Sir Suma Chakrabarti, EBRD President
Kazakhstan Foreign Investors' Council
'We must restart reforms now' says Sir Suma Chakrabarti
Mr President, Excellencies, ladies and gentlemen,
We are meeting today in Borovoe at a critical juncture in the transition of the former centrally planned economies to open market economies. It has become clear that market-based reforms have stalled and a number of our countries are “Stuck in Transition”. If we want these economies to return to levels of growth that really raise standards of living in the longer term, we must restart reforms now. We must re-energise transition.
This is the main theme of the EBRD’s overall medium-term strategy, approved recently by our shareholders. Over the next five years, we will invest in projects and provide policy advice to re-energise transition by:
- first, supporting reformers and market-oriented economic strategies, helping to create sound institutions, and developing under-served markets, whether it be female entrepreneurs, unemployed youth or less developed regions;
- second, by unashamedly continuing to promote economic integration both globally and regionally as the best hope for all economies, whether through more and better infastructure and by introducing new investors to our countries of operation;
- and third, we will re-energise transition through projects and policy advice that tackle the issues of resource security and sustainability that companies and governments face, in the energy field, in water, food and raw materials.
I say this because we, at the EBRD, believe Kazakhstan has the potential to be a great example on the route to re-energising transition. This country too is at a critical juncture in its transition. Unlike many other countries, Kazakhstan has been growing steadily in recent years. But as you, Mr President, have been the first to acknowledge, for Kazakhstan to attain a higher and sustainable level of income – to escape the “middle income trap” – it needs to improve the business climate and corporate governance, and develop a broader industrial base. This is a priority for you and the EBRD strongly supports it.
Following on from Mr President’s announcement in February that about a trillion tenge would be provided to boost reform and investment, his government came up with a ground breaking idea to engage the support of the EBRD and other international financial institutions.
The government set aside half a trillion tenge, or 2.7 billion dollars, for co-investment and technical cooperation with the EBRD and other international financial institutions. A Memorandum of Understanding was signed three weeks ago between the Government and the EBRD that will allow us to significantly increase our own investments in Kazakhstan. It will provide a harder-edged mechanism to leverage the EBRD’s private sector development know-how for Kazakhstan’s transition.
Under this Partnership, we will increase our cooperation on many levels, from policy dialogue to investments, in line with the priorities set out in the EBRD’s own country strategy for Kazakhstan, which are also well-aligned with those of the Partnership: diversification, rebalancing the economy towards the private sector, and green economy.
So what are our priority areas under the Partnership to help re-energise transition in Kazakhstan as the President wants?
First of all, it is reform in the areas of business climate and corporate governance. If Kazakhstan is to attract investment that is choosy about its destination and if Kazakhstan is to progress on its industrialisation programme, it needs to offer investors an even better business climate and protection of their rights.
The business climate in Kazakhstan is already improving. The law on the investment climate that has just been signed introduces several measures to foster foreign direct investment. It includes the simplification of the visa regime, the introduction of state guarantees against changes in legislation for foreign investors, increased access for foreign investors to foreign arbitration – to mention just a few of the measures. This work needs to continue.
We have been working in improving the business climate and corporate governance in many transition countries, and have been requested to engage in this regard in many more. So we can help to tailor an approach to Kazakhstan for the improvement of the investment climate here. We have already engaged with the authorities on corporate goverance and will do more in this area under the new Partnership.
Another partnership priority is rebalancing the role of the state towards a larger private sector. The government is already making steps in this direction, improving the role of private initiative and private capital in the economic development of the country.
We will facilitate foreign direct investment in various sectors, such as manufacturing, logistics, agriculture and the food industry.
Importantly, we have already worked closely with the government on the new PPP legislation. Once that legislation is in place, enabling public-private partnerships to operate, investors, including the EBRD, will be able to finance infrastructure projects of national importance, such as the Almaty ring road.
