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Top story
EEU treaty signing sparks Russian-Kazakh clash Kazakh and Russian officials clashed on May 29, just hours after the signing of the treaty to establish the Eurasian Economic Union – the Moscow-led bloc set up as a counterweight to the EU - as visions of the future of the project diverge.
is going to be. While the various presidents had smiled widely, pen in hand, not long after Kazakh and Russian government officials clashed at a news conference as they attempted to interpret statements made by the leaders.
Kazakhstan, Belarus and Russia may well have signed a treaty to turn the Customs Union (CU) into the Eurasian Economic Union (EEU) in 2015 in Astana, but the member states seem to have very different understandings of what the EEU
The treaty will further liberalise trade, and in particular of services, in a common market of over 170m people. The EEU will enable banks to open branches across the bloc (previously they had to set up subsidiaries), and customers and clients
The Islamic Corporation for the Development of the Private Sector is a multilateral partner of the Invest in Astana newsletter
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to have equal opportunities to obtain loans and open deposits. The labour markets will be further liberalised, providing for the free movement of labour between the member states. Administrative barriers will be reduced for businesses and citizens through unified and mutually recognised licensing requirements and technical standards. At the same time, on the back of concern in some quarters of the bloc, some aspects of integration are on the slow track. Integration and liberalisation in the insurance and financial markets will be postponed until 2022 and a supranational financial regulator will be not established until 2025. Some trade restrictions concerning military equipment and oil shipments from Russia to Belarus will remain in place until 2015.
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the Eurasian Economic Commission - the EEU's executive body - in Moscow. At the same time, a Eurasian Court would be based in Minsk, he said, and a financial regulator for the union would open in Almaty by 2025. Russia's main negotiator, First Deputy Prime Minister Igor Shuvalov, took Nazarbayev's words to suggest that the EEU would in future envisage a financial and currency union between the member states. "At some point we will need to seriously study the issue of a financial union or perhaps even currency [union]. But this is in future as this ... issue is not on the agenda yet," Shuvalov told a news conference.
Shuvalov's revelation of Russia's designs for the EEU horrified Kazakh negotiators, whose president and government, as well as state-owned media, The Ukraine crisis – which many analysts suggest have been tirelessly promoting the EEU as a purely has Kyiv's drive towards the West at the expense of joining the EEU as one of its cornerstones – has economic entity. Deputy Prime Minister Bakytzhan only helped raise worry that the new bloc threatens Sagintayev showed his irritation as he immediately dismissed Shuvalov's statement. "[Shuvalov] has the independence of non-Russian members. That talked about a financial and currency union. Not a has seen Kazakh officials insisting there is no single time have we discussed this issue, neither political element to the EEU. at our level nor at the level of heads of state," he said. "Today President Nursultan Nazarbayev spoke However, not everyone seems clear. At a meeting about positioning Almaty as a financial centre as with Russian President Vladimir Putin and part of the creation of a supranational financial Belarus' Alexander Lukashenko ahead of the regulator. There is no talk of any currency and signing, Kazakh President Nursultan Nazarbayev financial union." suggested the leaders had agreed to headquarter
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Interview in the country. "All this will significantly improve Almaty's competitive advantages as a financial centre," said Mr Kelimbetov. The government hopes the new financial centre will serve Central Asia and the CIS.
Yusuf Karsi, general manager, KIC Leasing
Islamic banking for Almaty
Kazakhstan is to revive a blueprint to build a regional financial centre in its commercial capital, Almaty, for Islamic finance modelled on the City of London. The move is intended to diversify sources of finance and attract new players to the country's financial market, Islamic finance specialists believe.
