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Kazakhstan Competitive Profile Consulting address: 123 Hovsep Emin, Yerevan 0051, Armenia tel.: + 374 10 21 97 40 e-mail: [email protected] url: www.evconsulting.com table of contents general information economy competitiveness performance sectoral performance EV Consulting profile General Information fast facts geography & demography general information fast facts Fast Facts Sovereign Country Ratings Full name The Republic of Kazakhstan Moody’s Baa2 Population ~16,400,000 Fitch (country ceiling) BBB- (Dec 20, 2010) Capital city Astana Area 2.7 million sq km Major languagesKazakh (state language), Russian, English Major religion Muslim (70.2% of the population), Christian 26.2% Life expectancy 60 years (men), 72 years (women) (UN) Monetary limit Kazakhstan Tenge (KZT) Exchange rate Average for 2010: 147.4 KZT/USD As of March 9, 2011: 145.6 KZT/USD Main exports Oil and oil products, ferrous metals, chemicals, grain, wool, meat, cool. GDP, current USD $146.9 billion (2010) GDP per capita PPP, current USD 11,510 (2009, World Bank) 4 Kazakhstan’s Stand in International Rankings Ease of Doing Business (The World Bank) 59 (Rank, 2011, out of 183 countries) Index of Economic Freedom (Heritage Foundation) 78 (Rank, 2011, out of 179 countries) Global Competitiveness Index (World Economic Forum) 72 (Rank, 2010-2011, out of 139 countries) Corruption Perception Index (Transparency International) 105 (Rank 2010, out of 178 countries) Human Development Index (UNDP) 66 66 (Rank, 2010, out of 169) general information Ninth biggest country in the world with a territory of 2,727,300 sq.km. Petropavl Qostanay World’s largest landlocked country. of the end of 2009: 3.0% of world oil reserves; 1.0% of world gas reserves; 3.8% of world coal reserves. Industrial sector primarily focused on the extraction and processing of these natural resources. Labour Force 16.4 million population as of February 2011. Almaty - the largest city with a population of 1.4 million. The second largest city of Kazakhstan is Astana - the capital city with 684.000 population. Total labour force - 8.7 million, with 5.8% unemployment rate in 2010. High rate of literacy (100%) Primary education - 108% gross enrolment rate Secondary education - 99% gross enrolment rate Tertiary education - 41% gross enrolment rate 5 q Zhayy As • • • Atbasar Esil Aqtobe (Aktyubinsk) Astana Atyrau (Gur'yev) Ekibastuz Oskemen (Ust' - Kamenogorsk) Shyghys Qazaqstan Oblysy Oaraghandy Torghay Oblysy Kazakhstan Shalqar Leninsk (Tyuratam) Aral Sea Ayagoz Zhezqazghan Aral Beyneu Caspian Sea Temirtau Arqalyq Embi Aqtau (Shevchenko) tis Pavlodar Orsk Enormous fossil fuel reserves and plentiful supplies of other minerals and metals, such as uranium, copper, and zinc. Er Koksnetau Rudnyy Oral Aqsay Natural Resources Es il Geography geography and demography Balqash Lepsi Saryshaghan Leke Balkhash Qyzylorda Taldygorghan Ile Panfilov Qapshaghay Sy rd ar iya Shu Zhangatas Zhambyl Turkistan Shymkent Almaty Zaysan Economy economic growth economy structure inflation and foreign currencies public sector performance external sector foreign trade partners economy economic growth GDP per capita, PPP (current international $, 2009) and CAGR (constant 2000 $, 2000-2009) GDP Growth (Annual %) % 20 10,000 15 8,000 10 13.4% 1 4 . 0 % 10.8% 1 2 . 0 % 9.2% 6,000 5 1 6 . 0 % 6.8% 4,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -5 -10 2,000 0 1 0 . 0 % 8 . 0 % 6 . 0 % 4 . 0 % 8,684 7,257 3,904 2,468 2 . 0 % 0 . 0 % Russia Kazakhstan Turkmenistan Ukraine -15 Kazakhstan Russian Federation GDP per capita, PPP (current int $ 2009) Ukraine Turkmenistan CAGR (constant 2000 $, 2000-2009) Source: National Statistical Offices Source: World Development Indicators, World Bank Kazakhstan has had recorded impressive GDP growth rates compared to neighboring and several CIS countries during the last decade until global financial crisis. • Kazakhstan is ranked quite favorably in the region by the level of GDP per capita PPP. Key drivers of the growth • The economic growth has been largely supported by the oil sector which constitutes a significant proportion of GDP. • Revival of oil prices after global economic crisis has improved nearterm growth prospects for the country. 