve also is home to the worlds most northerly settlement of nesting pink flamingos. The Naurzum reserve in northern Kazakhstan protects a large pine forest and many species of animals. It is particularly noted for its rare bird species, including white herons, hisser swans, grave eagles, and jackbustards. Finally, Bayan-Aul National Park, often called the Museum of Nature, is located in central Kazakhstan. The park is an oasis of trees located on a small area of highland surrounded by steppe-covered plains.
Figure 24 Aksu-Jabagli.
Environmental concerns During recent decades, Kazakhstan has experienced several major environmental problems that have had a very negative effect on both humans and the environment. Unlike some natural hazards over which humans have little if any control, these disasters were of human origin. They were caused by irresponsible human use of the natural environment and weapons and scientific tests conducted with little concern for human or environmental safety. Today, many agencies, both domestic and international, are searching for solutions to Kazakhstans environmental problems. It is obvious, however, that it will take many decades, even centuries, and before the countrys most serious problems can be reversed. One of the most significant challenges in this area is that posed by the Aral Sea. This body of water is probably one of the worlds worst (and best) examples of how the irresponsible use of natural resources can affect both the environment and human lives. The sea once covered an area of 26,250 square miles (68,000 square kilometers), roughly the size of West Virginia. Today, it has shrunk to only one-third its pre-1960 size and threatens to disappear completely, leaving only a dusty desert surface. Under natural conditions, two large rivers maintained the water level in the Aral Sea. Page 32

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The Amu Darya and Syr Darya have their headwaters in high mountains located hundreds of miles south of Kazakhstan. The streams flow through desert landscapes in Uzbekistan and Turkmenistan and ultimately empty into the Aral Sea. In Uzbekistan, however, policymakers diverted millions of cubic feet of water from the rivers to irrigate cotton fields. Water for irrigation was also diverted to Turkmenistan through a 660-mile (1200kilometer)- long canal. These diversions, Figure 25 Semipalatinsks Polygon. coupled with a very high loss of water from evaporation, have combined to make the fate of the Aral Sea a huge environmental problem confronting Kazakhstan today. With little coordination, international cooperation, or environmental resource control, the total water discharge into the Aral Sea became insufficient to preserve the lakes original size. In the late 1980s, it began to shrink rapidly. Two important fishing ports in the Aral Sea, Aralsk in Kazakhstan and Moynak in Uzbekistan, became deserts. The sea once had a fish population that included 24 different species. Fishing and fish processing industries in the region once employed 60,000 workers. As the water level declined, so they did fishing industry, until today both are all but gone. Since what once was a thriving lake is now rapidly turning into desert, people already are beginning to call the Aral Sea the Aral Kum (desert). In addition to fish species reduction, severe health problems are afflicting the local human population as a result of pollution around the lake. Scientists blame the heavy use of pesticides and fertilizers in agricultural production for the high cancer and infant mortality rates. The Semipalatinsk nuclear testing center is another area of primary environmental concern. For three decades, with little concern for the environment or well-being of the local population, Soviet nuclear engineers tested various types of nuclear weapons in northeastern Kazakhstans Semipalatinsk oblast (province), resulting in 470 nuclear explosions during a 30-year period. Since nuclear testing was always covered in a shroud of secrecy, inhabitants of neighboring towns and villages were never informed about the details of the experiments. Tests stopped when the Soviet Union disintegrated and Kazakhstan gained its independence in 1991. Only then did the some 1.5 million people living in the area begin to realize the extent to which the testing affected the environment and their own health. Lake Balkhash is another site of great environmental concern, for reasons similar to those affecting the Aral Sea. The largest lake in the eastern portion of Kazakhstan, Balkhash is a shallow body of water that has been seriously affected by agricultural projects and industrial production. Much of the problem stems from the misuse of the Ili River, which is the largest stream flowing into Lake Balkhash. Before it reaches Kazakhstan, the Ilis water is used for irrigation in China, where it is also exposed to contamination. Once in Kazakhstan, the Ili is additionally exposed to industrial pollution. Thus, to restore the
Figure 26 Lake Balkhash.
quality of the river environment, both Kazakhstans and Chinas governments must work together. Kazakhstans geography faces
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many environmental challenges, but, despite these problems and others, including geopolitical isolation, lack of access to the sea, and persistent (and increasing) aridity and desertification, Kazakhstan has the area and abundant resource base needed to develop a sound economy. Endowed With Natural Resources Kazakhstan is resource rich, and thanks to its early and vigorous adoption of liberal market and trade reform, its oil, gas, and mineral sectors have been an investment magnet since shortly after independence. The countrys enormous mineral deposits make it a world leader in reserves of coal, chromite, lead, and zinc, and its uranium deposits are estimated to be the second largest in the world. Natural gas reserves are substantial as well. Primarily located in the Caspian Sea region, they are found in associated oil and gas fields, such as the giant Karachaganak and Tengiz fields. Petroleum, however, has gained the most attention. Since the early 2000s, more than half of the countrys industrial output has consisted of oil, with a large number of other industries dependent on it. In 2008, Kazakhstan ranked among the worlds top 20 oil producers. Most oil deposits are located in the Caspian Sea region, with the Kashagan field estimated to contain the worlds fifth largest oil reserves. Between 2000 and 2007, the country enjoyed healthy gross domestic product (GDP) growth of 8.5% or more. Not surprisingly, oil production and hydrocarbon investment drove Kazakhstans rapid growth for years. Mining and quarrying, led by oil as well as coal and gas, continue to grow. Since 2005, however, the main growth engine has been the rapidly developing non-oil economy, particularly construction and services, which employs most people and accounts for more than half of GDP. This is good news because it suggests oil wealth has filtered through the economy. That 56% of the population lives in urban areas, the highest percentage in the region, reflects Kazakhstans increasing migration from farm regions to the cities by people in search of jobs in construction and services. Kazakhstan is a world leader in reserves of coal, chromite, lead, zinc, and uranium. In 2005, Kazakhstans production of ferrous minerals included bauxite, chromite, copper, iron, lead, manganese, and zinc ores; its metallurgical sector produced such metals as beryllium, bismuth, cadmium, copper, ferroalloys, lead, magnesium, rhenium, steel, titanium, and zinc. Industrial mineral and nonferrous mineral products included alumina, arsenic, barite, gold, molybdenum, phosphate rock, tungsten, and uranium. Although the government maintains ownership of a substantial number of mineral production enterprises, there is also significant foreign ownership. The basis for this, as well as development of the mineral sector in general, is Kazakhstans Constitution and body of laws and regulations that permit and govern private sector access to mineral rights.
Figure 27 Natural resources of Kazakhstan.
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Population
65 years and over: 7.4% (male 392,689/female 754,407) (2011 est.) Median age: total: 30.2 years male: 28.7 years female: 31.9 years (2011 est.) Population growth rate: 0.4% (2011 est.) country comparison to the world: 158 Nationality: noun: Kazakhstani(s) adjective: Kazakhstani Ethnic groups: Kazakh (Qazaq) 63.1%, Russian 23.7%, Uzbek 2.8%, Ukrainian 2.1%, Uighur 1.4%, Tatar 1.3%, German 1.1%, other 4.5% (2009 census) Languages: Kazakh (Qazaq, state language) 64.4%, Russian (official, used in everyday business, designated the "language of interethnic communication") 95% (2001 est.) Religions: Muslim 47%, Russian Orthodox 44%, Protestant 2%, other 7% Population: 15,522,373 (July 2011 est.) country comparison to the world: 64 Age structure: 0-14 years: 21.6% 1,637,132) 15-64 years: 71% 5,654,461) Birth rate: 16.65 births/1,000 population (2011 est.) country comparison to the world: 122 Death rate: 9.38 deaths/1,000 population (July 2011 est.) country comparison to the world: 63 Net migration rate: -3.27 migrant(s)/1,000 population (2011 est.) country comparison to the world: 179 Urbanization: urban population: 59% of total population (2010) rate of urbanization: 1.3% annual rate of change (2010-15 est.)
(male (male
1,709,929/female 5,373,755/female
Figure 28 Population of Kazakhstan. Data of FAO, year 2005 ; Number of inhabitants in thousands.
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Health expenditures: 4.3% of GDP (2009) country comparison to the world: 155 Physicians density: 3.877 physicians/1,000 population (2007) country comparison to the world: 15 Hospital bed density: 7.6 beds/1,000 population (2009) country comparison to the world: 11
Figure 29 Population by Age Group, Kazakhstan 1975 -2025.
Major cities - population: Almaty 1.383 million; ASTANA (capital) 650,000 (2009) Sex ratio: at birth: 1.058 male(s)/female under 15 years: 1.04 male(s)/female 15-64 years: 0.95 male(s)/female 65 years and over: 0.53 male(s)/female total population: 0.93 male(s)/female (2011 est.) Maternal mortality rate: 45 deaths/100,000 live births (2008) country comparison to the world: 101 Infant mortality rate: total: 24.15 deaths/1,000 live births country comparison to the world: 83 male: 28.44 deaths/1,000 live births female: 19.62 deaths/1,000 live births (2011 est.) Life expectancy at birth: total population: 68.51 years country comparison to the world: 153 male: 63.24 years female: 74.08 years (2011 est.) Total fertility rate: 1.87 children born/woman (2011 est.) country comparison to the world: 146
Drinking water source: improved: urban: 99% of population rural: 90% of population total: 95% of population unimproved: urban: 1% of population rural: 10% of population total: 5% of population (2008) Sanitation facility access: improved: urban: 97% of population rural: 98% of population total: 97% of population unimproved: urban: 3% of population rural: 2% of population total: 3% of population (2008)
Figure 30 Life Expectancy, 1975-2025.
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Children under the age of 5 years underweight: 4.9% (2006) country comparison to the world: 85 Education expenditures: 2.8% of GDP (2007) country comparison to the world: 137 Literacy: definition: age 15 and over can read and write total population: 99.5% male: 99.8% female: 99.3% (1999 est.)
Figure 31 Population growth rate
HIV/AIDS - adult prevalence rate: 0.1% (2009 est.) country comparison to the world: 134 HIV/AIDS - people living with HIV/AIDS: 13,000 (2009 est.) country comparison to the world: 89 HIV/AIDS - deaths: fewer than 500 (2009 est.) country comparison to the world: 89
School life expectancy (primary to tertiary education): total: 15 years male: 15 years female: 16 years (2010) Unemployment, youth ages 15-24: total: 6.7% country comparison to the world: 118 male: 6.8% female: 8.2% (2008)
Overview The US Census Bureau International Database list the current population of Kazakhstan as 15,460,484, while United Nations sources such as the UN Population Division give an estimate of 15,753,460. Official estimates put the population of Kazakhstan at 16.455 million as of February 2011, of which 46% is rural and 54% is urban. The 2009 population estimate is 6.8% higher than the population reported in the last census from January 1999. The decline in population that began after 1989 has been arrested and possibly reversed. Men and women make up 48.3% and 51.7% of the population, respectively. With a population density of only 14 persons per square mile, Kazakhstan is a very sparsely populated country. By comparison, the United States has a population density of 78 persons per square mile, and the worlds average is about 180 persons per square mile. Although its rate of natural population increase (births) shows an annual increase, Kazakhstan is actually losing population because of heavy
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emigration (out-migration). The growth rate is sharply divided along ethnic lines. Russian and Ukrainian couples have many fewer children, on average, than do Kazakhs. Compared with the rest of the central and southern Asian countries, birthrates in Kazakhstan are the lowest in the region. This condition no doubt results from the fact that urban families tend to have much smaller families than do rural people. In the region considered, only Iran has a higher percentage of its population classified as urban (64 percent versus Kazakhstans 56 percent). Life expectancy at birth in Kazakhstan is 66 years60 formales and 71 for females. The span of 11 years between male and female life expectancy is one of the greatest in the world. Demographers (scientists who study the human population) have a number of theories attempting to explain the huge gap, but no one really knows why Kazakh women, on average, live 11 years longer then men. Ethnic group The ethnic Kazakhs represent 63.1% of the population and ethnic Russians 23.7%, with a rich array of other groups represented, including Tatars (1.3%), Ukrainians (2.1%), Uzbeks (2.8%), Belarusians, Uyghurs (1.4%), Azerbaijanis, Poles, and Lithuanians. Some minorities such as Germans (1.1%), Ukrainians, Koreans, Chechens, Meskhetian Turks, and Russian political opponents of the regime had been deported to Kazakhstan in the 1930s and 1940s by Stalin; some of the bigger Soviet labour camps (Gulag) existed in the country.
Figure 32 Major Ethnic Groups in 1990.
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Before the breakup of the Soviet Union, Kazakhstan was the USSRs leading multiethnic republic. In the USSR, republics were formed based on ethnicity. A dominant ethnic groupusually the one for which the republic was namedhad to have a population majority of more than 50 percent. Kazakhstan was unique in that it was the only autonomous republic within the USSR in which the ethnic group for which it was named did not hold a majority of 50 percent or more. In 1989, ethnic Kazakhs accounted for only some 40 percent of Kazakhstans 17 million inhabitants. Although peoples of European stock were in the minority in preWorld War II Kazakhstan, they managed to account for over 50 percent of the population in 1989. Today, however, the Kazakh population has increased its proportion to about 53 percent of the countrys population, which now stands at approximately 15 million. Much of this gain is the result of ethnic Russians leaving Kazakhstan after the country gained its independence. Kazakhstan has always been a country in which migration, not birthrate, was the primary factor influencing population change. Many of the ethnic groups that were not native to the republic had been deported from European Russia (in the Soviet Union) as a result of Joseph Stalins anti-Nazi decrees. Millions of Volga Germans, Crimean Tatars, Chechens, and other enemies of the Soviet Revolution were sent to Kazakhstan because of their supposed collaboration, real or potential, with the German occupation force. In addition, during the 1950s and 1960s, the Soviets promoted a Virgin Lands project in which new areas were opened to grain farming. Thousands of people were sent to Kazakhstan to develop the countrys second breadbasket (the first was in Ukraine).When the Soviet Union disintegrated, however, Kazakhstan developed its own immigration policy. In Kazakhstan, dual citizenship (Russian and Kazakh) quickly became an issue of heated political discussion. The government of Kazakhstan decided not to grant Russians the dual citizenship option. Residents had to choose whether they wanted to be citizens of Kazakhstan or of Russia. This policy, and the lack of economic opportunity, triggered a massive emigration (departure) of Kazakhstans Russians. Page 39

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In the early 21st century, Kazakhstan has become one of the leading nations in international adoptions. This has recently sparked some criticism in the Parliament of Kazakhstan, due to the concerns about safety and treatment of the children abroad and the questions regarding the low level of population in Kazakhstan. Most people live in the east and north. It was estimated by the Population Reference Bureau that 56% of the population lived in urban areas in 2001. The capital city, Astana, had a population of 303,000 in that year. The former capital, Almaty, is the largest city with a population of 1,129,400. Other major metropolitan areas include Karaganda, 596,000; Chimkent, 404,000; Pavlodar, 349,000; Semipalatinsk, 342,000; and UstKamenogorsk, 334,000. According to the United Nations, the urban population growth rate for 20002005 was 0.2%. Language Kazakhstan is a bilingual country: the Kazakh language, spoken by 64.4% of the population, has the status of the "state" language, while Russian, which is spoken by almost all Kazakhstanis, is declared the "official" language, and is used routinely in business. English gained its popularity among the youth since the collapse of USSR. After independence, the Kazakhstan government placed emphasis on making Kazakh the official language. Although Russian continues to be the dominant language of business, it is losing its influence in Kazakhstan. Very few ethnic Russians are fluent in Kazakh, and most show no interest in learning the language. Thus, the government policy encouraging the use of Kazakh serves as an additional reason for Russians to leave the country. The official script in Kazakhstan is still the Russian Cyrillic alphabet with several Kazakh symbols added. Related predecessors to Kazakh were written in the Orkhon script, containing 24 letters. Modern Kazakh has historically been written using versions of the Latin, Cyrillic, and Arabic scripts. Today, Kazakh is written in Cyrillic in Kazakhstan and Mongolia, while the more than one million Kazakhspeakers in China use an Arabic-derived script similar to that used to write Uyghur. In October of 2006, Nursultan Nazarbaev, the president of Kazakhstan, brought up the topic of using the Latin alphabet instead of the Cyrillic alphabet as the official script for Kazakh in Kazakhstan.
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Religion According to the 2009 Census, 70.2% of the population is Muslim, 26.6% Christian, 0.1% Buddhists, 0.2% others (mostly Jews), and 2.8% non-believers, while 0.5% chose not to answer. According to its Constitution, Kazakhstan is a secular state. Religious freedoms were guaranteed by Article 39 of Kazakhstans Constitution. Article 39 clearly states: Human rights and freedoms shall not be restricted in any way. Article 14 prohibits discrimination on religious basis and Article 19 insures that everyone has the right to determine and indicate or not to indicate his/her ethnic, party and religious affiliation. The Constitutional Council recently affirmed these rights by ruling that a proposed law limiting the rights of certain individuals to practice their religion was declared unconstitutional. However, The Law On Religious Activity and Religious Associations" came into effect after October 25, 2011. The new religion law now restricts religious freedom in Kazakhstan. For a country with so many different nationalities among its population, it is not surprising that Kazakhstans peoples practice a number of different religions. Among the various faiths, Islam and Christianity dominate in Central Asia. Islam, introduced a millennium earlier than Christianity in the region, has been the dominant religion among sedentary oases and urban dwellers since the eighth century. Arab expansion spread Islam quickly throughout the region, where local rulers accepted the faith in order to gain personal benefits. Most trade routes and the most important political connections were under the control of Islamic people. The influence of Islam spread from Samarkand and Bukhara northward into the steppes. Long before the Russians entered Kazakhstan, nearly all Kazakhs were nominally Muslim. The rapid spread of Islam among the Kazakhs may have been spurred by an interesting fact of cultural history. Many Kazakhs had previously worshipped a monotheistic (one god) deity named Taingir. Therefore, the idea of a single god, also predominant in Islam, was not new to them. There are,
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however, major differences between the Islamic religious practices of Central Asians, particularly Kazakhs, and Southwest Asians, where Islam originated. During 70 years of life as part of the Soviet Unionan officially atheist stateseveral generations of Kazakhs were not encouraged to practice the religions of their ancestors. After independence, President Nursultan Nazarbayev proclaimed Kazakhstan to be a secular (not religious) state. His goal was to preserve tight political control and eliminate any opposition, since in predominantly Muslim countries, opposition often grows within religious circles. Since the early 1990s, however, dozens of new mosques have been built throughout Kazakhstan. Many have been gifts from Saudi Arabia, Egypt, and other countries that actively support an Islamic renaissance in Central Asia. Hundreds of mosques, churches, synagogues, and other religious structures were built in the span of a few years, with the number of religious associations rising from 670 in 1990 to 4,170 today. President Nazarbayev allowed these types of gifts because of the financial stimulus they provided. However, since many of Kazakhstans pastoral nomads still organize their beliefs around the ancient animistic worship of different spirits, many of the donated mosques are often half empty, something rarely seen elsewhere in the Islamic world. Religious orientation is closely tied to ethnicity. As a rule, the most of the Muslims are Sunni following the Hanafi school, including ethnic Kazakhs, who constitute about 60% the population, as well as by ethnic Uzbeks, Uighurs, and Tatars. Less than 1% are part of the Sunni Shafi`i school (primarily Chechens). There are a total of 2,300 mosques. All of them are affiliated with the "Spiritual Association of Muslims of Kazakhstan", headed by a supreme mufti. The Eid al-Adha is recognized as a national holiday
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The majority of Slavs in Kazakhstan belong to the Eastern Orthodox Church, and it is rare to see an ethnic Russian or Ukrainian practicing Islam. There are a total of 258 Orthodox churches, 93 Catholic churches, and over 500 Protestant churches and prayer houses. The Russian Orthodox Christmas is recognized as a national holiday in Kazakhstan. Other religious groups include Judaism, the Bah' Faith, Hinduism, Buddhists, and The Church of Jesus Christ of Latterday Saints. Christianity, as did Islam, arrived in Central Asia with military expeditions. Initially, its practice was limited to towns with a Russian military presence. Later, when farmers from European provinces came to Kazakhstan, they brought their religious practices. This religious diffusion from Eastern Europe continued with the industrial development of Kazakhstan and the immigration of other peoples during the twentieth century. Today, Russian and Ukrainian Orthodox churches are present in many towns. So, too, are Protestant and Roman Catholic churches that were built by Germans and Koreans. Much to its credit, after independence Kazakhstan was able to preserve religious tolerance among so many different groups without major excesses and ethnic confrontations. In some other parts of the former Soviet Union, religion-driven conflicts are common. In Kazakhstan, however, people resisted the temptation to erode religious harmony. One factor that may help to explain the Kazakhs generally passive attitude toward religion is the organization of its dominant social structure. The life of the individual is centered primarily on family, clan, and tribe. Religion plays a lesser role. This is especially true of the nomadic Kazakhs, although it also is true among many sedentary urban dwellers.
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Government
qala); Almaty Oblysy, Almaty Qalasy*, Aqmola Oblysy (Astana), Aqtobe Oblysy, Astana Qalasy*, Atyrau Oblysy, Batys Qazaqstan Oblysy [West Kazakhstan] (Oral), Bayqongyr Qalasy [Baykonur]*, Mangghystau Oblysy (Aqtau), Ongtustik Qazaqstan Oblysy [South Kazakhstan] (Shymkent), Pavlodar Oblysy, Qaraghandy Oblysy, Qostanay Oblysy, Qyzylorda Oblysy, Shyghys Qazaqstan Oblysy [East Kazakhstan] (Oskemen), Soltustik Qazaqstan Oblysy (Petropavlovsk), Zhambyl Oblysy (Taraz) note: administrative divisions have the same names as their administrative centers (exceptions have the administrative center name following in parentheses); in 1995, the Governments of Kazakhstan and Russia entered into an agreement whereby Russia would lease for a period of 20 years an area of 6,000 sq km enclosing the Baykonur space launch facilities and the city of Bayqongyr (Baykonur, formerly Leninsk); in 2004, a new agreement extended the lease to 2050 Independence: 16 December 1991 (from the Soviet Union) National holiday: Independence Day, 16 December (1991) Constitution: first post-independence constitution adopted 28 January 1993; new constitution adopted by national referendum 30 August 1995 Legal Legal system: civil law system influenced by Roman-Germanic law and by the theory and practice of the Russian Federation International law organization participation: has not submitted an ICJ jurisdiction declaration; non-party state to the ICCt
Figure 33 The Parliament of Republic Kazakhstan
Country name: conventional long form: Republic of Kazakhstan conventional short form: Kazakhstan local long form: Qazaqstan Respublikasy local short form: Qazaqstan former: Kazakh Soviet Socialist Republic Government type: republic; authoritarian presidential rule, with little power outside the executive branch Capital: name: Astana geographic coordinates: 51 10 N, 71 25 E time difference: UTC+6 (11 hours ahead of Washington, DC during Standard Time) note: Kazakhstan is divided into two time zones Time difference: Kazakhstan Eastern Standard Time is is 6 hours ahead of Greenwich Mean Time (GMT+6).Kazakhstan Western Standard Time (merged with Kazakhstan Central Standard Time) is 5 hours ahead of Greenwich Mean Time (GMT+5). Kazakhstan does not operate DaylightSaving Time (since 2005) Time zone UTC+6 (UTC+5) Administrative divisions: 14 provinces (oblystar, singular - oblys) and 3 cities* (qalalar, singular -
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and deputy prime ministers appointed by the president, with Mazhilis approval; note constitutional amendments of May 2007 shortened the presidential term from seven years to five years and established a two-consecutive-term limit; changes will take effect after NAZARBAYEV's term ends; he, and only he, is allowed to run for president indefinitely note: constitutional amendments of January 2011 moved election date from 2012 to April 2011 but kept five-year term; subsequent election to take place December 2016 election results: Nursultan A. NAZARBAYEV reelected president; percent of vote - Nursultan A. NAZARBAYEV 95.5%, other 4.5% Legislative branch: bicameral Parliament consists of the Senate (47 seats; 15 members are appointed by the president; 32 members elected by local assemblies; members serve six-year terms, but elections are staggered with half of the members up for re-election every three years) and the Mazhilis (107 seats; 9 out of the 107 Mazhilis members elected by the Assembly of the People of Kazakhstan, a presidentially appointed advisory body designed to represent the country's ethnic minorities; non-appointed members are popularly elected to serve five-year terms) elections: Senate - (indirect) last held in October 2008 (next to be held in 2011); Mazhilis - last held on 18 August 2007 (next to be held in 2012) election results: Senate - percent of vote by party NA; seats by party - Nur Otan 16; Mazhilis percent of vote by party - Nur-Otan 88.1%, NSDP 4.6%, Ak Zhol 3.3%, Auyl 1.6%, Communist People's Party 1.3%, Patriots Party 0.8% Ruhaniyat 0.4%; seats by party - Nur-Otan 98; note - parties had to achieve a threshold of 7% of the electorate to qualify for seats in the Mazhilis; changes to electoral legislation enacted since the 2007 election now ensure that the second-placed party will enter the Majilis at the next parliamentary election, even if it does not clear the 7% threshold Page 45
Figure 34President Nursultan A. NAZARBAYEV
Suffrage: 18 years of age; universal Executive branch: chief of state: President Nursultan A. NAZARBAYEV (chairman of the Supreme Soviet from 22 February 1990, elected president 1 December 1991) head of government: Prime Minister Karim MASIMOV (since 10 January 2007); First Deputy Prime Minister Umirzak SHUKEYEV (since 3 March 2009), Deputy Prime Ministers Yerbol ORYNBAYEV (since 29 October 2007), Aset ISEKESHEV (since 12 March 2010) cabinet: Council of Ministers appointed by the president (For more information visit the World Leaders website ) elections: president elected by popular vote for a five-year term; election last held on 3 April 2011 (next to be held December 2016); prime minister

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Judicial branch: Supreme Court (44 members); Constitutional Council (seven members) Political parties and leaders: Adilet (Justice) [Maksut NARIKBAYEV, Zeynulla ALSHIMBAYEV, Serik ABDRAHMANOV, Bakhytbek AKHMETZHAN, Yerkin ONGARBAYEV, Tolegan SYDYKOV] (formerly Democratic Party of Kazakhstan); Agrarian and Industrial Union of Workers Block or AIST (Agrarian Party and Civic Party); Ak Zhol Party (Bright Path) [Alikhan BAYMENOV]; Alga [Vladimir KOZLOV] (unregistered); Auyl (Village) [Gani KALIYEV]; Azat (Freedom) Party [Bolat ABILOV] (formerly True Ak Zhol Party); Azat NSDP [co-chaired by Bolat ABILOV and Zharmakhan TUYAKBAY]; Azat and NSDP united in 2009, but the authorities have refused to register Azat NSDP as a single party; Communist Party of Kazakhstan or KPK [Serikbolsyn ABDILDIN]; Communist People's Party of Kazakhstan [Vladislav KOSAREV]; National Social Democratic Party or NSDP [Zharmakhan TUYAKBAY]; Nur Otan [Bakhytzhan ZHUMAGULOV] (the Agrarian, Asar, and Civic parties merged with Otan); Patriots' Party [Gani KASYMOV]; Rukhaniyat (Spirituality) [Serikzhan MAMBETALIN] Political pressure groups and leaders: Adil-Soz [Tamara KALEYEVA]; Almaty Helsinki Committee [Ninel FOKINA]; Confederation of Free Trade Unions [Sergei BELKIN]; For Fair Elections [Yevgeniy ZHOVTIS (jailed), Sabit ZHUSUPOV, Sergey DUVANOV, Ibrash NUSUPBAYEV]; Kazakhstan International Bureau on Human Rights [Yevgeniy ZHOVTIS, executive director]; Pan-National Social Democratic Party of Kazakhstan [Zharmakhan TUYAKBAY]; Pensioners Movement or Pokoleniye [Irina SAVOSTINA, chairwoman]; Republican Network of International Monitors [Dos KUSHIM]; Transparency International [Sergey ZLOTNIKOV]
Figure 35 Flag of Republic of Kazakhstan.
Flag description: a gold sun with 32 rays above a soaring golden steppe eagle, both centered on a sky blue background; the hoist side displays a national ornamental pattern "koshkar-muiz" (the horns of the ram) in gold; the blue color is of religious significance to the Turkic peoples of the country, and so symbolizes cultural and ethnic unity; it also represents the endless sky as well as water; the sun, a source of life and energy, exemplifies wealth and plenitude; the sun's rays are shaped like grain, which is the basis of abundance and prosperity; the eagle has appeared on the flags of Kazakh tribes for centuries and represents freedom, power, and the flight to the future National symbol(s): golden eagle
Figure 36 Coat of Arms.
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National anthem: name: "Menin Qazaqstanim" (My Kazakhstan) lyrics/music: Zhumeken NAZHIMEDENOV and Nursultan NAZARBAYEV/Shamshi KALDAYAKOV note: adopted 2006; President Nursultan NAZARBAYEV played a role in revising the lyrics International organization participation: ADB, CICA, CIS, CSTO, EAEC, EAPC, EBRD, ECO, FAO, GCTU, IAEA, IBRD, ICAO, ICRM, IDA, IDB, IFAD, IFC, IFRCS, ILO, IMF, IMO, Interpol, IOC, IOM, IPU, ISO, ITSO, ITU, MIGA, NAM (observer), NSG, OAS (observer), OIC, OPCW, OSCE, PFP, SCO, UN, UNCTAD, UNESCO, UNIDO, UNWTO, UPU, WCO, WFTU, WHO, WIPO, WMO, WTO (observer), ZC Political system overview
Diplomatic representation in the US: chief of mission: Ambassador Yerlan IDRISSOV chancery: 1401 16th Street NW, Washington, DC 20036 telephone: [1] (202) 232-5488 FAX: [1] (202) 232-5845 consulate(s) general: Los Angeles consulate(s): New York Diplomatic representation from the US: chief of mission: Ambassador Richard E. HOAGLAND embassy: Ak Bulak 4, Str. 23-22, Building #3, Astana 010010 mailing address: use embassy street address telephone: [7] (7172) 70-21-00 FAX: [7] (7172) 34-08-90
Kazakhstan is officially a presidential republic. The first and only president is Nursultan Nazarbayev. Nazarbayev insisted that he and other Central Asian leaders be considered founding members of the new Commonwealth of Independent States. Nazarbayev still serves as president and advocates a secular Westernoriented regime, like that in Turkey, under authoritarian leadership. The president is also the commander in chief of the armed forces and may veto legislation that has been passed by the Parliament. The prime minister chairs the Cabinet of Ministers and serves as Kazakhstan's head of government. There are three deputy prime ministers and 16 ministers in the Cabinet. Karim Massimov has served as the Prime Minister since January 10, 2007. Kazakhstan is a presidential, rather than parliamentary, democracy. This means that the parliament has minimal power. Kazakhstans government headquartered in the newly founded capital of Astana. It has three branches: presidential, legislative, and judicial, as well as a Constitutional Court. The majority of political power is concentrated in the presidential branch of the government, headed by President Nazarbayev. The distribution of political power in Kazakhstan is similar to that in the United States. There are three branches of government: executive, legislative, and judicial. Each branch has equal freedom to act in the political process. The legislative branch is represented by Kazakhstans equivalent of the U.S. Congress. It creates new laws approved by vote of its members. The executive branch includes the president of the country, a prime minister, and members of the council of ministers, whose function is to implement new laws and to take care of every days business. The Supreme Court is representative of the judicial branch. It controls, regulates, and mediates important decisions. Page 47

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Figure 37 The Political System Structure.
The President The president of Kazakhstan at this writingand the only one elected to this office since the countrys independence in 1991is Nursultan Nazarbayev. A product of the earlier Communist political system, Nazarbayev has been active in politics since the late 1970s. A highly skilled politician, he was able to climb the Communist Party ladder to its highest position in Kazakhstan. . In 1989, as part of the new processes of perestroika and glasnost, Russian President Mikhail Gorbachev appointed a Kazakh, Nursultan Nazarbayev, to replace an ethnic Russian as the head of the Kazakh Communist Party. In December 1991, Kazakhstan declared its independence from the Soviet Union, and in early 1992, Nazarbayev was elected president of the country by popular vote. Nazarbayev used his experience and recognition to attract enough votes to be elected president. Soon he engineered a number of constitutional changes that resulted in the loss of many elements of traditional democracy. After changes to the constitution in 1993 and 1995, president Nazarbayevs power was drastically expanded and that of the legislative branch (parliament) was significantly reduced. The president is both the head of state and commander of the armed forces. He also has the power to block any of the parliaments legislation. The office of prime minister is secondary to that of president. Although the holder of this office is nominally the head of government, the president holds the power and can override any decisions made by the prime minister. Page 48

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Figure 38 Structure of Public Administration in Kazakhstan.
In 1999, Nazarbayev was reelected to a seven year term as president, receiving 81 percent of the vote. Many foreign observers, however, called the election well below acceptable international standards. In 2001, Nazarbayevs son-in-law, Rakhat Aliev, was accused of financial misconduct in a governmental position, but he was never prosecuted. Instead, he was transferred to another position and workplace. Because of obvious corruption at the highest level, Kazakhstans political and economical development has suffered greatly. The great hope for the country held by so many people a decade earlier simply has not been fulfilled. Page 49

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Figure 39 The Parliament interior.
Not only does President Nazarbayev maintain a tight grip on the countrys government, but his family members control many important industries, including banking, the oil industry, and the media. Parliament and the Administrative Branch The parliament is a bicameral (two branches), with the Mazhilis, or lower house, and Senate. Members of the Mazhilis are elected by popular vote from the districts they represent. Members of the Senate are elected from the 16 administrative divisions. Moreover, the president holds the right to appoint seven additional senators. Single mandate districts popularly elect 107 seats in the Majilis; there also are 10 members elected by party-list vote rather than by single mandate districts. The Senate has 47 members. Two senators are selected by each of the elected assemblies (Maslikhats) of Kazakhstan's 16 principal administrative divisions (14 provinces, plus the cities of Astana and Almaty). The president appoints the remaining 7 senators. Majilis deputies and the government both have the right of legislative initiative, though the government proposes most legislation considered by the Parliament.
Figure 40 Senate of Republic of Kazakhstan.
Figure 41 Mazhilis of Republic of Kazakhstan.
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Figure 42 Administrative-Territorial System of Republic of Kazakhstan.
On the regional level, Kazakhstan is broken up into 14 provinces, or oblasts (the equivalent of states in the United States), each with a mayor, or akim and the two city districts of Almaty and Astana. All oblast akims are appointed by the president. The chief executive of the oblasts in which Almaty and Astana are located appoints chief executives for these cities. For decades, Kazakhstans capital was in Almaty, its largest city, located in the far southeastern corner of the country. In 1998, however, the government decided to move the capital to Astana, a more centrally located city. Provinces are further divided into rayons (like a county in the U.S.) and cities, each with presidentially appointed leaders. Elections Elections to the Majilis in September 2004 yielded a lower house dominated by the pro-government Otan Party, headed by President Nazarbayev. Two other parties considered sympathetic to the president, including the agrarian-industrial bloc AIST and the Asar Party, founded by President Nazarbayev's daughter, won most of the remaining seats. Opposition parties, which were
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officially registered and competed in the elections, won a single seat during elections that the Organization for Security and Cooperation in Europe said fell short of international standards. In 1999, Kazakhstan applied for observer status at the Council of Europe Parliamentary Assembly. The official response of the Assembly was that Kazakhstan could apply for full membership, because it is partially located in Europe, but that they would not be granted any status whatsoever at the Council until their democracy and human rights records improved. On December 4, 2005, Nursultan Nazarbayev was reelected in a landslide victory. The electoral commission announced that he had won over 90% of the vote. The Organization for Security and Cooperation in Europe (OSCE) concluded the election did not meet international standards despite some improvements in the administration of the election. Xinhua News Agency reported that observers from China, responsible in overseeing 25 polling stations in Astana, found that voting in those polls was conducted in a "transparent and fair" manner. On August 17, 2007, elections to the lower house of parliament were held and a coalition led by the ruling Nur-Otan Party, which included Asar Party, Civil Party of Kazakhstan and Agrarian Party, won every seat with 88% of the vote. None of the opposition parties have reached the benchmark 7% level of the seats. This has led some in the local media to question the competence and charisma of the opposition party leaders. Opposition parties made accusations of serious irregularities in the election. In April 2011, Nursultan Nazarbayev was reelected to a five-year term as Kazakhstans President. In 2010 President Nazarbayev rejected a call from constituents to hold a referendum to keep him in office until 2020 and, instead, insisted on an election to be held in April 2011. President Nazarbayev received 95.54 percent of the vote with 89.9 percent of registered voters participating. Many observers lauded the substantial progress toward Kazakhstans democracy. Nazarbayev outlined the progress Kazakhstan has experienced in an OP-ED in the Washington Post in March 2011. The Republic of Kazakhstan is secular independent state, with presidential form of government. The President of Kazakhstan is Nursultan Nazarbayev, re-elected in April, 2011 for the next 5 years generating 95.5% of total votes.
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The Judicial Branch In 1995 Kazakhstans constitution was changed to divide the countrys judicial branch into two courts: the Supreme Court and the Constitutional Council. In theory, at least, the Supreme Courts responsibilities are very similar to those of the U.S. Supreme Court. It holds the final word in interpreting the countrys laws. The Constitutional Council rules over irregularities in the political process. The countrys president appoints the chairman of the Council, who is the most powerful judge of the seven in the group. The Constitutional Councils main responsibility is to make decisions in cases of election fraud and other unconstitutional activities by any political party or individual. The president, of course, can strongly influence, if not control, this bodys membership through appointments and other means. The bodys credibility was further eroded in 1995 when the constitution was changed to give all former presidents a seat on the Council. Kazakh Political Opposition Nazarbayev did not destroy the political life of the country, as was the case in some neighboring CIS countries, such as Uzbekistan and Turkmenistan. He also did not allow internal conflicts to escalate, as happened in Tajikistan, which suffered through a civil war (1992-1997) in which up to 100,000 people lost their lives and about 1 million people became refugees and internally displaced persons.10 No revolution swept the regime aside, as occurred in Kyrgyzstan in 2005. In the 1990s, a number of political parties registered in Kazakhstan, including the opposition Socialist party, the Democratic Party, National Democratic Party, and the Peoples Congress Party of Kazakhstan. Until the end of the 1990s, Serikbolsyn Abdildin, ex-chairman of the last Supreme Soviet of the Kazakhstan Soviet Socialist Republic, led the Communist Party of Kazakhstan. The Peoples Opposition Communist Union, a part of the Democratic Choice of Kazakhstan electoral bloc in the parliament, included a Communist faction until 2004. That year, as Democratic Choice received only 3.44 percent of the vote, the communists received no seats in the parliament. In the mid-1990s, the major opposition figures came from the ranks of former high level government officials disillusioned with the expanding presidential powers. In April 1996, ex-Ministers Petr Svoik and Galim Abilsiitov created the new Azamat movement, officially registered as a party in March 27, 1999. Lacking funds and connections, the group did not emerge as a serious political challenge to President Nazarbayevs rule. Ex-prime minister Akezhan Kazhegeldin joined the ranks of the opposition in 1998 with appeals for the promotion of democratic values in Kazakhstan. In early 1999, supported by some smaller groups, Kazhegeldin founded the Republican Peoples Party of Kazakhstan (RPPK). However, changes in the election laws disallowed him from running for office in the 1999 presidential elections, and the RPPK did not get any seats in the 1999 parliamentary elections.In October 1999, Page 53

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Kazhegeldin led the Forum of Democratic Forces of Kazakhstan (FDPK) in another attempt to rally the opposition. However, the group suffered from internal conflict and the government succeeded in suppressing its activity. In addition to increased political activism, Kazakhstans civil society has also experienced rapid development. In the period from 1995 to 2005, the number of nongovernmental organizations (NGOs) grew from 400 to 5,000. Although many of these engage in cultural and community activity, some have been working on rule of law and democratization initiatives, often supported by foreign grants and economically powerful Kazakh opposition figures. Also during this period, drastic changes occurred in the Kazakh media, with over 2,000 media outlets publishing in the country supported by various political forces, including the radical opposition. Eighty percent of all media in the country was (and is) privately owned. However, some media channels were close to the president, and oneKhabar media holdingswas even, for a while, owned by Nazarbayevs daughter Dariga Nazarbayeva. While some media opposed the presidency and the ruling group, others were loyal. Main opposition forces in the 2000s. Many of the opposition figures in the early 2000s came from the ranks of Kazakhstans new business elites, who had gained control over some of the countrys most lucrative industries during the 1990s privatization of state property. Key figures combining financial power and political influence included Mukhtar Ablyazov, energy minister and head of the Astana-Holding investment group; Zeinulla Khakimzhanov, state revenues minister, well connected to Kazkommertsbank, the leading financial group, and others. To date, Nazarbayev has been able to balance the interests of various factions competing for control of property and industrial assets, and to play them off against each other. Kazakhstans domestic business heavyweights grew dissatisfied with their declining influence as Nazarbayevs administration began pushing for greater economic control while welcoming foreign investment in major industries. According to some experts, the authorities were also considering a consolidation plan for major industries into national companies under state management. Economists viewed this plan as potentially benefiting those in the presidents closest circle at the expense of other influential business groups. In November 2001, opposition Page 54

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politicians from among the Kazakh business elite, some holding high government posts, founded the Democratic Choice of Kazakhstan (Demokraticheskiy Vybor Kazakhstana, or DVK in Russian) movement. Main figures in the new movement included the previously mentioned Mukhtar Ablyazov, the youthful Uraz Dzhandosov, then-Deputy Prime Minister and Finance Minister, and Galimzhan Zhakiyanov, ex-Governor of the Pavlodar region. The DVK proclaimed its commitment to greater economic liberalization and decentralization, as well as anti-corruption efforts. However, it was also a rather clear-cut attempt on the part of members of the group to secure their own economic and political interests by limiting Nazarbayevs power. The president reacted by sacking some of the DVK-connected officials, while a number of major figures resigned. Meanwhile, older-generation opposition activists formed another political group the United Democratic Party (UDP)in 2001. While welcoming the DVKs anticorruption and pro-democracy stance, the opposition veterans were generally suspicious of the DVKs ties to the government and its more tolerant position towards Nazarbayev. Beginning in 2002, the government began pushing back on the independent media and freedom of expression in response to the growing influence of the oppositionist camp. According to Western observers, a more moderate group led by Dzhandosov and Abilov split off from the DVK and founded the Ak Zhol [Bright Path] Party with a more centrist course reaching out to Nazarbayevs regime in early 2002. Ak Zhol offered mild criticism of some policies, including the 2004 amendments to the election law and suppression of journalists rights.16 The Kazakh judiciary arrested the two DVK leaders, Ablyazov and Zhakiyanov, who allegedly threatened to disclose sensitive information on large-scale corruption among the top authorities. The charges against Ablyazov and Zhakiyanov included abuse of power during their government tenure. Engaging the opposition in the mid-2000s. The January 2005 ban on the Democratic Choice of Kazakhstan (DVK), as well as a split in the Ak Zhol opposition party, weakened the Kazakh opposition forces. The authorities accused the DVK of public protests, including civil-disobedience campaigns and of calling the Kazakh authorities anti-people. The Almaty city court then proceeded to ban the DVK.21 A new opposition party Alga! [Forward!], set up in 2005 to succeed the banned DVK, repeatedly failed to secure official registration. Meanwhile, after the 2005 split in Ak Zhol, triggered by personal conflict and an internal party leadership struggle, the former Ak Zhol co-chairmen, Altynbek Sarsenbayev and Bolat Abilov, created Naghyz Ak Zhol [The True Bright Path] party. As is discussed later, Sarsenbayev was assassinated in 2006. Currently, the main opposition movements in Kazakhstan enjoy access to funding from influential supporters that could help sustain them in a prolonged struggle against the incumbent authority. In March 2005, the leaders of the major opposition forces, including Ak Zhol, the Communist Party, the DVK, and the Republican Peoples Party of Kazakhstan, formed the For a Page 55

