Company News

The President of Kazakhstan, Kassym-Zhomart Tokayev, at a meeting of the Council of Foreign Investors on June 10, offered to start subsidizing export credits. According to the head of state, this support measure should be added ‘in the near future’ to the range of instruments already existing in the country.

He stated that for a single operator of financial support for exports KazakhExport (a subordinate organization of the Ministry of Trade and Integration of the Republic of Kazakhstan, a subsidiary of Baiterek NMH JSC) it is necessary to provide for ‘a correct regulatory regime’. Exporters need to receive support quickly and without excessive bureaucracy.

Kursiv talked to Chairman of the Management Board of this structure, Ruslan Iskakov, and learned how KazakhExport had already helped Kazakhstan’s exporters and what plans the company is setting for itself for a forthcoming period.

- Ruslan Viktorovich, from a name of the company it is clear that its work is connected export but how exactly does KazakhExport work?

- When local exporters enter foreign markets, they have to compete with similar producers from different countries, including economically developed ones. For example, today a lot Kazakhstan’s companies are actively trying to do business in Uzbekistan, and competitors of our exporters, say, from China, Turkey, Russia or Europe, running into each other on the Uzbek market, pro-actively employ tools to support their state institutions - export credit agencies and eximbanks. That is, in order to successfully compete on foreign markets it is not enough for enterprises to produce a quality product or service: often a decisive factor is what kind of financial support an exporter enjoys. In short, our task is to provide domestic exporters with financial support at every stage of export cycle, and with a level not lower than that of competing countries or partners in the EAEU.

There is no eximbank in its pure form in Kazakhstan, therefore, as an export-credit agency, we have to partially combine functions and involve our partners – development institutions and second-tier banks – in financing of export operations. For an export operation to take place, financing is always required – investments to create an export-oriented manufacture or re-equip an existing enterprise when going beyond Kazakhstan: working capital is necessary to buy raw materials, to issue guarantees under international contracts, funding limits are required in a bank, for export of engineering products or services engineering companies also money is needed for a foreign buyer or customer, and they must be ‘long’, even when delivering consumer goods or foodstuffs, importers ask for a deferred payment, and this is a diversion of working capital and risk of not getting their money for delivered goods. Risks arise in all cases, that is, at every stage of the export cycle, exporters and banks are not always ready to undertake them, at least in full.

Our job is to assess, manage and absorb risks. We provide insurance coverage to exporters and banks that finance exports, ensure safety of export operations, which allows our banks actively lend to exports, develop a production potential of local producers, and also directly finance foreign buyers of Kazakhstan’s goods and services, thus winning international competition.

Our target audience is business which is ready to deliver its products abroad but wants to gain extra confidence in success of export deliveries.

We see a response to our activities from the market - demand, and at the same time it is growing one. In 2020, KazakhExport supported 115 enterprises for an amount of 134.6 billion KZT, for comparison: in 2019 this amount was 97 billion KZT. Since the beginning of this year as of June 11, we already provided support to exporting enterprises for an amount of 58 billion KZT.

Since 2016, Kazakhstan’s exporters have raised 239.8 billion KZT of financing from banks under our insurance coverage.

The main goal for a next year is to continue to increase volume of business support. For 2021, we have planned to undertake insurance liabilities for around 200 billion KZT.

- The head of state has announced that for a single operator of financial support KazakhExport, it is necessary to provide for ‘a correct regulatory regime.' What does it mean?

- Export credit agencies began to appear almost a hundred years ago, and although they are engaged in insurance, their work drastically differs from activities of classical insurance companies, therefore, it is inadvisable to regulate them in the same manner as the entire insurance market, therefore export credit agencies worldwide have their own regulatory framework, they are regulated by separate laws and acts.

I am confident that removing KazakhExport from general regulation will allow us work faster and provide insurance to a larger number of companies.

- In fact, KazakhExport is one of players on the insurance market of the Republic of Kazakhstan. Why is there a need for a state-owned company with such functionality?

- There are 28 organizations in insurance sector of Kazakhstan but only KazakhExport provides exporters from manufacturing sector and banks with insurance protection against a payment risk in foreign trade operations and guarantees safety of export transactions.

And we understand why private companies do not work there. First, ratio of risks and size of tariffs are unprofitable for private traders. Export contracts are large in amount but an insurance company receives a small income from tariff, that is, there are high risks with a low profitability.

Second, banks are not always ready to work with private insurance companies in export transactions: KazakhExport, being a quasi-state structure, looks more attractive for cooperation.

Third, some insurance companies may simply not have enough capital to cover export contracts. Therefore, no one, except for KazakhExport, still operates on this market, despite the fact that this segment is open and we are not monopolists.

But export of the manufacturing industry should be stimulated - this is one of core tasks that governments worldwide set themselves. Therefore, state-owned companies that support exporters have always existed in one form or another, not only in Kazakhstan but also abroad.

- You get money for your operations from the budget. How much money have you received in recent years and what is return on it? Most importantly, what is the essence of offered subsidies?

- Math is simple: charter capital is 105 billion KZT, almost 96 billion of which have been received over the past 5 years. During the same period, that is, since 2016, we have assumed insurance obligations, that is, we have provided support to our exporters for an amount of 439 billion KZT, and by the end of 2021 we plan to accept another 140 billion KZT. More than 160 companies have used our services. The funds themselves are placed in highly liquid assets, with which we, in fact, are responsible for insurance liabilities, that is, both banks and exporters are confident that if an insured event occurs, KazakhExport always has sufficient funds to cover a loss of our client. 

Additionally to supporting business, we deduct taxes and pay dividends. Over the past five years, we have transferred 1.23 billion KZT to the budget, and dividends to the sole shareholder of Baiterek NMH JSC amounted to 6.2 billion KZT.

As you can see, we do not waste money but save it and spend it only for its intended purpose - to support our exporters.

As for the new instrument – subsidizing interest rates on export credits, this measure is pro-actively used worldwide, including by our colleagues in the EAEU - Russia and Belarus. As a rule, this measure is employed in engineering companies. When Kazakhstan’s machine builders go abroad, they have to face strong competitors, we already have victories with our ‘arsenal’ of tools - this is supply of locos, buses, cars, transformers and even a helicopter made in Kazakhstan. As for export of services, we already have successful projects in our portfolio. Domestic companies with our support carry out design work for Italians, another company has built a gold concentration plant in Kyrgyzstan and is completing construction of the second one, which is more than USD 150 million of contracts. We have a client which is building a gas pipeline in Siberia, while another will carry out drilling operations in Volga River basin of Russia, even BAZIS-CONSTRUCTION, with our support, designs and builds in Uzbekistan.

A lot of opportunities for our enterprises have not yet been realized because foreign customers prefer suppliers which not only provide services but also bring tied loans from their eximbanks. Thus, subsidizing the interest rate will allow make cheaper loans from local financial institutions down to a competitive level, and with our insurance coverage banks will be able to lend to foreign customers for procurement of engineering products or services of our engineers. This, of course, will open up a lot of opportunities to receive orders from all over the world.