With World Expo 2017, Kazakhstan Takes Another Step Onto the Global Stage
This weekend’s launch of Expo 2017 in Kazakhstan is this former Soviet state’s big moment. Kazakhstan is cementing its role on the world stage and out of Russia’s shadow.
“Due to their presence in the global market, they are certainly the most-followed country within the ‘Stans’ region,” says Dmitry Gladkov, global head of financing at Renaissance Capital, a Moscow-based investment bank.
For much of its modern day existence, Kazakhstan was a frontier of the Russian Empire, and then a Soviet republic, controlled from afar, with nothing going for it but a lot of land. With generally untapped natural resources and whole ethnic groups exiled there, Kazakhstan struggled to develop. Despite its impressive land mass, there are more people living in Shanghai than in all of KZ, as it is known abroad. Over the last decade, this mostly Muslim Central Asian nation has had some spotlights shone on it, but none quite like this one.
Within the former Soviet Central Asia, KZ is the “Best of Show” in terms of forward-thinking, investment friendly, emerging market economics. Their three-months long Expo 2017 (part of the World’s Fair system) gives the Kazakh government a chance to highlight its development-friendly agenda and the advances they’ve made since leaving Moscow’s control.
“Kazakhstan’s government is focusing its efforts on transforming the country into a knowledge-based diversified economy driven by the private sector,” says Baljeet Grewal, director for strategy and portfolio investments at Samruk Kazyna, the country’s $67.4 billion sovereign wealth fund. “We hope the Expo will be a turning point for Kazakhstan, which will allow the country to push for the development of the IT, renewable energy and tourism industries.”
Some 115 countries and representatives from companies worldwide will be in attendance, including the United States, Brazil, Russia, India and China, which considers Kazakhstan an important cornerstone of Beijing’s new Silk Road. Roughly three million visitors are expected, for the equivalent of one million per month in Astana, KZ’s capital and home to the exposition. Astana’s population is around one million.
Members of The World Petroleum Council, World Bank, and the regional International Science and Technology Center will be there, hobnobbing with ambassadors and Kazakhstani and foreign officials and dignitaries. Energy, finance and tech are the trifecta KZ hopes to score in the next several weeks. Just days after President Donald Trump took the U.S. out of the Paris Accord on climate change, KZ’s theme looks prescient by design. Their theme of “Future Energy” centers on designing urban areas that are less fossil fuel dependent and more sustainable.
Like Russia, KZ is a natural resource economy. Oil accounts for 20% of GDP, 50% of its budget revenue and 60% of its exports. It is unclear whether they will be more successful at moving away from that than the Russians, but this Expo, the first ever in a former Soviet state, gives the locals a look at life beyond oil and gas.
“The ‘future energy’ theme could very easily fall into the category of natural resources and oil in the traditional sense, but the way we are talking about this here from a U.S. point-of-view is that you need to rely more on ingenuity and innovation rather than natural resources and Kazakhstan is really open to that,” says Dr. Joshua Walker, CEO of USA Pavillion, the non-profit based in Washington DC that was created to build the Epcot-like American exposition at Astana. Walker was a former senior advisor to Hillary Clinton and John Kerry in the U.S. State Department.
“For the U.S., KZ is the most important country in Central Asia, bar none,” he says, after listing the firm’s sponsors, mostly energy giants like AES, ExxonMobil and Chevron. “These expos are a great place for a country to tell their story. It’s all about raising the host country’s profile and right now, on the cusp of this event, the city is frenetic. Lots of energy right here, right now,” he says during a phone interview from Astana.
KZ’s ‘Epcot Center’ & Beyond
The $3 billion Expo pavilion looks like a re-make of Disney’s Epcot Center. There’s a large glass globe in the middle that serves as Kazakhstan’s country showcase. Then surrounding the globe in a semi-circle are country pavilions. The U.S. is near The Vatican and Poland. At 11,000 square feet, it’s half the size of China’s. The rest of the site, or the other semi-circle around the globe, is a mix of open space and an arts center.
The Expo system serves as a one-off or three-month’s long event that is held once every few years, in between the larger World’s Fair. The last Expo was held in South Korea in 2012. The larger World’s Fair goes to Dubai in 2020. Each country picks its own theme. Think of it as the Olympics Committee for global trade shows, only with less fanfare and far less applicants. KZ was chosen over Belgium by the Paris-based Bureau of International Expositions.
“I’m impressed by the large-scale work that has been undertaken to build this the Expo site, and for its uses after the Expo is over,” says Vicente G. Loscertales, Secretary General at BIE. The government plans to use the buildings to build a financial hub. “Kazakhstan is striving to diversify its economy. They’re gaining new opportunities in the development of renewable energy and attracting investments in green technologies,” he says.
In April, the European Bank for Reconstruction and Development said it loaned $1 billion in KZ last year, making it their biggest Central Asian market. Much of it was in environmental management and clean energy projects. Going green has become both a clever way to capture euro loans from climate wary Europeans, and make Kazakhstan infrastructure more modern and energy efficient at the same time. Organizers are banking on the Future Energy Forum at the Expo establishing new relationships with academic institutions and companies that in turn can develop Astana into a new green energy, tech and innovation hub along China’s Silk Road.
