Analysis: Despite global economic slowdown, Kazakhstan unveils massive investment program

By John C.K. Daly   |   Dec. 8, 2014 at 9:28 AM
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In times of austerity, most governments cut back expenditures and raise taxes.

Kazakhstan is following a different path. Despite reduced income due to falling oil prices, President Nursultan Nazarbayev on Nov. 11 delivered his annual "State of the Nation" address, which included increased expenditures.

Nazarbayev's address shares some similarities with Russian President Vladimir Putin's Annual Address to the Federal Assembly – both leaders emphasize their nations are open to the world and to foreign investment, but while a significant portion of Putin's address then focused on Russia's foreign policy regarding Crimea and Ukraine, Nazarbayev's speech remained firmly focused on Kazakhstan's current economic situation and government initiatives designed to bolster and diversify the country's economy.

Nazarbayev usually addresses the nation at the beginning of each year but explained his early speech for 2015 was due to the "ongoing geopolitical crisis and sanction politics of the world's powers" that he said created challenges for many countries, including Kazakhstan, speaking during a session of the ruling Nur Otan party's Political Council.

In the first nine months of 2014 Kazakhstan's economy grew four percent, a more sluggish rate than expected, as it felt the impact of both the 25 percent global reduction over the past two months in the price of oil, its key export commodity, as well as economic fallout from the rising reciprocal sanctions between the West and Russia over Ukraine.

Nazarbayev somberly told his audience, "I, on the basis of my experience, feel that the next few years will be a time of global challenges. ... These affect Kazakhstan as a part of the global economy and a country situated close to the epicenter of geopolitical tensions. We see decreases in prices on international markets and a general slow-down of the economy. ... The World Bank and International Monetary Fund have reevaluated their global growth forecasts for 2014. That is why we need to quickly examine our positions and adjust plans for the coming years."

Rather than economic austerity and tax increases, Nazarbayev then unveiled his $24 billion Nurly Zhol ("Path to the Future") new economic policy, which outlines unprecedented measures to develop the country's economy through large-scale infrastructure projects, including the modernization and construction of the country's transport logistical infrastructure, including roads and railroads along with the modernization of housing and utilities and energy facilities and state construction of rental housing.

The initial funding for the program will come from Kazakhstan's $78 billion National Welfare Fund Samruk-Kazyna, a sovereign wealth fund and joint stock company which owns either partially or fully many significant Kazakh companies, including the national Temir Zholy rail company and postal service, state oil and gas company KazMunayGas, the state uranium company Kazatomprom, Air Astana, and a number of financial groups. Samruk-Kazyna's chief income source is the country's hydrocarbon exports.

Funding will also be sought from international financial institutions.

One trillion tenge (or $6 billion) has already been allocated; Samruk-Kazyna is to supply $9 billion of the remainder, with international institutions loaning an additional $9 billion and 1 trillion tenge (or $6 billion) have already been allocated. In 2015, 2016 and 2017 Samruk-Kazyna will invest $3 billion annually. In a vote of confidence in the Kazakh economy, Nazarbayev noted that the World Bank, the Asia Development Bank, the European Bank for Reconstruction and Development and the Islamic Development Bank had all expressed their willingness to allocate roughly $9 billion to 90 high priority projects to support investment activity, shield salaries from decline and to stimulate job creation.

That the indigenous funds are available is due to earlier prudent government planning. Nazarbayev told his audience, "In the years when the situation in external markets favored us and prices for our export commodities were relatively high, we directed those revenues into the (Samruk-Kazyna) National Fund. Its aim was to increase the sustainability of our economy in the face of external shock, including low prices on our commodities."

Kazakhstan is not starting from zero with its new policy; in 2007-2009 the government developed similar measures to surmount the global recession. Nurly Zhol differs in that the level of investment is an order of magnitude greater, as it serves a broader national agenda, stimulating development not only of the country's transport, energy, industrial and social infrastructure but prioritizing small and medium businesses as well.

Infrastructure development in Kazakhstan is not intended to be limited to government initiatives and international financial institutions. Nurly Zhol will be centered around the country's second five year infrastructure development plan, the Program of Accelerated Industrial and Innovative Development (PAIID), whose overall investment portfolio of roughly $33.1 billion would see 85 percent coming from private investors, including those from abroad. Raising foreign capital should not prove difficult; in 2012 Kazakhstan attracted $14 billion of foreign direct investment inflows into the country at a seven percent growth rate, which made it the most attractive place to invest out of the nine member and two participating Commonwealth of Independent States (CIS) post-Soviet nations.

The trickle down economic effects of Nurly Zhol will have a direct impact even on the average Kazakh, as in accordance with the new policy, as of Jan. 1 homes will be sold to Kazakh citizens without down payments, with mortgages being provided with one-two percent annual interest, while the government will start constructing 1.5 million square meters of new rentable homes that will be offered for long-term rent to citizens who will have the option to buy them later.

