SME Lending, Flat Structures, and Financing for Oilfield Services

Over the past week I attended several events: the Financial Congress, an HR forum, and a conference of oilfield services companies. I spoke at each of them. Here is a brief summary of what I said.

Financial Congress

I spoke about the problems of SME lending and about problem loans.

In short, the development of SME lending should focus on mass lending to micro and small businesses, using decision-making systems similar to those used in retail lending. This requires access to tax data, which will make it possible to make sound decisions quickly. Retail lending took off as soon as lenders were given access to pension contribution data. The same should happen with SMEs. In the future, a tax history will also help bring the economy out of the shadows, because entrepreneurs will understand that their creditworthiness depends on it.

On problem loans, there must be clear criteria for who is entitled to assistance and who is not. Assisting the population is a function that should remain with the state. The law must be enforced, and there should be no judicial arbitrariness. Such arbitrariness always creates false expectations that a debt can be written off, left unpaid, and so on. The faster problem loans are recovered, the fewer losses are shifted onto the shoulders of good borrowers, because any loss is eventually built into the cost of risk and affects the interest rate. Only low inflation, fair competition, and low risks can give us low rates.

HR Forum

There were a great many questions and discussions. It was a very lively and interesting forum. We discussed the difference between disruptors and transformers, how to motivate staff, how to begin change, and more.

Here are my main points on these questions.

Any transformation must be taken on by the chief executive. Without that, there will be no transformation, no matter which consultants are hired.

Disruptors set the direction of transformation for an entire industry. Tesla, Google, and Netflix are examples.

The environment in which teams and managers interact matters. Without the right environment, transformation is impossible.

The worst word in my vocabulary is "boss." There should be no bosses. There are managers, whose job is organization, motivation, vision, and decision-making. And there are performers and experts, who are the best at what they do. The future belongs to flat structures.

Corporate culture should be built so that any colleague can voice an opinion to any member of the team without fear. Transformation must go both top-down and bottom-up. Transformation is a continuous process.

Conference of Oilfield Services Companies

The conference was held in a question-and-answer format. There were many questions, but in brief: at the state level, we need to establish principles under which guarantees issued by consortia of Kazakhstani banks are accepted on a par with those of foreign banks. Not everyone has access to banks rated A/A-, and this restricts competition.

We need to develop alternative financing methods, such as supply chain finance, leasing, overdrafts, and so on.

Banks have enough dollar liquidity, at a cost comparable to that of foreign banks. However, dollar lending requires dollar-denominated contracts, and legislation restricts the conclusion of such contracts. This also puts local companies on a footing that is not quite equal to that of foreign contractors. I think all contractors should be allowed to sign contracts in foreign currency within the framework of production sharing agreements (PSAs).

There are also questions about taxes. Many PSAs are exempt from VAT and customs duties, yet when the same product or service is localized in Kazakhstan, it is taxed. This creates tax arbitrage that works against our companies. It needs to be addressed.

Overall, it is important for the economy to develop geological exploration while oil prices allow it. This will increase the workload of our domestic companies and help build up oil reserves. The age of oil is coming to an end, and in about 50 years only oil producers with low production costs will survive.