Export, Insure and Thrive – KazakhExport Stresses the Integration of Islamic Finance into the National Agenda of Kazakhstan Can Lead to the Expansion of Credit Insurance
Of the six Central Asian Republics, Kazakhstan has enjoyed the most proactive partnership with the IsDB Group, having acceded to membership of the multilateral development bank in 1995 and of ICIEC in 2003. Since then, ICIEC has insured a total of US$7.2 billion for trade transactions in Kazakhstan. In addition, ICIEC, through its risk mitigation solutions – credit and investment insurance, guarantees and reinsurance – supports infrastructure development and projects in line with achieving the goals of the UN SDGs, the Paris climate agreement towards Net Zero and Kazakhstan’s Green Growth agenda. The Corporation enjoys an excellent relationship with KazakhExport, the national ECA of Kazakhstan. Kazakhstan, blessed with natural resources, is also seeking to diversify its economy away from reliance on hydrocarbons, and to boost exports, especially non-commodity products, both to neighbouring Central Asian markets and beyond. The signs are of much greater support from KazakhExport to local manufacturers and exporters and cooperation with ICIEC. Mr. Aslan Kaligazin, Chairman of the Management Board of KazakhExport, in an exclusive interview, discusses the importance of credit and investment insurance and cooperation with ICIEC as a driver of dynamic growth in the economy in an era of global trade tensions and economic uncertainties, and the supporting role of KazakhExport in accelerating the country’s export ambitions.
Aslan Kaligazin: The Export Insurance Company (KazakhExport) is a relative newcomer as an export credit agency established as a national company on 10th March 2017, whose sole shareholder is the National Managing Holding Company, Baiterek JSC. In the context of your Development Plan (2014-2023), what is the state of the credit and investment insurance culture in Kazakhstan, especially in a world in which new risks and uncertainties keep materializing?
We believe that in the face of the emergence of new risks and uncertainties, the culture of credit and investment insurance in Kazakhstan shows dynamic growth. I would like to note that within the framework of the National Development Plan (2014-2023) and with the forthcoming creation of an Export Credit Agency, KazakhExport made significant efforts to strengthen the credit and investment insurance culture and industry in the country.
In general, geopolitical and trade tensions around the world have affected many of the key markets for Kazakh exporters. However, such changes could also create opportunities for Kazakh businesses through economic diversification based on increased investment in the non-commodity sector. Therefore, it is important for exporting companies to improve the culture of trade insurance. This will ensure financial stability, protection against unforeseen losses and will promote the development of exports and investment.
In general, the growth of the culture of insurance and the level of risk management in companies, as well as the increase in the degree of confidence in development institutions on the part of exporters, have a positive effect on the development potential of KazakhExport, i.e. the potential involvement of Kazakh manufacturers in export activities will help increase the number of our company’s clients and the volume of government support measures provided.
According to your own figures, the volume of your support for Kazakh exporters increased by 27% to 259.1 billion tenge (US$580 million) in 2022 compared to 90.2 billion tenge (US$237 million) in 2018. This suggests a low starting base, but a huge potential for business opportunities across several market segments. What are your priorities for 2023 and beyond in the context of your own business strategy and objectives and Kazakhstan’s National Export Strategy and development agenda? What is the potential to increase the above figures substantially as the country accelerates its export strategy, its inward FDI requirements, especially to finance projects in key sectors, including mining, transport, agribusiness and infrastructure in general?
In 2023, KazakhExport will continue its main activities to support Kazakh exporters in the manufacturing sector, to implement sectoral measures for legislative improvement and present KazakhExport as a single operator for the promotion of non-commodity exports.
The main goal of the state policy in the field of exports is to diversify the export basket and ensure the growth of non-primary exports at a faster pace. As part of stimulating the export potential of Kazakhstan, as well as diversifying exports with a focus on high added value, a strategically important area of activity for KazakhExport will be strengthening of financial support for exporters.
As part of assistance in increasing the export potential, KazakhExport sets itself the goal of increasing the volume of supported noncommodity exports, which will be carried out through the implementation of such tasks as: expanding the range of services provided to support exporters and improving existing instruments of financial support for exports. To do this, we plan to constantly monitor the needs of the market, based on the needs of customers, taking into account the place and role of KazakhExport in supporting Kazakh exports. In general, in the implementation of the above goals, we see significant potential for a significant increase in the performance of our Company.
As part of assistance in increasing the export potential, KazakhExport sets itself the goal of increasing the volume of supported noncommodity exports, which will be carried out through the implementation of such tasks as: expanding the range of services provided to support exporters and improving existing instruments of financial support for exports. To do this, we plan to constantly monitor the needs of the market, based on the needs of customers, taking into account the place and role of KazakhExport in supporting Kazakh exports. In general, in the implementation of the above goals, we see significant potential for a significant increase in the performance of our Company.
The first Facultative Reinsurance Agreement (FRA) between ICIEC and KazakhExport was concluded back in 2015 under a financial leasing transaction for Azerbaijan Railways of mainline Mr. Aslan Kaligazin, Chairman, Management Board, KazakhExport Export, Insure and Thrive – KazakhExport Stresses the Integration of Islamic Finance into the National Agenda of Kazakhstan Can Lead to the Expansion of Credit Insurance APR-JUN. 2023-QUARTER 2 09 locomotives of the TE33A Evolution type for a period of 7 years. ICIEC accepted 70% of the total insurance limit in the amount of US$5.6 million for reinsurance from KazakhExport.
