KZBlog

Two weeks ago, there was a government assembly and the Prime Minister presented new projects for the government. As Kazakhstan Today reports, Social Business Coportations were on the list. “Sara Arka” will be the first, to be established in Karaganda (because the akim there was on the ball, they say). By the end of the year, six more will be established in the regions.

These coporations were first brought up in the President’s Annual Message to the People in February of 2006:

2.7. Creation of regional “engines” of economic development through formation of regional corporations for social development and enterprise

Social-business corporations (SBC), sustainable business structures, could be formed in various regions and take over management of communal property, land, non-remunerative, but working businesses, that can be used for new business creation.

Each SBC will become a kind of a regional development institute and act as a holding company, managing state assets in a particular region.

Further on with management experience accumulation and increase of SBC capitalization level we could talk of extension of their “responsibility areas”, including exit to regional and international markets.

These corporations will pursue attraction of new projects, business development and cooperation extension.

As a result SBCs will become big employers and “engines” of the country’s development.
from KazPravda

And two weeks ago, the President criticized the government for not realizing his vision yet (among other things).

The idea is that these coporations will solve social problems in the regions. All well and good. Traditionally, social entreapeneurships do things like build cheap computers to sell to students in developing countries (re: MIT) or come up with simplified drug regimes for AIDS patients, or other solutions to social problems. They run at a profit, unlike NGOs or development organizations, and this is believed to be good because they are sustainable. An NGO that provides free services will some day go out of business; a business that provides services at an affordable rate can go on forever.

However, these SBC’s will be different. One odd thing that struck me was that no one seemed to be too worried about the social end of things. I didn’t see announcements of the mechanisms by which these coporations would achieve social or charitable ends, regulations on what the companies could do with their money, a list of pressing projects and issues, plans to confer with the UNDP or Oxfam.

The reason for this is that these SBC’s will not work in the social area at all. They will work more like funds or holding companies, which the President (and others) has been criticizing left and right. SBCs will receive state property which they will then capitalize on—by leasing it or taking profits from it. With this money, they will invest in projects (not social projects mind, but high-tech projects in line with the Industrial-Innovation Program). With the profits from that, they will fulfill responsibilities typically carried out by the province governments: paying pensions and student grants, funding public services, etc.

There are a number of odd things here: What’s with the middleman? Why not give the provinical governments the power to capitalize on state resources and get the income themselves? All I see these SBC’s adding to the equation are mechanisms for making very rich coporations and I wonder if that will attract socially-minded development professionals or powerful businessmen who will look to enter international business (as the President promises), make millions on venture funds, and appoint themselves salaries of 365 million dollars a month!

Also odd: As the President says, and the PM confirmed, these corporations will be given public resources to use to raise capital—things like land, roads, railraods, natural resource deposits! First of all, this is unprecendented in the new ‘market economy’ Kazakhstan. Everything has been privatized except resources deemed to be of strategic significance—large oil deposits, the road between Almaty and Astana, etc. Will the government give up these strategic resources too? Or will they buy back already privately owned resources? Only to give them to a coporation that they expect to once again lease that resource? Once again, a mechanism to make these SBCs lots of money and remove one layer of control.

It’s not a bad idea to try to use otherwise unused resources and try to make some money off of them, and then use that money to pay for underfunded social services. It’s just depressing to see so much effort put into innovative ways to make money, not innovative ways to solve social problems. This also appears to be a step backwards toward a Soviet system, where the state controls public resources. Instead of privatizing these resources, they are being handed over to state entities. Now, the goal is social development, and private coporations are not generally interested in paying pensions—nor can they legitimately be asked to be (though there has been some success in requiring foreign companies to build roads, schools, and clinics for towns in which they work as a condition of their right to work in Kazakhstan). So some measure of state control is required. On the other hand, to create these new entitites seems a bit odd instead of restructuring the legal and economic regulations to allow local governments to manage these resources directly. Especially when other institutions that resemble these SBC’s have not been recieiving glowing praise. The Innovation Fund and the Development Bank (both of which are designed to fund scientific and social, respectively, projects) have yet to hit their stride. Neither has failed, but the model has not been well tested in Kazakhstan yet and maybe it should be before 6 more similar entitites are created—of course, this is the plague of governments, to try to create magic bullets. Kazyna and Samruk, as I already mentioned, have been criticized by the President for being inefficient and enriching primarily their own staff. Local NGOs have indicated that Kazyna has no sense of direction and thus is not a desirable partner yet. Maybe we should wait until they do find a sense of direction and then send some of their management to create these new SBCs.

In the end, sadly, one has to wonder who figured out how to make a profit off of this and one hopes the KNB or the Agency for Financial Crimes is already developing methods to investigate and evaluate these SBCs.