Good morning ladies and gentlemen.

Welcome to the 8th International Risk Management Conference.

There have been many important events since our conference last year, which will probably come up in our discussions.

After suffering a devastating earthquake and tsunami, Japan has almost fully recovered economically from the domestic situation, but has now received another major blow, this time from last year’s flood in Thailand. I think it’s no exaggeration to say that the flood in Thailand, where many of Japan’s industrial giants have assembly plants, caused the Land of the Rising Sun as much economic damage as the tragic events within the country.

But European countries and their sovereign debt crisis are still at the center of attention of international rating agencies and the global community. Today, against the background of Italy’s obvious recovery, sovereign debts of Greece and Spain are making investors uneasy.

If you’ll forgive me for quoting myself, let me remind you that a year ago in this same hall I spoke of how future generations of Europeans will be worse off economically than today’s generation. I wish I were wrong in giving such a negative forecast, but there is no escape from reality.

However, for the sake of fairness, let me make an important qualification. The standard of living in Europe will decline, but not so much that Europe will no longer be one of the most attractive places to live on our planet. And no matter how much regional TV channels try to revive the myth of the “stagnating West” with their talk of high unemployment and deteriorating social support in Europe, we are unlikely to see migrant workers from Spain and Greece flocking to Astana, Moscow or Beijing looking for work in our century.

In 2011, developing countries, including the BRICS countries, i.e., Brazil, Russia, India and China, and South Africa, which recently joined this group of four, were once again the driving force of global economic growth.

I think that regarding this bloc as nothing more than a clever catchphrase of Goldman Sachs analysts is a thing of the past. The only thing that really unites these countries is this acronym.

The recent meeting of leaders of the BRIC countries in Delhi proved once again that the only guaranteed and predictable result of these forums is that there will be no result.

Each of these countries wants to be on friendly terms with its partners in the bloc and some of them have succeeded in this; at least they’ve signed major contracts, and the flow of trade is growing. However, they have never reached a consensus, and I’m afraid they won’t in the near future.

And while it’s widely accepted that the BRICS are the driving force of the global economy, the BRICS have their own internal driving force, i.e., China.

Today, China trades and cooperates less with its BRICS partners than with the U.S., although rivalry between the U.S. and China is already shifting to the political level. Chinese economists have assessed the fundamentally different political and economic prospects of the U.S. and China and have already openly declared the superiority of their political system over the Western one. Whereas the U.S. regards its democratic system as a goal in itself, China sees its present-day management model as means of achieving even loftier national goals, including the eradication of poverty and strengthening its international influence.

Today, all BRICS countries are striving not only to eradicate poverty, but also to achieve prosperity using different socio-economic management models. For many, the Chinese model seems more preferable. I don’t see it as socialism with a Chinese face, as Comrade Deng Xiaoping once called it, but as a gigantic pyramid of state corporate capitalism. In this case, the Communist Party of China is a kind of holding at the top of the pyramid, while the Politburo of the CPC diligently fulfills its duties as a kind of Board of Directors managing the entire system through an enormous network of subsidiaries, i.e., local Part bodies.

As a comparison, Russia also supposedly has its own ruling party – United Russia – but its influence is not as great, and this influence only comes to the foreground during elections. There is no cabal of Russian party bosses as there is in China. Today’s China is not yesterday’s Soviet Union. Its economy is an integral part of the global economy, and Chinese exports fill all world markets, which the Soviet Union could not even dream of. China’s foreign currency reserves of three trillion dollars make it far more powerful and influential in reality than Russia’s vast but fortunately always dormant nuclear arsenal, which it inherited from the former Soviet Union. As a result, the Chinese management model has not only enabled China to achieve international influence, but also to attract a huge number of fervent admirers in other developing countries, including BRICS countries.

Speaking of Russia, we see a fast-growing middle class becoming increasingly impatient, angry and disillusioned with the bureaucratic inefficiency of government authorities. For all this, however, the Russian middle class still looks to the West with admiration, not China. Many Russians are dissatisfied with the pace of Russia’s democratic development, but at the same time they have far more influence on authority than China’s middle class, which is content with the situation in the country. China’s BRICS neighbors are still the “supporting cast”. In my view, in the next few years, the political and economic prospects of the duel between the Chinese state corporate model and the Western liberal democratic one will be at the center of attention of political scientists and risk managers. These prospects have special significance for us, as Kazakhstanis living “next door” to China.

Against the background of high oil and metal prices, our undiversified natural resource-based economy is looking pretty good. The favorable foreign trade situation still hides the many shortcomings of our financial sector.

