New focus on small and medium-sized enterprises
SAMRUK, THE POWERFUL state holding company which controls the ‘commanding heights’ of the Kazakh economy, from pipelines and power lines to railways, telecoms and oil companies, also sponsors KazNex, an export promotion agency set up specifically at President Nazarbayev’s request to encourage small and medium-sized enterprises (SMEs) to raise quality and compete in export markets.
The government is keen to encourage small companies to help diversify the economy and reduce reliance on the extractive industries. SMEs currently account for well under 20 per cent of GDP and limited knowledge and penetration of export markets is one of their biggest weaknesses.
“Our vision is to become a driving force for building support for exports. We already export raw materials, and we want to develop exports with higher value added,” says the KazNex agency’s dynamic deputy chairwoman, Saule Akhmetova. ”We started with a study of best practice in other countries, especially South Korea, Singapore, Australia and Malaysia where growth was export led,” Akhmetova says.
“The problem in Kazakhstan is very low awareness of the importance of exports on the part of government, society and business. As more international companies, including multinational corporations such as Procter & Gamble, enter the market, local businesses have to raise their game and focus on quality and marketing to compete effectively on both domestic and export markets,” she adds.
One company that addressed this issue was Bekker & Co, a Kazakh-German joint venture in the food processing sector. Bekker’s general director, Ivan Kravchenko, says that from the moment of independence in 1991 he realised that local businesses would not be able to compete with foreign imports. He went to the head of the German food company, Bekker GmbH, who agreed to create a joints venture, which almost two decades later employs 770 people with an annual turnover of €35 million. Every 24 hours, Bekker produces nine tonnes of sausages and 1.5 tonnes of bread and bakery products, as well as traditional foods such as Russian pelmeni and Kazakh manti (dumplings) – always with h the emphasis on high-quality ingredients and hand preparation.
“We employ lots of people for our relatively small output. Most is prepared by hand, which we think is a major contributor to quality – we want our products to be the same quality as home-cooked foods,” says Kravchenko.
“Quality begins with raw materials in the food industry. If you buy poor meat, no amount of effort will improve it. Therefore we work with the best suppliers. We buy our meat in Kazakhstan but other products are imported,” he adds.
Almaty and the surrounding area is the main market, but Kravchenko says the company wants to export to the EU. “We have a large territory and a relatively small population so we can feed ourselves and have enough left over to sell abroad without heavy use of chemical fertilisers. If we produce ecologically clean products, we can sell them anywhere,” he says.
Ms Akhmetova of KazNex believes there is very good potential for companies in the food processing, textiles, chemicals, pharmaceuticals and paper products sectors to boost exports but admits that the crisis has slowed things down. “Companies have limited access to funds, and some have even suspended their activities temporarily,” she says.
One successful exporter is Textiline, which produces a line of sportswear for Swiss clothing manufacturer Assos at its state-of-the-art factory in Talgar near Almaty. The company is one of a new breed of Kazakh businesses where focus on quality makes it possible to compete effectively with -international firms both at home and abroad.
Producing workwear for blue chip customers such as TengizChevroil, KazMunaiGaz and KazZinc accounts for around 65 per cent of its business, but Textiline also provides children’s clothes for the domestic market and niche projects such as making costumes and fabrics for the epic Kazakh film, Nomad. According to sales and marketing director Inna Apenko, investing in technology and staff training was the only way Textiline could compete with low cost exports from China – a perennial problem for Kazakh businesses. High labour and operating costs mean it costs five times more to produce a simple t-shirt in Kazakhstan than in China or Turkey. “A cheap labour force is a big competitive advantage for clothes manufacturers, but unfortunately, we don’t have this. Unlike Vietnam or Indonesia, we also have a shortage of specialists in this field so we had to set up special courses,” Apenko explains.
“Our advantage over China is in technology and intellectual property,” she adds. “When Assos selected Textiline, the company said it needed to be confident of quality production, and we could guarantee this. We employ a team of specialists in design, engineering and technology, whereas in Chinese companies this work is typically carried out in Europe.” Today, Textiline is the largest clothes manufacturer in Kazakhstan, with six factories, employing 1,200 people.
In recognition of the difficulties of raising funds for investment, or even working capital, the government has set up a new fund, called Damu, which works with banks to finance smaller companies. It has 117 billion tenge to lend at a preferential 12.5 per cent interest rate and a further 3 billion tenge specifically to help small companies take part in state tenders or produce goods for export. The EBRD has also been an active provider of finance to Kazakh banks for on-lending to SME customers, and ATF Bank President Alexander Picker says that the UniCredit-owned bank is using its international experience to develop small business lending in Kazakhstan, partly thanks to EBRD fundings
Bekker and Textiline have both had to adapt to the economic slowdown, like most other Kazakh companies. “Before the crisis, demand exceeded supply, so we don’t plan to reduce output or cut staff. But we have paid more attention to marketing recently,” says Kravchenko. Ms Apenko agrees on the importance of enthusiatically promoting the company’s products. ”We plan to work actively towards exporting our products,” she says. “But our major customers have reduced orders by around 30 per cent, so we intend to use this spare capacity to launch new consumer products for the domestic market.”
A study by KazNex found that funding was actually not the main issue facing SMEs. “Our research showed that the top problem was not a lack of money but the need for better access to information, better marketing skills and an understanding of international trade procedures. The most important thing is to change people’s mindset,” Akhmetova concludes.
Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Page: 88-90.
Tags: Astana, banks, fertilisers, financial, foreign companies, Investment, Kazakhstan, KazNex, Promotion, Samruk, SME, support, Work
