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INFO RUCNCIS/CIS COLLECTIVE 2248
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RUEATRS/DEPT OF TREASURY WASHINGTON DC
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RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/AMCONSUL ALMATY 2096

UNCLAS SECTION 01 OF 04 ASTANA 002157 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC, S/P, R/PPR 
STATE PLEASE PASS TO USTDA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EINV SOCI KCOR KISM KWMN KZ
SUBJECT:  KAZAKHSTAN:  SCA ASSISTANT SECRETARY BLAKE HOSTS MUSLIM 
ENTREPRENEURSHIP ROUNDTABLE 
 
REF:  (A) STATE 112495 
      (B) ASTANA 2099 
 
ASTANA 00002157  001.3 OF 004 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  Assistant Secretary for South and Central Asian 
Affairs Robert Blake chaired a roundtable discussion of Kazakhstan's 
business environment with 14 of the country's leading Muslim 
entrepreneurs in Almaty.  The December 14 event kicked off Embassy 
Kazakhstan's outreach program to promote the 2010 Presidential 
Entrepreneurship Summit in Washington, D.C. (ref A).  Although the 
entrepreneurs come from diverse backgrounds and followed different 
paths to individual success, they all have one thing in common: 
despite difficulties, they made it.  They achieved success, and are 
determined to invest their capital, energy, and ingenuity to make 
Kazakhstan a better place for business.  In an open and spirited 
discussion, they agreed that Kazakhstan must reduce the dominance of 
large holding companies, do more to encourage small- and 
medium-sized enterprises, improve professional training programs, 
and reduce corruption.  END SUMMARY. 
 
BUSINESS LEADERS WITH DIVERSE BACKGROUNDS 
 
¶3.  (SBU) Even though they are all successful business leaders, and 
all ethnic Kazakhs, the entrepreneurs who participated in the 
December 14 roundtable were a very mixed group.  Nine men and four 
women, ranging in age from their early thirties to their late 
fifties, gathered to talk about their personal path to success, and 
to offer suggestions to improve the business environment in 
Kazakhstan.  Some were educated in the Soviet Union, others at 
Harvard Business School; some run a sole proprietorship, others 
oversee sprawling conglomerates; some are fluent in several foreign 
languages, others speak only Russian and Kazakh; some travel to 
London for board meetings, others have never left Kazakhstan. 
Nevertheless, this diverse group of entrepreneurs and community 
leaders share a remarkable record of success, and a fierce desire to 
make Kazakhstan a better place for doing business. 
 
¶4.  (SBU) The group included several entrepreneurs nominated by 
Embassy Kazakhstan to attend the Presidential Entrepreneurship 
Summit (ref B), including: 
 
-- Nurlan Kapparov, a 39-year old multi-millionaire who started in 
the oil business and now runs a successful international corporation 
with interests in the energy, tourism, and construction sectors; 
 
-- Yergali Begimbetov, 37, a former intern with Nationwide insurance 
who now operates the leading private insurance company in 
Kazakhstan; 
 
-- Gafur Ikhsan, 39, chairman of a freight forwarding and 
transportation services company; 
 
-- Yerzhan Mandiyev, 37, president of Asia Auto, which assembles 
Niva, Skoda, and General Motors vehicles; 
 
-- Gulsum Akhtamberdieva, a board member of Kazakhstan's Business 
Women Association and general director of CARANA Corporation Central 
Asia for 12 years, who established her own management consulting 
company in 2005. 
 
-- Azat Peruashev, 42, who was not nominated to attend the 
Presidential Summit, is nevertheless a leading advocate for 
entrepreneurs in Kazakhstan.  He is Chairman of the Atameken 
National Union of Entrepreneurs, an umbrella organization of more 
than 120 business associations in Kazakhstan, and former leader of 
the Civic Party of Kazakhstan.  (NOTE:  It is widely rumored that 
President Nazarbayev endorsed Peruashev for his current position in 
exchange for Peruashev's pledge to cease his political activities, 
which he has done.  On December 15, "Vox Populi," a Kazakhstani 
business journal, reported that earlier this year, Peruashev asked 
 
ASTANA 00002157  002.3 OF 004 
 
 
then-Deputy Prime Minister Serik Akhmetov to require all small- and 
medium-sized enterprises (SMEs) to register with Atameken.  The 
article claimed that Peruashev has the support of the tax 
authorities to require every SME registered in Kazakhstan to pay 
dues of 1,296 tenge (approximately $8.60) to Atameken for every 
employee of the enterprise, which would raise $4-8 million for 
Atameken's activities.  END NOTE). 
 
