Previous Quarterly Editions
Expropriation Risk: 51 52 52 52 ► Political Violence Risk: 48 48 48 48 ► Terrorism Risk: 32 32 30 32 ▲ Exchange Transfer and Trade Sanction Risk: 55 64 64 55 ▼ Sovereign Default Risk: 47 47 47 47 ►
TREND ▼
Kazakhstan, like its Central Asian neighbours, has been faced with the prospect of increased instability in Afghanistan following the collapse of the Afghan government in Kabul during August 2021, with the departure of US-led coalition forces. While it does not border directly with Afghanistan, Kazakhstan will have to deal with the prospect of potential radicalisation in its western and southern regions as well as an increase in the opium trade, much of which flows through the region on its way to Europe.
The government of Kazakhstan will also have to manage the interests of major geopolitical players in the region as the United States seeks to maintain access to the region and Russia has increased its presence along the borders of Afghanistan. One positive development in the Afghan situation, however, is the rapid growth in cooperation between Central Asian nations, the absence of which has been a longstanding problem for the region.
Domestically, Kazakhstan is experiencing a strong economic recovery following a contraction in 2020 due to the COVID-19 pandemic crisis. Recognising the recovery, international financial institutions have consistently raised their growth expectations for 2021, with the International Monetary Fund projecting 3.2% growth this year. The recovery of the oil price has been a major factor in the recovery, as have Kazakhstan’s anti-crisis measures, which have seen both businesses and individuals receive a higher degree of support than many peer countries.
While the recovery is welcome, the government is still very concerned about ongoing difficulties over living standards. In recent years, the World Bank has reported a rise in poverty for the first time since the early 1990s. A particular concern is food price inflation, which was 11% year-on-year in July 2021. Drought has also had a devasting effect on the in the southern and western regions of the country, with thousands of head of livestock dying of thirst and starvation. Given these conditions, poverty -- and potential social unrest -- is likely to remain a key concern for the government in the foreseeable future.
In the last two months, Kazakhstan has also experienced a major wave of COVID-19 cases, driven by the spread of the delta variant of the virus. During this period, hospitalisations have dramatically increased, causing the government to increase lockdown measures. The response has been largely effective, with measures such as a track-and-trace application seeing widespread use. The government has also focussed efforts on its vaccine programme, introducing various mandates for certain groups but stopping just short of a national mandate. Currently, nearly half of the working age population has received two doses of a vaccine, with most receiving the Russian Sputnik V vaccine.
TREND ►
Since his election in 2019, President Kassym-Jomart Tokayev has worked with foreign investors in Kazakhstan to improve the investment climate. The government has made changes to the tax and administrative codes, increasing the barrier for criminal liability tax violations and easing fines for involuntary flaring at oil and gas projects. It has also returned to the ‘100 Concrete Steps’ institutional reform programme, which is designed to improve the legal environment for domestic and international investors.
Currently, the government is also working on a new framework contract for subsoil projects that is more acceptable to foreign investors. However, regulatory expropriation has been a consistent feature of the investment climate, as has lower-level expropriation known as ‘raiding’. For this reason, the government will have to work hard to convince the international community that its agreements with investors will not be subject to subsequent change.
The decline in living standards in recent years has increased concerns within the government of protest activity and potential political violence. The 2019 presidential election triggered popular unrest across the country and, while COVID-19 saw a reduction in tensions, 2021 has seen a rise in labour unrest.
The government has permitted some limited protests, hoping to demonstrate a more progressive attitude. However, on sensitive issues, such as relations with China, the government has cracked down on protests. Moreover, away from the view of the press, the security services have maintained a campaign of repression against activists, which appears to have quelled protest sentiment at present.
TREND ▲
The Kazakhstan government’s first concern with the fall of the Afghan government will be the risk of domestic radicalisation. In recent years, the Kazakhstan government has proved effective in dealing with the threat of terrorism, repatriating approximately 600 Kazakhstani nationals that travelled to Syria and Iraq to join Islamic State. The repatriation programme appears to have been a success and has not increased the threat of violence at home.
Currently, in an attempt to secure international legitimacy, the Taliban appears to have given some assurance to Central Asian nations that it will not pursue radicalisation in neighbouring countries. However, it is unclear if the Taliban is both willing and able to stick to these commitments. Kazakhstan, on its part, is unlikely to take its chances and will monitor closely the activities of religious groups throughout the country.
Kazakhstan’s national currency, the tenge, experienced considerable volatility during the COVID-19 crisis. Since floating the currency in 2015, the exchange rate has ebbed and flowed largely in lockstep with the price of oil and the value of the Russian rouble, with Kazakhstan’s government only intervening in extreme periods of volatility.
Regarding sanctions, several exiled opposition groups have in the last year begun to lobby the United States as well as European nations to introduce sanctions against figures linked to the family of former First President Nursultan Nazarbayev, who are considered by some to be major benefactors of corruption and government largesse. However, there appears to be little evidence yet that these groups are on course to convince lawmakers in Europe and the United States to introduce sanctions under the Magnitsky Act or other legislation.
Significant improvements in Kazakhstan’s macroeconomic management in recent years meant that the country has weathered the COVID-19-related economic turmoil relatively well. Despite experiencing its first gross domestic product (GDP) contraction since the early 1990s, Kazakhstan did not see any downgrade in its sovereign position. The country maintained its National Fund reserves at approximately USD57bn, or approximately one-third of GDP, and saw only a relatively small increase in national debt, to approximately 23%. The economic recovery seen in 2021 has only improved the country’s economic standing, with ratings agency Moody’s Investors Service upgrading Kazakhstan’s long-term issuer rating from Baa3 to Baa2.
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