Identifier
Created
Classification
Origin
09ASTANA2157
2009-12-15 10:28:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Astana
Cable title:  

KAZAKHSTAN: SCA ASSISTANT SECRETARY BLAKE HOSTS MUSLIM

Tags:  PGOV PREL ECON EINV SOCI KCOR KISM KWMN KZ 
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PP RUEHIK
DE RUEHTA #2157/01 3491028
ZNR UUUUU ZZH
P 151028Z DEC 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7000
INFO RUCNCIS/CIS COLLECTIVE 2248
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1611
RUEHKO/AMEMBASSY TOKYO 2312
RUEHUL/AMEMBASSY SEOUL 1246
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 1806
RUEKJCS/SECDEF WASHDC 1656
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/AMCONSUL ALMATY 2096
UNCLAS SECTION 01 OF 04 ASTANA 002157 

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB/ESC, S/P, R/PPR
STATE PLEASE PASS TO USTDA

E.O. 12958: N/A
TAGS: PGOV PREL ECON EINV SOCI KCOR KISM KWMN KZ
SUBJECT: KAZAKHSTAN: SCA ASSISTANT SECRETARY BLAKE HOSTS MUSLIM
ENTREPRENEURSHIP ROUNDTABLE

REF: (A) STATE 112495
(B) ASTANA 2099

ASTANA 00002157 001.3 OF 004


UNCLAS SECTION 01 OF 04 ASTANA 002157

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB/ESC, S/P, R/PPR
STATE PLEASE PASS TO USTDA

E.O. 12958: N/A
TAGS: PGOV PREL ECON EINV SOCI KCOR KISM KWMN KZ
SUBJECT: KAZAKHSTAN: SCA ASSISTANT SECRETARY BLAKE HOSTS MUSLIM
ENTREPRENEURSHIP ROUNDTABLE

REF: (A) STATE 112495
(B) ASTANA 2099

ASTANA 00002157 001.3 OF 004



1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: Assistant Secretary for South and Central Asian
Affairs Robert Blake chaired a roundtable discussion of Kazakhstan's
business environment with 14 of the country's leading Muslim
entrepreneurs in Almaty. The December 14 event kicked off Embassy
Kazakhstan's outreach program to promote the 2010 Presidential
Entrepreneurship Summit in Washington, D.C. (ref A). Although the
entrepreneurs come from diverse backgrounds and followed different
paths to individual success, they all have one thing in common:
despite difficulties, they made it. They achieved success, and are
determined to invest their capital, energy, and ingenuity to make
Kazakhstan a better place for business. In an open and spirited
discussion, they agreed that Kazakhstan must reduce the dominance of
large holding companies, do more to encourage small- and
medium-sized enterprises, improve professional training programs,
and reduce corruption. END SUMMARY.

BUSINESS LEADERS WITH DIVERSE BACKGROUNDS


3. (SBU) Even though they are all successful business leaders, and
all ethnic Kazakhs, the entrepreneurs who participated in the
December 14 roundtable were a very mixed group. Nine men and four
women, ranging in age from their early thirties to their late
fifties, gathered to talk about their personal path to success, and
to offer suggestions to improve the business environment in
Kazakhstan. Some were educated in the Soviet Union, others at
Harvard Business School; some run a sole proprietorship, others
oversee sprawling conglomerates; some are fluent in several foreign
languages, others speak only Russian and Kazakh; some travel to
London for board meetings, others have never left Kazakhstan.
Nevertheless, this diverse group of entrepreneurs and community
leaders share a remarkable record of success, and a fierce desire to

make Kazakhstan a better place for doing business.


4. (SBU) The group included several entrepreneurs nominated by
Embassy Kazakhstan to attend the Presidential Entrepreneurship
Summit (ref B),including:

-- Nurlan Kapparov, a 39-year old multi-millionaire who started in
the oil business and now runs a successful international corporation
with interests in the energy, tourism, and construction sectors;

-- Yergali Begimbetov, 37, a former intern with Nationwide insurance
who now operates the leading private insurance company in
Kazakhstan;

-- Gafur Ikhsan, 39, chairman of a freight forwarding and
transportation services company;

-- Yerzhan Mandiyev, 37, president of Asia Auto, which assembles
Niva, Skoda, and General Motors vehicles;

-- Gulsum Akhtamberdieva, a board member of Kazakhstan's Business
Women Association and general director of CARANA Corporation Central
Asia for 12 years, who established her own management consulting
company in 2005.

