The domestic economy came out of the deep phase of crisis: in 2010 the total revenue of 100 largest companies of Kazakhstan exceeded 13 trillion tenge, i.e. increased by 25 % as compared with 2009 and by 50 % compared with 2007. These are the results of the third annual ranking Expert-100-Kazakhstan, presented by the Expert RA Kazakhstan agency within the frameworks of the economic forum of the same name. The dynamics shown by the leaders of the national business is quite relevant to the status of Kazakhstan as one of the fastest growing economies in the world.
The leader of the national economy, according to Expert RA Kazakhstan is the Sovereign Wealth Fund Samruk-Kazyna – last year the revenue of this state holding amounted to 3.6 trillion tenge, i.e. increased by 23.9 %. Moreover, its share is almost 28 % of the total sales of goods and services of the hundred largest Kazakhstani companies – participants of the ranking. It is worth to note out that 14 of 20 leaders of Expert-100-Kazakhstan are the companies with state participation. The state fully or partially owned the companies which brought more than 81 % of total revenues of the golden hundred. Therefore, the economic model of Kazakhstan gained quite complete features of the "state capitalism".
After the SWF "Samruk-Kazyna", the first lines in the ranking are occupied by such giants as Tengizshevroil (2nd place), ENRC (3), PetroKazakhstan (4), CNPC-Aktobemunaygaz (5), Kazakhmys corporation (6), Mangistamunaygaz (7), ArcelorMittal Temirtau (8) and Kazzinc (10th place). The only representative of non-raw material sector in the top ten is "Kazkommertsbank" which took the 9th place in ranking.
Although industrial enterprises which are, according to the rating, the basis of our economy, in 2010 increased their revenues by 37.3 %, the main drivers of this growth were the revenues of so-called "mining" sector of the industry. Due to the positive dynamics of the global prices for oil and metals, oil and ore mining companies ensured about 71 % of the total revenue of all ranking participants. The income of oilmen increased by 34 %, and those of miners and metallurgists – by 47.7 %.
In the context of industries, the largest generators of revenue after the commodity complex are still the banks (7 %) and building sector (1.6 %) although their incomes have shown decline of 12 % and 11.4 % respectively. Big bankers and developers were trapped by the "cheap" foreign capital which slammed in 2007 and they repay for that the fourth year afterwards.
For example, the revenues of "BTA Bank" in 2010 decreased by 22 %, "Kazkommertsbank" – by 20.7 %, and the National Bank of Kazakhstan – by 8.6 %. However, the difficulties experienced by megabanks gave the chance to the second-tier banks. The most dynamical example was shown by Sberbank which almost quadrupled its revenue since 2007, HSBC Kazakhstan – with 2.3 times growth and Kaspi bank which profits rose by 40 %. As Adil Mamajanov, General Director of Expert RA Kazakhstan notes, if the process of cleansing the loan portfolios in the large banks will remain slow-moving, we might expect both further reduce of concentration of the banking system and growth of business interest in alternative financing.
At the same time we observe the revenue growth in the companies of agricultural (+26.6 %), food (+25.6 %), transport (+24.3 %) and telecommunication (+16 1%) sectors, shown by the end of 2010. Despite of the fact that representatives of each of these sectors take a little more than 1 % in the total income of the first hundred, they might become the new economical drivers based on the opinion of the ranking agency, especially considering the increasing integration processes within the Customs Union and Common Economic Space.
In general, the problems and opportunities connected with the formation of the CES and joining the WTO, as well as their impact on the competitiveness of national businesses became the main subject of the speeches and discussions during the forum. When opening the plenary session, the forum moderator Valery Fadeev, General Director of the Expert media holding noted that the business are afraid of tougher competition and other problems, associated with integration processes. "I think that in any case we should not be scared by these issues, but we should just methodically resolve them – as the European Union countries did. It takes decades, but in the end everybody gains the additional benefits and advantages."
