Kazakhstan

Politics:

• Analysis

  Kazakhstan politics: Kazakhstan asserts itself in relationship with Russia

  The Kazakh authorities are becoming more assertive in their relationship with Russia, which is Kazakhstan's closest foreign policy ally. Kazakhstan is seeking to secure the best terms possible in negotiations on energy issues and the use of the Baikonur space-launch site, located in central Kazakhstan. Both sides have sought to play down controversies and are seeking amicable solutions, although Kazakhstan has been notably more forceful than previously in asserting its national interests in this close bilateral partnership. Although relations are likely to be more fractious in the months ahead, we believe that close Russo-Kazakh ties will remain a cornerstone of Kazakhstan's foreign policy.

  One of the main areas of dispute is over the energy sector. Tensions between Kazakhstan and Russia have been driven by the formation of the Customs Union in 2010 between Belarus, Russia and Kazakhstan, and the plan to transform this into a Eurasian Economic Union by 2015. For the Kazakh authorities, there are two main points of contention in the energy dispute: oil export duties, and the price Russia pays for Kazakhstan's hydrocarbons. At the crux of the dispute is Russia's desire to separate energy collaboration from broader trade co-operation within the Customs Union, and to introduce duties on energy transactions from January 1st 2014, when a Russo-Kazakh agreement on duty-free supplies expires. Such a strategy could have an adverse impact on the entire Eurasian integration project, since oil and gas account for 25% of bilateral trade, according to Kazakhstan's deputy prime minister, Kairat Kelimbetov. Kazakhstan expected the duty-free regime to continue beyond 2014 under Customs Union duty-free trade rules, but Russia favours the introduction of duties.

  Kazakhstan demands more for oil exports

  The Kazakh authorities also claim that they are not getting a fair price from Russia for oil and gas. Mr Kelimbetov described as "unacceptable" a disparity of some US$40 per tonne between the price Kazakhstan pays for Russian oil and the price Russia pays for Kazakh oil. He also expressed dissatisfaction with gas prices-for 1,000 cu metres Russia pays Kazakhstan approximately US$200, yet it pays Uzbekistan and Turkmenistan approximately U$300 for the same amount. The Kazakh oil and gas minister, Sauat Mynbayev, warned on March 7th that gas could be diverted from Russia to China from 2015, once a new gas pipeline from western Kazakhstan is completed, which will link up with the existing Central Asian gas pipeline, the Turkmenistan-China pipeline. Russia and Kazakhstan are in talks to sign a comprehensive agreement that would resolve what Mr Kelimbetov described as "grey zones" that have arisen in the economic relationship as they push ahead with the Eurasian integration project.

  Access to Baikonur space site is contentious

  The other area of contention is over the use of the Russian-leased Baikonur space site in Kazakhstan. The upset was caused by an unexpected announcement on December 10th 2012 by Talgat Musabayev, the director of Kazakhstan's National Space Agency, that Kazakhstan was considering abrogating its agreement with Russia on the Baikonur lease, which is valid until 2050. Mr Musabayev said that Kazakhstan might abandon the lease "in stages", as the country's president, Nursultan Nazarbayev, had ordered officials to draw up a new agreement that might not involve leasing arrangements, for which Russia currently pays Kazakhstan US$115m annually. This provoked an outcry in Russia, which will depend on Baikonur for all manned space missions and most commercial satellite launches until at least 2015, when the first launch at a new space site in Russia's Far East is due. Kazakhstan also announced that it was allocating Russia only 12 Proton rocket launches from Baikonur in 2013, rather than the 17 it had requested. Russia's Federal Space Agency responded that this would prevent it from meeting contractual obligations, costing it US$500m, and threatened to break off bilateral space co-operation. Kazakhstan has repeatedly expressed environmental concerns over Russia's Proton rocket launches, which it has suspended in the past following toxic rocket fuel spills. Kazakhstan is also dissatisfied with stalled progress on the joint construction of a new launch pad at Baikonur. The Kazakh authorities are using these points of contention to push for a more active Kazakh role at Russian-controlled Baikonur. The country's foreign minister, Yerlan Idrisov, made it clear at the end of January that Kazakhstan has "its own space ambitions". An intergovernmental commission is seeking a resolution.