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Just Kazakhstan (FJK) Coalition, intended to nominate a unified candidate for the 2005 presidential elections and lead the country out of the crisis. The FJK cleared state registration in August 2005 and became the only official opposition force in Kazakhstan.24 However, a bid by FJKs leader, former Prosecutor General Zharmahan Tuyakbai, for the presidency turned out to be unsuccessful. In September 2006, Nazarbayev held a meeting with Tuyakbai in Ak-Orda, the impressive Kazakh presidential residence in Astana. To ensure proper dialogue with the opposition, the President invited the leaders of the FJK movement to take part in the State Commission for Democratization. In 2002, a local court sentenced Galimzhan Zhakiyanov, founder of the Democratic Choice of Kazakhstan opposition movement, to seven years in prison for the embezzlement of budgetary funds and abuse of office while serving as governor of the Pavlodar region. Zhakiyanovs supporters and international human-rights watchdogs, including Amnesty International, declared that his imprisonment was politically motivated.25 In February 2006, the authorities released him from prison prior to completing his sentence under a provision permitting parole after a one has served half of the sentence. In 2004, the authorities also pardoned and released another DVK founder, Mukhtar Ablyazov, sentenced in 2002 to six years in jail for illegal enterprise and abuse of power. Since 2005, he has been heading one of the largest banks in Kazakhstan, Turan Alem. Deaths of prominent opposition activists. In 2005-2006, the deaths of two opposition politicians, Zamanbek Nurkadilov and Altynbek Sarsenbayev, soured what appeared to have been a thaw in presidential relations with the Kazakh opposition. Nurkadilov was found dead at his family home in Almaty with a revolver by his side in November 2005, during the run-up to the 2005 presidential vote. The official investigation determined his death was a suicide. Yet Western observers, along with his family lawyer, found it suspicious that the former emergencies minister and mayor of Almaty somehow managed to shoot himself in the chest twice before delivering a final shot to the head.26 The Kazakh state leadership had sacked Nurkadilov after making accusations of corruption as part of the so-called Kazakhgate scandal, which involved massive bribes to Kazakh officials in exchange for access for Western oil companies to Kazakhstans giant hydrocarbon fields. Altynbek Sarsenbayev was kidnapped and found dead in February 2006 near Almaty in his car, with his driver and bodyguard shot. The police apprehended his paid assassins. Sarsenbayev had served as Secretary of the National Security Council, information minister and ambassador to Russia before joining the opposition in 2003. He co-chaired the Naghyz Ak Zhol
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opposition party and was a fierce critic of the authorities over the Kazakhgate corruption scandal and other issues. A Kazakhstan judiciary convicted Erzhan Utembayev, a senior parliamentary official and chief of administration of the Senate, of ordering Sarsenbayevs murder. The appeals courts commuted his death sentence to life in prison. The courts also convicted a former police officer, Rustam Ibragimov, of carrying out the execution, and eight other defendants, some of them members of an elite unit from the National Security Committee (KNB), were given sentences of between three and 20 years. The prosecution concluded that the assassins acted in revenge for an article penned by Sarsenbayev attacking Utembayev.28 The opposition contend s that the convicted offenders were mere scapegoats, and that the story of the real instigators was being covered up.29 While from a legal perspective the police and the prosecutors solved both cases, some critics join the Kazakh opposition in expressing doubts about the conclusions of the investigations. The defection of Rakhat Aliyev. The case of Rakhat Aliyev illustrates personal and factional power struggles among the Kazakh elite at the highest level. In 2007, Nazarbayev moved to reduce the political powers of potential rivals for succession, including those of his two sons-in-law. Aliyev had served as deputy chief of the Committee for National Security (known as the KNB), and as Nazarbayevs ambassador to Austria and the OSCE, as well as holding the office of Deputy Foreign Minister. Nazarbayev sent Aliyev off to Vienna in February 2006 to isolate him and prevent him from making any moves on the domestic front. After a return visit to Kazakhstan in May 2007, Aliyev fell further from grace by harshly attacking the regime and his father-in-law personally, threatening to reveal alleged information on massive corruption, including the Kazakhgate affair (see below). Later, in October 2007, he attempted to implicate Nazarbayev in personal involvement in the 2006 assassination of opposition leader Altynbek Sarsenbayev. Several independent media outlets, online publications, and weekly printed newspapers faced pressure from the Kazakh authorities after publishing materials related to Aliyevs case. The controversy was of such magnitude that it could not have stayed low profile even in Kazakhstans domestic media. According to Aliyev, he fell out of favor after making his aspirations to become the next president of Kazakhstan known to Nazarbayev. However, as the unpopular former de facto chief of the Kazakh security services, Aliyev would have been an unlikely winner in a presidential election, as many in the elite vehemently opposed him. The Kazakh Prosecutor Office issued a warrant for Aliyevs arrest on charges including fraud and the kidnapping of two officials from the Nurbank bank, where he then owned a majority share. Since being Page 57

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charged, Aliyev has remained in Vienna, fighting extradition. Kazakhstan even sent a planeload of officials, headed by the Prosecutor General, to bring the fugitive home. However, the Austrian authorities, who briefly detained Aliyev in June 2007, have to date refused to extradite him, fearing that he would not receive a fair trial. Dariga Nazarbayeva, the Presidents eldest daughter, has divorced her renegade husband. Aliyevs trial in absentia opened in Kazakhstan in November 2007, with a Kazakh military court taking over the case in January 2008. The court found that he had funded the training of mercenaries in Israel and Egypt, with the aim of toppling the Kazakh government. In March 2008, the court sentenced Aliyev to 20 years in jail on charges ranging from embezzlement and kidnapping to plotting to overthrow the president. Along with him, the court convicted the former head of the KNB, Alnur Musayev, of crimes committed during his time in office, including abuse of power, embezzlement of state property, unauthorized acquisition of state secrets, and theft of firearms and ammunition. According to Western sources, although the authorities have stripped Aliyev of his wealth, the Nurbank financial group is still under control of the presidents family. Dariga Nazarbayeva has become Nurbanks largest shareholder, with an over 36 percent stake, while Nurali Aliyev, the son of Rakhat Aliyev and Dariga Nazarbayeva, has been chairing the board of Nurbank since October 2007. Nazarbayev also dismissed his second son-in-law, Timur Kulibayev, from his post as deputy chairman of the Samruk State Holding Company in September 2007. Nevertheless, some believe that Kulibayev controls Kazkommertzbank (KKB), and sits on KazMunayGazs Board of Directors. Although generally staying low profile and not overtly engaged in politics, his family and business connections still make him a powerful insider who could potentially contend for power. Political rebalancing. Following the downfall of Rakhat Aliyev, Nazarbayev moved to restore the balance of power between Kazakhstans competing political clans. A 2007 investigation into illegal construction in protected areas around Almaty was part of the political power shift. Imangali Tasmagambetov, the former mayor of Almaty and former head of the presidential administration, is an influential figure loyal to Nazarbayev, with a broad power base and a breadth of experience in state management, who also enjoys particular support among Kazakh-speaking intellectuals. Some at times mention him as a potential presidential successor. Some observers viewed the investigation into Almaty construction as targeting Tasmagambetov, yet he emerged with his power base intact after the state commission completed its inquiry and found no abuse of office on his part. However, several officials lost their posts in
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connection with land misallocation, including deputy mayors Yakov Zayats and Kayrat Bukenov; deputy governor ofthe Almaty region Alikhan Toybayev; and three district officials. Viktor Khrapunov, another former mayor of Almaty, also lost his post as emergencies minister because of irregularities in land allocation during his tenure. The personnel reshuffling carried out in late 2007 appeared to indicate a desire on Nazarbayevs part to strengthen his position in the face of a likely slowdown in economic growth and potential political difficulties in the wake of Rakhat Aliyevs trial. However, he may have secured a tighter grip on power at the expense of increasing the level of dissatisfaction among entrepreneurs and Kazakhstans growing middle class over abuses on the part of the bureaucracy, the rise in corruption, and excessive state regulation of the economy. The business community and Western policymakers hope the Kazakh political system will evolve toward an institutions- and rules-based polity. Many experts agree that Kazakhstan should allow for a broader political space and the greater participation of opposition groups and parties in strengthening the ruleof-law and fighting corruption in the country. Corruption It is hard to document the extent of corruption in the absence of independent media and access to credible information. What might justly be named under corruption, when we define the concept in a broader perspective is the speedy and nontransparent privatization of key industries in the 1990 which created the powerful support base of Nazerbayev20 which control the most important economic and political positions in the country. The presidents daughter for example controls some of these prominent groups and Nazerbayev s second son in law(Kulibaev) controls oil and financial networks. For ordinary citizens or independent NGOs charging high-ranked officials for corruption is [almost] impossible due to the absence of an independent judicial system. During the privatization oil was the biggest and most corrupt part of the alienation of public resources. In Kazakhstan the sales of 1995-97 were seen as disposing of state assets at give-away prices to well-connected people or foreigners. In addition to the problems associated with the privatization process already mentioned many of the Soviet Union transition economies,the government did not allow foreign bidders, at the early stage of transition while few domestic resources of their own leading to bank lending which were often still controlled by the government. Due to the former it can be claimed that one pocket of the government was giving money to another pocket through an intermediary, while giving the private party the upside potential. What happened in many countries -and Kazakhstan by far not being an exception to this- is that the rapid privatization occurred before the institutional infrastructure a developed legal system, a tax administration that could collect the revenues due, a corporate governance structure that could mitigate agency problems within firms, or financial institutions that could provide money to finance needed investments to realize the full value of the resources- was in place.
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The latter gave opportunities for corrupt practices in addition to inefficiency and the loss of a potential increase in revenues. Privatization can increase the scope the opportunities and incentives that is- for corruption when the potential for connivance between government officials and others for diverting resources away from the public sphere increases. That is not to say that under government rule national resources are in better hands since large amounts of resources under government control can also increase corruption practices. Privatization, under the right rules and thus aided with strong institutions- however hampers the opportunities for corrupt practices. It is vital that the governmental institutions are strengthened before the privatization occurs. As seen in the corruption rates of Kazakhstan, it might have been better for Kazakhstan to strengthen the institutions before they engaged in privatization, however as described in the above relation of social composition and privatization, the government then would not be able to use the privatization rents for nation building. Corruption is one form of an agency problem, and the set of rules governing the extraction of the countrys national resources affects the magnitude of the agency problem. The ownership of the natural resources of a country is an attribute of sovereignty, which according to modern political theory- belongs to the people, thus the people are the principal. However, the foreign oil and mining companies in Kazakhstan as well as almost by definition in any other case, need to obtain concession rights from the rules of the country, thus the Nazerbayev regime, which are not the principals, instead they are or at least they should be agents of the people. In their agency role the government had thus decided to privatize the national resources in order to overcome the division in society, thereby fulfilling its role as the agent for the principal although the corruption practices of the agent here in some sense pollute its agency role. Conclusions
Figure 43 Democracy Index.
According to Freedom House, an international organization that measures the freedom of countries around the world, Kazakhstan is seen as not free (NF) (2010) regarding individual freedom, and similarly not free regarding press freedom (latest 2009). Further more in its report of 2010, Freedom house stated that the trend of freedom is downwards (Piano et al. 2010, Freedom house). The organization further the rentier effect, however is applicable to Kazakhstan since here the government is using its (often abundant) natural resources to relieve social pressures that might otherwise lead to demands for greate r accountability. The rentier effect
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can occur in at least three different (or combined) forms. The taxation effect argues that in the absence of taxation, the public will become less likely to demand accountability from and representation in their government. The second component is the spending effect which states that oil wealth leads to greater spending on patronage, which in turn dampens latent pressures for greater democratization. In this second component we might say that the government is paying for not representing the population; in the trade-off representation and high public spending the government chooses the latter. The third component is class formation (effect) which states that the oil revenues provide a government with sufficient abundant revenues, which the government can and does use (partial) to prevent social group formation independent form the state (the ruling class in the state) and demand political rights. The third component is also applicable to Kazakhstan which by it public spending and established elite is preventing independent organizations from emerging or at least preventing them from becoming a threat to the established elite in Kazakhstan. Given that a country with former domination, an ethnically divided and Muslim dominated society is able to democratize, Kazakhstan with relatively similar characteristics could (in theory) also democratize despite the generally found negative relation between natural resource abundance and political development. Today, Kazakhstan still lags far behind the worlds developed countries. Young democracies attempting to develop in post communist societies tend to be quite different than the older, well-established democracies of Western nations. Sometimes a huge gap divides democratic ideals and actual political reality. Often, the executive branch of government is at fault. Corruption is rampant. Nepotism, the hiring of family members, is a common practice. And country leaders are often authoritarian, exercising much more power than they are granted by the constitution. The executive branch often blocks the work of other governmental units, while at the same time accumulating powerand often wealthin its own hands.
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Economy
Overview Kazakhstan, geographically the largest of the former Soviet republics, excluding Russia, possesses enormous fossil fuel reserves and plentiful supplies of other minerals and metals, such as uranium, copper, and zinc. It also has a large agricultural sector featuring livestock and grain. In 2002 Kazakhstan became the first country in the former Soviet Union to receive an investment-grade credit rating, and fro m 2000 through 2007, Kazakhstan's economy grew more than 9% per year. Extractive industries, particularly hydrocarbons and mining, have been the engines of this growth. However, geographic limitations and decaying infrastructure present serious obstacles. Landlocked, with restricted access to the high seas, Kazakhstan relies on its neighbors to export its products, especially oil and gas. Although its Caspian Sea ports and rail lines carrying oil have been upgraded, civil aviation has been neglected . Telecoms are improving, but require considerable investment, as does the information technology base. Supply and distribution of electricity can be erratic. At the end of 2007, global financial markets froze up and the loss of capital inflows to Kazakhstani banks caused a credit crunch. The subsequent and sharp fall of oil and commodity prices in 2008 aggravated the economic situation, and Kazakhstan plunged into recession. While the global financial crisis took a significant toll on Kazakhstan's economy, it has rebounded well. In response to the crisis, Kazakhstan's government devalued the tenge (Kazakhstan's currency) to stabilize market pressures and injected $19 billion in economic stimulus. Rising commodity prices have helped revive Kazakhstan's economy, which registered 7% growth in 2010. Barring a dramatic decline in oil prices, strong growth is expected to continue in 2011. Despite solid macroeconomic indicators, the government realizes that its economy suffers from an overreliance on oil and extractive industries, the so-called "Dutch disease." In response, Kazakhstan has embarked on an ambitious diversification program, aimed at developing targeted sectors like transport, pharmaceuticals, telecommunications, petrochemicals and food processing. The Kazakh economy -which will be described more extensively in this chapter - is highly dependent upon the natural resources it holds in particular oil and gas. As the figure below of the World Trade Organization (WTO) shows Kazakhstans crude oil exports as a percentage of GDP is quite high, although not as high as the other oil producing countries like Libya, Angola and Iraq. Nevertheless the country is dependent upon the exports and the volatility of the natural resources of the country with its volatility and finity make a reliance on these products unsustainable. Additional to Kazakhstans oil and gas reserves the country holds large deposits of minerals, cooper, lead, and gold. After independence the exploitation of these minerals required significant (foreign) investments. The grades of ore in Kazakhstan were low to mediocre and their long-term competitive advantage was weak and the willingness of foreign investors would consequentially also be weak. The energy sector thus had the most potential for economic growth and which would be if successful- the engine to nation building and state development in Kazakhstan. Nevertheless Kazakhstan is also exploiting its non-fuel minerals, and contrary to the latter, also contributed quite significantly to the total exports of the country. The Page 62

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energy sector was and is however the most attractive for foreign investors. At independence the country needed investments from abroad since the energy sector was highly undeveloped and technologically weak leading to large inflows of foreign direct investments attracted by the new liberalized policies of the government. Kazakhstan already in the first several years of independent statehood completely privatized its energy sector by selling the majority of shares in formerly state-owned oil and gas enterprises to foreign investors. Uzbekistan and Turkmenistan at the other end maintained full state ownership, while Russia and Azerbaijan are in the middle of both approaches. At independence Kazakhstan (like Azerbaijan) lacked an alternative to Figure 44 Kazakhstan's Crude Oil Export as Percentage of GDP, in Comparison with other oil producing states. energy as the primary source of export revenue since agriculture which employed 36% of the population was only good for between 8 and 10 percent of total export incomes. Somewhat differently measured that the WTO, we can see from the 2007 report of the United Nations Conference on Trade and Development that from the countries that are most dependent on fuel exports, Kazakhstan with a 35 percentage dependency as a percentage of total exports ranks 4rth (with only Iran, Kuwait and Algeria above it with an even higher dependency). Additionally, as noted before, the non-fuel energy mineral exports also contribute significantly to the total exports of the country. Looking at the dependency on exports of the nonfuel minerals, we can see that Kazakhstan ranks very high here as well since it ranks 5th on those countries most dependent upon exports of the non-fuel minerals (UNCTAD 2007). In this thesis the dependency on the total resources of the country will be discussed with particular attention to the fuel export dependency. Growth Performance Kazakh growth performance in the past several years has been impressive. After several years of sharp contraction before and after the countrys independence in 1991 and sluggish expansion in the late 1990s, Kazakh economic growth averaged 10.4 percent in the period 20002004. Oil exports, with world prices rising and total oil production increasing, have driven growth. Oil production has risen at an average of 15 percent annually between 2000 and 2004, thanks largely to significant foreign investment. As a result, Kazakhstans oil exports rose from 524,000 barrels per day (bpd) in 2000 to 997,000 bpd in 2004.This exceeded the range predicted by the GDP growth regression (Figure 45, Real GDP Growth). At the same time, though, high economic growth rates were not unusual for low middle income former Soviet republics (LMI-FSR). For example, in the 20002004 period, the economies of Armenia and Azerbaijan expanded at roughly the same pace, with Azerbaijan also having oil as its number one export. Measured in current U.S. dollars, per capita GDP more than doubled from 2000 through 2004, reaching $2,715. Kazakhstan exceeds the averages in the low middle-income (LMI) countries ($1,917), and the LMI-FSR ($2,130). Page 63

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Kazakhstan also outperforms these comparator groups when GDP per capita is measured in PPP terms. Kazakhstans per capita GDP in PPP terms stood at $7,418 in 2004, compared to an average of $6,910 in the LMI-FSR and $5,573 in LMI countries. At the same time, Kazakh per capita GDP measured in current dollars remains substantially below the levels found in Bulgaria ($3,074), Romania ($3,207), and Russia ($4,093), and this is true when measured in PPP terms as well.
Figure 45 Real GDP Growth, percent comparison.
Economic growth in Kazakhstan benefited from a virtuous circle in which rising employment increased domestic demand, which helped lower unemployment further. However, in terms of basic growth, most of the contribution to growth came from increased labor productivity. Labor productivity averaged 8.7 percent in 20002004. Although this figure was below the rate of 9.8 percent found in the LMI-FSR countries, it is still high and far exceeded labor productivity growth in the LMI countries (2.1 percent), Bulgaria (4.7 percent), Romania (4.7 percent), and Russia (7.4 percent). In a way consistent with high labor productivity growth, fixed capital investment averaged 22.2 percent of GDP in the 20002004 period, though private investment was more volatile (Figure 46, Gross Fixed Investment). Although this performance is reasonable, it was not as good as the LMI-FSR average (23.7 percent). Labor productivity growth in Kazakhstan possibly benefited from improved capacity utilization, a trend observed in many transition countries. The main challenge for Kazakhstans economy is to maintain strong growth while diversifying and relying less extensively on crude oil exports. Oil production is not generally labor intensive, and in a country with high unemployment and a substantial share of Page 64

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employment in low- productivity agriculture, labor-intensive manufacturing should be promoted, and employment thereby created.
Figure 46 Gross Fixed Investment, percent of GDP.
Poverty and inequality Kazakhstans poverty indicators are mixed. On the positive side, the poverty headcount according to the national poverty line has dropped rapidly in recent years, falling from 31.8 percent in 2000 to just 16.1 percent in 2004. The poverty headcount is well below the regression benchmark of 34.4 percent for a country with Kazakhstans characteristics. Although cross-country comparisons must be made with caution because national definitions of poverty vary widely, Kazakhstans performance was in line with those of Russia (17.8 percent) and Bulgaria (12.8 percent) and well below those of the LMI-FSR countries and Bulgaria, at 50.0 percent and 29.6 percent, respectively. Kazakhstan also performed well in terms of share of the population living on less than $1 PPP per day in absolute terms, with only 2 percent of the population at this level. This is generally comparable to the level found in other LMI-FSR countries (2.7 percent), Romania (2.0 percent), and Russia (2.0 percent). It was less than half the level found in Bulgaria, at 4.7 percent, or the average for LMI countries, at 4.2 percent. Despite this good performance, more needs to be done to reduce poverty in Kazakhstan. For example, 13.0 percent of the population does not meet minimum dietary requirements. (Figure 47, Population below Minimum Dietary Consumption). Kazakhstans rate is slightly worse than the average for the LMI-FSR countries and the Page 65

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rate of Bulgaria, but it is much worse than Romanias and Russias rates. Furthermore, more than a quarter of the population still lives in crowded conditions and rural poverty is nearly double the urban rate. Regional disparities are also significantin 2002 poverty ranged from 2 percent in some oblasts to 32 percent in others. Donor support and technical assistance in drafting a Poverty Reduction Strategy Paper (PRSP) would be a good first step in reducing poverty throughout Kazakhstan.
Figure 47 Population below Minimum Dietary Energy Consumption, percent.
ECONOMIC STRUCTURE Labor Force Kazakhstans employment structure is broadly similar to that of other countries in the LMI-FSR group, with a large share in agriculture and services and a small share in industry. The average share of employment in industry for 20002004, at 16.9 percent, compared favorably with the 10.8 percent for LMI-FSR countries, but it is well below the range of 2530 percent found in the more industrialized countries of Bulgaria, Romania, and Russia. From 2000 through 2004, 33.1 percent of Kazakhs were employed in agriculture, compared to an average of 40.0 percent in the LMI-FSR region. Kazakhstan fell in the middle of the comparator countries, Page 66

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below the 42.3 percent in Romania, but above the 26.3 percent in Bulgaria and 11.8 percent in Russia. Although agricultures share in employment is in line with the regional average, the agricultural sector suffers from low productivity, so although Kazakh agriculture employs one-third of workers, it accounts for only 8.5 percent of added value (Figure 48, Output and Labor Force Structures). The agricultural sector produces less in Kazakhstan relative to the economy as a whole than the average in LMI-FSR countries (14.1 percent), or than Bulgaria (11.7 percent) or Romania (11.9 percent). Also, the share of the services sector in Kazakhstan (52.0 percent) is smaller than the average for the LMI-FSR region (53.9 percent), Bulgaria (57.5 percent), and Russia (60.7 percent).
Figure 48 Output and Labor Force Structures, percent.
Industrial added value in Kazakhstan was 39.5 percent of the total in 2004, slightly higher than the rates in the comparator countries and country group. Most of this added value comes from oil and mining. In 2004, the industrial oil sectorincluding oil extraction and refining and oil-related constructionaccounted for 15.9 percent of total added value in 2004, a 2.3 percentage point increase from 2000, and mining accounted for 14.7 percent. The little manufacturing that does existthe extraction and processing of raw materialsderives from these two sectors. Machine building, for example, made up only 3.3 percent of industrial production (excluding construction) in 2004. By contrast, in Russia, despite its perceived reliance on raw materials, the share of machine-building equaled 22.2 percent of the total in the same year. Small and medium-sized enterprise (SME) activity has expanded rapidly in Kazakhstan, with most small enterprises in trade, then in construction and real estate.. According to the USAID Enterprise Development Project implemented by the Pragma Corporation, employment at small enterprises rose 20.9 percent between 2000 and 2003.5 The share employed by small enterprises in total employment rose by about one percentage point, reaching 17.3 percent, in the same period. Page 67

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The contribution of SMEs to the added value generated by the Kazakh economy rose from 32.0 percent in 2000 to 55.3 percent in the first nine months of 2004. Given current world commodity prices and the abundance of natural resources in Kazakhstan, the high contribution of mining to the economy and, in particular, the oil sector, is justifiable. However, the country needs to diversify industrial production for several reasons: to reduce its susceptibility to external price shocks, to move into sectors with greater potential for increasing added value, and to help create more employment through the promotion of labor-intensive sectors. Creating business opportunities in rural areas to relocate agricultural workers to more productive occupations would help in this regard. Private SectorEnabling Environment This section reviews indicators for key components of the enabling environment for encouraging rapid and efficient growth of the private sector. Sound fiscal and monetary policies are essential for macroeconomic stability, which is a necessary (though not sufficient) condition for sustained growth. A dynamic market economy also depends on basic institutional foundations, including secure property rights, an effective system for enforcing contracts, and an efficient regulatory environment that does not impose undue barriers on business activities. Financial institutions play a major role in mobilizing and allocating saving, facilitating transactions, and creating instruments for risk management. Access to the global economy is another pillar of a good enabling environment, because the external sector is a central source of potential markets, modern inputs, technology, and finance, as well as competitive pressure for efficiency and rising productivity. Equally important is development of the physical infrastructure to support production and trade. Finally, developing countries need to adapt and apply science and technology as a basis for attracting efficient investment, improving competitiveness, and stimulating productivity growth. Fiscal and monetary policy Overall, Kazakhstans fiscal and monetary policies are sound.15 The government has run a budget surplus since 2001, and that is expected to continue in 2005 (Figure 49, Government Budget Balance). The performance is as good as or better than the benchmark values considered. When oil proceeds are excluded from government revenues, the government runs a deficit (4.7 percent in 2004). The IMF has calculated that this deficit is sustainable but needs to decline gradually over time. Government expenditure stood at 23.3 percent of GDP in 2004, on par with the regression benchmark of 20.1 percent and Russias expenditure of 22.9 percent, though below the levels seen in Bulgaria (37.5 percent) and Romania (32.3 percent). According to the IMFs 2005 Article IV report, the government has been under political pressure to spend rising oil revenues, to which it has responded in two ways. First, it created the NFRK in 2001 to reduce the economic impact of volatile oil prices and serve as a vehicle for Page 68

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saving part of Kazakhstans oil income for future generations. Second, the government has initiated substantial increases in social spending to improve living standards equitably, increase the social safety net for the financially vulnerable, and make public sector employment competitive with employment in the private sector.
Figure 49 Government Budget Balance, percent of GDP.
Spending increases include the introduction of a basic pension system, a large increase in wages for education and health workers and the basic civil service, and increases in direct spending on health, education, and capital investment. Although greater social spending is welcome, the situation must be monitored closely. First, social spending could generate inflationary pressures, especially in light of the fact that civil service salaries are due to increase by another 30 percent in 2007. Second, authorities need to determine if this is fiscally sustainable. Government revenue has risen as a percent of GDP, increasing from 21.6 percent in 2000 to 26.0 percent in 2004. Although still below the revenue in Bulgaria (38.0 percent), Romania (29.9 percent), and Russia (27.4 percent), government revenue is above the regression benchmark (21.5 percent) and demonstrates improved revenue mobilization. Much of the increase can be attributed to increased tax revenue from taxes on goods, services, and income, despite an income tax cut in 2004. The government is considering further sizable tax cuts to stimulate non-oil growth. Such plans must take into consideration the availability of funds and the impact of the 2004 tax cuts. Furthermore, greater attention needs to be paid to how oil revenues, which account for nearly 30 percent of revenue, are handled. Plans are for all central government oil revenues to pass through the NFRK, and to set the non-oil deficit equivalent to developmental spending, to be financed by the NFRK.18 Although this development is welcome and an opportunity to increase transparency and accountability in oil revenue and Page 69

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spending, as the IMF notes, overall spending plans need to take include a comprehensive look at fiscal sustainability. Kazakhstans monetary policy is sound despite rapid growth in the money supply, as the economy is experiencing rapid remonetization. Inflation has been brought largely under control, falling from 13.3 percent in 2000 to 6.9 percent in 2004, below levels found in all comparable countries and country groups except Bulgaria (Figure50, Inflation). Broad money supply growth soared to 68.2 percent in 2004 and has averaged 43.6 percent in the past five years (Figure51, Growth in Broad Money Supply). This growth rate is well above all benchmarksthe regression estimate for a country with Kazakhstans characteristics (30 percent), the LMI-FSR average (31 percent), Bulgarias rate (20 percent), Romanias rate.
Figure 50 Inflation, percent.
In light of fiscal and monetary developments, Kazakhstan could benefit from donor assistance in fiscal management and developing a medium-term fiscal framework, managing oil revenues responsibility and transparently, and helping the monetary authorities move toward inflation targeting. Business Environment Institutional barriers to doing business, including corruption in government, are critical determinants of private sector development and prospects for sustainable growth. Most of the indicators considered, although not all, raise serious concern about Kazakhstans unfriendly business environment. As in many resource-rich countries, corruption is a major problem in Kazakhstan. The Corruption Perception Index score for Kazakhstan is 2.6. Although Kazakhstans score is on par with the regression benchmark and better than the LMI-FSR average, any value below 3.0 is considered to indicate rampant corruption, which is an impediment to investment (Figure 52, Corruption Perception Index). Page 70

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Figure 51 Growth in Broad Money Supply, percent.
Performance on the Rule of Law Index is poor.22 At -1.0, Kazakhstan ranks below the regression benchmark (0.8), the LMI-FSR average (-0.9), and values for Bulgaria (0.1), Romania (-0.2), and Russia (-0.7). Similarly, the Regulatory Quality Index (-0.9) indicator is also below all benchmarks: the LMI-FSR average is -0.6, Bulgarias score is 0.6, Romanias score is -0.1, and Russias score is -0.5.23. Although Kazakhstan made considerable progress in structural reform in the early 1990s, the pace of reform has slowed considerably. Kazakhstans performance on the transition indicators used by the European Bank for Reconstruction and Development (EBRD) has improved little in recent years, and the gap with more advanced reformers has widened.24 Kazakhstan ranks relatively lowing competition policy and enterprise restructuring, which are necessary for the healthy growth of the private sector. Kazakhstan needs to accelerate reforms to reduce regulation and promote competition. The main message for the government and the donor community is that, given the need to develop manufacturing outside the oil and raw materials sector, the business environment needs to encourage investment. Kazakhstan could benefit from assistance in fighting corruption and making oil revenues more transparent and the entire range of issues in transitioning enterprises to operating under capitalism, including enterprise restructuring and improving corporate governance.
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Figure 52 Corruption Perception Index.
Financial sector A sound and efficient financial sector is a key to mobilizing savings, fostering productive investment, and improving risk management. The financial sector in Kazakhstan is well developed; nonetheless, regulatory improvements are necessary. The money supplyto-GDP ratio is a principal indicator of the degree of monetization of the economy and the size and depth of the banking sector. Kazakhstans economy is well monetized, a with broad money supply (M2) of 29.5 percent of GDP in 2004, nearly double the level of 2000 (Figure 53, Money Supply). This ratio is well above the average for the LMI-FSR region (14.1 percent), Romanias rate (22.1 percent), and Russias rate (25.7), although the higher rate of 44.6 percent in Bulgaria indicates that there is potential for further monetization.
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Figure 53 Money Supply (M2), percent of GDP.
At first glance, the banking sector appears to be efficient and well-developed. Kazakhstans interest rate spread of 6.0 percent in 2004 was below all the comparator values except that of Bulgaria at 5.9 percent; the regression benchmark value was 7.6 percent; the LMI-FSR average was at 9.7 percent; and the rate in Russia was 8.5 percent. However the interest rate spread has risen steadily in the past five years and appears to be affected by central bank regulations on deposit rates. The real interest rate of 8.5 percent in 2004, down from 10.7 percent in 2000, is also a sign of improving efficiency and competition in the banking sector in comparison to the LMIFSR region overall (with 10.6 percent). Here, if one considers deposit rates for legal entities, the rate is actually negativeonce again, indicating that the government is playing an intrusive role and causing inefficiencies. According to the Legal Rights of Borrowers Index, Kazakhstans value in 2004 was 5 on a scale of 0 (worst) to 10 (best). Kazakhstans financial legal frame workis more advanced than that of Romania (4..0) or Russia (3.0), but is worse than the system in Bulgaria (6.0). More important, a score of 5 indicates that there is clearly room for improvement in providing legal protection for both borrowers and lenders. In line with the increase in the broad money supply, domestic credit to the private sector has been booming, increasing from 11.8 percent of GDP in 2000 to 29.4 percent of GDP in 2004 (Figure 54, Domestic Credit to Private Sector). At this level, the credit is above all of the benchmarksthe average for the LMI-FSR region and the values for the three comparator countries. The rapid growth may represent a catch-up seen in other transitional economies, but increased credit accessibility may also lead to lending without proper risk assessment and to the deterioration of banks loan portfolios. Improving regulations and supervision is a top priority in mitigating the considerable risks involved. Stock market capitalization is low (8.2 percent of GDP). Although on par with the LMI-FSR average, the value is below the capitalization rate in all three comparator countries (Bulgaria with 8.8 percent, Romania with 9.8 percent, and Russia with 53.3 percent). Page 73

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Figure 54 Domestic Credit to the Private Sector, percent of GDP.
Improved stock market performance could provide additional sources of capital and competition for the banking sector, putting pressure on banks to improve efficiency. Although financial markets in Kazakhstan are well developed, the government and the donor community need to address certain issuesensuring that credit expansion does not lead to imprudent risks by financial intermediaries, especially in the midst of an oil price boom and expected exchange rate appreciation, such as substantial currency mismatches on bank balance sheets. Donors could assist in developing an improved institutional framework for bank supervision and regulation. External Sector Fundamental changes in international commerce and finance, including reduced transport costs, advances in telecommunications technology, and lower policy barriers, have fueled a rapid increase in global integration in the past 25 years. The international flow of goods and services, capital, technology, ideas, and people offers great opportunities for Kazakhstan to boost growth and reduce poverty by stimulating productivity and efficiency, providing access to new markets and ideas, and expanding the range of consumer choice. Globalization also creates challenges in the need for institutions, policies, and regulations to take full advantage of international markets,
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develop cost-effective approaches to cope with adjustment costs, and establish systems for monitoring and mitigating the associated risks. Kazakh external sector developments are generally favorable on both the trade and the investment sides. At the same time, the countrys excessive reliance on oil may threaten its stability if oil prices decline sharply, and foreign debt and debt service levels are high.
Figure 55 Growth in Exports of Goods and Services, percent.
International Trade and the Current Account Kazakh foreign trade has been booming. Kazakh exports of goods and services doubled between 2002 and 2004. This was largely a result of the rapid growth in oil exports, which benefited both from increased oil production and from rising world oil prices, although exports of many other commodities also grew significantly (Figure 55, Growth of Exports of Goods and Services). Measured in physical units, exports of crude oil and gas condensate rose 89.1 percent from 2000 to 2004; in U.S. dollars, they increased 157.8 percent. The role of oil in exports is high and risingin 2004, oil and gas condensate accounted for 57.1 percent of total merchandise exports, up almost 7 percentage points from 2000. Kazakh exports are highly concentrated, with the top three export commodities accounting for 64.3 percent of exports, much more than in Bulgaria (17.4 percent) and Romania (24.0 percent), and more even than in Russia (54.3 percent), performance could provide additional sources of capital and competition for the banking sector, putting pressure on banks to improve efficiency. The Kazakh merchandise trade surplus more than tripled in the 20002004 period, as rapid export Page 75

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growth outpaced rising in imports. This helped improve the current account balance from a deficit of 6.3 percent of GDP in 2001 to a surplus of 1.3 percent of GDP in 2004 (Figure 56, Current Account Deficit). By contrast, the LMI-FSR countries, on average, ran a 1.3 percent deficit and Bulgaria and Romania ran large deficits. At the same time, the current account surplus in Kazakhstan is much smaller than in Russia (8.3 percent). A more substantial current account surplus was prevented by rises in the deficits in services and income and the deterioration of the balance on current transfers from a surplus to deficit. The Kazakh current account has been negatively affected by rising profit repatriation by foreign companies and current private transfers by foreigners from Kazakhstan. Because Kazakhstan is a prosperous country by regional standards, labor income and private current transfers are negative on a net basis.
Figure 56 Current Account Balance, percent GDP.
International Financing and External Debt Foreign direct investment (FDI) in Kazakhstan has averaged nearly 10 percent of GDP in 2000-2004, and reached a five-year high of 13.5 percent of GDP in 2004 (Figure 57, Foreign Direct Investment). This level far exceeds the range predicted by the regression benchmark, as well as FDI inflows in Bulgaria (7.2 percent), Romania (3.2 percent), and Russia (1.8 percent) and average inflows in the LMI-FSR (3.6 percent). An overwhelming portion of FDI59.8 percent, on average, in 20002004went into oil and natural gas extraction.
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Figure 57 Foreign Direct Investment, percent of GDP.
Kazakhstans external debt appears high at 95.3 percent of GNI in 2003. The present value of the external debt was much higher than the range predicted by the benchmark regression and than the LMI-FSR average (43.7 percent) and the levels of debt in Bulgaria (85.5 percent), Romania (46.0 percent), and Russia (52.1 percent). Not surprisingly, the debt service ratio was also substantially higher than the benchmark indicators. Closer examination reveals, however, that these indicators do not give an accurate picture of the external debt situation. The reason for this is that much of the debt is made up of intercompany loans; 52.0 percent of the external debt in 2004 was made up of loans provided by foreign companies to their subsidiaries in Kazakhstan.32 According to the 2004 IMF Article IV consultation, these intercompany loans have no fixed repayment schedule and therefore repayment can vary with company profitability and ability to pay. Most of the remainder of the private debt is medium- and long-term. Kazakh official debt is relatively low and falling in absolute terms. In 2004, it stood at only 10.5 percent of total external debt. The Kazakh central banks foreign exchange reserves have risen in the past several years, both absolutely and relative to imports, and appear sufficient to protect the stability of the countrys currency. Central bank reserves rose from 2.8 months of imports in 2000 to 5.9 months in 2004. The level of reserves exceeds the range predicted by the respective benchmark regression, average reserves in the LMI-FSR region (2.9 months), and levels in Romania (4.3 months), although they fall short of reserves in Bulgaria (7.2 months) and Russia (7.4 months). In addition to central bank reserves, Kazakhstan has been accumulating assets in the National Fund. In 2004, National Fund assets reached 55.3 percent of the level of central bank reserves. Given Kazakhstans oil wealth, foreign aid plays a relatively small role in external financing, averaging 0.9 percent of GNI from 1999 to 2003. This is about the same level as in the LMI-FSR (0.8 percent), but below the levels in Bulgaria (2.1 percent) and Romania (1.1). The indicators for the external sector paint a positive picture, but all of thisfrom trade to investment to debtpredicated on the oil sector. Thus the diversification of exports and FDI inflows into nonoil sectors is where Kazakhstan might benefit most from foreign donor assistance and is line with the governments own policies. Page 77

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OVERCOMING THE RESOURCE CURSE IN PRACTICE Part I: Strategy Since Kazakhstan is only one of many countries that is facing the challenge of dealing with dependency on large export price fluctuations, in particular oil and gas, Kazakhstan can be seen as an example. These different countries have different approaches when it comes to their strategy towards the diversification of the economy or their strategy towards an economy that becomes less dependent upon the natural resources that they are exporting. After independence Kazakhstans attempts to diversify the economy were fairly limited enforced by an inefficient financial sector, corrupt bureaucracy and limited protection for property rights which al discouraged the development of new private enterprises. It is [only] since 2002-3 that the government has begun to take a more active role in promoting diversification. Currently the challenge in the long term perspective for Kazakhstan is to increase the countrys [overall] competitiveness and expand the benefits of growth, while avoiding the economic and social risks typically associated with oil wealth. Kazakhstan is aware of the challenges it faces and knows that the country should not rely solely on its commodity incomes and [thus] in order to diversify the economy and with a long term vision the government has adopted the Innovative Industrial Development Strategy 2015. This ambitious program is aimed at ensuring sustainable development of the domestic economy through genuine diversification, creation of new competitive industries, modernization and expansion of the existing infrastructure, with the ultimate goal of moving from an extraction- based economy to a service and technology based economy. The national competitiveness has been addressed most strongly in the Kazakh government as the official course of its strategic development. The new Innovative Industrial Development Strategy 2015 was adopted in 2003 and the state investment policy has been directed at promoting investments into priority fields being: (1) agriculture, (2) manufacturing sector, (3) industrial infrastructure, (4) social, (5) cultural and tourism infrastructure, and (6) the infrastructure of the new capital Astana. Identifying new core competitive economic markets is however not enough; the problems that hamper a competitive environment must be addressed. Challenges the country faces are (still): trade barriers, efficiency of the legal framework, local equity market access, the brain drain, and business sophistication. The World Economic Forums (WEF) competitiveness index looks at the determinants of competitiveness and the role of the government policy; it is concerned with dynamic comparative advantage, and places technological dynamism at the core of building such advantage. The WEF has described competitiveness in Kazakhstan as weak. Kazakhstan has followed the recommendations of the IMF and the World Bank consultants to induce M. Porters famous clusters initiative on economic diversification. In Porters diamond model, clusters advance through (1) strong and sophisticated local demand, (2) a local base of related and supporting industries, (3) favorable conditions, and (4) a competitive climate driving firm productivity. Porter also states that of the many cluster advantages that do exist, external economies, or spillovers across firms, industries and various institutions rest on the cluster advantages (Porter 2000). Kazakhstan has created seven pilot cluster projects; Page 78

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tourism, metallurgy, textiles, construction, agriculture and food processing, oil and gas machinery building, and logistics and transportation which are intended to become the core of Kazakhstans competitive economic strength. Kazakhstans aim to diversify has also affected the resource exploitation industry and the energy industry in particular: currently the Kazakh government is expanding its role in the energy sector by: (1) increasing the revenue share from the subsoil sector through changes in the tax codes; levying new royalties on extraction firms, limiting the application of tax stabilization agreements, raising export duties and heightening penalties for transfer pricing, additionally the government has (2) increased regulation and emphasized on hiring Kazakh workers, and (3) finally it has substantially expanded the role of the state-owned company (Kazmunaigas). The government has taken the three steps as described since oil prices have risen leading to reconsiderations, but mainly the goal is to set a clear goal of maximizing revenues from the industry, driven by the limited employment gains from the oil development and a desire to boost the revenues available for redistribution and diversification. Furthermore related to the governments third change- the government intends to evolve Kazmunaigas into a major international player. It is important to note that the above mentioned resource nationalism (which will be elaborated on in the shifting wealth of nations chapter) is deviant from the interventions in Russia, Venezuela and Bolivia (the latter have socialist reasons) since it has a tactic- strategic goal of improving the domestic and international status (diversification) and not the aim of governance. The government is using the oil sector for the development of the domestic economy which should move towards is diversification of the economy as a whole (away from the oil industry on which the country is so reliant on). Institutions Concerning the privatization process of the country, in order for privatization to succeed, stable and good functioning institutions need to govern the rules that should have been set before the privatization process occurs. Private ownership results in the dispersion of proceeds from resource wealth, and hence, the generation of new interests outside the state apparatus- thus as the indirect beneficiary the state has less control over how these resources are distributed and utilized. Privatization of the oil and gas market almost by definition limits the states involvement by the creation of the new stakeholders outside of the state apparatus- in this way state leaders will be compelled to look to other sectors of the economy to generate. The former leads to the development of [strong] mechanisms for extracting revenue from private owners as well as generating other sources of revenue outside its natural resource sector- thus institution building becomes important [it should be stressed to have strong institutions before the privatization process begins in order to create a stable
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environment and to prevent problems as renegotiation. During the privatization process in Kazakhstan however, the institutions were not strong (enough) to govern a process that was so large. Due to privatization foreign investors had the single greatest influence on the initial development of the tax policy. Privatization has a more positive impact on the development of tax regimes when the transfer of ownership is to domestic investors, but not necessarily to foreign investors. For Kazakhstan since the foreign investments are sunk the country can (and did) change tax structures (to the advantage of the state) more easily thereby making the taxation system (somewhat) less stable then for example in Russia. Kazakhstans policy has seemed to shift towards favoring domestic investors over foreigners in most contracts since 1997. Favoring domestic parties could show the same positive results referring to institution building as occurred in Russia. In 2003 a new law On Investments was signed that superseded and consolidated past legislation governing foreign investment [] which established a single investment regime for domestic and foreign investors and guaranteed the stability of existing contracts, but notes that new ones will be subject to amendments in domestic legislation, certain provisions of international treaties, and domestic laws dealing with national and ecological security, health and ethics, the law however limits mechanisms for access to international arbitration. A weak (or nonexistent) tax regime is viewed in the literature on the resource curse as perhaps the most prevalent negative outcome of resource wealth due to state leaders myopic thinking and heavy reliance on external (i.e. rather than internal) sources of revenue. Kazakhstan has failed to expand its tax base beyond foreign investors in the 1990s and thus has become increasingly reliant on them. The former seen in terms of the resource allocation effect (RAE) which affects who the relevant agents are, sees different external interests who exert political influence through different means. Kazakhstan nevertheless is able to balance these external interests (as have been discussed before) which creates opportunities instead of limitations for the state (and thus remains sovereign in this way). Kazakhstan had a Product Sharing Contracts system (PSC) for its resource exploitation contracts which were said to be extremely complex and back-end loaded. The taxation scheme of the country has however changed significantly in (January) 2009. The new tax code was designed to substantially ease the tax burden on small and medium enterprises and the non-extractive sector, while increasing revenues from extractive industries. Amongst others, the new taxation code replaced the royalties with a natural resource extraction tax (NRET) which was based on the amount of recoverable reserves and world prices for crude oil, thus the prices became in correlation world market prices. Institution building in Kazakhstan is however still the most important aspect which still needs improvement. Nevertheless, the government has acknowledged this contrary to the disorganized period of 1992.
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PART II: SUSTAINABLE DEVELOPMENT It is seen from the figure below of the seasonally adjusted 1994 constant prices, that Kazakhstans oil income in oil revenues significantly affects the overall GDP (Gross Domestic Product) of the country. The graph shows that there is a clear correlation between a rise in oil prices and a rise in overall GDP. In the Kazakh economy changes in output and changes in oil price are correlated in almost 25%, additional to GDP s high co rrelation with oil prices and consumptions correlation with oil exports. Knowing that Kazakhstans non-fuel exports also contribute to the total exports of the country we can justly claim that the country is highly dependent for its development upon this commodity.
Figure 58 Kazakh oil prices in comparison to GDP in constant 1994 prices.
Despite of the new strategy the oil price and overall GDP are still significantly correlated. It might however be noted that GDP growth is less volatile in comparison to the price of oil which can be seen particularly well after the year 2000 in the graph below.
Figure 59 Kazakh oil prices in comparison to GDP.
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Volatility of commodity prices is problematic for governments that rely heavily on commodity prices, since they have to prepare on large budget changes. In particular oil prices are highly volatile which is thus problematic when your national economy rests largely on the price of oil as is the case in Kazakhstan. For the oil price the price swings since the 1970s have become larger and more extreme: the graph below shows the large fluctuations of the price of oil from 1980 until 2009, and it is seen that the fluctuation has been high. Since the 1980 the price oil has actually been a declining trend reaching a low of 10 US $ per barrel in 1999, since than prices began to recover with a peak in July 2008 at 147 US $. Due to the global economic crisis however, a sharp drop has followed the steep rise. Figure 60 National and Real Brent Crude Oil Prices, 1980-2009. The high volatility of oil prices has thus been increasing as described above. The intra-year changes for the last three years for example have also been very significant. As seen in the table below in the last 3 years only the price of crude oil has gone from 60 US$ at the beginning of 2007 to over 140 US $ seven months later, and down to around 35 dollar another 6 months later. These changes in oil prices (and commodity prices in general) are extremely hard to mange for governments. The volatility of other commodity prices is seen in the second row where 1/1/2007 is the base month. It is seen that the volatility of other commodity prices is less than that of oil, but nevertheless significant. Regarding the price of oil there are three main approaches to be identified; (1) oil is an exhaustible resource, (2) macroeconomic demand and supply frameworks can explain the oil price, and (3) the informal approach is concerned with issues such as OPECs (Organization of the Petroleum Exporting Countries) power and the role of speculation. The oil and gas exporting country of Kazakhstan is thus not in control of the price it can ask for its products (except in the case when the government has made price agreements with the exploiters in contracts, which can however also lead to problems). Economic Sustainability Kazakhstan has performed economically well, and most of all it has been [relatively] consistent over the past several years and with an average real growth rate of around 10% each year since 1999, Kazakhstan is the envy of other CIS countries. In a regional- Asian perspective the country is indeed relatively wealthy as seen in the figure below. The relative wealth of the Page 82
Figure 61 GDP per capita in 2005 Price Purchasing Power (PPP) in US $.

