JEDDAH — The Silk-Way Growth Fund initiative’s purpose will be to co-invest with foreign investors in Kazakhstan and unlock growth potential in key sectors of the country supporting the current economic diversification process.
The initiative aims at playing a major role in attracting international equity funds and foreign direct investments to invest in Kazakhstani SMEs at the same time supporting local Entrepreneurship ecosystem.
SMEs play a vital role in the economy of Kazakhstan as they employ about 2.5 million population (32 % of the working population), contributing 25% to the nation’s GDP and representing more than 96% of all business enterprises.
The wholesale and retail trade accounts for 42% of total active SMEs in 2014, followed by other economic sectors including services and transportation at 27.9% and the agriculture sector at 18.2%.
The banking sector is a main source of funding, especially for working capital, for SMEs in Kazakhstan. Estimates suggest that banks currently lend to SMEs at annualized interest rates of 18% or more.
Banks and other financial intermediaries are reluctant to address the needs of SMEs because of high risks, like the absence of appropriate collateral coverage and mitigate these risks through higher interest rates.
The Silk-Way Growth Fund is targeting to provide the necessary financing gap created due to difficulty of accessing capital at sustainable market rates and the banking sub-sector’s lack of confidence in SME entrepreneurs.
The Fund will invest in high-growth Kazakhstanis industrial and manufacturing SMEs that enjoy competitive advantages and strong export potential and capacity. The Fund will help reviving the Silk Road on Kazakhstani territory.
DCP mandated ICD via its SME Platform as a strategic advisor to the initiative. ICD will also be considering investing into the Fund after finalization and approval of the full investment proposal.
CEO of ICD Khaled A-Aboodi said: “ICD SME Platform has been created with the main objective of supporting growth of SMEs that contribute to job generation, economic development, and stability in its 52 member countries. SME Platform’s active approach is to build Sharia-compliant investment management capacities through the creation of management platforms, strategic and operational advisory on deal structuring/investments and active management of its equity and quasi-equity portfolio across member countries”
N.A. Nazarbayev said: “We should significantly increase the share of small and medium-sized enterprises in the economic structure, bringing it to the level of moderately developed European countries. Then confront another crisis cycles will be easier. For every citizen of Kazakhstan should be possible to learn a new business, opening a new business or to expand its scope of activities.”
DCP – Dragon Capital Partners, created at the beginning of 2016, is an independent investment banking boutique with large scale of network.
DCP team of professionals has a strong track record in all aspects of the investment life cycle including deal origination, deal evaluation, due diligence and review, as well as deal structuring, negotiation and value creation on post-acquisition period.
DCP has strong relationship with major investors in CA region, and aims to seize the various investment opportunities arising within the CIS region. Partnership with local investors provides DCP an opportunity to create networks, alliances and relationships in both the private and government sectors across the CIS region. — SG
