Kazakhstan Needs Innovators and Is Willing to Support Them
In developed countries, innovative technology accounts for 90% of GDP increase, and this trend becomes stronger year by year. Kazakhstan has also made the first steps towards developing a national system for innovation. Nurbek Rayev, Chairman of the board of the National Innovation Fund (NIF), tells our magazine about the development and the outlook for this system.
What is the purpose of the National Innovation Fund?
The NIF was established in 2003 as part of the Strategy for Industrial and Innovation Development of the Republic of Kazakhstan in 2003–2015. The NIF’s objective is to assist innovations and promote hi-tech and science-intensive production in our country.
Any effort to introduce innovations, such as the work of venture funds, is associated with high levels of risk, and therefore it is logical that the state in the person of NIF and other development institutions assumes the lion’s share of those risks. One of our functions is to reduce them on a systematic basis by providing efficient market mechanisms for introducing innovations and encouraging venture financing.
One of the main tasks of the NIF is the promotion of international co-operation in "transfer, borrowing and development of innovative technology", including commercialisation and implementation. The experience of many countries suggests that technology transfer is a prerequisite for the development of innovative business. We must encourage domestic innovators, but in parallel with that we must follow global trends, and not discard technology transfer.
As for the term “innovation”, I agree with the American Peter Drucker that innovation is not an invention or a discovery; in business, innovation focuses on performance rather than knowledge. The correctness of this definition is best illustrated by the fact that all the innovative projects assisted by our fund are demanded by the market and likely to be economically viable in the longer term.
What industries does the NIF focus on?
At present, we intend to allocate up to 70% of our total funds to four priority sectors: information technology, technology for the oil & gas industry, technology for food processing, and biotechnology and pharmacy. They all are very promising from the point of view of innovation. For example, every year the use of biotechnology in the world doubles, and information technology grows by 20-30%. The Kazakh content in mineral production services is expected to increase by 30-50% in the near future.
Now the NIF is implementing two interesting pharmacy projects: the construction of a complex to manufacture the anticancer drug Arglabin, and the development of the original anticancer drug Normogen.
In 2006, we assumed the obligation of financing the manufacture of monitors and TV sets, and the research laboratory of Glotur DS Multimedia. If this project is implemented successfully, Kazakhstan will have a sound production basis for manufacturing modern household electronics, technology transfer will be completed, and the company itself will become technologically independent.
In the oil & gas industry, we are taking part in a project to launch the manufacture of the Geoscan universal log recorders. This modern equipment with unlimited capacity will allow log data to be recorded and then processed right at the well. The project will be implemented in five years. These are just a few examples of the many interesting innovative projects that we have selected.
How does the NIF encourage innovative business in Kazakhstan?
First of all, we have to demonstrate the importance of innovations for production in practice. In order to draw public attention to this area, this year we held the first international contest for innovation grants jointly with the EU INTAS programme. The total budget of this contest was €500,000 (contributed by the NIF and INTAS on an equal basis), and more than ten projects were bidding for financing of up to €50,000. Financing was awarded to the three best projects selected by independent scientific and technical examination.
Then, in 2005, specifically for young people wishing to start an innovative business, we held the NIF $50K contest for the best business plan with a prize fund of $50,000.
In addition, the NIF is expanding the system of business incubators in Kazakhstan. For example, we finance a technological business incubator based on the premises of the Satpayev Kazakh National Technical University that provides accounting, legal, translation, interpretation, and marketing services, including preparation of business plans. At present, nine technology projects are being implemented there. Regional technology parks have been functioning in Uralsk and Karaganda since the middle of 2004, and, before the end of 2006, new business incubators will be opened, formed on the basis of the Almaty Regional Technology Park.
In September 2006, the Alatau IT-City information technology park was opened within 25 km of Almaty. This was the first project to launch a national level technopark with a view to creating and developing the national IT industry.
I should stress that the objectives of technological business incubators are social rather than commercial: to nourish business culture in the community of potential initiators of innovative projects. And the full effect of this work will be achieved only in the future, in some 5-7 years. But there is no doubt that such a mechanism is absolutely necessary today, as it makes an important contribution to speeding up the industrial and innovative development of the economy.
What is the current status of venture business in Kazakhstan?
The domestic venture business is still evolving. Its basis was laid down in 2004 when the NIF and TuranAlem Securities established the Areket venture fund. Later, the Advant venture fund was established by the NIF and Lancaster Group Kazakhstan. In 2005, we became a partner in a number of new venture funds: Centras (jointly with Centras Capital), Halyk Private Equity (with Halyk Bank), Glotur Technology Fund (with Glotur), etc.
In that same year the NIF became the shareholder in the foreign venture funds CASEF, Wellington III Tech. VC, Flagship Ventures Fund 2004, and in 2006 we became the shareholder in JAIC-Mayban ASEAN Fund and VERTEX III FUND L.P., which will enable us to access the research works of leading world companies and create an open system for exchanging knowledge, experience and technology.
Although venture business belongs to a high risk category, it undoubtedly has a future in Kazakhstan: to date, this segment of the domestic market totals $100 million. We will to continue to encourage venture funds to increase their capitalisation level. At present, businesspeople who have prepared innovative projects can apply for financing not only to the NIF but to venture funds as well.
Another step towards the development of this industry was the NIF’s initiative to found the Venture Investment Association in Kazakhstan, which is necessary to lobby on common interests, particularly, new laws.
The work of the National Innovation Fund: establishing venture funds jointly with domestic and foreign investors; participating in the development of mechanisms and infrastructure for venture financing of innovative projects; financing innovations by holding non-controlling interest in the companies being financed; establishing specialised innovation organisations (technoparks, technological business incubators, etc.); developing the market in research and technical products, etc.
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