kazakhstanfinance by mzia botchorishvili

kazakhstanﬁnance Y O U R PA RT N E R F O R S U C C E S S F U L B U S I N E S S I N K A Z A K H S TA N A N D C E N T R A L A S I A

Never mind

‘Borat’

“Wall Street” of Almaty? Think more Hong Kong of Cental Asia!

don’t miss out on Kazakhstan’s boom

Size matters? competition holds no fear for the independent stockbroker View from the top Islamic banking comes to Kazakhstan: BTA’s driving force behind the move

B A N K I N G

I N V E S T M E N T

E C O N O M Y

F I N A N C E

w w w. e u f i n a n c e m a g s . c o m

contents

C O N T E N T S Chairman: Basil Arrindell Editor: Marta Lanka

04 08

Assistant Editor: Toyin Ogundipe

10 08 New era for Kazakhstan’s share market kazakhstan • profile

Publisher: Levan Maruashvili

Production Manager: Ian Borman Project Manager: Dinara Shahar Commercial Director: Andy Taylor Marketing Manager: Geoff Thompson Client Liaison Officer: Andrea Harris Credit Control: Mary Kimbell Sales Manager: Kinga Justyna Zieba

publisher’s note • profile 04 kazakhstan publisher ’s note By Natalia Korzhova, Minister of Finance

12 16

By Saidenov, Natalia Korzhova, Minister of FinanceBank of Kazakhstan By Anvar Governor of National

banking Islamic Banking comes to Kazakhstan

12 By Timur View from the topto the Chairman of the Managing Board, JSC BTA Alim, Advisor By Anvar Saidenov, Governor of National Bank of Kazakhstan

By Timur Alim, Advisor to the Chairman of the Managing Board, JSC BTA

JSC Bank TuranAlem USD 250,000,000 Syndicated Wakala restricted

Commodity Murabaha Financing Facility Windswith of change are sweeping Kazakhstan’s banking sector By Talgat Kuanyshev, Chief Executive Officer of ATF Bank

Safe pair of hands

By Sholpan Aynabayeva, CEO Kazkommerts Securities

Mapledene Publishing, the publishing Designer & Art Director: M. G. Bochorelli

Commodity Murabaha Financing Facility

Kuanyshev, Chief of ATF Bank 20 By Talgat Winds of change areExecutive sweepingOfficer Kazakhstan’s banking sector

division of Hill Davenport

New era Kazakhstan’s share market View from thefortop

18 16 JSC Bank TuranAlem USDto 250,000,000 Syndicated Wakala restricted with Islamic Banking comes Kazakhstan

Display Sales: Tina Simpson

Designed & published by:

finance

Competition holds no fear for the independent stockbroker

22 By Rozaliya Safe Fedulova, pair of hands General director JSC “RBNT Securities” By Sholpan Aynabayeva, CEO Kazkommerts Securities

28 26 Organization of financing for projectstockbroker is a big challenge for a young Competition holds no fear forG4 theCity independent By Rozaliya Fedulova, General director JSC “RBNT Securities”

managing company

28 By Arkady Organization financingoffor City project is a“Seven big challenge for a young Rakhilkin,ofChairman theG4Board of the JSC Rivers Capital”, a professional managing company financier-mathematician

mapledene

publishing

By Arkady Rakhilkin, Chairman of the Board of the JSC “Seven Rivers Capital”,

30 35

professional “Wall aStreet” offinancier-mathematician Almaty? Think more - Hong Kong of Central Asia!

30 35

“Wall Street” of Almaty? Think more - Hong Kong of Central Asia!

Fashion that brings money

40 40 Discovering Central Asia Investors Discovering Central Asiafor for Foreign Foreign Investors Kazakhstan: dimension on on the towards 50 competitive countriescountriesof 44 44 Kazakhstan: thirdthird dimension theway way towards 50 competitive

Printed in the UK

of the world

kazakhstanfinance magazine is published by Mapledene Publishing, the publishing division of Hill Davenport. Its entire contents are protected by copyright 2007 and all rights are reserved. Reproduction without prior permission is forbidden. Every care is taken in compiling the contents of the magazine, but the publishers assume no responsibility in the effect arising there from. The views expressed in this publication are not necessarily those of the publisher. Readers are advised to seek professional advice before acting on any information contained in the magazine.

hill

davenport

Trans-Fibre-Optic Trunk Line

By Andrey Vassilievich Khan, the First Deputy General Director of the JSC “KazTransCom” Trans-Fibre-Optic Trunk Line

Vassilievich Khan, the moves First Deputy General Director of the JSC “KazTransCom” 50 By Andrey Central Asia’s retail giant up a gear By Eduard Kim, President/CEO TechnodomGroup Company LLC

50 54 Central Asia’s retail giant moves up a gear Old kids on the Block 54 56 60 64

56 60

By Eduard Kim, President/CEO TechnodomGroup Company LLC Management Consultants are on the march in Kazakhstan By Aidarkhan Old kids on the Kussainov, Block General Director of “Almagest” Company

Success in business education: step by step

Management Consultants are on the march in Kazakhstan By Olga Kuznetsova, Rector of International Academy of Business, PhD

By Aidarkhan Kussainov, General Director of “Almagest” Company 64 Leader of the pack

By Algazy Sekenov, Chairman of the Board, Pension Fund “GNPF’ Success in business education: stepJSCby“Accumulation step

Kuznetsova,Deposit RectorInsurance of International Academy 66 By OlgaKazakhstan System: One of of theBusiness, pillars ofPhD the financial safety net By Bakhyt Mazhenova, General Director of the Kazakhstan Deposit Insurance Fund

Leader of the pack

68 By Algazy Never mind ‘Borat’ – missing out on Kazakhstan’s continues growth could be the Sekenov, Chairman of the Board, JSC “Accumulation Pension Fund “GNPF’ biggest mistake in your company’s history

66 70 Kazakhstan Deposit Insurance System: Onesector of the pillars of the financial Safety improvements on Kazakhstan’s mining 72

Boatmans House, 2 Selsdon Way, City Harbour London E14 9LA United Kingdom Tel: + 44 (0) 20 7537 6747 E-mail: info@eufinancemags.com www.eufinancemags.com www.hilldavenport.com

the world

safetyKazakh net firm in Romania oil deal

General 74 By Bakhyt DamMazhenova, project aims to saveDirector Aral Seaof the Kazakhstan Deposit Insurance Fund Pipeline–tomissing Cross Kazakhstan 68 76 NeverChinese mind ‘Borat’ out on Kazakhstan’s continues growth could be Kazakhstan Applies Sakhalin-2 Methods to Kashagan

the biggest mistake in your company’s history Advertisers list

Safety improvements on Kazakhstan’s mining sector

Kazakh firm in Romania oil deal

Dam project aims to save Aral Sea

Chinese Pipeline to Cross Kazakhstan

Kazakhstan Applies Sakhalin-2 Methods to Kashagan

Advertisers list

contents

Chairman: Basil Arrindell Publisher: Levan Maruashvili Editor: Marta Lanka

publisher ’s note

Assistant Editor: Toyin Ogundipe

kazakhstan • profile

finance

banking

Islamic Banking comes to Kazakhstan

JSC Bank TuranAlem USD 250,000,000 Syndicated Wakala restricted with Commodity Murabaha Financing Facility

Winds of change are sweeping Kazakhstan’s banking sector

Designed & published by:

New era for Kazakhstan’s share market By Natalia Korzhova, Minister of Finance

View from the top By Anvar Saidenov, Governor of National Bank of Kazakhstan By Timur Alim, Advisor to the Chairman of the Managing Board, JSC BTA

By Talgat Kuanyshev, Chief Executive Officer of ATF Bank

Mapledene Publishing, the publishing division of Hill Davenport Designer & Art Director: M. G. Bochorelli

mapledene

publishing

Printed in the UK

Boatmans House, 2 Selsdon Way, City Harbour London E14 9LA United Kingdom Tel: + 44 (0) 20 7537 6747 E-mail: info@eufinancemags.com www.eufinancemags.com www.hilldavenport.com

hill

davenport

Safe pair of hands

By Sholpan Aynabayeva, CEO Kazkommerts Securities

Competition holds no fear for the independent stockbroker

By Rozaliya Fedulova, General director JSC “RBNT Securities”

Organization of financing for G4 City project is a big challenge for a young managing company

By Arkady Rakhilkin, Chairman of the Board of the JSC “Seven Rivers Capital”, a professional financier-mathematician

“Wall Street” of Almaty? Think more - Hong Kong of Central Asia!

Fashion that brings money

Discovering Central Asia for Foreign Investors

Kazakhstan: third dimension on the way towards 50 competitive countries of the world

Trans-Fibre-Optic Trunk Line

By Andrey Vassilievich Khan, the First Deputy General Director of the JSC “KazTransCom”

Central Asia’s retail giant moves up a gear

Old kids on the Block

Management Consultants are on the march in Kazakhstan

Success in business education: step by step

Leader of the pack

Kazakhstan Deposit Insurance System: One of the pillars of the financial safety net

Never mind ‘Borat’ – missing out on Kazakhstan’s continues growth could be the biggest mistake in your company’s history

Safety improvements on Kazakhstan’s mining sector

Kazakh firm in Romania oil deal

Dam project aims to save Aral Sea

Chinese Pipeline to Cross Kazakhstan Kazakhstan Applies Sakhalin-2 Methods to Kashagan

Advertisers list

By Eduard Kim, President/CEO TechnodomGroup Company LLC

By Aidarkhan Kussainov, General Director of “Almagest” Company By Olga Kuznetsova, Rector of International Academy of Business, PhD By Algazy Sekenov, Chairman of the Board, JSC “Accumulation Pension Fund “GNPF’ By Bakhyt Mazhenova, General Director of the Kazakhstan Deposit Insurance Fund

kazakhstan • profile

Kazakhstan at a glimpse Facts Full name: Republic of Kazakhstan Location: Central Asia Population: 15.4 million (UN, 2005) Capital: Astana ( 375,000 inhabitants) Largest city: Almaty (over 1 mln inhabitants) Area: 2.7 million sq km (1 million sq miles) Population Density: 5.5 per sq km Major languages: Kazakh, Russian Major religions: Islam, Christianity Life expectancy: 58 years (men), 69 years (women) Monetary unit: 1 Kazakh tenge = 100 tiyn GNI per capita: US $2,930 (World Bank, 2006) Main exports: Oil, ferrous and nonferrous metals, machinery, chemicals, grain, wool, meat, coal Largest trading partners: The Russian Federation, China, Germany, the US and Italy

Time zones: Central Zone: GMT + 5, Western Zone: GMT + 4 Internet domain: .kz International dialling code: +7

Geography A huge country covering a territory equivalent to the whole of Western Europe, five times the size of France and half the size of the USA. Kazakhstan is the ninth largest in the world and the second largest state in the Commonwealth of Independent States (CIS). 90 per cent of the country comprises of steppes, the sand massifs of the Kara Kum and the vast desert

of Kizilkum, while in the southeast of the country the mountains of the Tian Shan and the Altai form a great natural frontier with thousands of lakes and rivers. About 300 glaciers are located in the mountains. The Aral Sea and Lake Balkhash are the country’s largest expanses of water. The highest point of Kazakhstan is 7.010 meters above sea-level (Khan Tengry Peak). The lowest point is

132 m below sea-level in western Kazakhstan (Karahay hollow, east of the Caspian Sea). The climate is continental and fairly dry with cold winters and hot summers. The hottest month is July (August in mountain regions). As summers are ferociously hot and winters bitterly cold, spring (April to June) and autumn (September to October) are the best seasons to visit.

lead, aluminum, uranium. Stone, such as marble and granite, is quarried in large quantities. The country’s industries are predominantly geared towards processing these raw materials. Agriculture still accounts for half the economic output. The country produces meat and grain. However, one of the consequences of extensive cultivation has been the excessive demand on water supplies, in particular Kazakhstan’s rivers and those of its neighbour Uzbekistan. This was the major basis of one of

the greatest ecological disasters of recent times, resulting from inefficient irrigation projects – causing severe shrinkage of the heavily polluted Aral Sea. Since independence, Kazakhstan has joined the IMF, World Bank and the European Bank for Reconstruction and Development, and has signed a partnership and cooperation agreement with the EU. It also belongs to the main regional economic co-operation venture, the Central Asian Economic Union (ECO).

Economy Kazakhstan has vast mineral resources and enormous economic potential. The country’s main assets are its huge and largely untapped oil and gas fields, which may match those of Kuwait in volume. Since independence, there has been major foreign investment in the Caspian oil sector. Oil development has brought rapid economic growth, which saw GDP increase by around 9 per cent annually since 2000. Kazakhstan also enjoys large reserves of coal, copper, iron, zinc,

[ 08 ]

kazakhstanfinance | autumn 2007

kazakhstan • profile

Cities Astana The capital city was transferred from Almaty to Astana in December 1997 (formally it was known as Akmola until 1998). President Nazarbaev cited Astana’s more central and less earthquake-prone location, better telecommunications and transport infrastructure, rail links with Russia and availability of undeveloped land for the city’s development among its advantages.

Almaty It was until very recently the capital of Kazakhstan (1929-1997) Now, Almaty with a population of over one million is an economic, financial, scientific, educational, cultural and transport center of the country. The underground railway will soon be operational. It is a green city with modern architecture, cool fountains and parks. Situated in the southern part of the country, it enjoys a beautiful setting between mountains and plains with spectacular mountain views.

Formerly known as Alma-Ata, it is called Almaty since 1994. The word Almaty means “apple abundance” from the Turkic word “alma” meaning apple tree.. The climate varies from continental to sub-continental and in some places almost arctic. The southern and northern parts of the city are located in different climatic zones. The temperature may rise or fall 10° to 15°C within 24 hours. It is possible to visit five climatic zones within a day or less while traveling around the Almaty region.

indicates a high level of respect. Kazakhs do not object receiving uninvited guests, that is why when you come to a Kazakh home unexpectedly you will be treated as if you were invited.

Chai-Khana (tea-rooms) where visitors may sip this Kazakh specialty. It is drunk very strong with cream. Almaty is renowned for its apples – indeed the city was named after them.

Social profile Population Ethnically it is a diverse country, with the Kazakhs comprising over 53% of the population, the Russians covering just over a quarter, with smaller minorities of Ukrainians, Germans, Chechens, Kurds, Koreans and Central Asian ethnic groups accounting for the rest. Language The official state language is Kazakh, a Turkic language closely related to Uzbek, Kyrgyz, Turkmen and Turkish. Russian is utilized as a second official and for international communication. The Cyrillic alphabet is in general use. English is usually spoken by those involved in tourism Traditions and customs Kazakhs are very hospitable and like to welcome visitors. When greeting a guest, the host gives him/her both hands depicting they are unarmed. When addressing a guest or elder, a Kazakh may address them using a shortened form of their name, adding the suffix ‘ke’. For example, Abkhan may be called Abeke, Nursultan can be called Nureke. This

National cuisine In general Kazakhs prefer meat dishes. A favourite national dish is beshbarmak. It is cooked lamb, horse meat, beef and dough. Such horse meat dishes as kazy, karta, zhal, zhaya and, of course, kumys (mare’s milk) are favourites. A medicinal drink kumys (mare’s milk) has curative qualities and effects and is used for the treatment of lung and gastro-intestinal disorders. Cafes where this can be ordered are called Kumis-Khana. In the steppe and desert regions where camels are bred, their milk, called shubat, is offered to guests. Kazakh tea or chai is very popular and there are national cafes called

Political structure: Kazakhstan is a presidential republic. Head of State: President Nursultan A. Nazarbayev, has been in office since 1991. Elections in December 2005 returned Mr Nazarbayev for a further seven-year term.

The parliament consists of two chambers, Senate and Mazhilis (the lower chamber). Head of the Government: is the Prime Minister, Karim Masimov.

kazakhstanfinance | autumn 2007

[ 09 ]

New era for Kazakhstanâ&#x20AC;&#x2122;s share market

Natalya Korzhova Born on 8 April1958, in Sarkand, near Almaty. In 1979, graduated with honors from the Alma-Ata Institute of National Economy, with a Doctorate in Economic Sciences. In January 2006, she was appointed Minister of Finance of the Republic of Kazakhstan. She commenced her career at the Ministry of Finance in 1979. For three years, she was a member of the Government, as Minister of Labour and Social Protection of the Population of the Republic of Kazakhstan. 1999 to 2002, Vice Minister of Finance. 2002 to 2005, Vice Minister, First Vice Minister of Economy and Budgetary Planning. Ms. Korzhova is a member of the Committee on Human Rights of the Republic of Kazakhstan, she is also the author of a number of scientific publications in periodicals.

