1 INVESTMENT CLIMATE IN AGRICULTUREMINISTRY OF AGRICULTURE OF THE REPUBLIC OF KAZAKHSTAN INVESTMENT CLIMATE IN AGRICULTURE
2 1 2 3 Investment attractiveness of KazakhstanInvestment attractiveness of Agriculture sector of Kazakhstan 3 About KAZAGRO
3 1 Investment attractiveness of Kazakhstan35th place in Ease of Doing Business of the World Banking 2017, including: 3rd place - «Protecting minority investors» 9th place - «Enforcing contracts» - «Registering property» - 18th place 45th place - «Starting a business» Entrepreneurial Code Special section on foreign investments provides wide variety of benefits to investors State support and Funding Subsidies; Target and preferential lending; Tax incentives; Government services
4 Level of integration of the macro-region1 Investment attractiveness of Kazakhstan Location advantages Bridge to the market with more than 3 billion population Kazakhstan is a country with territory 2,724,900 sq. km (1,052,085 sq. miles) 9th largest country in the world. 2nd largest country amongst CIS nations. Population: 17,7 million people. member of: World Trade Organization Eurasian Economic Union (EAEU) with Russia, Belarus, Kyrgyzstan and Armenia (~180 mln. population.) 1 2 4 3 5 1st level Border regions of Russia 3d level Western regions of China 2nd level Russia Ukraine Belarus 4th level China India Uzbekistan Tajikistan Turkmenistan Kyrgyzstan 5th level Iran Azerbaijan and other Caucasian countries High Low Level of integration of the macro-region 4 4
5 Support for investors 1 Investment attractiveness of KazakhstanINVESTMENT PREFERENCES* SPECIAL ECONOMIC ZONES NEW INCENTIVES (since 2014)* Tax benefits Customs privileges Tax benefits CIT – 0 % 10 years Land tax – 0% 10 years Property tax– 0% 8 years CIT – 0% Land tax– 0% Property tax– 0% VAT – 0% (on all goods completely consumed in the production process) Exemption from customs duties for goods imported into SEZ territory Investment reimbursement Up to 30% of construction and installation works and equipment SEZ The right to employ foreign labor without quotas and permits. Visa-free regime for citizens of 19 countries Other privileges Migration benefits Providing the land in the territory of the SEZ for a period of up to 10 years Stable legislation Stability of tax legislation for all taxes except VAT and excise (subject to investment contract) Simplified procedure for recruiting foreign workers INCENTIVES Customs privileges Customs duties 0% on the import of: equipment and its components, spare parts, raw materials and supplies. The "one window" principle for the investor and service support for investment Assistance in obtaining the required approvals and permits Provision of services to foreign investors and representatives of Kazakhstan business State in-kind grants Land plots, buildings, machinery and equipment in property. *for priority investment projects Information, consulting, organizational and other assistance to the investor Priority types of activities: Support for investment project till the start of the production 1. Agriculture and food processing; 3. Petrochemical Industry 4. Machinery 2. Chemical Industry 5. Metallurgy
6 Target and preferential lending2 Investment attractiveness of Agriculture sector of Kazakhstan “Agrobusiness-2020” State Program Subsidies Target and preferential lending Tax incentives Government provides subsidies for priority crops subsidies for seeds subsidies for establishment of orchards and cultivation of perennial plantations of fruit and berries and grape area subsidizing the costs of herbicides and bioagents subsidizing the costs of services in delivery of irrigation water subsidizing insurance in plant growing subsidies for efficiency and quality increase of livestock and pedigree livestock production investment subsidies subsidies of interests rates for credits and leasing Subsidizing the costs of procurement of raw materials subsidies in the framework of guarantee and loan insurance subsidizing the sum of the value added tax paid to the budget within the estimated value added tax to the procuring organizations in the sphere of agro- industrial complex lending to spring-field and harvesting works crediting under pledge of grain receipts leasing of agricultural machinery lending to agricultural credit partnerships lending to agricultural consumer cooperatives external lending For agricultural producers - legal entities, applying generally established regime, entitled to double deduction of payroll, social security tax rate is 6,5%, as well as 70% of the benefit provided under the VAT; rates of environmental emissions payment of agricultural waste per 1 ton - 2 tenge; For agricultural producers - legal entities applying a special tax regime, are subject to reduction of tax amounts by 70%, except for the tax on agricultural land and payments for land use; for farms set - single land tax rate from 0.15% to 0.6% of the appraised value of the land; Farms - payers of the single land tax vary between 0,15% to 0,6% from land fair value, not pay the following types of taxes: individual income tax, payment for environmental emissions, land tax and fees for land use, transport and property taxes; social tax for the head and members of farms is 20% of MCI; information and consulting marketing system phytosanitary and veterinary safety applied scientific research normative and methodological support for the development of agro-industrial complex branches personnel training within grant quotas
