Kazakhstan

1
Kazakhstan

• Christopher, Lada, and Mahmoud . April 2007
  Prof. Michel Henry Bouchet

Source http//www.atameken.de/pictures/project/ka
s_info/symbole/137766Flag_Kazakhstan3.jpg
2
AGENDA

• Overview
• Political analysis
• Economy analysis
• BOP analysis
• Risk analysis
• Strengths and weaknesses

3
AGENDA
A brief overview
4
Political Map
Source http//www.lib.utexas.edu/maps/cia00/kazak
hstan_sm00.jpg
5
OVERVIEW

• Location Central Asia, northwest of China
  a small portion west of the Ural River in
  eastern-most Europe.
• Area 2,717,300 sq km in total, 2,669,800
  sq km of land, 47,500 sq km of water, (9th
  largest country in the world).
• Land boundaries Total 12,012 km
• Border countries China 1,533 km, Kyrgyzstan
  1,051 km, Russia 6,846 km, Turkmenistan
  379 km, Uzbekistan 2,203 km
• Natural resources Major deposits of petroleum,
  natural gas, coal, iron ore, manganese,
  chrome ore, nickel, cobalt, copper, molybdenum,
  lead, zinc, bauxite, gold, uranium.
• Natural hazards Earthquakes in the south,
  mudslides around Almaty.
• Capital Astana (600,000 est.)
• Largest city Almaty (2,000,900 est.)

Source https//www.cia.gov/cia/publications/factb
ook/geos/kz.html, CIA, The World Factbook
6
OVERVIEW

• Population 15,233,244
• Age structure 0-14 years 23 (male
  1,792,685/female 1,717,294) 15-64 years 68.8
  (male 5,122,027/female 5,357,819) 65 years and
  over 8.2 (male 438,541/female 804,878)
• Population Growth rate 0.33
• Ethnic Groups Kazakh (Qazaq) 53.4, Russian
  30, Ukrainian 3.7, Uzbek 2.5, German 2.4,
  Tatar 1.7, Uygur 1.4, other 4.9
• Religions Muslim 47, Russian Orthodox 44,
  Protestant 2, other 7
• Languages Kazakh (Qazaq, state language) 64.4,
  Russian (official, used in everyday business,
  designated the "language of interethnic
  communication") 95
• Literacy definition age 15 and over can read
  and write total population 98.4 male
  99.1 female 97.7 (1999 est.)

Source https//www.cia.gov/cia/publications/factb
ook/geos/kz.html, CIA, The World Factbook
7
Environment issues

• Radioactive or toxic chemical sites that where
  left behind by the former defense industries and
  test ranges can be found throughout the whole
  country, they pose significant health risks for
  humans and animals.
• Industrial pollution is a very big problem in
  some cities.
• Two main rivers which flowed directly into the
  Aral Sea have been diverted for irrigation, the
  consequence is that they are drying up and leave
  behind dangerous chemical pesticides and natural
  salts, these substances are picked up by the wind
  and blown into dust storms
• Pollution is also driven by the overuse of
  agricultural chemicals and wasteful irrigation
  practices.

Source https//www.cia.gov/cia/publications/factb
ook/geos/kz.html, CIA, The World Factbook
8
AGENDA
History
9
History/Background

• Native Kazakhs, who were a mix of Turkic and
  Mongol nomadic tribes, settled down in the region
  in the 13th century which today is Kazakhstan.
• In the 18th century the area was conquered by
  Russia ,and in 1936 Kazakhstan became a member
  state of the Soviet republic.
• Soviet repression of the former leading elite
  and the forced collectivization brought mass
  hunger and led to unrest. Soviet rule, however,
  took hold, and the communist machinery managed to
  fully integrate Kazakhstan into the Soviet
  system.
• During World War II industrialization and
  mineral extraction increased in support of the
  war effort, however, Kazakhstan still had mainly
  agricultural-based economy.
• Kazakhstan declared independence in 1991.
• After the independence the development of
  Kazakhstan was characterized by a significant
  political monopoly of power. Nursultan Nazarbayev
  came to power before independence as head of the
  communist party of Kazakhstan and was elected
  president in 1991 after the independence. He
  still is the president of Kazakhstan.

