AIFC well on track for successful launch, says governor

ASTANA – One of the issues always facing organisers of major international events such as the Olympics or EXPOs is the use of new and large-scale purposefully built facilities afterwards. It is an issue Kazakhstan has been well aware of in the run-up to EXPO 2017, resulting in President Nursultan Nazarbayev’s proposals to establish not one, not two, but three new institutions on expo premises. One is the Future Energy international centre for the development of green technology and investment projects to be supported by the United Nations, another one is the international hub of IT start-ups. Last but not least, there’s the proposal, arguably the most ambitious out of the three, to turn Astana into a major financial hub in the heart of Eurasia by establishing the Astana International Financial Centre (AIFC).

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In an exclusive interview with this newspaper, AIFC Governor Kairat Kelimbetov, spoke about the preparations for the launch of the centre in the near future, its main principles and priorities.

What are the main goals of establishing a new financial centre in Astana. Will it cover any specific areas and how will it be different from the rest of the local financial market?

There are several aspects of this project. First of all, AIFC is an important part of country-wide economic and institutional reforms. In fact, AIFC is the part of the “100 Concrete Steps” programme aimed at delivering five institutional reforms for the country. We are establishing brand new institutions to strengthen further the rule of law and governance.

Secondly, the idea is to give momentum to the non-banking financial sector and create new instruments to finance the economy. This will complement the existing banking financial sector, which is also going through reforms.

At the same time, Kazakhstan now has a rare opportunity to become a significant regional player. I firmly believe that the timing for this new ambitious project is just right: China is expanding westward, the Russian economy is still recovering from recent slowdown, global markets are experiencing low and even negative interest rates, while Kazakhstan itself is abandoning its old model and launching new reforms. This is why we have such an aggressive timeline.

We are at the final stage of establishing the main AIFC bodies only two years after the idea of financial centre was first proposed by the President Nazarbayev. By Jan. 1, 2018 we will have a fully functional financial centre with world-class exchange infrastructure, independent financial court and arbitration centre, regulator and other key bodies. The court and arbitration centre are very important features of Astana IFC: we will be working in an independent legal framework based on the principles of English common law.

So, our formal objectives include promotion in attracting investment into the state’s economy through enabling environment in the field of the financial services; development of stock and bond market in Kazakhstan with further integration into international capital market; improvement of the insurance market, banking services and Islamic finance in the country.

We have, however, identified five strategic directions of development or pillars based on the importance for the advancement of the financial sector and the specific demand for these services on our market: development of capital markets, asset management, private banking, Islamic finance and promotion of financial technologies or fintech. For each of them, we are targeting specific anchor projects, which will drive them forward.

For example, the Astana International Exchange (AIX) will serve as a platform for the large privatisation programme of the state-owned companies. We are talking about largest companies in the Samruk Kazyna Sovereign Wealth Fund: starting with Kazakhstan’s national oil and gas company, railways operator, postal operation, air carrier, power producer, mining company and uranium producer, the world’s largest, by the way.

Global asset managers will be competing for access to local sovereign funds. We see the increasing demand for Islamic financial instruments. The local market – both Kazakh and that of Russia and other neighbouring countries, – has a significant number of wealthy individuals who need to manage their portfolio. With the tightening of international regulations, there is a demand for a local private banking services centre. Last, but certainly not the least, there is a great demand for new tech solutions, which calls for the support of this industry: we are already working with a number of institutions on creating the right fintech ecosystem.

AIFC will also serve as the gateway to the whole region, in particular, the Eurasian Economic Union, and will serve as a delivery unit for the One Belt, One Road programme supported by the Chinese government and financial institutions. It has already attracted new infrastructure investments in the country and now, with the establishment of the AIFC, investment will be facilitated. This project needs a local finance office, and Astana fits this role perfectly. This is why the importance of local capital market is highlighted.

You’ve just mentioned English common law. It’s fairly new to the region. Why do you think it is important for Astana?

Our financial centre must become a part of the global financial system. There are many risks that foreign investors, especially Western, associate with the post-Soviet institutions. This is largely due to the lack of familiarity and also non-accurate perception of Kazakhstan. I don’t think that this is the question of what system is better, however, investors are used to certain “game rules” and most major financial centres operate under the principles of common law. And we see support and appraisal for our efforts wherever we go.

In short, we pay more attention to shareholders and investors’ rights, we provide flexible regulation for new tech solutions, and we even are inviting globally recognised judges to avoid any misperceptions.

On another hand, this also gives us a unique opportunity; as you see, there is no other place in the vast region of Central Asia and Eastern Europe with such legal and regulatory framework – we also count it as an advantage.

You said the centre will be launched officially in January 2018; how prepared are you and what important milestones have you achieved already?

Let me first give you some historical background. The idea of creating AIFC was first proposed by the President of the Republic of Kazakhstan in May 2015. In December 2015, the President signed the Constitutional Law on establishment of the AIFC which will be based on the English Law with preferential tax treatment and independent financial court. We’ve established the highest collegial body of the AIFC – the Management Council, – which is headed by the President of Kazakhstan and comprises key government officials and renowned global experts. One of the most important milestones is the amendments to the Constitution, which now mentions the Astana International Financial Centre in the opening chapters.

Today, we have already defined the structure of the key bodies and are working on the establishment. Just a few days ago, we signed a shareholders’ agreement with Shanghai Stock Exchange, which will acquire a quarter of the new Astana International Exchange. We signed an agreement with Nasdaq, which will provide its matching engine, and looking forward to finalising the deals with our post-trade partner.