  Multi-vector foreign policy will continue

  Kazakhstan pursues what it describes as a "multi-vector" foreign policy strategy: forging good relations with all the great powers and avoiding geopolitical disputes. The Kazakh authorities regularly make clear that their closest foreign policy partner is Russia. However, Kazakhstan is now clearly seeking to assert itself more strongly in the relationship; it is increasingly unwilling to play the role of junior partner and increasingly willing to engage in brinksmanship over issues that it views as important. Kazakhstan and Russia still enjoy a tight relationship with close political, economic and military ties, further cemented by warm personal relations between Mr Nazarbayev and the Russian president, Vladimir Putin. Although we anticipate that Kazakhstan will be more forthright in relations with Russia, we expect that contentious issues will be resolved by negotiation and compromise. We expect that close Russo-Kazakh ties will remain a cornerstone of Kazakhstan's foreign policy throughout the forecast period.

  March 28, 2013

• Background

  Kazakhstan: Political forces at a glance

  Political outlook: Political forces at a glance

  Current government: Kazakhstan is a republic in which the president has extensive powers. The president appoints the prime minister, who presides over the Council of Ministers (the government). The incumbent president, Nursultan Nazarbayev, has been in power since 1989. Following a snap election on April 3rd 2011, Mr Nazarbayev was re-elected for a five-year term (previous legislative amendments reduced the presidential term to five years from seven). Mr Nazarbayev competed against three virtually unknown candidates and received 95.5% of the vote. Constitutional changes approved by parliament in 2007 removed all term limits on Mr Nazarbayev, paving the way for him to remain in office for life. A parliamentary election was brought forward from August to January 2012, bringing the number of parties in parliament to three.

  Majilis election, Jan 15th 2012
  	Share of vote (%)	Seats (no.)
  Nur Otan	81.0	83
  Ak Zhol	7.5	8
  Communist People's Party of Kazakhstan	7.2	7
  National Social Democratic Party	1.7	0
  Total incl others	100.0	98
  Source: Organisation for Security and Co-Operation in Europe, Election Observation Mission Final Report.

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  Next elections: The next parliamentary election is scheduled for 2017 and the next presidential election is scheduled for 2016.

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  June 22, 2012

• Structure

  Kazakhstan: Political structure

  Official name

  Republic of Kazakhstan

  Legal system

  On December 16th 1991 the Republic of Kazakhstan became the last of the former Soviet republics to declare its independence following the collapse of the Soviet Union. Parliament approved amendments to the 1995 constitution in 2007, ostensibly aimed at redistributing the balance of power away from the presidency in favour of the legislature

  National legislature

  Bicameral: 107-seat lower house (Majilis), 47-seat upper house (Senate)

  Electoral system

  Universal suffrage over the age of 18 for the presidential and Majilis elections; senators are partly elected by the regions and partly appointed by the president

  National elections

  April 2011 (presidential); January 2012 (Majilis); August 2011 (one-half of the Senate). Next elections: 2016 (presidential); 2017 (Majilis); 2014 (one-half of the Senate)

  Head of state

  The president, Nursultan Nazarbayev, first elected in December 1991 and re-elected in January 1999, December 2005 and April 2011

  National government

  Council of Ministers, headed by a prime minister, who is appointed by the president. In practice, Mr Nazarbayev exercises total control

  Main political parties

  Pro-presidential: Nur Otan (Light-Fatherland). Opposition: Communist Party of Kazakhstan (KPK); Ak Zhol (Bright Path); Republican People's Party of Kazakhstan (RNPK); Party of Patriots; Communist People's Party of Kazakhstan (KNPK). In October 2009 Azat (Freedom) and the National Social Democratic Party (OSDP) merged to form OSDP Azat (Freedom National Social Democratic Party)