7 2 Investment attractiveness of Agriculture sector of Kazakhstan Priority directions Forage production Dairy products Poultry breeding Greenhouse farms Vegetable stores Fruits and berries Infrastructure for wheat export Feedlots Agricultural machinery Meat processing Slaughter points Breeding farms Wool production and processing Grain stores Intensive gardens Aquaculture Pig breeding
8 Cooperation 2 Adoption of a law “On agricultural cooperatives”;Investment attractiveness of Agriculture sector of Kazakhstan Cooperation Adoption of a law “On agricultural cooperatives”; Increasing attractiveness of a special tax regime; State support revision in order to set higher efficiency for agricultural cooperatives; Expected results: Cooperation–economical enlargement Increasing labor productivity Advanced competency with higher production quality State support availability Costs optimization (economies of scale) Demand stabilization Effective and full use of production facilities Accessibility of marketing information Higher profits for agriculture products producers 8
9 2 Investment attractiveness of Agriculture sector of Kazakhstan Taxation Tax General Regime Special Tax Regime for agricultural producers The tax regime on the basis of simplified declaration SEZ (“Khorgos — Eastern Gates”, “Astana-New city”)for Participant Investment preferences Corporate Income Tax 20% 10% (Reduced by 70%) 1,5% 0% As a general rule reduced by 100% Reduced by 100% Value added tax 12% No privilege Social Tax 6,5% 11% Reduced by 70% No privilege Property tax 0.5% Transport tax 0% article 367 Tax Code of The Republic of Kazakhstan Land Tax article 378 Tax Code of The Republic of Kazakhstan 0%
10 Meat production (beef)2 Investment attractiveness of Agriculture sector of Kazakhstan Meat production (beef) Investment subsidies: Pedigree cattle reproduction farm development–50%; Farm expansion and technical equipment –50%; Feedlot development –50%; Fodder production development for pedigree cattle reproduction farms –50%; Construction of pasture irrigation infrastructure –80%; Creation and expansion of the enterprises on processing, preparation, transportation of meat and meat products –30%. Interest rate subsidies for loans (leasing), covering up to: 7% per annum in tenge and 5% per annum in foreign currency; 10% per annum in tenge and 7% in foreign currency -on the purchase of machinery and equipment used in livestock breeding and fodder production.
11 2 Investment attractiveness of Agriculture sector of Kazakhstan Dairy Market The potential market for dairy products in 2020 is estimated at 5,3 mln.tons, reaching 1,26bln.USD in current prices. State support: Investment subsidies: Dairy farm development -20% -50%; Feed production using irrigation systems for commercial dairy farm -50%; The creation and expansion of enterprises on processing, procurement, transportation of milk and dairy products -30%. Subsidizing the cost of processing for enterprises: Compensation for the difference between the purchase price and the guaranteed purchase price of milk for the production of butter, cheese and powdered milk. Interest rate subsidies for loans (leasing), covering up to: 7% per annum in tenge and 5% per annum in foreign currency; 10% per annum in tenge and 7% in foreign currency -on the purchase of machinery and equipment used in livestock breeding and fodder production.
12 Reliable financial partner - KAZAGRO3 About KAZAGRO Reliable financial partner - KAZAGRO Overview Key financials, USD million KazAgro National Management Holding JSC is an agro-industrial development institution in the Republic of Kazakhstan fully owned by the Government KazAgro is a major player in the agricultural sector of Kazakhstan realizing Ministry of Agriculture’s programs Kazagro specializes in two main activities: Lending activities KazAgro acts as a primary vehicle in providing state financial support to the agricultural sector and rural areas Agricultural activities actively involved in grain trading activities to maintain stable prices in Kazakhstan as well as for commercial purposes development of meat, milk and other priority sectors as well as export potential Gross volume of crediting to agribusiness, USD million Current structure of KazAgro Holding Lending activities Agriculture activities JSC NMH KazAgro KazAgro Finance (KAF) Agrarian Credit Corporation (ACC) Fund of Financial Support of Agriculture (FFSA) Food Contract Corporation NC (FCC) KazAgroProduct KazAgroMarketing KazAgroGarant Leasing and project financing to agribusiness companies Lending to credit unions and SMEs Lending to small businesses and microfinancing institutions in rural areas Purchase, storage, transfer and sale of grain Purchase meat, wool and animal skins and hides Provides information and consultation support to agribusinesses Guarantees to grain and cotton holders in respect of the performance obligations of domestic grain storage facilities and cotton-processing facilities As per consolidated IFRS Financial Statements for the years ended 31 December 2015 and 31 December 2014, note 5 ("Segment information") Total of local banks and KazAgro As per the National Bank of Kazakhstan As per KazAgro annual reports (2015, 2014 and 2013) 12
