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COVID crisis has hit its insidious blow to a lot of sectors of the domestic economy, including significant losses in this confrontation were incurred by exporters – for 11 months of last year total volume of Kazakhstan exports slumped by 18% year-on-year. Although global experts share opinion that in 2021 the virus is unlikely to swiftly surrender and we will be able to win back losses from foreign trade and restore an initial stage, the situation continues to turn around slowly but steadily. Zakon.kz talked to Chairman of Management Board of Export Insurance Company KazakhExport JSC Ruslan Iskakov discussing how Kazakhstan’s business had to survive in new realities, safety cushion from the government and near-term forecasts.

- Ruslan Viktorovich, the year was difficult for all Kazakhstan’s enterprises, including export-oriented ones. Statistics demonstrate a marked decline in export volumes. What support have you provided for business and especially SMEs during that period?

- If you look closely at the latest figures for the year, it will become clear that the decrease in Kazakhstan’s exports was primarily due to a falling export of raw materials, while a share of exports of the manufacturing industry fell slightly - by 3%. Meanwhile, in such industries as production of cars and food (meat, flour, oil, pasta and confectionery) there was a significant increase - by almost 86% and 22%, respectively.

For us, the pandemic period was a time of pro-active work: with the transition to online labor management, we have managed not only to preserve all the business processes of the company but also we have managed to make interaction with customers more efficient. Solution of a lot of issues has been switched to online, our employees briefed on support tools from KazakhExport, carried out online trainings for representatives of second-tier banks of Kazakhstan after compulsory quarantine measures were lifted, regional managers of the company proactively held B2B meetings with businessmen throughout Kazakhstan.

Also, algorithms of online procedures for clients still remained simple and clear. During the emergency period alone we supported 26 Kazakhstan’s exports of non-primary sector with more than 6 billion KZT.

Overall, at year-end support was provided to 115 enterprises, including 71 small and medium sized enterprises, for a total amount of over 134 billion KZT versus 97 billion KZT in 2019. 41 exporters in 2020 used our services for the first time.

- Can you give examples of major projects supported in 2020, for instance in engineering industry?

- It is car assembly plant Hyundai Trans Kazakhstan with design capacity 30,000 cars annually. Motor vehicles assembled in Kazakhstan will be exported to Uzbekistan under insurance coverage from KazakhExport which today makes 6.9 billion KZT.

Also, it is our old partner - Kostanay engineering plant Saryarka Auto Prom which already has successful experience in export of produced goods to Russia, Belarus, Uzbekistan, Tajikistan. The company avails of such our products as export trade financing, insurance of export credits, incoming reinsurance. Volume of obligations undertaken by KazakhExport under all its export contracts for 2020 reached nearly 6.5 billion KZT.

However, engineering industry is not only passenger vehicles, at the end of last year we provided insurance coverage of 500 million KZT for procurement of raw and consumable materials for production of isothermal temperature control cars with their subsequent export to Russia by Coolinfinity LLP with production capacities in Northern Kazakhstan Region.

-Last year, the head of nation instructed to double export of agroindustrial products. As far as we remember, your company has always quite actively supported export of food products. Have there been any changes during the year hit by COVID crisis?

- All the directions which include processing have a high priority for us, including in agribusiness. In particular, currently we participate in upgrade of an idle poultry plant in Karabalyk District of Kostanay Region which as early as at the first stage will produce twelve point five thousand tons of broiler meat annually. Also, with our support, two major export oriented butter factories will be launched this year; overall we will provide support to 16 butter factories in Kazakhstan.

Last year, despite problems with passage of goods via the border with China, our company for the first time implemented advance payment insurance product which helped make delivery of safflower oil from Zhambyl Region to Chinese provinces Shaanxi and Hubei, where KazakhExport completely covered risk of non-repayment of down payment to Chinese buyers.

Flour mills are also our old customers. Thus, Kostanay Region produces almost one third of all the volume of flour in Kazakhstan. Local enterprises successfully export to overseas markets. One of them is Salamat LLP, which cooperates with dozens of clients from different countries which buy premium flour. The government has provided several comfortable and really necessary support tools which exporters can use through KazakhExport. Salamat LLP has raised a loan to replenish its working capital and purchased raw materials during the season, which allowed the company to cut production costs and compete on foreign markets of Tajikistan, Uzbekistan, Kyrgyzstan, Turkmenistan and Afghanistan.

A new exporter supported by KazakhExport in 2020 was Aktobe-based enterprise Novo-Aldzhansky Flour Mill, which produces various types of flour, pasta and zhayma. Today 85% of finished products remain on the Kazakhstan market. The rest is exported to China, Russia, Turkmenistan, Uzbekistan, Kyrgyzstan, Mongolia, Afghanistan under GRANUM brand

CG FOOD Central Asia LLP for the first time used KazakhExport tools in 2020. CG FOOD Central Asia LLP is a part of major corporation CG Corp Global LLP that brings together 122 companies and runs 76 representative offices in different countries. Within expansion of its production chain, in December 2019 the corporation launched an instant noodles factory in Turkestan Region. CG FOOD Central Asia LLP has received export credit insurance for three foreign buyers in the Russian Federation. Today, the exporter can safely ship its products to foreign counterparties with a deferred payment with a significant increase in delivery volumes.

I would like to point out that we have supported projects in each region of Kazakhstan and for the most part these are small and medium-sized businesses.

Overall, according to last year’s figures, share of enterprises in agribusiness and food industry that received support from KazakhExport accounted for 37% of the total number of supported projects or 48 enterprises (19 new ones), where volume of undertaken insurance obligations reached 49 billion KZT.

- How many products does KazakhExport have today and what are you still working on to make life easier for local exporters? In general, do they withstand competition on foreign markets and how can they be helped there?

