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Russian investment banking powerhouse Renaissance Capital is in the process of setting up the first full-service investment bank in Kazakhstan to capitalise on the strong growth and already sophisticated demand for debt.

Adel Kambar is the head of Renaissance Capital Group Central Asia and recently arrived in Almaty to oversee the operations there. Renaissance has had a representative office in Almaty for a several years now, but as with all the countries they cover - and a few it didn't cover until recently, like Africa - the bank is expanding rapidly in all directions. The Kazakh operation is now becoming a pan-Central Asian operation based in Almaty.

The bank is in the middle of applying for full investment banking service licences from the National Bank of Kazakhstan and intends to provide a full set of services to local banks and business, including: mergers and acquisitions, a brokerage, investment banking services, debt products, derivatives and research - in short, the whole nine yards.

Kambar admits that hiring staff will be a problem because, although Kazakhstan has perhaps the most developed banking system in all of Eastern Europe, the equity markets have never fully developed and so there is no investment banking tradition.

"It's amazing that you have a $100bn economy and total population of about 80m people in Central Asia, and yet there is not one proper investment bank in the entire region," says Kambar.

As with its move into Africa (click here), CEO Stephen Jennings intends to apply the same model that worked so well for him in Russia: bring in some international talent, seek out the best of the local talent and get the two to teach each other what they know best.

CEO Stephen Jennings

To begin with, the best business will be debt; Kazakhstan's banks and leading companies have already built up a lot of experience on the international debt markets and this small country has borrowed more than Turkey, at least three times its size.

"In Kazakhstan they have done it the other way round from Russia, where the equity came before debt," says Kambar.

While Kazakhstan boasts strong economic growth, liberal market-oriented reforms and a sophisticated banking sector, the equity markets got bypassed in all the progress of the last decade. The problem is that ownership of Kazakhstan's biggest companies has been very political, thanks to President Nursultan Nazarbayev's grip on power, and none of the owners were prepared to cede control of their assets by floating them on the stock market. As a result, liquidity has been thin, the market shallow and transparency non-existent.

But that's starting to change. The first Kazakh IPOs have begun appearing and the ballooning volumes of M&A and private equity investments are pushing the locals into bringing their business practices closer in line with those of the rest of the world.

"There is a lot of activity now. The private equity is not something that is immediately recognisable, as it involves big groups buying up small groups to add to their conglomerates, but things are starting to move very fast," says Kambar. "These investors need an exit and this is starting to push people at better corporate governance. People have only started to pitch the idea of an IPO to Kazakh owners recently."

Early doors

The attraction of Central Asia is that it's so clearly early days. While the Kazakh economy has roared ahead, fed by oil money, the other "Stans" have been slower to get going, but are also starting to move now.

President Nazarbayev has retained tight control over political power, but he had the courage to delegate a great deal of authority to a few reform-minded people in charge of things like the banking sector, which has resulted in rapid economic progress. As the economy matures, the incentive for more reform to underpin the burgeoning business has only grown stronger, and the upshot has been a virtuous circle of reform and investment.

The situation in neighbouring countries that would allow this cycle to start turning has been less favourable. Uzbekistan lives on its cotton production, which earns the country about $3bn a year in export revenues, as well as a few significant gold deposits. Kyrgyzstan controls the water in the region as the Tien Shan mountains make up most of it territory and, apart from the Kumtor gold mine, has virtually no natural resources at all.

Turkmenistan is home to the biggest gas deposits in the region and borders the Caspian Sea, but most oil deposits lie in the Azeri and Kazakh sectors of the sea. The country was run by the slightly mad Saparmurat Niyazov until December, but now could be opened up under the new president, Gurbanguly Berdymuhammedov. It's still to early to say, though.

"The Kazakhs have done an amazing job with the regulations and reforms, but the entire region is interesting," says Kambar. "However, all the countries are at different stages of development and growth in all of them is only just getting underway."

Yet the greatest promise lies in Kazakhstan thanks to its oil riches. The government is targeting 3.5m barrels of oil production a day by 2015, which would make Kazakhstan a bigger oil producer than any of the Middle East countries bar Saudi Arabia. A huge wall of money is due to hit the country in the next 5-10 years and businesses can see it coming and are starting to get ready for it now.

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