KazakhExport in media
SUPPORT FOR THE EXPORTER
The additional capitalization and the provision of state guarantees expand the capabilities of KazakhExport EIC JSC in support of Kazakhstan non-primary exports.
Support volumes for Kazakhstan exporters of processed goods will increase due to capitalization and state guarantees, and the KazakhExport’s insurance capacity will largely increase. This is what will allow the Company to take on major risks in export trade finance. Even now, the KazakhExport package of financial instruments has been selected so as to take into account all possible requests from the exporter. But the work is being carried on not only on financial issues. In an interview with Expert Kazakhstan, Aslan Kaligazin, Deputy Chairman of the Management Board of KazakhExport EIC JSC, said: “The Company is being digitized - participation in the Digital Baiterek Project simplifies procedures for applicants and sets up offices of foreign representatives to maximize the opportunities of work in situ: from finding new partners for Kazakhstan exporters to market research.
- Aslan Yermekovich, how much does non-primary exports grow in Kazakhstan and due to which industries does it happen in the first place?
- According to the results of the first nine months of 2018, the share of non-primary goods in the total exports of Kazakhstan is 26 percent. Exports of processed goods amounted to $10,23 bln. As compared to the last year’s data for the same period, the figures have increased by $350 mln., or 3,5 percent. Let’s admit a small retrospective and compare the figures for 2016. According to its results, the share was 35 percent. In monetary terms, exports of processed goods amounted to $12,9 bln., and by the end of 2017, exports of non-primary goods from the Republic increased to $15,67 bln. (see Schedule 1).
In 2018, supplies of Kazakhstan goods abroad continue to grow; it is worth noting that the complex industry such as the engineering industry shows good positive dynamics (see Schedule 2).
- Which of KazakhExport tools to support non-primary exports are now the most in demand in respect to the basic products and additional support measures?
-The Atameken National Chamber of Entrepreneurs has recently conducted a poll of export-oriented enterprises on the most popular support measures. In the opinion of the business itself, the affordable financing has become the most necessary instrument. Exporters mastering new markets significantly increase their production volumes, and to that effect it is necessary to have a sufficient working capital. Furthermore, to interest a foreign buyer, one often has to agree to defer payment under an export contract, that is to say, to ship goods without prepayment waiting for it for 30 or more days. In such cases, there is an increase in receivables, and therefore, working capital is reduced. To solve such problems, we have a whole package of measures.
Firstly, this is a pre-export financing: KazakhExport funds a second-tier bank in the national currency at a reduced rate, and the bank uses funds to finance the exporter. The purpose of such financing is to perform export contracts, which are concluded on a deferred payment basis. The risk of deferred payment is assumed by KazakhExport. Among the companies, which use the pre-export financing, are Almaty Product, Arassan Firm, KSP Steel, Shymkentmay and others.
Secondly, international factoring insurance. The exporter assigns its foreign receivables to a factor, and KazakhExport, by insurance, assumes the risk that the foreign buyer will not pay the debts. Thus, the exporter converts the receivables into the working capital. This is a new tool, and the first project for the exportation of metal products to Uzbekistan is in-use now.
- Lack of working capital is an acute problem for business indeed, which is aggravated by the lack of collateral. Does KazakhExport have a tool for this purpose?
- Yes, and it is another tool in demand - loan insurance, which allows procuring a loan from a bank to replenish working capital under the KazakhExport insurance coverage. By the Resolution of the Board of the National Bank of the Republic of Kazakhstan, some amendments and supplements have been made to the Regulation “On the establishment of regulatory values and methods for calculating prudential standards and other mandatory standards and limits for the amount of bank capital on a certain date and the Rules for calculating and the limits of an open currency position.” As part of the said amendments, the hard collateral includes insurance coverage from an insurance organization having a rating of at least equal to “BB +” on the S&P scale (or a similar one from another agency), which is fixed in the insurance contract. It identifies only certain standard conditions for the refusal of the insurance payment. Such conditions are listed in the said regulation. KazakhExport has drawn up a draft contract for voluntary loan insurance. Its provisions correspond to the said conditions of the resolution of the Board of the National Bank of the Republic of Kazakhstan. Subject to the Moody’s rating at Baa3, the KazakhExport’s insurance coverage will allow second-tier banks to increase the funding to exporters in the processing sector who lack collateral. Due to the insurance coverage, Molproduct, Kaz-Ir-Agro, AkOrda Capital, KazAzot and other exporters have replenished their working capital.
