Serikbay Bisekeev

We have to admit to ourselves that there aren't a lot of international managers from Kazakhstan!

Business Lunch with the founder of the "Arman Holding" group of companies, Serikbay Bisekeev

Serikbay Bisekeev, 43 years old, is founder of the "Arman Holding" group of companies (renowned in the fields of industrial integration and energy). A Kazakh with Russian citizenship currently residing in Singapore, he prides himself in the fact that never once in his life has he worked either for the state or for some "unknown uncle". Originally from a village in the Kostanay region, he studied and lived in Leningrad, where at his own expense he created an engineering company from scratch. Specialising in highly-intelligent products in the IT-technologies and energy fields, its customer portfolio now includes such giants as LUKOIL, "Surgutneftegaz", "NOVATEK", "Gazprom Neft", and SIBUR. Three years ago, he decided that he had gained enough experience and knowledge to be able to contribute to the prosperity of Kazakhstan. How difficult it is to introduce innovative technology in his historical homeland, whether it is possible to win "KazMunaiGas" tenders honestly, which enterprises should be allocated money from the state budget - these items are discussed in an interview with the founder of the "Arman Holding" group of companies, Serikbay Bisekeev. - Last year you went to the Board of Directors of "Damu" Fund and proposed conducting an analysis of the current situation - studying the issue of lending in particular. As is well-known, under the "NurlyZhol" programme, 50 billion tenge will be allocated through "Damu" fund for the development of small and medium-sized enterprises. Is the situation as to where these funds will be channelled somehow changing? And is there a queue of businessmen lining up for cheap loans at less than 6% per annum? Of course, there is a significant difference. Until 2008, "Damu" Fund has been allocated about $ 2 billion by the state, and we are the world champions for non repayment of loans - at least we are number one in the world for something. Today the situation is much better, with almost no overdue loans. In the past, "Damu" issued loans autonomously to everyone who wanted one, but with the arrival of a new team, with whom I am pleased to work, progressive steps are evident: there are professionals on the team who have experience of working in banks and leading financial institutions. A risk system has been set up. A number of measures have enabled the Fund to be distanced from direct lending - loans are now entrusted to banks, as in the rest of the world. At present, to tell the truth, it has turned into bureaucratised system. However, since I am one of the independent directors and am familiar with entrepreneurship, I'm trying to tell my colleagues: "Guys, what have we been established for? We are not a bank; we are a body that is intended to remove the barriers to the development of small business." Therefore, all our efforts are now being applied to the removal of the barriers that prevent access to loans and credit guarantees. - What are those barriers? An application for a loan is an elementary thing. It was found that in different banks the process is different, but the money is the same - state money. I suggested drawing up one single application form for all the banks, to be filled in by the businessman at "Damu" - and then there would be no talk of where a comma or dash should be properly placed, and the application would not be set back for another month or so. In order for this not to happen, we propose the creation of a single electronic template and to introduce it in all 16 branches of "Damu", so that they can help businesses in the provinces with their applications. Here the entrepreneur will not be in the role of petitioner. He will not need to run to each bank but will hold a tender among them, and in this way find where the conditions are better for him. This has not been done. This does not enter the heads of bankers today. - Of course. They are the ones distributing the money. Come and bow down. Yes, they are accustomed to people coming to them and bowing down; when it comes to issuing loans they look after number one. And of course they say, "We want this situation to continue!" but we say come on, let's change this approach. The president speaks of transparency, fighting against corruption... I hope that we can. - But in fact the money is not theirs - it belongs to the state. I say this to them as well: "The money is not yours! You have to play by the rules of the Fund." Nevertheless, I hope that we will remain an independent organization. - Are there any statistics on entrepreneurs who have been refused loans by banks? There are no such statistics, but it is time to establish some for post-action review; receiving reports from the banks so that it can always be verified whether a refusal was justified or not. - And how can the effectiveness of "Damu" be measured? In my opinion, our performance must be measured not by how much "Damu" has earned, but by how rapidly the amount of taxes paid increases among the businesses that we have issued loans to - thus drawing