Source https//www.cia.gov/cia/publications/factb
ook/geos/kz.html, CIA, The World Factbook///
http//www.worldbank.org.kz/WBSITE/EXTERNAL/COUNTR
IES/ECAEXT/KAZAKHSTANEXTN/0,,contentMDK20629270m
enuPK361877pagePK141137piPK141127theSitePK3
61869,00.html, World Bank
10
History/Background

• The development was marked by reforms to the
  economy that was influenced by communist ideals
  before.
• Kazakhstan was one of the earliest and most
  vigorous reformers among the countries of the
  former Soviet Union.
• Prices were liberalized, trade distortions
  reduced, and small- and medium-scale enterprises
  were privatized.
• The treasury and budget processes were
  dramatically improved.
• In the areas of land reform in the rural areas,
  in the creation of an enabling environment for
  the small and medium sized enterprises, and in
  the elimination of corruption, Kazakhstan still
  faces major problems that have to be addressed in
  the future.

Source https//www.cia.gov/cia/publications/factb
ook/geos/kz.html, CIA, The World
Factbook///http//www.worldbank.org.kz/WBSITE/EXTE
RNAL/COUNTRIES/ECAEXT/KAZAKHSTANEXTN/0,,contentMDK
20629270menuPK361877pagePK141137piPK141127
theSitePK361869,00.html
11
AGENDA
Political Analysis
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OVERVIEW

• Conventional name Republic of Kazakhstan.
• Government type Constitutional republic with a
  strong presidency.
• Legal system On August 30th 1995 a new
  constitution was approved which widely
  increased the power of the president and
  largely decreased the influence of the
  legislature.
• National legislature Bicameral 77-seat lower
  house (Majilis), 39-seat upper house (Senate)
• Electoral system Voting right from the age of
  18 for presidential and Majilis elections, the
  senators are partly elected by regiuons and
  partly nominated by the president.
• Head of state The president, Nursultan
  Nazarbayev, he was first elected in 1991 and
  reelected in 1999 and 2005, legislative period of
  7 years.

Source http//www.economist.com/countries/Kazakhs
tan/profile.cfm?folderProfile2DPolitical20Struc
ture, The Economist
13
OVERVIEW

• Next elections 2008 (one-half of Senate),
  December 2012 (presidential), September 2008
  (Majilis)
• National government Council of Ministers,
  headed by the prime minister, who is appointed
  by the president. In practice, Mr. Nazarbayev
  exercises total control.
• Prime minister Karim Masimov
• Main political parties Pro-presidential Otan
  (Fatherland) Civic Party of Kazakhstan
  Kazakhstan Agrarian Party (AIST bloc).
  Opposition Nationwide Social Democratic
  Party (OSDP), Communist Party of Kazakhstan
  (KPK) Ak Zhol (Bright Path) Republican
  People's Party of Kazakhstan (RNPK)
• Last elections Organization for Security and
  Cooperation in Europe said that the elections
  in 2005 fell short of international
  standards.

Source http//www.economist.com/countries/Kazakhs
tan/profile.cfm?folderProfile2DPolitical20Struc
ture, The Economist
14
Results of last presidential elections in 2005
Source http//www.electionworld.org/kazakhstan.ht
m, Electionworld
15
Freedom House Ratings 2006(1 represents the most
free and 7 the least free rating)

• Electoral process 6.5 / Pro-regime financial
  interests and political parties fully control
  the Parliament, which does not have a single
  opposition or independent deputy.
• Civil society 5.75 / The government tightens
  control over civil society through laws,
  formal and informal pressure, and increased
  funding by the state or agencies controlled by
  the state.
• Independent Media 6.75 / Almost all opposition
  newspapers are close print media and the
  Internet are controlled pervasively there is
  widespread disinformation campaign against
  opposition.
• Judicial Framework 6.25 / The country's
  executive system is based on presidential
  patronage, the judiciary, like the legislative
  branch, has remained loyal to the regime. It
  has served to protect the interests of the
  state and its functionaries rather than those
  of individuals, minorities, and the weaker part
  of society.