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kazakhstanfinance | autumn 2007

azakhstan, having made powerful economic jerk for last 16 years of the independence, has followed a way of the further modernization of economy and, accordingly, developments of own share market. Considering annual economic growth in more than 9% and increase in incomes, both the states, and the population of the country, the important question for today is presence of tools of investment of super incomes and accumulation of citizens of Kazakhstan. Today the country lives in conditions of financial stability. We have great volume of savings of the population which is in the bulk concentrated on deposits of banks of the second level. I shall cite such data: for January, 1st, 2007 the total sum of contributions of physical and legal persons on deposits in banks of the second level has made the order 5 billion tenge, and accumulation in pension funds more than 900 billion tenge. Axiom of economy is that fact, that money is not only an equivalent of work. It also the powerful financial tool. Therefore we have put before ourselves some questions on which it is necessary to find right answers. How to make work of the saved up money of more effective? How to save them from deprecia-

tion? How to involve tenge in an economic turn? With construction of the open market economic system there were many opportunities to succeed, increase a seed capital, to improve the well-being. But the risk has increased also to lose the accumulation, from the succeeding creditor to turn to the debtor or the bankrupt. We see, that the significant part of the population has no base financial formation as its one part became in conditions absolutely other economic system, another experienced an epoch of â&#x20AC;&#x153; initial accumulation of the capital â&#x20AC;&#x153; - time of cardinal changes when financial skills were got by a trial and error method. It really limits an opportunity of people to make correct decisions in sphere of credit-and-monetary attitudes, for maintenance of the financial well-being. Moreover, it creates danger of distribution of various financial frauds and dodges. Absence of basic knowledge in the field of investment interferes with involving of significant actives of the population in development of economy, and the poor control citizens the growing accumulation does their vulnerable before the person of financial crises that can create threat of stability of a financial system of the country as a whole. Considering set of these factors, we as the state managers, have set for themselves a problem - to provide

financial literacy of the population, to construct system of financial formation of simple citizens. For this purpose it is supposed to lead scale work on training the population to elements of investment literacy. It is necessary to lift a level of knowledge and skills of each member of our society up to independence First of all, skill to estimate risk of the investments is necessary. Understanding of the effective rate of percent for the credit, that is, that you really pay, instead of see in advertising. Skill to estimate and choose bank products to use the basic tools of the share market - actions, bonds, shares, etc. the Question of training of ordinary citizens to base knowledge in the field of the finance has caused anxiety recently many countries with the developed market economy. For last five years in the USA the group of the federal ministries and the nongovernmental organizations which basic purpose is the help in formation of base financial knowledge of the population was generated. Programs of assistance of financial literacy of children of preschool and school age, projects of formation of the base financial competence at adults actively operate. In the Great Britain since 2000 liquidation of blanks of base financial knowledge of the population began to be financed from the budget. The special agency realizing the project â&#x20AC;&#x153;Financial literacyâ&#x20AC;? Here functions, are widely used IT - technologies. In Australia in 2005 the National concept is approved and the special fund of financial literacy is approved. In Germany the ministry of family and youth together with several associations (financial advisers, credit companies and even the German Red Cross) is engaged in questions of base financial knowledge of citizens. The special Internet-portal functions, the methodical literature is published What we suggest to do For the decision of this problem the Government of Kazakhstan will realize the Program of increase of investment culture and financial literacy of

the population. The program provides wide informing and training of the population to the financial letter. Now, the spadework on release of the financial literature for the population is conducted, the edition of grants and explanations for the joint-stock companies emitting securities is carried out. And reviews clauses are published in magazines and newspapers, interview and conversations on TV with experts and heads of the organizations - professional participants of the financial market, and also with the people mastered technologies of management by the finance and having necessary experience are spent. Development of training programs and computer games is conducted, their distribution by means of modern means of communications will be organized, creation web-sites, electronic directories, the Internetconferences for users is planned financial tools. Also creation of a network free-ofcharge is planned is informationconsultation centers, curriculums of professional educational institutions, HIGH SCHOOLS and colleges, courses of improvement of qualification will be added and adapted for new requirements. Practice, Practice, Practice As well as any other, investment training demands practice. For practical realization of the program by the government of Kazakhstan selection of the state companies which actions will be realized in the share market of the country for private investors is lead. Into their number will enter also world famous - for example, ERNC PLC in which the state is one of shareholders. According to the Governmental order, we intensively carry on negotiations with other shareholders ERNC on realization of actions for the population. It is preliminary possible to tell, that we plan accommodation of 0,8 percent in September-October of this year. Thus for achievement of a task in view necessary coordination and statements with participation of external advisers are spent all. Would like to emphasize - prospective ac-

c e

commodation will be only for physical persons - citizens of Kazakhstan, and, with a view of exception of gamble, we consider an opportunity of limitation of quantity of actions on the person. Stability the keystone to success Any component of economy and furthermore the share market, demands stability, both economic, and political. Therefore we have officially incurred obligations and are ready to give the certain guarantees. Firstly, the state guarantees strict execution of the legislation of Republic Kazakhstan by all participants of the market. At us one of advanced in the CIS countries and the East Europe legislative base is prepared and introduced, financial monitoring by bodies of financial supervision is up to the mark carried out. Secondly, the state guarantees the corresponding macroeconomic and fiscal policy of stable development of economy and, accordingly, financial sector, as its integral part of supervision. The weighed economic policy of the Government spent today is directed on the constant and balanced growth of economy. Thus factors of influence of those or other measures, including on financial sector are considered all. In the chapter of a corner the attention to the question of minimization of risk of financial crisis in the country is brought. Thirdly, the state guarantees creation of the conditions directed on an establishment of a transparency of the companies, such, for example, as introduction of the international financial standards of the reporting at all enterprises of Kazakhstan. On this question we have a program of actions which, including provides creation of Financial Academy at the Ministry of Finance. Uniformity in the reporting should play the role. In my personal opinion, the strategy chosen by us is directed on success and the decision of the problems put before us that at the present progressive government will be achievable. KF

kazakhstanfinance | autumn 2007

[ 11 ]

View from the top This summer no traditional slack is observed at the world markets: unreliable borrowers have brought the mortgage lending sector down in the USA. Stock markets collapsed immediately after.. Oil prices are testing and breaking through “historical maxima” one after another, though not long ago they moved down driven by global propaganda of bio-ethanol. All those factors could not but influenced the domestic financial situation being traced and balanced by the National Bank using monetary policy instruments. Three potential alternatives in development of the financial situation depending on oil prices, and responses are described in Guidelines of Monetary and Credit Policy 2005-2007. What scenario are finances “living” now under and what are they preparing for us? That is Anvar SAIDENOV, Chairman of the National Bank, who gives us an answer..

Anvar Saidenov Governor of National Bank of Kazakhstan

At upper price bar

Anvar, as far as I remember, not so long ago decrease in oil prices was recognized as the most realistic scenario. But the situation has swung round… and what strategy of the Monetary Policy manages your finances now?

Indeed, all the three scenarios are based on two key factors: world oil prices and capital inflow to the country. The first of them is moderate prices – moderate inflow. In other words, oil price is less than 60 US dollars/barrel; capital inflow is lower than average annual inflow of the previous two years. In this

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kazakhstanfinance | autumn 2007

case decrease in oil prices as a long-term tendency and increase in loan value at the international markets would ensure decrease in foreign financing of oil production projects and net foreign loans by banks. According to the scenario, in 2007 average annual inflation would make 6..2-7..2 percents and during the next two years 6..0-7..0 percents. The second scenario is moderate prices – high capital inflow. In this case it is assumed that preservation of low loan value and uncertainty as to oil prices dynamics would contribute to further expansion of foreign credits to banks and increase in financing of oil production projects. Three-year inflation forecast is: Year 2007 –7..3 to 8.3 percents and the next two years - 6..9 to 7..9 percents.. The third scenario (high oil prices) is more than 60 US dollars/barrel. In this case it’s expected to increase additional financing of oil and gas projects and foreign loans by banks and enterprises. That will result in higher pressure on tenge exchange rate which will become stronger. Inflation limits are: in 2007 8.2 to 9.2 percents and during next two years 8 to 9 percents. In other words, when economy is developing, it is difficult to forecast decrease in inflation.. For the time being, the National

Bank regards the scenario of moderate oil prices and high capital inflow as the priority scenario. The Monetary and Credit Policy provided for increase in the regulation role of short-term rates for market fee rates. It is ensured through narrowing of the rate corridor: the lower rate is for deposits and the upper one for loaning. The scenario makes provision for increase in circulation periods and increase in notes issue of the National Bank. Therefore, starting from March we started issuing notes having maturity periods of up to one year. Before March we had issued notes with maturity period of 28 days. However, the scenario of high prices is very probable and, as a result, the Monetary and Credit Policy is toughened. A mechanism of bank loans, repo operations and rediscount operations will be improved. In particular, a list of charging instruments will be enlarged; capability to unify their circulation periods will be studied. However, together with measures of the restrictive Monetary and Credit Policy, it is required to toughen the budget policy to decrease inflation. The National Bank will keep to a floating exchange rate of tenge and will not set any fluctuation benchmarks or corridors for it and its intention is to decrease its share at the domestic money-market..

Indicative but decisive rate

have to be increased as well.

from July 1 the formal refinancing rate of the National Bank is 9% a year. That rate is the same for a year now. Although, speaking about the market, it is more changeable. What are arguments for stability of the rate?

Starting from 2004 the main goal for the National Bank is to ensure stability of prices. What kind of monetary instruments are applied to achieve that goal and if selection of the instruments has changed in 2007?

Just to remind that it is of indicative nature as second-tier banks obtain no refinancing loans under it. The National Bank uses this rate for rediscount operations only and their volume is not so big. The rate can influence the market rates indirectly. However, it is important as due to a change of the official rate the market subjects can explore its tendencies and expectations. The refinancing rate is an index of our intentions. It increases when the National Bank decides to keep a tough monetary and credit policy and decreases when the policy is mitigated.. In 2005 the National Bank started practising of quarterly rate review. Its change is defined with a general status of the money market, demand for and supply of loans, inflation level and inflation expectations. Thus, rate increase in 2006 was caused by increase in inflation pressure in economy: at that period the annual inflation level increased from 7..5 to 9 percents.. The actions taken by the National Bank at that period were effective: in 2007 growth rate of inflation decreased: in January its annual level made 8..5 percents and in May 7..6 percents.. However, the tendency proved to be unstable. In June considerable increase of consumer prices was recorded: as against May, inflation made 0..8 percents. Such high increase in June was not observed since 1997 (except for 1999). The main factors for its quick increase were persisting high economic growth, foreign capital inflow, low labour productivity, increase in money supply (including lag) at the end of 2006. In these conditions it would not have been reasonable to mitigate measures of the Monetary and Credit Policy and decrease the official refinancing rate. We will analyze the data for June and it is not inconceivable that if inflation pressure increases, the official rate

The selection of instruments is the same with the only distinctive feature: it is a year when banks have started addressing to the National Bank more often to have current liquidity supported. It should be mentioned that at the stage of consultations with financial specialists for integrated MRR they asked us to provide wider access to resources of the National Bank. We increased the access, including expansion of the instruments list, e..g. national companies securities used as pledge under credits taken by banks. In addition, it should be mentioned that dialogue with markets players is a customary practice of the National Bank. Despite of the fact that sometimes our positions do not coincide, the final result is that decisions stabilizing the market are taken. The most important and operative instruments to influence the financial market are issue of short-tem notes of the National Bank and deposits from the banking sector. In addition, we do not limit their volume. We keep further improvement of the MRR mechanism. So, in July 2006 MRR regulations and the mechanism of minimal requirements were toughened. From August 29 they wil change again: standards for domestic obligations are set at 5 percents, for other obligations 10 percents. This is a measure turning banks to the domestic capital market. This year the National Bank carries out more weighed and balanced monetary and credit policy preventing sudden surge of liquidity at the financial market that can require its sterilization afterwards as at the end of the previous year. However, the result of our actions shall be expected not before the fourth quarter this year. At the end of 2006 we developed a plan of actions to regulate inflation

processes in 2007-2008 that was approved by Prime-Minister. According to the plan, we monitor the inflation processes and analyze their causes. So, taking part in development of an analysis of causes for “overheating” of Kazakh economy, the National Bank provides a factor analysis of the inflation processes. Practical activities to contain the inflation processes of non-monetary nature is assigned partially to a local management level. Warming continues…

From the beginning of this year the country is living under conditions of exchange regulations liberalization. Has experts’ anxiety proved to be correct, including forecasts regarding risks of economic overheating and unregulated capital flight abroad?

The first result is that we shouldn’t expect quick results. The important result is that our strategic goal is that there is equilibrium of the domestic money market as for inflows and flow-outs and there is not rapid flowout or capital flight.. And the external economical activity has become simpler for many enterprises: the number of documents submitted has decreased abruptly as there is no need for any permits for such operations; it is enough just to notify the National Bank of their actual realization of the operations. It should be mentioned that stage-bystage liberalization of the exchange arrangements in the country started from 2002. The liberalization is purposed to establish conditions for complete convertibility, expansion of the range and increase in efficiency of international operations in Kazakhstan. As compared to the financial operations, the most of restrictions were lifted as early as 2003.. Basically, the exchange restrictions for operations carried out by financial organizations were cancelled completely at the second liberalization stage, i.e. in 2005. It promoted increase in foreign investments of the banking sector and he National Pension Fund, development of new instruments and expansion in range of services provided.

kazakhstanfinance | autumn 2007

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The exchange arrangements were relaxed too as regards direct foreign investments by residents and accounts opened by non-banking legal entities and individuals in countries having reliable and transparent banking systems. The cancellation of exchange restrictions from January 1, 2007 applied, basically, to non-financial enterprises and individuals. I think, the measures mentioned will have a positive but deferred effect. That is why, it is a bit early to expect of any qualitative changes in the situation at the domestic market. Now we just mean that as a result of the exchange arrangements liberalization conditions for complete convertibility of tenge have been established.. And the results of the transfer can be observed in a medium-term period only and not before. As for overheating of the economy, it’s observed now. And there are some formal indications demonstrating that, such as rapid growth of the banking sector, the situations at the real estate market, inflation rates. Although the overheating is rather a side effect of the economic growth but not a fatal illness. However, estimating the liberalization consequences from this point, we should beat in mind that the excess liquidity in the economy formed today is a consequence of big inflow of foreign capital that

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has never been restricted with Kazakh exchange legislation. And, it goes without saying, in conditions when the tendency capital inflow for developing countries is global sticking to administrative restrictions to capital flow-out will have negative effect. At the same time their potential as a measure to prevent sudden big flow-out is not significant. If that’s the case, it’s more reasonable not to use direct restrictions but indirect measures influencing economical expediency of any currency transactions, e.g. tax regulation measures and establishment of standards for financial organizations. Kazakh economy keeps growing.. And an efficient measure to prevent overheating is economical diversification. The National Bank keeps monitoring of the real sector, in what way is this “therapy” is applied, in opinion of your analysts?

We keep monitoring. But results remain unchanged. Unfortunately, structural reconstruction has not reached the stage when we can expect the positive effect for the total economy. Other results of monitoring are: inflations expectations level became higher. Although companies become more satisfied about banking services, they rest upon their own resources in economical moderniza-

tion rather than upon bank credits. If we look at the structure of foreign loans, only 38 billion US dollars of 80 billion US dollars fall to the share of banks. And the share of banks in overheating becomes even less as today foreign and domestic funding sources are practically equal. In addition, a risks level of Kazakh leading banks is estimated as an adequate level and their activities meeting corporate management requirements in full. For example, the same level was demonstrated by successful IPOs of domestic banks, including IPO of Alliance Bank in London not so long ago. I think that location of GDR bank at the lower level of the price range pretended was caused by high volatility of the world stock markets as for securities of companies from developing countries. That volatility is a usual phenomenon in a holiday season when business activity of investors decreases. But, as a result, the bank has got good capitalization corresponding to the third place taken by the bank in informal rating of our second-tier banks. What do we have in our national money-box? during the previous month gold and currency reserves of the country increased by about half a million US dollars. In this respect we have got different comments

and anxiety but many of them come to reserve structure issues. So what do we have in the money-box of our country?

At present the National Bank does not take active part in auctions of the domestic money market. So, bewaring of sudden consolidation of the American currency, the Bank acted as a net seller of US dollars in June.. That meets the target of the National Bank, that is to contribute to stability of the money market. Increase in reserves is observed for other reasons. Their market value is calculated in US dollars. And the assets invested in euro, pound sterling and Australian dollar increased as a result of conversion to US dollars due to weakening of US dollar rate at the international market. The second reason is that amounts on banksâ&#x20AC;&#x2122; correspondent accounts in foreign exchange increased upon compliance with MRR. Our targets in management of the gold and exchange assets are: high liquidity level, safe keeping and diversification of the assets. Therefore, resources are invested to securities having high credit ratings; such securities are mostly government notes nominated in US dollars, euro, GBR, Japanese yen and Australian dollars. In addition, about 6.5 percents are being kept as a strategic asset, i.e. gold. Good diversification level results from investment to securities of the USA,

Germany, France, Austria, the Netherlands, Italy, Great Britain, Japan and Australia which have got high credit ratings.. Did the National Bank as an economic entity received any profit last year?

Yes, the Bank earned about 7.6 billion tenge and that amount, as everybody knows, is kept as reserves of the National Bank of the RoK. Is it possible to analyze efficiency of the new, one-year-old system of formation and activities of the National Bank today?

The new mechanism resulted in considerable increase of the National Fund. As for the end of 2006, the National Fund consisted of 14 billion US dollars; as for now, it contains about 18 billion. Besides, in addition to its main targets, the National Fund is effective in ensuring macroeconomic stability. Excess petrodollars are taken out of the economy and restrain pressure upon the tenge rate and inflation. A new model of capital formation ensures optimal balance in distribution of petroleum income between the National Budget and the National Fund. Besides, to prevent â&#x20AC;&#x153;exhaustionâ&#x20AC;? of the Fund, the size of any guaranteed transfer shall not exceed one third of its assets. To prevent capital decumulation (when, on one hand, resources

are accumulated in the National Fund and, on the other hand, the government takes excess loans), a financing level of the budgeted deficit at the expense of the government loans is limited with 1 percents of GDP (as the average annual value for five-year period). That is to say that during a period of unfavourable economical situation having negative impact on the budget revenue level, a deficit factor can be revised to increase it within the average value for the fiveyear period. According to the new rules for conversion and reconversion of the National Fund assets, the National Bank can both sell foreign exchange for the fund from gold and exchange assets and purchase it at the market depending on the market situation using amounts in tenge entering the National Fund. Purchasing foreign exchange for the National Fund at the market, the National Bank can increase demand for it and then pressure upon tenge will not be considerable. That is to say, operation of the National Fund under the principles results in tempering of pressure upon tenge rate. In addition, the National Fund can receive earnings both in national currency and foreign exchange. Thus, the share of foreign exchange earnings including withdrawals made in total 64 percents from the beginning of the year.. KF

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Islamic Banking comes to Kazakhstan On the topic of the introduction of Islamic banking in Kazakhstan we speak to Mr Timur Alim - Advisor to the Chairman of Managing Board of JSC “Bank Turan Alem”.

