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Direct flights to Saudi from Kazakhstan to start

MAY 23 2017 (The Conway Bulletin) — Privately owned SCAT Air has won permission from the Kazakh industry ministry to start direct flights to Saudi Arabia, media reported. There are currently no direct flights between Kazakhstan and Saudi Arabia. Kazakh officials and businessmen have said that they are keen to boost relations with Saudi Arabia and Kazakhstan. SCAT Air will also start operating flights to Yerevan from Pavlodar, Shymkent and Almaty this summer, media reported.

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(News report from Issue No. 330, published on May 28 2017)

Kazakh CB chief orders IBA debt investigation

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MAY 24 2017 (The Conway Bulletin) — Kazakh Central Bank chief Daniyer Akishev said that he had ordered an investigation into why Kazakhstan’s state-run pension fund had bought $250m of debt from the International Bank of Azerbaijan (IBA) in October 2014, just as the price of oil started to collapse. Oil is Azerbaijan’s main export and its collapse triggered an economic downturn. This month IBA said that it was having to restructure its debt.

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(News report from Issue No. 330, published on May 28 2017)

Uzbekistan’s long-serving Central Bank chief dies

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MAY 28 2017 (The Conway Bulletin) — Uzbekistan’s Central Bank chief, Fayzulla Mullajanov, died on May 24. He was 67-years-old and was perhaps the world’s longest serving Central Bank chief, officially holding the position since independence from the Soviet Union in 1991.

According to media reports, Mullajanov had been suffering from a kidney disease for sometime. In 2013 Ferghana News even reported that Mullajanov had fallen into a coma. This was denied but it is doubtful that Mullajanov has exerted much influence over Uzbekistan’s monetary policy in the last few years — either because he hasn’t been well enough or he simply hasn’t been empowered.

Appointed by Islam Karimov to head the Central Bank, Mullajanov was your archetypal Soviet-style official, prepared to put on a brave face and carry through decisions made by others.

He didn’t make monetary policy but he was expected to sell it.

This was clear from a US embassy report from May 2009 published, later, by Wikileaks.

In the cable, the US ambassador to Uzbekistan at the time, Richard Norland, recounted a series of meetings he had with senior Uzbek officials during a trip to Tashkent by deputy assistant US trade representative Claudio Lilienfeld. Mullajanov featured in the dispatch but only towards the bottom.

“After listening to a half hour recitation of Uzbekistan’s economic success and successes in the banking sector, Lilienfeld remarked that a major disincentive for US businesses to invest in Uzbekistan is the difficulty with capital convertibility,” Norland wrote.

“Expressing surprise that convertibility could be an issue, Mullajanov responded that conversion is done by the commercial banks. He assured us that he would personally look into any convertibility problems if they are brought to his attention in writing.”

Nothing more was said of Mullajanov in the memo, but Norland’s exasperation towards the Uzbek Central Banker was tangible. Mullajanov had been rolled out to sell Uzbekistan as a serious economy to the visiting US delegation. The reality was, as everybody knew, Karimov called the shots.

Uzbekistan’s monetary policy is dominated by its currency and this is set by central government. Mullajanov, who had only ever worked at the Uzbek Central Bank, was the face of this policy but not the architect.

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(News report from Issue No. 330, published on May 28 2017)

Currencies: Tajikistan’s somoni

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MAY 28 2017 (The Conway Bulletin) — Most currencies in the Central Asia and South Caucasus region have had a reasonable start to the year, gaining as oil prices have been sustained and the Russian economy has stabilised.

The Tajik somoni, though, has not been one of these currencies. Instead, it has continued to slide and is now trading at around 8.82/$1, down 12% from the start of the year.

This is 85% down from the start of 2013.

Analysts have said that confidence in the somoni is low as the Central Bank looks to bail out various banks which have found themselves in trouble. Tajikistan’s banking sector has been teetering on the verge of collapse for some time, only staving off being wiped out by government bail outs.

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(News report from Issue No. 330, published on May 28 2017)

Two smaller Kazakh banks set to merge

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ALMATY, MAY 23 2017 (The Conway Bulletin) — Two small Kazakh banks, RBK Bank and Qazaq Banki, said that they were preparing to merger, marking more consolidation in Kazakhstan’s finance sector.

Kazakh banks have been encouraged to merge in a drive designed to strengthen the sector which analysts have said has become weak and fragmented.

In a statement, RBK said: “The decision to merge was dictated by a desire from shareholders to use the new business opportunities in a changing economic environment.”

Both RBK and Qazaq Banki are linked closely to members of the Kazakh elite, including Dinmukhamed Idrisov, Kazakhstan’s 20th wealthiest man according to Forbes. He owns stakes of under 10% in both banks.

Earlier this year, Halyk Bank and Kazkommertzbank, Kazakhstan’s two biggest banks, agreed to merge creating a mega bank with around 40% of the market. The new bank will be controlled by Halyk, which is owned by the daughter of Kazakh President Nursultan Nazarbayev and her husband, Timur Kulibayev.

Kazakh banks accrued a high proportion of bad loans over the past few years because of a downturn in economic conditions linked a fall in oil prices and a recession in Russia.

