Nurly Zhol: Kazakhstan’s Own Belt & Road Initiative Takes Hold
Investment flow into Kazakhstan
Kazakhstan has paid lip service to becoming a clean energy, technology, and innovation hub in Central Asia (AAXJ) (VPL) for many years. Increasingly, the aim is taking hold. The economy has already received $1 billion in loans from the EBRD (European Bank for Reconstruction and Development) towards environmental management and clean energy projects. It has also become one of the EBRD’s largest markets, with the total investment to date exceeding $8 billion.
China’s OBOR playing a major role
The economy is also on course to upgrade its transportation system — financially supported to a good extent by Chinese investment. Kazakhstan’s geographic positioning offers it tremendous trade advantage. Geographically, this landlocked country is sandwiched between Russia (RSX), China (FXI) (YINN) and the Middle East (UAE) (GULF). By joining China’s Belt & Road Initiative (also known as the ‘One Belt, One Road’ program), Kazakhstan’s President Nursultan Nazarbayev is looking to leverage upon the countries which it bridges the gaps between.
The Belt & Road Initiative is a geo-strategic project of new transport links between 65-nations spread across Asia (AAXJ) (VPL), Europe (VGK) (EZU) and Africa (EZA). Currently in its planning stage up until 2021, projects under the initiative are expected to be implemented by 2049.
China’s Silk Road and Nurly Zhol are a perfect blend
Kazakhstani Deputy Foreign Minister Roman Vassilenko believes that China’s OBOR initiative blends perfectly into Kazakhstan’s very own and industrious $21 billion Nurly Zhol (Bright Path) initiative. The two programs together provide a vision of how trade should be recreated along the ancient Silk Road. The Nurly Zhol is Kazakhstan’s development program, extending beyond infrastructure to include energy, finance, housing, education and health care.
“As the world’s largest landlocked country, we naturally want better connections with other parts of the world through transport-logistics linkages, so that our products can reach the world faster and safer,” said Vassilenko.
Increase in mining production
Kazakhstan is the world’s largest producer of uranium (URA). It stands second in chromium production (after South Africa (EZA)) and also boasts a high level of availability and mining of lead, zinc, copper, petroleum, and other minerals. Being a landlocked nation, the country also enjoys the advantage of exporting directly to its neighbors such as China (FXI) and certain European countries via Russia (RSX). Over the past few months, Kazakhstan’s mining sector has been going quite well.
Since October 2016, Kazakhstan has been recording positive growth in mining production (see chart above). Mining production increased by 14.4% in April 2017 as compared to April 2016.
Foreign investment into Kazakhstan’s mining sector
Foreign miners including the Anglo–Swiss multinational commodity trading and mining company Glencore (GLNCY), Russian gold producer Polymetal International plc (AUCOY), Luxembourg-based diversified natural resources producer Eurasian Resources Group, and Anglo-Australian resource company BHP Billiton (BBL) hold mining assets in Kazakhstan. Other large foreign mining companies that are active in Kazakhstan include Rio Tinto (RIO), Iluka Resources (ILKAY), Central Asia Metals Plc, Areva SA (ARVCY), ArcelorMittal (MT), Yildirim Group, Russian Copper Company and Rusal. A safer regulatory environment and good projects could help Kazakhstan attract more foreign capital into its mining sector (XME).
Recovery in metal prices
The recovery seen in metal and mineral prices over the last few months (see chart above) has contributed significantly to the economy of Kazakhstan. Kazakhstan’s mining companies, including Kazakhmys, KAZ Minerals (up 72% YTD as of July 19), Kazzinc (a Glencore subsidiary), Syrymbet JSC, ShalkiyaZinc, JSC AK Altynalmas, have benefitted from the same. Copper-focused KAZ Minerals reported a 43% growth in revenues in 2016 over the previous year. The depreciation in the Kazakhstani currency, the tenge, has also helped reduce the average operational cost for certain metal producers. The past two years have seen the tenge depreciate by around 45% against the US dollar.
Meanwhile, Kazakhstani petroleum producer JSC National Company KazMunayGas (up 28% YTD as of July 19), has benefitted from the oil price recovery.
As the mining industry continues to attract investments into Kazakhstan, China’s Belt & Road Initiative is another big factor contributing to increased investment into this Central Asian (AAXJ) (VPL) economy.
Expected to grow at 5.5% by 2021
The economy of Kazakhstan has outperformed in the first half of 2017 in the lead up to EXPO 2017 in Astana. GDP growth was recorded at 4.2% in June. The main drivers of expansion included the manufacturing industry, construction, agriculture, transport, warehousing, and trade.
The government expects the economy to grow by 2.4% in 2017 and by 3.5% in 2018. “Step-by-step we should reach a growth rate of 5.5% by 2021,” said Kazakh Prime Minister Bakytzhan Sagintayev at a forum held as part of the EXPO 2017 in Astana. The frontier market (FM) (FRN) is transforming and its economy is now opening up to foreign capital and private participation.
According to the country’s Deputy Foreign Minister, Roman Vassilenko, “Kazakhstan is leading the five Central Asian (AAXJ) (VPL) nations (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan) in their collective quest for global engagement and national development.”
Kazakhstan attracted record FDI inflows in 2016
The total amount of foreign direct investment in the economy topped $20 billion last year,” said Zhenis Kassymbek, Minister of Investment and Development in Kazakhstan during an exclusive interview with The Korea Herald. “Investors regard Kazakhstan as a gateway to the Eurasian Economic Union market of 180 million people.” The economy is already taking steps towards modernization. “Korea is one of [our] top priority investors,” said Kassymbek. The minister believes that Korean enterprises (EWY) (KORU) would be able to lend the necessary high-quality, advanced technologies and qualifications that the country is currently looking to capture.
According to the National Bank of Kazakhstan, the gross inflow of FDI to Kazakhstan in 2016 stood at $20.6 billion, setting a new record with a 40% rise in FDI from the $14.8 billion attracted in 2015. The main recipients of the FDI were the mining industry, geological exploration, and processing.
For those who have been overlooking commodity-related sectors (DBC) for some time now, the mining industry in Kazakhstan certainly demands a second look.