Timur Alim Advisor to the Chairman of the Managing Board, JSC BTA

Timur joined BTA in January, 2007 as an Advisor to the Chairman responsible for Islamic Banking direction in the bank. Previously, he was part of the ATFBank Credit Department team and worked as Senior Credit Expert, managing the biggest portfolio in the sector. He also was a part of internal audit team created to evaluate the Corporate Finance Department’s performance of the ATFBank. Timur Alim holds degree on Economics from Kazakh State Academy of Management, and MBA degree from University of Edinburgh Management School.

What is the attraction in introducing Islamic Banking to Kazakhstan?

Substantial proportion of Kazakhstan’s population is Muslim and Muslims are prohibited from charging interest on loans however, until recently we had no financial institutions in Kazakhstan that operated in accordance with Shari’ah Law.

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There are many reasons for this but they will be addressed later. What is more interesting in my view is what Islamic banking can offer Kazakhstani citizens in development of their businesses. I admit that the main motive for developing this project is the increasing demand for financial resources of Middle East. Excess liquidity, due mainly to the record oil prices, compels banks of this region to look in our direction and seek better ways for investment. That was the case with our bank during one of the meetings with Middle Eastern investors. We were invited, by Emirates Islamic Bank, to evaluate a possible mutual partnership based upon Sharia principles. Our chairman –Mr. Roman Solodchenko, immediately saw mutual benefit emulating from such partnership and under his leadership we signed the memorandum of understanding between our bank and Emirates Bank Group. As it was said before, Islamic banking forbids money lending with interest. Interest rates are prohibited in Islamic banking not only in crediting but also in funding, which means that in Islamic banking depositors share the risks with their banks. On other hand banks cannot impose fines on their debtors, which are presented as interest rates. Although penalty charges do exist, any moneys derived from them are distributed among charitable organizations (zyaket). Islamic bankers state that in order to discipline the debtors contracts include penalties, which discourage them to

fail to make payment on time. According to Shari’ah business owners have to collect zyaket (whip-rounds) for the poor. Same rules apply to the bank’s shareholders who are aware that these resources can be used to finance micro-projects. Islamic Banking is combination of investment, commercial and retail banking in one institution. It has three main components: division of profits and material losses, trade and leasing. Possibility of combining all three components in one deal, in my opinion significantly widens abilities of both business and bank and explains why we have such interest in this product. How do investors profit is formed according to Islamic banking?

Currently, Kazakhstan practices one of the simple forms of Islamic financing – murabaha. According to its principles, bank buys goods on behalf of its client which it then sells to the client at a premium. In 2006 bank “Turan Alem” attracted a murabaha loan of US$200 mln. Although it is not the only product which can be offered in the future as there are many forms of financing such as mudaraba, musharaka, ijara, istisna and etc. BTA and Emirates Bank decided to unite its forces for the development of Islamic Banking in Kazakhstan. What does such partnership presumes?

Such partnership includes promotion of Islamic banking and financial products in markets of Kazakhstan and CIS. Should this

partnership be successful there is a possibility of establishing a joint financial institute, which will specialise in Islamic banking. Joint venture would offer corporate and retail products. Each partner will hold 50% of JV. At present we are reviewing potential possibilities on the introduction of Islamic Banking products in Kazakhstan. Do you have any fears of possible prejudices regarding Islamic banking?

Islamic banking system not only works on the territory of Middle East and South-East Asia but successfully operates in North America and Western Europe. There are more than 300 financial institutes worldwide. The brightest examples are two Islamic banks in UK and one bank in France. Big international financial institutes like HSBC, Citibank, Deutsche bank and others are opening their Islamic branches in their structures to finance their clients not only in Muslim countries but in the USA, UK, France and Germany. In UK, the majority of clients using Islamic products are non-Muslims. Advantageous terms and conditions as well as fixed money costs attract many clients regardless of their religion.

terms by which money is lended. At the moment we provide financial and consulting services in emerging markets of the CIS and Asia however, «Bank TuranAlem» plans to transform itself from nation-wide Bank to international Bank. After the announcement of re-branding this autumn, BTA will be positioned as holding bank possessing of assets in different countries. According to development strategy BTA plans to take 2% of Russian market share and take leading positions in Kazakhstan and on other CIS markets in segments of retail, SME and corporate services along with consolidation of total assets with the increase up to 35 bln. USD till 2010 and 55 bln. USD till 2015. KF

What explains forecasts of the positive effects of Islamic banking instruments in Kazakhstan and Central Asia?

Dr. Mabid Al Djahri of “Emirates Islamic Bank” stated that the difference between the Conventional and Islamic banking can be understood on the example of football. During the game bankers take on the role of cheerleaders rooting for their clientplayers and get really upset if their team loses the game. Islamic financing is the opposite of that position - everyone participates in the game, bankers and their clients share all the risks and profits. If the decisions are made mutually then the responsibility becomes mutual also. It is not only a distinctive feature of Islamic banking but its advantage. There is no difference of where to take credits, in Islamic banks or traditional - it the

kazakhstanfinance | autumn 2007

[ 17 ]

JSC Bank TuranAlem USD 250,000,000 Syndicated Wakala restricted with Commodity Murabaha Financing Facility

bu Dhabi Islamic Bank PJSC (“ADIB”), Barclays Capital, the investment banking division of Barclays Bank PLC (“Barclays Capital”), and CIMB Bank (L) Limited (“CIMB”) (“Initial Mandated Lead Arrangers”) are pleased to announce the successful closing of the US$ 250 million Syndicated Wakala restricted with Commodity Murabaha Financing Facility for Bank TuranAlem JSC (“the Purchaser”) in July 2007. The transaction was launched for an amount of US$150 million with syndication being limited to a group of investors primarily in the Middle East and Malaysia. A total of 14 financiers joined the Facility, out of which 4 were new names to Kazakhstan. Proceeds raised from this new

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Facility will be deployed to promote Islamic financings for the benefit of the Purchaser’s clients. The documentation to be used by The Purchaser in providing financing to their customers has been approved by ADIB’s Shari’a and Fatwa Supervisory Board represented by its Executive Committee. ADIB as Shari’a Advisor will be conducting Shari’a audits to ensure Shari’a compliant utilization of the proceeds of the Murabaha. Details of the Facility are as follows: Purchaser: JSC Bank TuranAlem Amount: USD 250,000,000 Tenor: 2 years from the date of the Facility Agreement Purpose: Financing of Bank TuranAlem JSC’s Islamic trade finance activities Repayment: Bullet Margin: 0.5% per annum BTA’s Chairman of the Board, Roman Solodchenko has commented on this deal saying: ”We may say that this Islamic Facility is the

largest Islamic facility ever in BTA’s history. BTA was the first bank in the Kazakhstan banking system that introduced an Islamic structure to the Kazakhstan market and started establishing a good relationship with the most esteemed institutions of the Middle East region. This time BTA has again proven its leader status by raising the largest amount for an Islamic deal in Kazakhstan – the launch amount of US$ 150 mln having been increased to a final amount of US$ 250 mln.

We believe that such progress has been achieved due to BTA’s leading position in the financial market and its excellent relationship with lenders from the Middle East region. BTA is known as an “Islamic window” in the CIS market, having also organised the first Islamic Banking Conference in May 2007 in Almaty. We believe that the Bank’s strong and stable financial leadership position allows us to fulfil this role as a “pioneer” of Islamic financing in the Kazakhstan banking sector. The successful closure of the deal has again proven that BTA is continuing to expand its relationships all over the world by attracting new bank names to the Kazakhstan banking sector. This year we have also successfully started cooperating with Malaysian banks. This case shows that investors all over the world are interested in providing financing to

Kazakhstan banks and Bank TuranAlem in particular.” BTA is one of the largest private, fullservice banks in Kazakhstan, providing corporate banking, retail banking and other financial services. As of June 30, BTA’s assets exceed $ 23.9 billion, net profit amount to $ 324 million, shareholders’ equity – $ 2.9 billion, cost-to-income ratio – 30.31 %. BTA operating in the CIS and farabroad countries is expanding into the CIS countries. Activities of its strategic bank partners cover Ukraine, 4 regions in Russia, Belarus, Georgia, Armenia, Kyrgyzstan and Turkey. BTA runs its representative offices in Russia, Ukraine, China and the United Arab Emirates. In Kazakhstan, BTA’ network consists of 22 branches and 248 cash settlement units. In 2006, BTA was recognized as

“Bank of the Year 2006” by choice of International business community and “ITOGI” magazine. The Bank also received “Best Deals 2006” by “Global Trade Review” magazine and “Deal of the Year 2006” by “Trade Finance” publication. In 2007, BTA was named as «Best Bank in Central Asia» by Euromoney and also was awarded with “A Leading Bank in Corporate Governance in Emerging Europe 2006” and “The Best Managed Bank in Central and Eastern Europe and Central Asia 2007” awards. Moreover, it is the second year in a row, when BTA appears on the TOP 1000 WORLD BANKS rating of The Banker, thus ranking among TOP 300. The Banker also rated it as the third rapidly growing bank in the “Highest Movers” rating. KF

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[ 19 ]

Winds of change are sweeping Kazakhstan’s banking sector

I Talgat Kuanyshev is a Chief Executive Officer of ATF Bank since August 2006. He has worked for ATF Bank since 1997, having been promoted from Director of Commercial Department to Member of the Management Board. Mr Kuanyshev has a University Degree in International Economics from Kazakh State Academy of Management. His banking career started in 1994 in the Igiliq Bank. Later he gained more work experience in Bank TuranAlem and AlfaBank.

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n June 2007, Bank Austria Creditanstalt AG (BA-CA), responsible within the UniCredit Group for commercial banking activities in CEE, has signed a share purchase agreement with private shareholders to acquire a majority shareholding in JSC ATF Bank (ATF). The purchase price for the entire outstanding capital of ATF is US$2,175 million (€1,625 million at current exchange rates), plus an amount equal to the capital increase (currently estimated at around US$100 million or ca. €75 million) to be subscribed by ATF’s existing shareholders before completion of the transaction. Since the transaction is expected to be completed during the second half of 2007, the purchase price will be adjusted by an amount equal to 50% of ATF’s 2007 net profit. The transaction will be financed entirely from existing internal resources. BA-CA’s objective is to acquire up to 100% of ATF’s outstanding share capital through the acquisition of

shares from the current majority shareholders and the mandatory tender offer to be launched for the remaining minorities. Following these steps, the level of ownership will be at least equal to 85% of the outstanding share capital of the bank. This transaction confirms the continued strong commitment of UniCredit Group to the CEE region. Through the acquisition of ATF, the Group will strengthen its network through a leading presence in the Republic of Kazakhstan, as well as additional operations in the Republic of Kyrgyzstan, the Republic of Tajikistan and the Russian Federation. The expansion in the Republic of Kazakhstan, with its fast growing and stable economic environment, is a natural development of the growth strategy pursued by the UniCredit Group in the course of the last decade in the CEE, Turkey and CIS countries. Completion of the transaction is subject to the satisfaction of a number of conditions including, without limitation, receipt of all

necessary regulatory authorizations and consents, such as the approvals of Bank of Italy and of the Austrian Financial Markets Authority, the approval of the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Organizations, as well as approval of the local Anti-Monopoly authority. Credit Suisse and UniCredit Markets & Investment Banking acted as financial advisors to UniCredit and BA-CA, with Allen&Overy acting as legal advisor. ATF was established in 1995 by a number of Kazakh and foreign investors to provide mainly trade finance business. Over the years, the bank developed into a universal financial institution both organically and through acquisitions domestically and in Central Asia, where it owns 94.2% of ATF Bank in the Republic of Kyrgyzstan, 100% of Bank Sibir in the Russian Federation (Omsk region) and 75.1% of Sohibcorbank in the Republic of Tajikistan. ATF is also active in insurance, pension funds and leasing. As of 31 December 2006, ATF was the 3rd largest bank in the Republic of Kazakhstan by total assets (€6.3 billion, +178% over 2005 at historic Euro exchange rate, repre-

senting a market share of 11.8%), 4th by customer deposits (€2.2 billion, +194% over 2005, 8.8% market share) and 5th by total loans to customers (€3.2 billion, +103% over 2005, 9.8% market share). ATF’s primary business is corporate and SME, although the weight of retail banking has been rapidly increasing in the recent years. As of June 2007, ATF’s network consisted of 110 branches. Further studies will be conducted to decide whether to preserve ATF’s brand or launch major re-branding exercise under the auspices of UniCredit brand. With a market capitalization of approximately €70 billion, UniCredit ranks among the top financial groups in Europe, and has a presence in 20 countries, with over 35 million clients and 7,200 branches, approximately 142,000 employees and total assets of approximately €823 billion as of 31 December 2006. Upon completion of the merger with Capitalia (announced on 20 May 2007), UniCredit will significantly strengthen its presence in Italy, which is one of its key markets alongside Germany and Austria, increasing its market capitalization, on a pro-forma basis, to approximately €90 billion. In the CEE region, UniCredit operates the largest interna-

tional banking network with over 3,100 branches and outlets, where more than 65,000 employees serve approximately 24 million customers. UniCredit takeover of ATF Bank is the largest deal so far conducted in financial industry since the formation of the CIS and was welcomed warmly by the Government of Kazakhstan. This deal further re-affirms the strength of the Kazakh economy and of its banking sector in particular. It can be speculated that, as Kazakhstan’s financial sector becomes more pen to the outside competition, we will witness more deals of this nature. Kazakhstan is positioning itself as a regional hub for the financial and energy sectors of Central Asia and with ever increasing economy, fuelled by record prices for oil and gas, few would bet against them succeeding. ATF’s attraction to foreign banks stems from the fact that Kazakhstan has developed a leading banking sector, a well-build market infrastructure, large institutional investors with consistently growing assets, a developed debt market and a growing currency derivatives market. No wonder that among the financial, particularly banking community Kazakhstan is considered Central Asia’s financial market of the future. KF

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Safe pair of hands

Sholpan Aynabayeva CEO Kazkommerts Securities Sholpan Aynabayeva has 16 years work experience in the Kazakhstan financial market. As of 1991, she had been working in Alem Bank Kazakhstan in the Asset Management department and then as Head of the Money Market division. 1998 to 2000, Sholpan was invited to work for Kazkommertsbank as the Treasury’s Head of Sales. In 2001, she joined the young brokerage firm RG Securities and headed the Trading Department. In June 2003, Sholpan joined Kazkommerts Securities and in 2005 became its CEO. In 2006, Kazkommerts Securities became the leading underwriter in Kazakhstan and the sixth by the volume of the stock exchange trade.

ur vision Change is an unavoidable characteristic of every growing economy. It could be argued that, in today’s world, change imbues every possible aspect of our life - not necessarily eco¬nomic and not necessarily in an emerging market. What

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dis¬tinguishes the atmosphere of growing economies, however, is that this change is persistent and requires constant and careful monitoring of trends, and immediate reaction. Moreover, the countries that have not yet fully integrated into the global economy adapt the trends inherent in that economy to their local operations. The need for careful monitoring and constant adjustment of global trends to local conditions emphasises the importance of local companies capable of serving as efficient facilitators in the flow of capital among emerging markets. Kazkommerts Securities is itself a product of this dynamic environment. The systematic changes in Kazakhstan started in 1991, which led to the country’s independence and transition to market economy, opened boundless investment opportuni¬ties for both domestic and international investors. The tradi¬tional hospitality of the Kazakh people enhances the welcom¬ing investment climate. Most of the investors soon realised that investing in an unfamiliar economy with sophisticated traditions, although promising positive prospects, could be a long and uneasy adventure without the right partner. Kazkommerts Securities has proven itself a partner that has been helping investors to establish trade and investment links with local businesses, and helped local companies increase their efficiency through the introduction of new technologies and management practices. The team at the core of Kazkommerts Securities was estab¬lished in 1991 to take advantage of the new economy and soon evolved into

the leading securities company in Central Asia. Kazkommerts Securities has participated in most of the region’s successful investment projects and is working on the further integration of Central Asia into the global economy. We understand Central Asia and its people because we are a part of them. Our vision is a company that provides world-class financial services on a regional level. We see increasing growth oppor¬tunities in the Central Asian market as the region achieves higher integration in the global economy. Our mission Kazkommerts Securities’ mission is to create value for our clients, shareholders and partners by providing high-quality financial services, and through sharing its understanding of the local environment. Kazkommerts Securities concentrates on providing advisory to foreign investors operating in Central Asia by exploiting its leadership in analysis, its ability to design and carry out complex transactions, and its established links with the region’s banking and financial sector and major industrial enterprises. Kazkommerts Securities continues to provide Central Asian companies and governments with access to leading-edge technologies and management techniques. We also enhance the region’s integration into the international financial markets. Kazkommerts Securities participated in the debut corporate Eurobond issue for Kazkommertsbank. Kazkommerts Securities also participated in arranging American and Global Depository Receipts programmes for Kazakh issuers including Kazkommertsbank, Kazakhtelecom, Ust-Kamenogorsk Titanium and Magnesium Plant and

Shymkent Oil Refinery (Petro-Kazakhstan Oil Products). Our values Focusing on customers Customers remain our highest priority. We value our clients and structure our services to provide them with efficiency and quality of service. Our trading team offers customertailored settlement procedures with the minimum possible formalities. Kazkommerts Securities is an active member of the Kazakhstan Stock Exchange (KASE) and the Almaty Regional Financial Center (RFCA). It is also the most influential participant in the OTC. Kazkommerts Securities’ professionals also provide clients with regular updates on the region’s major political news and events. Our corporate finance team provides a wide range of services, including advice on debt and equity markets services, mergers and acquisitions, project finance and corporate restructuring.

Asia, it is important to keep a hand on the region’s pulse, continuously seeking new opportunities, adjusting and developing our existing range of services to best fit clients’ needs. This constantly challenging atmosphere requires a continuously innovative approach, which we derive from our younger colleagues. Emphasising excellence We are consistently striving to achieve excellence in the quality and range of services we provide to our customers. Leading local and international publications have recognised our excellence in providing quality customer service. Kazkommerts Securities was awarded the `Best securities firm in Kazakhstan’ by Euromoney. This award recognises the role that the company plays in the region’s economy and financial system. Global Investor ranked our research team the best in Central Asia.