In his turn, Karim Massimov, the Prime Minister of Kazakhstan has emphasized the importance of holding this forum immediately after the signing of the Declaration on the Eurasian Economic Integration and the Treaty on the Eurasian Economic Commission and he reminded that the idea of Eurasian Union creation was expressed for the first time by Nursultan Nazarbayev in 1994. "During these 17 years our country and the world have changed, we consider many issues in other way, and the more valuable seem the reached agreements. In the integration processes there are always supporters and opponents because of the difficult issues that must be considered in the balanced way to find the mutually acceptable solutions."
We recall that on 22nd of November the head of the Cabinet of Ministers participated in the meeting of the Organization for Economic Cooperation and Development where Kazakhstan was presented as a potential candidate for membership in the OECD. According to Mr. Massimov, the main question asked by the Council members was if the creation of the CES means that we stand apart some honor move away from the global processes or we close our markets. "I think in such case we should give very clear and precise answers to avoid any ambiguity. In fact, Russia does almost, and Kazakhstan, hopefully, in the next 12 months will join the World Trade Organization. In this respect the principles of global competition and involvement in global processes are not contradictory with creation of our Common economic space, but on the contrary, these events complement each other."
However, Karim Massimov thinks that it is necessary to take into account both positive and negative experiences of the European Union and to think through each step in moving forward. In this regard, the heads of governments of the CU have decided to create united working group at the level of the ministers of economy which will take specific measures to support the businesses, as well as to face the challenges coming from the developed world. "Our economies should carry out the competent and well-timed economic policy in order to confront this wave adequately. We can help each other in this aspect. Next 12 months we will make the difficult but very important decisions. Creating the CES, in spite of all challenges, is very well-timed and will help to cushion the blows", concluded the Premier.
The general manager of TengizChevroil LLP Tim Miller spoke during the forum on behalf of the major mining companies. After outlining the achievements of the enterprise in the field of local content, he had nevertheless admitted that today the share of goods in total purchases from domestic suppliers is only 10 %, due to lack of necessary production and technology capacities in the country. In this regard, Mr. Miller voiced the hope that the creation of the CES will allow TCO to expand its capabilities in procurement from domestic sources. "Together with the Ministry of oil and gas we are currently working in the scope of Customs Union with machine builders of Belarus and Russia, in terms of their involvement in the creation of joint ventures in Kazakhstan". But Kazakhstan still should not expect major changes in this area. "Much of our purchases are quite sophisticated equipment. Only few leaders in their area have the technologies of production and the oil companies from all over the world – cooperate with them. Therefore, according to Mr. Miller, Kazakhstani companies should look for a niche, where their equipment and know-how will be able to really compete on the global level.
The issue of innovation development was considered in the separate section as the factor of improving business competitiveness and the country as a whole. As Dmitry Grishankov, moderator and General Director of Expert RA, today in Kazakhstan there are formally all the conditions – institutions of innovation support were created and medium and long-term programs were approved. However, it is necessary to 'tune up' these mechanisms, to fill the system with resources to make it working in full capacity.
In the ensuing discussion, the participants identified several key issues that deserve special attention. Firstly, it is important to develop not only technological, but also the managerial innovations. Secondly, the government orders have to shape the overall trends in the field of new technologies. Taking into account that big business due to its inertia is closed to innovation, the emphasis should be done on medium-sized companies. Finally, an initiative of the Skolkovo innovation center was announced that it is willing to become the innovative hub not only for Russia but for the entire CES.
When discussing the topic of alternative financing sources, Andrew Karyagin the chairman of the board JSC National Pension Fund Astana said that pension funds could play this role. "We are very interested in the issue of shares and bonds of the commercial sector of Kazakhstan market. The amounts that the pension funds might invest into the economy are significant. About $17 billion accumulated in the pension system, so any project in Kazakhstan's economy and directly in the commercial sector is now within power of the NPF." Mr. Karyagin called the current system of risk management is the main obstacle to full participation of funds in the processes. "Today the risk management is taken statically, i.e. we have to pay for a risk prior to its occurrence."
Kairat Mazhibaev, Chairman of the Board of Group of companies Resmi believes that the unification of economies should also imply the integration of financial and stock markets. "The Customs Union offers huge opportunities for Russian funds of direct investments to access Kazakhstan. There are lots of them and they are perfectly structured, having good experience and many bright professionals, their capital is mostly international, and management companies are mostly Russian, perfectly understanding the local context." In our turn, the access to the Russian stock markets would provide greater availability of additional investments attraction for the local companies with average capitalization.
