Chairman of the Board of Directors of Troika Dialog Kazakhstan
"KAZAKHSTAN WILL HAVE DIFFICULTY SECURING 7% GDP GROWTH EVEN UNDER THE MOST FAVOURABLE CONDITIONS OF THE WORLD ECONOMY."
The new business season has started with a lot of questions,
the answers to which may not be reassuring. Will the world face another wave
of recession? Is Kazakhstan ready to absorb another blow to its economy? What
measures will the government take to protect the population? ASKAR ELEMESOV,
the Chairman of the Board of Directors of the Troika Dialog Kazakhstan investment
company, has given his answers to these and a number of other less global, but
no less interesting questions in his interview to Interfax-Kazakhstan.
- More and more experts around the world are predicting a new
wave of recession. To what extent are their fears justified? What are the key
differences between the current situation in the markets and that in 2008?
- The global financial crisis of 2008 was largely a systemic crisis
of the whole modern mechanism of relations between the clients of financial
institutions, regulators and the institutions - banks, brokers and asset managers
- themselves. Then, the collapse of Lehman Brothers and the subsequent events
took the vast majority of country leaders as well as ordinary people completely
by surprise. Few were ready for such a turn of events. Kazakhstan experienced
the first shock in 2007 and therefore, however shaken, was psychologically better
prepared than the rest.
Today nearly everyone predicts a new wave of the crisis, but reports
of large companies show significant cash reserves and their bookkeeping balances
look amazingly healthy. Nonetheless, they are all bracing themselves for another
string of bad news from the markets.
The situation in Kazakhstan is considerably different from that
in 2008 and from what is going on in some of our neighbour countries, particularly
Russia, and in Eastern Europe. And the difference lies not so much in the psychological
readiness for a new wave of the crisis, but in the material preparedness of
the population for new ordeals.
The level of savings of the Kazakhstani population is much lower
than in 2007 or 2008. I believe many of our fellow countrymen, who could confidently
attribute themselves to the middle class before 2007, do not belong to it any
longer. The growth in material well-being that we saw among the Kazakhstani
middle class in 2000-2007 was the result of the emergence of retail lending
and speculations with real estate, which allowed many to make quick money. The
abrupt stop of lending in 2007 and the fall of the housing market sharply reduced
the non-salary incomes of the population. We have not yet fully recovered from
those disturbances and a new wave of the crisis may hit us even harder with
the poorer social groups being the worst affected.
I believe the above-mentioned disturbances resulted in a serious
decline in the Kazakhstani middle class living standards in both quantitative
and qualitative terms during 2007-2010. Only this year the first signs of growth
started to emerge.
- How do you assess the likelihood of another global crisis and
its potential to affect the economic development of Kazakhstan?
- I assess the likelihood of a recession in the world economy
as high - over 75%. For several years preceding the crisis of 2008 many economists
and intellectuals had been warning of the huge imbalances in the world economy.
They were talking about the budget and trade deficit of the U.S., lack of long-term
prospects of China's export-oriented growth model and the bubbles in various
economic sectors. Some banks were warning that the slowdown in fixed capital
investment all over the world would lead to a general slowdown in growth sooner
All that politicians around the world, especially in the developed
countries, are doing is looking for temporary solutions. None of them have the
bravery to tell the Americans or Europeans that the living standards they are
used to cannot be sustained by the existing economic model.
Unfortunately, not many people are trying to learn lessons from
even the relatively recent past. No society on Earth could ever guarantee that
its members would enjoy growing incomes and improving quality of life for any
length of time. After the fall of the Roman Empire Western Europe was thrown
to the periphery of the world civilization for a thousand years. China always
viewed itself as the centre of the universe, which was true to a large degree,
as the Chinese economy was not just the biggest in the world, its relative weight
in the world's GDP before the mid-nineteenth century was 35-40% (to compare,
the U.S. represents no more than a quarter of today's global GDP). After the
defeat in two Opium Wars China became one of the poorest and most backward nations
of the world.