  Prime minister: Serik Akhmetov

  Deputy prime ministers: Asset Isekeshev

  Erbil Orynbayev

  Kairat Kelimbetov

  Bakytzhan Zhumagulov

  Council of Ministers

  Agriculture: Asylzhan Mamytbetov

  Culture & information: Darkan Mynbai

  Defence: Adilbek Dzhaksybekov

  Economy & budget: Yerbolat Dosayev

  Economic integration: Zhanar Aytzhanova

  Education & science: Bakytzhan Zhumagulov

  Finance: Bolat Shamishev

  Foreign affairs: Yerlan Idrisov

  Health: Salidat Kairbekova

  Internal affairs: Kalmukhanbet Kasymov

  Industry & new technologies: Asset Isekeshev

  Justice: Berik Imashev

  Labour & social protection: Serik Abdeniv

  Oil & gas: Sauat Mynbayev

  Transport & communications: Askar Zhumagaliyev

  Head of the presidential administration

  Karim Masimov

  Speakers of parliament

  Kayrat Mami (Senate); Nurlan Nigmatullin (Majilis)

  Central bank chairman

  Grigory Marchenko

  March 04, 2013

• Outlook

  Kazakhstan: Key developments

  Outlook for 2013-17

  • The authoritarian rule of the president, Nursultan Nazarbayev, is likely to continue, underpinned by relatively strong economic growth and the weakness of the opposition.
  • The authorities were unnerved by the unrest in Zhanaozen in December 2011. The violence damaged Kazakhstan's image as one of the more stable regimes in the region, but has not greatly threatened the Nazarbayev administration.
  • China will become an increasingly important energy partner as Kazakhstan diversifies its export routes. Nonetheless, ties with Russia will continue to develop, especially following the establishment of a customs union in 2010.
  • The budget deficit is estimated to have widened to 3.1% of GDP in 2012, owing to lower tax revenue. The deficit will narrow over the forecast period as domestic and external economic conditions improve.
  • The sale of state assets under the "People's IPO" (initial public offering) scheme, which began in late 2012, will boost government revenue until 2015, when the programme will end.
  • The tenge depreciated moderately against the US dollar in nominal terms in 2012. The currency will appreciate from 2013, supported by high oil prices, energy investment and the external recovery.
  • The coming on stream of the Kashagan oilfield in 2013 will cause a spike in real GDP growth. High global oil prices and an improvement in the global economy will support growth in subsequent years of the forecast period.
  • The current account will record substantial surpluses in 2013-17. The trade surplus will be boosted by rising oil production, but the current-account surplus will be checked by high outflows of investment earnings.

  Review

  • Kazakhstan and Russia signed an agreement in January that simplifies procedures for their militaries to enter each other's airspace.
  • Mr Nazarbayev ordered Samruk-Kazyna, the sovereign wealth fund, to divest itself of its stakes in BTA Bank, Alliance Bank and Temirbank in 2013. The shares were acquired as part of a bail-out of the banking sector in 2009.
  • Japan signed a Memorandum of Understanding (MoU) with Kazakhstan in February and pledged to help the country to construct a nuclear-power station.
  • Industrial production grew by 0.7% year on year in January. The poor performance of the metals sector dragged down the headline figure. Copper output fell by 3% and ferroalloy production contracted by 2.8%.

  March 04, 2013

Economy:

• Background

  Kazakhstan: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	16.9	Population growth	1.6
  GDP (US$ bn; market exchange rate)	193.0	Real GDP growth	4.9
  GDP (US$ bn; purchasing power parity)	233.6	Real domestic demand growth	4.8
  GDP per head (US$; market exchange rate)	11,431	Inflation	8.9
  GDP per head (US$; purchasing power parity)	13,835	Current-account balance (% of GDP)	3.0
  Exchange rate (av) Tenge:US$	149b	FDI inflows (% of GDP)	8.8
  a Economist Intelligence Unit estimates. b Actual.

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  Background: Nursultan Nazarbayev has ruled Kazakhstan since 1989, before the country declared independence from the Soviet Union in 1991. He was elected president of independent Kazakhstan in December 1991, and a referendum in 1995 extended his term until December 2000. An early election in January 1999 returned him to office for a seven-year term; he was re-elected in December 2005 for another seven years. Following a snap election in April 2011, he was re-elected for a further five-year term (previous legislative amendments reduced the presidential term to five years).