7 • According to the World Bank classification, Kazakhstan is classified in the group of upper middle income countries by its 2009 GDP volume. economy economy structure GDP by Sectors of Economy, % in GDP Change in GDP Structure, % in GDP 100% 90% Retail 13% Other 27% 80% Mining 70% Retail 60% Manufacturing 50% Agriculture 4% Construction Manufacturing 8% Transport and 11% Real estate logistics 8% 9% Real estate 40% Transport and logistics 30% Construction 20% Agriculture 10% Other 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Mining 19% Source: Agency of Statistics, Republic of Kazakhstan Source: Agency of Statistics, Republic of Kazakhstan • Mining and manufacturing is the biggest sector in Kazakhstan which is alone responsible for one-third of the output in the economy. The recent trends in GDP structure in Kazakhstan are: • Retail, transportation and financial intermediary services together comprise about 35% of GDP. 8 • Continuous increase in real estate and financial activities • Expanding share of mining industry in GDP (by 4.9%) since 2000. • Manufacturing industry has the opposite tendency and its share in GDP has decreased by more than 5% during the last decade. economy inflation and foreign currencies Inflation, 2000-2010, in % Gross International Reserves in million USD and Exchange Rate, 2000-2010 35 35,000 30 30,000 25 25,000 20 20,000 15 15,000 10 10,000 5 5,000 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 147 153 142 147 150 136 147.35 133 126 123 120 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Kazakhstan Russian Federation Total reserves (including gold, current mln USD) Ukraine Turkmenistan Official exchange rate (Tenge/USD) Source: National Statistical Offices Source: Agency of Statistics, Republic of Kazakhstan • The inflation rates have been traditionally lower in Kazakhstan than in the compared countries. • The volume of gross international reserves has increased drastically since 2000. • However, it has been showing stable tendency towards growing since 2002 peaking at the level of 17% in 2008. • In 2009 prices dipped by 10 percentage points in Kazakhstan. 9 economy public sector performance GDP by Sectors of Economy, % in GDP External Public Debt, in million USD and its share, as % of GDP 25,000 4.3% 4.3% 4.0% 20,000 2.6% 3.0% 15,000 1.6% 10,000 5,000 0 5.0% 0.1% 0.1% 0.3% 2.0% 1.2% 1.0% 0.2% 0.0% -0.6% 2,512 3,000 3,132 4,270 6,073 10,396 11,853 14,780 19,737 16,112 2000 2001 2002 2003 Expenditures (mln $) 2004 2005 2006 2007 2008 -1.0% 2009 Budget Surplus/Deficit (as % of GDP) 4,000 18% 3,500 16% 3,000 14% 12% 2,500 10% 2,000 8% 1,500 6% 1,000 4% 500 2% 0 0% 2001 2002 2003 2004 External public debt 2005 2006 2007 2008 2009 External public debt (% of GDP) Source: Agency of Statistics, Republic of Kazakhstan Source: Agency of Statistics, Republic of Kazakhstan • Since 2000 Kazakhstan has been maintaining surplus in the state budget. The year of 2003 was the only exception with negative budget deficit. • Compared to 2000, in 2009 Kazakhstan’s external public debt has considerably decreased both in absolute and relative to GDP terms. • Growing budget revenues allowed to increase public spending in the recent years as well. • Main targets of public spending are social security and social aid (20%), public health service (12%), transport and communications (9%) and defence industry (5%). 10 • Though the volume of external public debt has increased by 46% since 2007, Kazakhstan is still considered low indebted country according to WB classification. external sector Foreign Trade, in million USD 18,000 70,000 16,000 14,000 60,000 12,000 50,000 6,278 10,000 40,000 - 1,971 2,000 4,157 10,000 2,092 4,000 2,590 6,000 20,000 2,835 8,000 30,000 12,601 80,000 15,780 FDI Inflow, in million USD 11,119 economy 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Export 2001 2002 2003 2004 2005 2006 2007 2008 2009 Import Source: Agency of Statistics, Republic of Kazakhstan Source: Agency of Statistics, Republic of Kazakhstan • Continuously increasing export and import volumes were significantly