Kazakhstan already has players which offer sharia-compliant financial services. In 2009, the Abu Dhabi-based Al Hilal Bank opened a subsidiary in Kazakhstan, while the first local Islamic bank will be the Ekibastuz-based Zaman-Bank, after the Islamic Corporation for the Development of the Private Sector (ICD) announced its decision to acquire a 35% stake in it. In turn, in April 2013 Zaman-Bank and ICD, along with international investors Al Hilal Leasing, Aktifbank, Kolon Group and Eurasian Group, set up the country's first Islamic leasing company Kazakhstan Ijara Company, also known as KIC Leasing, which offers sharia-compliant financial products. "Despite 'sharia compliant' having a lot of different meanings, in general it means not to treat your clients with a commercial approach only while he is ready to build up a long-term relationship like a partnership," Yusuf Karsi, KIC Leasing's general manager, explains. "Everyone should be happy with this relationship and benefits should be distributed fairly," Karsi tells bne in an interview.
Kazakh chief banker Kairat Kelimbetov said in June that a special financial district would be created in Almaty and would be based on the City of London, which has developed a fusion of Islamic One of the main points of Islamic banking is that all principles are agreed between the company and Western banking practices. and client will not change and there will be For this purpose, a blueprint to develop a regional no surprises. Karsi claims the severe global financial centre in Almaty by 2020 is going to be economic crisis, also dubbed as a "mortgage crises," happened simply because of overrevised in order to take into account London’s leveraged derivative products, and that it wouldn't experience as a centre of Islamic finance, and have happened if the system had been the plan should be adopted by December 1. Corresponding amendments will be made to the based on Islamic products. country's tax legislation and the government will offer tax incentives and simplify visa regulations "Islamic products finance only the to encourage foreign financiers to do business real business needs without giving a
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flexibility of utilisation under uncertain conditions," Karsi says. "We need to understand the business realty and the real demands of the client in order to set up a long-term relation from day one, and counterparties should agree on the terms of contract and there should not be anything unclear or undefined in the contract.�
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consider the pace of growth of the SME market and other related sectors in Kazakhstan, these targets are realistic," Karsi notes. From the very beginning of the start of its operations in January 2014, KIC leasing has expended energy on increasing public awareness about sharia-compliant leasing and it needs to make more of an effort to approach entrepreneurs across the country, Karsi notes. He believes there is greater demand for Islamic products in the Kazakh regions. He adds that "sharia-compliant financial products don't mean they are offered only to Muslims, but anyone who complies with sharia principles of doing business". He also emphasises that the provision of all segments of the economy with the Islamic products throughout the country can be exercised only if the regulations are in place with the positive initiatives.
On the other hand, this doesn't mean that Islamic financial institutions, including KIC Leasing, do not safeguard their risks, he notes. For example, at KIC Leasing one of the measures to minimise the risk is that it requires from the client to make a down payment no less than 20% of the asset value. On the other hand KIC offers its clients a choice of currency- the tenge or the US dollarand this depends on the nature of the client's business. If the business generates its revenue in foreign currency and is capable of covering its long-term obligations, then KIC offers its products Karsi welcomes the Kazakh government's in dollars, but if there is a currency position decision to establish a centre of Islamic banking that may pose a potential risk to the client, KIC in Almaty and says it will be "beneficial" to the provides its products in tenge. country. "When Kazakhstan changes its legislation to develop Islamic banking, it will become very While also working with large companies, KIC Leasing also targets the small and medium-sized attractive to foreign investment and investors. It means it will attract long-term foreign direct businesses (SMEs) sector, which is developed investment, including long-term Islamic products insufficiently in Kazakhstan and needs a diverse sources of funds. By aiming to help SMEs develop, such as 'sukuk' which has been attracting interest Karsi says, KIC Leasing will contribute not only by even in non-Muslim countries and is likely to become popular in Kazakhstan too," he says. means of finances but also through job creation, experience, consultancy and the development "This also means Kazakhstan will have wellof competent human resources in the country. developed financial products like in other The company aims to build a portfolio of $20m in countries. The Islamic financial centre will also the first year of operations in 2014 and increase attract highly-qualified human resources." it to $150m over the following five years. "If we
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Feature particular attention to "change management" which has become a popular term in fulfilling various projects throughout the world. "Projects require changes in the process, technologies, business culture and people's behaviour. Change management demands special leadership skills to minimise risks of failure during the implementation of a project," Stapleton says.
