Previous Quarterly Editions
Expropriation Risk: 58 56 58 60 Political Violence Risk: 41 40 40 38 Terrorism Risk: 34 35 34 34 Exchange Transfer and Trade Sanction Risk: 64 64 65 65 Sovereign Default Risk: 36 36 36 37
TREND ▲ OUTLOOK ▲
Since his election in June 2019, President Kassym-Jomart Tokayev has been trying to create some sense of distance between himself and his predecessor, Nursultan Nazarbayev. He has made the government’s social protection agenda his own, introduced measures to combat corruption, and attempted to improve the quality of governance at the regional level. His state of the nation address in September laid out a series of technocratic reforms designed to stimulate the development of small and medium-sized enterprises, providing a sharp contrast to the large-scale, high-profile projects such as the Astana Light Rail system favoured by Nazarbayev. But his efforts have had little effect, given that Nazarbayev continues to dominate public life. He has used meetings of the legislature and his ruling Nur Otan party, as well as television interviews and foreign visits, as platforms to make policy interventions, and at times creates the distinct impression that Tokayev’s initiatives do not always have his support. This dynamic has created a growing sense of competition between the two figures and caused a degree of paralysis within the civil service, which does not know which way to turn. In October, President Tokayev signed a decree stating that he, as president, should consult Nazarbayev in his role as head of the security council on most major appointments, including the heads of the security services and the central bank. The decree was intended to remind Tokayev, and the rest of the country, where effect power still lies. Nazarbayev’s eldest daughter, Dariga Nazarbayeva, who is currently Speaker of the Senate and so next-in-line to the presidency, has also taken a far more prominent role that suggests she is positioning herself to succeed Tokayev. She has made numerous public visits both at home and abroad, while using her parliamentary position to criticise government performance. Preparations for bringing forward the legislative elections due in 2021 to the spring of 2020 appear to be well underway despite the absence of an official announcement. The elections would be an opportunity for Nazarbayeva to fill national and local legislatures with her supporters and present herself as a leading national political figure. All these political developments are taking place against a background of ongoing economic challenges. Since the collapse of oil prices in 2014, Kazakhstan has struggled to stimulate growth. Extensive government counter-cyclical fiscal stimulus packages for infrastructure and housing should push the final growth figure for 2019 to 3.8%, but the government remains in search of a market-led alternative source of growth.
TREND ▲ OUTLOOK ▼
Despite some improvements in corporate governance standards and the business environment in recent years, the government has been increasingly forced to concentrate on a social protection agenda. Weak social development and increased incidents of labour unrest have led the government to put greater pressure on investors and operators, particularly in the energy sector, to increase salaries for local workers and boost local content in their supply chains. In other developments, Kazakhstan has had a temporary reprieve from paying up to 500 million dollars in a settlement with Moldovan investors who had accused the government of expropriating assets in the oil industry in 2010. A recent ruling in Kazakhstan’s favour will allow the case to roll on and gives Astana the opportunity to refute claims of historic expropriation.
TREND ▼ OUTLOOK ▲
Since the presidential election that confirmed Tokayev’s position in mid-2019, there have been few incidents of political demonstrations. This is related as much to the lack of public holidays, the traditional days for unrest, as to the government’s efforts to calm popular tensions through pay rises for state employees, increased benefits, and a debt relief programme for low income groups that could cost as much as 300 million dollars. The government has also allowed some minor public demonstrations in Almaty and in Nur-Sultan, the new name for Astana announced by Tokayev when taking office from Nazarbayev, in an attempt to allow groups to let off steam. These measures have been accompanied by an activist approach from the security services, which continue to pursue and harass opposition figures. In a further effort to increase surveillance, in August, the government announced that a new security certificate would be installed on all mobile devices nationwide. However, after much public criticism both at home and from foreign technology companies including Apple and Google, the government has been forced to backtrack on its plans.
TREND ► OUTLOOK ▲
Having had more than 550 of its citizens leave to fight with Islamic State, Kazakhstan has continued its widely publicised missions to evacuate children of Kazakh citizens from former IS-held territories, with 14 Kazakh children returned from Iraq in November. This has been part of a wider campaign to target young men in the west and south of the country who are regarded as at particular risk of radicalisation. While the threat is not as great as in other Central Asian nations, such as Tajikistan, the government views a combination of social disaffection, growing religiosity and online radicalisation as posing a significant threat to domestic security.
Kazakhstan’s currency remains largely a hostage to the global price for oil, which makes up some 50% of the country’s exports. Following the oil price fall in 2014, the central bank was forced to float the tenge in order to preserve its foreign exchange reserves. With the exception of some interventions, the currency’s performance has largely tracked the movement of commodity prices, although from a much lower level. In the face of growing capital flight, the government has announced some capital control measures, but these have not directly impacted investors and their ability to repatriate funds. Nevertheless, given growing inflationary pressures and the extent of government spending on social protection measures, limited capital controls cannot be ruled out in the future.
Kazakhstan’s first sovereign bond, for just over one billion euros in November 2018, was well received. The national fund retains reserves of some 50 billion dollars, approximately a third of total GDP, although this will come under pressure soon amid increasing demands for social spending. A more immediate challenge is the financial health of state-owned enterprises and the banking sector, which continue to need extensive government support.
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