Peter Vyskovsky

Will Kazakhstan's capital become a second Dubai ?

 


A diverse portfolio of growth for Central Asia’s market leader


It is 4 am in Astana, when the majority of the European Airlines arrive at TSE airport. Is Kazakhstan’s capital sleeping peacefully ? Not really, although life  at this time is not as busy as in New York or the city of Tokyo. But like in the Japanese capital, business people here have to cope with different time zones from China to USA, if they want to become an acknowledged player in the global economy. Owed to low oil cost, energy rates are cheap and the skyscrapers in the heart of Astana present themselves blinking colourfully all through the night. My hotel check-in runs fast and easy, the staff is experienced to welcome European guests at this strange constellation of the clock. .

The skyline reminds me a bit of Dubai or Las Vegas, with different architectural styles from Greek, Roman, Chinese to houses of different European époques and finally to modern record size buildings like in the Gulf region, Far East or the USA. Kazakhstan’s new capital is just some 20 years old and still growing strongly. Thousands of young people from the countryside relocate to Astana, hoping to lead a more successful life there, either by taking jobs, which are easily found in the lively capital, or by studying at one of the modern universities of international format. More housing facilities will be needed and the building boom is unbroken. Only some 55% of the country’s inhabitants live in urban regions, 45% in rural areas, where economic progress is slow.  If you look into the faces of the young people strolling on Sunday afternoon through the green city of Astana, unlike in some other neighbouring countries, you see optimism, drive and confidence.

A fairytale legacy


Kazakhstan declared itself independent in 1991, joined United Nations in 1992 and from that moment started to shape its individual path to a self determined, bright future. The young population, focussed on education  and interested in understanding, how life works not only in the neighbouring countries, but in the leading nations of the world, is one asset  But there are many more, like the size of the country, which most of the foreigners underestimate, and its wealth of natural resources.

25 years ago a governor of a geopolitically not extremely important province, supposed to keep balance between the different tribes within Kazakhstan’s population and to supply the central power with raw material needed in places from Kaliningrad to Wladiwostok, suddenly became president of an independent nation and interestingly enough, not just a poor one, as it often happens.

Nursultan Nazarbayev, ruling the former Kazakh Autonomous Soviet Socialist Republic from 1989 until today, inherited for his country vast natural resources, jewels like the Baikonur Cosmodrome, a significant industrial potential or some research facilities transferred to Almaty during the first years of World War II as well as some challenges in the structure of the population, tensions in the cooperation with the former Soviet Union and risks concerning environmental issues. This left the Republic of Kazakhstan a mixed legacy: a population of nearly as many Russians as Kazakhs; a class of Russian technocrats, necessary to economic progress but ethnically unassimilated, and a coal- and oil-based energy industry whose efficiency was limited by inadequate infrastructure.

A delicate political balance


During the mid-1990s, although Russia remained the most important sponsor of Kazakhstan in economic and national-security matters, Nazarbayev supported the strengthening of the CIS. As sensitive ethnic, national-security and economic issues cooled relations with Russia during the decade, the president cultivated relations with China, the other Central Asian nations, and the West. Today Kazakhstan’s long-term leader is globally admired for his ability to keep the delicate political balance between the West and the two big forces in the north and east, Russia and China.

The economy of Kazakhstan is the largest  in Central Asia.  It possesses enormous oil and gas reserves as well as minerals and metals. It also has considerable agricultural potential with its vast steppe lands accommodating both livestock and grain production. Worth to mention also that biologists consider Kazakhstan’s Tien Shan mountains to be the birthplace of our  apples, with Alma Ata, the former name of Almaty, meaning nothing else than “father of the apple”.

Shifting the focus from oil and gas


The 9th largest country of the world  has been perceived globally as a supplier of mineral commodities, which include oil, nonferrous metals, and uranium. In fact Kazakhstan is the world’s 2nd supplier of uranium. Kazakhstan has been developing a rich mineral resource endowment, intensive raw materials production and exports have helped the economy to overcome some economic crises. But will this be sufficient to ensure high rates of business growth in the near future ?.

Assisted by a team of national and  international experts the government is trying vigorously to diversify its economy as insurance against other price shocks, anti-carbon global warming campaigns and that far future, when the resource does indeed diminish. This reasoning appears similar to the concept of some Gulf states, adding  logistics, tourism and other high value service sectors to their economic portfolio, but with one additional playing card in Kazakhstan’s  set, namely the metal production.

