AMID ALL THE brouhaha surrounding the vast mineral wealth and economic boom conditions in Kazakhstan, it’s easy to forget that at the break-up of the Soviet Union in 1991, the country’s economic leadership role in the region was far from assured. In fact, it was Uzbekistan and its capital Tashkent that was seen as the first port of call for multinationals. How times change. The discovery and exploitation of huge oil and gas reserves – 40 billion and 3 trillion cubic metres, respectively – alongside vast amounts of coal, copper, gold, uranium and other minerals, have transformed the economic fortunes of Kazakhstan. Meanwhile, the authoritarian stance of Uzbek president Islam Karimov has caused many firms that initially set up shop in Uzbekistan to flee the country, which is now universally viewed as an economic laggard and political outcast. Kazakh president Nursultan Nazarbayev’s own democratic credentials are questioned in some quarters but there is no doubt about the liberal nature of the economic reforms pursued under his rule, with the result that Kazakhstan has been able to attract the foreign capital and know-how that has enabled it to realize its full economic potential.
"Kazakhstan is a place that works and the average Kazakh worker is a lot better off than in the rest of the region. If you want to get ahead then Kazakhstan’s a good place to be," says Richard Horlick, chief executive of Spencer House Capital Management in London, which recently established a public/private equity fund focusing on Kazakhstan and the surrounding region.
The question now is whether or not it can maintain the present pace of economic development at home while also helping the rest of the region to move forward. The skill with which it has handled the economic relationship with its two powerful neighbours – China and Russia – suggests that it can. It has built pipelines to both countries and allowed Russian and Chinese oil and gas companies access to Kazakh fields. It has also maintained strategic control of its biggest assets through its national oil champion, KazMunaiGas, while simultaneously farming out some fields to companies from western Europe and North America and so gaining valuable technical know-how as well as receiving revenues from profit-sharing agreements.
The country is not just attracting foreign talent to its natural resources sector – in the financial services sector banks from Asia and Europe are now jostling for market share against the local banks, which are universally regarded as the best managed in the whole of the former USSR. Furthermore, the local banks have been sufficiently successful to have the financial wherewithal to poach staff from foreign banks. The country is also attracting attention from its neighbours, with Russia’s Alfa Bank expanding its presence in the country and Sberbank having bought Texakabank.
But it’s not just Russian commercial banks that are showing an interest in Kazakhstan – the big guns among Russian investment banks are also training their sights on the country, hoping to take advantage of the vibrant economic climate. The latest to arrive is Renaissance Capital, attracted by the wide range of business opportunities. "Unless you are here on the ground you don’t get to see the big picture – Kazakhstan’s not just an oil and gas play," says Adel Kambar, chief executive for Central Asia. He adds that Renaissance is looking at projects in such fields as real estate, financial services, construction materials, oilfield services, logistics and the retail and leisure sectors. Although he concedes that Kazakh banks are well entrenched in their home market, he believes that Renaissance’s experience of working in Russia and its full-service banking capabilities will stand it in good stead. "We’re a fully local operation in terms of all the requisite licences and approvals and we intend to work with the local banks, not against them." Furthermore, he believes that Kazakhstan has already established itself as the economic hub of central Asia.
Fund management companies are also heading to Kazakhstan. In July, Parex Asset Management (PAM), which has a strong franchise in the Baltic republics and Russia, opened up a representative office to conduct market research on the potential of the Kazakh mutual funds market. Chief representative Nikolajs Serihs says the move to establish a presence in Almaty follows the launch in April of the open-ended Parex Caspian Sea Equity Fund that covers both the Caucasus and central Asia. By the end of June the fund had already attracted €16 million in subscriptions. Serihs says that although the mutual fund industry in Kazakhstan is less developed than those in the Baltic republics and Russia, PAM believes it has strong potential and that ultimately Kazakhstan will form a platform for the firm’s further expansion in the region.
Expansion beyond Kazakhstan is a key theme for local and foreign firms, with many choosing to use the country as a springboard into neighbouring states. For example, when UniCredit announced in June that it had signed an agreement to pay $2.2 billion for at least 85% of Kazakhstan’s fifth-largest financial services provider, ATF Bank, one of the reasons the Italian bank gave for choosing ATF was the fact that it also had operations in Kyrgyzstan and Tajikistan. "We believe that ATF Bank, which already has operations in contiguous countries through direct subsidiaries, can very well support our expansion strategy," says Erich Hampel, chief executive of Bank Austria Creditanstalt, which bought ATF Bank on UniCredit’s behalf. "We aim to be a bank for the central Asian region," says Asylbek Aydarkulov, director, international department, at ATF Bank in Almaty. He adds that he believes that with the backing of UniCredit, ATF can become the number one player in Kazakhstan and consolidate already strong positions in Kyrgyzstan and Tajikistan.
However, the prime example of a Kazakh bank that has transformed itself into not just a regional but a trans-regional player is Bank TuranAlem, the country’s second-largest bank by assets. In addition to buying banks in the Astrakhan, Kazan, Moscow and Omsk regions of Russia, the bank has made acquisitions in Armenia, Belarus, Georgia, Turkey and Ukraine and has opened representative offices in China and Tajikistan.