Samruk-Kazyna: restructuring as seen from the outside The managers of Kazakhstan's sovereign wealth fund Samruk-Kazyna and its independent directors have met to discuss the restructuring of the fund and its assets, and its goals. The chairman of the fund, Umirzak Shukeyev, told the meeting that the transformation programme aims to make Kazakhstan one of the world's top-30 most competitive countries by 2050. "Transformation for us is not a temporary restructuring activity but the achievement of an absolutely new level of running business and managing state-owned assets, and elevating our companies to a qualitatively new level of functioning in line with the best international standards," Shukeyev said. The transformation programme is expected to be drafted by September 2014, he noted.
The most efficient way of managing changes is to initiate them, he says. "We want to change before changes happen to us and engulf us,� he explains. “We know that change is important for survival for each of us, for people, teams, society and for families. If not for survival, it is still an important requirement to achieve our ambitious goals because the world around us changes constantly and we should change," Stapleton continues. Many companies change when they face serious problems so they increase the price of their products, run into debt and lay off the personnel, he says, "but the most successful companies choose a path of gradual change, and our aim is to make changes to the DNA of our company."
The transformation programme has the objective of catalysing cooperation between the fund and national companies, and turning the fund into a supplier of services and a centre of expertise for the national companies. These changes will increase the intelligence and automation of business processes. Stapleton doesn't rule out mistakes during the changes and, as a result, confrontation because people are complex creatures and are often irrational because they can be moody and emotional and have feelings "Transformation is a complex but interesting path. and habits. It is important to show respect and There are no doubts that we will take this path and motivate them to enable them to realise their we will be able to make it successful if we all take potential, he says. part in fulfilling this task. Each of us is an 'owner' As part of the transformation, the of this initiative and each has their own role and responsibility," he added. The fund's independent fund will shift its focus from shortterm priorities to long-term ones, and director Nigel Stapleton says the meeting paid
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needs to depart from issuing orders and tasks to presenting vision and managing results, the independent director says. "We should move away from controlling tasks to monitoring strategies and from insular thinking to fund-wide thinking, and we should move from short-term financial results to long-term economic value added," Stapleton tells bne. "We should move away from the success of an individual to the common success of Samruk-Kazyna Group." For the sovereign wealth fund and companies it manages to be successful both leaders and employees, shareholders and independent directors should change, Stapleton says. These changes include the transformation of successful technocrats into specialists with what the fund calls soft skills and creativity. "Making this transition is not just about giving our technocrats new knowledge, it is just as important that they adopt new styles of leadership, team building and delegation of tasks to those working with them," Stapleton explains to bne. "These are the allimportant 'soft skills' - about changing the way we work together - and making this happen is probably the most important single element of the transformation programme." Strategic thinking will have to be adapted to corporate culture, while the fund will have to be driven by commercial principles. This cannot be done without reducing red-tape that stifles initiative, and creating an inclusive culture at the shareholder level. Staff at the fund and national companies will be given powers to manage their business process with minimum operational
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involvement from the management. "Work is already well advanced within the fund in terms of reducing the volume and complexity of the policies and procedures that have been put in place over the past several years," the independent director tells bne. "We are also looking carefully at the experience and competence of the board of directors and management boards at each of the national companies to ensure that they are fully capable of dealing with all the operational issues, with little or no interference from the fund." As a result, the fund will be able to assume fully its rightful role as a strategic investor. To achieve that objective Samruk-Kazyna is strengthening the sector teams at the most senior levels within the fund so that this very important change of emphasis can happen effectively. Close collaboration between the fund and each national company is the single most important key to the success of this major change in roles and responsibilities, Stapleton believes. The transformation programme will place great emphasis on ensuring every member of staff acquires these important "soft skills" so that wherever possible, decisions are made lower down in the organisation. "This means that everybody will have a much greater understanding of what is expected of them in the successful performance of their job and if things are progressing according to plan they can expect much less interference from their management," Stapleton concludes.
