CONFERENCE CALL: Kazakhstan showcases its progress at AEF

By bne IntelliNews May 27, 2013

bne -

Kazakhstan was hosting its annual "Astana Economic Forum" May 22-24. To great pomp and ceremony, delegates came from all over the world to listen to President Nursultan Nazarbayev and most of the country's elite expound on their plans for the future.

"In late 2012 many thought the first global crisis was over, but it turned out there was no cause for euphoria," Nazarbayev said in his opening remarks. "The forces of the downturn have not been eliminated, but we are transitioning to a new stage where there will be painful bursts of financial problems. We need a basis for an anti-crisis action plan."

That was the theme of the forum and what followed was a lot of very sensible ideas for increasing cooperation, the need for real institutions for global regulation (none of which are appearing), and the benefits of recasting international relations on the basis of trust rather than self-interest.

It would be easy to pick apart this event. Sitting in the glittering Kazakh capital in the middle of Central Asia's steppe, you feel a long way from the centres of these debates in New York, Brussels and Berlin. Moreover, of all the countries to choose to host an anti-crisis conference, they picked one of the few that isn't really suffering anymore. Kazakhstan was hard hit and lost a big chunk of its banking sector, but since then the economy has bounced back and grew 4.6% in the first quarter of this year.

The panel discussions were full of Nobel Laureates and UN committee chairmen (the event is co-hosted by the UN), alongside a smattering of European heavy hitters like former International Monetary Fund (IMF) head Dominique Strauss-Kahn. But the audience was mainly made up of Kazakh functionaries, consultants and academics. There was a distinct lack of international businessmen, investment bankers or anyone from the international press corps.

Is that a problem? The knee-jerk reaction would be to say yes, but coming to this ersatz capital over the years and you can't help but be impressed by the progress. The mayor of Astana, speaking on one panel, pointed out that the population of Astana has quadrupled in size and its share of the country's GDP has ballooned 70-fold. There is clearly an emerging middle class and the long lines of empty shop fronts that I saw on my last visit two years ago are now chock full of products and shoppers. The appearance of this middle class is a very solid foundation on which real change can be built.

The flaw in the picture is that it remains largely state money that is paying for all this. While Kazakhstan is far ahead of its neighbours in terms of attracting foreign direct investment and is making a genuine effort to attract more - the whole Astana region is in effect a giant special economic zone - the country remains a hard place to operate with all the bad habits of a hydrocarbon-based economy.

One of these is the steeply vertical nature of political power, where most of it rests in the hands of the president. This is a less-than-ideal setup, but despite this Nazarbayev, known as the "grey fox of Central Asia", has proven to be an effective leader both in terms of developing the domestic economy and also dealing with what is a geopolitical monkey puzzle of conflicting relations, surrounded as it is by wars, superpowers and a gaggle of autocratic leaders.

At home, Nazarbayev has had the confidence to delegate reforms to a group of competent managers who have been given the authority to make real change. The central bank governor, Grigori Marchenko, is a standout example here. And abroad, Nazarbayev has managed to navigate his way between the interests of his giant neighbours: the Chinese have invested in oil and gas fields and Kazakhstan built an export pipeline to delivery the fruits of this labour. At the same time, much of Kazakhstan's oil exports still go out via a pipeline jointly owned with the Russians, and Kazakhstan has been a enthusiastic advocate of Russian President Vladimir Putin's pet project, the Eurasian Economic Community.

Resource management

The country's resources are its business and so getting the foreign relations right is everything when it comes to ensuring the success of the country. Getting the domestic politics right is the key to ensuring that sufficient amounts of the country's natural resource wealth is transmitted to the general population. The lack of fund managers and foreign investors is a problem, but at this point not a very big one.

Prime Minister Serik Akhmetov said during his opening remarks dedicated to investment in Astana that the capital is now launching itself into the second phase of its development. "The first phase was about building up the productive capacity of the economy, but now we are launching the second phase which is the modernisation of the economy through adopting high technology," said Akhmetov.

Astana has been chosen as the host city for Expo2017 and is throwing itself into the job with enthusiasm on the theme of "energy for the next century." Expo2017 will be used to showcase the country (they are expecting over a million visitors). A green city will be built that's powered entirely by solar and wind power. Food venders will only sell organic products. And an electric monorail will move the visitors about between the pavilions.

It's all another state-backed initiative designed to move the country forward, from a government with a fondness for showy building projects and grand gestures. But like many of the other ideas it should bring benefits to the overall economy. For as long as Kazakhstan has its oil money, then this is the way it will go. And from this, perhaps interest from foreign investors will grow.

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