Previous Quarterly Editions
Expropriation Risk: 51 51 52 52 Political Violence Risk: 48 48 48 48 Terrorism Risk: 32 32 32 30 Exchange Transfer and Trade Sanction Risk: 55 55 64 64 Sovereign Default Risk: 47 47 47 47
TREND ►
In March 2021, President Kassym-Jomart Tokayev marked two years in the presidency, having succeeded Kazakhstan’s First President Nursultan Nazarbayev in 2019. While he still does not enjoy the authority of his predecessor, he appears secure in his position, particularly since the removal of his primary challenger Dariga Nazarbayeva, Nazarbayev’s daughter, in May 2020.
Tokayev has presented himself as a reformer and has already set out some economic reforms and delivered on a package of political reforms. However, these political reforms, portrayed as a liberalisation, have had almost no impact on the political environment and, in some instances, proved regressive. The January 2021 parliamentary elections saw the ruling Nur Otan party secure an overwhelming majority, with only two other systemic opposition parties winning seats. No genuine opposition party was registered and activist activities, particularly election observation, were hindered.
On the economic front, the COVID-19 pandemic precipitated the first contraction in growth since the early 1990s, at some -2.7% in 2020. However, Kazakhstan managed to maintain macroeconomic stability throughout 2020 due to ample foreign exchange reserves and low national debt, meaning that some additional borrowing and spending did not affect the country’s credit rating. Improved management also ensured that the country’s corporate sector performed better than during previous crises and, although structural weaknesses remain, macroprudential reform has strengthened the banking sector. In 2021, growth is projected at 3% and, with oil prices more buoyant, the economy is set to experience a recovery.
However, the government’s primary concern will be improving living standards, which have continually slipped since the end of the commodity super cycle in 2014. With staple food prices rising more than 11% in 2020 alone, bringing inflation under control is a priority for the government. In January, the World Bank noted that poverty was set to reach 12-14% in 2021, up from just 6% in 2016, creating concerns within the government of popular unrest. Indeed, the decision to hold parliamentary elections in January 2021 (the coldest month of the year) reflected the nervousness about unrest, which could grow throughout 2021.
Prior to COVID-19, the government had been engaged in a relatively successful privatisation programme, with national uranium miner Kazatomprom seeing a successful listing on the London Stock Exchange and local Astana International Exchange. The government has set out further ambitious plans for privatisation in 2021. However, major assets such as national oil company KazMunayGas are unlikely to go to market in the near term.
The government has also attempted to make improvements to the investment climate by returning to the 100 Concrete Steps reform programme and engaging with investors via the Foreign Investors’ Council. At the same time, the pandemic has exacerbated socio-economic tensions, meaning investors have come under greater pressure to maintain and expand local employment, procure locally and contribute more to local and national budgets. These pressures have resulted in greater scrutiny from investigative organs, particularly in relation to tax, and environmental and labour laws.
With the decline in living standards in recent years, Kazakhstan’s traditionally calm political environment has grown more febrile. The presidential election of 2019 triggered a wave of popular unrest across the country and, while the pandemic saw an inevitable reduction in tensions, 2021 is set to see heightened protest activity and labour unrest.
Already, there have been a number of strikes in the oil fields of west Kazakhstan and several political demonstrations, particularly in Almaty, Kazakhstan’s largest city. There is a strong possibility that such protests could intensify, given that protests typically occur in the months between May and September. However, despite heightened tensions, the prospects for political violence will likely remain limited to isolated incidents of police crackdowns on activists.
TREND ▼
While conservative religious sensibilities have become more prevalent in Kazakhstan in recent years, particularly in the poorer southern and western regions, Kazakhstan does not face a serious threat of religiously motivated terrorism.
Approximately 600 Kazakhstani nationals are estimated to have travelled to Syria and Iraq to join Islamic State, but their repatriation has not increased the threat of terrorism at home and the government has even used its repatriation programme as a public relations tool to warn of the dangers of radicalisation.
The government has, however, at times used the threat of religious extremism to justify its own repressive law enforcement practices and pursuit of opposition activists.
In 2020, volatility in the global economy, and particularly the oil price, resulted in considerable fluctuations in the value of Kazakhstan’s national currency, the tenge. While the government floated the tenge in 2015, it has continued to make interventions to contain some of the volatility.
The government has also put some formal and informal limits of the volume of currency that can be traded at any one time. This currency volatility is a key contributor to inflation. Other than a short period at 12% in 2020, the National Bank of Kazakhstan has kept the base rate at 9%. While this has helped stimulate business activity, it has also resulted in inflation consistently outpacing the bank’s current target corridor of 4-6%.
The global slowdown and collapse in oil prices triggered by COVID-19 had a considerable impact on Kazakhstan’s growth in 2020, resulting in the first gross domestic product (GDP) contraction since the early 1990s. However, improved macroeconomic management in recent years precluded any major risk to Kazakhstan’s sovereign position.
Kazakhstan has weathered the crisis and maintained its National Fund reserves at USD57bn, or approximately one-third of GDP, and kept national debt at approximately 23% of GDP, despite higher borrowing during 2020. The global recovery and buoyant oil prices, which have been at over USD60 per barrel since early February 2021, will shore up the nation’s finances further throughout the year.
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