Doing investments in Kazakhstan is a lot easier than in Russia

12.09.2013 09:00

Text of the article is translated from Russian language (В Казахстане легче вести инвестиционный бизнес, чем в России).

Interviewer: Ms. Olga Veselova (Kapital weekly newspaper dated 12.09.2013) 


Joint UAE-Kazakhstan private equity fund Falah Growth Fund has invested and manages two portfolio companies: Karaganda Energocenter LLP, a heat and electricity producer located in Karaganda, and Alsad Kazakhstan LLP, a poultry farm situated in Karasai district of Almaty region focused on the production of top quality fresh eggs. In total the combined investment into both projects is around USD 75 million.   

According to the Fund representatives the priority sectors for the Fund are Oil & Gas, Energy, Food Production, Infrastructure, Natural Resources and Real Estate in Central Asia, and particularly in Kazakhstan, whereas committed capital amounts to USD 500 mln.

The Fund is presented as a classic private equity fund whereas a General Partner manages a pool of investment capital from the investors called a Limited Partner, and ultimately the General Partner's Board of Directors makes the investment decisions.

Mr. David Herbada, CIO of the Falah Growth Fund commented on current activity of the Fund and investment situation in Kazakhstan.  

- What “upcoming” projects the Fund plans to start working on? 

- Currently we are reviewing more than 8 projects in advanced state of assessment and negotiation in sectors such as Agro, Services, Industrial and Extractive. 

- Could you please comment on financial results of past 2012 and first half year of 2013? 

- Both portfolio companies where the Fund has invested are gradually reaching the "design" production capacity by means of or execution of their business plans. At this point we are very pleased and glad to say that things are going as planned, however the real assessment of a given investment potential truly begins a while after the original investment, typically at least 2-3 years after the initial investment. 

- How do you assess the investment attractiveness of Kazakhstan? 

- At this point in time there are plenty of reasons why investment in Kazakhstan is attractive for a Private Equity fund, and further from the obvious general growth of the country and expansion of the oil & gas and mining sectors, the consumer and business services space is still not sufficiently catered for providing plenty of opportunities, probably mostly in companies at an early stage or growth capital stage. 

- What are the perspectives for investors in our country

- It is a rather interesting moment in time as a second wave of O&G and Mining licenses are being actively heralded by the government at the same time that plenty of activity is taking place in the sectors I mentioned above as a consequence of the general improvement in economics for the end consumer. All in all and from a microeconomic viewpoint it looks attractive for Private Equity investors looking for a generalist space where to invest, that is, across sectors. 

- What difficulties do foreign investors face with in Kazakhstan? 

- On the other hand I have to say that I still get surprised by the amount of regulation, bureaucratic procedures and general difficulty in what in other countries are normal and quick business procedures, at least for Private Equity firms investing directly into companies, on every single investment we perform.

There are also a cohort of regulations affecting funds that are based in offshore jurisdictions, which are incidentally the majority of top tier investment institutions worldwide.

Another difficult point is that the pool of talent available in Kazakhstan is reduced as a simple consequence of the size of the population versus the size of the country and extent of economic growth and this is something unlikely to change in the near or mid term

- Could you please point out the peculiarities of doing business in Kazakhstan? 

- I started looking into investments into Kazakhstan in 2007 and soon it will be 4 years since I made Kazakhstan my main focus of activity as a professional in the Private Equity investment space. In general it does compare well against other mainstream emerging markets and quite similar in terms of challenges and attractive. Perhaps it always surprises that Kazakhstan tends to be thought of as "Russia-like" wehereas I do believe it is a lot easier to do business and investments in particular into Kazakhstan than into Russia. 

- What measures in your opinion does the Government of Kazakhstan need to undertake to improve the investment and business environment in our country? 

- Though the Government of Kazakhstan is actively promoting investment into the country it still needs to doso  by trimming existing laws and taking away regulations. Adding new layers makes navigating the opportunities a lot more complicated.  

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