HERALD - OCTOBER 2017 by HERALD

№ 2 | 2017 | october

36 S. Katyrin New Customs Code – new opportunities and new challenges

О ФИ Ц И А Л Ь Н О Е И З Д АН И Е Ф Б А Е АС , М Б С

Евразийский финансово-экономический

26 № 2 | 2017 | октябрь EURASIAN FINANCIAL & ECONOMIC

«EAEU – sharing current challenges» Timur SULEImENov:

T.Zhaksylykov Eurasian integration

20 A.Murychev United we stand

Евразийский финансово-экономический

ВЕСТНИК

HERALD

PERSONALITY

A. Shokhin International cooperation trends in EAEU

№ 2 | 2017 | октябрь

№ 2 | 2017 | october

EURASIAN FINANCIAL & ECONOMIC O F F I C I A L P U B L I C AT I O N O F F B A E A C , I B C

А. Шохин Векторы международного сотрудничества ЕаэС

личность

12 А. Мурычев В единстве — сила

Тимур СулЕймЕНоВ:

«ЕАЭС — коллективный ответ на вызовы современности»

20 Т. Жаксылыков Евразийская интеграция

26 С. Катырин Новый таможенный кодекс — новые возможности и новые вызовы

Болгария

Вьетнам

Международный банк эконоМического сотрудничества Основан в 1963 году

Монголия

ЦЕЛЬ ДЕЯТЕЛЬНОСТИ МБЭС – международный институт развития, целью деятельности которого является содействие развитию внешнеэкономических связей между предприятиями и организациями входящих в него стран, а также их связей с экономическими субъектами других стран.

Польша

Россия

ОСНОВНЫЕ НАПРАВЛЕНИЯ ДЕЯТЕЛЬНОСТИ Расчетные операции Торговое финансирование Кредитная деятельность

Румыния

Словакия

www.ibec.int

Чехия

ОТДЕЛЬНЫЙ ПРИОРИТЕТ Поддержка малых и средних предприятий, а также совместных предприятий и совместных проектов стран-членов МБЭС.

Международный институт развития со штаб-квартирой в г. Москве.

Банку присвоены рейтинги инвестиционного уровня международным рейтинговым агентством Fitch Ratings: долгосрочный BBB-, со стабильным прогнозом, и краткосрочный F3.

СТАТУС

РЕЙТИНГ ОТ FITCH RATINGS

Content PeRSonALItY timur Suleimenov. EAEU – sharing current challenges

RSPP neWS А.Shokhin. International cooperation trends in EAEU

FoUnDeR’S PAGe. FBA eAC

eXPeRt oPInIon A.Murychev. United we stand

eeС: toDAY AnD toMoRRoW t.Zhaksylykov. Financial integration of the EAEU member states

EURASIAN FINANCIAL & ECONOMIC

BAnK. BAnK. BAnK o.Smolyakov. Our goal is to recover the banking system

Hot toPIC S. Katyrin. New Customs Code – new opportunities and new challenges M.Serebrova. Customs Audit – bridge to the future

36 39

InteRnAtIonAL PUBLIC AWARD

«Financial and banking elite of Eurasia»

PARtneRS’ neWS New generation The Nobel Congress

44 45

PARtneRS World Economic Council and Internationaler Wirtschaftssenat e.V. (IWS): Overcoming the borders

tHe FoURtH MoSCoW InteRnAtIonAL FInAnCIAL AnD eConoMIC FoRUM

«Eurasian union and the EU: search for new formats of cooperation»

FoUnDeR’S PAGe. IBC Financial literacy - the way to financial freedom The Republic of Belarus: It begins with «Money Alphabet» The Republika Srpska: At the State level

48 49 50

CoMPAnY PRoFILe «SALUS». Modern and complex business solutions

DISCUSSIon A.obaeva. About distributed ledger and its application

teCHnoLoGIeS New opportunities for blockchain development in Eurasia

tRenDS G.Deuber. Upside returns to Eastern European Banking markets

PRoJeCtS Karelian crushed stone

BUSIneSS oF tHe CoUntRIeS The Republic of Slovenia: Investment attractiveness The Republic of Côte d'Ivoire: Paradise for foreign investment

66 70

HERALD № 2 | 2017 | october

FOUNDERS: Financial & Banking Association of Euro-Asian Cooperation (FBA EAC)

International Banking Council (International Coordinating Council of Banking Associations of the member states of the Commonwealth of Independent States, Central and Eastern Europe)

PUBLISHER: Financial & Banking Association of Euro-Asian Cooperation (FBA EAC)

Editor in Chief V. Murin Executive editor S.Kiyatkina Editorial Board: E. Berezovaya, O.Ryazanov Translators: S. Arkhipova, K. Tereshenko Page-proofs: «Granitsa Publishing House» Ltd.

PUBLISHER'S ADDRESS: 17 Kotelnicheskaya nab., Moscow, 109240, Russia +7 495 663–02–08/13 office@fbacs.com www.fbacs.com

PRINTING HOUSE: Released in the «Granitsa Publishing House» Ltd. Format 210x297 mm. Offset paper. 144 pages. Circulation 2000 copies. Ord.

ISSUE DATE: October 2017

PRICE: Free

The editorial office is not responsible for the content of the advertisements. Advertised goods and services are subject to mandatory certification. Reprint is allowed only with the written permission of the editorial office. Manuscripts are not reviewed and not sent back.

eDItoRIAL BoARD

Alexander Murychev, Chairman of the Editorial Board, Chairman of Coordinating Council of FBA EAC, Executive Vice-President of the RSPP, Chairman of the IBC

Anvar Abdraev, President of the Union of Banks of Kyrgyzstan

Saydullo Abdullaev, General Director of the Association of Banks of Uzbekistan

Hakob Andreasyan, Chairman of Union of Banks of Armenia

Bakhytbek Bayseitov, President of the Association of Banks of the Republic of Kazakhstan

oleg Berezovoy, General Director of FBA EAC

Zurab Gvasalia, President of the Association of Banks of Georgia

Veroljub Dugalic, General Director of the Association of Serbian Banks

Anatoly Kazakov, Chairman of the Coordination Council of the Financial and Banking Council of the CIS

elena Korobkova, Executive Director of the Independent Association of Banks of Ukraine

Manish Kumar, General Director of the Soltex Group Ltd., Head of the Representative oﬃce of FBA EAC in India, Sri Lanka, Bangladesh, Malaysia

Aleksandr Kuschynski, Chairman of the Association of Belarusian Banks

Georgy Kuchkov, General Director of the Information and Publishing Center «Eurasia»

Istvan Lengyel, Secretary General of Banking Association for Central and Eastern Europe

Amirsho Miraliev, Valery Murin, Chairman of the Board Editor in Chief of the of the Association of Banks magazine «Eurasian Financial of Tajikistan and Economic Herald»

Zakir nuriyev, President of Azerbaijan Banks Association

Bratislav Pejaković, Secretary General of the Association of Montenegrian Banks

Krzysztof Рietraszkiewicz, Chairman of the Polish Bank Association

Anatoly tkachuk, Vice-President of FBA EAC

Dumitru Ursu, Chairman of the Moldovan Bankers’ League

EURAS IA N FIN AN CIA L & ECONO MIC HERA LD | # 2 -2 0 1 7

A word to the readers

Dear colleagues and friends! You are holding in your hand the second issue of Eurasian Financial and Economic Herald. The editorial board and personally I highly appreciate the positive public reaction to the first issue of our magazine what inspired us forward to working for its publication. We are grateful to our first readers and authors. This is not only economists and financiers, but also representatives of a variety of professions and spheres of activity. The main theme of this issue will be the economy and business of the Republic of Kazakhstan, and the face of the cover is Minister of National Economy, Timur Suleimenov, whose interview will acquaint our readers with the problems and economic achievements of the Republic. Why Kazakhstan? For several reasons. This is the first country to suggest the idea of creating a single economic space. Today it takes an active part in the formation of the Eurasian Economic Union. In addition, this year, the capital of Kazakhstan was chosen to be the venue of the International Specialized Exhibition EXPO-2017 and it’s the first time in the post-Soviet space. The international financial center “Astana” has been established in Kazakhstan. Its activities are based on the principles of English law with a preferential tax regime and an independent financial court. IFCA claims to become the nucleus of the financial infrastructure of Kazakhstan, and a financial hub for the entire Central Asian region in the future. I am sure that not only financial analysts will be interesting to know the opinion of specialists of this. We start a discussion on the key topic of today – crypto currency. Alma Obayeva, Chairman of the Board of the National Payment Board, will share her ideas with the readers of the Herald. Under the heading “Business of Countries”, readers will find out how the economy of the Republic of Slovenia is attractive for foreign investors. On the page of the Financial and Banking Association of Euro-Asian Cooperation, we will talk about the current aspects of the Association’s activities to expand its impact on the Eurasian economic space, and on the page of the International Banking Council we will acquaint our readers not only with the way the "Project Financial Literacy" is being implemented in different countries of Eurasia but also present the actual data of the dynamics of performance indicators of the banking sector of economies of different countries. And this is only a small percentage of the material with which we want to introduce you in this issue of the magazine. We are determined on polemic. It offers not only an opportunity to discuss the published – we hope it will stimulate you, our readers, to write new articles. We are interested in the present of different positions and diverse points of view. We stand for a fluid dialogue and development of the magazine. See you all on pages of the Herald.

With respect, A.Murychev, Chairman of the editorial Board of «eurasian Financial and economic Herald»

PERSONALITY

eAeU – SHARInG CURRent CHALLenGeS

www.economy.gov.kz/ru

TIMUR S ULEIM E NO V Born in Pavlodar (Kaz. SSR) on April 5, 1978. Graduated from the Pavlodar State University of S. Toraigyrov (degree in Economics and Management of Social Sphere), Maryland University (USA) (degree in Finance and Marketing, master of Business). He also has a degree in Law. He started as senior consultant in Ernst&Young Kazakhstan” (Almaty, Kazakhstan). Later he became the head of Department on tax accounting and tax planning in JSC “KazMunaiGaz” in Astana. In 2009-2012 he was Vice-Minister of Economy and Budgetary Planning and Vice-Minister of Economic Development and Trade of the Republic of Kazakhstan. For more than four years he represented Kazakhstan in the Eurasian Economic Commission in Moscow as Member of the Board – Minister in charge of Economic and Financial Policy. He has state and corporate awards for contribution in the economic development of Kazakhstan. His significant contribution to the establishment of EEU and Customs Union are also recognized. In December 2016 he was appointed Minister of National Economy.

“

The Eurasian economic Union not only supports member-states in the world turmoil, but also facilitated favorable ground for business development and investments.

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INTERVIEW OF THE MINISTER OF NATIONAL ECONOMY OF THE REPUBLIC OF KAzAKHSTAN SULEIMENOV Т.М. TO THE MAGAzINE «EURASIAN FINANCIAL AND ECONOMIC HERALD».

imur Muratovich, more than three years have passed since the signing of the treaty on the eurasian economic Union. Looking back, how can you characterize the past period, and how would you like to see the union still after three years? Yes, indeed, 3 years ago, on May 29, 2014, in Astana, the heads of Kazakhstan, Russia and Belarus signed the Treaty on the Eurasian Economic Union. During this time, Armenia and Kyrgyzstan joined the Union. Within the framework of EAEU, agreements have been reached, which already provide significant opportunities for the development of economies of the member states of the Union. To date, there are no customs barriers in Eurasian economic union, unified requirements for technical regulation, sanitation, phytosanitary and veterinary requirements have been adopted. The regulatory legal base of the general market in the field of medical products and medicines has been formed. In the field of technical regulation on the territory of EAEU there are unified requirements, a single register of laboratories that conduct tests. Customs Code of the Eurasian Economic Community was adopted, which aims at reducing administrative barriers, introducing advanced information technologies, and accelerating customs clearance procedures. It is expected that it will enter

into force on January 1, 2018. Du-mai, our entrepreneurs will appreciate it positively. Now we can say with confidence that the process of integration has already led to positive shifts in the economy of Kazakhstan. Thanks to cooperation and close interaction within the framework of the Eurasian Economic Community, our common opportunities for access to the transport and logistics infrastructure of the partner countries have improved. This creates additional opportunities for the entry of our goods into the markets of third countries, which, in turn, increases the competitiveness of the Eurasian economic union countries on the world stage. It should be noted the positive effect that the use of domestic rail tariffs for the transport of goods from Kazakhstan to Europe through the sea ports of Russia. Only for the last two years, the economy for Kazakhstan's shippers amounted to about $ 480 m. It is also important to note the ongoing large-scale work to improve mu-tually beneficial cooperation both with integration associations and with indi-vidual countries.. For example, in October last year, the first in the history of Eurasian economic union Agreement on a free trade zone with Vietnam entered into force. This also affected the positive dynamics of the cooperation of the Re-public of Kazakhstan with Vietnam. To the topic: Commodity turnover be-tween Kazakhstan and Vietnam in January-May 2017 amounted to $ 218.7 m, an increase of 2 times compared to the same period in 2016 ($ 110.5 m). Exports increased 3-fold ($ 77 m), from $ 38.7 m in January-May 2016 to $ 115.8 m in JanuaryMay 2017. Imports increased by 43.5%, from $ 71.7 m in January-May

Reference EAEU: adopted regulations To date, 44 technical regulations of EAEU have been adopted, of which 35 have entered into force. It is planned that the development of the remaining 15 technical regulations will be completed in 2017-2018, which will allow to form a single market of goods with common mandatory requirements.

2016 to $ 102.9 m in January-May 2017. In addition, negotiations are under way to liberalize the terms of trade with a number of other countries. Among them are China, Iran, Israil, Serbia, Singapore, India, Egypt. This will ensure the implementation of export oppor-tunities and attract investment. The specified directions of development be-came possible due to the attractiveness of the large common Eurasian eco-nomic union market. The Eurasian Economic Union is already negotiating free trade agreements with Israel, Serbia and Iran. Particular attention is paid to creating the basis for mutually beneficial cooperation between the Eurasian

Reference Kazakhstan: trade changes The turnover of the Republic of Kazakhstan with the member states of the Eurasian Economic Community for January-May 2017 amounted to $ 6.5 bn and increased by 34.9% ($ 1.7 bn) compared to the same period in 2016 ($ 4.8 bn). Export of Kazakhstan to the countries of Eurasian economic union in January-May of 2017 amounted to $ 2 bn and increased by 34% ($ 500 m) compared to the same period last year ($ 1.5 bn), and imports from the coun-tries of Eurasian economic union to Kazakhstan in January-May 2017 amounted to 4.5 billion US dollars and increased by 35.1% ($ 1.2 bn) compared with the same period last year ($ 3.3 bn).

Economic Union and China. It will allow to ensure the integration of the Eurasian integration process with the initiative "Economic belt of the Silk Road". Together with this, in order to promote economic growth, build-up and realize the export potential of the countries of the Union, the main efforts are focused on developing cooperation with the member states of the Common-wealth of Independent States (CIS), the World Trade Organization (WTO), the Shanghai Cooper-

“

I am sure, that the EAEU will ensure the unhindered mutual access of our goods to the markets of the partner countries and third countries without barriers, exemptions and restrictions.

ation Organization (SCO), the European Union (EU), the United Nations Economic Commission for Europe (UNECE), the Economic and Social Commission for Asia and the Pacific (UNESCAP), the North American Free Trade Association (NAFTA), the Central Asian regional economic cooperation, the economies of the participating countries of the Asia-Pacific Economic Cooperation (APEC) forum, the Association of Southeast Asian Nations (ASEAN) and other associations. I also note that since the beginning of the functioning of the Customs Union (2011–2015), compared to the previous period prior to the formation of the Customs Union (2005– 2009), the volume of direct foreign investment in the manufacturing industry has increased almost 3-fold (from $ 6 billion to $ 18 billion). The inflow of foreign direct investment from third countries into the Un-ion's economy is estimated at the level of 85 billion US dollars by 2030, of which the Republic of Kazakhstan

can receive an additional gain from partic-ipation in Eurasian economic union in the amount of about $ 40 billion. It should be noted that the Treaty on the Eurasian Economic Union stipulates norms and agreements on a number of areas that are planned to be implemented before 2025. For example, in the field of road transport, the Treaty on Eurasian Eco-nomic Union provides for the phased liberalization of auto-mobile cabotage traffic from 2016 to 2025. Also, when preparing the Treaty on the Eurasian Economic Union, the principle of "multi-speed liberalization" of the service sectors within the framework of the Eurasian Economic Union was fixed. That is, the timing of the liberalization of individual service sectors may be more recent for individual Member States, which in turn is not an obstacle for other Member States to create a single market in earlier terms. For example, access to construction services, geological, geophysical and other exploration services, underground surveying services, cartography services, forecast services for years and meteorology Armenia, Belarus, Kyrgyzstan and Russia have been opening since 2019. Kazakhstan in the relevant service sectors will join the common market since 2025. This will allow to ensure the conditions for the adaptation of Kazakhstani service providers to the new conditions. Also, the general markets in the fields of electricity by 2019, oil and gas will be gradually formed by 2025, which will allow creating conditions for the stability of Kazakhstan's power systems and realize the export potential of Kazakhstan's electric power industry, which, according to the Electricity Industry Development Plan, by 2030 will exceed 6 billion kilowatt-hours. This is about $ 300 million in additional export earnings annually. Thus, we have specific deadlines for which a certain work is expected. Given that the Union is only 3 years old, it is important to understand that at this stage it is necessary to concentrate on the implementation of existing agreements. Unfortunately, today the Union

still has internal obstacles that impede the free movement of the "four freedoms" laid down in the Treaty. Currently, a platform has been created on the Komisya site, which deals with these obstacles. Intensive work is underway to remove the identified obstacles in close cooperation with all member states of the Union. I am sure, after a certain time, maybe even earlier than 3 years, which you voiced in your question, the Union will ensure the unhindered mutual access of our goods to the markets of the partner countries and third countries without barriers, exemptions and restrictions. the President of Kazakhstan once said that when forming the eAeU there was a lot of criticism, plus the active phase of the merger fell on the crisis period, but the Union will prove its viability. In your opinion, the eAeU has already justified its existence, or is its best time still ahead? Yes, indeed, the creation of Eurasian economic union fell on the period when the world underwent difficult economic conditions. However, despite the global economic instability, the Eurasian Economic Union has a number of positive results. In 2016, the decrease in the volume of mutual trade (by 6.7%) was much less than a year earlier (by 25.5%). A similar situation with foreign trade. Turnover with third countries in 2016 decreased by 12.0%, than in 2015 (by 33.6%). Optimism inspires results of 5 months of 2017, following which the foreign trade turnover of the Eurasian economic union with third countries and mutual trade grew by almost 30%. Also, as I have already mentioned, to date, negotiating tracks on agreements on trade and economic cooperation and creation of free trade zones with more than 10 countries of the world have been launched. Practical advantages for citizens and business of the countries of the Union have been created. For example, our citizens have the right to work unhindered in any country of Eurasian economic union without obtaining de-cisions on employment

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and registration at the place of residence. Thus, in practice, the basic principles of the Eurasian economic union: the freedom of movement of goods, services, capital and labor were earned. As you know, for the developing countries the processes of development of regional and transcontinental economic integration can become a collective response to the challenges of our time. Thus, the Eurasian economic union is already justifying its existence and it is this way of unification that will help our countries not only to with-stand the global crisis, but will also create a favorable foundation for further mutually beneficial business development, as well as attracting investments. not all questions within the Union are being resolved as quickly as we would like. Many plans so far remain only on paper. As a former member of the eeC Collegium, explain why this is related? I should note that the Treaty on Eurasian Economic Union contains a clear mechanism of consensus in making strategically important decisions at all levels, which excludes the possibility of domination of any state. Thus, decisions at the level of the Council of the Commission, the Eurasian Intergovernmental Council, and the Supreme Eurasian Economic Council are taken exclusively by consensus. However, the Board of the Commission on sensitive issues also decides by consensus, and on other issues, decisions are made by a qualified majority. At the same time, the qualified majority is two-thirds of the total number of members of the Board of the Commission. Of course, there are issues, the solution of which takes a long time because it is necessary to work out and agree with all EAEU member countries. In practice, due to the specifics of the national legislation of the member states of the Union, as well as other objective circumstances, it is difficult to find compromise and coherence with all the participating states when making decisions on cer-

