Page 50 - bneMag Dec22

50 I Special Report bne December 2022
Other international retail companies are also being pulled in. UEA investor Majid Al Futtaim brought in the
French retail franchise Carrefour to Tashkent in December 2020. Al Futtaim operates franchised Carrefour stores
in 17 countries and already has tried
to launched the brand in Kazakhstan but closed its one hyperstore after a year and half in 2019 due to strong
local competition, EastFruit reports. Russian discount store Fix Price has also already come and gone after its attempt to enter the Uzbek market failed.
Magnum Cash & Carry, the largest trade and retail chain in Kazakhstan, has also announced plans to enter the Uzbek market.
Recently the French chain B1 that belongs to the Shiver group entered the market with a few stores.
Xalq Retail was set up by a group of international private investors and currently there are 12 shareholders that clubbed together to raise the initial capital to launch the chain. Now two years old, the company is currently
in talks with leading international venture funds to raise a second round of financing to expand the chain. The ambition is to have 2,000 stores across all Central Asia in the next five years and become a retail supermarket powerhouse in Eurasia.
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Fertile ground for new business
Uzbekistan is going through a major transformation since President Shavkat Mirziyoyev took over in 2016 and introduced a raft of pro-business reforms, opening the country up to international investment. Despite huge progress as those changes started to kick in around 2018, the economy is still stepping off square one as it begins what should be several decades of fast catch-up growth.
There are still many problems,
but Alexander Zaitsev, Xalq’s chief commercial officer, says there is no oligarch class and that the country
is a nation of traders with a tradition that stretches back to Alexander the Great and Emperor Tamerlane. The new government is pro-business
and all power remains in the hands of the president, who has yet to put through any political reforms, but the business reforms are well in hand.
“It is good to be connected in Uzbekistan, but it is not good to be corrupted,” says Zaitsev commenting on the realities of this country in the midst of transition. There is still a powerful elite that can interfere in business, targeting the most attractive, cash-generating assets, but retail
is low on their list of priorities.
“Retail is just too much work. It's a high turnover, low margin business.
You have to fight for each quarter of a percent growth in revenues. The elite are more interested in the softer targets,” says Zaitsev.
“At the same time, the whole economy is being lifted. I’m sincere when I say we are on a mission to establish a business that is based on entrepreneurism and hard work. We are in the tax system and pay our taxes, which causes problems with landlords sometimes. But we want to be a model business that works for the betterment of the country. That is why it’s Xalq Retail, the People’s Retail, not Elite Retail or something else like that,” says Zaitsev.
Zaitsev argues that Uzbekistan’s fast growth – after dipping during the coronavirus (COVID) pandemic Uzbekistan’s GDP growth remains at around 6% a year – means all businesses are being lifted at once.
“It's the same in all Emerging Markets: while you are small you are ignored, but once you get big then the issues
of pressure will be on the table... The powerful will start to attack the trophy assets like real estate objects, but by that time the economy will have grown and a solid layer of entrepreneurs will have emerged that are big enough to be able to push back... It is also one
of the reasons we are reaching out to international investors,” says Zaitsev.
Russia went through an identical transformation. In the early 90s it was impossible to be a minority investor in a major Russian company, as your shareholder rights were ignored. But once the companies became large enough to IPO on an international exchange the management rapidly cleaned up their act and introduced tough corporate governance protections in order to boost their valuations. Uzbekistan is still a long way from that point, but after Russia blazed the trail the path to follow is pretty clear to most business leaders.
Zaitsev cut his teeth in the Russian retail market, but despite the relevance of that experience, he is also quick