conclusions on how in the future to improve the flow of taxes into the state budget from all businesses. - This seems to be a long procedure for them... Yes, it's a long story for them. But possibly the right way to go. To this end, we met with the head of the tax authorities. You will not believe it, but no one has yet integrated the data of "Damu" entrepreneurs with their tax information. As a result, the screening of businessmen in the bank was very long process, because they did not have sufficient information for rapid decision-making. - And how did you, with your progressive views on our realities, get onto the Board of Directors of "Damu"? Were you invited? I was surprised. But first of all, I was invited as a speaker to the Astana Economic Forum by a club of researchers. After my speech I was approached by the Chairman of the Board of "Damu", Lyazzat Ibragimova, with great thanks to her, and she said that they were in need of people like me. It turns out that it is mostly former officials who work at the Fund. I replied, "You need entrepreneurs who will pull no punches when it comes to giving you feedback." She said, "Let's give it a go." - But until recently you had never worked in Kazakhstan? I wanted to help. I observe and evaluate business processes. And I think that the strategy, according to which the Fund is now working, needs to be refined. This is why I have proposed some transformations - in business processes, certification of employees, etc. In all fairness, it must be said that few people have managed to devise a fully-configured strategy. But if we want to be more effective we need to adjust all our processes, just as in business, and motivate people. - Do you think it's possible to make these changes here and now? I believe that it's possible. Since I have the chance to make suggestions and propose ways in which they can be implemented, I am going to make use of it. The majority of people in our country - deputies, politicians, experts - can only criticize; they are not able to offer any solutions, since not one of them has created a successful, competitive enterprise. As such, they cannot set out the most important - objectives, which need to be measurable, and that are used to determine the adequacy of competences. Every time the ministers are unable to achieve a particular goal, there are thirty-three excuses why not, and they carry on working untroubled. - For the past years you have been living in Singapore, from where you have invited businessmen to invest in Kazakhstan. In which areas are you not afraid to invite investment? The main issue is quite different. We are constantly attesting to our investment plans and our attractive investment climate and, although much has been done, we still need a little more transparency in order for this attractiveness to become more widespread. We don't have a kind of short-list, a quota on who can get in, and who cannot. If they add transparency, the effects will be seen. But so far it has not worked. Why is that? Because it only works if the investors have access to the government. That's why when the Prime Minister arrives in China, they strike a deal - because the Prime Minister gives them his guarantee. And how do we expect people to believe us and be unafraid to make investments here if we have corruption that is way off the scale in the world rankings? And why do expats go to Singapore? Because the infrastructure is better than in the US or in Germany... Their children go to the best schools in the world, obtain their degrees at the best universities in the world. Where are the problems? The bottom line is that we need to put the conditions in place, and then the people will come to us. We have earned so much money on oil and gas, but we cannot even provide simple safety for the people in all the cities of Kazakhstan - installing enough CCTV cameras and servers in order to reduce crime, like in Singapore. - Yes, we even have scope for investment - oil and gas. Precisely! But KaznexInvest, and the Ministry of Investment and Development have proposed other sectors for development, and the bias shifts. Articulating the wish to be engaged in other activities: engineering, IT, tourism, logistics, etc. But never oil. In view of recent developments, however, oil is no panacea. The oilmen in Kazakhstan are already losing their confidence, even though all this time they have been earning a percentage greater, perhaps, than illegal drug traders. And all this because the earnings were spent negligently - including through non-transparent tenders. Take a look at who is building the pipelines - the usual suspects; as if there are no other successful companies in the world. - And how did you get in with them? Don't you have a contract with "KazMunaiGaz"? Yes, for supplying energy solutions. The only way that I could convince them was an official letter to the Prime Minister stating that it really is an operational new technology. The story goes like this. The President once said - create industrial enterprises, introduce new technologies, create jobs. I listened and came here - it was three years ago, and brought real technology that did not exist in Kazakhstan: a generator