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country in regional perspective is confirmed by the economic refugees that come to Kazakhstan from neighboring countries (from the poorer regions of rural China for example) Foreign Direct Investments and GDP The achievements of Kazakhstan have not been unnoticed by investors which again attracts (other) new investors. Standard & Poors, Moodys, and Fitch all rate Kazakhstan as investment grade, -an accomplishment that few transitional economies can claim, particularly if they are oil exporters. The Republic has been receiving the highest Foreign Direct Investments (FDIs) per capita among Commonwealth Independent States (CIS) countries. FDI is important for a country, especially developing one, since for example in the energy sector it is the main instrument to develop production and transportation infrastructures and to disseminate technology. Kazakhstan even has the highest FDI per capita rate in the whole CIS and the second highest capital inflow in volume, after the Russian Federation. The distribution of FDI by sectors however is highly unbalanced with roughly half of the FDIs going to the oil and gas sector. After a large currency devaluation in 1999 and a rise in proven oil reserves as well as oil prices, the country entered a boom period in the early 20th century. From the import side, Kazakhstan trades most with Russia, since Russia is also an oil exporter the exchange rate between both countries is relatively equal, meaning that both appreciate against the dollar during an oil boom, and both depreciate against the dollar during a fall in prices. Conversely imports from countries that do not appreciate during an oil boom become cheaper, while during lower prices for oil these exports become more expensive making them less attractive. Kazakhstan further exports about 30% to Europe (this number should be higher given that Kazakhstan is also trading 20% with mainly European based firms in Bermuda) and 25% to the CIS countries, and exports to China are rising 16% currently, trade with the US is low. The former shows that Kazakhstan is relatively diversified in its trading partners. Currently practically every major oil and gas player is in the market through a variety of consortium relationships, including: Tengizchevroil(ChevronTexaco), Eni/Agip, BG Kazakhstan, PetrolKazakhstan(Hurricane), Kazmunaigaz, Total Fina Elf. Kazakhstan has bilateral investment agreements with over 37 countries and has ratified almost the same number in treaties on avoidance of double taxation. The distribution of FDI by sectors however is highly unbalanced with roughly half of the FDIs going to the oil and gas sector. After a large currency devaluation in 1999 and a rise in proven oil reserves as well as oil prices, the country entered a boom period in the early 20th century. From the import side, Kazakhstan trades most with Russia, since Russia is also an oil exporter the exchange rate between both countries is relatively equal, meaning that both appreciate against the dollar during an oil boom, and both depreciate against the dollar during a fall in prices. Conversely imports from countries that do not appreciate during an oil boom become cheaper, while during lower prices for oil these exports become more expensive making them less attractive. Kazakhstan further exports about 30% to Europe (this number should be higher given that Kazakhstan is also trading 20% with mainly European based firms in Bermuda) and 25% to the CIS countries, and exports to China are rising 16% currently, trade with the US is low. The former shows that Kazakhstan is relatively diversified in its trading partners. Currently practically every major oil and gas player is in the market through a variety of consortium relationships, including: Tengizchevroil (ChevronTexaco), Eni/Agip, BG Kazakhstan, PetrolKazakhstan (Hurricane), Kazmunaigaz, Total Fina Elf. Kazakhstan has bilateral investment agreements with over 37 countries and has ratified almost the same number in treaties on avoidance of double taxation. Page 83

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Figure 62 Real GDP in Kazakhstan.
In order to diversify the economy the non-resource exploitation industry thus needs to grow. Industry accounts for almost 40 percent of GDP with oil accounting for over one-half of this industrial output. Apart from the industrial sector, the economy comprises an extensive but mostly small-scale services sector and a large, inefficient and labor-intensive agricultural sector which is the largest employer but of diminishing importance as percentage of exports. Nevertheless Kazakhstan is still an important exporter of grain (ranking among the world top ten exporters). In the table below we can see that private consumption which is needed for a diversified economy has actually decreased as a percentage of GDP. Additional to the numbers stated below, the Kazakh economy as a whole also consists of an informal/shadow economy which is estimated to be as high as 30 percent of GDP.
Figure 63 Nominal gross domestic products by expenditure (% of GDP).
Due to the dominance of the (still) expanding oil economy other sectors contrary to the governments attempts to foster growth in these sectors are declining as a percentage of overall GDP. Agriculture for example has been marginalized even though Kazakhstan has the most reformed agricultural sector in Central Asia. Just like with the democratic reforms, they may be better than the rest of the region but they simply do not stand out against the rest of the (developed) world, or international standards. Again it are the lacking institutions that are hampering the rise of a well functioning agriculture market since after the privatization of land the freehold rights were not properly regulated. If we take yet another sector, the construction sector we can see that this sector has seen quite a rise as a percentage of GDP: construction rose from 4 percent in 1997 to 6 percent in 2004, and rising extremely strong since then. The problem with the construction sector is that it is correlated a lot with the oil production, thus due to the oil boom a construction boom emerged. Another sector, the banking sector lend in the past mostly to the oil and gas sector but since 2004 also began lending to consumers. The banking sector has also become more attractive to foreign investors and this sector has shown potential, after and during the economic crisis however the opportunities in the banking sector in Page 84

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Kazakhstan and the foreign investments therein dropped. Currently a top priority for the banking sector is to implement a comprehensive solution to the problems including by means of detailed independent assessment of the balance sheets of large banks. Another strategic sectors the government is aiming to expand: tourism. The tourism sector in Kazakhstan is still small; the country lacks an international tourist reputation and the m ovie Borat also did not contribute to a positive image of the country. Furthermore the main cultural sights of Central Asia are found in Uzbekistan. Regarding its infrastructure for travelers, the orientation is mainly based on business visitors while the infrastructure is inadequate and travelling to Kazakhstan is expensive. Nevertheless the largely untapped tourism market does hold some opportunities; particularly adventure tourism which has began to receive greater attention. Foreign direct investment is needed for better development of this industry while the total contribution of this sector will most likely not become very significant. The figure below shows the new foreign direct investment -which is so important for the country- by sector.
Figure 64 Foreign Direct Investments per Sector 1993-2009.
The foreign direct investment in Kazakhstan has been coming mainly from developed countries so far-. The US, UK, Netherlands and Italy were the main investors (with an even more prominent role for the Netherlands in the last years). As described before, among the developing economies, the Russian Federation and China have dominated the FDI situation and Kazakhstan. It must be noted that the FDI landscape has shifted in favor of the developing and transition economies, something that is a major change (UNCTAD 2009). Due to the latter Kazakhstan can in the future expect more interest from developing countries willing to invest in the country, thus so called South-South relations. One of the institutions that have actually performed very efficient has been the National Bank of Kazakhstan (NBK, the Central Bank). The bank has been responsible largely for the development of the banks monetary policy instruments and for reforming the ba nking sector. An important task for the bank has been to counter one of the symptoms of the resource curse: the Dutch disease. A balance between the need for consumer price disinflation and the prevention of rapid real currency appreciation has been sought and found. Social Sustainability In Kazakhstan the oil and gas exports accounted for 66% of merchandise exports in 2007, while looking at how much employment the industry brings, the figure is a tiny 0,25% of the labor force. There is thus a vital need to create alternative industries with employment outside of the resource extraction industry. Having noted Kazakhstans relative economic sustainability, there seems to be a trade of in the countrys social sustainability regarding the uneven distribution of wealth. Page 85

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In addition the opportunities in the country are not evenly distributed. Since fairness and equality are part of social sustainability, the limited press and personal freedom in the country and the corruption practices make the country not one that is having a social sustainable developmental approach. In those resource-rich countries that do fairly well as a whole economically are often marked by large inequality, thus rich countries with poor people. In Kazakhstan the privatization policies failed to solve the problem of resource division. Since social sustainability also consist of fairness and justice, it can be again claimed that Kazakhstan is doing relatively poor. Regarding Kazakhstans raking on the human poverty index which focuses on the Figure 65 Recent Trends in income/Expenditure inequality in developing Asia. most deprived in multiple dimensions of poverty (the proportion of people below certain threshold levels, access to education, decent standard of living) is 37th out of the 135 countries measured. The above shows that although there is poverty and inequality, the situation is better than in other resource rich countries and rapidly emerging countries (such as Botswana and China). The income inequality in the country is undoubtedly visible, nevertheless it is performing much better with an Gini score of 28.8 (2008) than resource rich country Botswana63 with a gini score of 63. Rural poverty is still present, with ethnic Kazakhs in the south among the poorest. Nevertheless poverty is on the decline. Another index of development is the Human Development Index which is quite encompassing as seen below. As of 2009 the Kazakh HDI has been falling into the high HDI countries, but it does so only nearly. Nevertheless looking at the achievement of Kazakhstan in this more encompassing way shows that the Kazakh development is increasing: between 1990 and 2007 Kazakhstans HDI rose by 0.20 % annually from 0.778 to 0.804 today (Human Development Report 2009). Kazakhstan occupies the 82nd place out of 182 countries. What HDI does not include however is the level of exploitation of the natural resources. Additionally the HDI does not report on inequality within a country and maybe more importantly the inclusion of political freedoms and human rights. Kazakhstan as explained before is clearly not as free as the west would like to see it; since independence the country has been termed to be not free by freedom house, with political rights and civil liberties only slightly increasing in the overall period. Inclusive growth is important for sustainable growth and can be seen as growth coupled with equality of opportunity, this inclusive growth were all have an equal opportunity, is however still no reality in Kazakhstan where privileges and functions given by kinship are prevalent. Furthermore the tradeoff between freedom and nation-building may seem to be justified from a governmental point of view; it does however limit humans in their actions. Having said the former when conflict with resulting human suffering and decreasing economic growth might be the alternative the limits on freedom can arguably be justified, nevertheless whether the former threat is as great as to limit humans in their actions is subject to (heavy) debate. Page 86

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Figure 66 Human Development Index Composition.
After independence the Russians and other ethnic minorities in Kazakhstan dominated science and technology, thus with their emigration (as described above) came a loss of knowledge. According to the United Nations Development Program (UNDP) the adult literacy rate was 99.4 percent in 2001 which is very high, while the youth literacy rate of 99.8 percent was even higher. In accordance with the aims of the government to diversify the economy and create local competitive industries education and the quality is vital. The government has increased spending on education in absolute terms, more than doubling the expenditures cumulatively in 200507. The latter is positive, nevertheless the expenditures on education of 3.5 percent of total GDP in 2007 is still low. Additional to the investments from the government, private educational institutions are gradually rising. Environmental Sustainability Kazakhstan still bares the (relatively) polluting legacy of the (inefficient) Soviet Union industries and has more than a few heavily polluted places in its territory (nuclear, led, oil etc). After independence the country did not radically alter its approach considering the environment, however it has taken steps to limit pollution and negative side affects of the oil and gas industry (it has for example palced higher environmental restrictions and regulations on foreign investors than before). Currently still however, the pollution related to oil industry is [still] a matter of concern in Kazakhstan. There is inequality in the cost of environmental pollution to the Kazakh citizens since some places are far more polluted than others, in the Kzyl-Orda region for example life expectancy due to pollution has been reduced from 64 to 51 years. The oil and gas industry revenues in Kazakhstan do create a trade off regarding the environment. The environment is disturbed in Kazakhstan, almost by definition due to the exploitation of the natural resources; what is needed is that these disturbances should be made to a minimum. Technology is able to bring the disturbances lower. Technology, however can be seen as a two edged sword; it can be good for nature in the sense that it can make exploitation more efficient and cleaner, while on the other hand it creates opportunities for large(er) scale exploitation which often come with large(er) risks. For the technological innovations and improvements Kazakhstan is still dependent upon the west and thereby restricted somewhat in its choices. The Environmental Performance Index (EPI) developed by the Yale and Columbia University is based on environmental burden of disease, ai pollution, water, air pollution, biodiversity and habitat, forestry, fisheries, agriculture and climate change. Page 87

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PART III: THE ROLE OF SOVEREIGN WEALTH FUNDS Related to the resource curse is the paradox of plenty which claims that shortages of domestic savings, foreign exchange, and fiscal resources are binding growth constraints in developing countries and that oil booms can help alleviate such shortages and facilitate economic oil growth, however they have done far less well than oil importers. A solution can therefore be to set up a fund separately outside of the budget. Simply setting up an oil fund however, does not guarantee success. Fiscal discipline is essential for the effective management of oil revenues; it is only when an oil fund is well integrated within the budget and managed under an overall fiscal framework with a strong fiscal discipline can an oil fund attain its objectives. Additionally setting up an oil fund is not a necessity in getting a good fiscal discipline. The Rise and the Characteristics of Sovereign Wealth Funds It is since around 2006 that the academic world began to analyze SWFs more closely. And according to Seznec (2008) the financial world is abuzz with the issue of SWFs - even though SWFs have been around for much longer. Kazakhstan with its 17th largest SWF in the world is according to the International Financial Institute (2010) in control of 18 billion US $, while it has only been established in 2000. In light of the former we can see that the increasing exploitation of the natural resources of the country is indeed substituted by man-made capital (the Solow Hartwick rule) in this case monetary holdings and investments. Generally speaking SWFs have six main characteristics: they are state owned, managed separately from official foreign exchange reserves, they have high foreign currency exposure, they have no explicit liabilities, they have high-risk tolerance, and they have long-term investment horizons. There are roughly three main types of SWFs: (1) the stabilization funds which should provide budgetary support and should hamper volatility, (2) savings fund which are set up for long time wealth creation to meet future needs and help in transferring non-renewable assets, (3) and pension reserve funds (PRFs) which have a specific mandate to finance future public pension expenditures, they are further often treated as SWFs and substantially invest abroad. Additionally (4) development funds can be created are set up to create development by supporting infrastructure projects for example. Additionally the characteristics of the three different kind of SWFs are the following: 1st category SWFs are established from the oil exports which Figure 67 SWF's Risk-Return Balance of Financial Assets. has no relevant liabilities, a long-term investment perspective and low demand Page 88

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for liquidity; 2nd category SWFs established by non-oil commodities net exporters (like diamons, copper etc) by accumulating reserves with saving-investment account surpluses; and thirdly SWFs created by countries that hold a large amount of reserves due to capital inflow. The 1st category SWF have the highest risk-return portfolio, while 3rd category SWFs have the lowest - as seen in the figure below in which the dot size represents the SWF size. Kazakhstan with its long term investment perspective and relative low demand for liquidity (thus) fits in the first category of SWFs like most other oil established funds. Kazakhstans funds have both savings as well as stabilization purposes. The main difference between both is that intergenerational funds (saving funds) should adopt a long-term approach to investment and spending decisions, while stabilization funds also need to be able to react to funding and investment developments in the short term if necessary. Similar for both is that a delicate balance needs to be made be tween the social objectives of investing safely, retaining sufficient liquidity, generating high returns on their investment, managing the funds efficiently and in most cases in a manner that secures the trust of the wider public. It is also necessary to gain the trust of the international community since the SWFs have caused for fears and controversies as explained below. Controversy and [Non-] Transparency of SWFs Since the rise in number, size-, and projected growth- of the SWFs, the funds have become under increasing attention and even subject to political controversy. According to Kern of Deutsche Bank, what is different these days are the scale of the SWF business and the perception of the potential influence these funds may have as investors at a global scale, in conjunction with the emergence of new players, mainly in emerging markets (Kern 2007).The potential negative impact of SWFs on the global financial market is very limited, and that they are important stabilizing forcers in the global financial market. They further believe that the SWFs can contribute to the coordination of macroeconomic policy from a domestic point of view and internationally to the stability of global financial markets. It can be argued than that the fears that some governments (or politicians) have of the SWFs (which will be explained more elaborate below) are not always based on facts. Many fears over state investments in general are motivated by ideology. One of the fears is that of destabilization in the stock and bond market. SWFs generally do not disclose information about their operations, especially not detailed information, due to the former the size of the funds as well as the investments of these funds are hard to assess. Due to their secrecy, the SWFs are in many respects their own worst enemy. The suspicion caused by this secrecy about the intentions of the SWFs could make SWFs operations somewhat problematic. Not disclosing information can also be in the interest of the investments since actual or rumored changes in asset allocations have the potential to disrupt international financial markets. The long term horizon of SWFs is important also during market downturns which can help stabilize markets and the funds can enter markets at low points to achieve win-win situation by helping restore market confidence and obtaining considerable profits in the long run. Even while the Kazakh fund is more transparent than that of Abu Dhabi the latter can also be said of the SWFs of Kazakhstan. Another possibility for the secrecy could be not a needed protection from foreign eyes but rather from inquisitive local eyes. Similarly with Kazakhstan, secrecy hampers transparency in the actual returns of the investments even though Kazakhstan has a better transparency rate. In relation to other funds, Kazakhstan is neither highly transparent nor in transparent, instead the fund is exactly in the middle of both as can be seen in the below graph of Lyons (2007). In terms of the investment approach of Kazakhstan is placed at the same level as the best performing funds (best performing in terms of transparency and investment approach). Page 89

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Figure 68 Overview of Investment Approach and Transparency.
In addition to the above the National Fund for the Republic of Kazakhstan (NFRK) has mediocre scores in terms of overall accountability and transparency.
Figure 69 Sovereign Wealth Fund Scoreboard for the NFRK
By now in Kazakhstan, the SWFs that they have gained in significance and it seems they are continuing to grow. Nevertheless, in comparison with bank assets, pension funds, investment funds etc, they are still relatively small. The National Funds of Kazakhstan Kazakhstan is investing its wealth in asset classes outside the commodity cluster in order to reduce the macroeconomic exposure of their countries to commodity fluctuations. The National Fund of Kazakhstan (NFRK) was established in 2000 which was set up in order to protect the economy from price swings in the resources it is exporting and dependent on. In accordance with the latter oil price increases are often
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accompanied by a real exchange rate appreciation since oil price increases raise the wealth of the country and consumer and consequently aggregate demand which leads to lower exports and increases in imports. Kazakhstans National oil fund assets were split into stabilization and savings portfolios. The stabilization portfolio has been mainly invested in high liquid money market instruments while the savings portfolio has been invested mostly in fixed income instruments (75%) but also equities (25%). The objective of the Fund are (1) to keep income stable across generations in anticipation of lower oil production several decades ahead and (2) stabilize the income within the same generation, thus compensating bad years with savings performed during good years. The fund places somewhat more emphasis on stabilization than on savings. The National Bank of Kazakhstan monitors the fund and Taxes, royalty and other payments related to the use of natural resources (except region-level tax payments) are directly transferred to the National Fund and about 55 oil companies and several other extracting companies have to transfer money to the fund. The oil companies bring 10% of the oil revenues from the baseline budget to the fund. In the NFRKs stabilization portfolio 25% are liquidity assets while 75% in sovereign debt securities and shares are held in the saving portfolio. Kazakhstan is often hire western-based firms, investment banks and advisers for risk management and managerial skills. The fund of Kazakhstan is hard to manage (harder than others). Perhaps the most important (positive) impact of a SWF is that they have the potential to help maintain cautious policies when a country faces highly volatile markets which is affecting Kazakhstan. Nevertheless Kazakhstan saved more than 60% of the increased oil export receipts in its oil fund. Kazakhstan saved most of the cumulative budget surpluses in NFRK, and has paid back some of its external debts in order to smooth out public expenditures and reduce future debt obligations. It is allowed that funds from the NFRK will be transferred to the budget subject to the presidents approval. Kazakhstan has foreign exchange holdings which exceed $20 billion. Another Fund of Kazakhstan, Kazyna, is actively involved in promoting innovative industrial projects and it intend to contribute to diversification toward more value added and employment-intensive industries for the oil rich country. The fund is a joint-stock company that was established in 2006 in order to improve the system of state administration and management in the area of industrial and innovative development and to create favorable conditions for economic growth in the country and for achieving a competitive edge. Kazyna is also intended to accumulate the funds needed for investment in the newly identified core of Kazakhstans competitive economic strengths. Additional to the promotion of innovation and diversification the fund is also aimed at introducing efficient corporate management and greater transparency combined with good coordination with national institutions to achieve these goals. Both the NFRK and the Kazyna fund of Kazakhstan however seem to have a clear strategy concerning the management, purpose and strategy of their SWFs.
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ECONOMIC INFRASTRUCTURE A countrys physical infrastructurefor transportation, communications, power, and information technology is the backbone for strengthening competitiveness and expanding productive capacity. The general level of infrastructure development in Kazakhstan is slightly better than in the comparator country groups and individual countries. The Overall Infrastructure Quality Index was 3.5 on a scale of 1 (poor) to 7 (excellent) for 2005, while the LMI-FSR average was 3.3. Bulgaria, Romania, and Russia, scored 2.8, 2.7, and 3.3, respectively. Judging by the index components, electricity infrastructure in Kazakhstan is in especially good shape relative to other infrastructure sectors. By contrast, port infrastructure development leaves much to be desiredthe Kazakh port infrastructure quality index of 2.9 is below the LMI-FSR average (3.9), as well as the indexes of Bulgaria (3.7), Romania (4.0), and Russia (4.3). While Kazakhstan possesses an extensive system of automobile roads, railroads, and pipelines, many elements of this system need extension and/or upgrading. For example, insufficient capacity in oil pipelines limits oil exports. Similarly, the natural gas network is underdeveloped, constraining the delivery of natural gas to consumers in many regions. According to the Kazakh government, high transportation costs slow productivity growth in the economy. Kazakhstan may benefit from a comprehensive assessment of its transportation and communication systems, from support in the upgrading and extension of transportation routes, and from help in accelerating the growth of communications. Science and technology Science and technology are central elements of a dynamic growth process, because technical knowledge is a driving force for rising productivity and competitiveness. Even for lower-middle-income countries such as Kazakhstan, transformational development increasingly depends on acquiring and adapting technology from the global economy and applying it in ways that are appropriate to the countrys level of development. A lack of capacity to access and use technology prevents an economy from taking advantage of the benefits of globalization. Unfortunately, reliable international indicators related to science and technology are not readily available for Kazakhstan. According to the data that are available, the average number of patent applications filed in 199820021,123was substantial by regional standards (the LMI-FSR regional average is 119) or compared with Bulgaria at 306 per year. Yet it was less than in Romania (1,486) and only a fraction of the number of applications filed in Russia (20,049). The Kazakh FDI Technology Transfer Index equals 4.336 for 2005. This is slightly above the LMI-FSR average and the Russian index (both equaling 4.0), but below the indices in Bulgaria (4.4) and Romania (5.1). Agriculture Kazakh agriculture suffers from low productivity. In 2004, it accounted for 33.1 percent of total employment and only 8.4 percent of total added value. Among the problems is low cereal yieldat 949 kilograms per hectare in 2003, it was well below the yield in the LMI-FSR region (2,351) and comparator countries (Bulgaria with 3,543, Romania with 3,899, and Russia with 1,913). Wheat yield was also less in 2003 than in 1992, immediately after independence (Figure, Cereal Yield). Low productivity in agriculture is to a great extent a result of the lack of capital investment in this sector, which in 20002004 stood at 1.31.4 percent of total investment. Kazakhstans score on the Agricultural Policy Costs Index, which measures executives Page 92

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perceptions of how burdensome the cost of agricultural policy is, was 3.543 for 2005, not favorable by absolute standards. At the same time it is a little higher than the LMI-FSR average (3.0) and than the indices in Bulgaria (2.7), Romania (3.0), and Russia (3.1). The country may benefit from policies aimed at the shifting of agricultural workers to more productive sectors, supporting nonfarm employment, and even shifting production and employment to crops and agricultural subsectors with higher productivity.
Figure 70 Cereal Yield, kilograms per hectares.
Although the planting of some crops were delayed by spring rains, the weather in 2011 during the growing season was near ideal, with resulting much higher yields expected in all crops and especially wheat. Soil moisture was very good to begin the season, and this even led many farmers to decide to plant fields which they had planned to leave fallow. Because of beneficial weather, Kazakhstans grain production is rebounding this year from last years drought-reduced crop, and is expected to reach 19.2 MMT (16.0 MMT wheat), compared to 12.0 MMT last year (9.7 MMT ). Harvesting of barley has begun in Northern Kazakhstan, with harvesting of wheat set to begin at the end of August/begging of September. The only remaining concern for the crop is whether early cold weather or excess rain before or during harvest will effect quality, which last year was excellent. Wheat is by far the largest crop produced in Kazakhstan, accounting for 78 percent of grain and oilseed planted area. Oilseeds production, which is primarily concentrated in the East and South of Kazakhstan, is steadily growing albeit from a very small base. Northern growers are also expanding area, although there short growing seasons and low precipitation rates make growing oilseeds risky and yields more variable than grains. Despite this, very strong domestic demand from livestock producers and subsequent high (and consistently high) prices, as well as agronomic considerations for crop rotation, have led many better financed farmers to begin to grow more sunflower, rapeseed, flax, and soybeans. Nevertheless, despite the small but steady expansion of oilseed area, the majority of Kazakh land is still planted monoculture with wheat. Page 93

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This is primarily because marketing these crops is much easier, as most grain trading companies are focused entirely on exports of wheat and barley. In addition, inputs, seeds, and machinery costs for planting oilseeds are higher, which means it is usually only better-financed farms that are able to diversify away from wheat. Consumption Grain, and specifically wheat, consumption is relatively stable in Kazakhstan, with on average about half of all wheat being consumed domestically for food, feed and seed usage. Wheat Figure 71 Oilseed Area Growth in Kazakhstan. feed consumption is expected to recover in 2011/12 as a result of expected lower domestic prices and greater supply. The poultry industry is a significant consumer of wheat, as it is typically the largest component in feed rations. Trade Kazakh grain exports are expected to rebound this year as a result of the higher availability, with total grain exports estimated at 8.3 MMT (8.0 of which is wheat and flour) compared to 5.7 MMT last year (5.4 of wheat and flour). Kazakhstan is the worlds largest flour exporter, primarily supplying other Central Asian markets. These exports are expected to continue steady this year, although there may be a little more competition from Russian flour as a result of the much larger harvest there. In the long-term, however, flour exports are unlikely to be a growth area for Kazakhstan as some Central Asian importers have begun developing their own milling industries (although this development will open opportunities for Kazakh wheat grain exports to these markets). Kazakhstan is landlocked, and as such has major logistical and marketing problems when it comes to selling grain onto the world market. There is only one major port in Kazakhstan, Aktau on the Caspian Sea, but its capacity is relatively minor and is used to primarily supply Azerbaijan and Iran. Kazakh exporters are largely reliant on Russian and Ukrainian ports in order to export their wheat and barley. Having to ship through these ports is problematic as a result of high transportation costs (current transportation costs from Kazakh production areas to the Russian port of Novorossiysk is about $150/MT, and to Ukrainian ports are $160/MT), which in many years are higher than the price of the wheat. In addition, in years such as this when Ukraine and Russia are experiencing bumper crops, it makes it much more difficult to obtain quotas for these Black Sea ports. Because of these difficulties, Kazakh grain companies have invested in port capacity on the Baltic Sea, and current transport costs to these ports is actually less expensive than to Black Sea ports. Many in Kazakhstan had hoped that China would become a major buyer of Kazakh grain, and although some exports of wheat have begun to flow to China (16,000 MT in 2009/10 and 31,000 MT in 2010/11) there are currently a number of obstacles to large volumes of trade with China. Some of these are logistical problems such as different railway gauges between the the countries and the hesitancy from the Kazakh side to send rail wagons into China (especially as there is already a shortage in Kazakhstan). However, the largest obstacle is the Chinese requirement that all wheat imports from Kazakhstan be imported in bags, rather than bulk. This Page 94

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requirement is hugely time consuming, and although some Kazakh grain companies are investing in terminals and bagging plants at the border, as long as this requirement is in place it will temper the amount of grain that can be shipped. Despite these logistical and geographic difficulties, reduced global supplies of high-protein milling wheat from Canada, the United States, and EU, should help boost demand for Kazakh spring wheat (96 percent of the wheat grown in Kazakhstan is spring) on global markets and encourage the export recovery this year. Currently, Kazak prices are much higher than world market prices, but with the impending bumper crop these will likely decline significantly in the next few months.
Figure 72 Kazakh Wheat and Flour Markets.
Stocks The Kazakhstan Statistics Agency reported that grain stocks as of July 1, 2011 were 3.5 MMT of which 3.3 MMT was wheat. Although some storage scarcity may occur due to the large harvest, Kazakhstan during the Soviet Union regularly produced significantly more grain than even this years bumper crop, and as a result there is some excess capacity in Soviet built concrete storage facilities. For the past few years, Kazakhstan has had a functioning warehouse receipts program which has made the trading and using of grain as collateral much easier. Under the current system, when grain is put in an elevator, the owner of the grain is given a warehouse receipt which is printed on official currency paper (printed at the same place as the Kazakh tenge) and includes a number of security features to reduce counterfeiting. This receipt states the quality and amount of the grain, and can be used at banks for collateral for loans, or can be sold to interested buyers. In order to sell the grain, the seller and buyer just need to sign the back of the receipt and inform the elevator within 10 days of selling. Other than this the actually grain elevator does not need to be involved in the exchange. Policy The Government of Kazakhstan supports crop production through a number of programs, including cheap credit for machinery purchases. These government-financed loans offer much longer terms and lower rates (4-6 Page 95

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percent compared to up to 15 percent) from private banks. Subsidies are also provided for fuel and pesticides, and fertilizer is sold at large discounts. In addition agricultural producers do not have to pay VAT, and also enjoy other discounted taxes. While all land is owned by the government, agricultural producers lease the land for a 49-year period, and are required to pay almost nothing for this leasing. Also, although these farmers do not own the land, they are able to use rights to use the land rather than the land itself as collateral to receive loans from banks.
Figure 73 PSD For Wheat.
The Mineral Industry of Kazakhstan Kazakhstan ranked second only to Russia among the countries in the region in its quantity of mineral production. It is endowed with large resources of a wide range of metallic ores, industrial minerals, and fuels, and its metallurgical sector is a major world and (or) regional producer of a large number of metals from domestic and imported raw materials. Its mining sector produced asbestos, bauxite, cesium, chromite, copper, germanium, gold, indium, iron, lead, manganese, rare-earth elements, scandium, and zinc in ores, and its metallurgical sector produced such metals as arsenic, beryllium, bismuth, cadmium, copper, ferroalloys, gallium, indium, lead, magnesium, molybdenum, niobium, rare-earth metals, rhenium, scandium, selenium, steel, tantalum, tellurium, titanium, and zinc. The country produced industrial minerals, such as asbestos, barite, and phosphate. The country was a large regional producer of such mineral fuels as coal, natural gas, and oil, and it was the worlds leading uranium producer. Page 96

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Minerals in the National Economy In 2009, industrial production accounted for 53.6% of the gross domestic product (GDP) (Agency of Statistics of the Republic of Kazakhstan, The, 2010, p. 11). The mineral extraction sector accounted for 60.3% of the value of industrial output; of that percentage, the extraction of crude oil accounted for 50.5% of the value of industrial output; nonferrous metal ores, 3.1%; iron ore; 1.5%; coal, 1.2%; natural gas, 0.4%; and other mineral extraction activities and services, the remainder. In the mineral processing sector, metallurgy accounted for about 11.8% of industrial output, of which production of nonferrous and precious metals composed about 6.5%, and ferrous metals, about 5.2%. The oil refining sector accounted for 2.3% of the value of industrial production (Agency of Statistics of the Republic of Kazakhstan, The, 2010, p. 307, 308). In 2009, out of a total workforce of 7,903,400 people, the mining sector employed 197,900, or 2.5% of the total labor force (Agency of Statistics of the Republic of Kazakhstan, The, 2010, p. 96). From 2003 through 2008, Kazakhstan attracted large net foreign direct investment inflows, which equaled 8% of the GDP; most of this investment was in the hydrocarbon sector (Rabobank Group, 2009). Production In 2009, production in Kazakhstans mineral extraction sector remained relatively stable, showing moderate increases or decreases for most mineral commodities. Some mineral commodities, however, such as aluminum and uranium, showed percentage increases of more than 10% and others showed percentage decreases of more than 10%, including cadmium, coal, lead metal, lime, salt, and zinc metal. The largest change in production was the 65% increase in uranium output, which propelled Kazakhstan into becoming the worlds leading uranium producer. Structure of the Mineral Industry Eurasian Natural Resources Corporation PLC (ENRC) was a mining and metals group with more than 70,000 employees. The ENRC group controlled Aluminium of Kazakhstan (AoK), the Kazchrome chromite mining and ferroalloys production enterprise, Kazmarganets (which controlled the Zhayrem manganese mining and beneficiation complex), and the Sokolovsko-Sarbay Mining and Production Union (SSGPO), which was the main supplier of iron ore to Russias Magnitogorsk Iron and Steel Works. The leading shareholder in ENRC was the copper company Kazakhmys PLC (Eurasian Natural Resources Corporation PLC, 2011e). ENRC also owned assets in mineral production enterprises in China (ferroalloys), Brazil (iron ore), the Democratic Republic of the Congo [Congo (Kinshasa)] (cobalt and copper), Mali (bauxite), Mozambique (coal), Russia (chrome ore and ferroalloys), South Africa (fluorspar and platinum), Zambia (cobalt and copper), and Zimbabwe (platinum) (Eurasian Natural Resources Corporation PLC, 2011c). Kazakhmys, which was the countrys leading copper producer, was a United Kingdom-registered copper mining Page 97

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company whose main assets were located in Kazakhstan. The companys headquarters was located in London and the headquarters of its main subsidiary, Kazakhmys Corp., was located in Zhezkazgan, Kazakhstan. In October 2005, the company was listed on the London Stock Exchange. Glencore International AG, which was headquartered in Switzerland, owned 50.7% of the shares of Kazzinc JSC, which was the countrys leading integrated lead and zinc producer; Kazzinc also produced copper, gold, silver, and other byproduct metals. All the countrys major oilfield and gasfield developments since achieving statehood in 1991 were by projects in which foreign companies and Kazakhstan state-owned firms had forms of joint ownership. The countrys uranium industry was controlled by Kazatomprom National Atomic Co. Kazatomproms stock was 100% held by the Government and the company employed more than 25,000 people. Kazatomprom was also an importer, exporter, and transporter of uranium and other products used in the nuclear power industry. In January 2009, the Government of Kazakhstan established Tau-Ken Samruk to consolidate the Governments mining holdings under one entity. The new company was established for the purpose of improving efficiency in the approval process for mining projects and for increasing investment in the mining sector through raising awareness of investment opportunities. Tau-Ken Samruk reportedly could simplify matters for companies that worked with it in negotiating with the Government for new exploration projects. Tau-Ken Samruk also was established with the objective of working with international companies to develop technologies that were suited to developing Kazakhstans mineral industry Mineral Trade In 2009, the value of Kazakhstans exports decreased by 39% compared with that of 2008, and the value of imports decreased by 25%. In 2009, fuels accounted for the majority of the value of exports, with exports of oil and gas condensate accounting for 61%; natural gas, 3.2%; petroleum refinery products, 2.8%; and coal, 1.2%. With respect to exports of metal, exports of refined copper in 2009 composed 3.3% of the value of total exports; rolled steel, 3.1%; ferroalloys, 2.7%; zinc metal, 0.9%; and lead metal, 0.3%. In 2009, the countrys leading mineral commodity import was steel pipes, which accounted for 10.6% of the total value of exports, and the country also imported small amounts of coal, crude oil, natural gas, and petroleum refinery products. Commodity Review Metals Aluminum.AoK, which was a subsidiary of ENRC, was the second ranked alumina producer, by volume, in the region. AoK operated the Krasnooktyabrsk and the Torgay bauxite mining complexes and produced alumina at the Pavlodar aluminum plant. AoK also developed the Keregetas limestone mine. AoK employed
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about 12,000 people. The Kazakhstan aluminum smelter (KAS) in Pavlodar, which was the countrys first aluminum smelter, was commissioned in December 2007 and reached its rated capacity of 125,000 metric tons per year (t/yr) in the second quarter of 2008. On May 1, 2010, KASstarted up its second production line, which increased its total capacity to 250,000 t/yr. In June 2009, ENRC announced that the London Metal Exchange (LME) had approved with immediate effect the listing of primary aluminum ingots produced at KAS. Registration of the ingots with the LME enabled the ingots to be sold into LME warehouses at LME list prices, which provided ENRC with more flexibility in its sales and marketing operations. Beryllium.The Ulba Metallurgical Plant Joint Stock Company (UMP), which was part of Kazatomprom, was a world leader in beryllium production and was the worlds leading supplier of primary series beryllium and its master alloys base. UMP intended to enhance its beryllium production process to obtain maximum competitive advantage with respect to production costs. Plans included improving existing technology for extracting beryllium from ores and concentrates to obtain cheaper beryllium hydroxide while maintaining quality on a par with existing hydroxide output; developing technologies and equipment for producing different products from beryllium bronze in accordance with domestic and world market requirements, including products for Kazakhstans oil and gas industry; and improving equipment and technologies to upgrade existing capacities for producing beryllium metal and beryllium-bearing alloy. The new beryllium production and development strategy was focused on the output of competitive products with higher value added, based on state-of-the-art technologies. In 2006, Kazatomprom concluded a joint-venture agreement with China for the production of beryllium copper flat-rolled products. Kazatomprom entered into the joint venture to take advantage of the prospect for sales in the Chinese market. UMP established a Kazakhstan-Chinese joint venture for the production of beryllium-bronze rolled metal in China with the Ningbo Xinye Electronic Copper Strip Co., which was part of the Shine Copper Industry Co., Ltd; each country had a 50% stake in the joint venture. Final registration in China of the Kazakhstan-Chinese joint venture as the Yingtan Ulba Shine Metal Materials Company Ltd. was completed in November 2007. The stated aim of the joint venture was the construction of a plant that would produce flat-rolled products from high-strength and highly conductive copper-beryllium alloy to meet the needs of Chinese consumers. Production was to include strips and other products from beryllium bronze, including sheets, rods, wire, and profiled rolled metal. Output was to be up to 2,000 t/yr of all types of products. Production volumes could be increased on the mutual agreement of the parties. The joint ventures products were to be sold in China and in overseas markets. Chromium.Kazakhstan has large resources of high-grade chromite ore with an average Cr2O3 content of 50.2%, which ranked Kazakhstans resources among the highest grade chromite ore in the world. The countrys chromite ore also has a low iron content and a low content of undesirable ore constituents, including phosphorus and sulfur. The countrys reserves are concentrated in the northwestern part of the country in the Aktyubinsk region in the Kempirsay massif and distributed in more than 160 deposits, of which 20 were considered to be commercially significant. Kazakhstan reportedly had confirmed reserves calculated according to the reserve system that was used in the Soviet Union in categories A, B, and C1 of 316 million metric tons (Mt). The Soviet reserves classification does not tally reserves according to economic criteria used in market Page 99

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economy systems. The largest portion of these reported reserves (92%) were at depths that precluded their economic extraction (Kabaziyev and Outs, 2008). In 2009, Kazakhstan was the worlds third ranked chromite producer. Kazakhstan also produced chromium ferroalloys. Domestic demand for ferroalloys was low, and most of the countrys ferroalloy production was exported to countries in Europe and Southeast Asia and to the United States. China was considered the most attractive prospective market for the countys ferroalloys. In September 2008, the Russian steelmaker Mechel OAO commissioned its new Voskhod chrome ore mine in Aktyubinsk region. The Voskhod operation, which Meckel acquired in May 2008 from Oriel Resources Plc of the United Kingdom, was expected to become one of the worlds leading suppliers of chrome concentrate once the mines output reaches the facilitys design. Kazchrome, which was a subsidiary of ENRC, was one of the worlds leading ferrochrome producers. Its primary product was high-carbon ferrochrome, which had a chrome content of 68%. Kazchrome also produced ilmenite, rutile, and zircon concentrates and employed approximately 18,000 people. Kazchrome owned the Aksu and the Aktobe ferroalloy plants, the Donskoy chromite ore mining and processing complex, and the Kazmarganets manganese mining enterprise. ENRC also owned foreign chromite and ferrochrome producers, which included the Serov mining and metallurgical complex in the Sverdlovsk region in the Ural Mountains of Russia. ENRC had a 50% ownership stake in the Xinjiang Tuoli Taihang Ferro-Alloy Co. (Tuoli) in China, which was one of Chinas leading ferrochrome plants. The plant is located in Tuoli County, Xinjiang Province, about 300 kilometers (km) from the ChinaKazakhstan border. Copper. Kazakhmys was the countrys leading copper producer and ranked among the worlds 10 leading copper producing companies. Its core business was the production and sale of copper, and the companys activities were fully integrated, from mining ore through metal production. The company also produced other metals as byproducts, including gold, silver, and zinc. Kazakhmys had operations across Kazakhstan, which included 17 open pit and underground mines, 10 concentrators, and 2 smelting and refining complexes; it also owned coal mines and power plants, which supplied energy for the companys operations and also produced excess energy, which the company marketed commercially. Kazakhmys was developing the Atogay and the Bozshakol Mines, which were its two major projects to expand capacity; the mines were scheduled to be commissioned in 2015 and 2014, respectively. On December 30, 2009, Kazakhmys announced the allocation of a $2.7 billion unsecured loan from the China Development Bank Corp. and the Joint Stock Company Sovereign Wealth Fund Samruk-Kazyna (Samruk); $2.1 billion of the allocated funds was to be made available for the Bozshakol and the Bozymchak Mine development projects. The Bozshakol Mine was expected to produce about 100,000 t/yr of copper in concentrate when it reached full production capacity. The Bozymchak Mine is located in southwestern Kyrgyzstan; Kazakhmys acquired the deposit in 2008. An additional $200 million was to be assigned to the potential development of several existing mines. The remaining $400 million of the $2.7 billion allocation was to be available for assignment during the next 3 years and would be allocated to other Page 100

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growth projects. In 2010, Kazakhmys agreed to engage in a joint venture with Chinas Jinchuan Group Ltd. whereby Kazakhmys would sell Jinchuan a 49% stake in its Aktogay project in eastern Kazakhstan. The two firms would share development costs, which were estimated to be between $1.5 billion and $2.0 billion. Aktogay was projected to produce 100,000 t/yr of copper in concentrate. The project involved development of a large open pit mine in the Ayoguz region of Kazakhstan. Aktogay reportedly was one of the leading undeveloped copper deposits in the world, with contained copper reserves that would support a mine life of 40 years. Afeasibility study was expected to take about 1 year, and mine development was expected to take an additional 3 years. In 2009, Kazakhmys produced 320,000 t of copper cathode from more than 32 Mt of ore with an average copper grade of 1.18% that yielded 359,000 t of copper in concentrate. In 2008, Kazakhmys produced 343,000 t of copper cathode. Kazakhmys was one of the leading employers in Kazakhstan, with 60,000 employees, and its revenues accounted for 2.5% of Kazakhstans GDP. Kazakhmys projected that output in 2010 through 2013 would remain at its 2009 level owing to declining ore grades at the older mines in the Zhezkazgan region and then would increase in 2014 with the commissioning of the Bozshakol Mine. Kazakhmys sold its copper in Europe and to China, and these regions together accounted for between 80% and 90% of the companys sales, which were evenly divided between the two areas. China, however, was Kazakhmys fastest growing market. Material exported to China was transported by rail, whereas material exported to Europe was sent by rail to the Black Sea for shipment. At Kazzinc, which was the countrys second ranked copper producer, blister copper production increased to 59,420 t in 2009 from 55,956 t in 2008. On December 21, 2010, Kazzinc produced its first batch of copper cathodes at its copper refinery in Oskamen, which was a new product for the company. Gallium.Kazakhstan reportedly possesses about 6% of total gallium reserves in the region; total gallium reserves in the region reportedly exceed 10,000 t. Kazakhstan, along with Ukraine, was one of the major producers of metallic gallium in the region. Gallium production took place at ENRCs alumina refinery in Pavlodar. ENRC reportedly produced 40% of the worlds gallium output. Indium.Kazakhstan possesses about 12% of the indium reserves in the region. Indium reserves in the region reportedly total more than 5,000 t. In Kazakhstan, indium was produced as a byproduct of lead and zinc production by Kazzinc, which had the capacity to produce metallic indium. Indium production in Kazakhstan was estimated to be less than 500 kilograms per year (kg/yr). Iron Ore.The Sokolovsko-Sarbay Mining Production Association (SSGPO) was ENRCs iron ore mining and beneficiation enterprise in Kazakhstan and the countrys leading iron mining enterprise. It employed about 18,500 people. Its operations included the Kacharskiy, the Korzhinkolskiy, the Sarbayskiy, and the Sokolovskiy iron ore open pits; the Sokolovskiy underground mine; dolomite and limestone open pits; and crushing, concentrating and pelletizing facilities. Energy and heat were supplied by the Rudny heat and energy plant. Lead and Zinc.Kazzinc was Kazakhstans leading producer of lead and zinc, and Kazzinc also produced copper and precious metals. The companys core operations were located mainly in the East Kazakhstan Region, and the company employed more than 22,000 people engaged in mining, beneficiation, metallurgy, power Page 101

