Drivers of New Economy
The domestic economy shows all the signs of stagnation. Such a pessimistic conclusion was given by the delegates of the Expert-200-Kazakhstan Forum, based on the indicator of aggregated sales of 200 largest companies of the country. However, the representatives of the new economy, including the automobile industry, promised that in nearest several years the situation will be improved.
Concentration is increasing
The main objective of the Forum, organized by the Expert Kazakhstan Rating Agency on November 22 in Astana, is to discuss the results of the largest companies’ research and to define the key development trends of the large businesses. Among the participants, there were representatives of the governmental authorities, top-managers of some Kazakhstani enterprises, as well as economists and independent experts.
This year the Expert-200-Kazakhstan increased two-folds and now it covers top 200 domestic companies. As the authors of the research mentioned, the production volume of these companies as of 2012 amounted to 22,3 trillion KZT or $149,6 billion, showing only 6% increase in comparision with 2011. In order to compare, in the previous year the sales growth of the top 100 companies reached 30%.
The reason for stagnation, which is even clearer on the background of 6% inflation of the last year, is explained by the experts as being related to the sharp slow-down of the producing companies’ business development. “Revenue growth of the petroleum companies according to the results of 2012 was 0.4%, but the previous year the sales growth increased for about 40%. Such a sharp contrast can be easily explained by the production volume stabilization from one hand, and by the hydrocarbon pricing from the other hand. For example, if in 2011 the global petroleum price for Brent increased for 39%, in 2012 the growth was less than 1%, – commented Adil Mamazhanov, General Director of the Expert RA Kazakhstan.
The showdown of the global economy affected the large domestic enterprises from the metallurgical business: the sales rates of the companies, listed in the rating, decreased for 16% for the ferrous metallurgy, and for the non-ferrous one the growth amounted only to 1.1%.
At the same time, unlike the export-oriented spheres, the industries, focused on the internal demand, were flourishing. According to the information from the Ministry of Economy and Export Planning mentioned in the research, in 2012 the industry services has shown a dynamic growth: 14.6% in the commerce, 11.2% in the public catering, 11. 7% in the finances and insurance services, and an impressive 20.5% in the area of information and communication.
It should be noted out that the twofold increase of the rating participants didn’t influence much their shares in the GDP formation. If, based on the results of 2011, top 100 Kazakhstani companies produced 72% of the total GDP, the additional hundred companies added only 2%, by increasing it up to 74%. According to the authors of the research, it demonstrates only the very high concentration in our economy. “The list extension just confirmed these suggestions, While 10 largest companies provided more than 60% of aggregated proceeds among the listed companies, the second hundred provides only 9% of this indicator.”
It is not surprising that in such a situation, the JSC National Welfare Fund Samruk-Kazyna was recognized once more as an absolute leader of the domestic economy according to the Expert-200-Kazakhstan. In 2012 the revenues of this giant enterprise of the quasi-governmental sector increased 12%, making 4,9 trillion KZT (versus 4,4 trillion of the previous year). The main gains for the Fund are still generated by the JSC KazMunaiGaz, which revenues for the last year increased for 13%, up to 2,9 trillion KZT.
Unlike the general downward trend in the petroleum production, the JV Tengizchevroil keeps its second place. Though the company’s sale proceeds decreased for 7%, up to 3,4 trillion KZT, it keeps the leading position based on its profit before taxation, like in 2011 (1,8 trillion KZT versus 1,2 trillion of the previous year).
The third place was taken by another oil&gas giant, Karachaganak Petroleum Operating B.V., pushing ENRC PLS corporation from its place, which occupies 4th place in the present. The rating is continued by the SNPC Aktobemunaygaz, Mangistaumunaygaz, Kazakhmys Plc Corporation, Kazzinc and PetroKazakhstan. The top 10 companies are completed by ArcelorMittal Temirtau (please, see the Table).
Therefore, the top of the rating is still dominated by the representatives of the oil&gas business. Moreover, the experts say that the relatively modest results are the temporary signs, since commissioning of new projects will allow to increase the oil production twofolds by 2022, from 79 million tons up to 140 million tons.
