ASTANA – As the end of the year approaches, Astana International Financial Centre (AIFC) Governor Renat Bekturov discussed the accomplishments of the center and shed light on how it addresses the challenge of capital consolidation for the economic development of Kazakhstan in an interview with Forbes Kazakhstan.
What are the outcomes of the AIFC in 2023? What would you like to share with investors and market participants?
In 2023, our mission remained consistent – facilitating the attraction of investments to Kazakhstan. We closely collaborate with the Committee for Investments of the Kazakh Foreign Ministry, Kazakh Invest, and other agencies responsible for attracting foreign investments. Imagining the sales funnel, these organizations serve as the entrance, introducing Kazakhstan to investors. Our role is to attract these investments, ensuring coordination and independent expertise among project participants. Positioned at the end of the funnel, we engage when clients have decided to invest, offering the jurisdiction of the AIFC.
The achievements covered various sectors, including transportation, logistics, renewable energy, agro-industry, mining sector, and IT. The major projects included the registration of the joint venture Caspian Integrated Maritime Solutions in the AIFC, under the Middle Corridor project, by a subsidiary of the KazMunayGas national oil and gas company in collaboration with Abu Dhabi Ports Group. Kazakhstan Temir Zholy established a joint venture with national companies from Georgia and Azerbaijan for investments in the Middle Corridor land projects. The Samruk Kazyna Sovereign Wealth Fund is establishing a wind plant with Chinese participants in the AIFC.
The development of the capital market emerged as a key focus. With an emphasis on the public integrated market, efforts were made to expand the investor base, attracting both local and foreign investors to the Astana International Exchange (AIX). The re-domiciliation of Polymetal International, shifting its primary listing from London to Astana, stood out as a key project. This move attracted major funds, including BlackRock, the Norwegian Sovereign Fund, and other companies. Transferring the listing to the AIX facilitated the involvement of global custodian banks, including JPMorgan and BNY Mellon, with their clients—large institutional and private investors—opening accounts in Astana. As a result, the central depository of the AIX surpassed 1.5 million accounts, and foreign investors accounted for 61% of trades on the exchange in November.
What is your funding structure and its volume? How profitable is the AIFC?
Our funding has been gradually decreasing. In 2022, the AIFC secured 10 billion tenge ($21.7 million), followed by 10.4 billion tenge ($22.6 million) in 2023. The projected budget for 2024 is 8.9 billion tenge ($19.4 million). From 2017 to 2023, a total of 98.3 billion tenge ($213.9 million) has been directed from the country’s budget to maintain the AIFC, representing 0.1% of the total expenditures of the national budget.
Regarding profitability, our focus is on institutional results rather than commercial gains. We evaluate success through private investment deals. Capital attracted through AIX, funds under the AIFC’s management, active participants, cases reviewed, and more. The AIFC aimed to attract $10 billion into the country’s economy by 2025, and this goal was achieved in 2023, with $3.7 billion on the AIX and $6.3 billion in direct investments from participants.
Throughout its operation, companies participating in the AIFC paid 68.5 billion tenge ($149 million) in taxes to the country’s budget, as of Sept. 1, 2023. Tax incentives apply to financial companies, constituting around 15% of the participants. The AIFC court made 97 decisions, and the International Arbitration Center considered 2,283 cases, all with 100% execution of decisions. We have registered 34 management companies licensed to manage investment funds and 37 investment funds, collectively overseeing assets exceeding $1 billion.
Initially, there was a plan to advance the banking and insurance sectors. How is progress unfolding in these areas?
Within the AIFC framework, banks offer services, recognizing that their business models are tailored for the local market and transactions in the national currency, tenge. The tenge perimeter encompasses the National Payment Corporation, formerly the Kazakhstan Interbank Settlement Center. It is deemed appropriate for banks to remain integral to the domestic banking system under the oversight of the National Bank and the Agency for Regulation and Development of the Financial Market.
Regarding the insurance market, three insurance companies currently operate within our jurisdiction. We emphasize fostering the reinsurance market, with a keen interest in establishing national reinsurers in Azerbaijan and Türkiye. We are advocating for this initiative within the AIFC.
What strategy has the AIX formulated, considering potential changes, particularly the integration of the potentials of the two exchanges?
The AIX has consistently aimed to create a vibrant capital market where both domestic and international investors engage in transactions while a diverse array of issuers attract funds. The secondary focus is on enhancing the toolkit available to retail investors, which remains a priority.
With market infrastructure now established, the emphasis shifts to business development by augmenting the number of issuers. The AIX will diversify its product line. In 2023, it introduced a liquidity management instrument involving financing through bond issuance within a unified group. This move enhances transparency by addressing historical challenges in assessing a company’s true financial position due to non-market operations often obscured by financial euphemisms. This year, over half of the bond issuances on the AIX, excluding quasi-government placements and international development institutions, were dedicated to liquidity management.
Concerning the integration of the two exchanges’ potentials, we propose a specific direction for market development. The head of the state has tasked us with exploring the potential merger of the two exchanges under unified management to enhance the domestic market’s capacity and appeal. Our proposal envisions creating a unified holding for both exchanges, featuring a singular center for corporate decision-making, strategy formulation, and international negotiations. The AIX will focus on developing the stock market, encompassing long-term bonds and equities.
Simultaneously, the Kazakhstan Stock Exchange (KASE) will target the money and currency markets, including the repo market and currency derivatives. Regular presentations of our concept are made to key stakeholders. While acknowledging that any changes will impact a substantial number of market participants and necessitate adjustments, we emphasize the need to move beyond opposition and consolidate the capital market. Our proposed model aims to augment liquidity, diversify market instruments, attract foreign participants, and facilitate foreign capital inflow. Importantly, it promises a non-disruptive and cost-effective implementation that enhances opportunities for investors, brokers, and issuers. Overall, we view the integration of exchanges as just the initial step in a series of measures essential to establishing a capital market commensurate with our economic scale.
It is vital not to overlook that the market does not tolerate uncertainty. Therefore, current efforts are concentrated on reaching a conceptual decision. The primary imperative in this situation is to avoid hasty decisions and stay focused on the significant national task — consolidating the capital market in the country.
The article was originally published in Forbes Kazakhstan.