Kazakhstan gears up for Astana International Financial Centre and privatisation

Kazakhstan’s capital city, Astana, is already looking beyond Expo 2017, which it hosts from June to September next year, and laying down the foundations of the offshore financial centre that will open up office in the iconic venue once the exhibition is over.

Suddenly announced by long-time authoritarian president Nursultan Nazarbayev in May 2015, the Astana International Financial Centre (AIFC) is designed to become a regional financial hub and a key vehicle to carry out the long-awaited privatisation of national assets such as state-owned oil company KazMunayGas (KMG).

The AIFC will channel as much as $40bn in foreign investment into Kazakhstan over the next decade, AIFC governor Kairat Kelimbetov tells fDi Magazine – although many details of the initiative are still in the making.

Major centre

Slated to become operative from January 2018, the AIFC will also give birth to a brand new stock exchange. Additionally, it will aim to become a major centre of capital investment, asset management, Islamic and green finance, as well as fintech and private banking, thus fulfilling Mr Nazarbayev’s vision of decoupling the country’s economy from the fate of its oil industry.

“Definitely we are a commodity-driven economy, so that’s why we want to diversify,” says Mr Kelimbetov. “We want to be a business hub for those who want to work with Russian neighbours and the western part of China and central Asian countries... and I think that financial services is definitely a logical, natural part of this.”

This narrative is no novelty in Kazakhstan, where the central bank (which Mr Kelimbetov headed between 2013 and 2015) worked for years to promote Almaty as the location of choice for central Asia’s financial industry. However, that initiative got sunk, initially by the financial crisis, and more recently by the end of the commodity super-cycle.

This time, the AIFC promises to deliver on its ambitions by introducing several innovations modelled on successful international projects, such as the Dubai International Financial Centre. First and foremost will be the introduction of an independent jurisdiction based on the principle of English common law, and independent AIFC courts, a measure designed to reassure investors over the country’s often capricious legal environment.

Kazakhstan’s ongoing privatisation programme should give the AIFC an edge with which to flourish upon those independent legal foundations. Sovereign wealth fund Samruk Kazyna plans to start initial public offering (IPO) proceedings for national air carrier Air Astana, uranium producer Kazatomprom, and Kazakh Telecom in 2018, managing director for strategy and portfolio investment Baljeet Kaur Grewal told fDi Magazine in August. The IPO process for other local heavyweights such as KMG will start in 2020.

Foreign participation

Unlike previous unsuccessful privatisation attempts, no less than 25% of the equity of the companies under privatisation will be offered to the market, and “in the future, they [the government] will definitely be willing to give up the majority of the stakes”, says Mr Kelimbetov.

“I don’t see any problem in doing that,” he adds, and asks, with a majority of foreign companies in the oil market from the US, Europe and China, why should Kazakhstan be scared about privatising KMG? But he adds, each company should be sufficient enough, and he believes it will take “five to seven years”.

AIFC’s management is now laying the groundwork for the hub to be operational in 2018. To this end, Kazakh judges are being sent to the UK to study English common law, agreements with advisers, partnerships are being developed, and the first potential investors, mostly from China, the Gulf Co-operation Council region, the Islamic finance world and Russia, are sharing their early feedback. For the moment, the focus of local and international media remains on Expo 2017 – but once that is over, it will be time for the AIFC to move into the spotlight and finally follow through on its promise to become a financial hub for the whole of central Asia.