Kazakhstan eyes the future with optimism under its steady but aging leadership

In the annual State of the Nation speech in October 2018, President Nursultan Nazarbayev, the only post-Soviet president who has held his seat uninterrupted since the collapse of the USSR, chronicled his country’s achievements. Kazakhstan’s shiny capital, Astana, continues to rise on the desolate steppe. Over $300 billion dollars of direct foreign investment have poured in since 1998. Over the same period, Kazakhstan has risen to be 36th in the World Bank’s Doing Business Index. But, these accomplishments are not enough, and the regime will not rest on its laurels. Astana’s long-term aim is to catapult its country into the ranks of the world’s 30 most developed nations by 2050. In the short run, its fortunes remain tied to global oil prices, which must change if it is to accomplish its long term objectives.  

In 2014, Kazakhstan’s economic growth halted as crude prices dropped. The GDP growth remained positive, but double-digit inflation in 2016 hurt the consumer economy. Since 2017, Kazakhstan’s economy has resumed its steady 4% growth. This year experts predict 3.8% growth, while inflation is supposed to remain around 6.8%. The exchange rate of the Tengiz remains depreciated and volatile. Before the 2014 economic downturn, 1 dollar sold for around 185 tengiz, but the current rate is in 370-380 range.

Despite ambitious plans to diversify the economic model, Kazakhstan’s growth remains tied to global commodity prices and the crude backbone of the Kashagan and Tengiz oilfields. The Kazakh CPC blend is notorious for foul-smelling and corrosive gasses that require specialized equipment from oil refineries and push down the oil’s market price. Most are refined in Russia, China, Italy, and the Netherlands. Last year, its oil exports to Asian countries nearly doubled, reaching a peak of 14 million barrels in September compared to the average of around 11 million barrels in previous years. This is more notable considering that the production levels remained unchanged. The trend of increasing exports to Asia is expected to continue also this year, but the recent drop in crude prices is a concern for Astana, which has lowered its growth projections for 2019 from its original 4% prediction.

In the long run, Kazakhstan is seeking to reduce its dependency on energy exports, but so far the slew of strategic papers and programs like the 100 concrete steps feature more in political speeches than a substantial transformation of the economic model. Nevertheless, the government has introduced a series of pro-business reforms. Registering a new business has been made significantly easier, red tape has been cut, and enforcement of contracts improved. As a result, Kazakhstan jumped 8 places in the World Bank’s Ease of Doing Business Index last year.

Corruption on all levels of society remains an obstacle to further progress. Last year, Kazakhstan was ranked 124th in Transparency International’s Corruption Perception Index—a drop of places compared to the previous year. High-level cronyism and petty corruption of the traffic police remain endemic. Dramatic court cases like the 10-year prison sentence of the former economy minister, Kuandyk Bishimbayev last March are more indicative of behind-the-scenes power struggles than a sustained campaign against corruption.

The Kazakh government seems unable or unwilling to tackle the issue of corruption on the national level, so it has instead opted for the creation of projects that seek to create bubbles of modernism. Astana itself is the prime example. Sky-high glass skyscrapers are a world apart from the decaying post-industrial cities where most Kazakhs live. In Astana, the Nazarbayev University hosts western faculty and offers international standards to the hopefully reform-minded future elites. And now, just across the street from the Nazarbayev University, a glass sphere that the locals call the “Death Star” houses the brand new Astana International Financial Centre, which SSU wrote about in depth earlier. The center is modeled on its counterparts in Dubai and Singapore and will incorporate both the English and Islamic law in an unprecedented first, which is suits perfectly Kazakhstan’s vision of itself as a bridge between East and West, between European and Asian civilizations. Because it only launched this year, it is too early to pass judgement on how well it will deliver on its ambitions or expand the positive practices past its steel-glass façade.

Nazarbayev University (Photo by eec.nu.edu.kz)

The new financial center reflects Kazakhstan’s hopes of capitalizing on the shifting economic balance in Eurasia. The EBRD, in its new transition report, predicts that if China is able to deliver on the ambitious infrastructure projects that form the Belt and Road Initiative, Kazakhstan alongside Uzbekistan has the most to win. Kazakhstan is at the crossroads of the rail and road corridors that will connect China with the European markets. The northern corridor will go through Russia, while the southern will cross Iran to the Caucasus. Both will cut through Kazakhstan. The Khorgos “dry port” on the border of China and Kazakhstan handled 100,000 standard containers in 2017. The rail knot between the Chinese rail network (which uses the European gauge) and the Kazakh counterpart (which operates the Russian gauge) is seeking to increase the volume of traffic to 500,000 containers by 2020.

The increasing Chinese economic clout in Central Asia is good for the region’s trade but leaves many locals weary of the future of the region. Fears of Chinese domination are common in Kazakhstan. A few years ago the Kazakh government planned to allow the sale of agricultural land to foreigners but retreated after a wave of protests by people who were afraid that China would take over the most fertile land. China’s repression of the Muslim minority in the Xinjiang province exacerbates the fears. Close to 1.5 million ethnic Kazakhs live in China, and many have been sent to the notorious ‘re-education camps’. The treatment of the ethnic Kazakhs in China is a taboo in official discussions but a hot topic throughout Kazakh society. China brings its own workers to build the Belt and Road infrastructure. So far the under-the-surface tensions have not escalated into unrest, but as Chinese influence continues to increase in Kazakhstan, the chance of social unrest cannot be ruled out.

Kazakhstan remains the economic powerhouse of Central Asia with the best track record of economic modernization. It looks to the future with optimism. In the short run, it is on a continuing but a fragile growth path driven by oil exports. In the long run, it seeks to become one of the economic centers of Eurasia as the balance of the world economy tilts to Asia. So far, President Nazarbayev has played Kazakhstan’s weak hand with skill and success, but as the country moves towards the challenges and risks of the next decade, many fear what awaits for Kazakhstan’s political future when the now 79-year old president leaves the stage.