JPMorgan - KASE

The Government has made radical reform of the pension system and, in June 1997, “enacted” a
new law and made amendments to various other laws facilitating pension reform (together the
“Pension Laws”). The Pension Laws establish a legal framework for the transfer of the pension
system from a State “pay as you go” system to a “fully funded” accumulative pension system. The
aim is that private individual retirement accounts will be the main source of pension payments.
Social allowances for qualifying persons (e.g., disabled persons), which had previously been paid
through the State pension system, are now paid through local budgets. Individual accounts are
maintained with pension funds managed by pension asset management companies licensed and
supervised by the NBK. Pension asset management companies are subject to regulations,
including various financial ratios (such as capital adequacy requirements) similar to those
imposed on banks and investment requirements. As of 1 January 2002, pension fund assets
amounted to 182.4 billion Tenge compared to 112.9 billion Tenge as of 1 January 2001 and 64.6
billion Tenge as of 1 January 2000. The percentage of assets accumulated by the State
accumulative pension fund as of 1 January 2002, equaled 32.3 percent. of the total volume of
accumulated pension assets (compared to 38.9 per cent. as of 1 January 2001 and 52.5 percent. as
of 1 January 2000). As of 30 June 2002, the pension fund assets had increased to 222.1 billion
tenge.
The Pension Laws increased the pension age from 55 to 58 for women and from 60 to 63 for
men. A social tax of 21 per cent. of total wages is payable by employers and employees are
obliged to pay 10 per cent. of their salaries into their private pension and are permitted to make
additional contributions to their respective private pension funds.
Although the changeover to a fully funded system will take many years to complete and until
then the legacy of the old system will remain a burden on the State’s resources, the introduction
of a “fully funded” pension system has been successful and it has achieved significant results
within its first four years. The sound growth of the pension industry provides is basis of the rapid
development in the Kazakhstan’s financial and capital markets.
Environment
Kazakhstan faces significant environmental problems which, to a large extent, stem from the
period when it was part of the former Soviet Union. Outdated technology and capital equipment
in the metallurgical sector produce heavy pollution, mostly in the north and east of the country.
Semipalatinsk, a city in north east Kazakhstan, has a military facility which until 1990 was used
for nuclear testing and many locations in the vicinity are heavily contaminated by radioactive
waste. Other locations in Kazakhstan were used by the Soviet Union for the testing of biological
weapons and are as a result contaminated with various pathogens.
The former Soviet Union’s “Virgin Lands” policy of the 1950s and 1960s, whereby large areas of
Kazakhstan’s steppe land were ploughed to increase Soviet grain production, has led to soil
erosion on a wide scale and up to 66 per cent. of Kazakhstan’s agricultural land is under threat of
desertification. Excess irrigation has halved the surface area of the Aral Sea in southern
Kazakhstan exposing land which is unsuitable for agriculture. Further, the Caspian Sea suffers
from serious pollution due to industrial dumping.
In 2001, the Ministry of Natural Resources and Environmental Protection’s budget for
environmental protection and the safe-guarding of the water supply was 4.97 billion Tenge.
Natural Resources
Introduction
The extraction and production of hydrocarbons and minerals are the most significant industries
in the Kazakhstan economy. The export of hydrocarbons and minerals accounted for 58.0 per
cent. of total exports in 2001. According to official estimates, oil and gas reserves are significant
and to a large extent have not been fully explored.
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