Financing Innovation March 25, 2004 Knowledge Economy Forum III Budapest, Hungary NATIONAL INNOVATION FUND KAZAKHSTAN.

Financing Innovation March 25, 2004

Knowledge Economy Forum IIIBudapest, Hungary

NATIONAL INNOVATION FUND

KAZAKHSTAN

Agenda

Republic of Kazakhstan National Innovation Fund Investment Strategy of the Fund

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Republic of Kazakhstan

Real GDP Growth Current account and foreigndirect investments

CA FDI

Industry is the main driver of GDP growth

33


Republic of Kazakhstan

Successfully managing transition to market economy:

Leading producer and exporter of natural resources,

including oil, gas and minerals.

Highest GDP growth among CIS and CEE countries

for the last three years.

Strong FDI inflows and FX reserves.

44


Challenges for the country

Lopsided extraction-oriented economy Weak integration into the global economy Technical and technological obsolescence

of enterprises Lack of efficient connection between

science and production Low expenditures on R&D

5


Kazakhstan adopted Innovative and Industrial Development Strategy for 2003-2015 aims to:

achieve sustainable development through diversification of economy

create favorable investment climate for manufacturing industries, including high-tech

foster further development of the financial sector

66


Strategy for 2003-2015

To address challenges the following institutions were established:

Kazakhstan Investment FundKazakhstan Investment Fund Export Insurance CorporationExport Insurance Corporation National Innovation FundNational Innovation Fund Center for Marketing and Analytical ResearchCenter for Marketing and Analytical Research Engineering and Technology Transfer CenterEngineering and Technology Transfer Center

7Development Institutions


Project Database

Financing of basic and

prediscovery research

Database of leading experts

At the stage of project expansion

Loans at project expansion stage

National Innovation Fund

Center of Engineering and Technological

transfer

Kazakhstan Investment Fund

National Academy of Science

Research institutes

Universities

Industrial and service enterprises

Private financial institutes and

investors

Kazakhstan Bank of Development

Creation of technopolises, techno parks and business incubators

Financing of applied R & D

Creation of venture funds

Financing of enterprises that realize investment projects

Science Fund

Assessment of investment potential of industries,

marketing

Patenting of innovations and engineering

Center of Marketing and Analytical

Research

8 Working together towards innovative and industrial

development



Joint Stock Company “National Innovation Fund” was established by the Government of RK on May 31, 2003 as one of the governmental instruments for:

stirring up innovation activity, attracting private capital in innovation process, developing high tech industry

9

Challenges – linking:

Finance

Science

Entrepreneurship

Industry

How we respond:

Provide capital

Retrieve, assess and advance projects to private investors

Deliver projects to the industry level

Finance R&D

10


Canada (1960s)

US (1950s)

Europe (1980s)

Israel (1992)

Malaysia (1984)

Singapore (1980s)

Australia (1970s)

Hong Kong (1980s)S.Korea (1980s)

Japan (1970s)

Kazakhstan

Russia (1993)2003

The development of institutes of venture financing in the world 11

Establishing Venture funds with private investors

Financing projects aimed to apply R&D results and transfer technology into industry

Building elements of innovation infrastructure

Applied R&D financing

International cooperationin technology transfer

Staff management

Achievingobjectives

12Achieving objectives


Venture FundsVenture Funds Investment projectsInvestment projectsElements of innovation Elements of innovation

infrastructureinfrastructureApplied R&DApplied R&D

financingfinancing

Investment directionsfor 2004-05

50% 35% 10% 5%

Investment Strategy1313


Investment strategy1414

Sources of investments:

Chartered capital,

Profits of the Fund,

Grants, awarded by international financial institutions and foreign governments

Investments of the Fund:

Investments at seed and start up stages of projects

Also grants to R & D


ManagementManagement

Access to capitalAccess to capital

Commercial Commercial productproduct

Private Private investorsinvestors

Equity Equity financifinanci

ngng

Major requirementsMajor requirements

Project is aimed to create new or advance existing product/technology

Project is commercially viable Minority interest of the Fund (up to 49% of chartered capital) Well defined time-horizon of investments Staged financing Qualified management

15

Project financing


seed start-up early expansion

Priority stages of financing for National Innovation Fund

exit

16Funding strategy

Development of innovative management in enterprises

Provision of access to capital for realization of innovative projects

Installation of innovation, structuring of technology market

Attraction of private equity into innovative activity

Equity financing

of innovation

Main conditions for investmentMain conditions for investment::

investment project in-line with industrial and innovative policy priorities of Kazakhstan

project to create new scientific product/service or innovate, install new technologies

project should be commercially viable (including market potential of innovation),

minority holding (not more than 49% of chartered capital), participation of the fund in management of the company that realizes the

project, well defined time-horizon of investments staged financing of the project.

17Investments into companies


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Innovation infrastructure

FinancialFinancialsupportsupport

IndustryIndustry

IdeasIdeas

ManagementManagement

Innovation

infrastructure

Main concentration for the FundMain concentration for the Fund

Management (including consulting: legal, financial etc) Selecting and financing ideas

Government Financing infrastructure: buildings, laboratories and

equipmentSpecial Economic Zones Tax IncentivesNATIONAL INNOVATION FUND

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R&D financing

commercial commercial potentialpotential

intellectual intellectual propertyproperty

new technologynew technology

time horizonstime horizons

R&D financing

Main requirementsMain requirements

Research and Development process should not exceed 18 months Product should have feasible competitive advantages Corresponding market must exist


Assessment of projects:

Stage I – internal assessment by Fund’s Investment Committee

Stage II – assessment by external independent experts (expert organizations) and Expert Committee of the Fund (unbiased and independent experts)

Risk management:

Private equity participation

Investment portfolio diversification

Upper Bounds (limitation) of investments

Qualified management

2020

Project Assessment


19,1%

12,3%

6,2%

6,2%7,4%7,4%

41,4%

Mechanical engineering

Metallurgy

Energy

Oil & Gas

Agriculture

Minerals

Other

2121

Proposals received

As of February, the Fund has received around 162 projects in terms of business proposals for a total of about $500 mln.

Proposals by industry (“other” includes industries with less than 5 projects each):


National geo-stationary satellite

On 7 January 2004 the Fund has signed an agreement of creation and provision of a telecommunication satellite with Russian Khrunichev State Research & Production Space Center

The Fund has created a daughter enterprise JSC “KAZSAT”. Its main task is financing of works and services for the creation of geostationary telecommunication satellite.

The total cost of the project is more than $65 mln.

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JSC “National Innovation Fund”

Thank you for your attention.

111, Gogol’ street, Almaty,

Republic of Kazakhstan Tel: +7 3272 78 05 09 Fax: +7 3272 78 05 71 E-mail: [email protected]


Financing Innovation March 25, 2004 Knowledge Economy Forum III Budapest, Hungary NATIONAL INNOVATION FUND KAZAKHSTAN.

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