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generation, and auxiliary operations. In 1997, the company was formed through the merger of East Kazakhstans three leading lead and zinc producing companiesLeninogorsk Polymetallic Complex, UstKamenogorsk Lead and Zinc Complex, and Zyryanovsk Lead Complex. The majority owner of the three companies was the Government of Kazakhstan. The company also included the Bukhtarma hydroelectric powerplant. The controlling block of shares in Kazzinc was sold by the Government to the private sector, and Glencore International became the companys main investor. Since its creation, Kazzinc had significantly increased its production capacity and output. In 2009, production of refined lead at Kazzinc decreased to 79,041 t from 90,240 t in 2008, but production of zinc metal increased to 301,104 t from 299,443 t in 2008. In 2009, Kazakhmys produced 149,000 t of zinc in concentrate, which was 9% more than in 2008. Kazakhmys Akbastau Mine, which had a zinc ore grade of just 0.63%, was closed during 2009. Kazakhmys zinc smelters operations were suspended during 2009 as concentrate sales were commercially more attractive than metal sales. In 2010, the production of zinc concentrate at Kazakhmys was expected to decrease from the level achieved in 2009 as the contribution from stockpiled ore was to be reduced. There were no plans to restart the zinc smelter. In 2010, all zinc concentrate produced by Kazakhmys was to be sold to customers in Kazakhstan and exported to China. Manganese.Kazakhstan reportedly has 429 Mt of manganese ore reserves, which reportedly ranks it third in the world in manganese reserves. This reserve figure was calculated according to the Soviet reserve classification system, which does not correspond to reserve systems based on market economy criteria. Manganese was mined at the Zhayrem manganese mining and beneficiation complex, which was a subsidiary of ENRC; it included the Ushkatyn-3 iron-manganese and barite-lead deposit, the Zhayrem barite-lead-zincsilver deposit, and the Zhomart iron-manganese deposit. It supplied customers in Central Asia, China, Russia, and Ukraine. Niobium and Tantalum. Kazatomprom subsidiary UMP produced niobium products in the form of ingots, ligatures, powder, rolled products, and wire. Kazatomprom also controlled the countrys tantalum production. Kazatomproms tantalum production complex was also located at UMP. This enterprise was one of the worlds leading tantalum production enterprises. It had a complete production cycle for reprocessing tantalum-niobiumbearing feedstock and producing finished products. Kazatomprom did not have its own tantalum resources and purchased tantalum concentrate. Kazatomprom had formed a strategic plan to develop its tantalum production sector, which included construction of a capacitor production plant and production of high-capacity tantalum capacitor powders. The major share of the worlds tantalum was consumed in the production of highcapacity tantalum powders. Such powders were mainly used for the production of tantalum capacitors used in high-technology applications. Developing an appropriate technology for tantalum powder production in Kazakhstan was the impetus behind the Governments strategy of establishing a hightechnology tantalum powder products sector. Tantalum powder was used in the production of capacitors for the electronics industry. In December 2008, UMP opened a facility for tantalum powder production and its tantalum powders have been qualified by consumers from Russia. Page 102

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The powders also were being tested by companies in Israel and Japan, and consumers from Europe and the United States had signed contracts for additional testing of subcommercial lots of the high-capacity powders. Rare Earths.The Irtysh Rare Earths Company Ltd. (IRESCO) in East Kazakhstan processed rare-earthmetal chlorides from the Solikamsk magnesium plant in Russia and produced rare-earth compounds of cerium, europium, gadolinium, lanthanum, neodymium, praseodymium, and samarium, and polishing powders based on pure cerium oxide (Vereschagin and others, 2006; Irtysh Rare Earths Company Ltd., 2011). In 2009, Kazatomprom and Sumitomo Corp. of Japan agreed to undertake recovery of rare-earth elements from uranium ore residues. By yearend 2009, a joint venture was to be formed to produce rare-earth concentrates from uranium tailings from open pit mines. Plans called for processing the concentrate at the Ulba metallurgical plant. The tailings were reportedly rich in such rare-earth elements as dysprosium and neodymium. The project was considered advantageous because of low development costs, a quick startup time, and less environmental impact from using tailings. Furthermore, Kazatomprom could supply significant infrastructure and engineering support. It was envisaged that the new rare-earth-metals production ventures entry into the dysprosium market would provide the world market with another source of this rare-earth element besides China. The joint venture would be the second between Kazatomprom and Sumitomo (the two companies had also formed a joint venture to produce uranium). Selenium and Tellurium.Kazakhstan produced refined selenium and tellurium. Tellurium was produced at Kazzinc, and production was estimated to be between about 17 and 18 t/yr. Available information on the production of selenium, which is generally produced from anode slimes generated in the electrolytic refining of copper, was not adequate to estimate selenium production. Industrial Minerals Phosphate Rock.Kazakhstan reportedly is 1 of 10 countries that collectively possess 90% of the global phosphate rock resources. Kazakhstan produced phosphate rock in the Karatau phosphorite basin. The basin contains 45 deposits. The Karatau basin is located in the South Kazakhstan and the Zhambyl regions and extends for 25 km in width from northwest to southeast and is 120 km in length. The phosphate rock strata is
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near the surface, which makes it accessible for primarily open pit mining. More than 85% of the commercially developed phosphate rock deposits in the Karatau basin were surface mined and the remainder was mined by underground methods. The average content of P2O5 in phosphate rock from the Karatau basin was from between 21% and 27% and reached up to 30% at some deposits. The phosphate rock from the Karatau basin contains manganese oxide, which lessens the ores quality. Kazphosphate LLC, which was established in 1999, was composed of the Karatau mining and processing complex (which contained the Chuluktau and the Zhanatas enterprises), the Novodzhambul phosphorus plant, a mineral fertilizers plant, a railway transportation complex, and a detergents plant. When Kazphosphate was established, its main task was to rehabilitate phosphate rock production, recover lost contacts in international markets, expand the geographical area of sales, and introduce new types of products. The Karatau mining and processing complex, which was created on the basis of the Karatau phosphorus basin, was the only supplier of phosphorous feedstock for the domestic phosphorus industry as well as for domestic and other Central Asian producers of mineral fertilizers. Kazphosphate mined six deposits by open pit and underground methods. The company had three main phosphate development objectives. These were (1) exploration for phosphate rock and the development of mining and processing of phosphate rock to produce phosphate fines and phosphate powder, (2) producing yellow phosphorus and its derivatives, and (3) producing phosphate fertilizers and feed phosphates. Mineral Fuels and Related Materials Coal.At the end of 2009, according to the 2010 BP Statistical review of world energy, Kazakhstans coal reserves totaled 31.3 billion metric tons (Gt), which equaled 3.78% of the worlds total reserves. Kazakhstan reportedly had the largest recoverable coal reserves in Central Asia. About 70% of Kazakhstans coal production was used for domestic power generation, as 80% of Kazakhstans electric power requirements were coal based. Coal was also used in the iron and steel industries. The remainder of Kazakhstans coal production was exported, mainly to Russia and Ukraine. According to the Kazakhstan Ministry of Energy and Natural Resources, the country was planning to produce between 100 and 105 million metric tons per year (Mt/yr) of coal by 2015 (BP p.l.c., 2010, p. 32; MBendi Information Services (Pty) Ltd., 2011). Kazakhstan reportedly has more than 400 coal deposits. One-third of these deposits contains brown coal or lignite. Most of the countrys coal production takes place in two basinsthe Ekibastuz and the Karaganda In the Ekibastuz Basin, which was reportedly the third largest coal basin in the region, bituminous coal was mined to supply the electric power generation sector. In the Karaganda basin, coking coal was extracted from underground mines. Bogatyr Access Komir, LLP (BAK) was the leading surface mining company in Kazakhstan. BAK owned the Bogatyr Mine, which had a projected capacity of 50 Mt/yr. BAK was wholly owned by Access Industries of the United States. Kazakhstans leading steel producer, Ispat-Karmet, which was a subsidiary ArcelorMittal of Luxembourg, operated several coal mines in the Karaganda region that produced more than 7 Mt/yr of Page 104

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coal that it used to supply its steel works. Natural Gas.According to the January 2010 Oil and Gas Journal, Kazakhstans estimated proven natural gas reserves were reportedly 85 trillion cubic feet (about 2.4 trillion cubic meters). Almost all natural gas produced in Kazakhstan was associated gas. More than one-half of the countrys gas reserves are in the Karachaganak oil and gas field, which reportedly has proven natural gas reserves of 48 trillion cubic feet (about 1.4 trillion cubic meters). In 2009, Kazakhstan switched from being a net natural gas importer to a net exporter of 134 billion cubic feet (about 3.8 billion cubic meters). In 2009, 69% of the gas produced was reinjected into the fields to enhance oil production. The two leading natural gas producing fields were also the two leading oil producing fields. About one-half of Kazakhstans total gross gas production was produced by the Karachaganak oil and gas field, which was projected by the consortium developing the field to reach 900 billion cubic feet (about 25.5 billion cubic meters) of gas by 2012. Gross gas production at the Tengiz oil and gas field reportedly could increase to 780 billion cubic feet (about 22 billion cubic meters) by 2015. The remainder of produced natural gas came from smaller fields. Kazakhstan reportedly planned to increase total gross gas production to 2.5 trillion cubic feet (70.8 billion cubic meters) by 2015. New pipeline infrastructure would allow the country to export its increased gas output. Petroleum.In 2009, Kazakhstans oil production increased to about 76.4 Mt. Domestic oil consumption was less than 12 Mt. The eight leading producing fields were located onshore. The Tengizchevroil consortium, which was led by Chevron Corp. of the United States, was the countrys leading oil producer followed by the national oil and gas company Kazmunaigaz (KMG). KMG also held a 20% interest in the Tegizchevroil consortium. Growth in oil production was dependent on increasing production at the three largest fieldsKarachaganak, Kashagan, and Tengiz (U.S. Energy Information Administration, 2010c). The Tengiz field, which is located onshore in northwestern Kazakhstan, was Kazakhstans leading oil producing field, with recoverable crude oil reserves estimated by consortium leader Chevron to be between about 800 Mt and 1.2 Gt [6 billion barrels (Gbbl) and 9 Gbbl]. Tengiz had been under development since 1993. Output from Tengiz was exported through the Caspian Pipeline Consortium (CPC) oil pipeline, which runs from Tengiz to Novorossiysk, Russia, on the Black Sea. The Karachaganak field, which is also located onshore in northwestern Kazakhstan, has reserves of about 1.1 to 1.2 Gt (8 Gbbl to 9 Gbbl) of oil and gas, according to the operating consortium Karachaganak Petroleum Operating (KPO). The KPO consortium was working under a production-sharing agreement (PSA) signed in 1997 to develop the field for 40 years. KPO was able to export is condensate through Russia using the Tengiz-Novorossisk pipeline. Karachaganaks Phase 3 development program, which was aimed at increasing condensate output, was reportedly suspended owing to delays in upgrading and expanding the Orenburg processing plant in Russia. The Kashagan field, which is located off the northern shore of the Caspian Sea near the city of Atyrau, was Page 105

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believed to be the largest known oilfield in terms of reserves outside of the Middle East and the fifth largest in the world. The consortium that had been developing the field was the Agip Kazakhstan North Caspian Operating Co. (Agip KCO). In January 2009, Agip KCO was replaced by the North Caspian Operating Co. (NCOC) PSA, which also operated other fields in the area, such as the Aktote, the Kairan, and the Kalamkas fields. Members of the NCOC venture included Eni S.p.A. of Italy, Exxon Mobil Corp. of the United States, JSC KazMunaiGas (KMG), Royal Dutch Shell plc of the Netherlands, and Total S.A. of France, each with a 16.8% share; ConocoPhillips Co. of the United States, which held an 8.4% share; and Inpex Corp. of Japan, which held a 7.6% share. In July 2010, KMG and Shell signed an agreement that they would jointly manage production when the field came online. Kashagans recoverable reserves were estimated to be 11 Gbbl (about 1.5 Gt) of oil. The timetable for production startup had been been delayed to October 2013, which was 8 years later than the original scheduled startup date of 2005. Initial production from phase 1 was projected to be 370,000 to 450,000 barrels per day (bbl/d) (about 18.4 to 22.3 Mt/yr), and production was projected to peak at 1.5 million barrels per day (Mbbl/d) (about 75 Mt/yr) when phase 2 was projected to come online in 2019. Cost overruns associated with the fields adverse operating environment were considered responsible for much of the delay. Development of Kashagan presented particular challenges, as the field contains a high proportion of natural gas under very high pressure, the oil in the field contains large quantities of sulfur, and the offshore platforms needed to develop the field would need to be constructed to withstand the extreme weather fluctuations in the northern Caspian Sea. The Kashagan field lies in only 3 to 5 meters of water, and drilling and extraction operations were to proceed from artificial islands. Existing pipelines to China and Russia would be able to handle only phase 1 output from Kashagan. The timing of the development of phase 2 of the Kashagan field would also determine the timing of construction of new refining and export capability at Kuryk (U.S. Energy Information Administration, 2010c). Kazakhstan ranked as an important exporter of light, sweet crude oil. In 2009, Kazakhstan had net oil exports of about 1.3 Mbbl/d (about 65 Mt/yr), which was delivered to world markets by pipelines to the Black Sea by way of Russia; by barge and pipeline to the Mediterranean Sea by way of Azerbaijan and Turkey; by barge and rail to Batumi, Georgia, on the Black Sea; and by pipeline to China. Kazakhstans Prime Minister in an interview in October 2009 projected that Kazakhstan would increase its oil exports to 3 Mbbl/d (about 149 Mt/yr) by 2020, but achieving such rapid growth of oil production would necessitate increasing export capacity. Uranium.According to Kazatomprom, Kazakhstan reportedly hosts about 19% of the worlds explored uranium reserves, or about 1.6 Mt of uranium. The uranium deposits are grouped into the following six uranium provinces: the Chu-Sarysu uranium ore province with the Kanzhugan, the Moinkum, and the Uvanas Page 106

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Mines in operation; the Syrdarya uranium ore province, with the Northern Karamurun and the Southern Karamurun Mines in operation; the Northern Kazakhstan uranium ore province, with the Vostok Mine and the Stepnogorsk mill in operation; the Caspian uranium ore province with uranium production mothballed in this province since the collapse of the Soviet Union; the Balkhash uranium ore province, with uranium mining discontinued after the major deposits were depleted during the Soviet era; and in the Ili uranium ore province, where uranium occurs mainly in uranium-coal deposits, but where no uranium was being produced. Kazakhstan had established joint ventures with a number of companies from different countries to mine its uranium reserves (Interfax Russia & CISMetals and Mining Weekly, 2009). In 2009, Kazakhstan produced 14,020 t of uranium (U content), which was about 65% greater than in 2008 and made Kazkahstan the worlds leading uranium producer. Kazatomproms uranium development program called for uranium production to increase to 15,000 t in 2010. Two new uranium mines were expected to be commissioned in 2010. Outlook Kazakhstans long-term mineral development prospects remain promising, and in 2009, Kazakhstan had become the worlds leading uranium producer. With the completion of development of its major oilfields, Kazakhstan could become one of the worlds leading five oil producers within the next decade. In 2009, Kazakhstan produced about 76.4 Mt of oil, which already had made it a major oil producer. With continued development of its giant Karachaganak, Kashagan, and Tengiz fields, current production was expected at least to double by 2019. Kazakhstans sector of the Caspian Sea was believed to contain a number of other major oil and natural gas deposits, which had not yet been developed (U.S. Energy Information Administration, 2010a). Production growth had been taking place in practically all sectors of the mineral industry and was expected to continue in the next decade. Kazakhstan was adding capacity to increase copper production, which would result in an increase not only in the output of copper, but also that of byproduct metals. China was playing an active role in the development of Kazkakhstans metal resources and was considered to be the most prospective market for Kazkahstans mineral exports.
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Figure 74 Kazakhstan: Production of Mineral commodities Part 1.
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Figure 75 Kazakhstan: Production of Mineral commodities Part 2.
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Kazakhstan Energy Market Overview in Details Kazakhstan has the largest proven oil reserves base of the Caspian Sea region. It also accounts for more than half of CEE regional production, with output in 2009 averaging an estimated 1.54mn b/d. The growing petroleum industry accounts for more than 30% of the countrys GDP and more than half of its export revenues. In an effort to reduce its exposure to energy and metals price fluctuations, the government created the National Oil Fund of Kazakhstan. According to the June 2009 BP Statistical Review of World Energy, end2008 proven oil reserves were 39.8bn bbl. Kazakhstans gas reserves are estimated by the latest BP review at 1,822bcm. Neither figure is likely to reflect the countrys full potential. The country produces around 42bcm of gas per annum and can provide growing net gas exports. Kazakhstan has three major oil refineries supplying the northern (at Pavlodar), western (at Atyrau), and southern region (at Shymkent), with, according to the BP review, total refining capacity of 427,000b/d. Reconstruction of the Atyrau refinery has been taking place, and in June 2009 the Pavlodar refinery began to produce gasoline of Euro-4 standards. With the exception of the Shymkent refinery, capacity utilization is very low, seldom much above half the overall capability of the refineries, although the trend is improving. Kazakhstan has Central Asias largest recoverable coal reserves, with 31.3bn tonnes of mostly anthracitic and bituminous coal. Kazakhstan produced 115mn tonnes in 2008, exporting more than 60mn tones mostly to Russia and Ukraine. Kazakhstans largest coal producer, Bogatyr Access Komir, which accounts for more than a third of the countrys output, is a subsidiary of Access Industries Incorporated of the US. Russian firms are also shareholders in the Kazakhstani coal industry. Coal is the dominant fuel source in Kazakhstan, in 2009 accounting for an estimated 51.1% of PED. Coal is followed by gas at 29.5%, oil at 16.3% and hydro with a 2.6% share of PED. Regional energy demand is forecast to reach 1,543mn tonnes of oil equivalent (toe) by 2014, representing 17.0% growth over the period. Kazakhstans estimated 2009 market share of 4.97% of regional demand is set to rise to 5.68% by 2014. The countrys share of CEE regional electricity generation was an estimated 3.16% in 2009. By the end of the forecast period, we expect the country to account for 3.72% of regional power generation. It has a theoretical power export capability of up to 14.6 terawatt hours (TWh), but system wastage and rising consumption mean that a tight domestic electricity market exists. Generation in Kazakhstan is largely based on coal, hydro and gas. The country's largest power-generator, AES-owned Ekibastuz No 1, is located in north central Kazakhstan. The country has 71 power plants, including five hydro-electric power-stations, giving the country an overall installed generating capacity of around 21 gigawatts (GW), more than two-thirds of which is coal-fired. Kazakhstan's hydro-electric facilities are located primarily along the Irtysh River, which flows from China across north eastern Kazakhstan. Generation in 2009 was an estimated 80.0TWh, with consumption of around 65.4TWh. However, transmission issues require Kazakhstan to continue to import electricity in the southern part of the country, as the country's northern generating units are connected to a separate transmission grid. Page 110

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Although Kazakhstan technically generates enough electricity to meet its demand, the country has suffered from frequent power shortages since 1992 owing to the sector's deteriorating infrastructure. Kazakhstans thermal generation in 2009 was an estimated 72.3TWh, or 5.65% of the regional total. By 2014, the country is expected to account for 6.59% of thermal generation. The thermal share of domestic generation was an estimated 90.4% in 2009, which is forecast to ease to 86.9% by 2014, thanks partly to hydro-power expansion. Kazakhstan has large quantities of uranium, accounting for almost 20% of the worlds supply. According to press reports, the Kazakh government is still considering the construction of a new 1.5 gigawatt (GW) nuclear plant in the south-east, near Lake Balkash. This project was first announced in 1998, but later shelved in September 2002 because of safety concerns. However, due to rising power demand in the south, support for the construction of the plant has received new momentum. Kazakhstans sole existing nuclear power plant, the 90MW Mangyshlak facility at Aqtau, has been shut down since April 1999. It was sold in April 2003 by the government of Kazakhstan to Kazatomprom, the national nuclear power company. Kazatomprom, which has exclusive rights to the production and sale of Kazakh plutonium, plans to maintain and run the plants thermal generators and water distribution facilities for regional consumption. The Kazakh financial police spokesperson told reporters that it has brought charges against the management of the Karachaganak Petroleum Operating (KPO) consortium over 'the theft of KZT187bn (US$1.3bn) by overstating its oil production costs' between 2002 and 2007. According to the spokesperson, the financial audit was carried out by accounting firms KPMG and Ernst & Young. The Wall Street Journal reported that BG Group CEO Frank Chapman denied the charges. So far in 2010, the consortium has been charged with illegally earning US$708mn by exceeding its 2008 production quota as set out in the consortium's production sharing agreement (PSA), fined for breaching the country's environmental laws, accused of violating the country's labour laws and ordered to pay about US$136mn in unpaid taxes for 2004. The charges appear to be part of an effort to force the company into selling a stake in the field, or more seriously to build a case aimed at challenging the validity of the consortium's PSA. In December 2009 Kazakhstan's prime minister, Karim Masimov, said that the government was in talks with KPO over acquiring a 10% stake in the consortium for about US$1bn. According to an April 25 2010 report in the Italian daily Il Sole 24, the parties continue to hold talks in London but no progress has been made. Industry Forecast Scenario Oil And Gas Reserves The June 2009 BP Statistical Review of World Energy puts Kazakhstans proven resources at 39.8bn bbl. The sheer size of recent discoveries and the potential for many more suggests substantial upside potential. Our own forecasts point to an increase to 45.0bn by 2014. Kazakhstans gas reserves, estimated at 1,822bcm by the BP review, also have scope for revision and we are forecasting a minimum of 2,000bcm by 2014.
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Oil Supply And Demand Kazakhstans oil production was slightly below forecast levels in March, at around 1.60mn b/d, despite the Tengiz complex reaching a new output record of 540,000b/d. Tengiz output has been enhanced through a US$6bn expansion project, which consists of a sour gas injection unit that pumps some of the extracted gas back into the reservoir to enhance oil production. According to Chevron, at full capacity, an estimated one-third of the extracted gas will be injected back into the field, with the remaining sour gas volumes being processed as gas, propane, butane and sulphur. KMG signed a deal with Tengiz and Kashagan operators to set up the Kazakh Caspian Transport System (KCTS), comprising a pipeline to Kuryk on the Caspian coast and facilities to enable shuttle tankers to move crude across the Caspian Sea to Azerbaijans Baku. From there, crude can feed the BTC pipeline to the Mediterranean. Initial KCTS capacity from 2010/2011 is seen at 500,000b/d, rising later to 760,000b/d. The current BMI forecasts are based on estimated 2014 liquids output of 2.35mn b/d. BMI is forecasting domestic oil demand reaching 276,000b/d by 2014. This implies that oil exports should rise from an estimated 1.32mn b/d in 2009 to 2.07mn b/d by the end of the forecast period.
Figure 76 Kazakhstans Oil Production, Consumption &Export.
Gas Supply And Demand We expect estimated gas output of 42bcm in 2009 to have risen towards 80bcm by the end of 2014. This somewhat exceeds government expectations and suggests scope for a downwards revision. Infrastructure bottlenecks and delays over key decisions regarding associated gas make these projections look rather optimistic. However, the country is still set to become a major gas exporter. BMI demand forecasts see consumption reaching no more than 31bcm in 2014, providing export potential of up to 49bcm. Since Kazakh gas is potentially in competition with Russian supplies, several new natural gas export pipelines from the Caspian Sea region are also in development or under consideration, potentially opening up new markets for Kazakh volumes.
Figure 77 Kazakhstans Gas Production, Consumption & Exports.
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Refining And Oil Products Trade Kazakhstan has three major oil refineries supplying the northern (at Pavlodar), western (at Atyrau) and southern region (at Shymkent), with, a total refining capacity of 427,000b/d (BP Review). Reconstruction of the Atyrau refinery has been taking place. Capacity utilization is very low, seldom much above half the overall capability of the refineries, although the trend is improving. The country announced plans in January 2009 to invest US$3.14bn to increase its oil refining capacity over the next six years. The government plans to expand all three of its refineries. KMG plans to invest US$1.89bn in the Atyrau refinery, US$680mn in the Shymkent facility and US$570mn in the Pavlodar facility. Capacity utilization has been rising fast, but from a very low base. New capacity would mean growth in the countrys products export capabilities. Kazakhstan should therefore be exporting more than 100,000b/d of refined products by the end of the forecast period. The Shymkent refinery, built in 1985, was acquired by PetroKazakhstan in 2000. It produces gasoline, diesel, vacuum gasoil, fuel oil, jet fuel and LPG. It is linked by pipeline to fields in Russia, although it currently processes oil from Kazakhstans Kumkol, Aktyubinsk and Makatinsk fields. In 2008, it refined an average of around 86,400b/d, giving it a share of 35% of Kazakhstans total refined products output. In 2008, the refinery underwent a series of repairs, and in 2009 work began on the Shymkent Refinery Modernisation Project, part of plans to lift product quality to Euro-3 levels and increase capacity. In January 2009 the OGJ estimated capacity at 78,000b/d. The country announced plans in January 2009 to invest US$3.14bn to increase its oil refining capacity over the next six years. The government plans to expand all three of its refineries. KMG plans to invest US$1.89bn in the Atyrau refinery, US$680mn in the Shymkent facility and US$570mn in the Pavlodar facility. Revenues/Import Costs Current BMI oil price forecasts, based on the OPEC basket, envisage US$85.00/bbl in 2011, followed by an average of US$90.00/bbl in 2012-2014. Oil export revenues can therefore be expected to climb from an estimated US$41.37 in 2010 to US$68.14bn by the end of the period. Revenues from gas exports could rise from an estimated to some US$16.60bn by 2014. State income from oil and gas exports could be as high as US$84.74bn by the end of the forecast period.
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Figure 78 Kazakhstan Oil & GAZ - Historical Data & Forecasts.
Other Energy The countrys power consumption is expected to increase from an estimated 65.4TWh in 2009 to 77.8TWh by the end of the forecast period, while theoretical surplus generation is expected to rise from an estimated Page 114

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14.6TWh in 2009 to 32.3TWh in 2014, assuming 5.5% annual growth in power generation. In fact, system wastage and transmission weaknesses mean that Kazakhstan has to import some power, as well as export electricity to Russia. Kazakh power generation in 2009 was an estimated 80.0TWh, unchanged from the 2008 level. BMI is forecasting an average 5.5% annual increase to 110.1TWh by 2014. Kazakhstans thermal generation in 2009 was an estimated 72.3TWh, or 5.65% of the regional total. By 2014, the country is expected to account for 6.59% of thermal generation. Coal-fired generation accounted for an estimated 71.7% of the countrys total generation in 2009, according to BMI estimates. We expect the fuels market share to be 68.5% by 2014, firing an estimated 75.4TWh at the end of the forecast period. Kazakh coal consumption is forecast to rise from an estimated 33.5mn to 44.1mn toe by 2014. This equates to an increase in demand from 50.3mn to 66.1mn tones of hard coal. According to press reports, the Kazakh government is still considering the construction of a new 1.5GW nuclear plant in the south east, near Lake Balkash. This project was first announced in 1998, but later shelved in September 2002 because of safety concerns. However, owing to rising power demand in the south, support for the construction of the plant has received new momentum. The plant could potentially be operational by 2013-2015. The second biggest contributor to Kazakh power generation is hydro-electricity, and expansion should mean an increased market share by end-2014. According to BMI estimates, hydro generation totaled 7.6TWh in 2009, and this is forecast to rise to 12.7TWh by 2014. The share of overall generation is forecast to climb from 9.5% to 11.5% over the period. KEGOC announced in June 2009 that it was seeking bids for the development of the planned 300MW Moinak hydro-electric project, located on the Charyn River in Almaty province. Construction work involves building transmission lines, including the 220kV Moinak-Sary-Ozek overhead line, the 220kV Moinak-Shelek line and a 220kV line at Sary-Ozek substation, and the extension and upgrading of substations. KEGOC is expecting funds of US$48mn from the World Bank. Chinese state owned construction company, China Gezhouba Group Co (CGGC), in February 2010 signed a contract with Kazakhstan Natural Gas Technology Co to build a 254MW hydropower plant costing CNY4.97bn (US$728mn). It will be built on the Chilik River in Alma-Ata. Construction is due to take almost five years. The project is still awaiting approval from both the Chinese and Kazakh governments. The contract follows an agreement in October 2009 between China and Kazakhstan over increased cooperation with the regards to energy and infrastructure. Also in October, Samruk-Kazyna (Kazakhstan's Sovereign Wealth Fund) and China's Guangdong Nuclear Power Corporation signed a cooperation agreement on the joint development of hydro-power, wind and solar energy projects in south and central Kazakhstan. While there is considerable emphasis on hydro-electric power, other forms of renewables such as wind, solar and biomass are being neglected. Our forecasts suggest that non-hydro renewables will account for 0.4% of PED and up to 1.3% of electricity generation by 2014. Kazakhstan plans to build a 5MW windpower station by 2010 at Dzungarian Gates, near the Chinese border. The Global Environmental Facility approved a fund of US$2.5mn, while the government is providing US$4.0mn.stan Page 115

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Figure 79 Kazakhstan's Other Energy - Historical Data & Forecasts.
Key Risks To BMIs Forecast Scenario The rosy revenue picture painted by the above comments owes much to soaring output levels and relatively high oil prices. There is clearly a high risk of slippage in terms of oil and gas volumes, thanks to the complexities of developing these vast fields with challenging geology. Export levels are also dependent on adequate infrastructure investment. It is more likely that Kazakhstan will undershoot rather than overshoot its production targets. In terms of the oil price, sensitivity is clearly on the rise with the higher export volumes. At a flat US$50/bbl oil price until 2014, oil export revenues would rise from US$24.92bn in 2010 to US$37.86bn, with combined oil/gas revenues at US$47.08bn in 2014. However, at a flat US$100/bbl, the oil export trend is from US$49.84bn to US$75.72bn over the same period and total petroleum revenues would increase from US$61.85bn to US$94.15bn. Long-Term Oil And Gas Outlook Between 2010 and 2019, BMI is forecasting an increase in Kazakh oil and gas liquids production of 44.8%, with volumes reaching a peak of 2.55mn b/d in 2016, before falling to 2.31mn b/d by the end of the 10-year forecast period. Oil consumption between 2010 and 2019 is set to increase by 53.3%, with growth slowing to an assumed 5.0% per annum towards the end of the period and the country using 352,000b/d by 2019. Gas production should rise from estimated 2010 level of 42bcm to 95bcm by 2019. Gas demand rising 71.3% provides export potential increasing to 56bcm. Page 116

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Oil And Gas Infrastructure Oil Refineries Kazakhstan has three major oil refineries supplying the northern (at Pavlodar), western (at Atyrau), and southern regions (at Shymkent). According to the BP review, total refining capacity is 427,000b/d. Reconstruction of the Atyrau refinery has been taking place, and in June 2009 the Pavlodar refinery began to produce gasoline of Euro-4 standards. With the exception of the Shymkent refinery, capacity utilization is very low, seldom much above half the overall capability of the refineries, although the trend is improving. The country announced plans in January 2009 to invest US$3.14bn to increase its oil refining capacity over the next six years. The government plans to expand all three of its refineries. KMG plans to invest US$1.89bn in the Atyrau refinery, US$680mn in the Shymkent facility and US$570mn in the Pavlodar facility. In December 2004, KMG E&P bought a 50% controlling stake in the Atyrau refinery. In October 2009, Sinopec Engineering was awarded a turn-key contract to construct an aromatics production complex at the site, due onstream in 2013. This is expected to allow the refinery to produce gasoline and diesel at Euro-4 standard, as well as increasing gasoline production by over 11,000b/d. The upgrade will also create facilities to produce around 2,700b/d of benzene and just under 10,000b/d of paraxylene for the petrochemicals industry. The OGJ estimated the refinerys capacity as 104,427b/d in January 2009 The Pavlodar refinery was acquired by KMG in August 2009 following the break-up and take-over of MangistauMunaiGaz, which had formerly owned a 58% stake. The refinery completed a modernization program in June 2009, which upgraded its gasoline standards from Euro-2 to Euro-3 and Euro-4. OGJ data from January 2009 estimated the refinerys capacity at 162,666b/d, while in November 2009 state news agency Kazinform put capacity at 120,000b/d. The refinery is designed to process West Siberian crude, which is imported from Russia by pipeline. Oil Terminals/Ports There are three major oil and gas ports in Kazakhstan: Aktau, with capacity of 200,000b/d, Atyrau and Kuryk (100,000b/d), according to the EIA. Oil Pipelines The Caspian Pipeline Consortium (CPC) oil pipeline connects Kazakhstans Caspian fields with Russias Black Sea port of Novorossiysk. The CPC project is supplied with Kazakh oil through the refurbished Soviet-era links surrounding the Caspian Sea. Current capacity of the CPC system is 560,000b/d, with plans to increase capacity to 1.5mn b/d. The pipeline is owned by a consortium comprising KMG (19%), Chevron (15%), LukArco (12.5%), Rosneft-Shell Caspian Venture (7.5%), Mobil Caspian Pipeline (7.5%), Italys Agip (2%), BG Group (2%), Kazakhstan Pipeline Ventures (1.75%), Qatars Oryx Caspian Pipeline (1.75%) and Russian oil pipeline monopoly Transneft (31%, following the acquisition of Omans 7% stake in 2008). In mid-May 2008, the Russian energy ministry announced its approval to double the capacity of the CPC. In the past Moscow had vigorously opposed operator Chevrons expansion plans, apparently due to CPCs low profitability. Under the existing contract terms, CPC is obliged to pay back billions of dollars of loans from its private shareholders before it begins to share profits with its state owners. Following lengthy negotiations, all of the consortiums stakeholders, apart from BP, agreed to Russias demand to raise shipping tariffs from US$30.24/tonne to US$38/tonne. Private investors have also agreed to halve interest rates on CPCs US$5bn Page 117

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loan to 6% from 12.66%. A final sanction decision on the expansion is expected towards the end of 2010. Atyrau-Samara Pipeline The 320,000b/d Atyrau-Samara pipeline connects Kazakhstan to the Transneft network, providing an export route via Black Sea ports. The route is used by KMG and MMG, among others. Transneft and KazTransOil held talks in 2008 to expand capacity on the route to 520,000b/d by 2015. It was suggested at the time that the motivation for the expansion was more political than commercial, as it appeared designed to prevent the expansion of the rival CPC pipeline. With Russia having granted approval for the CPC expansion in mid-2008, the Atyrau-Samara expansion is unlikely to proceed to schedule. Baku-Tbilisi-Ceyhan (BTC) Pipeline In November 2008, Kazakhstan started supplying oil to the BakuTbilisi-Ceyhan (BTC) pipeline. The oil is sourced from the Tengiz field. Azerbaijan and Kazakhstan have been discussing the possibility of exporting Kazakhstani crude through BTC since 2002 and a final agreement was signed on June 16 2008. In the longer term, Kazakhstan plans to transport around 500,000b/d through the BTC pipeline, once the Kashagan oil field has come on-stream. Burgas-Alexandroupolis Pipeline According to news reports, Kazakhstan has agreed to provide up to 17mn tones (134mn bbl) of oil from CPC for the 280km Burgas-Alexandroupolis pipeline. In December 2009, BP sold its 6.6% stake in the pipeline (which it held through a 46% in LukArco) for US$1.6mn. BP had originally announced the move in December 2008, because it disagreed with the terms of the pipelines expansion. The consortium agreed the terms of BP selling its stake on December 17 2008, according to Transneft. Atasu-Alashankou Pipeline In August 2007, Kazakhstan and China came to an agreement to extend the Atasu-Alashankou oil pipeline by another 750km westwards, so as to link China to the Caspian Sea, where most of Kazakhstans hydrocarbon reserves are located. Further, Chinas President Hu Jintao and his Kazakhstani counterpart Nursultan Nazarbayev have agreed to route a newly proposed gas pipeline from Turkmenistan to China through Kazakhstan, thereby rejecting Tajikistans plea to direct the pipeline through its territory. Gas Storage Facilities Kazakhstans largest gas storage facility is located at Bozoi and has capacity of 3.5bcm. It is used to meet peak demand in the Tashkent area of Uzbekistan to ensure a stable flow of Uzbek gas to southern Kazakhstan during the winter. There are two further storage facilities, at Akyrtobe and Poltoratskoye, with respective capacities of 0.2bcm and 0.4bcm, which serve pipelines running to Tashkent and Kyrgyzstan. Associated gas in western Kazakhstan is currently flared owing to a lack of storage facilities in the area. The government aims to build a new gas storage facility linked to the CAC pipeline, which will assist gas exports, plus a further one near Almaty to meet domestic demand. Gas Pipelines The Central Asia-Center (CAC) gas trunk line system comprises five parallel pipelines that are the main transport route for Central Asian gas. From the Uzbek border, the pipeline system cuts across the south west of Kazakhstan through the cities of Beyneu and Makat to a Gazprom-controlled compressor station at Aleksandrov Gai, just over the Russian border. When constructed the CAC pipeline had a projected annual capacity of 60bcm but since the collapse of the Soviet Union has been transporting 35-40bcm on average. Refurbishment is currently being carried out on the route, which had capacity estimated at a maximum of 47bcm prior to work starting in 2008. Two other gas pipelines run through western Kazakhstan to Aleksandrov Gai, the Orenburg-Novopskov and the Soyuz pipelines, which have a nominal combined capacity of 42.6bcm Page 118

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but have been transporting under 30bcm in recent years. Other gas transport routes in Kazakhstan are the Bukhara-Ural parallel gas pipelines, which have capacity of 14.4bcm and supply Russian gas to the Aktobe region of western Kazakhstan and the Bukhara Gas Area (Gazli)-Tashkent-Bishkek-Almaty pipeline, which transports 2bcm of Uzbek gas to southern Kazakhstan. Competitive Landscape The main government vehicle is KMG, whose upstream arm KMG E&P accounted for around 18% of 2008 oil production. The company owns and operates two-thirds of the countrys refining capacity, as well as a large share of the fuels distribution segment. Under new hydrocarbons laws, it will participate in all future upstream projects and has pre-emption rights over asset sales by other parties. IOC involvement is extensive, but in partnership with KMG using the PSA approach. Key partners are majors Chevron, Eni and ExxonMobil. Russias Lukoil and Chinas CNPC are also gradually expanding their presence. IOCs lead all three main Kazakh development projects: Tengiz, Karachaganak and Kashagan. Eni has 32.5% of the Karachaganak field of the Karachaganak Petroleum Operating Company (KPO) development consortium. Eni also has 2% of the CPC pipeline and is a partner in the North Caspian Sea project. It has reduced its stake in the Kashagan field after negotiations with the government that resulted in its losing operatorship in January 2009. Chevron owns half the Tengiz field and 20% of Karachaganak, plus 15% of the CPC pipeline. BG Group is joint operator of Karachaganak and a 2% shareholder in the CPC pipeline. ExxonMobil has a 25% stake in the Tengiz field. Other interests include a 7.5% share of the CPC pipeline and part of the North Caspian PSA. Shell has a stake in the CPC project, a share of the Arman field and the Mertvyi Kultuk exploration licence, plus part of the North Caspian Sea PSA. It also distributes lubricants in Kazakhstan. ConocoPhillips is a partner in the Kashagan field development. It also has a stake in the CPC project, and will operate the Nursultan Block in the Caspian. Lukoil has a 5% stake in Tengiz after buying out BPs share of the 50:50 LukArco JV. It also owns 15% of Karachaganak, a 12.5% share in the CPC project and operatorship of several production and exploration licences. In 2008 its net oil production was 118,000b/d. BP has sold its 46% stake in LukArco to Lukoil for US$1.6mn, having previously expected to raise around US$$2bn from the sale. The company said it was exiting the country to focus on Russia and Azerbaijan. Chinas CNPC has aggressively expanded its presence in Kazakhstan over the recent years. It owns two-thirds of integrated oil company PetroKazakhstan, 86% in producer AkhtobeMunaiGaz, 50% in another big producer MangustaiMunaiGaz (MMG) and a 50% direct share in three oil fields: North Buzachi, Konys and Bektas. MMG was taken over in November 2009 by Mangistau Investments for an estimated KZT387.6bn (US$2.6bn). CNPC and KMG will now operate MMG as equal partners. MMGs downstream assets had previously been taken over by KMG, which has said it could abolish MMGs former retail brand, Helios.
Figure 80 Key Players - Kazakhstan Oil & Gas Sector.
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Overview/State Role The state plays a key role in managing and administering the oil and gas sectors. It determines licensing policy and dictates terms for its JV partners. The main state energy vehicle is KMG. Foreign company involvement is welcomed and clearly exists on a large scale. Oil and gas fields are developed as partnerships involving the state and IOCs, as are key export infrastructure projects. Domestic oil and gas distribution is partly statecontrolled, with some IOC-owned refining and fuels retail interests. Licensing And Regulation Exploration and production in Kazakhstan is governed by two types of contract, with the country's excess profit tax (EPT) contract the more widespread of the two. Under an EPT contract, tax is levied progressively on the income that remains after corporate income tax (CIT) is paid. The other contract type is a production sharing agreement (PSA), which contains a tax-stability clause. PSAs are in place at three large fields for which the contracts were signed in the 1990s, namely Tengiz (1993), Kashagan (1997) and Karachaganak (1997). The tax-stability clause has meant that changes in the tax regime after the PSAs were signed have not been applied to these fields. In 2009, Kazakhstan introduced its latest updated tax code, including a new mineral extraction tax (MET). The MET increases the tax rate for upstream companies from a range of 2-8% to a range of 5- 18% in 2009, 6-19% in 2010 and 7-20% in 2011. The new tax code also replaced oil and gas export duty with a rent tax, implemented on a progressive scale of 0-32%. These changes were offset partly, however, by a gradual reduction of CIT from 20% in 2009 to 15% by 2011 and changes to the calculation of EPT. Nothing in the 2009 tax code suggested that the changes would also apply to IOCs operating under PSAs with tax stability clauses. In January 2010, Kazakhstan's energy minister, Sauat Mynbayev, announced that the government was considering removing tax exemptions for major oil and gas projects. Although the consequences could vary significantly from company to company, the removal of tax exemptions would lead to an increase in the tax burden for some of the IOCs working in Kazakhstan. In an announcement made to parliament in January 2010, however, Mynbayev said that Kazakhstan was considering removing the exemptions for companies operating under PSAs. Mynbayev stressed that the tax exemptions related to only 'three or four projects', adding that most projects were taxed under the 2009 tax regime.
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The announcement followed remarks earlier the same month by President Nazarbayev that foreign companies should pay taxes according to the 2009 tax regime. The PSAs with IOCs were agreed during the 1990s, shortly after the break-up of the Soviet Union. At the time, investment risks in former Soviet republics were seen as much higher and oil prices were considerably lower than they are today. Since then, as investment risks have become more predictable and oil prices have risen, the contracts have increasingly been seen as advantageous to the IOCs and detrimental to the government. The universal application of the 2009 tax regime should increase the country's overall share of oil and gas revenue. It will also increase the consistency and transparency of the tax system, making it easier for the government to regulate and providing a more stable and predictable investment climate for foreign investors. As the 2009 tax code includes both tax increases and decreases, the full implications of its unilateral application to all contracts are not yet clear. The fact that most of the major international players in Kazakhstan are involved in one or more of the PSAs, however, means the effects of removing exemptions would be widespread. While the move would almost certainly result in an increase in the tax burden for most producers, the consequences are likely to vary from company to company. There are currently three major development projects in Kazakhstan operated by Western-led consortia: TengizChevrOil (TCO), Karachaganak Petroleum Operating Company (KPO) and North Caspian Operating Company (NCOC, formerly Agip KCO). The first two are in production, albeit below full capacity. The third project is in development. Kashagan. The Kashagan field is located off the northern shore of the Caspian Sea, near the city of Atyrau. Recoverable reserves are estimated at 7-9bn barrels of oil equivalent (boe), with further potential totaling 9-13bn bbl using secondary recovery techniques such as gas injection. The field is being developed by the North Caspian Operating Company (NCOC) consortium, which comprises KMG, plus majors ExxonMobil, Shell, Eni and Total, each with 16.81%, alongside minority partners ConocoPhillips (8.4%) and Japan's Inpex (7.56%). According to the original terms of the North Caspian Production Sharing Agreement (NCPSA), under which the NCOC consortium operates, the partners were due to begin producing from Kashagan in 2005. However, technical problems and climatic difficulties resulted in this date being pushed back considerably. Under a revised 2009 agreement, Kashagan will come on stream in late 2012 with output of 75,000b/d, with the maximum deadline for the project start-up fixed to July 2013. Once onstream, production is expected to rise to 450,000b/d within two-to-three years, peaking at 1.5mn b/d nine years after the start-up, according to Aman Maksimov, a senior official at KMG quoted by Reuters. KMG has asked the consortium of IOCs developing the Kashagan oil field to cut spending in 2010 by US$3bn. The NCOC consortium had originally planned to spend around US$10.4bn on Kashagan in 2010. The request reflects KMG's desire to drive down spending at the field and follows a company statement in July 2009 announcing a costcutting drive in response to the global economic crisis. The NCOC consortium spent a total US$28bn on Kashagan between 1997 and 2009, including US$6.2bn in 2009. The government of Kazakhstan has previously estimated the total cost of developing the field at US$136bn. Tengiz. The Tengiz field is located in the swamplands along the north-east shores of the Caspian Sea. Recoverable crude oil reserves have been estimated at 6-9bn bbl by project leader Chevron. Tengiz is operated by the TengizChevrOil (TCO) JV (Chevron 50%, ExxonMobil 25%, KMG 20%, Lukoil 5%) since 1993. In January 2003, after contentious negotiations with the government, the TCO consortium members initiated a US$7.4bn expansion project. Production consequently jumped to 630,000b/d of oil liquids and 13.4bcm in 2008. According to Chevron, Tengiz could potentially produce 700,000b/d by Page 121