- We have 17 insurance products, they are described in details on our corporate website www.kazakhexport.kz. As for competition on foreign markets, last year the Ministry of Trade and Integration, to which KazakhExport is subordinate, came up with amendments to the Entrepreneurial Code of the Republic of Kazakhstan and also it works with a banking regulator to create incentives for second-tier banks to credit foreign buyers of products, local exporters, which as a matter of fact must somehow level out competitive conditions for our producers.

Provisions of the OECD (Organization for Economic Cooperation and Development) Consensus on export crediting cover international markets. OECD Consensus envisages provision of financing at interest rate of not less than CIRR (Commercial Interest Reference Rates). Compared to it, rates offered by banks and financial institutions of Kazakhstan are high. As a consequence, financing for export deals turns out to be expensive.

In order to create conditions for promotion of Kazakhstan’s goods and services on foreign markets, it is necessary to subsidize interest rates of banks for export trade financing.

First of all, it is planned to use this product for export of high-tech products and services. Expanded scale and localization of manufacture will be taken into account. Promising goods in this area are goods with high added value and a long life cycle, for instances cars, buses, helicopters, locos, wagons, railway components, transformers, batteries.

Due to subsidies financing rate will become acceptable for importers. It will increase competitive advantages and demand for goods and services from Kazakhstan. It will help local manufacturers, especially machinery builders and engineering companies build up volumes of non-resource exports.

- The head of nation has pointed out a need for systemic solution of the issue of full access of processing enterprises to local raw materials at affordable prices. How will this initiative promote development of export-oriented industries?

- High quality and cheap raw  materials will help cut cost of products from Kazakhstan’s enterprises. As a consequence, it will boost competitive advantages of domestic products on foreign markets, new export directions will open up.

We all the time say that it is more profitable for Kazakhstan to export oil and oilseed meal instead of soybeans and sunflower, cable instead of aluminum or copper, batteries instead of lead. And now our producers have to buy raw materials from local suppliers at world exchange quotations, which often hurts their competitiveness as compared to Russian or other producers who have access to cheap raw materials in their countries. This causes not only loss of export contracts but also leads to import of oil, cables, batteries and other products from Russia, where Kazakhstan has the potential for import substitution and export.

Solution to the problem can be restriction to export of raw materials using measures which are not contrary to requirement of the WTO and EAEU; for instance seasonal restrictions on export of raw materials, extra fiscal measures, removal of VAT in procurement of local raw materials by processing enterprises, and others.

- You closely work with the banking sector. What results can you announce at the year-end?

- In 2020, the Ministry of Trade and Integration of the Republic of Kazakhstan jointly with Republican State-Owned Enterprise Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market and our company did a big job, as a result of which insurance coverage from KazakhExport was set equal to highly liquid security under loans from second-tier banks. Management Board of RSE Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market by its decree introduced amendments to some legislative acts which allowed increase volumes of financing of export operations by banks.

Since 2016, Kazakhstan’s exporters were able to raise banking financing for an amount of 216.5 billion KZT under insurance coverage from KazakhExport. Meanwhile, in 2020 that amount totaled to 102 billion KZT (vs. 48.2 billion KZT in 2019). This means that exporters raise more and more funds through banks using insurance coverage from KazakhExport.

KazakhExport has successful cooperation with such development institutions as DBK, EDB, Kazyna Capital Management JSC, Agrarian Credit Corporation, Industry Development Fund.

Among second-tier banks its active partners are Halyk Bank, RBK, Sberbank, Alfabank, Nurbank, VTB, Eurasian Bank.

- Compared to 2019, the increase is significant, more than double. Does it turn out that they began to trust you more?

- Government support of business for export through dedicated agencies is a common practice in most countries. The larger the equity capital of an export credit agency, the more opportunities it has in terms of volume of transactions that it can carry out and maximum amount of risk that it can withhold. Meanwhile, obtaining a government guarantee, on the one hand, allows you to enhance capacity of the insurance portfolio, and on the other, participate in larger projects.

In 2019, KazakhExport was capitalized for an amount of 34 billion KZT from the republican budget. While in May 2020, extra 29 billion KZT were pumped in. Moreover, in December 2019, the company received a government guarantee for export support in the amount of 102 billion KZT for 10 years.

Thus, as of 1 January 2021, charter capital of the company grew up to 100.1 billion KZT, equity capital totaled 109.6 billion KZT and assets exceeded 123 billion KZT. Last year, the company performed an instruction of the President of the Republic of Kazakhstan to pay 2019 dividends in the amount of up to 100% net income when it remitted over 2.3 billion KZT in dividends to its sole shareholder – Baiterek Holding.

In summer 2020, international rating agency Moody's Investors Service confirmed KazakhExport’s Baa3 insurance financial strength rating, positive outlook, i.e. at the level of sovereign rating of the Republic of Kazakhstan.  In their analysis of activities of KazakhExport, exports indicated a very high level of equity capital, growing profitability, good financial flexibility, prevailing share on the market of insurance credits for several years, efficient promotion of underwriting standards.

Analysts have also indicated role of the export insurance company during the pandemic that entailed an economic recession in all the sectors of economy. Strong capitalization and government guarantee of KazakhExport increase insurance capacity for support of local exporters and secure discharge of its insurance obligations.

This undoubtedly also increases credit of confidence of foreign partners in KazakhExport's insurance coverage.

- So, will volume of support for experts only grow in 2021?

- In 2021, another 5 billion KZT  will be added to the charter capital of KazakhExport, it is planned to increase amount of state guarantee. All the above-mentioned in the aggregate allows to increase volume of insurance support for Kazakhstan’s exporters in manufacturing sector through KazakhExport products up to 200 billion KZT annually.

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