Company News

“On the path of modernization and development”

At what stage of formation is a Kazakhstani insurance market? How to turn a long-term goal - to be a key player in foreign economic activities in Central Asia - into reality? Professor Erkin SADYKOV, Doctor of Economic Sciences, Chairman of the Board of «KazakhExport» Export insurance company» joint-stock company, answers these and other questions.

- Erkin Tokmukhamedovich, what is the point of the current strategy of «KazakhExport» Export insurance company» joint-stock company?

- Our goal is to be the best life insurance company in the markets where we are present. And, of course, meet the expectations of shareholders and customers. Here we come to an important part of our activity. In the Strategy “Kazakhstan-2050: new policy of the acomplished state”, the President outlined the main principles of the economic policy - a comprehensive economic pragmatism based on the principles of profitability, return on investment, and competitiveness. One of the four components of the new policy is the state promotion of the export. In the context of the outlined paradigm, the strategic objectives of the Company are aimed at the support of Kazakh enterprises in overseas markets. We do everything to become a reliable, stable and at the same time multiple-purpose partner for exporters.

As a development institute (at present, our sole shareholder is the National Management Holding “Baiterek”, and until June 2013 - SWF “Samruk-Kazyna”) we provide insurance coverage against risk of non-payment in foreign trade operations to the companies exporting products of non-primary sector in entering foreign markets and guarantee the security of export transactions. The Company aims to assist in the country’s withdrawal from the raw-material orientation and the development of export-oriented industries.

- What is your assessment of the insurance market?

- As an interesting and fast growing. Compared to the STB or management companies, the market potential of the insurance companies is much higher. From the perspective of building business models in the field of insurance it is getting more complicated and more interesting to work in this segment.

This year marks 10 years since the commencement of business of our Company. All these years we have expanded the programs of classical types of insurance for of our exporters against commercial and political risks in foreign trade transactions. However, the program of trade financing traditionally accounts for up to 70% of the total amount of the projects supported.

The demand for this product is caused by the fact that the support of «KazakhExport» Export insurance company» joint-stock companyallows foreign buyers to purchase Kazakhstani products on deferred payment terms at the relatively inexpensive interest rates. Therefore, this product is an effective factor to generate demand for the products of the manufacturing sector of Kazakhstan. 1.5 billion KZT was allocated from the state budget within the framework of the SPIIAD, which funds were already used. To meet the growing demand of Kazakhstani goods buyers, «KazakhExport» Export insurance company» joint-stock companyadded another 1.5 billion KZT from own funds for this kind of support. We would like to note that due to the revolving use of these funds, the amount of the foreign trade contracts being used was growing by 2-3 times each year.

The importance of the Company will be increasing with the improvement of insurance culture, increase in confidence in the insurance tools, and the growing economic literacy. In addition, by 2015, the export of non-primary products shall be 40% of the total volume of Kazakhstani exports. This is one of the key indicators and targets of the State Program of Accelerated Industrial and Innovative Development. This means that we have a lot to do today and in the future.

- How far extends the geography of the export?

- The majority of contracts insured by us are concluded with the importers from neighbouring countries. The largest share in the insurance portfolio is held by the following countries: Russia – 20.55%, EU countries – 15.81%, Tajikistan – 11.27%, Kyrgyzstan – 8.74%, U.A.E. – 6.83%, Mongolia – 5.78%, and Uzbekistan – 4.82%. We have insured investments in Turkmenistan, Turkey, and Iran.

- You have mentioned Kyrgyzstan. Is it interesting, have our businessmen been affected by the revolution in this country?

- You are aware as well as me that a number of domestic investors lost their assets as a result of the revolution there. If they have insured their investments in «KazakhExport» Export insurance company» joint-stock company, then we would have covered losses.

- And do we also operate in Africa?

- Africa and Latin America are the parts of the world that are too faraway for us. However, there are several inquiries for these continents, as well as for the countries of the Middle East. We carefully consider all the proposals.

- Let’s try to build a hierarchy of the export structure. Your predecessors placed the main value on the food industry and agricultural products. What has changed today?

- Indeed, about 29.02% of the exports are agricultural products, 25.87% - food products. Well, next are metal work, or rolled metal products -3.21%, construction materials - 0.95%, pulp and paper products - 0.9% ... These are data for the whole period of activity. As you can see, the products range is quite diverse, and we take great efforts to expand the “export line”.

If we talk about leaders in exports, the first to be mentioned is the flour. Kazakhstan is the largest global player here, which fact is specularly reflected on the proportion of insurance operations in our portfolio. Among our active clients are factories exporting their products. Previously, this was done on a pre-paid basis. When we launched the “tandem”, not only new markets have emerged, but new customers as well.

We actively involve enterprises of machine-building complex, chemical industry, construction industry, including design engineering, in the sphere of our interests, from the construction of automobile roads and railways to the most complex bridges.

Expansion of the range of services provided on the support of exporters of non-primary sector, the new challenges facing the Company, have identified the need for rebranding. Thus, in 2010, JSC State Insurance Company for Insurance of Export Credits and Investments was transformed into «KazakhExport» Export insurance company» joint-stock company. A new graphic symbol of the logo was created - three rectangles. The largest of them - turquoise rectangle -symbolizes Kazakhstan, the smaller gray rectangle - guarantees, and the orange rectangle - export. The main message of our logo - Support, Stability, and Integrity.

