The Republic of Kazakhstan has been termed a miraculous country in the Central Asian Region (CAR) in terms of seeking highest inflows of Foreign Direct Investments (FDIs), privatization & liberalization of economy, immense social development, resilient banking industry, diversification of economy, strong persuasion of green energy and last but not least, people, business and investment friendly policies by various international organizations and international credit rating agencies.
Its constant structural reforms have developed its service, industrial, construction, tourism, SMEs, and last but not least, exports. Its social development has further enhanced its massive drive of women empowerment which is now the highest in the region and beyond. Its education system is the real back bone of its robust economic development. Its qualitative human capital vividly reflects its leadership strategic vision which is paying its dividends.
Kazakhstan is the biggest country of the CAR in terms of GDP and of course geography. It has a land area equal to that of Western Europe. Strategically, it has become connecting hub which links the large and fast growing markets of China and South Asia with those of Russia and Western Europe by road, rail, and a port on the Caspian Sea.
Right from the beginning Kazakhstan has witnessed tremendous economic performance which remained positive, productive and participatory. Outstanding upward sustainable economic growth, supported by structural reforms, plentiful hydrocarbon resources, strong domestic demand, and foreign direct investment (FDI), has helped reduce poverty and transform the country into a smarter economy.
In the ongoing human saga and devastating crisis of COVID-19 its government responded early and introduced an effective fiscal stimulus package of roughly 6 percent of GDP directed at small and medium-sized enterprises and individual households. For the speedy recovery policy makers should further initiate integrative structural reforms to diversify the economic base by improving the competitiveness of the non-extractive sectors, including through reforms in the financial sector.
Moreover, it is suggested to limit the outsized role of state-owned enterprises, enhance competition, and create a level-playing field for the private sector. There is an urgent need to improve the quality and progressivity of public spending to address inequality. In this regard, further strengthening of public sector institutions and reinforcing the rule of law to attract much-needed investment in the non-extractive sector would be value-addition for the macro-economy of Kazakhstan.
Thus the successful implementation of structural reforms will be required to deliver more sustainable and inclusive economic growth going forward. Ongoing structural and institutional reforms should aim to transform the current oil driven and state run growth model by gradually reducing the role of the state in the economy to one that facilitates the development of a vibrant, modern and innovative tradable non-oil sector. The government of Kazakhstan has also already embarked towards non-oil economy which seems to be a timely boost to achieve optimal levels of diversification.
In this connection, efforts to restructure and privatize state owned enterprises would be expected to focus on improving the efficiency of public administration, reducing fiscal risks, and opening competitive spaces for the private sector. Development of the private sector is the need of the hour.
Moreover, prudent fiscal and monetary policies would support economic and price stability and encourage investment in the non-oil economy. Attracting and retaining more export-oriented and efficiency-seeking investment would be critical for economic transformation.
Kazakhstan is an attractive investment destination for foreign direct investment (FDI) projects seeking to access the country’s rich natural resource base. However, a more export oriented, efficiency seeking type of investment is required to enable an economic upgrade and diversification of production capabilities.
In this direction, Kazakhstan needs to attract more efficiency seeking FDI, a concentrated effort to articulate Kazakhstan’s competitive advantages for export-oriented investment which will also require renewed and strengthened efforts to unlock more reinvestments from Kazakhstan’s existing base of investors. Ideal combination of Public-Private Partnership Model (PPP) is the need of the hour in which private sector should be given priority.
For achieving this strategic goal it has already changed its investment policies, priorities and implementation mechanism to increase the attractiveness of the country for all types of investment, focusing on further investment climate reforms, investment promotion and positioning in international markets; and last but not least, privatization and public-private partnerships.
Most recently published report of the S&P Global Ratings international (2020-2021) confirmed its long-term and short-term sovereign credit ratings of Kazakhstan at the level of BBB-/A-3 with a stable outlook.
The sustainable fiscal position of the country supports Kazakhstan’s rating, including the nation’s assets in the National Fund, which accumulates oil revenues and as of June amounted to $57.7 billion, and low level of the nation’s external debt, which made $152.7 billion as of April 1, 2020.
The report forecasts a rapid recovery of Kazakh economic growth in the short term and expects the average economic growth rate to reach 3.9 percent in 2021-2023. During 2019-2020, non-oil sectors, including construction, transport, and processing industry, served as the main driver of the nation’s economic growth and will support the economic recovery and production growth in 2020-2022.
In general, S&P’s maintenance of Kazakhstan’s sovereign credit rating and the recent confirmation by the Fitch Ratings amid the coronavirus crisis should send an important message to foreign and domestic investors that the macroeconomic situation and creditworthiness of Kazakhstan remain stable.