Crisis resistance

25%GDP growth by 2030

Lower prices due to higher competitiveness

New working places in joint enterprises

Single market for 170 m people without tariff and non-tariff barriers

Significant development of non-resource sector of economy

Better investment climate

Update of production and technologies, development of industry

New level of service and human resources markets Foreign trade growth New capital- and knowledge intensive industries Higher quality of products due to stricter requirements

Плюсы для Республики Казахстан от вступления в ЕАЭС the benefits for the Republic of Kazakhstan from joining the eAeU Источник: Институт интеграции Source: Institute forевразийской Eurasian Integration

tain issues. But this is a fair process in the conditions of a deep form of integration, in which the "living" interests of states collide. In this and the difference Eurasian economic union from other organizations. We do not set ourselves the goal of solving issues extremely quickly. We are focused on the qualitative elaboration of each issue through consultations and negotiations with all the participants of the Union. I believe that such an approach will positively influence the further implementation of the Eurasian economic union objectives. When asked about the creation of a single currency within the framework of the eAeU, the members of the eeC Collegium and experts in the countries of the association have to periodically answer. At the same time, it would seem, there are no prerequisites for this. Why do

they return to this topic again and again? Can this ever be realized? This question was repeatedly proposed for consideration at various levels. The last manifestation of these initiatives was the commission in 2015 of the President of the Russian Federation V.V. Putin to the Central Bank of Russia to consider the possibility of creating in the future a currency union in the Eurasian economic union. This proposal was initiated against the background of the global economic crisis, the introduction of restrictive measures by international organizations and individual countries in relation to Russia. However, this issue is not considered in the framework of Eurasian economic union. It should be noted that the creation of a single supranational group of countries is a long and complex

process that includes a fairly wide range of measures that must be taken on the way to such a responsible decision. Countries need to harmonize the basic macroeconomic parameters in the same way that European countries created the Maastricht criteria in their time. The purpose of these criteria is the balanced development of the economy within the framework of the economic and monetary union. For example, in order to apply the euro as a single currency, countries must ensure price stability, solvency and sustainability of public finances, stability of interest rates in the long run, and stability of the exchange rate. In addition, it is necessary to take into account the fact that the economies and financial systems of our countries are not stable enough, besides they are heterogeneous and fragmented, there are objective differences in economies. According to theoretical aspects, the monetary union is the highest form of economic integration. However, in order to implement this project, it is first necessary to enter into concerted actions in macroeconomics, monetary policy, and the formation of conditions for the functioning of a single market for financial services. Only after solving these prob-

lems can we talk about a higher level of monetary integration of the countries of the Union. This, in particular, is evidenced by the experience of European integra-

tion. As you know, the states of the European Union have been going to the single currency for decades. The idea of creating a single currency within the EU was gradually and gradually implemented. So, in the framework of our relatively newly created Union, we must first fully realize the potential laid down in the Treaty on the Eurasian Economic Union. Our level of economic interaction should reach a level at which our business and the population themselves signal that now for a more profitable conduct of mutual settlements a single currency is needed. I repeat, at this stage while talking about this early. At the same time, it should be noted that at present our countries are carrying out activities aimed at ensuring macroeconomic stability and developing the economies of countries, the formation of unified principles for the functioning of economies, as well as harmonizing the parameters of the main macroeconomic indicators. In a short period of time, events have occurred that create favorable conditions for the activation of finan-

EURAS IA N FIN AN CIA L & ECONO MIC HERA LD | # 2 -2 0 1 7

cial integration of the Eurasian economic union countries. We agreed with partner countries on the advisability of harmonizing legislation in the field of financial market regulation by 2025. And upon completion of harmonization, consider the creation of a supranational body for the regulation of financial markets of member states. the main idea of eurasian economic union was to ensure unhindered access to the markets of its participants in business and labor from other countries of the association. At the same time in Kazakhstan, entrepreneurs sometimes complain that competition can not be maintained easily. What do you think about it? That's right. One of the goals of the Eurasian Economic Union is to ensure the functioning of the internal market without barriers, exceptions and restrictions. Removing barriers with Eurasian economic union countries extends the capabilities of our producers to access both the markets of partner countries and the markets of third countries. Currently, the

agreed list contains 60 obstacles, of which seizures â&#x20AC;&#x201C;- 19, restrictions â&#x20AC;&#x201C; 32, barriers â&#x20AC;&#x201C; 9. In order to remove existing barriers on the Eurasian Economic Union market, in 2016, work was begun with member states to systematize the elimination of barriers, in particular, to improve the methodology, tools and mechanisms for removing obstacles. The abolition of customs control at the borders within the Eurasian economic union, work on unified requirements of technical regulation, sanitary-epidemiological and veterinary control greatly facilitates opportunities for the supply of goods, opening up huge potential for export-oriented enterprises of Kazakhstan. Along with this, when preparing the Treaty on the Eurasian Economic Union, we stipulated transitional periods that allow full-fledged adaptation of the Kazakhstani business to the terms of the Eurasian economic union. In addition, as I have already mentioned, in a number of service sectors, Kazakhstan will join the general market of services only since 2025.

Reference Kazakhstan: small and medium business In January-March 2017, SMEs in Kazakhstan produced products worth KZT4,008.6 billion, in real terms there was an increase of 42.8% compared to the same period of last year-2,807.7 billion tenge, KZT, taking into account inflation, the index of physical volume (IFI) is also observed an increase of 32.4%. According to prelimi-nary data, the share of the contribution of SMEs to GDP in 2016 was 23.1%.

As for serious competition from the business of EAEU member states, which Kazakhstan entrepreneurs face, no one said that it would be easy. In order to win the neighboring market on an equal footing or to defend one's own, it is necessary, first of all, to increase one's own competitiveness. If we are talking about business, then in Kazakhstan, the development of entrepreneurship is given a lot of attention. tell us about this, how can you ensure the growth of SMes in the country? The role of small and mediumsized businesses is indispensable in dealing with the most acute economic and social problems. Without requiring significant expenditures on the part of the state, small and medium-sized businesses create a "healthy" competitive environment, establish a market equilibrium, create new jobs, form a middle class, meet various needs of the population, which ultimately leads to a sustainable economic growth. The growing number of business entities is evidence of the popularity of entrepreneurship in Kazakhstan. Today, more than 1.2 million small and medium-sized businesses operate in the country (more by 4.8% compared to the same period in 2016), which provide employment for more than 3 million people (about 35% of the total workforce in the country). It should be noted that in order to achieve the declared results, the state initiated the application of the "project approach" to solve the tasks. Unlike the traditional approach within

â&#x20AC;&#x153;

The key task is to revive the stipulating role to the monetary policy because it decreased with freely floating exchange rate of KZT.

the framework of project management, it is envisaged to coordinate the activities of state bodies to achieve a single goal. Effective coordination of such work is achieved by identifying specific indicators in the areas regulated by government bodies and monitoring their implementation. For the further development of mass entrepreneurship, targeted indicators are envisaged to achieve an increase in the share of SMEs in Kazakhstan's GDP to 30% by 2025, the creation of at least 500,000 entrepreneurs with a turnover of over 2 million tenge per year, of which at least 221,000 entities should be created as a new sustainable business. In this direction audit of control and supervisory functions has already been carried out. Along with this, a revision of the legislation was started to identify the costs of business related to obtaining the solutions issued by the subjects of natural monopolies and the provision of various types of reports to state bodies. Thus, according to the results of the audit of control and supervision activities, the control and supervisory functions of 17 government agencies and their 32 offices in 114 spheres of state control and 18 supervision were developed, the following proposals and recommendations were developed: 1) exclude 24 control areas out of 114 and 3 oversight areas out of 18 due to duplication and lack of efficiency; 2) to reduce 17 654 of 30 497 requirements for the verification of business entities; 3) eliminate duplicate and nonthreatening security threats to the state and the consumer 165 out of 540 supervisory and supervisory functions of state bodies with revi-

sion and optimization of the staffing; 4) exclude the articles and the competence of the authorized bodies to initiate administrative cases under 30 articles of the Code on Administrative Violations; 5) to introduce the institute of preventive control. The audit of permits issued by enterprises-natural monopolists and enterprises of the quasi-public sector was completed. Based on its results, an exhaustive pelist was compiled, consisting of 88 licensing documents, which will be fixed by the annex to the Law of RK "On Permits and Notifications". 30 laws have been analyzed, it is planned to analyze about 70 laws and more than 1000 by-laws for the detection of norms that hamper the development of competition. The result of all this large-scale work will be a single law-draft aimed at reducing the identified costs that hamper the development and establishment of a competitive business. To date, systematic work to improve the business environment has al-ready been positively evaluated by international rating agencies. In the World Bank's "Doing Business" report, in 2017 Kazakhstan ranked 35th, raising its rating by 16 points compared to the 2016 rating. Kazakhstan is one of the countries of the Union, which, after the crisis and the recession in the economy, managed to recover quickly enough. the official forecast for 2017 on GDP growth of 2.5% can be exceeded almost double by the end of the year. Due to what the economics of Kazakhstan has entered the growth trajectory and how is it planned to preserve this dynamics? At the beginning of the year it was projected that the country's economic growth in 2017 will be 2.5%. It should be noted that when forecasting, more conservative internal conditions of development were taken into account. In addition, since the beginning of this year, there has been an im-provement in the economic activity and indicators of the real sector of the economy. According to preliminary data, for the first half of 2017, GDP growth was

4.2% compared to the corresponding period of 2016. The main sectors of economic growth were agriculture (an increase of 3.1%), industry (7.8%), construction (5.9%), trade (2.4%) and transport (3.9%) %). The main factor of economic growth in 2017 will be the implementation of new initiatives of the Head of State, in particular: - the potential of traditional industries, which will be increased by deep-ening complex processing of raw materials, while industrial policy will focus on the development of competitive export industries in priority sectors; - the domestic agrarian sector, which is one of the priority sectors and which can quickly reach a wide range of production of environmentally friendly food products and meet high requirements for competitiveness in both domestic and foreign markets. For this purpose, the state program for the development of the agro-industrial complex has already been adopted and is being implemented - the private sector should become one of the main sources of econom-ic growth. To this end, measures will be taken to reduce all types of costs for the business front-on, the processes of rendering public services will be op-timized to the fullest extent possible, with their transfer to the electronic format. In addition, the key task is to restore the stimulating role of monetary policy, since after the transition to a freely floating tenge, the role of the coun-try's financial sector in ensuring economic growth has weakened. Along with this, the Government is working on a number of structural re-forms, in particular, the Plan of the Nation "100 concrete steps to implement 5 institutional reforms", the second five-year plan of the state program of in-dustrial and innovative development, the state program of housing construc-tion "Nurly zher" and stimulation of entrepreneurship.

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In general, according to our expectations, the above measures will have a positive impact on economic processes, ensuring higher GDP growth rates by the end of 2017 and in the medium-term perspective. the main drivers in Kazakhstan still remain pre-existing industries, but the rate is also on new technologies. How can the exhibition eXPo-2017 in Astana help in this matter? The international specialized exhibition "Astana EXPO-2017" is a platform for demonstrating the achievements of the technological capabilities of mankind. Kazakhstan had a unique chance to open a new page in the development of mankind - a new economy based on affordable safe energy and "green" technologies.

The holding of the international specialized exhibition EXPO-2017 in Astana is one of the key projects of Kazakhstan. The stake will also give a powerful impetus to systemic diversification of the economy and technological modernization of production capacities and the country's scientific base. The exhibition Energy of the Future sets specific goals - to study strategies, programs and technologies aimed at developing sustainable energy sources, increasing the reliability and efficiency of energy supply, stimulating the use of renewable energy sources and showing visitors the need for their active participation in development and implementation of a plan for energy-efficient production and efficient use of energy resources. The theme "Energy of the future" contains the richest potential for

Reference EXPO-2017: figures and facts According to Ranking.kz and open data KZT 565.1 bn. of Republic budget was spent during 5 years to prepare EXPO-2017. More than 1400 SME received orders for the amount of KZT 640 bn., 10 thousand people got jobs and decent salaries. Almost 4 million people attended the exhibition including 500 thousand foreign tourists from 187 countries. Scientists presented 153 inventions in the sphere of â&#x20AC;&#x153;Energy of the futureâ&#x20AC;? at the exhibition. 39 agreements were signed at EXPO-2017 in energy sector. The number of legal entities in Kazakhstan increased by 10%. The amount of taxes from service sector grew 1.2 times.

inno-vation. Today the exhibition demonstrates to the world an unprecedented volume of scientific ecological developments.

RSPP News

InteRnAtIonAL CooPeRAtIon tRenDS In eAeU www.рспп.рф

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Eurasian regional megaproject which involves the Union and other interested states and unions claims to be one of promising trends of further international cooperation development.

ALEXAN DER SH O KH IN President of Russian Union of Industrialists and Entrepreneurs

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THE RECENT REPORT OF EURASIAN ECONOMIC COMMISSION ON THE MAIN INTEGRATION TRENDS WITHIN EURASIAN ECONOMIC UNION POINTS OUT THAT ONE OF THE CURRENT GOALS OF THE UNION IS TO DETERMINE ITS PLACE IN THE WORLD ARCHITECTURE. THE qUESTION IS ABOUT EqUAL DIALOGUE AND WIDER ECONOMIC RELATIONS OF THE UNION WITH THE THIRD COUNTRIES AND KEY INTEGRATION UNIONS.

tronger position of EAEU in the world economic system is possible only with the development of integration potential or through establishing a stable inner competitive market. With such economic results the EAEU countries will become interesting for the participants of the world economic architecture. EAEU will become a driving power for multi-level integration model in Eurasia â&#x20AC;&#x201C; a large Eurasian partnership. Establishment of Eurasian regional megaproject with the Union and other countries and unions can be considered as one of upcoming trends of further international cooperation. Presidents of the EAEU countries have determined the following goals: - conjunction of projects of EAEU and Silk Road; - enhanced cooperation with China, India, Israel, Egypt, Iran, Cambodia, Singapore, Serbia, Mongolia, Peru, Chile, South Korea, Ecuador, EU, SCO, ASEAN, MERCOSUR; - relations between Eurasian Eco-

nomic Commission and European Commission. Russian Union of Industrialists and Entrepreneurs pays much attention to international cooperation both on bilateral and multilateral basis. We are active in B20, BRICS, business councils of SCO, APEC, ASEAN. China. In 2016 together with partners from EAEU and EEC we conducted a polling on barriers in foreign trade with China, business development with Chinese entrepreneurs and projects with partners from China. In spite of slower economy growth in China and weaker RMB rate against dollar and ruble Chinese commodities keep competitive price. The country stimulates domestic demand and at the same time seeks for new markets and presence on EAEU markets. Chinese share in Russian export is 8.2%, import â&#x20AC;&#x201C; 19.3%. China is promoting the idea of Overall Regional Economic Partnership between ASEAN and its key partners. It is important that the agreement EAEU-China becomes a basis for a series of agreements with

ASEAN countries. A large Eurasian partnership with EAEU and SCO countries is pending. Russian business polling revealed concerns about possible competitiveness with Chinese goods whereas there are clear advantages to be used effectively. Intermediate results of agreement preparation with China were estimated at the meeting of Consultative Board for cooperation between EEC and EAEU Business Council on December 20, 2016. Participants of the meeting discussed goals and purposes of the agreement, proposals of business and experts regarding wider access to the Chinese market and joint projects. They also examined the list of projects for investment and trade cooperation with China within the concept of Economic Belt Silk Road and EAEU conjunction. Minutes of the meeting include key problems and risks for business such as: - restrictions in Chinese legislation regarding agreements on road transportation with nonboarder countries; - enforcement of national quality standards, packing and marking

of imported goods; - complicated formal procedures; - lack of full information of regulating legislation on international trade in English (WTO requirements); - additional requirements of local authorities in Chinese regions.

Business of EAEU countries also made proposals regarding trade and economic relations with China which are stated in the minutes of the meeting. It is important to line up effective formats of cooperation between EAEU business society and EEC on China issues, to improve cooperation of businesses both on bilateral and multilateral basis. Such mechanism

was created in the form of Committee of Business Council of EAEU on trade and economic relations with China established in November 2016. In April this year Presidium of Business Council considered the participation of the Business Council and its Committee in preparing the substantial part of the Agreement on trade and

with Iran – 26 projects from 20 countries. The range of sectors is wide – from space research to family holidays and eco-tourism. EEC studied effectiveness of an agreement on free trade zone with Iran and found big potential for GDP growth in all Union countries (+$27m for Armenia, +$78.6m for Belarus,

economic relations between EAEU and China and recommended to the Committee to develop cooperation with preferable EAEU countries.

+$508.6m for Kazakhstan, +$12m for Kyrgyzstan, +$1.36bn for Russia). The agreement will be possible in a few years. On March 10, 2017 an expert session took place in EEC regarding “Prospects of establishment and functioning of free trade zone between EAEU and Iran”. The session included current trade and economic relations with

Iran. Business polling on relations between EAEU and Egypt, India, Iran and Korea revealed interest in different sectors and possibilities for cooperation. 27 companies presented 42 projects. Most of them are connected

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Iran and special issues of free trade zone, successful experience of entry into Iranian market and export barriers. Companies which took part in the RSPP polling pointed out the following barriers from Iranian side: Lack of information about the Iranian region, projects and markets

posals along with expensive Iranian ones; - Few experts in Iran.