Nursultan Taskaranov, Director of corporative customers department of JSC "Sberbank" made a very interesting proposal in this regard. According to him, the group of "Sberbank" together with the largest investment bank in the CIS-Troika Dialog, has developed the hybrid product of financing which can be quite interesting for medium and large companies of a real sector of Kazakhstani economy. It concerns gaining access to excess Russian liquidity through the issue of the ruble euro- or local bonds. "Sberbank" and "Troika Dialog" not only fully accompany the listing, but also guarantee to redeem up to 33 % of local and 25 % of eurobonds. The exchange rate risk is excluded because shortly after the release of securities the currency and interest rate swap is concluded and the issuing company receives dollar funding at fixed rate for the period of three years or more.
As Kairat Mazhibaev and Nurlan Smagulov, President of "Astana Group", stated in their speeches, an increased competition within the CES does not scare the medium-sized businesses in Kazakhstan. It sounded very authoritative from of the representatives of new economy, the entrepreneurs who created their own companies from scratch.
Mr. Mazhibaev stated that "in view of the fact that both Kazakhstani and Russian business depend enormously on import since the early 90s and its architecture, layout and model are super-competitive even within the WTO". If you look at any company with middle capitalization, they "are not weak victims of global or regional integration but rather so-called targets for merging and acquisitions by international or leading Russian companies". Because "they are so competitive that it is easier to buy or cooperate with them than to compete at a loss".
The head of Resmi paid attention to the fact that the CU is the alliance of countries with strong government participation in the economy where domestic companies have the opportunity to work in preferential mode. Though state holdings fulfill infrastructure functions very well creating common conditions, it still provides only short- or medium-term effect. As for the actual transfer of the best practices and innovations, as well as bring them to consumers, at all times this function was provided by the private capital and private initiative. In this regard, Mr. Mazhibaev noted that forming the CES it is very important to bear in mind the medium and long-term business plans create an environment for it "with clearly defined rules of competition".
Nurlan Smagulov believes that the CU opens new opportunities for the Kazakhstani business. Often in such unexpected areas as machine building, that can hardly be called as the strong side of the domestic economy. As an example he took one of his companies – Hundai Auto Truck & Bus which delivered 1000 trucks of Kazakhstan assembly to Belarus. "This is unprecedented case, because Belarus is the producer of MAZ and BelAZ. This is highly-developed engineering, machine building country... Next year we plan to make the supplies to Azerbaijan and even to Russia. In spite of the fact that there is also Hundai factory in Russia, our Korean partners assigned to us the region of Eastern Siberia."
Certainly, opening the domestic market for Russian companies and in the near future for the Chinese ones are the terrible challenges, and in this situation the Kazakhstan entrepreneurs should think how to confront them and to consolidate their efforts with the government to show their viability and competitiveness. However, according to Mr. Smagulov, there are three positive factors. Firstly, our population is very loyal to local entrepreneurs and the consumer will still support Kazakhstan's brands Secondly, the government fulfills now the unprecedented measures to support small and medium businesses. And thirdly, there are a lot of ambitious managers in Kazakhstan, capable to oppose the Russian ones. "I meet a lot of Russian and Belarusian entrepreneurs on business; they treat us sometimes even more respectfully than we do to ourselves... so my message to Kazakhstan entrepreneurs – work without phobias and without restricting the boundaries of their activity by the territory of Kazakhstan, but also considering the neighboring countries."
Nurlan Smagulov and Kairat Mazhibaev were busy for a long time answering the new questions which were mainly related to their views on leadership, team building and competition. Such interest to these two entrepreneurs and their experience is not occasional: in fact, the companies of middle segment present the real Kazakhstan business. Large industrial corporations are usually the organizations with either governmental or TNC participation while the medium-sized domestic companies are run by the founders and not the hired executives... These people are still quite young and full of energy. We can say that the modern model of Kazakhstan's business depends not only on standards of corporate management or presence of independent directors but rather on the personal leadership of its captains. Their charisma and ability to see the future, to face new challenges and to lead the team are the main requirements of competitiveness of national business today.