This is kazakhstan, and yes I know what you are all thinking, and yes in the interest
of full disclosure we are definitely cashing in on the hype surrounding the second borat,
but in fairness so is the nation itself.
Even still this country is so much more than that with one of the most, hmm lets call it
exciting economies in the world.
What was once a mistreated soviet state has now gone onto be the largest and wealthiest
economy in central asia, one that is welcoming foreign trade, international investment and
advanced development of technologies to continue this growth into the future.
On top of this, it is a central member of one of the most interesting, and influental
however overlooked trading blocks operating in the world today.
But of course, it has not been without its difficulties, it may very well be the most
prosperous nation in central asia, but central Asia is a rough old neighborhood to be the
king of.
What with It being home to some dream destinations like, kyrgyzstan, tajikistan, turkmenistan
and uzbekistan, and also neighboring contries like pakistan, and afganistan.
By the way, a side note is that “stan” when translated from persian just means a
land of. So kazakhstan kind of just translates to a land of kazaks, which are the ancestral
people of the nation.
Hopefully that gives some clarity to this rather samey naming scheme in and around this
area.
But all of this is to say that kazakhstan hasn’t and won’t have it easy in its quest
to become a properly developed nation but that doesn’t mean that it can’t do it.
So to see what is behind this countries stubborn development we need to look at a few key area’s.
What went on under soviet rule?
What has the country been up to since the collapse?
what is their plan for the future?
Oh and of course while we are here we have to put the nation on the Economics Explained
national leaderboard.
Intro add
Now if we look at kazakhstans place in the world
it is easy to see that it has not had an stable upbringing.
To its north there is russia, east is the unstable Chinese region of xianjang, south
is all the various stans with all of their various problems, like Pakistan and India
shaking their fists at one another constantly.
And to top it all off there is the Caspian sea and Ukraine to the west.
If a rowdy neighborhood wasn’t enough Kazakstan is also the largest landlocked country in
the world which means it misses out on international trade via shipping which is a huge disadvantage.
The cherry on top is that it’s the capital city is the second coldest in the world in
between ottawa in third and Ulaanbaatar the capital of mongolia winning this very unwanted
title.
This doesn’t mean that it is totally out of luck though, infact the country is home
to some of the largest deposits of various natural resources in the world.
And it has in many ways been able to use its less than ideal position in the world to its
advantage.
A convenient trait that was
Exploited by the soviets.
Following the fall of the russian empire the Kazakhs experienced a brief period of autonomy
before eventually been subjected by bolshevik rule and been folded into the ussr.
For the first few years, not much changed in the region, but more and more controls
eventually got placed on the state.
Collectivism was forced upon the primarly agricultural region where farmers who once
worked for themselves were forced to work for the state.
These farmers were forced to not only produce food for themselves and their community but
also to help feed the people of the rapidly expanding union, which combined with poor
management meant that famine was inevitable.
This unfortunate reality plagued the nation for the next decade and a half and real change
only started to be felt during world war 2.
The soviet war effort required a lot of natural resources and Kazakhstan was fortunately plentiful
in pretty much everything the new mechanized battlefield required.
This was the first time the region was properly introduced to heavy industry but even still
most of the factories, mines and railroads were operated by Russian workers while the
domestic population remained in the fields.
This tenuous relationship built on Russian superiority spilled over into other area’s
of the economy as well. For the first few years under Soviet rule, the administrative
capital city of kazakhstan was Orenburg, which was a city populated almost entirely by Russians
on account of it actually being in Russia, not in Kazakhstan.
To make matters worse kazakhstan had one more use to the soviet union beyond being a stockpile
of farmworkers and natural resources. It made for a fantastic bomb site.
The Soviet nuclear program tested hundreds of weapons over decades in test sites within
Kazakhstan, causing untold ecological damage the nation and its people.
This was actually kept pretty secret early on but eventually, the impacts were impossible
to ignore.
This was one of the driving forces behind mass protests in Kazakhstan in the late 1980’s
which eventually culminated in the nation’s independence been declared in December of
1991 just 10 days before the complete collapse of the soviet union.
This was in many ways great, decades of soviet oppression were over and the nation could
finally work on serving its own people first, but it also meant that the nation was now
Out on it’s own
The economy of Kazakhstan shrunk drastically after the fall of the soviet union. The nation
was at this time heavily reliant on natural resource exports to fuel production efforts
in russia and in exchange they would receive equipment, infrastructure and skilled technicians
to make it all work.
With the soviet union gone Kazakhstan lost this relationship, even as one sided as it
was.