The AIFC Court and Arbitration centre will be ready by January; we work closely with the Dubai IFC Court and with leading British lawyers, including the former Chief Justice of England and Wales Lord Woolf. We have established the Astana Financial Services Authority, which will register and regulate AIFC participants. Earlier this year we launched our own training facility: the Bureau for Continuous Development Programmes which partners with international certification and academic institutions and has already completed its first training programme. To provide best services for foreign experts we started to work on the special visa centre, which we decided to enhance and expand to a more functional Expat Centre – it will also be ready in January.

So, I firmly believe that we are on the right path and will be 100 percent ready on the opening day. This doesn’t mean, however, that we are not open to new initiatives and projects; my team is always coming up with interesting ideas, which will support the AIFC.

You’ve mentioned the stock exchange several times. How do you plan to develop the local capital market?

I sincerely believe it is vital for the economy to put significant effort to develop its capital markets, as they provide a healthy alternative to borrowing from banks. When it comes to national companies, we need not only to attract capital, but also good governance, and what Samruk Kazyna is doing is one of the most important reforms currently in our country. The privatisation programme of Samruk Kazyna companies will become the key driver behind the development of the local capital market. Why is it important? Having a local trading platform will decrease the costs for both issuers and buyers and, most importantly, develop the market so that other companies, state-owned, private Kazakh or even companies from neighbouring countries, will have access to such instruments.

We are also planning on launching bond instruments, which are becoming increasingly important with the development of the One Belt, One Road infrastructure projects. We are working with multilateral institutions to issue first green bonds and Islamic finance instruments. We will soon be ready to support traded funds and depositary receipts. In the future, our goal is to enhance the toolset and provide other instruments like derivatives and commodities.

You have clearly defined plans. It seems you’ve done quite a comprehensive analysis before launching new initiative. What kind of models did you find useful? Do you benchmark Astana against other global financial centres?

I think it is very naïve to think that we can ever compete with London or New York or Hong Kong. Our idea was not to try to replicate New York and London of 1970s or Dubai of the 2000s. Having said that, we have studied the examples of London, Singapore, Hong Kong, Dubai and many other financial centres. A good institutional framework as provided by the Dubai IFC: we also followed their model in creating and independent legal and regulatory framework. The Dubai IFC is our key partner and their teams are helping us setting up our institutions, while the top management shared very useful recommendations.

So, in our case, as I mentioned earlier, we cover a large region and the geographical location provides unique opportunities. We are connecting East and West, just as in the example of our stock exchange: we brought together two global stock exchanges from the U.S. and China. There aren’t many examples like this anywhere else. Furthermore, with regards to the development of new instruments, so-called, fintech, we follow the recent advances in London, Singapore, Hong Kong and Abu Dhabi, but also less developed countries, which have made recent breakthrough, such as Kenya or Myanmar.

But why Astana and not Almaty, which has already established itself a local financial centre?

From the very beginning, the idea of AIFC was to introduce new financial instruments and develop a non-banking financial sector, which to this day is underdeveloped and rather dominated by strong commercial banks. The expertise and historical concentration of financial services in Almaty also come with the legacy of the banking industry, which now also requires improvement and reforms. As we build new services and want to provide best investment and business climate for foreign partners, current legacy and regulation don’t prove to be beneficial. Indeed, what makes the Astana financial centre different from previous attempts is its strong institutional framework. Unprecedented in our regional case with an independent jurisdiction based on the principles of common law, flexible regulation, tax incentives, even English as the main working language – we needed a new platform to implement all of these. Astana seemed perfect as it is a new city and rising regional leader with big ambitions. The financial centre is an organic part of the young capital.

Will you rely on foreign experts or on local talent? The issues you’ve raised require a lot of expertise and good skills; how ready are you in these terms?

Undoubtedly, foreign expertise will play an important role. There are certain aspects, which just cannot be covered by local expertise. Take for example our legal system – we need judges and lawyers who have experience in working in an Anglo-Saxon jurisdiction. We also expect international participants in our financial market which will bring their expertise and transfer their know-how to the local pool. At the same time, I regard our talent pool as one of the advantages of the AIFC. We have thousands of well-educated multilingual professionals, who would relish an opportunity to work with these global firms and experts. I believe that AIFC is the natural partner for the Bolashak programme and Nazarbayev University, while our Bureau for Continuous Development Programmes will train thousands of people using EduTech facilities and our own mentors. The bureau has already launched a number of programmes, they coach young professionals seeking certification like CFA or CIMA, and they work with local HR companies to create a sophisticated database with online courses. The work is already in progress.

Astana is hosting the international exhibition EXPO 2017 and the anniversary 10th Astana Economic Forum as well as launching financial centre next year. Don’t you feel overwhelmed with all the different events happening at the same time?

Not at all, I think large international events are a part of the establishment of Astana as a truly global city and the Astana International Financial Centre is the key driver of this process. EXPO 2017 gives us an opportunity to offer our platform to foreign visitors and potential participants. The theme of EXPO – Future Energy – complements our efforts on promoting green finance and sustainable development. Even the physical infrastructure, which was built for the EXPO will then find its purpose as the core of financial centre. We will establish our offices at the EXPO site and provide this modern infrastructure to the future participants of the centre. So, I would suggest to the participants of the Astana Economic Forum and EXPO to literally, not figuratively, drop a coin here to return next year!