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Sector Despite the claims of officials, the worries of the population are understandable, given the NBK is no fan of controlled devaluation. Policy has instead been to maintain the stability of the currency while possible, followed by a sharp devaluation. That strategy has been employed twice in the last six years.
Kazakh officials rubbish devaluation worries
Spooked by the unrest sparked by the devaluation in February, Kazakh officials lined up on June 2 to rubbish speculation that another sharp drop for the tenge is imminent. Kairat Kelimbetov, chairman of the National Bank of Kazakhstan (NBK), said talk of devaluation has cropped up on average 13 times each and every year since a 25% devaluation in February 2009. The NBK head insisted currency speculators are to blame. "It's understandable that no devaluation is expected and all this is rumours," Kelimbetov told a news conference. "Since there are speculators in the market such speculative factors exist when people try to create them artificially." With the tenge currently approaching the 185 lower end of the NBK's target against the US dollar, worries of another drop for the national currency have been growing. Late May saw Kazakhs rushing to buy USD after the tenge slumped close to 184.
Indeed, last time Kelimbetov spoke out against devaluation rumours, and publicly voiced confidence in tenge, was less than 10 days before February's 19% devaluation, sending prices skyrocketing. Spurred by a 10% or so depreciation of the ruble - a regional reserve currency - between November and February and Kazakhstan's widening trade gap with Russia, the central bank suddenly announced the end of a $5bn intervention cycle on February 10. That saw the exchange rate to the dollar move from 155.6 to 184.5 within two days. Protest in closely controlled Kazakhstan was so serious that the government soon ordered salary increases for state employees. Since, speculation on social media and SMS also sparked a mini bank run, with the authorities pursuing the "culprits" they say started the rumours doggedly. Little wonder that the widespread speculation over the currency has rattled Astana. The central bank chief was quick to rattle off a long list of evidence against the likelihood of devaluation, insisting there are no grounds for concern thanks to high oil prices and leeway against any potential losses for the ruble on the horizon. According to some estimates, the February devaluation offered the tenge a 10% cushion. "Oil prices are high now," Kelimbetov said. "The ruble is strengthening, but even if it depreciates to a certain extent we are not worried about that. I believe we've created a sufficient margin of safety."
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The central bank chief also said rising reserves the NBK has seen its foreign exchange and gold reserves rise $4bn to $28.4bn thus far in 2014 are another insurance policy. Foreign Minister Yerlan Idrissov joined the effort, insisting suggestions that the creation of the Eurasian Economic Union in 2015 could hit the tenge are wide of the mark. The leaders of Kazakhstan, Belarus and Russia signed a treaty
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to transform the current Customs Union into the EEU in Astana on May 29. "I don't think there is any reason to believe that the signing of our treaty will cause the devaluation of the ruble, the tenge or the Belarusian currency," he told an audience of diplomats on June 2. "On the contrary, I believe the strengthening of our economic potential will be able to and will make our currencies stronger and more stable."
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in Astana Page 9
Chart A telephone poll conducted among 780 people in Astana and Almaty in May shows that 45% of those polled believe budget money allocated to fighting smoking is spent inefficiently and nontransparently. Only 9% say the money is spent well and helps decrease the number of smokers; 42% believe the money should be spent on solving other social problems. A quarter of respondents
say smoking cannot be eradicated in principle. 16% say the fight against smoking is efficient and help smokers quit; 35% say it is inefficient and a further 48% say it's carried out pro forma. 43% believe the number of smokers has increased in the past few years, with only 18% saying it has decreased and 26% answering they don't pay attention.
