Kazakhstan Entertains Grand Economic Development Plan

Kazakhstan has grand plans to become not just a regional, but a global economic force. Initial moves show that Astana believes that fostering strong regional cooperation is the key to the realization of the country’s ambitious goals.

The strategy outlined by President Nursultan Nazarbayev and other officials in effect suggests that Russia, and to a lesser degree China, are now viewed in Astana as the main facilitators of growth – not the United States. Thus, it would appear at present that the more Kazakhstan implements its development agenda, the less geopolitical and economic influence Washington stands to enjoy in Central Asia.

Since the start of 2006, Nazarbayev has spoken repeatedly about his aim to transform Kazakhstan into one of the “50 most competitive, dynamically developing countries in the world” within the next decade. The most recent occasion came on April 5 during a speech to the Russian State Duma. [For background see the Eurasia Insight archive]. Nazarbayev told Russian MPs that average GDP growth over the past five years was roughly 10 percent, adding that the country aims to significantly accelerate growth. If all goes according to plan, Kazakhstan would achieve 350 percent growth by 2015 over the 2000 GDP level.

A government economic development program for 2006-2008 published April 1 stated the government’s principle aim to be “creating favorable institutional and economic conditions to raise Kazakhstan’s competitiveness in the international arena, as well as living standards,” according to the Interfax-Kazakhstan news agency. Per capital GDP is projected to reach over $5,550 in 2008, roughly 50 percent higher than the current level.

Kazakhstan is taking action on many fronts to ready its economy for the global market. For example, in recent weeks, Kazakhstani officials have outlined initiatives to strengthen copyright protection and expand scientific research, local media outlets have reported.

In his speech to the Duma, Nazarbayev called attention to civil service reform that seeks to streamline the bureaucracy while concurrently placing younger technocrats – “30-35 aged stuff,” as the president characterized them – into positions of authority. Nazarbayev also emphasized that the country’s legal infrastructure – including the tax code – has been strengthened in order to foster economic predictability. In addition, the president said the government would pay close attention to agricultural reform, adding that measures already adopted had managed to ease a demographic crisis, in which a lack of economic opportunities in rural areas was accelerating the depopulation of the countryside. “Now we have achieved the reverse situation, in which people strive to move from cities to the regions,” Nazarbayev said.

A major element in the Kazakhstani strategy is accession to the World Trade Organization. Foreign Minister Kasymzhomart Tokayev stated in mid March that Kazakhstan aimed to join the group in 2007. In his state-of-the-nation address March 1, Nazarbayev pledged that Kazakhstan’s legislative framework would soon conform to WTO standards. WTO accession would open “vast opportunities for strengthening Kazakhstan’s competitiveness,” Nazarbayev said.

To further enhance the country’s global standing, Astana continues to seek the OSCE chair in 2009. During a late March visit to Kazakhstan, Belgian Foreign Minister Karel de Gucht, the current OSCE chairman-in-office, characterized Kazakhstan’s bid as “both a challenge and an opportunity.” He added that Kazakhstan was the “worthiest candidate” in Central Asia, which he described as a “very important” region. “For the OSCE, it is very important that in the future, one of the countries that, as we say, is ‘east of Vienna’ should chair the organization,” de Gucht said.

The engine for Kazakhstan’s economic growth is its abundant oil and gas resources. [For additional information see the Eurasia Insight archive]. The country’s energy riches mean that the economic targets set by Nazarbayev should not be considered unrealistic, experts say. Still, the country has a long way to go. The big question is whether the country can maintain double-digit growth. The existing energy market may be favorable, but can it last for the next decade?

Edward Parker, the Head of Emerging Europe Sovereigns of Fitch Ratings, a London-based international ratings agency, is tending towards optimism. Maintaining the current growth pace would enable Kazakhstan’s GDP to “double roughly every seven years,” enabling the country to “overtake the income levels in many other countries and gradually close some of the gap with the wealthiest countries in the world,” Parker said.

A Kazakhstan investment conference in London, held March 15-17, suggested that Parker’s optimism is widespread in global financial circles. The general belief at the conference was that fast-paced growth was maintainable. “Who would have thought 10 years ago that a Kazakh company would be listed in the London Stock Exchange?” asked a conference participant, referring to the mining company, Kazakhmys, the world’s 10th largest copper producer.

