Kazakhstan has emerged as the biggest success story in the region, since the demise of the Soviet Union in 1991. Transitioning from a central command economy to a market system has been an epic advancement. The salient feature of the economic development achieved by Kazakhstan is its economic resilience. The ability to recover quickly from a shock, withstand a shock, and avoid the shock altogether, is the primary attribute of economic resilience.
During the initial decade of the 1990s, a wide range of inherited hardships was faced by Kazakhstan, the fledgling state, that included peak inflation of 3,000 percent, an agrarian economy having 36 percent share in production, local products only meeting 42 percent consumer demand, largely a raw material supplier country, only 20 percent passengers and 12 percent cargo using railway transport, and barely 4 percent passengers using air and water routes.
In fact, Kazakhstan had a strategic aspiration to become a modern, diversified market economy well integrated into the global economy. The hydrocarbon resources were viewed as a good basis to achieve this goal. Therefore, Kazakhstan undertook a process of privatization, price liberalization, de-monopolization, debt restructuring, custom reforms, and tax restructuring. Moreover, Kazakhstan established a securities and exchange commission, enacted laws on investment, liberalized trade, reformed the banking system, and established a new government procurement system. These measures were acknowledged globally. Kazakhstan was recognized as a country with a market economy by the European Union in 2001 and the United States in 2002.
The prudent policies implemented by Kazakhstan have produced the desired dividends. The difficulties faced in the first decade of independence have been overcome. So far Kazakhstan has attracted US$390 billion in foreign direct investment. The comparative advantage of having a strategic location between Europe and Asia has been optimized. Reliance on diverse investment resources from the Netherlands, the US, China, Russia, Switzerland, the UK, France, Belgium, and Türkiye is another key advantage.
Investment is blood in the veins of an economy. Investors are loyal until economic stability prevails. Economic stability is maintained when an economy is resilient. It is the economic resilience of Kazakhstan that has made the country a global investment hub. Despite the negative impact of the COVID-19 pandemic on the global economy, Kazakhstan in 2020 demonstrated the largest increase of 34.9 percent (US$3.9 billion) in net foreign direct investment among 17 countries with a transition economy and 34 landlocked countries. Such investing confidence is exceptional keeping in view the decline of 35 percent in global investment.
Let us analyze two recent events that shocked Kazakhstan but its economic resilience restored stability.
During the first week of January 2022, an outbreak of violence took place in Kazakhstan when peaceful rallies against the rise of gas prices turned into terrorist turmoil. The protests were hijacked by bandits, looters, and armed terrorists. Almaty, the commercial and financial center of Central Asia, was the epicenter of violence. The perpetrators tried to disorganize the government institutions and undermine the constitutional order. President of Kazakhstan Kassym-Jomart Tokayev rose to the occasion and made an immediate change at the helm of the National Security Committee which is a key counter-terrorism agency. Alikhan Smailov was elevated to the position of Prime Minister. President Tokayev assigned immediate tasks to the new government to restructure and bring about targeted reforms to address the crisis and support the long-term well-being of the people of Kazakhstan.
At the official request of the government of Kazakhstan, a peacekeeping contingent of the Collective Security Treaty Organization (CSTO) arrived. Against all international rumors, the peacekeeping forces of CSTO left Kazakhstan on Jan. 19, after assisting the law and order forces of Kazakhstan in stabilizing the situation and restoring the rule of law.
A big number of measures have already been implemented under the comprehensive action plan of equal distribution of wealth, uniform regional development, eradication of poverty, and long-term stability. In this crisis, some amazing socio-economic values were observed. During this troubled time, local citizens demonstrated respect for the foreigners and helped them in procuring groceries. When after de-escalation of violence, local citizens swarmed into the utility stores, none of them tried to capture more than one or two boxes of eggs, packs of milk and bread, etc., in sheer regard for everyone’s needs.
The government of Kazakhstan was very successful in the price control of consumer items. The entrepreneurs suffering damage during the fierce violence also received state compensation. Moreover, the depreciation of tenge was also not experienced due to effective exchange control of the Central Bank. By the end of January, things were back to normal. Prompt recovery from the shocks of January events evidences the resilience of Kazakhstan’s economy.
Then, the outbreak of the Russia-Ukraine conflict was another shock for the Kazakh economy. Two third of oil exports of the country take place via the Caspian Pipeline Consortium (CPC), the world’s largest international oil transportation project involving Russian and Kazakh companies to the Russian port of Novorossiysk on the Black Sea. The country’s oil exports through this route have been disrupted several times. Being aware of its potential as a transit hub, Kazakhstan is seeking to re-route part of its oil exports via the Baku-Tbilisi-Ceyhan pipeline that ends in Turkey.
The prevailing geopolitical situation was creating delays at ports in transporting Kazakh cargo due to sanctions imposed against Russia. Hence, Kazakhstan has switched its focus to the alternative route the Middle Corridor i.e. Trans-Caspian International Transport Route (TITR) that runs through China, Kazakhstan, the Caspian Sea, Azerbaijan, Georgia, Turkey, and European countries. KTZ Express confirms that the volume of shipments along TITR has tripled in the first seven months of 2022 i.e. from 311,000 tons to 845,000 tons. This is how the resilient economy of Kazakhstan finds its way amid a critical situation.
It is obvious that the economic developers in Kazakhstan have played a very strategic role in building economic resilience. Efforts are always there to enable the Kazakh economy to recover from the downturns in the national or global economy, and external impacts from natural or man-made disasters. The inherent economic resilience has magnetic significance for foreign direct investment. Kazakhstan is the recipient of 70 percent of FDI inflows to Central Asia. Therefore, Kazakhstan is progressing well toward its goal to become one of the world’s top 30 economies by 2050.
The author is Muhammad Rafiq (Pakistan), a senior banker based in Kazakhstan, with a keen interest in Central Asian studies