without friction surfaces. This means it is not necessary, as with any other engine, to change the oil every month - hence money cannot be stolen changing the oil, and within 10 years it will save 300-400% on costs. I was already taking part in the tender, but I was told: we are not considering your proposal, because we have never seen you before. I had to write to the government. They then gave me the opportunity to show the technology in a loaded test run, and only then did they say, "Damn, it's profitable!" - But anyway, it was impossible without the prime minister? We mustn't give up! Though our production may be with components from Kazakhstan, the state does not support us. We make applications, but Turkish companies win, or Chinese ones at low purchasing prices, and they care little about the fact that after 2 years this equipment will turn out to be more expensive than mine - because every month it needs to be repaired and the oil changed. Because there is no position of ownership: any owner wishes to save on operating and capital costs in the long run, but tenders are held here on the principle of "who sells cheapest." We need to change our approach to public procurement. For instance, if the winner of a tender for the construction and repair of highways was told that he has to provide a guarantee on the road for the next 20 years at his own expense, as is done in Finland, then we would have excellent roads and they would not need to be repaired every year - since nobody would steal the asphalt components and public funds would be saved. Adopt such tender standards in Kazakhstan, and our life will improve! - I think we have a slightly different take on things: state property means common property, and if it's common, it means it's no one's and if it's no one's, then it's mine. This is why I say - let's change the KPIs for those who make the decisions, then they may change their approach, after which the prudent spending of public money will become apparent. - In this regard, I would like to clarify where the 50 billion from the National Fund has been or will be directed. It was specified that the funds will go to support SMEs engaged in production. Are there so many manufacturing enterprises? During the last crisis, the lion's share of funds was received by businesses in the trading sector. You have hit the nail on the head. If you hand out this money to companies engaged in vehicle assembly or the like, it will all be simply gone in one fell swoop. What do they produce? Just tightening a couple of screws! And I am told: they have created jobs. But jobs can be created in other industries, those where we have a competitive advantage. I don't understand why they should be supported, but they are given state backing. I don't know - maybe it's someone's business. But it upsets me that they just bury this money. Support should be given to those who have developed their own technology, proved its viability on the Kazakhstan market and are already getting a foothold in the international markets - this should help the state. And that would be all right. But in the current situation, we give support to businesses that do not have a competitive advantage on global markets. And so we end up with a lot of people here flaunting the fact that they are creating jobs, but they are just living off state subsidies. Money is constantly being poured into these companies, but no one knows when these investments will be returned. Has anyone at all given a thought to this? We need to understand that maybe in the end it turns out that we have poured in a billion dollars to sustain several hundred people and never see the money returned. Maybe it's cheaper to create more greenhouses and sell produce to China or Russia? We simply still need to admit to ourselves: as of today, there are not many independent successful businessmen in our country! This is not a condemnation, we just need to be engaged in what is most advantageous under the present conditions and develop those very same minds. - That's to say the priorities have now to be revised, and it's crucial to understand which industries are competitive and which are not? Yes. But we don't do this. Here if someone gets lobbied for, they're the ones who get the backing. - I am surprised, then, at why you are investing in a new generation here - in the Kostanay region, if I am not mistaken? I listened to the president, who made an entreaty for the energy of the future. I came with funds, invested my money and have been waiting for three years while the laws on international standards are drafted. After all, this business is financed by international banks. And everyone is well aware of this. And the government knows it, but the fourth year has passed and still nobody there can "beget" these laws. The minister has been replaced for the third time, but the law still does not exist. There are models, however, templates - examples throughout the world. Why are we reinventing the wheel? - I have looked at some materials about the development of "green" energy in Kazakhstan: in the foreseeable future the major part of our output will remain among traditional types - thermal and hydroelectric power stations, with nuclear power plants to be built later. 