Previous Quarterly Editions
Expropriation Risk: 58 56 58 56 Political Violence Risk: 38 38 41 40 Terrorism Risk: 33 33 34 35 Exchange Transfer and Trade Sanction Risk: 62 63 64 64 Sovereign Default Risk: 37 37 36 36
TREND ▼ OUTLOOK ▲
After years of speculation about who would succeed him, President Nazarbayev surprised the country with a resignation announcement in March. However, he is not going far. Although the presidency transferred smoothly to his chosen successor, the veteran Kassym-Jomart Tokayev who won the presidential election in June, Nazarbayev retains his place at the centre of government through his chairmanship of the powerful Security Council, a position he holds for life. As a result, he looks well-placed to achieve a transition that maintain his policies and does not result in internecine struggles caused by the absence of the one individual with genuinely broad-based support in the country. Astana, the country’s capital, will be renamed for him. However, his decision in April to have Tokayev, 65, stand as the candidate of the governing Nur Otan in June means that Nazarbayev has not taken the opportunity to hand the presidency to a new generation. Dariga, his daughter, will continue to hold the post of Speaker of the Senate. As president, Tokayev’s powers will be checked by not only the Security Council, which has constitutional authority, but also by the separate National Security Committee. This is chaired by long-time loyalist Karim Massimov, whose first deputy is Nazarbayev’s nephew Samat Abish. The political change comes as signs of a slowing economy become evident. Overall growth is expected to be around 3.5% for 2019, down from just above 4% in 2018. Oil production has been affected by maintenance work at the Kashagan, Karachaganak and Tengiz oil fields, although a recovery in prices should go some way towards to making up for lower volumes. There is growing awareness that Kazakhstan will soon face a more competitive Uzbekistan, and many investors are watching for signs that Tokayev will take on this new regional challenge. Efforts to streamline the sometimes cumbersome import-export process are underway. One encouraging area is the prospect of benefits from Beijing’s Belt and Road Initiative, which is aiming to stimulate non-extractive industries and trade with Europe via new rail links stretching from Kazakhstan deep into Europe. The center of the new logistics hub is to be Khorgos, a dry port near Almaty, Kazakhstan’s largest city. However, Khorgos is still very small and its prospects have been clouded as the European economy slows and demand in China is checked by the ongoing trade dispute with Washington. Kazakhstan's government is torn between the need for Chinese investment and calls from its own Uighur communities to speak up about the situation in neighbouring Xinjiang, where hundreds of families in Kazakhstan now have relatives detained. In March, Astana arrested a Uighur activist campaigning on behalf of Kazakhs mistreated in China.
TREND ▼ OUTLOOK ►
The announcement of Nazarbayev’s departure from the presidency surprised the business community as much as the rest of the country, but the evident planning involved in the transition has prevented any panic. Companies continue to report corruption as the number one constraint on doing business in Kazakhstan, but recent data from Transparency International and others suggest that progress is being made. Reporting of attempted bribes is up as citizens are rewarded for alerting the anti-corruption authorities. However, while facilitation payments and bribery are illegal in Kazakhstan, a weak and slow-moving judicial system continues to hamper efforts to reduce abuse of office and conflicts of interest.
The country’s single registered opposition party chose to boycott the June elections, which were held much earlier than originally scheduled. This made little difference as there is no effective opposition in a political environment that is tightly controlled by the government. Nazarbayev will ensure that this current level of control will continue as he chairs the Security Council. New restrictions on freedom of movement described as anti-terrorism measures continue to be enacted, the most recent including requirements to register temporary residences lasting more than a month. Although criticism of the government has become slightly more evident on social media, most of those who use it have only known a Kazakhstan governed by Nazarbayev. Concern about a repeat of unrest in the mining sector contributed to the decision to make a substantial increase the minimum wage this year, together with efforts to improve access to healthcare.
TREND ▲ OUTLOOK ►
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 at least the medium term. As a result, both Moscow and Washington are keen to partner with Astana in programmes to combat online radicalisation efforts. However, corporate activities and infrastructure do not appear likely targets for potential terrorist activities.
TREND ► OUTLOOK ▲
The banking sector remains weak as demand for corporate lending is low. Retail lending is growing but remains a small market in which a few main players have little competition. The government completed baling out the country’s second largest bank, Tsesnabank, in February after it was imperilled by heavy dependence on agricultural lending. The continued slowing of the Russian economy under US sanctions is having an impact on trade and investment in Kazakhstan, which conducts 35% of its trade with Russia, and may also increase the likelihood of a currency devaluation. The tenge closely tracks the rouble and fell by more than 12% against the dollar in 2018 but Kazakhstan is reluctant to use its significant foreign reserves to stabilise with currency. However, a devaluation would risk increasing inflation, which is already running above 5%.
Despite the current economic pressure, all three of the major rating agencies give Kazakhstan an investment grade. Although public debt is growing, the country’s debt-to-GDP ratio is still below 20% and the country’s sovereign wealth fund has assets worth 46% of GDP, making the government a net external creditor. While poor asset quality and high foreign exchange exposure continue to pose a risk to the structural stability of the banking system, the government has the ability to step in and deal with any shocks to the system.
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