13 Credit Strengths 3 About KAZAGRO Strong government support1 Strong government support 100% owned by the State of Kazakhstan through the Ministry of Agriculture One of only three National Management Holding Companies in the country Board of Directors includes senior Government officials: Deputy Prime Minister- Minister of Agriculture (the Chairman) Vice-Minister of Agriculture Vice-Minister of Finance Minister of National Economy History of Government support through subsidised lending and capital contributions 2 High capitalisation Shareholders’ Equity of USD 1,3 bn as of 2015 period end, representing 26% of Total Capitalisation1 As of 1H2015, approximately 31% of the Group’s Total Capitalisation is represented by share capital contributed by the State, loans from the National Fund and loans from the State2 The Government has historically maintained high capitalisation and prudent financial management of the Company 3 Well positioned to benefit from competitive strengths Participation in Government programmes – the Group is the largest provider of finance to the agricultural sector in Kazakhstan – uniquely positioned to maintain its leading role Loans and funding from the National Fund and the State budget to finance agriculture in Kazakhstan generally at below market rates Access to subsidised funding from the State budget / National Fund Under its mandate, the Group is able to develop existing and explore new segments of the agricultural sector, which are not yet penetrated by commercial financial institutions Diversified target market expertise by subsidiary Extensive distribution network to a wide customer base – 54 branch offices, 15 representative offices and 3 branch establishments across Kazakhstan and overseas 4 Favorable funding profile Credit ratings benefitting from State support – “BBB-” (Negative Outlook) by Fitch and “BB+” by S&P (Negative Outlook) Substantial part of borrowings on the balance sheet are from the State budget / National Fund at concessional rates Total Capitalisation equals Total Liabilities plus Total Equity equals Total Assets Consolidated IFRS Financial Statements for the period ended 2015, balance sheet and Notes 12-15: Total equity (USD 1,3 bn ) + Amounts due to the Government of the Republic of Kazakhstan (KZT 41 bn) + Debt securities issued to the National Fund (KZT 15 bn) / Total Assets (KZT 1,107bn) 13
14 Strong Track Record of State Support3 About KAZAGRO Strong Track Record of State Support State support The Government supports the Group via equity injections and loans from the State Budget and National Fund Concessional rates of interest on Government loans range from 0.00% to 1.00% Capital adequacy parameters of Banking subsidiaries are above minimum levels required by National Bank of Kazakhstan KazAgro is generally able to extend loans provided by the National Fund and the State Budget at rates below market Loans from the State Budget Funding from the National Fund Substantial funding directly from the Ministries of Finance and Agriculture as well as local Government executive bodies Short-term Budget loan amounting KZT 60 bn is received every year KZT120 bn (USD 1,0 bn) funding from National Fund maturing in 2041 at concessional rate (0,02%) Shareholders’ equity, mln. USD Funding Sources, mln. USD Source: Consolidated IFRS Financial Statements for the years ended 31 December 2015, 31 December 2014 and 31 December 2013 IFRS Financial Statements for the six months ended 31 December 2015 Increase in share capital as reported in Consolidated Financial Statements 14
15 Financial Performance3 About KAZAGRO Financial Performance Revenue and gross profit, USD million Operating efficiency, %1 Total assets and %-earning assets2 / Total assets Liquidity position, %3 Source: Consolidated IFRS Financial Statements for the six months ended 30 June 2015 and years ended 31 December 2014, 31 December 2013 and 31 December 2012. Non-interest expense as a separate line item reported in Consolidated Financial Statements, total revenue comprises revenue from sale of goods and services and interest income (gross). Interest earning assets comprise sum of cash and cash equivalents, amounts due from credit institutions, loans to customers, finance lease receivables and investment securities available for sale from Balance Sheet of Consolidated IFRS Financial Statements “Deposits” represent “Amounts due from credit institutions” as per Balance Sheet for years ended 31 December 2015, 31 December 2014 and 31 December 2013. 15
16 КАЗАГРО MINISTRY OF AGRICULTURE OF THE REPUBLIC OF KAZAKHSTAN3 About KAZAGRO CONTACT INFORMATION MINISTRY OF AGRICULTURE OF THE REPUBLIC OF KAZAKHSTAN Republic of Kazakhstan, Astana city 010000, Kenesary str. 36 Ministry of Agriculture of the Republic of Kazakhstan Tel.: +7 (7172) , 010000, Republic av., 24 “KazAgro” National management holding” JSC Tel.: +7 (7172) Fax: +7 (7172) , КАЗАГРО National Management Holding