By Bruce Wilson, Senior Consultant, The PBN Company, Almaty

Karim Masimov, Kazakhstan’s Prime Minister, has floated the idea of requiring foreign businesses that operate in Kazakhstan to keep a share of their funds in domestic banks. The need to help Kazakh banks is understandable, but would the proposal have a detrimental impact on the economy?

Kazakhstan’s banking sector still has serious problems, despite significant emergency investments by the government. Many banks, burdened by enormous foreign debts, are also mired in corruption scandals, and the damage to their reputations has further dampened economic activity throughout the country. Foreign investors, so the theory goes, are the ideal candidates to step in and help to bolster the banks’ balance sheets.

Foreign businesses have a vested interest in Kazakhstan’s economic health in general and the viability of the financial sector in particular. However, the merits of Masimov’s idea must be off-set against the additional damage that may be done to Kazakhstan’s international reputation. The proposal will be seen abroad as an additional challenge to investing in Kazakhstan - a constraint adding to the existing costs and risks of doing business in the country. If foreign businesses reduce their investments as a result the plan will backfire, further hampering Kazakhstan’s ability to attract capital and technical know-how. Ultimately, it may reduce the competitiveness of Kazakh products in the global market, raise prices for local Kazakh consumers and hinder rather than expedite Kazakhstan’s economic recovery.

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By Yekaterina Syrtsova, Associate Account Manager, The PBN Company, Almaty

Kazakh and western retail companies are pushing ahead with expansion plans despite the crisis.

Earlier this month Metro Cash & Carry, the German retailer, laid the foundation stone for its first supermarket in Astana and announced plans to build 10-15 stores in Kazakhstan. Arzan, a big local market player, unveiled two shopping centers in Almaty last year, and Magnum Cash & Carry followed suit, promising to establish supermarkets across the country. In a further sign that the sector is undergoing a shakeup, at the start of 2009, the chain SM-market bought supermarket chain Gross.

According to research published in newspaper Panorama, the annual turnover of the Kazakh retail sector is $2.5 billion for food sales and $8 billion for other goods. This is leading economists to speculate about a possible ‘hand off’ within the economy, whereby consumer spending takes over from oil and metals as drivers of growth, or at least as a counterweight to recession.

Consumers may be able to play this sort of role in shaping Kazakhstan’s economy, but key issues must first be addressed. Logistics is a major problem, particularly the lack of distribution platforms and storage facilities, as Stephen Kreeger, Country Director for Metro Cash & Carry Kazakhstan, told Kapital. Andrey Revin, Finance and Business Development Director of Eurasia RED, a big local developer, also cites the lack of both quality selling space and local franchisers selling international brands.

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By Brandon Zack, Intern, The PBN Company, Washington, DC

President Obama’s visit to Moscow was billed as a “resetting” of diplomatic relations between the US and Russia, however his visit also provided a shot in the arm to economic relations which have flat-lined in recent years.

Before the trip, Obama highlighted that annual trade between the two countries totals $36 billion - about one percent of US trade with the rest of the world and equivalent to the US’s trade with Thailand, a country with less than half of Russia’s population. “Surely we can do better,” the President said. And back came the familiar refrain “Yes we can” from the CEOs of America companies who accompanied Obama to Moscow.

A number of US companies that are existing investors in Russia reaffirmed their commitment and announced extra funding for significant expansion plans. PepsiCo’s deal was the largest - a $1 billion investment over the next three years as well as the opening of a bottling plant outside Moscow, which will be its largest plant worldwide. Pepsi is a veteran of the Russian market. Soviet Premier Nikita Khrushchev tried Pepsi for the first time in his 1959 Moscow “kitchen debate” with then Vice President Richard Nixon. Later, in 1973, Pepsi was named the official soft drink supplier to the Soviet Union in a détente agreement that enabled the USSR to export Stolichnaya vodka to the US. Pepsi currently has seven plants operating in Russia and has invested some $3 billion over the last ten years, including the acquisition of leading Russian juice maker Lebedyansky in 2008.

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