Western and Asian efforts to boost relations with the five Central Asia countries is good news for companies and banks wanting to penetrate these big, yet largely unexploited, markets.
Not long ago, even senior apparatchiks in Brussels would have struggled to identify one ‘stan’ from another. Now, improving relations with the five economically and culturally diverse countries of Central Asia has become an EU foreign policy priority. The main driver is deteriorating relations with Russia following its covert invasions of Ukraine and increasing aggressiveness, amid what many see as its transformation into a rogue state that threatens global security. All this is speeding European Union efforts to improve energy security—read as “reducing dependence on Russia.” Gazprom currently provides some 27% of EU gas, but a much higher proportion to the Baltic and Balkan nations.
On February 26, Brussels unveiled its long-term energy strategy encouraging closer links with gas-rich Turkmenistan and Azerbaijan. Both countries have wary relations with Russia—the former last year called Russia “an unreliable partner.” The EU strategy is part of a wider plan to prioritize completion of the $45 billion southern corridor, bringing Turkmeni and Azeri gas across Turkey to Southern Europe. This followed an agreement signed with Kazakhstan in October 2014 aimed at fostering closer relations at all levels. Since then, high-level EU delegations have been frequent visitors to Almaty and the capital, Astana.
Despite being a founder member of the Eurasian Economic Union (EEU), which started operating this January, Kazakhstan is doubtless mindful of its large Russian minority, which the Kremlin could use to justify future hostile actions. However, with energy and commodity prices close to historic lows and oil exports in Kazakhstan, for example, accounting for some 25% of GDP, there is also a renewed eagerness to step up reforms and diversification and attract Western investment.
The motor for this in Kazakhstan, the largest and most West-oriented economy in the region, is reformist prime minister Karim Massimov. He assumed power after Serik Akhmetov resigned with his whole cabinet on April 2 last year following a slide in GDP growth and a 20% devaluation of the national currency, the tenge, a few months earlier. Massimov, who served as prime minister between 2007 and 2012 and head of staff for then-president Nursultan Nazerbayev, is determined to prioritize growth and reform and has been working closely with international financial institutions (IFIs) to make this a reality.
“He has a good, clear idea of what needs to be done here and is initiating changes that are making a difference,” says Janet Heckman, director for the European Bank for Reconstruction and Development (EBRD) in Almaty, pointing to ongoing banking sector reforms (see box), the reform of the civil service and a new regulatory framework for foreign investment aimed in particular at boosting investment in infrastructure.
Road, rail and municipal utility projects are going ahead amid efforts to make them commercially viable for private players, including the $800 million Almaty Ring Road, which will be the first project in Kazakhstan financed through a public-private partnership, according to Heckman. Prospects for the plan look good: The December launch in London of the 66-kilometer ring road—known as Bakad and to be operated under a 20-year concession—attracted more than100 international companies.