Kazakhstan 2012 | ECONOMY | VIP INTERVIEW

TBY talks to Nurlan Smagulov, President of Astana Group, on the evolution of the group, livestock activities, and the automotive sector.

Astana Group was first created by the establishment of Astana Motors in 1992. What have been the corner stones of your group's evolution over the past 20 years?

The group was established in 1992 with Astana Motors right after the collapse of the Soviet Union. The country was devastated and there was a deficit of all consumer goods. We were the first to import Japanese car brands such as Toyota, Nissan, and Subaru, and worked with well-known Japanese trading houses such as Nissho Iwai and Sojitz Corporation. Our mission was to create a civilized auto retail market in Kazakhstan. In 1996, when the privatization process started, we started buying silos, milling complexes, and pasta factories. We invested by bringing in new equipment, and as of today we are the leaders in the production of pasta and flour, exporting our products to close to 10 countries. We are also entering into the livestock breeding business. We imported 400 head of Aberdeen Angus breed calves from Australia. We will participate in another auction in Australia to purchase 2,000 more calves from Adelaide, one of the biggest auctions in the livestock industry. We have plans to develop the livestock breeding business into a fully fledged operation and become a source of quality beef in the region.

How do you see your livestock activities developing in the medium run?

My vision is that ultimately we want to create a system of quality livestock breeding to increase meat production in our country. By doing this, in five years time we will be exporting beef to neighboring countries, especially to Russia, which is the best meat export destination considering its annual meat import potential. Our export focus on livestock production will differ from our grain export business. While the latter targets countries in Central Asia, the former will concentrate mainly on the Russian market. A small share of livestock production will be dedicated to halal meat, targeting countries in the Middle East and Gulf region. Our livestock base is very conveniently located 50 kilometers from the Russian border in the Kostanay oblast. This location is very convenient in terms of logistics.

“We are shifting from being just an import business to a more production-focused one."

Where do you see more potential as far as non-extractive industries are concerned?

We are importing cattle from Australia, and we will also be bringing in stud bulls from North Dakota. The reason behind our decision to do this is a world practice that we chose to follow, whereby a breed can be improved through the introduction of different blood lines. We have plans to go to North Dakota in order to develop Kazakhstan's livestock breeding business and bring it up to the standards of Australia, Argentina, and Brazil. We have to pick the best breeds and methods employed around the world. In Kazakhstan we have a local breed called “Kazakhstanskaya Belogolovaya" which can gain 600-700 grams in weight per day, whereas the Aberdeen Angus, which we will import, gains up to a kilogram per day. This converts into economics in terms of cost of production, while the quality of the meat is better than existing local standards. By importing this breed we are entering into the premium segment and potentially will supply chilled beef, for which the demand is high in Russia, as well as deep-frozen meat. While doing this we benefit from the expertise of an Australian consulting company. Everything needs to be right from the start. There will be an Australian family moving to our premises in Kostanay to work with the cattle and develop this business.

Astana Motors has a 16% share in the new automobile market. How is the sector developing?

In 2007 we reached our peak, with 11,000 cars sold. Before that, every year we doubled our sales. In 3Q2007 we faced the mortgage crunch in the US, which affected the Kazakhstani economy and our sales dropped drastically. In 2010 we experienced a historical low, with only 2,000 units sold. During this downshift we incurred $30 million in losses. Over this period we learned how to survive such downturns by focusing on spare parts, services, and cost efficiencies. As external macroeconomic factors improved our sales also went up. In 2011 we sold 6,200 units, with higher profitability than when we sold 11,000 units. Thanks to the crisis we learned how to conduct our business more profitably. Our target for 2012 is to double and pass the levels for 2011, which will exceed our pre-crisis levels. In 2011 we launched an assembly plant for Hyundai commercial vehicles. We decided that this is a very interesting area for us. Hyundai Motor Company is a very strong company and brand worldwide. Locally assembled trucks will be sold in Kazakhstan and within the Customs Union. It is unprecedented in our history that now we export trucks assembled in Kazakhstan to Belarus. Hyundai is also considering supplying the Azerbaijani market from Kazakhstan, with possible exports to Russia as well. All this is happening because of the Customs Union. In April 2012 we will begin to assemble buses, which is a new area for our business. We are shifting from being just an import business to a more production-focused one. Within the assembly business we are not only importing, but also looking for local suppliers for spare parts, such as accumulators. Of course, we will not be building engines in 10 years, but one should not forget that this is where South Korea started out 40 years ago. Our Korean partners are advising us that if we do not start from somewhere, we will not navigate away from our dependence on the extractive industries.

How do you assess the current state of demand for retail space in Kazakhstan?

Being involved in the automotive sector and then having grain in our portfolio, we had time to expand our business into other niches as the Kazakhstani market is small. We saw that Kazakhstan lacked quality retail space and shopping malls. Following our philosophy of being the most cutting-edge company of our type in the country, we invited leading foreign architects to design retail locations and support us during the initial stage of managing our shopping centers. Today, the supply of quality conceptual retail space differs in Kazakhstan from region to region. In Astana there is a surplus of shopping areas; however, if you look at other regions there is a deficit of retail space, as purchasing power is still low. We want to meet and even anticipate the demand right across Kazakhstan. Therefore, we are building retail space across Kazakhstan, taking into account future increases in purchasing power. A measure that shows quality space per 1,000 inhabitants indicates that while there is 400 sqm of class A retail space for 1,000 people in Astana, in Almaty it is 120 sqm. Hence, we started the construction of a second Mega Center in Almaty. It will contain a number of restaurants—not of a food court type, but targeted facilities for the premium segment with gourmet tastes. Plus, the cyber zone will offer teenagers new entertainment options. And of course we will have new world brands entering the Kazakhstan market such as H&M, Marks & Spencer, Massimo Dutti, Forever 21, and GANT. In Q12012, Burger King will also open in MEGA Almaty.

© The Business Year - March 2012