Economic Development in Kazakhstan
Good morning, ladies and gentlemen, and thank you very much for organising this meeting, at which we have great opportunities to discuss important audience in such an esteemed audience. First of all, to provoke discussion a little, let me thank God that the recession that started in 2008 in Kazakhstan happened at this time and not later. Why? The opinion of economists in Kazakhstan was that Kazakhstan needed to have this shock. Let me explain a little about the situation in Kazakhstan, in terms of recent and prospective developments.
You know that Kazakhstan gained independence in 1991 and in 1997 under the strong leadership of the President of Kazakhstan, we adopted a long‑term strategic version, Kazakhstan 2030. The main idea was to avoid the issues connected to resource development with oil‑rich countries and with the opportunities for raw material development.
Coming back to recent developments in Kazakhstan, first of all I would like to bring to your attention that from 2007 economic growth rates were about 9‑10% annually in Kazakhstan. In eight years, we almost doubled the GDP of our economy. From one side that was a great success; on the other side, we understood that that was mostly related to oil. We should think about factors beyond oil, gas and other raw materials in Kazakhstan.
We started to research different scenarios, together with some Harvard Kennedy School professors. We realised that the overheating of the Kazakhstani economy would very soon become a problem, and that we would start to face this problem in 2005‑07. If you can imagine driving an old car at a speed of 3,000kmh, it seems unsafe. That happened in 2007‑08, when the first signals of the sub‑prime crisis in the US helped us to be seriously prepared for the worst‑case scenario, which happened after Lehman Brothers collapsed.
The first challenge for Kazakhstan was two channels that damaged the sustainable development of the Kazakhstani economy. The first was when the Western markets stopped refinancing the loans of Kazakhstani banks. That was a significant amount of money. In previous times, the debt in the Kazakhstani banking sector was about US$45 billion. Suddenly, Western markets stopped lending to the Kazakhstani economy. That was certainly the first shock.
The second shock was about the oil factor. In previous times, you remember, oil prices were more than US$100 a barrel, then it suddenly changed, which also damaged the sustainable development of the economy. The Kazakhstani government faced challenges at this time and prepared some efficient anti‑crisis measures among CIS countries, with a stimulus package for the Kazakhstani economy. In terms of its size compared to GDP, it was among the top ten in the world, at about 17% of GDP. We injected about US$15 billion into the economy. The first stimulus package was for $5 billion and the second was for $10 billion. This money went mostly to the problem zones, like the banking sector. We recapitalised the top‑four banks in Kazakhstan, we injected money into real estate and to support SMEs, and made some crucial investment in infrastructure projects.
Coming back to the issue of managing oil wells, again in order to provoke the discussion – especially in the Gulf region where this is a crucial discussion – what is a good diversification model among countries where oil plays a significant role in the development of the economy? There are not many successful examples. We could cite Norway and some Gulf countries, but mostly countries with oil‑rich resources do not grow as dramatically as countries without the oil factor. The Kazakhstani initiatives about competitiveness, which we developed with Professor Michael Porter from Harvard Business School, give us some ideas about the development of the seven priority clusters, which is based on the competitive advantage of Kazakhstan. We are thinking about the development of oil and gas machinery in Kazakhstan, the mining sector, the petrochemical industry, the chemical industry and metallurgy. Recently, we have started the construction of some projects that amount to around US$20 billion. This is a joint venture with some of the most famous companies in the world, such as General Electric, Siemens, Alstom, Samsung from Korea and Huawei from China. This is of great interest to Kazakhstan, as a promising industrialisation programme among the CIS region.
In addition, one of the main principles of Kazakhstan over the last 20 years has been to use best international practice. When we start to build reform programmes, we certainly follow best international practice. Following the experience of the Norwegian oil fund, we have created a special national oil fund which now has about US$55 billion. This was a very good result in terms of fighting the crisis in recent years. We did our pension reform following the example of Chilean pension reform. We also studied the experiences of Singapore and Malaysia, and agreed the special sovereign wealth fund, which is called Samruk-Kazyna, which I am representing today. This is the main asset of the government, in terms of oil, gas, uranium and mining. We have under US$70 billion of assets under management. This particular institution became a main vehicle of the government to fight the crisis. All the money of the national oil fund will be channelled into the economy of Kazakhstan through us. We have done a great job to help the recovery of the economy of Kazakhstan. In 2008, our growth rate was about 3%, and last year’s was about 9%. This year we expect more than 5%, and in the first quarter of this year GDP growth was about 7%.
Coming back to how to bring investment to industrialisation and innovation programmes, not just to the oil, gas and uranium sectors, we understand that we should create special conditions for major companies in different areas. We have started to do that in the creation of Samruk-Kazyna as a vehicle. To manage this process, we are working very closely with major companies in the oil, uranium and mining sectors in order to develop new projects in Kazakhstan. We have established a new culture, based on the private equity philosophy. We have created several joint funds with the European Bank for Reconstruction and Development (EBRD) and with sovereign wealth funds from Abu Dhabi and China. All of these funds are also starting to finance the Kazakhstani economy.
There has been a lot of talk about geo‑strategic and geo‑political issues today. Kazakhstan became part of the customs union with Russia and Belarus as partners. We are also part of the economic cooperation of the Shanghai Cooperation Organisation. It may be significant that, just last year, we borrowed about US$13 billion from China. China is playing a significant role in the development of the Kazakhstani economy, and we understand that China will probably be the second driver of economic growth in Kazakhstan, together with other partners from the Custom Unit, who would like to participate in this direction.
In terms of the relationship between GCC countries and the Caspian region, together with partners from the Gulf Countries, Kazakhstan could create a real bridge which had a historical, religious and cultural foundation in previous years. Now, I think we have great opportunities to develop financial and investment flows between us, and also to develop shared experience in how to diversify economies in Kazakhstan and in Gulf Countries. This will come not just from theoretical but also practical experience.
Let me conclude by speaking about the approach of Kazakhstan. From the beginning, Kazakhstan took the approach of having a pragmatic balance between the US, EU, China, Russia and other countries in order to bring in investment. This approach has been successful and we would like to develop it further. Thank you very much for your time.
Bill Emmott
Thank you very much, Mr Kelimbetov. That gives us a second fascinating case study. We had from Jordan the case study of an economy that is not resource‑rich, but has assets in geography and human capital. Kazakhstan is a very strong example of a country whose assets are resources, but are also human capital. That also illustrated some of the themes not only of the IISS but also of this conference. One is the ability to learn from other examples – mentions of Chile’s pension fund and the Singaporean and Malaysian approaches to sovereign wealth funds, for example.
Secondly, there is the importance of multiple institutional development in multiple groupings, like the Shanghai Cooperation Organisation, and the customs union with Russia and Belarus. We are not dealing with a world with one set of institutional frameworks, but a multiplication of them.
