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From the service sector to investing in new industries

What sectors is the business of Almaty now focusing on?

The coronavirus pandemic significantly affected the slowdown in the growth of the Almaty economy. This was largely reflected in remote work, problems with personnel management, broken sales and supply chains. On top of that, a lockdown played a role, which suspended the work of many SMEs. In addition, consumer behavior and habits began to change during the pandemic.

Now the economy of the megalopolis is formed by the sectors most affected by the corona crisis: retail, transport, accommodation and food services. According to the results of the first half of 2020, with a total GDP reduction of 1.8%, Almaty’s GRP fell by 5.5% – this is the lowest indicator among Kazakhstan’s regions. Although these industries have suffered the most, there is a noticeable plus: businesses in Almaty have started to move online faster than anyone else, creating new services and improving their own business processes.

Investment in the old way

General Director of DAMU Capital Management Murat Kastayev notes that in Almaty, promising industries for investment have not changed fundamentally during the pandemic. Interesting: trade (the city is the trade center of the country), tourism, services, processing of agricultural products and food production (including their export), e-Commerce of goods and services (the Almaty agglomeration, given its size and high incomes in the city, is the most capacious consumer market in the country).

Photo: Ophelia Zhakaeva

Economic columnist Sergey Domnin notes the potential in other industries as well. “Judging by the state of business activity and credit dynamics, the food and paper industries that depend on it, pharmaceuticals, metallurgy, including metal casting, the automotive industry, as well as the communications sector (especially the Internet) and construction continue to grow despite the crisis.”

However, the expert notes that most of these sectors are capital-intensive industries, the launch of which is associated not only with a large amount of investment, but also with obtaining numerous permits. It is better for small businesses to focus on various import substitution projects that are subsidized by regional and national support programs. We are talking about import substitution in such industries as the production of building materials, furniture, food products, engineering products and components. Domnin is convinced that the business model should be as simple as possible and focused on mass demand.

Deputy Chairman of the Board of Almaty Finance Zangar Salimbayev highlights one of the trends – the growth of the manufacturing industry. “We are talking about small-scale production. Now a lot of requests are coming for the “Economy of simple things” – entrepreneurs are ready to start production. Moreover, today is the time to engage in the production of what we particularly need, ” Salimbayev said. At the same time, the interlocutor notes that entrepreneurs themselves understand that there is no point in producing something global. Zangar gives an example: a Hyundai factory that opened in an industrial zone.

“Now it would be interesting to start production of components for cars produced at this plant. For example, seats, brake pads, trim, etc. Such cooperation with the plant will allow not only to sell products by manufacturers of components, but also to localize the automotive industry as much as possible,” Salimbayev says.

Almaty Finance has financed 24 projects totaling 6.5 billion tenge. These are mainly projects in the manufacturing industry, including woodworking, furniture and food processing. “What is interesting is that we are now receiving applications from the creative sector, which seems very promising. Today, there is a pool of applications for 1 billion tenge under consideration. These are projects in the field of payment systems, outsourcing of accounting and consulting services, etc.”, – the interlocutor shares.

Go for help

Ruzana Taranuha, Deputy Director of the Department of permits of the Qoldaý entrepreneurship center, notes that during the pandemic, business entities primarily thought about how to stay afloat and not lose their “comfort zone” in lockdown conditions.

At that time, a 24-hour business hotline was set up at the Qoldaý entrepreneurship center to help businesses.

“Consulting on the procedure for passing checkpoints, obtaining permits for movement around the city, assistance in monitoring prices for food, medical products, etc.,” she says. According to her, during the first month of the lockdown, many entrepreneurs took a time-out, hoping for a quick resolution of the situation, and some tried to hold their positions. Only a few, she said, have tried to update their business to the new format.

“Of course, convenience stores, medical and pharmaceutical activities, online education, online sales have become the most relevant types of entrepreneurship, and the delivery of food and goods has taken on a new level,” says Taranukha.

Photo: Ophelia Zhakaeva

She gives an example: Qoldaý was contacted by TBL Group LLP, which carries out project activities. During the pandemic, the company was reformatted to carry out a more relevant type of activity, namely pharmaceutical (opening a pharmacy). “We familiarized the entrepreneur with the sanitary rules and regulations that the premises must comply with – this is the minimum allowable square, location in the building, use of finishing materials, etc., accompanied when notifying state authorities and obtaining a state license,” says the interlocutor of “Kursiva”.

Today TBL Group LLP successfully carries out pharmaceutical activity and plans further development and expansion of business.

Business prospects

Sergey Domnin still believes that the development of both existing and new firms will be determined by several factors: the first and the main one is profitability. It should be so stable that even with short-term fluctuations in demand, the business direction should turn into a profit. The second is the proximity of the supply chain. The new reality, which is full of sudden and unpredictable restrictions, creates problems for those manufacturers whose supply chain is stretched across several countries or regions. The third factor is adaptability to the introduction of digital technologies. The economist notes that the latest crisis showed that problems arose not just in trade, but in those trading companies that had a weak online development.

Financial consultant Rasul Rysmambetov is convinced that after the quarantine, many business areas will return to normal, except for those that are engaged in trade, because they have seen how to reduce costs. “No less important than business is changing customer behavior. People are getting used to spending less, spending online, spending cashless; working remotely, working off-schedule, and working multiple jobs,” the source details. All these changes, he believes, are still temporary and may disappear within a year after the quarantine, but if it is profitable or economical, the changes will remain.

In general, the further successful development of the economy of Almaty directly depends on macroeconomic factors and the state of the economy of Kazakhstan as a whole. Obviously, now local authorities are trying to find and are quite close to the optimal balance between controlling the incidence of coronavirus and preserving the living space for business.

Partner material with kursiv.kz

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