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'Ethical concerns' raised at Kazakhstan’s $63 billion Samruk-Kazyna Fund

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Akhmetzhan Yessimov, the chairman of Samruk-Kazyna, has been criticized by Kazakhstan’s public accounts committee over ethical issues at the $63 billion sovereign wealth fund.

Kazakhstan’s accounts committee said that the huge state-owned fund lacked transparency and its profitability was falling in real terms.

Samruk was established in 2008 to help develop the Kazakh economy but under Chairman Yessimov the fund has seen its earnings before tax, depreciation and amortisation (ebitda) margin fall from 18.7% in 2017 to 16.5%.

“There is still no transparency in procurement procedures, most of the holdings funds continue to be placed in a non-competitive way,” the committee’s report said. "Systemic problems have been identified, which are the reasons for the ineffective use of state resources and restraining the development of the market economy.”

The accounts committee also raised concerns about Samruk’s 144bn tenge ($350 million) of cash deposits with ATF Bank, which is run by Yessimov’s son-in-law Galimzhan Yessenov.

The committee highlighted that Samruk’s rules require it to hold cash only at financial institutions with an 'A' credit rating but ATF has a rating of 'B-', which is considered junk status by analysts.

A Samruk subsidiary, Kazmunaygas, holds a further 80bn tenge ($190m) in deposits at ATF, also in breach of credit rating requirements.

The committee noted that Samruk’s chairman, Yessimov, is the father-in-law of ATF’s boss Yessenov – a revelation that has raised concerns over governance and possible corruption at the giant sovereign wealth fund.

The cash deposits were among a number of “ethical issues” raised by the accounts committee in its annual assessment of state-owned enterprises.

According to the committee, Samruk claimed profits of 1,141 billion tenge ($2.6 billion) in 2018, up 534 billion tenge on the previous year. However, the committee said that this increase in profits was inflated by a non-cash change for subsidiaries consolidated into its accounts, an increase in oil prices and positive exchange rate movements.

“Without considering these factors, the factual profits even decreased,” the committee said. “This is confirmed by a significant deterioration in the EBITDA indicator with margins falling from 18.7% in 2017 to 16.5% in 2018.” The margin was 25.3% in 2014.

Yessimov has been under pressure from Kazakhstan’s government to increase the dividends paid out by Samruk. Following scrutiny of Samruk’s poor profitability and the illegal deposits at ATF Bank, Yessimov was forced in July to increase its dividend payments to 120bn tenge, 10 times more than in 2017.

Samruk has also agreed to help with Kazakhstan’s COVID response and has bought personal protective equipment, ambulances and ventilators.

Yessimov, 69, has held a number of prominent roles in Kazakhstan’s government including deputy prime minister and mayor of Almaty. He is a close ally of former President Nursultan Nazarbayev and it is thought that his wealth stems from his political connections.

In 2007, Yessimov helped his son-in-law, Galimzhan Yessenov finance the $120m acquisition of a fertilizer company called Kazphosphate.

Samruk’s assets include the Kazakh postal service, and rail network, the oil and gas producer Kazmunaigas and Air Astana. The fund was founded to mirror the success of Singapore’s sovereign wealth funds, Temasec and GIC, in developing national business champions.

 

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Coronavirus response: Almost €737 million to support Calabria, Liguria and Emilia Romagna regions in Italy

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The European Commission has approved the modification of three new EU Cohesion policy operational programmes in Italy allowing Calabria, Liguria and Emilia Romagna regions to redirect almost €737 million of cohesion policy funds to respond to the coronavirus pandemic by supporting the health and socio-economic sectors. Cohesion and Reforms Commissioner Elisa Ferreira (pictured) said: “I am very pleased to see that almost all Italian regions have taken advantage of the cohesion policy flexibility to redirect the funds to where they are most needed in these difficult times. This will significantly help the country to address the challenges posed by the coronavirus pandemic both in the short and the long run.”

Calabria's programme amendment (€500 million) will use the flexibility to strengthen the crisis response capacity of the health sector, support SMEs, boost employment and e-learning. This modification also includes a temporary increase in the EU co-financing rate to 100% for eligible actions, thus helping the region to overcome liquidity scarcity. Liguria (€46.9 million) will strengthen the health system, support SMEs with grants, working capital and additional guarantees via the national Guarantee Fund. Finally, in addition to a previous programme modification, Emilia Romagna's programme amendment (€190 million) will improve the response of the health sector, by providing personal protection and medical equipment and testing capacity. Modifying these three programmes is possible thanks to the exceptional flexibility provided under the Coronavirus Response Investment Initiative (CRII) and Coronavirus Response Investment Initiative Plus (CRII+), which allows Member States to use Cohesion policy funding to support the most exposed sectors to the pandemic. Further details are available here.

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EU and Australian leaders commit to strengthen cooperation on the coronavirus recovery, bilateral relations and global challenges

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On 26 November, European Commission President Ursula von der Leyen,European Council President Charles Michel, and Australia Prime Minister Scott Morrison (pictured), held a videoconference call. Building on the close relationship between the EU and Australia, which was formalized through a bilateral Framework Agreement in 2017, the leaders reconfirmed their determination to work together to tackle the coronavirus pandemic, including the development and provision of affordable vaccines and the support of the World Health Organization.

They committed to step up co-operation on the post-pandemic socio-economic recovery, tackling the urgent challenge of climate change and accelerating the digital transformation. The leaders noted good progress in the ongoing negotiations for an EU-Australia Trade Agreement. They also discussed international developments including in Asia and the Pacific as well as co-operation in international organizations. The leaders also recognized the importance of further engaging with ASEAN. More information is available on the joint press release, on the dedicated factsheet on the EU-Australia relations and on the website of the EU Delegation in Canberra.

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Commission announces winners of 2020 European Social Innovation Competition

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On 26 November, the Commission announced the winners of the 2020 European Social Innovation Competition, a challenge prize run across all EU countries and Horizon 2020 associated countries calling on innovative solutions to problems affecting our society. The three projects, selected for addressing this year's challenge ‘reimagine fashion' in the best way, will receive a prize of €50,000 each. The winning participants are the following: a Belgian start-up that helps simplify the process of reusing and recycling textiles, resortecs®; a Croatian digital platform that enables users to wear outfits in augmented reality, Snake; and a Romanian legal support mechanism for craftspeople and designers, WhyWeCraft: Cultural Sustainability in Fashion.

In addition, every year the jury awards an Impact Prize to one of the participants who reached the semi-finals in the previous year's competition, based on results that the project achieved over the past twelve months. The 2020 winner is Empower, a company that adopted a new technology to enable circular economy, by allowing the deposit and collection of plastic waste for financial reward. More information on the competition here.

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