Kazakhstan’s Financial Role Is Growing Amid Global Economic Stresses – Analysis
Severe stresses in the global financial system have become apparent recently. This has been exacerbated by the collapse of several banks in the United States and Europe, including Silicon Valley Bank and Credit Suisse. Market confidence has been shaken and central banks are between a rock and a hard place as they try to balance keeping inflation low and maintaining financial stability.
As the world attempts to navigate these challenges, there is a clear need to make use of emerging markets, which right now are more appealing in comparison to developed markets. There is a good reason for this. Emerging markets outperformed developed economies in the two decades prior to the covid-19 pandemic. In its January update to the World Economic Outlook, the International Monetary Fund projected growth in emerging markets and developing economies at 4.0% in 2023, 0.3 percentage point higher than its October projection. For 2024, the projection is for a 4.2% expansion, which suggests that growth in emerging markets will outpace those of developed countries.
While mammoth markets like India, China and Brazil are usually in the spotlight, some middle-power countries are frequently overlooked. One such market is Kazakhstan, a country the size of the whole of western Europe that sits right between China and Russia. Its economic indicators have always been appealing, though rarely in the limelight. Kazakhstan’s economy, which grew by 3.2 percent in 2022, is now almost one third bigger than the economies of other Central Asian countries combined and around 60 percent of foreign investment in the region falls on Kazakhstan. To the surprise of many, Kazakhstan’s economy has proved resilient to the geopolitical shocks that impacted the whole region after the start of the war in Ukraine last year and seems to have weathered the storm of soaring inflation, disrupted supply chains, and knock-on effects of Western sanctions on Russia, a country with which Kazakhstan shares the longest uninterrupted land border in the world.
Yet it is the country’s strategic location and its contribution to global trade that is of particular importance right now amidst the broken supply and trade chains, a consequence of the conflict in Ukraine.
In the more than 30 years since its independence in 1991, Kazakhstan has leveraged its strategic location as a link between China, Russia, and Europe to become a regional hub for trade and commerce. For several years, Kazakhstan has been playing an important role in the successful implementation of China’s Belt and Road initiative, with most of the goods passing through the territory of Kazakhstan. Due to the geopolitical tensions that arose following the war in Ukraine, the country has now embarked on the development of alternative routes, including Trans-Caspian International Transport Route, an international corridor that starts from Southeast Asia and China and runs through Kazakhstan, the Caspian Sea, Azerbaijan, Georgia, and further to European countries. Regardless of how the situation in Ukraine unfolds, Kazakhstan will remain a key link in the global trade system.
Secondly, Kazakhstan’s financial reforms make it one of the most promising markets to enter in the region. In 2018, the country established the Astana International Financial Centre (AIFC), the regional hub for investment and stock market development, which has become a hotbed for successful fintech firms.
Significantly, AIFC is the first financial institution in the region to offer businesses a complete and comprehensive legal platform that is based on the norms and precedents of English Common Law, which ensures fair and impartial decisions that are legally enforceable within the country, despite the court’s independence from the domestic judicial system.
Thirdly, Kazakhstan continues to rank first in the region in terms of foreign direct investments. This is to be expected considering its economic stability, abundant natural resources, strong commodity market fundamentals, political and economic reforms, as well as 13 Special Economic Zones with tax incentives.
The country is aware of its growing political and financial role on the world stage. This June, Kazakhstan will host the Astana International Forum, which will bring together senior government representatives from all over the world and members of international organisations and business circles to discuss ways to navigate current global challenges. The forum will focus on four key topics: foreign policy, security and sustainability, energy and climate, and economy and finance. The latter will consider ways to get back to global growth, as well as how Central Asia, including Kazakhstan, can contribute to this process.
As international investors and businesses continue to come to terms with the current challenges in the global financial system and the slowing growth rate of developed nations, the role of emerging markets like Kazakhstan will become more prominent. It has reached its sweet spot, as it’s no longer uncharted territory for investors, while still offering untapped opportunities not just in the traditional oil & gas sector, but also in mineral wealth and precious metals, agriculture, animal husbandry, renewables, and mining industries.
Luke Rodehefer is a banker and global economic risk analyst.