Politicians in the West should tell the voters that the time has
come to pay the bills. If we want our children to live as well as we did 20
years ago, we should tighten our belts, come together and start tackling the
problems that our leaders have neglected for the last 20 years under the pressure
of their election promises.
Kazakhstan is a small economy, very open to the outside world
and very dependent on the prices of minerals. If the worst-case scenario comes
true, we will have to prepare for several extremely difficult years. If we are
lucky this time, we still have to understand that until the industrialized nations
untangle the knot of the conflicting interests of their financial and political
elites, Kazakhstan will be in no position to relax.
- In view of the increasing fears of a new wave of crisis, how
feasible are the growth targets of 7% per year that Kazakhstan set for its economy?
- If a new global recession occurs, it will be very hard, nearly
impossible for us to attain the 7% growth target as there are more than three
months to go before the end of the year. But even under the most optimistic
scenario for the world economy, achieving a 7% growth of the GDP will be a superb
result for Kazakhstan.
- What does Troika Dialog recommend to its clients, considering
the high volatility in the markets?
- The client is free to choose between a conservative and an aggressive
investment strategy. At present, Troika recommends that its clients avoid risky
strategies and close such positions, that is sell the securities, or hedge the
risks. At this time we do not recommend that our clients enter the market by
purchasing new securities, but rather that they stay in the market and watch
- Going back to the topic of the crisis, how did it affect Troika
- On the one hand, a crisis creates certain difficulties for a
company, but on the other hand, it presents new opportunities and prospects.
In 2011 our Kazakhstani branch has already hired several new workers. The number
of our front office employees working directly with clients has almost doubled
as a result and we continue to hire new workers. Against the background of the
news of mass redundancies by the global investment banks, this must seem like
a good result.
In the three years of work in Kazakhstan Troika Dialog has traditionally
held leading positions in the KASE's (Kazakhstan Stock Exchange - IF-K) total
ranking for the volume of trading in shares, corporate bonds and GDRs of Kazakhstani
companies. We are planning to set new ambitious targets to advance our business
- What impact will Sberbank's purchase of Troika Dialog have
on the company's business in Kazakhstan? How are the two businesses being integrated?
- The deal was announced in March 2011. In May the parties signed
a legally binding contract. We can say with confidence that if all permissions
from regulators are obtained, both Sberbank and Troika Dialog will benefit from
We hope to build a complementary partnership in Kazakhstan expanding
our client base and creating opportunities for cross-selling.
- One of the most hotly discussed topics in Kazakhstan is the
"People's IPO", the preparation for which is entering its active stage.
How successful do you think the first stage of the offering will be? Will there
be speculative demand for the shares of companies with state participation?
Will the government's expectations to attract $300-500 million under the offering
- I recommend that you look at the findings of a study by the
Institute of Political Solutions. The organization tried to carry out an independent
analysis of the potential demand for the shares among the population. The study
included over 2,000 people in 16 cities of Kazakhstan - Astana, Almaty and all
14 regional centres. According to the findings, just under 9% of the respondents
are going to take part in the "People's IPO" programme.
I believe these data are correct and I doubt there will be speculative
demand for the shares. Nonetheless, there will be demand. KazTransOil, for example,
is a very attractive company with excellent financial performance indicators.
There will certainly be people who will try to buy as many shares as they can,
even through their relatives, friends and other persons.
If the whole idea of the "People's IPO" is to give the
population a taste of investing in shares, it is logical to expect that the
price of the offering should not be near the maximum market value of the company.
Moreover, if such a decision is taken, the information will become widely known
in the market. If you remember, the Popular Mathematics edited by Yakov Perelman
back in the Soviet time contained a problem: how much time does a rumour need
to spread around a city of 100,000? The correct answer is 25 minutes, if I am
The population hold several billion dollars in hand, both in deposit
accounts and under their mattresses, but if you leave a few hundred biggest
private deposits out of consideration, only peanuts will remain. However, there
are thousands of young entrepreneurs in the country who used to run small businesses,
but have now quit due to the crisis or the increasing concentration of capital.
