Industry Pioneers

What has been your comparative advantage over your competitors and the key driver of Galaksi’s success over the years?

The first reason for our success in Kazakhstan is that we were the first company in the non-energy sector investing in Kazakhstan. We opened our pipe factory in 1997 at a time when people were trying to sell their properties to enter other countries. We were the first company to produce plastic pipes, aluminum profile production, UPVC windows, and, in 2012, insulated glass chemicals. This year, despite the crisis we were the first company to produce window and door accessories in Kazakhstan. We have been pioneers, which means we have helped create new sectors for Kazakhstan. If we did not believe in Kazakhstan and the vision of the government, we would not invest. An important issue is that we have replaced imports by producing inside the country. The other area that we have changed is the quality of local production, although this has been hard because construction companies and decision-makers in the construction sector still have doubts about the quality of local production. We extensively promote “made in Kazakhstan” to change the negative perceptions about local production.

What can be done to reverse the perception of Kazakhstan producing cheaper and lower quality products?

It is not easy because European brands always have the advantage. This is not a coincidence because when it comes to our sector, for example, the windows, doors, and plastics sector, German companies have a large advantage because everyone believes Germans are the best. There are two sides: first, the Germans are indeed doing a great job and we respect them. Second, there are problems with the local production mentality in general. As a foreign investor we stand between these two issues. We are a local producer and try to build up to international standards for windows, doors, and facades. We work hard on this but are not German and do not have German employees to make these products. We have local employees and the results are truly great when we compare our sector to other countries. We are the only local producer that produces according to international standards.

What are Galaksi’s expansion plans?

In 2016 we started exporting to Kyrgyzstan, Tajikistan, Mongolia, Afghanistan, and Azerbaijan. Our business model is B2B and we try to find stable partners. We are still working on expanding our export market in the Eurasian region. Despite the crisis, in 2016 we invested in the production of window and door accessories in Almaty. It is the first and only factory that produces window and door accessories in Kazakhstan and is a great example of import replacement for the economy. Every raw material needed for accessories is locally present. Before our investment, Kazakhstan was exporting raw materials and importing finished products; but now everything is produced in Kazakhstan.

How has it been conducting business in Kazakhstan in the last few years?

Since the end of 2014, the country’s economy has been turbulent and every sector in the country has had very hard times. In the middle of 2016, our economy started to stabilize. The economy stabilized a little but not quite enough, which is better than instability in a bad economy. 2015 also saw great problems with the tenge. When the central bank started free floating the tenge the situation became difficult. For about four or five months there were times when the exchange, banks, and central bank all had different exchange rates in one day. For this reason, we prefer to have a stabilized bad economy than volatility. We are still in the midst of a crisis; however, this time we all know this is the worst crisis in our history and therefore must take care of our business, households, and operations.

How would you welcome more assistance from the government to develop the manufacturing sector?

The government is doing a great job to develop the investment climate in Kazakhstan, and we also have good relations with the Minster of Investment and Development when it comes to promoting investment in Kazakhstan. I see very good intentions on the government’s side to make something good for the country and attract more foreign investors. This crisis showed that Kazakhstan cannot completely depend on oil. The government realizes this and wants to attract more investors, especially in medium-sized real industrial sectors other than oil and mining. The President is urging the government to change its regulations and develop an investment climate with more investors, and he is putting in place performance criteria for all these items. One of the key opportunities for this country is producing goods for which it already has raw materials. Despite all these positive steps, there are still some problems with infrastructure and regulations. Many investors suffer from the same infrastructure issue; for example, we have a plot of land in an industrial zone in Brunday Iliski Raion, which we bought in July 2014 and are still waiting for electricity to start our investment there. We hope to have electricity there by the end of 2017. Another issue is that investors cannot buy land in free and special economic zones. A three-year lease contract does not provide enough time for investors to start in free and special economic zones. The government should consider changing the regulation surrounding free and special economic zones and make it more attractive and less risky for investors.