ASIA CENTRAL

Kazakhstan 2015 | DIPLOMACY | REVIEW: DIPLOMACY

As Kazakhstan seeks to expand its diplomatic footprint, the country's economic interests are at the forefront of its mind. With reduced barriers to entry, and promotion abroad, the country is becoming a destination for business and travel.

In 2011, former British Prime Minister Tony Blair put his hard-won reputation on the line to advise Kazakhstan's President Nursultan Nazarbayev and assist the country in its impending political and economic transformation. With the three-term Labor leader and British foreign policy mastermind hitching his wagon to Kazakhstan, President Nazarbayev signaled the remarkable scope of his domestic and foreign ambitions in the years to come. Almost half a decade and a slew of successful reforms later, Kazakhstan is moving fast to ensure that its political stability endures, and that its economic and social advances translate into an influential position in the global community.

The role of hydrocarbon exports is a defining feature of the country, including from a political standpoint. Establishing fiscal policy and national budgets in oil-producing countries like Kazakhstan is challenging, due to the finite nature of such resources and the unpredictability of oil prices. In Kazakhstan, oil revenues account for approximately 60% of the state budget, and 33% of GDP. In line with reduced oil revenues, the 2015-17 budget is revised to take this decline into consideration. How the government, and economy of Kazakhstan cope with changes in global energy markets and economy will determine the extent to which President Nazarbayev is able to continue with his ambitious foreign policy abroad, and his internal reforms at home. But this is not the first time that the Nazarbayev administration has had to contend with tight purse strings, and he reminded the country in late 2014 that, “We need to clearly let all Kazakhstanis know that we are cutting back on our expenses." And with that, the president substantiated the belief that with fiscal discipline, Kazakhstan is on the path to expand its diplomatic footprint while maintaining the stability and predictability that make it so attractive to international investment.

DOMESTIC AFFAIRS

At home, Kazakhstan is a presidential republic, with President Nursultan Nazarbayev occupying the chief of state position—which he has held since 1991. President Nazarbayev enjoys immense popularity, with successive electoral victories leading up to his most recent electoral landslide with over 95% of the vote in 2011. The Prime Minister serves as the head of government, with HE Karim Masimov occupying the position since April 2014.

Kazakhstan's bicameral parliament is split into the senate, with 47 seats—15 members are appointed by the president and 32 members are elected by local assemblies—and the Mazhilis. The Mazhilis has 107 seats, where nine out of the 107 Mazhilis members are elected by the Assembly of the People of Kazakhstan, which is a presidentially appointed advisory body designed to represent the country's ethnic minorities, and non-appointed members are elected by popular vote for five-year terms. The most recent parliamentary elections took place in 2012, and the electoral breakdown reflects not only strong internal support for President Nazarbayev's policies but also for his ruling Nur Otan party, which pulled in 80.99% of the vote—enough to secure 83 out of the 98 seats.


FOREIGN MUSCLE

With its home affairs in order, international politics are more precarious as Kazakhstan finds itself caught between regional and global powers whose relations range from cordial, to acrimonious, or downright hostile. As a rule, while Kazakhstan has shown that it is willing to enter into agreements and treaties, its diplomats realize that enabling peaceful resolutions to conflicts, be they political or economic, is always in the country's best interests, making the country a pillar of stability in the region.

The primary task at hand for the government of Kazakhstan is to negotiate a complex web of economic and political alliances with countries that are feeling the effects of a turbulent global economy, falling oil prices, EU-Russia tensions and sanctions, and sharp declines in the ruble, and by default the tenge. To begin with, conditions in Russia reflect on Kazakhstan, which explains why President Nazarbayev has worked hard to facilitate multi-party dialogue in Ukraine. Unlike western mediators, Kazakhstan is a member of the Eurasian Economic Union (EEU), but also has warm ties with the west, giving it unique leverage in the situation. In January 2015, President Nazarbayev met with German Chancellor Angela Merkel and Foreign Minister Walter Steinmeier in Berlin to discuss the crisis in Ukraine. At the meeting, he propose hosting the heads of state meeting in Astana with the leaders of Ukraine, Russia, Germany, and France.

ECONOMIC OUTREACH

Kazakhstan wants foreign companies on board, and as the EEU takes effect, the country is perusing an ambitious economic diplomacy policy. Exemptions in line with this policy include corporate income tax, land tax, property tax, and customs duties for 10 years. To bolster the appeal of these incentives, the state is promoting its stability abroad by highlighting the stability of investment legislation, the protections in place for investor's rights, abolishing some work permits for foreign labor, and offering visa-free entry for citizens of many countries of strategic economic importance.