Overall, KazakhExport has currently a whole arsenal of 13 different support tools designed to assist the exporter at all stages of an export transaction. The scope of support for exporters is growing from year to year. In 2017, the volume of accepted insurance liabilities amounted to KZT 40 bln. for 42 exporters. In 2018, over 10 months, we have already assumed obligations amounting to KZT 45 bln.. We go on improving our support tools so that each of the existing and potential exporters can find a suitable solution to any problem.
Outlook for major transactions
- For KazakhExport, the issue of increasing the size of the authorized capital and government guarantees was quite a live one. it has been resolved now - the company is awaiting additional capitalization and the provision of state guarantees for a total amount of KZT 170 bln. What is the outlook for KazakhExport in connection with the changes?
- The additional capitalization of KazakhExport EIC JSC to the amount of 68 KZT bln. will significantly increase the insurance support for export-oriented companies in the processing industry and will increase the export earnings by KZT 215 bln. per year. The first tranche of capitalization of $ 34 bln. is expected in 2019.
We are also working on legislative initiatives to create a mechanism for state guarantees. By obtaining a guarantee of our insurance obligations in the amount of KZT 102 bln. from the Government, we will significantly increase the confidence of international financial institutions to us. The practice of the state guaranteeing of export credit agencies’ obligations is used by almost all the developed countries. And this practice has been already adopted by our principal trading partners such as Russia (EXIAR) and Belarus (BelEximGarant) as well.
Due to the capitalization and state guarantees, the KazakhExport’s insurance capacity will increase impressively, which will make it possible to take on major risks in export trade finance, in which case, the major creditors will be world-class banks. Even now, negotiations are being conducted on exportation, for example, of engineering products for the railway industries of Tajikistan, Azerbaijan, and Georgia to the amount of hundreds of millions of dollars. Such transactions are practically impossible without attracting a foreign capital.
- Have been there any changes in the KazakhExport’s strategy after the capitalization and the provision of state guarantees?
On December 23, 2017, the Board of Directors adopted the development strategy of KazakhExport EIC JSC. If to set forth the essence of the strategy with one phrase, the goal is to turn KazakhExport into a full-fledged export credit agency of Kazakhstan based on the best practices of the developed export-oriented countries. To achieve the goals of the strategy, some objectives are provided for such as improvement of financial measures to support exports; provision of financial services based on the single window principle; human potential development; business process automation, introduction of information technology; ensuring a foreign presence; ensuring a regional presence and increasing a focus on SMEs and priority sectors; raising recognizability and awareness of KazakhExport.
We are actively solving the assigned objectives. As to the provision of financial services based on the single window principle, KazakhExport participates in the Digital Baiterek Project initiated by the Baiterek Parent Holding Company. Even now, we are accepting applications for export credit insurance via this portal. Currently, work is being carried out to ensure that an application automatically goes through the processing procedure and the applicant receives an answer with a decision on his application in an expedited mode.
Regarding the objective of a foreign presence, there are also results. At the end of October, a memorandum of understanding and cooperation and a joint plan were signed between the Ministry of Foreign Affairs, KazakhExport EIC JSC and Atameken SPE. The parties outlined practical steps that will allow them to coordinate their activities for the export support – it includes exchange of information and a direct interaction in different directions, from the market analysis to the media support. KazakhExport plans to set up 11 offices of foreign representatives abroad until the end of 2019. What will they do? They will disseminate information on us among potential buyers and collect information on the target market and marketing research, and will cooperate with financial partners. In addition, their personnel will assist in settling insurance claims and carry out recovery from debtors and so on, that is, will solve problems of the risk management at the local level.
