Kazakhstan 2016 | DIPLOMACY | YEAR IN REVIEW

Kazakhstan's increasingly diversified economy makes the country well placed to weather the dual storms of low energy and low commodity prices. The country is ever more closely aligned to China, its eastern neighbour, with mining, ICT, and construction set to benefit.

As the President himself warned of “tough times ahead,” few doubt the challenges currently facing Kazakhstan. Kazakhstan's economy is forecast to contract by 1% in 2016 according to Fitch Ratings, the first absolute decline in GDP YoY since 1998. The successive currency falls of 2015, following the removal of the tenge's peg to the dollar, have caused consumer spending to fall sharply, and a decline in mining and exports is expected in 2016, due to enduringly low commodity prices. The economy grew 1.2% in 2015, down from the 4.1% growth of 2014.

Yet longer term the consensus seems to be that the country's economy is well placed to weather this storm. Kazakhstan has the largest oil and gas reserves of the Caspian basin, and in 2015 produced an average of 1.62 million bpd of crude oil. The decline in international oil prices has led to a leveling off of production in 2016, with output expected to be 20% down YoY by 1H2017. It is also home to an impressive array of precious metals and minerals, and the country is wisely maintaining its investments in the mining and energy sectors. In 2015, the mineral extraction industry accounted for 33% of the country's GDP—and this is when times are tough.
In 2015, wider industry accounted for 28% of the country's GDP for that year, and the sector is growing strongly. In 2013, industrial exports passed the $3 billion mark for the first time, and since then efforts to diversify the country's industrial mix have come to the fore. The main headlines for 2016 are once more in manufacturing—and especially automobiles. 2015 saw work begin on the huge new Ust-Kamenogorsk factory for automobiles, with an ultimate capacity of 120,000 units per year, 70,000 of them destined for customers in Russia.

One of the strongest sectors—both in terms of growth over the coming 10 years and the number of international investors—is ICT. Internet penetration passed the important 50% mark in 2015. By the end of 2015, mobile broadband subscribers had reached 60% of the population, and fixed broadband 27%. 2015 also saw the merger of government-owned Altel with Tele2, creating the third largest company in the mobile operator market. The joint venture was confirmed in March 2016, and today Tele2 boasts a total merged subscriber base of 5.6 million, and a market share of a little over 22%.

The country's already strong transport sector contributes 16% to the country's overall GDP, and in 2015 this was forecast to increase to 20% by 2025, partly due to a reduction in the energy and mining sectors' contribution, but more thanks to an increase in connections to the country's regional partners. Kazakhstan is on course to be a major transport and transit hub for the region. Transport's big headline in 2015 was the launch of a flagship investment of $44 billion in the international, China-led New Silk Road project between 2015 and 2020, overseen by KTZ, the national railway company.

Proof, lest it were needed, of the country's importance to the world economy came in November 2015, when Kazakhstan was appointed the newest member of the World Trade Organization (WTO). The signing ceremony marked the end of two decades of discussions for membership, and saw the WTO welcoming Kazakhstan as its 162nd member. The membership was ratified by parliament in Astana on October 31, 2015, and will have a beneficial impact on doing business in the country, simplifying (and, it is hoped, boosting) international trade, in particular.