KAZAKHSTAN: PUBLIC-PRIVATE ALLIANCES EXPAND BUSINESS

UNCLAS ASTANA 000490

SIPDIS

STATE FOR SCA/CEN, EUR/ACE, F
STATE PLEASE PASS TO USAID

E.O. 12958: N/A
TAGS: PGOV PREL ECON EAID SOCI KZ
SUBJECT: KAZAKHSTAN: PUBLIC-PRIVATE ALLIANCES EXPAND BUSINESS
SERVICES, PROMOTING ECONOMIC DIVERSIFICATION

1. SUMMARY: On February 25, USAID established separate
public-private alliances with Baker Hughes ($1,250,000 over five
years),an American drilling company active in Kazakhstan, and with

Chevron ($250,000). The partnerships between these two companies
and USAID will improve the supply of skilled labor in the country by
establishing a "Know About Business" (KAB) entrepreneurship course
in select vocational schools in Aktau, Atyrau, Astana, and Almaty.
These recent agreements are but two of a number of public-private
efforts that USAID is promoting to help diversify the Kazakhstani
economy through improved productivity of small- and medium-sized
enterprises (SME). END SUMMARY.
BACKGROUND

2. SMEs are important throughout the world as leaders in job
creation and innovation, and motors for broad-based economic growth
and development. In Kazakhstan, SMEs are especially important for
their potential to diversify the country's largely natural
resource-based economy. Unfortunately, global surveys, such as the
World Economic Forum Global Competitiveness Index and the Global
Entrepreneurship Monitoring (GEM) Report (which is sponsored by
USAID in Kazakhstan) reveal that entrepreneurs and SMEs in
Kazakhstan suffer from relatively weak knowledge and poor skills.

3. USAID designed the Kazakhstan Small Business Development (KSBD)
project to establish sustainable business development services (BDS)
-- which are non-financial services such as training, consulting,
and information -- for SMEs. Building a market for BDS means that
both the supply and demand for BDS are fostered and expanded.
Markets also need simple but effective regulation -- preferably
self-regulation -- which promotes quality control, ethics, and
continuing education.

4. KSBD facilitated important gains through introducing the best
training and consulting tools to SME business service providers
(BSP),and the best international SME development practices to the
Government of Kazakhstan. The project designed a set of
standardized Business Essentials (BE) and Consulting Essentials (CE)
training courses, which are complemented by a set of practical SME
management tools and specialized training courses for consultants
and trainers. These training and consulting courses and tools have
been well received, with 150 trainers/consultants and over 2900
entrepreneurs trained. KSBD also added the International Labor
Organization (ILO) designed vocational curricula to complement KAB.

5. Despite these gains, development of the BDS market will only be
successful if it is supported by the private sector and government,
as well as by non-governmental players. USAID has an important role
to play in establishing alliances which share costs and risks, and
which build upon the relative strengths of the three sectors.
STRATEGIC ALLIANCE WITH DAMU ENTERPRISE DEVELOPMENT FUND

6. The Damu Enterprise Development Fund is a state-owned
corporation tasked with implementing programs to improve SME access
to credit, as well as financing other support for SMEs, such as
training and consulting services. Since late 2006, USAID support to
Damu has included a comprehensive review of the challenges and
opportunities to applying international best practices to assist
SMEs. Study tours, technical assistance, and training programs have
emphasized the importance of outsourcing SME programs to private
sector partner financial institutions and BSPs. This outsourcing
approach benefits from private sector efficiency and expertise and
promotes commercial sustainability, while minimizing distortions to
the emerging market economy. The following are but some of the
results of this partnership:
-- Damu previously lent directly to SMEs, an approach that proved to
be an inefficient method for the disbursement of credit. Damu has
now revised its credit program to work through commercial banks. As
a result of this new and more efficient approach, this year the
Kazakhstani government provided Damu with an additional $1 billion
for its lending program.
-- Based partially upon two study tours to the U.S. Small Business
Administration and other additional technical assistance, Damu
advocated to its state holding company, Samruk-Kazyna, for the
development of a network of Enterprise Development Centers (EDCs).
These EDCs are designed to provide training and consulting services
to SMEs through outsourcing to the private sector. The first of
four pilot EDCs will be established by the end of March in Almaty.
These EDCs will outsource and carefully subsidize training and
consulting to entrepreneurs and SMEs across the country and provide
other services, such as government procurement assistance to
complement Damu's access to credit programs.
-- With USAID support, Damu is now in the final stages of completing
a comprehensive SME Handbook of international best practices for
promoting SME development. This Handbook will be used to guide the
government's strategy and program development at both the national
and regional levels. In addition, KSBD is working with the
government to develop an Annual Entrepreneurship Report to provide
an annual comprehensive overview of the status of SMEs in the
country and priorities that will promote continued development.
-- Responding to a request from Damu, in March, USAID will provide a
workshop on its Development Credit Authority, a financing authority
which partially guarantees loans from qualified financial
institutions. The workshop and follow-up technical assistance will
enable Damu to revise its concept of a guarantee product and role
out the product later this year.
ALLIANCES WITH THE PRIVATE SECTOR BUILD CAPACITY