On October 24, 2018, we officially set up the first foreign office in Kazan. We have already obtained some results of our work in the capital of the Republic of Tatarstan - AK BARS BANK PJSC and KazakhExport EIC JSC signed a cooperation agreement. The partnership aims at developing exportation of non-primary goods, works, and services between Russia, the Republic of Tatarstan and Kazakhstan. Such cooperation will provide guarantee support and financing of export-import transactions using insurance financial instruments. Due to these support measures, exporters will be able to reduce the cost of the credit leveraging and speed up trading processes.
- KazakhExport is working closely with the Agrarian Credit Corporation. What is of interest in agro-industrial projects, how do you support them?
- Synergy with the Agrarian Credit Corporation JSC has been developed to support projects of agro-processing companies. As part of the cooperation, support has been provided via a loan insurance tool for seven projects totaling more than KZT 17 bln. Terra Feedlot and Karaoy Livestock Complex, Kaz-Ir Agro vegetable oil export company, and Khlopkoprom-Cellulose cotton fiber export company are among the customers.
- How many companies have used the guarantee insurance for exporters of services, and from which industries are the companies? What other types of services can be supported under the KazakhExport tool?
- Export services are a relatively new line in the export structure of our country. By improving their competencies and accumulating their experience, more and more companies begin to look towards new markets. We provided support to Integra Construction KZ to conclude a contract for the road construction in Georgia. Two contracts were concluded, for which four bank guarantees were required. To obtain such guarantees from the bank, the construction company was required to provide hard collateral. Instead of hard collateral to the bank, KazakhExport provided insurance coverage. The total amount of insurance liabilities assumed by us under these guarantees is about KZT 10 bln. At present, negotiations are also conducting on the tender won by this company in Slovakia.
Recently, a positive decision has been taken on the support of AAEngineering for the construction of a gold mining plant in Kyrgyzstan. Pre-export financing has been provided to Kazgiprotsvetmet, which provides design services for an Italian customer.
In addition, there is a potential for the sale abroad of related services when exporting high-tech products. For example, Eurocopter Kazakhstan renders after-sales service for its helicopters sold abroad.
- We think that KazakhExport is studying the needs of exporters, and what kind of support tools they lack. Do these still remain or are all the main “painful points” closed?
- Frequently, the foreign buyer has no sufficient funds to pay the entire amount of a transaction at once. For these purposes, we provide export trade financing. Operations are carried out in four currencies: Dollars, Euros, Roubles and Tenge. However, our resources are limited. If, for example, it is referred to the delivery of expensive equipment to a big buyer in a large volume, then funding is required for a long time and for a large amount. At the same time, it is important that the financing rate be competitive in comparison with the rates offered by suppliers from China, Europe or the USA. The only option in such cases is still government participation, which can be implemented in one of two ways: to allocate resources to finance a foreign buyer or to attract resources on market terms, but to subsidize a rate of remuneration at the expense of the government. In terms of rationality, the second option is more appropriate, and we are now working to make it possible for a foreign buyer to get long, cheap money to purchase Kazakhstan products in the form of very large transactions.
- How will exporting companies and their partners learn about the support measures available to them?
- The KazakhExport’s front-office continuously hold seminars in the regions together with local administrations (akimats), the Chamber of Commerce, Atameken SPE, and Damu. Some of the recent meetings with business representatives were, for example, in Kostanay and Shymkent. In addition, KazakhExport actively participates in regional and international forums and conferences to bring information about its support measures to both exporters and importers. We make an effort to take part in all trade and economic missions conducted by the Kazakhstan Foreign Trade Chamber. Most recently, in November, we told about our successful cases to some Russian importers. As soon as the work on Digital Baiterek has been completed, we will have an additional communication tool with our audience.
December 04, 2018
Journalist - Polina Viktorova