TRADING WITH KAZAKHSTAN GOOD MARKET STILL AWAITING ITS OIL BOOM, ANALYSTS SAY

TRADING WITH KAZAKHSTAN GOOD MARKET STILL AWAITING ITS OIL BOOM, ANALYSTS SAY

With rich natural resources and a strong industrial and agricultural base, Kazakhstan is still a hot market. However, it's not quite the success story Western investors envisioned.

"People thought oil was the principal resource that would drive an economic revival in Kazakhstan," said Scott Horton, a partner with New York- based law firm Patterson, Belknap, Webb & Tyler and one of the three co- authors of a recent report on doing business in the Central Asian country.While the revival may yet take place, disputes are thwarting progress, Mr. Horton said. He pointed to disagreements between Chevron Overseas and Kazakh authorities over a joint project to build a Caspian oil pipeline, a move that would greatly increase the country's export earnings. The government is the majority partner in the venture, but it hasn't supplied a proportionate share of the project's capital. British Gas has encountered a similar situation with a joint gas-pipeline project.

In addition, the lawyers said that while investors will find a ready market in Europe for Kazakhstan's oil and other resources, the lack of adequate transport in and out of the country is a major obstacle.

Referring to the difficulties in shipping oil to international markets via Russia, Mr. Horton added that "a lot of that has to with Russia and its position in allowing the oil out."

Still, the partners said they are bullish on Kazakhstan. The government - despite strained relations between President Nursultan Nazarbayev and Parliament - recently approved a unified tax code, the first among members of the Commonwealth of Independent States, as well as more liberal laws governing foreign investment, petroleum and gold mining.

RJR Nabisco and Philip Morris have already snapped up formerly state-run enterprises under the government's ongoing privatization program. Officials are expected to hold tenders this year for management contracts of 18 major industrial firms, the lawyers said.

BUYING FROM

PRINCIPAL EXPORTS

Ferrous and nonferrous metals, oil, mineral products, chemical products, grain and wool.

POTENTIAL GROWTH EXPORTS

Chemicals, minerals, metals and fertilizers.

PRINCIPAL FOREIGN MARKETS

Netherlands, Switzerland, China, United States, Germany and South Korea.

EXPORT PROGRAMS/INVESTMENT INCENTIVES

Foreigners may wholly own enterprises or invest through joint ventures with local companies. Property imported for use in foreign-owned enterprises enters duty-free. Kazakhstan has "most-favored-nation" trading status, whereby its products enter the United States at reduced tariff rates. Export-Import Bank export financing and Overseas Private Investment Corp. investment financing are available for U.S. companies.

CURRENCY

Commercial rate: $1=50 tenge.

MAJOR BANKS

Alem Bank of Kazakhstan (the leading foreign trade bank), Turanbank, Kramds Bank, Al Baraka Kazakhstan International Bank, Kazakh National Bank and Kazakhstan Bank.

LABOR

The labor force is 7.4 million, with 31 percent in industry and construction, 26 percent in agriculture and forestry and 43 percent in other areas (1992).

LANGUAGE

Kazakh is the official language of government and commerce. Russian also is widely spoken.

CLIMATE

Continental, cold winters and hot summers.

TIME DIFFERENCE

GMT +3.5 to +5.5, EST +8.5 to +10.5.

INTERNATIONAL TRANSPORTATION

The international airport is at Almaty. Aeroflot, Kazakhstan Airlines, Uzbekistan Airways, Air Turkey and Lufthansa travel to Almaty from the west; China Air serves it from the east. The road network links Kazakhstan to China, Russia, Kyrgyzstan, Uzbekistan and (via Uzbekistan and Turkmenistan) to Iran. Most of the railway network is concentrated in the north, where it connects to Russian lines. Last year, an express passenger rail service between Almaty and Nukus, Uzbekistan, opened.

OFFICIAL (BANK) HOLIDAYS

1995: Jan. 1, 28; March 8, 22; May 1, 9; Dec. 16, 31.

BUSINESS HOURS

Government: Mon.-Fri. 9 a.m.-6 p.m. Banks: Mon.-Fri. 9 a.m.-6 p.m. Commerce and industry: Mon.-Fri. 9 a.m.-6 p.m.

BEFORE YOU GO

U.S. travelers must carry a passport and visa. For additional information, contact the Embassy of Kazakhstan, 3421 Massachusetts Ave NW, Washington, D.C. 20007. Telephone: (202) 333-4504.

SELLING TO

PRINCIPAL IMPORTS

Machinery and equipment, vehicles, ships and other transportation equipment, chemical products and prepared foods.

PRINCIPAL IMPORTS FROM THE U.S.

Printed matter, ships, boats and other floating structures, tobacco and data processing machines.

POTENTIAL GROWTH IMPORTS FROM THE U.S.

Medical equipment, printing and packaging machinery, fruit and vegetable processing equipment, computer and data processing equipment.

BARRIERS TO TRADE

Foreigners may not purchase land or be involved in the manufacturing of products for military use. Import duties range from 0-20 percent. There is a 20 percent value-added tax on most imports and a significant excise tax on some luxury items.

PRINCIPAL FOREIGN SUPPLIERS

Germany, United States, Turkey, China and Italy.

MARKET SIZE

Population is 17.3 million, growing at 0.64 percent annually (July 1994).

DOMESTIC INDUSTRIES

Extractive industries (oil, coal, iron ore, manganese, chromite, lead, zinc, copper, titanium, bauxite, gold, silver, phosphates, sulfur), iron and steel, nonferrous metals, agricultural machinery, electric motors and construction materials.

DOMESTIC AGRICULTURE

Accounts for almost 40 percent of net material product. Main products: grain, meat, cotton and wool.

DOMESTIC TRANSPORTATION

The transport network adequately serves major industrial and population centers. However, there are chronic shortages of spare parts, rolling stock and equipment are obsolete and one-third of the railway network needs to be overhauled, according to a U.S. Department of Commerce report. The national joint-stock airline company Kazakhstan Eue zholy and a handful of private airlines serve 20 domestic airports. Sayakhat-aero JSC reportedly is constructing a cargo airport near Almaty.

INFRASTRUCTURE/FREE TRADE ZONES

Atyrau, on the Caspian Sea, is the main port. The Syrdariya and Ertis rivers are the main inland waterways. The government is working with neighboring Caspian states to improve sea transport links. Commerce rates telephone service as poor, but says telephone and facsimile lines are adequate in Almaty and international telephone lines are reliable.

MONETARY POLICY/INFLATION

Inflation fell to 2.3 percent in June, the lowest level since independence

from the former Soviet Union in December 1991. It rose to 2.9 percent in July.

ECONOMIC GROWTH OUTLOOK

After contracting sharply in the last few years due largely to rising prices, falling demand and disruptions of traditional trade ties, Kazakhstan's economy is improving. In the January-June 1995 period, the gross domestic product contracted 18 percent. A year earlier that figure was 27 percent.