Furthermore, during 2020-2021, painstaking work was carried out on the possibility of accepting documentary letters of credit insured by KazakhExport for obligatory reinsurance, which resulted in the conclusion in October 2021 of an obligatory agreement covered by 16 banks in Russia, Uzbekistan and Tajikistan – the first in the history of Kazakhstan – with ICIEC and KazakhExport each underwriting 50% of the risks respectively.
In October 2022, this agreement was extended with the inclusion of 21 banks in Uzbekistan, Kyrgyzstan, Tajikistan and Mongolia. As a result, for obligatory reinsurance in the period 2021– FH 2023, US$14.957 million in liability was transferred to ICIEC. In 2022, facultative reinsurance agreements for a 50% share each under letters of credit issued by the largest Tajik Amonat Bank from the total insurance limit of US$7,161,263 were concluded.
What can ICIEC and KazakhExport do more as individual entities in terms of enhancing your cooperation, whether in terms of cost of premiums, cost of finance, risk perception, product profile, capacity building and technical support?
ICIEC and KazakhExport can take a number of measures to expand cooperation and improve interaction between them. For example, ICIEC and KazakhExport can actively exchange information on markets, forecasts, risks and trends in relation to investment insurance and export credit. This will allow both organizations to better understand each other’s needs and requirements and offer related products and services.
Another aspect is the guarantee of the best insurance premiums and financing – ICIEC may consider the provision of preferential conditions for insurance premiums for Kazakh exporters cooperating with KazakhExport. In addition, our organizations can work together to improve the risk assessment of investments and exports. It is also worth considering the development of new products and services that would meet the needs and requirements of Kazakh exporters and investors. This may include more flexible insurance terms, different types of financing, risk management tools and other innovative solutions.
In addition, we aim to expand cooperation in the field of reinsurance in export credit transactions with Arab countries. In general, the partnership between ICIEC and KazakhExport has the potential to improve insurance and financing conditions, reduce risks and provide more effective support for export development.
Private sector engagement is crucial. Embedding commercial opportunities and helping corporates and banks make a material difference to support positive outcomes in food security, climate change, energy transition and infrastructure building is something that risk mitigation tools can facilitate. Private sector engagement requires credit enhance-ment, which insurers such as ICIEC, KazakhExport are uniquely positioned to do so through their sustainability policies and accessibility to national and subnational bodies, which engage with climate action and food security agencies, projects and transactions. Do you concur and what are the priority areas which you are focusing on?
The trend towards sustainable development on a global scale is gaining momentum and creates new opportunities for exporters, new opportunities are opening in foreign markets. KazakhExport pays special attention to supporting sustainable development projects. Compliance with international standards in sustainable development applicable to ECAs is important both in terms of positioning KazakhExport on international platforms as a progressive ECA, and in terms of creating a positive image of Kazakh companies in foreign markets. For these purposes, KazakhExport will improve the environmental review and assessment of the environmental and social impacts of export projects, taking into account international standards enshrined in the OECD recommendations.
The development of its own expertise in the sustainable development agenda will allow the Company to expand international cooperation and participate in joint projects in the field of sustainable development with foreign ECAs and banks. Another important activity of KazakhExport will be the development of insurance support for responsible exporters, expressed in support of export projects related to reducing environmental impact and adaptation to climate change by providing more optimal conditions for insuring green projects, as well as expanding support for investments and export transactions of companies with a high level of ESG responsibility for the development of the “exports of the future”.
De-risking solutions are important to act as an absorber and mitigator for transactions and projects and countries’ sovereign risk or to address tenor mismatch with investors’ appetite. Credit and investment insurance are essential for developing increased trade, and FDI flows. The opportunities are huge in ICIEC member states because the insurance premium market penetration and starting base are very low. I understand that Kazakhstan is currently looking at ways to achieve greater integration of Islamic finance into its mainstream national development agenda. What are the potential implications for the credit and investment insurance business?
Undoubtedly, Islamic finance is a rapidly growing service segment. The distinguishing principles of this sector are the examples it sets for all financial institutions. The main goals of Islamic banking are not limited to simply making a profit by any available means but are aimed at establishing fair and mutually beneficial partnerships. In Kazakhstan, Islamic finance is at the stage of active development.
With proper regulation and governmental support, we can achieve high growth rates and effective implementation of Islamic financial instruments. Kazakhstan seeks to develop the Islamic finance industry to create alternative sources of finance. In this direction, the country is actively creating the necessary infrastructure and regulatory framework that meets the best international practices and standards.
In general, the integration of Islamic finance into the national agenda of Kazakhstan can lead to the expansion of the insurance market, the development of new products and the strengthening of ethical principles. It will also require training and adaptation in the credit and investment insurance industry in order to successfully implement Islamic financial instruments.
Looking ahead, how do you see the trajectory KazakhExport’s relationship with ICIEC, the IsDB Group and with the credit and investment insurance business?
We are convinced of the great potential of joint projects implementation. We look forward to expanding our mutually beneficial partnership with ICIEC in the long term. Strengthening cooperation with ICIEC allows us to increase the financial strength and expand the Company’s capabilities abroad, reducing the burden on the portfolio and increasing the coverage of supporting domestic exporters.
This provides Kazakh exporters and banks with high reliability of insurance coverage. We believe that it is necessary to focus on further growth in the volume of transfers to obligatory and facultative reinsurance as a part of KazakhExpor’s portfolio, on instruments that comply with the rules of Islamic financing and insurance (Takaful).
