BRICKS & MORTAR: Kazakhstan gambles on Kapchagay development

By bne IntelliNews October 20, 2008

Clare Nuttall in Almaty -

A handful of building sites are the first signs of the transformation the sleepy lakeside town of Kapchagay will undergo in the next two decades. One of Kazakhstan's two designated gambling zones, Kapchagay will soon see the creation of a $10bn casino city. A major tourist resort will later be built here as part of the $20bn G4 City project.

G4 City is an ambitious mega-project to build four ultra-modern satellite towns between Almaty and Kapchgay, 90 kilometres to the north. Gate City, Golden City, Growing City and Green City will be devoted to residential property, culture and entertainment, industry and logistics, and tourism respectively. The project was initiated by Caspian Investment Holding in 2006 and is due to start construction next year.

The idea of building satellite cities to the north of Almaty is nothing new. Given the city's location, surrounded by mountains to three sides and with a high risk of earthquakes on the Almatinsky Alatau foothills, the option of building out to the north is an obvious solution to its growing population. Soviet-era planners envisaged a network of eight satellite cities, but they were never built. "The need for the project is self-evident. Almaty is over-crowded and there are no empty lots available for further development," says Yerzhan Durumbetov, commercial director of G4 City and managing director of Seven Rivers Capital.


The project will be funded by a combination of private sector and government funding. On June 13, the government allocated more than KZT1bn (€6.2bn) within the 2008 budget. KZT13bn has been allocated to the project within the state residential construction programme for 2008 to 2010.

Most of the funding provided by the government will be targeted at infrastructure - which will include a fast public transport system in addition to schools, hospitals, utilities and other necessary services. The dilapidated road connecting Almaty and Kapchgay will be replaced with a new six-lane highway, to be built on a concession basis.

Construction will start first at residential Gate City, the town closest to Almaty. Durumbetov notes the urgent need for affordable residential housing in the city, despite the burst of the housing bubble in Kazakhstan. He points out that average living space per person in Almaty is just 16 square metres (sqm), compared to an average of 48 sqm in EU countries. "There should be at least 22 sqm per capita. There is an immediate demand for more than 12m sqm of residential space in Almaty alone, and the same amount in the surrounding region," he says. "Kazakhstan has experienced a huge construction boom for several years. We believe that not only will continue, it will become even bigger than before. The demand was there 20 years ago, it is still there, and it will be there for another 20 years."

The first phase of the project, which has been fully approved by the Kazakh government, will be the construction of a 181-hectare development to house around 30,000 people. Seven Rivers is currently in negotiations with several banks and other financial institutions to set up partnership agreements, as it intends to sell the apartments with built-in mortgages.

Outside expertise was brought in to draw up the plans. The original masterplan for G4 was drawn up by South Korea's Space Group. Australian firm Kann Finch then did the architectural design work, and a local design institute has been set up to ensure conformity with Kazakh standards. Durumbetov says the team didn't even look at the Soviet era plans - "the only similarity would be the word satellite". However, the Australian architects, he says, were very much influenced by old Almaty. "They really liked the way urban design works in the city with the wide streets and good pedestrian access. Although they brought new ideas they were inspired by Almaty's heritage and the old Almaty feeling."

In the next town, Golden City, is intended to become a cultural, entertainment and education centre, with plans for an Olympic stadium, a safari park and winter mini-golf facilities. Further north, Growing City has been designed as an industrial complex. G4's planners hope to encourage existing businesses to relocate by offering economic incentives and modern industrial space, of which there is a shortage in Almaty.

"Growing City will become the logistics hub and an inland free port, serving not just Almaty but cargo going from China to Europe," says Durumbetov. "The government has already announced plans to build a new line which will go exactly through Growing City."

Green City, on the southwestern shores of Lake Kapchgay, will be a recreation and tourist centre comprising hotels, an oceanarium, a yacht club and other tourist attractions. It is likely to be the last section of the project to be completed. However, new hotels are being built along the lake shore in anticipation of the town's development when the planned gambling hub gets underway. "Obviously there will be some positive effect from that city. Although it's not part of our project, we call it G5 among ourselves, 'G' for gambling," says Durumbetov.

Betting on tourism

Concerned about the spread of gambling and its effect on the country's moral development, the Kazakh parliament voted in 2006 to limit casinos to two special zones, one in the town of Schuchinsk, north of Astana, and the other in Kapchagay. But the population's moral health was not the only consideration; by creating two gambling hubs, the government hoped to kick start the tourist industry.

The initial impact has been underwhelming. Nearly two years since the law came into force, Kapchagay has "just two casinos and a gaming hall," points out Guenther Ziemlich, CEO of Central Asian Tourism Corp. Sceptical locals have sarcastically dubbed the project "KazVegas", and those who I met on the shores of Lake Kapchagay had come not for roulette or slot machines but to splash in the lake and deepen their tans.

Meanwhile, the hard core of Kazakh gamblers visit the illegal clubs that still operate in Almaty, where $5,000 in cash and a personal introduction secure them a place at the tables. Others drive south to the pleasant Kyrgyz capital Bishkek, where most Almaty casino owners - shunning Kapchagay - have relocated and offer free transport and hotel rooms to their clients. Almaty gamblers can continue to play in Zodiac, Aster or Volcano, as well as indulging in various other vices; the widening economic gulf between Kazakhstan and Kyrgyzstan has caused the latter to be seen as a sort of local Bangkok.

However, the Kazakh government hopes this will change when the plans to create "The Vegas of the Steppe," as it is termed in promotional literature, come to fruition. According to the Ministry of Tourism, the Lake Kapchagay resort should be completed by 2013. As well as casinos and hotels, plans include Sea Dragon tower, which will be the highest tower in Kazakhstan, a Kazakh Loch Ness, and an artificial island linked to the shore with replicas of London's Tower Bridge and New York's Brooklyn Bridge.

In June, the chairman of casino developer Eighth Wonder, Mark Advent, signed a preliminary agreement to develop the first stage of the complex. Eighth Wonder may invest up to $3bn, and several developers from China and other Far Eastern companies are also understood to be interested.

Ultimately, the project's success will depend on its developers' ability to attract gamblers from abroad. The Kazakh government hopes Kapchagay will exercise the same international pull as Las Vegas, but others are less optimistic. "In my opinion, this will not attract Europeans to Kazakhstan," Ziemlich argues. "A special kind of people come here - they are looking for beautiful mountains and outdoor activities. They go to Issyk-Kul; they don't go to Kapchagay."

Closer by, however, is the enormous community of Asian gamblers, a market that a Merrill Lynch study forecasts will grow to a staggering $71bn in the next four years alone. In the five years since its casinos were legalized, Macao has overtaken Las Vegas in the gambling stakes, ringing up $6.95bn in revenues in 2007. Kapchagay, just 640km from the Chinese border, is a big gamble on the Asian market.

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BRICKS & MORTAR: Kazakhstan gambles on Kapchagay development

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