  Political structure: Kazakhstan is a presidential republic where, despite the separation of powers in principle, the president wields almost total control over all three branches of government and dictates national policy priorities. Mr Nazarbayev has sidelined the bicameral parliament, and has kept the opposition under strict scrutiny. A parliamentary election was held in mid-January 2012 (brought forward from August) for the Majilis (the lower house of parliament). In addition to Nur Otan (Light-Fatherland), a pro-presidential vehicle, two other parties were allowed in to parliament, although both are tame pro-government organisations. Nonetheless, there is some evidence that the elites are increasingly dissatisfied with limited political influence.

  Policy issues: A sharp fall in oil prices in late 2008, which lasted until the second quarter of 2009, highlighted Kazakhstan's overdependence on oil. Improving the stability of the banking sector and countering the effects of another period of global economic uncertainty in 2012 will be the main lines of government policy in the short to medium term. Diversification away from hydrocarbons will be a longer-term priority. The economic slowdown in 2009 reinforced the government's interventionism, and the state will continue to promote favoured enterprises, obstructing the free functioning of market mechanisms.

  Taxation: A new tax code came into effect on January 1st 2009, which cut the rate of corporate tax from 30% to 20% and lowered the rate of value-added tax (VAT) from 13% to 12%. Personal income tax is levied at 10%. A social tax paid by employers is set at 11% of the employee's wage. A withholding tax is levied at a rate of 20% on payments made to non-residents, and VAT applies to import values, inclusive of customs and excise duties.

  Foreign trade: In 2011 goods exports reached US$89bn and imports amounted to US$41bn. Russia is still a leading source of imports and market for exports. This is partly the result of the difficulty in moving up the value-added ladder, which makes Kazakhstan unable to compete in Western markets. Instead, the bulk of Kazakh exports to the West consist of raw materials, particularly oil and metals.

  Major exports 2011	% of total	Major imports 2011	% of total
  Mineral products	77.8	Machinery & equipment	41.1
  Metals	13.2	Mineral products	13.8
  Chemicals	3.7	Chemicals	13.1
  Food products	2.1	Metals	9.9
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  China	18.6	Russia	43.9
  Italy	17.2	China	13.6
  Russia	8.6	Germany	5.6
  France	6.2	Italy	4.7

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  March 04, 2013

• Structure

  Kazakhstan: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 04, 2013

• Outlook

  Kazakhstan: Country outlook

  Kazakhstan: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The president, Nursultan Nazarbayev, has been in power since before the collapse of the Soviet Union, and Kazakhstan has never held free and fair elections. The political shift under way in the Middle East and North Africa (MENA) has raised the question of whether a similar process could take hold in the former Soviet Union. There are similarities between Kazakhstan and the MENA countries. They have been subject to long rule by autocratic leaders and suffer from entrenched corruption. Institutions have been corroded by the effects of oil-based development. However, the Kazakh economy is more dynamic, and the regime has made some improvements to living standards. Employment has grown steadily since 2010, reducing the risk of social unrest. Although economic growth over the next few years will be slower, it should remain sufficient for Mr Nazarbayev to maintain patronage networks. One intention behind the government's "People's IPO" (initial public offering) privatisations is to try to widen the support base of the regime by giving more people a stake in the country's wealth.

  ELECTION WATCH: Mr Nazarbayev was re-elected for a further presidential term in April 2011, receiving 95.5% of the vote. Several of the main opposition parties decided not to field candidates, citing concerns over the electoral process. Since Kazakhstan gained independence, no election has been judged free or fair by credible international observers. Administrative resources played an important role in his re-election for a further term in office. The next presidential election is due in 2016, and Mr Nazarbayev has indicated that he will stand. If he does, he is expected to win. A parliamentary election was held in January 2012 for the Majilis (the lower house). Mr Nazarbayev's party, Nur Otan (Light-Fatherland), won 81% of the vote. Two other groups passed the 7% threshold to obtain seats in parliament. However, their entrance into parliament has not brought any substantial changes in policymaking or implementation, as both are tame pro-government parties. The next parliamentary election is scheduled for 2017.

