Kazakhstan Chamber of Commerce in the USA

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Transformation into a regional powerhouse

Posted on October 23, 2011 by Alex

The energy and industry of Kazakhstan’s population have turned the country around during the past two decades, writes Ben Aris

A huge country the size of Western Europe, Kazakhstan has vast mineral resources and enormous economic potential. But perhaps its biggest boon has been the energy and industry of its people, who in just two decades have transformed this country from an agricultural backwater in the middle of the Central  Asian steppe to a regional powerhouse and a major player  on the global energy markets.

The varied landscape stretches from the mountainous, heavily populated regions of the east to the sparsely populated, energy-rich lowlands in the west; and from the industrialized north, with its Siberian climate and terrain, through the arid, empty steppes of the center, to the fertile south.

Mineral wealth provides cash, but money alone is not enough to ensure the prosperity of a country. As the republic enters its third decade of independence, the combination of natural-resource wealth and liberal  economic reforms are starting to bear fruit.

With an average annual gross domestic product (GDP) growth rate of around 10 percent since 2000, the country is among the fastest-growing economies of the world and outpaces all other Central Asian states by far. By 2010, per capita GDP was estimated to have grown more than tenfold since the difficult transition period in the mid 1990s. In 2002, Kazakhstan became the first country in the former Soviet Union to receive an investment-grade credit rating.

Quick rebound

As in many other nations, the global economic crisis resulted in a lot of damage, but the backdrop of political stability, heavy investment, lower taxes and a transparent business environment have combined to fuel a quick recovery.

In response to the crisis, Kazakhstan’s authorities devalued the currency, the tenge, to stabilize the market,  and injected $19 billion in economic stimulus. Rising commodity prices also helped to revive Kazakhstan’s  economy, which registered seven percent growth in 2010.  Barring a dramatic decline in oil prices, strong growth is expected to continue in 2011.

Foreign investors are returning not only to the traditional extractive industries, but also to new areas such as train- building and the service sector, which are helping to diversify the economy. At the same time, the key sectors of energy and mining continue to receive investment to drive them forward.

Oil and mineral wealth

Kazakhstan is the most prosperous of the Central Asian states, and oil has played a key role in its development. The opening of the Caspian Pipeline Consortium link in October 2001, which connects the oilfields in western Kazakhstan with the Marine Terminal on Russia’s Black Sea coast, marked the start of the republic’s rapid growth. In 2008, Kazakhstan began pumping some oil exports through the Baku-Tbilisi-Ceyhan pipeline as part of a drive to lessen its dependence on Russia as a transit country. A pipeline to China opened in late 2005.

But the republic is also home to plentiful supplies of other minerals and metals, such as uranium, copper and zinc. Indeed, in the first years following independence in December 1991 – Kazakhstan was the last of the 15 former Soviet states to declare independence – the republic initially earned most of its export revenues from exporting metals. It remains the world’s largest producer of uranium.

New beginnings

The economy remains geared towards the extractive industries, but the government, realizing that its economy suffers from an over-reliance on these, has been making concerted efforts to diversify and modernize the economy with the development of other sectors.

Over the past decade, the republic created arguably the region’s most liberal and sophisticated banking sectors. Its high exposure to the international debt markets meant that it was badly wounded when the credit markets started seizing up, as the mortgage crisis in the United States began unfolding and the global financial crisis struck in the fall of 2008. However, rapid action by the National Bank of Kazakhstan contained the damage, and by 2010 the sector was already starting to recover.

Kazakhstan has also embarked on an ambitious diversification program. This is the central goal of the National Strategy until 2030, adopted in 1998, and the State Industrialization and Innovation Program until 2015, which was launched in 2003. In 2006, Kazakhstan additionally announced a major drive to enter the top 50 most-competitive nations in the world within 10 years.

With food prices increasing around the world, Kazakhstan will benefit, thanks to its large agricultural sector. The government has also launched programs that are aimed at developing targeted sectors, such as transport, pharmaceuticals, telecommunications, petrochemicals, and food processing.

The future of the Kazakhstan economy will be fueled by further integration into the international economic community. To that end, the republic has been building up relations with its neighbors. In 2010, the Customs Union of Russia, Belarus and Kazakhstan was formally launched – the first stage in creating a regional common economic space.

SOURCE: Invest in Kazakhstan 2011 (an official publication of the government of the Republic of Kazakhstan), p. 21-23.

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