cut down in 2009 as a result of global economic crisis. • Kazakhstan has attracted over 80% of all foreign direct investment (FDI) into Central Asia. • The decline was the consequence of falling prices of oil and mining products on global markets. • Major foreign investors in Kazakhstan’s economy are Netherlands – 38% , USA – 17%, France – 7% and China – 4%. • The sector of foreign trade began to revive already in 2010 with positive growth of both import and export volumes. • The main investment targets in Kazakhstan are: - Geological exploration activities – 56.4 % - Mining and quarrying – 20% - Manufacturing – 8.4% - Retail – 3.9% 11 foreign trade partners Mineral fuels, oils Iron, steel Inorganic chemicals Ores, slag, ash Copper Precious stones, metals Other China Italy France Netherlands Russian Federation Austria Canada Germany United Kingdom Other 6% 5% 4% 4% 2% 8% 8% 7% 5% 4% 4% 3% 2% Import Structure by Partners and Commodities, 2010 72% 18% 17% Nuclear reactors, boilers, machinery 18% Electronic equipment 10% Mineral fuels, oils 10% Articles of iron or steel 7% Vehicles 4% Pharmaceuticals 4% Plastics 3% Other 43% Russian Federation Import by Countries Export by Countries Export by Commodities Export Structure by Partners and Commodities, 2010 Import by Commodities economy 31% 23% China 17% Germany 8% Italy 7% Ukraine USA 6% 5% United Kingdom 3% Turkey 3% Other 30% Source: UN Comtrade Database Source: UN Comtrade Database • Mineral products highly dominate in Kazakhstan’s export structure – with over 70% of share. • About half of the finished goods consumed within Kazakhstan are imported. • Other popular export commodities are metals, inorganic chemicals, ores and copper. • The largest importers are Russia, China, Germany and Italy. 12 • Machinery and equipment represent a significant portion of European imports. Competitiveness Performance competitiveness ranking comparative economic performance economy diversification export diversification resource-intensity of exports competitiveness performance competitiveness ranking GDP Dynamics and Global Competitiveness Rankings for Kazakhstan The Competitiveness Performance of Kazakhstan by Competitiveness Pillars Mln, USD Rank 45,000 Pillar 2010 2009 Change in ranking (points) Institutions 91 86 -5 Infrastructure 81 75 -6 Macroeconomic stability 25 59 34 Health and primary education 85 80 -5 Higher education and training 65 59 -5 Goods market efficiency 86 84 -2 Labor market efficiency 21 18 -6 117 111 -6 Technological readiness 82 69 -13 Market size 55 55 0 Business sophistication 102 88 -14 Innovation 101 64 -37 40,000 35,000 5,000 0 2005 2006 2007 2008 GDP (constant 2000 mln USD) 2009 72 among 139 67 among 133 10,000 50 among 125 15,000 61 among 117 20,000 66 among 134 25,000 61 among 131 30,000 2010 est GCI rank Financial market sophistication Source: World Economic Forum, Agency of Statistics, Republic of Kazakhstan • According to the Global Competitiveness Report 2010/11 Kazakhstan is ranked 72nd by its competitive performance among 139 countries. • Noteworthy, Kazakahstan’s competitiveness stance has notably deteriorated while the country enjoyed economic growth even during the economic crisis. • The country’s key competitive advantages are effective labor market regulations and macroeconomic stability. • On the contrary, the level of Kazakhstan’s competitiveness by the indicators of institutions, innovation and business sophistication are comparably low. 14 competitiveness performance comparative economic performance Comparative Decline and Recovery of GDP in Benchmark Countries, 2009-2010 GDP growth rate estimate, %, 2010 -20 -15 -10 -5 0 5 10 15 10 Uzbekistan 8 Russia Ukraine Armenia Lithuania Moldova Slovenia Estonia Hungary 6 Georgia Slovak Republic Lebanon 4 2 Czech Republic Croatia 0 Azerbaijan Kazakhstan -2 Latvia -4 -6 GDP growth rate, %, 2009 Source: WB, WDI-Online; National Statistical Offices of Benchmark Countries • The economic performance of Kazakhstan has been quite competitive in comparison with benchmarked countries. • Even during the global financial crisis the country maintained positive dynamics of gross output. Meanwhile, the majority of the benchmark countries suffered from severe economic crisis with GDP decline reaching up to 15% in several countries, such as Lithuania, Ukraine, Armenia and Estonia. 