Enhancing FDI inflows into oil and gas industry, case study of Kazakhstan and Uzbekistan ICOGE 2011 Cairo, Egypt. October 22, 2011 Jamola Khusanjanova Ewha Womans University, Institute for Development Human Security This research was supported by WCU (World Class University) program through the National Research Foundation of Korea funded by the Ministry of Education, Science and Technology (Grant Number: R )

Table of Contents Background information  Kazakhstan & Uzbekistan differences similarities;  Research question; FDI inflows to oil & gas industry Legal Framework: Kazakhstan vs. Uzbekistan Findings Policy recommendations 2

Background information Kazakhstan & Uzbekistan differences similarities Research question analytical framework

Kazakhstan & Uzbekistan differences similarities KazakhstanUzbekistan 2,727 sq km 16,6 million GDP composi tion 28,7 million 447,0 sq km 1. Background information

Source: CSI database Kazakhstan & Uzbekistan differences similarities 1. Background information GDP growth rates

6 Research question, analytical framework Research question Literature review Cross country analysis FDI to oil and gas industry Case studies Spillover  adoption of new technology; knowledge Strong relationship  positive impact, Not strong relationship  neutral There is a relationship  Low positive impact 1. Introduction: Background information How FDI to oil and gas industry of developing countries affect development? Variables GDP growth rates Dependant variable FDI to oil & gas Independent variable Survey

Concluding arguments foreign direct investment may lead to economic growth under certain conditions  FDI to hydrocarbon industry have positive impact on development in case when FDI projects are allocated in capacity building rather than in oil and gas extraction and its export without further processing  welfare is not necessarily its rate of growth of output, but rather the level of output  FDI projects allocation can play significant role in facilitating development  Different internal legislation effect indirectly development 7 1.Background information

FDI inflows to oil & gas industry

Share of total FDI in GDP CIS data base 9

share of FDI to oil and gas industry as share of total FDI (%) 10

FDI to oil and gas as a (%) of GDP of Kazakhstan and Uzbekistan 11

GDP composition of Kazakhstan (%) Ministry of statistics of Kasakhstan 12

GDP composition of Uzbekistan (%) Statistical agency of Uzbekistan 13

Legal Framework: Kazakhstan vs. Uzbekistan

Legal acts Kazakhstan Law on petroleum 1995 Law on surface and use of subsurface 1996 Uzbekistan Law on Oil and Gas 1993 Subsoil law 1995 Law on Mineral Resources

16 Complementary body Contractor Producer  Sub companies of holding company holding company Producer Ministry of energy and mineral resources Perhaps stricter rules in monitoring actions related to FDI to oil and gas industry does lead to more benefit for the host country 2. Legal framework : Kazakhstan vs. Uzbekistan Kazakhstan Uzbekistan

..in case of Kazakhstan Proposal title in here 17 Lack of legal framework as a indirect cause of recourse exploitation Investment climate Lead to resource coerce Dutch disease  Dependence of GDP on exporting more raw materials oil and gas Law "On Investment” 2003 Customs Code and the Customs Code of the Customs Union 2003 law “On Government Procurement 2003 Tax code 2007 Legal acts Causes 2. Legal framework : Kazakhstan vs. Uzbekistan

Proposal title in here 18Proposal title in here 18 Investme nt climate diversification of production new factory –new work places About the state monitoring of a course of realisation of the projects included in the investment program Law About Foreign investors 1998 About guarantees and measures of protection of the rights of foreign investors About bowels Legal acts Causes..in case of Uzbekistan

Findings

20 UZB 2. Description of the contents First stage 1997 Tax code: 1998 "About foreign investments“; 1998 "About guarantees and measures of protection of the rights of foreign investors"; 1998 "About investment activity"; 1998 "About measures on perfection of the mechanism of realisation of projects with foreign investments"; 2000 "About measures on attraction of direct foreign investments into investigation and an oil recovery and gas“ 2000 "About the state monitoring of a course of realisation of the projects included in the investment program of Republic Uzbekistan" Law on Oil and Gas 1993 Law on Mineral Resources 1994 Subsoil law "About external loans“ Second stage Third stage

Kazakhstan 21 Findings Law on petroleum 1995 Law on surface and use of subsurface 1996 Tax code 2007 Law "On Investment” 2003 Customs Code and the Customs Code of the Customs Union 2003 law “On Government Procurement

Policy recommendations

Policy recondation 23 richness of oil field Based on: Flexible taxation system In sense of: Trans parency With regard to Coordina tion FDI season of year more diverse actors liberal legislation project allocation capacity building long term goals Application

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