Singapore, Kazakhstan promote bilateral trade

Singapore and Kazakhstan have exchanged a bilateral investment treaty to support greater investment flows between both countries.

The treaty protects the interests of investors from Singapore and Kazakhstan and gives them more confidence to leverage investment opportunities in either country. Under the terms of the treaty, Singapore companies operating in Kazakhstan will enjoy protection on their investments on top of that already accorded under Kazakhstan’s domestic laws, and vice versa. The Kazakhstan-Singapore treaty will also grant investors from both countries:

 Non-discriminatory treatment compared to other foreign investments (most favoured nation treatment);

 Fair and equitable treatment and full protection and security based on customary international law;

 Protection from illegal expropriation*;

 Non-discriminatory compensation for losses arising from war, armed conflict and civil strife;

 Freedom to transfer capital and returns in and out of country; and

 Access to international arbitration for investment disputes.

Singapore's Senior Minister of State for Trade and Industry Dr Koh Poh Koon commented that there is still headroom for bilateral trade growth. “Emerging markets such as Kazakhstan have strong potential for growth. Kazakhstan’s rapidly improving economic reforms, highly literate workforce and growing urban middle class present opportunities for Singapore companies. I strongly encourage our companies to venture into Kazakhstan and the rest of Central Asia,” he said.

2018 marks 25 years of bilateral relations for the two countries, Dr Koh revealed in a speech at the Kazakhstan-Singapore Business Forum. "Kazakhstan’s forward thinking leadership embraced globalisation early on, participating in the ebbs and flows of shifting global supply chains, and linking markets from Europe to Asia. Kazakhstan stands at the crossroads between the East and West, and the North and South. As the world’s economy moves East, Kazakhstan can be a key node connecting China, Central Asia, Europe and possibly even Southeast Asia," he said.

"The opening of the Astana International Financial Centre (AIFC) in July this year is a notable step that could help build up Kazakhstan as a Eurasian commercial and financial node that would eventually serve as the pathway for investments and other economic opportunities in the region." 

Kazakhstan is Singapore’s most significant economic partner among the five Central Asian states of Kazakhstan, Kyrgyzstan, Uzbekistan, Turkmenistan and Tajikistan. Minister Koh said bilateral trade in goods amounted to S$133.6 million last year, while bilateral trade in services grew 16% over the last five years to reach S$40 million in 2016. Bilateral investment grew approximately 30% over the same five-year period.

Kazakhstan is also part of the Eurasian Economic Union (EAEU), a customs union formed by Russia, Armenia, Belarus, Kyrgyzstan and Kazakhstan. Singapore is in the process of negotiating a free trade agreement with the EAEU and will build on the current agreement as a foundation to the negotiations.

*This refers to a public sector authority taking property from a private sector owner for public use or benefit.

World Bank to help Indian, Kazakhstani SMEs grow

The World Bank has approved a US$500 million loan for the MSME Growth Innovation and Inclusive Finance Project to improve access to finance for micro, small and medium enterprises (MSMEs) in the manufacturing and services sector in India. This includes MSMEs from early to growth stage, including those which provide innovative financial products.

In India, MSMEs account for more than 80% of total industrial enterprises, produce over 8, 000 value-added products and employ an estimated 60 million people. It contributes around 45% to manufacturing output and about 40% to exports, both directly and indirectly. In addition, over 50% percent of MSMEs are rural enterprises and widely distributed across low-income states, making them an important sector for promoting economic growth and poverty reduction.

However, lack of adequate finance is one of the biggest challenges facing the MSME sector. Financial institutions have limited their exposure to the sector due to a higher risk perception, information asymmetry, high transaction costs and the lack of collateral. The MSME census of 2006-07 estimated that about 87 % of MSMEs did not have any access to finance and were self-financed. Credit towards micro and small enterprises represent only 13 to 15% of formal financial institutions portfolios.

The project will support MSMEs through direct financing by the Small Industries Development Bank of India or SIDBI, an apex financial institution for promotion, financing and development of MSMEs in India, and also through participating financial institutions across three components. These include support to startup debt financing and risk capital as well as support to service and manufacturing sector financing models.

