Business learnings of Kazakhstan for make benefit glorious Asian investors

Kazakh top brass visit Hong Kong to outline private equity and venture capital opportunities.
An extensive delegation of Kazakh officials at the Four Seasons Hotel in Hong Kong is trying to encourage Asian investors to provide Kazakhstan with finance and co-ventures, to help its drive to the next level of economic development. After silver and platinum, the next highest-ranking product being imported today to Hong Kong from Kazakhstan is æcrude animal materialsÆ.

The perception that KazakhstanÆs economy is still concentrated on natural resources, energy production, precious metals and minerals is still true. The country and its elites have been made rich thanks to mineral resources.

With the indigenous copper mining company Kazakhmys now ranking as one of the biggest listed companies on the London Stock Exchange, and the recent admission to listing of ADRs for KazakhGold, KazMunaiGas and KazKommertsbank, there are mainstream opportunities for equity investment. The discovery of the Kashagan oil and gas field in the Caspian Sea area is likely to propel Kazakhstan to the being one of the worldÆs largest producers of hydro-carbons, and the Kazakh oil and gas sector could attract $150-200 billion in investment in the next decade.

Aware of the perils of having a æwild frontierÆ, natural resource-dependent economy, the Kazakh government is thinking of ways to diversify. There are still electrical blackouts on the streets of Alma Aty, as the development of infrastructure has lagged. Therefore the Kazakh government is planning on investing $17.5 billion in mega-projects, including power plants, both conventional and renewable/hydro-power, together with a program of road and railway building.

It was rumoured at the conference that a big-ticket bilateral agreement for infrastructure development has been executed between the Kazakhstan Development Bank and China Development Bank in Beijing earlier this week. It is already known that work has begun on an oil pipeline that will extend from KazakhstanÆs Caspian coast to the Chinese border.

What about value-added industries, which can take the economy to a higher level of sophistication? It is in this area that Kazakhstan is looking for foreign private equity and venture capital help. It is a difficult environment for foreign investors and they have to tread carefully. The overnight fortunes made within the natural resources sector has caused residential property prices explode to western European levels in KazakhstanÆs cities.

ôProperty prices and corruption are my main concerns about Kazakhstan,ö one delegate told AsianInvestor.

The official yearly wages of top managers in the Kazyna Fund are $3,000-5,000. All development institutions in Kazakhstan have been folded into the Sustainable Development Fund of Kazyna, including the Kazakhstan Development Bank and the venture capital-oriented National Innovation Fund.

The National Innovation Fund has been established in order to develop higher-level businesses such as organic chemistry, telecommunications, space industries and satellites.

ôFlagship Ventures in Boston and IsraelÆs Vertex are among the venture capital companies that plan to invest in Kazakhstan,ö says Borisbiy Zhangurazov, deputy chairman of the National Innovation Fund. ôWe expect they will look at deal sizes of $10 million-plus.ö

During the Soviet period, Kazakhstan was an agrarian supplier of raw materials to the Soviet Union. The break-up of the USSR in December 1991 and resulting collapse in demand led to a contraction for the economy and, by 1995, real GDP had dropped to 61% of its 1990 level. It recovered, and Kazakhstan was the first country of the post-Soviet Commonwealth of Independent States to receive investment-grade status from international ratings agencies.

There seemed to be far more Kazakh than Chinese businessmen in situ at the Four Seasons, so one hopes that they will find local business partners. As Kairat Kelimbetov, chairman of the Kazya Fund says, ôWe are looking to make long-term friendship with you.ö
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