50% of power generation from renewable energy sources by 2050 seems very far away. It is regulated by the state. The amount could have been higher, but in fact they do not allow it since they don't understand how to strike a proper balance. If the wind blows, electricity will be generated; when there is no wind there will be no energy, they argue. But you must have the ability to manage the processes. To do this, substitutions need to be built - smart grids. But nobody is implementing this program. International investment could easily have been obtained to build a smart grid, but again the necessary legislation is not in place. And it is true that by 2050, 50% of power will be generated by renewable energy sources. International experts are not fools; they are accountable for their words. But in our country the conditions have not been put in place for this to happen. - About 5 years ago, everyone in Europe was very passionate about renewable energy, because they were very dependent on Russian gas and oil. They were handing out cheap loans for its development. But with the economic decline, the cheap loans have dried up and all the passion over "green" power generation is beginning to deflate. Because without government support it has become unprofitable. There is a lot of money in the world. Implementing renewable energy sources and keeping pace with the times should be carried out in a measured way. But even if several renewable energy facilities were actually installed in Kazakhstan, capable of generating at least 1% of electricity per year, by 2050 we would be generating a minimum of 35% of clean energy from large projects, and how much more could private operators achieve without linking up to the central grid, avoiding the need to be balanced. To achieve this, an entire academic environment needs to be established, for training professionals who could manage the sources of renewable energy. Nobody in our country has the relevant skills to manage such systems. In the US, Obama announced that from next year, 75 thousand engineers specialised in renewable energy will graduate from their universities. Secondly, the largest portion of the world's money is not spent on pharmaceuticals, or oil or gas. What do you think it's spent on? On solar panels! Can you imagine that the largest amount of money and patents are invested in this sector? You see, in the past when you talked on your cell phone you had to pay for the service. Now there is Viber, Skype, and WhatsApp - just sign up and you can talk almost for free. The same thing will happen with power generation. - You really believe that this will happen in 10 years' time? Globally - yes! When I say this, people do not believe me. No power plants will be needed in the future. And the oil refineries that are going to be built will not be needed. Our government has not listened to the opinions of expert advisers, and precedence is awarded to the interests of private individuals - who want to gain control of the budget and build new oil refineries and new nuclear power plants for geopolitical or some other such reasons. - And what is the fate of your wind farms? Have you begun to build them? We have not begun. Because there are no laws, and not one bank will finance me. The Ministry requested a feasibility study, and that the project undergo a state examination, with the consolidation of KEGOC, etc. - we have done all of this. But no bank will give us the money because they ask: will the generated electricity be purchased by the state, by regional electricity commissions or by KEGOC? - Have the rates already been approved? The rates were approved, without any devaluation. But the question remains whether they will buy or not. The fact is that no one has signed a contract for the purchase of electricity. Even if the contract is signed, the newly created organization - the Settlement and Financial Centre (LLP "Settlement and Financial Centre in support of renewable energy sources" - note "B-P") - does not have enough funds at their disposal. How are they planning to pay all the electricity producers? Why create an organisation which has no liquidity at all on its balance sheet? In order for others to continue suffering? Or to stall this process? It makes no sense. Three years have passed already, but nothing significant has taken place on this market - apart from the construction of the "SamrukEnergo" state wind farm. - Somewhere near Yereimentau... Yes, but that's not the point. The issue is that the state is building for itself, and buying from itself. But there is no information about the efficiency factor. For some reason, solar panel plant batteries are not installed extensively anywhere either. Because in this business the technology changes every six months. The story is the same as with cars or tablets. There's no need to get engaged in production! We are not leaders in technology, calm down and buy them from abroad! - But you have managed to export technology... Only not yet in Kazakhstan. Although my company fully masters the technology: the software and the design documentation, and assembly can be carried out anywhere in the world. I wanted to do it, but apparently it's not needed in Kazakhstan. I had the honour of talking with the head of the State Corporation, and he asked me some intelligent questions. "Have you mastered the technology?" he asked. "Yes, of course," I replied. - Do you have a plant? - Yes,

