Samruk-Kazyna: Reload
The National Welfare Fund Samruk-Kazyna, established at the height of the crisis, was announced by the government as a major operator of the anti-crisis program. Today, officials affirm that the fire is already "extinguished" and this is the right time to set new tasks, faced by Kazakhstani “chebol”.
Any claims against the buttons?
At the end of 2009 NWF Samruk-Kazyna reported its year end results to the government. Overall, it received 1,087.5 billion tenge from the National Fund in order to safeguard the economy; of them 486 billion tenge were directed for stabilization of financial sector, 360 billion for problem solution at real estate market, 120 billion for support of small and medium enterprises and 121.5 billion for implementation of innovative, industrial and infrastructure projects respectively. By December 1, 2009 80% of allocated funds or 887.2 billion tenge were directed and injected into the economy.
According to Kayrat Kelimbetov, the head of NWF Samruk-Kazyna, in the past none of the governmental programs were implemented in such short term and reached its targets. "We are controlling each tenge: its location in the bank, loan purpose and beneficiary, terms and interest rate. Everything is put into the protocols. I believe not many CIS countries may be so proud that they were able to address state support to economy within such a short period".
The following digits demonstrate the effect of the anti-crisis program implementation. Over 43,000 current jobs were preserved thanks to funds, allocated by Kazkom and Halyk with the purpose to finance the real sector of the economy. Samruk-Kazyna hopes to finish all debt restructuring procedures of defaulted BTA and Alliance in the first quarter of 2010; as a result, the Fund will be able to write off $10 billion of the $15 billion foreign debt of these banks, now owned by the government.
In cooperation with second-tier banks NWF financed the completion of 13 projects in the construction sector while another 21 construction projects are being finished thanks to the funds, allocated by the specially established Real Estate Fund Samruk-Kazyna. Moreover, the Fund financed mortgage loans for 31.3 thousand borrowers that will now pay 30% less on average.
According to Mr. Kelimbetov, over 2.5 thousand borrowers became beneficiaries under the SME support program that decreased its loan interest rate to 12.5%. At the same time, the operator promised that in 2010 lending and refinancing of the manufacturing plants will be processed at a final rate of 8% per year, sponsored by Distressed Assets Fund and Kazakhstan’s Development Bank.
Overall, judging by the vigorous discussion between expert community and NFW Heads during National Business Forum in November, the business community is not too positive about the successes of the governmental anti-crisis program. Thus, in the opinion of forum organizers, the size of the inactive portfolio of banks is too big. The non-oil and gas sector is still down due to unresolved problems in the restructuring of main debt. The real unemployment rate is at least 20%, not the 6-7%, announced by official statistics.
In response Mr. Kelimbetov noted that it is acceptable to be criticized, but it is too easy to criticize from outside while the main thing is that the national economy is getting better. He believes that anti-crisis measures, attempted by the government, are quite reasonable. "The political promise, announced by the government, and the approved decisions had the right idea… There are many offers and additions. We consider them from the viewpoint, proposed by the governmental program, not even mentioning that the program in general was given adequate consideration by our international judges – IMF, the World Bank and many others". Speaking of NWF Samruk-Kazyna itself this is just an operator that can deliver funds to banks, construction companies, business and population within quite short terms with high transparency and without losses and violations of law. "We directed funds, based on governmental instruction. We meet the deadlines set by the government…The biggest misuse is 3 million tenge, i.e. 0.005 percent of the amount that we received. How can it be more effective?"
Needless to say, the non-participation of NWF Samruk-Kazyna in the governmental decision making is questionable. However, by right it is difficult to blame Mr. Kelimbetov. The control over the National Fund’s money allocation, targeted at economic stabilization, was unprecedented. Therefore, the buttons are fixed (as Kayrat Nematovich likes to say).
Meanwhile, the recession will not last forever. The current functions of NWF as the intermediary operator in the future will gradually become less important. At the solemn ceremony, dedicated to the Samruk-Kazyna first year results and held in the fall of 2009, the Prime-Minister Karim Masimov informed that the time of prompt action is over. From now on the Fund needs to gradually shift to "post-crisis" actions. It is time to expand the volume of foreign investment, increase the number of investment projects, ensure non-oil and gas export growth, and develop small and medium business. And these are not "the buttons". First of all, we are talking about the diversification that the development institutes, headed by SDF Kazyna, failed to achieve in the good pre-crisis times. Secondly, this is higher efficiency of corporate governance among national companies (8 of which demonstrated the worst results in the Kazakhstani business information transparency rating, published in S&P in the fall of 2009)
Earlier these two large areas were covered by two separate state holding companies; now, however, we have a mega-holding company, managing the shares of over 400 Kazakhstani companies that, according to various estimates, form 60 to 80 percent of the national GDP. Therefore, some experts have doubts about the necessity of further existence of Samruk-Kazyna in its current status.
