Foreword NB. You are viewing the 3rd out of 20 interviews published as part of the special project 'B2G — from business to government' . We decided to talk with leaders of major and minor domestic companies about how they envision the future of Kazakhstan. We ask them to provide objective criticism of the government's work, offer constructive advice, and propose effective solutions to well-known problems like corruption, irresponsibility, disorganization, and lack of initiative. We believe that these people, being practitioners, are among the few who know how to solve such issues. In June, when we publish all 20 interviews on the site, we will print a special edition of the magazine containing only these interviews and send it via registered mail to more than 1,000 addresses: everyone in the offices of the President and Prime Minister, all ministers and their deputies, heads of committees and their deputies, parliamentarians, city and regional akims and their deputies, managers of all Samruk-Kazyna structures, the National Bank's board, and another 1,000 copies to the largest companies in Kazakhstan according to NB500.
SARSENOV ELDAR RASHITOVICH
Chairman of the Management Board, JSC 'Nurbank'
Graduated from Suffolk University and Northeastern University (both in Boston, USA). Prior to his current position, he was the Managing Director of JSC 'Nurbank', overseeing card business, information technology, marketing, personnel development, advertising, and service quality. He ran the marketing department in the Swiss watch company TAG Heuer (USA), progressing from an assistant marketing manager to a Deputy Sales and Marketing Director in the Helios gas station network.
Interviewer — Denis Kulkin, Editor-in-Chief of National Business
DK: – Do you remember the spark in people’s eyes before 2008? I mean the entrepreneurs. They were eager to improve their products, reach foreign markets, and participate in government programs. They thought like this: the state is a big player, and we should move forward together. After the crisis, something broke... Both in the government, because it became harder to support businesses, and in the entrepreneurs themselves. There were so many overlapping issues. Now, I see a lot less spark in people’s eyes when I come for interviews. People trust government programs and the idea of a common path less. Can this be changed? Surely, you have an idea on how to restore or reincarnate this?
ES: – 2008 was pivotal, marking the start of a long, prolonged crisis. It began with the mortgage crisis, with the bubble of engineered financial instruments. Thanks to our American colleagues, this storm, these waves affected us too. Then another crisis came, then another, oil prices, several devaluations... I wouldn't say that faith was lost. An entrepreneur is the same as an investor, but in real-time. They handle real, live money, investing in the business they see and feel, which is their own. They sacrifice personal time, family, and other matters. Any investor, institutional, private, or financial, needs some guarantees. If they are to work with the state, B2B, B2C, or B2G, they need to know that their investments in capital and assets will pay off.
THEREFORE, TO REVIVE THIS FAITH, JUST TWO OR THREE POSITIVE YEARS ARE ENOUGH. THIS IS ECONOMIC GROWTH, EVEN MODEST.
As of today, despite some vicissitudes, our GDP per capita is rising. This includes curbing inflation trends, as the National Bank is tasked with. And the absence of major shocks. We have a fairly limited market, but very eventful. Eventful with developments. Political cataclysms, natural, financial – can at times demotivate an investor, preventing risky decisions. Any entrepreneur, including ourselves, when considering new projects, new products, views them through a six-month, yearly lens. It's become incredibly difficult to build these forecasts, although good financial management suggests being skilled enough to lay everything out for 12 months, pack it, put it aside, and then periodically refer to it. In the last three to four years — this has been impossible.
EVERYTHING YOU PLAN COLLAPSES IN A VERY SHORT TIME, AND IT'S NECESSARY TO MONITOR THIS, ACCOUNT FOR RISKS.
Therefore, for everyone – from a private individual entrepreneur to a large business and even to quasi-state companies, to have greater comfort in investments and naturally increase their volume, we just need two or three good years. And that's it. We would immediately see a semblance of what was before 2008. What was it back then? 1998, 2000, when the internet bubble swelled, and then about five to six years of just growth. Five to six years! I sometimes recall that time with such... nostalgia. We will get there. We just need to be patient, support ourselves.
DK: – In your opinion, who or what can bring these two or three calm years closer? Should it be the state, or is it solely dependent on business? Or the absence of external and internal fluctuations? What should drive the proximity of these two or three years?
ES: – Good question! First is the absence of fluctuations. It's the absence of shocks, turbulence – something neither our biological organism likes nor the economy. When stress occurs, we expend a colossal amount of energy and are left drained afterward. In any economy, the driver is the one who has the money. In Scandinavian countries, Central and Western European countries, where small and medium businesses are very developed, the driver is this sector. The state doesn’t interfere much in the economy, because they have a more classic setup.