THE ROLE OF GOVERNMENT IN BUSINESS 
 
¶5.  (SBU) Peruashev was thoughtful, candid, and provocative 
throughout the roundtable discussion.  He started by commenting on 
governments' increased, direct involvement in business around the 
world as a result of the global economic crisis.  While not denying 
that governments have had valid reasons for various interventions, 
he nevertheless said that these actions raise serious questions 
about government's role in the economy.  "What are the limits of 
government ownership and direction?," he asked rhetorically.  "What 
is the proper balance between the government and the private 
sector?" 
 
¶6.  (SBU) Some participants, such as Rashid Gaissin, managing 
partner of the GRATA law firm, asserted private business must learn 
to live without government support or intervention.  He said he 
received no government assistance, or external credit, when he 
started his law firm, and encouraged others to be similarly 
independent. 
 
¶7.  (SBU) Others, however, said the government could play a useful 
role by promoting business education and developing technical 
specialists.  Kapparov also noted that the government could 
stimulate economic growth and diversification by focusing on five or 
six competitive industries, such as tourism or education.  "If it 
did this," he said, "the government could improve performance and 
competitiveness.  But it must focus on implementation, and follow 
through." 
 
THE RISE OF MEGA HOLDING COMPANIES 
 
¶8.  (SBU) Kapparov criticized the proliferation of 10-15 "mega 
holding companies" that consolidate and control the manufacture and 
distribution of goods and services in Kazakhstan.  He said that 
these companies, such as National Welfare Fund Samruk-Kazyna, betray 
an "old Soviet habit" of command and control that crowds out private 
initiative and does not allow SMEs to grow and develop.  Kapparov 
termed the mega holding companies "abnormal and unmanageable," and 
called for the de-monopolization of these "unmanageable, 
bureaucratic giants."  He referred specifically to Samruk-Kazyna, 
which owns national oil company KazMunaiGas (KMG), which is in 
itself a holding company with dozens of subsidiaries.  He 
highlighted Kazakhstani laws, which require a parent company to 
procure services first from its daughter companies, which encourages 
corruption, increases inefficiency, and prevents private-sector 
competition for new orders.  "This cannot be an effective way to run 
a business," he said.  "This monster (Samruk-Kazyna) is the main 
obstacle to private sector development in Kazakhstan." 
 
ENTREPRENEURS DEMAND GREATER TRANSPARENCY 
 
¶9.  (SBU) Kapparov also deplored the lack of transparency in 
Kazakhstan, particularly in the banking sector.  During the boom 
years, he asserted the ready availability of easy money.  A borrower 
did not need collateral, a business plan, audited financial 
statements, or any other reasonable justification for the loan.  As 
a result, according to Kapparov, banks became overexposed, 
businesses failed to deliver, and markets panicked and closed.  Ever 
the entrepreneur, Kapparov now highlighted opportunity where others 
feel dread.  He believes that the crisis has created the right 
conditions for necessary reforms in the banking sector.  Through the 
U.S.-Kazakhstani Public Private Economic Partnership Initiative 
(PPEPI) and other means, he is advocating for stricter regulations 
 
ASTANA 00002157  003.3 OF 004 
 
 
to require borrowers to have at least a three-year history and 
commit at least 30% of their own capital before they receive credit 
for new ventures.  Kapparov believes these regulations will improve 
transparency and ensure the investment of capital in business 
operations, rather than speculative projects. 
 
¶10.  (SBU) Peruashev concurred, and argued that SMEs simply cannot 
compete with large companies for state contracts under current 
public procurement procedures.  "The big businesses work closely 
with the government," he said.  "They have all the connections and 
information, and just dominate public procurement.  It's not at all 
transparent." 
 
¶11.  (SBU) Begimbetov made the surprising claim that Kazakhstani 
businesses, in their dealings with each other, are no more 
transparent and no less corrupt than the government.  He alleged 
that business leaders take short cuts and invest in "the person who 
knows which door to enter" in order to win a contract, rather than 
using earnings to improve product quality. 
 
THE EDUCATION IMPERATIVE 
 
¶12.  (SBU) Eldar Abdrazakov, founder and chairman of investment 
company Centras Capital, called the lack of management experience 
and expertise the number one constraint to business development in 
Kazakhstan.  He noted Kazakhstan's continued transition to a full 
and open market economy.  Abdrazakov asserted the country simply has 
not had enough time to develop competent managers. 
 
¶13.  (SBU) According to Peruashev, thousands of new graduates with 
degrees in economics, finance, and business enter the market every 
year, "but no one hires them, because they still lack the skills 
that companies need."  He said Kazakhstan produces graduates like 
"sheets of paper" in order to meet a quota or burn through a budget, 
but they do not enter the market ready to compete for work. 
Mandiyev agreed, noting that 50% of the assembly-line workers at his 
plant in East Kazakhstan have college degrees, but were unprepared 
for managerial work in the company. 
 
