"Kazakhstan: New President, New Diversified-Economy?"
Wilder Alejandro Sanchez
International Policy Digest
May 11, 2019
Originally published:
https://intpolicydigest.org/2019/05/11/kazakhstan-new-president-new-diversified-economy/
President Kassym-Jomart Tokayev is expected to emerge victorious in
Kazakhstan’s upcoming elections on June 9, after the former long-time
president, Nursultan Nazarbayev openly endorsed him on April 23. With
the next president of the Central Asian country clear, the government
can now focus on addressing the country’s priorities and challenges,
which includes the continuous expansion and development of its economy,
for the benefit of Kazakhstani citizens.
While Kazakhstan has made strides to diversify its economy, raw
materials (such as uranium) continue to be the cornerstone of its
economy. This diversification strategy will likely continue under the
next administration, and it should be pursued even more aggressively.
Diversifying the Economy
When we talk about Kazakhstani exports to the world, uranium comes to
mind. After all the Central Asian country is the world’s largest
producer of this heavy metal. Kazakhstan also exports various raw
materials, such as
copper, gold, oil and natural gas.
According to WorldTopExports.com, around 70% of exports in 2018 were
mineral fuels, like oil, followed by iron, steel, and copper. Non-fuel
or mineral exports, such as cereals,
constituted barely 2% (other sources
provide similar statistics.) For a country that wants to be one of the top 30 most developed nations by 2050, this one-sided economy is problematic.
To remedy this, in recent years Nursultan has pushed to diversify the
country’s economy by developing other industries and also partially via
the partial privatization some state-owned companies such as
Kazatomprom.
“If Kazatomprom becomes a public company, it will be only the second
major uranium miner in the world, after Canada’s Cameco, to obtain such a
status,” noted the
Jamestown Foundation back in November 2018. Other companies that will become privatized are Samruk Kazyna, KazMunaiGas, and Kazaktelecom.
The government is also focusing on expanding industries like
livestock, crop, and grain production. For example, The South Korean
company, K2AT, will reportedly produce organic fertilizers and carry out
smart-farming projects in the Aral Sea – this package of deals was
announced as part of the
Kazakh-Korea Investment Summit on April 22.
Similarly, Kazakhstan will reportedly open “three new vehicle
assembling plants jointly with Hyundai, KAMAZ, and Kirovets as part of
its plan to double domestic production of automobiles to meet demand
within the Eurasian Economic Union,” the Caspian Sea Center reports.
This is supported by
Minister of Economy Ruslan Dalenov,
who reported in mid-April that “in the January-March period, gross
domestic product growth increased to 3.8 percent. In the
January-February period, it was 3.5 percent. Accelerated growth has been
achieved by increased output in the manufacturing industry, as well as
by increased growth in construction and investment.”
Certainly, Kazakhstan could continue to rely on its uranium industry,
as the IPO of Kazatomprom has brought about renewed interest of
international investors in this sector, and nuclear reactors still use
uranium for energy production –
India is apparently interested
in acquiring more Kazakhstani uranium. Similarly, “Russia’s oil major
Lukoil and Kazakhstan’s KazMunayGas have set up a joint venture to
conduct exploration at the Zhenis block in the Caspian Sea,” explained
the Washington DC-based Caspian Center in a March 19 newsletter,
mentioning a statement by Kazakhstan’s Energy Minister Kanat Bozumbayev.
However, these two industries are not enough to improve the lives of 18
million Kazakhstani citizens, particularly as not all of them work in
these sectors.
Attracting Investment and Extra-Regional Trade
Kazakhstan’s major trading partners are Russia ($18 billion in 2018)
and China (around $11 billion last year), and while no regional or
extra-regional nation can realistically compete with those numbers,
Nursultan has striven to diversify its pool of partners and investors.
To this end, the Central Asian state has created entities like the
Astana International Financial Centre (AIFC), which was launched last year, and
Kazakh Invest to bring foreign investment into the country and to make Kazakhstan the financial hub of Central Asia.
The country has been successful in attracting more extra-regional
trade, as trade with India reached $1.2 billion in 2018. In early April,
a Kazakhstani delegation visited New Delhi to attract the interest of
Indian businesses to the AIFC. “We need to make sure that AIFC is
well-connected to other financial centres, including Dubai, Frankfurt,
Mumbai, Singapore, and Shanghai…It will be very profitable for India and
should be part of our long-term strategy,” said Kazakhstani political
scientist Sultan Akimbekov to The Wire -India, in an interview about the
visit. The AIFC also recently appointed
Sheikh Bilal Khan
as the Chief Islamic Finance Officer in order to further attract
Islamic markers. Similarly, the Cyprus-based precious metals mining
group,
Polymetal, has become the first foreign issuer to list on the
AIFC’s Astana International Exchange, according to an AIFC press release on April 17.
As for other extra-regional trade partners, South Korean President
Moon Jae-in met on 22 April as part of the Asian head of state’s Central
Asia tour. The two governments have enjoyed cordial relations and
trade reached
“$3.9 billion in 2018, including $2.9 billion in exports and $922
million in imports.” South Korean companies like Hyundai, LG, Samsung,
Lotte Confectionery, SK, Highvill already operate in the Central Asian
nation.
Discussion
Back in 2014, a report by Ernst & Young, titled “
Kazakhstan 2014: The Brand Paves The Way,”
explained that: “This survey reveals that Kazakhstan’s ‘brand
perception’ is at its strongest compared with previous years. Investor
awareness, among both established and non-established investors, has
increased.” The report went on to explain that “Investor confidence in
Kazakhstan’s future prospects is also high — 47.3% of our respondents
believe that the country’s attractiveness will improve in the next three
years.” Nevertheless, “over 50% of the investors surveyed still do not
have any immediate plans to invest in the country. And the plans of
investors already established in Kazakhstan vary significantly from
those not yet established.”
However, the country has yet to move away from its oil and mineral-focused economy. Moreover, the US State Department
mentions
how foreign investors would like to see “improved transport and
logistics infrastructure, a more open and flexible trade policy, and a
more favorable work-permit regime.” Hopefully, the AIFC and Kazakh
Invest will be successful in addressing some of these concerns so that
investors receive the necessary guarantees, such as full protection of
rights and interests, in order to continue investing in the Central
Asian state.
Similarly,
according to MENAFN,
“in 2018 FDI amounted to 14.2 percent (12.9 percent in 2017) instead of
targeted 16.5. In 2022 FDI is to reach 19 percent of GDP.” This data
suggests that there is still a strong interest by external investors in
the Central Asian state, but much needs to be done still to increase
investment even more. The aforementioned agencies, plans for the partial
privatization of some key state-owned industries and a new president
will hopefully renew investor interest.
Final Thoughts
With former President Nazarbayev backing him, it is all but certain
that President Tokayev will remain in power after June 9. Tokayev is no
stranger to foreign policy as he served as minister of foreign affairs
for around a decade, but now he will have all of Kazakhstan’s affairs,
domestic and external, to deal with. It is generally expected that
Tokayev will follow his predecessor’s foreign policy, hence Nursultan
will continue to focus on attracting foreign investors and diversify its
pool of partners as well as a list of exports.
Kazakhstan’s economy is globally known as a producer of oil and
uranium, but the country’s other industries must continue to expand in
order to achieve the government’s ambitious agenda and objectives. The
new president of Kazakhstan will hopefully bring with him a more diverse
economy for the 2020s.
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.