India. As for India, its economy is the fastest-growing in the world. This will allow to enhance import from the Union. While the agree-

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Eurasian Economic Union is interested in a complex agreement with the EU covering a wider range of issues than just free trade zone.

of Iran, difficult partners in Iran; - Long and complicated registration of producers in ministries and departments; - Lack of support mechanism for Russian code certificates; - Complicated Letter of Credit process with Iran (more than 30 days); - Weak overseas container system, lack of competitive pro-

ment with China has a non-preferable character, India will be considered as a party to free trade zone agreement. Business community will take part in negotiations on agreement. This will allow to line up an effective model of cooperation as in Chinese case. egypt. Egypt is an old trade partner of EAEU. In case of an agreement export

from EAEU might increase by 14.5%, import from Egypt – by 34%. european Union EU is very important for foreign trade of EAEU. In October 2015 EEC prepared a note “Eurasian Economic Union – European Union: cooperation frames”. Its aim is to converge integration processes in Euro-Atlantic area and Eurasia and to facilitate sustainable development of mutually beneficial cooperation between EAEU and EU. EAEU and EU have all possibilities for active cooperation considering that political disputes and sanctions haven’t set back business cooperation. Munich Institute of Economic Research last year estimated possible effect of free trade zone between EU and EAEU. The research was ordered by Bertelsmann Fund which represents business interests of Germany. The document underlines positive influence of such agreement on trade, 30% export growth is expected from Russia to EU and 60% - from EU to EAEU. This will lead to increase of real profit in Eastern Europe by 1.21.8%. The fact of such research means that German companies are interested in cooperation with EAEU countries, and the crisis reduces their profits. EU is the largest partner of EAEU: it accounts for 51% of aggregated export and 41% of aggregated import. EAEU in its turn is the third largest trade partner of EU trailing USA and China. Russian investments account for 62% of FDI in EU, and 90% of Kazakh FDI are in Eurasia countries. In its turn German, Dutch, Austrian, French, Scandinavian capitals are gathered in Russia and its EAEU partners. Considering that more than a hundred working areas of EAEU, including custom tariff and single customs territory, are implemented at the supranational level there should be negotiations and settlements between Eurasian and European Unions. However the Europeans do not acknowledge EAEU and EU as equal partners. Brussels prefers to cooperate with each EAEU country separately on bilateral basis. Trade and investment relations with EU are of key importance for

EAEU. Core elements of the pending agreement (set of agreements) are: - The whole EAEU is a party to the agreement; - Basic dialogue is conducted on a supranational level between European Commission and Eurasian Economic Commission; - EAEU is interested in a complex agreement with EU including a wider range of issues besides a standard free trade zone. A â&#x20AC;&#x153;narrowedâ&#x20AC;? free trade zone is not advantageous neither to Russia, nor to Kazakhstan, because they mostly export raw materials. Once the markets are open agriculture and car industry of EAEU may suffer; - Set of agreements should cover many sectors: from trade to free

capital flows and free labor force movement, cross-border and transit infrastructure, mutual recognition of technical standards, etc. Cooperation with eeC. On March 29, 2017 in the Russian Union of Industrialists and Entrepreneurs the extended meeting of Integration Council of RSPP was held which covered issues of cooperation between EEC and business society on trade policy and agreement net on free trade. World financial and economic crisis 2008-2009 influenced the growth rate of turnover and lead to stronger protection in trade and investment policy. In 2015 growth rates declined almost by 13%. In this regard the obligation of G20 to control protection became

one of the most important international incentives in this sphere. G20 leaders pledged to refrain from protection measures and to support abolition of trade and investment restrictions at the summit which was held on November 15, 2008 in Washington. However the number of restrictions grows. With value chains being the driving force of world trade new barriers become a serious risk factor. Non-tariff measures, technical standards and requirements, administrative restrictions regarding customs are the main barriers for value chains. Non-tariff measures influence much worse than tariffs. According to OECD potential effect of lower price in value chains among all measures on trade facilitation will be 15% for low-income countries, 13-16% for medium-income

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REFERENCE Russian Union of Industrialists and Entrepreneurs (RSPP) RSPP represents the interests of all Russian businesses both in Russia and on international level. The Union acts in two forms – as a non-governmental organization and all-Russian association of employers. RSPP today brings together more than 100 sectoral and regional associations in key economic areas: fuel and energy, engineering, investment and banking sector, military-industrial complex, construction, chemical production, light and food industry, services. RSPP unites thousands of largest Russian companies which represent industry, science, finance and commercial organizations in all regions of Russia. RSPP regularly conducts practical work including conferences on key issues on high governmental level with the participation of Russian and foreign businesses and regional governments. These forums result in governmental decisions regarding business in Russia.

countries and 10% for OACD countries In international experience one of the most eﬀective measures to integrate national companies into regional and global value chains is regional agreements on further trade facilitation. However multilateral trade agreements are often of regional or bilateral character and threaten integrity of international trade system and degrade general trade regime under the auspices of WTO. Similar trends can be seen in investment sector. There are still many barriers in our countries like in many other emerging countries. FDI Regulatory Restrictiveness Index was created in OECD to show it. Average Index for OECD countries is 0.067, for G20 countries – 0.087, in Russia the Index is 0.181, in EAEU countries (Russia, Kazakhstan, Kyrgyzstan) – 0.133. FDI restriction is an important but not the only factor of investment attractiveness of a country. For example China with one of the highest FDI Regulatory Restrictiveness Index (0.386) is one of the most attractive jurisdictions for investment. However our main task is to ensure that new agreements of EAEU

with the third countries decrease barriers for trade and investment, create conditions for integration of our companies into cross-border value chains and for new regional value chains with EAEU companies as main bodies. More countries stimulate trade and development cooperation via trade agreements, encircle production chains within mega-regional blocks. Integration becomes more complicated, accents shift from commodities to services, investment, knowledge and technologies. With regard to recent events we don’t hear any more the idea of single economic area from Lisbon to Vladivostok which appeared in 2003. Nevertheless it was strategically correspondent to current integration processes in Eurasia. And notwithstanding the deficit of political dialogue business still raises questions about local but important changes in technical regulation, customs control and other regulations on the way to this common goal. All EAEU businesses seek for solutions on agreements and cooperation formats. RSPP experience in WTO settlements can be useful.

Founder’s Page. FBA EAC

What’s the diﬀerence between a progressing company and a declared one? Obviously it’s the real results of its work.

InItIAtIVe In USe JoIn PRoJeCt: eLeCtRonIC eXCHAnGe tRADe In August at the International Forum “Eurasian Week” in Astana FBA EAC signed cooperation agreements with First International Energy Corporation S.A. (Singapore) and Tai Cloud Corporation Beijing (China) on introduction of electronic exchange system based on block chain technology.

The Supervisory Board supported the decision of the EAEU Business Council Presidium regarding the establishment of Eurasian Electronic Commodity Exchange Silk Road and suggested to implement the project on the basis of UCEX (Astana, Kazakhstan). The idea was also approved by the participants of the International Forum “Eurasian Week” in Astana.

IMPoRtAnt MeetInG ARMenIA AnD BeLARUS: toGetHeR AGAIn New members of FBA EAC are the Association of Belarusian Banks and the Union of Banks of Armenia.

At the business meeting in June 2017 in the Ministry of National Economy of the Republic of Kazakhstan Oleg Berezovoy, General Director of FBA EAC reported to Timur Suleimenov, Minister of National Economy of the Republic of Kazakhstan and also the Member of the FBA EAC Supervisory Board, about the activity of the Association and the upcoming events.

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tHe RoUnD tABLe «FUtURe oF tHe eAeU In tHe eU»

The Round Table “Future of the Eurasian Economic Union in the EU” was held in April, 2017 in Berlin. The Round Table was organized by the International Economic Senate (IWS) and the Financial & Banking Association of Euro-Asian Cooperation with support of the Russian Union of Industrialists and Entrepreneurs and the Eurasian Economic Commission. The participants represented diﬀerent sectors of industry: ecological technologies and equipment, metal mining, energy infrastructure, measuring equipment for oil and gas industry and petro-chemistry. The participants underlined that it was essential to further develop cooperation between the EAEU and the EU.

FBA eAC: eXPAnSIon

ASSIStAnCe to BAnKeRS

The activity of FBA EAC is expanding. In June and July this year Association’s delegation attended the Republic of Mongolia and the Republic of Cote d’Ivoire. Following the business trips it was decided to open representative oﬃces in these countries.

In October a branch of FBA EAC Center for qualification Assessment in financial and banking professions was established on the basis of the Russian-Armenian (Slavic) University in Erevan.

Expert Opinion

UnIteD We StAnD www.рспп.рф

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To develop payment systems of the Union states it is necessary to widen areas of national currencies up to EAEU scale, to create infrastructure of common payment area. This will allow to converge national payment cards systems.

ALEXAN DER M URYC H E V Chairman of Editorial Board of the Eurasian Financial & Business Herald. Chairman of Coordinating Council of Financial and Banking Association of Euro-Asian Cooperation (FBA EAC). Executive Vice-President of RSPP. Chairman of International Coordination Council of banking associations in the CIS, CEE (IBC). Chairman of the Council on Professional Qualifications of Financial Market. Member of Presidium of the Council of International Congress of Industrialists and Entrepreneurs. President of Integration Council of RSPP on cooperation with EEC. Doctor of Economics, PhD in History, Professor at Higher School of Economics. Author of more than 280 articles and 5 monographs on banking, monetary and investment issues.

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24-26 AUGUST

EXPO 2017 Astana Kazakhstan

EURASIAN ECONOMIC UNION IS THE WORLD’S SECOND MOST INTEGRATED UNION AFTER EU WITH SIMILAR INSTITUTES AND APPROACHES TO DECISION MAKING. HERE ARE SOME EXTRACTS FROM THE SPEECH OF MR. MURYCHEV AT THE “ROUND TALE” OF INTERNATIONAL FORUM “EURASIAN WEEK. DEVELOPMENT OF SINGLE FINANCIAL MARKET IN EAEU: ADVANTAGES AND CHALLENGES FOR COUNTRY-MEMBERS WHICH TOOK PLACE ON AUGUST 25, 2017 IN ASTANA, KAzAKHSTAN.

By the year 2025 eAeU countries are aiming to create single financial market. К 2025 году страны — участницы ЕАЭС намерены создать единый финансовый рынок. EAEU economies have low degree of saturation with money and loans. Lack of investment and financial resources restrain sustainable economic growth of the Union countries. That is why single financial market is necessary. According to the Agreement on Eurasian Economic Union a single market means: - Harmonized requirements to regulation and control in financial markets sector of member states;

- Mutual recognition of licenses in banking and insurance sectors as well as in securities market if they are issued by authorized bodies of one of member states on the territory of other member states; - Providing financial services on the territory of the whole Union without establishing additional legal entity; - Cooperation between authorized bodies of member states including information exchange. The issue is about creation in EAEU countries of common rules regarding insurance, banking and exchange sectors. It is about harmonization of legislation in the Union countries and as a result creation of

REFERENCE International Forum «Eurasian Week» – 2017 On August 24-26, 2017 Astana (Kazakhstan) hosted annual International Forum “Eurasian Week” held by Eurasian Economic Commission within the framework of EXPO-2017. Eurasian Week is a large annual business event to support economy, investment and export potential of EAEU. The Forum is conducted by the EEC and EAEU countries. The Forum aims to become and effective dialogue platform for B2B contacts, for discussion of business instruments and conditions in EAEU and joint work on EAEU development strategy. The Eurasian Week covered issues of competitive goods and their release to the market with regards of dynamic technologies, production and logistic technologies, requirements to the goods. Export-oriented companies from five countries of EAEU were presented at the Forum, which allowed them to establish new business contacts and arrange meeting with EAEU partners and with third countries.

A.Murychev and Forum participants – FBA EAC General Director O. Berezovoy and UCEX Chairman A.Uzkih

advantageous conditions for people and business which means sustainable economic growth. However exact sequence of steps towards single financial market in not specified in the Agreement. On November 30, 2016 a meeting of EEC Council was held at the level of vice-prime-ministers of the EAEU countries. They approved a draft instruction of Supreme Eurasian Economic Council “On the Concept of EAEU single financial market establishment”. It should specify supra-national regulations to be worked out, national documents to be harmonized, and steps to be taken regarding common and single financial infrastructure. Nevertheless practical work is conducted since the establishment of EEC in 2012 - a single supra-national regulating body of the Customs Union and Single economic area, and then Eurasian Economic Union. On August 9, 2016 EEC Council approve the draft Agreement on ap-

proaches to regulation of monetary legal relations and liberalization in the EAEU countries. Agreement is aimed at free flow of capital and money, single financial market in member states. The document determines a list of monetary operations in member states which will not be subjects to restrictions in the Union, for example: - Settlements between EAEU residents for goods, services and real estate; - Securities Exchange business; - Money transfers of individuals within customs territory of the Union. The agreement will allow individuals and legal entities to open accounts in all banks of any Union country on the non-discriminating basis. In practice requirements to residents and non-residents in EAEU countries are different. There are still restrictions for account opening by a resident of one country in a bank of

another EAEU country. The Agreement will ensure equal approach for all citizens and entities of the Union. Another important aspect for the single financial market is a single exchange area. For its development the Commission has worked out an Agreement on access for brokers and dealers of one Union member state to exchanges of other member states. The document provides for access without additional registry (license) of brokers and dealers to national stocks of the EAEU countries. The draft Agreement was approved by the EEC Board and sent for interstate approval. Unlike Customs Union and Single Economic Area the Agreement on EAEU provides for mechanism of cooperation between authorized bodies of member states regarding regulation and control on their financial markets. Member states of the Union have agreed to create a supra-national body of regulation on financial mar-

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ket located in Almaty by 2025 once national legislation is harmonized. There are two stages of establishment of single financial market: First stage: harmonization of national legislation in financial sphere. It is necessary to determine prudential requirements in banking, insurance and securities sectors, and then to create equal requirements on financial market. Second stage: development of legal base and work out of common technologies and procedures of control on financial market. Mutual recognition of licenses. Legal entity or individual with a license of one country can work on the whole EAEU territory. Common monetary policy is also important, as well free flow of capital

in foreign trade and investment operations, mutual convertibility of currencies. Coordinated exchange rate policy is important with regard to absence of custom tariffs and non-tariff barriers and common customs territory of EAEU with the aim to coordinate competitiveness of goods and services. Unlike the EU there is no decision on single currency in the EAEU. Currency is a set of policies including tax, budgetary, monetary, industrial, trade and social. These politics help the government to reach its goals. In trade policy EEC has allied competence, in industrial policy – mixed ones. Technical policy is also under allied competence. But monetary, tax and budgetary policies are

within the competence of each EAEU member state, and they are not ready to share it yet. Differences in economies of EAEU don’t allow to speak about single currency yet. And the situation is unlikely to change. Turnover between EAEU countries is much smaller than with the third countries. There is weak flow of goods, services, capital, and investment within the Union. And there is still no economic background for single currency in EAEU member states. In these circumstances integrated currency market is an important element of single financial market of EAEU. Business and experts today acknowledge that it is necessary to use national currencies more often in the

A.Murychev – Presidium Member of the International Forum “Eurasian Week. Development of EAEU single financial market: advantages and challenges for member-states”, August 25, 2017, Astana

Congress-Center EXPO

Union inner trade. Besides they point out that such possibility is included in bilateral and multilateral agreements between EAEU member states. More over legal acts of EAEU don’t restrict settlements in national currencies between EAEU countries. RSPP, Russian business are involved in establishment of a single financial market and the work of special Consulting committees, expert and working groups of Eurasian Economic Commission. During preparation of the meeting of Integration Council of RSPP on cooperation with EEC regarding national currency usage in the EAEU we conducted a polling within RSPP members and discussed this problem at the meeting with relevant departments of EEC. Polling was conducted among 71 companies of large (56%), medium (14%) and small (30%) business. More than a half are from industrial sectors, 39% work on the markets of EAEU and a little more than 14% carry out settlement and exchange

transactions in national currencies of EAEU.

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The growth of EAEU economies, Russia first of all, and the growth of their share in the world trade will lead to changes in the structure of assets allocation, savings, investment and payments in national currencies. As a possible result it can lead to stronger globalization of EAEU currencies, their implementation in settlements, the development of payment instruments and refinancing operations in national EAEU currencies.

There are three main forms of financial deals with EAEU countries: trade deals servicing (more than 60%); money transfer (more than 30%) and interbank transactions (less than 14%). Main barriers for national currencies are weak market of payment services, differences in currency regulations, flat exchange rates and high volatility of national currencies’ rates. In addition one should mention that: - EU is the main trade partner of EAEU countries (more than 50% of total export); - Total import to EAEU countries from APEC amounts to 42,3% and from EU – 40%;

- China’s share in total export of EAEU countries is 28,7%, in import – 41,2%. Participants of foreign trade are not eager to use national currency. Leaders are still the US Dollar and up-and-coming RMB.

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Most payments between EAEU countries are made in Rubles (in 2015 – 71%, in 2016 – 75%). Share of currencies of other Union members is less than 1%, the rest is taken by US Dollars and Euro. The main measures to enhance transactions in national currencies are the development of payment instruments, liberalization of currency regulations and cooperation of financial regulators of the Union countries. Better payment instruments and elimination of some barriers could improve the situation. However the main factors of choosing the currency are low financial risks, low transaction costs, tax and non-tax obligations. Payments in national currencies are also hindered by macroeconomic turmoil. Such turmoil in Russia in 2015 lead to lower exchange rates, less money transfers, weaker trade in EAEU and higher inflation. All the Union countries faced negative growth rates: Belarus – 3.9%; Kazakhstan – 1.2%; Armenia – 3.0%; Kyrgyzstan – 3.5%. All these countries preferred trading with Russia than with other EAEU partners.

Besides the speed of transactions is equal to traditional; clearing and currency pairs principle reduce conversion costs significantly; legitimacy of exchange transactions is guaranteed by the law of the Republic of Kazakhstan; the amount of trades is ensured by currency assets of bankspartners of the exchange: “Centercredit”, Interstate Bank, IBEC. Exchange-traded contracts are recognized by customs bodies. The main problem is the position of national regulators related to money laundering, terrorism financing and capital export. The growth of EAEU economies, Russia first of all, and the growth of their share in the world trade will lead to changes in the structure of assets allocation, savings, investment and payments in national currencies. As a possible result it can lead to stronger globalization of EAEU currencies, their implementation in settlements, the development of payment instruments and refinancing operations in national EAEU currencies.

Business is also involved in the development of national currencies usage. For example the Financial and Banking Association of Euro-Asian Cooperation via its Universal Commodity Exchange in Astana implements the program of multi-currency clearing system of payments on its exchange platform. In stock deals 6 currencies are used: Ruble, RMB, Tenge, Somani, US Dollar and Euro. The seller can denominate its commodities in any of these currencies. The exchange has a multi-currency account. When it receives payment from a buyer in one of the currencies, it converts the amount into the currency of the seller. After the conversion the money is credited to the sub-account of the seller and can be taken after all obligations of the exchange-traded contract are satisfied.

Common retail payment area in EAEU is very important for the Russian business. RSPP initiated this issue for discussion at the meeting of Presidium of the Business Council of EAEU in May 2016 in Astana. EAEU economies are very different in key figures. For example cash share in money quantity (M0/M1) is floating from 14.4% to 47.3%. The largest share of cash is in Armenia (47.3%), Kyrgyzstan (37.1%) and Russia (20.2%). Differences in economic development of the countries of the region is one of the main problems. Disparity of GDP per capita continues to grow. In Russia, Kazakhstan and Belarus figures of GDP per capita are close ($7-9.6K), but Kyrgyzstan and Armenia fall behind significantly ($1.3-3.6K).

Single retail payment area

EAEU countries remain the main destinations of money transfers from Russia. Annual amount is $2-2.5 m: Armenia – 31%, Belarus – 6%, Kazakhstan – 14%, Kyrgyzstan – 49%. Money transfers of individuals form EAEU countries to Russia is half as much. To develop payment systems of the Union states it is necessary to widen areas of national currencies up to EAEU scale, to create infrastructure of common payment area. This will allow to converge national payment cards systems including MIR, BELCARD (Belarus) and Armenian Card (Armenia). Eurasian Economic Commission presented a Report on the main trends of integration in EAEU. The Report was discussed on June 29, 2017 at a special meeting of Integration Council of RSPP with participation of Member of the Board (Minister) on the Main Areas of Integration and Macroeconomics of EEC Tatyana Valovaya, responsible experts of EEC, representatives of business of Russia, experts and members of commissions and committees of RSPP. The aim of the report is to analyze the current integration processes of EAEU in the dynamic world, and to point out issues which influence further development and effectiveness of Eurasian integration. The Report underlines the breach of time limits of the EAEU Agreement. Moreover the delay can be seen in those issues which have been largely discussed. Besides it is time to look at new pending problems which are very important for EAEU economies such as financial markets. The Report stresses that in some sectors the level of integration is not high enough. For example in macroeconomics, currency and financial sector. It lacks mechanisms for macroeconomic stability, intense settlements in national currencies, improved mechanisms and instruments of financing regional financial institutes.

EEC TODAY AND TOMORROW

FInAnCIAL InteGRAtIon oF tHe eAeU MeMBeR StAteS tHe FUtURe oF tHe SInGLe FInAnCIAL MARKet In tHe eURASIA eConoMIC UnIon

www.eurasiancommission.org

“

Eurasian integration is a dynamic project.

TIMUR Z H AKSY LYKO V Born on September 17, 1968. In 1993 he graduated from MSU. In 1997 he graduated from the Institute of Political Research in France with master’s degree in European Researches. In 2003 he also graduated from the Kazakh Institute of Economy and Finance with a degree in economics. In 2009 he was appointed a Vice-President of Industry and Trade of the Republic of Kazakhstan, member of the board in SEC SARYARKA. In 2010 - Chairman of Committee on Investment in the Ministry of Industry and New Technologies of the Republic of Kazakhstan, Chairman of the Board in JSC “Investment Fund of Kazakhstan”. In 2012 he was appointed a Vice-Minister of Economy and Trade of the Republic of Kazakhstan. In 2014 – a Vice-Minister of National Economy of the Republic of Kazakhstan. Since April 14, 2017 he is a Member of the Board – Minister in charge of Economy and Financial Policy of the Eurasian Economic Commission.

