The bank plans to further increase its investment portfolio in Kazakhstan. On the eve of the Astana Economic Forum, Chairman of the Board of the Eurasian Development Bank (EDB) Dmitry Pankin told Kazakhstanskaya Pravda about how projects will be prioritised.
Incumbent Nursultan Nazarbayev won the recent Presidential elections. He then almost immediately confirmed a plan for implementing the Nurly Zhol new economic policy. Which points of the programme have you been paying particular attention to?
The Nurly Zhol is ambitious in its goals. It is particularly important that Kazakhstan has the necessary resources to implement them. The new infrastructure development programme was inaugurated in response to the turbulence wracking the global economy. There are plans to allocate annually $3 billion from the National Fund. It will surely help mitigate the crisis by strengthening the foundation for economic growth and creating new jobs. It is noteworthy that the country’s economic policy aims to develop large industrial and infrastructure projects. Economic stimulation through increased investment, both public and private, will enrich and diversify the country’s production and export infrastructure. This will ensure greater consistency in Kazakhstan’s economic development. But it is imperative that these new organisations take root themselves, so not to depend on the continued support of the state.
Since its inception, the EDB has been involved in the implementation of major infrastructure and industrial projects. What opportunities are there for the bank to expand its financing of new economic policy projects?
There are opportunities. The main requirement in selecting a project is that it coincides with EDB mission and strategy, meaning it helps deepen economic integration between Kazakhstan and other EDB member states. As you know, the EDB has already implemented a number of projects under the State Programme for Accelerated Industrial and Innovative Development (SPAIID). In this sense, nothing has changed: we will certainly consider long-term projects under the new economic policy. In general, the aspirations of the Nurly Zhol complement those of the bank. Transportation and energy infrastructure, engineering and export supports are key.
Notably, two out of every five dollars the Eurasian Development Bank invests in participating states goes to Kazakhstan. The bank currently has $1,250,000,000 invested in the country. We are financing 32 major projects in key sectors of the economy such as infrastructure and industry. Another 13 projects amounting to almost $600 million have already been implemented by the bank.
I will tell of a few examples. The bank provided more than $478 million for the modernisation and construction of a third power unit at Ekibastuz Thermal Power Station Number Two. The EDB financed the construction of power lines from Northern Kazakhstan to the Aktobe region, which mitigated the electricity shortage in the west of the country while simultaneously bringing power to its north. We financed the technical re-equipment of Bogatyr Coal LLP and the construction of a wind power plant with a capacity of 45 megawatts in the Akmola region; it is the first industrial project in the country aimed at generating wind electricity. The Bank financed the construction of a modern electric locomotive assembly plant in Astana as well. Projects installing automated control systems in train tracks around Kazakhstan are underway. They are expected to save up to 13 percent of diesel fuel and up to 7 percent of electricity consumed by electric locomotives.
Do you plan to extend loans to state development institutions or commercial banks from participating countries?
We must provide funds to priority projects that cannot be financed by business; it is in the best interest of our member states. Today, few market players are willing to become long-term investors, especially in infrastructure projects. Therefore, we must mobilise resources from all possible sources, including international development institutions and foreign banks.
We do have some co-financing of projects with leading international and national development banks, as well as with commercial ones. In Russia for example, we are involved in the reconstruction of the St. Petersburg Pulkovo Airport and the building of the Western Rapid Diametre highway, which are being implemented on public-private partnership principles. In Kazakhstan, there have been two syndicated loan projects, the construction of the third power unit at Ekibastuz and the Sunrise chromite deposits which recently concluded.
What role in the Eurasian Economic Union (EAEU) will your bank play?
I am sure that Eurasian integration will increase our prominence. The very creation of the EAEU and the current economic situation contribute to the development of a single integrated internal market. This will increase the number and volume of joint projects, both on the national level and in the business world. Objectively, this will lead to an increase in applications for funding for integration projects. The “load” on the EDB will grow because it is in essence an integration bank.
Regarding the formation of a unified financial policy within the EAEU, we provide serious economic analysis on the issues. This year, the EDB, together with Eurasian Economic Commission, plans to launch a comprehensive and in-depth analysis of monetary integration in the EAEU.
Working with civil society remains an important area of everyday activity for the EDB. For the past several years, the Centre for Integration Studies at the EDB has conducted an integration barometre. It monitors public opinion across the Commonwealth of Independent States (CIS) on issues pertaining to Eurasian integration through an annual poll. The results allow our members to make informed decisions in pursuing further integration.
Recently, we launched our first media publication competition for pieces on economic integration issues. It is being held simultaneously in six countries: Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan. The initiative will contribute to the promotion of integration issues through the media and most importantly, unbiased and objective coverage of regional integration.
Nobody has predicted any economic panics recently and some recent panics have lasted less than a financial quarter due to the unstable nature of the global economy. How do EDB analysts see the economic outlook in the EAEU and Kazakhstan?
Look at recent oil price projections and the latest exchange rates predictions. Have they been accurate? Even forecasts of the overall world economy are extremely inaccurate. It is safe to say that the negative effects of the strengthening dollar and falling oil prices will be felt, at least until the end of 2015. However, a recovery in commodity prices will improve the economic situation in Russia. This will allow other EAEU countries to adapt their macroeconomic policies to external conditions.
As for Kazakhstan, EDB analysts say that government measures to support the economy from 2015-2017 will result in additional GDP growth of 0.5 percent in 2015 and 0.3 percent in 2016. If external demand recovers and oil prices increase to $60-70 per barrel and the Kashagan field begins operations on schedule, growth in 2016-2017 could increase to 3.7 percent and 4.6 percent, respectively.
You began your chairmanship of the EDB a few months ago. Does the change of a chairman mean changes in the bank’s policies and practices?
The EDB’s mission is defined by statute and remains unchanged. The main thing now is to keep working closely with the founders and members to clearly understand what they expect from the bank and to evaluate the results of its operations. In sticking to our principles, we can determine which public policy challenges countries and the region as a whole, as well as the bank, should be involved in and what the characteristics of the projects that it finances are.
The bank’s investment policy will not immediately change, neither will the distribution of resources according to industry and country. However, clarification from member states on their priorities will inevitably lead to changes in our projects and country strategies. The bank is already working on a new strategy, which we will discuss with our shareholders. It is clear that the focus will be on infrastructure and key industries.
We will expand our dialogue with member states since the implementation of infrastructure projects in all countries is a priority and many of these issues require complex political, economic and legal solutions. Special attention will be paid to the development of public-private partnerships. It is necessary to improve the business environment in order to attract private investors, including foreign ones, to sectors with which they are not already engaged. In this regard, Kazakhstan is in a very advantageous position.
What would you like to do as chairman of the EDB?
Establish an effective global investment bank that will serve the interests of its founders.