Almaty recently hosted the annual CFO Summit 2018. This year, speakers fr om the state, financial, investment sectors and the business community discussed a number of topical issues related to the current state of Kazakhstan's economy. The participants also tried once again to find out what is preventing the domestic business from developing successfully.
As the survey among the summit guests showed, 32.8% of them believe that the main factor hampering the development of entrepreneurship is a large proportion of state-owned companies in the economy. The next most popular response by 23% were inaccessible expensive loans. For 18%, it is excessive state regulation and lack of qualified personnel.
According to Aidan Karibzhanov, head of Visor Holding, there is no simple answer to this simple question.
“I think that we are in the natural framework of our country's opportunities, conditioned by the geographical position, the structure of the economy, the degree of development of production, export potential, the level of development of the judicial system, the size of corruption and a number of other things. Together, they do not allow business to develop more. Business is a very invisible thing, which is based more on the sensations and vision of the future. When a businessman sees negative things, it does not matter whether it's a small business or a big one, his optimism is diminishing. That is, business at the same time is hampered by everything and nothing,” Karibzhanov says.
Galim Khusainov, Chairman of the Board of Bank CentreCredit, agrees with him. He points to a very weak institutional environment, which does not allow the entrepreneur to implement those ideas that he would like to implement.
“Every businessman in Kazakhstan lives with the expectation of some changes, and in order for their mood to be positive, they need to show that these hopes will be justified. But without changing the institutional environment, the attitude to corruption, the situation in the judicial system, it will be quite difficult to change something drastically,” the banker is convinced.
Khusainov also notes the excessive role of the state in the economy and its desire to determine, due to what the economy should grow. Meanwhile, according to the speaker, the state should only create an environment that would allow the economy and business to develop.
“Without this, wherever the state goes, we will get disproportions and problems, which, in principle, the history of 25 years of independence shows. Wh ere the state is involved in the economy, including helping, inefficiency, corruption and accumulation of problems, including for the banking sector. Supporting a certain industry, it is rendered ineffective, because it is accustomed to subsidies, cheap interest rates, writing off debts, "Khusainov said.
“It seems to me, it is necessary to change the dependent moods, that the state should help by giving cheap money, removing inspections, reducing taxes. Business needs to show activity and initiative,” the head of the Narodny Bank, Umut Shayakhmetova.
According to the banker, she often hears reproaches to the banks about too expensive loans and a reduction in the ability to receive them.
“But marginality has fallen, and not only in the banking sector. Today, realities are changing, and business also needs to change,” Shayakhmetova notes.
The director of the Talap centre for Applied Research, Rakhim Oshakbayev, approaches the topic philosophically, asking what is generally considered business in Kazakhstan.
“In all that is created here, there is a specific nature of the resource economy. The vast majority of the portfolio is under the imitation of business in order to receive through the channels oil rent that flows through completely different, sometimes unexpected channels. If we take the banking sector, I have a suspicion that this is the most subsidised sector, far ahead of agriculture and the manufacturing industry. That is, if there was no state support of $10-12 billion at the beginning of 2011-2012, the current 3.4 trillion tenge, then it would be difficult to speculate whether this is a profitable business and whether there is any business there at all. In agriculture, there are many enterprises whose purpose is to receive subsidies, refinance or restructure loans, and, looking at the financial results, one can understand that there is no business there," the economist says, adding that nothing hinders the prosperity of normal business in Kazakhstan.
Economy Minister Timur Suleimenov does not deny that there is a problem of a large share of the state in the economy, but suggests more details:
“The most of the state's stake is KazMunayGas, KTZ, Kazakhtelecom and Kazatomprom. Do they prevent private business from developing? We are not going to sell the strategic assets of the country 100%, this should be taken for granted and build up other sectors of the economy. Let these assets decrease in the structure, just as a share, but not absolutely,” the Minister said.