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ON MAY 29, 2014 THE PRESIDENTS OF BELARUS, KAzAKHSTAN AND RUSSIA SIGNED THE TREATY ON THE EURASIAN ECONOMIC UNION. ACCORDING TO THE TREATY THE GOALS OF THE UNION ARE: TO CREATE CONDITIONS FOR SUSTAINABLE DEVELOPMENT OF MEMBERSTATES IN FAVOR OF LIVING STANDARDS OF THEIR CITIzENS; TO FORM A SINGLE MARKET OF GOODS, SERVICES, CAPITAL AND LABOR RESOURCES WITHIN THE UNION; TO SUPPORT OVERALL MODERNIzATION, COOPERATION AND COMPETITIVENESS OF NATIONAL ECONOMIES IN THE FRAMEWORKS OF GLOBAL ECONOMY” . THE TREATY ON THE EURASIAN ECONOMIC UNION (EAEU) CAME INTO FORCE ON JANUARY 1, 2015. *

The Treaty on the Eurasian Economic Union, p. 7.

urasian Economic Union allows its members to meet global economic challenges, to develop dynamically with regards of turmoil in the world economy. Today our countries show sustainable development of economy, foreign and domestic trade. With the improved mechanism of integration in the Union its member-states manage to avoid negative trends of slowdown in their social and economic development. For example in the first six months of 2017 the rate of economic growth in EAEU amounted to1.8% (correspondingly in Armenia – 5.9%, in Belarus – 1%, in Kazakhstan – 4.2%, in Kyrgyzstan – 6.4%, in Russia – 1.5%). During seven months of this year in comparison to seven months of the previous year industry in the Union countries grew by 2.6% (correspondingly in Armenia – by12.7%, in Belarus – by 6%, in Kazakhstan – by 7.7%, in Kyrgyzstan – by 32.9%, in Russia – by 1.9%). Amounts of foreign and mutual trade of the Union also grow. During

the first half of this year in comparison to the same period last year the volume of foreign trade grew by 27.8%. The volume of mutual trade grew by 27% correspondingly. Our countries have significant success in integration. A broad market of goods and services has been established. Single labor market was launched on January 1, 2015. Today we are working hard to create a single financial market within the Union. Eurasian Economic Union has succeeded as a full-fledged integration association. Today other tasks are on the agenda: development of investment cooperation in the Union, support of free capital movement, work-out of financial and economic mechanisms for dynamic progress and better competitiveness in our countries. That is why stronger integration and single market of financial services in the EAEU gain importance. The Treaty on the Eurasian Economic Union sets legal basis for financial interaction of our countries. In particular the Treaty includes a section “Regulation of financial markets” and a Protocol on financial

services. The Treaty includes a clear notion of what a “single financial market” is with the following criteria: •

•

Harmonized requirements to regulation and control of financial markets in EAEU; Mutual recognition of licenses in the banking, insurance and

REFERENCE Eurasian Economic Commission (EEC) A regular supra-national body of the Eurasian Economic Union. Launched on February 2, 2012. Members of the EEC are Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. Decisions of the EEC are obligatory in the Union countries. Chairman of the Board – Tigran Sargsyan. The Union ensures free movement of goods, services, capital and labor force, conduct of coordinated and common policy in different sectors of economy. The goal of the Union is to create conditions for sustainable development of economies in its member-states in favor of living standards of its citizens, as well as overall modernization, cooperation and competitiveness.

•

securities sectors, issued by authorized bodies of one state, in other states of the Union; Delivery of financial services on the whole territory of the Union without establishing an additional legal entity; Administrative cooperation between authorized bodies of member-states including information exchange.

“

The Plan of Harmonization will ensure free access to capital, raise competitiveness, reduce financing rates for producers. It will enhance investment cooperation of our countries and become an additional factor of economic growth in the EAEU countries.

Within the Treaty on EAEU we work hard on legal framework for free movement of capital in the Union. Obviously single financial market demands both: harmonized legislation and administrative cooperation of regulators. In this regard at the end of 2014 the Agreement of financial information exchange, including confidential, was signed and entered into force on October 21, 2016. Its implementation will allow the regulators to exchange data about financial organizations, including supervision data, which contains confidential information. This will develop free

capital movement and financial integration of our countries. The draft Agreement on harmonization of legislation of EAEU member-states in financial markets sector is also of crucial importance. The draft Agreement determines the rules of legislation balance in the EAEU countries on financial markets. While changing the requirements to financial markets in member-states one should ensure that they don’t impede effective work of a single financial market. In fact the document is a “road map” on how to balance rules and requirements of national legislation in the Union member-states in financial sector. The draft Agreement is approved by the EEC Council and sent to member-states for national approval and signing. The draft Agreement provides for a Plan of harmonization of legislation in the EAEU member-states in financial sector. The Plan provides for work-out of coordinated requirements to the financial market participants with regards to their establishment and activity; possibilities for mutual recognition of licenses; balance of supervision requirements and approaches to risk management on the basis of international standards; harmonization of rules on consumer rights protection in financial sector. In the process of legislation balancing the Parties are supposed to obey international standards of major financial institutes (Basel Committee on banking supervision, International Association of Insurance Supervisors, International Organization of Securities Commissions, etc.). The Plan has been considered at the meetings of working groups and approved by the Consultative Committee on Financial Markets. This document will ensure free access to capital, raise competitiveness, reduce financing rates for producers. It will enhance investment cooperation of our countries and become an additional factor of economic growth in the EAEU countries. According to the Treaty on the EAEU the single market is supposed to be launched in 2025. However today key segments are already being

worked out by EEC and the EAEU member-states. The Supreme Eurasian Economic Council decided to work out together with governments, national banks and EEC a Concept of single financial market in EAEU. The document should include goals, principles, tasks, expected results and main trends of the single financial market. The document is also supposed to determine the rules of control in the single financial market, supervision mechanism, mutual access and single exchange area. Beside the Concept should describe a supra-national body of control and administrative cooperation in the single market. One of important tasks of the single financial market and free movement of capital is to create a single exchange area, including monetary, securities and derivatives market. The single exchange area is an essential element of the Concept of single financial market, and a self-sustaining project at the same time. In order to launch it we are preparing a Road Map of Single Exchange Area. This project includes the following blocks: • Mutual access of brokers (dealers); • Mutual recognition of securities and other financial instruments issues in EAEU and their listing; • Integrated system of data disclosure on the stock exchange of EAEU and coordinated requirements to information formats and transfer channels; • Settlement and depositary center in the single exchange area. The single exchange area will allow the Union to become one of the key elements in the world financial market and to ensure world finance inflows into their economies. As a starting element we suggest an Agreement of access for brokers and dealers from one EAEU memberstate to the exchanges (market makers) of other member-states. The draft Agreement provides for access without additional registration (licensing). This practice will entitle national exchanges to recognize the licenses of brokers and dealers,

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issued by an authorized body of the EAEU member-state and will ensure them direct participation in securities and derivatives bidding. The single exchange area will create a basis for free capital movement, cross-listing on stock exchanges, cross-border transactions. This will become an important factor of more active investment cooperation. The work on a draft Agreement on exchange of credit records between the EAEU member-states is in progress. This Agreement will contribute to cross-border financing within the Union and is aimed at facilitation of financing process when applying in other countries of the Union. There is also a draft agreement aimed at coordinated approaches to the control of currency legal relationship and measures of its liberalization. Once the document comes into force residents of one EAEU member-state will be able to open accounts in foreign and national cur-

rencies and make transactions in the banks of other Union member-states. The document provides for equal conditions of cross-border business in EAEU. Draft Agreement on audit activity in EAEU appeared in 2016. The document assumes the rights for delivery and receiving of audit services in the Union on an unrestricted basis, recognition of qualifications of audit organizations from one EAEU member-state by the others. This Agreement will develop a single market of audit services. With that said our countries take practical measures to develop financial integration, create favorable conditions for free capital movement, facilitate investment cooperation within the Union, form a single financial market. As for time limits, we are supposed to end the process of harmonization by 2025, and to establish a supra-national control body. No doubt that from this point on a new

â&#x20AC;&#x153;

Single financial market in the EAEU will become an important factor of sustainable economic development in our countries and raise their competitiveness.

stage of single market will begin, on a supra-national level. The result of integration of financial markets is economic profits, economic potential growth without inflation increase. In general financial integration will contribute to market strength due to their larger volumes and liquidity. Single financial market in the EAEU will become an important factor of sustainable economic development in our countries and raise their competitiveness.

Heads of governments of eAeU member-states at the Meeting of eurasian Intergovernmental Council. Kazan, the Republic of Tatarstan, May 26, 2017.

BANK. BANK. BANK

oLeG SMoLYAKoV:

«oUR GoAL IS to ReCoVeR tHe BAnKInG SYSteM»

www.nationalbank.kz

“

Each bank claiming for the governmental funds must submit a plan aimed at financial stability

OLEG SMOLYAKO V Deputy Governor of the National Bank of the Republic of Kazakhstan. Native of Almaty, born 31.07.1975. Graduated from the Kazakh State Academy of Management with a degree in economics, the National Institute of Political Research in Japan. Has a master degree in state politics and master degree in finance and economics (Warwick University, GB). He is a co-Chairman of the Regional Consulting Group in the Council of financial stability within CIS, co-Chairman of sub-commission on interbank and investment cooperation between Kazakhstan and Russia.

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THE PROGRAM ON FINANCIAL STABILITY OF THE BANKING SECTOR HAS BEEN APPROVED BY THE BOARD OF THE NATIONAL BANK OF THE REPUBLIC OF KAzAKHSTAN. THE PROGRAM IS INTENDED TO SOLVE ACCUMULATED PROBLEMS OF THE BANKING SYSTEM, TO IMPROVE THE LOAN PORTFOLIO, TO REVIVE FINANCING, TO UPGRADE RISK MANAGEMENT IN FINANCIAL INSTITUTES. WE DISCUSSED THESE ISSUES WITH OLEG SMOLYAKOV, DEPUTY GOVERNOR OF THE NATIONAL BANK.

r. Smolyakov, why was this Program necessary? Many problems of the banking system originate in the past years. Despite all the attempts to solve them the situation mainly remained the same. In the recent year we have started to change some approaches to supervision of banks. We had a task from our Head of the state concerning the recovery of the banking sector. However we realized that if we want to revive financing, for example, we need to solve old problems, to find solutions which would enable us to move beyond. In fact we had to stop veiling the problems. Moreover stipulating new loans is impossible without realizing the true picture of the loan portfolio quality and without its provisioning. In its turn provisioning needs additional funds. And this became the benchmark for the Program on financial stability. With regards to the problems we had to solve the Program was separated into blocks: the core bank – Kazkommertsbank, a group of large banks, the regulatory and supervisory block. The last block is supposed to solve old problem with the

help of supervisory and regulatory instruments, and to provide for financing buildup. one of the main problems in the banking sector is a large number of non-performing loans. Besides part of these loans are categorized as restructured loans and are not re-

flected as non-performing in the balance sheets. Is that true? You can’t say that restructuring of loans is always aimed at veiling the problems. Sometimes restructuring really improves borrower’s financial condition and in future turns the loan into a performing one. But it’s obvious that a bank doesn’t receive

any cashflow from those loans which are restructured and are not categorized as non-performing while if fact they are. It becomes clear when one compares interest accrued and practically received. For example interest is accrued on a loan but it’s not received by a bank because the loan has been restructured. As a result we have “accounting earnings” without real cashflow. So our task is to persuade the banks to record all possible risks on their books, including nonperforming loans, and to provision the loan portfolio appropriately. What is the official statistics of non-performing loans in banks’ total loan portfolio and which share of them is in the sidelines? If we speak about non-performing loans overdue by more than 90 days, their share is about 11% in total loan portfolio. And we know that the share of restructured loans is about 15%. As I have already mentioned non all restructured loans are nonperforming, but their quality is in question. So we have de-

cided on a stiff approach to provisioning. It is known that before starting this stiff approach to provisioning the national Bank was planning to conduct a complex asset quality rating in banks. How is this work going on? First of all I would like to clarify: today our banks work according to IFRS, which gives some space for subjective facilitation when rating asset quality. Each bank is independent in following this approach, and as a result we have a wide variety of provisioning. That is why a common methodology is necessary for asset quality rating in banks. As for the assessment itself, there are two approaches in the USA and Europe. Some Central Banks contact the assessment themselves, and sometimes an external auditor is hired. Why is this important? It provides for a sober estimate of a portfolio. And given this we can advise a bank to create some potential risk provisioning according to its portfolio performance. This risk is nor realized yet but it might “pop up” in future. This is how it works across the West. We began to study this practice and at first wanted to stick strictly to the European approach. But then we estimated our mandates according to appli-

cable law and realized that we only have the right for inspections. According to legislation we don’t have the right to require from banks any regulatory deduction or regulatory provisioning. Our mandate doesn’t allow us to require from a bank capitalization increase either. Besides there comes the problem of disclosure. In the Western world the results of inspections are public with the aim to protect investors’ rights. Without these basic elements we would find ourselves in the dead end. Banks were also against classical rating. So we changed the approach a little: aiming at a common methodology we worked out the rules of capital adjustment based on the principle which is also used in the independent asset quality rating. In other words we adjusted the methodology to our situation, possibilities and market. Moreover we practically included it in our supervision practice instead of making it just a part of a single research. This means banks will be obliged to assess their capital adequacy not only in accordance with IFRS but also with regards to our regulatory approach. And once these regulatory provisioning is registered in the Ministry of Justice and comes into force we start to check how the banks follow this methodology. On the other hand the financial part of the Program includes possibility for shareholders of a bank to receive funds from us if they also par-

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ticipate in bank’s capitalization. We started practical implementation of the program from the block of the core bank – Kazkommertsbank. One of the basic terms of the deal was an independent audit of its financial condition. Besides we conducted the audit simultaneously with the potential purchaser Halyk Bank aiming at a consolidated result. This is an example of assets quality due diligence. Thus we have started our inspections from the core financial institutes and proceed with the rest of the banks. In your opinion what would the result be in case of a decision not to support Kazkommertsbank? In no country, none of core banks can become a subject to complete bankruptcy. We had to take into account that Kaskommertsbank had retail deposits for the amount of a trillion KzT, around 1,5 trillion KzT from different quasi-public companies and the Accumulated Pension Fund, around KzT 400 bn. of liabilities to non-residents and other legal entities. Total assets of qazkom amounted to KzT 4 tn. There were several options: the first one – bankruptcy. But this meant losing all liabilities of Kaskommertsbank to economy. The whole economy would suffer, not just banking sector, but also quasi-public companies, individuals and legal entities. Second option – temporary adminis-

“

tration, but this would lead to depositor outflow and liquidity supEach bank has to create some potential port for the amount of several trillion KzT. risk provisioning according to its portfoThird option – the one lio performance. we don’t even have in our legislation but which is popular in the world practice. The bailin. When borrowers are forced to become shareholders after restructuring. However portfolio of qazkom was mainly reour legislation doesn’t allow a forced lated to the BTA Bank, and some bail-in. and besides this meant to distroubles were its own. As we rememseminate the losses for the whole ber in 2015 part of bad assets was economy. passed to the BTA Bank. However There was another option – naqazkom had a loan issued to BTA. So tionalization. But this meant that the any work on this bad asset influstate would be obliged to equity inenced its repayment to Kazkom. Still jections and liquidity support plus cashflows were not enough and this all covenants would come into force. loan was in fact non-performing. So Many agreements including with it was decided to detach part of the non-residents contain the so called bad portfolio related to BTA Bank covenants or conditions under which and sell it to the Troubled Loans you have the right for anticipated reFund. Then it was decided to conpayment. One of such conditions is duct an audit and reveal the real sitnationalization. Practically the govuation suitable for investors, rating ernment would have not only to inagencies and auditor, and create apject equity but also to compensate propriate provisioning after that. the anticipated repayments. As a reAnd it was also done. However the sult the only suitable option was to provisioning turned out to be so divide the bank into “the bad” and large that investors didn’t have “the good” one. enough resources to cover the This approach is popular in the amount. So the equity of previous world practice – bank’s balance sheet shareholders was reset to zero. is divided into two, one part goes to Valid shareholders of qazkom the government, while the other one were the first to sustain loses. And is taken by a new investor. The bad it’s a standard practice too: when a

bank is divided into “the bad” and “the good” one valid shareholders always sustain loses. Then came an investor who purchased the bank for KzT 1 but ensured necessary capitalization. Thus a classical scheme was implemented. The only unique feature was that we didn’t force the bank’s division and didn’t interfere through external administration. Considering the scale of the bank, risks from nationalization and covenants a more market scheme was chosen. What are the principles of the Program on financial recovery for other large banks? For other large banks we offered equity support but under condition that shareholders were able to ensure bank’s profitability, add capitalization and work on non-performing loans. As I have already said the approved regulatory deduction will be influencing capital adequacy in five year. During these five years a shareholder must provide for profitability, additional funding and work on assets in order either to provision them or raise the quality of encumbrance, or repay risk loans. So the first principle is the obligation of shareholders to take complex measures on balance-sheet improvement. Second principle is equal participation of shareholder in additional capitalization. According to the Program two thirds of capitalization is added by the National Bank, and one third by a shareholder. The third principle is the repayment of the funds provided by the National Bank. Several times we were offered a possibility to share equity of a bank. But we decided to refrain because if later the banks create provisioning they will fund it with operating profit. And if the profit is not enough the provisioning will be funded with valid shareholders’ losses. And we will have these losses too if we become shareholders. Besides there would be conflict of interests: we would have to supervise and demand on the one hand, and would be interested in some relief as shareholders on the other hand. That is why we agreed to support not equity capital but only additional capital not used for repayment

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of losses. Banks – participants of the Program will be granted 15-year-long loan. It will be amortized during this period at a rate below market. The matter is up for discussion. Does the Program provide for Share-for-Debt Conversion in case of deterioration of financial condition of a bank? Each bank claiming for the governmental funds must submit a plan aimed at financial stability. We mean potential risk management since now the banks are pretty stable but there is always a threat. If a bank doesn’t follow the plan and it leads to deterioration of financial statements we are authorized to blur shares and practically start administrating the bank. But we hope not to see such scenario. There may be many surprises but you can’t be granted a subordinated loan without a reliable plan. So we believe the possibility of Share-for-Debt Conversion is unlikely. As far as I understand these plans are now being negotiated with possible participants of the Program? We sent application to all banks with equity of more than KzT 45 bn. When they agree to participate we will demand a business model with current financial statement and possible additional participation of shareholders, measures of asset quality improvement, management structure and so on. This information will be considered by the Board and once approved the subordinated loan will be granted. We believe that by the end of September applications will be selected and submitted to the Board at the beginning of the next month. So the end of September and the beginning of October will be a very important period for us. Simultaneously we are working on our subsidiary – Kazakh Fund of Financial Stability. According to the law the National Bank can support liquidity only with one-year loans. But the loans within the Program are long-term, so we need a subsidiary company. It was said previously that according to criteria of the Program only 15 banks can take part in it. But what if all of them apply?

Participation in the Program is optional. The fact that the National Bank agrees to accept a bank to the Program will show that the business model of the bank is appropriate and it is able to stick to parameters. The banks might not want to take obligation the Program implies. Besides they can have their own funds and different options in their business model – merges, acquisitions, involving new investors, selling to new investors and so on. Each bank decides itself. And regardless of its decision it has to comply with the requirements common for the whole banking system: to have enough capital to cover potential risks. Is it too early to say the amount the national Bank is planning to grant for the Program through its subsidiary. earlier the amount was said to be KZt 500bn. This amount is a benchmark for us after the inner assessments made for the Program. Obviously the exact amount will be announced after the Board’s decision. What results are expected from Program? We believe there will be several. The main problem permanently raised by rating agencies is the discrepancy between statistics and actual volumes of non-performing portfolio. It influences the banks’ liquidity, profitability and new financing. So we expect that potential risk portfolio will be mostly provisioned, banks will have enough capital for provisioning, further clearance and writedowns. Our appraisal shows that the Program will result in increased volume of total equity capital of the banking sector by more than a trillion KzT, stronger financial stability and resistance to new challenges. The measures on banking sector support will correspondingly decrease the amount of non-performing assets by the same amount in five years and this will have multiplicative effect on economy in general with better capitalization, writedowns, releases and other measures for better asset quality. Besides we expect that banks will have stricter procedures of loan granting and underwriting. Thus stronger risk man-

agement, portfolio recovery and new loans are the expected results of the Program. Critics say that the governmental funds cost too little. All programs of banking sector support in the world have below market rates. If a bank can raise subordinated loan for 15 years at a market rate it will go to the market. But we don’t have such market. However provided that the loan is granted for 15 year, and we expect decline in inflation by 4%, the rate of the subordinated loan follows the trend of longterm rate decrease. This approach backs the goals of the Program which involve maximum provisioning of portfolio and not just providing easy revenue to the banks. And if part of the revenue gained from this loan is used for provisioning it will recover banks in general. Interviewed by Michael Maksimov

Hot Topic

neW CUStoMS CoDe — NEW OPPORTUNITIES AND NEW CHALLENGES www.tpprf.ru

“ S. K ATYR I N President, Chamber of Commerce and Industry of the Russian Federation (CCI). He started his career in CCI in 1991 as a head of Coordination, he is considered one of its founders. In 19922011 he was Vice-President of CCI responsible for domestic and foreign business associations. He was a member of the first, second and third cabinet of The Civic Chamber, as well as a member of Government Council on nano-technologies. On March 4, 2011 he was elected a President of CCI. In 2014 ha was elected a Chairman of the Board in SCO Business Council. Since 2013 he is the Head of Russian section in BRICS Business Council. He is awarded the Order «For Merit to the Fatherland» IV class, the Order of Friendship, the Order of Honour, the Medal «For Labour Valour» and a number of other state and public awards. Man of the year according to RBC in nomination of «non-commercial organizations».