IN OUR PART OF THE WORLD, LIKE IN AMERICA, IT'S MORE KEYNESIAN APPROACH, WHERE THE STATE IS A DIRECT PLAYER OR VERY IMPORTANT.
Specifically in our case, there's a bit of everything. Therefore the measures (I'll enumerate them) that the state is taking today are far from exhaustive. The first is co-financing and subsidizing small and medium businesses in priority sectors through funds from 'Damu', DBK, and other funds. That our state, through certain funds and ministries, has introduced institutions like the Asian Development Bank, European Investment Bank, and others – deserves great respect and praise. Additional money will always help us. The programs already running today – 'Ondiris', subsidizing the interest rate through ENPF, DBK also performed well last year, were at some point the only source of funding for small and medium businesses. Even the largest banks with a very good funding base currently can't offer a rate lower than 13-14%. Other banks can’t even offer this rate, only higher ones. Speaking of subsidies, we definitely talk about 9%, 8%, or even 6% in the case of 'Ondiris'. This is already significantly more attractive and has helped a vast number of entrepreneurs stay afloat. So the state serves as a driver here. Of course, the main thing is helping the entrepreneur. The second point is actions under the motto 'do not interfere!'. This involves vetoing inspections, currently extended for a certain period. Participating in various international events, which impose on middle and lower-tier officials the premise not to overly hinder.
BUREAUCRACY, IN FACT, IS NOT MEANT TO STIMULATE, IT HAS ITS FUNCTIONS NECESSARY FOR SOCIETY, BUT THE SYNERGY LIES IN BUREAUCRACY BEING SATISFIED, MAINTAINING ORDER AND DISCIPLINE, WHILE BUSINESS FEELS MORE OR LESS COMFORTABLE.
'Golden mean', let’s call it that. If such a balance exists, it essentially sustains itself in major cities today, then it's also a significant support. The third factor is a financially literate and proactive population. We are often compared to Singapore, the Arab Emirates, and other countries that have become global players in one or two decades. But their mentality is different. They don't have the prerequisites we have, which sometimes hold us back. They are hardworking, they are cohesive, and aren't afraid of any work.
IN AMERICA, WHERE I LIVED LONG ENOUGH, YOUNG PEOPLE START EARNING MONEY AS TEENAGERS. SIMILARLY TO HOW I DID IT.
These are pocket money, you perform some basic routine work. If your relatives have a business, you go there for odd jobs, wash dishes, floors, and so on. During university years, you work as a waiter, this practice is widespread everywhere – in Israel, Europe, America, and some Southeast Asian countries. You work all four, five, six, or seven years while studying and by the time you become a young specialist, you already have some background. Some work experience and, most importantly, some life experience. We haven’t fully embraced such a culture yet. I'd say it's a constraining factor.
DK: – You aptly started talking about society. About people – this is one of the key topics of our interview. How would you like to see society? Naturally, I don’t want nor ask you to compare Kazakh society, Kazakh people with people of other countries, because each nation has its own path. What path do you see for our people?
ES: – We have everything needed to live well within us. We are patient, we have a somewhat oriental perspective, enabling us to look at many issues a bit condescendingly, thus taking on less stress. What we lack is the most banal thing – diligence, self-sacrifice. That's what's missing. We have a large percentage of working-age population but lack diligence. Everything else we essentially have, so, should we have the desire, in 15-20 years we would live very well.
DK: – If we return slightly back... You spoke about state support, the fact that the state has tools like 'Damu' with very good programs, DBK, and having foreign players and subsidies... But there is an economist – Sergei Yuryevich Glazyev, a Russian. He has his perspective on events, which, at the very least, is interesting. He states that we need several rates from the National Bank. A key rate for trade operations, short-term and a key rate for funding manufacturing enterprises. Targeted loans should be 2%, 3%, maybe even 1%. Yes, it requires control, but control is needed everywhere. And when these enterprises produce, there is added value in their products. This added value, by economic theory, provides the money invested in the enterprise with security. These funds pay off themselves; they possess their value. Not equivalent in gold or oil, not fiat money, they won’t generate inflation, these funds are self-ensured via added value. In Kazakhstan, there is active discourse about innovations, production development. But it's evident that our economy is inadequately monetized enough to foster production growth. The state addresses this with 'Baiterek' and 'Damu'. But still, 7% or even 6% is too much for some productions, as achieving 6% profitability in manufacturing dishes, for example, without economies of scale is virtually impossible. Particularly making an innovative product or a technological breakthrough. And here I see a sort of vicious circle – is it possible in our country for the National Bank to create targeted loans for production, bypassing 'Baiterek' and 'Damu'?
