The cross­roads of the new Silk Road:

The world’s big­gest land­locked coun­try is open for busi­ness but only half-ready for it

The Ukrainian Week - - CONTENTS -

Kaza­khstan is open for busi­ness but only half-ready for it

WHEN an au­thor­i­tar­ian ruler builds a gi­gan­tic dark globe, he should not be sur­prised that peo­ple call it the “Death Star”. But whereas the Death Star from “Star Wars” was a tool for wip­ing places off the map, the Kazakh pavil­ion at Expo 2017, which opened in June in As­tana, Kaza­khstan’s cap­i­tal, is sup­posed to put the Cen­tral Asian coun­try of 18m on the map, es­pe­cially for in­vestors. The Death Star cel­e­brates tra­di­tional forms of Kazakh hos­pi­tal­ity, such as giv­ing guests a warm coat, or a sheep’s head for sup­per. A shop­ping mall named af­ter the old Silk Road of­fers fancy sou­venirs. Kaza­khstan is at a cross­roads, both lit­er­ally and fig­u­ra­tively. Ge­o­graph­i­cally, it is sand­wiched be­tween Rus­sia, China and the Mid­dle East, astride once and fu­ture trade routes. The pres­i­dent, Nur­sul­tan Nazarbayev, is ea­ger to turn this lo­ca­tion to Kaza­khstan’s ad­van­tage, by join­ing China’s “Belt and Road” pro­gramme of new trans­port links be­tween Asia, Europe and Africa. Over the past two years Chi­nese cash has cre­ated a mas­sive freight-rail hub at Khor­gos, span­ning the bor­der be­tween the two coun­tries. Xi Jin­ping, China’s pres­i­dent, vis­ited the Expo on June 8th, and purred that the two coun­tries should be “part­ners for­ever”. The other cross­roads is his­tor­i­cal. Kaza­khstan has a choice: open up or stag­nate. This is not easy, given how much the coun­try has suf­fered from for­eign dom­i­na­tion in the past. The Sovi­ets forced no­madic Kazakhs into col­lec­tive farms at gun­point, wip­ing out a quar­ter of the pop­u­la­tion. They used Kazakh ter­ri­tory both as a gu­lag and a nu­clear test­ing ground, de­lib­er­ately ex­pos­ing chil­dren to ra­di­a­tion to mea­sure its ef­fects.

NO NO­MAD IS AN IS­LAND

Few ex­pected an in­de­pen­dent Kaza­khstan to thrive, but it has done bet­ter than any of its Cen­tral Asian neigh­bours. That is thanks mainly to gush­ers of hy­dro­car­bons. Oil and gas ac­counted for 58% of ex­ports last year; the mam­moth Kasha­gan oil­field is one of the big­gest dis­cov­er­ies in the world in re­cent decades. But rea­son­ably com­pe­tent gov­ern­ment has also played a part. Real out­put per per­son rose from $1,600 in 1990 to $14,000 in 2013 (see chart). Mr Nazarbayev, who has been in charge since Soviet days, spent much of the wind­fall con­jur­ing As­tana out of a patch of nearly de­serted steppe. The move to the new cap­i­tal al­lowed the civil ser­vice to marginalise many crusty old hands, who stayed be­hind in the pre­vi­ous cap­i­tal, and to pro­mote young mod­ernisers, who moved.

FOR MOST KAZAKHS, FREE EN­TER­PRISE IS A NOVEL CON­CEPT. NO ONE CAN RE­MEM­BER A TIME WHEN THE STATE DID NOT DOM­I­NATE THE ECON­OMY. MANY FIND IT RE­AS­SUR­ING

In the past three years the oil price has crashed and Kazakh belts have tight­ened; eco­nomic growth has fallen from 6% in 2013 to 1.1% last year, though the IMF ex­pects it to re­cover some­what this year and next. The gov­ern­ment dipped into the na­tional pen­sion fund to cover some of the costs of Expo, in­fu­ri­at­ing many. “Have you seen our pen­sion money ex­plod­ing?” grum­bled one Kazakh af­ter the open­ing fire­works dis­play.

Sam­ruk-Kazyna, the Kazakh sovereign-wealth fund, is plan­ning to sell shares in the firms it con­trols. Kazatom­prom, the world’s largest ura­nium pro­ducer, will prob­a­bly float up to 25% of its shares next year, says Bal­jeet Gre­wal, a di­rec­tor of Sam­ruk-Kazyna. The next big of­fer­ings will be of Air As­tana, the na­tional car­rier (of which BAE, a Bri­tish firm, owns 49%), and KazMu­naiGas, the state oil and gas gi­ant, per­haps in 2019 or 2020, she says. The prime min­is­ter, Bakytzhan Sag­in­tayev, sounds ad­mirably pro-mar­ket: he calls state-owned firms “di­nosaurs” and talks of the need to al­low more com­pe­ti­tion.

