The sum of necessary investments in agriculture of Kazakhstan is tens of billions of dollars
26.06.2014 09:11
Text of the article is translated from Russian language (Сумма необходимых инвестиции в сельское хозяйство РК составляет десятки миллиардов долларов)
Author: Daniyar Sabitov (Kapital.kz weekly newspaper №23 (450) dated June 26, 2014)
Agricultural forum have passed in Astana. One of the speakers, the CIO to Falah Growth Fund Mr. David Herbada told “Kapital.kz” about problems of making investments in agriculture.
- Why your Fund considers agricultural sector of Kazakhstan as an attractive segment for investment? In which segments are observed the most promising opportunities for investment?
- There are some major investment themes such as grains and particularly wheat, greenhousing, poultry, cattle, etc. but in general all rely on the large land bank available, government support and intention to improve or develop, and the fact that many of the agricultural variables of Kazakhstan, be it grain production, poultry heads, etc. were several times higher in the late 80s / early 90s than now opening the door for investments where a significant amount of capital is deployed not just to acquire assets but more crucially to acquire modern production means and techniques.
Our Fund has currently focused on poultry and specifically egg production through our investment into Alsad Kazakhstan LLP, and this is a sector we consider highly promising together with grain production and processing.
- Could you please tell about volume of investments you plan to invest in and how soon you expect return of invested funds?
- It is difficult to establish a figure because the investment in private companies is performed as opportunities arise, additionally and as I mentioned we are already in the poultry sector hence we would ideally like to complement that by investing in other sectors such as grains, food processing, etc. In terms of investment horizon and exit these opportunities tend to have a longer life in portfolio hence 5-7 years would be typical.
- Also we know that all investments are risky. Agricultural sector in general is the high risky sector that depends on changeable weather conditions. What sensitive points and difficulties you can define?
- There are notable differences between the grains sector, the greenhoused vegetables, the oilseeds / vegetable oil production, cattle, poultry, etc. and of course between primary production and processing. On grains the issue is managing the production yield, storage, logistics and hedging in such a way that production in the first place is as less volatile as the climate allows, and unfortunately the past few years the climate has induced very high volatility everywhere, and the financials of the investment in the second place are less volatile.
For cattle, poultry but also food processing the key difficulty is in the operations management and market dynamics which tend to be somewhat opaque, the abundance of irregular imports which are marketed as local produce and fresh when these are neither that nor safe.
- As we know, agriculture in Kazakhstan is mainly presented by small and medium enterprises. Is there a difference in investing in large agricultural corporations and small farms? If yes, what differences?
- As I explained in my presentation in the forum there seems to be a polarization to the extremes with very little in the way of middle sized enterprises, particularly in the grains and wheat production, however poultry is a much more even ground in this sense.
Now investing in small farms is probably not the domain of international investors given that a basic premise is the possibility to fully impact production yield by implementing state of the art means of production and production techniques, something that can only be done when there is sufficient scale and size.
What actually has worked extremely well in other countries in the past is having the small farmers creating fully cooperative entities, being this cooperatives as such or jointly owned holding companies, and these entities collaborating with institutional investors hence preserving the small farm care on the product but achieving the necessary scale of production that works with modern means.
It is my personal opinion that the large corporation investment theme works best for commodity type of production whereas the latter is ideal for very high quality fully branded local products.
- How do you think, what amount of investment is required for the development of agriculture in Kazakhstan and what should be the mechanism of their redistribution to work effectively?
- Probably this is a question for the Ministry of Agriculture, generally speaking we use in our work government and private research statistics in our internal assessment of opportunities but a figure of tens of billions of dollars would not be surprising if all sectors are considered.
- How comfortable investors feel themselves in Kazakhstan? Can you please give an example of “in what Kazakhstan is better or worse in terms of creating an investment climate”?
- First I have to say that at this point in time our Fund is fully focused on Kazakhstan and we have two significant investments on the ground and in general a clear intention of a strong and continued investment collaboration of the Abu Dhabi government with the Republic of Kazakhstan.
If we establish a baseline by comparing to other CIS countries it is fair, in my viewpoint, to state that Kazakhstan is in better shape in terms of investor friendliness and easiness of performing investments than any the other surrounding CIS countries this side of the Caspian sea and south whereas the comparison with Russia would be difficult to establish given the materially different size of the economies, population, geographical extension, etc.
Additionally it is worth noting that there has been a clear effort of the government of Kazakhstan over the last few months to improve the investment climate and easiness of performing investments in the country hence we still have to wait a bit in order to assess the results of that effort.