The Current State of the National Management Holding Baiterek

12.04.2017 | Comments | Economy | 42 Daniyar Nurbayev

The National Management Holding Baiterek (Baiterek) was founded in accordance with the Decree of President of Kazakhstan, Nursultan Nazarbayev, dated 22 May 2013 “On some measures to optimize the management system of development institutions, financial organizations and development of the national economy”[1].

According to the Baiterek, the holding comprises 11 subsidiary companies, and they are divided into three main groups. The first group includes the companies that provide finance, investment and export support to large projects and enterprises and the implementation of State Program for Industrial and Innovative Development. The companies are the Development Bank of Kazakhstan (BDK), the Kazyna Capital Management (KCM), the Investment Fund of Kazakhstan (IFK), the KazExportGarant Insurance Corporation and the Center for State and the Private Partnership Projects Support. The next group of companies provides support for the development of innovative activities in the country, small and medium enterprises (SMEs) and implements governmental “Road Map of Business 2020” Program. These companies are the National Agency for Technological Development and the Damu Entrepreneurship Development Fund (Damu). Finally, the last group of companies are involved in the implementation of projects in the sphere of real estate, housing construction savings. These companies are the Housing Construction Savings Bank of Kazakhstan (HCSBK), the Kazakhstan Mortgage Company (KMC), the Baiterek Development, the Kazakhstan Mortgage Guarantee Fund.

As you can see in the list of companies above, most of the companies are financial companies that focused on social-economic development. Prior to the creation of the Baiterek, these companies were under the Sovereign Wealth Fund Samruk-Kazyna (SK), which inherited these companies from the Kazyna Sustainable Development Fund after the merge of these development funds with the Holding for the Management of State Assets Samruk. The SK had a conflict of goals. The problem was that on the one hand, the company was a financial institution that had to focus on the social-economic development of the country, meaning that most investments would not be highly profitable. While on the other hand, the company had to try to maximize the efficiency and competitiveness of its subsidiary companies in world markets in the long run, which means that it had to gain higher returns. Therefore, the SK had two conflicting goals: to gain profit and to support social economic development instead of gaining profit. To deal with this conflict of goals, the government decided to transfer these companies to the newly created Baiterek.

According to the holding’s annual report for 2015,[2] its consolidated assets were 3.46 trillion tenge. The biggest assets of the holding is the BDK, which accounts for 61.5% of the holding’s total assets. The BDK is followed by the direct assets of the holding, HCSBK and Damu with 28.4%, 13.7% and 10.3% respectively. Other subsidiary companies have less than 10% share in the total assets of the holding.

Overall, since its creation in 2013 until 2015, the assets of the fund had grown significantly (by 85.52% or by 1.59 trillion tenge) and in 2015, in particular, the growth rate was 48.82% or 1.14 trillion tenge. It is important to note that more than a half of the fund’s assets are loans to customers. Loans to customers are the loans that were invested to the economy directly by the fund. In addition, the Baiterek invested 0.54 trillion tenge indirectly through second-tier banks. In their annual report, the fund notes that they invested 262 billion tenge into long-term crediting of the non-extractive sectors of the economy in 2015, while in 2014 and 2013 the fund invested 231 billion tenge and 81 billion tenge respectively. With these data, we can note that these investments are growing rapidly, but it is worth mentioning that these credits to non-extractive sectors account for small share of total credit of the fund. About two thirds of the loans to customers are invested into oil and gas industry, mining, metallurgical industry and mineral resources industry and mortgage sector. In particular, the oil and gas industry accounts for 32.29% of total loans to customers, while mining, metallurgical industry and mineral resources industry and mortgage sector account for 23.57% and 19.04% respectively. Moreover, the investment in these sectors increased by 67.6% in 2015 in comparison with 2014, while investments in other sectors grew only by 28.9%. These other sectors include sectors such as Telecommunications (its share in total loans to consumers 4.66%), Agriculture (4.59%), Power energy and electricity distribution (4.42%), Chemical industry (2.56%), Textile manufacturing (2.52%), Construction (1.37%), Transportation and warehousing (1.22%).  These data show that despite the goal of the holding to support industrial and innovative development, the holding is still mostly focused on extractive sectors. However, it is worth mentioning that significant amount of money were invested into the non-extractive sectors, indirectly, through second-tier banks. These amounts of indirect loans in 2015 was 399 billion tenge, which is 6.4% and 16.32% higher than the amount of credits in 2014 and 2013 respectively.

The fund has a goal to support SMEs through its subsidiary companies, but it directly allocated only 2.67 billion tenge to these enterprises in 2015, while the investment allocated to corporate clients was 1.54 trillion tenge. Furthermore, this amount of support for SMEs decreased in 2015 in comparison with 2014 by 7.5%. The main reason is that most of its support for SMEs goes indirectly through second tier banks. For instance, in 2015 and 2014 the holding provided 60 billion tenge and 140 billion tenge of loans to commercial banks for further financing of SMEs operating in the processing industry. Moreover, in 2014 44.5 billion tenge was provided to the banks by the holding in order to finance private entrepreneurs. The fund also allocated 288.43 billion tenge in the form of mortgage loans through the HCSBK and the KMC in 2015. In addition, the fund purchases mortgage loans from commercial banks. In 2015 the purchased mortgage loans in the holding’s portfolio amounted 74.5 billion, which is 5.55% less than in 2014.

In 2015, the Baiterek gained 49.38 billion tenge, which 18.67% higher than the amount of 2014. The KCM gained higher profit (33.01 billion tenge) in 2015 among the subsidiary companies of the holding. All other subsidiary companies were able to gain positive profit in 2015 except the IFK, which gained 21.3 billion of loss. According to the financial statement of the IFK[3], this loss occurred as a result of the devaluation in 2015.

Overall, the data presented above show that the holding is gradually developing. Its support for SMEs has been increasing; it provides more and more support for large enterprises. However, the data also show that the fund fails to increase its support for non-extractive sectors, and more than two thirds of its assets focus on three sectors, two of which are extractive sectors and the third one is the transportation sector. Therefore, for the industrial and innovative development of the country, the holding must increase its focus to other sectors.


References

http://adilet.zan.kz/rus/docs/U1300000571

http://online.zakon.kz/Document/?doc_id=31390639

http://www.baiterek.gov.kz/upload/about/annual-reports/annual_report_2015_en.pdf

http://ifk.kz/wp-content/uploads/2015/03/%D0%93%D0%9E_2015_-%D1%84%D0%B8...

Tags: Kazakhstan, Baiterek, Economy

Author

  • Junior Research Fellow

    Daniyar Nurbayev

    Daniyar Nurbayev is a research fellow at the Eurasian Research Institute. Daniyar completed his bachelor’s degree in Finance in the Kazakh-British Technical University in 2013. In addition, he holds Masters degree in Finance from the Kazakh-British Technical University (2015).