From the flurry of articles during the visit of President Nazarbayev to the United States recently, one would think that Kazakhstan stands out as a beacon of hope in the economic quagmire of the rest of the former Soviet Union.


But ask any computer dealer in the republic and they will tell you that businesses in Russia have it easy. Doing business in this vast, remote republic is not for the weak-willed.


The biggest single risk is simply trying to do business in local currency. The head of the Kazakhstan Central Bank was recently fired after the disastrous introduction of the Kazakh tenge which has now entirely replaced the Russian ruble as the only form of legal tender in Kazakhstan. A recent decree instructed all enterprises to sell 50 percent of their hard-currency profits to the National Bank and banned all internal commerce in any currency other than the tenge.


The value of the Kazakh tenge against the U.S. dollar is almost impossible to predict, making business for computer dealers in local currency extraordinarily hard. Since its introduction on Nov. 15, its official value against the dollar has fallen from 4.68 tenge to the dollar at the first currency auction held on Nov. 19 to 11.51 on Feb. 8. Banks sell U.S. dollars at a much higher rate, and the average rate in February was around 12.79. A greater devaluation has been prevented by the National Bank of Kazakhstan, which regularly cancels the sessions of the National Inter-bank Currency Exchange and simply restricts the availability of currency.


Since the Central Bank of Russia announced the invalidation of all pre-1993 bank notes last year, Kazakhstan computer vendors have been forced to set their own exchange rates between the U.S. dollar and the ruble. Despite the fact that the ruble is no longer legal tender, the practice continues. Not only does each company set its own exchange rate, but exchange rates in other cities are much higher than in Almaty because of the poorer supply of currency.


Local companies are forced to include a currency conversion risk premium in the cost of their computers. Gennady Shakhmaev, deputy chief of Scientific and Technical Center at Almaty-based Olivetti dealer Alma Holding, says this can add up to 15 percent to the cost of a personal computer. The conversion risk is not only that there may be a sudden jump in the value of the dollar but also in case it proves impossible to change local currency within a reasonable period of time.


Shakhmaev says this is his number one headache. The usual situation is that a customer approaches him with an order. He has enough money in local currency to buy an Olivetti computer, he has cash and wants to pay on the spot. However, by the time he goes to convert his money, the tenge will have depreciated, sometimes wiping out his profit margin.


The other big hassle is shipment. Kazakhstan is land locked and is dependent mainly on its road and rail links with European Russia. The main source of supply of computers to Almaty are south-east Asia and Moscow, but virtually everything must come by rail via Moscow or St. Petersburg. Only Almaty-based ALSI has managed to reach the sales volumes needed to organize charter flights.


ALSI charters an IL-76 cargo plane every month and loads it completely. Each plane delivers enough parts from Singapore to assemble in Kazakhstan between 300 and 500 computers. Deputy general manager Murat Itbaev says only if the plane is fully loaded is it profitable. Before using air shipments, ALSI imported computers via Moscow. The expense and pain involved in this work leads Itbaev to say he does not even want to think about a return to rail shipment.





Robert Farish is the editor of Computer Business Russia.