Numerous regional publications and independent agencies rank our traders as the best in Kazakhstan. Global Investor has also ranked us the best execution team in Central Asia. The company acts as an exclusive adviser to a range of major Central Asian corporations, most notably Kazakhtelecom, the monopoly telecommunications operator in Kazakhstan; Kazkommertsbank, as the third largest bank in CIS countries; energy sector companies and other corporations. Kazkommerts Securities in the consortium with other international investment companies has been awarded exclusive mandates by the government of Kazakhstan to advise it on the sale of state-owned shares in Aktobemunaigas, the third largest oil and gas producer in Kazakhstan, and Ust-Kamenogorsk Titanium and Magnesium Plant. Kazkommerts Securities has won award Underwriter No 1 by the number and volume of transactions in 2006. KF

Building a team Essential for our current and future success is the team of professionals who devote themselves to constant professional growth and continuous improvement of our customer service. The major advantage of our professional team is its ability to combine conservatism and dynamism. Our staff include experienced professionals who have years of experience working for major Kazakh enterprises and government bodies. They provide important insights to trends and processes in the political and economic environment of Kazakhstan and help our clients to establish ties with regional businesses and government bodies, and to better understand traditions and cultures in Central Asia. Our team harmoniously complements this team of more experienced professionals with young and energetic staff. In such a dynamic environment as Central

kazakhstanfinance | autumn 2007

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Competition holds no fear for the independent stockbroker The JSC “RBNT Securities” is an independent broker and dealer company, which is carrying out the activity on a securities market of Republic of Kazakhstan on the basis of the license of the first category - with the right of conducting accounts of clients as the nominal holder (with the right of registration of deals with securities). The company is not affiliated with any financial and industrial group, consortia and other persons.

Rozaliya Fedulova General director JSC “RBNT Securities”

he JSC “RBNT Securities” is formed in 1999 by voluntary reorganization Regent European Securities (Kazakhstan), established in 1997. Broker and dealer activity of the company is carried out according to internal rules of the company, the order of broker and dealer activity realization, the contract on broker-

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kazakhstanfinance | autumn 2007

age, market-making and underwriting services and other civil contracts and customs (including customs of a business turnover). Activity of the company on registration of deals with securities consists in realization of the nominal holder functions. The JSC “RBNT Securities” is the independent company from financial and industrial groups of Kazakhstan. Clients and partners of the Company are the large companies from real sector of economy, large financial institutions (the insurance companies, pension funds, financial institutions of development of the state) and the leading investment companies of near and far abroad. The JSC “RBNT Securities” has the license for realization of broker and dealer activity and is the stockholder of JSC “Kazakhstan stock exchange” (further - KASE) and JSC “Central Securities Depository”, member of KASE on categories “K”, “P” and “H”. The JSC “RBNT Securities” offers to clients following services:

Broker services, Financing in the stock market, Financial advisory. The company offer following products:

Opening and service of broker accounts, Operations of purchase and

sale of securities in the organized market (KASE), Operations of purchase and sale of securities outside of the stock exchange, Funding under backing of securities, Services of the nominal holder of securities, Underwriting, Entering to listing, Preparation of prospectus on securities issuance, Financial advisory services on the state registration of securities issuance, Preparation of investment memorandum, Services a market-maker, Organization of buying up of stocks (formation of a control package), Hedging of positions under base securities, Short-term accommodation of money (repo), Marginal trade, Internet-trading, Participation in interests of the client in primary accommodations of securities, Granting of investment recommendations on formation of a portfolio of actives and analytical support. KF

kazakhstanfinance | autumn 2007

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Organization of financing for G4 City project is a big challenge for a young managing company and helps them in the promotion of their business, as well as consulting them in the field of investments and development. Kazakhstan’s private and foreign Investors had already invested over US$20mln in Company’s products. Before asking you about G4 City project, could you tell us more about your new shareholder?

Arkady Rakhilkin Chairman of the Board of the JSC “Seven Rivers Capital”, a professional financiermathematician

Mr. Rakhilkin, could you please, tell us about Seven Rivers Capital?

Seven Rivers Capital (SRC) was established in November 1st 2006. The Company is managed by highly qualified experts with a great and valuable work experience. SRC is a part of the group of strategic partners of a large finance and industrial Holding. Now SRC is a financial agent of Holding’s biggest investment project G4 City. The founder of the Holding Mr. Tskhay Yuriy Andreyevich is one of the shareholders of the Company. He is one of the largest investors in Kazakhstan who is actively collaborating with several international companies and investors in many countries all over the world. SRC closely cooperates with its partners

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kazakhstanfinance | autumn 2007

Despite that SRC is a young investment company it was able to attract the large financial company Hanwha Securities of South Korea in its capital. On the 6th of June, 2007, the official signing of the shareholders agreement and signing of the agreement on opening of four investment funds in Kazakhstan were taken place between our companies. Four unit investment funds were opened by SRC for the South Korean private and institutional Investors, which are ready to invest in Kazakhstan’s economy. The total volume of the created funds amount to over US$100mln at the market of the Republic of Kazakhstan. What financing method do you use for G4 City project?

SRC has chosen one of the new forms of the external borrowings attraction in the CIS countries – Mezzanine financing. G4 City project is the largest development project in Kazakhstan on development and construction of the satellite cities, in the direction of Almaty – Kapchagay. Mezzanine financing is a popular form of investing abroad. At the present time mezzanine financing is new and not very widespread idea

in Kazakhstan. The reason we chose this form of financing was that suffering from the lack of the equity capital the Company could attract the Investment bank in «quasi» equity capital of the project under the fixed rate of income, and not under the market rate. Then the requisite capital is attracted in the long-term debt financing. The total volume of the required investments in G4 City project will amount approximately to US$30bln. At present moment the negotiations are being conducted with the leading international investment banks. The Company is also an organizer of financing schemes for the Caspian Engineering Group`s projects, such as the Rolled Iron plant, the Cement plant and other. What other projects do you have now?

Besides the organization of the projects’ financing, SRC actively enters the market of underwriting. As a financial consultant it will list the bonds of LogyCom company in the Kazakhstan Stock Exchange (KASE) this year. LogyCom’s audit was executed by BDO-Kazakhstan. Moreover, SRC creates the venture fund for LogyCom company jointly with the National Innovation Fund. Our company is engaged in searching of the projects that will be financed by our funds as well. In addition, SRC is an active player in the Fund Market of the Republic of Kazakhstan since it has fixed investment and portfolio investment funds. KF

“Wall Street” of Almaty? Think more - Hong Kong of Central Asia! What is the RFCA’s role in developing Kazakh securities market?

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The Regional Financial Centre of Almaty was set up by the Government of Kazakhstan during 2006 in Almaty, the financial capital of the country. The main objective of RFCA is to position Almaty as a financial hub of the Central Asian Region. The focus is on continuous development of the Kazakh securities market by applying the

best international practices and attracting international investors, issuers and renowned international brokerage houses. Kazakhstan’s banking system is considered as the best developed among the CIS countries - in September 2002 Kazakhstan became the first country in the CIS to receive an investment-grade credit rating from a major international credit rating agency.. The next step is to advance the development of the securities market, making it an important part of the financial system and one of the sources of investment capital in Kazakhstan and the surrounding region. Since most of the Kazakh investment capital is

in the form of pension funds’ savings, mutual funds, and export proceeds of Kazakh companies, all of which are believed to grow further, these funds will undoubtedly become an important source of capital in the country. The RFCA’s regulators work on introducing the best international practices on regulation of the securities markets, which is aimed at attracting international investors, asset management and brokerage firms, being at the same time flexible to reflect the specifics of the developing market. The Agency on Regulation of Activities of RFCA (the Agency) plays an active role in encouraging issuers to accept best corporate governance practices, use international accounting standards, and accept transparency principles by including them in the listing rules of the Kazakhstan Stock Exchange (KASE). The Agency considers them important for international promotion of the financial centre, since compliance of companies would make issuers more transparent for investors. To promote international standards of auditing, the Agency offers a onetime reimbursement of expenses on audit, which potential issuers have to conduct when they seek listing their securities. Other incentives are tax exemptions for investors and brokerage houses doing business in Almaty. How will it be structured and what are the roles of its main bodies?

Activities in RFCA are regulated

by the Agency of the Republic of Kazakhstan on Regulation and Supervision of the Financial Market and Financial Institutions (the Financial Supervision Agency), and the Specialized Financial Court. The core activities in the financial centre take place in the Special Trading Floor of RFCA, which is located in Kazakhstan Stock Exchange (KASE). A commercial arm of the financial centre is represented by “RFCA” Joint Stock Company (“RFCA” JSC). The Agency is the financial center’s regulator. Its main functions are state registration of the financial center’s members, assistance in obtaining visas by nonresident members, granting accreditation as members of the financial centre to existing Kazakh brokerage companies, explanation to the financial center’s members of their rights and duties, monitoring of the financial center’s members for compliance to Kazakh labor legislation, representation of the financial center’s interests in government bodies and other organizations, maintaining the state register of the financial center’s members, generation and implementation of activities related to the development of the financial center and the securities market infrastructure. The Financial Supervision Agency is responsible for supervising and monitoring of business activities of brokerage companies, securities issuers, investors, and the stock exchange for compliance to Kazakh securities market legislation. The Specialized Financial Court was set up to promote resolution of disputes involving participants of the financial centre. The activities of the commercial arm

of the Agency - “RFCA” JSC are aimed at implementation of various projects for RFCA’s further development. The company is already working on establishing a local rating agency and the Securities Market Institute to train financial professionals in Kazakhstan. Since obtaining credit ratings from leading rating agencies, such as S&P, Moody’s or Fitch is quite expensive, it may be reasonable to initiate establishing in RFCA a national rating agency, to insure lower costs for lowand medium-size issuers. Who are the main players of the financial center?

Main players of the financial center are its members – brokerage companies, the key facilitators in the securities market. To obtain membership an applicant has to do three things. First, to register with the Agency as a legal entity. For existing brokerage companies, accreditation as a member is also available. Second, to obtain a brokerage license from the Financial Supervision Agency. Third, to establish a permanent office in Almaty. Accreditation in the financial center assumes granting to existing professional players of the securities market all rights that are available to the financial center’s members. In order to have access to the financial center’s trading floor, the members have to apply for membership at KASE. Recently, legislation amendments waived the former requirement. Now the financial center’s members may also exercise trades with securities on other stock exchanges, as well as on the unorganized securities market. By operating in RFCA, the center’s

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involved in various projects to make various financial instruments tradable on the RFCA’s trading floor. What are the main advantages for non-residents at RFCA?

ALDAMBERGEN ALINA UTEMISOVNA Deputy Chairman Born in 1973 in Karaganda Education: 1991-1995 – Kazakh State Management Academy, specialty ‘Finance and loans’; 1994-1995 – Finance and International Economy Program, Business Administration School, Washington University (Seattle city, Washington, the USA); 1996-1997 – MBA, specialization «Corporate Finance and Accounting», William E. Simon Business Administration School, Rochester University (Rochester, New-York, USA) Experience: 2001-2003 – ABN AMRO Bank N.V., London, Great Britain (leading rating consultant, Global Financial Markets Rating Consultant, Rating Consultations Department); 2003-2005 – JSC PAIMO «ABN AMRO Asset Management», Chairman of the Board, Board of Directors member; 2005-2006 – JSC «AJSB «ABN AMRO Bank Kazakhstan», Deputy Chairman of the Board, Head of Global Markets subdivision, arranging debt financing for CEE and ME countries (February-August 2006); Treasurer (April 2005 - February 2006); From October 2006 – Deputy Chairman of the Agency of the RK on Regulation of Activities of the Regional Financial Centre of Almaty city Additional data: From April 2004 – LEO ‘Kazakhstan Financiers Association’, Board member; From August 2003 – JSC ‘Kazakhstan Stock Exchange’, Exchange Council member; September 2003 - April 2005 – LEO ‘Asset Management Association’, acting Board Chairman.

members promote it among other issuers and investors. The staffs of the Agency and KASE is also

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The financial center promotes the principle of equality among all its members. This means that the incentives provided are equally available to both residents and nonresidents. For members of the financial center, who must have a status as professional players of the securities market, income derived from rendering the following types of services is exempt from tax in Kazakhstan: buying and selling securities on behalf of clients, underwriting and market-making. Also, investors are not liable to pay taxes on dividends and coupon payments, received on securities listed in the financial center’s trading floor and capital gains realized within the financial center The incentive for issuers is a onetime reimbursement of expenses of auditing their business, which is conducted prior to listing their securities on the financial center’s trading floor. To be eligible for this incentive, the applicant should have no similar audit carried out before. What are the updates on the development of the Regional Financial Center of Almaty (RFCA)?

Currently there are 31 securities brokerage companies registered as members. As of August 22, 2007, 70 securities issues of 18 issuers are traded on the center’s trading floor, with total market capitalization of almost $17.7 billion. Since February 2007, when the trading floor began its operations, the volume of trades reached $385.3 million. An important aspect in the development of the RFCA was uniting two trading floors that emerged after establishing RFCA. Originally the RFCA’s trading floor was set up as a new trading platform and only brokerage companies – members of RFCA could be the traders. However, a much bigger and more liquid

market exists on the main floor of KASE. The Agency has promoted several legislation amendments to unite the main floors of KASE and RFCA. To boost liquidity all market participants will receive access to the newly created trading floor which is expected to be completed by the end of 2007. The Agency is carrying out active marketing programs aimed at attracting new issuers from Kazakhstan, surrounding regions, and international investors. Together with other state agencies, the Agency actively promotes the securities market among the Kazakh population by disseminating information, giving interviews, and publishing articles in the mass-media. The Agency also conducts various regional seminars in Kazakhstan, Russia, Ukraine and Azerbaijan. Why was Almaty chosen as a Regional Financial Centre?

Almaty, the former capital of Kazakhstan, has always been positioned as its center for business, education, research, culture, tourism and finance. There are more than 60 universities and the headquarters of many Kazakh companies are located in Almaty. Many financial institutions, such as local and foreign banks, pension funds, insurance, brokerage and asset management companies as well as major financial regulators - National Bank of Kazakhstan, Financial Supervision Agency and now, the newly formed Agency for Regulation of Activities of the Regional Financial Center of Almaty City have offices in Almaty. The Almaty city’s population is growing fast. To meet the demands of the growing economy, significant activities are taking place in such sectors, as construction , and development of the transportation infrastructure. New office buildings, hotels, restaurants, stores, and residential buildings are being erected. City streets are being widened, with modern multilevel transportation

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overpasses being built. An underground transportation system is also under construction. The financial institutions are also building a brand new financial district, where headquarters of main Kazakh banks will be located. RFCA is building a modern business center, which will provide first class office spaces for the financial center’s members and other businesses (auditing, consulting and law companies). The business center will also accommodate the Agency, the Specialized Financial Court of RFCA, and other organizations of the financial center. All these actions are considered to be important steps for making Almaty one of the most developed cities in the world. Modern ways of financing are as important as modern infrastructure. What are the modern solutions to financing infrastructure?

In Kazakhstan several types of financing are used for infrastructural projects. At present, the majority of financing is granted by the fast growing Kazakh banks. Some projects are financed by the state budget or with the government support. A vast majority of infrastructure projects (motor- and railroads, public utilities) are financed from the state and local budgets. However, like most developed economies financing infrastructure projects by issuing bonds becomes more and more popular. Usually, such bonds have long-term maturities and expose relatively low risks, since governments partially guarantee the performance of such projects. It should be emphasized that infrastructural bonds are especially well suited to investment strategies of pension funds, who seek long-term low-risks investments. A number of infrastructure bonds – specific instruments for project companies, which have a support from the government have been issued to finance infrastructure projects. For today two issuers

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placed infrastructure bonds mainly among institutional investors, such as pension funds. One of them is JSC «Doszhan temir zholy» and the other is JSC «Batys transit». These companies were attracted resources for building of railway and for building of line of electricity transmissions. List of projects which are realizing on the basis of governmental and private partnership was formed by the Government. Financing of these projects will be attracted both by means of credits, loans (including syndicated loans) and by means of issue of infrastructure bonds. How do Kazakhs view the Kazakhstan of the future? Which way is up?

Prosperity, safety and growth of welfare of Kazakh people - these are key words to describe the future of Kazakhstan. Kazakhstan has a strong economy and can be described as a politically stable country. Several nations and nationalities have been peacefully coexisting together since the country obtained its independence in 1991. The country also maintains peaceful foreign policy and has good relations with its neighbors. Kazakhstan, being the centre of Eurasia, will not only serve as a link between fast growing regions like China, Russia and Muslim world, but will become a competent participant of large scale geopolitical processes. Kazakhstan people will work in modern age of market economy, keeping at the same time traditions of their ancestors. They will have a good knowledge of Kazakh, Russian and English. They will be supporters of peaceful, prosperous, well-known and respectable country. Kazakhstan aims to become the example of a breakthrough from a third-world country to the leading position of international scale. The Kazakh Economy: where is it heading?

