RFCA: own model of development and the world experience

May 16. Kazpravda. Almaty

By Alevtina Donskih

RFCA: own model of development and the world experienceA new strategy for the Regional Financial Center of Almaty (RFCA), which has been already included in the interim rating of Global Financial Centers Index will be developed with regard to the goals on the rise of the country’s competitiveness.

Recently MPs expressed the idea of creating an international financial center in the capital. But it did not meet the approval in society. It rather brought up questions. And what do professionals think about this idea? Today director of the department for the development of RFCA and Islamic finance Darkhan Nurpeisov answers these and other questions.

– How do you assess the possibility of creating another financial center in the capital?

– Any sensible idea and project are viable only if there is a real need and a real opportunity to implement it. And I do not see such necessity. Thus, the concentration of financial flows and stock market participants in Astana as an international financial center will require significant efforts. The following key factors are necessary to declare the city a new financial center: the country and local conditions, climate, socioeconomic and legal conditions, as well as modern infrastructure, professional participants and many others. Altogether, this will require big financial resources from the national budget.

It should be noted that large cities are usually chosen as financial centers, for example, in United States it is New York City, in Australia – Sydney. And determining Almaty as the regional financial center is no accident: the city historically emerged as the only “gate” to financial system of Kazakhstan and there are a number of other circumstances in favor of Almaty as the financial center.

First, there is a significant concentration of various types of financial institutions, including those with participation of foreign capital. And in the volume of operations they are ahead of the capitals of neighboring states: Bishkek, Tashkent, Dushanbe, Ashgabad and Baku.

Secondly, the population of Almaty exceeds the population of other cities of Kazakhstan.

Third, the city has formed a relatively high investment potential primarily at the account of management companies, pension funds and banks.

Fourth, Almaty is favorably compared to major cities of neighboring states by the fact that there is a large number of people with high level of personal income – both foreign and Kazakh citizens who are of special interest as creditworthy consumers of financial services.

Fifth, despite some financial difficulties, Almaty remains an attractive place to live and rest in due to its natural beauty, and availability of quality service, especially in the field of telecommunications, catering and entertainment.

Sixth and no less important factor contributing to the development of Almaty as the regional financial center is the city’s proximity to the countries of the Silk Road. .

– RFCA was organized almost seven years ago. Does it meet the set goals?

– Seven years is a short period in comparison with that overcome by the world’s financial centers. The development of the city as the financial center requires considerable efforts from the state on the creation of favorable investment climate and business environment, fiscal regime, infrastructure and other critical conditions. It should be understood that RFCA is a complex mechanism, and the slightest lag of one of the links leads to improper development of the whole. The financial center must provide attractive environment for the players in this market. For comparison: Singapore is a combination of unique products and geographical position, it has a stabile and integrated legal and regulatory systems, preferential taxation and other targeted incentives to promote the development of certain sectors of the financial services.

The key factors of Dubai’s success were its steps to improve the well-being of the region. Dubai was the first center in the Middle East that has its own legal system, which exceeds in transparency and independence the legal systems of the region. Competitive advantage that led Dublin to success was the lowest (in the euro area as a whole) level of costs, coupled with low labor costs, a weak national currency, low tax rates and other factors. Common for all these examples of success are targeted actions and real and strong determination of the state in creating a financial center through the provision of support to market participants, the development of infrastructure and improvement of legislation. This condition is necessary to Kazakhstan as the country, interested in the success of the RFCA.

The necessary conditions for the development of RFCA (environmental, infrastructure and reputation) are long-term initiatives that should receive constant and continuous support for the creation of its strong foundation. One of the competitive advantages of RFCA is access to investments from Islamic countries. Kazakhstan was the first in the CIS and Central Asia to introduce a legislative framework for the development of Islamic finance, which creates conditions for formation of RFCA as Islamic financial hub in the Central Asian region. Much work has been done in the area of improving the legislation. In 2009, Kazakhstan adopted the law on the organization and activities of Islamic banks and Islamic finance. In 2011 also a law was adopted which authorized the issuance of state Islamic securities and expanded the list of issuers of corporate Islamic Bank.

Now we are working on improving the legislation, including the issues of Islamic insurance, Islamic banking and leasing. Positioning of RFCA as a regional center for Islamic financing will provide us with additional opportunities to receive a number of benefits among the countries of the region.

– Is there a general model of becoming a successful financial center or Almaty has its own preconditions and path of development?

– I think it’s too early to compare Almaty with cities- leaders of the financial centers. We still need to do a great job in key areas. It’s worth mentioning that the development of RFCA as a whole is consistent. Since its creation a number of reforms on the improvement and development of the financial center and the stock market has been carried out. In addition, in 2012, Almaty city was included in the interim Rating Global Financial Centres Index (GFCI 11.5) – the “List of prospective financial centers” in order to determine the level and place of RFCA on a global scale.

Launching the project of RFCA the legislators studied the experience of such financial centers as Dublin, Dubai, Singapore and others.

– As far as we know, initially there were discussions on the status of the financial center of Almaty – regional or international. What determined the choice?

– A well-known consulting firm – Boston Consulting Group (BCG) was involved in the development of strategic directions and phased action plan for the establishment of the center, the use of the achievements of global best practices, as well as for estimate of capacity of the market segments. Previously, this group took part in the launch of the financial centers of Singapore and Thailand. According to the report of BCG, it was recommended to position the financial center of Almaty as regional, not international. The substantiation for this recommendation was the fact that the center initially focused on attracting issuers and instruments from a certain region (Central Asia, Russia, Ukraine, and Belarus). Therefore, on the basis of recommendations of BCG interdepartmental working group it was decided to establish the regional financial center.

– What are the objectives and goals set by the state for further development of RFCA?

– In his state-of the nation address “New Decade – New Economic Growth – New Opportunities” of January 29, 2010 the head of state noted the need for the formation of domestic stock market as a regional center of Islamic banking with inclusion of Almaty in the top ten financial centers in Asia. In this regard, the Government approved the “Road Map for the development of Islamic finance in 2020.” Also, RFCA was assigned strategic tasks on Kazakhstan’s joining the thirty developed countries. They were announced by the President in the state-of-the- nation address of December 14, 2012 “Strategy” Kazakhstan-2050 “: New policy of the established state.”

In the near future, we plan to work out a new strategy for RFCA development in the context of improving the country’s competitiveness.