 

More income by value added manufacturing


Enrichment of production and adding value to the output of the country’s industry could be a second solution to gain more income from the given resources. Partners for an innovative plastics industry should be found. Pots and pans, rails and automotive parts could be exported instead of raw material, pre-fabricated houses instead of raw timber, recommended Peter Humphrey, an US international analyst, in December 2015 in Astana Times.

Since many years Kazakhstan is listed by the World Bank among the 20 most attractive countries for investment. But as a small economy with some 18 mio inhabitants however, it  has not been particularly attractive for investment in the manufacturing sector. Global awareness in politics, business and society is still a topic,  which the government in Astana will have to work on. A good opportunity to do so is the Expo2017, which will take place in Astana and focus on the topic of future energy solutions and their impact on our life. About 5 mio people  will be expected and the  main origin of the visitors will be China.


Financial Hub of global format  in Central Asia


A very innovative concept has been developed for the utilization of the fairground after the end of the show. Bringing in money from the National Fund, fed by the income of the national gas and oil industry  and also by privatising other large national companies, the government will copy a service business model of Dubai and create the Astana International Financial Center.

In the small Gulf state 22 of the global 30 banks are operating and seven of the world’s ten leading law firms have established  regional offices. For Astana such figures will be a long term perspective, as the former head of the Central Bank and new AIFC governor  Kairat N. Kelimbetov explained in his press conference in March 2016, just before the Parliament Election. But believing in the steady rise of Central Asia and the Silk Road Countries, the AIFC will be available from 2018 onwards  to support their different financial needs and make massive efforts to attract investors from all over the world. 

The Centre will have its own legal system in certain areas, which will be based on the principles and rules of English law and the standards of leading global financial centres. An agreement has been entered into with the DIFC Court in Dubai to advise and assist in the establishment of the new court system in this special economic zone of Astana.  Members of the AIFC will be exempt from corporate income tax, property and land taxes until 1 January 2066. Among the main goals are for the AIFC to become the centre of Islamic finance, green financial industries and FinTech expertise.
 

Cooperating and competing with Moscow


Its recent agreements with the WTO and the EU; its economic and geographical position within the Eurasian Economic Union and its ancient silk-road history offer great potential for Kazakhstan to become the hub of Central Asia once again. Maybe even at eye level with Moscow, the only major financial competitor nearby.

Growth potential could furthermore lie in the space industry. When the Soviet Union collapsed, Russia suddenly found that its main rocket launch facility was situated in newly independent Kazakhstan. Since then, the two countries have periodically squabbled over the strategic Baikonur Cosmodrome. Fact is that Russia is building its own independent Vostochny  Cosmodrome in Amur region and by 2020, launches at Baikonur should drop from 65 percent of Russia’s total to 11 percent.

Once the different interests of Russia and Kazakhstan are sorted out, however, the Roscomos launches could be substituted by projects initiated by other countries or even private companies. And space traffic consultancy could be a very rewarding add-on to the basic launch business, with French organisations standing by as attractive partners and know-how suppliers.
 

Logistics along the Silk Road


The Silk Road Project, in which China and Europe are highly interested, as well as some investors from Arabian countries, will increase  the strategic logistic position of Kazakhstan and require a new level of performance. With its new General Electric/Kazakhstan Temir Zholy locomotive plant, Kazakhstan is well equipped to export engines, railcars, streetcars and trolleys to China, Central and South Asia and may even undercut costly Japanese and Korean production.

The list of opportunities could easily  be extended, if one considers other services like tourism, transport or software development on an international scale, using the excellent  academic resources pouring out of the growing number of Kazakhstan’s universities. The Astana government will need not only funds, but a lot of creativity, energy and  scientific know how to implement all these projects in due time.

But is it not stimulating for an experienced ruler of a young nation  to be sure  about the significant growth potential of his country and to see all the eager adolescent people in the universities and manufacturing plants waiting for their opportunities to be seized ?


Peter Vyskovsky, Vienna



 

 

All rights belong to its author. It was published on e-Stories.org by demand of Peter Vyskovsky.
Published on e-Stories.org on 06/15/2016.

 

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