The main purpose is carrying out

a set of activities aimed at creation of a stable economy with safe and comfortable living conditions. Kazakhstan succeeded considerably in profoundness, extent and efficiency of social and economic reforms carried out. Given the strong economic development over the past several years, huge proven deposits of oil and gas, and a well developed financial sector, it is safe to assume that the economic growth of Kazakhstan will continue in the future. At present, the economy of the country is presented by two interlinked groups of sectors:: extractive industries, products of which are essential for the world market; their development is conditioned by transnational corporations operating in the country;; and other industries, operating for internal market, their development is connected with solvent demand of population. The main advantage of Kazakhstan is huge outstanding potential which must be used for the welfare of the country. Since it is well understood that Kazakhstan needs to move away from its dependence on oil and gas exports, the country has chosen a strategy to develop such sectors of the economy, as transportation, electricity, steel and uranium production, agriculture, food processing, tourism and IT-technologies. Having a strong banking sector the country will also continue developing its financial services industry. Significant attention will be given to the development of the securities market, which is why RFCA was established. Having such neighbors as China and Russia, which also experience strong economic growth and have substantial international trade volumes, Kazakhstan has good chances to become a regional financial hub handling huge financial flows. With a strongly growing real sector the country has already become attractive for international investors. KF

Fashion that brings money

2006 was a successful year for the Kazakh companies. 10 companies floated their shares on the LSE. The state oil company Kazmunaigas E&P and one of the largest private commercial banks “Halyk Bank” were among new entrants into the market. Although only two Kazakh companies floated their shares at the LSE this year, according to analysts more are sure to follow suit. Investors’ appetite for Kazakh companies is down to good macroeconomic situation: Kazakhstan’s economy shows good rates of growth – for the

first half of 2007 economy grew by 10,2 %. It is more than in the majority of other CIS countries. During same period Uzbekistan grew by 9,7 %, Lithuania - 8, %, Ukraine - 8 %, Byelorussia - 8,8 %and Russia - 7,8 %. Kazakhstan has almost caught up with China that grew by 11 %. 2005 saw shares bonanza at KASE average market cost of shares increased by 90 %. In 2005 alone KASE grew by 203 % and in 2006 it has trebled the value. It is considered one of the fastest-growing indexes in the world.

Our best performing shares are those of energy companies and our banks. Today the oil sector provides more than 60 % of export proceeds. For the first six month of 2007 Kazakhstan produced 31 million tons of crude oil. It is remarkable, that growth of export is caused not by increase of the oil world prices, but development of new deposits and increase volume of export of oil. It is expected, that within nest 10 years the amount of investments into the oil extracting industry will make more than US$5 billion. Kazakhstan’s banking system is char-

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acterized by high dynamics, due to a good credit history in the western markets, high rating of Kazakhstan itself and populations’ predisposition towards financial institutions. In 2006 cumulative banking assets grew by 97 % and credit portfolio by 96 %. Kazakh banks are seen as more transparent then those from other emerging economies thus increasing their attraction to the foreign investors. It came as no surprise that it were the Banks and commodities companies that first decided to go public - in 2005 gold mining company “KazakhGold” and copper concern “KAZAKHMYS PLC” floated at the LSE. Their stock-market debut was nothing short of spectacular - “KAZAKHMYS PLC” reached US$4,4 billion valuation, comfortably exceeding its initial valuation of US$2,5-2,7 billion, and “KazakhGold” entered at US$196,5 against US$176million presumed. 2006 saw a number of Kazakh companies floating their shares at the LSE - Kazmunaigas E&P, Kazkommertsbank, Halyk Bank and “Shalkiya Zink” all made spectacular stock-market debuts. In the last two years the total amount raised by Kazakh companies at the LSE stands at an incredible US$4,2 billion.

their flotation was not as successful as those that preceded them. Consequently, all companies that planned their IPO’s for the summer of 2007 have now postponed their plans. However, it is a common believe among the investment community that by 2010 a further 40 companies from Kazakhstan will float their shares at the LSE. It is thought that this time it will be Kazakh banks that will lead the way – BTA, “Temir” Bank as well as “Tsesna” Bank are all expected to go public as they seek to raise money for the project in Kazakhstan – mainly investment opportunities in the energy sector.

In 2007 three companies have carried out their IPO’s: property developer “Chagala Group”, paper producer Kazakhstan Kagazy and Alliance Bank. However, due to the sub-prime mortgage debacle and subsequent stock-market turmoil,

however, there appears to be some clouds on the horizon for those companies contemplating going public. For the Kazakhstan companies the most favored trading platform remained that of the AIM. But plans

kazakhstanfinance | autumn 2007

Why London? In spite of the fact that KASE rates for IPO are much lower then those of the LSE or the AIM, almost Kazakh companies are interested in attracting international investors thus increasing the possibility of receiving higher valuations. In turn foreign investors were comfortable in the knowledge that companies in which they invested were thoroughly vetted by established European bourses such as the LSE or the AIM. There is still strong appetite from the Western investors for companies from Russia and Kazakhstan

by the AIM management to tighten the conditions of entry for the foreign companies have lowered mood of the potential entrants from Kazakhstan. They understand that the AIM, for reasons of protecting the interests of investment funds and its reputation, needs to keep quality of entrants at a high level. However not all developing companies from Kazakhstan can meet such stringent standards. Therefore some of them are eyeing other stock exchanges which are very much interested to increase their share of companies floating on their stock-exchanges. In the past few months we witnessed presentations in Almaty by Frankfurt and Hong Kong stock-exchanges. The latter, drunk with successful flotation’s by Chinese companies, notably Chinese banks, wants more business and sees Kazakh companies as an attractive bet. With tightening of entry requirement by the AIM and the LSE some, particularly small, Kazakh companies fear that these stock-exchanges can lose their competitive advantage before other bourses. For the small Kazakhstan companies, conditions in Hong Kong are very favourable and it is possible that some from them will decide to do their IPO there. However, it is thought that those Kazakh

companies with capitalization of US$100 million and above will still prefer to use the LSE or the AIM as their preferred place of listing largely due to the prestige it carries with international investors. KF

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Discovering Central Asia for Foreign Investors

Aitolkyn Kourmanova Chief Operating Officer of Institute for Economic Strategies – Central Asia (INES CA) since January 2007

Previously she worked as the Head of Research Unit in JSC ATF Bank, Kazakhstan. She has also worked in international organizations: the World Bank and Delegation of the European Commission in Kazakhstan. Graduate of Al Farabi Kazakh State University, International Affairs Department. Holds Executive MBA degree from HEC School, France.

resenting the region

Information is the most important tool for any business however, whilst Central Asia appears to be an attractive place for investment, many foreigners seem to be short of useful information underpinning the investment decision in the region. Central Asian countries appear as a riddle wrapped up in an enigma. An inexperienced foreigner would often associate it with camels, nomads,

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steppe or, most annoyingly, with a notorious Borat-land. The ancient region of Central Asia has a cumulative GDP at about US$108.1 billion and population of 61.1 million people and is home to such valuable resources as oil, gas, gold, uranium and metals. The region is increasingly interesting for foreign investors. Yet, one has to be better equipped with information to distinguish the dynamic region from other emerging markets. A region, locked in the heart of Eurasia, is not only economically attractive but is of a strategic importance. The political life is striving for more democracy; the geopolitical games intensify while countries elaborate new economic policies which are opening up to accommodate more investment from overseas. These trends are a topic for everyday research we do at the Institute for Economic Strategies – Central Asia (INES CA). INES CA represents a group of independent local analysts with international background. It was set up in December 2005 in cooperation with Institute for Economic Strategies (Moscow, Russia) under the auspices of the Social Sciences Division, Russian Academy of Sciences. We produce academic and market research for our foreign partners. Central Asia MarketWatch service is our primary distribution channel, which provides timely analysis of the region’s vital economic and political challenges. We publish weekly investment bulletins analyzing current macroeconomic, financial, energy and investment issues, regular macroeconomic and political reports, country risk reports and reports by sector.

Our client base includes foreign offices in Kazakhstan and other Central Asian countries, investment bankers, embassies, and research institutions around the world. Our reports give unbiased picture of economic and social development of the Central Asian region to all interested parties – businessmen, public figures, politicians, journalists, specialists in international relations, economics and other social sciences. We uncover hidden and often unpredictable insights for Central Asia, identify a spectrum of macroeconomic and political risks, and suggest opportunities in the emerging and attractive industries and markets. Countries of Central Asia are diverse and unique, so are the challenges but we believe that the region is moving towards more openness and greater flows of foreign investment. Country profiles Kazakhstan is a strong regional

leader, but the national economy is still enslaved on its oil and gas industry that accounts for 30% of its Gross Domestic Product (GDP) which grew in 2006 by 10.6% in real terms. Kazakhstan’s goal of diversifying its economy to reduce its dependence on oil revenues is exacerbated by the fact that more than 62% of its exports are generated from the oil sector. As a result the Kazakh economy remains vulnerable to sharp fluctuations in oil prices that might cause negative repercussions for overall economic growth of the country. The government needs to introduce structural reforms supported by proper eco-

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nomic measures aimed at reducing economy’s reliance on booming oil industry. Uzbekistan is a regional “sleeping giant”, economy of Uzbekistan showed clear signs of growth in 2006 with growth rate at 7.3% due to growth in industry, services, construction and retail trade. If this growth pattern persists to the end of the year, then the country will experience one of the highest growth rates in its recent history. Uzbekistan continues to expand its capacity in energy production, especially in production of natural gas. But major reforms should take place in its business climate in order to curtail government’s interference and provide greater openness for foreign investors. Kyrgyzstan is the first democracy in the region. But recent events in the country have shown that in case of absence of economic reforms, political tensions will only grow. Our analysts forecast that the main political events in Kyrgyzstan will take place in the fall 2007 and will lay ground for further historical and political development paths. Overall, the Kyrgyz economy grew by 2.7% in 2006. The trade, agricultural, construction and banking sectors showed positive growth rates last year. At the same time, the country’s industrial sector still cannot achieve sustainable growth rates and showed negative results.

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Academic research

To fulfill our mission in becoming the principal source of analytical information for the Western thinktanks in Central Asia, INES CA launched a series of analytical and futuristic products and publication of a journal - “Economic Strategies – Central Asia”. The focus of our journal is research into scenarios of the future and lessons of the past; strategy of the state and business; overview of business and political environment; art of management and risk assessment. Contributors to our journal are the prime of Russian, Kazakh and foreign strategic theory and practice. The journal publishes ratings of business leaders, leaders in economic thought and management as well as ratings of the most dynamic companies and state persona in the region. The journal offers exclusive interviews with prominent leaders of economic entities and politicians. The Institute is also developing a program set ”The Strategic Matrix of Central Asia” which includes publications on the past, present and scenarios of the future for Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan and Turkmenistan. INES CA will compile ratings of strategic position of companies working in Kazakhstan and other countries of Central Asia and provide an analysis of political and economic risks in these countries.

Development of Economic and Political Scenarios for Kazakhstan and Kyrgyzstan Development of Selection Criteria for the “Bolashak” Presidential Scholarship; participation in the candidate selection board Participation in the research panel on global development scenarios together with the Kazakh Government and the Russian Academy of Sciences Setting up of a resource center for the general public Publications:

Kazakhstan-2012: Scenarios of the Future. Invitation to a Dialogue, 2006 Strategic Matrix of Kazakhstan, 2007 Strategic Matrix of Kyrgyzstan, 2007 Kazakh Strategy of Qing Empire, 2007 New Industrial Asia: Lessons for Kazakhstan, 2007 Political Modernization in Kazakhstan, 2007 (planned) Political Economy of Central Asia, 2008 (planned) Oil and Institutions: Case of Kazakhstan, 2008 (planned) Contact us:

Institute for Economic Strategies – Central Asia (INES CA) Almaty 050100, Kazakhstan, 75 Pushkin St, of.2-3 Tel./Fax: +7 (327) 2 91 00 19, +7 (327) 2 91 50 45 E-mail: info@inesnet.kz Internet: www.inesnet.kz, www.marketwatch.kz (under construction) KF

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Kazakhstan: third dimension on the way towards 50 competitive countries of the world

“ “

ne task - 3 solutions A goal of Kazakhstan to become one of 50 most competitive countries of the world is a challenge to the country’s economy as a whole and to its basic sectors determining such competitive ability. It is generally known that 3 main and fundamental constants of solving this task are education, science and infrastructure. Everyone knows the latest initiatives of the state for concentration of efforts in these spheres, namely, ensuring conditions for innovation activity, attracting scientists from abroad and establishing a scientific holding. However, practical implementation or creation of competitive ability points greatly depends on initiatives of private businesses. This is especially true for the sectors of economy with several major players. One of such sectors is telecommunications and one of the players in this sector is GSM Kazakhstan carrying out its activities in all 3 aforementioned dimensions of competitive ability. In the sphere of education, the Company is represented with students’ traineeship, practice and employment program, «Future Starts Today». In the scientific sphere,

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Three facts related to 3G 3G technology provides data transfer rate of up to 2 Mbit/sec and more, based on different technologies. The most telling example and direct profit of the technology is the following scheme: one subscriber – one Internet user. 3G also provides a range of new generation services to subscribers – mobile television, video calls and video conferences, which are the basis of derivative services. Already now, the amusement and telemedicine sector is being rapidly developed in the countries that have introduced 3G. 3G cellular communications standard is compatible with the already existing GSM infrastructure. This will enable GSM subscribers to accept a new standard without changing their operator and subscriber’s number. World experience There are 55 countries in the world with implemented technologies of “accelerated” 3G* networks The main countries and regions are: Western Europe, North America, Japan The approximate number of subscribers is 150 million people* In April 2007, a competition for a 3G license (Megaphone, MTS and Vympelcom) took place in Russia.

* based on “The Expert” magazine data

the Company has recently declared about establishing K’cell Innovation Foundation. The Foundation will facilitate the development of small and medium-sized businesses through collection and generation of new and advanced technologies in telecommunications. As to infrastructure, the Company, well-known

as a big infrastructure player, has declared its readiness and intention to introduce third generation (3G) mobile communication networks. 3G effect for Kazakhstan It is common knowledge that the level of cellular communications development is one of the main

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indicators of the countryâ&#x20AC;&#x2122;s economic development. According to the results of the research conducted by experts of western countries, a 10% increase of cellular communications proliferation ensures 1 - 1.6 per cent growth of GDP in the country. These figures are based on ordinary indicators of cellular communications proliferation, whereas realization of 3G will impact this growth in terms of quality. On the whole, implementation of 3G systems will help Kazakhstan to meet the following challenges:

tion by means of 3G (HSPA), within the shortest periods; providing wide nomenclature of modern mobile communication services to Kazakh users and the business sector, at the world standard level; creating a modern basis of the transport component in implementation of the E-Government program; laying the basis of further operational approach to fourth generation mobile communication technologies (4G);

the World Trade Organization.

ensuring advanced development of telecommunications as a basis of the countryâ&#x20AC;&#x2122;s general economic development; ensuring high-speed Internet access and increasing its prolifera-

attracting a significant volume of investments to the development of high-technology branch of economy; ensuring fulfillment of requirements for Kazakhstanâ&#x20AC;&#x2122; joining

increase of internal and external competitive ability. It will also meet strategic targets aimed at solution of global challenges of the 21st century. KF

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Kazakhstan in the future Irrespective of definite goals and objectives of Kazakhstan or of any other country, implementation of advanced digital technologies opens new prospects for new technological research and solutions and lays a basis of generally accessible and, consequently, competitive and sustained economic spheres. In this connection, implementation of 3G in Kazakhstan meets the current tactical tasks aimed at the

Trans-Fibre-Optic Trunk Line This is not a secret that at the moment the global market of telecommunication services is quite able to compete with any economic sector of the most developed countries by turnovers and funds employed in it. Mr. Andrey Vassilievich Khan, the First Deputy General Director of the JSC “KazTransCom”, will inform how things are progressing in this services market segment. market in Kazakhstan?

Andrey Vassilievich Khan At present - the First Deputy General Director of the JSC “KazTransCom”

Education: Taganrog State Radio-Technical University named after V.D.Kalmykov. Passed the courses: “Credit Letters” and “Trade Financing” at KIMEP, Kazakhstan. Passed the courses: “Corporate Management and Finance” at RCI Consultancy Ltd., Paris, France. Started his labor activities from the position of the Head of the Department for payments and reporting at the Regional Treasury Board (Budget Bank), then successively worked as the Deputy Director at the firm “LIN”, Director of the Financial Department at the JSC “KazTransCom”, Deputy General Director for Economy and Finance at the JSC “KazTransCom”. At present, Mr. Andrey Khan’s title is the First Deputy General Director of the JSC “KazTransCom”.

What, in your view, is the situation in the telecommunication services

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If we take our country as a whole, the market here is quite competitive – at the moment, both large-scale and small-size players are present in the market, which provide their clients with various services, starting from satellite communication and finishing with the elementary access to the Internet. Nevertheless, the leading positions are occupied by the operators possessing the access to their own fiber-optic trunk lines. In separate cities the situation differs just a little from that taken in the Republic at large – quite a large number of operators offer their clients a whole variety of services. However, a significant shortcoming is common to some companies and should be noted: rendering a wide range of services, they cover a very small market segment – either regarding potential customers or applied technologies. As for us, we are covering the entire territory of Kazakhstan, and accordingly, have the access to international gates, and this implies a sufficiently cheap traffic – without any intermediary surcharges. FOOTNOTE: It is perfectly clear that the companies engaged in the oil sector set quite high requirements to operators, and we are capable of complying with them. To what extent do the Kazakhstan

companies functioning in the sphere of telecommunications match the level of their Western counterparts?

First of all, the national companies do not develop outside Kazakhstan; therefore, this comparison is not quite correct. If to analyze the situation inside Kazakhstan, our companies are sufficiently competitive. The fact that the dominating position is occupied by the national operator, but not by international corporations, conveys a great deal. It is reasonable to assume that the “KazTransCom” company provides its clients with not only the standard customer’s package in the sphere of rendering telecommunications services, but also with unique services over the territory of Kazakhstan. Could you, please, get our readers familiarized with them, or is it a commercial secret?