They have stashed away some cash and are actively looking for opportunities
to invest. If the right explanatory work is done among this category, the target
of raising $300-500 million may be well within reach.
- KEGOC, Air Astana and KazTransOil already mentioned by you
will be part of the so-called first echelon of companies with state participation
to be offered on the internal market. According to your estimates, what stakes
in the companies would it be rational to offer under the "People's IPO"
programme based on the market situation?
- I believe the 10-15% already announced would be a reasonable
size of the stakes.
- How interested are foreign investors in the Kazakhstani market?
- Kazakhstan remains attractive for foreign investors as a raw
materials supplier and a foothold to enter the Russian market. The interest
may be shown through direct investment or indirectly, through investment in
the financial market. In times of crisis the interest of portfolio investors
usually wanes (except the riskiest speculators). Direct investors are not as
wary of crises, but the speed and size of their investment too may be influenced
by their expectations of future raw materials prices.
- Speaking at the opening session of the parliament, the president
of Kazakhstan Nursultan Nazarbayev said that the country's financial system
needed tougher legislative regulation? What measures to this effect do you feel
should be taken? What are the flaws of the current system of state financial
- First and foremost, the protection of the rights of consumers
of financial services should be taken most seriously. Our banking legislation
does not make big distinctions between different categories of borrowers, although
some of them, for example, private mortgage holders, are now objectively insolvent.
Sometimes banks are willing to accommodate the needs of their clients, but the
existing legislation does not provide them with appropriate incentives. In many
cases, I believe, minor clients cannot get proper service because of the low
qualification levels of first-line bank employees or the complexities of the
financial operating procedures. These issues should be given very careful attention.
- The National Bank of Kazakhstan has recently been given the
preemptive right to buy gold from domestic refineries. Why do you think the
measure has been introduced and was it really necessary?
- Gold has been and will remain one of the safest havens for investment
in times of instability, thus prompting this measure. The necessity of such
a preemptive right is not high because the National Bank can buy any amount
of gold abroad and bring it into the country or store it in Switzerland without
the need to pay the VAT in Kazakhstan.
But if this measure is only the first step to the creation of
a whole system of stimulating gold production in the country and attracting
investment in gold from the population, then it is very sensible and timely.
The subsoil of Kazakhstan contains about 2,000 tonnes of gold (8th place in
the world, 4% of the world's reserves), but the production only amounts to about
10 tonnes a year, even less than in Kyrgyzstan. Is that good? I believe the
advantage of creating such a system is obvious, but, of course, the VAT issue
needs to be solved.
- Let us talk about the VAT... As we know, companies selling
most of their products abroad used to get VAT refunds from the state for completed
transactions. This was also true for gold refineries. What financial losses
will the companies take, if the state does not level the VAT rates for exporters
and domestic sellers?
- I cannot estimate the figure. The cost structure can vary greatly
from company to company as the ore composition, depth of formation and cost
of extraction are rarely alike. Such estimates are best obtained from specialized
engineering companies, but if in 2010 Kazakhstan produced 13.3 tonnes of refined
gold, the maximum amount of VAT could be around $61 million.
- And what influence may this regulation have on the activities
of the domestic gold refineries? Can it, for example, prevent the companies
from meeting their long-term contractual obligations?
- I do not know the details of the contracts of Kazzinc or Kazakhmys,
but I believe compromise can always be found. Actions of national governments
are considered force majeure under nearly all commercial contracts and obligations
are suspended for the period of the action.
- Thank you for this interview!
й 2011 Interfax-Kazakhstan news agency
Copying and use of these materials without reference to the source is prohibited
© 2019 Interfax-Kazakhstan news agency
Copying and use of these materials without reference to the source is prohibited