International Policy Digest

World News /24 Apr 2019

The Myth of the Kazakh Economy

“Let us recall how the Soviet empire fell, leaving us with confusion and emotional turmoil, a ruined economy and politics…Our first task was to build a market economy, dismantle the totalitarian system of ideology and modernise all the institutions of society. And we did this in the name of creating a modern democratic state – the Republic of Kazakhstan.”

These were the outgoing words of President Nursultan Nazarbayev. Is it really a completed job or should he take responsibility for the economic stagnation the country finds itself in as he leaves office?

Granted, there has been undeniable economic growth but this has come about against a dark backdrop of corruption. Also worrying is how heavily reliant the country is on the oil and gas sector, which makes up seventy-five percent of its exports. For the past decade, the economy has been stalling and the cracks are becoming clearer by the day– all the while Nazarbayev, his family, and his loyal associates have continued to line their own pockets.

Have no doubt, the corrupt and totalitarian regime is the biggest danger for Central Asia’s biggest economy. According to opposition leaders and human rights NGOs, corruption remains prevalent in the executive branch, law enforcement agencies, local government administrations, the education system, and the judiciary. It’s not difficult to see why.

Nazarbayev was personally implicated in “Kazakhgate,” the largest bribery case ever tried in the United States. The same year, former Prime Minister Imangali Tasmagambetov told the Kazakh Parliament that Nazarbayev had hidden $1 billion of state oil revenues in a Swiss account.

Expensive London properties have been used by Kazakhstan’s corrupt leaders to shelter looted capital. Files leaked in the Panama Papers suggest the properties have belonged, at least in part, to one or more family members of Kazakhstan’s president. They include his daughter, Daria Nazarbayeva, who is widely expected to succeed him as president.

In 2015, Prime Minister David Cameron cited the offences in a speech in Singapore, stating, “We need to stop corrupt officials or organised criminals using anonymous shell companies to invest their ill-gotten gains in London property.”

These high-profile exposés won’t surprise many. But what makes this all the more remarkable is that Kazakhstan has not recovered from the global financial crash – now more than a decade old.

Turning the clocks back to 2008, the year of the crash, the Kazakhstani sovereign wealth fund – Samruk-Kazyna – was created by Presidential decree. It owns either in whole or in part most of the major companies in the country, including the national rail, postal service, oil and gas company, KazMunayGas, and state uranium company, Kazatomprom.

Not only is the state the sole shareholder of the fund but its Chairman is loyalist Askar Mamin. He became Prime Minister earlier this year after Nazarbayev dismissed much of the Kazakh government in a power play reeking of autocracy.

The over-reliance on natural resources, managed through state-owned enterprises, coupled with a weak financial sector and a backdrop of corruption does not bode well for future stability.

Further afield, the Kazakh economy has also increasingly been squeezed and infiltrated on the international stage.

The country’s economic strategy is heavily tied into Russia’s financial and banking sector, which, in turn, has been hit with global sanctions. Russian banks such as Sberbank and VTB Bank are investors in large industrial projects in Kazakhstan, and Russia provides 12.6% of Kazakhstan’s credit market. The collateral damage inflicted has taken its toll.

Equally, the potentially lucrative Chinese Belt and Road corridor is not being used quite as intended. Kazakhstan is a transit route for Afghan opium and heroin, primarily for the Russian market but also further West into Europe. Porous borders and ineffective border management are hindering the counter-narcotics effort and, as a consequence, organised crime is rife.

In 2012, Nazarbayev created a goal for Kazakhstan to become one of the world’s top 30 most developed economies by 2050. It’s doubtful he will be alive to see the results, but his vision has been blinded by a desire for greed and taking chunks out of a once thriving economy.

While there are ongoing government efforts to diversify the economy with agribusiness, financial services, and transportation, the next leader must be wise to not let personal ambitions and corruption obstruct growth in this once thriving region of the world. The road to 2050 is a bumpy one.