July 19, 2021
Kazakhstan Sees Green on the Horizon
By Catullus Helmer
The green energy revolution has reached the steppes of Central Asia. At the fourth annual Astana Finance Days (AFD) conference took place virtually in Kazakhstan’s capital July 1-3, and one message rang loud and clear: Kazakhstan and Central Asia are open for business. Among the conference’s many topics – covering small and medium size enterprise (SME) development to new trade links – sustainable growth took center stage.
The region’s economies are actively pursuing policies and investment strategies designed to facilitate green, resilient, and inclusive growth. Hosted by Kazakhstan’s emerging Astana International Financial Centre (AIFC) in the capital Nur-Sultan, AFD brought together leaders of government, finance, business, and multilateral organizations for two key purposes: first, recognizing Central Asia’s progress in recovering from the COVID-19 pandemic and second, demonstrating Kazakhstan’s potential as the region’s new financial hub.
AIFC, the brainchild of the country’s first president Nursultan Nazarbayev, was modeled on the Singapore and Dubai financial centers. Since its launch three years ago, the Center has attracted significant attention from foreign investors, banks, development organizations, and other like-minded institutions. This is due in part to the Center’s preferential tax regime and independent court system which operates according to English corporate law (and is headed by British jurists). Goldman Sachs and the Shanghai stock exchange are shareholders, supporting the AIFC’s inaugural rollout of green finance bonds is 2020. The stock market is running on a NASDAQ platform.
Indeed, green financing has been a priority of the AIFC as evidenced by the organization’s Green Financial Center (GFC). Sustainable growth projects, such as renewable energy capture – much like their conventional energy competition – require significant upfront capital costs.
The AIFC (with support from the GFC) aims to lower barriers of entry for investors and help accelerate economic diversification away from extraction industries towards green growth. Whilst endowed with tremendous natural resources, the Central Asian country also boasts competitive, large-scale wind and solar irradiation potential. The famous Kazakh Steppe – not just the minerals that lie beneath it – is a valuable asset, with portions in the early stages of renewable energy source development. The Steppe also has an enormous agricultural potential.
Of course, fossil fuels will continue to play an essential role in Kazakhstan’s economy and global markets during the next years of transition, meeting domestic energy needs and providing export revenues which help finance green growth over the coming decades. Kazakhstan’s sustainable development agenda corresponds tightly with its long-term socio economic goals, promoting a competitive, diversified, and inclusive market economy.
China has been quick to capitalize on Central Asia’s need for investment inflows, with its Belt and Road Initiative committing US$1.3 trillion to both physical and digital logistics infrastructure.
The Western Europe-Western China Highway –known as the New Silk Highway – is one example of the modern-day megaprojects built through and with Kazakhstan, integrating modern standards on pollution, sediment runoff, and habitat fragmentation.
The AIFC is also emphasizing the importance of furthering ties through trade and investment with the Islamic world. The Islamic Development Bank has approved a massive investment into Central Asia since 2005, with US$20.2 billion allocated to the transportation sector and US$14 billion to energy. These efforts have supported greater connectivity between landlocked countries and regional ports, deepening markets and increasing regional collaboration. Kazakhstan has twenty current joint ventures with the UAE, including in agribusiness and food security, and is also pursuing multi-billion dollar energy investments with Saudi Arabia.
Yaseen Anwar, Former Governor of the State Bank of Pakistan, described Kazakhstan as the gateway between Europe, the Far East, and the Middle East. This position brings great economic opportunity, but it also exposes Kazakhstan to geopolitical buffetingin the wake of neighboring powers. Uncertainty is a deterrent to investment and with the global competition for private capital so strong investors must be by uniform and fair institutions, examples of successful ventures, and a stable, market-based economy.
The green economy transition will be pivotal in shaping Kazakhstan’s future. President Kassym-Jomart Tokayev has pledged full decarbonization of the country’s economy by 2060, with Uzbekistan and Kyrgyzstan following suit with similar benchmarks and strategies. The AIFC is promoting the development of Green Capital markets, issuing loans and connecting investors. Kazakhstan’s Central Bank and regulators must also lead the way in protecting the financial sector against environmental risk.
Perhaps most importantly, Kazakhstan must not allow the pandemic to set back ongoing efforts toward economic liberalization. In the midst of this crisis, many governments around the world have assumed a greater role in economic activity, which may prove difficult to cede back to markets.
While small and mid-size enterprises have rightly benefited from immediate government support after shouldering the brunt of COVID-induced economic shocks, focus must also not be lost on long-term strategic goals. President Tokayev’s adviser and former President of the EBRD,Sir Suma Chakrabarti, put it best: the region cannot become locked into a COVID-business-as-usual model. Central Asia’s future depends on innovation and further integration with the globalized world.
Catullus Helmer is Partner and Co-Founder of Enovid LLP,a principal investment and strategic advisory firm focused on cross-border transactions in emerging and transition markets. Previously he served as Senior Advisor to the Prime Minister of Kazakhstan.