Let us try to put together the main points of the recent interviews, given by NWF head at various forums and mass media, in order to understand the concept of the Fund’s further development, envisaged by Kayrat Kelimbetov himself.
Firstly The establishment of Samruk-Kazyna became the logical conclusion for the formation of a holding structure in state asset management in Kazakhstan. Samruk had assets and money but it was not in charge of diversification. SDF Kazyna did not have funds, but it was responsible for diversification. "Now we have all needed components and links. This structure now may be involved in the establishment of strategic sectors of the economy".
Secondly The growth strategies in the developing economies may be conditionally grouped into three categories. "Chasing the development" – the adoption of developed states’ experience through the establishment of import-substituting and export-oriented processing industries (Russia, China, India). "Post-industrial development" targets at the development of services and technologies (Singapore, Malaysia). "Traditional specialization" is based on the development of raw-material economies. Initially, there was a "somewhat romantic" idea that the Kazakhstani economy must avoid dependence from the oil and gas sector in general – towards the development of processing industries, machine-building, high technologies. Now Samruk-Kazyna views the most appropriate accelerated modernization strategy for our republic in the "traditional specialization" strategy, based on the oil and gas and metallurgical sectors.
Thirdly Considering the basic structure of the national economy, we may highlight two diversification areas. The first one is the transition of producing industries to higher limits; the second one is the development innovative areas in the processing industries. Being the holding, 78% assets of which is contributed by raw material sector companies, Samruk-Kazyna will be involved in the diversification of the first type. The operations of the Fund’s producing group will be estimated by the new output, the enterprises developed in chemical, petrochemical and metallurgical industries. Today, Samruk-Kazyna implements 33 investment projects in the industrialization vector for total value of over $24 billion, while 87 percent of them are linked with oil, gas and metals. Special attention is paid to the development of infrastructure and electricity. At the same time the government must be in charge of creating the conditions, necessary for the second type of diversification, not related to raw material and infrastructure. Today, the Industry and Trade Ministry supervises the National Innovation Fund, the Center of Engineering and Transfer of technologies, KAZNEX Export Promotion Corporation and Social-entrepreneurship corporations.
Fourthly National companies and large raw material holding companies, participating in the capital of NWF Samruk-Kazyna (such as Kazakhmys and ENRC) must become "national champions", able to compete at an international level and play the key role of "locomotives" in the economic modernization inside Kazakhstan. The latest intergovernmental agreements with China, Turkey, Italy and other countries target at large-scale attraction of FDI and export-credit lines to finance these specific investment projects. In 2010-14 the Samruk-Kazyna group of companies must play a key role in the investment area. Thus, Kazakhstan’s Development Bank is already one of the biggest banks in the republic by the size of registered capital that will exceed $2 billion in the near future.
This all makes us conclude that the crisis forced the government to reconsider "the raw material damnation" issues (or blessing) and diversification in real conditions. First of all it is necessary to overcome the gap between raw material "enclave" and SME, linking them together in a single economic area.
In this concern, the major task of Samruk-Kazyna in the near future is motivating large investors and national companies to jointly launch large mutually linked industrial projects. The focus on modernization of basic industries, transport and other infrastructure must resolve the problem, raised by experts long ago – total depreciation of means of production and necessity to renovate the equipment parks. Yes, we fell behind, but it is better to do it later than never.
Taking control over the national companies, NWF gained the opportunity to directly overcome the isolation of large business from SME through the Kazakhstani content mechanism that was put into real effect in 2009. For example, local enterprises have already started the production of 187 items of rail road supplies for KTZ; 833 other types are expected in line. Only in the first quarter of 2010 the Samruk-Kazyna group of companies is going to purchase goods, works and service from domestic producers and suppliers for the total amount of 175 billion tenge.
The Investment vector is another aspect of NWF operations. Being a "quasigovernmental" institution and possessing the producing assets, today perhaps, Samruk-Kazyna is the only instrument of attracting foreign loans. Investing this money in the diversification of its companies and the oil and gas sector in general, at the same time, NWF promises to ensure their close ties with the rest of the economy. Therefore, the domestic SME are given a clear signal where NWF will direct financial flows and concentrate new growth points and sustainable real demand. From that point, the entrepreneurial initiatives must pick up. ITM, the operator of AIID, is in charge of the total coordination and support of SME.
This is the right scheme. The development of general economic policies, development innovations, human capital and science is the prerogative of the government. In its turn, in the field of diversification Samruk-Kazyna faces certain and more applied responsibility zones and, most importantly, measurable tasks. Time will show the reliability of these fixed "buttons".