Source http//www.freedomhouse.org/template.cfm?p
age47nit404year2006, Freedom House
16
Freedom House Ratings 2006(1 represents the most
free and 7 the least free rating)

• Corruption 6.5 / Governance and economic
  conditions helped to control corruption at
  lower and middle levels of bureaucracy, but the
  virtual absence of an independent judiciary and
  media mean that it is impossible to proof
  corruption at the top level of the ruling elite.
• Overall Freedom House Rating
• Political Rights 6
• Civil Liberties 5
• Status Not Free

Source http//www.freedomhouse.org/template.cfm?p
age47nit404year2006, Freedom House
17
Prince Model
World Bank
Eurasian
Alga DVK
Positive Influence
Kazkommertsbank
USA
Real Ak Zhol
Nursultan NAZARBAYEV (Nur-Otan)
China
Russia
Negative Influence
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Political Analysis

• President Nazarbaev has created a strong and
  personalized presidential regime by allowing
  close family, friends, and business associates to
  control vital economic resources and political
  positions.
• After the independence a phase in which media
  freedom, civic and democratic activism begun
  which was dispersed on 1995 when the president
  adopted a new constitution that dramatically
  increased the power of the presidency.
• After his reelection in 1999 Nazarbaev used the
  growing economy and rising prosperity to further
  tighten his authoritarian rule. He has embraced a
  purely formal democratization agenda by holding
  regular elections (as mentioned before they are
  not considered as beeing fair) and setting up a
  multiparty system composed of pro regime parties.
• The political system is open to considerable
  financial and business interests/investors that
  are loyal to the president, but closed to
  independent financial and political interests
  that follow alternative ideologies.

Source http//www.freedomhouse.org/template.cfm?p
age47nit404year2006, Freedom House
19
AGENDA
Economy Analysis
20
Economic Overview

• After the independence in 1991, Kazakhstan was
  one of the first countries among the former
  member countries of the Soviet Union that
  launched vigorous economic reforms.
• Prices were liberalized, trade distortions
  reduced and SMEs privatized while the treasury
  and budget processes were substantially enhanced.
  
• The energy sector has driven economic growth,
  thanks to an energy boom that began
• in 2000. China has invested billions in oil
  companies and pipelines to access Kazakhstans
  hydrocarbon resources and output is projected to
  grow from 1.2 million barrels a day in 2006 to
  3.5 million barrels a day in 2020. Kazakhstan has
  also begun to develop financial services and
  light industry sectors.
• Kazakhstan in 2006 completed the Atasu-Alashankou
  portion of an oil pipeline to China that is
  planned to extend from the country's Caspian
  coast eastward to the Chinese border in future
  construction.

Sourcehttp//www.worldbank.org.kz/WBSITE/EXTERNAL
/COUNTRIES/ECAEXT/KAZAKHSTANEXTN/0,,contentMDK206
29270menuPK361877pagePK141137piPK141127theS
itePK361869,00.html, World Bank
21
Economic Overview

• The government has established a basic framework
  to attract foreign direct investment (FDI) into
  its resource-rich oil and mineral sector. Banking
  reforms and state-of-the-art pension reform
  followed together with the unbundling and partial
  privatization of the electricity sector.
• As a result of increased oil exports and
  significant capital inflows, the currency Tenge
  has appreciated considerably against the US
  dollar, placing pressure on non-oil exports to
  remain competitive.
• To ensure that a larger share of the population
  reaps the benefits of recent growth, the
  government is looking for ways to improve
  spending policies, particularly in the social
  sectors, and to promote economic diversification
  and non-oil sector growth.
• Diversification into labor-intensive sectors is
  necessary for growth in employment and incomes,
  as well as to reduce the economys vulnerability
  to swings in the price of oil.