15 competitiveness performance GDP Diversification Real GDP Growth and GDP Concentration in Benchmark Regions, 2009 41% 15% 77% 76% 76% 75% 74% 74% 73% 72% 72% 71% 71% 71% 71% 70% 69% 69% 68% 67% 67% 65% Real GDP growth, % (2008 -2009) Bosnia and Herzegovina Montenegro Moldova Georgia Serbia Macedonia Latvia Hungary Estonia Israel Slovenia Turkey Czech Republic Slovak Republic Kyrgyz Republic Armenia Russia Egypt Ireland Kazakhstan Azerbaijan economy diversification 10% Egypt 5% 0% -5% 0% -10% -15% -20% 10% Kyrgyz Republic Kazakhstan Israel Georgia 20% 30% 40% 50% Bosnia Czech Rep. Slovak Rep. Russia Estonia Azerbaijan 60% 70% Armenia Latvia GDP concentration index, % 2009 Source: WB, WDI-Online; UN Comtrade; National Statistical Offices of Benchmark Countries Note: Diversification is calculated as the square root of normalized Herfindahl index total, “n” is the number of sectors. GDP diversification is calculated based on 11 sectors. 1- 1-1/n , where “s” is the share of the given sector/commodity group in • The low diversification of economy (the concentration of value-creation activities in certain sectors) is one of the main impediments on the way of improving Kazakhstan’s competitiveness. • Several highly dominating industries significantly undermine the country’s opportunities to develop diverse income sources. • The biggest industries rely on the extraction of fossil fuels and natural resources. • Kazakhstan is one of the least diversified economies among the benchmarked countries measured by sectoral concentration of GDP. • Despite very low diversification level Kazakhstan and several other countries rich in fossil fuels performed quite well even during the global economic crisis. 16 competitiveness performance export diversification Diversification in Exports/Imports and GDP in Benchmark Regions, 2009 Export diversification index (0-1) 0.8 Lithuania Turkey 0.7 Belarus 0.6 Slovakia Czech Republic Ukraine Kyrgyz Rep. Hungary 0.5 Latvia Macedonia Lebanon Moldova Georgia Albania Israel Armenia Egypt 0.4 0.3 Russia Kazakhstan 0.2 0.1 Azerbaijan 0 0.5 0.6 0.7 0.8 Import diversification index (0-1) Source: WB, WDI-Online; UN Comtrade; National Statistical Offices of Benchmark Countries Note: Diversification is calculated as the square root of normalized Herfindahl index total, “n” is the number of sectors. Import and export diversification is calculated based on 21 commodity groups. 1- 1-1/n , where “s” is the share of the given sector/commodity group in • Conditioned by the high concentration of economic activities in a few sectors, the export and import bases are also very narrow in the country. • By the indicators of export and import diversification Kazakhstan is among the outsiders in the list of benchmark countries. 17 competitiveness performance resource-intensity of exports Resource-Intensity of Merchandise Exports, 2009 Share of resource-intensive exports in total exports, 2009 100% Azerbaijan 90% Kazakhstan 80% Armenia 70% 60% Belarus 50% 40% 30% Russia Kyrgyzstan Lithuania Latvia Israel Albania Romania 20% Bulgaria Estonia Croatia Slovenia 10% Jordan Czech Republic 0% -30% -20% -10% 0% 10% 20% Change of share of resource-intensive exports in total exports, compared to 2008 Source: UN Comtrade; National Statistical Offices of Benchmark Countries • The highly concentrated exports are dominated by natural resources and other resource-based commodities. • Exports of Azerbaijan, Kazakhstan, and Russia are the most resource intensive in the observed region. • Kazakhstan’s export resource-intensity has the tendency to escalate in the recent years. 