Kazakh Privatisation Will Help Cushion the Impact of Current Economic Slowdown

The current economic turmoil, which we see played out daily on our TVs and in newspapers and stock markets across the world, is setting new challenges for every country. In an interconnected global economy, no one is immune.

World leaders must decide how best to lead their countries through the turbulence: adopt a business as usual approach and hope the damage isn’t too severe, or confront the challenges head on. Kazakhstan, it seems, has chosen the second, more difficult option.

Fundamental to the economic course chosen is a remarkable new wave of privatisation. This is meant to help the country through these current global difficulties while also positioning Kazakhstan to achieve its long-term goals of becoming a top 30 world economy and a prosperous and healthy society.

The privatisation programme was unveiled last November when the Samruk Kazyna Sovereign Wealth Fund announced it was to sell stakes in 60 large state-owned enterprises. It includes plans over the next four years to cut state ownership in major companies including KazMunayGas, Kazatomprom and Samruk-Energo from 60–70 percent to 15 percent. Privatisations will be carried out through a combination of sales of strategic stakes and stock market listings, which will all be handled by Kazakhstan’s new Astana International Financial Centre.

Kazakhstan’s privatisation drive will achieve three important goals. First, it will raise revenue to help cushion the impact of the economic slowdown on Kazakhstan and its citizens. The additional resources will, in the short-term, help the government continue investing in essential services and infrastructure improvements.

Second, in the longer-term, privatisation will streamline Samruk Kazyna’s operations and increase the sovereign wealth fund’s efficiency. And third, the injection of outside capital and expertise and the reduction of state involvement will provide a further spur to Kazakhstan’s economy by boosting competition and productivity.

It may take longer to notice these benefits, but if the privatisation plan is properly structured and implemented, they will be wide-ranging. Evidence across many countries shows that privatisation increases efficiency and profitability while improving services and cutting costs for consumers.

Take two examples from the telecommunications sector in Latin America. Chile’s telephone company doubled its capacity four years after being sold, while Mexico’s privatised telephone company significantly reduced its per-unit labour costs.

These short and long-term benefits are why the International Monetary Fund has already commended Kazakhstan’s plans as a significant step in reducing the role of the state in its economy. Samruk Kazyna itself is optimistic that the drive will improve the structure of its assets, increase the level of corporate governance while eliminating corrupt activity, encourage the development of small and medium-sized businesses and support the development of Kazakhstan’s stock market.

There have, of course, been some sceptical voices about the privatisation plans, with suggestions that the government may be reluctant to relinquish control over major economic assets. They point to the fact that only in 2008, Samruk Kazyna took stakes in a number of privatised assets.

Given the global financial crisis at the time and fears of a world-wide recession, these emergency measures were an economically sound decision. Today we confront not just more global turbulence but a low oil price environment, which may stretch into the future. This is why privatisation is seen as a critical and essential step to securing Kazakhstan’s future prosperity for not just the next few years but decades to come.