One of them is the almost inoperative Kazakhstan Stock Exchange with its meager trading volumes.

The so-called National IPO program is starting in Kazakhstan this year, under which ordinary citizens will be invited to invest money in shares of state-owned companies. Millions of tenge from the budget are being spent on programs to increase financial literacy of the public and on informing potential investors of the upcoming placement. Hypothetically, the National IPO could result in future non-professional investors wanting to lock in their profit being forced to set foot on the slippery slope of stock market speculation, where they will almost certainly suffer defeat, which will inevitably lead to disillusionment with the whole idea.

In my opinion, in order to prevent this from happening, participants in the National IPO program must start learning to pay quarterly dividends now. In this case, future non-professional investors will not acquire the extremely dangerous habit of tracking quotations daily on TV or the Internet with a validol (a sedative) under their tongue, since when the value of shares in their portfolio drops, investors will know that they will be paid decent dividends at the end of the quarter. Retail investors themselves will choose this kind of company and stay with it for may years. Thus, the risks of public discontent with the Government appearing when share values are volatile are reduced. In addition, claims about bonuses and rewards are not usually filed against the senior management of a corporation that is not only stable and profitable, but that also regularly pays dividends.

When we invest funds in public companies whose shares are traded on world markets, we are always attracted to their practice of paying quarterly dividends. We have shares in our portfolio that have already paid dividends for 36 quarters in a row! And although the value of this company’s shares experienced highs and lows during these years, we still got our dividends without fail. What local company can boast of caring so much about its shareholders?

While the stock market remains in a state of suspended animation, at the end of last year, the combined loan portfolio of all 38 of Kazakhstan’s banks grew by 16%. This lived up to our predictions that smaller banks would show the most dynamic growth in lending. For example, the portfolio of the top ten banks increased 14%, whereas the average portfolio of banks outside this group showed growth of 32%.

It seems to me that the time of huge, slow-moving, bureaucratic monster banks has passed. While large banks are clearing bad loans from their portfolios and waiting for their distressed asset fund to start earning, while simultaneously getting into public skirmishes with each other, small banks are lending, growing and prospering. In addition, second- and third-echelon banks are far more profitable than the players in the top ten.

I personally prefer medium and small banks to large ones, not only as a professional investor, but also as a customer. There are no lineups in them, or an imperious attitude to your million-dollar or even ten-million-dollar project, and their lawyers don’t impose initially crippling terms on you ad give you room to maneuver.

The curse of resources dampens the enthusiasm of large banks, and lobbying power and protection from above kill a customer-oriented approach in banks and makes social gains impossible for employees.

In contrast to the banking sector, the insurance sector in Kazakhstan is surviving the aftermath of the global economic crisis more successfully Risk management specialists assume that insurance companies continue to earn regardless of the market situation. However, the republic’s insurance sector is facing another serious problem - the public’s complete ignorance of insurance.

The percentage of people who have voluntarily insured their homes against fires and earthquakes without being forced by their bank is miniscule. As in many post-Soviet countries, the population of Kazakhstan is used to counting on government aid in the event of any large-scale disaster.

This government paternalism towards its citizens, where assistance is provided to one and all, discourages the few people who take a responsible attitude to risk management and buy policies.

Only one kind of insurance is fairly widespread in Kazakhstan today – liability insurance for car owners – and it’s compulsory. When it was first introduced, car owners regarded it as another tax on vehicles. However, in recent years, we have all become convinced of the efficiency of this method of managing risk on the roads. Speaking of other kinds of insurance, I sometimes get so frustrated that Eurasia Insurance Company has helped manage catastrophic risks in Thailand, Romania, the U.S., Australia, Turkey and South Korea, and only our fellow citizens still rely mainly on luck, the Ministry of Emergency Situations and Government assistance. In case of disaster, instead of going to an insurance company and getting money, we start calling on TV and asking for help from the local government.

Discussions of the need for a systematic approach to this problem periodically spring up, but quickly die down. However, the probability of the occurrence of natural disasters and earthquakes doesn’t fade away, which is reflected in our country’s annual state budget.

I’m firmly convinced that government alone cannot and should not solve the problem of compensating material damage caused by natural disasters. Government assistance is very often not required in relations between the insurer and the insured. The function of government is to create fair rules of the game and prevent fraud by customers and monitor exact fulfillment of obligations by insurance companies. I’m convinced that Kazakhstan’s insurance sector is reliable enough to provide insurance against natural and manmade disasters.

Dear colleagues!

Allow me to declare the 8th International Risk Management Conference open. Thank you for your attention.