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the end of the decade. Oil from Tengiz is routed to the Russian Black Sea port of Novorossiysk through the CPC project. Karachaganak. The Karachaganak oil and gas/condensate field is located onshore northern Kazakhstan, near the border with Russias Orenburg field. It is being developed by the Karachaganak Petroleum Operating Company (KPO), a consortium led by Britains BG Group and Eni of Italy, both with 32.5% stakes, Chevron (20%) and Lukoil (15%). According to BG, the field holds reserves of more than 2.4bn bbl of oil and 450bcm of gas, recoverable over the 40-year life of the project. From 106,000b/d of liquids in 2002, the field produced 224,000b/d in 2009, steady on 2008 and a slight fall from the 2007 high. In mid-July 2008, Karachaganak became the first Western-operated project to be subject to the countrys new oil export tax. The Kazakh government, which announced the introduction of new taxes on output and exports earlier that year, had previously said IOCs operating in the Central Asian country under PSAs would be exempt from the new taxes. The tax led to BG Group suing the Kazakhstani government, although the legal action was suspended in October 2009. Karachaganak is the only major field in Kazakhstan in which the state does not currently hold a stake. The government has therefore been pushing to acquire an interest in the gas field, with the prime minister, Karim Masimov, announcing in December 2009 that the government was in talks with KPO over acquiring a 10% stake in the consortium for about US$1bn. The discussions have been complex, especially as unlike Kashagan, Karachaganak is already producing and the IOCs developing it have already booked reserves. Indeed, relations between the Kazakh government and KPO have become increasingly acrimonious in 2010 as the government has taken steps that appear aimed at pressuring KPO into selling a stake in the project to KMG. So far in 2010, the consortium has been fined for breaching the country's environmental laws and accused of violating labour laws. Moreover, in February, the Kazakh finance ministry asked KPO to pay about US$136mn in unpaid taxes for 2004 and said that it would undertake a comprehensive review of KPOs activities in the country from 2005 to 2008 and their adherence to Kazakh law; a move that could result in a challenge to the validity of the existing PSA. According to Reuters, the audit is being carried out by prosecutors, financial police, energy ministry officials and the KNB, Kazakhstan's security service. This comprehensive review is already having an impact. In March 2010, the government launched an investigation into the KPO consortium over revenues it claims the group illegally earned by exceeding its 2008 production quota, Rustam Ibraimov, deputy head of the Kazakh financial police, told Reuters on March 26 2010. The government is accusing the KPO consortium of earning US$708mn in 'illegal revenues' by producing 1.1mn tonnes of oil and 94,000 tonnes of condensate in excess of its 2008 production limits. A KPO spokesperson told Bloomberg that the group had acted within Kazakhstani law and in line with the terms of its PSA. The spokesperson confirmed that the field produced a total of 136.4mn boe in 2008 but declined to comment on the production allowed under the PSA. Kazakhstan's Deputy Oil Minister Lyazzat Kiinov confirmed to reporters in May 2010 that talks between the government and members of KPO were ongoing. Attempting to strike a more conciliatory tone, Kiinov attempted to allay fears that the government was forcing its way into the project, adding that it was willing to 'repay historical costs and contribute to their share equal with other partners.' Kiinov also sought to reassure consortium members that state involvement in the project would not limit their growth plans. BG and other consortium members have remained quiet on the matter, only confirming that negotiations are ongoing. Page 122

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Government Policy The parliament of Kazakhstan passed a bill in September 2007 to permit the government unilaterally to break contracts with foreign investors in its energy industry. The law allows Kazakhstan to force retrospective changes to contracts with domestic and international companies, or even break contract terms altogether, if it perceives a threat to national security. The development is a blow to IOCs operating in Kazakhstan and will have severe implications for Kazakhstans business environment and foreign direct investment (FDI) in the countrys oil and gas sector. A law concerning Caspian Sea PSAs was passed in May 2005 by Kazakhstans parliament, limiting foreign participation in such ventures to 50% with no guarantee of operator status. KazMunaiGaz will claim the remaining 50% of each deal. The legislation has been tailored to leave existing contracts unaffected, allowing many IOCs to continue operating unhindered. President Nazarbayev passed the subsoil use bill into law in October 2005, allowing the government preemptive rights on all strategic assets or resources in Kazakhstan. Investment Climate Hard-hit by the economic crisis, the Kazakh government made several announcements in H109 signaling its desire to attract additional foreign investment to boost its flagging revenues. Kazakhstans economy minister, Bakhyt Sultanov, announced in June 2009 that the country would improve transparency and corporate standards so as to make it easier for foreigners to enter the market. He further urged foreign companies to invest more of their profits locally to promote the diversification of the economy. Energy minister Sauat Mynbayev in January 2009 said that Kazakhstan needs to start awarding new oil production contracts in order to attract more foreign investment into the upstream segment. Kazakhstan had enforced a ban on new oil contracts so as to put in place a revised tax code that will increase taxes for companies producing oil in the country. The new tax regime came into force on January 1 2009, but the government has to pass a new subsoil law before it will start awarding new contracts. International Energy Relations China National Petroleum Corporation (CNPC) is to acquire preferential access to energy projects in Kazakhstan as part of the 11 economic accords signed by President Nazarbayev and Chinese authorities in April 2009. Boosted by large stocks of foreign reserves, during the economic downturn China has been deftly taking advantage of the financial distress of major oil exporters across the globe to gain access to their reserves. In November 2009, Mangistau Investments acquired full ownership over Kazakhstans fifth largest direct producer, MangistauMunaiGaz (MMG). Mangistau Investments is a 50:50 JV between KMG and CNPC subsidiary CNPC Exploration and Development. While KMG did not give details of the price, media reports cited the Kazakh Stock Exchange as saying that the deal was worth KZT387.6bn (US$2.6bn). According to KMG, the acquisition was mainly financed through a loan from The Export-Import Bank of China. The Page 123

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origins of the deal date back to April 2009, when CNPC agreed to lend KMG US$5bn to help it finance its half of the purchase.
Figure 81 Key Upstream Players.
Figure 82 Key Downstream Players.
Oil And Gas Outlook: Long-Term Forecasts Regional Oil Demand A strengthening of the 2010-2014 oil demand trend is predicted for the 2014-2019 period, reflecting the economic weakness prevailing in the earlier period, as well as the under-developed nature of several key economies, ongoing wealth generation thanks to rising export volumes, plus the maturing of new EU member states. The regions oil consumption is expected to increase by 13.7% in 2014-2019, after 11.0% growth in the period 2010-2014. Over the extended 2010 to 2019 forecast period, Azerbaijan leads the way, with oil demand increasing by an estimated 83.9%, followed by Uzbekistan and Turkmenistan (+55.1%) and Kazakhstans 53.3% growth. Poland lags the field, as a result of greater market maturity and the lack of hydrocarbons income that stimulates economies elsewhere in the region. Page 124

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Table: CEE Regional Oil Supply A 3.9% fall in CEE oil production during the 2014-2019 period represents a significant slowing from the 3.9% expansion seen in 2010-2014, and reflects a likely plateau in Russian, Kazakh and Azeri output, with no other major country expected to have substantial longer-term upside potential. Kazakhstan is by far the biggest contributor to growth, with output forecast to rise by 44.8% between 2010 and 2019. Turkmenistan exceeds it in percentage terms (+53.7%), but is a much smaller absolute contributor. Russia has the weakest production trend among the major producers, with a likely 6.1% gain between 2010 and 2019.
Figure 83 CEEs Oil Consumption long- term Forecast.
Figure 84 CEEs Oil Production long- term Forecast.
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Regional Refining Capacity CEE is set for a 26.9% increase in crude distillation capacity between 2010 and 2019, contributing to the expansion of the worlds over-stretched refining industry. Cheap and plentiful local crude supplies help make it a region of choice for refinery investment, although government control of the downstream industry will need to be eased. Kazakhstan, Russia, Poland, Turkey and Bulgaria have particularly ambitious expansion plans, reflecting either crude output growth or local demand expansion. The region should increase in importance as a net exporter of refined products.
Figure 85 CEEs Oil Refining Capacity long-term forecast.
Regional Gas Supply A production increase of just 4.2% is forecast for CEE in 2014-2019, representing a deceleration compared with the 27.1% predicted during the 2010-2014 period. Kazakhstan and Azerbaijans explosive growth in the first half of the forecast period is not sustainable, with their volumes set to rise 18.8% and 6.5% respectively in 2014-2019, compared with growth rates of 45.5% and 55.0% in 2010-2014. Russia is still the key player in the region, with gas output rising 24.6% between 2010 and 2019. Uzbekistans supply is expected to increase by 53.9% over the same period. Page 126

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Figure 86 CEE's Gas Production long-term forecast.
MACROECONOMIC INDICATORS GDP (purchasing power parity): $196.4 billion (2010 est.) country comparison to the world: 54 $183.6 billion (2009 est.) $181.4 billion (2008 est.) note: data are in 2010 US dollars GDP (official exchange rate): $138.4 billion (2010 est.) Page 127
Figure 87 Tenge banknote - national currency.

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GDP - real growth rate: 7% (2010 est.) country comparison to the world: 35 1.2% (2009 est.) 3.2% (2008 est.) GDP - per capita (PPP): $12,700 (2010 est.) country comparison to the world: 93 $11,900 (2009 est.) $11,800 (2008 est.) note: data are in 2010 US dollars GDP - composition by sector: agriculture: 5.4% industry: 42.8% services: 51.8% (2010 est.) Labor force: 8.611 million (2010 est.) country comparison to the world: 54 Labor force - by occupation: agriculture: 28.2% industry: 18.2% services: 53.6% (2010) Unemployment rate: 5.8% (2010 est.) country comparison to the world: 52 6.6% (2009 est.) Population below poverty line: 8.2% (2009) Household income or consumption percentage share: lowest 10%: 3.8% highest 10%: 25.2% (2007 est.) Distribution of family income - Gini index: 26.7 (2009) country comparison to the world: 132 31.5 (2003) by
Investment (gross fixed): 25.2% of GDP (2010 est.) country comparison to the world: 59 Budget: revenues: $29.18 billion expenditures: $32.77 billion (2010 est.) Taxes and other revenues: 21.1% of GDP (2010 est.) country comparison to the world: 147 Budget surplus (+) or deficit (-): -2.6% of GDP (2010 est.) country comparison to the world: 87 Public debt: 15.5% of GDP (2010 est.) country comparison to the world: 120 13.5% of GDP (2009 est.) Inflation rate (consumer prices): 7.1% (2010 est.) country comparison to the world: 179 7.3% (2009 est.) Central bank discount rate: 4.25% (31 December 2010 est.) country comparison to the world: 47 7% (31 December 2009 est.)
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Commercial bank prime lending rate: 8.161% (31 December 2010 est.) country comparison to the world: 143 6.757% (31 December 2009 est.) Stock of narrow money: $21.3 billion (31 December 2010 est.) country comparison to the world: 64 $16.58 billion (31 December 2009 est.) Stock of broad money: $66.23 billion (31 December 2010 est.) country comparison to the world: 63 $52.58 billion (31 December 2009 est.) Stock of domestic credit: $67.2 billion (31 December 2010 est.) country comparison to the world: 58 $62.65 billion (31 December 2009 est.) Market value of publicly traded shares: $60.74 billion (31 December 2010) country comparison to the world: 51 $57.66 billion (31 December 2009) $31.08 billion (31 December 2008) Agriculture - products: grain (mostly spring wheat), cotton; livestock Industries: oil, coal, iron ore, manganese, chromite, lead, zinc, copper, titanium, bauxite, gold, silver, phosphates, sulfur, uranium, iron and steel; tractors and other agricultural machinery, electric motors, construction materials Industrial production growth rate: 10% (2010 est.) country comparison to the world: 27 Electricity - production: 75.61 billion kWh (2009 est.) country comparison to the world: 38
Electricity - consumption: 77.9 billion kWh (2009 est.) country comparison to the world: 36 Electricity - exports: 2.483 billion kWh (2008 est.) Electricity - imports: 1.94 billion kWh (2009 est.) Oil - production: 1.61 million bbl/day (2010 est.) country comparison to the world: 19 Oil - consumption: 249,000 bbl/day (2010 est.) country comparison to the world: 50 Oil - exports: 1.501 million bbl/day (2009 est.) country comparison to the world: 17 Oil - imports: 172,500 bbl/day (2009 est.) country comparison to the world: 56 Oil - proved reserves: 30 billion bbl (1 January 2011 est.) country comparison to the world: 11
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Exports - partners: China 20.2%, Germany 9.1%, Russia 8.5%, France 7.1%, Turkey 4.5%, Canada 4.5%, Italy 4.1% (2010) Imports: $31.96 billion (2010 est.) country comparison to the world: 60 $28.96 billion (2009 est.) Natural gas - production: 35.61 billion cu m (2009 est.) country comparison to the world: 25 Natural gas - consumption: 8.572 billion cu m (2009 est.) country comparison to the world: 51 Natural gas - exports: 9.9 billion cu m (2009 est.) country comparison to the world: 20 Natural gas - imports: 6.1 billion cu m (2009 est.) country comparison to the world: 30 Natural gas - proved reserves: 2.407 trillion cu m (1 January 2011 est.) country comparison to the world: 15 Current account balance: $4.319 billion (2010 est.) country comparison to the world: 35 -$4.221 billion (2009 est.) Exports: $60.84 billion (2010 est.) country comparison to the world: 49 $43.93 billion (2009 est.) Exports - commodities: oil and oil products 59%, ferrous metals 19%, chemicals 5%, machinery 3%, grain, wool, meat, coal Imports - commodities: machinery and equipment, foodstuffs
metal
products,
Imports - partners: Russia 34.3%, China 27.7%, Germany 5.2%, Ukraine 4% (2010) Reserves of foreign exchange and gold: $28.27 billion (31 December 2010 est.) country comparison to the world: 49 $23.22 billion (31 December 2009 est.) Debt - external: $124.1 billion (30 June 2011 est.) country comparison to the world: 37 $95.91 billion (31 December 2010 est.) Stock of direct foreign investment - at home: $79.13 billion (31 December 2010 est.) country comparison to the world: 41 $69.17 billion (31 December 2009 est.) Stock of direct foreign investment - abroad: $13.76 billion (31 December 2010 est.) country comparison to the world: 50 $5.958 billion (31 December 2009 est.) Exchange rates: tenge (KZT) per US dollar 147.28 (2010) 147.5 (2009) 120.25 (2008) 122.55 (2007) 126.09 (2006)
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Figure 88 Selected Macroeconomic Indicators.
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HIGHLIGHTS OF KAZAKHSTAN PERFORMANCE Kazakhstan ranks 86th (of 155 countries) in the World Banks Ease of Doing Business ranking, on par with the 84 average ranking for the LMI-FSR. Its performance is worse than in all three comparator countries Bulgaria ranks 62nd, Romania 78th, and Russia 75th. Looking closer at the components of the index, Kazakhstan ranks poorly in the indicators related to contract enforcement. The country continues to demonstrate a number of competitive strengths. A well-educated population, flexible and efficient labor markets, and a large market size continue to set a good base for the countrys future growth performance. In this context, it is hoped that the countrys accession to the World Trade Organization (WTO) will further contribute to intensifying competition in the country by reducing both trade barriers and domestic obstacles. Priority should also be given to continuing the stabilization and development of its financial sector, building on recent reforms.
Figure 89 The Global Competitiveness Index 2011-2012 rankings and 2010-2011 comparisons DEVELM
EN
Figure 90 The Global Competitiveness Index 2011-2012
Figure 91 The Global Competitiveness Index 2011-2012: Basic Requirements
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Figure 92 The Global Competitiveness Index 2011-2012: Efficiency enhancers.
Figure 93 The Global Competitiveness Index 2011- 2012: Innovation and sophistication factors.
World Bank and International Finance Corporation Rankings for Kazakhstan The following is how Kazakhstan ranked out of 183 countries studied (The complete study is available).
Figure 94 Kazakhstans World Back Rating
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HIGHLIGHTS OF KAZAKHSTANS PERFORMANCE Economic Growth

Kazakhstans growth has been strong in recent years, stimulated in large part by the oil sector. Real GDP growth averaged 10.4 percent from 2000-2004, a major improvement from negative and sluggish growth in the 1990s. Kazakhstan has made substantial progress in reducing poverty as poverty rates, as defined by the national poverty line, have fallen by half in the past five years. Further progress is necessary. The extraction and processing of raw materials, especially oil, are the lead sector in the economy in terms of output, while one-third of employment is in agriculture. Developing manufacturing is a key to future development. After a period of decline, the Kazakh population has grown in the past several years. The Kazakh population is relatively young. Kazakhstan does well on indicators of gender equity. Fiscal policy is sound, as demonstrated by a budget surplus. Inflation is moderate, but needs to be closely monitored in light of large increases planned in government spending and rapid money supply growth. Corruption in Kazakhstan is widespread and serves as an impediment to doing business. The pace of structural reforms has slowed, making Kazakhstan less attractive than other transition economies as a place to conduct business. Kazakhstans banking system is relatively well developed, with high monetization rates and low interest rate spreads. Rapid credit expansion needs to be accompanied by improved financial market regulation and supervision. Kazakhstans performance on the trade and investment components of the external sector is good, primarily because of oil exports and oil-related investments. At the same time, the countrys heavy reliance on oil revenues leaves it vulnerable to a downturn in world oil prices; export diversification is desirable. Infrastructure appears to be generally better developed in Kazakhstan than in the peer countries. At the same time, despite substantial progress, Kazakhstan lags far behind its peer countries in terms of communications sector development, and it needs to improve transportation, ports, and pipelines. Performance on life expectancy and other health indicators is poor, especially the life expectancy of men. Current government health expenditures are not sufficient to combat persistent problems. Kazakhstans performance on education indicators is good. To sustain this performance, government education expenditures may need to rise. The high unemployment rate has been declining. The pace of decline is slower than would be expected for a country experiencing double-digit growth rates, however. Diversification into more labor-intensive sectors is needed. Kazakh agriculture is a troubled sector, suffering from low productivity.
Figure 95 Highlights of Kazakhstans Performance.
Poverty Economic Structure
Demography and Environment Gender Fiscal and Monetary Policy Business Environment Financial Sector
External Sector
Economic Infrastructure
Health Education Employment and Workforce Agriculture
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KAZAKHSTAN: NOTABLE STRENGTHS AND WEAKNESSES SELECTED INDICATORS

Notable Strength Notable Weakness
Indicator, by Topic
Growth Performance Growth of labor productivity (%) Real GDP growth (%) Poverty and Inequality Poverty headcount (%) by national poverty line Demography and Environment Adult literacy rate (%) Fiscal and Monetary Policy Government budget balance (% of GDP) Inflation (%) Money supply growth (%) Business Environment Corruption perception index Regulatory quality index Rule of law index Financial Sector Domestic credit to private sector (% of GDP) Interest rate spread (%, deposit minus lending rate) Monetization (M2 as a % of GDP) External Sector Concentration of exports (top three exports, 3-digit SITC, % exports) Debt service ratio (% exports) Exports growth, goods and services (%) Foreign direct investment (% GDP) Gross international reserves (months of imports) Economic Infrastructure Internet users (per 1,000 people) Telephone density (lines per 1,000 people)
X X X X X X X X X X X X X X X X X X X X
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Indicator, by Topic
Notable Strength
Notable Weakness
Health Child immunization rate (%) Life expectancy (years) Maternal mortality rate (deaths per 100,000) Public health expenditure (% of GDP) Education Expenditure per student, tertiary (% of per capita GDP ) Youth literacy rate (% ) Employment and Workforce Rigidity of employment index Agriculture Agriculture value added per worker (1995 USD) Cereal yield (kilograms per hectare)
Figure 96 Strength and Weaknesses overview
X X X X X X X X X
Note: The chart identifies selective indicators for which Kazakhstans performance is particularly strong or weak relative to the benchmark standards; details are discussed in the text. A separate Data Supplement for Kazakhstan presents a full tabulation of the data examined for this report, including the international benchmark data, along with technical notes on the data sources and definitions.
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Figure 97 Kazakhstan's political SWOT.
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Figure 98 Kazakhstan's economical SWOT.
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Figure 99 Kazakhstan's Business Environment SWOT.
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Figure 100 The Global competitiveness Report - World Economic Forum
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Figure 101 Global Competitiveness Index in Detail
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Conclusion of the Chapter In the case of Kazakhstan, the exploitation of its natural resources have been increasing, some of this increased wealth have been going to Kazakhstans sovereign wealth funds and man-made investments above ground. It has become clear in this chapter that sustainability in Kazakhstan is somewhat unbalanced - that is the balance between the three pillars of sustainability being economic, social and environmental sustainability. Economic sustainability seems relatively strong, nevertheless this is done by using the natural resources the country holds. Kazakhstan applies the weak term of sustainability, meaning that Kazakhstan is seeing the revenues of the natural resources as being somehow substitution (in man made capital)(which is not more than logical). Kazakhstan clearly has a strategy to diversify its economy which is positive since this will give incentives to the government to continue to thing on a long term basis. Corruption nevertheless is a problem and therefore strong institutions are needed which is clearly one of the counties strong shortcomings. Regarding social sustainability we can see that there is inequality in the country but this is not as large as in many other commodity dependent emerging countries, and additionally the inequality seems to decrease slightly making this a positive contribution to social sustainability. When it comes to freedom; civil and political liberties which can be incorporated in social sustainability, Kazakhstan performs very poor. The Human Development Index however, with its reasonable encompassing measurement shows that the country is indeed developing relatively sustainable, while environmental sustainability disappoints.
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Communication
international: country code - 7; international traffic with other former Soviet republics and China carried by landline and microwave radio relay and with other countries by satellite and by the Trans-Asia-Europe (TAE) fiber-optic cable; satellite earth stations - 2 Intelsat (2008) Broadcast media: state owns nearly all radio and TV transmission facilities and operates national TV and radio networks; nearly all nationwide TV networks are wholly or partly owned by the government; some former state-owned media outlets have been privatized and are controlled by the president's daughter, who heads the Khabar Agency that runs multiple TV and radio stations; a number of privatelyowned TV stations; households with satellite dishes have access to foreign media; a small number of commercial radio stations operating along with staterun radio stations (2008) Internet country code: .kz Internet hosts: 53,984 (2010) country comparison to the world: 85 Internet users: 5.299 million (2009) country comparison to the world: 44
Telephones - main lines in use: 4.011 million (2010) country comparison to the world: 42 Telephones - mobile cellular: 19.768 million (2010) country comparison to the world: 44 Telephone system: general assessment: inherited an outdated telecommunications network from the Soviet era requiring modernization domestic: intercity by landline and microwave radio relay; number of fixed-line connections is gradually increasing and fixed-line teledensity now roughly 25 per 100 persons; mobile-cellular usage is increasing and the subscriber base now is roughly 100 per 100 persons
Overview Communication is an integral part of economical and social infrastructure of Kazakhstan. Kazakhstan lags far behind its peer countries in terms of communications development despite substantial progress s in this area in the past few years. In 2002, telephone density, measured as the number of fixed line and mobile subscribers per 1,000 inhabitants, was 194.7, well below the range estimated by the benchmark regression, the LMI-FSR average (241.1 lines), and the telephone density in individual comparator countries, especially Bulgaria (846.9 lines). A similar situation is found with the number of Internet users per 1,000 people. Page 143

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According to the Agency Statistics of the Republic of Kazakhstan, in 2007 telecommunication agencies rendered services to the amount of 314 bn tenge (14.5% up on the previous period of 2006). Telecommunication agencies putting into practice networking services (94.3%), mobile communication services (50.8%), and data-transport services (58.2%), demonstrate the highest rates, compared with 2006. The telecommunication agencies located in Almaty city (73.3%) and Astana city (3.5%) realized the highest profits. The market of postal services in Kazakhstan is characterized by the presence of competition at a city level. Postal services and courier networks income amounted to 10634,8 mln tenge for 2007, thats 3% from the total amount of telecommunication service revenue (Figure 103). A considerable part of revenue falls on mobile communication (52%) 194 589 mln tenge , up 40% from 2006. Telecommunication services made 368446 mln tenge for 2007, and 288 301 mln tenge 2006.
Figure 102 Structure of telecommunication services revenue
Figure 103 Telecommunication services revenue by kinds.
In 2007 provision of urban population with home phones all over Kazakhstan totaled 97,6 units/100 families, in 2006 89,8 units/100 families. Provision of rural population amounted to 43,6/100 families in 2007, up 20% from 2006 (36,3 units/100 families). According to The Kazakh Agency for Information Technology and Communications, the number of installation of telephones in centers of population reached 6957 units in 2007, up 6% from 2006. Page 144

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Telecom Although growth slowed significantly in 2009, Kazakhstan has been experiencing a booming telecom market that included almost 100% mobile penetration by early 2010. This has come about on the back of a growing economy and a program of positive regulatory reform in the telecom sector. Legislation adopted in 2004 laid the foundation for the liberalization and development of the telecom sector and put an end to the monopoly enjoyed by Kazakhtelecom, the statecontrolled telecom operator. The rapid and successful development of telecommunications in the country encouraged several foreign suppliers to establish a presence in this emerging market. Since 1992, international operators and manufacturers have been active in Kazakhstan in providing services and installing state-of-the-art equipment, especially as part of the countrys international telecom network. Companies such as Motorola, Lucent, Siemens, Alcatel, Nokia, Daewoo and Nortel Networks have all been active in the market. Recognising the long-term potential of this market, many foreign telecom companies were looking to invest and form partnerships with local telecom companies.By 2005 four private operators had been licensed to provide Figure 104 Kazakhstan - key telecom parameters 2009-2010. international and long-distance services in competition with the incumbent Kazakhtelecom. They were state-railway subsidiary TransTelecom, KazTransCom (a subsidiary of the national oil company), Ducat and Astel. Up to 1,500 new telecom service providers of various kinds had been licensed by end-2005. The key drivers in the telecom sector included:

the deployment of Kazakhtelecoms fully-digital national telecom network based on local and longdistance switches and fibre optic lines linking all major cities in the country; efforts to improve international connectivity and increase both mobile and fixed-line subscribers; the continuing digitalisation of exchanges; the further reform of telecommunications legislation; the process of accession to the World Trade Organization. Page 145

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Kazakhstan had a relatively strong fixed-line penetration (24 telephone lines per 100 inhabitants by end-2009), with six operators providing fixed-line telephone services to about 3.8 million subscribers. There had been long waiting lists for fixed-line telephone services over the years. The countrys mobile market entered a boom phase in 2000, no doubt boosted to some extent by the long delays in obtaining fixedline services. The number of mobile services had exceeded fixed-lines by late 2004. Demand Figure 105 Telephone Density, Fixed Line and Mobile, per 1 000 people. for mobile services was so strong that in 2006 that the government went on to auction a third GSM licence (and fourth mobile operator licence), which was duly awarded to NeoTelecom, a subsidiary of Kazakhtelecom. NeoTelecom then launched its mobile service in early 2007.Of particular note has been the recent healthy growth in Internet activity in Kazakhstan, with the move to broadband access in particular taking place at a rapid rate. Broadband subscribers as a proportion of the population had reached 10% by early 2010, with the market likely to continue its expansion by 100% annually. Major highlights:

After Kazakhstans mobile market delivered annual growth of 36% in 2008, the 2009 year saw a major slowdown in the market with net growth almost negligible; With a mobile penetration approaching 100% in early 2010, the countrys mobile market was continuing to grow but was expected to start saturating in the not too distant future; Broadband Internet was quickly expanding on top of a general upturn in demand for Internet services; the number of broadband subscribers increased tenfold from a relatively small base in 2006/07, then doubled in 2008 and doubled again in 2009; There had been a significant shift to broadband access in 2009 as the proportion of Internet subscribers using broadband shifted from 43% to 76% in that twelve-month period; Kazakhstan, despite the considerable presence of incumbent Kazakhtelecom across the market, was continuing to benefit from a diversified market that offered an energetic and competitive environment, especially in respect of the mobile market; On the economic front, after an eight-year period in which GDP had been growing at an annual rate in excess of 8%, 2008 saw a major slowdown in the Kazakhstan economy with GDP growth falling to 3%; 2009 saw growth fall even further (to around 1%) as the full impact of the global financial crisis hit. A modest recovery in the short term has been forecast by the IMF with a GDP growth rate of 2% expected in 2010 and 4% in 2011.
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Broadband and Internet Broadband services penetration in Central Asian, percentage of private subscribers, registered in the end of 2008: Kazakhstan 15,1% Kyrgyzstan 2,1% Tajikistan 0,6% Uzbekistan 0,5% The biggest percentage of broadband services penetration in Kazakhstan was registered in the end of 2008, in comparison with other Central Asian countries. The portion of percentage in households has reached 15,1%. The level of broadband services penetration on corporate market almost reached 6,0%. The Kazakh Internet community is growing rapidly. Between 2001 and 2005, the number of Internet users increased from 200,000 to 1 million. By 2007, Kazakhstan reported Internet penetration levels of 8.5 percent, rising to 12.4 percent in 2008.The National Statistical Agency reports that 73 percent of users access the Internet by dial-up, 15 percent by means of ADSL, and 6 percent using satellite access. Over 50 percent of users accessed the Internet from home in 2008.Forty-two percent of families living in towns with populations of at least 70,000 people have a personal computer. KazakhTelekom (KT) reported an increase in its broadband subscriber base from 270,000 to 456,000 in 2008. Despite these increases, Internet usage is concentrated in urban centers, while outside those centers access remains beyond the reach of most Kazakhs. The official language in the country is Kazakh, spoken by 64 percent of the population. Russian, spoken by 95 percent, is recognized as the official language of international communication. Russian is the most popular language used on the Internet (94.1 percent), followed by Kazakh (4.5 percent), and English (1.4 percent), a figure which may account for the high percentage of Kazakh Web sites hosted in Russia (including those on the country-code domain name .kz). Six percent of .kz domain Web sites are hosted in Kazakhstan, with the remainder hosted in Russia and elsewhere. The cost of Internet access remains high relative to the average salary (54,500 tenge in 2008, or USD 363). KazakhTelecoms tariffs for unlimited ADSL access with capacity of 128 Kbps were USD 30. However, as a result of the ongoing liberalization in the telecommunications sector in 2007, the operators tariffs fell considerably. Since 2007, schools in Kazakhstan are provided with free dial-up access, which is being expanded to include broadband connections (although access is restricted to Web sites and other Internet resources within the .kz domain).
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Liberalization of the telecommunications market in 2004 increased competition among the five licensed operators: KazakhTelecom (the former state monopoly, now with 51 percent state participation), Transtelecom, Kaztranscom, Arna (DUCAT), and Astel. The first-tier ISPs with international Internet connections and their own infrastructure are KazakhTelecom, Nursat, Transtelecom, Kaztranscom, Arna, Astel, and TNS Plus. There are approximately 100 second-tier ISPs that are purchasing Internet traffic from the first-tier ISPs. Market liberalization has not been completely carried out, as there are restrictions on foreign ownership for fixed-line operators providing long-distance and international services. In addition, KazakhTelecom retains dominance over the telecommunications market, making it difficult for other operators to compete.One of the largest ISPs, Arna (DUCAT), accused KazakhTelecom of breaching the Law for Promoting Competition and Limiting Monopolist Activities. Arna claimed that KazakhTelecom used uncertified systems that monitor and interfere with the telecommunications of customers who are using services offered by competing companies. An investigation of the Kazakh government revealed that such systems indeed existed and were used by KazakhTelecom, but no evidence was found to prove KazakhTelecom was intentionally interfering with competitor activities. KazakhTelecom is the operator of the national data transfer network, which connects the major cities of Kazakhstan with a total bandwidth of 957 Mbps and carrying capacity in separate local segments of up to 10 Gbps. KazakhTelecom had about 2.5 million fixed-line subscribers in 2005 and accounted for approximately 90 percent of the countrys fixed-line market. It also controls 49 percent of the countrys leading mobile operator, GSM Kazakhstan, and 50 percent of another cellular operator, Altel. KazakhTelecom is also launching an interactive IP TV service, as it attempts to maintain its dominance in the fixed-line market. Other leading first-tier ISPs, Nursat and Astel, operate terrestrial and satellite-based infrastructure. There are five mobile operators in the country. Three operators are offering GSM services and two CDMA. The government estimates that 60 percent of the population uses mobile services. Legal and Regulatory Frameworks The Kazakh government exhibits an ambiguous and at times contradictory approach to the Internet. The longterm development strategy of Kazakhstan for 2030 demonstrates the governments strong commitment to create a modern national information infrastructure. The government has announced plans to develop egovernment as a part of a 20052007 program. Since 2008, government officials have been encouraged to create their own personal blogs. At the same time, the government follows a multilevel information security policy, which maintains surveillance of telecommunications and Internet traffic in the country. The Ministry of Transport and Communications (MTC) is the main policymaker and regulator in the telecommunications market. The Agency for Informatization and Communication (AIC), a central executive body in the IT field, is Page 148

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authorized to implement state policy in telecommunications and information technology development industries, exercise control in these sectors, and issue licenses to every type of telecommunications service. The Security Council (SC), a body chaired by the president, is responsible for drafting decisions and providing assistance to the head of state on issues of defense and national security. The SC also prepares a list of Web sites every six months that should be blocked or forbidden from distribution. A 2005 SC decision made it illegal for key national security bodies to connect to the Internet (namely, the Ministries of Emergency Situations, Internal Affairs, and Defense, and the National Security Committee). However, despite this prohibition, ONI field researchers found evidence that state officials access forbidden Web sites using dial-up accounts and anonymizer applications. The security system in Kazakhstan is complex and multilayered. The Inter-Departmental Commission is charged with coordinating and developing the national information infrastructure. The National Security Committee (NSC) monitors presidential, government, and military communications. The Office of the Prime Minister is an authorized state body responsible for the protection of state secrets and maintenance of information security. Broadly defined, a state secret encompasses various government policies as well as information about the presidents private life, health, and financial affairs. The NSC has issued a general license to the private Agency on Information Security to establish and organize facilities for cryptographic protection of information, as well as to formulate proposals on information security to state organizations, corporate clients, banks, and other large commercial companies. The Kazakh Ministry of Internal Affairs operates Department K, which bears the functions of its counterpart in the Russian Federation. This department is tasked with investigating and prosecuting cyber crime and cyber attacks. At present, ISPs are required to prohibit their customers from disseminating pornographic, extremist, or terrorist materials or any other information that is not in accordance with the countrys laws. Kazakh officials are also considering additional laws to further regulate the Kazakh Internet. One draft law presently under consideration envisions liability for owners of Web sites hosting weblogs and forums, as well as users of chat rooms. The draft law equates Internet sites to media outlets and applies similar regulations with respect to content. The authors of the law justified tighter oversight by the need to fight cyber crime and provide greater accountability for Internet users. The Kazakhstan Association of IT Companies is the officially recognized administrator of the .kz domain. It is registered as a NGO, but it has 80 percent government ownership. The rules of registration and management of the .kz domain were issued by the State Agency on Informatization and Communication of the Republic of Kazakhstan in 2005. In recent years, the cost for registering and maintaining a domain name have significantly decreased, thereby boosting the development of the Kazakh portion of the Internet. Registrations are subject to strict regulation. Applications may be denied if the server on which they are located resides outside Kazakhstan. Even though the primary legislation guarantees freedom of speech and prohibits censorship, the government often resorts to various legal mechanisms to suppress inappropriate information or to ensure that domain names used by opposition groups are frozen, or withdrawn. As a result, very few political parties in Kazakhstan use the Internet, and few opposition or illegal parties have an online presence (at least within the .kz domain). The ICT sector in Kazakhstan is overregulated, as evidenced by some 300 legislative acts that expressly or implicitly control the ICT environment. All telecommunications operators are legally obliged, as part of the licensing requirement, to connect their channels to a public network controlled by KazakhTelecom. The so-called Billing Center of Telecommunication Traffic, established by the government in 1999, helps monitor the activity of private companies and strengthen the monopolist position of KazakhTelecom in the IT sphere. In the past, some Page 149

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telecommunications operators circumvented such regulations by using VoIP for their interregional and international traffic, but the imposition of VoIP telephony tariffs eliminated this option. Surveillance The government has established systems to monitor and filter Internet traffic. Since the traffic of all first-tier ISPs goes through KazakhTelecoms channels, surveillance and filtering is centralized. The ONI suspects that state officials informally ask KazakhTelecom to filter certain content. KazakhTelecom, along with some Russian companies, has openly signed an agreement to provide filtering, censorship, and surveillance on the basis of Security Council resolutions. There are several recorded cases of journalists and Web site owners that have been prosecuted under broad media and criminal provisions. Oppositional and independent media sites have been permanently suspended, allegedly for providing links to publications concerning corruption among senior state officers and the president. In 2004, the chairs of the National Security Committee and the Agency for Informatization and Communications approved Rules Providing for Mechanisms for Monitoring the Telecommunications Operators and Networks. These rules prescribe full collaboration and information sharing between the government agencies. This system is similar to that of the Russian SORM, introduced to monitor activities of users and any related information. The rules oblige ISPs to register and maintain electronic records of customer Internet activity. Providers are required to install special software and hardware equipment in order to create and store records for a specified amount of time, including log-in times, connection types, transmitted and received traffic between parties of the connection, identification number of the session, duration of time spent online, IP address of the user, and speed of data receipt and transmission. Independent media and bloggers reportedly practice self-censorship for fear of government reprisal. ONI Testing Results The OpenNet Initiative conducted testing on two main ISPs: KazakhTelecom and Nursat. KazakhTelecom blocks opposition groups Web sites, regional media sites that carry political content, and selected social networking sites. A number of proxy sites providing anonymous access to the Internet have also been blocked. The ONI suspects that filtering practices in Kazakhstan are evolving and are performed at the network backbone by KazakhTelecom, which filters traffic it provides to downstream operators. Consequently, Kazakh ISPs may unknowingly receive pre-filtered content. At the same time, not all incoming and outgoing traffic asses through KazakhTelecoms centralized network, resulting in inconsistent patterns of blocking. The majority of Internet users are on edge networks, such as Internet cafs and corporate networks. Kazakhstan companies apply filtering mechanisms at the user level to prevent employees from accessing pornography,
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music, film, and dating Web sites. However, ONI testing found that Kazakhstan does not block any pornographic content or sites related to drug and alcohol use. Conclusion The Kazakh government has harnessed efforts to modernize the IT sector, promote ICTs, and encourage egovernment in order to spur social development. Nevertheless, the lack of a competitive fixed-line market and the partial market liberalization leaves the growing demand unsatisfied and slows down development of the IT sector in the country. The government has put in place a complex security system that is capable of state surveillance of Internet traffic and suppression of undesirable Internet content. Given government pressure on opposition media, self-censorship may also be an issue among online media publishers and bloggers. The technical sophistication of the Kazakhstan Internet environment is evolving and the governments tendency toward stricter online controls warrant closer examination and monitoring.
Mail Kazpost is the only player in the market of postal services in rural areas. In 2007 volumes of written mail and parcels amounted to 52,2 mln units and 2,4 mln units in monetary terms respectively, up 18.3% and 33.3% from 2006. Revenue growth of written mail and parcels totaled 43.5% and 20.8% respectively in 2007, compared with the previous year. Except for AO Kazpost, there are also presented following providers in the market: KurjerService, Maral Say, a luggage compartment of JSC NK KTZh. A share of AO Kazpost by postage and delivery of large-size and heavy-loaded loads makes up 7.2%. There are over 45 companies in the market of courier services in Kazakhstan, including the largest international ones, like DHL, FedEx, TNT, UPS, OCS, Pony Express, and also a number of domestic enterprises, offering services in separate regions throughout Kazakhstan. Leading positions in the market of postage sector within the country takes Direct Delivery (35%), into the CIS countries - Pony Express 55.3%, the far abroad DHL 81.3%. The share of AO Kazpost: 20.4% within the country, 14.6% - the CIS countries, 3.2% - the far abroad. The share of courier services of Kazpost (EMS services) in the market of the given kind of services amounted to 20% in 2007. There were delivered 202,5 mln copies of newspapers and magazines for 2007, up 16.7% from 2006. Page 151

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Delivered: newspapers & magazines, mln. Sent: letters, parcels, cards, mln. 46,3 packages, mln. 2,8 telegrams, mln. 5,5 Outgoing traffic of interurban, international calls, mln. 2602,8 minutes Number of telephone sets of a telephone network of communal use, or connected to it (as for the turn of the year), 2928,4 thou Including population 2495,1 Number of telephone subscribers, thou 7830,4 Number of network subscribers, thou 310,8
Figure 106 Telecommunication services and facilities
2006 173,4
2007 202,5 53,6 3,4 5,2 3025,9 3236,9 2757,3 12587,8 381,2
Media Having emerged on the world map from the shackles of the Soviet Union in 1991, Kazakhstan started actively developing its media market. It is a remarkable achievement for a country that used to have only few media outlets, purely official, to provide access today to more than 2,000 local media resources, about 85 percent of which are non-governmental. There are major newspapers as well as TV and radio channels providing news and entertainment in 11 languages, including German, Ukrainian, Turkish, Ukrainian etc., to reflect the great ethnic diversity in Kazakhstan. Media outlets broadcasting in ethnic languages are subject to grants and other types of financial support from the national budget. In 2002 the first Kazakh satellite channel Caspionet was launched and broadcasts successfully both in the country and abroad. International media corporations such as CNN, BBC, Radio Free Europe, Deutsche Welle, Polonia and others actively broadcast their programs in Kazakhstan through local cable television companies. Over 80 foreign mass media from more than 20 countries, including the largest news agencies such as the Associated Press, Interfax, France Press, Xinhua, Reuters, ITAR-TASS, Bridge news, etc. are accredited in Kazakhstan. A liberal and democratic government information policy is the basis for these processes. The main mechanisms of the policy are: legal guarantees and practical insurance of the principles of freedom of speech, free receiving and spreading of information, censorship prohibition; continuing improvement of legal framework of mass media activity; annual placing of budget financed government order for implementation of the government information policy. A right to get this order is assigned through a contest among mass media bodies irrespective of their ownership. This measure allowed to create equal conditions for receiving government financial support by both government and nongovernment press consequently encouraging their creative activity and business initiative; transparent process of receiving frequencies for TV and radio broadcasting. The Commission on providing rights for radio frequency use comprises representatives of the Parliament, international and Page 152

