Kazakhstan 2018 | DIPLOMACY | YEAR IN REVIEW

A top-down shift toward a free market is a key part of Kazakhstan's growth narrative as it aims to transform into a diversified and digitalized economy.

The Kazakhstani leadership has taken an unprecedented long-term approach to growth, with its bold Strategy 2050 aiming to have the country emerge as a key player in the information age, both diversified and digitalized. In the shorter term, however, is the interim National Vision 2025, which targets growth in step with OECD nations. It shoots for ambitious annual growth of 4.5-5%, lifting GDP per capita to USD46,100 by 2025.

And if the age-old maxim that it is “who you know, not what you know” rings true, then Kazakhstan is also well placed. And while the phrase may not take into account the eternal struggle of EMs, that of knowledge transfer, it certainly helps to have well-placed friends. In that regard, Kazakhstan is not only making a strong impression in the West (“He's on his way, very rapidly,” said President Trump on the subject of Nazarbayev's 2050 plans), it enjoys a privileged trading position with Russia via the Eurasian Customs Union and forms a key part of the Chinese One Belt One Road (OBOR) initiative, which envisages land and sea bridges heading westward and opening up new markets for Asian goods.
Yet 2050 is still a long way away, and Kazakhstan remains somewhat reliant on its extractive industries. Indeed, growth slowed in recent years following a slide in oil prices that resulted in the central bank taking the decision to let the local currency, the tenge, float freely in an attempt to boost export competitiveness. That wiped more than a quarter of its value almost overnight and causing speculation as to the long-term health of the economy. But for 9M2017, GDP growth upped gears to gain 4.3% YoY, greatly outpacing the 0.4% rise of the same period of 2016. And yes, this is attributable to global oil prices, and locally as production kicked off at the long-delayed Kashagan offshore oil field in the Caspian Sea, with the spoils of the black stuff also felt in the non-hydrocarbon economy.
Timur Suleimenov, Minister of National Economy, told TBY that, “we are seeing a significantly big increase in manufacturing, which has grown over 7%, (while the) pharmaceuticals industry (...) is growing at about 37%.” To this add the sterling performance of external trade, soaring 35% last year from 2016. Elsewhere, Kazakhstan's new tax code revises tax preferences for the real sector by scrapping benefits of questionable success and expanding preferential tax regimes for basic investor considerations such as special economic zones, financial leasing, and renovation.
Yet, while Kazakhstan has embarked on economic diversification programs, the oil sector will remain at the center of its economy for the near future. To better manage a shifting landscape, the oil industry has focused on increasing output. The country now expects to produce at levels close to historic highs in 2018. In the natural gas sector, Kazakhstan expects to raise production, as well. Finally, Kazakhstan's position at the intersection of Europe and Asia gives it unique influence over oil and natural gas pipelines, and it expects that this will play a role in its future ambitions.
On the diplomatic scene, 2017 was a significant year for Kazakhstan—not only did it host the world Expo 2017, the first world's fair to take place in a former Soviet country, but also hosted eight rounds of peace talks between Russia, Iran, Turkey, Damascus, and various warring Syrian factions to seek an end to the Syrian civil war. President Nazarbayev also met with his counterparts in Washington, Moscow, and Beijing to sign key trade and transport deals, including but not limited to progress on the OBOR initiative.
Back at home again, it can't have escaped anybody's interest that Kazakhstan is hardly lacking in square mileage. At just over 1 million sqkm, Kazakhstan is the ninth-largest country in the world and enjoys hefty potential for agricultural growth in that sense. Currently representing 6% of GDP, the agriculture sector is at the center of government plans to diversify the economy. Almost three-fourths of Kazakhstan's land area has the potential for agricultural production, but only a quarter of the land is arable. The government has begun to look at how better use of the country's land could bring benefits. Both local and international observers think that increasing productivity through greater technological investments could improve economic performance.
Going forward, Kazakhstan is not alone amongst a host of EMs with an over reliance on hydrocarbons. Yet unlike some of its contemporaries, the country is taking a long-term approach to diversification, hoping that by playing the long game it can emerge as a truly sustainable economy in a world without oil.