Kazakhstan: Central Asian powerhouse faces growing pains

September 06. Universal Newswires

By C.L. Cervantes De Blois

Kazakhstan: Central Asian powerhouse faces growing painsCentral Asia is one of the world’s fastest economically growing regions in the world since the 1990s and has notable development potential. Its strategic geographic location allows the republics of the region to act as a gateway between Europe, allowing for an extensive growth in trade and investment. Since independence from the Soviet Union, governments have taken on some market-oriented reforms, with some nations pursuing these measures more rigorously than others.

In this three-day feature, Central Asia Newswire aims to provide a clear overview of each state’s economic strengths and weaknesses, while pointing out future avenues for growth and expansion.

Kazakhstan

During the Soviet era, Kazakhstan was seen as a source of agricultural goods and a raw materials supplier. The country’s economy has grown tremendously in the past 20 years as it has pursued complex political, economic and social reforms to create a stable market economy.

Kazakhstan’s natural resources and oil sector have always drawn foreign investors in the Caspian Sea region. For many years, Kazakhstan has heavily relied on selling its natural resources, oil and gas to build up a large cash reserve fund to avoid future social and economic collapse at crisis points. However, Kazakhstan is still trying to recover from its own recession and is trying to readjust the economy after many years of reaping the financial benefits from high oil prices.

Kazakhstan’s economic growth continues to be dependent on its abundant oil and gas resources, and prospects for exports seem strong. Yet the government, led by President Nursultan Nazarbayev since independence, recognizes that its economy suffers from an over-reliance on oil and extractive industries. Kazakhstan could effectively manage oil revenues to continue their economic growth, but the country must also turn its focus to diversification programs aimed at developing its agriculture, pharmaceuticals, telecommunications, petrochemicals and food processing sectors.

Nevertheless, the economy is very much vulnerable to its heavy reliance on its natural resources which even affects its banking system, which flourished on cheap liquidity. In 2007-2009 Kazakhstan’s financial system was severely hit by the global financial crisis, especially compared to other Commonwealth of Independent State (CIS) countries.

Because Kazakh banks held so much stock in Western markets in London and New York, the financial crisis resulted in Kazakh banks having to borrow on external debt capital and equity markets, which led in a significant decrease in their lending capacity. This also caused a decline in public revenue, liquidity, shortages, national currency’s stability, and the lack of lending made way to a negative impact on loan-dependent sectors which decreased investors’ confidence and capital flows, most evident in the country’s construction sector.

Kazakhstan is steadily improving in its business sector, according to recent results from the World Bank Group’s annual private sector survey Doing Business, in which the country rose from 74th place in 2010 to 59th place in 2011.

Additionally, the International Corruption Perception Index shows that Kazakhstan has made a slight improvement in transparency in recent years. However, in overall terms the country still has substantial corruption issues to address. Tax officials, police officers, health-care workers, judges, and the educational system are known to easily accept bribes, and high-ranking custom officials who earlier this year were arrested for running a million-dollar smuggling ring at the Chinese-Kazakh border trading center at Khorgos.

The government, however, has been taking serious steps to combat corruption on a continuous five year cycle. President Nursultan Nazarbayev implemented a state program on the fight against corruption that will improve judicial systems and law enforcement’s capacity to address the problem, strengthen international cooperation, and broaden an anti-corruption campaign in the mass media.

Kazakhstan has emerged as the regional economic powerhouse in Central Asia, notably having attracted $120 billion in foreign direct investment (FDI) since independence, but still has a way to go in order to compete with the world’s most developed economies.

The country’s biggest economic barriers are ultimately corruption and its heavy reliance on natural resources. If the government can further diversify the economy, hold onto political stability, establish accountable education and administrative reforms, continue to attract foreign, direct and capital investments, and implement international business standards, then Kazakhstan will be able to sustain a stable future of development.

http://www.universalnewswires.com/centralasia/kazakhstan/viewstory.aspx?id=10120

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