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Kazakhstan public associations. Activity of the Commission is widely covered by the mass media; stations are exempted from VAT. Charges for use of radio frequency decrease almost every year; continuing and constructive cooperation with public associations, international organizations, media research institutes in the area of mass media development. Journalists rights associations such as the Journalists Congress of Kazakhstan, Journalists Union of Kazakhstan, Teleradiobroadcasters Association of Kazakhstan, offices of international organizations (the OSCE, Human Rights Watch, Internews network, Adil Soz, etc.) fruitfully work in Kazakhstan; close attention to journalists development. To this end every year the government provides grants and loans for education in this field, a TV Journalism School was established.
An important event for mass media development in Kazakhstan was the establishment of the Public Council on Mass Media (information policy). This entity unites MPs, the Chairman of the Board of the Journalists Union of Kazakhstan, President of the Tele-Radiobroadcasters Association of Kazakhstan, Editors-in-Chief and journalists of leading mass media bodies. Major Kazakh media outlets Newspapers Kazakhstanskaya Pravda www.kazpravda.kz Ekspress-K www.express-k.kz Zhas Alash www.zhasalash.kz Liter www.liter.kz Vremya (opposition) www.time.kz Karavan www.caravan.kz Zonakz (opposition web source) - www.zonakz.net Geo (opposition web source) www.geokz.tv Television Khabar TV www.khabar.kz Kazakh Commercial TV (KTK) www.ktk.kz Caspionet www.caspionet.kz
El Arna Hit TV www.hittv.kz Radio Radio NS www.ns.kz Europa Plus www.europaplus.kz Auto Radio www.avtoradio.kz News Agencies Kazinform www.inform.kz Interfax Kazakhstan www.interfax.kz Kazakhstan Today www.gazeta.kz
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Transportation
Pipelines: condensate 658 km; gas 12,317 km; oil 11,201 km; refined products 1,095 km; water 1,465 km (2010) Railways: total: 15,079 km country comparison to the world: 19 broad gauge: 15,079 km 1.520-m gauge (4,000 km electrified) (2010) Roadways: total: 93,612 km country comparison to the world: 49 paved: 84,100 km unpaved: 9,512 km (2008) Waterways: 4,000 km (on the Ertis (Irtysh) River (80%) and Syr Darya (Syrdariya) River) (2010) country comparison to the world: 26 Merchant marine: total: 8 country comparison to the world: 124 by type: petroleum tanker 6, refrigerated cargo 1, specialized tanker 1 foreign-owned: 1 (Ireland 1) (2010) Ports and terminals: Aqtau (Shevchenko), Atyrau (Gur'yev), Oskemen (Ust-Kamenogorsk), Pavlodar, Semey (Semipalatinsk)
Airports: 97 (2010) country comparison to the world: 62 Airports - with paved runways: total: 65 over 3,047 m: 10 2,438 to 3,047 m: 26 1,524 to 2,437 m: 16 914 to 1,523 m: 5 under 914 m: 8 (2010) Airports - with unpaved runways: total: 32 over 3,047 m: 5 2,438 to 3,047 m: 6 1,524 to 2,437 m: 3 914 to 1,523 m: 5 under 914 m: 13 (2010) Heliports: 3 (2010) Overview
Kazakhstans transport system comprises about 88,400 kilometers (km) of roadways; 14,205 km of railways; 3,900 km of waterways; and up to 61,000 km of air routes. Its road and rail systems carry nearly 90% of its total cargo load. However, its transport networks are in poor condition, with obsolete infrastructure and outdated technology. Thus, its transport costs account for 8%11% of the final cost of goods, in contrast to the Page 154

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4%4.5% share to total cost in industrialized countries. Railway services play significant role in the transportcommunication network. It provides up to 70% of cargo and 50% of passenger turnover in the overall transport operations in Kazakhstan. Total mileage of the railways in Kazakhstan exceeds 14 thousands km connecting all regions of Kazakhstan and suitable for international transit transportation. Transport Strategy of the Republic of Kazakhstan Kazakhstan Government has elaborated and approved Strategy of Transport Sector Development of up to 2015; the amount of investments required for construction of respective infrastructure within the 10 years will make up USD 26 billion. Ultimate goal of the Transport Strategy is to ensure progressive development of transport and communications complex in line with economic strategy of the state. The Strategy covers 2006-2015 and is supposed to be implemented in two stages: 1st stage 2006-2011, 2nd stage 2011-2015. The Strategy implementation is expected to ensure bringing of the national transport system to a higher level, and forming of an optimum transport network. Financing of the infrastructure on the self-sufficiency principles will allow accommodating resources for its further sustainable development and maintenance at a high technical level. Kazakhstani transport sector is bound to smoothly integrate into the global transport system. Transport infrastructure is supposed to be brought in compliance with the worldwide standards. All this will enable to sufficiently increase the share of transit traffic, the core of which will be container traffic. Transit traffic will ensure substantial revenues for the central budget and transport companies.
Figure 107 Road map of the Republic Kazakhstan.
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The Strategy covers railways, automobile, in-city passenger, air and water carriage, efficient performance of which to a great extent depends on respective policy pursued by the Government. The Strategy is intended to facilitate growth of trade ties between the West and the East by means of reliable and accessible transit routes. The Strategy provides for implementation of a customized model of meridian and latitude arrangement of the main routes and connecting legs. The Strategy provides for modernization of already operating and construction of new rectifying routes and infrastructure facilities, with all transport fleets being renewed. Development of pipelines with due consideration of the O&G sector specificity is being effected within the framework of the State-run Program of Development of the Kazakhstani Sector of the Caspian Sea and within the Concept of Gas Sector Development up to 2015. Economic and geographic features of Kazakhstan (its vast territory, land-locked position, uneven spatial distribution of population clusters and of natural resources) make the transport component of the economy one of the most sizeable in the world and determine high dependence of the economy on the transport networks. Being sandwiched between Europe and Asia, Kazakhstan boasts of a great transit potential, as there is no alternatives for Asian states to link to Russia and Europe. Relatively diverse landscape and availability of natural stone reserves allow unrestricted development of railways and automobile routes. Automobile and railways routes account for a major share of the total above-ground transport routes (about 88.4 14 thousand km respectively). Total length of navigable waterways makes up 3.9 thousand km, and the total of air routes makes up 61 thousand km. Density per every 1000 km 2 stands at 5,1 km for railways, at 32,4 km for automobile routes with hard surface, and at 1,5 km for in-land navigable waterways. At the current stage, there is a problem of poor condition of the transport sector fixed assets, obsolete infrastructure and technology. The share of transportation costs in the final cost of the goods makes up 8% and 11% for in-land railways and automobile traffic respectively, while in industrialized countries these indicators normally make up 4-4,5%. As a result, the transport burden on the economy exceeds that on the major industrialized nations twice on average. By cargo intensity index Kazakhstans economy is about five times less efficient, as transport component of every 1 USD of GDP makes no less than 9 ton-km, while in EU cargo intensity is less than 1 ton-km/dollar of GDP. 4 international transport corridors cross the territory of Kazakhstan and are formed on the basis of transport infrastructure existing in the country. They are: Northern Corridor of Trans-Asian Railway Main (TARM): Western Europe China, Korean Peninsula and Japan via Russian and Kazakhstan (section Dostyk Aktogai - Sayak Mointy Astana Petropavlovsk (Presnogorkovskaya)). Southern Corridor of TARM: South-Eastern Europe China and South-Eastern Asia via Turkey, Iran, Central Asian states and Kazakhstan (section Dostyk Aktogai Almaty Shu Arys Saryagash). TRACECA: Eastern Europe Central Asia via the Black Sea, Caucasus and the Caspian Sea (section Dostyk Almaty Aktau). North-South: Northern Europe Gulf States via Russia and Iran, with Kazakhstans participation in the following sections: sea port Aktau Ural regions of Russia and Aktau Atyrau. Besides routes included in the transcontinental mains, Central Corridor of TARM should also be mentioned, as it is of great significance for regional transit in the direction Saryagash Arys Kandagach Ozinki. Corridors help significantly decrease distances in East-West connection, as well as cut down time of cargo delivery. Robust growth of Chinas economy, in particularly of its western regions, boosts the demand for deliveries of a large specter of goods to global markets even today. At the same time, according to experts, current transit in Kazakhstan doesnt fully employ the potential of the sector and that of the republic in general. Page 156

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As for passenger railway transportation, special mechanisms of funding that are being developed in the framework of the Program of Railway Transport Reconstruction for 2004-2006, will be applied. Kazakhstan possesses a motor roads network with total length of more than 88,9 thousand km and 13 thousand km of the network have international significance linking the Asian and European motorways. For the last years a great attention was paid to major repair and reconstruction of existing and construction of new roads. Particularly 14,4 thousand km of roads were repaired. Since 2002 around $1 bln were allocated for this purpose. In accordance with the state Program on development of motor roads for 20012005 a special attention was paid to the development of six international corridors. At present the motor transport sector of Kazakhstan is oriented to further modernization and development of road networks with the aim of realization of beneficial geographical position of the country as the natural transport bridge between Europe and Asia. Main network of motor and rail ways, as well as internal shipping infrastructure will remain in government ownership.Terminals will be gradually passed into private ownership. System of air navigation will be made as much self-supporting as possible through navigation fees collected at airports and route navigation fees. Air terminals will be owned by airports and funded from terminal fees. Main airports will be passed into private sector that will be responsible for maintenance and renewal of infrastructure funded from take-off/landing frees in the airports. Largely, private sector will also be responsible for construction and maintenance of terminals at sea ports. State will be responsible for sea infrastructure of public use. Fees for usage of automobile routes will be charged at the spot. Considerable success has been achieved in water transport sector. After rails and roads, water transportation is the third most important element in the Kazakhstans transportation complex, with both state and private companies operating in this field. The Irtysh River and the Caspian Sea presents excellent opportunities in this area. The main transit flow passes via reconstructed Aktau International Sea Commercial Port, which has a capacity for oil shipments up to 8 mln. tons, general and bulk cargo 1,5 mln. tons, 24 thousand containers per year. The Aktau Port is considered as a strategic junction of one of the routes of TRASEKA corridor (Transport Corridor Europe-Caucasus-Asia) and International Transport Corridor North-South which connects the North Europe with the South Asia and India. River navigation is carried out in the basin of Irtysh, Ural, Ily rivers and on Balkhash Lake. In 2004 the construction of Shulba sluice in Eastern Kazakhstan was completed and resulted in reopening of navigation on Irtish river between China, Kazakhstan and Russian. Participation of private sector in different segments of transportation sector will be promoted, including conclusion of long-term concession agreements under which infrastructure in the final end is returned back to the state. Besides state funding of transport infrastructure units, institutes of development (such Bank for Kazakhstan Development, Innovation Fund), other domestic and foreign financial institutions (EBRD, ADB, World Bank, IDB and others) are going to be attracted. Creation of favorable climate for development of private industry will be achieved through rendering tax allowances and preferences stimulating renewal of fixed assets. So, the projects will be funded from budgets of all levels, through attraction of investments and on Page 157

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commercial basis: through state-private partnerships, concessions, creation of joint ventures. Estimated investments required by the transport sector for the period of Strategy Implementation will make up KZT 3.4 trillion in 2005 prices.
Transport system in details Kazakhstans transport system one of the most sizeable in the world, and its economy highly dependent on transport networks. Its transport system also provides the opportunity to take full advantage of its potential as a transit country between Europe and Asia. This system is comprised of 88,400 kilometers (km) of roadways; 14,205 km of railways; 3,900 km of waterways; and up to 61,000 km of air routes. Kazakhstans total cargo load in 2007 amounted to 2,148 million tons. Its total freight turnover was 428 billion tons-km. The road and rail transport systems carried the main bulk of this cargo load, accounting for nearly 90% of total load. Shares of different transport modes in total cargo load and freight turnover are illustrated in Figure below.
Figure 108 Percentage Share of Each Transport model.
Cargo loads transported through road and rail have steadily increased over 20012007, with average growth of 8% and 6% per year, respectively. Meanwhile, freight turnover increased by 10% per annum in the road network and 6% per annum in the railways. In the countrys road network, growth rate of freight turnover was higher than that of transported cargo. This divergence indicates that while the tonnage of freight carried over road has been decreasing, Page 158

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Figure 109 Growth Rate of Cargo Load.
Figure 110 Growth Rate of Foreign Turnover.
Although its railways and roadways are lengthier in comparison with those of its CAR neighbors, Kazakhstan has lower rail and road densities. Its rail density is 0.51 km per 100 km2 while its road density is 3.24 km per 100 km2. Meanwhile, Uzbekistans rail density is 0.98 km per 100 km2, and Tajikistans is 0.66 km per 100 km2. Tajikistans road density is 21.37 km per 100 km2, and those of Uzbekistan, the Kyrgyz Republic, and the XUAR are 18.55 km, 17.01 km, and 5.40 km per 100 km2, respectively.
Figure 111 Rail Density in Selected CAR Countries.
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Figure 112 Road Density in Selected Car Countries.
Kazakhstans transport system is characterized by transport networks in poor condition, with obsolete infrastructure and outdated technology. This has resulted in transport costs accounting for 8%11% of the final cost of goods transported through railways and roadways, respectively. In industrialized countries, transport costs normally make up 4%4.5% of total cost. To address deficiencies in the transport system, President Nursultan Nazarbayev announced in October 2007 that the government would implement 80 investment projects worth $30 billion in 20072015. This investment program involves the laying of 1,600 km of new railway tracks, electrification of 2,700 km of existing railways, and building or repairing 50,000 km of roads across the country. The government also intends to modernize airport infrastructure, develop the merchant fleet, and expand port and navigable waterway infrastructure. Rail Transport Kazakhstan railways, measuring 14,205 km in length, plays an important role in transporting goods over long distances, typically 1,000 km or more. Freight volume transported through this mode has been growing from 2000 to 2006 at an average annual rate of 6.4%. Generally the same trend can be observed for the volume of cargo turnover for railways.
Figure 113 Freight Volume Transported by Rail.
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Figure 114 Cargo Turnover by Rail.
About 30% or 4,143 km of the railways system consists of electrified tracks. Locomotives number 5,192 and rail wagons 59,954. Cargo loads consist mainly of heavy machinery and bulky commodities (high volume and low value). Compared to its neighboring countries, Kazakhstan has superior rail infrastructure. The tracks are better maintained due to more funds available for maintenance. The government also purchased new locomotives and railway tracks. Kazakhstan also has container block train service.
Figure 115 Transit Rail Routes in Kazakhstan.
In the governments overall plan, investments in rail development include the construction of the Mangishlak Bautino (135.1 km; T22,759 million) and EralievoKurik (14.4 km; T7,568 million) routes, and the electrification of the 392-km MakatKandygash line. Road Transport Kazakhstan has 83,720 km of roads, mainly of Class III standards. Freight volume transported through these roads is 6.4 times more than that by rail, and has increased by an annual average of 8.3%. Of Kazakhstans 13 oblasts, East Kazakhstan, Almaty, Karaganda, and Kotanay have the longest road networks. East Kazakhstan Page 161

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has 11,060 km of road, accounting for 13.2% of the total road system. Almaty, Karaganda, and Kotanay account for 11.3%, 10.4%, and 9.5% of the total, respectively.
Figure 116 Freight Volume and Turnover Transported by Road.
Many use road transport due to its flexibility. In Kazakhstan, the permissible dimensions for standard road transport are 18.5 m (length), 2.6 m (width), and 4.0 m (height). This measurement includes the cargo and the towhead. Total load is 38 tons. Vehicles require a special permit when transporting oversized cargoes, which by definition is longer, wider, or taller than the above specifications. The permit fees depend on distance and the load. A significant development in road transport is the planned Western EuropeWestern [Peoples Republic of China project, a huge road rehabilitation and upgrading collaboration among many organizations that would involve 2,624 km of roads in Kazakhstan.3 The entire route starts from Orenburg (Russian Federation) and ends at Korgas (the PRC), passing through five Kazakh oblasts.
Figure 117 Length of Roads by Oblast.
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Figure 118 Length of Road to be Upgraded by Oblast.
The company KazRoadProjects was engaged to conduct a feasibility study on the engineering and technical proposals for the road project. After the study, it determined that of the 2,624- km project scope, 2,266.81 km require improvement. Total project cost is estimated to be T920 million. Kazakhstans roads are classified mainly as Class III or lower. However, under the Western EuropeWestern [Peoples Republic of] China project, the new roads that would be constructed will mainly be concrete and asphalted, of Class I and II qualities, and compliant with international standards and thus good enough for higher volumes of transit traffic. The project will also have a number of new roads detouring around existing cities. The objectives for this strategy are manifold. First, the new roads will complement the current network. Second, they will provide alternatives for transit traffic to bypass city centers and avoid traffic congestions. Third, they will increase the road density of the country. Fourth, the new design is actually a shorter alternative to current roads, increasing transport efficiency because of shorter distances. For instance, in the Zhambyl region, there is a road that cuts through the Kyrgyz Republic (near Bishkek). A new road will be constructed in Kazakhstan to bypass customs at the border. The estimated cost of road construction under the project is $1,000 per km. The project has an internal rate of return of 12% and a positive net present value. Construction will occur in three phases. The first will be from 2009 to 2012, the second from 2012 to 2015, and the third in 2016. Another ongoing project of significance is the rehabilitation of BishkekAlmaty route. Under this project, 100 km of roads in the Russian Federation and 70 km in Uzbekistan will be improved. Four-lane highways will be 27.5 m wide, while twolane highways will be 15 m wide. Air Transport In 2007, Kazakhstan achieved a remarkable feat of transiting 4.5 million passengers through its airports, an increase of 36% over the 2006 level. That same year, the volume of freight handled by the airports increased by 55.8% or four-folds more than the 15.7% average growth rate from 2001 to 2007. This rapid growth in the aviation industry is due to several factors. Kazakhstan has relatively well-established hubs at Astana, Almaty, and Atyrau, which facilitate the flow of goods in northern, southern, and western regions, respectively. Page 163

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The national carrierAir Astanacontinuously invested in modernizing its assets, including air navigation systems and radio equipment. The government is proactively seeking and negotiating new air routes to major cities in the world, and facilitating the countrys accession to major international agreements and conventions such as the World Convention on International Transportation Through Air. Air Astana also aggressively used information and communication technology in transforming its airline operations. It is working on introducing computerized systems for registering and monitoring cross-border movement of airfreight. Finally, eight domestic airportsAstana, Almaty, Atyrau, Aktobe, Ust-Kamenogorsk, Pavlodar, Shymkent and Zhezkazganenow meet the requirements of the International Civil Aviation Organization. Air Astana flies to 12 major cities, namely Amsterdam, Frankfurt, Hanover, London, and Moscow in Europe; Dubai, Delhi, Istanbul, and Antalya in Eastern Europe, South Asia, and the Middle East; and Bangkok, Seoul, and Beijing in North and Southeast Asia. Its flights to these cities start and end mainly in Astana and Almaty although direct flights to and from Kostanai, Karagandy, and Atyrau are also possible. Future developments in Kazakhstans aviation industry include the reconstruction Figure 119 Domestic Air Connectivity. and upgrading of airports. There will be a new airport complex in Astana and a modern passenger terminal is being built in Almaty. New runways are also being constructed in Atyrau and Aktobe. Pipeline Transport A key consideration in Kazakhstans transport strategy is how to transport oil and gas to markets in the east, principally the PRC, and the west. With 29 billion barrels of proven crude oil reserves, the countrys oil export can grow at an annual rate of 13.9% (Figure 16). Various factors support this projection. The most important is the rapid pace of development of new oil and gas fields, and strong demand from both east and west. The forecast is also underpinned by strong economic growth and a particularly dynamic future for foreign trade over the next five years, both of which will increase the domestic demand for oil and gas. All these developments provide strong support for building an extensive and reliable pipe The most significant pipeline development in the country is the construction of the BakuTbilisi Ceyhan line through the Caspian Sea. Kazakhstan and Azerbaijan play a key role in this project, which will pave the way for the trans-Caspian flow
Figure 120 International Air Connectivity.
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of oil from Aktau. The project involves the construction of port facilities and pipelines at Aktau. It is expected to handle throughput of 2356 million tons of crude oil per year. To supplement its transport capacity in the face of increased demand for transport facilities, Kazakhstan plans to purchase seven large tankers with capacity of more than 60,000 tons of crude oil. Financing for the whole project will come from external investments. In the east, oil pipelines linking the Tenkiyak field to Kumbol has started operations and will send more oil to the PRC. Logistics Sector Kazakhstan has 73 enterprises offering logistics-related services. These include multimodal transporters, customs brokers, integrated service providers, and freight forwarders. They can be categorized into express and courier companies, freight forwarders, and manufacturers and/or traders. Express and courier companies are mainly multinational corporations, such as DHL and Pony Express, whose representative offices liaise with overseas offices and oversee domestic distribution. They own warehousing facilities and run a fleet of trucks. For example, Pony Express owns a 4,000 sq m warehouse in Almaty and operates 30 vans for door-to-door deliveries. Each vehicle is equipped with global positioning system and satellite communications, allowing realtime track and trace capabilities. However, this is more of an exception and not the norm for most transporters. The second group of logistics players consists of local-licensed customs brokers, freight forwarders, and multimodal transporters. They are all members of the Union of International Road Carriers of the Republic of Kazakhstan (KazAto). Many of them are competent in providing integrated solutions for customers. Their usual mode of operations involves shepherding cargo through customs clearance and then sending it by rail or road to the final destination. The third group includes manufacturers or traders in Kazakhstan, either foreign-owned companies such as the Xinjiang Yema Company or locally owned enterprises such as the Tsesna Investment Corporation. They run their own fleet of trucks and own selfoperated warehouses for managing the supply chain. Although Kazakhstan lacks logistics professionals, as do the rest of the CAR countries, it is the transport hub in the region. Companies like DHL send their managers to Almaty for training and upgrading of skills. Five learning institutions offer diploma courses on logistics. They are either public institutions such as the Kazakh Academy of Transport and Communications or private schools such as the KazAri (Kazakh Automobile Road Goncharov Institute). A 4-year diploma course can cost $4,000. For citizens, the government offers an education grant of $2,000 per student. Each school trains about 150 students, of which 5% come from overseas, mostly from Pakistan. Any discussion on the logistics sector will not be complete without reference to the national representative of the logistics industry, KazAto, which represents the interests of the countrys road transporters, and the national association for the issuance of Transport Internationaux Routiers (TIR) carnets. It has 200 road transporters as members and is a member of the International Road Union. It also represents Kazakhstan in international conventions, meetings, and other forums on transport logistics. The TIR, which is a system that facilitates cross-border movements by providing a single procedure and a guarantee chain from the point of departure of goods to the point of destination, is widely accepted in Kazakhstan and in the whole of the CAR. A two-way TIR carnetthe transit document that Page 165

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allows cargo to move through transit countries without the payment of tariffscan be purchased for $95 in Kazakhstan through the KazAto. A non-member of KazAto will need to put up a deposit of $8,000 for a single transport journey across the border. Although the TIR is generally working smoothly and simplifies crossborder movements, there are still isolated incidents involving unnecessary inspections in the Russian Federation. Inspections can be called for without reason or evidence by Russian customs officers. No other international or regional protocols can be an effective alternative to TIR in the short term. Without TIR, the carrier or shipper would need to put up a large sum of money as guarantee or bond to ensure that the cargo being transported will not be off-loaded in a transit country. When fined, a company can pay as much as $50,000. The TIR system imposes a minimal entry requirement for members to use the carnets. However, the delivery trucks must satisfy the minimal technical standards, which can be stringent. For example, the trucks engines must be of a Euro-3 standard that stipulates low noise and gas emissions. Companies are fined if their trucks violate those requirements. Kazakhstan has a number of logistics centers, free-trade zones and exhibition marketplaces to facilitate production, warehousing, transportation and final sale of products. It has two famous logistics centers; the first one is the High Tech Logistics Centre in Almaty. The center is run by a Russian Kazakh joint venture company and has two sites for warehouses, one measuring 35 hectares in size and the other one, 130 hectares. In the smaller site, two warehouses are operational with six-high pallet racks that are integrated with the rail connection. The warehouses are built for the deconsolidation of imported goods from the Russian Federation and Europe, after which the goods are redistributed within the country or to other parts of the CAR. They are equipped with a modern warehouse management system and bar code capability. The second iconic project is the DAMU logistics center located on 210 hectares of land in the Iliyskom area, between Dmitrievskim and the Kapshagayskoy highway, 10 km away from Almaty. Run by the Amanat Invest Group, its construction started in January 2007. It offers integrated logistics services such as storage, handling, transport, customs clearance, and repacking. The entire center has 100,000 pallet spaces, one of the largest in the country. Another supply node consists of exhibition complexes. These complexes are facilities that showcase a variety of products for wholesalers and to a lesser degree, retail customers. Goods usually originate from the PRC and the Russian Federation, and then trucked to the complexes, which have warehouses and trucking depots for loading and unloading operations. The biggest one in Almaty is called Adem Park. Challenges Relatively speaking, Kazakhstan has a superior logistics system compared to other countries in Central Asia. Its equipment, such as railway tracks and locomotives, are better maintained. It has modern logistics centers in key cities. The capability of logistics companies in Kazakhstan to offer regional and domestic transport is also higher. Nevertheless, the potential of Kazakhstan as a transit nation will never be fully realized if impediments are not addressed and resolved. These impediments are described here along three areas: (i) physical infrastructure and transport facilities, (ii) institutional policies and regulations, and (iii) operational capability of the logistics industry.
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Constraints in Physical Transport Facilities
Infrastructure
and
Constraints in the Rail Transport System As far as infrastructure and transport facilities in the region are concerned, Kazakhstan has some advantages. Its railway tracks are better maintained, with railway cargo terminals built along strategic nodes.4 Of the 14,205 km of railway tracks, 4,143.5 km are electrified. The country also has good rolling stocks for railway transport. It has 5,192 locomotives; 59,954 wagons; and 7,080 rail platforms, enabling it to better handle larger cargo volumes. However, the capacity of the rail transport system is compromised by the lack of facilities in certain important rail nodes. In cities like Karagandy, Shymkent, Aktobe, and Aktay, rail freight has increased steadily and cargo terminals and warehouses are running at near capacity levels. Storage capacity in these cities needs to be expanded in the near future. Since the Russian Federation and the PRC are important trading partners for Kazakhstan, rail transport issues with these two countries must be attended to. Although rail tariffs in the Russian Federation are lower than those in PRC, and therefore more popular with local companies, crossing the border with the Russian Federation entails additional costs for shippers. For example, if a rail cargo travels from Aktobe to Uralsk, it needs to pass through Russian border at Zhaisan. The Russian Federations customs demand $500$600 for such transit. Unfortunately, there is no viable alternative as road conditions in the northwestern oblasts are poorly maintained. Rail transport with the PRC faces some constraints, too. In theory, the same cargo sent over Russian railways will take longer as the distance traveled is longer. It takes 30 days for the Russian Federations railways to transport cargo from Astana in Kazakhstan to Nadjhoda in the Russian Federation. In comparison, it takes PRC railways 25 days to transport cargo from Astana to the post of Lianyungang. However, PRC railways have more stringent regulations and documentation requirements, which Kazakh companies feel are much more complicated. Harmonizing customs procedures and documentation requirements will address this issue. A specific challenge is the Dostyk6 railway terminal at the PRCKazakhstan border. Operations in this terminal started in 1992 after the PRC and Kazakhstan signed an agreement to open the border at this node. Since then, freight volume has risen rapidly due to the increasing trade between the two countries. While the PRC has invested aggressively in Alashankou to increase capacity and efficiency, the same rate of investment has not been seen from Kazakhstan. Thus, Dostyk has become a bottleneck in the UrumqiAlashankouDostykAktogaiAlmaty route. Due to differences in railway gauges, goods need to be transloaded from PRCs rail wagons to Kazakhtans rail wagons, using machines in Dostyk. Transloading is required for the Dostyk station because the PRC uses international gauge (1,453 mm) tracks while Kazakhstan uses the former Russian standard tracks of 1,520 mm. Thus, PRCs goods entering Dostyk will need to be lifted by machine to Kazakhstans rail axle and wagon to be able to continue the journey. Dostyk is also an important node as it lies in Central Asia Regional Economic Cooperation (CAREC) Corridor 1, Transport Corridor CaucasusEuropeCentral Asia (TRACECA) route, and the new trans-AsiaEurope railway. Increasing the capacity of this railway terminal will attract shippers to this transit route. Page 167

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Constraints in the Road Transport System Kazakhstan has virtually no Class I and II roads, and its road quality is not consistent. Road surface in the eastern region is relatively good. In the western region, however, it needs upgrading, with the worst problems being in two main areas: the 700 km stretch of KostanaiAktobeUralsk, and the stretch between Atyrau and Aktau. The economic and construction boom fueled by the oil exploration activities have put additional stress on the road networks in the western region. Interviews done by the TA team showed that transport enterprises want the government to invest in the construction of more roads where none is available, or to improve the current highways to handle higher road-capacity demand. Besides the low quality and capacity of roads in the northwestern region, the existence of enclaves, which requires the crossing of borders, causes additional cost and time delays in certain transit routes.A part of the key ShymkentTarazAlmaty route that traverses three Kazakh oblasts lies in the Kyrgyz Republic (through Bishkek). Another problem is empty return cargo. Like Xinjiang, Kazakhstan has a large land area and, thus, low population density. Trucks are forced to travel long distances, and the probability of having products to send back from such a sparsely populated area is low. Most road cargoes move from east to west. When delivery trucks return eastward, most of these are either empty or only partially filled. This inevitably raises the cost of transportation. Astana to the post of Lianyungang. However, PRC railways have more stringent regulations and documentation requirements, which Kazakh companies feel are much more complicated. Harmonizing customs procedures and documentation requirements will address this issue. A specific challenge is the Dostyk6 railway terminal at the PRCKazakhstan border. Operations in this terminal started in 1992 after the PRC and Kazakhstan signed an agreement to open the border at this node. Since then, freight volume has risen rapidly due to the increasing trade between the two countries. While the PRC has invested aggressively in Alashankou to increase capacity and efficiency, the same rate of investment has not been seen from Kazakhstan. Thus, Dostyk has become a bottleneck in the UrumqiAlashankouDostyk AktogaiAlmaty route. Due to differences in railway gauges, goods need to be transloaded from PRCs rail wagons to Kazakhtans rail wagons, using machines in Dostyk. Transloading is required for the Dostyk station because the PRC uses international gauge (1,453 mm) tracks while Kazakhstan uses the former Russian standard tracks of 1,520 mm. Thus, PRCs goods entering Dostyk will need to be lifted by machine to Kazakhstans rail axle and wagon to be able to continue the journey. Dostyk is also an important node as it lies in Central Asia Regional Economic Cooperation (CAREC) Corridor 1, Transport Corridor CaucasusEurope Central Asia (TRACECA) route, and the new trans-AsiaEurope railway. Increasing the capacity of this railway terminal will attract shippers to this transit route. Constraints in the Road Transport System High Fees and Complex Procedures for Visas Kazakh drivers can drive to other countries without visas, except to Turkmenistan and the PRC. The visa application fee for Turkmenistan is $75 per entry and $291 for multiple entries good for 3 months. For the Page 168

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PRC, the fee is $60 per entry and $200 for multiple entries good for 1 year. Generally, a visa is needed to enter most European countries. The time needed to apply for visas is also long because of processing inefficiencies and/or complex processes and numerous documentary requirements. Frequent Changes in Customs Laws Private enterprises would like to see more stability in customs laws. Frequent changes in requirements and tariffs make planning difficult. The customs laws of Kazakhstan have been changed as recently as April 2008. Unofficial Payments Anecdotal evidence suggests that unofficial payments are required at border-crossing posts. For example, Kazakhstans customs authorities are said to collect unofficial payments of 50 at Korgas when PRC shippers send items to Kazakhstan. Limitations in Banking and Finance Some PRC companies expressed the desire to have more PRC banks operate in Kazakhstan. It must be noted that few years back, no PRC banks were operating in the country. The International and Commercial Bank of China now operates mainly in Almaty. The need for trade financing and remittance services is deemed essential for PRC companies. The second major problem is the high cost of financing, which deters companies from reinvesting and purchasing new equipment such as more fuel-efficient trucks. Commercial loans at Halyk Bank or KazCommercial Bank are charged at 16.5% per annum. With the liquidity and credit crisis in the worldwide financial markets, enterprises will experience greater difficulty seeking financing. Transport corridors
Figure 121 Major Transport Corridors Passing Through Kazakhstan.
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Corridor 1 1(a): Alashankou (PRC)DostykAktogaiMointyKaragandyAstanaTroitsk (Russian Federation) 1(b):Huoerguosi(PRC)KorgasAlmatyShuTarazKyzylordaAktobeZhaisanOrenburg(Russian Federation) 1(c): Bishkek (Kyrgyz Republic) LugovoiTarazShu MointyKaragandyAstana Troitsk (Russian Federation) Corridor 1 is arguably the most important for Kazakhstan because a large part of it passes through Almaty and Astana, and the route links the country to two of the largest economies in the worldthe Peoples Republic of China (PRC) and the Russian Federation. The potential for transit traffic is, therefore, tremendous for this route where rail transport takes precedence due to its distance. Aside from making infrastructure investments, Kazakhstan also needs to harmonize its documentation and customs procedures with those of PRCs customs to expedite smooth and safe passageway to Europe. Once capacity is expanded at the border posts and the nodes along the corridor, dedicated container block train services can be considered along this route, with competitive levy rates to attract higher demand. Corridor 2 2(a): Baku (Azerbaijan)AktauBeineuKarakalpakstanNukus (Turkmenistan) Corridor 2 is a peripheral route for Kazakhstan. However, its importance lies in its pipelines and inland waterways, which are vital for the distribution of crude oil and natural gas across the Caspian Sea, and then westward to the European market. Transport capacity for this route is 1 million barrels a day, thus, Kazakhstan must develop not only the seaport at Aktau but also the corresponding infrastructure in Mangystau oblast. This requires building high-quality roads and highways; extending railway lines to exploration and mining zones; and offering integrated logistics parks, free-trade zones, and cargo terminals to support the energy and construction sectors. Corridor 3 3(a): Rubtsovsk (Russian Federation)SemeyAktogaiAlmatyShuLugovoiTarazShymkentTashkent (Uzbekistan) Corridor 3 has one interesting implication for Kazakhstan and this is the strategic importance of Semey City. Cargoes from the Russian Federations Rubtsovsk City will need to pass through Semey before these are redistributed westward to Astana via Pavlodar or southward to Almaty. The geographical location of Semey makes it a good site for a consolidation center for the eastern region of Kazakhstan. Semey is also near the Pavlorda, Karagandy, and Akmola regions, which are industrial clusters that produce agricultural products, gold, oil, and nonferrous metals. Thus, it can also be a transport hub for the northeast regions. Semey has also the potential to be a multimodal hub. It is well-connected to rail and road networks, while waterways transport can be explored. Cargoes can move by rivers to the Zhaisan Lake and then to the Peoples Republic of China (PRC). The problem here is that water level in the rivers has fallen over the years due to irrigation projects in the Xinjiang Uygur Autonomous Region. The Government can discuss this matter with the government of PRC and explore the possibility of opening a new water route. Finally, additional investments to upgrade the airport in the city will make Semey more attractive for transshipment. Corridor 6 6(a): Astrakhan (Russian Federation)AtyrauMakatBeineu KarakalpakstanNukus (Turkmenistan) Page 170

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6(b) and (c): Orenburg (Russian Federation)AktobeKyzylordaSaryagashTashkent (Uzbekistan) Corridor 6 highlights the importance of Beineu in the western region. Beineu is the pivot point linking Turkmenistan and the Russian Federation, thus, its transit traffic potential is huge. However, a problem in the rail route design exists. For cargoes coming from Almaty to Shymkent and then to Kyzylorda, there are no direct rail connections to Aktau and Atyrau. Rail lines along this corridor traverse Aktobe and Uralsk and then southward to Aktau. If a secondary rail line can start from Shalkar and proceed to Beineu, the route would integrate a complete rail route from east to west of Kazakhstan. However, the line has some difficulties such as distance (about 1,000 km of land) and challenging terrain. Key Nodes in Transport Corridors
Figure 122 Key Nodes of Transport Corridors.
Conclusion With an annual gross domestic product growth rate of more than 9%, Kazakhstans economic progress has been remarkable. As the largest landlocked and the ninth largest country in the world, it should have a greater role in modern-day trade and commerce. The most logical alternative or complement to its hydrocarbon industry is to make full use of its unique geographical positionby being a transit country at the crossroads of trade between Europe and Asia. To develop this alternative, Kazakhstan must decrease the cost of transport and overcome the barriers posed by difficult terrain, cumbersome customs procedures, nontariff trade barriers, and friction that are so common in Central Asia. This is not impossible. After all, it has shown the world that ethnically diverse people can live in harmony. It has also demonstrated that rapid economic growth can be achieved in a short period. Infrastructural investment requirements through 2030 are expected to total more than $25 billion - and of this, 40% will be needed for railway transportation, 23 % for highways and motor transport, 25 % for telecommunications, and 12 % for the air and water transport systems. Page 171

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Military
Supreme Commander-in-chief Nursultan Nazarbayev Minister of Defense Adilbek Dzhaksybekov Military branches: Kazakhstan Armed Forces: Ground Forces, Navy, Air Mobile Forces, Air Defense Forces (2010) Military service age and obligation: 18 years of age for compulsory military service; conscript service obligation - 2 years; minimum age for volunteers NA (2004) Manpower reaching militarily significant age annually: male: 125,322 female: 119,541 (2010 est.) Military expenditures: 1.1% of GDP (2010) country comparison to the world: 124
Manpower available for military service: males age 16-49: 4,163,629 females age 16-49: 4,179,051 (2010 est.) Manpower fit for military service: male: 125,322 female: 119,541 (2010 est.)
Overview The Armed Forces of the Republic of Kazakhstan (Kazakh: Qazaqstanny Qarly kshteri), is the name of the unified armed forces of Kazakhstan. The Kazakhstani military is a defense force consisting of the Ground Forces, Air and Air Defence Forces, Naval Forces, Republican Guard. The national defense policy aims which are based on the Constitution of Kazakhstan are to guarantee the preservation of the independence and sovereignty of the state and the integrity of its land area, territorial waters and airspace and its constitutional order. The armed forces of Kazakhstan are performed under the authority of the Kazakhstan Ministry of Defense. The national defence policy aims which are based on the Constitution of Kazakhstan are to guarantee the preservation of the independence and sovereignty of the state and the integrity of its land area, territorial waters and airspace and its constitutional order. The armed forces of Kazakhstan are performed under the authority of the Kazakhstani Ministry of Defense. On May 7, 1992, the President of Kazakhstan took a number of actions regarding defence. He signed a decree on the 'establishment of the Armed Forces of the Republic of Kazakhstan', the transformation of the State Committee of Defence of the Republic of Kazakhstan into the Ministry of Defence, on the attribution of Sagadat Nurmagambetov the military rank of Colonel General, and the appointment of General-Colonel Page 172

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Sagadat Nurmagambetov as Defence Minister of Kazakhstan. Mukhtar Altynbayev served as the Minister of Defence twice, most recently from December 2001 to 10 January 2007. On July 6, 2000, a Presidential Decree "On the structure of the Armed Forces of the Republic of Kazakhstan" changed the structure: The Armed Forces returned to a dual structure (general-purpose forces and air defense forces). The Air Mobile Troops were created, the transition to the new military-territorial structure, established military districts, harmonized structure and deployment of troops. On August 7, Lieutenant-General A. B. Dzharbulov was appointed commander of the Southern Military District and Lieutenant-General E. Ertaev became commander of the Eastern Military District. In February 2001 a Presidential Decree divided the functions of the Ministry of Defence and General Staff. According to the decree, the head of the General Staff subordinates all kinds of aircraft and type of troops and military districts, while the Minister of Defence has a mostly administrative and political functions. On March 30, Major General M. K. Sihimov was appointed commander of the Western Military Region. On October 12, M. Saparov was appointed to Chief of the General Staff and First Deputy of the Defence Minister. V. B. Elamanov became commander of the Air Mobile Troops. On December 8, a new Defense Minister was appointed: General K. Altynbayev, and on December 27, Major General K. K. Akhmadiev was appointed commander of the Air Defense Forces. Today there are four regional commands: Regional Command Astana, Regional Command South at Taraz, Regional Command East at Semipalatinsk, Regional Command West at Aktobe, as well as the Air Defence Forces, the Air Mobile Troops with four brigades, and the Artillery and Missile Forces (formed as a separate branch on 7 May 2003). Kazakhstan has an Individual Partnership Action Plan with NATO & strategic cooperation with the Turkish Armed Forces. Ground forces
Figure 123 Organization of the Ground Forces.
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Figure 124 Regional Commands of Kazakhstan.
On November 1, 1992, the First Army Corps was created in Kazakhstan, with its headquarters in Semipalatinsk. Later, at its base was established the Eastern Military District, retitled on 13 November 2003 as Regional Command East. Immediately prior to its dissolution, the 32nd Army consisted of the 78th Tank Division (Ayaguz); the 5202nd Base for Storage of Weapons and Equipment (BKhVT) Semipalatinsk; the 5203rd BKhVT Ust-Kamenogorsk; and the 5204th BKhVT at Karaganda. In the middle of the 1990s Kazakhstan's land forces included the 1st Army Corps (HQ Semipalatinsk), with the 68th Motor Rifle Division (Sary-Ozek, in Kyzylorda Province) 2 motor-rifle and one tank regiment and the 78th Tank Division (Ayaguz). While the 68th Division was called a motor-rifle formation, in equipment terms it had almost 300 tanks and about 500 armoured fighting vehicles. The 78th Tank Division had 350 tanks, 290 armoured fighting vehicles and 150 artillery pieces. The 210th Separate Training Center (a former motor rifle training division) had 6,000 soldier and officers and 220 tanks and 220 artillery pieces, so was a strengthened division. (It was often called the Division of Guards by Kazakh sources).Some of Kazakhstan's officers have trained at the United States Military Academy at West Point. Today the Ground Forces include four regional commands:
Regional Command "Astana" (Headquarters Karaganda) the administrative boundaries of Akmola, Karagandy Province, Kostanay Province and North Kazakhstan. The command acts as the Supreme Commander's reserve. The commander of the district is Major General Vladimir Shatsky (as of April 2008). The District includes the 7th Separate Motor Rifle Brigade at Karaganda. Regional Command "East" (Headquarters Semipalatinsk) -
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in the administrative boundaries of East Kazakhstan and Pavlodar Province (Families, UstKamenogorsk, George, and Ayagoz Usharalsky garrisons). Commander of the district is Lt. Gen. Nikolai Pospelov (as of September 2008). The District has the 3rd Mechanized Division (formerly the 78th Tank Division) at Ayaguz, three (?) bases for storage of military equipment, 3rd Separate Motor Rifle Brigade at Usharal (Military Unit No.40398, formed on the basis of a motor rifle regiment of the 155th Motor Rifle Division), 4th Separate Motor Rifle Brigade at Novo-Akhmirovo, Ust-Kamenogorsk (Military Unit No.27943), a cannon artillery brigade, and an air defence missile brigade. Regional Command "West", (Headquarters Atyrau) - in the administrative boundaries of the West Kazakhstan Province, Aktobe Province, Atyrau Province and Mangystau Province. The main task is ensuring the integrity of state borders, territorial integrity, sovereignty and economic interests of Kazakhstan in the Kazakh sector of the Caspian Sea. In 2008, the commander of the district appointed general Alimzhan Kanagatovich Erniyazov. The District has separate motor rifle and artillery brigades. Regional Command "South", (Headquarters Taraz) - in the administrative boundaries of Almaty Province, Zhambyl Province, South Kazakhstan Province and Kyzylorda Province. The district's main task is ensuring security in the south-eastern borders of the country. In 2008, General Alikhan Brimzhanovich Dzharbulov was appointed commander of the district. The District includes the 4th Motor Rifle Division at Sary-Ozek in Almaty Province, the 5th Separate Motor Rifle Brigade (Taraz, Military Unit No.85395, 1,500 personnel), the 6th Separate Motor Rifle Brigade (Shymkent, Military Unit No.35748, with five motor rifle and tank battalions, two artillery battalions), a mountain battalion, and the 210th Training Center. The 206th Reserve Division was previously stationed in this command area.
The Air Mobile Force

the 35th Air Assault Brigade at Kapshagai, the 36th Air Assault Brigade at Astana, the 37th Air Assault Brigade at Taldykorgan Peacekeeping Brigades KAZBRIG & KAZBAT at Almaty Ground Forces equipment
Ground forces equipment includes: T-72B tanks - 650-1000[8] T-62 tanks 280
Infantry Fighting Vehicles BMP-1/BMP-2 508 MT-LB - 686 (plus some 1,000 in store) BTR-70/BTR-80 84 BRDM 140 BRM 65
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Towed Artillery 122 mm howitzer 2A18 (D-30) 161 152 mm towed gun-howitzer M1955 (D-20) 74 152 mm howitzer 2A65 90 152 mm gun 2A36 - 180 Self-propelled Artillery 152 mm 2S3 Akatsiya 89 122 mm 2S1 Gvozdika 74 120 mm 2S9 Nona - 26 Rocket Artillery 122 mm BM-21 Grad 57 220 mm BM-27 Uragan - 90 Mortars
120mm 2B11/M-120 - 145
Security agencies and commando units There are a number of special forces units reporting to various Kazakh security agencies which are not part of the Armed Forces. The National Security Committee of the Republic of Kazakhstan has the Arystan commando unit, KNS' Border Guards has a unit, the Police have units, and the Presidency is reported to have its own units also. Additionally, a small Republican Guard exists, with 2,500 soldiers (1994), but this force is not considered a part of the Army. The Republican Guard was established on March 6, 1992, when the President of Kazakhstan signed a decree on their creation. The Republican Guard was established on the basis of a separate brigade of operational designation of the Internal Troops deployed in the village of Kaskelen district of Almaty region. Two Republican Guard regiments were created, stationed in Astana and Almaty. Kazakh Air and Air Defense Forces Today the Kazakh Air and Air Defense Force has four fast jet bases: 600th Guards Air Base, Zhetigen, Nikolayevka, Almaty, with MiG29s and Su-24s, 602nd Air Base, Chimkent, with Su-17s and Su-25s, 604th Air Base, Taldy-Kurgan, with MiG-27s and Su-27s, 610th Air Base, Sary-Arka Airport, Karaganda, with MiG-31s.
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Surface-to-Air Missiles include:

Lavochkin SA-2 Guideline Isayev SA-3 Goa Almaz SA-5 Gammon S-300 missile systems S-300PMU-2 Favorit missile systems
Naval Force Kazakhstan maintains naval forces operating on the Caspian Sea with a strength of 3,000, equipped with 12 inshore patrol craft; including 4 Almaty, 1 Dauntless, 5 Guardian, and 2 Zhuk class vessels. Nezavisimoye Voyennoye Obozreniye said in 2010 that the Kazakh navy consists of 9 patrol boats, including one Turkish-built boat, 4 1950s vintage German boats, 2 new Saigak boats built in Russia (13 tons), 1 Dauntless class boat built in the US, and 1 Berkut-class boat built in Kazakhstan.
Figure 125 Kazakh naval emblem.
Border Troops Kazakstan's extensive land borders are highly vulnerable to penetration by international smugglers, illegal immigrants, and terrorists. In 1992 the Eastern Border Troops District of the former Soviet Union was dissolved; this action resulted in the formation of the Kazakhstan Border Troops Command under a Kazak general. After this transition, overall control of border security remained with the National Security Committee, formerly the Kazakstan Committee for State Security (KGB). The border troops commander is a member of the National Security Committee and a member of the Council of CIS Border Troops Commanders, which was established in 1993 to foster regional cooperation. Cooperation with Russia, with which Kazakhstan shares roughly half its borders, is the primary goal of border policy, and several agreements provide for Russian aid. Cooperative agreements also are in effect with the other four Central Asian republics. Kazakhstans border troops force is estimated at 5,000 to 6,000 personnel. Troops are trained at the Almaty Border Troops School (formerly run by the KGB) or under a cooperative agreement at four Russian facilities. Headquarters are at Almaty, with several subordinate commands, including a coastal patrol squadron headquartered at Atyrau on the north Caspian Sea coast. Training and Recruitment Exacerbating the severe shortage of trained military personnel is the virtual absence of higher-level military training facilities. The only two such schools in existence, the general All Arms Command School and the Border Troops Academy, both in Almaty, are capable of graduating only about 200 junior officers a year, and in 1993 three-quarters of those left the republic. There were also three military secondary boarding schools--in Almaty, Shymkent, and Qaraghandy--and a civil aviation school in Aqtbe, which is to be converted to a military flight school sometime after 2000. There are indications of severe problems in filling the ranks of the armed services. Some accounts indicate that as many as 20,000 soldiers were absent without leave from the army in 1993, and desertion and low morale among conscripts continued to be a major problem in the mid1990s. Another concern is the deteriorating physical condition of inductees, one-third of whom are said to be unfit for conscription. Discipline appears to be problematic as well. In 1993 more than 500 crimes by soldiers Page 177

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were reported in Almaty Province alone; members of the Kazakhstani peacekeeping force in Tajikistan reportedly have robbed and raped villagers they were sent to protect. At the command level, in 1993 one general was dismissed for selling weapons and other military goods. Military Infrastructure The quality of military support installations declined in the first years of the post-Soviet period. For instance, the chief planner of Kazakhstan's Institute for Strategic Studies has estimated that only in the next century will the republic have the capability to use air- to-surface missiles for defensive purposes. In addition, sensitive facilities inherited by military authorities from the Soviet army all are said to be on the point of collapse. Facilities in bad repair include nuclear test and storage facilities at Kkshetau, the BN-350 breederreactor at Aqtau, and a tracking and monitoring station at Priozersk. Even the first Kazak cosmonaut, who was sent into space with great pomp in June 1994, was in fact a Russian citizen and career officer in the Russian air force, as were his two "Ukrainian" shipmates. Before the dissolution of the Soviet Union, Kazakstan was the most significant site of military-industrial activity in Central Asia. The republic was home to roughly 3 percent of Soviet defense facilities, including more than fifty enterprises and 75,000 workers, located mostly in the predominantly Russian northern parts of the country. A plant in skemen fabricated beryllium and nuclear reactor fuel, and another at Aqtau produced uranium ore. Plants in Oral manufactured heavy machine guns for tanks and antiship missiles. In Petropavl, one plant produced SS-21 short-range ballistic missiles, and other plants manufactured torpedoes and naval communications equipment, support equipment for intercontinental ballistic missiles (ICBMs), tactical missile launcher equipment, artillery, and armored vehicles. There was a torpedo-producing facility in Almaty as well. Chemical and biological weapons were produced in Aksu, and chemical weapons were manufactured in Pavlodar. By 1994 most of Kazakhstan's defense plants had ceased military production. All of them required component parts from inaccessible sources outside Kazakhstan, principally in Russia. Even more important, the Russian military-industrial complex was itself in collapse, so that Kazakhstan's military enterprises no longer could rely on Russian customers. In addition, the great majority of key workers at all these facilities were ethnic Slavs, the most employable of whom moved to Russia or other former Soviet republics. Substantial elements of Kazakhstan's military-production infrastructure nevertheless remain in the republic. In addition, in early 1992 the army nationalized all of the standard-issue Soviet military equipment remaining on the republic's soil. An unknown percentage of this equipment is still in use in Kazakhstan, and another portion of it likely has been sold to other countries. Since independence, at least one new ship, a cruiser named in honor of Nazarbayev, has been commissioned. The weapons of greatest concern to the world, Page 178

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however, have been the 1,350 nuclear warheads that remained in Kazakhstan when the Soviet Union disbanded. Although two other new states--Ukraine and Belarus--also possessed "stranded" nuclear weapons, the Kazakhstani weapons attracted particular international suspicion, and unsubstantiated rumors reported the sale of warheads to Iran. Subsequent negotiations demonstrated convincingly, however, that operational control of these weapons always had remained with Russian strategic rocket forces (see Foreign Policy, this ch.). All of the warheads were out of Kazakhstan by May 1995. Kazakhstan's other military significance was as a test range and missile launch site. The republic was the location of only about 1 percent of all Soviet test ranges, but these included some all Soviet Union's largest and most important, especially in the aerospace and nuclear programs. Test sites included a range at Vladimirovka used to integrate aircraft with their weapons systems; a range at Saryshaghan for flight testing of ballistic missiles and air defense systems; a similar facility at Emba; and the Semipalatinsk Nuclear Weapons Proving Grounds, which was the more important of the two major nuclear testing facilities in the Soviet Union. In the four decades of its existence, there were at least 466 nuclear explosions at Semipalatinsk. The other major Soviet military facility on Kazakhstani soil was the Baykonur space launch facility, the home of the Soviet space exploration program and, until 1994, Russia's premier launch site for military and intelligence satellites. Kazakhstan and Russia debated ownership of the facility, while the facility itself suffered acute deterioration from the region's harsh climate and from uncontrolled pilfering. In 1994 Russia formally recognized Kazakhstan's ownership of the facility, although a twenty-year lease ratified in 1995 guaranteed Russia continued use of Baykonur . Military Doctrine In 1992 Kazakhstan adopted a three-stage defense doctrine, calling for creation of administrative, command, and support organizations in 1992, restructuring of field forces between 1993 and 1996, and a modernization process leading to establishment of a fully professional military force by 2000. In 1992 Minister of Defense Sagadat Nurmagambetov abandoned the last goal as impractical, calling rather for a combination of conscripts and contract service personnel. In the summer of 1994, Kazakhstan's Institute for Strategic Studies called for the complete abandonment of the official defense doctrine. The existing doctrine was criticized for being based on outmoded Soviet precepts that combined fear of hostile military encirclement with a commitment to peace that approached pacificism. The institute argued that Kazakhstan should instead Page 179

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base its defense policies on the assumption that the republic likely would find itself amid border confrontations involving CIS nations, an expansionist China, and Islamic neighbors with enhanced power and ambition. To prepare for such events, the institute recommended de-emphasizing military development and instead pursuing multinational defense agreements along the lines of Nazarbayev's proposed Euro-Asian Union or, absent that, a military alliance with Russia and active pursuit of NATO membership. Kazakhstan became a member of NATO's Partnership for Peace in 1994. Following the appearance of the institute's evaluation, the Ministry of Defense has acknowledged that the second of its original goals--restructuring of field forces by 1996--likely could not be achieved. This admission meant that Kazakhstan's dependence upon Russia likely would become even greater. In January 1995, the two countries signed agreements committing them to creation of "unified armed forces." To deflect criticism that such an agreement was inimical to national sovereignty, Nazarbayev likened the new arrangement to the Warsaw Pact and NATO, as distinct from the formation of a single armed force. At the same time, Russia formally took up shared responsibility for patrol of Kazakhstan's international borders (under a nominally joint command), which in practice meant the border with China. International military technical relations The prospects of the international military technical relations of Kazakhstan are determined, essentially, by the following factors: 1. Geopolitical situation: intermediate between centers of bipolar forces Russia-China, India-Pakistan, Iran. 2. Foreign policy factor: as the sovereign state, the republic can independently determine the main trends and volumes of military technical cooperation. 3. Features of military and industrial complex infrastructure inherited after the USSR: high, up to 85 %, cooperation degree of defense industry; absence of finished systems of armament; availability of testing grounds and polygons on the territory of republic; All the partners of Kazakhstan (existing and potential) shall be divided into three major groups: Russian Federation, CIS countries and foreign states Military technical cooperation with Russian Federation Due to historic, economic and political reasons the Russian Federation is a natural and principal partner of Kazakhstan in the field of the military technical cooperation (in nearest and long-term prospects). This is confirmed by numerous declarations of State's officials and substantial number of bilateral and multilateral agreements and contracts binding both states. The characteristic feature of Kazakhstan military technical cooperation with Russia is that both states are clients each other, and both are suppliers and importers of defense systems, equipment and components of military purpose and services of military technical character.
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It is possible to say boldly, that Kazakhstan's military technical cooperation is unique due to its several specific features, and this specificity is patent namely in collaboration with Russian Federation. Apart from direct mutual deliveries of finished weapons systems, there are other forms of cooperation between both countries: Deliveries of military technology and property, components and equipment, carrying out a joint activity in the field of development and manufacturing of weapons and military equipment and development of technologies of double, civilian-military, purpose etc. by defense industrial enterprises of both countries within frameworks of industrial cooperation, interstate (intergovernmental) agreements and contracts. Supplying services of military purpose, carrying out joint activity in the field of development and testing of weapons and military equipment and development of technologies of double purpose (testing grounds and research centers). Supplying services and carrying out joint activity etc. "in exploitation and development of technical and industrial potential of space base "Baykonur". NATO and Kazakhstans cooperation NATO and Kazakhstan actively cooperate on democratic, institutional, and defense reforms, and have developed practical cooperation in many other areas. The Individual Partnership Action Plan (IPAP) lays out the overall program of cooperation between Kazakhstan and NATO. The defense-related fields of cooperation are supported by the Planning and Review Process (PARP). Kazakhstan is an active participant in activities under the Partnership for Peace program, and joint activities are ongoing. NATOs cooperation with Kazakhstan has been steadily increasing, and is aimed at assisting the country with its reform process. Dialogue takes place within the framework of the Euro-Atlantic Partnership Council (EAPC). The NATO Secretary Generals Special Representative for the Caucasus and Central Asia, Ambassador Robert F. Simmons, conducts high-level political dialogue with Kazakh authorities through regular visits to the country. The NATO Liaison Officer in Central Asia also visits Astana regularly and reviews cooperation with the government. NATO and Kazakhstan are developing practical cooperation in a number of areas through the countrys Individual Partnership Action Plan (IPAP). Kazakhstan sets out its reform plans and timelines in its IPAP, which is agreed for a two-year period. The current IPAP covers the period 2006-2008. Key areas include political, military and security-sector reforms. NATO agrees to support Kazakhstan in achieving these reforms through providing focused, country-specific advice and assistance. Current priorities for Kazakhstan include transforming its public and private sectors in order to promote democracy human rights and rule of Page 181

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law and sustainable social and economic development. NATO-Kazakhstan relations began in 1992, when Kazakhstan joined the North Atlantic Cooperation Council (later renamed the Euro-Atlantic Partnership Council in 1997). Cooperation increased and Kazakhstan joined the Partnership for Peace (PfP) in 1995. In 2002, Kazakhstan joined the PfP PARP. The focus on supporting Kazakhstans domestic reform processes has intensified since the development of Kazakhstans first IPAP in 2005.Kazakhstan is also willing to expand KAZBAT(Kazakhstans peacekeeping battalion) in the near future, possibly to a brigade level. As it faces the challenge of seeking necessary UN involvement and enhancing the capabilities of its peacekeeping forces Kazakhstan will require deepened commitment from its friends abroad in the form of security assistance. Thus, as it makes its first tentative steps into the sphere of international peacekeeping, the challenge of promoting such activities in future will depend on the extent to which the western powers can help Kazakhstan meet these challenges. Kazakhstans Special Weapons Subsequent to its independence, Kazakhstan found itself owner of one of the world's largest nuclear arsenals. The weapons of greatest concern were the 1,400 nuclear warheads on SS-18 ICBMs that remained in Kazakhstan when the Soviet Union disbanded. Kazakhstan also had 40 Tu-95M long range bombers equipped with 320 cruise missiles. Although two other new states -- Ukraine and Belarus -- also possessed "stranded" nuclear weapons, the Kazakh weapons attracted particular international suspicion, and unsubstantiated rumors reported the sale of warheads to Iran. Subsequent negotiations demonstrated convincingly, however, that operational control of these weapons always had remained with Russian strategic rocket forces. All nuclear weapons were out of Kazakhstan by May 1995. Kazakh disarmament activities included: return of 1400 strategic nuclear warheads and 104 SS-18 ICBMs, as well as their support equipment to Russia; eliminating 147 ICBM (mostly SS-18) silo launchers, launch control centers and test silos located at Zhangiz-Tobe, Derzhavinsk, Semipalatinsk and Leninsk; closing and sealing 178 of 181 nuclear weapons test tunnels at the Degelen Mountain Test Tunnel Complex and 13 vertical test bore holes at Balapan; dismantling 7 heavy bombers. Kazakhstan's other military significance was as a test range and missile launch site. The republic was the location of only about 1 percent of all Soviet test ranges, but these included some all Soviet Union's largest and most important, especially in the aerospace and nuclear programs.
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Test sites included a range at Vladimirovka used to integrate aircraft with their weapons systems; a range at Saryshaghan for flight testing of ballistic missiles and air defense systems; a similar facility at Emba; and the Semipalatinsk Nuclear Weapons Proving Grounds, which was the more important of the two major nuclear testing facilities in the Soviet Union. In the four decades of its existence, there were at least 466 nuclear explosions at Semipalatinsk. The other major Soviet military facility on Kazakh soil is the Baikonur space launch facility, the home of the Soviet space exploration program and, until 1994, Russia's premier launch site for military and intelligence satellites. Kazakstan and Russia debated ownership of the facility, while the facility itself suffered acute deterioration from the region's harsh climate and from uncontrolled pilfering. In 1994 Russia formally recognized Kazakhstan's ownership of the facility, although a twenty-year lease ratified in 1995 guaranteed Russia continued use of Baikonur. Sensitive facilities inherited by military authorities from the Soviet army all are said to be on the point of collapse. Facilities in bad repair include nuclear test and storage facilities at Kkshetau, the BN-350 breeder-reactor at Aqtau, and a tracking and monitoring station at Priozersk. Before the dissolution of the Soviet Union, Kazakhstan was the mos t significant site of military-industrial activity in Central Asia. The republic was home to roughly 3 percent of Soviet defense facilities, including more than fifty enterprises and 75,000 workers, located mostly in the predominantly Russian northern parts of the country. A plant in skemen fabricated beryllium and nuclear reactor fuel, and another at Aqtau produced uranium ore. Plants in Oral manufactured heavy machine guns for tanks and antiship missiles. In Petropavl, one plant produced SS-21 short-range ballistic missiles, and other plants manufactured torpedoes and naval communications equipment, support equipment for intercontinental ballistic missiles (ICBMs), tactical missile launcher equipment, artillery, and armored vehicles. There was a torpedo-producing facility in Almaty as well. Chemical and biological weapons were produced in Aksu, and chemical weapons were manufactured in Pavlodar. By 1994 most of Kazakhstan's defense plants had ceased military production. All of them required component parts from inaccessible sources outside Kazakstan, principally in Russia. Even more important, the Russian military-industrial complex was itself in collapse, so that Kazakhstan's military enterprises no longer could rely on Russian customers. In addition, the great majority of key workers at all these facilities were ethnic Slavs, the most employable of whom moved to Russia or other former Soviet republics. Substantial elements of Kazakhstan's military-production infrastructure remain in the republic. Page 183

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Transnational Issues
Disputes - international: Kyrgyzstan has yet to ratify the 2001 boundary delimitation with Kazakhstan; field demarcation of the boundaries with Turkmenistan commenced in 2005, and with Uzbekistan in 2004; demarcation is scheduled to get underway with Russia in 2007; demarcation with China was completed in 2002; creation of a seabed boundary with Turkmenistan in the Caspian Sea remains under discussion; Azerbaijan, Kazakhstan, and Russia ratified Caspian seabed delimitation treaties based on equidistance, while Iran continues to insist on a one-fifth slice of the lake Refugees and internally displaced persons: refugees (country of origin): 3,700 (Russia); 508 (Afghanistan) (2007) Illicit drugs: significant illicit cultivation of cannabis for CIS markets, as well as limited cultivation of opium poppy and ephedra (for the drug ephedrine); limited government eradication of illicit crops; transit point for Southwest Asian narcotics bound for Russia and the rest of Europe; significant consumer of opiates Overview Kazakhstan has stable relationships with all of its neighbors. Kazakhstan is also a member of the United Nations, Organization for Security and Cooperation in Europe, Euro-Atlantic Partnership Council and the Organisation of Islamic Cooperation (OIC). It is an active participant in the North Atlantic Treaty Organisation Partnership for Peace program. On April 11, 2010, Presidents Nazarbayev and Obama met at the Nuclear Security Summit in Washington, D.C., and discussed strengthening the strategic partnership between the United States and Kazakhstan and pledged to intensify bilateral cooperation to promote nuclear safety and nonproliferation, regional stability in Central Asia, economic prosperity, and universal values. In April 2011, President Obama called President Nazarbayev and discussed many cooperative efforts regarding nuclear security, including securing nuclear material from the BN-350 reactor, and reviewed progress on meeting goals that the two presidents established during their bilateral meeting at the Nuclear Security Summit in 2010. President Obama also thanked President Nazarbayev for his support to foster security and prosperity in Afghanistan. In a letter to President Nazarbayev dated August 16, 2011, President Obama praised Kazakhstan as a longtime world leader in nuclear security, Kazakhstan is also a member of the Commonwealth of Independent States, the Economic Cooperation Organization and the Shanghai Cooperation Organization. The nations of Kazakhstan, Russia, Belarus, Kyrgyzstan and Tajikistan established the Eurasian Economic Community in 2000 to re-energize earlier efforts at harmonizing trade tariffs and the creation of a free trade Page 184

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zone under a customs union. On December 1, 2007, it was revealed that Kazakhstan had been chosen to chair OSCE for the year 2010. Since independence in 1991, Kazakhstan has pursued what is known as the "multivector foreign policy" (Kazakh: ; mnogovektornaya vneshnyaya politika), seeking equally good relations with two large neighbors, Russia and China, and the United States and the West in general. The policy has yielded results in the oil and gas sector, where companies from the U.S., Russia, China, and Europe are present at all major fields, and in the multidimensional directions of oil export pipelines out of Kazakhstan. Kazakhstan also enjoys strong, and rapidly developing, political and economic ties with Turkey. Kazakhstan formed a customs union with Russia and Belarus which will be transformed into a common economic space soon. Russia currently leases approximately 6,000 km (2,300 mi) of territory enclosing the Baikonur Cosmodrome space launch site in south central Kazakhstan, where the first man was launched into space as well as Soviet space shuttle Buran and the well-known space station Mir. Ultimately, the leadership opted to pursue a Eurasian development model based on multi-vector foreign policy. From 1990 to 1994, Nazarbayev paid official visits to the United States, China, the U.K., Germany, Russia, Turkey, Japan and other states. By 1996, 120 nations had recognized Kazakhstan, and it had established diplomatic relations with 92 countries. The first major diplomatic initiatives targeted strategic issues, such as dealing with the nuclear legacy, obtaining international security guarantees in the aftermath of denuclearization, and delimiting the borders. These strategic priorities largely determined the direction of Kazakhstans foreign policy and national economy for several years to come. The key goals and principles of the foreign policy of Kazakhstan are: protection of its national interests; providing for the most favourable conditions for the development of economic and political reforms in the country and for the development of democratic institutions; development of equality in partnerships and co-operation with all the countries of the world; active participation in the processes of global and regional security building, cooperation and integration; development of strategic co-operation with leading countries for the purpose of protection and the development of global and regional stability and security; development of co-operation with international organizations. Renunciation of nuclear weapons On August 29, 1991, President Nazarbayev signed a decree closing the Semipalatinsk nuclear testing ground. After 40 years of operations, the Semipalatinsk site was the second largest in the world. The Soviet Union had conducted over 450 nuclear tests there, contaminating a large adjoining area, and ruining the lives of some 1.5 million local residents. However, the leadership could not resolve another, more important problem with the stroke of a pen. Kazakhstan was home to a huge Soviet military arsenal consisting of 1400 nuclear warheads deployed on 104 silo-based RS-20 missiles (NATO designation SS-18 Satan) and 40 strategic bombers Tu95 MS (Bear) with 240 nuclear cruise missiles.
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Moreover, this huge military complex was under the command of the Russian military. From the first days of the post-Soviet era, the United States, regardless of the political origins of its administration, had made nuclear disarmament and nonproliferation in the region a top foreign policy priority. The U.S., UK, France and other nuclear powers pressured Kazakhstan for immediate removal of nuclear weapons from its territory. Washington insisted that Kazakhstan, Ukraine and Belarus, which had all inherited Soviet nuclear arms, give them up. The White House was convinced that an attempt by any of these republics to keep nuclear weapons would prompt other countries to develop their own arsenals. Washington kept its intensive disarmament efforts deliberately behind closed doors to avoid exciting nuclear ambitions that the West was trying so hard to restrain. US officials worked on getting the newly independent nuclear states to acknowledge that their international recognition would depend on renouncing nuclear weapons. In response to the international pressure, Kazakhstan formulated a policy of security assurances in exchange for disarmament. Nazarbayev utilized the warheads as a valuable bargaining chip with Moscow and Washington. At the same time, military analysts said the Kazakh leadership was keen to portray itself to the West as more co-operative than Ukraine on nuclear disarmament and indicated that the country would eventually strike a deal for the best terms it could get.34 In the long run, the countrys political leadership viewed non-nuclear status as the only alternative for Kazakhstans future and a key step toward ending the Cold War. The parliament of Kazakhstan approved the ratification of the START I Treaty on July 2, 1992. Two years later, on February 14, 1994, Kazakhstan formally acceded to the Nuclear Non- Proliferation Treaty (NPT). The country had removed the entire warhead arsenal to Russia by May 1995. The U.S. facilitated this transfer by providing a $100 million assistance package under the Cooperative Threat Reduction program. Nazarbayev called on Russia, the U.S., and China to conclude a non-aggression pact with Kazakhstan that would also guarantee the republics territorial integrity. On December 5, 1994, the U.S., the UK, and Russia signed a Memorandum on Security Guarantees to Kazakhstan based on the Non-Proliferation Treaty (NPT). Later, the governments of China and France added their signatures to the Memorandum. Kazakhstan had also destroyed the nuclear testing infrastructure of Semipalatinsk by July 2000. A 2006 US House of Representatives resolution recognized Kazakhstans outstanding cooperation with the U.S. on nonproliferation matters as a model for other countries to follow. Border delimitation Another foreign policy priority stemmed from Kazakhstans need to consolidate its territorial integrity. The Kazakh Government had to determine the status of 14.5 thousand kilometers of the border with five different countries, including the 7,000 km long border with Russiathe longest land border in the world. The agreement determined the delineation of the border over its full length with the exception of two controversial Page 186

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sections. On July 4, 1998, Nazarbayev and Jiang Zemin, President of China, signed a supplementary agreement on the Kazakhstani-Chinese border dispute, which brought the issue to a final settlement. The parties based both documents on the Czarist and Soviet Russian agreements stipulating the division of the disputed territories on a ratio of 53 percent to Kazakhstan and 47 percent to China. The settlement of territorial disputes with China opened the way for a strategic eastward diversification of Kazakhstans external relations. Kazakhstan gained new opportunities to develop political relations with the rapidly rising Asian power, thus reducing its traditional dependence on Moscow. Border delimitation talks with Russia took more time, but the two countries successfully concluded them as well. In 2005, Russia and Kazakhstan signed and ratified an agreement on the state border, which included evenly splitting and developing the disputed Imashevskoye oil field in the Caspian regionthe last obstacle to settlement. The parties committed to commence border demarcation in 2009.The agreement facilitated further expansion of cross-border cooperation between the two countries. Similar agreements with Uzbekistan, Kyrgyzstan and Turkmenistan concluded the complex political process of border delimitation. Although Azerbaijan, Kazakhstan, and Russia signed on a maritime boundary based on a modified equidistant line on the Caspian seabed, the states have no consensus on dividing the water column. To complicate things further, Iran to date has refused to recognize this delineation, and insisted on possession in common of both the water and the continental shelf, including mineral resources. Reaching a border deal with Russia was an important achievement for Kazakhstani diplomacy, especially considering Moscows immutable track record of long running border disputes with neighboring states. The New Great Game: Multi-Vector Energy Geopolitics Competition among the global actors in the Caspian and Central Asian regions has prompted many analysts to compare the situation with the Great Gamea confrontation between the Russian and British empires for influence in Central Asia in the 19th century. In the 21st century, however, more players are competing for presence in the region. In order to maintain a balance of external interests, Kazakhstan has chosen a path of transparency concerning the countrys foreign policy. Over the years Nazarbayev, regardless of the geopolitical climate at the time, has undertaken Eurasian integration initiatives, as well as consulting with the political leadership in Moscow, Washington and Beijing on all important projects in the oil and gas sector. This multi-vector policy course has thus far prevented a single global political player from achieving complete hegemony over Central Asia. Four key powers dominate the geopolitical landscape around Kazakhstans sector of the Caspian SeaRussia, China, the U.S., and Europe. The Russian Vector Kazakhstans cooperation with the CIS states, and primarily with Russia, is a top priority for Astana. Nazarbayev has often said that Russia is Kazakhstans major
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foreign policy partner. On July 6, 1998, the two countries signed a Declaration of Eternal Friendship and Cooperation for the 21st Century, a unique diplomatic document. In 2006, Kazakhstani-Russian bilateral trade reached $13 billion (compared to Kazakhstans bilateral trade with China$8 billion in 2006, with the European Union$2.8 billion in 2005, and with the U.S.$1.6 billion in 2006. Russias phantom pains of empire. Many in the Russian post-Soviet elite, however, never fully relinquished the notion that Kazakhstan is ours or at least that it falls within Russias sphere of influence a special relationship that the majority of Russian foreign and security policy decision-makers believe the rest of the world should recognize. This concept is still prevalent among the military top brass, security officials, and the Kremlin administration. Russian officials have even stated to their US counterparts that they do not object to US-CIS member relations, as long as these go through Moscow. Many in the West, however, think that the path of clearly demarcated spheres of influence is an obsolete, 19th century geopolitical notion. Kazakhstans czarist and Soviet-era development fell within a center-periphery analytical framework. Out of 89 Russian regions, 72 have economic links with Kazakhstan. The governors of the neighboring Novosibirsk and Orenburg oblasts of the Russian Federation have been vocal supporters of Kazakh-Russian cooperation. Russia was the final destination of $7 billion in Kazakhstani exports in 2004 (25 percent of the total). Due to distortions created by Soviet era central planning, energy rich Kazakhstan remains a top consumer of Russian electricity, while Kazakhstan ships its coal to Siberia to fuel Russian power stations. The Kazakhs, on the other hand, value their independence as a source of power, prestige, careers, and wealth. Considering Kazakhstans rapid economic growth, Russia has apparently decided not to play some of the geopolitical trump cards it holds. The ethnic card is certainly one of them. As Russian speakers dominated northern Kazakhstan in the period immediately following independence, it would have been easy to create a movement for autonomy. As Russia remains Kazakhstans major military partner, Astanas interest in a higher level of political and economic integration between the two states has an even greater basis. The Kazakh infantry, air force, and navy largely rely on Russian armaments and training. Over 60 agreements between the Kazakh and Russian Defense Ministries regulate military cooperation, arms and technology sales, air defense coordination, and joint actions to combat drug trafficking, terrorism, and poaching in the Caspian Sea. Kazakhstan and Russia also cooperate in nuclear arms control and joint use of military training grounds. In addition, the two defense ministries have agreed on student exchanges in the military education field that will allow Kazakh citizens to get training in Russian military colleges and academies. This long-term military connection between the two countries would make any NATO or Chinese military ties with Kazakhstan difficult. In the oil and gas sectors, a number of agreements formalize strategic Russian-Kazakh cooperation, including mutual concessions in oil field boundary delineation and demarcation. Other agreements also stipulate important aspects of the Caspian Pipeline Consortium (CPC) operation, which is a secondary priority for Russia, but a principal export pipeline for Kazakhstan. Page 188

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The Chinese Vector Historically, Chinese influence in Central Asia goes back at least 1,200 years. Since the collapse of the Soviet Union, China came to see Central Asia as its strategic rear in case of a confrontation with Taiwan or the United States or deterioration of relations with Japan. The regions place on the list of Chinese foreign economic priorities also began moving up as the Chinese economy gained steam. At the end of the 1990s, the Politburo of the Communist Party of China Central Committee adopted a resolution on the four strategic materials. These are oil, gas, grain, and water. Kazakhstan is a world-class supplier of three out of the four commodities, as well as a range of ferrous and non-ferrous metals and uranium. For the first time in three centuries, Beijing decided to expand its strategic, economic, and cultural influence in a region linked to China throughout its millennial history. In the 1990s, Kazakh-Chinese relations were spontaneous or project-focused in nature, limited primarily to the semi-legal flow of Chinese consumer goods into Central Asia and metals in the opposite direction. Nevertheless, Nazarbayev and the Kazakh leadership understood the global role of rising China. The Chinese vector has always remained a priority in Kazakhstans foreign policy strategy. First, the huge and rapidly growing manufacturing economy of developing China is complimentary to Kazakhstans raw materials exporting economy and provides a unique opportunity for expanding trade and cross-border cooperation. Second, a passive policy towards its giant neighbor could gradually lead to the political and economic expansion of China with adverse affects upon Kazakhstans strategic interests. Turning from a dark horse into a fully-fledged regional player, China initiated a number of major infrastructure and energy projects in Central Asia. Thus, Beijing provided political and economic support to Uzbekistans Islam Karimov immediately after the 2005 Andijan events,16 including signing a multimillion contract to build a gas pipeline to China. Since the 2000s, after Astana and Beijing had settled all their border disputes, China has followed a well-designed and integrated strategy in its regional policy. Beijing began a rapprochement with Kazakhstan on security cooperation within the SCO; access for oil companies to the Caspian shelf; the construction of the Atasu- Alashankou oil pipeline; the purchase of PetroKazakhstan; and bilateral trade. Thus, in 2003, the AgipKCO consortium that develops the Kashagan field blocked the sale of a 16.67 percent stake in the British BG Group to Chinese investors. The failure to reach a deal did not stop Chinas zeal for acquiring oil assets in Kazakhstan. In 2005, the government of Kazakhstan approved the $4.18 billion acquisition of PetroKazakhstans assets by CNPC. Canadian-run PetroKazakhstan had been the largest independent oil producer in the former Soviet Union, and this was the largest foreign purchase by a Chinese company and the first major Chinese acquisition in Kazakhstan. The deal enabled China to become the owner of the Kumkol field in southern Kazakhstan, with 42 million tons of oil reserves. China also acquired the Shymkent oil refinery in co-management with KazMunayGaz. In 2006, the China International Trust & Investment Corporation (CITIC) acquired the Karazhanbas fields (46.6 million tons of oil reserves) near the city of Aktau for $1.9 billion. In that same year, Kazakhstan forced the Chinese company to resell a third of its acquisition to KazMunayGaz,1warning the Chinese of the states desire to maintain a say in its major energy companies. On balance, China has become a leader in terms of its stake in Kazakhstans oil exploration, reflecting the high Page 189

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priority that the Chinese place on Kazakh oil assets and their willingness to pay premium prices. These acquisitions also signaled a weakening of the Western competition relative to China in the race for Caspian energy resources. Chinas global energy sector expansion is not accidental. Kazakhstans energy strategy aims at maximum diversification of export channels. With this in mind, Chinas greater assertiveness in pursuing oil reserves enabled Kazakhstan to balance the interests of other global powers represented in the Caspian basin. Moreover, cooperation with China provides additional benefits, such as direct hydrocarbon export without additional tariffs and taxes on transit through third countries. As China consumes increasing volumes of oil and gas, projects to build energy infrastructure gain in importance. By 2015, China plans to build an oil pipeline from Western Kazakhstan with a capacity of up to 70 million tons per year, as well as a gas pipeline. If implemented, these projects would make China the main consumer of Kazakhstans hydrocarbons, and would also signal major power redistribution in the region. Chinese oil companies have demonstrated that they have more financing, more nimble management, and a greater need than Russian ones to acquire hydrocarbon resources in the Caspian area. It is clear that China has become a global player in the energy market, while Russia, despite its high oil and gas output, is playing catch up. For a while, PetroChina emerged as the leading world energy company in terms of market valuation, overtaking ExxonMobil and Gazprom. Once again, as was the case with the industrialization and gradual transition to a market economy, the Chinese dragon is overtaking the Russian bear. The American Vector US interests in Kazakhstan rest on three pillars: security (including counterterrorism), energy, and democracy. During the late 1980s -1990s, American companies became pioneers in developing the Caspians oil and gas resources with the active support of the US government. Today, US-based companies have a stake in the largest shares in the most important fields, including Tengiz, Karachaganak, and Kashagan, as well as in key pipeline systems, such as the CPC and BTC. In the period from 1993 to 2005, US companies invested some $12 billion in Kazakhstans energy projects, making America the main investor in the country. The two countries also cooperate in the political sphere. Following the events of September 11, 2001, bilateral USKazakhstani relations gained a qualitatively new dimension. Though the U.S. has not established anymilitary bases in Kazakhstan, the country has provided over-flight and emergency landing rights for US Air Force aircraft engaged in operations in Afghanistan. The U.S. increasingly views Kazakhstan as a key state for ensuring regional stability, combating terrorism, and providing energy security. Kazakhstan has sent a 30strong, largely symbolic contingent of its army engineers to the multinational military force in Iraq, while the US government provides strong support to Kazakh civil society. In some instances, the Kazakh authorities, however, take this assistance as meddling in the internal affairs of a sovereign state, as the gap in political values and customs remains wide. In 2005 and 2006, a number of high-ranking US delegations visited Kazakhstan, led by Vice President Richard Cheney, US Secretary of State Condoleezza Rice, and former US President Bill Clinton, as well as some distinguished American policymakers and experts. US-Kazakh relations got a new spin with the introduction of a Central Asian regional strategy known in the White House and the US Page 190

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Congress as the Great Central Asia Strategy. Among its key objectives are providing security in Afghanistan and balancing, in a peaceful manner, Russias, Irans, and Chinas respective regional influences. The United States seeks to diminish Russias control over the regions oil and gas transit, while keeping China from strengthening its regional presence, as well as encouraging export options bypassing Iran, another contender for a greater regional role. The United States promotes greater integration and cross-border cooperation within so-called Greater Central Asia. Washington wants to facilitate regional trade flows and give impetus to a corridor of reform extending from Kazakhstan southward to Afghanistan and the Indian Ocean, even as the regions ties expand eastward to China, Japan, Korea, and the Pacific Rim. An equally important factor for the White Houses increased attention to Astana is the ongoing realignment of the global powers in the Caspian region as the U.S., Russia, and China jockey for power. Several energy deals reached with China in recent years will soon lead the country to be the second largest producer and consumer of Caspian oil, while a resurgent Russia may eventually view the Chinese presence in the region as being almost as undesirable as Americas. For Kazakhstan, the U.S. has always been a strategic partner who made a significant contribution to creating the foundations for the countrys economic development. In the early 1990s, the U.S. seemed to be the only country capable of providing the most effective exploration of the Caspian resources. At that time, Russia was preoccupied with its domestic economic problems, the EU was following a wait-and-see policy, and China was meeting its energy demands via domestic resources. The 2000s have seen a rebalancing of this equation. In the new geopolitical context, Nazarbayev assigns the West a new role. While the development of trade and energy connections will increasingly shift to the major regional powers (primarily Russia and China), the U.S. may play a more active part in his economic diversification strategy for the Kazakh economy. The primary areas of mutual interest include American expertise in developing innovative educational and anti-corruption programs. Astana will also need US assistance and investment to diversify its natural resources-based economy and develop its high tech, financial services, and agricultural sectors. Kazakhstan is interested in attracting foreign direct investment to its natural resources and non-extractive industries, especially from Europe. The European Vector Almost immediately after becoming independent, Kazakhstan invited European energy companies to develop the Caspian oil fields. However, the Old World investors cautiously entered Kazakhstan only after the more ambitious Americans had paved the way. Nevertheless, the EUs oil giants, especially Agip/Eni, Shell Development B.V., British Petroleum, and TotalFinaElf, managed to join the prospective projects, including the development of the Karachaganak and Kashagan fields.
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In 2002, for the first time, the EU overtook the U.S. in the amount of foreign direct investment in Kazakhstan. Kazakhstan is also Europes largest trading partner in Central Asia. The governments in the region often treat European and American energy companies as a unified Western lobby. However, the U.S. and its European allies often view things differently. The most significant disagreements between the Western European and North American policies in the region are Europes more cooperative posture towards Moscow and its flexible policy towards Iran. European and US companies have also become involved in serious competition with the Russian and Chinese state-controlled oil giants. Until recently, for the European Union, Kazakhstan was relevant only as part of Europes regional strategy and energy security in the Caspian region and Central Asia. The EU and Kazakhstan framed their bilateral relations within the Partnership and Cooperation Agreement (PCA), signed in 1995 and effective since early 1999. In 2002, the parties expanded the dialogue to include energy and transport issues. In 2004, the Europeans initiated additional interregional dialogue in the EUCentral Asian Troika format, which includes representatives of current and future EU presiding members and the European Commission on one side, and the Central Asian states on the other. Kazakhstan, for its part, continued to insist on its special role in the regions economic and political development. With this in mind, during his December 2006 visit to Brussels, Nazarbayev managed to convince the European Commission to hold a ministerial level meeting in March 2007 in Astana. Astana will advance its role within the European region with the landmark award of the OSCE 2010 Chairmanship to Kazakhstan. Kazakhstans Regional Role Two important factors affected the regions geopolitics and development in the 1990s: First, the emergence of a number of political organizations dominated by Russia. Secondly, Chinas appearance on the scene as a major economic and geopolitical player in Central Asia. In line with its multi-vectored foreign policy, Kazakhstan works to cultivate dialogue within the Moscow-dominated CIS and the Beijing and Moscow-backed Shanghai Cooperation Organization (SCO), as well as with the Washington-backed North Atlantic Treaty Organization (NATO). It is also an active participant in the forum of the Caspian
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littoral states. Kazakhstan has been an active advocate of political and economic integration in the post-Soviet space. In 1994, Nazarbayev proposed the creation of a Eurasian Union of Statesa conceptually new organization that would facilitate joint efforts toward economic reforms as well as improvement and harmonization of national laws in the former Soviet Union. At that time, Russia was experiencing a number of severe internal political and economic problems, including a constitutional crisis, dismissal of the Supreme Council, and the war in Chechnya. Despite Kazakhstans consistent efforts, differing viewpoints among the leaders of the CIS concerning further integration are apparent. Some CIS member states, most notably Georgia and Ukraine, backed out of major integration initiatives, such as the Common Economic Space. Tbilisi and Kyiv prefer a different integration model altogether, and have tended to focus on EU and NATO integration. In reality, it is difficult to impossible to integrate such divergent players as Slavic Orthodox authoritarian Belarus, Muslim Turkic Azerbaijan, democratic Ukraine, harshly authoritarian Uzbekistan and oil rich Turkmenistan. Many observers question the effectiveness of the CIS beyond serving merely as a forum of communication for the leaders of post-Soviet states.
Figure 126 Diplomatic relations of Republic Of Kazakhstan.
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World Health Organization Profile
Figure 127 Kazakhstan: WHO health profile (part 1)
Overview WHO estimates that a person born in Kazakhstan can expect to live 61 years on average: 67 years if female and 56 years if male. According to these WHO estimates only two other countries in the region have lower female LE than Kazakhstan only one lower male LE. However, the WHO estimate is considerably different from the registration-based official LE of about 65.9 years: 71.5 for females and 60.6 years for males. As the length of life increases, older people can respond with lifestyle changes that can increase healthy years of life. Correspondingly, health care systems need to shift towards more geriatric care, the prevention and management of chronic diseases and more formal long-term care. Since people are living longer, measures to improve health and prevent disease need to focus on people of working age. The infant mortality rate in Kazakhstan was 15.4 per 1000 live births, considerably better than the Eur-B+C average of 19.9. From 1995 to 2003, infant mortality Page 194

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Figure 128 Ukraine: WHO health profile (part 2)
fell by 80%. Neonatal mortality also fell from 11.7 per 1000 live births in 1995 to 9.3 in 2003, when the EurB+C average was 7.3 and the best estimates for the group were around 34 deaths per 1000 live births. WHO estimates that under-5 mortality dropped between 1990 and 2011 at an average annual rate of around 1%. Antenatal care is one of the most important services in health care. Nevertheless, it can be expensive, and interventions may be excessive, unneeded and unproven. A simplified model of antenatal care, based on evidence of benefit, is available. From 1990 to 2011, the MMR in Kazakhstan fell by only 8% and would have to fall another 73% to reach the MDG target. More important than reaching the exact Millennium Development Goals for maternal mortality rates is that countries take concrete action to provide women with access to adequate care during pregnancy and childbirth. There are evidence-based initiatives proven to bring down the rates. With minor exceptions, the main mortality rates are higher than the Eur-B+C averages. No communicable diseases (NCD) accounted for about 85% of all deaths in Kazakhstan, external causes for about 11% and communicable diseases for about 2%, all very similar to the Eur-B+C averages. CVD were the main group of causes of death in Kazakhstan, responsible for 57% of overall mortality, equivalent to the Eur-B+C Page 195

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average. Deaths from tuberculosis increased during the 1990s and began to decrease from 1997.Preventive care, delivered through a countrys primary care system, can reduce all-cause mortality and premature mortality, particularly from CVD. Selected demographic and socioeconomic information Population profile The 2005 resident population of Kazakhstan is estimated at 14.8 million. The population decreased by 0.7% per year from 1995 until 2004. From 1994 to 2003, the total net population loss due to migration was 2.25 million (UNDP, 2004). The total fertility rate in Kazakhstan was estimated at 2.0 for 20002004 (it needs to be above 2.1 toensure a stable population size). The fertility was relatively high in the past decades and was always higher than the Eur-B+C average, but fell considerably in the 1990 to reach its minimum of 1.8 in 1998 1999. By 2003 the birth rate increased to 16.6 per 1000 population. The crude death rate of 10.4 per 1,000 population (2003) is below the Eur-B+C average of 12.0 due to the relatively young population. However, it increased by more than two per 1000 in the first half of the 1990s. This increase is similar in magnitude and timing to the Eur-B+C average increase. The mortality rate in Kazakhstan has come closer to the Eur-B+C average. The relatively high fertility in the previous decades explains why the population structure of Kazakhstan remains relatively young; 25% of the population is 014 years (2003), while the Eur-B+C average is 21% and the EurA average is 17%. People 65 and over comprise 7.4% of the population (2003), compared to the 11% Eur-B+C average and 16% Eur-A average. The population structure is also a result of emigration, as the average age of Kazakhs is younger than that of other nationalities. Nevertheless, a relatively rapid increase in the older population is projected for Kazakhstan, as for other countries in the region.
Figure 129 Percentage of the population, 1950-2050(projected).
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Socioeconomic indicators Health outcomes are influenced by various factors that operate at individual, household and community levels. Obvious factors are, for example, diet, health behavior, access to clean water, sanitation and health services. However, underlying health determinants of a socioeconomic nature also play a role in causing vulnerability to health risks. Here, the key factors are income, education and employment. Though moderately correlated and interdependent, each of these three determinants captures distinctive aspects of the socioeconomic background of a population and they are not interchangeable. Various indicators represent the key socioeconomic determinants of health. Income: absolute poverty, relative poverty and income distribution. There is an income gradient affecting health: the poor generally suffer worse health and die younger than people with higher incomes. For instance, the latter are better able to afford the goods and services that contribute to health, for example, better food and living conditions. Many health indicators replicated this U-turn curve of economic slump and rebound, although with a time delay, so that around 2000 the health situation in the CIS countries had apparently turned the corner. Similarly, two distinct stages of human development in CIS were identified in global reports on this issue. The first stage (19901995) was characterized by a sharp deterioration in all the main indicators of human development. During the second stage (19962002), the indicators were slowly restored. In 2003, the Kazakh per capita gross national income, adjusted for purchasing power parity, was below the EurB+C average. Poverty has declined in recent years, owing to rapid real GDP recovery since 1995, nadir of the economic depression. Many demographic and health indicators replicate this curve of economic slump and rebound, although with different timing, so that around 2000 the health situation in the country apparently turned the corner. People are considered to be in absolute poverty if their incomes are not sufficient to purchase very minimal goods and services. The World Bank currently uses an absolute poverty line of US$ 2.15 and US$ 4.30 income per capita per day to measure poverty in low- and middle-income countries of the WHO European Region (using 1993 international prices adjusted for purchasing power parity). While there is no certainty that the poverty lines measure the same degree of need across countries, the World Bank uses them as a constant to permit comparison. Many countries in the Region calculate their national poverty lines on the basis of a minimum consumption basket selected and priced according to the specific circumstances of the country. Relative poverty is an indicator of income level below a given proportion (typically 50%) of the average national income. In high-income countries, there are far more pockets of relative poverty than of absolute poverty. In high-income countries, there are far more pockets of relative poverty than of absolute poverty. Another measure of relative poverty in terms of income is the Gini index. This presents the extent to which the distribution of income (or, in some cases, consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution. Page 197