However they still had their oil and resources, a point which was not lost on the soviet era
leader turned president Nursaltan Nazarbayev.
Much like russia and the other ex-soviet states Kazakstan had to embrace the free market pretty
much overnight.
Fortunately this transition was assisted by a world that was desperate for their oil.
Programs like INOGATE which saw oil and natural gas connections made to the newly formed European
Union gave the nation some much-needed bankroll.
The european countries were more than happy to pay to have infrastructure set up if it
mean that they had a cheap and above all else reliable source of energy coming from the
Caspian sea, a luxury the was not afforded to them during the times of the soviet union.
Europe did more than act as a piggy bank too. The expertise offered by the partnership meant
that the nation was able to massively ramp up production which fueled a steady rise in
GDP over the next decade.
The nation with its new found expertise in digging stuff out of the ground en mass, was
also uniquely positioned to take advantage of the massive growth of china leading into
the 21st century.
In just a few short years kazakhstan had developed thousands of miles of oil pipelines that would
go on to fuel growth centres in asia, the middle east, europe and even their old mates
in Russia to the north.
Now this growth was great and all but it did make the nation a weee bit over reliant on
oil wealth and with this over-reliance came the usual problems of dutch disease.
Regular manufacturing would already have a hard time gaining traction in the nation on
account of its poor geographic location for shipping, when it is considered that any industry
would need to compete against the oil industry it made sustainable growth all but impossible.
This is a phenomenon known as dutch disease and we have seen in time and time again on
our video’s covering nations with a large oil industry. Apart from Norway because Norway
is perfect.
But dutch disease wasn’t the only issue plaguing the nation. Rampant corruption, and
social tensions had been bubbling away under the surface, but all of that tends to be ignored
when the country is making lots and lots of money, which it was until oil prices started
collapsing.
The revenue from Kazakhstans core industry has taken a massive hit in recent years despite
production being stronger than ever because the price of oil has effectively halved from
where it was 10 years ago.
This hit to the bottom line meant that those issues started to come to the forefront, the
biggest amongst them were the issues of corruption.
You see the thing about corruption is that nobody really cares too much about it so long
as everybody is getting rich, but as soon as the money dries up fingers start to get
pointed very quickly at who it was that squandered that precious oil money.
The optics of corruption also negatively impact any other industries that could have had any
hope to fill in the gaps left by the shrinking natural resources industry.
Now this has all hit kazakhstan very hard, but where other nations have completely folded
in on themselves, like Venezuela and more unstable middle eastern states, Kazakhstan
has maintained some level of stability.
Now the secret to weathering this storm has been it’s ability to
Get by with a little help from its friends.
Kazakhstan is a member of the CIS or the Commonwealth of Independent States, which is a group made
up of a select number of ex-soviet nations.
These nations that make up the CIS have developed agreements very similar in nature to the european
union to trade freely back and forth between one another, not only in goods and services
but also in labor, allowing for the efficient allocation of expertise to developing industries.
One of the big key industries that has come out of this is space flight. Given their ongoing
relationship, Kazakstan houses one of the most active space launch sites in the world,
serving both Russian space expeditions as well as a host of private ventures like the
united launch alliance.
Now the relationships between all of th different CIS states is unbelievably complicated, it
makes game of thrones look like a dinner party, but the takeaway here is that everybody is
surprisingly cool with Kazakhstan.
This kind of popularity extends beyond their ex soviet comrades as well. Kazakhstan is
one of the very few nations in the world that has strong diplomatic and economic relations
with China, Russia and the united states.
The united states was actually the first country in the world to recognize Kazakhstan’s independence
in 1991, and this was for the same reason they are such good friends today, the US was
very keen to rubber-stamp the death of the soviet union.
Russia of course has it’s CIS relationship, and china is also more than happy to extend
an olive branch because kazakhstan is such a central piece of its belt and road initiative.
We have spoken of the Chinese belt and road initiative many times on this channel before
but in breif it is a plan by the chinese government to build road rail and ocean connections from
mainland china, across asia and the middle east all the way to Europe to build strong
trade routes.
If you want to learn more about this go watch our video on why china will be the big winner
of 2020.
Now this is important to kazakhstan for a few reasons, firstly of course its terrain
and position in the world make it a logical place to run those roads through. This would
open up a world of possibilities.
You see up until now it was pretty difficult to get anything other than oil out of kazakhstan,
their oil pipelines are world-class but their transport infrastructure, hmm less so.
A highway and rail system that physically connects China, Russia and Europe through
Kazakhstan would be a massive win for the nation.
