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Enhancing Attractiveness of Non-Extractive Industries for Foreign Investors: The Issues of Infractructure Development
Speech by Zhao Xiaoyu, ADB Vice President, at the 22nd plenary session of the Foreign Investors Council, Astana, Kazakhstan
Your Excellency, President Nazarbaev, Members of the Foreign Investors Council, Ladies and Gentlemen:
Good morning to all of you, and thank you for this opportunity.
Diversifying the Kazakhstan economy is crucial for long-term sustainable growth. The Asian Development Bank has long supported the government's endeavors in this respect. And we applaud its new 5 year plan on Industrial Development of the Economy as a lead component of its post crisis recovery program. Under this program, the government is assessing how best promote investment to key non-extractive industry sectors.
I am very pleased today to offer some thoughts from ADB's perspective on ways to further advance this agenda.
Today's industrial investors require a wide array of infrastructure services including electricity, gas, water and information technologies. Investors in larger projects may need to build their own roads, rail line spurs, electricity generation facilities and water treatment plants. In a large territory such as Kazakhstan, ensuring that a few locations are ready for such major demands would greatly enhance its attraction.
In particular, we recommend the following:
- Planning ahead and having a clear road map could enable more holistic and geographically balanced industrial growth. In this transformation process, the government should concentrate on serving as planner and regulator, while the private sector can provide efficient management and infrastructure development.
- Kazakhstan will face an increasingly competitive environment in which it will be compared with other countries based on availability, reliability and cost of infrastructure services. The recent success of Kazakhstan in attracting U.S. and PRC locomotive manufacturers is an encouraging step on the path to broadening non-extractive industry investment, and we urge you to continue in these efforts.
- The government ministries and Samruk-Kazyna group companies should be able to tap a special pool of funds quickly to meet the infrastructure needs of prospective large-scale industrial investors. Immediate use of such funds could be justified by a cost-benefit analysis calculating the net present value of future tax and other payments to the government generated by the projects. The government would be seen as a pro-active partner ready to commit infrastructure quickly.
- Small and medium size investors obviously require different treatment. In their case, designated industrial parks can be established with much smaller supporting infrastructure investments to bring utility connections to the users of these parks. Value is increased if such investments reinforce the reliability of utilities with, for example, back-up generators or additional telephone lines. Such industrial zones may carry out a broad range of functions via free trade zones, special enterprise zones and technoparks. They may be owned by government, private sector or public-private joint ventures.
- Another advantage could come from amending Kazakhstan's concession law. Allowing oblast governments to contract out the building of infrastructure services using the PPP model and utility services can be quickly and efficiently connected to new industrial users,.. And the use of long term sales contracts could broaden investor alternatives with schemes to include multiple users on the supply side, the demand side or both.
- Finally, Kazakhstan's transparent E-Governance policy objectives need to be extended to ensure clear, easy to read A to Z information on its websites for prospective industrial investors. Communication though websites is essential in this day and age.
In closing, I assure you that ADB will remain a strong partner to both the public and private sector in infrastructure development. We are willing to ramp up our knowledge and financial assistance in order to improve the investment environment in Kazakhstan and support long-term, sustainable economic development.