Clare Nuttall in Almaty -

Kazakhstan is set to maintain steady economic growth of around 6% in 2012. The country is well prepared to weather a global economic slowdown, although its performance will depend on the impact of global events on commodity prices.

Oil prices in particular will determine the pace of growth in 2012. China accounts for an increasingly large proportion of Kazakhstan's hydrocarbon and metals exports, insulating the country to an extent against the growing difficulties in the Eurozone and Russia. But a strong global slowdown would affect the Chinese economy, thus curbing growth in Kazakhstan.

Investment banks Visor Capital and Troika Dialog forecast 6% growth in 2012. Visor forecasts a fall in inflation from around 11% in 2011 to 8% in 2012, and provided oil prices stay above $70 sees no reason for any depreciation in the tenge.

Troika forecasts that the Kazakhstan economy will do well if oil prices remain at $80 or above. "This will depend on events in the Eurozone and elsewhere in the world since Kazakhstan is a small open economy that lives to a large extent off export revenues," says Askar Yelemessov, chairman of the board of directors at Troika Kazakhstan. "A deepening of the crisis in the Eurozone could cause a fall in demand for energy resources."

Even in the case of an international slowdown, Kazakhstan is much better able to weather a crisis than it was at the start of the previous crisis. "Kazakhstan is in much better shape than it was in 2008, when the country was doubly hit by the implosion of the real estate bubble and the sharp fall in commodity prices," says Jean-Christophe Lermusiaux, managing director and head of research at Visor. "Today, reserves are at a record high, amounting to around $70bn cash net of debt, and M3 coverage is 110%. Kazakhstan is not immune to stress, but is definitely in a healthier position."

Politicians caught on the hop by the last crisis are determined to pre-empt future threats to the economy. A high level of government investment has been maintained, primarily through the Forced Industrial and Innovative Development Programme, which was approved in February 2010 with the aim of boosting GDP to 50% higher than in 2008 by 2014. Recently, government officials have outlined contingency plans in case further stimulus is needed.

On the ballot

One of the first events of 2012 will be Kazakhstan's parliamentary elections, which were brought forward to January 15, ostensibly to get the poll out of the way and free up the government to focus on the economy (though some suspect it might be to free President Nursultan Nazarbayev to go abroad again for further treatment of his reported prostate cancer).

Kazakh elections have few surprises; the ruling Nur Otan party is virtually certain to take most of the parliamentary seats with a few going to Ak Zhol. A "Kazakh spring" is highly unlikely in a country where stability is prized. January temperatures as low as -40° Celsius in the capital Astana are expected to keep even the most determined opposition activists off the streets.

There have been hints from Astana that Karim Massimov, Kazakhstan's longest-serving prime minister, could be replaced by either his deputy Umirzak Shukeyev or Timur Kulibayev, chairman of the sovereign wealth fund Samruk-Kazyna and President Nazarbayev's son-in-law. However, a major change in policy is not anticipated. "Even if the government does change after the January 2012 elections, I don't expect many changes because the main government programmes have been adopted and are already in progress," says Yelemessov.

The bigger question looming on the horizon is who will lead the country after Nazarbayev, who turned 71 three months after being re-elected in April 2011 and is believed to have undergone treatment in Germany for prostate cancer in the summer.

Sharing the country's wealth

Also coming up in 2012 are the first of the "People's IPOs" - the sale of minority stakes in some of Kazakhstan's largest state-owned companies. Originally scheduled for 2011, the first IPOs - probably of national carrier Air Astana, pipeline company KazTransOil and electricity grid operator KEGOC - are due to take place in mid 2012. However, further delays can't be ruled out.

Despite diversification efforts, Kazakhstan's economy remains centred on natural resources. The infrastructure sector is also booming, driven by state investment. The 2,787-kilometre-long Kazakh section of the Western Europe-Western China highway is due to be completed by 2013. National rail operator Kazakhstan Temir Zholy is investing into new infrastructure and joint ventures to produce modern locomotives and rolling stock. "Kazakhstan is a huge country and the government is very serious about investment in roads and railways. Russia increasingly uses public-private partnerships to fund infrastructure investments, and we may see a similar approach in Kazakhstan," says Ivan Tchakarov, chief economist at Renaissance Capital.

Kazakhstan achieved a record harvest of 29.3m tonnes of grain in 2011, and has the potential to further increase food production. However, investments in modern processing and storage facilities are desperately needed.

The banking sector has recovered to a great extent since the dark days of 2009, which saw the nationalisation of two top four banks, BTA Bank and Alliance Bank. However, despite a $10bn debt restructuring deal struck in 2010, BTA is again in difficulties. As of December, BTA was preparing new restructuring proposals to submit to the government and the central bank. Kulibayev has indicated that Samruk-Kazyna may bail out the bank a second time.

Lending started to revive in 2011, although banks remain cautious. Levels of non-performing loans are high, at 35.6% of total loans as of October, in part because Kazakhstan's tax code disincentivises banks from writing off bad loans. Changes to the tax law and the launch of a new distressed asset fund have been expected for more than a year.

2011 saw positive changes for the business environment. Kazakhstan was among the top reformers on the World Bank's "Doing Business" 2012 report, entering the top 50 countries on the ranking for the first time. Kazakhstan's biggest improvements were in the categories relating to investor protection and the tax regime.

Kazakhstan was one of the founder members of the Customs Union alongside Russia and Belarus, and the three countries will create a single economic space from January 2012. Together with the Russian government, Nazarbayev is pushing for deeper integration.

The bad news in 2011 was that Kazakhstan's carefully guarded reputation as an oasis of stability in Central Asia has been tarnished by a series of terrorist attacks. The most serious so far was in the southern city of Taraz on November 12, when a lone gunman killed seven people before blowing himself up. So far the attacks have mainly targeted the security services, rather than the general population or business interests

Despite the uncertainties ahead in 2012, Kazakhstan is set for strong growth in the medium-term as several major natural resources projects are due to start production. "2012 depends on the global context more than on growth projects, but we expect to see significantly higher production of Kazakhstan's main commodities in the next three to five years," says Lermusiaux.

These include the offshore Kashagan oilfield, where commercial production is due to start in 2013. Kazakhmys is developing major new deposits. Kazatomprom has the ability to ramp up uranium output when necessary. The Kazakh government is also close to a deal with the international consortium operating the Karachaganak gas condensate field, which would see state-owned NC KazMunaiGas take a 10% stake in the project. Once this is signed, planning for Karachaganak's third phase of development can go ahead. "Most of the large projects, especially those in the mining sector, are already funded," Lermusiaux points out. "However, some quasi-government companies do need money or there could be a bottleneck. NC KazMunaiGas, for example, needs around $20bn to fund its plans over the next four years."

On the back of the expected increase in oil, gas and metals production, Kazakhstan's government hopes to see GDP per capita reach $15,000 by 2015, which would put Kazakhstan among the world's high-income countries.