ASTANA – The Samruk Kazyna Sovereign Wealth Fund officially unveiled its transformation programme Oct. 6. The programme is designed to help modernise Kazakhstan’s economy and bring an additional $11 billion to the country’s gross domestic product by 2020 through the reorganised fund.
The programme was announced during what was billed as a Transformation Forum that took place in Astana with the presentation of a programme to modernise the fund by optimising business practices, increasing outside investment and establishing an improved system of corporate management. The programme, elaborated by the fund in conjunction with international consultants, was approved by the Samruk Kazyna board of directors Sept. 5 during a session chaired by Kazakh Prime Minister Karim Massimov.
Leaders, experts and officials from various states and companies participated in the event. The list included Managing Director of McKinsey Global Institute (MGI) Dominic Barton, a member of the board of directors and Samruk Kazyna Independent Director Richard Evans, MGI Director General Isaac Adizes, prominent professor of economics at New York University and President of RGE Monitor Nouriel Roubini as well as representatives of similar foreign sovereign funds such as Singapore’s Temasek Management, Malaysia’s Khazanah Nasional Berhad, Korean Investment Corporation, and Qatar Investment Authority. There were other officials from international financial institutions, particularly the European Bank for Reconstruction and Development (EBRD) and the Organisation of Economic Cooperation and Development (OECD), as well as top Kazakh officials.
The programme is the first transformation project of such magnitude in the Commonwealth of Independent States (CIS). Its implementation is expected to bring an additional $11 billion to Kazakhstan’s economy by 2020. Some of the biggest companies have already implemented provisions of the pilot project, including Kazakhstan’s Temir Zholy national railway company, KazMunayGas national oil and gas company and Kazpost.
At the event, Kazakh President Nursultan Nazarbayev stated that the government sought to create a high-tech and highly efficient sovereign wealth fund that would increase the wealth of the state. “When we established Samruk Kazyna, we studied international experience to raise the benefit of our assets and to advance them to a new level in order to be competitive. Due to the international financial crisis, the fund had to assist in dealing with its consequences and entered in the assets of many second-tier Kazakh banks, which were in dire straits. Nowadays, Samruk Kazyna has already withdrawn [from these companies and banks] and has to focus on its direct mission, namely attracting foreign investments to manufacturing companies, developing new types of products and implementing new technologies,” he said.
The President emphasised the need for foreign competition for companies, such as KazMunayGas, Air Astana and Kazakhstan Temir Zholy, which had leading positions in the CIS region. In this respect, he set a new challenge for Kazakh enterprises to enter the list of the top Fortune 500 companies. In his address, he also focused on the need to develop the scientific and technical potential of the fund beyond the establishment of Nazarbayev University and implement the Kazakhstan 2050 Strategy’s objective to raise the share of small and medium-sized businesses in the GDP to 50 percent by 2050.
Chairman of Samruk Kazyna Umirzak Shukeyev stated that the fund would transform from a passive shareholder to an active investor and, therefore, was in need of a radical reform of the board of directors, for instance withdrawing all state officials from the board, reducing the number of the fund-owned companies from 600 to 300 and cutting down the number of management levels from nine to four. “We would set a lower limit for the internal rate of return for all subsidiary companies and obligatory requirements to engage private companies as partners, as well as to transfer new technologies,” Shukeyev added.
Shukeyev highlighted that the programme was aimed at the creation of value and the fastest achievement of a positive profit by 2020. He advocated for Samruk Kazyna to reevaluate all the key systems of indicative planning and investment strategies of subsidiary companies, to strengthen sectoral command within the fund and to confer to the investment committee exclusive powers on the selection and implementation of big projects and the use of fund budgets and subsidiary companies. To that end, the programme proposed completely revising the fund’s assets, determining the best structure of portfolio through restructuring, privatisation, merger and takeover, disposing of inefficient assets in traditional sectors and establishing new enterprises in the energy, metallurgy and chemical fields as well as tourism and green economy industries.
In turn, international and Kazakh experts emphasised that in general, implementation of the programme would benefit the fund as well as Kazakhstan’s economy. With the fund being the owner of the largest strategic national companies in various industries, the modernisation of the economy was impossible without the modernisation of the fund.
Barton highlighted four main factors, which should be taken into consideration for the success of the Samruk Kazyna transformation. First, using an analytical approach the fund and its subsidiary companies should elaborate in detail their initiatives set by the programme in three main directions of transformation: management, portfolio restructuring and value creation. Second, members of the board of directors and executives of subsidiary companies should actively participate in the process of planning. Third, the fund should attract active and competent people to the board and executive team to elaborate and implement the programme. Fourth, the programme needs the support of high executives, such as the President and Prime Minister.
Larissa Zyamzina, advisor to the Shukeyev, noted that a programme of such scale was an unprecedented project in the CIS. She stated that the fund sought to advance the efficiency of its subsidiary companies through reengineering projects and was expecting results in two to three years.
Samruk Kazyna is the owner of the largest strategic national companies in various industries, including oil and gas, nuclear power, mining, communications and mail, and one of the biggest employers in the state, with 350,000 employees. The fund directly adds 2.5 trillion tenge (US$13.8 billion) to the country’s GDP and its total cost amounts to around $100 billion. Approximately one quarter of all investment in Kazakhstan is carried out by the subsidiaries of the fund.
The plans for implementation of the transformation programme were announced in late February, with Nazarbayev instructing to finalise the document by September of this year.