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Much to explore and tap in Kazakhstan

By Danny Yap, The Star Online, Malaysia, October 15, 2007

Malaysians probably know Kazakhstan as a place near the Russian border or that it was where the first Malaysian astronaut (Dr Sheikh Muszaphar Shukor) was launched into space recently.

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But Kazakhstan has much more to offer, especially to local companies wanting to expand their businesses beyond local shores. 

Kazakhstan is one of the fastest growing economies in the world – besides China, India, and Vietnam – with an average gross domestic product (GDP) growth of 9.4% per annum for the past five years.

The republic is rich in oil and gas (O&G) and minerals and has the third or fourth largest O&G reserves in the world, which is why many established O&G companies such as Murphy and Shell have set their operations there for deep-sea O&G explorations.

Claiming its independence in the early 1990s and with the discovery of huge oil reserves in the Caspian Sea, Kazakhstan's open economy attracted large amounts of foreign investment totalling US$50bil, of which over half were invested for the extraction of O&G. 

With global demand for crude oil generally on the up-trend and oil prices soaring above US$80 per barrel of late, the prospect of deep-sea O&G exploration in Kazakhstan has become very attractive and commercially viable. 

While O&G remains a strong contributor to GDP (over 70%), Kazakhstan also has an abundance of natural resources.

However, the Kazakhstan government is not resting on its laurels and has a comprehensive plan to create sustainable growth in seven sectors – agriculture, manufacturing, industrial, social, cultural, tourism and city building and infrastructure – until 2015.

In city building for instance, Astana's (Kazakhstan's administrative capital) master plan reveals a gross development value of US$13bil (RM45.5bil) covering 71,000 hectares.

A senior analyst from TA Securities said: “The master plan development of Astana alone is about 15 times the size of Malaysia’s Putrajaya township.”

Other towns such as Almaty (former capital city of Kazakhstan) has also expanded and the city is now a vibrant commercial hub. 

A Kazakh taxi driver taking this writer to a city hotel said: “Four years ago I could count the number of cars on the main road but now the roads are always full of cars.” 

Demand for housing, shopping complexes and entertainment outlets have also grown fuelled by the republic's strong economy.

Many infrastructure projects such as roads have been built to improve the transport system leading to the cities. 

Moreover Kazakhstan is playing host to the 7th Asian Winter Games in Almaty in 2011. As such infrastructure and hotels have to be developed for the event.

Some Malaysian companies such as Steppe Cement Ltd and LCL Corp Bhd have followed the oil trail, which led it to Kazakhstan. 

Steppe Cement now has several cement making factories there and are enjoying the fruits of their labour. 

In the case of LCL, the interior fit-out (IFO) specialist ventured into Kazakhstan about two years ago after building a firm footing in the Middle East in particular Dubai with its IFO business. 

LCL group managing director Low Chin Meng said: “We were following the oil trail and it led us to Kazakhstan but we also need to thank the Malaysian ambassador to Kazakhstan, Datuk Than Tai Hing who encouraged us to go there.”

LCL now sees huge potential for the company to expand its business in the republic and across central Asia. 

On April 27 LCL tied-up with a Kazakhstan-based company – JSC Stroy Contract Corp, to set up LCL-SC Interior Creations LLP on a 51:49 joint venture.

Under the joint venture, LCL-SC Interior Creations would build, design and provide interior fittings for commercial properties and projects such as complexes and hotels secured by Stroy Contract. 

“This venture has been fruitful right from the start and collaboration with Stroy Contract – a reputable developer and contractor of high-end properties will enable LCL-SC Interiors to potentially secure many projects in future,” Low said.

He said LCL-SC Interiors was targeting to achieve a revenue of RM175mil by end-2008. 

“While Dubai remains our biggest revenue contributor at the moment, the IFO business in Kazakhstan could provide us with better profit margins,” he said, adding that LCL had first mover advantage in the IFO industry in Kazakhstan.

Currently LCL has a workforce of over 400 in Kazakhstan, of which many are Malaysian. 

Another company with Malaysian equity that is performing well in Kazakhstan is Steppe Cement Ltd.

Steppe Cement's involvement in Kazakhstan could be traced back to 1995, when Tan Sri Azmi Wan Hamzah and fund manager David Crichton-Watt were invited by President Nursultan Nazarbayev to look at opportunities in the then fledgling nation. 

The company initially bought over a non-operative Soviet-era cement plant in the northern city of Karaganda and resuscitated the plant. 

Steppe Cement chief executive officer Javier Del Ser Perez said in the early days the company faced challenging times reviving the cement factory and demand was low. But cement demand now outstrips supply in Kazakhstan. 

“Over the years things have improved a lot,” he said, adding that the conducive business environment should help improve the company's bottom line.

Javier said any cement deficit should be covered, mostly from supply coming from the refurbished lines of its subsidiary Karcement, de-bottlenecking in the other factories and new factories being built.

Presently Kazakhstan still imports about 33% of its cement requirements. 

On the performance of Steppe Cement, Javier said the company had performed well.

“Since Steppe Cement's listing on the London Stock Exchange on September 2005, the company's share price has appreciated 600% in two years from an initial listing price of £0.46 per share,” he said.

He said the market capitalisation of Steppe Cement now stood at £370mil (RM2.5bil). 

“Since January, the share price has been on the up-trend again reflecting continued investor confidence in our company and the Kazakhstan economy,” Javier noted. 

The company currently employs over 700 workers, including 25 engineers and Malaysians continue to figure prominently in the management team. 

Other Malaysia companies with a physical presence in Kazakhstan are Malaysia Airports Holdings Bhd (MAHB), Universal Trustee Bhd and Exim Bank. 

Currently MAHB is managing Astana International Airport in Kazakhstan under a joint trust management agreement.

An official from the company said there was a chance MAHB would manage other airports in Kazakhstan in time.

“A lot depends on how we manage Astana International Airport,” he said, adding that the Kazakhstan government had made changes to the legislation to enable MAHB to manage its airport reflecting its confidence in MAHB.

Currently MAHB also manages two other airports abroad – one in India and another in Turkey.

Other local companies in Kazakhstan include SP-Eco Link Sdn Bhd, a transport company which exports goods from Malaysia to the republic and a food-based company – Noraini group of companies, which has a restaurant Astana Nura in Astana under its unit Noraini Atamekent.