¶14.  (SBU) Kapparov responded that Kazakhstan, compared to the rest 
of Central Asia, has competent managers, but "not compared to 
Russia."  He also asserted that, unfortunately, "you don't need to 
be competent to be successful in Kazakhstan.  You just need to know 
someone at a mega holding company." 
 
¶15.  (SBU) Ikhsan stressed the urgent need to improve general 
business education among Kazakhstani youth while also training 
Kazakhstani specialists in specific sectors.  "It all comes down to 
building human capacity," he said.  Ikhsan explained that 
Kazakhstani entrepreneurs are still learning how to do business.  He 
alleged that Kazakhstani entrepreneurs practice "business 
primitivism," which relies on resourcefulness, improvisation, and 
creativity, rather than strategic planning, financial analysis, and 
business management.  This may have worked during the early days 
after the collapse of the Soviet Union, he said, but it cannot 
continue.  As a result, Kazakhstani goods and services cannot 
compete on the world market, because they lack the quality demanded 
by consumers.  Ikhsan acknowledged the changing situation -- 
Kazakhstani consumers now have greater expectations for high-quality 
goods and services, and local companies are rising to the challenge. 
 "We can only control the quality of our product," he said. 
"Everything else -- output, profit, market share -- is up to the 
consumer."  Ikhsan added that the Customs Union with Russia and 
Belarus will be very helpful to local companies.  "It might change 
the entire business landscape in Kazakhstan," he speculated. 
 
BUILDING A NEW BUSINESS CULTURE 
 
¶16.  (SBU) Begimbetov criticized owners and senior managers who are 
less interested in growing their businesses than in personal rewards 
and pay-backs.  "This is a waste," he declared.  "A waste of the 
 
ASTANA 00002157  004.3 OF 004 
 
 
skills, energy, and creativity of a company's employees."  He 
partially attributed this behavior to a dysfunctional incentive 
structure that does not reward entrepreneurs who understand the cost 
of capital, take calculated risks, invest wisely to improve quality, 
and follow a strategic plan to build a business.  Peruashev agreed. 
"Our laws are fine," he said, "but we have no business culture in 
Kazakhstan" that could help to define rules of behavior between a 
business owner and his customers. 
 
WOMEN TAKE A DIFFERENT TACK 
 
¶17.  (SBU) Akhtamberdieva highlighted the different -- and more 
difficult -- experience of women entrepreneurs.  In the Soviet 
Union, she said, "we had a pre-programmed life.  We could get an 
education, even pursue a doctorate, but we were not expected to be 
ambitious, or to pursue our own goals or dreams.  We were expected 
to go into teaching, take care of the home, and settle in to a happy 
family life."  She asserted that women drew upon their survival 
skills and developed into successful entrepreneurs during the 
difficult economic times following the collapse of the Soviet Union. 
 "We would do whatever it took," she said, "to make sure our 
children did not go hungry.  We would make things to sell at the 
market, or buy, sell, and trade things, whatever it took."  Many 
men, she claimed, were not as resourceful and simply gave up. 
 
"WHAT CAN YOU DO TO IMPROVE?" 
 
¶18.  (SBU) As the roundtable concluded, Assistant Secretary Blake 
asked the participants what they would tell President Nazarbayev if 
they had an opportunity to make recommendations to improve the 
business climate in Kazakhstan.  Several entrepreneurs immediately 
turned to Peruashev and said, "This is exactly what he does!  This 
is the only association with that kind of access and influence." 
 
¶19.  (SBU) Peruashev happily admitted that Atameken is "trying to 
fight, to work, and to improve" the climate for private business. 
He said the business association works mainly by reviewing and 
commenting on draft legislation, and by advocating for fair and 
equal treatment of individual businesses caught in conflict with the 
state.  He claimed that the authorities dropped criminal charges 
against two individuals in a recent case due to Atameken's 
intervention.  While Atameken does not look for trouble, he 
highlighted, it will not back down from a fight.  "It takes a lot of 
nerve, and a lot of determination," he argued, "but sometimes we 
have to yell at the government to get their attention." 
 
¶20.  (SBU) COMMENT:  The participants at this roundtable are among 
the most successful, well-connected, and wealthy individuals in 
Kazakhstan.  Their self-made success owes as much to their pluck and 
courage as it does to luck and good fortune.  Although they have 
achieved their own personal goals, they continue to seek new 
challenges.  This remarkable group of business and community 
pioneers is eager to invest their valuable time and renewable energy 
in the pursuit of their next ambitious project, the common 
enterprise of building a better business environment in Kazakhstan. 
All of them strongly endorse the goals of the Presidential 
Entrepreneurship Summit, and all asserted their desire to 
participate in future roundtables to stress the importance of 
entrepreneurship to create jobs and expand economic opportunity in 
Kazakhstan.  END SUMMARY. 
 
¶21.  (U) Assistant Secretary Blake has cleared this cable. 
 
HOAGLAND