Previous Quarterly Editions
Expropriation Risk: 60 58 56 58 Political Violence Risk: 38 38 38 41 Terrorism Risk: 33 33 33 34 Exchange Transfer and Trade Sanction Risk: 64 62 63 64 Sovereign Default Risk: 37 37 37 36
TREND ▲ OUTLOOK ►
Although growth in 2018 was slightly above 4%, it is expected to be closer to 3.7% in the next few years as the government strengthens fiscal policy. However, GDP per capita should rise as the economy is helped by greater production in the hydrocarbon sector. Kazakhstan is also benefitting from Beijing’s Belt and Road initiative, which is shifting the focus of Chinese investment in the country towards non-extractive industries. China plans to re-locate more than 50 production facilities to Kazakhstan, emphasising sectors such as chemicals, machine-making, agriculture, and light industry. The grain sector, in particular, is experiencing improved productivity and access to new export markets thanks to Chinese investment in new techniques and better infrastructure. In addition, a substantial increase in the minimum wage from the start of 2019 should help to boost domestic consumption and, overall, the key economic indicators show steady improvement.
President Nazarbayev’s new Astana International Finance Centre (AIFC), with its own court and arbitration centre staffed by British judges and barristers, is now officially open and continues to attract new investors. At the same time, the government’s new Business Road Map 2020 emphasises the importance of directly supporting small and medium sized businesses, particularly those operating in finance and infrastructure. All this is encouraging, but for external investors the main concern remains the lack of a transition to cover what will happen when President Nazarbayev, now 78, reaches the end of his current term in 2020. Constitutional reform measures introduced during 2018 have given parliament the right to seek the dismissal of cabinet members and ended the president’s ability to make new laws by decree, but they also gave Nazarbayev the chairmanship of the powerful Security Council for life. This would enable him to retain significant influence even after the presidency changes hands. Among those widely seen as front runners to succeed him are his son-in-law Timur Kulibayev, a Russian-educated economist married to Nazarbayev’s second daughter, Dinara, who herself holds important positions in the energy sector, and Dariga Nazarbayeva, his eldest daughter who seems likely to become prime minister at some point in the future. Kassym-Jomart Tokayev, the current chairman of the Senate, is technically in line to succeed if the president should die in office.
The extent of corruption in state institutions, highlighted by the imprisonment of a former finance minister and the arrest of three deputy energy ministers on corruption charges during 2018, is made worse by the low level of legal protection afforded to foreign companies. Both are concerns for investors. Reports in October suggested that Shell had turned down the opportunity to take a minority stake in KazMunayGas, the state oil company, following an analysis of the influence that the president’s son-in-law has over the company. One positive note, highlighted by the government, was a ruling from the International Chamber of Commerce’s (ICC) arbitration tribunal in November rejecting claims from a Turkish company that the Kazakh judicial system had failed to defend its rights as a foreign investor. The government’s privatization efforts continue without spectacular progress. However, it managed to place 15% of state uranium company Kazatomprom on the London Stock Exchange in November and says that it still plans to list part of KazMunayGaz, now under a new leadership team, in London at some point in 2019.
TREND ▲ OUTLOOK ▲
The recent move to a Latin alphabet was made to encourage the use of English as a third essential language after Kazakh and Russian. However, it has acted as something of a rallying point for a loose patriotic, Kazakh-speaking movement that is now raising issues such as the loss of land rights among rural populations and China’s incarceration of Kazakhs in Xinjiang. Complaints about Chinese acquisition of large areas of agricultural land led to the government backtracking on a new law that had made land purchases easier for foreign nationals. Violence in the mining sector has contributed to the decision to substantially increase the minimum wage in 2019, together with efforts to improve access to healthcare. However, tighter controls on social media have also been introduced, and the government may enforce a 2016 amendment to the communications law that would require all internet users to install a ‘national security certificate’ on their devices. It already requires websites to register every user who wishes to post a comment.
Kazakhstan adopted a five-year state programme against extremism in 2018 that includes wider training in how to respond to terrorist events and a greater emphasis on deradicalisation. Together with efforts to strengthen the Central Asian response to radicalism, the government is also increasing cooperation with both the EU and Russia in countering radical ideologies. Central Asia has become an active area for the recruitment of Islamist extremists in recent years and this looks likely to remain the case for the medium term.
The banking sector remains under pressure, and 2018 saw a coordinated bailout of the country’s second largest bank, Tsesnabank, after it was imperiled by heavy dependence on agricultural lending. The risk of further US and EU trade or financial sanctions against Moscow is a major concern for a country that conducts 35% of its trade with Russia. The central bank has continued its gradual reduction in interest rates, but they are not expected to fall much below the current level of 9.25% in the coming months. The tenge fell by more than 12% against the dollar in 2018 but the government hopes that higher oil prices will see something of a recovery during 2019.
TREND ▼ OUTLOOK ►
After three years, Kazakhstan came back to the international bond markets in November with a successful issue of 1.05 billion euros in its first Euro-nominated bonds. All three of the major rating agencies gave it an investment grade, and the government was able to price the bonds without needing to offer any particular premium. Although public debt is growing, the country’s debt-to-GDP ratio is still below 20% and the country’s substantial sovereign wealth fund shields it from sovereign default risk.
Return to contents Next Chapter