18 30% Sectoral Performance economy structure industry trade construction and real estate agriculture financial sector sectoral performance economy structure GDP Structure, % of Total 19.3 Mining Retail 11.4 Manufacturing Real estate 8.1 7.7 Transport and logistics Construction Agriculture Professional, science and technical services Financial and insurance services Education Information and communication Public governance Administrative services Electricity supply Healthcare 0.9 0.8 0.6 0.3 Other services Services for residence and nutrition Art, entertainment Water supply 0 1.9 1.9 1.8 1.7 2 3.2 3.1 4 4.4 3.9 3.9 6 8 8.7 10 12 13.1 14 16 18 20 % Source: Agency of Statistics, Republic of Kazakhstan • The dominating economic sectors - mining and manufacturing industries together account for over one-third of the gross output in the country. • A number of state initiatives are currently underway and target the diversification of the economy. The development programs aim at attracting investments, particularly FDI, into non-traditional sectors and support export growth in these sectors. • A recent competitiveness strategy elaborated by OECD suggests a few sectors for prioritization, including the clusters of agriculture and IT and business support services. 20 sectoral performance industry Industrial Output in Kazakhstan Mining Industry Output Mln. USD 90,000 Metallurgy Mining 80,000 Energy distribution 70,000 Water distribution 50,000 Metal ore mining Cokes and products based on refined oil Technical services for mining Products based on refined oil 40,000 30,000 Other non-metal mineral production 20,000 Coal and lignite mining Beverages 10,000 0 Oil and gas mining Food products Machinery Manufacturing 60,000 Mining Industry Output 2008 2009 Chemicals 2010 Source: Agency of Statistics, Republic of Kazakhstan Other mining sectors Other 0 2,000 4,000 6,000 8,000 10,000 12,000 Mln. USD Key players Tengischevroil Sales, mln USD, Change in sales 2009 2009/08 12,013 3% Ranking in 100 largest companies 1 Kamunayzag 10,714 -15.7% 2 ENRC 3,831 -31% 3 Kazakhmys Plc 3,680 -12.3% 4 PetroKazakhstan 3,489 12.7% 5 Key issues of the sector Key opportunities • Prevalent corruption practices • Poor accounting and audit practices • High domestic prices for exportoriented products • Abundant natural resources • Low production costs • Extensive opportunities in diversification and promoting new processing sectors 0 20,000 40,000 Mln. USD 60,000 • The independent Kazakhstan, as many post-Soviet countries, found itself in a deep economic recession after the collapse of the Soviet Union. • Only within 5 years from 1990 to 1995 the industrial output decreased by over 50%. • Signs of rehabilitation were noticeable only at the end of 1990s. The increasing interest of international investors led to extensive FDI especially in mining industry. • The increasing presence of foreign capital supported the development of sophisticated business practices in the sector and multiplied export opportunities. 21 sectoral performance trade Retail Turnover Most Tradable Consumer Goods, mln USD 25,000 0 . 4 Non-food products Clothes 0 . 3 20,000 30% 18% 0 . 2 23% 21% 20% 15,000 0 . 1 Food products 0 - 0 . 1 10,000 - 0 . 2 - 15% - 0 . 3 5,000 0 - 0 . 4 2004 2005 2006 Key players 2007 2008 2009 Retail trade, mln USD - 47% 0 . 6 - 2010 Annual growth rate, % 2011 Helios Ranking in 100 largest companies 11 Astana 287 200.6% 34 Anvar 171 4.9% 42 Meloman 83 -2.6% 61 Abdi company 50 2% 73 Source: Bulletin 2010, “Expert Kazakhstan” Rating Agency • Decreasing labor productivity • Slow progress in the expansion of export markets • Increasing tariffs on imports leading to low profitability of importing companies • Diluted distribution of consumer base 22 Construction materials Computer software Beverages, including alcoholic Meet Dairy and eggs Bread and flour confectionary 0 200 400 600 800 1,000 1,200 Source: Agency of Statistics, Republic of Kazakhstan Sales, mln USD, Change in sales 2009 2009/08 1,489 -20.1% Key issues of the sector Passenger cars Key attractiveness of the sector • Favorable geographic location for international trade • Increasing income levels boosting local demand • Rapidly expanding retail chains and opportunities to attract international brands • Retail is one of the most stable sectors in Kazakhstan’s economy. • The sector has grown by an average annual growth rate of about 20% within the period of 2004-2011. • This is one of the few sectors which maintained although small but positive growth even in the period of the global economic crisis. • Non-food