No secrets at all, we are absolutely transparent. However, today it is not practically possible to find a really unique service in Kazakhstan, having no its analogues, because the choice is quite various, and the clients’ requirements facilitate continuous improvement and expansion of the service package. If to take the direction that is being most perspective at the moment, it is undoubtedly the IT-technologies. If several years ago the client required a comparatively narrow range of services, today the situation has

significantly changed – it is not only the Internet and telephony, but all kinds of multimedia applications as well. Besides, every client demands an individual approach provided with a wide range of services rendered. IT-technologies allow performing the first, second and third. Nevertheless, I believe that “KazTransCom” is an indisputable leader in servicing its customers. Communication nodes of our company are placed every two hundred kilometres that allows reducing the time of reacting on damage up to three hours, and the time of damage detection – up to thirty minutes. We are equipped with special mobile labs capable of visiting the accident scene within the shortest possible time limit and repairing a fault of any complexity. As well, those mobile labs are quite successfully engaged in providing the mobile communication while accidents happened on oil-and-gas pipelines. As far as I know, this type of service does not have any analogues on the territory of Kazakhstan. Our largest customers are, first of all, oil companies – either domestic or representatives of foreign corporations. It is quite clear that the companies working in this sector set high requirements to operators, and we are able to meet these requirements. At that, we should not forget about geography. “KazTransCom” is one of the few companies in Kazakhstan whose activities reach out all areas of the country. This significantly simplifies rendering of our services to any client as fast as possible and without additional expenses. FOOTNOTE: Communication nodes are placed by “KazTransCom” every two hundred kilometres that allows reducing the time of reacting on damage up to three hours, and the time of damage detection – up to thirty minutes. From the information placed on your company site, one could make a conclusion that you pay special attention to professional safety and health of your employees, as well as to the environment protection. Is this the official position of

the company or up-to-date reality requirement?

Both. First of all, we endeavor to comply with the international safety standards, and this is a kind of the company’s position. Besides, this contributes to the additional motivation of employees – each staff-member receives a uniform specific to the job performed by him, passes training to be in line with the occupied position. Furthermore, our client should be positive that he will be visited by a properly prepared and instructed employee. The same could be said about environmental protection. We are respon-

sible both for the rendered services quality and nature preservation. In my view, the safety of our employees and environment state are tightly bound and cannot be considered separately from each other. As far as I am informed, an in-house corporate training center has been established at “KazTransCom”. Is a shortage of specialists observed in Kazakhstan in the sphere of telecommunications, or is your company aimed at upbringing your own generation of employees?

Really, today the acute shortage of specialists can be observed in our sphere. In our turn, we use the upto-date technologies. That is why the top management of the company has made a decision to establish such a center for providing the working employees with an opportunity to improve their skills, and young specialists – to reach the required level. Either employees of the Head

Office who passed the special training, or invited teachers and specialists representing manufacturers of the software and equipment – are acting as instructors in our training center. We are striving to raise the “on-site” generation of our company’s employees, encourage them in every possible way and promote their professional and career growth. FOOTNOTE: In the year 2004 the revenues of the telecommunication industry in Kazakhstan totaled USD 1.11 billion, and in 2005 this indicator reached USD 1.63 billion. In 2006, the telecommunications market profitability index was fixed at the

mark USD 2.1 billion. Within the current year, the volume of communication services rendered has grown for 32.1% as compared to the same period of the last year. What is your forecast for the nearest several years, and what in your view the way of telecommunication services market development in Kazakhstan?

I believe that the market will use ITtechnologies more and more. Higher rates, a wider range of services provided – all these are demands of the reality. Besides, multimedia technologies will be applied more actively year by year. As well, a constantly growing interest will be displayed towards the transit traffic between Europe and Asia, and a favorable geographic location of Kazakhstan will contribute to that. Interviewer – Roman Kazimirsky KF

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Central Asia’s retail giant moves up a gear Eduard Kim is the main owner of Technodom Group, one of the fastest developing Kazakh enterprises in the past 5 years. He has an energetic personality with a constant focus on how to win both in business and sport. It seemed only a dream 5 years ago for Eduard Kim to become one of the most dominant figures in Kazakh commerce of consumer electronic products. He and his partners, Renat Ismalov and Sergei Distergov look ahead and waste no time pondering about the success achieved in recent years. Technodom operates 16 stores, wholesale activities and stocks are coordinated from its own logistic centres across the Country. Headquarters will soon be relocated. The company’s new and again own office building will be occupied by a modern, newly structured company management.

Eduard Kim President/CEO TechnodomGroup Company LLC

DOB: June 4, 1965 Graduated from Kazakh Polytechnic Institute named after K. Satpayav

Mr Kim, your colleagues mentioned that you always looked ahead and only looked back when mistakes were analysed. What is your main ambition at present?

Technodom started as a small enter-

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prise; currently we come at second position in the market. Our goal, however, is to be the first by the end of 2008 in Kazakhstan and be the largest and most dominating electrical chain in Central Asia by 2009. In order to achieve this we should be able to leave behind the former operational mechanisms suitable for a small company. We are testing a new retail operational system, as customers make quick decisions, they know what they want and also want to get the products in doublequick time. We intend to enhance customers’ feeling of comfort to encourage them to return to the stores.

will join us as. We had in mind a person who had gathered enough experience as a supplier and in retail business working for multinational companies. We needed someone who was familiar with Kazakh culture and the present situation in the former Soviet Union. We had picked a candidate with 17 years experience on consumer electronics business field both as manufacturer and retailer in Central Europe and year ago and he had joined the Company at the beginning of this year.

Rumour says you have an eye on Europe. What does it actually mean for Technodom? Entry into a new market, or a shift in attitude?

Why? So that he can think with the suppliers’ mind, see possible synergies and so that we can his personal contacts together. Currently suppliers know very little about the potentials in our country and they favour and trust partners they have had previous personal contacts with.

We are in the process of building a new management. My aim is to set and build our management system, internal procedures and retail operation system according to the latest European standards. Therefore I want the best European managers

Why was it essential for your candidate to have experience as a supplier?

Technodom has the unique colours of fresh orange and black/white,

this combination bears no resemblance to any of the logos of other multinational companies. What multinational practices do you consider adopting?

It would surely have been more simple and cost-effective to copy the colours used by other well-known companies. We intend to apply some best practices and customise these sales, communications and logistics techniques to meet our needs. Also, we would like to adopt management structure and organisation modules to simplify colleagues work and to prevent colleagues becoming irreplaceable. Our policy is that only our customers are irreplaceable. What we reinvest in the company is basically the money customers spend in our stores. Consequently, we are here for them and not the other way around. Currently we have sixteen hundred employees. We are building a motivated team where business targets are met by working as efficiently as possible.

What are shortterm goals?

present store models with floor space between 7OO and 2OOO m2. We are planning to open 20 such stores in the coming two years, moving closer to customers as with the development of the market future customers will make decisions on the basis of comfort factors. In addition, we will soon launch a new store model to serve customers with more sophisticated needs. Such stores will sell specialised products and will be able to provide special service. We have some longterm plans as well, but I do not want to give ideas to competitors…

...answers Eduard Kim with a smile. He thanks for the opportunity and rushes to his next meeting. After Eduard Kim’s introduction I looked forward to the

meeting with the Hungarian manager with anticipation. As we had previously agreed with the Secretariat on the language of the interview, Peter Sebestyen greeted me in perfect English and with a wide smile. My first question thus was fairly obvious: How do you want to reform the Kazakh market if you don’t speak Russian?

It was my professional career rather than my talent for languages that the owners of the company took an interest in. Everybody in my generation used to learn Russian for 8 years at school so with regular practice − several times a week − my Russian is improving fast. English is usually one of the official languages used by reputable suppliers, and they truly appreciate if no interpreter is required for negotiations. Yes, you have extensive experience both as a supplier and in retail business. How did you manage the shift from one side to the other?

I started at Philips 17 years ago, I was

the

Our goal is to become a dominant consumer electronics company in CentralAsia, thus we seek to gain regional influence. We have further developed our

present when the Hungarian subsidiary of Tefal was established and also when Sony Hungary was founded. I worked for Sony for 7 years and left the company as Sales Director. In 2001 Dixons Group selected me to introduce Elec-

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Peter Senestyen COO, TechnodomGroup Company LLC

DOB: December, 9, 1966 Education: 1985 – 1987 Budapest Technical College, Diploma: Technical Engineer 1995 – 1998 ECBS, Degree: MBA 2000 – 2005 CORVINUS University, Degree: Master of Public Administration Professional Background: 1994 – 2001 Sony Hungary , Commercial Director 2001 – 2006 Electro World CE / Dixons International Plc

tro World - designed specially for the Eastern-European market - in Hungary. This posed a great challenge for me at the age of 33 and I sacrificed my step-by-step built career at Sony for this task. They needed someone with a positive personality and experience as a supplier and it was a marked advantage that I had no retail experience and thus lacked the typical negative fixed habits. Philips,Tefal, Sony, Dixons Group, all in Hungary? How did you end up in Kazakhstan?

Actually I’ve been chosen between three different destinations as Moscow, Kuwait and Almaty but I have known one of the owners of the company for years. He was a close witness to my success at my previous company and we used to discuss professional issues related

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•

to the Central-Asian market. He had been tempting me to join the company for two years when last year I undertook to hold a professional training to see for myself what this country with an exotic name, where our ancestors left in search of a new home more than a thousand years ago was like. I must admit I was totally amazed. I gained new professional experience witnessing the so far unstoppable economic growth in a dynamically developing country. I immediately got along with the owners I had no doubts about my decision and also managed to persuade my wife, so we went for it. Eduard Kim told me that you did not copy other companies and your company would preserve and further enhance its independent image. How can you contribute to this?

I rationalise operation, both in terms of technical matters and personnel. We offer attractive salaries, and we expect quality work from colleagues in return. We are a customer-oriented company and we must make our customers feel this when we are serving them. We do not only sell products but serve customers. We ensure that our customers are offered the products best meeting their needs so that they can leave our stores with a sense of satisfaction. We are creating a uniform image so that irrespective of the size of the shop customers will see at first glance that they are in Technodom. The new store concept can be seen in our new stores. From my multinational experiences I would like to use what best serves the needs of our local customers, uniform trade cannot be achieved with your eyes closed, you need to adjust everything to local customs and culture. So we take demands and adjust our supply to them ─ that is the point. Of course, in order to do this we need to know well advance what trends are coming and which

of them will suit our customers. You are right, proper service, pleasant environment are both important, but what about prices? What can you do in order to ensure good prices?

We purchase directly from the manufacturers producing the best quality, we purchase from the factories in bulk quantities therefore we get favourable prices and this way we can ensure good prices for our customers. The annual contracts with our best suppliers are based on strategic partnership, so in addition to the excellent prices they provide flexible services. We meet seasonal demands by delivering products stored in our warehouse. We manufacture reliable and favourably priced private label products also. The ‘NEO’ our own brand name is widely known as a guarantee for quality and favourable price. Regarding the future…do you think the concept of specialised shops is a viable idea in the age of the Internet?

Yes, it is. We have already dreamt our new digital vision, where customers make their choices not on the basis of pictures but genuine impressions, which is guaranteed that they get the latest and best products. The personal computer is evolving and quiclky becoming the center of a new digital lifestyle. We want to show and teach our customers about these new solutions. I am on friendly terms with Eduard and Renat, we work with great spirits and innovative ideas come easily if the mood is pleasant, no matter where we are, at the office, at the tennis court or even at the barbecue parties held together at weekends with our families. We will soon let you know more about the digital future we have in mind.... KF

Old kids on the Block About Colliers

Colliers International is an International consulting company which offers services in commercial realestate field. Our Company has an experienced real estate specialist in each specific market. To date, we have a big range of partners and clients in each market sector. Background of creation of the Company

The Colliers International has opened its Kazakhstan Office in 1999 in Almaty, it is been headed by Saule Karataeva. The Company has commenced its activity from the opening of the Offices Department. The first project of the Offices Department was an exclusive brokerage of Prime, Dostyk, CDC I, CDC II and Dostar business centers. In the same year we have established the Housing Department that concentrated on the leasing of housing facilities to the personnel of foreign companies. In 2001 the Company has expanded activities by establishing of the Commercial Realty Department (with the pioneering project of ‘Promenade’ Shopping Center) and, the Marketing and Research Department (with its first assignment for market investigation and concept development of the ‘Mega Center – Alma-Ata’ Shopping and Entertaining Centre). From the early 2006 the Managing Partners of the Company are Saule Karataeva and Izabella Plastovets. During 8 years of successful business activity our Company has gained a significant experience in brokerage and realty market research. We have established the team of Professional Consultants and developed a wide database on all estate subjects. We provide continual monitoring of the market.

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Our portfolio includes large exclusive commercial projects, such as business and shopping centers: “SAT-Business”, “Sun Tower”, “City Mall”, and “Maxima”. How “Colliers International” became an “SIP Adviser”

In January 2007 the Office of Colliers International Kazakhstan has been shutdown due to the several organizational issues. By this time the Managing Partners of the Company has come to idea of establishment of the new Kazakh brand, the “SIP Adviser”. One of the main targets of establishment of a new brand was to retain the team of professionals, advanced database, business partners and clients. The SIP Adviser has been established in January 2007 and is the legal successor of the Colliers International Kazakhstan. The Company has retained not only the team and database, but partners, projects and exclusive portfolios. At the moment the SIP Adviser proceeds with the projects commenced in 2006 by the

Colliers International Kazakhstan. The Company organization, address and contacts remain the same. What are your main achievement for today and your plans for the future?

To date, our company had taken durable stand positions in market of real estate’s services. Our clients are native developers and foreign companies that are interested in investing in the Kazakh real-estate. We have conducted research into more then 40 projects in Kazakhstan. On count of active development of real estate’s market, and developers’ increasing interest to settling of ground area, for creating different projects, we will offer them our service by realization marketing research and development future projects’ conceptions. Also, we plan to enlarge our service spectrum by creating a commercial property-management company. KF

MAIN SERVICES

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Management Consultants are on the march in Kazakhstan Almagest Company is an independent management consulting company. The company was established in 2005 and has already been recognized on the market of consulting services. Below is the interview with Aidarkhan Kussainov, General Director. Management consulting is a quite general notion. Could you please specify what kind of services your company provides?

Aidarkhan Kussainov graduated from the Moscow State University as a physicist. Kazakh Institute of Economics, Management and Strategic Research, Master of Arts in Economics; Atyrau Institute of Oil and Gas, engineer. 1995 - 1998 worked at KBS Group Company. As governmental consultant participated in privatization of AltayEnergo and restructuring of KATEP National Company. 1998-2002 Executive Director, Counselor to the President, VicePresident in “KazTransOil”, “KazTransGaz”, and “Transport of Oil and Gas”, 2002-2003 Director of Gas Industry Department of the Ministry of Energy and Mineral Resources. 2004-2005 private consultant. Since 2006 General Director in Almagest Company. Currently Independent Board Member of several companies, member of the Kazakhstan’s Independent Director Association.

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Management consulting is a general notion; however, at the same time it is quite specific. Generally, management includes three pillars: finances, planning and organization. Therefore, we divide our services according to these main elements of management. Financial Consulting.

Our company does not provide business evaluation services, audit, tax or investment consulting. We develop the financial management system that allows our clients to make effective decision. Specialized financial consultants step in the process at the stage of implementation of decision made. We provide financial business analysis and business evaluation for the Client to reveal the key indices, which should be taken into consideration and under control. We also

offer monitoring and control tools. Such an approach requires not only the knowledge of formal evaluation principles, but a deep understanding of the business of a certain Client. We also develop management accounting systems. These systems are not required to be automatized. Our system provides needed information for decision making. The systems are simple because manager, as human being, always makes decisions on the basis of a limited volume of information. Identification and provision of this limited, but crucially important data is a key feature in our services. Today’s market offers lot of different computer-based managerial system like ERP, budgeting, resources management, sales and other systems. They provide extremely detailed data in any sets, combinations and forms; however, their adaptation to the requirements and needs of a certain business, identification of really important and

critical information volume needed for effective decision making process still remains to be the main problem. Client should understand why, how and what exactly he/she requires from the system before implementation. That is the service that we provide. Organizational Consulting.

Business is mainly the organization, i.e. procedures, powers and responsibilities distribution etc. We do not provide our organizational consulting services for the formal fit of Client’s documentation to external requirements (like any international or local management standards, regulation requirements, etc) or for the introduction of certain ERP system. There is a number of companies that specialize in this type of services and they can do them better. We design the organization in accordance with internal goals and strategy of the Client. We are not restricted by the functionality of any certain formalized or automatized system or any external standards. Strategic Consulting. We make recommendations for achieving longterm business success by developing long-term goals, vision, business models, implementation planning, etc. I consider this service as the most valuable one. This is what we focus our business on. Why do you regard this type of services as a perspective business trend?

I think that we have certain stages in the development of Kazakhstan businesses. The first one, chaotic development, was related to perestroika and privatization. Entrepreneurship spirit was the key factor of success. Companies were set up and went bankrupt on the back of changing rules, so systematic management issues were not at most importance. The second stage was stabilization. Businesses just enjoyed and developed or not developed their competitive advantages like financial and industrial resourc-

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es gained during the first stage. Now, we are entering at new stage – introduction of systematic and consistent management. Capital inflows increased the opportunities for fund raising. The soviet industrial assets suffered from amortisation and the ownership rights over these assets significantly lost its value. In such conditions the quality of management turned to be the key for business success. And we will see the competition of management teams, systems and organizations. What are the main advantages of your company compared to others?

We follow a number of principles that serve as the basis of our main activity and as the factors of our success. These are effectiveness, competence, simplicity, systematic approach and independence. Effectiveness.

Every problem contains a certain point, cornerstone which is the key to effective and quick solution. We identify this point and solve the problem thus providing effective services. Competence. Our business is development and transfer of experience and knowledge. It is impossible to provide management consulting services and sometimes even to understand managerial problems, if a consultant has no managerial experience. Our people have top managerial experience gained in small, middle and national scale businesses. Therefore, we are able to comprehend and define Client’s problem and provide effective and doable solutions. We bring outside specialists to our projects, and constantly expand our expert network. Today it includes highly-skilled Kazakhstan and foreign specialists, former and current top managers. Simplicity.

Following Einstein’s famous quote,

“if you can’t explain your theory to a child, you do not understand it”, we recommend simple and clear steps to improve management and business. We effectively advise our clients and our reports are designed in such a way that the Client having read it today would know clearly what he/she should do tomorrow. Systematic Approach.