The government is optimistic that Nurly Zhol will become the major driver economic growth in the next few years, projecting 200,000 new jobs just from the construction of new roads. Nazarbayev said, "The Nuly Zhol new economic policy is our global step on the path to become one of 30 most developed countries of the world."

When the direct social benefits to the citizenry are factored in, the project will doubtless have massive public support as the country takes its first steps on its "Path to the Future."

Dr. John C.K. Daly is a non resident Senior Scholar at the Central Asia-Caucasus Institute, Johns Hopkins University School of Advanced International Studies in Washington DC.

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Analysis: Why the U.S. is losing the war against the Islamic State

By Harlan Ulman   |   Dec. 7, 2014 at 4:09 PM
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Make no mistake. On the current trajectory, the United States is losing the war against the Islamic State and the reasons why are clear.

Most telling are the White House's use of minimal means in waging this war while seemingly assuming full responsibility for its conduct; and failure to make the case that the threat posed by IS extends far beyond Iraq and Syria.

Ending the wars in Afghanistan and Iraq made returning to the latter difficult. The White House has declared it will not deploy U.S. ground forces to defeat IS. As a result, President Barack Obama seems driven more by ambivalence and not the decisiveness, resolve and determination necessary for success.

An effective fighting coalition against IS, the only means to prevail, has not been fully formed yet. The Iraqi government still must reconcile the enduring conflicts among Shia, Sunni and Kurd. That same government lacks the capacity for restoring effective governance in territories once occupied by IS. And because of its public relations spin, the White House has mistakenly created the perception of a unilateral American war against IS, sparing others the responsibility for winning it.

If IS is to be beaten, regional states must shoulder the lion's share of that burden. Unless and until Iraq, Saudi Arabia, Jordan, Turkey and the other members of the Gulf Cooperative Council (GCC) act more aggressively and comprehensively against IS, the U.S. cannot prevail as a surrogate. Additionally, Russia, China, Pakistan, India, Iran and Israel are threatened by IS. These states must become committed partners in defeating IS. Unfortunately, this coalition is nascent and happy to hold America's coat while it does the fighting.

The broader nature of this conflict is ultimately against violent radical religious extremism, manifested by IS's perversion of Islam. Muslims number about 1.3-1.5 billion people. Assuming 99.99% of all Muslims reject the violence and ideologies of IS, al Qaeda and other terrorist groups, that still leaves at least 1.5 million potential fellow travelers or worse. That number could grow much larger.

This cohort, larger than the U.S. military, has global access. The current fight against IS neglects this broader danger. For the time being, IS has established a caliphate across large swaths of Syria and Iraq. But what prevents IS from expanding its reach? Saudi Arabia must be high on IS's target list.

Reportedly, IS cells have been established in Pakistan and Libya. Russia, China and India have large Muslim populations. Given the many explosive social, religious, economic and political issues in each of those states, the grounds are ripe for penetration by IS. Further proliferation of IS-inspired violence may prove inevitable.

If IS spreads, will America or the coalition follow in hot pursuit? If not, then what happens? And how does this war end? With no apparent battleship deck on which IS accepts surrender, finality in this current conflict is elusive.

How can IS be defeated? First, states must be fully convinced, cajoled or coerced into joining a global alliance against IS. That means the larger danger posed by IS must be fully recognized. This will be a very tough sell. But unless this coalition forms, and the U.S. must be far more decisive and persuasive in making it work, IS will survive and even flourish. Here the U.S. must lead from both the front and at times more subtly from behind.

Coalition air strikes to degrade IS must continue. IS must be expelled from the territories it occupies in Iraq and thoroughly repudiated and rejected by local populations. Iraqi and Kurdish Pesh Merga forces will take the military lead in reoccupying captured territory. If local forces prove insufficient, regional partners must provide military reinforcements.

A powerful counter narrative to IS's murderous and barbaric ideology must immediately be fashioned and widely disseminated especially by Shia and Sunni religious leaders. Silence is tantamount to acceptance. And financial and economic nooses must be tightened around IS.

Finally, without Iran, Russia and Syria's Bashar al Assad -- who Mr. Obama demanded leave office -- IS will not be driven from Syria. Balancing these disparate and conflicting priorities requires great political courage because the backlash to any cooperation with these actors will ignite a political firestorm in Washington. Churchill could ally with his Soviet bête noir Josef Stalin against the more evil threat of Adolph Hitler. But this is not 1941 nor a fight to the finish against Nazism.

The Obama administration has preferred rhetoric and half measures so far because it was unwilling to re-engage in Iraq. Rhetoric is no substitute for action. To defeat IS decisive leadership and determined commitment are essential. Otherwise, the fight against IS will not be won.
Harlan Ullman is Chairman of the Killowen Group that advises leaders of government and business and Senior Advisor at Washington D.C.'s Atlantic Council and Business Executives for National Security. His latest book is A Handful of Bullets: How the Murder of Archduke Franz Ferdinand Still Menaces The Peace.

© 2014 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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