Attendees visit the pavilions of different countries like they would at Epcot. For the Americans’ temporary piece of real estate, its Hollywood signs and videos of U.S.-Kazakhstan friendship, with 40 college students from 33 different states guiding people through an ‘innovation lab’.
As of this writing, it is unclear who Trump will send from Washington to attend the Expo.
The Chinese are sending their president. Xi Jinping was in Astana for the Shanghai Cooperation Organization Summit this week and will attend Friday’s opening ceremonies. As will the heads of state and government from 17 countries – including Russia’s Vladimir Putin to and India’s Prime Minister Narendra Modi. Putin also attended the Shanghai Cooperation meeting.
“It was during my first visit to Kazakhstan back in 2013 that I proposed the Silk Road,” Xi wrote in an article published in the Kazakh daily Aikyn newspaper on June 7. The China pavilion will showcase new Chinese technologies like an “artificial minisun” which uses nuclear fusion for power, and a high-speed rail cockpit simulator. “Our pavilion aims to promote a green, low-carbon…sustainable way of life and production,” he wrote, adding that China wants to position itself as a bonafide innovative of alternatives to hydrocarbons.
And what are the Kazakhs going to do with all those buildings once the pavilions are emptied out on Sept. 10? For starters, turn it into the Astana International Financial Center which will include a stock exchange, an independent court and a banking center.
The Astana International Exchange (AIX) opens in the second half of this year. The country’s current stock listings are just 5% of GDP while Eastern European countries are closer to 20%. The AIX wants to change that, and be a source of KZ IPOs, possibly lifting this investment grade rated country out of frontier market status and turn it into a full-fledged emerging market with larger capitalization. AIX is run by Kairat Kelimbetov, a Georgetown University alumnus and the country’s central bank president between 2013 and 2015.
AIX will be part of the Astana International Financial Center, to be housed on the Expo site. The Center partnered with Vantage Financial Centers in March in an attempt to raise its profile before it opens.
International investors think all this may merely be a dream of Kazakhstan’s creative leader, Nursultan Nazarbayev. Two years ago, he addressed the U.N. General Assembly and called for an international center for the development of clean tech…in Astana.
“Moscow tried doing this too with their financial center,” says Arent Thijsen, CEO of Blauwtulp Wealth Management in The Netherlands, a Kazakhstan and Russia investor. “I am thinking that Asian bankers are going to prefer Hong Kong, Singapore and Shanghai, and Russians will prefer Moscow still. I don’t think Astana is irresistible to bankers,” he says, noting that he thinks the country has growth potential beyond energy, particularly in agribusiness, mining and space engineering.
Kazakhstan: Good Neighbors, Good Intentions
It’s hard to measure what the Expo will ultimately mean for Kazakhstan. BIE’s Loscertales says most of the benefits are short-term foot traffic in the city. The Shanghai Expo in 2010 brought in 12 billion euros from tourists at the pavilion areas alone and 33 billion city-wide. The last World Expo in Milan in 2015 saw a 27% increase in the number of tourists. Hotels raked in 30% over average revenue per room, and attendance at nearby museums rose by over 50%.
KZ can use a little economic push. This month, the World Bank forecast the economy to grow by just 2.4% this year, the lowest growth rate of any of Central Asian state.
Yet, with Nazarbayev’s Kazakhstan recently becoming a non-permanent member of the United Nations Security Council, and replaced Geneva as host to Syrian peace talks, some have argued that the long-term leader is forward thinking in a region still decades behind China, let alone the West. Moreover, the country’s leadership is more neutral than partisan, getting along with the Chinese, Russians, Europeans and the Americans.
As far as the overall economy is concerned, the regulatory framework has undergone a series of reforms. The private sector now faces fewer constraints, and the labor market is more dynamic, less regulated than it was 10 years ago.
And on the Future Energy front, KZ now subsidizes renewable energy with a goal of having 10% of its electricity powered by non-fossil fuels within 15 years.
Like the Russians, Nazarbayev also wants to move away from oil and gas as its main source of money. The Future Energy theme at this year’s Expo is a recognition that Kazakhstan has a lot of work to do to make that happen. They’re soliciting ideas.
“Unlike Russia, Kazakhstan does not have a consolidated oligarchy to get in the way,” says Marianne Kamp, an associate professor of Central Eurasian Studies at Indiana University. “They are upgrading their transportation system massively with the help of the Chinese. Nazarbayev has been really smart to make Kazakhstan an important stop on the Silk Road. They’re not a one-trick pony,” she says. “But did they really pull out of Russia’s shadow? Look, they are close to China, they are close to Russia. And their leadership has made some intelligent choices about development. There are a lot of Russians in that country,” she says. “Russia can easily leverage that to their advantage. I view Nazarbayev as being extremely good at telling the Russians what they like to hear, while leading Kazakhstan to go their own way.”
Back at the Expo center, the glass orb in the center lights up at night. From the sky, the flat lands of Astana make it look like an eyeball.
“There is a real sense of pride here right now,” says Walker from the USA Pavilion. “Everyone is getting ready for the event. Traffic is unreal. This is a huge deal for Kazakhstan. When you look at the Astana Peace Process happening here with the Russians and the Iranians the Turks and the Syrians…it’s pretty breathtaking what is happening in this city.”