Code has become the first large scale document created by joint eﬀorts of Eurasian Economic Commission, governmental structures and business society. And it is very important to introduce this experience in Russia with new and key laws on customs regulation, for example with the amended Customs Federal Law of the Reussian Federation.

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ONCE THE DECISION ON A NEW CUSTOMS CODE OF EURASIAN ECONOMIC UNION WAS TAKEN, CHAMBER OF COMMERCE AND INDUSTRY OF RUSSIA TOGETHER WITH OTHER LEADING UNIONS OF ENTREPRENEURS OF RUSSIA (BUSINESS RUSSIA, RSPP, OPORA RUSSIA) CAME TO AGREEMENT TO JOIN THIS PROCESS AND ATTRACT BUSINESS UNIONS OF OTHER EAEU COUNTRIES. CONSOLIDATED POSITION OF BUSINESS UNIONS AND SUPPORT FROM EURASIAN ECONOMIC COMMISSION ALLOWED OUR REPRESENTATIVES TO JOIN RELATED WORK GROUPS AND GAIN “VOTING RIGHTS”. CHAMBER OF COMMERCE AND INDUSTRY OF RUSSIA WAS REPRESENTED BY LEADING RUSSIAN EXPERTS – MEMBER OF CUSTOMS COUNCIL OF CHAMBER OF COMMERCE AND INDUSTRY OF RUSSIA.

irst draft of Customs Code didn’t have any improvements for regulation of customs procedure and even made them worse than applicable law. In this regard our experts prepared recommendations at once to improve the Code, and their ideas were reflected in the final version of the document. Though not all our proposals were taken into account it is important that business was listened to and heard. And we can affirm that it is “the big victory of the Big Four”. What is the result? The result is a complicated legal document on almost 1200 pages consisting of 465 articles and three applications. The document contains a large number (about 300) of reference rules of national legislation and provides for settlement of around 100 issues via decisions of EEU, 25 of which will come into force together with the Code. Here are some information on the Code, its advantages and disadvantages. Eurasian Economic Union will have a single customs regulation including: - Terms and conditions of goods movement across customs border of EAEU, their presence

and disposal on the customs territory of EAEU and beyond; - Terms and customs procedures regarding goods arrival to the EAEU customs territory, departure, temporary storage, customs declaration and release of goods, other customs procedure;

- Terms of customs payments, special, anti-dumping, compensation fees and customs control; - Cooperation rules between customs bodies and persons exercising their rights of possession, release and disposal of goods on the EAEU customs territory and beyond.

According to the new Code the powers of Commission become broader. For example more than 300 issues fall within its competence regarding customs legal relationship which is three times more than in previous Code. Main advantages of the new Code are: - Automation of customs declaration – electronic declaration, automatic release; - Faster release of goods – up to 4 hours since declaration register; - Improved institute of “Approved Economic Operator”; - Possibility to apply preliminary information as transit declaration (instead of electronic copy of customs declaration); - “One-time application” approach; - Possibility to release some categories of goods before customs declaration according to the list approved by the Commission. This relates to goods imported by certain categories of legal entities which coincide with criteria approved by Commission; - Possibility not to present documents confirming the declared information – both for goods declaration and for transit declaration with some exceptions.

However there are many disadvantages too. The main one is that the Code is diﬃcult for understanding by even by customs specialists. This will inevitably lead to diﬀerent interpretations of the Code and judicial disputes and settlements. But as a rule “blind spots” are seen in practice so some weak points of the document can only be estimated in about half a year after it comes into force. In case ratification sticks to the schedule the Code will come into force on January 01, 2018. So we will be able to discuss its weaknesses in mid-Summer 2018. Today business society discusses possibility of extended comments on

the Customs Code of EAEU with related interpretations. All participants of external economic activity, lawyers and governmental bodies are interested in such document. However it might be even more difficult to work it out. This is the main difficulty of the process. In conclusion we would like to mention that the Code is the first large scale document created by joint efforts of Eurasian Economic Commission, governmental structures and business society. And it is very important to introduce this experience in Russia with new and key laws on customs regulation.

REFERENCE Chamber of Commerce and Industry of the Russian Federation For the benefit of business. For the benefit of Russia.

Chamber of Commerce and Industry of the Russian Federation (CCI) — non-governmental commercial organization which gathers business circles for the goals and purposes determined by the Federal Law of the Russian Federation “On chambers of commerce and industry of the Russian Federation” and the Charter of CCI. CCI represents interests of small, medium and large business. CCI gathers more than 52 thousand companies, more than 300 associations of entrepreneurs and commercial organizations on federal level, more than 500 business-associations on regional level.

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Hot Topic

CUStoMS AUDIt — BRIDGe to tHe FUtURe www.ataik.ru THE APRIL ISSUE OF THE HERALD INCLUDED THE IDEA OF TIGRAN SARGSYAN, CHAIRMAN OF THE BOARD OF THE EEU REGARDING INSTITUTIONAL COOPERATION BETWEEN THE EAEU AND THE EU. IT SAID THAT WE SHOULD BUILD BRIDGES, NOT WALL. THIS ARTICLE IS ABOUT ONE OF SUCH BRIDGES IN THE SECTOR OF CUSTOMS AND TAX REGULATION. THE NAME OF THE BRIDGE IS «CUSTOMS AUDIT»*.

MARIA SEREBROVA, Director, Association of customs auditors and consultants

here are two approaches to the concept of “Customs Audit” (CA) In the sector financial audit Customs Audit is a special branch. This approach relates to services and business activity. In international experience of customs regulation it means customs audit after the release of goods. Here CA is only an instrument of governmental control and doesn’t relate to business activity. In many countries there are special divisions of CA named Customs Audit Station.

* Customs Audit — audit check out on a special audit task of financial reports and business activities of legal entities and individuals dealing with crossborder trade in EAEU, which expresses independent opinion about its consistency and compliance with all the requirements of customs, tax and monetary law, as well as legal support in foreign trade.

REFERENCE In other countries Singapore and New Zealand which were recognized by the World Bank in 2016-2017 as countries with the best organized international trade, use customs audit as the main instrument of follow-up control. In Japan after wide usage of CA in 2009 local customs authorities managed to raise payments collection, and CA fully replaced follow-up control. In China the system of follow-up customs control was created in 1994. Today the block responsible for control after release of goods consists of audit division and trade investigations division. Special audit agencies and professional staff of 1700 people are employed in customs all over the country.

The effectiveness of CA is backedup by ground international documents on the principles of customs regulation: Kyoto Convention (as revised in 1999), “Customs Audit Instructions” of WTO together with Chamber of Commerce and WTO recommendations. These documents suggest a customs regulating model as simple as all genius. The archenemy of any customs control is the trio “Lack of genuine price information – Corruption – Shadow companies” (or, to be precise, it means non-payment of domestic taxes, shadow schemes, illegal traffic, fake documents, palming off and other violations which have always managed to “leak through” customs clearance) start losing their strength because in fact only one principle is introduced: shift of control to the follow-up stage. Kyoto Convention recommends to focus main efforts of customs on the follow-up stage. Why spend money and resources on control of each cargo crossing the border when you can control the whole activity of foreign trade operator (FTO) using the customs audit method? With such approach a foreign trade operator gains a “green corridor” and other exemptions in case of “transparent” accounting and law-obedience.

Thus CA not only widens the “formal” sector of foreign trade operators, but also stimulates economy in general to become more “formal”. The full name of Kyoto Convention is International Convention on Simplification and Harmonization of Customs Procedures. Harmonization through simplification is not only wonderful, but also profitable (1). Business rates slash with more effective governmental control (2). We certainly need an effective analytical system to introduce the model of customs regulation and to “peak the wheat from the chaff”, to separate foreign trade operators and companies subjects to follow-up control and shadow companies. An effective risk management system is an important element. CA reports give profound and reliable figures of financial stability of a company. They meet the demands for effectiveness also for risk management system. This system can release different resources of Customs Service and back up control sectors which lack resources, for example investigation. This means that Customs Audit indirectly influences all the leverages of customs control. Risk management system is also useful in categorizing foreign trade operators. For low risk categories – simplifications as a “carrot”, for high risk categories – a “stick” in the form of penalties, sanctions, even criminal sentence. Low risk categories are directly connected with the institute of Authorized Economic Operator (AEO). In general the results of Customs Audit have strong influence on categories of FTO. Another instrument of complex Customs Audit after release of goods is inter-agency cooperation on different levels. Interaction of different agencies of one country and of differ1 For example OECD has it that the WTO Agreement on simplification of trade procedures of 2013 allows to reduce trade loses by 10-14.5% and increase the world GDP by 4.7%, and world export – by 14.5%./ 2 Here customs audit perfectly coincides with the goals of Complex Program on Development of Federal Customs Service of the Russian Federation until 2020, which main idea is according to V.Bulavin «Simplicity and friendliness for business, eﬀectiveness and safety for the state».

ent countries and unions, exchange of information are key elements of trade simplification. The closer such interaction is, the more transparent foreign trade is, the more comfortable it is for its operators. Like in a broad lightened street… Integration of information systems needs a common language to exchange digital information. Customs Audit is based on timetested and generally acknowledged standards and methods of financial audit. The data is scientific and clear and could become a base for the language of information exchange between control agencies. To sum up we could show the role of CA on a scheme below: So it is clear that risk management system is connected to customs control after goods release in different

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ways. Both the system and the control together with inter-agencies cooperation directly influence the results of monitoring and categorizing of foreign trade operators. Effective categorizing is the backbone of customs control: it includes charges, simplification and Authorized Economic Operators. Being in the center of the whole customs control system the Customs Audit either supports its elements or suggests the shortest way from one element to another. The result is what we call congenial investment climate. Certainly the real situation is much more difficult, and you canâ&#x20AC;&#x2122;t just draw up a balance sheet. But even with this scheme we can see the BRIDGE in customs audit which could become an easy and safe road from responsible FTO to Customs Service above all the formalities. Obviously Customs Service of any country is interested in such a bridge. Including the Federal Customs Service of the Russian Federation. Russia joined the Kyoto Convention in 2010. And during the past three years the Customs Service has been studying profoundly the possibility to include CA into every-day practice of Russian customs. In 2014 a correspondent work group was created to check up how CA reports can be used in customs control. Today the first results of CA effect in categorizing of foreign trade operators are positive.

risk management system

control after release of goods

REFERENCE Kyoto Customs Convention

authorized economic operator

CUSTOMS AUDIT

simplifications

The convention aims at the development of foreign trade and introduction of customs principles stated in WTO agreements related to customs. General Provisions of the Convention bind the customs service to develop relations of consultative character with foreign trade participants. Provisions on customs include international practice of fulfilling and submitting the declaration. But the Convention doesnâ&#x20AC;&#x2122;t regulate customs and tariff policy of a state.

categorizing

inter-agency cooperation

The Convention forms the basis for the upcoming code of the Customs Union of Russia, Belorussia and Kazakhstan.

Scheme 1. Role of customs audit in the customs regulation system.

The group membership was revised in May so it will come up with new experiments this year. The bridge needs a whole range of factors and instruments. In order to introduce CA into every-day customs control at least four factors are necessary: - Switch to electronic resources; - Comprehensive control /integration of information systems of different control agencies/; - Appropriate legislation; - Customs Audit institute. Recently in Russian these demands either have already been met or are developing rapidly. To support independent professional Customs Audit the business society created a non-governmental non-commercial organization – Association of Customs Auditors and Consultants /ACAC/.

ACAC could take the responsibility for training specialists: create a teaching program, state accreditation system, work out standards of customs audit, etc. The first task of ACAC in establishing the institute of CA is to create and suggest to Customs Service the operating procedure with CA reports; to approve as the main criteria for Authorized Economic Operator (AEO) and/or simplifications financial stability of a company and law-obedience of its management, regardless the scale of business. Positive CA reports could entitle any law-obedient foreign trade operator to AEO registry or to low risk category Another factor that it is the right time for CA introduction in Russia is that on March 04, 2017 the EEU made a decision on a single market of audit

services on the territory of the whole Eurasian Economic Union. In is assumed that certificates of auditors will be recognized in all EAEU member-states, and the rules of control will be similar. Thus an audit company can work in another country without registration of a new legal entity. Such changes would greatly support the whole construction of the “bridge”. On the New Years’ Eve and on the pages of a serious edition one can make a wish. So let the archenemy, the trio “Execution delays – Declaration obstacles – Unjustified adjustment of customs value” lose its strength in 2018! And let there be bridges, not walls…

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Award

«Financial and banking elite of Eurasia» November 30, 2017 Holiday Inn Moscow Sokolniki The Founders of the Award: • Financial & Banking Association of Euro-Asian Cooperation • International Banking Council (International Coordinating Council of Banking Associations of the Commonwealth of Independent States countries, Central and Eastern Europe)

Applicants for the victory in the competition can be: • Legal entities — financial-market participants: — credit organizations; — Insurance companies; — investment management; — asset management companies; — stock market participants; — audit companies; — consulting business; • Individuals who have achieved in the financial sphere.

Nominations: 1) INVESTMENT BREAK – the best implemented international investment project of the year on the territory of Eurasia. 2) TRIUMPH OF TECHNOLOGY – a Bank – a leader to introduce modern IT-technologies. 3) STANDART OF RELIABILITY – a Bank – a leader in the development of its business, the network of foreign counterparts on the territory of Eurasia. Prize: Exclusive authorial statuette

The official Award Ceremony would be attended by representatives of business, political and cultural circles, national governments and banks, heads of trade unions and associations, representatives of leading mass media of the countries of Eurasia. Application forms for participation are taken until November 15, 2017. Terms of participation in the competition – on the website of the organizers: www.fbacs.com 43

Partners’ news

neW GeneRAtIon THE 9TH ANNUAL GERMAN-RUSSIAN YOUNG LEADERS CONFERENCE UNDER THE THEME “BETTER TOGETHER” WAS HELD IN SOCHI FROM 26 TO 28 OCTOBER 2017. THIS CONFERENCE BROUGHT TOGETHER ABOUT 250 PROFESSIONALS BETWEEN 25 AND 40, AMONG THEM SUCCESSFUL ENTREPRENEURS, YOUNG DEPUTIES, SCIENTISTS, JOURNALISTS AND ARTISTS.

www.die-neue-generation.ru

he 9th annual German-Russian Young Leaders Conference under the theme “Better Together” was held in Sochi from 26 to 28 October 2017. This conference brought together about 250 professionals between 25 and 40, among them successful entrepreneurs, young deputies, scientists, journalists and artists. This year the conference was conducted under the patronage and with substantial support of the the Governor of the Krasnodar Krai, Veniamin Kondratev. It was organized by the nonprofit association “Deutschland-Russland – Die neue Generation” (Germany-Russia – The New Generation) and Saint Petersburg State University of Economics. Within three days of the conference, young leaders discussed a wide range of the most important issues: from security concerns and the development of Bloсkchain technology to the current state of economic integration and education. Experts and honorary guests from business, politics and science shared their experience and set the course for discussions. The program also included plenary sessions, working groups, and informal activities. Christoph Oldenburg, Co-founder and Chairman of the conference since 2012, notes: “The Russian-German Young Leaders Conference is bringing together young and future decision makers from both our societies. Our strong believe is that in today’s world a thorough understanding of processes in other countries is necessary for leaders to take responsi-

ble decisions. The German-Russian relations have special importance to the European continent. Forging personal ties and thereby a better common understanding between individuals from Russia and Germany that will impact these relations by their actions in the future, we can contribute a small part to better cooperation and coexistence on the European continent”. The German-Russian Young Leaders Conference, founded in 2009, is the leading bilateral platform for leaders from business and society. It is the largest platform of its kind to foster a dialog among a new generation of passionate Russians and Germans with exceptional profiles in their respective fields of activity – business, politics, culture, science, and media. The annual conference takes place, on a rotating basis, in Germany one year and in Russia the next year. Thus far, the

conferences have been hosted in Berlin (2009 and 2010), Moscow (2011), Munich (2012), Saint Petersburg (2013), Hamburg (2014), Kazan (2015), Dresden (2016). Each year, our program includes company visits and cultural events, gala dinners and informal receptions that foster professional and personal exchange. The conference is funded by supporters from business and society and hosted in collaboration with leading foundations from Russia and Germany, such as Friedrich Naumann Foundation, The Gorchakov Fund, the Konrad-AdenauerStiftung, and Musical Olympus. Our supporters in previous years: Baltika Brewery, Deutsche Bank, Deutsche PostStiftung, E.ON, EWE, Gazprombank, Gazprom Germania, Knauf, McKinsey & Company, METRO, Porsche, RzhD Russian Railways, Siemens, Tatneft, VNG Verbundnetz Gas, Wingas, and many others.

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Partners’ news

tHe noBeL ConGReSS ON OCTOBER 24, 2017 THE GREAT HALL OF THE TAMBOV DRAMA THEATRE WELCOMED AN OPENING CEREMONY OF THE NOBEL CONGRESS – 11TH INTERNATIONAL CONFERENCE OF THE NOBEL PRIzE WINNERS AND NOMINEES “SCIENCE, TECHNOLOGIES, SOCIETY AND INTERNATIONAL NOBEL MOVEMENT” DEDICATED TO ANNIVERSARIES OF OUTSTANDING INVENTIONS OF A. NOBEL AND THE 30TH ANNIVERSARY OF THE INTERNATIONAL INFORMATION NOBEL CENTER.

www.nobel-centre.com

mong the participants of the Congress were representatives of the Nobel family, scientists from different towns of Russia, Sweden, Austria, Italy, Israel, the USA, Azerbaijan, Kazakhstan etc., as well as famous Nobel nominees, representatives of international organizations, lecturers, students, employees of information centers, libraries, museums and archives, writers and journalists, collectors and businessmen.

M.nobel

The press-conference involved the founders of the “Nobel Stability Trust” (Switzerland) Michael and Peter Nobel, Miss Sweden 2015 Stina Nordlander, General Director of “Salus” Egor Ivankov, ex-Major of Moscow J. Luzhkov, Principal of Russian New University (RosNOU) V. zernov, authorities of the Tambov Region and Tambov city, representatives of ministries and academies of sciences, principals of the Tambov universities, other honorable Russian and foreign guests. The program of the Congress indulged speeches of the guests, delivery

M.nobel awards V. tyutyunik, President, General Director of IInC

ceremony of diploma and orders of RAS, the International Information Nobel Center and other organizations. The oﬃcial ceremony was followed by press-conference where the representatives of the Nobel family announced about a new award of “Nobel Stability Trust” for outstanding contribution to sustainable development of society including alter-native energy. They also introduced the Director of the Trust Representative in Russia. The first sponsorship agreement on the award was signed between the Trust and “Salus”.

