Kazakhstan is established as the premier investment location in the Eurasia region for multinational corporations and strategic investors. The country’s president, Kassym-Jomart Tokayev, has largely dealt with the domestic political challenges and has firmly, and favorably, placed the country in what appears to be a safe space between the major powers around Kazakhstan’s borders and geopolitically. This has allowed him to now focus on his ambitious economic and industrial reform program and, in making progress here, to deliver on his equally ambitious promises for social reform. He is, so to say, now “all in” in terms of state investment and efforts to attract more foreign state and private sector investment.
The government said it plans to invest 9.6 trillion tenge (USD 20.2 billion) in the development of the economy this year. Seven trillion tenge is already earmarked in the budget and the rest will come from the sovereign Samruk-Kazyna and Baiterek funds.
Officials say that investment will continue at this level for several years and funding it may require extra taxation or resource income, i.e. if sufficient private sector investment cannot be attracted. The total investment required to help achieve Tokayev’s main goal, which is to double the size of GDP, from USD 262 billion last year, to USD 520 billion by the end of his term as President in late 2029, is estimated at USD 150 billion or an average of USD 30 billion annually.
Comments about the possible need for extra taxation or “resource income” have raised the concern that the government may be unwilling to compromise in its USD 150 billion claim against the North Caspian Operating Company (NCOC) for cost overruns, environment damage, and extra taxes. The NCOC is owned by several major energy multinationals, and it owns/operates the Kashagan oil field. Kazakhstan has separately initiated a claim of USD 3 billion against the Karachaganak oil/gas field.
Such claims are not unusual in Kazakhstan, although the total against NCOC is very exceptional. Previously all claims were settled for significantly smaller sums alongside some changes to the tax rate or with commitments for investment. But, given that the government says it needs USD 150 billion for investment, a similar amount to the NCOC claim, there is a clear concern that a compromise may be harder to achieve. In that event, investors in other major projects, such as in the electricity sector and other tariff-dependent projects, may be more reluctant to commit. Investors in these projects may also fear later claims or changes affecting the project return. How these oil sector claims are resolved will have an important impact on future private sector investment flows.
Meantime, Kazakhstan is attracting billions of dollars in investment from China and Russia, for a broad range of projects, and from the European Bank for Reconstruction and Development (EBRD) for the transport infrastructure upgrade and SME development.
Investment from strategic investors and multinationals has been more difficult to attract with complaints about difficult bureaucracy and a lack of incentives. However, even against this backdrop, Kazakhstan is attracting more inward investment than any other Eurasian state, with a lot of this coming because of the state’s expanding and improving geopolitical relationships.
China is the main investor with agreed projects and joint ventures (JVs) with Kazakh state companies in such areas as chemicals, renewable energy, metals and mining, auto manufacturing, and the agriculture sectors. Immediately after the early July Shanghai Cooperation Organization (SCO) summit in Astana, China’s President Xi Jinping stayed for a two-day state visit during which several major new investment projects were announced. China is also still looking to diversify its energy sources and has an ambition to secure the additional oil supply that Kazakhstan will have (250,000 barrels per day approximately) in the next couple of years as the expansion to the Tengiz field nears completion. China is Kazakhstan’s largest trade partner with over USD 40 billion of bilateral trade.
Not to be left behind, Russia’s President Vladimir Putin will come to Kazakhstan for a state visit in November, the second such visit in twelve months. It is expected there will also be several projects announced as part of that trip. The main agreement is expected to be in the gas sector with Kazakhstan aiming to secure not only investment into its domestic gas sector but also to get cheap gas imports from Russian gas monopoly Gazprom, i.e. on similar terms to the deal recently agreed between Russia and Uzbekistan. Russia is the country’s second-largest trade partner, with almost USD 30 billion of bilateral trade. That will rise significantly when the expected gas contract is signed.
Developing new gas sources and infrastructure is one of the key priorities for Tokayev’s government. Investment into expansion of the oil sector is now largely completed so the effort is now switching to gas and clean-renewable energy projects. The latter is growing steadily in the country with most investment coming from Saudi Arabia, the United Arab Emirates (UAE), and China. Russia is expected to offer attractive financing terms for the country’s first nuclear power plant, assuming the planned public referendum in the autumn approves the project.
Gas is considered a critical fuel source because it can be used for industrial expansion, for example in chemicals, to help Tokayev deliver on one of his social promises of expanding household gasification, and, most importantly, to allow the switching from coal to gas in several major thermal power plans, such as the country’s largest in Almaty.
The geopolitical-led investment campaign is also now leading to significant investment from Qatar. Deals have been agreed with QazaqGas for gas exploration and network expansion/upgrades and, more recently, KazTelecom sold a mobile subsidiary to a Qatar state company for USD 1 billion.
Western investment, apart from the major oil companies, has been a lot slower and more focused. The EBRD is the most active and recently said it intends to double its investment in the Kazakh economy this year. Since beginning operations in Kazakhstan, the EBRD has invested 10.2 billion euros (USD 11 billion) in the country’s economy through 324 projects. Currently, the bank’s portfolio in Kazakhstan includes 121 projects valued at over 2.9 billion euros (USD 3.1 billion). The major area of interest, in terms of big projects, is the TITR (Trans-Caspian International Transport Route) or Middle Corridor, which will connect the EU markets with China via the Caucasus, the Caspian, and Kazakhstan.
