Arab Gulf states expand investment in Central Asia

By Theodore Karasik
Kazakhstan President Nursultan Nazarbayev (L) poses for a photo with Chinese President Xi Jinping (C) and Xi's wife, Peng Liyuan, before a banquet during the Second Belt and Road Forum for International Cooperation in Beijing in April. File Pool Photo by Xie Huanchi/UPI
Kazakhstan President Nursultan Nazarbayev (L) poses for a photo with Chinese President Xi Jinping (C) and Xi's wife, Peng Liyuan, before a banquet during the Second Belt and Road Forum for International Cooperation in Beijing in April. File Pool Photo by Xie Huanchi/UPI | License Photo

Nov. 21 (UPI) -- As Gulf states diversify their investments away from the United States and Europe, ties between Central Asian countries and the Arab Middle East continue to grow.

Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Tajikistan are pursuing foreign policies that are bringing them closer to countries of the Middle East North Africa region. Shared values, Sunni Islam and economic opportunities are the driving force behind this new inter-regional paradigm.


The ability of these countries to link themselves together via financial institutions is part of the process of integration. Naturally, Europe and Russia were the first to invest in Central Asia since the region gained independence after the collapse of the Soviet Union in 1991. China, too, sees ample opportunity through its own strategies of economic diplomacy expressed through the Belt and Road Initiative.

Kazakhstan is taking its own path as Central Asia's largest economy by establishing institutions to grow bilateral relationships. For example, trade between Kazakhstan and Egypt reached $80 million in 2018, which represents an increase of 29 percent over 2017. Middle East/Kazakhstan bilateral investment now exceeds $2 billion across a wide range of economic sectors, financing projects in oil, gas and agriculture.


Kazakhstan's increased extra-regional trade, especially with the MENA, is getting a large boost via its newest financial institution, the Astana International Financial Center.

When the first president of Kazakhstan, Nursultan Nazarbayev, established the AIFC in December 2015, he set out to create a regional financial services hub that leverages Kazakhstan's strategic geographic location between Asian, European and Middle Eastern markets. The latter has become particularly involved in the AIFC project.

Nur-Sultan (the Kazakhstan capital formerly called Astana), the city where AIFC is located, as of January, has 157 investment projects worth $39.6 billion. The AIFC was officially launched on July 5, 2018 and modeled on the United Arab Emirates' onshore/offshore finance hubs Dubai International Financial Center and Abu Dhabi's Global Market.

The Astana center is making access to its services easier by visa-free entry for many Arab countries and their investors. The AIFC gives low banking license fees and free office space till 2021.

Importantly, individuals and businesses registered and licensed with the center are exempt from individual and corporate income tax, as well as from property and land tax for any properties located on the AIFC premises until 2066.


Arab investors are also attracted by the similarities with the UAE system. The AIFC's independent English common law judicial system is designed to adjudicate civil and commercial disputes within the confines of the AIFC. Arbitration is conducted through the AIFC International Arbitration Center by using respected mediators from the United Kingdom and other global markets. The establishment of such a legal system within the AIFC is also the first such common law court system in the post-Soviet space and serves as important facilitator for civil resolution of business disputes.

The new liberalized air travel regime also helps. Recent start of direct flights from Nur-Sultan to Abu Dhabi and Dubai, and forthcoming flights to Qatar, Muscat, Oman and Jeddah and Medina in Saudi Arabia are also boosting the ties with the Gulf states.

The former prime minister of Kazakhstan, Karim Massimov said, "The Astana International Financial Center is a new project, similar to what has been done in London many centuries ago, and Dubai and Singapore a few decades ago. We are going to create a finance center based on English common law, on the English language and an independent court."


China's Belt and Road Initiative is regarded by the AIFC as a clear priority -- yet another draw to Arab investors who are increasingly involved with the Chinese megaproject. China's investment in the MENA has surpassed $100 billion since 2005, overtaking the UAE as the leading investor in the region.

According to AIFC Gov. Kairat Kelimbetov, the BRI is opening up a new prospect for financial cooperation between Kazakhstan and China. The AIFC established a "Belt Economics Department," which works with various financial institutions to develop investment models for the Belt and Road projects in Kazakhstan and beyond.

Importantly, Islamic finance plays an important role in tying together Arab investment into the AIFC. Malaysia's Islamic finance community -- including two banks and an advisory -- are entering the AIFC in cooperation with Abu Dhabi's Al Hilal Bank.

The AIFC plans on Islamic banking assets reaching 3 to 5 percent of total banking assets by 2030 as Islamic finance products become popular for their favorable lending conditions and investment strategies. That percentage may seem small, but in the world of Islamic finance, the financial ties that bind are built on a unique set of values based on culture and society between the three countries, Malaysia, Kazakhstan and the UAE.


The AIFC is taking on an additional dimension in Kazakhstan that is unique to the financial center. Kazakh Prime Minister Askar Mamin said that to ensure a faster pace of economic development they need to "qualitatively strengthen the work to attract foreign direct investment in the country."

The AIFC plans to accomplish this by using lessons learned from its experience with hundreds of companies. To be sure, Kelimbetov is expanding the remit of the AIFC into Kazakh regions in terms of attracting foreign direct investment. By establishing a coordinating mechanism between the AIFC and Kazakhstan's regions, a web of investment opportunities is brought into the investment sphere.

Special attention will be given to improving the existing investment infrastructure, matching preferences for investors in special economic zones, accelerating development of public-private partnerships and increasing the share of export-driven projects.

All of the above could not be possible without the assistance of the UAE. The AIFC was officially inaugurated by Nazarbayev, in the presence of Abu Dhabi Crown Prince Mohamed bin Zayed Al Nahyan, in Astana in July 2018. Since that time, over 100 UAE companies have registered in the AIFC. Kazakh Consul General in Dubai Madyar Minilbekov said the countries and their institutions are linked to major brokerage firms, Islamic finance, green financing and conventional insurance.


FinTech is also part of the growing investment cooperation with UAE-based Fidor Solutions to develop blockchain capacity at AIFC. These fin-tech advances are being driven by the UAE-Kazakh relationship, which keeps AIFC ahead of the curve in becoming the "go to" finance center in the region.

Foreign direct investment from Arab states is growing rapidly in Kazakhstan. Bahrain, Saudi Arabia and the UAE are the largest investors, based on their relationships built over the past decade with investment at near record levels in key sectors involving energy and infrastructure. Qatar also is a target for Kazakhstan's outreach for Arab investment by the Kazakh Foreign Ministry.

As the AIFC grows, so does investment from the Arab world. This is the new, 21st century reality in the heart of Eurasia.

Theodore Karasik, Ph.D., is a fellow at the Jamestown Foundation, a national security think tank focusing on the Middle East and Eurasia. He studies global security and investment around the world.

Latest Headlines