Sourcehttp//www.worldbank.org.kz/WBSITE/EXTERNAL
/COUNTRIES/ECAEXT/KAZAKHSTANEXTN/0,,contentMDK206
29270menuPK361877pagePK141137piPK141127theS
itePK361869,00.html, World Bank
22
Macroeconomy analysis

• Currency Unit Tenge (KZT)
• 1 USD 128.35 KZT (31.03.2007)
• 1 EUR 171.64 KZT (31.03.2007)
• Major Trading partners Exports Russia 12.4,
  Germany 12, China 11.2, Italy 8.9, France
  8.6, Romania 5.1, US 4.5
• Imports Russia 35.7, China
  21.3,Germany7.1
• GDP (2006) 138.7 billion (PPP)
• GDP-per capita (2006) 9,100 (PPP)
• GDP-real growth rate (2006) 8.5
• Unemployment rate (2006) 7.4
• Population below poverty line 19 (2006)

Sourcehttps//www.cia.gov/cia/publications/factbo
ok/geos/kz.htmlEcon, CIA, The World Factbook ///
http//finance.yahoo.com/currency/convert?amt1fr
omEURtoKZTsubmitConvert, Yahoo Finance
23
GDP Labor Force composition by sector
Sourcehttps//www.cia.gov/cia/publications/factbo
ok/geos/kz.htmlEcon, CIA, The World Factbook
24
Inflation
Sourcehttp//www.undp.kz/infobase/tables.html?id
18, UNDP /// http//www.indexmundi.com/kazakhstan
/inflation_rate_(consumer_prices).html, Index
Mundi
25
Kazakhstan Tenge Exchange Rate
Sourcehttp//www.adb.org/Documents/Books/Key_indi
cators/2006/pdf/KAZ.pdf, Asian Development Bank
/// Note Exchange rates are average of period
26
GDP Growth
In 2006 GDP (US bn market exchange rate) 
 77.2 /// GDP (US bn purchasing power parity) 
 144.0  
Sourcehttp//www.adb.org/Documents/Books/Key_indi
cators/2006/pdf/KAZ.pdf, Asian Development Bank
27
Foreign Trade in USD
Sourcehttp//www.undp.kz/infobase/tables.html?id
12, UNDP
28
Foreign Trade
Major Exports 2006 in of total
Mineral products   71.9 
Metals   16.1 
Chemicals   4.2 
Food products   2.8      
Major Imports 2006 in of total
Machineryequipment  45.2
Mineral products   14.3 
Metals   13.3 
Chemicals   10.8 
Leading markets 2006    of total 
Italy   18.0 
Switzerland   17.6 
Russia   9.8   
France   8.8 
Leading suppliers 2006    of total 
Russia   38.3 
China   8.1
Germany   7.6
US   4.7 
Sourcehttp//www.economist.com/countries/Kazakhst
an/profile.cfm?folderProfile-FactSheet, The
Economist
29
Government Budget performance of Republic of
Kazakhstan
30
Index of Economic Freedom

• World Rank 2007 75
• Regional rank 2007 10
• Economic Freedom 2007 60.4
• Change from 2006 -0.8
• Business Freedom 66.5
• Trade Freedom 64.2
• Fiscal Freedom 87.6
• Freedom from Governemnt 85.9
• Monetary Freedom 72.9
• Investment Freedom 30
• Financial Freedom 60
• Property Rights 30
• Freedom from Corruption 26
• Labor Freedom 80.5

Sourcehttp//www.heritage.org/Research/Features/I
ndex/chapters/pdfs/index2007_RegionA_Asia-Pacific.
pdf, The Heritage Foundation
31
Doing Business 2007
Source World Bank
32
AGENDA
BOP Analysis
33
Liquidity ratio
Sourcehttp//www.adb.org/Documents/Books/Key_indi
cators/2006/pdf/KAZ.pdf, African Development Bank
34
Liquidity ratio
Sourcehttp//www.trading-safely.com/
35
Solvency ratio
Sourcehttp//www.trading-safely.com/
36
Bondholders of Kazakhstan
37
AGENDA
Risk Analysis
38
Country Ratings

• COFACE Kazakhstan has speculative grade
• B unsteady economic and political
  environment.
• Fit.ch On the 20th of Dec 2005, International
  Rating Agency Fitch Ratings Ltd. raised
  Kazakhstan sovereign credit rating up to ???
  in foreign currency and ??? in local currency.
  At the same time, the agency confirmed F3
  level for short-term foreign currency. All the
  ratings are specified as stable.
• Standard Poors On June 13, 2006, Standard
  Poor's Ratings Services revised its outlook on
  the Republic of Kazakhstan to positive from
  stable, on an increasing government net asset
  position and strong growth prospects, which
  outweigh the contingent liability risk
  stemming from high credit growth and external
  borrowing in the banking sector. At the same
  time, the 'BBB-' long-term and 'A-3'
  short-term foreign currency and the 'BBB'
  long-term and 'A-3' short-term local currency
  sovereign credit ratings on Kazakhstan were
  affirmed.

