Kazakhstan steps on centre stage

The world’s largest landlocked country is deepening economic ties with a range of countries, implementing a plethora of domestic reforms, and presenting itself as a pragmatic nation that seeks cordial relations with all others. It is also working on several fronts to solidify its status as an important trade, transport and finance hub situated between Western Europe and East Asia.

Hundreds of international delegates poured into its modern capital for the inaugural Astana International Forum, 8-9 June. Senior representatives of international firms, foreign governments and international organisations gathered to discuss solutions to major challenges related to climate change, international security, and the cloudy global economic outlook. The host government used the forum to advance peace, sustainability, international cooperation, and dialogue.

Kazakhstan: A snapshot

Kazakhstan has a population of nearly 20 million and covers a vast geographic space, roughly the size of Western Europe. It is the richest of the five central Asian republics and aspires to attain middle power status akin to more populous countries like Brazil, Canada and Indonesia. It is leveraging its strategic location on the Silk Road, rich endowment of natural resources, and commitment to international norms to gain respect and exert influence.

Among the nation’s goals are to join the 30 most developed countries in the world by 2050. (Its per capita gross domestic product is 69^thin the world, according to the IMF, while positions 28 and 29 are currently occupied by Japan and Brunei). The government aims to increase much needed connectivity through the introduction of 25 new international flights by 2025.

Kazakhstan is also contributing to the development of the Trans-Caspian International Transport Route, or “Middle Corridor”, which stretches from China’s coast to Turkey and western European countries, traversing Kazakhstan and the Caucasus and linking the Caspian and Black Sea ferry terminals with national rail systems across the length of Asia.

Fitch Ratings recently reaffirmed the country’s BBB rating and assessed a stable outlook on the basis of “strong fiscal and external balance sheets that have proven resilient to external shocks, and financing flexibility underpinned by accumulated oil revenue savings”. 

Walking a fine line

However, for Kazakhstan to achieve its medium- and long-term ambitions, the country must walk a fine line in balancing relations between two very large and powerful nuclear-armed states – China and Russia. Kazakhstan shares thousands of kilometres of border with the two nations, which are its most important trading partners, together accounting for more than half of Kazakhstan’s imports. Roughly one-fifth of Kazakhstan’s population is ethnic Russian, and most of the population speaks the Russian language (as well as Kazakh). Yet economic ties with China are becoming stronger as global sanctions curtail engagement with its northern neighbour. Kazakhstan aims to boost its trade with China by one-third by 2030, and the two countries have just created a two-way, 30-day visa-free regime.

Among Kazakhstan’s leading exports are natural gas, copper, ferrous metals, and gold, but crude petroleum is by far the most important. The country produces about 1.8 million barrels a day, or about 2% of the world’s total output. It hopes to increase production to about 2 million barrels a day by the end of next year. Most of its oil is exported through the Caspian Pipeline Consortium linking Kazakh oil fields with the Russian Black Sea port of Novorossiysk. This is one key reason why Kazakhstan strives to remain on Russia’s good side, even while making clear that it does not condone Moscow’s “special military operation” and territorial claims in Ukraine.

Although Russia’s war on its neighbour has boosted Kazakhstan’s exports and spurred numerous international firms to move their offices from Russia to Kazakhstan, it has also disrupted supply chains, increased volatility in commodity prices, and driven up the cost of food, hitting lower income families hard. Indeed, the conflict has exacerbated Kazakhstan’s challenges and accentuated the need for reforms.

Next on the policy agenda

To achieve its full potential, the government knows that it must address growing inequality, reduce economic and state budgetary dependence on oil and gas, curtail the huge role of state-owned enterprises (SOEs) in the economy, and strengthen the private sector’s role in agriculture, manufacturing and tourism. Soviet-era infrastructure has to be upgraded in areas such as urban water supply, wastewater treatment, heating and sanitation services. Greater investment is required in energy efficiency, and reliance on fossils fuels for electricity must reduce.

While the list of needed policy actions is daunting, the government is making progress. Over the past year, numerous democratic, economic and public finance reforms have been announced, including a reduction in presidential powers, creation of opportunities for more diverse political participation in Parliament, direct election of rural mayors, privatisation of hundreds of SOEs, and new support for small and medium enterprises. Several other reforms are being undertaken in areas such as public procurement, the tax code, and fiscal decentralisation.

Additionally, Kazakhstan has committed to reduce greenhouse gas emissions to 15% below their 1990 levels by 2030 (reaching up to 25% with additional international support). The government plans to boost the share of electricity generated from renewable sources from under 5% today to 15% by 2030 and 50% by 2050. A target date of 2060 has been fixed to achieve carbon neutrality.

If Kazakhstan speeds up economic diversification and private sector development, effectively manages relations with its powerful neighbours, and steers the economy on to a more balanced, inclusive and sustainable path, it will enjoy more than just a fleeting moment in the global spotlight.