“With 8 million people entering the labour force every year, MSMEs have the potential to be an important source of wage employment and entrepreneurship in India, foster innovations as well as be the cradle for the government’s `Make in India’ vision formulated recently. For these ideas to take shape, addressing the key constraints that inhibit MSMEs from accessing finance is of utmost importance. This project will work with the government in developing innovative products that address the current constraints of MSMEs, respond to the changing needs of the Indian economy and also catalyse private sector financing,” said Onno Ruhl,World Bank Country Director in India.

The project's first component will support SIDBI in developing, innovating and scaling up its startup debt financing programme as well as encourage participation of potential financing institutions in the development of this missing financial market segment. The India’s startup ecosystem is currently one of the fastest growing in the world and the third largest startup base with 3,100 startups (after the US with 41,500 start-ups and the UK with 4,000). While there has been incredible growth in equity financing in the Indian ecosystem, debt financing is non-existent for the majority of the vast growing startup enterprises which severely constrains the necessary rapid growth startups need to survive. The project will seek to address this gap to demonstrate financial products that both align with a fast growth economy and address missing financial markets that can unlock the incredible potential of India’s startup and early stage ecosystem.

Its second component supports service sector firms’ financing. Although the structure of the Indian economy is shifting towards services, now 65% of Indian GDP, enterprises in this sector continue to face challenges in accessing formal finance mainly due to lack of physical assets to provide as collateral. Financial depth (credit to GDP) for this sector is 25%*. In an attempt to address this issue SIDBI has introduced new products and considering their potential to grow, this project will support scale up of innovative products which are better tailored for MSMEs in the service sector such as use of movable and intangible assets, including light assets and franchise financing. Information asymmetry and credit risk will be mitigated by using information from alternative/multiple sources (such as franchisors for franchisee financing).

The project will also support manufacturing MSMEs through innovative financial products including loan extension services and cluster financing - including women-led clusters. Particular focus will be to expand manufacturing activity in financially underserved areas, including low income states especially through refinancing, as banks and other public financial institutions have a deeper network in these states.

“Addressing financial constraints of MSMEs and start-ups should generate multiplier effects across the economy by unlocking their inherent growth potential, fostering entrepreneurship and creating employment opportunities,” said Gloria Grandolini, Senior Director of the World Bank Group Finance and Markets Global Practice.

The loan, from the International Bank for Reconstruction and Development (IBRD), has a five-year grace period and a maturity of 10 years.

The World Bank earlier approved a US$40 million loan to help enhance the competitiveness and management capacity of small and medium sized enterprises in Kazakhstan as well.

“Small and medium sized enterprises are widely identified as important sources of economic growth and employment and, therefore, an essential foundation for shared prosperity,” said Ludmilla Butenko, World Bank Country Manager for Kazakhstan. “The project is expected to increase the competitiveness of Kazakhstani SMEs to contribute to diversification of the economy by reducing its reliance on extractive industries.”

Lack of professional and management skills as well as limited market connections are some of the key obstacles for Kazakhstan’s private sector. The SME Competitiveness Project is aimed at strengthening the management capacity of SMEs to grow and create more and better jobs. Existing SME advisory programmes will be enhanced in terms of quality and methodology in line with international standards. Several hundred business consultants will be trained and certified to deliver in turn professional consulting to several thousand entrepreneurs and SMEs.

The project will also focus on increasing market linkages for SMEs in non-extractive sectors with a market-based growth potential. The new linkages between SMEs and large buyers will provide entrepreneurs with an increased access to markets. To facilitate the process, the project aims at piloting a supplier development programme and enhancing the capacity of policy making authorities in developing competitive sectors in emerging areas of the economy. The evidence-based policy making will be strengthened through improved existing monitoring and evaluation frameworks and public-private dialogue.

All these activities will result in increased firm productivity and revenues as well as overall contribution of SMEs to the country economy.

The implementation of the five-year project (2015-2020) will start after the country approval process is completed. The SME Competitiveness Project will be financed through a US$40 million IBRD loan, with a 15-year maturity period and a five-year grace period, with US$6 million in co-financing from the government of Kazakhstan.
*Reserve Bank of India figures.

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