Kazakhstan: A Developing Frontier Market with a Western-friendly Attitude

In the COVID-19 era, investors are turning to untapped frontier markets for higher returns and new opportunities. One nation that fits this objective is the Republic of Kazakhstan in Central Asia, as Nur-Sultan similarly aims to become a hub for Western investment as part of its own plans for economic development and diversification.

The Republic of Kazakhstan’s geographical position means that it is a natural partner to bordering global powers Russia and China, particularly as the country’s location makes it the “buckle” of Beijing’s Belt and Road Initiative in Central Asia. However Nur-Sultan has more global ambitions: specifically to become one of the 30 most developed nations by 2050. To achieve this goal, Kazakhstan will have to continue evolving from a Soviet-command style economy to a more Western-style market economy in order to attract investors, develop new industries and gain new trade partners.

The Central Asian country is well known as a major global producer of oil, gas and minerals – for example, it is the world’s largest producer of uranium. Kazakhstan is already the recipient of significant European investment and trade, like for example from The Netherlands, but this is primarily in the energy field. In recent years Nur-Sultan has sought to develop other industries including agriculture, banking services, cryptocurrencies, IT services, manufacturing, tourism and even eco-tourism around the beautiful Kolsay Lakes. The Astana International Financial Centre, headquartered in the 2017 Expo facilities, has a stock exchange, an arbitration center, and is based on English common law, with several European legal practitioners in its roster of arbitrators. The country is also expanding into the growing field of Islamic banking and finance.

As for new investment projects, the US-based multinational food company Tyson Foods and the precision irrigation equipment company Valley Irrigation, owned by Valmont Industries, have both signed deals with Nur-Sultan to build facilities in the Central Asian country. Delegations from Dutch companies involved in agro-industrial technologies and Belgian representatives from the Tessendrio Group have also visited Kazakhstan in recent months to discuss the possibility of investing in projects in the country. These agreements will not affect the critical role of energy and minerals as the pillars of Kazakhstani economy in the near future, but they are nevertheless major victories towards economic diversification.

The country has shown strong resilience to the COVID-19 pandemic. Kazakhstan’s economy contracted by an estimated 2.5% in 2020 (Y1 of the COVID era), but the World Bank predicts that it will bounce back in 2021 by 2.5%, and 2022 by 3.5%. Should this happen, it will say a lot about efficient economic and trade management policies in Nur-Sultan.

Major indexes like MSCI label the country as a frontier market, however this label can be misleading as it does not properly demonstrate what Kazakhstan is accomplishing. It is worth noting that MSCI currently describes Kazakhstan as having a much higher momentum than the main group frontier stocks, as exemplified the aforementioned diverse list of current and potential investors.