The crossroads of the new Silk Road:
The world’s biggest landlocked country is open for business but only half-ready for it
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