products dominate in the consumption basket of Kazakhstan’s population. The structure of retail consumption by the shares of food and non-food remained quite stable over the time. • Modern supermarket chains and retail networks rapidly expand in Kazakhstan. • The sector is expected to see the entry of well-known international chains and consolidation of the market. sectoral performance construction and real estate Residential Construction, thsnd sq.m. Construction Volume and Real Estate Services, mln USD 8000 16,000 7000 14,000 12,000 6000 10,000 5000 8,000 6,000 4000 4,000 3000 2,000 2000 0 1000 2003 Key players 10 09 20 08 06 07 20 20 20 05 20 20 04 02 03 20 20 01 20 20 99 98 00 20 19 97 19 19 96 95 94 93 19 19 19 19 92 19 19 91 0 Kazstroyservice Sales, mln USD, Change in sales 2009 2009/08 1,010 279.5% Ranking in 100 largest companies 16 Imstalkon 210 -7.4% 39 Akmola Kurlys Materialdary 20 -51.4% 99 Source: Bulletin 2010, “Expert Kazakhstan” Rating Agency Key issues of the sector • Extensive shadow sector, conditioned by a great number of self-employed persons • Tax evasion due to the prevalence of unregistered construction and unregistered employees • Insufficient production of construction materials and high dependence on imported materials 23 Key attractiveness of the sector • Lucrative development prospects driven by the need for large scale infrastructure and urban development projects • Accelerating demand for commercial property 2004 2005 2006 Construction volume, mln USD 2007 2008 2009 2010 Real estate activities, mln USD Source: Agency of Statistics, Republic of Kazakhstan • After the steep decline in the post-independence period the construction sector has been reviving in Kazakhstan since 2003. • The sector’s further development was largely fuelled by state investments and urban development projects particularly large-scale new construction in the new capital city – Astana. • The construction of residential spaces continuously decreased in the decade of 1991-2000. The contraction accounted for 80% of the output. • 2000s saw growth in the volume of residential construction at 25% average annual growth rate. The financial crisis in 2008-09 affected the sector development non-significantly. sectoral performance agriculture Agriculture Output, mln USD 14,000 • With decreasing share in GDP agriculture remains the largest employer of the country. About one-third of the labor force is working in the sector. 12,000 10,000 8,000 • Kazakhstan’s agriculture sector is distinguished by its high level of productivity both in the Central Asian region and on the global scale. 6,000 4,000 2,000 - 2000 2001 2002 2003 2004 Livestock 2005 2006 2007 2008 2009 Horticulture Ranking in 100 largest companies 28 • Grain sector with its major cultivation being wheat is the largest agricultural sector in Kazakhstan. The growth of the agricultural sector was mainly driven by favorable climate and large harvest volumes due to which Kazakhstan became one of the biggest exporters of grain in the world. • Meat and wool production are the next biggest agricultural subsectors. Source: Agency of Statistics, Republic of Kazakhstan Key players Holding Kazexportastyk Sales, mln USD, Change in sales 2009 2009/08 401 72.6% APK-Invest 392 -18% 29 Food contract corporation Asia-Sugar 382 61.6% 30 93 730.8% 57 Almaty sugar 90 186.7% 59 Source: Bulletin 2010, “Expert Kazakhstan” Rating Agency Key issues of the sector • Fragmentation – lack of vertically integrated agro-complexes • Limited financial resources • Low usage of advanced technologies for sophistication of the processes • Need of upgrade of physical infrastructure • High unemployment in the sector leading to high urbanization rates 24 • Horticulture accounts for the majority of the agriculture output. This sector expressed strong growth dynamics not only recovering but also exceeding production levels before the collapse of the Soviet Union. Key attractiveness of the sector • Highly productive land resources • Immense local consumption market • Low production costs • The sector has undergone a number of stages of reforms. The slow progress in privatization hindered the rapid development of