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News in brief Work halted on off-shore oil field Work has ground to a halt on the Kashagan oil field, and oil won’t flow until 2016 owing to bad weather preventing workers carrying our maintenance work, the Wall Street Journal reported.
The highest number of road accidents occurred in Almaty city, South Kazakhstan, East Kazakhstan, Zhambyl and Almaty regions.
Kazakhstan to simplify mining legislation to attract investment Kazakhstan plans to amend mining legislation to make it easier for investors to carry out geological exploration work. The country also plans to spend around $5.5bn on prospecting over the next five years.
The Caspian Sea field is one of the largest industrial projects in the world but needs two pipelines connecting an off-shore island with an on-shore facility replaced. The cost of the repair work could run to a “few billion dollars,” according to a source quoted in the paper. Proposed amendments to the legislation on mineral resources and mining are expected to cut the number of mandatory expert examinations President puts name of mining contracts by 60%. The country will also allow small companies to carry out geological to terrorism law prospecting. This will speed up the discovery of President Nursultan Nazarbayev signed a Law of new mines, the government believes. the Republic of Kazakhstan "On amendments and additions to some legislative acts of the Republic of Mining companies developing solid minerals, Kazakhstan concerning counteraction of legalization except for uranium, are expected to be exempt (laundering) of proceeds from crime, and financing from mandatory coordination of their production of terrorism", the Kazahkstani press reported. figures if a difference between the actual output and project design output is around 20%.
Road deaths top 3,000 More than 3,000 people, including 273 children, died in road accidents across Kazakhstan in 2013, the press service of the Prosecutor General's Office reported. In 2013, the number of car crashes increased by 65% and amounted to nearly 23,000 incidents, according to official figures published by Kazinform. As a result of the accidents, more than 3,000 people, including 273 children died. The accidents also left 33,000 adults and 5,000 children injured.
In order to facilitate discoveries of metal and other deposits Kazakhstan plans to invest over KZT1trillion ($5.5bn) in geological prospecting. Of the sum, KZT120b will come from the government coffers, and a further KZT900b is expected to be allocated by national companies. Most of the new investment will be spent on the search for deposits of gold, copper and polymetals, Bazarbayev Nurabayev, chairman of the Committee for Geology and Mining, said in Atyrau last week. "We expect a 50% increase in [reserves of] gold, copper and polymetals thanks to geological prospecting," he said.
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International railway gets green light
Production to be boosted at oil fields owing to Kashagan problems
A railway linking Kazakhstan with Turkmenistan and Iran will be formally commissioned this year, Gurbanguly Berdimuhamedov, the Turkmen president, has said.
Kazakhstan plans to increase production at oil fields owing to problems with the massive Kashagan off-shore field, according to Yerbolat Dossayev, the Kazakh economy and budget planning minister.
Mr Berdimuhamedov made the remarks in Turkish city of Bodrum at a meeting with Kazakh President Nursultan Nazarbayev, the Turkmen government said in a statement on June 6.
Production has stopped at the field owing to technical problems and bad weather.
"The Turkmen president invited his Kazakh counterpart to take part in the solemn ceremony of opening of this strategic railway, which being an essential part of the 'North-South' transport corridor, has not only regional but also global significance," the statement reported.
Mr Dossayev made the remarks at a plenary session of the Kazak parliament's lower chamber (Majilis), Kazinform reported. He said that the Kazakh Oil and Gas Ministry along with the national company KazMunaiGas wants to boost production at other fields in to compensate for the slump in production caused by the problems at Kashagan.
The statement added that during the meeting the heads of Turkmenistan and Kazakhstan said the new railway will allow for the convenient and economical transport of goods to South Asia, to the Gulf ports, as well as in the opposite direction to the Eastern Europe through Russia. "Commissioning of the railway is also relevant, given its possible links with the 'East-West' transport communications, i.e. the 'China-Central Asia-Caucasus-Europe' transcontinental transport corridor," the statement added.
The minister added that Kashagan would not contribute to the budget.