-- Azat Peruashev, 42, who was not nominated to attend the
Presidential Summit, is nevertheless a leading advocate for
entrepreneurs in Kazakhstan. He is Chairman of the Atameken
National Union of Entrepreneurs, an umbrella organization of more
than 120 business associations in Kazakhstan, and former leader of
the Civic Party of Kazakhstan. (NOTE: It is widely rumored that
President Nazarbayev endorsed Peruashev for his current position in
exchange for Peruashev's pledge to cease his political activities,
which he has done. On December 15, "Vox Populi," a Kazakhstani
business journal, reported that earlier this year, Peruashev asked

ASTANA 00002157 002.3 OF 004


then-Deputy Prime Minister Serik Akhmetov to require all small- and
medium-sized enterprises (SMEs) to register with Atameken. The
article claimed that Peruashev has the support of the tax
authorities to require every SME registered in Kazakhstan to pay
dues of 1,296 tenge (approximately $8.60) to Atameken for every
employee of the enterprise, which would raise $4-8 million for
Atameken's activities. END NOTE).

THE ROLE OF GOVERNMENT IN BUSINESS


5. (SBU) Peruashev was thoughtful, candid, and provocative
throughout the roundtable discussion. He started by commenting on
governments' increased, direct involvement in business around the
world as a result of the global economic crisis. While not denying
that governments have had valid reasons for various interventions,
he nevertheless said that these actions raise serious questions
about government's role in the economy. "What are the limits of
government ownership and direction?," he asked rhetorically. "What
is the proper balance between the government and the private
sector?"


6. (SBU) Some participants, such as Rashid Gaissin, managing
partner of the GRATA law firm, asserted private business must learn
to live without government support or intervention. He said he
received no government assistance, or external credit, when he
started his law firm, and encouraged others to be similarly
independent.


7. (SBU) Others, however, said the government could play a useful
role by promoting business education and developing technical
specialists. Kapparov also noted that the government could
stimulate economic growth and diversification by focusing on five or
six competitive industries, such as tourism or education. "If it
did this," he said, "the government could improve performance and
competitiveness. But it must focus on implementation, and follow
through."

THE RISE OF MEGA HOLDING COMPANIES


8. (SBU) Kapparov criticized the proliferation of 10-15 "mega
holding companies" that consolidate and control the manufacture and
distribution of goods and services in Kazakhstan. He said that
these companies, such as National Welfare Fund Samruk-Kazyna, betray
an "old Soviet habit" of command and control that crowds out private
initiative and does not allow SMEs to grow and develop. Kapparov
termed the mega holding companies "abnormal and unmanageable," and
called for the de-monopolization of these "unmanageable,
bureaucratic giants." He referred specifically to Samruk-Kazyna,
which owns national oil company KazMunaiGas (KMG),which is in
itself a holding company with dozens of subsidiaries. He
highlighted Kazakhstani laws, which require a parent company to
procure services first from its daughter companies, which encourages
corruption, increases inefficiency, and prevents private-sector
competition for new orders. "This cannot be an effective way to run
a business," he said. "This monster (Samruk-Kazyna) is the main
obstacle to private sector development in Kazakhstan."

ENTREPRENEURS DEMAND GREATER TRANSPARENCY


9. (SBU) Kapparov also deplored the lack of transparency in
Kazakhstan, particularly in the banking sector. During the boom
years, he asserted the ready availability of easy money. A borrower
did not need collateral, a business plan, audited financial
statements, or any other reasonable justification for the loan. As
a result, according to Kapparov, banks became overexposed,
businesses failed to deliver, and markets panicked and closed. Ever
the entrepreneur, Kapparov now highlighted opportunity where others
feel dread. He believes that the crisis has created the right
conditions for necessary reforms in the banking sector. Through the
U.S.-Kazakhstani Public Private Economic Partnership Initiative
(PPEPI) and other means, he is advocating for stricter regulations

ASTANA 00002157 003.3 OF 004


to require borrowers to have at least a three-year history and
commit at least 30% of their own capital before they receive credit
for new ventures. Kapparov believes these regulations will improve
transparency and ensure the investment of capital in business
operations, rather than speculative projects.


10. (SBU) Peruashev concurred, and argued that SMEs simply cannot
compete with large companies for state contracts under current
public procurement procedures. "The big businesses work closely
with the government," he said. "They have all the connections and
information, and just dominate public procurement. It's not at all
transparent."


11. (SBU) Begimbetov made the surprising claim that Kazakhstani
businesses, in their dealings with each other, are no more
transparent and no less corrupt than the government. He alleged
that business leaders take short cuts and invest in "the person who
knows which door to enter" in order to win a contract, rather than
using earnings to improve product quality.

THE EDUCATION IMPERATIVE


12. (SBU) Eldar Abdrazakov, founder and chairman of investment
company Centras Capital, called the lack of management experience
and expertise the number one constraint to business development in
Kazakhstan. He noted Kazakhstan's continued transition to a full
and open market economy. Abdrazakov asserted the country simply has
not had enough time to develop competent managers.


