TBY talks to Amangeldy Yelgonov, Director of Wirtgen Group, on transport infrastructure, and the road building sector.
TBY Wirtgen has been in Kazakhstan since 1998. How has your business evolved over the past 13 years?
AMANGELDY YELGONOV We entered Kazakhstan with a representative office in 1998. In 2001 we created Wirtgen Kazakhstan as a fully fledged company. The brand was already known among specialists, as the first road-construction machines came to Kazakhstan in the 1970s, but of course the majority of the machines were supplied at the end of the 1990s. At first it was difficult for us to grow our business, as there was a crisis, but now we are the market leader. The company produces road construction machinery and surface mining machines. The company is composed of four groups: Wirtgen, Vogele pavers, Hamm rollers, and Kleemann crushers. Vogele was established in the 19th century, but Wirtgen acquired the brand in 1994. We bought Hamm out in 1999, and Kleemann was bought five years ago. Now all the companies belong to the Wirtgen family. Currently, in Kazakhstan, we sell around 80-85% of the Wirtgen portfolio. Wirtgen machinery is first in the market globally and locally. We have 75% of the world road construction market. In Kazakhstan we dominate with a 90-95% share of the milling machinery sector. All of our machinery comes from Germany. Because the Kazakhstani market is small, we know our clients very well and our clients know us very well. We have our stocks and service facilities here in Almaty, and our branch office in Astana. All of our clients are private companies, working as contractors for government projects. Wirtgen machines are currently being used on the Western Europe-Western China road project.
How has Kazakhstan’s transport infrastructure developed since 1991?
In Soviet times Kazakhstan’s infrastructure was well developed, but due to the financial crisis in the 1990s it fell into disrepair. Since the 2000s, however, the situation has been improving. The government is working to develop the sector and has built good relations with contractors. In this regard, we face no legal challenges. Investments in road infrastructure could be higher, and we are hoping to see an increased focus on the sector in the coming years.
What is the cause of the lack of investment in the road network?
The country’s economy is not developed enough. Kazakhstan occupies a huge territory and its population is thinly spread. Due to this small population it is not possible to maintain the road network given current GDP levels. The main financing comes from the World Bank, the European Bank for Reconstruction and Development, and the Asian Development Bank. It is not the right time for the private sector to invest in the road network, as there is not enough traffic, meaning profits are low. The government is constructing a new toll road between Astana and Borovoe, and the ministry and government has plans to establish concession agreements.
To what extent do developments in Kazakhstan’s road network focus on increasing international connectivity?
The main mode of transport in Kazakhstan is road. The government, in that respect, focuses on the problem of roads, the main issues being in transit and domestic roads. The road network is developed to a satisfactory level, but the quality of the roads needs to be improved. New construction is limited, and 90% of the Western Europe-Western China route follows existing routes, which need to be restored and widened.
What are the busiest routes in Kazakhstan?
The busiest route is between China and Astana. The development of Atyrau and Aktau as oil capitals has not affected the road network as their means of transport is mainly pipelines and railways. In Soviet times the busiest route was from Almaty to Tashkent, and we are just getting close to the kind of volumes seen during those times. This increase is due to both passenger traffic and the transportation of goods. There are problems at customs, and if we solve these problems the volume can grow by 30%.
What innovations are you introducing to maintain your market share?
Our company is innovative in the sense that we use recycled material in manufacturing. It is the first company to do so. This is new technology. Not only does it bring down production costs, but it eases environmental concerns.
What about your operations in mining?
Our share in mining is relatively small for the moment, because the number of machines we offer are small. Yet, we have good relationships with the big companies. Our technology is new and our focus is on the extraction of resources without using explosives. We see room for growth in terms of our market share, yet the mining sector is very conservative and it is difficult to persuade top managers to change their technology. We are, however, working to change habits by offering our Wirtgen surface miners and Kleemann crushing and screening plants. We have recently delivered the biggest mobile crusher in our portfolio—a Kleemann—to Kazakh Aluminum.
Several underground resources have been brought into high production in Kazakhstan, such as uranium and phosphate. Which resources do you think require more investment?
All of the main international players are present in Kazakhstan, yet I see opportunity in the extraction of rare earth materials such as wolfram.
What is your economic outlook for 2011 and beyond?
Our business follows a cyclical pattern of five years. We are now on the up. The last crisis didn’t affect our business too much; we lost only 3-4% turnover, but due to increased government spending we were able to operate effectively and avoid any severe negative impacts. We are now at the top of the cycle, and are expecting to grow even more over the next three or four years. The Kazakhstani transportation sector will also continue its upward trend, yet it depends somewhat on the overall economy and commodity prices.
© The Business Year