The service companies, mostly working for the petroleum business, are doing well. Thanks to the active construction of the Caspian offshore infrastructure and increased volumes of the geological exploration, it allowed them to perform better than their customers, showing about 22% of growth rate.
The main discussion at the Forum focused on the segment of so-called "new economy". The study refers this term to the companies, which are established or radically modernized over the years of independence and which does not specialize exclusively on resource extraction. More than 100 rating participants comply with such criteria. Their profits over the past year has increased by 20% – up to 4.5 trillion KZT, amounting to 20% of the top 200 total revenues. At the same time, a large part of the "new economy" representatives is operating in the service sector and is focused on the domestic market. First of all, the issue is about the trade enterprises, banks and telecommunication companies, which provide more than half of the revenue of this segment.
Approximately 20% consists of the revenues of new industrial enterprises. As the experts suggest, in the medium term the development of these companies will be mostly ensured by the efforts of the State, primarily through the implementation of the FIID program. The growth of the processing industry will come at the expense of demand in the sectors related to the production and natural resources processing, as well as the export activity to the neighbouring countries.
According to Mr. Asset Issekeshev, Minister of Industry and New Technologies, as he spoke at the Forum, the insignificant sales proceeds of the export-oriented enterprises, in particular, could not break his faith in their potential: “Preliminarily, within the export strategy frameworks, we made the calculations for the markets for our products and we considered 45 of them. These are the border regions of Russia (around ten), Belarus, Ukraine, Western China, Central Asia as well as Turkey and the Caucasus”.
According to the Minister, his office has assessed the potential of these markets for certain types of products over the next 10 years. "This is the choice of priorities. Therefore, we believe that the potential of the Customs Union within the framework of the next phase of the development shall occupy a very important place. Of course, it is not easy. There are many issues on which we have to work, but the further accelerated development of the industry is impossible without the approaches to the export advancement and without the development of these markets. We clearly understand it. We do understand the complexity and we consider it for our support tools."
As an example of the new market development, he presented the supplies of the Kazakhstani products to Afghanistan, which in 2013 has already reached $300 million. "It's mostly non-commodity export... This is a serious indicator that our private enterprises have already accessed such markets”.
Another positive trend is the increase demand for new cars. According to the survey as of 2012, the car market in Kazakhstan increased for 117%. According to the experts, this is a direct consequence of the 10 folds decrease in the second-hand import after the increase in import duties and commissioning of the domestic assembly facilities.
As a result, last year the local car producers and car dealers had shown good results. For example, Astana Motors Company changed the place in the rating from 78th to 43rd, showing the revenue growth for 117%, and BIPEK Auto jumped from 138th place to 55th. With the sales growth of 185 per cent, it has become one of the most dynamically developing companies in the rating. As for the ASIA AUTO, it is also showing all the signs of success, because it managed to change its place from 143 to 71. Today, the company has more than 80% of all the cars, assembled in the country: only in 2012, it produced 16.5 thousand vehicles for the amount of $50 billion KZT.
It is not surprising that given such indicators of our automotive industry, Andrey Lavrentyev, President of the Allur Group of companies, turned to be one of the most optimistic speakers of the Forum. During his speech, he highlighted the beneficial effects on the industry from the side of the Customs Union, which ensured the special tariffs on the cars, imported from the third countries, which contributed to the growth of the domestic producers. "One out of every four cars sold in the last three years was assembled in our Republic. Such growth was shown only by two countries: Uzbekistan and Korea”.
According to Mr. Lavrentyev, by 2020 the total volume of Kazakhstan car market will increase to 560 thousand cars, from which about 200 thousand will be produced in the Republic. Approximately, 150 thousand cars will be the base for the potential export to the foreign markets. "At this moment, there are many countries where Kazakhstan products are on demand. In addition, it is important that there is no more trust problems from the part of the local car consumers. Therefore, if the Government will allow us to not think about our problems and future trends, then we will be able to pass to the next step and to take care of our internal issues."