Source http//www.freedomhouse.org/template.cfm?p
age47nit404year2006, Freedom House ///
Standard Poors /// Fitch
39
Corruption Perception Index 2006
Kasakhstan Rank 111, CPI Score 2.6, Confidence
range 2.3 - 2.8
Sourcehttp//www.transparency.org/policy_research
/surveys_indices/cpi/2006, Transparency
International
40
Human Development Index
Kazakhstan is ranked 79 out of 177 in the Human
Development Index
Categories High 0.8-1, Medium 0.5-0.8, Low 0-0.5

The Human Development Index (HDI) is a
comparative measure of life expectancy, literacy,
education, and standards of living for countries
worldwide. It is a standard means of measuring
well-being, especially child welfare.
Source http//hdr.undp.org/hdr2006/statistics/cou
ntries/country_fact_sheets/cty_fs_KAZ.html, UNDP
41
Agenda
Strengths/ Weaknesses and Risk assesment
42
Strengths

• Political stability.
• Foreign Capital inflows especially from Russia,
  China and the US.
• Extremely high level of natural resources, in
  particular oil and gas.
• Diverse programs of the World Bank and the UNDP.
• Stable exchange rate.
• Wages are low.

43
Weaknesses

• Eventhough the president managed to bring
  political stability to the country the power is
  centralized too much. There is a high price for
  this stability
• Corruption is very high
• Human Development Index shows shortcomings in
  the quality of life and that people are not
  properly educated
• The economy of Kazakhstan strongly depends on
  the export of natural resources like oil and gas
• These resources are not efficiently managed,
  competitiveness and production is not high enough
• Environmental problems, pollution is really high
• Currency Tenge is highly dependent on the oil
  exports, so currency appreciated and puts
  pressure on the export on non-oil products
• The banking sector has been shaky with
  non-performing loans already at high levels

44
Challenges for the future

• The oil sector has to be managed efficiently in
  order to increase productivity and
  competitiveness, the exports have to be managed
  to avoid high inflation and to protect the
  non-oil segment
• The economy has to be diversified in order to
  decrease the dependence on oil. Therefore an
  investor friendly environmet has to be build up.
• Kazakhstan has to build up human capital because
  there are shortcomings in the skills of the
  laborforce. Therefore education systems have to
  be improved. Foreign Companies need good
  employees if they want to invest. At the moment
  there are quotas on the imort of foreign
  professionals.
• Infrastructure has to be improved in order to
  provide an advanced business environment. Sectors
  that have to be improved are telecommunications
  and roads
• Institutions have to be developed that can
  conduct effective project analysis, evaluation,
  and design and that can implement targeted social
  assistance and sectoral development strategies.

45
Conclusion

• Weaknesses definitely outweigh strengths,
  Kazakhstan has major shortcomings that have to be
  addressed in the future.
• The biggest problems are the dependence on oil
  and the high level of corruption.
• We believe that there is a still unstable system
  because Nazarbaevs system only replicates the
  democracy's form.
• The so called democracy preserves the "ruling
  elite" and has no mercy for the opposition.
• The president, then, is both a player and a
  referee, and while he can stretch, suspend, and
  break the rules of the game, he cannot change
  them permanently. His power is vast, but it is
  limited by the need to maneuver between influence
  groups and maintain a balance between them.
• Kazakhstan is on the borderline
  between-investment grade and speculative-grade
  but because of the discussed problems and
  Nazarbaevs regime we
• strongly advise you to be careful with investing
  in Kazakhstan!

46
Agenda
Thank you very much for your attention
47
Sources

• Asian Development Bank
• Coface
• CIA
• Electionworld
• Financial Times
• Fitch
• Freedom House
• Kazakhstan National Statistics Agency
• Kazakhstan Stock exchange
• National Bank of Kazakhstan
• Standard Poors
• The Economist
• The Heritage Foundation
• Transparency International
• UNDP
• University of Texas
• World Bank
• www.mapsofworld.com
• www.trading-safely.com