As Kazakhstan emerges from the economic slowdown, the country is moving from strength to strength and is working to diversify and industrialize its economy. Clare Nuttall reports
THE UPTURN IN commodity prices in late 2009 was a considerable boost for the Kazakh economy, immediately creating confidence that the crisis was over. With the restructuring of debt at two top banks, the foundations are now being laid for future growth.
This optimism was vindicated in the first quarter of 2010, when according to government data, GDP grew by 7.1 percent year-on-year. “The major economic figures are positive,” says Grigori Marchenko, governor of the National Bank of Kazakhstan, the central bank.
Kazakhstan has maintained a high level of reserves thanks to the rise in oil prices. As of February 2010, the central bank’s net reserves were more than $27.5 billion, and the National Fund’s reserves more than $25.2 billion – totaling $52.7 billion. This was somewhat higher than the pre-crisis level of $47 billion despite the use of National Fund money to support the economy during late 2008 and 2009. In addition to injecting liquidity into the top four banks, the Kazakh government, through the Samruk-Kazyna state welfare fund, also provided a multi-billion dollar support package. Directed at sectors including real estate, agriculture and infrastructure, the package helped to shore up the economy and keep unemployment under control during the first three quarters of 2009.
The problems in Kazakhstan’s banking sector are now close to resolution, with an agreement on the restructuring of Alliance Bank’s debt already signed. The creditors of Kazakhstan’s largest defaulter, BTA Bank, were due to restructure the bank’s $10 billion of debt over the summer. It is expected to remove much of the uncertainty that plagued the market through 2009.
The government’s focus is now on encouraging banks to start lending again, in order to channel funds into the real economy. The country’s top banks including Halyk Bank, Bank CenterCredit, and ATF Bank have substantial liquidity but so far have been cautious about lending. “The key objective for 2010 is to motivate banks to lend again,” says Marchenko.
So far the economic recovery has been largely linked to higher commodity prices. In addition to oil and gas, Kazakhstan has also made progress with production of other commodities. It overtook Australia and Canada to become the world’s largest uranium producer in 2009, and data for the first
quarter of this year showed a 63 percent rise in uranium production. The country’s largest diversified mining companies ENRC and Kazakhmys also reported an increase, and are pushing ahead with major investment projects.
Within the oil and gas sector, the opening of two pipelines at the end of 2009 open up the potential for exports to China. The Kenkiyak-Kumkol oil pipeline links existing pipelines in Kazakhstan, making it possible to export oil from west Kazakh oilfields to China, as well as to deliver oil to South Kazakhstan. The Central Asia-China gas pipeline, which opened in December 2009, runs from Turkmenistan via Uzbekistan and Kazakhstan to China.
While there have been some cutbacks to investment in the hydrocarbons sector, international investors have been under considerable pressure to keep up with their investment commitments. The massive offshore Kashagan development is due to start commercial production in 2012 and provide a major boost for the Kazakh economy.
The government has already given considerable thought to how to efficiently channel revenues from Kashagan into the wider economy. On January 21, President Nursultan Nazarbayev outlined plans to diversify and industrialize the economy in his annual state of the nation address, which set out the country’s development aims for the next decade.
“We need, first, to prepare the economy for the post-crisis development, then to achieve steady growth of the economy through forced industrialization and infrastructure development,” Nazarbayev said in his address.
“Thirdly, to actively invest in the future to achieve competitiveness of our human capital, fourthly, to provide Kazakhstani citizens with quality social infrastructure, housing and utilities. Fifthly, we must strengthen international cooperation, increase our national security, and further develop international relations.”
Some $8 billion is due to be transferred each year from the Nation Fund to the budget, with most of the money due to be used for industrialization programs; 162 projects, with a total cost of 6.5 trillion tenge, have been identified. The main aims include the upgrade of Kazakhstan’s existing petrochemicals plants, the construction of a new gas processing plant, and the completion of new power stations at Balkhash, Moinak and Ekibastuz. Development targets for the processing, agriculture, industry, energy and transport sectors have also been set.
“In the past there have been various diversification programs that for one reason or another did not succeed. The newly announced program is more promising,” says Michael Weinstein, the European Bank for Reconstruction and Development’s country director for Kazakhstan. “The priority sectors Nazarbayev has selected are the right ones. Rather than looking at high-tech sectors, the government is targeting sectors such as pharmaceuticals, chemicals, petrochemicals, metals, construction materials and fertilizers – the things the country needs.”
In addition to state funding, the government also hopes to attract foreign investment for key projects. The country already has a long-term goal of entering the top 50 countries on the World Bank’s Doing Business index (in 2010 it was in 63rd place). There are also specific plans to cut the cost of starting a business by 30 percent in the 2010 financial year.
Kazakhstan is in discussions with around 70 companies presently looking to sign new deals in the country, according to Timur Nurashev, chairman of the investment committee within the Ministry of Industry. “There are large and medium-sized companies, in chemicals, tourism, food production, machinery, metallurgy, light manufacturing and consumer products, who are really interested in investing,” he says. “They are American, Turkish, Korean, European and Chinese.”
A new law on special economic zones (SEZs) is currently being drawn up and is due to be considered by the Kazakh parliament within the next six months. A new SEZ for metallurgy may be built in the northern city of Pavlodar, and a second on the Chinese border.
In January, Kazakhstan became a founding member of the Customs Union, also comprising Russia and Belarus. It is hoped this will encourage investment to international firms planning use the country as a base for the entire common market. The government is also planning to continue with negotiations to enter the World Trade Organization.
“Kazakhstan is a good platform for companies to enter the Russian market,” says Nurashev. “We are positioning Kazakhstan not only as a market of 16 million, but 170 million with Russia and Belarus. It is also a gateway to the Central Asian region.” ?
Clare Nuttall is an Almaty-based correspondent for Business New Europe.
SOURCE: Invest in Kazakhstan 2010.