Project macroeconomic overview

Astana, 28 August 2015

Kazakhstan – General economic overview •

•

Kazakhstan is the largest economy in Central Asia and one of the fastest-developing economies in the CIS

Pavlodar Kostanay

The main economy driver is prices for energy resources and metals (app. 80% of total exports)

•

A comparatively low pubic debt-to-GDP ratio (15.5% in 2014)

•

Low unemployment (a stable level for many years)

•

During the past decade Kazakhstan demonstrated strong real GDP growth rates of 7.4 % on average (1998-2014)

•

Kazakhstan in figures Uralsk

Astana

Semipalatinsk Ust-Kamenogorsk

Aktyubinsk

Karaganda

Atyrau Taldykorgan Aktau

Kyzylorda

Almaty

Taraz Shymkent

The estimated GDP growth rate in 2015 is 1.5-2.0% General information

Kazakhstan has a large natural resources base: •

> 30 bln bbl proved oil reserves (ranked 12th in world)

Area Capital Currency

2,7 mln km2 Astana Tenge (KZT)

Population Population size, 1 August 2015 Unemployment rate, 2014

17,5 mln 5,0%

Gross domestic product

•

> 1.5 trillion m3 proved natural gas reserves (19th)

•

> 0.6 mln tonnes of recoverable resources of uranium (2nd)

Total GDP, 2014 GDP per capita, 2014 GDP real growth rate, 2014 Source: Kazakhstan Statistics Committee

208,6 USD bln 11,9 USD‘000 4,3%

GDP – Current level and output structure •

Kazakhstan has the second-largest GDP in the CIS

•

Second-largest GDP per capita in the CIS

•

GDP per capita at purchasing power parity prices more than double GDP per capita in current prices*

•

The raw materials sector is the foundation of the economy. More than 40% of GDP output in 2014 was generated by mining (natural resources), trade and industry

Kazakhstan GDP compared with other countries, 2014 Russia Poland Kazakhstan Czech Republic Romania Hungary Ukraine Azerbaijan Croatia Bulgaria

1,861 548 209

132 75

0

500

1,000

1,500

2,000

USD bln

Kazakhstan GDP breakdown, 2014 Natural resources 15%

Other sectors 27%

Trade 16%

Agriculture 4% Professional activities 4% Construction Transport 8% 6%

Kazakhstan GDP per capita compared with other countries, 2014

Manufacturing 10% Real Estate 8%

Czech Republic Poland Hungary Croatia Russia Kazakhstan Romania Azerbaijan Bulgaria Ukraine

19.1

13.1 12.0 7.9 7.8 2.9 0

5

10 USD '000

Source: Kazakhstan Statistics Committee

Source: Economist Intelligence Unit (EIU)

15

20

25

GDP trends and forecasts (1/2)

70 60 50 40 30 20 10 -

7.3%

7.5%

Historical data

Forecast

6.0% 5.0%

4.3% 3.3% 1.5%

3.6%

4.1%

2.2%

8% 7% 6% 5% 4% 3% 2% 1% 0%

•

The real GDP compound average growth rate (CAGR) in 1998-2014 was 7.4%

•

GDP growth slowed in 2014 (from 6% in 2013 to 4.3% 2014)

2010A 2011A 2012A 2013A 2014A 2015F 2016F 2017F 2018F 2019F Nominal GDP

Real GDP growth rate

Note: A-Actual, F-forecast Source: Statistics Committee, Kazakhstan Economic Ministry

GDP per capita trends and forecast

25.0

15.0 8.6

10.9

11.7

13.0

12.0

11.2

10.8

11.5

27.9

26.5

25.1

24.3

23.7

23.6

22.2

21.1

19.9

18.3

20.0

10.0

Forecast

Historical data

30.0

USD '000

trillion tenge

Nominal GDP and real growth rate

12.2

13.5

5.0 0.0 2010A 2011A 2012A 2013A 2014A 2015F GDP per capita (in current prices)

2016F

2017F

2018F

2019F

GDP per capita (at PPP) Source:

Economist Intelligence Unit (EIU)

GDP trends and forecasts (2/2) •

In 2015 leading agencies and institutes decreased their forecast Kazakhstan GDP growth rates for 2015-2016 due to a worsening of the politic and economic situation in the region. Forecast GDP medium-term growth rates (2017-2019) rise tо 3-4%

GDP trends – forecasts overview Historical data

Forecast

7.5% 8% 7% 6.0% 6% 4.6% 6.2% 5% 4.4% 3.2% 5.0% 4% 4.3% 4.1% 3% 3.6% 3.3% 2% 2.2% 1% 1.5% 0% 2010A 2011A 2012A 2013A 2014A 2015F 2016F 2017F 2018F 2019F

