Wilder Alejandro Sanchez
Geopolitical Monitor
Opinion
28 September 2018
Originally published: https://www.geopoliticalmonitor.com/the-aifc-kazakhstans-ambitious-step-forward/
The government of Kazakhstan launched its ambitious new project, the Astana International Financial Centre (AIFC),
on 5 July. Ideally, the AIFC will turn the Central Asian nation into a
Eurasian commercial and trade hub, bringing in clients from Asia,
Europe, and the Middle East. It is too early to predict the success or
failure of this nascent organization, but we can view the AIFC through
the prism of the Kazakh government’s grand diplomatic strategy.
Introducing the AIFC
The AIFC is part of the Kazakh regime’s “100 Concrete Steps Plan” to turn Kazakhstan into one of the 30 most developed economies by 2050.
Its objective will be to transform Kazakhstan into a financial hub as
it (ideally) becomes the pathway for investments and other opportunities
for both the country and the wider Central Asian region.
To appeal to Western markets, the AIFC is comprised of various
agencies, such as the AIFC Management Council; the AIFC Authority; the
Astana Financial Services Authority; the AIFC Court; the AIFC
International Arbitration Centre (IAC); and the AIFC Bureau for
Continuing Professional Development.
The AIFC is based on the facilities of Expo 2017 Astana, and English will be its official language. It is reportedly based on “the best
models of the financial centers in New York, Singapore, London, and
Dubai.” In order to increase its credentials, NASDAQ and the AIFC signed
an agreement in 2017 which includes implementing the Nasdaq Matching
Engine, a trading platform. The Shanghai Stock Exchange is similarly involved with the AIFC.
What exactly is the AIFC trying to do? The answer is: a little bit of everything. An Astana Times article explains
a few of the AIFC’s projects: e-Justice (AIFC digital financial
system), digital crypto-exchange, a crypto-currency depository,
financial supermarket, cyber-security center, Islamic financial
technologies, and international start-up program aimed at creating an
ecosystem of innovative financial technology. Similarly, a NASDAQ 2017 press release
declares that the AIFC’s goal is to “attract investment into the
economy through the establishment of an attractive environment for
investment in financial services, to develop local capital markets, to
ensure their integration with the international capital market, and to
develop markets for insurance and banking services for Kazakhstan.”
In search of an effective arbitration system
The Court and the International Arbitration Centre deserve particular attention as they are structured after English law, in order to be more appealing to Western markets, while “party-friendly arbitration rules” have also been put in place. The IAC chairperson is Barbara Dohmann QC, who has worked at the Paris International Chamber of Commerce, along with other renowned agencies. The IAC has
28 arbitrators and mediators, including Aigoul Kenjebayeva, Managing
Partner of Dentons, Europe, Almaty and Astana, and Alexander
Korobeinikov, Counsel, Baker & McKenzie – CIS Limited. As for the
Court, it is independent from Kazakhstan’s judicial system and will be
the governing body for disputes between “AIFC participants, AIFC bodies
and/or their foreign employees.”
The image of the Arbitration Centre will be critically important for
the future of the AIFC. The Kazakh judicial system has been critiqued
for its lack of fairness, hence it comes as no surprise that the AIFC
will be a separate entity, complete with foreign arbitrators, which will
hopefully give potential AIFC clients confidence in its impartiality.
It is similarly positive that this agency is reportedly modeled on the
renowned DIFC-LCIA Arbitration Centre.
An arbitration specialist interviewed by the author noted that it
will be important to clarify how the IAFC’s arbitration court will
function in relation to bilateral investment treaties (BITs). The
specialist has studied the AIFC’s constitutional statutes, which state
that any previously signed and ratified treaties, including bilateral
investment treaties, take priority over AIFC agreements; “this will be
good for the client, but the AIFC’s arbitration center could find it
challenging to become a relevant agency if it is overruled by BITs,” the
expert concluded. On the other hand, the provisions on arbitration
appear to be efficient and up-to-date, and they even “take into account
certain matters that have not been covered in previous arbitration
rules. This shows that [the AIFC] is not improvising rules, but rather
it has applied careful consideration, it has learned from arbitration
precedents and is attempting to improve them.” In other words, the
AIFC’s arbitration center, unlike the Kazakh judicial system, appears to
be set up for professional and impartial rulings.