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(News report from Issue No. 330, published on May 28 2017)

Russia’s Shokoladnitsa to open coffee shops in Uzbekistan

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TASHKENT, MAY 26 2017 (The Conway Bulletin) — Highlighting an increase in coffee consumption across Central Asia and the South Caucasus, Russian coffee shop brand Shokoladnitsa said that it was working on a deal to open its first cafes in Uzbekistan and Georgia.

For Uzbekistan in particular, the opening of Shokoladnitsa branded coffee shops would herald a new era and open up opportunities for other companies looking to invest in Central Asia’s most populous country. There are currently no high street coffee shop chains in Uzbekistan. Uzbeks are also renowned for their love of sipping light green tea out of piala, a small handleless bowl, rather than drinking mugs of black coffee.

In an interview with the Russian-language Rambler website, Maxim Trubnikov, director of regional development and franchising at Shokoladnitsa, said he expected to open five shops in Uzbekistan and eight new shops in Kazakhstan.

“Currently, we are working with Georgia, Uzbekistan, negotiations are underway for the opening of the brand in Kazakhstan,” he said.

“I expect that we conclude the contracts in the coming months.”

Shokoladnitsa also owns the Coffee House and Wabi Sabi brands. It was one of the original coffee shop brands to expand across Russian, serving americanos and cappuccinos since 2000.

It already has franchises in Astana, Almaty, Yerevan and Baku. The coffee scene has become increasingly developed in Kazakhstan with the emergence of several coffee shop chains over the past few years, including Starbucks.

In Uzbekistan, a Bulletin correspondent said a coffee culture was slowly spreading through independent cafes in Tashkent but that tea was predominant.

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(News report from Issue No. 330, published on May 28 2017)

Uzbek banks to support cottage industries

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MAY 27 2017 (The Conway Bulletin) — Uzbekistan’s Shavkat Mirziyoyev ordered his government to set up a consortium of banks designed to support home-based businesses, media reported. The finance could be important in Uzbekistan where many businesses are based at home.

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(News report from Issue No. 330, published on May 28 2017)

Russia deploys missiles to Tajikistan

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MAY 25 2017 (The Conway Bulletin) — Russia deployed its Iskander ballistic missiles to Tajikistan for the first time for military exercises with the Tajik army, Russian media reported. It’s unclear how long Russia will maintain the Iskander missiles in Tajikistan. Earlier this month, the Taliban pushed towards the Afghan-Tajik border in its furthest drive north, alarming Tajikistan which deployed extra forces in its southern regions. Russia maintains a large military base in Tajikistan.

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(News report from Issue No. 330, published on May 28 2017)

Kazakhstan’s GDP will rise, says WB

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MAY 22 2017 (The Conway Bulletin) — In a new report, the World Bank said that it predicted economic growth in Kazakhstan of between 2% and 3% over the next three years. It said that GDP numbers showed improvements, despite the economic downturn, because of planned investments in the oil and gas sectors. The Kashagan and Tengizchevroil projects have both attracted major investments over the last few years which are coming through into Kazakh GDP growth now.

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(News report from Issue No. 330, published on May 28 2017)

IBA creditors criticise debt restructure deal in Azerbijan

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LONDON, MAY 23 2017 (The Conway Bulletin) — Azerbaijan’s reputation for economic competence was dealt another blow after creditors of the International Bank of Azerbaijan lined up to criticise a debt restructuring plan.

Senior officials unveiled the plan at a tense meeting with creditors in London, nearly two weeks after IBA failed to pay a scheduled repayment on a $100m loan. IBA now says that it has to restructure $3.3b of debt. This includes forcing creditors to take a 20% writedown.

In a statement after the meetings, Fitch the ratings agency said that the restructuring plan would effectively nationalise IBA’s debt without offering any essential structural reforms.

“The Negative Outlook reflects continued risks and uncertainty around the macroeconomic and financial sector adjustment under way,” it said.

IBA also said that it would sell off its subsidiaries in Russia and Georgia, IBA-Moscow and IBA-Georgia, as part of its restructuring plan.

IBA controls around 60% of Azerbaijan’s banking sector. The sector has been hit hard by the collapse in the price of oil which Azerbaijan relies on for income. This knocked around 50% off the value of the Azerbaijani manat in 2015/16 and forced the economy into a sharp recession.

Azerbaijani banks’ bad loans portfolios have grown forcing several to declare bankruptcy or merge.

The government has ploughed money into IBA to prevent it from defaulting, increasing its stake to 80% from 55%, and bought its bad debt.

Despite this state support, IBA still failed, embarrassing the government and its senior management.

Now, though, creditors have to decide whether to back the restructuring plan with a two-thirds majority needed to proceed. At its core the restructuring deal means that creditors will swap IBA debt for sovereign bonds, most at a 20% discount.

Many creditors were unimpressed.

Lutz Roehmeyer bonds at Landesbank Berlin Investment, including IBA debt, told Bloomberg News that he planned to vote against the deal.

Kazakhstan’s state pension fund is among the major creditors of IBA. Last week it emerged that it had bought $250m of IBA debt in 2014, shortly after the oil price had started to fall, drawing allegations of incompetence from MPs. The Kazakh Central Bank has opened an investigation into the purchase.

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(News report from Issue No. 330, published on May 28 2017)