•

Various sources (Bloomberg, IMF, the World Bank, the EIU, the Kazakhstan Statistics Committee) estimated the economic growth rate in 2015 to be in the range of 1.4-2.0%, with the consistent recovery thereafter

•

Based on EIU forecasts, Kazakhstan economy growth rates both Source: in the short and long term will exceed the GDP growth rates of the largest CIS economies (Russia, Azerbaijan)

Committee on Statistics

IMF

World Bank

EIU

Statistics Committee , Kazakhstan Economic Ministry World Bank (Global Economic Prospects, June 2015), IMF (World Economic Outlook Database, April 2015), EIU as at 1 June 2015

Recovery factors

Potential risk factors

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Higher oil production – doubling output by 2030

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Weak commodity revenues

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Stronger global economy – global GDP growth is forecast to accelerate to ~3% a year in 2016-19, with the EU picking up and Russia recovering

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Disorderly Greek exit from the Eurozone

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Continued policy support – state revenues will increase as oil revenues gradually recover

Public finances

•

Based on Kazakhstan Ministry of Economics forecasts, the country’s debt-to-GDP ratio will decline from 2.2 % in 2015 to 1.7% by 2017 and to 1.4 % by 2020

•

A low pubic debt-to-GDP ratio: 15.5% in 2014 (forecast for 2015-2019: 18.0-18.3%)

Government budget balance 12.0

3.5%

8.0

3.0%

3.0%

3.0%

10.0 trillion tenge

The Kazakhstan budget has been in deficit since 2009

2.7%

2.5% 2.1%

6.0

2.5% 2.1%

2.0%

1.7%

4.0

2.0% 1.5% 1.0%

2.0

0.5%

0

0.0% 2010A 2011A 2012A 2013A Budget revenues

Source:

Kazakhstan Economic Ministry

2014F

2015F

2016F

Budget expenditures

2017F Deficit

budget deficit / GDP

•

Investment attractiveness

•

Kazakhstan’s sovereign ratings have improved during the past 15 years (except for the 2008-2009 crisis years)

•

The country has an investment-grade credit rating

Kazakhstan credit ratings for the last 15 years

•

Despite problems in the economy, there were no rating changes after February 2015. This reflects that the domestic economy is strong, due to high foreign currency reserves and a low public debt-to-GDP ratio

Foreign currency long-term debt ratings for Kazakhstan

BBB+/Baa1 BBB/Baa2

Agency Moody's S&P Fitch

BBB- /Ba1 BB/Ba2 BB- /Ba3 B+/B1 B/B2

Note: As at 26 August 2015 Source: Bloomberg

Moody's Source: Bloomberg

S&P

FITCH

Rating Baa2 BBB ВВВ+

Outlook Stable Negative Stable

Foreign currency reserves and exchange rates Foreign currency reserves and exchange rates 200

USD blln

100

84

80 60 40

90

102

72

97

190

186.8

180 170

179.2

55 152.1 147.4

146.6

160

149.1

KZT/USD

120

150

20

140

0 2010 2011 2012 FX monetary and gold reserves

2013 2014 FX fiscal reserves

130 Jul-15 KZT/USD

Note: Annual data reflects the average figures for the period Source: National Bank of Kazakhstan

Domestic currency exchange trends 140 130 120 110 100 90 80 70 60 50 40

Exchange rates on certain dates

Dec 31, 2010 = 100 20 August 2014 – tenge devaluation by 26%

KZT/USD KZT/EUR

February 2014 – tenge devaluation by 19% 2011

2012 Tenge

2013 Russian Rouble

Source: Analysis based on Bloomberg data

Exchange rates

2014

2015

Oil price (Brent)

31 Dec 2013 153.6 211.2

Source: National Bank of Kazakhstan

31 Dec 2014 182.4 222.0

21 Aug 2015 255.3 284.2

Inflation / interest rates / investments

•

The National Bank’s policy is to curb inflation to be within a 6%8% corridor

•

•

Since 2012 direct investments have been falling in Kazakhstan. However they are expected to increase in the energy sector due to the launch of Kashagan oil field exploration and construction of a fourth oil refinery 71% of fixed capital investment comprises internal investments

Direct investments inflow and foreign debt dynamics 13.8

200

USD bln

Inflation in 2014 reached 7.4% (2.6% higher than in 2013)

13.6

15 9.9

150

7.6

100

6.4

6.5

7.1

8.2

9.1

5

50

124

0

136

148

157

156

154

160

170

181

2011A 2012A 2013A 2014A 2015F 2016F 2017F 2018F 2019F Total foreign debt (left axis)

