The expert marked the wrong policy of the authorities, which followed the example of the Arab countries.
COVID-19 pandemic in Kazakhstan has had an extremely negative impact on small and medium-sized businesses. Mass media predicts a massive closure of commercial and service facilities, stressing that the situation with business in the country was difficult long before the coronavirus. CentralAsia.news editors decided to find out what’s going on with the economy in Kazakhstan, which plays a key role in business development and investment attractiveness. Rasul Rysmambetov, financial expert, director of the public fund Financial Freedom, commented on this subject.
Developed and attractive
The financier noted that the republic is one of the countries where vast areas of farmland are cultivated. For investors, the agricultural sector can be very attractive, given the large-scale sales market. Rasul Rysmambetov drew attention to the fact that it is not only about the PRC, but also the Russian Federation, Iran, Turkey, neighboring states.
The expert stressed that agriculture should be closely linked with the processing industry. That will allow supplying not only raw materials but also value-added products. Hence, this is the second promising area for investment.
The cultivation of raw materials and their processing involves the development of another type of business. It is about developing transport and logistics potential. According to the expert, railways and highways in Kazakhstan are far from perfection, but their condition still allows developing transport routes. Investing in logistics can be a profitable direction.
The expert underlined that there are already ready-made enterprises in these areas in the country, but due to the authorities' miscalculation, they have become problematic.
— Problematic assets in Kazakhstan are often of high quality, however, they were built without a reserve of operating expenses, which led to their bankruptcy. It means that the state, having invested in capital costs, often did not take into account the period of support for enterprises: 1-2 years, which led to the accumulation of such problem assets that are simply waiting for investment in their rehabilitation, — said the expert.
Rasul Rysmambetov highlighted that the following types of business are among the most developed in Kazakhstan: subsoil use, oil service, retail chains, and the financial sector. However, their development depends on not quite far-sighted policy of the Kazakh leadership.
The raw materials business grew because Kazakhstan relied on exports. The country followed the path of the Middle Eastern monarchies, selling hydrocarbons without deep processing.
— Imitating the model of the Arab countries, we did not take into account the high cost of our raw materials, including the social burden. The focus mainly on the export of raw materials formed a stable demand for imported goods and services, which needed only retail chains and a superstructure from the financial sector to finance trade enterprises and subsoil use, — marked the expert.
The financier underlined that over the past 20 years, the price for Kazakh raw materials has been growing, therefore, there have been no attempts to develop the sphere of import substitution. There was a simple model: money received from sold gas and oil could allow buying everything. As soon as prices for export products started to fall, incomes of citizens began to decline, which negatively affected retail chains.
Investors and Chinese business
The spread of the coronavirus and quarantine measures have led large investment funds to try to avoid emerging markets. For example, a reputable investor would prefer to invest in an asset in South Korea, because the market of this country has a much greater recovery potential compared to Kazakhstan.
In Kazakhstan, 80 percent of investments are directed to the subsoil use. Logistics, agriculture, and processing enterprises are of interest to highly specialized funds. They have experience in these areas, taking into account the regional specifics.
However, those who want to invest in the Kazakh business have a barrier worse than coronavirus — bureaucracy.
— I often face a situation when local authorities cannot overcome completely legal bureaucratic requirements within the legislation. Thus, bureaucracy is a greater risk than corruption. According to my experience, I can say that although corruption exists, however, in many cases, no one will ask for a bribe if the investor’s wishes are in line with the laws, — noted the investor.
It will be more convenient for a foreign investor to work through a local partner so as not to waste time understanding complex legislation. However, the overall picture in the country shows that Kazakhstan is not ready to attract investors of different levels. The country cannot provide full transparency of all procedures, said the expert.
The activities of Chinese business in Kazakhstan should be mentioned as a separate subject. Sometimes media says that Chinese entrepreneurs actively developed the oil sector.
— Chinese business in Kazakhstan is more represented in subsoil use, where companies are subsidiaries of state-owned companies in the PRC. At the level of private individuals, Chinese business actively works in the trade, making it easier for import to Kazakhstan and helping Kazakh companies to export products to China, — marked the expert.
However, the scale of the activities of the Chinese in Kazakhstan is difficult to determine. They do not advertise their interests, acting through ethnic Kazakhs.
As for the trendy area — startups on the Internet, the infrastructure in this industry is well developed for businessmen. Besides things are not very good with venture financing. Often the creators of the projects go to other countries to implement the idea.
— There are big deals, but there are not a lot of them since the market has boundaries. But there is a rather weak market for venture financing in the republic, so I know many cases when Kazakhstani teams traveled abroad — to China, Russia, the United States to find their happiness and money there, — said Rasul Rysmambetov.