- What contracts are you proud of?

- Grain terminal in Iran. It was built, and now our entrepreneurs are not looking for a place to store the grain in Iranian ports, and apply directly to their terminal. We plan to implement similar investment projects in Turkey, Azerbaijan, and other countries.

- You never mentioned China. What can we offer our great neighbour, in addition to raw materials?
Our engine oil-producers have found their niche in China. The value for money factor has worked well here.

- Do you have an exotic example?

- One company, we won’t say its name, asked us for help - it has decided to export soft drinks in one of the African countries. We have rather cautious approach to such things...

- We all often learn from mistakes, especially on our own. And what contract have you learned from?

- We insure risks every day, every year. Insured accidents occur - there were accidents in Tajikistan, Italy, Russia...We had to cover losses.

At the present time, we support a contract under which we should provide a coverage of 45 million dollars. That is why I have started to study textbooks on management, reinsurance... All must meet the standards of international practice. We will share a part of risks with major insurance companies, including international.

- If we talk about the engineering industry, the latest feature - Kazakhstani locomotives, which became in great demand abroad. - Does «KazakhExport» Export insurance company» joint-stock companyplay a key role here?

- In 2012, for the first time in Kazakhstan’s history the export of products of the rolling-stock manufacturing was carried out. In order to support the export of locomotives produced by JSC Lokomotivkurastyruzauyty, the Company received a budget loan of 6 billion KZT for a period of 10 years. The purpose of the loan was to provide trade financing to the customer represented by Tajik railways and, consequently, the insurance of related default risks due to commercial and political reasons. This mechanism is used by many foreign export credit agencies, when the support is provided to a national manufacturers.

The Company has played a key role in this transaction carried out through JSC Temir Bank, which transferred the export proceeds to the account of our exporter through trade financing upon delivery of shipping documents. But most importantly, our locomotives have been operated for more than a year and shown an excellent performance. For this reason, the Tajik party has purchased, at its own expense, another two units of railway transport. After the certification of the products we have received requests from Belarus, Uzbekistan.

The state-of-the-art machinery of Eurocopter is also in demand in the CIS and in the markets of neighbouring countries. We start to work with them. We are going to reach at least the same success in the market of metal products.

- Does the company have an analytical base, which allows you to accurately assess the reliability and creditworthiness of the future foreign partner? Do you warn Kazakhstani producers not to enter the doubtful international markets? Finally, does the Company have a list of companys, which are, figuratively speaking, “marriage scammers”, that chase after Kazakhstani capital?

- There are different databases. We assess all kinds of risks. In addition, we use information, which our partners have in the territories where Kazakh companies are planning to enter or already work. We analyze the counterparties to our partners. We assess the region itself.

- Grain, candy, gypsum boards... Then locomotives, cars, aircrafts... Our industry is “building up muscles”, and one of these days it will need your services. What enterprises, industries are going to come to you, and are you willing to meet them?

- Today, not they, but we ourselves send proposals to the companies: there are buyers for your products from the country N. We have already worked out all the arrangements with the banks in this country - you can safely enter.

- How perfect is the legislative base for the insurance business?

- In general, yes. But our market is growing rapidly, and for the strategic objectives, of course, changes and additions are required.

- What new programs or conditions the Company prepares for the participants of the export market?

- We are now working on new products, intended for preexport and postexport support to enterprises.

The Company retains the status of a company of high financial strength. Let us just refer to the figures. The authorized capital of the Company in the middle of this year amounted to 10.9 billion KZT (72.9 million USD), the shareholders' equity was 12.9 billion KZT (86.2 million USD). Over the ten-year history «KazakhExport» Export insurance company» joint-stock companyhas supported more than 400 enterprises and provided insurance coverage for the contracts of more than 1 billion 100 million dollars. 122 companies were provided with support worth 5 billion KZT under the program of trade financing.

In 2004, the Company was the first among the insurance organizations of the country, who was assigned the “Baa1” financial strength rating by Moody’s Investors Service -with a “stable”rating outlook. Due to decrease of insurance risk in 2009, Moody's has assigned “Ваа2” rating, with a “stable” outlook, and in September 2013, this rating was affirmed.

- In 2012, the spring session of the Prague Club was held for the first Kazakhstan. Is this the recognition of the international competence of our insurance agency?

- «KazakhExport» Export insurance company» joint-stock companyis a member of the Prague Club of the Berne Union -Association of export credit agencies around the world. We have established partnership relations with 21 export credit agencies and leading banks of Kazakhstan. We exchange organizational and regulatory documents, share, if I may say so, “creative experience “.

As for the meeting of the Prague Club, it was held due to the great interest of our colleagues from overseas ECA both to Kazakhstan as a young and fast developing country, and to the Company. More than 60 experts from 33 export credit agencies of the world and the International Financial Company (IFC) participated in the meeting of the Club. During the three-day conference, participants discussed relevant topics. Among them are major events and business trends that have taken place since the global financial crisis, debt crisis in the eurozone and its influence on the rethinking of risk assessment, and other issues. We believe this is a great merit of the all staff of the Company.

Concluding the conversation, I would like to point out: the insurance industry of Kazakhstan reached the level of dynamic development, and the insurance business explores new territories. Economic growth and development of commercial activities generate the demand for insurance products. And it is here «KazakhExport» Export insurance company» joint-stock companycan and should play a leading role.

Vyacheslav TITENEV