According to experts, restrictive measures on food trade entail serious risks, resulting in the agricultural sector now attracting investors on par with the tech industry.
Kazakhstan managed to prevent a food crisis during its nationwide lockdown, but the rise in prices for both essential and imported goods requires the introduction of new approaches and diversification of the economy.
We have spoken with Marcia Elizabeth Favale, an investment banker, lecturer at Oxford University's Said Business School, and independent director of the Development Bank of Kazakhstan (DBK, a subsidiary of the Baiterek holding) about new economic challenges, investment attractiveness, and the development of Kazakhstan's brand in the era of COVID-19.
Sputnik: You have been working in investment in Kazakhstan for many years and you are a member of DBK's Board of Directors. How do you see the future of investment in Kazakhstan?
Marcia Favale: Kazakhstan's future is bright because it is full of opportunities and is evolving! The key is to mobilise the value chain in the country to maximise emerging opportunities. Kazakhstan, even after the financial crisis, was able to keep its investment grade rating and attract investments at a high level. When it comes to investing in a foreign country, many factors affect an investor's final decision - risk premium and political stability are some of the most important considerations.
First of all, not so long ago elections were held in Kazakhstan, and a new president was elected, which the world watched carefully. Kazakhstan has a stable political situation and can control its public image. Foreign investors see Kazakhstan as a beachhead, a springboard into Central Asia given its stability and geopolitical importance in the region. From this point of view, Kazakhstan is very successful in terms of nation branding.
A country's socioeconomic situation is also an important consideration. To that end, we need to ask a simple question: how is Kazakhstan perceived by internal and external audiences? Kazakhstan needs to be aware that today domestic interest in policies and procedures is extremely important. Foreign investors and foreign audiences will pay attention to signs about how the local audience feels, how they are cared for, and how they are involved in public affairs. This will affect the country's reputation and an investor's desire to be here.
With regard to what a nation can do to improve its investment profile, the best thing a country can do is to balance two things: minimisation of risk and helping investors reduce them. I do not exactly welcome guarantees. With some exceptions, guarantees make investors ignore risk management. Having domestic investors interested in long-term, sustainable development is very important and bodes well for foreign investments.
We started to prepare for COVID in February at DBK. We tried to consider the risks and foresee how it would affect investments, transactions, and the people who work on our projects and, of course, its social impact.
This also applies to the entire country. Where does the country see its weaknesses and vulnerability during the pandemic? In Kazakhstan, this vulnerability manifested itself in the supply chain, and was exemplified, for example, in a shortage of medicines. How can we minimise this?
Maybe it's necessary to invest in e-health and invest in manufacturing pharmaceuticals within Kazakhstan. One of the problems that people have talked about is a lack of doctors. It is clear that doctors are needed not only here and now, but also in the future.
It may be necessary to invest in medical workers and not just doctors, to introduce certified medical personnel such as physician assistants, dental hygienists, registered nurses, optometrists, people who can work, mobilise, and connect virtually with specialists. Increasing domestic food production and import-substitution will diminish food supply vulnerabilities and perhaps help stabilise prices.
People living below the poverty line have the least access to medicines, and now food prices are rising. These are all the risks that you have to work with.
Sputnik: Which industry do you think is the most promising in terms of investment in Kazakhstan?
Marcia Favale: In my opinion, agriculture is the new "black gold" of Kazakhstan. The nation has a huge territory, despite the harsh climate in some regions. We must invest in agriculture - agrotech in particular- agricultural machinery, agricultural products, technologies that are oriented towards the situation on the ground in Kazakhstan.
It is at the intersection of agriculture and technology. Let us remember Brazil, where they earlier started investing in innovations in agriculture, became global leaders in agrotech and now private Brazilian companies have become substantially valuable and profitable with enough money to buy public and private companies in America and in Europe. Food security is very important. It is important to think about sustainable agriculture driven by agrotech and innovations.
Many people in Kazakhstan have a good education and experience. I am sure that if you put money and time into developing technologies, you will become partners with global companies and the country will get a second wave of investment and smart growth.
Sputnik: Several times you have brought up the significance of developing a country's brand via attracting investments. Will approaches in this area change during and after the pandemic?
Marcia Favale: The idea of nation branding or country branding, whether before or after COVID, is the same. Foreigners, as well as citizens themselves, must have a positive view of the country. Several components are important: transparency, investment, human capital development, and technological development with a view to productivity gains.
As for the pandemic specifically and its impact on the country's image, the experience of some nations has shown that governments must follow recommendations based on scientific research, not deny the impact of what is happening, not hide existing problems, but solve them.
For example, there are not enough doctors, there is not enough medication - there are not enough beds for intensive care - well, how can we solve the issue? When you invest in people and take care of them, the economy will recover.
The government must also be transparent and consistent: yes, it's true, we don't have enough doctors, but we will tell you what is being done to address this issue. The people will be able to see what measures the government is taking. Thus, part of nation branding is the ability to effectively utilise new platforms and forms of communication - how can technology bring us closer to our audience by presenting information correctly.
The government needs to protect its narrative design and protect against theme-erosion. You can't have any branding without quality communication. All this being said, it is important to be truthful and protect information from distortion, which is imperative when people can find any information from a different source. Only then can the public trust the authorities and foreign investors see the openness of the system, which improves the country's image.
Sputnik: You have been an independent director of the Development Bank for 5 years, what is its role in attracting investments and the country's economy?
Marcia Favale: The role of the Development Bank is extremely important, and it successfully performs its functions. DBK not only influences the domestic market by supporting and funding domestic industries. It is also a leader in branding because DBK is an investment benchmark.
As you know, DBK has been successful in issuing bonds. In fact, it brought the country's corporate sector to the bond market in early 2000. Actually, at UBS, where I was head of CEMEA Corporate Bond Research and a managing director, we brought the first eurobond (DBK) to international capital markets. DBK became a benchmark for Kazakhstan. After UBS I went into portfolio management, and I was a hedge fund manager at Brevan Howard and Advent Capital.
Most recently, DBK issued bonds in KZT with substantial foreign investor interest. Yet again, DBK created an international benchmark for Kazakhstan. These issuances would not have been a success if DBK did not enjoy a strong investment profile internationally. I am proud to have been involved in both.
One of the most important things that the government must do in addition to promoting industries is to listen to and leverage the investment experience of institutions such as DBK. They are at the forefront of investing in the country's economy and enjoy the support of international investors.
During my tenure on the Board of Directors, I have seen a high level of credit, project, and investment analysis. Therefore, the government needs to continue to listen to the opinion of DBK about industries: which industries work, what type of funding is optimal, and what does not work.
To sum up, all of the above, the extracting industries - manufacturing, oil, and gas - are linked to the brand of Kazakhstan. Investors are always looking at areas where they believe the highest returns with the lowest risk are seen. Kazakhstan needs to start creating the conditions for development in other industries to attract the interest of both local and foreign investors.
If we want a diversified, sustainable economy, we need to develop other areas, and this should help investment grow. We need to help local businesses by supporting and changing people's minds so that they prefer to buy goods produced in Kazakhstan.
The country should stimulate the interests of local businesses and, again, encourage domestic investors to invest in Kazakhstan, not to leave the country or invest in other countries. If Kazakhstan does not need or want to invest in their own industries or support production why would a foreign investor want to invest?
I think investing in private businesses that stimulate internal development will create a more sustainable economy. With that we need to focus on improving the value chain, promoting investments in innovation that impact productivity, and the development of human capital.