smallscale farms. sectoral performance financial services Number of Short-Term and Long-Term Loans Insurance Premiums, mln USD Pension Funds 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 - 500 14,000 30.00% 400 12,000 25.00% Number of short-term loans 300 Number of long-term loans 200 6,000 100 4,000 2005 2006 2007 2008 10,000 2006 2007 Sales, mln USD, 2009 Change in sales 2009/08 Ranking in 100 largest companies Kazcommercebank 2,655 -2.1% 7 National Bank of Kazakhstan 1,575 6.3% 10 BTA Bank 1,422 -50.6% 12 ATF Bank 856 -0.4% 19 Bank CenterCredit 844 -1.2% 20 Source: Bulletin 2010, “Expert Kazakhstan” Rating Agency 25 10.00% 5.00% 2009 - 0.00% Voluntary personal insurance Pension funds, mln USD Investment profit margin, % Key players • High burden of external debts by commercial banks • Need for restructuring in the banking sector • Underdeveloped stock market 2008 Voluntary property insurance Source: Agency of Statistics, Republic of Kazakhstan Key issues of the sector 15.00% 2,000 Obligatory insurance 2009 20.00% 8,000 Key attractiveness of the sector • Rapidly expanding credit markets • Increasing demand towards more sophisticated financial products • Expected upheal in the stock market • Reforms in the regulatory field of Kazakhstan’s banking sector, initiated by the National bank in 1995 significantly supported the sector’s further development. • Stringent regulations, applied in the field diminished the number of operating commercial banks from 130 in 1995 to 38 in 2009. • Backed with economic revival the consumption of loans was increasing at accelerated rates until 2008. During and after the financial crisis the growth in the number of loans provided by commercial banks considerably slowed down. • Loan products are mostly demanded by companies in industrial, construction and retails sectors. • The insurance sector, mainly driven by voluntary property insurance, has a deep contraction in the volume of turnover in 2009. The volume of insurance premiums decreased twice only in one year after 2008. • Investment profit margins in pension funds fluctuate in the range of 25-30%. EV Consulting Profile service lines expertise advisory practice leaders EV Consulting service lines STRATEGY ADVISORY PUBLIC POLICY INVESTMENT & DEVELOPMENT ADVISORY ADVISORY MARKETING ADVISORY PERFORMANCE IMPROVEMENT ORGANIZATION DESIGN Designing mid to long-term strategies; comprehensive competitive analysis; crafting and installing strategy execution tools based on balanced scorecards; linking strategy to operations through operational dashboards Helping public sector organizations effectively design, implement and monitor sector development strategies and large scale, high impact projects. Sector strategies, impact analysis, complex studies, development support, etc. Market studies and analysis by using quantitative and qualitative research tools (customer segmentation, customer loyalty and satisfaction assessment, brand health tracking etc.); commercial due diligence; deve lopment of market entry and expansion strategies etc. Design and install performance measurement systems; improve planning, budgeting and forecasting systems; streamline and improve finance and marketing function; improve sales force organization, compensation schemes, customer service standards; operational dashboards Designing corporate centers or holding structures for diversified businesses; modeling effective organization structures best suited to company strategies; developing organization culture and motivation metrics; staffing and competence needs assessments 27 Investment strategy formulation, investment proposals, business plans and feasibility studies, M&A advice; business valuation; capital attraction; deal structuring and negotiation support EV Consulting expertise Industry expertise Information Technologies Mobile telecommunications Internet services Key highlights EV Consulting has accomplished over 170 consulting and research projects in a broad range of sectors. • Development of corporate and business level strategies, introduction Balanced Scorecards, performance management systems, performance improvement programs . • Development of over 80 investment