7. The USAID-Baker Hughes alliance will use the KAB course to
improve employment opportunities for youth through developing
entrepreneurship skills and knowledge, a key to creating a
competitive, diversified, flexible, innovative, and growing market
economy. The emphasis on entrepreneurial skills will support, in
particular, the development of a stronger SME sector. Moreover, the
introduction of interactive pedagogical methodologies and improved
capacity for evaluation and monitoring will help start the process
of modernizing vocational education in Kazakhstan. The Ministry for
Education and Science approved of the implementation of KAB in all
vocational schools in Kazakhstan, which includes a total enrollment
of over 610,000 students. The alliance will establish KAB in up to
10 pilot vocational schools in Atyrau and Aktau, the centers for
Kazakhstan's oil production. The program includes training programs
for teachers, the provision of materials and equipment, and
assistance in tracking the outcomes of the vocational training
courses.

8. USAID has also completed negotiations with Chevron for a
$250,000 contribution towards introducing a similar program in up to
10 vocational schools, primarily in Almaty and Astana.

9. On November 1, 2008, in Aksai, West Kazakhstan Oblast, USAID and
the Karachaganak Petroleum Operating Joint Venture (KPO),a natural
gas consortium of four international companies, completed a
training-of-trainers course entitled "Start Your Business." The
target group for the training program was rural entrepreneurs. KPO
requested and received a proposal from KSBD to expand this program
under its Corporate Social Responsibility program. In addition, one
of KSBD's partners in the region submitted a proposal to KPO to
provide KSBD courses and consulting to KPO's suppliers. KPO has
also worked with prior USAID projects in the areas of quality
management and in accounting training programs.

10. USAID has a long-standing partnership with the ExxonMobil
Foundation which helped establish the Astana Enterprise Development
Center. For the first two years of the Center's operation, USAID
provided $300,000 and the ExxonMobil Foundation provided $921,000.
The Center provided about 4,500 entrepreneurs (over 75% of whom were
women) with training in strategic and business planning, financial
management, marketing, human resources management, taxes, and law,
all through outsourcing to local BSPs. Over 130 SMEs (including 51
women-owned or women-managed companies) received business consulting
services. ExxonMobil recently approached USAID regarding
establishing a second EDC in Atyrau, while continuing to fund the
Center in Astana. Both centers will continue to focus support on
women in business.
LOCAL GOVERNMENT AND NGO PARTNERS ALSO INVOLVED

11. In South Kazakhstan, the city of Shymkent recently established
a total of seven EDCs (these EDCs are distinct from Damu's planned
network of EDCs). These EDCs are to provide SMEs with information
and consulting services, as well as refer clients to USAID's local
BSP partner for more advanced training and consulting. This
USAID-supported BSP assists the EDCs to identify services in demand.
USAID has also financed the Start Your Business entrepreneurship
training course to the staff of these EDCs.

12. As part of its program to build BSP capacity, USAID is
supporting the establishment and development of the Kazakhstan
Management Consultant Association (KAMC). The KAMC can play a
crucial role of identifying competent and credible management
consultants, which will assist in the development of the consulting
profession in Kazakhstan. In addition to promoting the
international Certified Management Consultant program, KAMC agreed
to adopt a Certified Associate Member designation based on KSBD's
BE/CE program, as well as other professional requirements such as
experience, ethics, continuing professional development, and
association membership. USAID is working with the European Bank for
Reconstruction and Development's Business Advisory Services program
to assist the institutional development of KAMC.

HOAGLAND