We provide solutions that can be further developed, adapted and improved in accordance with the needs of the Client. The value of management is not in successful overcoming of business problems, but in their prevention. Therefore, our recommendations and systems include such preventing tools. Independence. Almagest is an independent, non-affiliated company. Our priority is to enhance the effectiveness of our client’s business and we are guided solely by the client’s interests and our best efforts. How do you build relationships with the Clients?

Our valued clients are local and foreign enterprises such as banks, oil and gas, construction, furniture and entertainment companies. We did projects in Kazakhstan and Russia. For us well-done project means that the client can operate further effectively with no needs in our service. If we stay in the project longer than it was planned we consider it as our failure. In order to avoid such a situation we divide the project into several stages, identify interim results and then evaluate all results from two perspectives. Firstly, we estimate weather the Client can effectively do the rest of the project by himself. Secondly, weather the project is worth to be further implemented or it is better to postpone or close it. Such an approach poses additional responsibility and risks for us, but we believe that in a long-term perspective it is correct. KF

Success in business education: step by step

Olga Kuznetsova Rector of International Academy of Business, PhD Almaty, Kazakhstan

n our country a shortage of highly-qualified professionals is obvious in all spheres of industrial and service production. The President of the Republic of Kazakhstan N.A. Nazarbayev emphasizes and companies’ executives mention this fact in their interviews and in conferences. At present the majority of fields of the Republic’s economy are rapidly developing and as a result of it the requirements for executives’ competencies rise continually. Modern top-mangers should speak not only the State language but also a foreign language (at least one), master up-to-date managerial methods and tools in a field correspondent to their specialization and demonstrate advanced PC and software skills. It is possible and essential to send

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young people to study abroad but it is not a proper solution to the problem. We need to prepare a generation of native managers who would possess all the mentioned above competencies and could be global managers, competitive in the world labour market. The International Academy of Business (IAB) was launched on the basis of Almaty School of Management established in 1988 and reorganized in IAB in 1996. The International Academy of Business trains in three directions in accordance with Bologna Process: Baccalaureate, MBA and DBA and additionally offers Executive Education Programmes. Currently a lot of these programmes alumni are representing Kazakhstan business abroad. The researches also reveal that during 2-3 years after IAB programmes graduation over 80% of alumni demonstrate a turbulent career and their salaries are multiplied weighty. The orientation to innovations is a key success factor of the International Academy of Business. We started business with shortterm corporate training; we were pioneers in MBA programme elaboration so we were accustomed to work with adult “students” whose opinion certainly should be taken into account and whose requirements must be met. Having opened the Undergraduate programmes we transferred this sample to a younger generation. The Academy always strives for making orientation to customers’ needs its basic principle. The International Academy of Business practises Kazakhstan MBA Finance Programme and since 2005 Joint MBA Finance Programme in

cooperation with Finance Academy under the Government of Russian Federation. The Academy prepares students at the Executive MBA Programme for oil and finance sector jointly with HEC School of Management during years of time. In 2007 IAB is opening Kazakhstan Executive MBA Programme. We were the first who started training at DBA (Doctor of Business Administration) Programme in Kazakhstan market and the pathfinders in the field of short-term and longterm corporate programmes for the real economic sector of the country (ENRC, Kazzink JSC, BI Group, etc.). The Centre-Management of Innovation Programmes successfully functions in the direction of new educational projects elaboration and implementation for rapidly developing economic sectors. In the nearest future it is planned to open a new programme called C.I.I.A. to prepare international financial and investment analysts for Kazakhstan financial sector – and these are just some examples of IAB product strategy diversification. At the present day the solid multiple-discipline educational structure has been formed at the International Academy of Business that allows gaining cutting edge knowledge and practical skills in economics, management, finance, marketing, information science and business. The Academy has succeeded in forming a unique staff representing a combination of professional teachers and experienced practitioners handling latest technologies and methods. The best faculty members are in great demand equally at MBA,

g a t e w a y

t o

DBA and corporate programmes that often conducted in regions at enterprises. Participation in such programmes and also in consulting projects gives those priceless practical materials owing to which they respond to today’s challenges and speak one language with programme participants skilfully delivering theory and assisting with independent concepts and models design. This staff pull is an invaluable resource of ours. We invite professors from abroad thanks to our partnerships with a lot of universities and business schools located in the Russian Federation and Europe. The International Academy of Business forms up faculty’s preparation systems (training and retraining) and motivation on its own. The faculty has an opportunity of internship, training, obtaining education abroad and participation in MBA and DBA Programmes. Being the member of International educational associations as the European Foundation for Management Development (efmd), Central and East European Management Development Association (CEEMAN), the American Chamber of Commerce, etc. IAB has shown itself in Kazakhstan market as the business school welcoming and sustaining innovations and reforms carrying out in education and aimed at its integration into the world education environment. In 2004 we entered the market of Kazakhstan capital – Astana. It is the most dynamic market where IAB programmes are in great demand more and more. Other regions are also attractive, and we are working over the plans of hori-

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k a z a k h s t a n

zontal diversification. The markets of Central Asia still remain behind in readiness for such programmes and paying capacity but in a view of positive dynamics entering these markets is in the not distant future. These tendencies do not eliminate the possibility of partnership with local business schools. For instance, currently we are working over the Joint MBA programme with Eurasian Innovations University (Pavlodar); close collaboration on the Baccalaureate programmes has been established with Miras University (Shymkent). I am sure that namely Kazakhstan univer-

sities will be a pioneer and a centre of business education programmes owing to the following factors: dynamic development of economics;

dynamic development of business education programmes; stable longstanding partnerships with foreign business schools and universities. So by constantly changing business components such as business competition growth, change of customers’ tastes and preferences business education changes inevitably and becomes more based on global technologies and highly-qualified professionals preparation. The main postulates of business education development under conditions of globalizations are the following: The first postulate - everything must be planned beginning from global vision and university’s mission determination and ending with operative plans in any sphere of university’s activities: teaching, scientific work, financing, etc. The second postulate - orientation to customer’s needs. Quality of fulfilled work is assessed by a client. That is why it is essential constantly to strive for quality improvement, newness and actuality of educational services rendered to undergraduate and graduate students. The third postulate - innovations. The quicker we react the market demand offering an appropriate educational programme the more we are in great demand and consequently more competitive. And at last the most important thing without which we can not have a strategic vision, apply innovations and work for the welfare of customers is professionalism. Shifting to the highest level of competence, high organization, business appearance are present-day top manager’s features in business education. KF

Leader of the pack

Algazy Sekenov Chairman, JSC “Accumulation Pension Fund “GNPF’ Education: Kazakh polytechnical institute named after Lenin. Financial Academy under the Government of the Russian Federation Employment. History: 1993-1994: JSC National Company Kazmetall /Assistant General Director 1994-2002: the National Bank of the Republic of Kazakhstan / Alternate Director of Monitory operation Department (the last position), 2002-2004: JSC Trade House Kazmunaigaz/ Deputy Director General, Director of Asset Management Department 2004-2006: Ltd “Trade House “Kazmunaigaz”, London / Alternate Director Since august 2006 to the present day: JSC “Accumulation Pension Fund “GNPF’/ Chairman

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In September 1997 the Government of the Republic of Kazakhstan announced the formation of GNPF – the first national pension company. Kazakh Government was the first among CIS countries to recognise the need for reform in the pensions market as means of securing financial future of its population. The first shareholders in the Fund were the Kazakh Government and Kazakhstan’s National Bank. The Fund began its independent investment activity in August 1999 and has proved to be a shrewd, if conservative, investor; in 1998-1999 pension funds invested mostly in government bonds of the Ministry of Finance and notes of the National Bank. Since year 2000, pension funds have started to increasingly diversify their portfolios. In 1998, about 84% of investments were made into KZT denominated instruments and only 16% in other currencies instruments. In 1999, pension funds purchased USD denominated Kazakhstan government bonds up to 84% of portfolios. After KZT appreciation in 2003 and 2004, pension funds switched most investments into KZT denominated instruments: firstly, by purchasing government bonds and National bank notes, and secondly, by increasing investments in corporate bonds, equities and deposits of local commercial banks. Currently, the largest part of pension assets are invested on the domestic market in KZT denominated instruments. The pension security system in Kaza-

khstan consists of the accumulation pension system, oriented generally on young and middle-aged working population, and of the solidary pension system, oriented on older people. Co-existence of these two systems allows for the balance of interests of citizens and the State to be maintained, for gradual decrease of the burden on the state budget and for transition to the accumulation system of pension security. The accumulation pension system helped to resolve a range of economic issues, existing at that time, mitigating social strain and to gradually releasing the budget from a burden of pension payments, and also promoted development of financial market and formation of new institutional investors – accumulation pension funds. Kazakhstan has a so called “three-pillar” system of pension security: the first pillar is a compulsory pension insurance based on generation solidarity (Defined Benefit); the second pillar is a compulsory pension insurance based on individual capitalised savings (Defined Contribution); the third pillar consists of any additional payments from voluntary and professional-voluntary contributions on the account. Until December 2003 the Fund enjoyed a relatively protected existence however, in December 2003 amendments were made to the Pension legislation, and, as a result, all advantages, privileges and restrictions in relation to GPNF were eliminated.

From February 1st, 2005 Government Accumulation Pension Fund (GNPF) JSC finally started operating on a fully competitive market and changed its name to the JSC “Accumulation Pension Fund “GNPF”. GNPF proved adept in operating without its special privileges and despite strong competition it retains high market-share of the pensions market – 26.98% that translates into 2.4 million customers out of existing 8.9 million customers as of July 1, 2007. Pension assets of accumulation pension funds in general amount to more than 1 042.5 billion KZT (US$ 8.56 billion). The pension assets of GNPF amount to 181.4 billion KZT (US$ 1.49 billion),

purchase 9.99% of the Fund in May 2007 will go a long way in reassuring its customers that GNPF is on the right track. In order to preserve high quality of its investment portfolio, the GNPF pension assets management is aimed at implementing the investment strategy that focuses on maintaining an optimal level of the investment portfolio diversification through ensuring that risks are reduced and appropriate competitive return levels are achieved, investing part of the assets in highly liquid financial instruments, purchasing highly rated securities of local as well as foreign emitters, together with simultaneous implementation of

At present, GNPF works in a competitive environment alongside nongovernment accumulation pension funds and above all strives to ensure the transparency of its activities. The Fund has a wide regional network in Kazakhstan consisting of 28 regional subdivisions. Following its objective, aimed at creating a stable finance institution that provides high quality pension services available to all groups of the Kazakh population, GNPF constantly improves its positions in respect to its main activities. Being one of the leaders on the accumulation pension services market, GNPF intends to maintain and

which is 17.4% of the market. For the whole period of the GNPF’s activity the net investment income amounted to more than 64 billion KZT (US$ 533 million). The GNPF own capital is more than 5.11 billion KZT (approximately US$ 41 million dollars). As with most companies from Kazakhstan, GNPF strives for transparency – thus the decision by the EBRD to

instruments of currency risks hedging. Positive trends in Kazakh financial sector development have been sustained throughout the last two years. Assets and capital of finance organisations have shown high growth rates; the level of development of the Kazakhstan financial market is one of the highest in CIS and the Fund has invested over 80% of its assets in the Kazakh economy.

improve its positions on the market through preservation of all the necessary characteristics: high quality of customer services, reliable investment portfolio, new services and products, designated in accordance with efficient development and increase of pension system and increase of its social significance of the pension system. KF

kazakhstanfinance | autumn 2007

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Leader of the pack

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kazakhstanfinance | autumn 2007

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Kazakhstan Deposit Insurance System: One of the pillars of the financial safety net In any country the main public policy objectives of the Deposit Insurance System (DIS) are protection of the depositors and prevention of the bank runs. The DIS in more than 100 countries of the world exercise these functions, including those of the United Stated, Canada, Taiwan, Japan, etc. The existence of the DIS enables banks to better attract depositors’ funds, especially small ones, citing the provided guarantee which minimizes their risks. Thus the Deposit Insurance System acts as one of the main Financial Safety-Net players. The Kazakhstan Deposit Insurance Fund (KDIF) was established in 1999 and since its foundation has successfully contributed to the maintenance of the public confidence in the domestic banking system and to the whole financial stability of the country. Here follows the detailed discussion of our correspondent with Mrs. Bakhyt Mazhenova, General Director of the KDIF, about the Fund’s achievements, difficulties encountered in its activity and about its plans for the near future.

Bakhyt Mazhenova General Director of the Kazakhstan Deposit Insurance Fund Mrs. Bakhyt Mazhenova has managed the Kazakhstan Deposit Insurance Fund since 2002. In 1993-2002 she worked at the National Bank of Kazakhstan as the Head of Currency Regulation and Control Department; appointed for the position of Vice-President of the Central Asia Bank for Cooperation and Development. Majored in Economy and Industrial Management with the equivalent of PhD (Econ). Treasurer and Chair of Finance and Planning Committee of the International Association of Deposit Insurers (IADI).

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The KDIF has lately succeeded a lot in improving the national deposit insurance system. Could you please remind us of the Fund’s most important recent achievements?

Like any other organization, the DIS passes through different stages in its development. Initially the Kazakhstan DIS was founded as a simple “pay-box” system in 1999, which was fully justified at that time. In fact, Kazakhstan created the explicit deposit insurance system for the first time in its history and it was logical for it to take initially in charge only the premiums’ collection and the depositors’ reimbursement in case of bank failures. Later our DIS was gradually becoming more sophisticated and mature due to the extension of its functions, in-

crease in maximum coverage limit, improvement of the legal base, etc. Nowadays we are still aimed at the further improvement of the domestic DIS and its gradual evolution from the “pay-box” to the risk-minimiser functioning principles. One of the main results of our efforts was the adoption of the new Law on Deposit Insurance, enacted on January 1, 2007, and the establishment of the Differential Premium System. In fact, the law provided for an increase of the maximum coverage by more than 1.5 times, from KZT 400 000 to KZT 700 000 (approximately 5 700 USD), which now represents about 1.2 annual GDP per capita. It also enlarged the scope of individuals’ deposits to be insured by the KDIF- they are all guaranteed now with no exceptions. And most importantly, the Deposit Insurer’s

mandates were significantly enlarged under the law. Moreover, our recently established Differential Premium System classifies banks according to their risk-profile and enables us to detect problem banks. The main function of the Deposit Insurance System has always been the reimbursement of the failed banks’ depositors in case of bank failures. What are the other main roles of the KDIF in the Kazakhstan financial system?

The beneficial role of the Deposit Insurer is not limited only by its pay-box functions. It is also one of the main Financial Safety Net players, together with the National Bank of the Republic of Kazakhstan and the Financial Supervision Agency. By insuring an appropriate coverage in full to the vast majority of the country’s savors the KDIF enables the population to keep confidence in the domestic banking system, and, thus, prevents it from contagion and destabilization. In fact, the new coverage limit enables to cover in full about 98% of all individuals’ deposits in Kazakhstan, exceeding by 7.3 times the average individual deposit amount of 96 300 KZT (about 800 USD). The other main Deposit Insurer’s functions nowadays include the risk-assessment of the commercial banks with the help of its recently adopted Differential Premium System which divides banks into different classification groups according to their risk-profile. Thus again the KDIF contributes to the banking sector’s stability as it provides all banks with strong incentives to improve their financial soundness in order to pay much lower premiums. Last but not least, we must not forget the Fund’s participation in the receivership, liquidation commission and in the Creditors’ Committees of the failed banks (new role provided under the law), as well as its constant efforts to improve the bank resolution process. During the last three years two member-banks have gone bankrupt and KDIF has been reimbursing the defaulter banks’ depositors. What are the aggregate pay-outs’ amount and

the total number of reimbursed depositors for each of the failed banks up to now? In which other bank resolution processes the Deposit Insurer had been involved in the past?

Thank you for the interesting question.—we have already had some positive experience in the depositors’ reimbursement, indeed. For instance, the KDIF began the reimbursement procedure for the Nauryz bank’s savors on December 14, 2005. By August 1, 2007 it has already paid out 679,2 million tenge to the 3,6 thousand failed bank’s depositors, or about 88% of the total Fund’s coverage liabilities (total number of the bank’s depositors eligible for the reimbursement being 130 thousand, their vast majority possess so-called “dormant accounts”). Next, “ValutTransit Bank” JSC had its license for all banking transactions revoked on December 26, 2006. From March 26, 2007 to August 1, 2007 the Fund reimbursed 13,6 billion tenge to the 60 thousand out of its total 100 thousand depositors. The total estimated coverage amount for this bank reaching approximately 14,5 billion tenge, the Deposit Insurer has already paid out about 94% of its total coverage liabilities. However, due to the incomplete creditors’ register of the failed bank this amount can be revised later. This problem, together with the difficulty in the proper assessment of the failed banks’ property and other procedural red tape impede the effective bank resolution processes in Kazakhstan. Before 2005, the Deposit Insurer had been involved in the forcible liquidation of “Komir bank” JSC as well and had also compensated in full the bulk of the bank’s depositors. In fact, performed by the KDIF successful reimbursement of all the three mentioned banks’ depositors helped prevent the massive bank runs and supported stability of the country’s financial system. The Fund’s current successful participation in the forcible liquidation of Valut-Transit Bank is especially important, as it was one of the largest regional banks in Kazakhstan. Now please tell us a few words about

your future priority goals.

