Opening borders: ensuring security for Kazakhstani exporters
Kazakhstani enterprises are progressively increasing their exports of processed goods. In the first seven months of 2023, exports of non-commodity goods totaled $14.2 billion, while service exports reached $2.1 billion, marking a 16.7% increase compared to the same period last year.
The metallurgy and chemical industries predominantly drive these exports. Foreign markets also show keen interest in Kazakhstan's wheat flour, sunflower oil, and mineral fertilizers.
State export credit agencies (ECAs) play a pivotal role in supporting exports globally, as venturing into new markets and expanding export volumes pose certain risks. These agencies offer a broad spectrum of services, including financing for foreign trade transactions, government guarantees, and insurance against political and commercial risks for export loans and transactions.
To safeguard their businesses, Kazakhstani manufacturers can turn to KazakhExport Export Insurance Company, a subsidiary of Baiterek Holding. The company is dedicated to promoting non-resource exports and operates as an export credit agency.
KazakhExport's services are accessible to all existing enterprises in Kazakhstan that produce non-commodity goods and services, irrespective of their size, aiming to penetrate international markets, mitigate risks, and enhance the financial terms of export transactions between exporters and importers.
What protection is available to Kazakhstani exporters
According to Armana Bekbasova, Director of the Department of International Cooperation at KazakhExport, the company offers 18 programs tailored to the diverse needs of entrepreneurs and various stages of the export cycle.
"In addition to conventional support mechanisms, similar to those used by global export credit agencies (ECAs), we also provide options that consider the peculiarities of our region, including offerings for novice entrepreneurs targeting foreign markets," noted Bekbasova.
Thus, among the most sought-after products offered by KazakhExport are:
- Export credit insurance. This shields exporters from the risk of non-payment by foreign buyers for shipments with deferred payment terms.
- Loan insurance. It safeguards financial institutions if an exporter fails to meet obligations under a loan agreement. It also enables exporters to secure financing in the absence of sufficient collateral.
- Export letters of credit insurance. This facilitates trade financing on favorable terms for foreign buyers of Kazakhstani products and services.
"The company's strength lies in our mandate, expertise, and risk appetite in the Central Asian region, which is currently attracting significant attention from the world's leading financial institutions and ECAs. Accordingly, we are well-positioned and eager to support domestic producers in establishing export-oriented projects in Kazakhstan. We aim to leverage the best technologies and finance these projects under the insurance coverage of multiple ECAs, known as multisource financing projects," stated Bekbasova.
Since 2016, KazakhExport has provided support to domestic manufacturers totaling 971 billion tenge. During this period, 229 exporters have benefited from the insurance.
Furthermore, from January to November 2023, Kazakhstani companies received support amounting to 125.8 billion tenge. Additionally, trade and pre-export financing totaling 15.9 billion tenge was provided. This year, a total of 82 domestic exporters received support, with 22 enterprises receiving assistance for the first time.
Moreover, Kazakhstani producers have established trade relations with 289 foreign buyers. Presently, the leaders in existing export contracts are Uzbekistan, Kyrgyzstan, and China. Products are also being exported to Russia, Tajikistan, Belarus, Azerbaijan, and Afghanistan. Additionally, the geographical scope of supplies extends to Poland, Lithuania, the USA, Germany, the UAE, Latvia, Singapore, Turkmenistan, Mongolia, Estonia, the Czech Republic, Turkey, Georgia, among others.
Meanwhile, Dauren Nuranov, Director of the KazakhExport Insurance Department, highlighted that one of the most critical risks for exporters currently is the possibility of non-payment by foreign buyers for delivered products.
"KazakhExport has developed a solution to address this issue, enabling us to engage with buyers on deferred payment terms without incurring risks. Consequently, this facilitates the expansion of our export volumes," explained Nuranov.
Another advantage of this support mechanism is that in the event of non-payment for an insured shipment, KazakhExport compensates the loss to the exporter and then takes the necessary steps to address the issue with the unscrupulous buyer independently.
Moreover, Nuranov emphasized that the Kazakhstani insurance company conducts a complimentary check on the foreign buyer for the exporter during the negotiation stage, prior to signing the export contract. This approach significantly reduces the risks for domestic businesses.
Nuranov clarified that this support tool operates independently, without the involvement of banks or the foreign buyer, providing a straightforward solution for exporters.
"Often, domestic manufacturers gain their initial experience with insuring shipments through this mechanism. Subsequently, they return seeking support for preferential financing to execute export contracts, financing for their foreign buyers, and other financial solutions. This process allows us to cultivate a culture of export insurance, ultimately enhancing the competitiveness of Kazakhstani exporters," he explained.
Of all products insured in 2023, 46.8% belonged to the food industry. These included fat and oil products, beverages, flour, cereals, confectionery, and meat products, among others.
Mechanical engineering and metallurgy accounted for 4.3% and 40.1%, respectively. The light and chemical industries represented 2.5% and 2.4%, respectively. Agricultural products made up 1.9% of the total.
Real cases
One of KazakhExport's popular services is export credit insurance. For instance, NURTAU Distribution Company, based in Shymkent, has leveraged this tool over six years to transition from a small distribution entity to a major producer of snacks, sweets, hygiene items, and household chemicals. The company now exports chocolate cookies and chewing gum to Kyrgyzstan and Russia.
Similarly, KondiZ Distribution exports confectionery products to Uzbekistan, with KazakhExport assisting them in finding a buyer in that country to enter the market successfully.
Another success story involves DALA-FRUIT.KZ, which ventured into the Chinese market with assistance from KazakhExport. Specializing in fruit cultivation and natural juice production, the company expanded its reach to China.
Furthermore, KazakhExport's loan insurance facilitated the Best Kostanay Mill Plant in securing a loan for replenishing working capital. This support enabled the exporter to enhance production capabilities and expand its contract portfolio. Recently, the company secured a contract to supply wheat bran to Singapore.
In addition, under export credit insurance, support was extended to the Sergek Intelligent System for public and road safety, leading to its introduction in Namangan, Uzbekistan.
Source: lsm.kz