According to Mr. Lavrentyev, each dollar invested by the Government into the automotive industry gives $2 of additional investment in the industry services. At the same time, 1 working place in the company generates up to 11 jobs in related industries. "The market of Kazakhstan is big enough. Only in 2013, according to our estimates, the volume amounted to $3.5 billion. If there will be at least 25% of the local production, it's already a big figure."
Serik Akhmetov, the Prime Minister, who attended the Forum, accepted the hint at the need for Government’s support. However, he noted out that most of the work to ensure the product competitiveness shall be ensured by the businesses. "Some of our domestic producers found their niche in the economy for selling their products and services, but we are on the threshold to create the Eurasian Economic Union. This is quite a large market, and there are the competitors there too. Belarus, not having such a powerful commodity base as Kazakhstan and Russia, has diversified its manufacturing sector, services, agricultural industry, and he is prepared for the competition. The same trend is seen at most of the enterprises of the Russian Federation ".
He also reminded that our Republic is about to join the World Trade Organization. "Almost ten years long negotiation process is over and I think this process is unstoppable. And while our main partner in the Customs Union is the Russian Federation, is actively moves along with us. Soon Kazakhstan will actually join the WTO. This means that our consumers will have quite high-quality products. And how far our businesses, new industries, new sectors are competitive in these conditions?"
The Prime Minister also shown the criticism regarding some companies. So, the Head of Government asked the question at the presentation of Baurzhan Ayazbaev, Chief Financial Officer of Kcell: "When will we use Kcell services, being confident in the quality of connection?" According to Mr. Akhmetov, the mobile operator has more than enough financial opportunities to improve the services, because ‘the company’s monopolistic position is obvious’.
In his turn, Mr. Ayazbaev tried to parry the remarks made by the Prime Minister: "We agree with you. The industry faces the challenges of significant growth in traffic. We're working on it. During all meetings of the Government, we give a clear commitment that we will ensure quality, especially for the coming EXPO-2017. In fact, we ensure the installation of the base stations in Astana with accelerated pace from day to day".
In response, Serik Akhmetov urged the company to actively develop its services, warning that if it will not be done by Kcell, these niches will be taken by the others that will introduce more high-quality connection. "Given your strategic plans, it will be a blow for the company.
Today you feel comfortable in this niche, but tomorrow the other businesses will access all the market, and then you will just criticize the Government”.
In this situation, the business needs to use widely the services of the local consulting companies. "When it comes to the export and localization issues, we actually don't use our consulting services, and we need to pay special attention to it,” – said the Prime Minister.
Still, at least the automotive industry managed to get the promise of the Prime Minister at the Forum, to help it to resolve its most urgent issues. It is about introducing the utilization fee for cars by Russia and it concerns the Kazakhstani production too.
The problem was raised at the Forum by Nurlan Smagulov, President of Astana Group LLP, Chairman of the General Committee of Kazakhstani Automobile Business Association: "One of the themes that is important now is the recycling fee. This is discrimination towards Kazakhstan. It's not just the ambition of the Russian car market, it is a reality. Russia has decided to make its market ‘white’: they obliged even the Kaliningrad region and their producers to pay this fee. But there is a specific feature – their own producers have the compensation from the budget, but the cars, assembled in Kazakhstan, when exported to Russia will be subject to such a fee. Due to this fact, as Mr. Smagulov says, this year his company couldn’t forward 1.5 thousand trucks to Russia.
Recognizing that this is a sensitive issue, Serik Akhmetov said: "I think that we will find a solution in any case. Perhaps inside the country we will support the car industry, until we’ll find the solution by 2015 regarding the mutual relations on the export and import duties. "
The Head of the Government also ensured that the Government is ready to discuss with local business to meet its ‘most pressing problems.’ First of all, it is about the National Chamber of Entrepreneurs (NCE): "It already becomes quite powerful. The most important thing is to prevent its further connection with the Government. The Chamber needs to be in line with the business, and if it is close to the Government, it will turn into its part, which is not good.” He underlined that the NCE needs to become the sort of opponent to the Government. "It's such an umbrella structure, which will primarily protect and represent the interests of business. And as I believe, it is normal. We are ready to meet twice a year for the round table and to review the critical issues that need to be identified and resolved. I think it might be a very good format”, – concluded the Prime Minister.