we carry out assembly. - Do you have machinery for the production of circuit boards and compression moulds? - Sorry, no - that we don't have. You see, it is not necessary these days for manufacturers to have their own casting machinery, and buy new machines each year to produce new circuit boards. It's all outsourced - but the knowledge, the technology and everything else we keep. Nobody in the world makes their own circuit boards - not even Apple. But the official's conclusion was simple: "You are not manufacturers!". Even shifting to the informal form of "you". I got up and left. And they were all shocked that someone dared to leave right in the middle of a meeting! It seems that some people are used to talking like that with others. That's why we still don't have a joint venture on state secret facilities in Kazakhstan, but we continue to work globally. - So now in Kazakhstan you only have a presence as a company that sells finished products. Is that all? Yes, that's all. - I know that you have a presence in Russia, in Asia and in Europe. Where are your assets concentrated to the greatest degree? We started with telecommunications in Russia, and are mainly focused there. It takes time to gain market share. It takes a considerable amount of time, money and effort to get certification in each country, to obtain the necessary licenses and permits, to get on the list of certified companies that can participate in the tenders of large corporations. Accordingly, we are gradually developing this market together with dealers and partners through representative offices in different countries. Currently the international markets account for about 20% of our sales. And we are now investing in renewable energy sources in other countries. - Where are you investing? All I can say is in emerging markets. We understand that we cannot wait another 5 years for legislation to appear in Kazakhstan that corresponds to international standards on renewable energy sources. - It means you have redeployed your investments? Yes, we have redistributed them. I'm waiting for the fourth year already - it's not possible to wait any longer. In other countries, they select a model and simply implement it. Investors come and pump in money, pay taxes into the budget and so social projects can be developed. But in our country these are being cut back due to lack of funds. - It is acknowledged that Russia is not so far removed from Kazakhstan when it comes to corruption, but you have very handsome orders from "Gazprom", and "Surgutneftegaz" and many other large companies. How did you manage to get in with them? Were there any "dodgy" schemes? The competition there is tough, because you have to compete with the big German engineering companies, with the US... But we found our advantage. By the way, in the Russian Federation, there are no Russian contenders, and so each time we can offer valued individual and functional solutions. The directors of enterprises themselves say that imported software does not meet the requirements of Russian manufacturing. If we speak about communication, at old plants we often carry out integration of contemporary digital solutions with the existing analogue, even Soviet ones, because for most of the owners it would be too expensive to update the entire production facility in one go. We can do it, but the foreign companies only work with digital components. Owing to solutions such as these we, as manufacturers, win. - "Arman-Holding" is a brand you have already been 15 years on the market with. You began it in Russia. Arman is a name that carries a certain meaning for you, but for Russian consumers it speaks nothing. How were you received? But foreign brands also speak nothing to them. - That is to say, you are accepted along with other foreign brands? The problem is not with the name. They see people writing software programs themselves, spending their money on research, creating user-friendly devices that are comfortably functional. This is what we spend our money on. - You have only been present in Kazakhstan for three years, you live in Singapore, and you have Russian citizenship. Are not you afraid that you may be indicted for coming here, and for teaching here as well? If you live outside of Kazakhstan, this does not mean that you are not a patriot. You see, there are so many people here who do not do anything, just lying on their couches, but they are considered patriots. Maybe patriotism is about acquiring knowledge, advanced technologies, no matter where from - even from the Moon, and then bringing them back to one's homeland and creating new industries, giving people jobs and skills, paying taxes? Some people do not understand this. But after all, Mr. Chokan Valikhanov obtained his knowledge outside of Kazakhstan and didn't just bring it anywhere, but back to his homeland. This for me is the meaning of life. Source: Partner.kz