How to Fix Kazakhstan’s Reliance on Fossil Fuels

How to Fix Kazakhstan’s Reliance on Fossil Fuels

It’s been more than 1,000 days since oil prices first started to drop from a high of more than $100 a barrel in 2014. But across petroleum-rich Central Asia, governments continue to struggle to adjust to this new reality. According to a recent interview with Hans Timmer, senior economist with the World Bank, Kazakhstan and its neighbors need to end their addiction to fossil fuels, attract more investment in the renewable energy sector, and prepare their economies for a post-carbon future. Indeed, failure to do so could result in a dangerous mix of economic stagnation and environmental damage.

Kazakhstan, the biggest economy and oil exporter in the region, clearly has the impetus to change, setting lofty goals aimed at expanding its renewables sector and recently hosting the latest edition of the world expo, whose theme was “Future Energy.” In terms of actually carrying out key economic and governance reforms that will allow it to achieve these ambitions, however, Kazakhstan still has yet to put its money where its mouth is. To have any chance of fulfilling its ambitions, Kazakhstan must first work on attracting private investors and reforming its sclerotic business climate, which still bears the vestiges of its Soviet past.

The country’s proven hydrocarbon reserves, estimated at 4.8 billion tons, are among the biggest in the world. It was thanks to these resources that Kazakhstan dragged itself out of the rubble of the Soviet Union 26 years ago and spurred its economy to grow ten-fold since then, with GDP reaching roughly $137.3 billion in 2016. Unlike many of its neighbors, Kazakhstan enjoys relative tranquility and wealth in a region where crime, poverty, and extremism is on the rise.

Of course, such growth has come at a cost. Kazakhstan is one of the most pollutedcountries on Earth, with many CO2 intensive plants and hazardous waste lingering in its waters and soil, a legacy of Soviet-era heavy industry. But until recently, the government had been willing to put up with these side effects as the price to pay for rapid economic expansion.

This expansion, however, came to a screeching halt following the commodities crash of 2014 and a growth slowdown in Kazakhstan’s two biggest trade partners, Russia and China. As a result, GDP growth fell to only 1% in 2015-16, the most plodding rate in two decades, although real GDP increased to a middling 4.2% in the first half of this year as oil output picked up slightly. This series of shocks laid bare Kazakhstan’s overdependence on hydrocarbons and the persistent weakness of other sectors of its economy.