Kuanysh Mukazhanov, KazakhExport: "Kazakhstan exporters are under reliable protection"
Exports of the non-primary sector beats the record of the last five years.
Kazakhstan has embarked on intensive support for the export of goods and services. Only the national company KazakhExport, a subsidiary of the “Baiterek” holding and a subordinate organization of the Ministry of Trade and Integration, in 2020 accepted insurance obligations on export-related transactions for 134 billion tenge, supporting the supply of domestic goods abroad during a difficult period of the pandemic. By the end of this year, the company plans to reach the level of more than 200 billion tenge. Such active growth is a reflection of the evolution of the Kazakhstan export and credit agency.
In a conversation with “Kursiv”, Kuanysh Mukazhanov, Deputy Chairman of the Board of KazakhExport, spoke about how the company has developed since its inception and how it plans to further expand support for entrepreneurs of Kazakhstan.
- For the first time export credit agency in Kazakhstan appeared in the early 2000s. What path did it go through to become KazakhExport?
- I would conventionally divide this path into two stages: the first is the creation and evolutionary development of the export agency, and then, starting in 2015 - aggressive growth.
Export Credit Agency was established in 2003 and received a license for insurance activities in 2004. At the same time, the first two products were created - export credit and investment insurance. These are classic products for such agencies. Then the company was called the "State Insurance Corporation for Insurance of Export Credits and Investments".
The development proceeded an evolutionary way: the capital of the company gradually increased, new products were introduced. For example, funding for trade finance has appeared - our company was able to place conditional deposits, which a second-tier bank should direct to finance specific export transactions.
In 2015, a turning point came - we made a key deal at the level of foreign export agencies. The Development Bank of Kazakhstan through “DBK-Leasing” financed the Azerbaijan Railways for the purchase of 10 locomotives of Kazakhstan production. At the same time, the risks were assumed by “KazExportGarant” (so was the name of the KazakhExport company. - "Kursiv"). But the capital of the company at that time was small - it amounted to 12 billion tenge, while the deal was for 9 billion tenge.
Accordingly, the company could not bear such a big risk, it would be a violation of the standards of the financial regulator. We were helped by membership in Aman Union, which includes export credit agencies of Islamic states. Thanks to this, it was possible to build relations with the Islamic Corporation for Investment and Export Credit Insurance (a subsidiary of the Islamic Development Bank), which assumed 70% of the risk under the transaction by concluding a reinsurance contract with us.
This transaction showed what our export credit agency is capable of - we can insure not only small transactions, for example, payment delays by 30 days, but also accept large risks and transfer them to reinsurance, and in an organization with a rating higher than ours.
As a result, a new company development strategy was adopted in 2016, which spelled out several measures requiring a change in legislation and an infusion of new capital. Over the next years, this was implemented.
In 2016, the capital was more than doubled - 14 billion tenge was added to 12 billion tenge, which helped to take big risks. We began to expand the product lineif in 2015 there were five instruments, now there are 18 of them, 16 of which are insurance, and two instruments that provide for bank funding. In 2017, the capital was increased by another 14 billion tenge, rebranded, and the company was named KazakhExport.
The legislative framework has also changed. We worked with the National Bank to change the standards for second-tier banks so that they perceive our insurance first as firm collateral, and then loans secured by our insurance coverage became a highly liquid asset. This regulation has helped increase demand for our loan insurance instrument. It accounts for about 75% of our portfolio.
- How did this development help business?
- Speaking in numbers, in 2014 we supported exporters for 4.5 billion tenge, last year - for 134 billion tenge, and this year we hope to reach 200 billion tenge. Similarly, our capital capacity grew: in 2015 it was at the level of 13 billion tenge, now it is 317 billion, if summarizing with the state guarantee. Next year we plan to increase state guarantees and increase the volume of support for business.
Another example. We used to go to banks and talk about our export insurance opportunities, and now businessmen come to us every day and say that banks sent them to us themselves. This suggests that banks trust our instruments. We even have model contracts with many of them, and their "riskmen" set a certain credit limit on KazakhExport..
- In autumn of this year the government gave KazakhExport state guarantee for 100 billion tenge. Why do you need it?
- It is not always expedient for the state to constantly infuse capital from the budget to increase our capacity. Foreign export agencies use not only direct infusions of money into capital, but also state guarantees.
What is the purpose of the state? To increase confidence in our organization by banks, exporters and foreign buyers and let them know that our agency really works reliably. State guarantees are enough for this - it is clear that the state is behind the company. If until 2019 our coverage was regarded as quasi-state, now it is sovereign.
To get a state guarantee, it was necessary to change the legislation - earlier it simply was not provided for. As a result, we first received a guarantee for 102 billion tenge in 2019 and this year - for 100 billion tenge. In total, this is 202 billion tenge for 10 years.
- What goals does your company set in the near future? How do you plan to develop your support instruments?
- One of our goals is to finance foreign buyers and increase the competitiveness of our products. Now there is competition between the countries not only on the product itself, but also on the financial terms of purchase - who can provide the best conditions. So far, we are not as competitive as China, for example - they offer very low rates.
To withstand this competition, we are creating an instrument such as rate subsidies. Among our neighbors, they are successfully used in Russia and Belarus. The introduction of this tool is spelled out in the draft law on industrial policy, which was recently approved by parliament.
The rate will be subsidized to the level of the commercial interest reference rate (CIRR) - this is the rate adopted by the OECD, the issuance of an export credit at a rate below which is considered unfair competition.
- And why it is necessary?
- There is no separate exim bank in Kazakhstan, but thanks to this instrument all commercial banks will be able to perform its role themselves. In this way, we reduce the credit rate for the buyer to the level of CIRR, making it profitable. In addition, we assume risks under such transactions in case the foreign borrower does not return the money to our bank in a timely manner.
- In 2020, in comparison with 2019, there was an increase in your export insurance obligations, despite the fact that there was a pandemic and the toughest quarantine measures. How did you manage to support more entrepreneurs in a difficult period?
- We were visited by exporters who, due to the lockdown, experienced a shortage of working capital - for example, goods or raw materials were stuck at the border. They needed additional funding to produce more products or buy more raw materials. We helped them with our insurance protection. Yes, markets closed, and someone failed to sell goods to one country according to plan, but they were able to reorient supplies to other countries. And we helped them.
- Your website says about the vision of the company by 2023 to become a key institute of development on foreign economic policy in Central Asia and the EAEU. How will this look in practice?
- We see expansion due to larger transactions. This year we supported 77 exporters, and this number is constantly growing. But we would like not only the number of clients to grow, but also the volume of contracts.
In this regard, the experience of European credit agencies is interesting, in the portfolio of which a large share is the risks taken to finance foreign buyers. In our case, this may be, for example, infrastructure projects in Uzbekistan, where large funds are needed. We show that we can finance not only the supply of flour, but also the modernization of the conditional mining and processing plant.
And such experience already exists. With our tools, we helped the Kazakhstan engineering company build two gold-mining factories in Kyrgyzstan. It is important to understand that the Kazakhstan EPC contractor during construction pulls domestic suppliers, for example, reinforcement and cement, electrical equipment. We want to focus on such projects.
Of course, we will not forget about small contracts - we will expand in volumes, not change accents. We have already begun this transition. As soon as the trade finance rate subsidy mechanism is launched, we will have several months to "swing," and the banks, I am sure, will come to us with such large projects.
