CFO Forum: Rescuing Banks Without Corporate Governance, and Housing Policy

Yesterday another CFO Forum took place, organized by Eldar Abdrazakov. It is probably the only forum in Kazakhstan that raises more or less sensitive topics without undue populism. Such forums are certainly needed.

Many people are criticizing the Minister of National Economy, though entirely undeservedly: as our media like to do, they simply pulled his words out of context.

The Minister's answer was perfectly fair.

The first panel discussion was supposed to be about the external factors affecting Kazakhstan, yet 90 percent of it was devoted to the banking sector. It was just like the joke about the flea and the student taking a biology exam. But never mind. Everyone repeated the well-known truisms: that the roots of many of our problems go back to the fat years of the 2000s; that the key weakness of our banking system is the absence of proper corporate governance; that the National Bank is papering over the banking sector's problems; and so on. But the most interesting point is that what the Government and the National Bank are doing now does not rescue the banks. They are continuing to paper over the problem, and, as Rakhim Oshakbayev rightly noted, in five years we will be rescuing the banks again. What is needed is not to give banks money but to solve the problems of corporate governance. And that means not buying out problem assets but developing independent audit, tightening requirements for rating agencies, improving asset valuation, strengthening the accountability of management and boards of directors, and so on. Once governance is sound, then it will be possible to give money.

As Aidan Karibzhanov (probably one of the best speakers at the forum) remarked, it looks as though our officials rely not on McKinsey but on Macallan. That is indeed the case.

In my panel discussion, it turned out that all the speakers said in unison that we need to build 20 million square meters of housing a year. Yet nobody answered the key question: who is going to buy all of it? The representative of BI Group admitted that materials account for 60 percent of his cost price, and more than half of those are imported. That means that of every 1 tenge channeled into the construction industry to support the economy, 0.5 tenge will go to support the economies of neighboring countries.

Lyazzat Ibragimova acknowledged that there is large demand from low-income households, but they do not have the income to buy apartments. Only in Astana and Almaty can people afford to pay.

I will write a separate post on the housing sector later, but in short: the state should not build housing itself. It should build only infrastructure, create conditions for housing to be commissioned quickly, and help with cheap mortgages. If there are people on the waiting list for free housing, simply buy housing for them and hand it over, and that's it.

We are used to a Soviet mentality and think that the state will hand out housing to everyone for free. That does not exist and never will, which means that the volume of construction should be determined by the market, not by the state. We cannot live in mansions if our incomes do not allow it. To live in 25 square meters per person, you first have to earn them.

Almas Chukin rightly noted that the state is afraid of new, cheap technologies and has fixated on long-obsolete brick and concrete construction.

At the same time, Baiterek National Managing Holding JSC does not recognize this technology, even though in the US, Canada and many other countries, individual housing construction is mostly done using only frame technology, and in the US there are states where masonry houses are even banned in individual housing construction. In short, there are many questions that require answers.

The third panel discussion addressed the role of the CFO in the new reality. I will write a separate post about it sometime, since I worked in that position for many years.

But there was an interesting comparison by Zharas Akhmetov with a passage from Chekhov, about which, I think, he will write himself.

In short, thanks once again to the organizers. The forum is clearly more interesting than, for example, the Astana Economic Forum.