Kazakhstan enters a new era

Nur-Sultan – the new name for Kazakhstan’s capital city, formerly known as Astana, – stands as a barometer of the changes seen in the country since it gained independence from the Soviet Union in 1991. Originally known as Akmola, or Tselinograd in Soviet years, the country’s first president, Nursultan Nazarbayev, renamed it Astana – meaning ‘capital city’ in the Kazakh language – when he made it the seat of government in 1998 (taking over from Almaty).

From then on, a wave of new, sometimes futuristic, construction has transformed the once-sleepy left bank of the Ishim river that criss-crosses the area. The pace of change has been a testament to the country’s economic growth, powered by its natural resources, as glittering buildings designed by the likes of renowned British architect Norman Foster sprang up in just a few years. 

Evolution, not revolution

When Mr Nazarbayev abruptly resigned in March 2019, bringing to an end the longest tenure of a Soviet-era president, his hand-picked successor, Kassym-Jomart Tokayev, immediately suggested renaming the capital as a legacy to the first president. With a new leader in place, whose mandate was confirmed in the presidential elections held in June, the country is transitioning into a new era under the mantra of stability and continuity. 

“It’s an evolution, not a revolution,” says Serik Akhmetov, the general director of the state-owned Kuryk Port on the Caspian Sea. “Authorities want to convey to investors a message of stability; this is their main goal.” 

Kazakhstan is now aiming to replicate the relatively stable transition of power that other countries in the region have pulled off in the recent years – Turkmenistan in 2006, Uzbekistan a decade later – first and foremost by building on the achievements of its first years of independence. 

Early success

In the midst of the chaos that followed the collapse of the Soviet Union, the first contracts that Kazakhstan signed with Western oil companies for the development of giant oil fields in the Caspian basin – fields that Moscow used to contest as Russian – put Kazakhstan on the map. 

“Today we showed the world that it can trust Kazakhstan,” Mr Nazarbayev stated in 1993 while signing a multibillion, 40-year deal with US Chevron for the development of the Tengiz oil field, which went on to become a major source of revenues for both the country and the company. 

The elements of business diplomacy enshrined in those deals would soon become key ingredients in Mr Nazarbayev’s recipe for success, particularly his openness to partners other than Moscow and market economy reforms. Over the years, Kazakhstan has shaped a multi-vector foreign policy that has struck a delicate balance between the interests of some of its more politically aligned neighbours – China to the east, Russia to the north – but also the US and Europe, that over the years have increased their interest in the region.

This approach has led Kazakhstan to become a major player on a regional basis, and a presence globally. It was among the founding members of the Shanghai Co-operation Organisation in 2001, and became a key piece of China’s Belt and Road Initiative since president Xi Jinping first mentioned it in a speech in what was then called Astana in 2013. Kazakhstan then took a lead in launching the Eurasian Economic Union with Armenia, Belarus, Kyrgyzstan and Russia in early 2015, and a few months later it joined the World Trade Organisation. Meanwhile, negotiations to join the OECD are currently ongoing. 

A market economy

This plural foreign policy approach has gone hand in hand with domestic reforms aimed to reduce the role of the state in business and transitioning towards a market economy. Numerous waves of privatisation, which have experienced different degrees of success, made available key state-owned assets to private investors at home and abroad. The most recent and modern of such programmes led to the initial public offering of Kazatomprom, the world’s largest uranium producer, on the London Stock Exchange and the Astana International Exchange.

State oil company KazMunaiGas and KazakhTelecom are expected to come next. Beyond privatisation, a number of business-friendly reforms have made of Kazakhstan one best performing economies among Commonwealth of Independent States (CIS) countries for ease of doing business and competitiveness, and have even led to the creation of a separate, independent jurisdiction at the Astana International Financial Centre (AIFC) to guarantee investors a legislative and judiciary system based on the principles of English common law. 

The government’s policies, combined with the country’s large endowment of hydrocarbons and mineral resources such as uranium and copper, have paid large dividends in terms of foreign investment. Overall, Kazakhstan had accumulated FDI of $147.1bn at the end of 2018, from just over $10bn in 2000, according to figures from Unctad. This puts it second only to Russia among CIS countries, although Russia's FDI levels have plummeted since 2010, while in Kazakhstan they have doubled.