  INTERNATIONAL RELATIONS: China will become an increasingly important energy partner over the forecast period, as it wants to secure greater access to Central Asian hydrocarbons, and Kazakhstan wants to diversify its export routes. Nonetheless, links with Russia will remain strong. In January 2013 Kazakhstan and Russia signed an agreement that simplifies procedures for their militaries to enter each other's airspace. The NATO pull-out of Afghanistan in 2014 will provide an added incentive for co-operation in this area over the forecast period. Kazakhstan established a customs union with Russia and Belarus in 2010, and this is gradually taking effect. From January 1st 2012 a common economic space was established, enabling the free flow of people, services and capital, in addition to goods. Russia is keen to deepen ties with customs union members and to increase the number of members. At a gathering of the Commonwealth of Independent States (CIS) in December, the customs union members, along with Armenia, Tajikistan and the Kyrgyz Republic, agreed to reduce their usage of the euro and the US dollar, and instead to promote the use of their national currencies and the Russian rouble for trade and financial transactions. This will strengthen ties between the six states. Membership of the World Trade Organisation (WTO) is being negotiated separately by the customs union members, and could take place in 2013 for Kazakhstan. In 2010 Kazakhstan became the first member of the CIS to chair the Organisation for Security and Co-operation in Europe (OSCE), despite concerns over its poor record on political freedom and human rights. In 2013-17 Kazakhstan will aim to raise its international profile further.

  POLICY TRENDS: The government will focus on expanding output of energy and minerals, and appears likely to push ahead with the construction of a fourth oil refinery in 2013, at an estimated construction cost of US$10.5bn. The authorities will encourage economic diversification. In his state of the nation address in December 2012 Mr Nazarbayev launched the "Kazakhstan 2050" programme, which targets further improvements to infrastructure, economic diversification, and the education and healthcare systems. In particular, the authorities hope to boost Kazakhstan's integration into the regional economy. The authorities also plan to encourage foreign investment into sectors other than natural resources to help it to achieve its goals. The success of this approach will be partially hindered by contradictory policy imperatives, including the move since the crisis of 2008-09 towards increasing the government's role in the economy, and the policy of domestic privatisation in the form of the People's IPO, which began in November 2012. This chimes with a return to favouring some industries over others and "picking winners", which could hinder private enterprise, fail to enthuse foreign investors and hamper efforts to reduce corruption.

  ECONOMIC GROWTH: Real GDP grew by 7.5% in 2011, compared with 7.3% in 2010. The services sector grew rapidly as domestic demand climbed. After a drought in 2010, agricultural output grew by more than one-quarter. Manufacturing was the best performer in industry. However, industrial and export expansion overall was held back by mining, where output stagnated, in part owing to industrial disputes.

  INFLATION: Average annual consumer price inflation fell to 5.1% in 2012, from 8.3% in 2011 (which was above the upper limit of the central bank's inflation target band of 6-8%). Food price inflation was higher from August 2012, as the impact of the poor grain harvest in Kazakhstan and other CIS countries started to feed through. Food price growth accelerated from a low of 3% year on year in July to 5.1% in December. Higher utilities prices in the second half of 2012 also pushed up headline inflation.

  EXCHANGE RATES: The tenge remained essentially unchanged against the US dollar in 2012, averaging Tenge149.1:US$1. The authorities remained wary of allowing the currency to appreciate too strongly, for fear of harming the competitiveness of non-oil companies. The tenge will begin to appreciate modestly in nominal terms in 2013, benefiting from oil prices of over US$100/barrel, rising oil production as Kashagan comes on stream, and investment into the energy sector.