Currently the Fund’s main goal is the minimization of its risks, especially making the bank failures predictable in order to be able to apply the prompt corrective action with other Financial Safety Net members. Thus, the Deposit Insurer will permanently carry out situational analysis, i.e. it will monitor the general state of the Kazakhstan economy, financial market, legal and regulatory basis, international developments in deposit insurance and other factors likely to impact the Fund’s and other DISmembers’ activity. But we have other multiple projects as well. For example, the KDIF also aims to develop more efficient procedures for the bank resolutions, in co-operation with the Financial Supervision Agency and the National Bank. Therefore, we are planning to extend our interrelationship with the regulatory bodies in terms of information exchange, measures for the prompt corrective action in case of a bank’s insolvency, etc. The Deposit Insurer is going to put forward such bank resolution methods as the Bridge Bank, Purchase & Assumption, etc. for their adoption in the banking legislation, so that the forcible bank liquidation remains only the last-ditch administrative measure. We will also strive to obtain rapid access to the data of a forcibly liquidated bank and to develop a sound system for the compilation of an individual creditors’ register to enable more efficient depositors’ reimbursement. The Fund is also considering the possibility of the alternative funding sources for the replenishment of our special reserve fund to relieve the premiums’ burden of the commercial banks. Moreover, the KDIF’s employees in cooperation with a specialized company are now finalizing the establishment of a database and software for the calculation of banks’ differential premium rates. Finally, we will try to further extend and enhance our mutual co-operation links with foreign DIS to share our experience and benefit from the international best practice in the achievement of our multiple goals. KF

kazakhstanfinance | autumn 2007

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Never mind ‘Borat’ – missing out on Kazakhstan’s continues growth could be the biggest mistake in your company’s history

f you have watched the film “Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan” you might be forgiven for forming a rather unflattering view of this Central Asian country. Reality is somewhat different; Kazakhstan is quickly becoming known not only for its immense carbon resources but also as Central Asia’s newest financial hub. With stable political situation, just a few months ago, parliament granted President Nursultan Nazarbayev lifetime powers which, among other things, gives him influence and immunity from prosecution even after he is no longer president, Kazakhstan is an attractive destination for foreign capital. Conservative Senator Consiglio Di Nino paints you a different picture from the one Borat depicted in his movie – Kazakhstan, and its capital city of Astana, is booming. “I see construction booms that I have seen in other parts of the world,” he says, adding that it reminds him of Dubai 20 years ago.

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All this is spurred by the fact that Kazakhstan is rich in oil and gas, and foreign investment in these sectors is growing–not to mention the fact that every country in the region, including China and Russia, is all clamoring for attention and influence. But most importantly, there are signs that Kazakhstan aspires to become part of the civilized world, despite the fact that it has had a president who has been in power since 1989, and whom critics charge behaves like a dictator. However, for better or worse, this political stability has insured that Kazakhstan’s economic transition from the command economy of the Soviet Union to the market economy it enjoys today was not marred by violence and excess witnessed elsewhere. Some of the best-known Kazakh companies have succeeded in listing their shares on the LSE and are among top performers. With more then 40 tipped to follow suit it seems that there is no stopping the “Kazakh Express”. What can Kazakhstan offer to foreign investors besides its huge carbon reserves? With economy growing at 9% over the past 11 years and

increasingly wealthy population the answer is – plenty. Recently we saw UniCredit Group’s takeover of AFT Bank - this deal further re-affirms the strength of the Kazakh economy and of its banking sector in particular. It can be speculated that, as Kazakhstan’s financial sector becomes more open to the outside competition, we will witness more deals of this nature. Kazakhstan is positioning itself as a regional hub for the financial and energy sectors of Central Asia and with ever increasing economy, fuelled by record prices for oil and gas, few would bet against them succeeding. ATF’s attraction to foreign banks stems from the fact that Kazakhstan has developed a leading banking sector, a wellbuild market infrastructure, large institutional investors with consistently growing assets, a developed debt market and a growing currency derivatives market. No wonder that among the financial, particularly banking community Kazakhstan is considered Central Asia’s financial

market of the future. One can also pay oneâ&#x20AC;&#x2122;s attention to the growing sectors such as telecommunications, industrial and agricultural sectors where speculators saw some of the most spectacular returns on their capital. No-one can tell if Kazakhstan will succeed in moving away from being seen as a giant oil and gas pump but those investors who took risk and invested in this fast-growing country see themselves as having had the last laugh. KF

kazakhstanfinance | autumn 2007

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Safety improvements on Kazakhstan’s mining sector

t the entrance to a shabby mining town in Kazakhstan’s industrial heartland, a sign on a typical Soviet-era apartment building offers a proud boast: “Beloved Town Shakhtinsk.” However, abundance of abandoned buildings with gaping windows would suggest otherwise – testifying to the exodus from the town in the 1990s, amid the troubles plaguing the country’s mining sector. Shakhtinsk is still home to many miners. Nowadays, they work for Arcelor Mittal, one of the world’s biggest steel producers. At present, the company is embroiled in controversy stemming from a fatal accident at one of its mines in Kazakhstan in 2006, in which 41 miners were killed in a methane explosion. Near a dilapidated housing project where many miners live stands the courthouse where some employees of an Arcelor Mittal subsidiary – Mittal Steel Temirtau – were convicted on 9 July of negligence in the tragedy. Eight middle managers and technical staff from the Lenin mine near Shakhtinsk received prison terms of up to three-and-a-half years for safety breaches that contributed to the blast. Some of the widows are demanding tougher sentences for an accident they say was preventable. “Unlike other miners in other countries, our miners have absolutely no rights,” Natalya Tomilova, head of the recently-established Commit-

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tee for Miners’ Families (CMF), told EurasiaNet. “If they start fighting for their rights, it means losing their jobs.” “Many widows said that in the runup their husbands had been complaining of the gas situation in the mine,” Tomilova added. “They were saying that gas was coming in and it was getting impossible to work.” A Kazakhstan’s government commission found that failure to observe safety regulations caused the accident, which occurred during maintenance work on the ventilation system. “The explosion was due to deliberate over-riding of controls and breaking well-established safety procedures. It was not equipmentrelated,” an Arcelor Mittal spokesman told EurasiaNet by e-mail. Local and international media have cited safety concerns in the eight Arcelor Mittal-owned pits around Karaganda – four hours’ drive from Kazakhstan’s booming capital, Astana – which include faulty alarm and ventilation systems, outdated machinery and uncomfortable, lowquality masks. Arcelor Mittal – formerly Mittal Steel – says it has invested $2 billion in its Kazakhstan-based mining and steel facilities since taking them over in 1996, including over $250 million on mine safety, leading to a 70-percent reduction in injuries in the two years after the take-over. Since 1996, it says, the situation has improved dramatically. “When we arrived, Kazakhstan’s steel and mining industries were suffering from years of under-investment and were on the verge of collapse. Wages and productivity were extremely low, as were the standards of Health and

Safety. Eleven years on, things look very different,” the spokesman said. Prior to last year’s accident, the Luxembourg-based company hired the DuPont consultancy firm to improve safety at its facilities; after identifying weaknesses, it is now conducting safety training for Arcelor Mittal. The EBRD has pledged $100 million for a project to bring health and safety practices into line with international standards, including investment in gas monitoring, equipment upgrades, and prevention of coal face collapses and roof falls. Arcelor Mittal says injuries are down 40 per cent this year at its facilities, and there have been no mining fatalities. “While we recognize that there is more work to do, it must be noted that this is the best-ever safety performance,” a company spokesperson said. 91 miners have died in mine accidents since 1996 in Kazakhstan. Vera Maslo, whose 45-year-old husband, Vladimir, died in the Lenin mine accident, is blunt about safety standards. “The miners do not have the right to their own lives,” she told EurasiaNet. However, not all miners are dissatisfied with working conditions. “It’s a good work,” said Viktor, who works at a pit called Shakhtinsk, where 23 died in an explosion in 2004. Conditions are “satisfactory”, he added, and safety is “OK.” Viktor is pleased with the pay raise he received after miners downed tools following last year’s accident; nowadays he takes home about $700 per month, around double his previous earnings. Arcelor Mittal says it has increased basic salaries

and – in order to improve safety – reduced individual productivity bonuses. Tomilova – whose husband died in a 1993 mining accident – is unconvinced that miners are genuinely satisfied. “The reason they say nothing is because they fear for their jobs,” she said. “[But] when a person’s patience snaps and he is on the edge, he doesn’t care… The time will come when they will speak out.” She called on the company’s president, London-based billionaire Lakshmi Mittal, to take on a more direct role in working with miners to identify safety risks and other con-

cerns. “Accidents like this cost a lot of money. If Lakshmi Mittal cooperated with the workers and with our committee, we could help him hugely,” Tomilova said. As well as campaigning for improved conditions, the CMF is lobbying over the position of the families of the deceased, with whom Arcelor Mittal says it is in close contact. The company, which recorded a 2006 net income of $8.2 billion, says that it has paid out some $3.4 million to the families, above what Kazakhstan’s law requires. The payments included

10 years’ salary to each family and one-off payments to purchase flats, furniture and gravestones. According to the payment records, individual families were allocated $65,000100,000; however, many say they received a fraction of the sum after tax and other deductions. The committee says the payments do not compensate what the miners would have earned in the remainder of their working life, and argues that many families have been left with dependent children and without a bread-winner in a town with few job

opportunities. The organization is lobbying for more compensation. A legal appeal has been held up by a local court ruling that said the relatives of the deceased had missed a filing deadline. Relatives counter that the state did not provide a reasonable timeframe for an appeal. “The investor did not just turn up here,” said Tomilova. “The state allowed him to be the boss here, and if the state doesn’t make him pay, then the state should pay itself.” KF

kazakhstanfinance | autumn 2007

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Kazakh firm in Romanian oil deal

azakhstan’s state-owned energy group, KazMunaiGaz, has agreed to buy 75% of Romanian oil firm Rompetrol in a deal estimated to be worth US$2.7bn (£1.3bn). Rompetrol chairman and chief

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executive Dinu Patriciu said the deal offers Europe “an energy bridge that does not depend on Russia”. His comments were in regard to European fears over the long-term security of Russian gas and oil imports. The West has accused Russia of using energy policy to bully its neighbours.

This is in regard to Russia’s stateowned gas monopoly cutting supplies to Ukraine during the winter of 2006/07 in a dispute over how much Kiev should pay. The reduction in supplies to Ukraine had a knock on effect on the level of Russian gas going through the country to Western Europe. KF

Pan-European stations

azprom has also threatened to cut supplies to Georgia, and in recent months, Belarus. Moscow and Gazprom executives counter that the firm is merely wishing to gain a fair market price for its gas following years of subsidised exports to Russia’s former Soviet

allies. Under the deal, KazMunaiGaz gains control of the Romanian firm’s 630 petrol stations in seven countries including Romania, Georgia, Bulgaria, Spain, Moldova and France. However, the sale still requires final approval from the European Union. Russia currently supplies a quarter of Europe’s oil, and more than two-fifths of its gas. KF

kazakhstanfinance | autumn 2007

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Dam project aims to save Aral Sea

As the sun rises above the Aral Sea, Alek, a local fisherman, steers the boat, leans forward and pulls the net out of the glittering water. It is full of carp, sturgeon and flounder - just two years ago he could not have even dreamt of this catch. “All thanks to the dam,” Alek grins as he throws the fish into a growing pile on the bottom of his rowing boat. The dam is part of a $68m project, initiated by the Kazakh government and financed by loans from the World Bank. It is an ambitious undertaking that aims to reverse one of the world’s worst man-made environmental disasters and bring back the sea which many predicted could never return. “The Aral Sea did not die, the Aral Sea was murdered,” said Nazhbagin Musabaev, the governor of the Aralsk region. Mr Musabaev remembers how in the late 1960s the Soviet government held a plenary session in the Uzbek capital Tashkent, during which the Deputy Minister of Irrigation and Water Resources of the USSR talked about the government plans for boosting the region’s cotton production. The two main Central Asian rivers Amu Darya and Syr Darya, he said,

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would be diverted to irrigate the cotton plantations in Kazakhstan and Uzbekistan. “But what will happen to the Aral?” someone from the audience shouted. “The Aral,” the deputy minister responded, “will have to die off gracefully.” But the death of the Aral was far from graceful; as the water-starved sea shrank, the desert spread, changing the climate, destroying the eco-system, eradicating entire species and forcing thousands of people to flee. Every year fishermen would have to travel further and further to get to the water, and every year there would be less and less fish left to catch. Desertification and rising salt levels in the shrinking sea brought salt storms. Diseases, like anaemia and cancer, swept through communities. By the 1990s the world’s fourth largest inland body of water had shrunk to a quarter of its size. Today, dropped in the middle of the grey desert is the village of Dzhambul, once home to a thriving fishing community. Dotting the area, which was once the deepest point of the Aral, are skeletons of rusting ships. Next to them, camels graze on the colourless dry grass that pokes out from the grey sand. Jalkasbai, a fisherman from Dzhambul, remembers the days when life here was very different. “All my childhood I was going fishing with my father and my brothers, but my sons grew up without the sea,” Jalkasbai said. “But now, I hope my grandchildren

will have a chance to become fishermen.” It is a six-hour drive across the desert to get to the place that has given Jalkasbai, and thousands like him, hope for the future. The recently constructed 13km dam has split the Aral Sea in two parts. The dam did not solve the entire problem. On the Uzbek side the Southern Sea continues to shrink with rusting ships standing as monuments to the disaster “The Uzbek government needs to hurry if they want to preserve at least some of the sea,” Mr Musambaev said. But he added, that was no longer Kazakhstan’s problem. In Kazakhstan, the dam has allowed the river to feed the northern Aral and as a result the sea has been pushing back into the desert. Kazakh officials say 40% of the water has already returned. The fishermen are back in their boats. The clouds and the rain have returned. A short drive away from the dam, a group of fishermen camp out in tents by the shore. Jandos Kumanov spent his entire winter here. The sea is still too far from his home village, but the increasing number of fish made the trip worthwhile. “In the last two years life has be-

come easier,” he said. “You can see fishermen are now building houses, buying cars, and sending their children to schools outside the big cities” And it may all get even better. Using a new $126m World Bank loan, the government now plans to build a second dam, which they hope will bring the water back to the port of Aralsk. “The sea has left the harbour, but it hasn’t left our hearts,” reads a di-

lapidated sign in the dried-up Aralsk harbour. The dam has helped the northern Aral Sea grow by 40%. Aralsk, a grim, rundown provincial town, was once home to the biggest port along the Aral coastline. The Aral is still at least 40km (25 miles) away from the harbour, but the second stage of the project, the government says, could bring it back by 2010.

This is what everyone in Aralsk seems to be waiting for. As a group of school boys climb the abandoned ships in the Aralsk harbour, one of them, an 11-year-old called Baurzhan, says he has heard about the Aral from his grandfather, but has never actually seen the sea. “But it’s okay,” Baurzhan said. “The sea will be back soon. That’s what my grandfather says and I believe my grandfather.” KF

kazakhstanfinance | autumn 2007

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Chinese Pipeline to Cross Kazakhstan Chinese President Hu Jintao ended his official visit to Kazakhstan yesterday. Hu and Kazakh President Noursultan Nazarbaev signed a package of documents on the building of pipelines between Kazakhstan and the People’s Republic of China, the most important ones of which would transport Turkmen gas to China and a new line on the Atasu-Alashankou oil pipeline. Hu arrived in Astana Friday evening from the Peace Mission 2007 military exercises in Chebarkul, Russia. He observed the Kazakh parliamentary elections and praised Kazakh democracy to journalists. When it opened in December 2005, the Atasu-Alashankou oil pipeline was the first oil pipeline from Central Asia to China, with a capacity of 10 million tons per year. Now a second line will be built

to link China with deposits in the Caspian Sea. The operator of the new line on the Chinese side will be CNPC, which bought PetroKazakhstan in August 2005 for $4.18 billion. The new line will probably be made operational next year and is promised by the Kazakh president to reach full capacity by 2011. In addition, the Kazakh and Chinese leaders announced that the gas pipeline from Turkmenistan to China, to be built under an agreement Hu reached with Turkmen President Gurbanguly Berdymukhamedov in July, would pass through Kazakhstan. That pipeline is to be completed by 2009 and begin pumping 30 billion cu. m. of gas to China per year. The agreement on the oil line did not specify its route when it was signed in Beijing. On August 14, while Hu was in

Bishkek for the Shanghai Cooperation Organization summit, Kyrgyz Prime Minister Almazbek Atambaev, who had been forced to borrow money from China to accommodate the summit, asked him to route the pipeline through Kyrgyzstan, even offering to invest in the project. The Chinese president responded evasively but with good disposition. On August 16, however, Kyrgyz President Kurmanbek Bakiev did not, as he was expected to, announced the expulsion of the American air base at Manas Airport in Bishkek in his speech to the summit. Apparently, Kyrgyz authorities decided not to come into conflict with the US, probably after lastminute promises of US aid. (kommersant.com) KF

Kazakhstan Applies Sakhalin-2 Methods to Kashagan Kazakh government vows to halt work at one of the biggest fields of the country developed under PSA – the Kashagan field. The bureaucrats blame violation of environmental laws on investors, including Italian Eni. The analysts speculate that Kazakhstan has become particularly pressurizing in time when it attempts to review the terms of PSA, having actually adopted the tactics successfully tested by Russia at Sakhalin-2 project past year. The work in Kashagan field, Kazakhstan’s area of the Caspian Sea, could be terminated on the breach of environmental laws by Italian Eni, Environmental Protection Minister of Kazakhstan Nurlan Iskakov told the cabinet yesterday.

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“We are conducting a scheduled audit and we have all reasons to suppose that the operator doesn’t meet requirements of environmental laws,” Interfax quoted the minister as saying. The content of nitrogen compounds in atmosphere of the Caspian Sea is above the standard, specified Adletbek Bekeev, who is the deputy director at that ministry’s department. Kashagan, which recoverable reserves exceed 1 billion tons of crude oil, is developed under PSA. Its operator is Agip KSO, where Eni, Total, ExxonMobil and Shell own 18.52 percent each, ConocoPhillips has 9.26 percent and Kazmunaigaz and Inpex - 8.33 percent each.

The authorities of Kazakhstan have been long displeased with the project investors. The launch of production from that field was initially slated for 2005, but Agip KSO put it off several times and today’s deadline is 2010. Moreover, Eni has recently announced the increase in the project costs from $57 billion to $136 billion. According to Kazakhstan, this move could be viewed as the changes in the PSA terms, enabling Kazakhstan to widen the share in profit-raising crude from 10 percent to 40 percent. Judging by Russia’s methods tested at Sakhalin-2, violation of environmental laws is the best way to pressurize investors. KF

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AUTUMN 2007 VOLUME 2 ISSUE 2