Powered by foreign investment, national GDP increased 16-fold since 1991, making it the largest economy in central Asia and gaining it an investment-grade rating from international credit rating agencies. 

A continuity pledge 

Despite this economic success, the country's future had been something of a topic of concern in Mr Nazarbayev's later years in power, as he entered his late 70s. The idea of a transition of powers raised stability concerns in the minds of many in a country still dominated by a few competing elites. So far, however, the succession strategy he triggered with his resignation has suggested there is little cause for concern. 

“Being able to ensure that there is an agreed mechanism to minimise any risk [related to the transition] or disruption to the economy will be a major part of his legacy,” says Tim Stanley, senior partner for Russia and CIS countries at risk consultancy Control Risks. “At the same time, we saw similar transitions in central Asia, in Turkmenistan, Uzbekistan, in Azerbaijan in the Caucasus, and none resulted in large-scale turbulence.”

While the authority of Mr Nazarbayev is still enshrined in the constitution as he remains the 'leader of the nation', Mr Tokayev is expected to make of continuity the mantra of his fresh mandate. “I am going to work to deliver on the first president’s long-term strategy,” he said at his June 2019 inauguration speech.

Fresh ambitions

In this context of continuity, Mr Tokayev has shaped his political platform around the country’s 2050 strategy approved by his predecessor, which aims to place the country among the world’s 30 biggest economies by 2050 through economic diversification and supporting investment and entrepreneurship. However, he has also said “new approaches and solutions are needed” in Kazakhstan, thus injecting fresh life and ambition into state policies that have struggled to live up to initial expectations.

A new industrial plan is in the making to renew efforts to diversity the economy away from oil, gas and mining through the development of a base of export-oriented manufacturing. “So far we haven’t achieved much in that direction,” says Alisher Abdykadyrov, chairman of the Kazakhstan Industry and Export Centre, the state body in charge of promoting manufacturing and exports. “We need to leapfrog to the next stage of manufacturing development by focusing on high-added-value products.” (See article on page 12.) 

The development of the country’s vast agricultural land lying just next door to hundreds of millions of customers in western China also ranks highly in the government’s agenda to diversify the economy (see article on page 14).

Additionally, Mr Tokayev has reiterated the government’s commitment to supporting SMEs, and a mounting wave of start-up accelerators is working across the country to trigger a cultural change and push local entrepreneurs beyond working in state-owned enterprises and embrace the opportunities and challenges of the global market (see article on page 17).

Social justice

At the same time, Mr Tokayev is increasing the policy emphasis on social security as part of the overarching goal to guarantee a stable transition. This comes in the light of the isolated, but still meaningful, pockets of protests that erupted in the weeks leading up to the June 9 elections.

“I plan to specifically address acute social problems, providing assistance to those most in need,” he added in his inauguration speech, addressing a lingering feeling that the great oil wealth generated in the past decades has not trickled down to the general population but remained within a closed elite.

Mr Tokayev immediately followed this up by announcing a debt-relief initiative for millions of Kazakhs, and devoting much government and budget efforts to address the emergency caused by the explosion of an arms depot in the location of Arys in southern Kazakhstan.

“The government is hypersensitive to community activism. It will work more closely with the local community for the development of investment projects to prevent any unrest over jobs and environmental issues. Therefore investors, particularly those from extractive industries, will have to work more closely with local communities,” says Mr Stanley of Control Risks. “The population has high expectations in terms of living standards. Moving forward, the government has to get the balance right between liberating [and opening up] part of the economy and doing it in a way that gives people jobs.”

Mr Tokayev now has to move Kazakhstan beyond oil by building on a business-friendly environment and promising developments such as the AIFC without ignoring an increasingly demanding and active population. Foreign investment is one thing that can be used to generate high-quality distributed growth to breathe fresh life into the Kazakh economy, stabilise the country's political transition and propel Kazakhstan on to a new chapter in its young history.