plans and memorandums, as a result of which more than 60 mln USD were attracted in a form of equity or debt financing. • EV Consulting has worked with major international financial institutions such as EBRD, World Bank, IFC, Black Sea Trade and Development Bank, etc. • EV has been at the forefront of introducing modern management tools in Armenia. Thus, it has introduced the Balanced Scorecards (BS) to develop long-term strategies and execution mechanisms in several companies. • With close to 100% return rate of its customers EV has become a long-term consulting partner of many local and international companies. • Together with its research branch EV Consulting publishes Armenian Competitiveness Report (ACR) annually. The report became a key analytical platform for public dialogue on key strategic issues in Armenia. Many of the ideas have been included in the government agenda. • EV Consulting’s research arm - EV Research Center partners with World Economic Forum and Harvard Institute for Strategy and Competitiveness. Science and R&D Education Engineering services Tourism & Travel Construction materials Real estate and construction Alcoholic and non-alcoholic beverages Confectionary and chocolate Agriculture, in particular pig farming, poultry, feed production Dairy and ice cream Health care and pharmaceuticals Logistics Retail Mining 28 EV Consulting advisory practice leaders MANUK HERGNYAN SEVAK HOVHANNISYAN SONA GRIGORYAN Managing Partner Partner; Head of Research and Market Advisory Manager Mr. Manuk Hergnyan is the founding managing partner of EV Consulting and the founding chairman of EV Research Center. Manuk has had consulting experience with the US-based Setrakian Financial Group (head of Yerevan office), Arlex International and KPMG Consulting-Barents Group in Armenia and with Global Investment Union in Russia. He teaches Strategic Management and the Harvard Business School course on Microeconomics of Competitiveness developed by Michael Porter. Manuk holds a Ph.D. from Moscow State University. He has been trained at Cambridge (UK), Harvard (USA) and Central European Universities (Hungary), and is currently pursuing modular EMBA course at Oxford Said Business School (UK). Manuk is certified by the Palladium Group (founded by Drs. Norton and Kaplan) in Balanced Scorecard execution. Manuk is a member of the Board of Directors (BOD) of the leading dairy in Armenia and EBRD nominated BOD member at Liqvor Pharmaceuticals. He directly leads EV’s strategy advisory practice. Mr. Sevak Hovhannisyan is leading research and market advisory practice at EV Consulting and is founding board member of EV Research Center. At EV he has managed numerous research and economic development assignments for public sector institutions and companies. Mr. Hovhannisyan’s professional career started in 1997, at the Investments Department of the Ministry of Trade and Industry of Armenia, where he was promoted to lead the development and implementation of foreign investment policies. In 2000 Mr. Hovhannisyan joined the ProSME project, getting directly involved in the development of SME related legislation and policies. Sevak played key role in developing pharmaceutical cluster policies and support organizations through USAID CAPS project. Sevak holds a PhD in International Economics from the Yerevan State University (Armenia), and has been trained in management at the Cambridge University (UK), Aachen University of Technology (Germany) and Mercy Corps (Cambridge, US). Ms. Sona Grigoryan holds the position of manager with EV Consulting, focusing in the practice areas of strategy, performance management and investment advisory. She has managed complex projects in corporate finance and investment advisory fields. Sona has had a hands on experience on balanced scorecard projects for several years. She has been trained with the practical knowledge in the field by London headquartered 2GC Consultancy. 29 Sona is currently in the process of becoming a certified member of ACCA (Association of Chartered and Certified Accountants). Her educational background is in economics, with major in marketing in Yerevan State Institute of Economics (Armenia).