AIFC fosters growth of Kazakh small- and medium-sized businesses

Published by: James Martin and Akshu Campbell-Holt, CEO, AIFC Business Connect and Head Market Research Department, AIFC Aug 2020

The millennium for Kazakhstan began with one of the world’s largest oil discoveries in 30 years at East Kashagan, in the north of the country. Following the breakup of the Soviet Union in 1991, Kazakhstan prosperity increased through the 2000s, outperforming world averages on the back of high oil prices and structural reforms. 

In ambitious plans to become one of the top 30 developed countries in the world by 2050, Kazakhstan unveiled the 100 Concrete Steps to implement Institutional Reforms (Concrete Steps) programme in 2016 to boost sustainable economic growth and diversification.  

Kazakhstan is also on a journey to transition from a frontier to an emerging market among the global market indices. The comprehensive privatisation plan of some state-owned entities will, in part, contribute towards these objectives. 

However, in order to meet Kazakhstan’s bold objectives, it is necessary to have a critical mass of small- and medium-sized enterprises (SMEs). This necessitates strong capital markets, private sector competitiveness, diversification, and incentivising innovation and entrepreneurship. 

SMEs facing unprecedented challenges 

The challenges surrounding the SME sector in Kazakhstan, as with most emerging countries (which have been magnified during the current pandemic), correspond to limitations in accessing critical resources  finance, information and strategic skills, and markets  all of which are, to greater or lesser degrees, interrelated.  

There are limited early-stage investors such as angel investors, private equity firms and venture capitalists, and obtaining loans and credit is accompanied by heavy collateral requirements. 

As the world grapples with the unprecedented socio-economic and health challenges of COVID-19, Kazakhstan, as an oil-rich country, faces added complexities accentuating challenges faced by the private sector and SMEs.  

AIFC – a step towards sustainable economic growth 

In 2018, the AIFC and Astana International Exchange (AIX) were launched under the context of the Concrete Steps. With best-in-class infrastructure modelled on the principles of English Common law and based on international standards, the AIFC is positioned to support Kazakhstan’s push for sustainable economic development and enhanced private sector competitiveness through facilitating investments, and fostering innovative financial products and services, digital assets and entrepreneurship.  

The AIFC’s diverse range of services include unique offering and niche market segments such as: 

  1. the Regional Market Equity Segment with simplified requirements including free-float market capitalisation not exceeding US200 million, and a simplified prospectus without a requirement to demonstrate revenue-earning track record; 
  2. Mining Segment with internationally recognised Junior Mining Rules at AIX, allowing issuers to qualify for exemptions from several AIX listing requirements; and 
  3. Green Bonds with the added benefit of reimbursement of expenses related to the provision of a mandatory external verification. 

In 2019, the AIFC launched a dedicated SME project in collaboration with the World Alliance of International Financial Centres (WAIFC) aiming to exchange and implement best practice across financial centres in participating member countries, with a long-term objective of providing SMEs access to network and markets in member countries. 

In response to the devastating financial effects of the pandemic on SMEs globally and in an effort to share best practice to assist international financial centres (IFCs) target their SME support activities to greatest effect, the WAIFC, in an initiative led by the AIFC, Belgian Finance Centre and Toronto Finance International, is collating data for analysis on the national, supranational and IFC support and economic recovery measures. 

The AIFC itself continues to evolve and adapt its infrastructure to lower market entry barriers while meeting international standards and, in response to the current COVID-19 crisis, it has intensified efforts to support SMEs. The AIFC has issued simplified procedures to obtain licences for certain types of regulated activities, and issued guidelines to companies carrying out regulated activities to assist with the required policies and procedures including compliance, risk management, business continuity and conflicts of interest. 

A holistic framework to support SMEs 

In recent years, Kazakhstan has launched several state programmes to foster SMEs. In light of the pandemic, Kazakhstan has responded with comprehensive support and relief measures to sustain the private sector and SMEs. 

While these measures provide significant help, a long journey lies ahead. The AIFC’s role, in partnership with AIX, is pivotal in complementing Kazakhstan’s efforts by providing internationally recognised best practice and a holistic framework to stimulate innovation and entrepreneurship, while creating a favourable environment for SMEs to sustain, grow and access essential strategic resources, thereby contributing to the sustainable economic development of the country and the region.