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Kazakh farmers face stringent loan terms, development of agribusiness inhibited 07 сентября 2014, 12:26

There are several financial constraints for achieving development of Kazakhstan's agriculture, experts say. Alleviating these is necessary to boost the industry and make Kazakhstan-made products competitive internationally.
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Kazakhstan is looking for a way to increase its competitiveness on the world market in the future. Agriculture has been named the area that is supposed to boost both Kazakhstan’s status as a player in global trade and its domestic prosperity. Recently, Kazakhstan’s ex-Minister of Finance said that the Central Asian country could become a “global farm for the whole world”, since its agricultural potential was largely untapped - it was using only 3% of its agricultural promise.

Still, challenges for achieving this goal are many. There are critical financial constraints hindering development of Kazakhstan's agriculture.

The National Chamber of Entrepreneurs points out that tight credit conditions inhibit dynamic development of Kazakh farming industry, Tengrinews reports citing the Public Affairs office of the Chamber.

"Creating a new industry requires huge investments. Along with private investment, the government has allocated funds to credit the industry. But conditions are rather stringent: the loan term between 8 and 12 years and the interest rate at 6 per cent per annum. We have to use all the profit to repay the loans. This does not give us the opportunity to develop dynamically, be competitive and flexible. After all, conquering new markets is a huge problem where sometimes you need to dump prices to attract clients," the PA office quoted the head of "SC Food" LLP Maksut Baktibayev.

Baktibayev said there was a danger competition battle would be lost to the Russian Federation, where a similar program on developing the meat cattle breeding industry is underway with loans at 0 percent interest rate for a term of 20 years. "We started about two or three years earlier but in the long run we might lose the competition when the 'machine' of our neighbors is put on track [Russia is Kazakhstan’s northern neighbor]. We might be pushed to the sidelines with our expensive products, when all one had to do was extend credit terms and lowering interest rates,” he said.

The expert said the government promised looking into the issue but said it was necessary to amend the existing rules and allocate additional funding to subsidize the interest rate. The price tag of this is about 10 billion tenge ($55 million) for the whole term. “But in the end we will be able to direct all our efforts to dynamically develop and conquer the neighboring markets with our high-quality environmentally friendly products," head of SC Food said.

Another problem in the crediting process, according to Baktibayev, is the collateral requirements. “They are asking for liquid collateral property, such as real estate in Astana or deposits in banks. We, the people who understand the intricacies of the industry and can bring the undertaking to the end, have no more (unencumbered) collateral property left," the industry expert said.

"For example, we obtained a loan of 2 billion tenge for one of our projects worth 3 billion tenge, and provided a collateral worth 3.8 billion tenge! Of these, provision of guarantees, that is, (collateral) outside of the project, cost more than 1 billion tenge! We want to develop and build new farms, we have a team and experience but there are no resources - everything has already been pledged to KazAgro (Kazakhstan's development arm for agricultural industry that distributes state funding),” the entrepreneur continued.

These tough conditions made the major industry reps – and these are more than 20 companies – call for relaxing of collateral requirements and introduction of leasing mechanisms to facilitate construction of infrastructure and launching the side-projects that are necessary for the process chain to work.

Baktibayev referred to a very successful meat production venture in Karaganda Oblast (in central Kazakhstan) as one of the examples. Next year it will produce 50 thousand heads of offspring but half of them are calf needing special feedlots. However, there are no export-oriented feedlots in Karaganda Oblast. Baktibayev said that his company was ready to build one in a year but only if billions in deposits would not be demanded.

By Dinara Urazova 

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