ES: – 2%-rate funds can be provided by a country whose currency is primary. Firstly, we don’t have that weight – neither our economy, nor the country, nor tenge have it. Secondly, we don't have that sales market. It's hard to enter China, hard to enter Russia and Europe. Therefore, the most obvious market is the Caucasus and Central Asia. Rarely, someone climbs up or sideways, so two percent money is certainly needed. I don't even know how to bypass even more than 10% amounts, it’s very difficult. These are administrative costs, taxation, and more.
WHAT'S NEEDED HERE IS A STOCK MARKET. A FUNCTIONING MARKET WILL BREAK THE ESTABLISHED CIRCLE. IT GIVES OUR CITIZENS, EVEN NON-INSTITUTIONAL INVESTORS, THE POSSIBILITY TO INVEST DIRECTLY INTO THE ENTERPRISES THEY BELIEVE IN.
And it's not 2%-rate funds, these are investments. Investments mean you share profits without paying interest. And that's the biggest advantage. Thus, if we have a functioning stock market, if such a stock market is powered by the same mutual funds, the simplest and basic tools for our inexperienced stock market citizens, it will greatly aid the real sector of the economy. And I’m not even mentioning everything else. Therefore, if we build a stock market – functional, operative, with many diverse players, everything will be fine with us.
DK: – How to achieve that?
ES: – Don't have a clue (laughs). Again, we have too few people. You face this factor everywhere – when building a new plant, setting up a new bank, introducing a new product, no matter which – big, small, or medium. We had some decent potential with private pension funds, now there are still insurance companies, but I think, starting with something bigger is necessary. Perhaps, if there's another shift towards a commercial basis in the pension system, it will be a significant boost. It's pleasing that overseas players have appeared – Freedom Finance and others, they provide services not to KASE but to other platforms. But in any case, we will come to it. I don't know an economy, developed to some extent, without a functioning stock market. It's probably some evolutionary stage when progress consistently leads to a functional stock market forming in the country. So, I think we will reach that soon, in our lifetimes. But when? I don’t have the answer to this question.
DK: – Can I connect two of your answers about the diligent society and the stock market, leading to the next question – perhaps, we need to work with the population to give them awareness of risks and investments? Because no one is working with them. In recent years people hardly believe in anything more reliable than a deposit. It’s clearly true, but still.
ES: – The first thing needed, and you rightly noted, is understanding this market. There are now Forex platforms, I don't know what percentage of the population plays on them, but there is a way out. I also think brokers should be connected through the internet, not necessarily playing on KASE. Here, preparedness is necessary, secondly, confidence. The tool is already tested, it works in many places, why shouldn't it work for us?
TO BE LISTED, YOU MUST HAVE AUDITED REPORTING. ONE OF THE BIG FOUR MUST REVIEW IT, YOU NEED TO PASS THE REGULATIONS. ESPECIALLY, IF IT'S A BANK, THE REGULATION IS STRICT.
To manipulate with numbers and deceive their investors and shareholders is unlikely. To get to the exchange, a very meticulous and lengthy verification procedure is needed. There’s always a risk that a company, plant, bank – whatever – won't withstand, will lag behind, its shares will fall, you’ll lose in value and with all that consequences. That’s a business risk. And here it's necessary to clearly explain to the population that, for example, 13.2% isn't the maximum one can earn. One can earn 20, 25, 30 – as much as possible. But there is a risk. And I think, the survival instinct and a good sense of greed will spur any sane person with an extra penny to try their luck there. Mainly, that's the hope.
DK: – Then we smoothly transition to your field of activity – banking. When we write a business plan, we have to calculate NPV and IRR, show this to a banker who will give us a loan. All economists I know who write business plans, say that no investor, no bank will finance if NPV is lower than the deposit rate. So a business must yield more than 13% per year. Drawing such a business plan is certainly possible. But realistically, a business won’t achieve these figures in one, two, or even three years, maybe it needs five. How many companies are now growing faster than the deposit rate, and how many were there before the crisis? When the rates were different, the risks were higher, but it was possible to surge quickly.
