ASTANA – Running a private business can be a challenge itself, while running a business in a foreign country doubles or even triples the pressure. The Astana Times decided to take a deeper look into some of the challenges of running a business in Kazakhstan and interviewed one successful entrepreneur in Astana – Ben Godwin, 30, from the United Kingdom.
“I don’t have to be in Kazakhstan; I choose to be in Kazakhstan. I love Kazakhstan; I want to talk about the problems because it is very difficult right now. I don’t want to criticise. This land offers a lot of opportunities, but I believe we need to know the problems to work on them, to go through the hardships to get a bigger reward,” Godwin said.
He moved to Kazakhstan from the U.K. when he was 23, having been invited by his business partner to start a project in the Central Asian country. That project has grown into a successful business today – The Capital Group. Launched as a small education startup in 2008, the Group has grown into several projects that include Capital Education (English-language courses and translation services, including the Capital Film educational film series) and Capital Contractors, which was founded in 2011 initially to promote international operators and manufacturers in Kazakhstan’s geology sector. Today it represents a large range of international manufacturers in the geological and oil and gas sectors.
“I like the idea of having my own business because of the complete freedom that I can have; I can go to bed whenever I want for instance,” said Godwin, who is also fluent in Russian, recounting the perks of having his own business.
However, he also discussed some of the challenges of doing business here.
“[There are] a few major things that I come across every day. The first one is the notary. For instance, if we have to translate 50 pages of an international document and one page of translation and notarisation costs 1,000 tenge that’s 50,000 tenge.” This is a waste of money, Godwin believes. “Every time we have to sign a contract or compete for a contract we have to pay thousands of tenge just to have someone to put a stamp on a document,” he said. It’s a minor problem, he added; however, given the nature of his business, it is something he faces every day.
“I was suddenly shocked to know that when I deposit the money into the bank I have to pay a commission; can you believe it? There are a lot of bank charges, commissions and stuff like that. Again, they’re not significant but every month they add up. However, the bigger problem is getting a loan. The [interest rates] are from 14 to 15 percent and higher. You have to be [out of your mind] to agree to that,” Godwin said, smiling. “There is absolutely no opportunity to get them; there is no way to bargain with the banks. Though I understand inflation is high and you can’t have European rates. There are no means of financing international investors for a reasonable price. Over the years we had to constantly self-finance, which is exhausting and very risky,” Godwin explained. At his age, he can’t continue taking the risks he did before, he said. “Although there are government programmes that are available for entrepreneurs, such as the Damu Fund, a lot of them are offered to startups, with the age limitations from 18 to 28. So an 18-year-old can apply through the government programme and I can’t, even though I have a successful business with 40 people on staff. I believe I am exactly the kind of person who should be getting this money. So it is very difficult to scale your business up.”
“The rental prices for [offices] are through the roof [in Astana]. Obviously, the real estate market is dropping now, and very fast actually. But it is very difficult to buy property because the prices are so high and again it is very difficult to get the mortgages and loans. The demand is high and the supply is small and so it is difficult for small and medium businesses to get [good] quality offices.”
Private ventures versus government
“Unless you’re a barber shop or a car service station, you most likely work for the government under contract. Half of our business is with the government whether directly with state bodies or indirectly with national companies. It is quite clear that there is a considerable imbalance in the relationship, meaning these bodies are legally able to create problems for their contractors if they don’t properly fulfill the contracts to the letter. While this is often the case in the U.K. and elsewhere, I have seen more evidence of abuse of this privilege in Kazakhstan. Suing your clients is obviously costly and risky, and the constant threat of being sent on to a two-year supplier black list hangs over you like a sword of Damocles and could potentially close you down. One sure way to avoid that is to undertake to do less than what you actually are capable of, don’t overstretch yourself.”
Rigid tax system
Godwin also owns a small business in the U.K. and constantly works with the businesses from there. He says authorities in the U.K. are a little more lenient towards small and medium businesses.
“Although the taxes [here] are less than in the U.K., the system can be more punitive. For example, our bank account was frozen because we made a genuine mistake. We failed to pay social deductions for one employee. We couldn’t use our bank account. I wish there would be 30 or 90 days to correct the problem, like in the U.K.”
According to the Ministry of National Economy’s Department of Statistics, “favourable business climate and political stability promoted a considerable foreign direct investment (FDI) inflow to the country.” Kazakhstan has attracted gross FDI of over $208 billion since 1993, the year such statistics began to be tracked. However, doing business in the 24-year-old country still has specific hurdles and challenges.
To attract more FDI in the country, numerous governmental projects are being implemented, one of which is EXPO 2017. Within the concept of the expo, Kazakhstan is going to introduce a visa-free regime with the countries of the Organisation for Economic Cooperation and Development (OECD). The government of Kazakhstan has recently introduced a flexible taxation system for foreign entrepreneurs, which includes a 10-year exemption from corporate income tax and land tax, as well as an eight-year exemption from property tax; state reimbursement for up to 30 percent of capital expenditures after commissioning and the right to employ foreign labour until one year after construction is finished, and free of quotas and permissions. All of these have been effective as of January 2015.