The issue of Kazakhstan's economic independence from Russia, in particular the impact of the ruble's exchange rate, did not stand aside either. In this regard, the minister thinks that the influence of the neighbours’ economies on each other is everywhere, especially if they are members of the same economic union. However, in his opinion, it is wrong to say that Kazakhstan is moving exclusively in the vector of development of the Russian economy. Comparison of the ratios of the rates of the two currencies, when the tenge was worth 150-155 and today, is considered by Suleimenov incorrect. Since in the first case the tenge was regulated, but now it is relatively free. Equal movement of the courses is facilitated by the similarity of the two economies and the reactions to the change of some macroeconomic factors, the prices of key commodities. The minister assures that in the event that the ruble in Russia falls due to non-macroeconomic factors, a similar change in the exchange rate of the tenge will not automatically happen, as it is influenced by other factors.
The director of the Rakurs centre of economic analysis, Oraz Zhandosov, does not agree with the minister. He believes that if the ruble falls under the influence of sanctions or any other factors that are not identical with Kazakhstan, if the current regime of monetary policy continues, the tenge will inevitably fall after it. As otherwise, the trade balance in the framework of the EEU will suffer.
Here, the discussion touched on the more stable exchange rate of the national currency of Kyrgyzstan, which practically got rid of the influence of the ruble. Aidan Karibzhanov, who owns telecommunications business in this country, believes that Kyrgyzstan is a hypothetical version of what Kazakhstan would be if it had no oil.
“The exchange rate of som is an objectively developing course, which is based solely on the country's exports and imports, and the local regulator makes no interventions. Of course, it depends on Kazakhstan and Russia, but, nevertheless, it is quite stable. Against this background, it is premature to say that the tenge can get rid of the rouble, because we have oil," the businessman says. In general, in his opinion, Kyrgyzstan is developing quite adequately and therefore gives certain comfort to business.
The banking sector of the country got into the centre of discussion at the summit, as it again received significant assistance from the state last year and promised significant changes in the form of the planned M&A deals, some of which had already broken down.
As Galim Khusainov points out, when the two banks merge, three parties are involved, which are the institutions themselves, clients and teams. If some of them do not fit together, it is quite difficult to merge.
“I think that the experience that was in Russia, in principle, shows that this is not the path that will lead to the solution of banking problems in Kazakhstan,” the banker said.
Immediately regarding the delays and refusals of M&A transactions in the banking sector of Kazakhstan, Khusainov believes that this is due to the receipt of money from the state.
“Any merger implies receiving additional income for shareholders. There should be some kind of synergistic effect by reducing costs, increasing business and other aspects. State aid is a temporary decision, which is connected with completely different parties, first of all with solving the problem of bad loans that have accumulated in banks. And also with the introduction of IFRS 9, which began on January 1, 2018, and according to which all BOMs should create additional provisions,” the speaker believes.
At the same time, regarding the return of funds transferred to banks, Timur Suleimenov finds it difficult to say when this can happen.
Umut Shayakhmetova is convinced that some of the state money will not return.
“This is a bubble of problem loans since the time of BTA, for which there were objective and subjective reasons. First of all, this is the devaluation of tenge, loans issued in dollar, which immediately inflated the cost of the main debt. At the same time, assets that were in security, in the form of land or real estate, fell in price. The fact that at that time the banks, in particular Kazkommertsbank, did not have sufficient capital to convert and write off this bubble is a big question, but it was sulking because of the objective fact of the crisis and the subjective of the wrong risk management," Shayakhmetova commented.
At the same time, she believes the decision to support the banks is right, "otherwise they would pull the entire banking system after them."
The summit also touched upon the development of IT technologies, which penetrate all sectors of the economy and change their essence.
“In Kyrgyzstan, with our telecommunications business, we want to enter the financial sector too. In many countries, cellular operators already provide some financial services. However, we faced with the problem of regulation. That is, being a telecommunications company, it is difficult for us to prove to the central bank that we are able to accept deposits and continue working with them, since they are used to working within the framework of traditional banking and do not know how to regulate it. On the other hand, the communications agency understands everything in frequencies, but is not ready at all to regulate finances. I think in Kazakhstan we will also face this," Aidan Karibzhanov said.
After Forbes Kazakhstan.