Moreover, the Fitch Ratings credit rating latest report (August 2021)confirmed Kazakhstan’s long term development at the BBB level with a stable outlook. The agency noted that the country managed to maintain a low level of public debt that can protect it from external shocks despite the shocks associated with oil prices and the coronavirus pandemic.
Interestingly, Central Asia’s largest economy, Kazakhstan, is pressing ahead with its economic diversification agenda in the face of challenges presented by Covid-19.
Most companies in Kazakhstan are seeing a liquidity gap, but the banks are very well- positioned to deal with this thanks to the government’s liquidity support for the corporate sector.
To further diversify its energy resources green energy has become a government priority. Indeed, the sector is one of nine priority industries in Samruk-Kayzna’s investment strategy, alongside manufacturing, logistics, chemical engineering, IT, scientific research, infrastructure, healthcare and agriculture.
In this context, the past six months have brought environmental, social and corporate governance to the forefront of the agenda. Ironically, Covid-19 has increased tech opportunities in Kazakhstan.
It seems that Kazakhstan domestic has an innovative and holistic entrepreneurial spirit and companies really want to internationalise.
The past ten years of Kazakh policy have been marked by two broad trends. On the one hand, the country has maintained its plural foreign policy approach. It has demonstrated an environment of stability and predictability.
Located at the crossroads of Europe and Asia, Kazakhstan has welcomed huge investments through China’s Belt and Road Initiative program to upgrade its transport infrastructure.
The country’s most recent privatisation programme led to the dual listing of Kazatomprom, the world’s largest uranium producer, on the Astana International Financial Centre and the LSE.
Its sovereign wealth fund plans to increase its portfolio’s net asset value listing from 14 percent in 2020 to more than 70 percent by 2025. Huge state-owned companies such as KazMunayGas and Air Astana will be floated in 2022, while Kazakhstan’s national railroad company will be introduced to the stock market in 2023.
In an effort to court more strategic investors, the Kazakh government is in the final stages of implementing a new investment code that will provide foreign investors with new incentives and stable legislation for 25 years.
The country already boasts the accolade of ranking in the top 30 countries worldwide in the World Bank’s Doing Business reports in recent years.
In this direction Fitch Ratings rating (April 2021) upheld resilience of the Kazakh banking sector. The improvement stems from Kazakh banks’ strong pre-impairment profitability, robust asset structure, and large capital and liquidity buffers
Due to numerous and constant structural reforms its national economy has been diversified up to optimal levels of productivity, innovation and renewables orientations. Its banking system is the biggest in terms of deposits, finances, operations and mortgaged assets in the whole region. Its financial system is resilient, restructured and remolded up to the requirements of global system and BASEL.
Policy makers of Pakistan should learn lessons from Kazakhstan in the policy formulation of FDIs, Doing Business, friendly taxation system, diversification of economy, paradigm shift to green energy, e-commerce & government and last but not least immense SMEs growth in the country.
Being prominent regional expert of Kazakhstan, I suggest that direct air connectivity is the way forward. In this regard, Sialkot model of private partnership in aviation sector would provide the easiest solution of greater connectivity.
There is an urgent need to speed-up the work on the Quadrilateral Traffic in Transit Agreement (QTTA) which is a transit trade deal between China, Pakistan, Kyrgyzstan and Kazakhstan for facilitating transit traffic and trade.
Model of Cluster Trans-Regional Trade (CTRT) should also be reactivated and pursued. In this direction, Trade Houses in Tashkent may provide strategic opportunity to increase bilateral trade volumes between Pakistan and Kazakhstan.
Close cooperation between leading universities of both the countries should be nurtured as soon as possible. Formation of Corridor of Knowledge (CK) is the need of the hour. Cultural diplomacy should be part and parcel of rigorous commercial diplomacy.
For the further strengthening of Business-to-Business and People-to People cooperation, some pilot projects should be initiated as soon as possible. Reciprocal media cooperation will disseminate soft image projection of both the countries.
Banking and financial cooperation guarantees sustainable economic cooperation. It stimulates bilateral trade. It fosters and brightens inflows of FDIs. Thus the government of Pakistan should revise its ‘’Closure Policy’ of Banks in Kazakhstan which would be disastrous for greater regional connectivity and of course banking and financial integration in the days to come.
To conclude close military cooperation between the two countries is the need of the hour. Pakistan’s Chairman Joint Chiefs of Staff Committee Gen. Nadeem Raza is now in Kazakhstan. He met Kazakhstan’s Defense Minister Nurlan Yermekbayev and discussed bilateral relations and military cooperation between the two countries.
During the meeting, both sides focused on current military cooperation between Kazakhstan and Pakistan, combat training, and joint deployment of troops in UN peacekeeping missions.
