Domain: Private Sector Development

CASEF investment in Uzbekistan: Semurg Hotel in Bukhara, on the ancient Silk Road.

BACKGROUND:

In 2002 equity financing was a relatively new financing instrument in Central Asia. A few equity funds were operational at the time but they dealt only with big clients who required investments of not less than USD 500,000. Equity financing for smaller companies was not available until Central Asian Enterprsie Fund (CASEF) was established with the aim of catering for small and medium size enterprises in Central Asia.

In 2002 seco in partnership with USAID and IFC created an investment fund CASEF.  At the moment seco's contribution to the fund is USD 5 million, and additional sum of USD 700,000 was allocated by Switzerland as technical assistance to the project. In April 2005 CASEF’s newest investor, the Kazakh National Innovation Fund (NIF) allocated USD 2.058 million into CASEF, and the total fund's size became USD 11.4 million.

seco is a shareholder in 21 venture capital funds in 12 development and transition countries worldwide with a commitment of more than USD 130 million. The aim is to stimulate strong and sustainable growth and to speed up the integration of these countries into the world's economy.

About SEAF:

The project is implemented by Small Enterprsie Assistance Fund (SEAF), who is a world leader in investing in businesses underserved by traditional capital sources.

It is a commercial fund, which seeks to achieve long-term capital growth by making direct equity, equity-related, debt, and leasing investments in individual portfolio companies. By becoming a co-owner of a company the fund shares the risks and works together with the company's management to make the business profitable.

SEAF provides a combination of services to improve management techniques and practices, especially relating to financial control, cost accounting, quality control, new product development, marketing and promotion.

SEAF has significant experience in managing small and medium enterprise venture capital funds, having started in Poland in 1990, and is currently managing similar funds in Central and Eastern Europe, Latin America, China and the former Soviet Union.

SEAF considers investments of between USD 250,000 and USD 1.5 million to local companies that are export oriented and have great possibilities for growth. The priority areas are food processing, tourism, agribusiness, printing/graphics and franchising.

PROJECT DESCRIPTION:

The project's goal is to provide risk capital to local micro and small enterprises in Central Asia to promote economic development of entrepreneurship and to achieve commercially attractive results.

Awareness Raising
During the first stages of the project, CASEF was involved in the awareness raising campaign about equity financing possibilities in Central Asia. Through case studies and training CASEF taught local companies about the advantages of equity financing. Companies learned how they could get access to cash without collateral and allow for the growth of their business with CASEF as a co-owner.

CASEF experts teach local businessmen how to qualify for equity finance  and they analyse the market and estimate companies' potential, competition, and management style to consider whether equity financing is a suitable instrument.

Enterprise Financing
In Central Asia about 15 projects are considered by CASEF as potential investments, and a few have been already financed in Uzbekistan, Kazakhstan and Kyrgyzstan.

Currently, CASEF has five operating joint venture investments:

In Uzbekistan CASEF has invested nearly USD 1 million into a chain of regional hotels in Bukhara, Samarqand and other cities on the ancient Silk Road. Also in Uzbekistan, CASEF is partnering with an integrated fish farming joint venture on Lake Turdakul, near Navoi. CASEF has invested USD 300,000 in this fish farming and fish processing enterprise. A new joint venture with Business Bank was formed with USD 1 million of CASEF equity in May, 2004. The joint venture specializes in leasing machinery, and equipment to clients in the food processing, textile and business services sectors.

In Kapchugai, Kazakhstan CASEF has invested USD 568,000 to expand a fuel storage and distribution depot from its current level of 300 tons up to 10,000 tons of refined petroleum products.

In Kyrgyzstan, CASEF has provided USD 500,000 in equity capital to expand the distribution network of El Gas, a private liquid petroleum gas (LPG) distribution company based in the rural region of Caindy. LPG is one of the cleanest fossil fuels, used for cooking as well as auto fuel.

In Tajikistan CASEF continues to assess the opportunity to invest in a cotton gin factory in Khojand. The potential investment of up to USD 400,000 would extend the work of the successful IFC/seco “Sugd Agro Serv” project beyond farming and into the processing of raw cotton for export and domestic consumption.

The development of such funds as CASEF provides support to the financial sector in Central Asian countries. Equity financing competes with other financial instruments, thus providing enterprises with choices. On the other hand, the existence of equity funds such as CASEF, prepares the ground for strategic investors to supply them with information about the business environment in Central Asia. Local enterprises also become better prepared to approach foreign investors, and be able to meet their requirements and attract funding.

As a result of the successful business operations of portfolio companies, new jobs are created and new modern methods of effective management are introduced to local businessmen.

This page was last updated: August, 2005.