International Policy Digest

World News /08 Jun 2019

Kazakhstan – the Broken Buckle in the Belt and Road

When Chinese President Xi Jinping first announced his flagship Belt and Road Initiative in 2013, he chose to do so in Astana, Kazakhstan.

China’s decision to revive the ancient Silk Road trade route, an international corridor connecting it to Western Europe, is instrumental to its overall economic strategy. By building a new Silk Road, supported by modern infrastructure, China is creating an outlet for exports, securing a route for energy imports and utilizing its excess industrial capacity. It also serves its geopolitical agenda by expanding Chinese influence and dependence worldwide.

It should come as no surprise that Kazakhstan was chosen for the project’s launch. The Central Asian country was once the central point of the ancient trade route that carried goods and ideas between the great civilizations of the East and West. And today, due to its unique geographic location, it is once again seeking to resume its historical role as a vital link in global commerce.

To this end, China has funneled billions of dollars into the country. Over the past decade, total investments have exceeded $14 billion, particularly aimed at increasing the country’s transportation capacity.

But concerns are now starting to grow about the government’s ability to deliver on their lofty ambitions. In particular, there are worries about the viability of such major projects in a country with an underdeveloped financial sector, weak political institutions, and endemic corruption.

These shortcomings have been slowly coming to the fore, causing major disruption to the Belt and Road Initiative. Last week, one of the country’s main projects ground to a halt. The plan, with a projected cost of $1.9 billion, involves the construction of a light railway system due to start operating in 2020. The project, which forms part of a comprehensive modernisation of the capital’s public transport system, abruptly came to a standstill after the principal investor, China Development Bank, pulled out. The reason? The funds earmarked for the work were disappearing.

The Chinese bank had reportedly been sending funds to state-owned firm TOO Astana LRT which, in turn, had been depositing them in the Bank of Astana. This bank was then supposed to pay the consortium of Chinese companies contracted to construct the railway, but no funds were disbursed.

Bewilderingly, it transpires that Bank of Astana’s license had been revoked in late-2018. The fact that it was nevertheless able to continue playing a pivotal role in one of the country’s most important construction projects speaks volumes about the shortcomings faced by businesses operating in Kazakhstan.

And this isn’t the only project that has run into difficulty. One of the most ambitious Belt and Road projects, the Khorgos gateway, is also now facing distinctly underwhelming results.

Dubbed the “largest dry port in the world,” Khorgos is a newly built transport hub at the border between Khazakstan and China. With the closest sea a full 1,600 miles away, cargo here is handled by trains rather than ships. The only problem is that there isn’t much cargo to handle. In fact, a small Chinese port handles the same amount of freight in a month as this mammoth hub does in a year.

The infrastructure is in place, but in order to fulfill its potential as a sprawling logistics hub, it requires significant foreign investment. If that fails to materialise it runs the risk of becoming a glaring white elephant.

This has become a recurring theme in Kazakhstan. Desperate to portray itself as a functioning democracy that’s open for business, it embarks on ambitious projects that it simply does not have the stability or infrastructure to pull off.

Kazakhstan’s economic achievements over the past generation are undeniable, but is the country really ready to act as the centerpiece – the buckle – of the Belt and Road Initiative? Well, the evidence speaks for itself.

And things are unlikely to change any time soon. Kazakhstan holds presidential elections over the weekend to nominally replace Nursultan Nazarbayev, the man who has ruled over the country for the best part of three decades. But this is certain to be an illusory democratic exercise, designed to lend some legitimacy to the installation of a puppet president in Kassym-Jomart Tokayev.

The sad reality is that Nazarbayev will continue his reign from the shadows and the shortcomings of the highly corrupt Kazakh ruling class will persist unaddressed.