Inward direct investment (right axis)

Source: EIU

Inflation (consumer prices) 18.8% 20% 18% 16% 14% 12% 9.5% 8.4% 7.8% 7.4% 10% 7.5% 7.4% 7.0%7.0%7.0%7.0%7.0% 6.2% 6.0% 8% 4.8% 6% 4% 2% 0%

Consumer prices , end-period Note: National Bank of Kazakhstan Source: Kazakhstan Statistics Committee

10

Interest rates 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Interbank interest rates Interest rate for long-term loans to the non-financial institutions Policy rate Note: February-June 2015 data for interbank loans is not available Source: National Bank of Kazakhstan

-

USD bln

•

Almaty economy overview (1/2) •

Largest city in Kazakhstan. Before 1997 was the country’s capital

•

Developed infrastructure: a metro (in operation since 2011) and an international airport

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Foreign investment in the Almaty economy in 2014 was KZT6.7 bln or USD37 mln (1.3% of total city investments)

•

Almaty GRP is as twice as high as the GDP level for Kazakhstan

•

The average monthly salary in Almaty is KZT155.2 ths. (USD866)

Almaty in figures

С Ю

USD'000

GRP of Almaty 35 30 25 20 15 10 5 0

32 26

23 19 12

11

9

2010

2011

GDP per capita Source:

29

2012

14

2013

GRP of Almaty per capita

Statistics Committee of Almaty

13

2014

Population Population, 1August 2015 Density, 1 July 2015 Labour force Unemployment rate, 1st quarter 2015 Gross regional product GRP, 1st quarter 2015 GRP per capita, 2014 Real GRP growth, 2014 Source:

Statistics Committee of Almaty

1.67 mln 2.46 ths. persons / km2 0.88 mln 5.4% 1,65 mln 11.9 USD‘000 7.1%

Almaty economy overview (2/2) Population's incomes and inflation

GRP growth rates

25%

15.0% 15%

20% 15%

14%

12%

10.4% 10%

10%

10%

9.6% 7.1%

5.9% 5%

5%

7.3%

7.5% 5.0%

0% -5% 2010 Inflation Source:

9.7%

10%

2011 2012 Nominal wages

2013 2014 Cash-based population's incomes

Statistics Committee of Almaty

0% 2010

2011 Kazakhstan

Source:

2012

6.0% 2013

4.3% 2014

Almaty

Statistics Committee of Almaty, Statistics Committee of the Republic Kazakhstan

Budget of Almaty City 469

500

tenge bln

400

425 363

344

382

354

1%

4% 6% 28%

300

budgetary subsidies and loans tax revenue

200

469 KZT bln

100

revenue from property sale

0

61% 2012

2013 Expenditures

Source:

non-tax revenue

Official internet-resource of Almaty City

Revenues

2014

other revenue

Legal framework as part of the investment climate (1/2) Summary of adopted legal amendments to concession legislation since 2009

•

Law of the Republic of Kazakhstan “On Concessions”, adopted in 2006

•

Negotiation of the draft law, establishing other types of PPP («PPP Law» draft)

•

A number of recent legal amendments were made to protect investor rights

Amendments to the Budget Code concerning compensation for operating costs and fees for the availability of the concession

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Introducing the option to conclude a direct agreement between the public partner and investors and creating a mechanism for replacing a concessionaire (direct control)

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Introducing FX risk mitigation through the adjustment of availability payments

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After being amended, the law on project finance and securitisation allows "selected assets" to be created. These are not subject to distribution as part of a bankruptcy and can be transferred to the next concessionaire in the event of bankruptcy

•

Introducing the use of international arbitration in the event of a dispute between resident entities

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The provision of termination payments brought into line with best practices

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Legal framework as a part of investment climate (2/2)

List of regulations concerning concession projects: •

Law No.176-III of the Republic of Kazakhstan “On Concessions”

•

Budget Code Provisions of the Republic of Kazakhstan concerning concession, rules of cofinancing concession projects, and compensation for investments costs

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Minister of Finance Order No. 642 dated 30 December 2008 of the Republic of Kazakhstan “Concerning the Rules of Accepting Concession Objects Into State Property”

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Order No.78 dated 26 February 2014 of the Minister of Finance of the Republic of Kazakhstan “On Approving the Rules of the Transfer of Ownership and Use of the Concessionaire Concession Objects Owned By the State”

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Order No.133 dated 26 February 2015 of the Minister of Finance of the Republic of Kazakhstan “On Approving the Rules of Maintaining a Ledger of Concluded Concession Agreements and Granted State Guarantees”

•

Regulations on concession limits

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