Be­tween 2016 and 2017 Kaza­khstan jumped from 51st to 35th place on the World Bank’s ease of do­ing busi­ness rank­ings, with big im­prove­ments in how straight­for­ward it is to get con­struc­tion per­mits or elec­tric­ity. A dig­i­tal por­tal for ba­sic in­ter­ac­tions with the state has curbed low-level cor­rup­tion. Of­fi­cials used to de­mand bribes from ap­pli­cants for busi­ness per­mits. “But now

it’s bet­ter,” says an en­tre­pre­neur who runs a dance stu­dio. The pres­i­dent vows that, by 2025, the coun­try will switch to the Latin al­pha­bet, since English is the lan­guage of global com­merce (and per­haps be­cause dump­ing Cyril­lic script is one in the eye for the Rus­sians).

When the Expo is over, the site will be­come home to the As­tana In­ter­na­tional Fi­nan­cial Cen­tre, a would-be re­gional stock­mar­ket and fi­nan­cial hub. Firms op­er­at­ing there will be sub­ject to rules based on English com­mon law, en­forced by in­de­pen­dent courts, the gov­ern­ment prom­ises. The aim is to re­as­sure in­vestors, who might other­wise be ner­vous of sink­ing money into a coun­try that scores as badly as Rus­sia on Trans­parency In­ter­na­tional’s cor­rup­tion league ta­ble.

All this sounds good. But Kaza­khstan has been promis­ing big pri­vati­sa­tions for seven years, yet has de­liv­ered only small ones. The bank­ing sys­tem is rick­ety. Oli­garchs will labour might­ily to block re­forms that harm their in­ter­ests. For­eign in­vestors may not be­lieve as­sur­ances about the rule of law, since this “de­pends on the word of one man”, as a lo­cal an­a­lyst puts it.

An­other prob­lem is that, for most Kazakhs, free en­ter­prise is a novel con­cept. No one can re­mem­ber a time when the state did not dom­i­nate the econ­omy. Many find it re­as­sur­ing. Con­sider Yezmek Kazhenov, a typ­i­cal en­tre­pre­neur. On dis­cov­er­ing that ap­ples orig­i­nated in Kaza­khstan, he de­cided to grow the fruit to make jam, juice and sweets. He bid for a plot of sta­te­owned land, not with money, but by show­ing a bu­reau­crat his busi­ness plan. He was given the land free of charge. The state will pay 35% of his work­ers’ wages for the seven years it takes his trees to reach ma­tu­rity, and will build a road to help him get his crop to mar­ket. He is de­lighted; this al­lows him to carry on run­ning two cafés in As­tana, more than 1,000km from his or­chard. He is also look­ing for a white-col­lar job with a salary. One can see why a sparsely pop­u­lated pet­rostate would pay its cit­i­zens to oc­cupy land that its neigh­bours might covet. But such cod­dling is un­likely to fos­ter ef­fi­ciency.

Hop­ing to raise pro­duc­tiv­ity, the gov­ern­ment last year passed a law al­low­ing for­eign­ers to rent farm­land for up to 25 years. This sparked mass protests—Kazakhs fear that Chi­nese mul­ti­tudes will oc­cupy their empty land and never leave. The gov­ern­ment was forced to put the plan on hold. For the same rea­son, it has been re­luc­tant to let in Chi­nese labour­ers to build Belt-and-Road in­fra­struc­ture. Kazakhs are also ner­vous of Rus­sia. Vladimir Putin has claimed the right to in­ter­vene wher­ever eth­nic Rus­sians are in trou­ble, and a fifth of Kaza­khstan’s pop­u­la­tion is Rus­sian.

Kaza­khstan’s gov­ern­ment is nowhere near as abu­sive as some of its neigh­bours. But dis­si­dent me­dia are crushed, crit­i­cism of the pres­i­dent is taboo and Mr. Nazarbayev was re-elected with 98% of the vote in 2015. He turns 77 on July 6th and has no clear suc­ces­sor. Last year he ap­pointed his daugh­ter to the Sen­ate, prompt­ing spec­u­la­tion that he is groom­ing her for the top job. “The tran­si­tion has started,” says an ob­server in As­tana, cit­ing new draft amend­ments to the con­sti­tu­tion. These would re­duce the pow­ers of the pres­i­dency for any suc­ces­sor, while main­tain­ing Mr Nazarbayev’s unique sta­tus as the “First Pres­i­dent”. As such, he is for­ever im­mune from ar­rest or even from hav­ing his bank ac­counts snooped on.

Big plans. When the Expo is over, the site will be­come home to the As­tana In­ter­na­tional Fi­nan­cial Cen­tre, a would-be re­gional stock­mar­ket and fi­nan­cial hub

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