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A Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality. In 2001, the Gini index for Kazakhstan was 31.3. Those for 15 Eur-B+C countries for 2000 to 2002 range from 26.1 for Bosnia and Herzegovina (2001) to 45.6 in the Russian Federation (2000) (World Bank, 2005). Education Education tends to enhance an individuals job opportunities. In so doing, it can improve income, which in turn affects health positively. Education can also give more access to knowledge about healthy behavior and increase the tendency to seek treatment when needed. A lower level of education independent of individual income is correlated with the inability to cope with stress, with depression and hostility and with adverse effects on health. School enrolment is an indicator of access to education. The secondary school net enrolment represents the percentage of the total population of official school age (defined nationally) that is enrolled in secondary schools. Per cent net secondary school enrolment in Kazakhstan in 2000 was 83.2%, compared to an 81.2% average for Eur-B+C and 88.5% for Eur-A countries. The rate in Kazakhstan rose slightly in 2001 to 84.1% (UNESCO, 2005). Life expectancy (LE) and healthy life expectancy (HALE) Life expectancy According to figures compiled by WHO (WHO, 2005) for all Member States to ensure comparability (not necessarily the official national statistics), a person born in Kazakhstan in 2003 can expect to live 61 years on average: 67 years if female and 56 years if male. According to these WHO estimates only two other countries in the region have lower female LE than Kazakhstan and only one has lower male LE. However, the WHO estimate is considerably different from the registration-based official LE of about 65.9 years: 71.5 years for females and 60.6 years for males. On the other hand, comparisons of WHO estimated probability of dying between 15 and 60 years old and official adult mortality show no essential discrepancies, which strongly suggests that the difference between the WHO estimate and the official figure is mostly due to the difference in child mortality. Therefore, it is reasonable to assume that the official adult mortality data are sufficiently complete. The accuracy of the causes of death coding, however, requires improvement, and is a clearly recognized government objective. LE in Kazakhstan is about three years below the Eur-B+C average of 68.7 years, which is also based on regular mortality registration data. The WHO LE estimate, however, is about seven years below the WHO estimated Eur-B+C LE average (2003). Moreover, it is likely that LE in Kazakhstan is in fact about 18 years below the Eur-A average of 79.0 years. This means that the overall health situation, the rank of the country in international LE comparisons, is less favorable than one would tend to conclude solely on the basis of the official mortality statistics. Historically, official LE had been practically equal to the Eur-B+C average until the early 1990s, but in the following years began to deviate. Most of the current difference from the Eur-B+C average developed around 19951996. The LE curves over time for both sexes, however, remarkably closely follow the contours of the respective Eur-B+C averages. It should also be noted that the female-male LE difference is 10.8 years, the second largest in the region following the Russian Federation. The Eur-B+C average is nine years and the Eur-A average is six years. Generally, LE trends in low and low-middle income countries are strongly associated with GDP indicators. However, while by 1999 real GDP in Kazakhstan had returned to the 1990 level and has grown considerably since then, LE recovered only a little and is stagnating at a level three years below that of 1990. Similar decoupling of LE and GDP trends is Page 198

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observed in the Russian Federation. One possible explanation, among other causes, is that the rapid economic growth is largely fuelled by one sector exports of natural resources and the average per capita GDP may need more time and stronger policies to translate into health improvement (see box). In addition, the emigration induced changes in the composition of the population in terms of education, social competence and culture, etc. probably also play a role. Life expectancy in Kazakhstan is lower than GDP growth would predict: regional differences may be part of the explanation. It is noteworthy that LE in Kazakhstan is somewhat lower than would be expected on the basis of real GDP levels (US$ 5870 PPP in 2002) which are very close to the EurB+C average ($6853 PPP in 2002). Part of the explanation may be that GDP in Kazakhstan is generated largely by exports of natural resources, which in some countries is known to result in large inequalities in the production and consumption of national wealth, access to modern knowledge, services, etc., which all play a role in health development. An indication of the regional differences in general health and well-being is provided indirectly by variations in the UNDP Human Development Index (a composite of three dimensions: longevity, knowledge and standard of living) among the regions of Kazakhstan which can be classified into four developmental groups: 1) high (HDI above 0.80 during the last three years) Atyrau and Mangistau oblasts and the cities of Almaty and Astana; 2) average (HDI between 0.76 and 0.78) Aktyubinsk, West Kazakhstan, Karaganda and Pavlodar oblasts; 3) below average (HDI about 0.75) East Kazakhstan, Kostanai and Kyzylorda oblasts; 4) low (HDI between 0.70 and 0.73) Akmola, Almaty, Jambyl, North Kazakhstan and South Kazakhstan oblasts). Although specific analyses of the health inequalities in Kazakhstan are required, fundamental variations such as those highlighted above offer entry points for much needed concrete studies of the factors influencing health development in the country. Healthy life expectancy In addition to LE, it is increasingly important to know the expected length of life spent in good health. WHO uses a relatively new indicator for this purpose healthy life expectancy (HALE), subtracting estimated years of life spent with illness and disability from estimated LE. According to WHO estimates for 2002 (2004), Kazakhs have 55.9 healthy years on average (if female 59.3, if male 52.6 years) which is about 15.7 years less than the Eur-A average of 71.6 years and 4.6 years below the Eur-B+C average of 60.5 years. The best achievement in the region is Swedens 73.3 years (female 74.8, male 71.9). At age 60 years old, healthy life expectancy in Kazakhstan is 12.5 years for females and 9.7 years for males, while in Sweden those estimates are 19.6 and 17.1 years, respectively. The expectation of life years to be spent in less than good health in Kazakhstan is 9.6 years for females and 6.1 years for males, which are close Swedens respective 7.9 and 6.2 years. Burden of disease The burden of disease in a population can be viewed as the gap between current health status and an ideal situation in which everyone lives into old age, free of disease and disability. Causing the gap are premature mortality, disability and certain risk factors that contribute to illness. The analysis that follows elaborates on the burden of disease in the population. The disability-adjusted life-year (DALY) is a summary measure that combines the impact of illness, disability and mortality on population health. Page 199

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Figure 130 Ten leading disability groups.
Main conditions Unintentional injuries account for the highest burden of disease among males. Neuropsychiatric disorders rank highest among females and second among males. Because mortality from neuropsychiatric conditions is minor, disability in daily living comprises the bulk of their burden on the populations health. Main risk factors According to DALYs, tobacco and alcohol use places the greatest burden of disease on the Kazakh male population and high blood pressure and high cholesterol on females
Figure 131 Ten leading risk factors as causes of disease burden.
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Mortality Infant, neonatal and child mortality In 2003, the infant mortality rate in Kazakhstan was 15.4 per 1000 live births, considerably better than the 19.9 Eur-B+C average. The best achievement in the Eur-B+C group was Lithuanias 6.7. Between 1995 and 2003, infant mortality fell by 80%. Neonatal mortality also fell from 11.7 (1995) to 9.3 per 1000 live births (2003). In 2003, the Eur- B+C average was 7.3 and the best estimates of the Eur-B+C group were around 3 or 4 per 1000 live births. As mentioned, in attempt to estimate possible underreporting of mortality data in the official statistics, WHO produces concurrent estimates by systematically analyzing complementary information from various sources and statistical modelling. WHO estimates make use of the best available information but of course remain estimates, taking into account statistical uncertainties. In particular, the lower boundary of uncertainty intervals can be interpreted to mean that official data below the level are likely underreported. The following table compares the official and the WHO estimates for four indicators prone to under-registration. Under-5 mortality in Kazakhstan appears clearly underreported, thus infant and neonatal mortality are also underreported as under-registration occurs mostly for the age under one year. Nevertheless, WHO estimates that under-5 mortality dropped from 1990 to 2003 at an average annual rate of around 1%. The average annual rate of change from 2000 to 2003 for the European Region as a whole was around -3.5%, which means that the improvement in Kazakhstan is slower than average, although the high level of under-5 mortality usually allows more progress in conditions of resource constraints (WHO, 2005). Maternal mortality Maternal mortality rates (MMR) and the Millennium Development Goal (MDG) Despite the difficulties in accurately measuring MMR, nationally reported figures are accepted at face value relative to the MDG to improve maternal health to reduce the MMR by 75% between 1990 and 2015. In some countries, the 2015 target may be equal to or lower than the average current MMR for high income countries in the European Region (the Eur-A 2001 average of five maternal deaths per 100 000 live births). Countries with 2015 targets lower than the current Eur-A average can be judged as having achieved or being likely to achieve the MDG. However, in some countries, MMR were higher in 2002 than they had been in 1990. Applying the 75% reduction to the 1990 baseline in these countries creates, in some cases, a 2015 MDG target that requires dramatic reductions in MMR before 2015. In these cases, more important than reaching maternal mortality targets is taking concrete action to provide women with access to adequate care during pregnancy and childbirth, initiatives that have proven to bring down MMR. Maternal mortality is very difficult to ascertain even in countries with very strong registration systems; the level of under-registration in Kazakhstan is difficult to interpret. The reported figure for 2003 was 42 per 100 000 live births, two-thirds of the 1995 value of 57. The 1990 level (baseline for the MDG) is 55. Of the 104 maternal deaths reported in 2003, five were attributed to abortion. From 1990 to 2002, the MMR in Kazakhstan fell by only 8%, due to an increase in rates from 1990 to a peak in 1999 (69 per 100 000 live births). Between 1999 and 2002, the rate fell by 31%. From the 2002 level, the MMR would have to fall another 73% to reach the MDG target. Page 201

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Excess mortality In general, mortality rates in Kazakhstan are about 17% higher than the Eur-B+C average but 2.3 times higher than the Eur-A average. Across all age groups, the highest excess mortality compared to the Eur-B+C averages is not due to external causes (as in the Russian Federation and some other CIS countries) but to respiratory and infectious diseases. Nevertheless, excess mortality from external causes is high. The single most prominent cause of excess mortality is chronic lower respiratory disease. Although this may be a catchall for other causes of death, a number of unfavorable environmental (use of solid fuels) and behavioral (smoking) factors probably play a major role. Chronic liver disease and cirrhosis are also quite high compared to the Eur-B+C averages, as are suicides, indicating that alcohol consumption is likely high and causing considerable harm to the populations health. Excess mortality from external causes is about 18% over the Eur-B+C average and four times the Eur-A average. The homicide rate is particularly high. Mortality from cardiovascular diseases (CVD) exceeds the Eur-B+C average by 17%.Comparative analyses of variations of mortality by age and sex, and possibly other socioeconomic variables, can provide more specific insights into the countrys excess mortality. One should keep in mind that the mortality crisis in the CIS countries peaked around 1994 or 1995 (in the aftermath of the collapse of the Soviet Union) and, therefore, the trends of the period 1995 2003 are generally more favourable than those for the period 19902003. Kazakh mortality in the 014 age group (180 per 100 000 in 2003) is about 20% higher than the Eur-B+C average of 152 and more than three times higher than the Eur-A average of 49. It has improvedby 3.7% vis--vis the 1995 level, similar to the Eur-B+C average improvement of 3.8%. The improvement is practically comprehensive across all causes of death and by sex. Perinatal mortality remains a serious problem, however; the rates are improving but are still above the EurB+C average. Mortality in the 1529 age group (206 per 100 000) is one quarter higher than the otherwise high Eur-B+C average of 161. The excess mortality over the Eur-B+C average for this age group is due mainly to external causes, in particular suicides and accidental poisoning, but also to infectious diseases. High CVD mortality is a problem in this age group, although it may be partly due to misclassified alcohol-related deaths. Since 1995 total excess mortality has improved, but progress has not been even across all causes of death and the levels remain higher than in 1990. This is a pattern common to many Eur-B+C countries, particularly in the CIS. In the 3044 age group, the situation is similar to the above but excess mortality due to external causes and CVD compared to the Eur-A average is greater. Improvements since 1995 are somewhat less than in the Eur-B+C group on average. The increasing trend in mortality from digestive diseases is a cause for concern. Mortality in the 4559 age group is most close to the Eur-B+C averages, but increased considerably from 1990 to 1996 and has not improved much since. CVD are particularly high. The most outstanding observation in the 6074 age group is that mortality from respiratory disease is nearly twice as high as the Eur-B+C average. This may be caused by current coding practices but also a sign of quality problems in the health services; the same is true for digestive diseases. In the over 74 age group, mortality is higher than the Eur-B+C average, particularly for men, mainly due to CVD, respiratory diseases and external causes. The rates improved from the mid-1990s until 2000, but more recently have reverted, for both females and males. Main causes of death With minor exceptions, mortality from the mortality rates main causes of death in all major age groups are higher than the respective Eur-B+C average rates. In 2003, no communicable diseases (NCD) accounted for about 85% of all deaths in Kazakhstan, external causes for about 11%, communicable diseases for about 2%
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Figure 132 Main causes of mortality.
and the rest are due to ill-defined conditions. All these are very similar to the Eur-B+C averages but Kazakhstan is above the Eur-A average for external causes and below it for NCD. In rates per 100 000 population, however, NCD mortality in Kazakhstan is more than twice the Eur-A average. CVD CVD were the main causes of death in Kazakhstan in 2003, responsible for 57% of overall mortality,equal to the Eur-B+C average and 2.5 times the Eur-A average. Half of all CVD mortality is due to ischaemic heart disease, and a little more than one third is attributed to cerebrovascular diseases. Overall, CVD are about 2.5 times more frequent cause of death in the Republic of Kazakhstan than in the Eur A group on average and also above the Eur B+C average. The rates are lower than the Eur-B+C average for the middle-age groups but higher for the younger groups. Most importantly, since 1990 the rates have increased by about 45% and continue rising.
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Cancer Cancer mortality is more equally distributed across the Region. The rates in Kazakhstan are slightly above the Eur-B+C average and close to the Eur-A average. However, as in other CIS countries with high mortality from other causes than cancer, the proportion of cancer deaths comprise about 12% of total mortality in Kazakhstan, compared to a 28% Eur-A average, and since 1990 the rate has been steadily decreasing. Respiratory diseases Respiratory diseases accounted for about 6.4% of total mortality in Kazakhstan in 2003, above the Eur- B+C average. The rate per 100,000 population, however, is about 50% higher than the Eur-B+C average and two times the Eur-A average. Digestive diseases Mortality from digestive diseases has dropped steadily in Eur-A over the last 20 years but has increased considerably in Eur-B+C since 1990 and even more so in Kazakhstan. By 2003, the rate was clearly higher than the Eur-B+C average and twice as high as the Eur-A average. As already mentioned, a considerable part of the problem is the excess mortality from chronic liver disease and cirrhosis. External causes External causes of injury and poisoning include unintentional injuries (transport injury, poisoning, injury due to falls, fires and drowning and other) as well as intentional injuries (self-inflicted injuries, injuries due to violence and war and other). Overall external causes were responsible for 165 deaths per 100,000 population in Kazakhstan in 2003 while the Eur-B+C average was 140 and the Eur-A average 40. The rates clearly increased from 1990 to 1996 and, unfortunately, there has been no real improvement in recent years. An interesting observation requiring explanation is that the mortality trends for transport accidents and accidental poisoning (largely due to acute alcohol poisoning) seem to be moving in opposite directions. SDR Tuberculosis Deaths from tuberculosis increased from 1990 and began to decrease again from 1997.
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Amnesty International
Amnesty International does not currently have a presence in this country.
United Nation Development Program

UNDP is the UN's global development network, advocating for change and connecting countries to knowledge, experience and resources to help people build a better life. We are on the ground in 166 countries, working with them on their own solutions to global and national development challenges. As they develop local capacity, they draw on the people of UNDP and our wide range of partners. UNDP helps developing countries attract and use aid effectively. In all our activities, we encourage the protection of human rights and the empowerment of women. Resident Coordinator Office: Mr. Stephen Tull, Resident Coordinator of the United Nations Ms. Ekaterina Paniklova, Executive Associate to UN Resident Coordinator Mr. Stephen Tull, UN Resident Coordinator in Kazakhsatn since December 2010. Appointed by the UN Secretary General Ban Ki-moon, Mr. Tull acts as designated representative of the Secretary General. He leads the UN Country Team of thirteen UN agencies and programs. The RC is the designated representatives of the United Nations SecretaryGeneral for development operations in Kazakhstan. He chairs the United Page 205

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Nations Country Team (UNCT), a common board of all heads of UN agencies working in the country. The RC leads and coordinates the United Nations' efforts to support the Government in creating and sustaining an enabling environment for the promotion of human rights, good governance and the improvement of the quality of life and the well-being of the people of Kazakhstan by reducing poverty, with a particular focus on the most vulnerable groups and regions. The UN Resident Coordinator Office has been established in line with the UN reform package unveiled by the Secretary. The reform package highlighted the need of establishment a new leadership culture and management structure at the United Nations, and strengthening of the UN Resident Coordinator System was defined as an important priority for action. With the increasing demands and complexity of Resident Coordinators functions and expectations of greater effectiveness, the UN Resident Coordinator has been provided with the support staff that comprised a Resident Coordinator Office (RCO). The purpose of the RCO in Kazakhstan is to coordinate the efforts of the UN Country Team operating in Ukraine to ensure provision of Figure 133 Mr. Stephen Tull, Resident Coordinator of the United Nations in Kazakhstan. efficient and effective assistance to accelerate the countrys steady progress towards social and economic development, observance of the worlds democratic standards and facilitation of Kazakhstans-world integration process. The UN RCO in Kazakhstan consists of 4 units: The Coordination Support Unit is aimed at strengthening the support of the planning, development, management, monitoring and evaluation of UN programs emanating from the United Nations Development Assistance Framework, as well as providing support, policy advice and expertise to the UN Resident Coordinator and UN Country Team on the issues of human rights, civil society, aid coordination and resource mobilization. The Unit is responsible for ensuring coordination among the UN agencies through organization and technical support to regular UN Country Team meetings, organization and follow up to joint and collaborative activities, coordination of preparation and revision of the UN Country Team Annual Work plan and preparation of annual RC/UNCT Reports, support to joint programming processes and activities of the UN Theme Groups, etc. Communication and Public Information Units mission is to communicate effectively UN global and national priority issues and to improve public outreach of the UN Country Team in Kazakhstan. The objectives of the unit include improving inter-agency cooperation in the field of communications and promoting "UN as one voice" in Kazakhstan as well as enhancement of e-outreach and strengthening of media relations, improvement of internal UNCT communications. Unit also assists in organization of public events on specific themes and observation of special UN and International Days The Private Public Partnership Unit aims at promoting corporate social responsibility of the private sector in Kazakhstan in the framework of the UN Global Compact, and at fostering the development of partnerships with the private sector for achieving the country`s specific Millennium Development Goals. The unit is also responsible for strengthening the capacity of the Kazakh Global Compact Page 206

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network, improvement of the regulatory policy environment for corporate social responsibility and private-public partnership, and brokering partnerships between the UN County Team and private sector. The mission of the Security Unit is to ensure the safety and security of staff members of the United Nations system, their spouses and eligible dependants, and the property of the organizations.
UN System (specialized agencies, programmes and funds) started its work in Kazakhstan shortly after the country's accession to the United Nations (March 1992). Working within one United Nations System, every agency has its own expertise, area of focus and mandate. All funds and programmes are part of a single United Nations system. The heads of these agencies form the UN Country Team, which under the leadership of the Resident Coordinator ensures the coordination and coherence of the UN activities in Kazakhstan. Today, the UN Country Team consists of the following organizations that are resident in Kazakhstan:

International Labour Organisation (ILO) Joint United Nations Programme on HIV/AIDS (UNAIDS) Office for the Coordination of Humanitarian Affairs (OCHA) United Nations Development Programme (UNDP) UN Educational, Scientific and Cultural Organization (UNESCO) United Nations Population Fund (UNFPA) United Nations High Commissioner for Refugees (UNHCR) United Nations Children's Fund (UNICEF) United Nations Development Fund for Women (UNIFEM) United Nations Office on Drugs and Crime (UNODC) UN Volunteers (UNV) World Health Organisation (WHO)
THE UN - KAZAKHSTAN: figures and facts
From the first day of independence, Kazakhstan is taking active part within the UN and its specialized agencies. This cooperation is a foreign policy priority for our state. The main objectives of the activity are to ensure strategic interests of the Republic of Kazakhstan on the international arena in global and Page 207

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regional security, establish a fair world order in politics and economy, create a framework for sustainable development, harmonious relations between members of the international community. On March 2, 1992 the Republic of Kazakhstan became a full member of the United Nations at the 46th session of the UN General Assembly. On October 5, 1992 UN Secretary General B. Boutros-Ghali and President Nursultan Nazarbayev of the Republic of Kazakhstan signed the Agreement between the United Nations and the Government of the Republic of Kazakhstan on the opening of the UN Office in Kazakhstan in order to maintain and undertake further efforts to address the most important problems of economic development and promote social progress and better living conditions of the population of the country. In 1993, the UN began its activities in the country opening the first offices of the specialized agencies, funds and programs of the UN system. From 1992 to 2007, President Nursultan Nazarbayev of the Republic of Kazakhstan five times visited the UN headquarters in New York and participated in the UN General Assembly. On October 17-18, 2002 and April 6-7, 2010, the important milestones in the development of cooperation between the RK and the United Nations were the official visits of UN Secretary General Kofi Annan and Ban Ki-moon to Kazakhstan. The visit of UN Secretary General Ban Ki-moon to the former Semipalatinsk test site became a historic event. Speaking at the polygon, Ban Ki-moon appealed to the international community to make significant progress towards complete nuclear disarmament noting that President Nursultan Nazarbayev of the RK demonstrated exclusive leadership by closing the nuclear test site and renouncing nuclear weapons. On August 28-29, 2003, in Almaty, the UN International Meeting for developing landlocked countries was held. The main purpose of the meeting was to improve economic stability of the developing countries through trade and transit cooperation. In May 2007, the 63rd session of the Economic and Social Commission for Asia and the Pacific (ESCAP) took place. The session discussed the following issues: reformation of the ESCAPO, regulation and globalization processes, governance and poverty reduction, social and political issues in the ESCAP region. Also, problems of the least developed, landlocked and small island developing states were considered. In October, 2008, the WHO Conference dedicated to the 30th anniversary of the adoption of the Almaty Declaration on primary health care was held. In 2009, in Almaty transformation of the country offices of the Department of Public Information of the United Nations Secretariat and Development Programme (UNDP) into the sub regional offices for Central Asia took place. In 2010, Kazakhstan officially applied for non-permanent membership in the UN Security Council in 2017-18, for the presidency of the 71st session of the UN GA and the Council for Human Rights in 2012-15. The same year, the subregional United Nations Population Fund (UNFPA) was opened. The Resident Coordinator (currently Stephen Tull) leads the UN team in Kazakhstan, which is today represented by 15 organizations: UNDP (UN Development Programme), UNICEF (UN Childrens Fund), UNFPA (UN Population Fund), UNDC (UN Office on Drugs and Crime), UNHCR (UN High Commissioner for Refugees), UNV (UN Volunteers), UNIFEM (UN Development Fund for Women), ILO (International Labor Organization), UNESCO (UN Educational, Scientific and Cultural Organization), WHO (World Health Organization), World Bank (WB), IMF (International Monetary Page 208

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Fund), UN / AIDS (Joint United Nations Programme on HIV / AIDS), DPI (Representation of Public Information Department) and OCHA (UN Office for Coordination of Humanitarian Affairs). At present, cooperation of the Government of the RK with the UN is carried out based on the UN Development Assistance Framework (UNDAF) for the period 2010-15 adopted on April 3, 2009. Among the priorities of a new cycle of the Programme there are issues of reducing poverty and unemployment, maternal and child health, sustainable development, improving environment, HIV / AIDS and tuberculosis, gender equality, improving governance, including corruption. The problem of efficient use of water resources and desertification control are in focus of joint cooperation. Particular attention within the Program will be given to the former Semipalatinsk nuclear test site and the Aral Sea. In general, for all time of cooperation of Kazakhstan with the UN system, the programs, funds and specialized agencies provided our country with technical assistance in the amount of funds and specialized agencies provided country with technical assistance in the amount of more than 145 million USD.
Work of agencies, program and funds at the country level is guided by the United Nations Development Assistance Framework (UNDAF). UNDAF is a strategic programme document that describes the collective response of the UN system to national development priorities and needs within the framework of the Millennium Development Goals (MDGs) and other international development commitments. It is based on five inter-related programming principles: human rights based approach; gender equality; environmental sustainability; results based management and capacity development. ExCom agencies, UNDP, UNICEF and UNFPA, based on the UNDAF outcomes, develop and sign their Country Programme Action Plans with the Government of Kazakhstan. In Kazakhstan UNDAF for 2005-2009 was successfully completed and UNDAF for 2010-2015 has just started. The overall goal of the UNDAF 2010-2015 is to assist Kazakhstan in achieving its national competitiveness agenda with a focus on human development for all. The new programme covers 3 strategic areas of cooperation: Economic and Social Well-Being for all, with particular attention to vulnerable groups, including women, children, migrants, refugees, youth and aged people, and people with disabilities Environmental Sustainability Effective Governance, including deepened institutional capacities, civil society and media empowerment, and stronger attention to human rights.
Over the past seventeen years of cooperation UNDP has assisted Kazakhstan in preparing key national and regional policy documents, legislative drafting, institutionalization and capacity building of authorities at different levels of government. These efforts were made through the use of best global practices and on-going support to achieve the Millennium Development Goals. Development for the sake of all population groups focuses on bridging social inequalities, especially in regions with a high poverty level. In these very areas UNDP partners need to identify best global practices and experience for formulating and launching national mechanisms. With the country recording significant economic growth over several years, bridging of regional disparities and provision of more equal access to social services become main priorities for UNDP's work in Kazakhstan including doing so in cooperation with private companies operating in Kazakhstan. Another area of the Programmes intervention is promotion of energy efficiency and protection of the environment. This includes support to the national partners in implementing the Concept of Sustainable Development of Kazakhstan till 2024, improved environment protection and dissemination of innovative practices in water and land use and biodiversity conservation. UNDP also assists the
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countrys efforts in addressing global warming challenges through promotion of energy saving, water resources conservation and increased use of renewable energy sources including wind energy. An important area of UNDPs activities is the dissemination of democratic governance practices. In this aspect, UNDP focuses on several sub-areas: enhancing efficiency of public institutions; strengthening human right institutions; promoting dialogue and cooperation between NGOs and authorities in implementing and monitoring public policies, and developing parliamentary traditions. Since 1995 UNDP has been involved in the preparation of National Human Development Reports (NHDR) and other research documents promoting national development and policy dialogue. Training in and study materials on human development published by UNDP are now used by Kazakh universities. In line with the regional concept of UNDP in Central Asia, much attention is paid to participation of Kazakhstan in regional initiatives in economic reforms, fostering a trade-enabling climate as well as democratic governance and environmental management reforms.
MDGs in Kazakhstan Millennium Development Goals (MDGs) stem from the Millennium Declaration, which was signed by 191 states, including Kazakhstan, and captures the common aspiration of all nations to build a better and safer place for the twenty-first century. The MDGs are set of clear, numerical targets with assigned indicators to which the international community has subscribed - by 2015 to halve poverty, reduce child and maternal mortality, expand educational opportunities for all, promote gender equality, halt the spread of HIV/AIDS and other major diseases, and improve the environment. Kazakhstan has achieved the first three Millennium Development Goals and has set more ambitious MDG+ goals and targets: halve poverty among the rural population; achieve universal secondary education; ensure gender mainstreaming in national planning and budgeting; prevent violence against women; and increase womens representation in legislative and executive bodies.
Goal 1: Reduce poverty Target 1.1: Reduce by half the proportion of people whose daily consumption is below USD 4.30, measured in average PPP (parity purchasing power), as compared with 2001 Kazakhstan achieved Target 1 in 2004. However, poverty is still a serious issue for the country, especially in rural areas. For this reason, the 2007 Report proposed a new MDG 1+: to halve the proportion of people in rural areas whose income is below the subsistence minimum. Notwithstanding some progress in the reduction of income poverty, there is a certain risk for a quite considerable proportion of the population living near the poverty line to fall into poverty. Virtually 80 percent of the population in the country have an income twice the level of the subsistence minimum. Earned income remains at a level insufficient for a decent income, thus reducing the attractiveness of productive employment. Regional differences in poverty remain and rural poverty is deeper in all regions. Levels of rural poverty are still almost twice as high as urban poverty. Public social policy for the protection of vulnerable categories should be an effective mechanism of a poverty
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reduction strategy. The strategy should be designed to further enhance the system for protection of the most vulnerable categories, especially those living in rural areas, the self-employed, large and incomplete families, old people, disabled people and migrants. Achievement of this target by 2015 will require an enabling environment in rural areas for the development of entrepreneurship, an enabling legislative framework for the employment of migrants and their access to entrepreneurship activities. This will also require enhanced access for disadvantaged people, especially women, migrants, refugees, young and old people and disabled people, to the social safety system and development of social services involving NGOs as service providers. Target 1.2: Reduce the share of the poor by one third (based on the nationally defined poverty level) This goal in its original version was achieved in Kazakhstan already in 2004. Target 2 has now been achieved. For Kazakhstan, the issue of hunger is no longer urgent. Therefore, Target 2 was adapted in 2007 to a national target of halving the proportion of people having no access to balanced nutrition. A substantial proportion of the population, especially those from risk groups including children and women of reproductive age, need to have better nutrition. Particularly, some children under five, who are under-weight and under-height, factors which characterise nutrition quality. Deficiency of some micronutrients remains high among risk groups; such deficiency is called hidden hunger. The reduction and eradication of micro-nutrient deficiency will help to significantly improve health and reduce child and maternal mortality, which is a contribution to the achievement of MDG 4 and 5. This will require preparation, government approval and implementation of a comprehensive programme on balanced nutrition for children under five and prevention of malnutrition and nutritional status abnormalities.
Goal 2: Achieve universal primary education
Target 2.1: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling Following on from the MDG 2002 and 2005 reports, MDG 2 in its original version has already been achieved in Kazakhstan. Based on the analysis of national priorities, statistics and state education programmes, and given other countries experiences, it was decided that there is a need for the assessment of the secondary education system as a whole, with a focus on the quality of education and the enrolment of children with special needs and students from socially vulnerable groups. The MDG 2007 report takes into account this conclusion and determined Target 3+, ensuring universal secondary education, for further monitoring of the achievement of the expanded version of MDG 2. The review demonstrated that at present, in ensuring universal secondary education, there have been considerable achievements, but there remain unresolved issues related to educational policies, quality of education, statistical support, and institutionalisation, human resources capacity and the financing of education. To overcome the existing barriers the Government and other relevant stakeholders should implement a number of strategic actions, including the renewal of educational substance, development of a uniform standard of national educational statistics and enhancement of teachers training. Page 211

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Goal 3: To Promote Gender Equality and Empower Women Target 3.1 To eliminate gender disparity in primary and secondary education, preferably by 2005 and at all levels of education no later than 2015 This target has been achieved in Kazakhstan. However, one has to recognise that differences between women and men are still significant in Kazakhstan. Therefore the new targets of 4+, which were adopted in 2007, are: To ensure adoption and implementation of measures aimed at increasing representation of women in legislative and executive bodies. To ensure legislative and enforcement measures to prevent and eliminate violence against women. To ensure sustainable gender mainstreaming of national planning and budgeting, especially aiming at minimising the gender wage gap. One of the recommendations for achieving the additional targets in the public administration area is to establish effective mechanisms for progressive implementation of the Law On Equal Rights and Equal Opportunities of Men and Women. Political parties should promote equal representation and participation of women in the governing partys bodies for meaningful participation of women in the political processes. Although there is on-going progress in improving the legal framework for the protection of womens rights to a life free of violence, the mechanisms for its enforcement have still not been fully put into practice. Hence, an effective system needs to be put in place for applying protection warrants and government standards of assistance to victims of violence and to persons who have committed violence, using available similar international experience. This work should be supported by Governmental budget allocations for public service delivery.
Goal 4: Improve maternal health and reduce child mortality Target 4.1 To reduce by two-thirds, between 1990 and 2015, the under-five mortality rate MDG 4 progress report has exposed challenges that are governed by corresponding Governmental resolutions and orders of the Ministry of Healthcare. Unfortunately, they are not enforced well enough locally, which may be due to misunderstanding of the essence of the orders due to insufficient awareness of new parental technologies and their organisational support by health staff. The findings of the analysis and evaluation of the MDG 4 status in Kazakhstan allow the following conclusions to be drawn, and recommendations on the implementation mechanism be proposed: to introduce regionalisation of parinatal care into obstetric practice and to provide full financing of these services; to identify financing for the introduction of further sustainable Effective Perinatal Care programmes into obstetric practice and WHO Integrated Management of Childhood Illness (IMCI) in primary hospitals and primary healthcare facilities; to undertake research to explore the causes of accidents involving a wide range of ministries (healthcare, education, road and transport, etc.); Page 212

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to conduct a study to assess the true frequency and causes of congenital malformation; to amplify usage of the BABIES matrix for proper management decisions in obstetrics throughout the country. Goal 5: To improve Maternal Health
Target 5.1 To reduce by three quarters, between 1990 and 2015, the maternal mortality ratio. By 2015, to achieve universal access to reproductive health The relevance of MDG 5 in Kazakhstan has to do with the fact that maternal health indicators in the country are still quite low and the maternal mortality ratio is several times as high as that in the WHO European Region. To achieve MDG 5, Kazakhstan needs to reduce its maternal mortality ratio (MMR) from 55 per 100,000 live births in 1990 to 14 in 2015. Is this achievable? During the next five years MMR needs to be almost halved compared to the current indicator. Over the 19 years since 1990, MMR has been reduced by less than 2 times. It is clear that as the MMR is being reduced, each subsequent reduction will be most probably more difficult to achieve. Nevertheless, progress achieved in recent years in decreasing maternal mortality in Kazakhstan, inspires cautious optimism. Achievement of MDG 5 in Kazakhstan will depend on how fast the legislation will change, how successful healthcare institutional reforms will be, and how efficiently maternal mortality reduction programmes will be managed and financed. Achievement of MDG 5 requires a strengthened multi-sectoral approach to addressing maternal health improvement, for which purpose the education sector, healthcare, mass media and non-governmental sector need to join and coordinate their efforts to achieve a substantial improvement in awareness of the population, primarily youths, about the prevention of unwanted pregnancies, STIs and HIV/AIDS. MDG 5 can only be achieved if investment into sexual and reproductive health is increased, with available resources to be allocated in a way to ensure maximum benefits to a maximum number of people.
Goal 6: To combat HIV/AIDS and Tuberculosis Target 6.1 To halt, by 2015, and begin to reverse the spread of HIV/AIDS As at 1 January 2010, there were 13,784 cases of HIV infection registered in the Republic of Kazakhstan. Since 1987, there has been an increase in new HIV infection cases every year other than 2009. The HIV incidence rate among population aged 15-49 is 0.15 percent. As before, intravenous drug use is a dominant transmission mode accounting for 67.5 percent of cases, with sexual transmission accounting for 24.4 percent. HIV infection is concentrated among injection drug users (incidence rate is 2.9 percent). The situation analysis shows that though Kazakhstan does manage to restrain the HIV epidemic at its initial stage (HIV is concentrated primarily among injection drug users), there remains the possibility for deterioration. This is because the behaviour practiced, in the first instance, by drug injectors is not safe, the level of awareness of young people about HIV transmission modes and ways to avoid HIV infection is not always sufficient and access to treatment is not Page 213

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secured in full. Despite significant progress in combating the HIV epidemic, the following efforts need to be reinforced in order to achieve the target: The strengthening political commitment to HIV and AIDS; Providing access to ARV therapy for all patients in need; Raising of youth awareness; Ensuring sustainable prevention programmes for the most vulnerable groups; Further improvement of the epidemiologic tracking system; The strengthening of cooperation with NGOs.
Target 6.2 To halt, by 2015, and begin to reverse the incidence of tuberculosis. In Kazakhstan, tuberculosis is considered to be an established disease, determined by social factors and remains a serious problem for public health. According to WHO official data, Kazakhstan leads in terms of the incidence of registered tuberculosis (TB), and is one of 18 priority countries for TB in the WHO European Region. In addition, multi-drug resistant tuberculosis (MDR TB) incidence is one of the highest in the world. Though the epidemiological situation is difficult, Kazakhstan can progress towards the target, provided that the Government will take measures to achieve the target. This will require the Government: to make further efforts for the high-quality introduction of and improvement in all components of the basic DOTS strategy; to ensure universal application of International Standards for Tuberculosis Care in defining tuberculosis cases and treatment results in order to improve the quality of services and monitor their performance; to secure TB infection control measures at all healthcare levels; to raise awareness of governmental, non-governmental and donor organisations about importance of the tuberculosis problem including spread of drug-resistant TB forms; to strengthen intra- and inter-agency integration of the TB control programme with the general healthcare network, HIV/AIDS prevention and control programme, rehabilitation service for timely detection, treatment and management of cases.
Goal 7: To Ensure Environmental Sustainability Target 7.1 To integrate the principles of sustainable development into the countrys policies and programmes and reverse the loss of environmental resources The lack of an ecosystem approach in developing and implementing economic and social programmes, and non-compliance with the principles of comprehensive and balanced environment quality management have been named as the main issues in achieving the environmental sustainability. However, Kazakhstan has achieved some progress across a number of indicators during the reporting period. Specific measures undertaken to improve the regulatory framework include; optimisation of the bio-diversity management structure and regulation processes; an active involvement in the international projects, which will allow us to predict whether this target will be achieved, provided there are continuous positive dynamics in the indicators.
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In the future it is necessary to continue the efforts undertaken to improve the legislation related to nature and resources, in compliance with the accepted international conventions and regional documents; to put in place sustainable mechanisms for cooperation with the Central Asian States to develop a regional environmental policy to help address transboundary environmental issues. Studying the international experience with environment insurance and off-budget environment funds is important with the view of potential implementation in Kazakhstan. Target 7.2 To halve, by 2015, the proportion of people without sustainable access to clean drinking water and main sanitary technical facilities In terms of water supply, Kazakhstan is one of the Eurasian countries suffering from water deficit. The main issue is related to the safe water supply and waste management, which are the key factors that impact public health. As of today, at least 10 percent of households do not have running water and about a quarter of the population has no access to a proper sewage system. To mitigate the above institutional challenges, it is necessary to give statutory authority to the Water Resources Committee of the Ministry of Agriculture to approve the technical requirements for the rural water supply facilities at the stage when the TOR for design engineering are issued. The other issue that needs to be addressed, is the implementation of the National Programme on Integrated Water Resources Management in Kazakhstan. The quality of water supply networks can be improved through the use of the state-of-the-art energy and resource saving technologies, equipment, materials and water consumption metering devices. It is necessary to review and reduce the water consumption rates for both the urban and rural population and to enhance the mechanisms for drinking water supply subsidies. Target 7.3 To achieve, by 2020, a significant improvement in the lives of the rural population residing in the most unfavourable social, housing and ecological environment Addressing this target seems quite challenging when it comes to rural areas. In spite of a number of programmes implemented by the government to enhance villages and develop the agricultural sector, the living standards of rural population are much lower, compared to those of the urban population. There are reasons for this, including the left-over fund ing applied to the rural social sector (especially true in times of economic downturn), under-developed infrastructure, primarily in the transport and telecommunications networks. Funding of small and remote villages is not economically profitable, which results in their degradation and outmigration and aggravates employment and housing issues. This problem requires conducting a detailed review and taking comprehensive decisions involving all government levels. Special focus should be on awareness, education and advocacy activities. The positive trends in the indicators based on the official statistical data reflect the effective efforts undertaken to address the issues by 2009. However, as the indicators show, the proportion of the rural population with access to improved sanitation systems has not yet reached 50 percent. Some hope can be derived from the implementation of the Road Map Programme, which has commended itself highly in the conditions of downturn both in urban and rural areas.
Goal 8: Develop a global partnership for development
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Target 8.1: Develop further an open, rule-based, predictable, non-discriminatory trading and financial system Partnerships at the national and international levels are important factors for achieving development goals and objectives. Kazakhstan continues developing cooperation and partnerships at the international level (including trade, donor and financial institutions), and with private sector and civil society within the country. Kazakhstan is an active player in the international arena as well as in different regional and international organisations. International (external) partnerships where Kazakhstan is involved fully support and promote its development objectives. At this stage the most active relationships are in the areas of trade, investments, finance, IT and communications, as well as regional and international cooperation. Domestic partnerships are different in scope and progress. The partnership with the private sector is gaining momentum whereas the dialogue with civil society has a slower progress. In the future, the domestic partnerships should focus on addressing the most essential development issues: inequality and marginalisation, local level development, employment of youths and women. In partnerships with the civil society the priority should be assigned to enhancing the existing (and creation of new) mechanisms of dialogue and collaboration. One of the promising streams is to involve NGOs into social service delivery. It should also fully consider the populations incentives to engage in productive labour activities, to help people realize their own potential as well as obtaining decent remuneration for their labour. Reforms are only successful when the Goals and the targets are aligned with the populations interests and expectations. UNDP offers support in building local government capacity to foster regional development. Besides assisting decentralization and poverty reduction, capacity must be built at the local level to develop strategies and plans for regional development, sustainability, and good governance. Achieving national MDGs is possible but only through further economic policy development in line with the MDGs, bringing some policy changes and joint efforts at the country's both central and local levels. These should be based on the further formation of sound market liberalization mechanisms, strengthening political democracy, human potential development, national and cultural pluralism and other self-regulation mechanisms existing in well-developed civil society.
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31. Frank van Beuzekom DIVERSIFYING AND STABILIZING THE ECONOMY The case of Kazakhstan 32. Allan, R (1995), Introduction: sustainable mining in the future, Journal of Geochemical Exploration 52: 1-4. 33. Amineh, M. P, and Houweling, H. (2003) Caspian Energy: Oil and Gas Resources and the Global Market, Perspectives on Global Development and Technology, 2 (3-4): 391: 406. 34. Arreaza, A, Castilla, L. M, and Fernandez, C. (2010) The Coming of Age of Sovereign Wealth Funds: Perspectives and Policy Issues within and Beyond Borders, Global Journal of Emerging Market Economies, 1 (1): 25-41. 35. Astov, Vasily (2007) The Russian Oil Fund as a Tool of Stabilization and Sterilization, wiw Monthly Report, No. 7, The Vienna Institute for International Economic Studies (wiiw): 1-8. 36. Bahgat, G. (2002) Pipeline Diplomacy: The Geopolitics of the Caspian Sea Region, International Studies Perspectives, 3: 310-327. 37. Bahgat, G. (2009) Oil Funds: Perils and Opportunities, Middle Eastern Studies, 45 (2): 283-293. 38. Bhavna, D. (2007) Kazakhstan, Nations in Transit 325 -347 by Freedom House, Available online at: http://www.freedomhouse.hu/images/fdh_galleries/NIT2007/nt-kazakhstan.pdf 39. Beck, R. (2008) The Impact of Sovereign Wealth Funds on Global Financial Markets, European Central Bank, Joint BIS/ECB/World Bank Conference on Strategic Asset Allocation for Central Banks and Sovereign Wealth Managers, Frankfurt 24/25 November. 40. Cashin, P. and McDermott, J. C. (2002) The Long-Run Behavior of Commodity Prices: Small Trends and Big Variability, IMF Staff Papers, 49 (2): 175-199. 41. Cheng, J. (2008) A Chinese View of Chinas Energy Security, Journal of Contemporary China, 17 (55): 297-317. 42. Chien-peng, C. (2004) The Shanghai Co-operation Organization: Chinas Changing Influence in Central Asia, The China Quarterly, 180: 989-1009. 43. Danolovich, A. (2010) Kazakhstan, a Nation of Two Identities: Politics and Revived Tradition, Problems of Post-Communism 57 (1): xx-xx. 44. Diener, A. C. (2002) National Territory and the Reconstruction of History in Kazakhstan, Eurasian Geography and Economics 43 (8): 632-650. 45. Dowling, M. (2006) Central Asias Transition After Fifteen Years: Growth and Policy Choices, SMU Economics & Statistics Working Paper Series, No. 4. 46. Correlje, A. and Linde, van der, C. (2006) Energy Supply Security and Geopolitics: A European Perspective, Energy Policy 34: 532-543.
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Kazakhstan

A Level One - General Country Report Petitioned by www.precedent-ilf.com

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Kazakhstan Level One Report

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Kazakhstan Level One Report

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Kazakhstan Level One Report

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Kazakhstan Level One Report

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Kazakhstan Level One Report

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Kazakhstan Level One Report

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Kazakhstan Level One Report

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Kazakhstan Level One Report

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Kazakhstan Level One Report

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Figure 9 Almaty, the Soviet-era capital of Kazakhstan.

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Figure 11 Astana - the capital of Kazakhstan.

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Figure 17 In the steppes of Kazakhstan (Aqmola Province).

Figure 18 Charyn Canyon in northern Tian Shan.

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Figure 19 Geographic map of Kazakhstan.

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Figure 20 The map of Kazakhstan exhibiting its 14 provinces.

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