Discussion
During the ceremonial launch of the initiative, President Nursultan
Nazarbayev highlighted that “AIFC participants will have access to the
capital not only of Kazakhstan and the region, but the whole world.
Unprecedented conditions have been created here that have no analogues
in the post-Soviet space.” The AIFC also hopes to capitalize on China’s
Belt and Road Initiative (BRI), as Kazakh Deputy Foreign Minister, Roman Vassilenko
has declared that “the whole idea of the Astana International Financial
Center is to serve not only as the hub for Central Asia, but also for
the Silk Road project.”
In spite of the Kazakh government’s expectations and ambitions
regarding the AFIC, there are some issues to consider that may influence
its success (or lack thereof). First of all: location (still) matters.
As developed and stable as Kazakhstan may be, particularly when compared
to its neighbors, Central Asia is still fairly geographically distant
from Western European and Asian markets. The AIFC is trying to solve
this problem by reportedly not making it
mandatory for clients to have offices in Kazakhstan, though tax free
and visa-waivers have been imposed in order to attract people to visit
the country (citizens of OECD states, the US, and several other nations
do not require visas).
Moreover, there is the issue of how to attract customers and
investors. Two of Kazakhstan’s neighbors, Kyrgyzstan and Tajikistan,
have small markets. Meanwhile, Turkmenistan is well known for its
secrecy and shunning of the outside world. The bright light is that
Uzbekistan’s new government is keen to open up to the world, and the
AIFC could be a valuable conduit. In other words, the other “stans” will
not be major investors in the AIFC. China is a natural target, and the
Belt and Road Initiative is China’s masterplan to expand its commercial
relations and influence across Eurasia, but why would Beijing let the
AIFC take the lead in this project?
The AIFC’s personnel and the headquarters are also factors to keep in
mind. The Center’s language will be English, but Kazakhs mostly speak
either Kazakh or Russian, a legacy of the Soviet Union. Will Astana
promote teaching English in schools so young Kazakhs can work at the
AIFC? One alternative is the Bolashak scholarship programme,
which sends Kazakhs to study abroad and then, after graduating, they
return to work in their homeland. Finally, Astana is not London or New
York, hence the city itself will have to expand its list of amenities to
attract foreigners (particularly the ones living in Almaty).
As a final point, there is always the concern that while well-intentioned, the AIFC could backfire. At the 2018 PONARS Conference in Washington DC,
a panelist responded to a question from the author on the AIFC, stating
that this is an intriguing idea, but one pressing concern is that it
could be “subverted by its own stakeholders.”
Not everything is a concern
To be fair, there are valid reasons why investors should look at
Kazakhstan with interest and why the AIFC could work. After all, the
Central Asian state has enjoyed steady economic growth a
The government of Kazakhstan launched its ambitious new project, the Astana International Financial Centre (AIFC),
on 5 July. Ideally, the AIFC will turn the Central Asian nation into a
Eurasian commercial and trade hub, bringing in clients from Asia,
Europe, and the Middle East. It is too early to predict the success or
failure of this nascent organization, but we can view the AIFC through
the prism of the Kazakh government’s grand diplomatic strategy.
The AIFC and geopolitics
How does the AIFC fit into Kazakhstan’s foreign policy? Astana’s goal
since achieving independence from the Soviet Union has been to not only
become a regional power, but also attain global-level status. The
country is generally regarded as the leader of Central Asia with its
modern economy. Moreover, the country is currently a non-permanent
member of the UN Security Council; it has been part of the mediation
process in Iran and Syria, and an August meeting that may signal the end
of the dispute over the Caspian Sea took place in Aktau, Kazakhstan.
Given its geopolitical situation, it is logical for the Kazakh
government to look for innovative methods to improve its global
standing.
Final thoughts
If the AIFC operates as expected, it would not only improve
Kazakhstan’s global standing as a financial hub, but bring additional
foreign investment into the country. This is one big “if” and Kazakhstan
has a history of not always delivering on reform promises; but if it
works, and clients utilize the AIFC to invest in the country and
neighboring Central Asian nations, the AIFC could become an effective
pillar of Kazakh development and foreign policy.
Wilder Alejandro Sanchez is an analyst who focuses on geopolitical, military, and cybersecurity issues. The views expressed in this article are those of the author alone and do not necessarily reflect those of any institutions with which the author is associated.
No comments:
Post a Comment