ES: – Firstly, not the interest rate on retail deposits, as you probably implied, is basic. The rates for corporate entities are slightly lower. Therefore, the overall principle is not 13.2%. There’s also a second figure, opportunity cost. If we don't place deposits, the cost of money we’ve already paid for will come out as a loss. Here, time plays against us, we need to place the money. The second is that the interest rate, as a funded rate in the form of deposits, in the form of a base rate, is regulated. So, it’s all the same. This helps slightly in that there’s no bank offering below 10%. Are there fast-growing companies? Certainly, there are! These are global trends, we aren’t exceptions.
THE MOST INTERESTING BUSINESS TODAY IS CONNECTED WITH IT. NOT ONLY INTERNET TRADING, BUT INFORMATION SECURITY, TRANSACTION BUSINESS, AND PROCESSING CAPABILITIES – B2B IS JUST 'BOOMING' NOW.
Another, more mundane example is fast-food chains. 'Damu' has good opportunities in this regard now. If you launch a chain of anything and sell a franchise under it, you may get some subsidization. It's a very interesting business!
DK: – What about industrial enterprises?
ES: – Ferrous metals, pig iron, non-ferrous metals are in high demand now. All our products require many components, which are no longer made. It's like real estate: buying land – something that isn’t produced. The same goes here. Therefore, regarding heavy industry, processing industry – there're no issues here. There’s always a good margin, and the demand isn’t just in Kazakhstan and Central Asia – many countries use our products. It’s harder for medium and small businesses – that’s true. Thus, one must orient and stay alert, pay attention to the fourth industrial revolution, as within two-three years we will see many professions fade to the background and then disappear. Accordingly, many companies, which currently require these professions, will also slightly recede. Such business directions have a profitability margin of less than 10%. Others, on the contrary, have great prospects. We are transitioning, from next year, to universal income declaration. What industry will this innovation generate?
DK: – I think many lawyers and brokers will appear.
ES: – Not exactly. Personal accountants. Currently, accountants for us are those who eternally sit in the office, crunch figures, and reconcile balances. Now they’ll be professional personal consultants, managing your finances, which will be in incredible demand as it's a trend. If we have a stock market, there's also a need for consulting on this matter. For now, it’s just tax optimization, the chance to reduce or properly establish it, so no claims arise later. Such things constantly exist. As mentioned, we have a small market, but it’s saturated with events. Every month, every quarter, not to mention the year, new information emerges, if you pay attention to it, you can predict which companies will eventually become in demand.
DK: – How do you want to see the future of the Kazakh banking sector? In the broadest sense of the word.
ES: – In one of the interviews, I already voiced the need for a stable banking sector. As long as bankers operate under capitalism – we are needed, not everyone likes us, but that’s normal. We don't deserve such love, broadly speaking. We just have to be. We shouldn’t be a burden on the state, we shouldn’t have too large a bloated portfolio, but in two-three years, we will recover. The second is diversity.
DIVERSITY IS ALWAYS GOOD – A LARGE NUMBER AND VARIETY OF PLAYERS WHO WILL UNDERCUT EACH OTHER'S PRICES. ONLY THE CONSUMERS WIN FROM THIS.
It’s beneficial to have two-three banks as the main backbone, where working people can turn to. And various regional banks, tailored to one product or one business. Again, I haven’t invented anything new right now, it’s a practice that exists in the same United States. They have two-three federal banks and an uncountable number of city and state-level banks, working on mortgages, collateral loans, specializing in online design or potential business. They’re so well-tailored that they offer very good conditions, and again, only the consumer benefits. Therefore, volume and diversity are what I’d want to see in the banking sector after we recover.
DK: – As I understand it, in short, – regional banks in the States, and in general in the world and in large countries, all of this follows the theory of regional centralization. When a regional, well, say a regional center, Karaganda, for example, develops centrally, almost independently. And in Karaganda, there's Karaganda City-bank, hypothetically. Can it appear? After all, by the base within and generally by the main regulatory criteria it should have and a large capital, and be stable, meeting many conditions. Does Karaganda have enough opportunities, funds, will, healthy adventurous spirit, to create such a bank?
ES: – If this is allowed by the regulator – to have small players. I don’t know if we are ready for it. So far, we are overturning the entire market, perhaps in the future, but for the third time already, we encounter the population (laughs). Karaganda should have enough population to support the work of republican banks and provide space for small organizations. Until the market itself increases, for now, let there be MFIs. There're enough of them, they’re locally based and already working. From MFI to a bank is a small step and, I think, we will see this in our lifetime.
