Samruk-Kazyna, a hulking $69 billion state-owned national wealth fund that contains many of Kazakhstan’s most valuable assets, is working to engineer a cleaner image.
Late last week, the fund announced that it is poised to implement new rules on procurement that will make it more transparent and less liable to the kind of cronyism that flourished under former President Nursultan Nazarbayev.
The statement unveiling these changes did not directly allude to Nazarbayev, who stepped down in 2019, but it didn’t need to.
Ever since politically tinged violence tore through the country in early January, considerable energies have been invested in the apparent purge of interests close to the former leader. Tinkering with the opaquely operated national wealth fund falls squarely within that agenda.
Under Samruk-Kazyna’s new procurement rules, contracts will no longer be doled out among the holding’s constituent companies.
“New measures have been introduced to support domestic producers and small and medium-sized businesses," the fund stated on March 31.
Earlier last month, Samruk-Kazyna said it was overhauling its personnel policy. This has, in practical terms, meant downsizing. The managerial and administrative workforce has been cut by half and rules for hiring new managers have been tightened, the fund said.
“During interviews, psychological profiling to assess susceptibility to corruption risks and a polygraph are used,” said Gibrat Auganov, a public relations manager at Samruk-Kazyna.
President Kassym-Jomart Tokayev issued his most explicit statement to date on his intent to radically overhaul Samruk-Kazyna at a meeting with leading business community representatives on January 21.
“The behind-the-scenes dealings, the lack of transparency, the inflated prices, these things need to be dealt with urgently,” he said, before giving the fund’s administrators a one-month deadline to develop a plan for reform.
The fixes, such as the procurement and downsizing initiatives, have been trickling in since then.
Samruk-Kazyna was very much Nazarbayev’s brainchild. The official story is that he was inspired to create it following a 2003 visit to Singapore, whose state-owned Temasek holding company today controls almost $300 billion in assets.
Within three years, a holding entity called Samruk was born and more than a dozen major national companies were brought under its umbrella. That number expanded considerably over the years. In 2009, Samruk was merged with the Kazyna Sustainable Development Fund to form the national wealth fund that exists today.
The core mission of Samruk-Kazyna is quite simply to generate greater income for the state and thereby increase public welfare through effective and wealth-enhancing management of its 60 or so companies, which are engaged in sectors such as energy, transportation, infrastructure and real estate. In 2019, revenue amounted to 11 trillion tenge (almost $29 billion at the exchange rate of the time). At $69 billion, the fund’s assets are equivalent in value to around 40 percent of the country’s gross domestic product. The holding provides 300,000 jobs, which account for almost 5 percent of all employed people in Kazakhstan.
Shady practices have limited the fund’s potential, however, as Tokayev himself has reminded officials at several junctures. On February 8, the president turned his crosshairs onto how Samruk-Kazyna implements construction and reconstruction projects.
“As a rule, it is always the same companies that win [tenders]. Then they give a volume [of the work] to subcontractors, which in turn dole out deals to yet more subcontractors,” Tokayev said. “Of course, this has a very negative effect on the quality of work and on price parameters.”
It is common for there to be no open contracts at all.
Anton Shin, a lawyer, last year conducted a study on the procurement processes based on complaints from entrepreneurs. What he found was that the holding's companies routinely purchased goods and services from each other at inflated prices, without publishing open-source notices. Billions of tenge that way simply exchanged hands within the fund.
“These practices are against antitrust laws, and they are clear signs of corruption,” Shin told Eurasianet.
Opacity is the norm. And this is hardly new information.
Kazbek Beisebayev, a former diplomat who keeps close tabs on Samruk-Kazyna’s activities, complained in the fall of 2018 that he had failed to find any information about the results achieved by a $101 billion investment program launched under the fund’s auspices five years before.
“Can someone in charge account for this industrialization program and for these 157 investment projects? The person who was responsible for all this has now been put in charge of agriculture,” Beisebayev wrote in an impassioned Facebook post, alluding to a former Samruk-Kazyna head, Umirzak Shukeyev, who was later appointed Agriculture Minister.
Some political commentators place the blame for the unrest in January at the feet of Samruk-Kazyna. The protests that swept across the country at the start of the year were sparked by rallies in opposition to a hike in the price for car fuel, much of which is produced and sold by state-owned companies.
“The gas crisis that caused the mass protests is essentially the result of the mismanagement at Samruk-Kazyna, which also includes [gas processing plants],” political analyst Sergei Duvanov told Eurasianet. “They were unable to ensure the profitability of production due to outdated equipment at the plants and, instead of investing in modernization, they simply inflated gas prices.”
Tokayev may have his own reasons for trimming Samruk-Kazyna’s sails. With the fund in its current monolithic form, the president is inhibited in his ability to effect deep economic reform. This has been particularly the case since, as many commentators note, the fund primarily served the interests of cronies of the former president, Nazarbayev, rather than those of the state itself.
Samruk-Kazyna’s apparent lack of accountability was thrown into particular relief when the COVID-19 crisis first hit Kazakhstan. In March 2020, just as Tokayev was introducing a national state of emergency, he outlined plans for a general economic mobilization and ordered national companies to pay 100 percent of their dividends for 2019 to the state budget. But Samruk-Kazyna, by very far the largest state-owned entity, transferred only 120 billion tenge, which was less than one-tenth of its net income the previous year.
Tokayev had his own little dose of payback in his broadside against Samruk-Kazyna in January as he listed its shortcomings one by one: “Lack of transparency, the appointment of politically significant people, an inefficient procurement system, labor conflicts, unprofitability, the incomplete state of large-scale projects, excessive maintenance costs.” And Kazakhstan’s inability to build a leaner and more efficient petrochemicals sector was down to the holding company too, he fumed.
Some analysts are skeptical that reorganization will be enough.
The economist and financier Murat Temirkhanov said one of the factors that made Samruk-Kazyna so inefficient was interference from the office of the president in Nazarbayev’s day.
A wealth fund run as a political perquisite will continue to have the same problems. Only transferring assets to the private sector – including the family jewels, like those in the oil and gas sector – will ensure healthy and competitive development, Temirkhanov told Eurasianet.
“If every company had a truly independent and professional management structure, then a cumbersome structure like Samruk-Kazyna, which costs a lot of money to maintain, would cease to make sense,” Temirkhanov said.
Almaz Kumenov is an Almaty-based journalist.