Kazakhstan trying to build a financial center of its own
Kazakhstan wants to be at the center of it all—technology, land trade, political unity, and now, financial development. The Astana International Financial Centre, launched in July 2018 is a move in that direction. Housed in the gigantic Expo building, jokingly referred to as “the Death Star,” the AIFC is part of the “100 Concrete Steps” Plan of the Nation to implement five institutional reforms established by Kazakh President Nursultan Nazarbayev. The project is both aspirational and a nod to what those in the the president’s inner political and business circles truly believe: that Kazakhstan is and ought to be the pioneer of the region innovating toward the future, the mediation point for western and eastern business, for Islamic and Common law. No one has attempted this before, and certainly not in Central Asia.
The AIFC is modeled on Dubai’s and Singapore’s savvy financial centers, and it’s goals match their lofty heights. The center is set up to attract experts and build from the bottom up, working to promote foreign investment, help lower barriers to the Kazakh banking sector, and make doing business easier. Looking to the west, the AIFC has mimicked the playground of new business technologies, like blockchain and cryptocurrency, seen in countries like Estonia. To handle legal matters, the AIFC will have a specific financial court allocated to its business and financial needs, overseen by a panel of international judges. The court will also be caretakers to a legal framework that accounts for both English law—including UK securities and corporate law—and Islamic law. This is significant because it will make the AIFC the only place in Central Asia that uses English law for business disputes. In an attempt to assuage foreign investors while also aspiring to better transparency, the center has also made English its functioning language, applying to documents, proceedings, and business practices. Inaccessible documents have proven to be a barrier in previous situations, and are considered a hindrance to the ease of conducting business. The center will provide a more straightforward visa process, easier access to employment, and a tax waiver incentive (but not tax exemption) for businesses that make the AIFC their home. It is even working to provide direct flights to preexisting regional hubs and financial centers. All roads lead to Astana.
As part of the center’s services, Kazakhstan’s frontrunning financial institutions, the National Bank and the Kazakhstan Stock Exchange, will relocate from Almaty to Astana. President Nazarbayev has floated the idea of listing the top companies of the country’s $78 billion Samruk Kazyna Sovereign Wealth Fund on the stock exchange in an effort to open them up. This effort aligned with the establishment of a new exchange, the AIX, which is being developed in partnership with Nasdaq and the Shanghai Stock Exchange. The establishment of a new stock market has raised an eyebrow or two.
The current push for financial modernization can be contrasted by a similar project in Almaty in the early 2000s, which included introducing the current Kazakhstan Stock Exchange. Now, the stock exchange is a flop. There is no secondary market in Kazakhstan and banks are state-owned and dominate market trading. This incongruence between past goals and redundancy of current projects is something the AIFC should be cautious to account for. The bravado of the AIFC project does not mitigate the risk surrounding its aspirations, including addressing deeper structural issues that continue to be pervasive in Kazakhstan. Still, the country has to start somewhere—or start again—and the Astana International Financial Centre is an attempt to build from the ground up, albeit with significant government assistance and interest.
But that’s part of the strategy. By providing the right space and tools, the increased presence of foreign firms will facilitate better business and investment practices in the region and lead to ever-more commerce. All of this fits into the president’s goal to put Kazakhstan in the top 30 global economics by 2050. That leaves just over two decades, by which time Nazarbayev himself will likely no longer be president; at least one power transition later. This is a shift from the past in more ways than one. After the collapse of the Soviet Union, Kazakhstan’s power was almost exclusively grounded in its access to natural resources, a curse inherited from its role in the Soviet bloc. It was hard to unmake the infrasture and market that supported that. Indeed, from 2000–2010, Kazakhstan was just behind Qatar in the standing for fastest-growing world economy. To its credit, Kazakhstan has completed the most economic and political reforms in its region and can boast of much more success than its neighbors. Nazarbayev is generally seen as a forward-thinking president. He is incentivized to leave a legacy, and that means making significant, meaningful changes to his country’s politics, business, and way of life. Kazakhstan’s president is not content to have his country prosper within; he wants a seat at the table with other world leaders.
Some critics think the AIFC is a step too far. Kazakhstan has a modest population compared to its neighbors—and a young population, with an average age of 29—but maybe that is the point. The project aims to create something wholly new, and is looking to the youth of its country to provide some of the labor and the means to keep the demand rolling, aided by foreign leaders and experts. Still, Astana is not ideally located. To work, the AIFC will need to attract global companies in a snowball effect of visible success. They need more than just a successful financial hub—the country needs to create and sell the whole package of living and operating there, leading others to live and operate there—an entirely new market.
Those lobbying the AIFC already know they need to stoke demand by crafting a product tempting enough to bring others from an ever wider area. China is an obvious choice. The country is already an integral part of China’s Belt and Road Initiative. Success with the Chinese could help Kazakhstan to tap into other rapidly growing markets, especially in other part of Asia and the Middle East. And given that many of the center’s laws are pitched attracting western investors, the AIFC has its eyes set on western purse-strings, as well. But what about Russia? The neighbor to the north is a big source of the regional instability, and has caused major disruptions. Similarly, Russia seems more concerned with preserving its business ways of the past through natural resource extraction than panning out the investments for the future. But Nazarbayev has always been careful to tow the line with Moscow.
This project is distinctive and ambitious. It will take time to gauge its effectiveness. But even if AIFC does no more than make Astana a more international city with an uptick in foreign investment, this will bode well for the country. Nazarbayev has a vision and a legacy that he wants to leave for Kazakhstan. Rather than looking back, he is ready to push his country into the future, to be the leader for technology and development. In these terms, even a partial success is an achievement to build on.