DK: – I'm convinced you will be right. We are returning the third time to our population. Let’s imagine we’re in a social engineering lecture and the lecturer is you. We have natural population growth in the country, our outflow has decreased, we’re growing – we are already 18 million, if I'm not mistaken. At the same pace, ceteris paribus, we will grow to 20-25 million in 15-20 years, for example. Personally, I'll try to make this happen (laughs). What difficulties can the country face with such growth? When the population is too young? Now we have 50% of the population younger than 30 years. What difficulties or opportunities will society face?
ES: – A young population, especially under 30, is primarily good for everyone. It’s amenable to education – the older a person, the harder it is to learn new things. Secondly, less burden on the pension system. This allows the state to direct funds not towards strengthening it, but towards other things beneficial for our development. Pension isn't a development tool, it has other functions. Housing is being built at an enormous pace – I spent more than a month of live time on business trips around the country last year, visited each branch, met with clients 124 times, saw how people live. Construction is progressing right now, in large strides, whole neighborhoods are being built, a vivid example: in Aksai, a huge neighborhood was built in two-three years. The same occurs in every medium-sized city. We have a large number of precast concrete plants, home building plants. They operate under various programs that in one way or another subsidize or offer equity participation. That is, the tools to increase living space are sufficient. Even, I’d say, there’s an excess in some places, where there's no such demand for medium- or high-class housing. What else? Jobs – population growth is always accompanied by job growth – to feed, clothe, shelter it, different business spheres arise or existing activities are enhanced, expanded. This work is also done by people, that is, such a positive cumulative effect. Energy carriers are sufficient. I see no issues with factors contributing to birth, there’re countless opportunities. As I said, any business faces the fact that our market demand isn’t very deep. More population means more business, existing enterprises will expand and create new ones, because this youth under 30 will use new fintech features. Secondly, they will demand what people over 40 don't demand. And if not just 7-8 people demand but several tens of thousands, this is something to listen to. Business leaders can capitalize on this and will be the first to provide what the population demands. These are new services, new products, new infrastructure – IT or physical. So we can talk about opportunities for a long time, there will be lots of them. Nothing wrong if we multiply in population. Only positives. So, citizens, love each other (laughs).
DK: – I would like to talk about methods of combating corruption, nepotism… although fighting nepotism isn’t necessary, it's a very good thing, according to some figures. Ichak Adizes, for example – we recently interviewed him and he said: 'Educate your relatives, they are the most trustworthy people for you. Never think about fighting this in Kazakhstan!'. We didn’t talk about corruption with him, but I would like to discuss it with you, if you don't mind.
ES: – Absolutely don't mind, it's an open topic and one of those thorns that restrain us. I am deeply convinced it's a growth disease. Everyone goes through it.
ALL NATIONS TRYING TO TEACH US TO LIVE NOW, LITERALLY A CENTURY OR HALF A CENTURY AGO, WERE EXPERIENCING WIDESPREAD CORRUPTION UP TO THE HIGHEST LEVELS OF POWER.
How did they fight it? Each has its experience, and adopting this experience should be very thoughtful and balanced. One way or another, it's a growth problem. Like chickenpox – you need to get it over with, and everything will be fine. How to overcome it? I see it only through labor. Our President has already talked about this idea – a nation of universal labor. When you work 12, 15, or 18 hours, and someone demands a bribe from you, a sense of offense arises: 'I earned this money with all my might, why should I give it to you?!'. A 'professional' conscience will appear. If you work 12 hours, your hand won't pull to ask for any fee from a worker like yourself. A business ethic will form. And if there's clanism? If you're a nominee? You come at 10, leave at 5, work leisurely 6-5 hours, but still have some ambitions, you'll stop yourself if you're also a smart person. Therefore, the most neutral means is labor. And what will spur labor is economic necessity. When China, Korea, Russia, Europe press us, overtaking us, while we fall behind, impacting our well-being, – we won’t have any other choice but to roll up our sleeves and work. And when the critical mass of people, these 'workers', reaches a certain level, I think they will point the finger at corruption and it will fall off like a dried pimple. We just need to be more hardworking, even more! We work very well now, there’s already a whole line of virtues saving us from many crises, as many countries fare much worse, even developed ones, during crises. To make this leap into a developed top thirty world, we need to be even more work-efficient, on the one hand, and, on the other hand, overcome corruption via economic drivers and increase the population. Three factors, two of which depend on each other, and population, I think, is a matter of time.