Kayrat KelimbetovChairman of the managing board JSC “Sustainable Development Fund “Kazyna”
Today, the issue of economic diversification is the most topical; it refers to the future development of Kazakhstan. Whether we become a competitive country or not depends on the solving of this issue. The Sustainable Development Fund, “Kazyna”, which was created one year ago and included seven development institutions (which were established within the framework of the Strategy of Industrial Innovative Development for 2003 – 2015) is one of the key instruments of the government policy on modernizing the economy. The annual message of the President to the public identified the most important tasks concerning the future development of Kazakhstan. The ideology of rapid development, contained in the annual message of the President, implies qualitative modernization and renovation of the country in the light of worldwide economic tendencies. The investment priorities have been identified; they are targeted at the promising industries, which can become the foundation of competitive economy. A lot has already been done during the existence of the “Kazyna” Fund. For example, during the 4 years of existence of the development institutes, a portfolio of approved projects valuing 3,3 billion dollars was formed; during the last year, this has grown to 5,1 billion dollars. Large-scale projects are realized; for example, a bio-ethanol producing plant in the Northern Kazakhstan oblast, a plate glass producing plant in Kazylordinskaya oblast, established jointly with “Pilkington” (220 million dollars), a metallic silicon producing plant with participation of “Tissen Krup” in Karagandinskaya oblast (140 million dollars), pipes producing plant jointly established with “Mannesman” in Mangistauskaya oblast (150 million dollars), an aluminium producing plant established with participation of the EIA (Eurasian Industrial Association) (450 million dollars), a cement producing plant in Eastern Kazakhstan oblast (77 million dollars), a petrochemical fiber producing plant in Kostanayskaya oblast, etc. Today, we have experience of fulfilling large projects, and see the growing investment potential of Kazakhstan. “Kazyna” group has developed a portfolio of promising projects with a total value in excess of 10 billion dollars. They will give new limits to the metallurgy, petrochemical industry and production of construction materials. The benefits for agriculture will be the production of bio-fuel, bio-chemistry and innovations in meat processing. The benefits for the development of infrastructure will be the creation of new generating facilities and the development of the transport-logistical system. During the next three years we intend to realize 5 projects based on producing bio-fuel with its further refining in Kazakhstan, with the participation of Kazakhstani, German and Austrian companies. We also plan to build a bio-chemical complex producing amino acids, ferments and organic acids in Akmolinskaya oblats, several modern meat processing complexes in some oblasts, and a factory producing textile products in Southern Kazakhstan oblast jointly with the Carerra and Benetton companies. Who can realize such projects? There are only two scenarios possible. The first, and the most preferable, is when they are realized by Kazakhstani investors. We have talked to many Kazakhstani businessmen. During the last 4 years, more than 200 business groups of different types, which can realize the projects, were formed. Many of the groups were formed in the peripheral regions of the country in such industries as mechanical engineering, metal processing, textiles, production of flour, production of construction materials, food industry, etc. However, speaking of mega-projects with a value of approximately 1 billion dollars, we should admit that there are few businessmen and managers in Kazakhstan who can lead projects of such scale. Therefore, we also actively worked on the alternative – contacting foreign investors. We’ve met many of the companies listed in the Fortune-500, we’ve negotiated with the leading foreign financial institutions and corporations of Western Europe, USA, Japan, China and South-East Asia, which are the world leaders in their own sectors. And we still continue to contact the companies. Another important issue is financing. In our opinion, the diversification formula in its simple form tells us that the scale of the diversification is proportionate to the amount of investment. Here we refer to the investment into the non-resource sector, not only from the government, but also from the private sector. We adhere to the principle of dividing the risks; for every dollar invested by “Kazyna”, 2 dollars of private investment, including foreign investment, are attracted. We are also creating an additional instrument – the Fund of Funds. This mechanism will allow us to invest into non-resource based projects jointly with the private sector. We’ve already reached agreement with such international investors as Goldman Sachs, Temasek and some local investment groups, which are willing to invest into the joint funds. Besides, we’ve reached agreements on joint investments with the World Bank, KfW bank and EBRD. Thus, a mechanism that allows us to draw 7 billion dollars of investment from the private sector for 3 billion of investment from the government has been created. However, in order to fulfil the plans we need strong political support. The experience of realizing the afore-mentioned project has identified some systematic issues, which require urgent resolving. Is there an alternative to the diversification policy? No. There are alternative mechanisms: improvement of general business climate, increasing competition and use of market mechanisms. This work is carried out by the government, and in the future it should keep the status of the main task of the government bodies. To speed up diversification, we need the following. First, we need an efficient system of coordinating the actions. We need to find a system integrator, who would be able to coordinate all of the activity. “Kazyna” Fund, which has the appropriate mandate, can take the role of such an operator of the government’s support. Second, we need a favourable environment for the ambitious projects. The practice of realizing the projects has shown that there is a necessity to solve a lot of problems at the micro-level to ensure big achievements. For example, when fulfilling the project on silicon, the question of assigning the land and resources for development of the infrastructure was resolved only with the support from the government, ministry of industry and trade, akimat of the oblast and “Sary-Arka” company. However, the question of supplying the new plant with electricity has not been resolved yet. We need to actively tackle the tasks of providing transport and engineering communication as well as electricity. Our organization has also started to finance the electricity industry (transmission facility North – South, Moynakskaya hydroelectric power station). In general, each project requires a personal and complex approach. It will take the form of real government-private partnership, which should become the main motto of the activities in the new conditions. Third, unfortunately, according to the experts’ assessments, in the near future it will not be possible to provide the new large projects, especially high-tech projects, with Kazakhstan’s own personnel. Therefore, we’ll have to solve the fundamental problem of migration policy – will Kazakhstan become a center of attraction for talented and intelligent people, as Canada, Hong-Kong and Singapore are now? Fourth, Kazakhstani business should be involved in the realization of the program of developing 30 corporate leaders. Targeting the goal of becoming a corporate leader will promote the formation of a global company attitude to the business. It is important to provide competitors with equal opportunities and ensure transparent rules of the game. Fifth, the global market is not just a competition, it also includes all the marketing techniques. Now the countries are competing for creation of the most favorable conditions for business. The first one to create such conditions will win. For Kazakhstan to compete successfully, we need to make decisions quickly and try to surpass our competitors. In general, today Kazakhstan has the opportunity to become a developed regional business center. Kazakhstani business has already formed its connections and projects. However, in order to fulfill this large scale task, we need to ensure that the Fund supports not only the projects of Kazakhstan’s industrial development, but also the projects that strengthen our role in the region. According to the leading consulting companies of the world, the economic policy of Kazakhstan, creation of the development institutions and “Samruk” and “Kazyna” holdings, initiatives of forming the competitive clusters and petrochemical complex, creation of the Regional Financial Center in Almaty, and the Strategy of Territorial Development ensured a strong ideological, organizational and legal base for future rapid development. Hence, we think that if the government and business participate in diversification of the economy, it is possible to fulfill.