WHAT A YEAR

Kazakhstan 2017 | DIPLOMACY | YEAR IN REVIEW

By all accounts, Kazakhstan had a challenging 2016, but prudent intervention from the central bank and a well-rounded government vision for the future mean confidence is beginning to creep back into the economy.

Like many emerging markets, Kazakhstan has suffered as a result of low oil prices and is in the midst of a program of diversification. The country has also been afflicted by currency volatility in recent months, a result of the decision to unpeg the tenge from the dollar in August 2015, a move that caused short-term pain (the currency lost 24% in value overnight, and continued to devalue in the following period) but is hoped, long term, will boost the competitiveness of local firms.

Elsewhere, the government is working to streamline the investment environment to offset concerns over the stability of the economy, with the World's Bank's Doing Business report 2017 paying testament to efforts; Kazakhstan climbed 16 places to 35th, entering the list of top-10 reformers. The World Bank praised the nation's efforts to increase the reliability of the electricity supply, while also recognizing progress in streamlining the approvals process to obtain a building permit via a single window. Customs procedures were also streamlined.

But while much of Kazakhstan's hopes for the future rely on efforts made in the non-oil sector, the coming online of new oil and gas assets is providing a boost to government revenues. The largest new asset and former elephant in the room is Kashagan, a mammoth Caspian Sea oil field that has faced a number of delays in recent years. Begun in 2000, back in the days of the USD100 barrel, the USD50 billion project finally made its first shipment in October 2016. Other developments in the sector include a USD37 billion expansion, spearheaded by Chevron, at the Tengiz oilfield. The development will, when completed in 2022, boost production to 260,000bpd, up 44%. Indeed, while investments at oil fields across the globe saw a freeze in new developments, players in Kazakhstan were busy preparing for sunnier times.

But oil and gas is not the only extractive industry to be garnering attention, with the mining sector forming a key part of Kazakhstan's 2050 Strategy, a far-reaching program that is set to see the country's revenue streams vastly diversified. In 2017, Kazakhstan is expected to finally bring the long-awaited new Mining Act into force with the aim of creating a more favorable investment climate for international mining companies and increasing the sector's attractiveness. With some of the largest mineral deposits in the world, the sector remains vastly undeveloped—30% of global chrome ore reserves, 25% of all manganese ore reserves, and 10% of all iron ore reserves are concentrated in Kazakhstan, while the country ranks first globally in terms of wolfram and uranium reserves, second in chromium, and is in the top-five countries in terms of manganese, silver, and zinc. In terms of gold it is 15th and is the proud owner of the largest undeveloped tin deposit in the world. It is hoped the Mining Act will finally trigger activity, with giants such as Rio Tinto and Freeport having maintained a dormant position in the country for some time while awaiting a more favorable investment climate.
Taking a step back from the economy, the government has not allowed itself to be consumed with solely domestic issues, instead stepping onto the global stage to boost ties with Europe and Asia and act as a mediator in the ongoing Syrian war. In 1Q2017, representatives from Russia, Iran, and Turkey gathered in Astana to discuss efforts to boost a fragile truce. Although at first the decision to host the Syrian peace talks in Kazakhstan might seem unusual, it is a testament to the country's ability to maintain good relations with a wide range of countries, including fellow former Soviet Union member Russia, fellow Turkic nation Turkey, and fellow Caspian littoral state Iran. Kazakhstan also currently holds a non-permanent seat on the UN Security Council, a position it won in 2016, beating out Thailand.

Seeking to play to its strengths as an upcoming investment destination located between Europe and China, Kazakhstan is forming a key part of China's One Belt, One Road initiative to revive the old Silk Road with both land and maritime components. The country also hopes that its new-found hub status will allow the upcoming Astana International Financial Center (AIFC), due to open in 2018, to grow as successfully as the Dubai International Financial Centre (DIFC), on which it is modeled. The government envisages the AIFC becoming the fourth leading Asian center of finance after Shanghai, Hong Kong, and Singapore. Indeed, the center is set to occupy the space that will be vacated by Expo 2017, an event that Kazakhstan is also hoping will enable it to showcase its achievements and draw in more tourists.

And any look at the year would not be complete without reference to what could be the deal of the decade: a merger between the country's two largest banks, Halyk Bank and Qazkom. To put the size of the deal into context, as of December 1, 2016 Qazkom ranked first in the sector by assets of KZT5.21 trillion (USD15.7 billion), thus over 20% of the total, while Halyk Bank followed on assets of KZT4.64 trillion (USD14.02 billion), in excess of 18% of total sector assets. The banking sector is gaining in confidence elsewhere, with the country's central bank, the NBK, taking steps to alleviate a worrying NPL problem via a USD2.8 billion fund and fresh regulations on the equity-deposit ratio.