With the major Saudi oil facilities under attack, the world should be grateful to have alternative sources of oil and gas. Kazakhstan, with 1.8 million barrels of oil a day output, is the largest oil producer in the non-Russian former Soviet area.
The country has a new president, who recently shared his vision for the country. Kassym-Jomart Tokayev delivered the annual State of the Nation address on Sept. 2, and will be the guest of the Atlantic Council’s breakfast on Sept. 23 at the UN General Assembly in New York City.
The Caspian Sea resources provide millions of barrels of oil a day, with Kazakhstan and Azerbaijan being the largest producers, and Turkmenistan providing 61.5 billion cubic meters of natural gas a year (2,172 billion cubic feet a year).
Kazakhstan, ruled for almost 30 years by its first president, Nursultan Nazarbayev, is undergoing a political transition, with Nazarbayev resigning on March 19, 2019, and Tokayev, who served as the Speaker of the Senate, first appointed, and then elected president on June 9.
After popular protests during the elections, and demonstrations in the southern city of Shymkent following a massive explosion of an armament depot in the town of Arys, Tokayev needs to demonstrate leadership and articulate his own policies going forward. He senses that the people want change — but not a revolution.
Kazakhstan is facing a formidable challenge that other oil-rich countries are coping with: How to share the wealth, accumulated from natural resources exports, and spend it wisely, generating new growth engines in the economy, alleviating poverty, and preventing a multi-generation welfare class from emerging?
How others do it
Russia, Norway, Saudi Arabia, and UAE all face similar problems: dependence on the hydrocarbon revenue. And each has different answers. Oil may be in its last decades as a mobility fuel: Electric cars gain popularity, while natural gas — 50 percent cleaner than coal — still emits 581 million metric tons of CO2 a year when used as a source of electricity in the U.S. alone.
Thus, countries must preserve their wealth and develop alternative sources of value-added employment, while building societies their citizens can support. Thus, Norway’s gargantuan $1 trillion sovereign wealth fund, officially known as the Government Pension Fund Global, had announced that it is divesting from oil and gas and focusing on renewables.
Russia is stuck in the natural resources cycle, expanding into Liquefied Natural Gas, and growing its agriculture by hiding it behind protective tariff walls. It keeps its traditional weapons and nuclear reactor exports going, but is losing positions in the high tech sector like space. Social unrest appears to be spreading, as corruption and regime fatigue settle in.
Saudi Arabia, until the recent attacks, hoped to pour hundreds of billions of dollars into massive investment projects in and outside the Kingdom. Its $300 billion Public Investment Fund (PIF) has committed to developing the NEOM economic zone on the Red Sea, phase 1 of which will be completed in 2025.
Other Saudi investments include projects in Russia, France, Egypt, a 5 percent stake in Uber, a partnership in Softbank’s Vision Fund 1 and 2, and an undisclosed stake in Tesla, to mention just a few. Like its PIF has announced, it will focus on renewable energy.
Tokayev’s challenge
Kazakhstan’s economic success under Tokayev’s predecessor, Nursultan Nazarbayev, who now enjoys the legislatively defined title of First President, Leader of the Nation, head of the National Security Council, and Chairman of the Nur Otan ruling party, is not without challenges.
While Nazarbayev declared an “economy first — politics later” slogan, delaying institutional reform, the recent popular protests suggest that there is a pent-up discontent in the country. In his Sept. 2 Address, Tokayev supported the constitutionally guaranteed citizen’s rights to demonstrate — “and not at the outskirts of the cities,” he added.
President Tokayev said that without political reform, economic progress is no longer possible. He supports the development of a multi-party system and a “state that listens” to its citizens’ complaints — including the creation of the new citizens’ appeals department within the presidency.
The welfare class is growing, however. The number of people receiving social support over the past five years has increased from 77,000 to 1.4 million — almost 8 percent of the country’s population. Moreover, families with many children have protested insufficient social protection. Some people hide income while drawing social support.
With that, Tokayev called to increase support for children with disabilities, including cerebral palsy, and for micro-enterprises for mothers with many children.
Police reform is overdue. Tokayev called for strengthening criminal prosecution of domestic violence, pedophilia, and rape. He also called for a fundamental reform of courts and recognition of defendants’ rights.
Economic growth is the goal
Yet, the greatest problem for Kazakhstan will be to grow the economy to get out of the “middle income trap.” Tokayev called for a new legislation to fight corruption, paring down the number of state-owned companies, and an audit of the Sovereign Wealth Fund. Beyond that, he called to exempt micro- and medium business from income tax for three years and stop the harassing “inspections” often meant to exert bribes. The idea is to increase employment by SMEs to 50 percent of the total GDP by 2050.
Beyond that, Kazakhstan is planning to attract foreign direct investment, support exports, develop tourism, and boost agriculture while forbidding land sales to foreigners — a measure supported by the majority of Kazakhs.
The leader of Kazakhstan has his hands full. We will learn more after his speech at the UN General Assembly in New York. For an experienced diplomat who served as his country’s Foreign Minister twice, and Prime Minister, this will be a familiar forum in a new, elevated role. And for sure, we will expect new diplomatic initiatives from the heart of Eurasia.
Ariel Cohen, Ph.D., is a nonresident senior fellow at the nonprofit Atlantic Council and a member of the Council of Foreign Relations.