For many people the nation of Kazakhstan is a tough one to find on the map – even the Lonely Planet guide ranks its inscrutability. In fact, the most geographically astute would be pushed to correctly name all its neighbouring countries (Russia, China, Turkey the Caucasus, Iran and Afghanistan, since you ask). And probably fewer still could correctly approximate its size as roughly equal to Western Europe.
Of course, inveterate investment watchers will recognise the potential in Kazakhstan. Whether it be for the energy-rich lowlands in the west, the industrialised north, or the fertile plains of the South.
What we have is a nation that spans the hinterlands between west and east bordering two of the world’s burgeoning superpowers. But it’s not just a gateway - Kazakhstan is a land of near-mythical promise brimming with its own vast mineral resources and natural bounty. Kazakhstan’s economy is already the largest in Central Asia, so don’t make the mistake of imagining that you’ll be the first one here…
For Kazakhstan, May was full of economically and geopolitically significant developments worth exploring in the national, regional, and global contexts.
In fact, the nation recently hosted the 7th World Islamic Economic Forum in Astana, designed to assess economic challenges facing the world economy and explore ways of shaping global economic development. It also held the forum of the Council of Foreign Investors, chaired by the Kazakh President Nursultan Nazarbayev, and the annual conference of the European Bank of Reconstruction and Development (EBRD).
The significance of these events hints at Kazakhstan’s burgeoning appeal to investors and as a business destination, and the benefits of diversifying and developing the regional economy.
Of course, Kazakhstan has already taken steps to modernise and integrate its economy with the global economic system, but improvements in communications are one of the main sectors in need of investment. In fact, one of the main objectives of the EBRD meeting in the capital, Astana was to rationalise Kazakhstan’s rapidly developing economic infrastructures beginning with the major cities of Astana and Alamty - the major commercial centre of Kazakhstan – to facilitate a smoother economic development throughout the country.
Kazakh Finance Minister Bolat Zhamishev reported that the EBRD has invested over US$5 billion in Kazakhstan, planning to inject about $1 billion into the country's economy this year 2011 alone. The EBRD would also reportedly allocate 2.8 billion euros (US$4 billion) for investment projects, which have mobilised additional streams of investments into the Kazakh economy to the total of 7 billion euros.
"Considering the additional funds attracted from the EBRD partners, these investments hit $14 billion," Zhamishev said. He confirmed that $6.5 billion was invested in infrastructure projects; $3 billion in the banking industry ($400 million went to small and medium businesses); about $2 billion in the energy and mineral resources sectors; more than $2.5 billion in industry and agriculture. In total, Kazakhstan has attracted more than $122 billion in FDI since 1993.
While the long established economic orders of Western Europe and United States are reeling from the financial storm of 2008, Kazakhstan was in a far better position to enjoy the recovery. In fact, the nation has seen something of a boom in FDI inflows.
There has been major foreign investment in the Caspian oil sector, bringing rapid economic growth, averaging about 8% in the decade since 2000. By 2010, per capita gross domestic product was estimated to have grown more than tenfold since the mid-nineties.
An oil pipeline linking the Tengiz oil field in western Kazakhstan to the Russian Black Sea port of Novorossiysk opened in 2001. 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. According to a report from the BBC, Kazakhstan is also the world's largest producer of uranium.
Kazakstan has shot up from 74th to 59th place among 183 economies in the World Bank's "Ease of Doing Business" report for 2011. Ernst & Young's Investors Opinion Survey confirms considerable improvements in Kazakhstan's investment climate. However, the report did suggest that corporate governance as well as the legal and regulatory environment had plenty of room for improvement, while also nodding at much needed improvements to infrastructure were needed, as we’ve already mentioned.
"Further industrial development is impossible without modernisation and updating of the country's enterprises," President Nazarbayev explained to the Council of Foreign Investors, also emphasising the need for better energy conservation efforts. "Energy efficiency is our next pain point - just the mining and smelting complex of the country consumes more than half of energy produced in the country."
Kazakhstan's economy is growing at the rate of about 6-7% annually and the nation has ambitions to integrate into the wider global economic network. With it’s geographic location and mineral wealth, Kazakhstan can quite conceivably exert an impact on the global economy. However, the need for development in inter-regional infrastructure in the areas of energy, trade and transit is palpable.
Reforms across the board may seem a daunting prospect for some, but other economists believe that Kazakhstan is in a prime position to excel.
“For a country that represents new markets, this is an excellent way to participate in the process. You then become not just a country-participant, but a country-reformer," said Robert Alexander Mundell, Nobel Prize winner in for his work in economics.
With the economic prerogative shifting east, it’s safe to say the circus has to move through Kazakhstan before it gets there….
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