  EXTERNAL SECTOR: According to the National Bank of Kazakhstan (NBK, the central bank), in 2011 the current-account surplus rocketed to US$14.1bn (7.7% of GDP). The steep increase was driven by strong growth in the trade surplus, which rose to US$47.9bn, from US$28.7bn in 2010, as global metals and energy prices rose sharply. However, the expansion of the external surplus was kept in check by the simultaneous rapid growth of debits on the income account, where the shortfall widened to more than US$26bn. The largest part of these debits represents repatriated earnings on foreign investment in Kazakhstan, but payments to foreign workers were also substantial. According to preliminary full-year data from the NBK (which usually undergoes fairly sizeable revisions later on) the current-account surplus stood at US$8.8bn in 2012. An increase in goods and services imports was an important element behind the deterioration in the external account, as was a substantial income deficit, which the bank estimates at US$27.6bn. The Economist Intelligence Unit estimates that the current-account surplus was equivalent to 4.7% of GDP.

  March 05, 2013

• Forecast

  Kazakhstan: Country forecast summary

  Country forecast overview: Highlights

  • The president, Nursultan Nazarbayev, won a further term in office in April 2011. The Economist Intelligence Unit believes that he will remain in power throughout the forecast period. Factors that will sustain his tenure include lower unemployment and sufficient economic growth to support traditional patronage networks. Nevertheless, if the economy were to falter, this would pose a risk to his rule.
  • The authorities were unnerved by the events in Zhanaozen in December 2011, when a strike ended in the deaths of up to 16 protesters. Although the violence has damaged Kazakhstan's image as one of the more stable regimes in the region, the strikes and related political demonstrations have not posed a strong threat to Mr Nazarbayev's administration.
  • Relations with China will continue to improve, and China will become an increasingly important energy partner as Kazakhstan seeks to diversify its export routes. Russia will remain an important economic partner. The customs union formed with Russia and Belarus in January 2010 is being gradually deepened.
  • The state budget deficit is estimated to have widened to 3.1% of GDP in 2012 as weaker economic performance weighed on budget revenue. The coming on stream of the Kashagan oilfield in 2013, combined with an improvement in economic conditions, will help to narrow the deficit to 1.1% of GDP by 2017.
  • We estimate real GDP growth in 2012 of 5.5%, slower than the 7.5% expansion in 2011. The coming on stream of Kashagan will cause a spike in real GDP growth in 2013 and 2014. High global oil prices and an improvement in the global economy will support growth in subsequent years. We forecast average annual real GDP growth in 2013-17 of around 6.2%, which is much slower than in 2000-07.
  • The tenge remained essentially stable in nominal terms against the US dollar in 2012. Throughout the forecast period the currency will remain supported by high global oil prices and energy investment. Appreciation pressure will be stronger from 2014 onwards.
  • The current-account surplus is estimated at US$9.1bn in 2012. The current account will remain in surplus in 2013-17, owing to higher export revenue, reflecting modest increases in oil and gas production, as well as high global energy prices. The trade surplus will be partly offset by a persistent services deficit as energy firms import foreign geological and technological expertise.

  

  March 04, 2013

View detailed map

Country Briefing

Land area

2,717,300 sq km

Population

16.7m (December 31st 2011)

Main towns

The capital was moved from Almaty to Astana (formerly Akmola) on December 10th 1997

Population in '000 (1999 census)

Almaty: 1,129

Karaganda: 437

Shymkent: 360

Astana: 313

Ust-Kamenogorsk: 311

Pavlodar: 301

Semipalatinsk: 270

Petropavlovsk: 204

Climate

Continental. Average temperature in Astana in winter: -18°C; in summer: 20°C. Average temperature in Almaty in winter: -8°C; in summer: 22°C

Languages

Kazakh is the state language. Russian is the most widely spoken language and is the de facto language of administration

Weights and measures

Metric system

Currency

Tenge. Average exchange rate in 2011: Tenge146.6:US$1

Fiscal year

Calendar year

Time

Six hours ahead of GMT; five hours ahead of GMT in western Kazakhstan

Public holidays

January 1st-2nd (New Year), March 8th (Women's Day), March 20th (Novruz), May 1st (Unification holiday), May 9th (Victory Day), August 30th (Constitution Day), October 25th (Republic Day), October 26th (Eid al-Adha), December 1st (First President's Day), December 16th (Independence Day)

January 01, 2013