We also look forward to cooperation with Samruk Kazyna on what promises to be one of the most wide-ranging programmes of privatization in the region.
A strong banking sector is important for all areas of the economy, and we remain committed to its strengthening.
One of the problems that need to be addressed in this sector is the high level of non-performing loans, which is preventing the revival of credit that the real economy needs. We are already in dialogue with the National Bank on this point. There are no painless ways to solve the issue, but we must persevere and even attempt innovative solutions.
We will also intensify our work in sustainable energy and resource efficiency – in line with Kazakhstan’s Green Economy Strategy. We are already doing a lot in this area – from financing ecologically clean public transport to energy efficiency improvements in private sector companies. We aim to set industry standards by developing pilot wind and solar renewable projects.
And I want to offer my congratulations on the feed-in tariffs approved yesterday. This is a very important step forward for the development of renewable energy generation.
Regional development is, of course, key for bringing growth to as large a portion of the population as possible, and also for the diversification and industrialisation of the economy. We have already been providing support to municipalities that display strong initiative and leadership in their drive to modernise and reform public utilities and transport. On Tuesday, I met with the Almaty Akimat, which has been our partner in four projects in the public transport sector and we signed a fifth one for energy efficient street lighting in Almaty. The list of potential projects in Almaty is long and we are exploring potential new ways of engagement. Similarly, I was in Kyzylorda yesterday where we have financed new drilling rigs with the private sector Zhanros Drilling and we are also financing energy efficient public buses with the Akimat. And we are working on several new projects in Kyzylorda, from district heating to water and waste management. I am confident that these projects provide the blueprint for our further engagement in the regions of Kazakhstan under the new Partnership.
Another crucial area is small and medium-sized businesses. The government rightly sees SME financing and improvement of competitiveness as a priority. We have already provided credit lines worth over 100 million dollars to Kazakh banks and microfinance institutions for on-lending to small and medium sized businesses, we are working on 200 million dollars more. A critical component of this support is capacity building at the level of banks and microfinance institutions.
We also have a small business advisory service which – through seven offices in Kazakhstan – helps enterprises with know-how transfer. I have seen the sort of transformation that is possible when I came to co-chair this gathering last year.
I met one of our small business advisory clients, a company called Juldyz Kenan, which produces something that no other company in the whole of Central Asia makes: disposable plastic medical supplies. And now the company supplies its own quality products to hospitals in Kazakhstan, the Kyrgyz Republic and Turkmenistan – so those hospitals don’t have to rely on imports from outside the region or on counterfeit products. Juldyz Kenan is an example of what can be achieved when the conditions are right and when companies can receive the support they need.
Our SME advisory work here, by the way, is already being co-financed by the Government of Kazakhstan. Under the Partnership, we are hoping to significantly boost these services.
And very importantly, we will increase our lending in local currency. Only weeks ago, the National Bank gave us access to the tenge equivalent of 1 billion dollars. This is key for providing longer-term financing in tenge to SMEs, larger corporates and municipalities, which need protection from foreign exchange risks.
So, Mr President, dear FIC colleagues, this is a rich agenda of work between the Kazakh Government, the private sector and the EBRD. A lot to do, but all parties are committed to this new partnership and working flat out already to make it a reality.
Today, Kazakhstan is reaching out to partners near and far, in the Eurasian space, in China, the European Union, globally through the World Trade Organization, or in this very room, full of international investors. Kazakhstan is choosing the path towards re-energising transition – economic reform, competitiveness and cooperation.
And what makes this country a good transition environment? Quality projects supported by a hospitable business environment and sound economic policies. But, most imortantly, it is leadership. What we see in Kazakhstan today is real leadership, aligned at all levels in the country. EBRD is at its best with its transition work in such an environment.
And that is why I am proud that we at the EBRD are here to accompany you and all the investors here in this journey to re-energise transition and to bring increased prosperity to the people of Kazakstan.
Thank you very much.