A slew of grand reform pledges lie waiting in the government’s mounting in-tray, stymied by the very bureaucracy, vested interests and administrative inertia they seek to remove. But this time, say officials, ministers and executives, they mean it. An ambitious reform plan announced in January that encompasses almost all of the country’s economy is actually going to be implemented, they say.
Financial Times reports in its article Investors welcome push to prise open Kazakhstan that starting the privatisation process is just one piece of an interdependent jigsaw puzzle of reforms, alongside cleaning up its banking industry, reforming its tax regime and cracking down on corruption. At the same time, it is setting up a new financial centre and stock exchange in Astana to attract foreign capital, overhauling its agriculture and land laws, and recalibrating its trade strategy to leverage both the Moscow-led trade zone known as the Eurasian Economic Union and Beijing’s regional ambitions. Crucially, each step requires the others to succeed. In an era when enthusiasm for privatisation is waning across the world, Kazakhstan is promoting the sort of market reform programme that once was so common among developing countries in the 1990s.
“We hope that the next two-to-three years will be a game-changer for Kazakhstan,” Zhenis Kassymbek, the country’s minister for investments and development, told the Financial Times. “We want to change the structure of our economy. But in order to achieve this task, we need foreign investment. And in order to achieve that goal, we need to drastically change not just the image of the country, but legislation, norms — the very essence of it.”
The champion of the reforms is Mr Nazarbayev himself, a man who has been in charge for longer than the modern country has existed. This month, delegates from almost 120 countries began descending on Astana for the capital’s 2017 Expo, a three-month-long forum that Mr Nazarbayev hopes will be the greatest PR exercise in the $184bn economy’s history and convince investors that the reform programme is real. The world’s largest landlocked country, Kazakhstan is hugely dependent on foreign trade and investment. But that has often been undermined by the Soviet legacy of an overbearing state role in the economy. While state-run companies helped fund Mr Nazarbayev’s dream of building Astana — a purpose-built city of ultra-modernist gold, steel and glass towers — in just 20 years, it has also created a cosy clique of local titans for whom reform poses a threat. Major state-owned companies, such as oil and gas producer KazMunaiGas, the Samruk-Kazyna wealth fund and uranium producer Kazatomprom are prizes whose directorships and well-paid executive roles became handy rewards for regime loyalists or powerful families. Local power brokers swap major roles at the state-run companies or control of the country’s ministries. As such, previous initiatives to reduce state control over the economy, attract western capital and introduce international standards of corporate governance met stiff resistance — as did efforts to support small and medium enterprises to allow them to compete with the public majors.
“For better or worse, we have a strong vertical of power,” says Timur Suleimenov, the country’s economy minister. “And [the reforms] are sponsored by the president. He wants them done.” It is a refrain that has been heard many times. But Mr Suliemenov argues that while the length of the to-do list is daunting, the critical mass makes it more likely they will be forced through. “We have a big state. In everything: ownership, red tape, goods and services production,” says the 39-year-old minister, one of a crop of young, internationally educated officials recently fast-tracked up the tightly-controlled government apparatus. “We need to manage it better, which is one side of the reforms. And we need to decrease it. Privatisation is a big item on the agenda.”
Privatisation of the biggest state-run companies would be the most visible achievement of the renewed push. KazMunaiGas is Kazakhstan’s biggest oil and gas company and accounts for about a third of crude output from the world’s 14th-largest producer. Kazatomprom is arguably even more of a prize: it accounts for 40 per cent of global uranium production and controls the second-largest proven reserves. Stake sales, with dual local-foreign listings, will not proceed without the successful launch of the new Astana International Financial Centre, slated for this winter, which in turn depends on new laws that will allow British legislation and international judges to rule on commercial issues affecting companies based there. At the same time, the AIFC will struggle to get off the ground if the country’s troubled banking sector is unable to offer liquidity to investors. To fix that, the government must follow through with a major clean-up of lenders saddled with bad debts. The country’s central bank has already spent $7.6bn bailing out one systemically important lender and is in the process of forcing banks to consolidate to increase stability. Experts expect banks could need another $1.5bn in state aid over the next couple of years. Achieve all that, and then Kazakhstan can push ahead with its loftier goals of developing a green energy and technology hub in Astana, among other initiatives to use the oil wealth to foster growth in non-extractive sectors. Tentative progress is being made. Investment banks have been chosen for listings with a flotation in London. A merger between the country’s two largest banks, Halyk and Kazkommertsbank, has been agreed. International stock exchanges have agreed to support the Astana bourse.
Finding a way to take full advantage of Kazakhstan’s place on the map is the final piece of Mr Nazarbayev’s ambitious reform puzzle. The country’s Communist-era transport links were built north to south, a spoke on the great Soviet web with Moscow at its centre. As such, Astana has been a cheerleader of China’s One Belt One Road project to revive the east-west Silk Road trading route between Europe and Asia, pitching itself as the geographical centre of the Eurasian landmass.
