In the 21st century, America is being forced to rethink its global priorities and alliances, especially in Asia, as China’s Belt and Road initiative gains momentum. New pivotal countries have risen. Washington is watching Kazakhstan modernize and become a regional player through its economic and diplomatic successes. Kazakhstan sits at the intersection of political and business interests for not only the United States, but also for Russia, China, and Iran.
The country under President Nursultan Nazarbayev holds or has held a number of important positions in the United Nations, the Organization of Islamic Cooperation, and the Organization for Security and Cooperation in Europe.
Landlocked between Russia and China, Kazakhstan's crucial geo-strategic position requires American attention. But Kazakhstan’s economic situation has been improving since independence. Foreign investment and structural reforms are transforming the country, and Astana has lessened its dependence on American assistance.
Other energy exporters are changing as well. The United Arab Emirates have made a great leap to develop services economy, but Saudi Arabia stands as the prominent example with its Saudi Vision 2030. Saudi Arabia’s scramble to fix its program of reforms, notably with the scrapping of the ARAMCO IPO, emerges from a confluence of low oil prices, an unwinnable war in Yemen, and domestic discontent.
Saudi Arabia is reaching out to Russia and China in an effort to diversify Riyadh’s geopolitical partners -- this includes two visits to Moscow and Beijing by Saudi King Salman this year. The Kingdom in the meanwhile is doing its best to increase the price of oil through production cuts.
Kazakhstan’s 2050 program employs a starkly different approach. Kazakhstan’s aim is to develop human capital. It wants to bolster education, diversify the economy, build modern infrastructure for business, increase the capacity of highways and transport corridors (for instance through the NurlyZhol Project), and develop a Eurasian financial hub through the Astana International Financial Center.
Yet not everything is rosy. Foreign lawyers note that lower-level courts often misunderstand or misinterpret the law. Foreign NGOs implement a number of programs to improve the rule of law in the judiciary. As the country sits in the bottom quarter of Transparency International Corruption Index, (131/176), Astana should be taking even more drastic measures to fight pervasive corruption. To attract foreign investment, the country also needs to step up its efforts to cut red tape.
Further, to avoid being stuck in the middle income trap, the government needs to make the state hospitable to high-tech, industrial, and agricultural investors both domestic and foreign.
The country’s leadership is aware of the challenges. President Nazarbayev in 2015 launched the “100 Concrete Steps to Implement Five Institutional Reforms,” which aims to build the rule of law, control corruption, improve the civil service, ensure economic growth, and boost national unity. This plan consists of restructuring state-owned firms, moving the economy away from resource dependency, attracting foreign investment, and building world-class transportation infrastructure.
The Organization for Economic Cooperation and Development, which held its first ever OECD Eurasia Week outside of Paris, in Almaty from Oct. 23-25, is assisting Kazakhstan in the restructuring through a partnership program providing ease of access to the Kazakh market for foreign investors.
There are several notable steps in Kazakhstan’s advanced “Third Modernization of Kazakhstan” announced by Nazarbayev in February and April this year.
First, the Kazakh language will transition to the Latin script by 2025, in a step to ease global integration. Next, the country’s 100 Concrete Steps initiative is an example of its stated commitment to reduce corruption in the country.
Third, AIFC will be located on the site of the futuristic Expo 2017, and may turn Astana into a major financial hub for the Commonwealth of Independent States countries and the New Silk Road. AIFC will become a special zone with a separate judicial system based on English common law. The zone focuses on “servicing capital markets and Islamic finances” with a goal of becoming one of the 20 leading financial centers in the world. Modeled on the Dubai International Financial Centre, the AIFC means to service international corporations with high quality ethics and legal standards.
Finally, Kazakh oil production is set to grow. With Kazakhstan’s giant Kashagan oil field pumping again, adding to Kazakhstan’s output with the expanded Tengiz field, Astana is seeking a revision of the country’s quota in the OPEC/Non-OPEC producers’ agreement to reduce output. The deal, set to expire in December 2017, is subject to change, given Saudi financial requirements to keep Crown Prince Mohammed bin Salman’s Vision 2030 on track. The likelihood of the price of oil going up to 70 or 80 dollars a barrel by the beginning of the Q4 2017 is on the horizon. That price jump would benefit Kazakhstan.
Kazakhstan’s energy sector is flourishing. During Kazakhstan’s 25th anniversary as an independent country, the European Bank for Reconstruction and Development provided €200 million for solar and wind power projects. In addition, improvements in transparency in Kazakhstan are seeing Vitol, the world’s largest independent energy trader, increase its cash-for-crude loans to state-controlled companies in Kazakhstan to as much as $5 billion. Nazarbayev is also seeking CIS-wide digitization for greater information sharing to meet Kazakhstan’s emerging market needs.
Overall, Kazakhstan has recognized the problem of peak oil and overdependence on natural resources and raw materials revenue and is seeking to develop institutional solutions, including program 2050, 100 Steps, and the AIFC, to deal with the challenges of transformation.
While Saudi Arabia has the larger population, massive cash reserves, and a bigger revenue, Kazakhstan has a stronger potential in human capital and is more advanced in diversifying the country’s economy.
The U.S. business community should take note.