Gold medal of IInC

PARTNERS

WoRLD eConoMIC CoUnCIL (WeC) AnD InteRnAtIonALeR WIRtSCHAFtSSenAt e.V. (IWS):

oVeRCoMInG tHe BoRDeRS GLOBAL MOVEMENT SEEKS TO CONCENTRATE ON THE MOST PRESSING SOCIO-ECONOMIC TOPICS, ASSISTING LEADERS BECOMING MORE EFFICIENT, CAPABLE AND STABLE PARTNERS IN AN EVER CHANGING GLOBAL LANDSCAPE.

www.internationaler-wirtschaftssenat.com

IWS

Internationaler Wirtschaftssenat world economic council

he WEC is the umbrella organisation of all IWS organisations. We believe, that ethical values in business and politics are essential for sustainable and stable global welfare and healthy economic growth. Fostering networks living by these traditional standards are key to leaders who are at the forefront of change and turmoil. The WEC and IWS network was founded based on these assumptions. We are convinced that serious dia-

logue between politicians, businessmen and academia must be encouraged; the consideration of ethical values and virtues like honesty, credibility, responsibility, transparency and mutual trust in both business and politics count among the most important factors in initiating a sustainable change. Our global movement seeks to concentrate on supporting pressing socioeconomic topics, assisting leaders becoming more efficient, capable and stable partners in an ever changing global landscape.

The goal is to create a network of people who have a friendly relationship amongst each other and can discuss any business topic without rivalry. Grounded on this we have started to build a global network of independent IWS organisations, under the WEC umbrella. One key annual event for this network is the International Forum. This year marks the 4th time the IWS coorganizes this well-established event on December 1st in cooperation with the Financial Banking Association (FBA) in Moscow.

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IWS

Internationaler Wirtschaftssenat world economic council

THE FORMAT OF THE FORUM

FINANCIAL & BANKING ASSO CIATION OF EURO-ASIAN CO OPERATIO N

WITH THE SUPPORT

• Plenary sessions; • Breakout sessions; • Recreational and cultural activities: visiting the Bolshoi Theatre, participating in the awards ceremony of the winners of the «Financial and Banking Elite of Eurasia» Competition.

Russian Union of Industrialists and Entrepreneurs

BREAKOUT SESSIONS Eurasian Economic Commission

I session. «Providing access of entrepreneurs to capital markets and funding sources in Eurasia» II session. «Agricultural engineering: from intentions to cooperation» III session. «Industry: new opportunities for Eurasian integration» IV session. «At the speed of light – the latest trends and changes in financial technologies and regulation»

T H E FO U R T H M O S C OW I N T E R N AT I O N A L F I N A N C I A L A N D E C O N O M I C FO R U M

Eurasian Union and the EU: search for new formats of cooperation December 1, 2017 Moscow, 17 Kotelnicheskaya nab. THE ORGANIZING COMMITTEE 17 Kotelnicheskaya nab., Moscow, 109240, offices 400-408. tel.: +7 (495) 663-02-08, 663-02-19, 663-02-13 е-mail: sgk@fbacs.com, tkd@fbacs.com, s.arkhipova.fbacs@mail.ru, office@fbacs.com

Founder’s Page. IBC

FInAnCIAL LIteRACY — tHe WAY to FInAnCIAL FReeDoM

A PUBLIC MEETING OF THE INTERNATIONAL COORDINATING COUNCIL OF BANK ASSOCIATIONS OF THE CIS, CENTRAL AND EASTERN EUROPE (INTERNATIONAL BANKING COUNCIL, IBC) WAS HELD IN BELGRADE (REPUBLIC OF SERBIA) FROM MAY 17 TO MAY 19, 2017. THE THEME OF THE MEETING WAS «THE GROWING ROLE OF NATIONAL BANKING ASSOCIATIONS IN THE PROCESS OF FINANCIAL EDUCATION AND LITERACY».

n international practice, financial literacy is defined as the capacity of individuals to understand financial risks and make effective decisions in order to improve their own financial well-being and protect their interests. Financial literacy is closely related to the level of financial education. It should be noted that financial education of citizens is recognized as an integral part of a stable and fair financial market along with professional standards and ethics of financial institutions, control by financial market

regulators, financial inclusion and consumer protection. Financial literacy is especially important in the context of global financial and economic crises when the risks for financial services clients are increasing considerably. It’s hard to argue. This is no accident, therefore, the problems of financial literacy and role of national banking associations in this process became the main topic of Belgrade meeting of IBC members. Addressing the IBC, the leaders of the banking associations of Europe and Asia agreed that the level of financial literacy, in particular, in the

CIS countries is at a rather low level. According to polls conducted in these countries, approximately 80 % of the population does not keep records of revenue and expenditure, about 60 % of the population keeps their savings at home, and 40 % doesn’t have the math skills. In addition, only 30 % of the population has plastic cards, at the same time 80 % of them use cards only to withdraw cash. This dramatic statistic demonstrates the need to improve the financial literacy of the population, above all, at the state level.

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THE HEADING "FINANCIAL LITERACY" WILL BECOME A REGULAR COLUMN OF THE NEXT ISSUES OF OUR MAGAzINE. IN THIS ISSUE WE PRESENT THE TRAINING OF FINANCIAL LITERACY IN THE REPUBLIC OF BELARUS AND IN THE REPUBLIKA SRPSKA.

tHe RePUBLIC oF BeLARUS:

BeGInS WItH «MoneY ALPHABet» www.abbanks.by

he development of the banking system of Belarus and increase competition on the retail banking market has resulted in banks gradually realized the importance not only of advertising but also of information activities and explanatory work. It was necessary for the smooth and coordinated work to improve financial literacy of all sectors of the population. . In 2012 the Interdepartmental Coordination Council for increasing for Standardization of financial literacy of the population was established upon a decision of the Council of Ministers and the National Bank of the Republic of Belarus. It is composed of representatives of the National Bank, the Ministry of Finance, the Ministry of Economy, the Ministry of Taxes and Duties, the Ministry of Education, the Ministry of Information, the National Academy of Sciences of Belarus, the World Bank, the Association of Belarusian Banks (hereinafter - the Association) and commercial banks, as well as other republican government bodies, scientific institutions, public organizations.

The Committee for Financial Literacy was set up also in 2012 within the Association of Belarusian Banks. Its tasks is the studying of international experience, preparing legal acts, working with citizens’ appeals and resolving disputes, as well as interacting with the media. Every year, the Committee participates in the organization of a specialized exhibition of financial services «Манiфэст», the International Day of Savings (October 31) and the International Day of Finance of Children and Youth in the Republic of Belarus (March 16), the Financial Literacy Week (March 27-April 2). The Association regularly acts as a co-organizer of competitions and festivals on financial literacy, economics, and entrepreneurship for youth and schoolchildren such as “Staircase of success”, "Winter Business Studies of Youth", "Competition on Financial and Economic Literacy among School Graduates", "Young financier". Among the Association’s own projects, it can be noted the popular action “Life goes on. Pay by credit card”. It promotes the use of bank cards for goods. The Association together with the company “Visa” adapted an educa-

Activities of the Association to improve financial literacy of the population (from top to bottom): social action «Life goes forward. Pay by credit card», competition among the children of employees of the banks «Young financier», computer game «Financial football 2.0 " and financial game «Business Start»

tional computer game "Financial Football" for the Belarusian audience, which is part of Visa’s initiative to improve financial literacy of youth. Within the framework of a joint project of UNDP and the National Bank "Promotion of microfinance in the Republic of Belarus", the staff of the Association prepared the Handbook on Personal Finance. The popular edition “Money Alphabet” was issued for children of junior and school age by a joint project of the Association, the National Bank and the newspaper "Komsomolskaya Pravda".

The Association holds an annual republican contest on the theme “Journalists - for financial literacy”. Its goal is the search of the best publications conducive to the education of the population in the sphere of banking services and interaction with financial organizations, as well as the popularization of non-cash payments. In order to enhance the financial skills of children and youth, the Association acted as a partner in the development and creation of a new financial game “Business-start”.

The journal “Herald of the Association of Belarusian Banks" and on the website of the Association has a regular column “Financial Literacy”. The Association seeks to coordinate the process of banks' activities to improve financial literacy of the population by collecting information on the events conducted by banks. In 2016 the Republic of Belarus was awarded the special prize The Global Inclusion Awards 2016 of the International Organization “Child & Youth Finance International”.

tHe RePUBLIKA SRPSKA:

At tHe StAte LeVeL www.ubs-acb.com

inancial literacy of the population of Serbia is a strategic task of the national Government. The initiative for the development of financial education was supported by international organizations such as ECID, G20, the European Banking Federation, the European Banking Network, and others. The Association cooperates closely with the Ministry of Education of Serbia, the Belgrade Stock Exchange and the National Consumer Protection Organization. The Association of Serbian Banks (ASB) actively participates in the European Money Week and the Global Money Week, where is the focal point. During this period, numerous educational programs and activities are implemented the objective of which is to improve financial literacy of all population groups, and first of

all, primary and secondary schools students. Since 2013 the ASB has seriously began to solve the problems of financial education in the country, by taking the necessary steps: - The ASB joined the International Organization “Child & Youth Finance International”; - The ASB signed a Memorandum of Understanding with UNICEF in the field of financial education and social responsibility; - The ASB became a member of the Working Committee for Financial Literacy (FINLICO), with the participation of representatives from Greece, Finland, Spain and the United Kingdom; - The ASB became a party to the Project Group for Financial Education of the European Net-

work for Banking Training. Its goal is the development of new mechanisms and tools assessing financial literacy of different target groups (youth, adults, entrepreneurs) using new technologies and classical models. The ASB tries not only to get acquainted with the best international practices, but also to encourage the best domestic practices of banks and partners interested in financial education of a wide range of financial service clients. In March of this year, the Association of Serbian Banks offered some events for children of different age groups. For the youngest, an interactive seminar was organized where children learned how to handle money, how to earn, save and buy. They visited the branch of Erste Bank in Žabalj, Banca Intesa in Bel-

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grade. They got acquainted with the principle of ATM operation, types of payment cards. For adults, an event was held entitled”Open door and open virtual door of the bank”. For the representatives of small and mediumsized enterprises, entrepreneurs, youth, students of secondary schools, as well as employees of the bank, seminars took place on the theme “The letter of credit as a reliable instrument of payment and recovery in the international payment turnover". Within the framework of the European Money Week, the Association of Serbian Banks visited secondary school students for review to the work of the ASB Credit Bureau. In the field of financial education the ASB plans to conclude the implementation of learning platform in the near future. Also the Association will disseminate an educational game for primary school students, intended for acquiring and testing through participation in the game and competitions. In addition, the ASB plans to hold seminars, visit banking institutions, check the level of knowledge and much more.

Information material of the Association of Serbian Banks

education of junior students in Žabalj - the principle of AtM operation

Russian students (Drogachevo village, tver oblast) visited the Association of Serbian Banks. March 30, 2017

Company Profile

MoDeRn AnD CoMPLeX BUSIneSS SoLUtIonS www.salus.ru

www.salus.ru

EGOR IVAN KO V General Director of SALUS

he main idea of the project is the cooperation of importers and exporters in EAEU countries with banks in these countries. And the intermediary of this cooperation is the Universal Commodity Exchange – Eurasian Cooperation (USEX) and “SALUS” as сentral counterparty. Experience shows that with such central counterparty integration of legal entities into one system is easier. And expanded it could create a single mechanism and facili-

tate cooperation of legal entities in EAEU with commodity exchanges. Based in CenterCredit Bank in Kazakhstan the Clearing Center of the Exchange provides for clearing settlements in basic currencies within one business day. Deals are made with no restrictions to jurisdiction of participants or types of commodities. In 2016 the amount of settlements via the Clearing Center of the Exchange in CenterCredit Bank was more than RUR 1 bn., in 2017 it reached more than RUR 3 bn.

As a member of FBA EAC “Salus” provides the whole range of services for effective work of SME and their integration into the exchange system. The range of services includes consulting on business and management, paperwork for trading, legal support of deals, trust management, asset management, investments. The company carries out forward, futures, swaps and options deals, equity rights and security deals in its own name but at the Customer’s expense and in the mane of and at the expense of the Customer.

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WITH SUPPORT OF THE FINANCIAL AND BANKING ASSOCIATION OF EURO-ASIAN COOPERATION (FBA EAC) A PILOT PROJECT WAS LAUNCHED IN 2015 ON THE TERRITORY OF EAEU. THE PROJECT CONCERNS A SYSTEM OF FINANCIAL SETTLEMENTS OF EXPORT AND IMPORT TRANSACTIONS WITH THE ASSISTANCE OF COMMODITY EXCHANGES. THE IDEA OF THE PROJECT IS TO INTEGRATE LEGAL ENTITIES OF EAEU COUNTRIES INTO A SINGLE COMMODITY AREA. THIS WILL LET THEM DO THEIR COMMERCIAL, INVESTMENT AND FINANCIAL BUSINESS ON THE TERRITORY OF EAEU MORE EFFECTIVELY.

representative oﬃces in Russia and in the world

>200 >900 clients

deals

In UCEX “Salus” works as Central Counterpart, facilitates the cooperation of SME and the Exchange and gives access to shaping the supply and demand in EAEU. Salus has regional, international representative oﬃces and partner ties which allow to widen the list of suppliers and Clients and to enlarge the scale of the Exchange. Under the Agreement of Complex Service “Salus” provides consulting and legal services as well as logistic support to the Client with regards to the whole process of tenders. The model gives the following advantages: maximum supply and de-

mand, open pricing, low costs, safe deals (each counterpart is verified. “Salus” fully administrates the forward, futures, swaps and options deals on UCEX). This system also has positive impact on EAEU area. The Union market grows, new production is stipulated and supports import substitution, turnover in the Union increase, new long-term programs of economic development appear in the EAEU. In its turn this results in more favorable investment climate, monitoring of regional economic development, better trade turnover statistics, easier ac-

counting of separated fund flows, higher competitiveness of the region, weaker crisis trends, improved financial system, more effective economic, social and budgetary management, diversification of economic and social infrastructure, stronger economic security, lower level of unemployment due to the growth of turnover with third countries. These processes integrate legal entities into a single exchange system of EAEU, open new opportunities for shaping the supply and demand, develops turnover of EAEU with SCO, BRICS, CIS, EU.

DISCUSSION

ABoUt DIStRIBUteD LeDGeR AnD ItS APPLICAtIon www.npc.ru

“

All technologies, applicable in the network of Bitcoin, could be used separately and applied instead of already in use technologies to improve the eﬀectiveness of the existing financial system.

ALMA OBAEVA Ph.D. in Economics, Professor, Chairwoman of the Board of the Association of Participants of the Payment Services Market «Non-commercial Partnership “National Payment Council”».

EURAS IA N FIN AN CIA L & ECONO MIC HERA LD | # 2 -2 0 1 7

IN THE PROCESS OF EVOLUTION AND VARIOUS ACHIEVEMENTS, NEW TECHNOLOGIES ARE BEING DEVELOPED. ONE OF THESE IS DISTRIBUTED LEDGER TECHNOLOGY, WHICH ALLOWS YOU TO REACH NEW HEIGHTS IN INNOVATION AND PROVIDE CREATIVE POTENTIAL.

Distributed Ledger Technology (DLT) doesn’t have a single definition, as this technology is applied in various ways, but under this article, DLT is seen as a combination of peer-to-peer, distributed data storage and encryption. This technology is potentially capable to increase the level of trust in various services due to the transparency of its technologies, the continuous speed of calculations, the stability and controllability of data. It could serve as a mean of converting of processes of clearing, payments and settlements, including ways of transferring money, payments for goods, securities and derivative financial instruments.

Distributed Ledger is a database of certain assets, and the asset can be any nature, for example, financial, electronic and physical, to which all network participants have access through an identical, own copy of ledger from anywhere in the world. Each change in the ledger will be reflected within some seconds in all

copies of ledgers. Security and reliability of information is provided by cryptographic methods of protection, namely keys and electronic digital signature. The term “Blockchain” was used for the first time to create a peer-topeer network of digital currency Bitcoin. Bitcoin is an electronic equiva-

lent of cash. The ledger of Bitcoin is a distributed uncontrolled ledger where each member of the network can add a transaction block uniting Bitcoin-transactions into blocks and later adding new blocks to the chain of existing blocks. The person-miner, who added the block, will receive an emission premium equal to 12,5 Bit-

coins but for this it is necessary to observe several conditions, namely, to have sufficient processing power and access to the Internet. This process is called mining. The amount of issuing remuneration is reduced doubled for every 210 thousand blocks. The original amount of remuneration was 50 Bitcoins. When comparing Bitcoin with cash in various aspects, then authenticity of cash we could check by serial number and watermarks, but in the case of Bitcoin authenticity is provided by the ledger. The main difference between cash and Bitcoins is that cash is issued by central banks but the emission of Bitcoins is decentralized and independent of any regulatory body but the volume of emission is known in advance. As at 10 March 2017 Bitcoin occupies the leading position on capitalization among crypto-currencies with the daily volume of transactions equal to 10 billion rubles on average per day for the past month, according to the site http://coinmarketcap.com.

2017 new records on volumes of transactions at p2p-sites LocalBitcoins and Paxful was set. On March 4 at LocalBitcoins new record was recorded – 31,6 million dollars. Also records in volume of transactions were recorded in the USA equal to 8,983 million dollars, despite the fact that access to Exchanges Coinbase and Bitfinex was limited in several states. In Chinese segment LocalBitcoins we also see the increase in the volume of transactions equal to 60 million yuan though Chinese traders have problems when working with crypto-currencies Exchanges. The same record situation we can see and in the case of Ukraine – 3,23 million hryvnia. Instead in Russia the volume of transactions fell to 326,6 million rubles. All technologies, applicable in the network of Bitcoin, could be used separately and applied instead of already in use technologies to improve the effectiveness of the existing financial system. To date some processes are not feasible without financial intermediaries. For example, modern systems in the network require some interaction in the form of sending electronic messages, their confirma-

In terms of the volume of transactions then for the first week of March

tion and other actions of electronic cooperation, represented by operators and participants. When considering the particular case of cash transfer then this process consists of 4 successive phases. • Order; • Confirmation; • Confirmation of consent to conditions; • Cash settlement. This is usually completed by financial intermediaries, banks, payment systems. Sender sends a message about the payment to payment system, then his message should be verified. Verification may differ in different systems. Once the payment is verified further conditions arise: sufficient funds or a loan. When these conditions are met the payment is ready to be sent. In some payment systems the payment is completed only when received by the recipient. With commodities, securities and derivatives the process is more complicated. For example a deal is followed by terms approval, clearing and settlement. In many situations this is made by financial intermedi-

Table 1 Market capitalization of crypto-currencies name

Capitalization, ₽

Price, ₽

Bitcoin

1 143 390 422 139 94 769 466 377

Dash

Money supply in circulation

Volume (24 hours), ₽

70 547,87

16 207 300 BTC

10 927 392 640

1 057,5

89 616 441 ETH

1 728 938 304

22 715 819 265

3 174,42

7 155 890 DASH

1 475 815 834

Ripple

14 250 495 993

0,382147

37 290 640 853 XRP*

94 959 892

Litecoin

11 355 400 407

226,56

50 121 782 LTC

153 905 052

Monero

10 826 126 677

768,48

14 087 674 XMR

186 158 892

Ethereum

Ethereum Classic

7 089 060 125

79,13

89 582 949 ETC

61 233 935

NEM

5 141 072 586

0,57123

8 999 999 999 XEM*

37 206 650

MaidSafeCoin

4 131 094 788

9,13

452 552 412 MAID*

27 526 587

Augur

3 529 375 661

320,85

11 000 000 REP*

14 835 083

* Мining isn’t available Source: www.coinmarketcap.com

Table 2 Volume of transactions with Bitcoins for the period name Bitcoin

Sign of currency Volume (1 day), ₽ BTC

10 927 392 640

Volume (7 days), ₽

Volume (30 days), ₽

76 949 514 521

302 387 741 795

Source: www.coinmarketcap.com/currencies/volume/monthly

EURAS IA N FIN AN CIA L & ECONO MIC HERA LD | # 2 -2 0 1 7

aries. Terms and date approval are followed by clearing which includes the settlement of obligations of counterparties regarding supply and payments as of the payment day. Next step is settlement where obligations of counterparts are satisfied. For example with securities the deal is settled when the buyer receives the securities, and the seller receives money. But in spite of the long process some agencies play important role in payment arrangements and ensure consistent functioning of financial system. They provide different services for example management of financial, operational and compliance risks. Such consumers as households and companies put their matters into the intermediaries’ hands (banks and companies), for example assets ledger management, broker and dealer functions, the right to conduct deals on its behalf. That is why when a consumer initiates a deal banks or companies contact other intermediaries. This scheme reduces some risks and doesn’t demand certain time for implementation. With the course of time methods of deals and settlement become more complicated, their amounts grow and new problems arise. People tried to find solutions for operational and financial inefficiency through technological development and change of the market structure, or both. Very often one needs to change the market structure to let new technologies. For example modern communication networks and electronic data bases reduced the costs relating to geographical diversification and created digital compatibles of certificates and assets, as well as change the role of financial intermediaries. Very often traditional settlement services use outdated infrastructure and are reluctant to modern technologies which can make it more comfortable, faster and safer for the end consumers. DLT gives such opportunity but it leads to changes of the market structure. And the level of changes depends on how the industry adjusts to the technology. As it was mentioned distributed ledger is considered as a combination of P2P network, distributed data storage and encryption. In such organization communication

nodes will be devices with software of distributed ledger on them. The nodes are connected to exchange and confirm information. With maximum implementation this will allow the end consumers and financial institutions to hand over the database management to each other. This is completely different from traditional system where the central node in the

“

DLT should also result in better availability of financial services for the end consumers.

only source of reliable information and control. This type of distributed ledger system determines the capacity of the participant to take part on its work. There are different types: public, regulated and private. First type includes open systems which accept any interested participant with appropriate technologies, such systems are usually anonymous or would-be anonymous, they allow competitive mining and are decentralized. Their antipodes are closed systems with additional membership requests such as solvency and licenses of a participant. In these systems full identification of miners is requested, but the lists of miners are secret.