Another sign that global markets are ready to bet on Kazakhstan was the fact that a high-ranking New York Stock Exchange representative attended the gathering. David Griffiths, the exchange’s senior managing director for Europe, the Middle East and Africa, said his participation at forum was “the first major involvement by the NYSE in a dialogue with Kazakhstan.” He added, “we want them [Kazakhstani companies] to come and be listed in our NYSE.”

Meanwhile, William Veale, the executive director of the US-Kazakh Business Association, said that he expected Kazakhstani moves to reduce its reliance on the energy sector to drive growth could end up opening investment opportunities for American businesses. “Kazakhstan clearly wants to diversify its economy beyond the energy sector,” Veale explained. “As Kazakhstan moves to make these other sectors attractive for sustained investment ... a greater array of American firms is likely to become interested in Kazakhstan, and in markets of the greater Central Asian region.”

Recent developments, however, may give potential American investors reasons to pause. Nazarbayev during his April 3-5 visit to Moscow appeared to make a significant geopolitical turn away from the United States. He endorsed close economic cooperation with Russia, as well as the formation of a Moscow-involved Eurasian Union. [For background see the Eurasia Insight archive]. The development of such a union, possibly establishing a free-trade zone encompassing Russia, Belarus and Central Asian states, would put the United States, and US firms, at a severe disadvantage in the region.

Following the Soviet collapse in 1991, the United States forged a close working relationship with Kazakhstan, as Washington was attracted by the Central Asian nation’s energy reserves. In recent years, though, the relationship seems to have weakened significantly. A significant factor hampering close political ties is the so-called Kazakhgate case pending in a New York federal court, in which an investment banker stands accused of routing millions of dollars in bribes to Nazarbayev and another former official from Western oil firms trying to secure energy development contracts. [For background see the Eurasia Insight archive].

Another factor that has damaged the US-Kazakhstani relationship is the perception that Washington played a major role in engineering the regional revolutionary phenomenon of 2003-05. [For background see the Eurasia Insight archive]. US officials adamantly deny trying to foment regime change in the Caucasus and Central Asia in the name of democratization. Nevertheless, having watched Uzbekistan be buffeted by upheaval in 2005 [For background see the Eurasia Insight archive] and Kyrgyzstan rapidly sliding toward “faltering state” status following its revolution [For background see the Eurasia Insight archive], Kazakhstani officials appear convinced that the Bush administration’s democratization agenda poses a major threat to regional stability.

Accordingly, Astana now seems to be counting on Russian and China, two countries that have traditionally stressed political stability over individual rights, to help act as guarantors of stable economic development. A primary motive causing Kazakhstan to press for regional integration is the fear that some of its neighbors – namely Uzbekistan and Kyrgyzstan – remain vulnerable to upheaval, due to Tashkent’s refusal to reform, and Bishkek’s apparent inability to contain rampant crime and corruption. [For background see the Eurasia Insight archive]. If such upheaval occurs, there is the very real possibility that disorder could rapidly spread across the region, threatening Kazakhstan’s development plans. Forging a regional economic union, therefore, is seen by Kazakhstani leaders as the prime means of limiting the political risks to their development agenda.

“Structural modernization [in Central Asia] is an urgent demand,” Tokayev said during his visit to Britain in March, speaking about neighboring Central Asian governments. “The lack of political will or the inability to carry out profound reforms may bring the ‘failing state’ phenomenon into the region. Nazarbayev’s recent visit to Uzbekistan underscores Kazakhstan’s diplomatic strategy of embracing neighboring states tightly. [For background see the Eurasia Insight archive].

The strengthening of cooperation among Central Asia states and Russia stands to squeeze the United States out of a major role in regional political and economic affairs. Without considerable political clout to back them up, small- and medium-sized US firms would certainly be skittish about entering the Central Asian market.

It is unlikely, given the high stakes in the regional energy contest, that Washington will cede its influence willingly. Indeed, according to diplomatic sources, US and Kazakhstani officials are discussing the possibility of reciprocal state visits by Nazarbayev and US President George W. Bush. A US diplomatic counter-move would likely come during those visits, if they occur. Some analysts believe a centerpiece of any summit meetings would be a firm Kazakhstani commitment to participate in the US-backed Baku-Tbilisi-Ceyhan pipeline.