Astana Does not Believe in Tears!
Investment companies operating in Kazakhstan need to increase their business reputation and qualifications of their staff, as the Astana International Financial Center will not provide any discounts for local players. Kairat Kelimbetov, Managing Director of the AIFC told us about that.
Kairat Nematovich, tell us, please, how did you decide to create the International Financial Center in Astana?
This idea was discussed for many years in Kazakhstan. Initially, it was planned to develop a regional financial center in Almaty (RFCA). However, a crisis occurred in 2008–2009, and unfortunately, necessary legislative initiatives have not been implemented. Last year, our state made an unprecedented decision: to create the International Financial Center in Astana, where English law will be governing and disputes will be resolved by an independent court. It should be noted that all proceedings will be carried out in English, and the work of an independent regulator will be based on the best international principles. These changes were discussed for a long time in all countries of the Central Asian region, but they have not been implemented in reality. As for Kazakhstan, it is a big step forward.
Let's compare the models of the AIFC and RFCA in terms of the benefits offered by the state for their participants?
In collaboration with the Boston Consulting Group we have studied in details why the experience of the RFCA was not fully successful. However, I would not deny it: a lot of good and efficient work has been done and many issues have been understood. The AIFC differs from the RFCA with another strategy and more pragmatic business approach. Today, all favorable conditions are created in the IFCA. It provides tax exemptions similar to those applicable in Dubai.
The AIFC adopts the English law and creates an independent court, which will ensure transparency and fairness for investors. The constitutional law has facilitated a visa regime for the AIFC employees and participants as well as for their family members. Since there is significant support from the government for creation of the AIFC, we would like to get such support from our financial community as well. It seems to me that provision of support to each other will provide success for sure.
The world economy is not in the best condition, and interest in emerging markets is reducing. How favorable is the time chosen for implementing this idea?
Long time ago, our country was integrated into the global economy, which, in turn, has its own cycles. Waiting for ideal conditions for opening the financial center is not quite a right strategy. Central Asia is a large depository of resources. And it does not matter, whether they are expensive or not: the global economy will need such resources for a rather long time. Besides, the industrial and innovative development program and Nurly Zhol are closely correlated with the Chinese initiative "One belt, one way", which reinforces the interest in our region. Creation of the most favorable legislation and impeccable legal framework is an opportunity, for which we have been striving for a long time and which really exists today. We have a political will and human resources. There are young people, who have graduated from or study in the best universities abroad. Why are they not able to work together with representatives of international financial institutions? The answer is obvious: experience is needed. And this experience will provide the establishment of a financial center.
What are the main areas of activities of the AIFC?
The center will carry out its activities in five strategic areas. The main one is the capital markets development, including with due consideration of the large-scale privatization, which the government has planned together with the National Welfare Fund "Samruk-Kazyna". Within the framework of this area, it is planned to promote the companies of the National Welfare Fund for IPO using the exchange platform of the AIFC.
The second area is the development of the market and expertise in the field of asset management. Today, Kazakhstan has reserves of the National Bank and the Government, the National Fund as well as pension savings, which are also under the state management. This is the welfare of the state and its citizens. Its amount exceeds $100 billion and, of course, it requires effective management.
The third area of activity of the AIFC will be the development of the private banking management market. As part of the fourth area we are planning to become the largest hub of Islamic finance services in the territory of the former Soviet Union. And last but not the least important area is the development of financial technology market.
Will our investment companies and professionals be able to compete with foreign companies and experts on equal terms?
Yes, they will, if they prove that they are ready for this. Management of large financial assets requires the availability of the highest qualifications and, which is not least importantly, a certain reputation. For example, our pension assets already exceed 5 trillion tenge, and at the present time, part of such funds should be transferred for management. Perhaps, they will be invested in foreign instruments, and there are generally recognized world-wide experts who know how to manage such instruments. The same requirements are imposed upon managers of the National Fund's assets. Although, of course, there is a maneuver for our local players. There are no restrictions in terms of the territorial principle for the AIFC participants, there are only qualification requirements. We have plans for localization of services that will be rendered in the territory of the financial center. Therefore, today we must ask the following questions: whether our experts are ready for this? how many people are there in our country, who can work in the center and who have, for example, a CFA degree? how many of them are registered in international re-training associations? It's apparent that their number is insufficient. We assume that the center will employ 15–20 thousand professionals. And what share in their number will belong to our local experts will depend on us. Yes, this is a business not only for foreign companies, but also for local ones. But there is no and there will be no any indulgence. You are whether competitive or not.
Speaking about the AIFC, some economists call it as a usual tax offshore company. Is it so?
I think it's rather a new legal space. This is a jurisdiction, where the English commercial law will be governing, and all investment disputes will be resolved within its framework. Let's look at London, New York, Hong Kong or Singapore – all these major financial centers operate in accordance with the English law. The AIFC will have its own independent court, which means it will not become part of the judicial system of Kazakhstan. One of the benefits of the simplified labor legislation. From January 1 of the next year, citizens of almost all developed countries will be able to come to Kazakhstan without a visa for a period of up to 30 days, and employees of the center will be provided five-year long-term visas. Currently, together with the Ministry of Foreign Affairs we are working to ensure the organization on the principle of a "single window". Another part of benefits is tax preferences. It is supposed that there will be exemptions from corporate income tax, individual income tax, land tax and property tax for a period of 50 years.
How much will it cost for the government to create the center?
Upon completion of EXPO-2017, buildings constructed within the framework of the exhibition will be transferred to the AIFC. That is, we will not bear any costs for the construction of infrastructure. Perhaps, in the future, when we attract experts and judges, we will need a certain budget. For example, Dubai Financial Center achieved self-repayment in a very short time, including through the provision of premises for rent. In any case, the state will return all of its investments.
Do you plan to involve foreign partners in the work of the IFCA?
First of all, it is very important to establish relations with partners and regulators of those states, to which the services of our financial center will be mainly rendered. Of course, these are our neighbors – the countries of the Eurasian Economic Union and Central Asia, and China as well. We conduct negotiations with London, Hong Kong and Shanghai with the aim to establish a new, high-technology exchange platform based on the principles of the best international practice. Till the end of this year, a strategic partner will be determined. Simultaneously, we conduct negotiations with major investment banks.
What are the challenges to be resolved by the AIFC in the coming years?
As our KPI, we have set a goal to become one of the top 10 Asian financial centers by the year of 2020. This is quite an ambitious objective. The AIFC will also become a driver for growth of financial and related services on the part of companies operating in Kazakhstan. Over the next 7–10 years, about 18 thousand jobs will be created, of which, as we hope, 2–3 thousand will be occupied by our local specialists – financiers, lawyers, consultants and other professionals. According to our plan, the contribution of the center to the economic growth will be no less than 1% of non-oil GDP. The AIFC will start operating on a full scale by the year of 2018. However, by the end of this year we will be able to render certain services for those investors who are ready to make investments in the economy of Kazakhstan and other Central Asian countries through our platform. Specific work has already been done in this area. The Constitutional Law "On the International Financial Center "Astana" has been adopted and AIFC Administration JSC has been created. At the present time, a legal framework is being prepared for the establishment of the AIFC court and International Arbitration Centre. Soon, there will be also an independent regulator.