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Central Asia providing a Rising Star to the East

We are now about 15 months after the Covid pandemic hit the global economy, and the world is preparing to come out of its forced slowing down

By: EBR - Posted: Monday, April 5, 2021

"Tokayev, is continuing the successful policies that kept the country together for three decades, with no radicalisation and no spill-over of regional tensions, religious or ethnic, into Kazakhstan."
"Tokayev, is continuing the successful policies that kept the country together for three decades, with no radicalisation and no spill-over of regional tensions, religious or ethnic, into Kazakhstan."

by Radu Magdin

We are now about 15 months after the Covid pandemic hit the global economy, and the world is preparing to come out of its forced slowing down. Between protests against lock down and third waves of infections rising in some countries, but also among a variety of vaccines being produced and used in multiple geographies, including beyond their original homelands, with some signs of inflation picking up, and with multiple countries announcing development strategies that could only be called „Industry 4.5” due to the fusion of digitalisation and green techs (hence the .5), we are probably looking at the starting line of what could be a long bull market, from new (a) ESG investing (bubble?), to new Green Bonds, water and carbon trading, and the emergence of an Indo-Pacific trading and socio-technical block to rival that of the Transatlanticists & Friends, and that of China & Friends. Welcome to the post-Covid world!

In this context, some middle powers are emergent, with a huge incentive due to and precipitated by Covid and what they perceived either as techno-nationalism, or protectionism, or abrasive diplomacy, or own comparative and competitive advantages that they identified while traditionally better-off countries struggled during the pandemic. This is the case of Kazakhstan as well, a central-Asian emergent middle power which chose a hybrid development path, between self-sufficiency in key strategic sectors, accelerated sophistication and capacity of its industry, and an increasing care for sustainability and societal development.

Announced over a period of several months, a series of measures, also confirmed by elections, were either passed or announced, that designate the country as potentially one of the most favourable investing regions of the world over the next decade. If traditionally, when mentioning Kazakhstan, we think of a land-locked country trying to balance Russia and China, the series of reforms and country strategies announced since the inauguration of the country’s second president since the independence of the country, demonstrates that the country is ready to move beyond being a shadow of its larger neighbours. It demonstrates ambition, vision, and, with a bit of luck, it will also become a deal maker in Central Asia. Here is how.

The National Development Plan Kazakhstan 2025 announces the country’s intention to go up the value chain in the health, petro-chemical, and agriculture sectors, by using the existing and newly discovered gas fields for developing into strategic pillars of the economy a resilient and self-sufficient agriculture sector, and also to develop a health sector focused on the production of medicines that would do away with the country’s dependencies in key segments. These three industrial pillars ground an earlier, financial and investments opening up that the country announced two years ago and is complemented since late 2020 with a paradigm shift in its national economy – moving from a state-led economy, a very state enterprise heavy one, to an economy where entrepreneurship and private enterprise take the leading role in the growth of the country and in the population’s prosperity increasing efforts of the government. Laterally, this strategic core is supported by further inclusion of women and youth – including with increased political representation through reserved quotas, and with an increase in investments and access for the whole population to mass general education and to improved university education prospects – a whole new philosophy about the investment in the human capital of the country.

Both the liberalisation and the focus on developing the human capital of the country are only incipient, but at the least the promise is there, with some early money and one round of elections confirming what should be a trend over the next few years.

I started traveling to Kazakhstan about five years ago. At the time, the country was happy that it had succeeded keeping itself peaceful and unfractured, in the context of the collapse of the USSR and the inherited multi-ethnic society. Because of its success, the current president, Tokayev, is continuing the successful policies that kept the country together for three decades, with no radicalisation and no spill-over of regional tensions, religious or ethnic, into Kazakhstan. From this point of view, in a region where countries can so easily faulter due to ideological, ethnic, or religious regions, Kazakhstan proved very resilient. At the time, Kazakhstan also had a brand-new capital city and a global financial centre which it tried to make in some kind of Singapore of Eurasia, with a distinct legal regime, financial norms imported from London, and so on. Since then, the country had a very steep learning curve. While societal changes take generations and creating a knowledge economy will probably take as long, in terms of planning and learning how to focus in order to produce growth, the country picked this up very quickly. Not least, it did this against the backdrop of pressures from China, EU, and Russia – so a very admirable balancing act as well, in which it succeeded strengthening relations with Russia and the West, while also adopting a national-cultures-focused historic and cultural revival path. This was, in fact, the last major policy overhaul the first president of the country, Nazarbayev, did before passing the baton to Kassym Jomart Tokayev, a former diplomat and versed insider of Kazakh decision-making circles.

These days, in spite of Covid, the mobility restrictions, and a general downturn of the global economy, is focusing on innovation and improving the impact their policies and decision making makes. It attracted a new UNDP innovation lab, supported by Germany and Qatar, the EU continues to feature prominently as its most significant trade partner, it got 30 international pharma companies to commit helping it build itself an advanced chemicals and health industry, and so on. Five years back, one would not have guessed that the jumping ahead of the curve would happen like this in Kazakhstan. Even the Asian Tigers – remember the 1990s phenomenon? – took longer, and the only other similar model we are currently aware of is that the UAE and, in a broader sense, the Gulf states, which are also seeking to make the best of their hydrocarbon might to leapfrog a few generations of technology and infrastructure and move directly to a renewable energy power, knowledge economy.

Sufficient aspects still remain to figure out. There was once a perspective that China would build the country’s rail connectivity, making it the central hub of Asia, with connections to Afghanistan, Iran, its southern neighbours and former soviet provinces, China, Russia and the Caucasus. Due to the changes in the global mood, it is unclear if or how such developments could still happen; but it is equally probable that in the meantime, Kazakhstan will do this by itself, with some help from Russia and with Western participation – due to the EU’s flagship EU-Asia connectivity initiative (predating Covid) and with assistance from major financing houses. The country’s demography is also an aspect, as it will need increasingly more and better educated people to support the growth of the economy. A reform that was announced for late 2021 will include a facilitated regime – including tax incentives – for foreign workers coming to Kazakhstan to help accelerate the country’s growth; this policy shows the lesson learned from the Gulf countries, both in terms of opening up, but also with its own learning, as Kazakhstan appears to be interested in having people start making a life for themselves in the country, rather than seeing themselves as temporary workers or guests.

Until these things will be figured out, initial milestones and, in a sense, proofs of concept, will be this year’s macroeconomic indicators, with the country aiming for a 3% growth and inflation stable between 4-6%. These are quite positive numbers, considering the global context and the level of maturity of Kazakhstan economy, and it only comes to show that sometimes surprises can come where we least expect them, and that rising middle powers are also value-chain rising powers.

Once we are done with Covid and enough people will have had their vaccines, Europe will once again go back to building a green, connected, and resilient economy, for itself and its neighbourhood. While Russia, China, and the US remain concerned with the global tech race, the EU, still playing on that cusp of almost a great power, but also still mostly an economic power, will have the elasticity and opportunity to develop ever stronger relationships with its neighbouring partners which, to the dreams of all internationalists out there, will probably result in an increasing convergence of the regional economies, and to all the realists’ hopes, it will probably also further stabilise the regions, allowing our immediate neighbours across North Africa, the Middle East, and Central Asia to accelerate on their rising path to middle powers and emergent economies status.

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