Kazakhstan has dropped some visa requirements for trading partners such as the US, Germany, Italy, and France. In 2014, President Nazarbayev raised the requirement for prior applications from certain countries, instead providing visas on arrival at the airport. This move has lowered the barriers to entry, making short-term business trips a matter of booking a ticket, and promoting the image of a country that is open for business. These changing protocols reflect real changes on the ground, and international interest is growing. The World Bank's Doing Business report bumped Kazakhstan up to the 50th place thanks to its, “dealing with construction permits, registering property…and resolving insolvency indicators." Meanwhile, Kazakhstan's Credit Rating for 2012 was 58, exhibiting an upward trend, and the country moved up to 68th out of 177 on the Index of Economic Freedom. The strategy is working. As of late 2014, there were 10,000 foreign-owned businesses in the country, with many global investment firms overseeing their operations from local offices, highlighting the FDI potential.

President Nazarbayev's economic diplomacy is expanding his country's reach into new economic, military, diplomatic, and economic areas. With pipeline projects in the works with China, infrastructure of that size indicates a real, as well as economic linkage that will enhance cooperation. Other projects are in the pipeline or underway with the EU, the US, and other Central Asian countries. So while the EEU will bring Kazakhstan closer to its Central Asian neighbors, the agreement in no way precludes cooperation with other partners outside of the agreement.

Deepening ties with Venezuela substantiate this position. In January 2016, Kazakh Foreign Minister Erlan Idrissov and his Venezuelan counterpart, Delcy Rodriguez, signed an MoU on political consultations in Astana that signaled a closer cooperation between Eurasia and South America. While the two regions are more than 10,000km apart, Foreign Minister Idrissov pointed out that market similarities called for closer cooperation, as both countries attempt to leverage their fossil fuel assets and diversify.

With an eye to the future, Kazakhstan is shifting its focus from the interests of the state, to the interests of its people, allowing citizens to integrate into the global community, and promoting Kazakh communities and language abroad. Participation within intra-regional cooperative efforts, and economic integration will ensure for development not only for Kazakhstan's citizens, but for those international actors willing to participate in this new phase of development.

THE BALLOTS ARE IN

With a solid political mandate under his belt, President Nursultan A. Nazarbayev promises this term to be his most revolutionary yet. Kazakhstanis have defied conditions of regional instability and economic uncertainty, re-electing President Nazarbayev to lead their country with some 97.7% of the vote. The election was brought forward a year to garner the mandate required to steer the country through a period of rigorous development and continued reform. The early elections also dispensed with an overlap with the parliamentary elections, set to take place in 2016. This electoral victory consolidates the president's status as the longest serving popularly elected leader in the region, and bodes well for those whose interest lies in economic stability and political continuity. As the election drew near, the coalition backing the president's position attracted a growing number of political and economic actors, such as the Kazakhstan Trade Unions Federation, which stressed the importance of the president's policies in relation to working people as bulwark of the state and economic security. Moving forward, the president substantiated his candidacy with a five-point program that reinforced the country's unity and harmony between diverse ethnicities, aimed to put Kazakhstan among the top-30 most developed countries, and aspired to achieve economic diversification, while unshackling the national budget from dependency on the extractive industry. The President's new term will be dedicated to the formation of modern, professional, and autonomous state apparatus to implement economic programs and the provision of public services. In this context, legal reforms will ensure that the rule of law guarantees property rights, creates conducive conditions for entrepreneurial activities, protections contractual obligations, and become the basis for economic growth. Another facet of the new term will be diversification in order to promote industrialization and economic growth. He also stressed the centrality of national unity and sovereignty moving forward. While the details of the President's plan are fully fleshed-out elsewhere in this publication, his final and fifth point represented a paradigm-changing elucidation of his previous allusions to modernizing the country's political system. President Nazarbayev wants to see further consolidation of democracy in Kazakhstan. In an unprecedented turn, President Nazarbayev told the audience that, “once institutional reforms and economic diversification are achieved, the country should undergo a constitutional reform that entails the transfer of power from the president to the parliament and the government, in accordance with our traditions." Those close to the politics of Astana are interpreting this decision as the president laying the groundwork for a political legacy that will mark Kazakhstan as the most liberal democracy in the region. The President is 74 years old, and having ran the country since 1989, he is laying the groundwork for new leadership to continue his policies of economic and political stability well into the future.