Besides there is a regulator represented by a central administrator which sets rules. There can be a “middle state” with miners determined by a regulator, for example the Central Bank, but all the information about the system, miners and mining being public. Examples of an open system are Bitcoin and Ethereum, among closed ones are ripple, hyperledger and FedCoin. DLT gives new opportunities for transfer and storage of digital assets. Many participants study opportunities to incorporate this technology into the existing system. DLT doesn’t depend on the type of asset so it can keep accounts, store and transfer any assets. This opens a whole range of its implementation. In deals with securities, derivatives and commodities reduced time is expected between closing of a deal and settlement. This will lead to faster and more effective transactions. DLT can overcome indirect expensive slow cross-border settlements. Today such settlements are conducted via credit transfers from one bank to another with commission. DLT should also result in better availability of financial services for the end consumers. Today the access is hindered by high commissions for account management, especially for household with low income, by weak presence of services in remote and rural areas, lack of trust in financial sector. DLT in perspective will lead to better financial availability and allow technological companies to offer services to the end consumer at lower price avoiding many intermediaries. Another perspective is a better information exchange with access to common ledger given to regulators and parties concerned. This will allow easier complying with reporting requirements and other regulations. Control body linked as a node will receive transaction data at a glance and compliance will become easier. Despite all the advantages of DLT in the beginning there might be some operational, technical, financial and legal problems to be solved before DLT becomes a practical instrument for effective payments, clearing and settlements, but in the long-term perspective DLT can overcome most of weak points on financial market.

TECHNOLOGIES

neW oPPoRtUnItIeS FoR BLoCKCHAIn In eURASIA BLOCKCHAIN IS A NEW TECHNOLOGY BUT IT’S ALREADY WIDELY USED FOR RECORDS OF GROUP TRANSACTIONS IN A PEER-TO-PEER PAYMENT SYSTEM (BITCOIN) AND ITS ANALOGUES. HERE ALL TRANSACTIONS ARE INTERRELATED IN ONE CHAIN, AND A CHANGE IN ONE ELEMENT AFFECTS THE WHOLE CHAIN. THE COMPLICATED DATA ENCRYPTION SYSTEM PROVIDES SECURITY. AT THE SAME TIME BLOCKCHAIN IS ACTUALLY BASED ON ACCESS TO THE INFORMATION IN A DISTRIBUTED DATA BASE WITHOUT ANY CENTRAL MANAGEMENT.

Blockchain has an open code, and it can be developed by anyone interested. The developers suggest different start-ups based on this technology. Blockchain can affect many sectors of economy such as banking services, agriculture, government. Experts are aware that blockchain has great future and should be integrated in different sectors and projects. Last year the Chinese government decided to implement blockchain for the national informatization planning. In China technologies develop so fast that it has eve lead to market overheating. The countries participating in the Chinese “One Belt, One Road” (OBOR) initiative would embrace the opportunity to use blockchain in trade cooperation and internal use in financial industry and construction of smart cities. It should be mentioned that many countries around China which participate in OBOR are developing countries. Their financial infrastructure is quite unstable. Cash machines, credit and debit cards and mobile-

Almaty city mayor Bauyrzhan Baibek (on the right) meets the Chairman of China Blockchain Application Research center Deng Di (on the left). Almaty, 22.09.2017

pay are not really common due to weak infrastructure. Blockchain will give new opportunities to them and stipulate their financial potential. A frequent question is how to use blockchain. The answer is: it can be

used for financial transactions and accounting in cross-border trade. For cross-border payments and finance management blockchain gives new opportunities and advantages. It guarantees security of money trans-

EURAS IA N FIN AN CIA L & ECONO MIC HERA LD | # 2 -2 0 1 7

Assel Zhiyenbayeva, Chief Digital oﬃcer of Astana International Financial Center (second on the right) meets the China Blockchain Application Research center team, Beijing tai Cloud Corporation and First International energy Corporation representatives.

tai Cloud Corporation team after the meeting with Payment System Department of the national Bank of Kazakhstan, Almaty.

Reference Blockchain raises capital • The largest exchange of Russia MICEX used blockchain technology to encourage investment • Investment banks such as Goldman Sachs and JPMorgan surprised by investing in blockchain companies and technologies. • Blockchain star-ups have raised funds for the amount of $15 bn. in the last three years. • European Union allocated EURO 5 m for different blockchain projects. • Globally blockchain start-ups have raised $1.57 bn. of venture capital.

fers, created direct connection between counterparts, facilitates transactions and lowers costs. The blockchain “Smart Contract” helps to organize and handle transactions and gives plain solutions for turnover. Blockchain can be widely used to digitize financial transactions be-

tween countries. In trade and industry of China and its partners in Eurasia this technology will develop cooperation with innovations. With strong security, mutual control and transparency blockchain can enhance mutual confidence between Chinese companies and foreign investors. We hope that Eurasian countries with their enormous natural resources will be interested in blockchain. The OBOR initiative implies the construction of “Smart Cities” along the “belt”. In future there will be more smart cities where blockchain can also be integrated together with trade and industry sectors. During the visit of the Chinese delegation to Kazakhstan Almaty city mayor Bauyrzhan Baibek expressed interest in blockchain technology. Kazakhstan was interested in Chinese investments in financial technologies and digitizing on infrastructure.

Blockchain increases influence of cities to become regional centers and gain international recognition. For example Guiyang in China is named a Big Data City due to this technology. Ganzho is also well known by its blockchain technology management. In Europe more cities are anticipated to gain world recognition due to blockchain industry.

Reference Deng Di, Chairman of China Blockchain Application Research center Tai Cloud – the first blockchain company on the Chinese New Third Board list. Deng Di established several companies with innovations in digital calculations, digital currency and blockchain technology. Deng Di owns more than 100 patents. In 2013 he was nominated by the Ministry of Industry and Information Technologies on China as expert in digital calculations and also became a member of the National Committee on Digital Financial Security and senior expert in the Committee on Innovations of internet applications. In 2017 he was elected the Chairman of China Blockchain Application Research center and was entitled Innovator and Entrepreneur of the year. Deng Di was the head of China delegation at Davos meeting 2017. He also initiated a Global Business Blockchain Council.

Trends

UPSIDe RetURnS to eASteRn eURoPeAn BAnKInG MARKetS SoMe DeDICAteD WeSteRn PLAYeRS oPen FoR CooPeRAtIon

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Going forward the massive banking sector clean-up in Russia, Belarus and Ukraine, seen over the past few years, should support Western players with prudent niche player strategies.

GU NTER DEU BER Senior Director, Head of Economics, Fixed Income and FX Research, Raiffeisen Bank International, Raiffeisen RESEARCH, Vienna, Austria. Expert of the European Investment Bank (EIB), the European Parliament, the OSCE, the German foreign-policy think tank (SWP) on finance and economy in CEE.

EURAS IA N FIN AN CIA L & ECONO MIC HERA LD | # 2 -2 0 1 7

THE GENERAL CONDITIONS IN THE EASTERN EUROPEAN BANKING MARKETS, MAINLY RUSSIA, BELARUS AND UKRAINE, WERE CHARACTERIzED BY A SUBSTANTIAL IMPROVEMENT IN 2016. THIS IS ESPECIALLY REMARKABLE AS ALL THREE COUNTRIES HAVE FACED CONSIDERABLE HEADWINDS DUE TO THE GLOBAL COMMODITY CRUNCH AND/OR NATIONAL CRISIS IN RECENT YEARS.

hat said the aggregated regional Return on Equity (RoE) in the Eastern European banking sectors has edged up to around 10% in 2016, up from 2-6% in 2014 and 2015. Definitely, this improvement in regional banking profitability was mainly driven by the Russian and Belarusian banking sector. On aggregate the Ukrainian banking sector was still deeply loss-making in 2016. However, progress in case of Ukraine shall not be downplayed as well. On the Ukrainian market about 60 lenders were profitable last year; some 30 banks were still loss-making. However, nearby 80% of the aggregated losses of those 30 lenders were booked by one

institution, the nationalized Privatbank. All in all, the most striking development in regional banking sector dynamics could be observed in case of Russia. The asset quality weakening at Russian banks has reached its peak somewhat earlier than expected. In Russia, the NPL ratio inched southwards in 2016, down from 7.2% (2015) to 7%. Moreover, the NPL ratio upsurge seen in recent years (i.e. from 2013 to 2016) has been modest with an increase of some 4.5% to about 7% compared to the developments seen during previous crisis times. From 2007-2009, the NPL ratio on the Russian market has increased from some 1.5% to around 6%, while the NPL ratio had even peaked

0 2000

2002

2004

2006

2008

2010

Diagram 1. Eastern European banking markets: Profitability

2012

2014

2016

at 17% during the last existential crisis back in 1998/99. Moreover, we view the quality of the system’s loan portfolio as rather healthy now, as the NPL ratio on the Russian market went notably down in 2016, amidst a declining base (the aggregated loan stock did decline also in local currency terms to restrictive lending policies in corporate lending last year). The earlier-than-expected asset quality stabilisation also supported a bounce back of profitability in Russia. The Russian banking sector RoE recovered to around 10%, up from some 2% in 2015. Moreover, unlike in 2015 when only the largest state-owned banks and a few foreign-owned lenders made up almost the entire sector’s profit, positive earnings were more equally divided throughout the sector in 2016. The overall stabilisation in Russian banking indicators is very striking when looking at some of the challenges we have observed in recent years. The Russian economy and banking sector has witnessed a substantial external shock, i.e. international cross-border banking sector exposures towards Russia had been cut by 50-70% in recent years (down from some USD 250-260 bn back in 2013 to around USD 100 bn as of year-end 2016). The cuts in cross-border banking exposures (on the back of the commodity crunch as well as the phasing in of Western sanctions) towards Russia had been much stronger and faster than the

Source: national sources, RBI/Raiﬀeisen RESEARCH

120

113

110 100

100

loan-to-deposit ratios have also inched down considerably. In case of the Russian banking market the loan-to-deposit ratio is even substantially lower than some 10 years ago (i.e. before the strong boom seen afterwards) and well below the 100% level. In case of Belarus and Ukraine loanto-deposit ratios are at least close to their 2005/2006 levels (although still above the 100% level). This deleveraging in the Eastern European banking markets (which is well in line with broader regional and global banking sector trends and driven by local factors only) opens up the room for sustainable and selective banking growth going forward. Eastern European banking markets: Loan-to-GDP ratios (%) This holds especially true as we have seen a lot of banking sector cleanup in recent years as indicated by the number of banks operating on the market. Some 50% of the operating banks have been closed in Russia since 2007/08, while the drop-out rates have increased tremendously in 2015 and 2016. Currently some 600 banks are still operating in Russia compared to 1,100 some years ago, in Ukraine some 90 banks are still active compared to some 200 during the peak times in 2007/08. In case of Belarus we have also seen come bank closures in recent years, with 24 banks operating currently (compared to 32 back in 2012). Moreover, in all Eastern European banking sector we have seen extensive professional stress-testing and/or asset quality reviews, partially supported by

100

79 55

62 37

Euro area

Russia

20 0 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Diagram 2. Russia: Cross-border claims (2008 = 100) * Consolidated banking statistics. Source: Bank of International Settlement (BIS), RBI/Raiﬀeisen RESEARCH

external deleveraging we have seen in the context of the euro area crisis and towards individual countries of the socalled euro area “Periphery”. The experience of the euro area crisis has shown how painful such a substantive deleveraging in cross-border banking exposures can play out. However, the fallout of the recent round of external deleveraging on Russia and the Russian banking sector was very moderate; a performance that can be mainly attributed to a very attentive and competent management by the Russian Central Bank. Moreover, more restrictive regulatory policies of competent Russian authorities as well as a more measured expansion of the banking sector following the 2008/09 crisis have also paid off. On an interesting note it is worth highlighting that broad-based international exposure cuts towards the Eastern European banking markets are currently levelling off. This holds especially true for the Russian market and individual exposure cross-border banking exposure categories (e.g. potential exposures via credit commitments as well as sovereign exposures even inched up slightly in 2016). The banking sector resilience in Russia has some regional spillovers as well. Currently, we detect a trend towards more sensible regulatory policies (including a certain banking sector cleanup, e.g. in terms of de-offshorisation, de-dollarization, cutting the number of institutions operating on the market or downsizing of directed and/or relatedparty lending) as well as a more measured pace of expansion as desired route

of economic policymaking in the other Eastern European countries (Belarus, Ukraine) as well. In case of Belarus the revision of non-performing loans measurements should be also seen as part of more coherent banking sector supervision. The increased regulatory vigilance in the Eastern European banking sectors seems to be part of a more broadbased turn to stability-oriented economic policymaking in the region. Therefore, the overall macro-financial situation in the Eastern European banking markets is supporting our constructive view on regional banking dynamics. There are no signs of too aggressive underwriting and lending expansion in all major Eastern European markets. In fact loan-to-GDP ratios have moderated in Russia, Ukraine and Belarus in recent years. Additionally,

100

79 63 60

49 46

56 58

19 18 14

20 15

42 39

49 42

Russia

Ukraine

Belarus

0 2001

2003

2005

2007

2009

2011

2013

2015

Diagram 3. Eastern European banking markets: Loan-to-GDP ratios (%) Source: national sources, RBI/Raiﬀeisen RESEARCH

EURAS IA N FIN AN CIA L & ECONO MIC HERA LD | # 2 -2 0 1 7

55 51

51 48

46 42

41 36

36 33

31 29

29 27 32

AT, FR, IT banks (% of total)

10 DE, UK, US banks (% of total)

0 2004 2005 2006 2007 2008 2009 2010

2011 2012

2013 2014 2015 2016

Diagram 4. Russia: Relative importance of AT, FR, IT banks* * % share of cross-border claims of major Western banking sectors (AT, FR, IT, DE, JP, NL, US, UK) representing some 80-85% of cross-border claims on Russia according to consolidated BIS banking statistics Source: Bank of International Settlement (BIS), RBI/Raiﬀeisen RESEARCH

clearly shown their commitment to the Russian market over the last few years with more or less constant market shares. Therefore, it comes as no surprise that some 50% of cross-border banking financing to Russia (consolidated crossborder claims according to statistics of the Bank of International Settlement) is currently provided by Austrian, French and Italian lenders. Some ten years ago the “Austrian-French-Italian” share in cross-border banking claims on Russia stood at some 20%, inched up to around 40% up until 2008 and surpassed the 50% mark recently as indicated beforehand. For dedicated banks with a focus on Eastern European markets out of those

the International Monetary Fund in case of Ukraine and Belarus. The still ongoing market clean-up shall also support the confidence in the domestic banking sector among external observers and market participants. Moreover, the share of foreign-currency loans in total loan books still looks reasonable in Russia – despite some uptick in recent years – compared to the years following the (regional) crisis end of the 1990ies (connected to the Russian crisis in 1998/99). In case of Ukraine banking sector clean-up and stability-oriented policies are partially enforced by the International Monetary Fund, while Russia and Belarus are following such policies on a more intrinsically motivated basis. Dedicated Western European lenders with deep roots in the Eastern European banking markets have shown their willingness to remain engaged in banking in the EE region and on the Russian market in particular despite certain headwinds. This development shall not be underestimated given that on the Russian market, the market share of foreign-owned lenders (100% foreign-owned) has reached 6.1% in 2016, its lowest level since decades and since we have been tracking this ratio. However, the decline of the foreignownership ratio was mainly driven by aggressive downsizing and market exits on behalf of players that entered the market in the “very good” boom times and on a very opportunistic basis. In contrast the major dedicated Western European players (mainly Societe Generale, UniCredit and Raiﬀeisen) have

that the performance of Raiﬀeisen franchise in the Eastern European markets suggests that decent and sustainable profits can be made over there. On aggregate the Eastern European markets had been never loss making at Raiffeisen in recent years, posting an outstanding average 2009-2016 RoE (after tax) of 24-29% on the Russian and Belarusian banking market respectively.

30 25 20 15 10 5 0 2009

2010

2011

2012

2013

2014

2015

2016

Diagram 5. Aggregated profitability of Eastern European subsidiaries at Raiﬀeisen* * Weighted by assets in the respective countries. Source: company data, RBI/Raiﬀeisen RESEARCH

ROE Raiﬀeisen Russia

ROE Raiﬀeisen Ukraine*

ROE Raiﬀeisen Belarus 48

31 27

30 24

28 24

20 9

12 6

–10

–20

–20 –30

–40 2009

2010

2011

2012

2013

2014

2015

2016

Diagram 6. Profitability of Eastern European subsidiaries at Raiﬀeisen * Approximizations for 2014/2015, Return on Equity after tax, %. Source: company data, RBI/Raiﬀeisen RESEARCH

three countries their engagement on the Russian market, mainly based on a largescale on-shore presence via local subsidiaries, has payed-oﬀ in recent years. Major Western lenders have strongly outperformed the Russian market in recent 2-3 years when it comes to the through-the-cycle profitability. Their average RoE (pre-tax) stayed at 18% by far overshooting the market averages and average RoA (pretax) increased from 1.4% in 2015 to 1.6% in 2016. That said Western banks operating on the Russian market have profited from risk-disciplined lending policies as well as the overall improvement in the banking sector resilience. Going forward the massive banking sector clean-up in Russia, Belarus and Ukraine, seen over the past few years, should support Western players with prudent niche player strategies.

Established corporate franchises, as well as possibilities in retail lending (with a certain gearing towards the upper market segment and mortgage lending) are the two major factors behind the, yet cautious, but gradual revival of the lending activity in Russia and among leading Western banks operating on the market. Moreover, Austrian Raiffeisen Bank International has also shown its commitment beyond the Russian market, i.e. to the Ukrainian and Belarusian banking sector in recent years. Currently, Raiffeisen operates the fourth largest bank in Ukraine and the seventh largest bank in Belarus. In case of Ukraine several Western competitors have left the market in recent years, while the Raiffeisen franchise in Belarus (Priorbank) has no Western competitors on the local market at all. In this context it is worth highlighting

Nevertheless, when it comes to a more broad-based engagement of major Western players in the Eastern European banking we do not expect that the looming (re-)privatisations in Ukraine (Privatbank) and Belarus (Belinvestbank, Moscow-Minsk bank shall be privatised, a minority stake in the largest bank, Belarusbank, is set to be sold) will generate very strong interest from Western (European) players. In fact several Western banks left the Ukrainian market in recent years (e.g. Commerzbank, Erste Bank, Swedbank, Societe Generale, UniCredit), while Western banks have not shown any meaningful interest in the Belarusian market in recent years. Moreover, we do not see any re-entries of Western banks on the Russian market. Therefore, we would see some opportunities for non-Western and non-Russian banks to grab some market shares in the Eastern European banking and in the Ukrainian and Belarusian banking sector in particular (e.g. for Chinese lenders). Therefore, the Eastern European banking markets may see a new round of Eurasian cooperation going forward, while the performance of Raiﬀeisen in the Eastern European markets over the past few (challenging) years has shown that sustainable profits can be made there with a risk-disciplined niche-player model.