It has already done well for itself being a middle man and this would certainly take
that role to the next level. The other reason that this would be so important
to Kazakhstan is that it plays into its modern philosophy of just being the option that people
settle for. Which sounds like an insult but it is actually a huge compliment.
We have spoken endlessly about the importance of stability and confidence on this channel
before. People feel comfortable to spend money or start businesses or invest in area’s
where they are confident of stability.
If Kazakstan is truely going to take advantage of this belt and road initiative it is going
to need to show the world that it can be the most stable nation in the unstable neighborhood
that it inhabits.
With this will come foreign investment which will allow the nation to develop into other
industries and become a central player in central asia, rather than nothing more than
a pit stop between europe and china.
If it is going to achieve this stability though it will need to a few things to embrace
Globalization
The Organisation for Economic Co-operation and Development or OECD is an intergovernmental
international organization that works to build national policies around running strong growth
based economies that will work to better the lives of the citizens living within them and
also the nation’s trading with them. Or at least that’s the theory.
Now kazakhstan is not a member of this club, but that doesnt mean that it doesnt listen
to the lessons learned by this organisation.
One of the key prescriptions of the OECD is that government bodies only account for a
maximum of 15% of national output.
The reasoning behind this is, of course, it encourages a healthy free market but even
more so if there are a range of competing private businesses it alleviates the opportunity
for corruption.
A government official can’t give out sweetheart deals if the government doesn’t run that
particular industry.
Now of course this can only reduce corruption, it can’t eliminate it, but the privatization
of key industries throughout the nation, and the embrace of foreign direct investment are
certainly a step in the right direction, especially considering that the nation is still putting
in place taxes to ensure that the people are seeing the benefits of this industry.
This goal of responsible privatisation and co-operation with more and more international
bodies is part of a bigger strategy to really change the image of the nation, from an authoritarian,
ex soviet, oil nation to an open and free country ready to be the bridge that unites
the east and the west and offers safe passage through an otherwise hostile region.
There is a lot of money in pumping oil out of the ground, or being a center of cheap
labor but there is even more money in being a good middleman.
It is of course anecdotal but perhaps this is best shown with the treatment of what everybody
thinks of when they think of Kazakhstan.
When the original Borat film was released in 2006 the government of kazakhstan was outraged
at an admittedly unfair portrayal of what life was like in the nation. The response
was extremely hostile and pretty in line with what you would expect of an authoritarian
regime.
In 2020 a Borat sequel is being released and the response from the Kazakhstan government
was to co-opt the hype to fuel its tourist campaign.
Now that is some next-level national marketing.
Rankings.
Ok so now it’s time to put Kazakhstan on the economics explained national leaderboard,
alongside all of these other nations, and honorary mentions I suppose.
Starting with Size, the nation has a GDP of 179 billion dollars as of 2018, which is far
from its peek back when oil prices were more favorable, but still makes it a decently powerful
economy in its own right. It gets a 5/10.
GDP per capita is around $9,000 USD per year depending on what is going on with those all
important oil prices, this put’s it securely into the global middle class and gives it
a score of 5/10
Stability and confidence is improving but the nation is far from a switzerland or singapore
just yet. I have no doubt that things will continue to improve for this country if they
keep doing what they are doing but as of now it can really only get a 3/10.
Growth is another weird one, this is the chart of the nations GDP and when it’s growing
it is growing fast but its historical over reliance on fossil fuels mean that this growth
is not sustainable at least without changes and a long term vision, it gets a 4/10 only
because its 10 year rolling average is still pretty strong.
Finally industry, well oil and gas a great and they have propped up the economy through
some times of less than stellar management but one industry does not an economy make,
and until it can establish itself as the bridge between east and west it can only get a 3/10.
All in this gives Kazakhstan an average score of 4/10 putting it into last place on our
leaderboard, at least so far, but let walk away calling this country a very exciting
work in progress rather than a finished masterpiece right now.
Final thoughts
The economy of Kazakhstan is something worth exploring for so many different regions, in
less than 30 short years the nation has managed to place itself quietly at the center of some
massive global developments, both metaphorically and literally.
The nation has the potential to act as this friendly middle man but it will involve a
leap of faith. It is easy to run a government fueled by oil money, the leaders of such nations
can make themselves as well as their friends and family very rich so it is a tempting proposition
but it’s not one that can last forever.
Casting aside that temptation in order to make the transition to an economy with light
government influence, and an economy reliant on being a stable safehouse for global trade
will likely pay off but it certainly won’t be an easy transition.
Either way, Kazakstan will be an economy to watch because if nothing else it will be a
strong indicator of just how well the world is getting along.