Clare Nuttall in Almaty -

Malaysian investors are targeting Central Asia in sectors ranging from oil and gas to Islamic finance. Although geographically distant, Malaysia shares with the Central Asian republics a religion and an economy based on natural resources.

The most recent Malaysian delegation to Central Asia, led by Prime Minister Najib bin Tun Haji Abdul Razak, was in mid-July, just a month after the Malaysian-organised World Islamic Economic Forum (WIEF) took place in the Kazakh capital Astana.

On July 11, Malaysian oil and gas company Petronas announced the signing of a gas purchase agreement with Turkmenistan's state-owned Turkmengas and the Turkmen Agency for the Use and Management of Hydrocarbons. This agreement will allow Petronas to sell gas produced at Turkmen fields. The following day, Petronas opened its gas treatment plant at Kiyanly in west Turkmenistan. Petronas head Dato Shamsul Azxarom Abbas also visited Astana to discuss cooperation in Kazakh energy projects with Prime Minister Karim Massimov.

Petronas is already active in the oil and gas sectors of Turkmenistan and Uzbekistan. Petronas is currently considering whether to build a $2.5bn synthetic liquid fuel production plant in Uzbekistan alongside together with Uzbekneftegas and South Africa's Sasol.

But Malaysia's ambitions in Central Asia go beyond the oil and gas sector.

Banking on the future

Kazakhstan wants to throw off its legacy as a post-colonial producer of raw materials and become a diversified and sustainable economy. Malaysia has already been through this process, and today is one of seven Asian countries that within a generation have transformed themselves from developing nations in the 1950s into high-income developed economies today. According to a May 2011 report from the Asian Development Bank, "Asia 2050: Realising the Asian Century", Asia's growth over the next 40 years is set to be driven by the Asia-7 economies - China, India, Indonesia, Japan, South Korea, Thailand and Malaysia.

In advance of the June WIEF, an annual event initiated in Kuala Lumpur in 2005, Malaysian Foreign Minister Datuk Seri Anifah Aman told journalists, that there is "enormous investment potential in Kazakhstan", citing sectors including Islamic finance and construction. "Kazakhstan's attractiveness has increased since its entry into the Customs Union, where it is a founder member alongside Belarus and Russia," Anifah said. "The combined population is 180m. Therefore, the opportunities that will arise are tremendous."

Meanwhile, Malaysia could help Kazakh companies to enter the markets of the Association of Southeast Asian Nations (Asean), he added.

The chairman of the WIEF, Tun Musa Hitam, said in an interview with bne there are a whole range of things we could do with Kazakhstan. "First, natural resources. Kazakhstan is a developing country and an exporter of natural resources, but to progress, it needs to go downstream," he said.

Tun Musa pointed out that like Kazakhstan, Malaysia is rich in natural resources, being one of the world's largest suppliers of tin and rubber the strategic commodities in the 1950s when the country gained its independence. "First the British made money, then we made money. We diversified, moving downstream and identifying important subsidiary industries, especially those based around tin or rubber, such as tyre manufacturing," Tun Musa said. "We are seeing a similar process in Kazakhstan, which is rich in natural resources. I see a very genuine interest in foreign investment, and determination to fast-track the diversification process."

The WIEF saw the signing of a $50m Malaysian-Kazakh deal in the energy sector. CapAsia, the private equity unit of CIMB Group Holdings took at 12.9% stake in Kazakhstan's Central Asian Electric Power Corp (Capeco). CapAsia, which invested through its Islamic Infrastructure Fund, plans to invest into the upgrade of Capeco's power plants and distribution networks, increase efficiency and reduce emissions.

Speaking during the WIEF, CIMB chief executive Dato' Sri Nazir Razak commented on the parallels between the two countries. "Countries like Kazakhstan and Malaysia, have small populations of 28m and 16m respectively. These markets are not like Indonesia, with its big domestic consumer base. To grow, we need to think beyond commodities," he said.

Malaysian firms are interested in Kazakhstan's financial sector, in particular the emerging Islamic finance sector. In June, Malaysian Amanah Raya signed an agreement with local Islamic finance company Fattah Finance and the Development Bank of Kazakhstan to set up Kazakhstan's second Islamic bank. Amanah Raya is also working with Fattah to establish a Haj fund for Kazakh pilgrims. Tun Musa told bne that in adopting legislation on Islamic banking and finance, "Kazakhstan has the right priority since no projects can move without money."

However, Malaysian firms are also interested in other sectors beyond finance and energy. Before the WIEF, Anifah indicated that a Malaysian airline - possibly Malaysia Airlines or AirAsia - might start operating flights between the two countries. The Almaty-Kuala Lumpur route is already served by Kazakhstan's Air Astana. Meanwhile, Malaysian news agency Bernama reports that the Malaysian Cocoa Board recently identified Kazakhstan and Uzbekistan as two high-potential markets for its products.