“

Dedicated Western European lenders with deep roots in the Eastern European banking markets have shown their willingness to remain engaged in banking in the EE region and on the Russian market in particular despite certain headwinds. EURAS IA N FIN AN CIA L & ECONO MIC HERA LD | # 2 -2 0 1 7

pROJECTS

KAReLIAn CRUSHeD Stone www.salus.ru

odern technologies and high-quality materials with special properties are necessary to achieve good quality of the roadway. Until recently, the gabbro-diabase was considered the most durable material for the construction. The roads from the gabbrodiabase, built in Russia in 1997-1999, are still in good condition and do not require repair. The state standard allows the use in road construction of both granite and gabbro-amphibolite crushed stone. At the same, time crushed stone from gabbro-amphibolite is more durable than from gabbrodiabase. It has unique characteristics the necessary in production of asphalt for roads with increased load. It is recommended to use crushed stone from gabbro-amphibolite for the construction of roads of strategic importance, nuclear power stations, metro, responsible buildings and structures, seaports, highspeed railways. The use of crushed stone from this natural stone allows the state and investors to reduce the cost of the development sites, to increase an average age by at least 3 (three!) times. On the territory of the Segezhsky district of Karelia there are two deposits of gabbro-amphibolites – «31 quarry» and «Idelskoye».

THE CLIMATE OF RUSSIA IS CHARACTERIzED BY LONG-TERM WINTER WITH SUDDEN CHANGES IN TEMPERATURE. ACCORDING TO THE OFFICIAL STATISTICS OF THE STATE ROAD TRAFFIC SAFETY INSPECTORATE, THE HALF OF ROAD ACCIDENTS IN OUR COUNTRY OCCURS AS A RESULT OF THE UNSATISFACTORY STATE OF THE ROAD. THE WORLD ECONOMIC FORUM IN ITS NEW REPORT (2016-2017) PUBLISHED THE RATING OF COUNTRIES ON qUALITY OF ROADS, IN WHICH RUSSIA HAS TAKEN THE 123 PLACE OF 139.

the deposit of «31 quarry». The license to the right for subsoil use was issued before 30 June 2025. The deposit reserves amount to around 30 million m3. At present, there is all the necessary project documentation with expertise approval. The necessary lease agreements for land for a period of 49 years are concluded. Permission had been granted for the construction. The project supports the construction of a rock-crushing plant mark «Metso» allowing a quality product of any fraction at the request of the customer.

the deposit of «Idelskoye». The license to the right for subsoil use was issued before 30 March 2033. The deposit reserves amount to around 70 million м3. The deposit is located near the federal highway and the railway. It is necessary to attract investment in the amount of 1,2 billion rubles for the implementation of this project. The payback period of the investment made would be from 3 to 5 years. Technical and financial specialists of the company “Salus” explored and analyzed the assets, documentation of two deposits and suggested value engineering recommendations.

BUSINESS OF THE COUNTRIES

Janez Podobnic, Head of the Representative oï¬&#x192;ce of FBA EAC in the South-Eastern Europe

tHe RePUBLIC oF SLoVenIA:

InVeStMent AttRACtIVeneSS THE REPUBLIC OF SLOVENIA IS LOCATED IN CENTRAL EUROPE BETWEEN ITALY, AUSTRIA, HUNGARY AND CROATIA. IT IS A COMPACT AND DIVERSE COUNTRY. THERE IS THE MAGNIFICENT ADRIATIC COAST, SNOW-COVERED ALPINE MOUNTAINS, WOODED HILLS AND FERTILE PLAINS. FURTHERMORE, THIS STATE HAS GREAT INVESTMENT ATTRACTIVENESS.

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Current economic outlook Slovenia has a modern, highly developed, high income economy that has always been strongly export oriented. Slovenia’s economy is benefiting from the fact that it operates form a highly developed EU member state and that the country is a member of the most important economic associations such as WTO, OECD. Slovenia's foreign trade is focused on the EU countries, primarily Germany, Austria, Italy and France. Slovenia’s inclusion in modern trade and industrial channels – primarily European – has left it highly dependent on external demand and supply trends in the global and primarily most highly developed modern economies of Western Europe. According to data from the Slovenian current GDP in 2017 stands at 41.625 million EUR (up from 39.769 in 2016 and 36.896 in 2010), growing at 3,6%, scheduled to grow at 3,2% reaching 43.675 million EUR in 2018. Growth of Slovenian GDP has been fueled for the majority of the past 10 post-crisis years by an over preforming export sectors which exported its goods and services to the main growing European markets, primarily Germany, and CEE markets (Poland, Czech Republic, Slovakia). Overall growth of export reached 6% in 2017 and is scheduled to reach 5,1% in 2018. Value of export therefore reached 28.01 million EUR in 2016, which underlines the importance of export-oriented companies for Slovenian economy. One problem of Slovenia’s current economic state is its relatively high public debt which in 2016 stood at 79.7% of GDP with a budget deficit of -1.8%. The debt stems from the fact that the state overtook many of the private sector’s debts and debt from the (state-owned) banking sector. Public debt decreased from a high of 81% and is scheduled to decrease further. Private sector’s debt decreased significantly in the last years from

120% GDP in 2010 to approx. 80% in 2016 and is decreasing further. Outlook for further and faster decrease of debt in the country remains positive with the need for reforms being very strongly underlined by the large sectors of government and industry. Inflation has remained low since Slovenia’s entry in the Eurozone (2007).

Main sectors Slovenia’s is a modern economy with the most of employment being in the service sector (62%) and the rest in industry (35%), with a minimal share for the agriculture. Industry’s share in the GDP growth is however increasing. Main industrial sectors in Slovenia are: pharmaceuticals sector, electrical appliances sector, automotive sector, metallurgical, chemistry, tooling and machine building, but also IT and bio technology. Some sectors are highly organized such as the automotive with its ACS – Automotive Cluster of Slovenia association. Slovenia’s key industrial companies today are concentrated in some key sectors. Pharmaceuticals has two large companies Krka and Lek each having approx. 1 billion EUR sales. Industrial appliances has large companies such as Gorenje (white goods, 1 billion sales), Iskra Group (industrial and telecom systems), IskraTel (telecommunications), Domel (electrical motors), MAHLE Letrika (industrial motors and automotive). Automotive sector with its almost five billion EUR exports, has large diversified groups such as Kolektor, Hidria, LTH Castings, TPV, Cimos each with couple of 100 million in annual sales and is buttressed by the Renault-owned Revoz OEM manufacturing plant (producing Twingo and Clio models). Steel and light alloy manufacturing sector is characterized by presence of a few large companies such as ISJ – Sloven-

ian steel industry and Impol aluminum product manufacturer. Tooling sector – according to some estimates Slovenia has the most toolmakers per capita in Europe – has almost 900 million EUR exports and is focused on steel, light alloy and plastics sub-sectors and has many companies ranging from large Gorenje Orodjarna, EMO Orodjarna to many family-owned companies. Machinebuilding companies offer advanced machine and automation solutions, varying from larger Unior Group to smaller TST (sandblasting), Gostol Gopan (bakery equipment), Lama Automation (electronics assembly lines). In the past 15 years Slovenia also gained some smaller but globally oriented and well-known companies such as Pipistrel (ultralight aircraft), Akrapovič (exhaust systems), Elektronček (casino gaming systems), Riko Group (engineering solutions for energetics, water waste treatment solutions) Cleangrad (clean room solutions), etc. Slovenian companies have established for themselves a name for a

REFERENCE The Republic of Slovenia A state in Central Europe Territory – 20 236 sq.km Population – 2 005 692 (2009 estimate). Ranks No. 144 by population and No. 150 by territory. Capital – Ljubljana Language – Slovenian Located in the prealpine part of the Balkan Peninsula, borders on Adriatic Sea. Shares borders with Italy, Austria, Hungary and Croatia. An industrial country with dynamic economy. Currency – EURO Independence since 25.06.1991 Joined the EU on 01.05.2004.

very effective quality and price ratio and short delivery times at the same time complying with the most demanding standards in the industry for the most demanding markets. Slovenia’s companies have been often very strongly focused towards the West and Slovenian population has a high knowledge of foreign languages Proficiency in English is almost 100%, and Slovenia has one of the highest percentages of German and Italian proficiency outside territories of native populations of these language speakers. Proficiency in especially Russian and Spanish but also French has also been gaining traction in the past 15 years. In addition, due to Slovenia being formerly part of Yugoslavia, Slovenian population has a very high knowledge of Serbian and Croatian language coupled with strong cultural and economic links in the region. Slovenia’s growth has throughout its history been mostly oriented on export and not so much on FDI, although these are increasing in the past few years. In the nineties major industrial companies were majority state owned (with the state holding the controlling share and the rest being on stock exchange). This was perceived as a tool to help defend the small economy against external shocks. Slovenia did receive some key foreign direct investments from Western Europe already in the nineties. These today constitute some of the key industrial companies. To name some of them: pharmaceutical company Lek (owned by Novartis of Switzerland), Slovenian steel industry (owned by Russian Koks Group), rubber company Sava Tires (owned by Goodyear from UK), electronics company BSH Nazarje (owned by Bosch-Siemens BSH of Germany), electronics company Ydria Motors (owned by EBM Papst of Germany), Yulon polymer manufacturer (owned by Aquafil Italy), Odelo Slovenia (owned by German group), Carthago vans (German), automotive components man-

ufacturer GNK Driveline (UK owned), NOVEM Car Interior Design Žalec (German).

Slovenia’s ownership policies and FDI In the last two years Slovenia increased effort on the governmental and local levels to increase Slovenia managed to gain interest from foreign investors. These include purchase of renowned van manufacturer Adria Mobil by the Trivago Group (France), leather manufacturer Prevent by Boxmark Leather group (Germany), automotive supplier Cimos by Palladio group of Italy, high-end laser manufacturer Fotona by an American company, coating manufacturer Helios by Kansai Plant group of Japan, famous turbine manufacturer Litostroj Power is owned by Czech Energo Pro and Trimo façade system supplier by the private Polish Innova fund. Once formerly state-owned banking sector is also undergoing big change with two major banks being owned by French Societe Generale and Italian Intesa San Paolo. Other foreign banks also entered the market, among them the Russian Sberbank. Interesting developments are underway in the retail sector – especially household sector - once dominated by a strong national retailer and now being tapped by low budget (Hofer, Lidl) and high end (Spar,E. L’Eclerc) retail stores. Many of major food manufacturing companies have been bought by foreign companies. Athough a small market, Slovenia attracted interest of clothes retail stores and some other big retail names (Ikea) are considering entering the market. Energetics sector is still mainly nationally owned, with the major fuel and energents supplier Petrol covering the most of the market and larger electric energy suppliers – Krško nu-

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Slovenia is a developed Central European country with strong links to Western European and also Eastern markets.

clear plant, hydro plants – being 100% nationally owned. The sector is still quite closed to the foreign actors

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with the state considering the sector of vital strategic importance.

Specifics of doing business in Slovenia Slovenia holds many incentives for foreign investments. The general corporate tax rate is 17% (2016 data) and the Government offers a FDI Cost-Sharing Grant Scheme. The country has a well-positioned Em-

ployment service of Slovenia which works closely with the private sector to ensure efficient employment practices. The private sector is strongly organized within the Slovenian Chamber of Commerce with its highly active Department for International Cooperation. Slovenia's economic policies are coordinated on the state level primarily by the Ministry of Economic Development and Technology and support agencies such as SPIRIT - Public Agency for Entrepreneurship, Internationalization, Foreign Investments and Technology. In addition, an important role is played by the stateowned SID Banka – Slovenian Export Bank. Other support mechanisms include the Slovene Enterprise Fund incentives, incentives for purchase of new technologies etc. Support for companies is made by public calls, published in the National Gazzette and updated on the Ministry's webpages. In addition the country provides tailored and up-close services to potential foreign investors – free of charge - by Invest Slovenia system. Important reference points are also Ministry of Foreign Affairs which has 52 diplomatic missions and 22 economic counsellors and a special Directorate for Economic and Public Diplomacy. International cooperation is also supported by the CMSR The Centre for International Cooperation and Development and ICPE – International Center for Promotion of Enterprises. Slovenia boasts a skilled workforce and an established cooperation between public education sector and industry. Slovenia has three public universities (largest and oldest Ljubljana University from 1919 with 30.000 students, Maribor and Slovenian Littoral University) and a private Nova Gorica university which is strongly technology oriented. Slovenia's scientific sector is supported by the national Jožef Štefan Research Institute (with almost 1.000 employees, majority of them with PhD.s), Slovenian Chemistry In-

stitute, Slovenian Construction Institute etc. Slovenia offers today a good position in Central Europe with geographic proximity of the main WestEuropean and Central-European markets and good logistical links. Slovenia has a developed hghway network linking Slovenia to the main pan-European corridors: corridor from Spain to Russia, links from northern Europe towards the Balkans. Proximity of northern Italy, southern Germany and Eastern European industrial regions is also a great advantage. Slovenia's port of Koper is an international logistics hub connecting industrial regions of China, Korea, East Asia with main CEE Markets of Germany, Austria, Poland, Czech Republic. The Jože Pučnik Brnik international airport is an important air hub.

Conclusion Slovenia remains a promising investment opportunity; a developed Central European country, situated in Central Europe with a strong links to Western European markets and also Eastern markets. Slovenia’s recent privatization push and also concentrated effort for attracting new FDI investments will definitely be of a great interest for private or institutional investors in the coming years. The country is working hard to further improve its business environment and further lower administration barriers for foreign companies. As a member of the EU, Eurozone and being deeply integrated into the European common market, Slovenia can prove an important gateway for companies from Eurasian area on the most developed European markets. Visitors to Slovenia wishing to do business can relax visiting the worldfamous Bled lake, Postojna cave, Slovenian Istria with its charming towns and Ljubljana with the works of the famous architect Jože Plečnik.

Business of the countries

Marc-olivier tech, Executive Director of SALUS-CI

tHe RePUBLIC oF Côte D'IVoIRe:

PARADISe FoR FoReIGn InVeStMent CôTE D'IVOIRE (ALSO: IVORY COAST) IS A COUNTRY IN WEST AFRICA WITH A SOUTHERLY FACING NORTH ATLANTIC OCEAN COAST. COTE D'IVOIRE IS THE WORLD'S LARGEST PRODUCER AND EXPORTER OF COCOA BEANS AND A SIGNIFICANT PRODUCER AND EXPORTER OF COFFEE AND PALM OIL. COCOA, OIL, AND COFFEE ARE THE COUNTRY'S TOP EXPORT REVENUE EARNERS, BUT THE COUNTRY HAS TARGETED AGRICULTURAL PROCESSING OF COCOA, CASHEWS, MANGOES, AND OTHER COMMODITIES AS A HIGH PRIORITY. MINING GOLD AND EXPORTING ELECTRICITY ARE GROWING INDUSTRIES OUTSIDE AGRICULTURE.

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State of the economy The economy of Ivory Coast is stable and currently growing, in the aftermath of political instability in recent decades. The Ivory Coast is largely market-based and depends heavily on the agricultural sector. Côte d'Ivoire is one of the most economically developed countries among former colonies of French West Africa. However, the economy is highly sensitive to fluctuations in international prices for these products and to climatic conditions. The country is the world's largest producer and exporter of cocoa beans and a major producer and exporter of coffee and palm oil. Traditionally among key export positions there is cocoa, butter, coffee, rubber, cashews, and bananas. In addition, the Republic produces corn, rice, cassava, sugar cane, cotton, rubber, wood, and fruit. The leading industries of the country are food-processing, woodworking, petroleum refining, gold mining, production of fertilizers, building materials. The policy of the state is aimed at restoring the country's leading positions in the economy, diversifying foreign economic relations and attracting foreign investments into the country. The National Organization for Standardization and Certification (CODINORM) and WEB FONTAINE are the main regulatory bodies charged with developing and maintaining national quality standards. CODINORM is the national standards and certification body entrusted with the following tasks: – the development, registration and dissemination of Côte d'Ivoire standards; – the management of a national product certification and quality management system (ISO 9000 series); – the promotion of quality management in companies; – the management of a technical documentation collection and of a bookstore for standards and quality-related works; – the management of the national WTO enquiry point on standards and regulations;

– the representation of Côte d'Ivoire in international standardization bodies. In 2015 Foreign Direct Investment (FDI) in Côte d'Ivoire averaged $ 430 million (in current prices, UNCTAD). In 2017 Côte d'Ivoire was the 142nd place of 190 countries in Doing Business rating. According to individual indicators: Payment of taxes - 175 place, International trade - 150 place, Protection of minority investors 145 place.

and equipment for the processing sector of the agro-industrial complex; – food production; – extractive industry: prospecting surveys, delivery of machinery and equipment, construction of enterprises for ex-

Reference The Republic of Côte d'Ivoire А country located in West Africa. Аrea — 322 460 km2.

Prospects for economic cooperation The Republic is interested in mutually beneficial cooperation and investments in the following branches of the economy: – agro-industry: construction of irrigation systems, production of mineral fertilizers, acquisition of agricultural machinery

Population — 23,740,424 (2016 estimate). Capital — Yamoussoukro. Largest city — Abidjan. Official languages — French. Government – Unitary presidential republic. Currency – West African CFA franc (XOF). Independence from France 7 August 1960.

the Basilica of our Lady of Peace is a Roman Catholic minor basilica dedicated to our Lady of Peace in Yamoussoukro. Guinness World Records lists it as the largest "church" in the world.

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The policy of the state is aimed at restoring the country's leading positions in the economy, diversifying foreign economic relations and attracting foreign investments into the country.

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traction and processing of raw materials; production of consumer goods, textiles, etc.; production of chemical goods; building; transport; fishing; education; tourism; scientific cooperation in the field of oceanography and agro-industry.

Also it should be taken into account that there is the ECOWAS Common External Tariff (CET) within the country, coordinated with the member states of the West

African Economic and Monetary Union (UEMOA). In accordance with this tariff structure, the highest tariff rate of 35% was abolished, and four categories of products with rates of 0, 5%, 10% and 20% were established. Special sliding tariffs from 2.5% to 5% are also applied to protect certain industries. This kind of tariff applies to the import of fish, alcohol products, tobacco and cigarettes, oil products, matches, tomato paste, cement. These products can compete with local producers. The list of documents required for the export of goods to Côte d'Ivoire depends on the name of the goods, but the main ones are: • invoice, two copies in French; • pro-forma; • certificate of origin, together with a certified copy; • packing list; • bill of lading.

Incentives and guarantees for foreign investment Côte d'Ivoire is pursuing an active policy of increasing the volume of foreign investment inflows.

In connection with the political events of 1999 and 2010, a small part of the French residents left the country, freeing positions for new partners in all spheres of the economy. The Republic has favorable conditions for foreign investors, namely, a good infrastructure and a rapidly developing financial system. In order to promote foreign investment in Côte d'Ivoire, the Investment Promotion Center (fr. Centre de Promotion des Investisseurs en Côte d’Ivoire) has been established. The key document legally governing foreign investment in Côte d'Ivoire is the Code of Investments (fr. Code des investissements), introduced in August 3, 1995 and modernized in 2012. In addition to this law, economic activities for foreign investors are determined in regulatory acts in the relevant areas. Côte d'Ivoire had signed the Settlement of Investment Disputes (SID) on June 30, 1965. It is a member of the World Bank's Multilateral Investment Guarantee Agency (MIGA), which guarantees insurance against non-commercial risk such as restriction on transfer, breaking contracts, expropriation, military or civil strife.

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