13. (SBU) According to Peruashev, thousands of new graduates with
degrees in economics, finance, and business enter the market every
year, "but no one hires them, because they still lack the skills
that companies need." He said Kazakhstan produces graduates like
"sheets of paper" in order to meet a quota or burn through a budget,
but they do not enter the market ready to compete for work.
Mandiyev agreed, noting that 50% of the assembly-line workers at his
plant in East Kazakhstan have college degrees, but were unprepared
for managerial work in the company.


14. (SBU) Kapparov responded that Kazakhstan, compared to the rest
of Central Asia, has competent managers, but "not compared to
Russia." He also asserted that, unfortunately, "you don't need to
be competent to be successful in Kazakhstan. You just need to know
someone at a mega holding company."


15. (SBU) Ikhsan stressed the urgent need to improve general
business education among Kazakhstani youth while also training
Kazakhstani specialists in specific sectors. "It all comes down to
building human capacity," he said. Ikhsan explained that
Kazakhstani entrepreneurs are still learning how to do business. He
alleged that Kazakhstani entrepreneurs practice "business
primitivism," which relies on resourcefulness, improvisation, and
creativity, rather than strategic planning, financial analysis, and
business management. This may have worked during the early days
after the collapse of the Soviet Union, he said, but it cannot
continue. As a result, Kazakhstani goods and services cannot
compete on the world market, because they lack the quality demanded
by consumers. Ikhsan acknowledged the changing situation --
Kazakhstani consumers now have greater expectations for high-quality
goods and services, and local companies are rising to the challenge.
"We can only control the quality of our product," he said.
"Everything else -- output, profit, market share -- is up to the
consumer." Ikhsan added that the Customs Union with Russia and
Belarus will be very helpful to local companies. "It might change
the entire business landscape in Kazakhstan," he speculated.

BUILDING A NEW BUSINESS CULTURE


16. (SBU) Begimbetov criticized owners and senior managers who are
less interested in growing their businesses than in personal rewards
and pay-backs. "This is a waste," he declared. "A waste of the

ASTANA 00002157 004.3 OF 004


skills, energy, and creativity of a company's employees." He
partially attributed this behavior to a dysfunctional incentive
structure that does not reward entrepreneurs who understand the cost
of capital, take calculated risks, invest wisely to improve quality,
and follow a strategic plan to build a business. Peruashev agreed.
"Our laws are fine," he said, "but we have no business culture in
Kazakhstan" that could help to define rules of behavior between a
business owner and his customers.

WOMEN TAKE A DIFFERENT TACK


17. (SBU) Akhtamberdieva highlighted the different -- and more
difficult -- experience of women entrepreneurs. In the Soviet
Union, she said, "we had a pre-programmed life. We could get an
education, even pursue a doctorate, but we were not expected to be
ambitious, or to pursue our own goals or dreams. We were expected
to go into teaching, take care of the home, and settle in to a happy
family life." She asserted that women drew upon their survival
skills and developed into successful entrepreneurs during the
difficult economic times following the collapse of the Soviet Union.
"We would do whatever it took," she said, "to make sure our
children did not go hungry. We would make things to sell at the
market, or buy, sell, and trade things, whatever it took." Many
men, she claimed, were not as resourceful and simply gave up.

"WHAT CAN YOU DO TO IMPROVE?"


18. (SBU) As the roundtable concluded, Assistant Secretary Blake
asked the participants what they would tell President Nazarbayev if
they had an opportunity to make recommendations to improve the
business climate in Kazakhstan. Several entrepreneurs immediately
turned to Peruashev and said, "This is exactly what he does! This
is the only association with that kind of access and influence."


19. (SBU) Peruashev happily admitted that Atameken is "trying to
fight, to work, and to improve" the climate for private business.
He said the business association works mainly by reviewing and
commenting on draft legislation, and by advocating for fair and
equal treatment of individual businesses caught in conflict with the
state. He claimed that the authorities dropped criminal charges
against two individuals in a recent case due to Atameken's
intervention. While Atameken does not look for trouble, he
highlighted, it will not back down from a fight. "It takes a lot of
nerve, and a lot of determination," he argued, "but sometimes we
have to yell at the government to get their attention."


20. (SBU) COMMENT: The participants at this roundtable are among
the most successful, well-connected, and wealthy individuals in
Kazakhstan. Their self-made success owes as much to their pluck and
courage as it does to luck and good fortune. Although they have
achieved their own personal goals, they continue to seek new
challenges. This remarkable group of business and community
pioneers is eager to invest their valuable time and renewable energy
in the pursuit of their next ambitious project, the common
enterprise of building a better business environment in Kazakhstan.
All of them strongly endorse the goals of the Presidential
Entrepreneurship Summit, and all asserted their desire to
participate in future roundtables to stress the importance of
entrepreneurship to create jobs and expand economic opportunity in
Kazakhstan. END SUMMARY.


21. (U) Assistant Secretary Blake has cleared this cable.

HOAGLAND