Abacus sets up Kazakh joint venture

London investment bank and advisory firm Abacus Emerging Markets and Kazakhstan’s state-owned KazAgro National Management have created a joint venture to support foreign investment into the country’s agriculture.

The two parties signed a memorandum of understanding during president Nursultan Nazarbayev’s November visit to the UK to create Caspian Agri, a joint venture which will see Abacus drawing on its international experience to bridge the gap between foreign investors and local businesses.

Landlocked Kazakhstan has made a fresh push for direct foreign investment this year, after it was deeply hurt by the global commodities downturn and the weakening of the ruble. KazAgro said that transforming the country’s agriculture is vital to the government’s goal of becoming a top 30 developed country by 2050, as well as ensuring the future of Kazakhstan’s food security.

But investment is likely to be mostly about export – particularly of red meat – as Kazakhstan hopes to capitalise on its proximity to the European Union and China. Although the country is one of the world’s top ten wheat exporters, about two-thirds of the agricultural land is pastoral.

Caspian Agri could play a key role in importing new breeds, technologies and infrastructure. The country does not allow direct foreign ownership of farmland, but will lease parcels over 10-year periods, meaning investors in agriculture have to make operational plays.

The government has set up five breeding stations in the north, populated with thoroughbred US, Australian and Hungarian cattle. Douglas Townsend, honorary consul for Kazakhstan in Wales and a member of Caspian Agri’s advisory committee, told Agri Investor that he is actively looking into bringing Welsh and other British breeds of cattle and sheep to Kazakhstan, although the government is still seeking reassurances because of the UK’s history of BSE (“mad cow disease”) outbreaks, with an isolated case reported in Wales this October.

Caspian Agri will not only to consult on developing agricultural businesses, but also the infrastructure needed to support them.

The firm has experience in Australia, US, Europe and Middle Eastern markets, as well as with government-associated bodies. Last year they signed a memorandum of understanding with the Uzbek Poultry Association.

Abacus said that engaging an international advisor could reassure foreigners coming to operate in a country where corruption can still rear its head.

“Until we get data and transparency, the collection of information is key. There is a lot of capital going into the sector, as we have seen, but information is key to the investors of the business,” Abacus director David Ellis told Agri Investor.

But the new joint venture also means Kazakh agriculture could tap into markets that have not been fully exploited.

“Our strategy has always been connectivity. If you look at it from a Middle East perspective, that is also interesting as they need to ensure food security. Saudi Arabia has recently departed from its policy to increase domestic food security, and relies more on an external strategy of acquiring,” said Ellis. “Historically they have done that in Africa, which has proven very difficult because of smallholders, political risk and infrastructure shortcomings.”

Kazakhstan is 70 percent Muslim, and could adapt well to further investment from regions where banks follow sharia law.

“From the Gulf Cooperation Council perspective, they like investments to be sharia-compliant, and that is something that agriculture lends itself to extensively,” Ellis told Agri Investor.

Kazakhstan, which established  a $40 million development fund with Hungary to promote investment into its agriculture and food processing companies in April, has increased investment in the agricultural sector over the last two years. It hopes to capitalise on trade deals and its proximity to the European Union and China.