Privatization could stimulate foreign investment and aid in the growth of the Kazakh economy, but not without major challenges.
Kazakhstan has announced a wave of privatization to bolster foreign investment in the Central Asian republic. The reforms could be the largest since the end of the Soviet Union. Of the 599 companies included in Kazakhstan’s sovereign wealth fund, Samruk Kazyna, up to 209 are considered for privatization. Companies that are not of strategic importance to the Kazakh state or already compete with private companies will be privatized, according to representatives of the sovereign wealth fund.
State assets in both the atomic energy and oil/gas sectors will also be sold, along with stakes in electricity distribution networks and a variety of other industries. Samruk Kazyna holds about $100 billion worth of assets, ranging from the national postal service, to the national railways, to a number of investment funds, and constitutes about half of the country’s GDP.
Foreign investors interested in purchasing privatized assets will nonetheless be forced to deal with a number of problems.
The Kazakh economy, particularly the energy distribution sector, is subject to heavy government regulation and price controls. Furthermore, the performance of the Eurasian Natural Resources Corporation (ERNC) has set a poor precedent for relations between Kazakh companies with heavy state ownership and international investors.
The corporation, which operates in a variety of resource extraction industries, was listed on the London Stock Exchange in 2007 and was then included on the FTSE 100. Unfortunately, allegations of corruption and disagreements regarding corporate governance quickly soured relations with Western investors and earned the company a poor reputation in London.
ERNC also racked up $5 billion in debt as a result of asset purchases, and was delisted from London Stock Exchange in November 2013. The management claimed that becoming private would make the corporation more efficient. Others suspect it was a result of fears by the Kazakh state that the continuing bad publicity would damage the country’s reputation.
Kazakh officials also have had deep financial interests in the sovereign wealth fund and have used its state assets for rent-seeking activities, which will inevitably interfere with the privatization process.
The announcement of privatization plans comes amidst increasing concern in Kazakhstan about economic stability and continued engagement by the landlocked Central Asian state in forming the Eurasian Union, a trade bloc encompassing Russia, Belarus, Kazakhstan, Armenia, Kyrgyzstan, and Tajikistan, set to be launched in January 2015.
The national currency, Tenge, was devalued by 19% earlier this year, provoking a wave of protests against the National Bank. Pensions and public sector salaries were raised to help compensate for the decrease in spending power.
Kazakh President Nursultan Nazarbayev recently replaced the prime minister and head of his cabinet, Serik Akhmetov, following criticism in the official press. The new prime minister, Karim Masimov, is both a specialist in crisis situations and a China expert.
Nazarbayev has also expressed dissatisfaction with the heavy role that the Kazakh state continues to play in the national economy, with nearly 1 million people still employed by the state or in state-controlled companies, and hopes that Kazakhstan will be able to develop a stronger small business sector and become one of the world’s 30 most developed countries by 2050.
