Last reviewed 14 December 2021

The largest economy in central Asia, Kazakhstan holds immense long-term potential beyond its rich oil and gas wealth, which has propelled the country far beyond its Soviet legacy.

Kazakhstan kicks on

Kazakhstan, a vast central Asian country bordered in the north by Russia and to the east by China, occupies an area of land roughly the size of Western Europe but with a population of just 19 million. Its sparse population means that it is covered by huge swathes of space, from the arid, empty steppes of the centre and the more fertile south, to the energy-rich lowlands in the west where much of the country’s lucrative oil and gas production takes place.

The more densely populated areas are located in the mountainous regions of the west, where the national capital, Nur-Sultan (formerly Astana), is to be found, and the industrialised north, with its Siberian climate and terrain. However, the largest city is Almaty, in the south west, close to the borders of Kyrgyzstan and China.

Formerly a member of the Soviet Union, Kazakhstan retains close links to Moscow — it houses the Baikonur cosmodrome, in which the Russian space agency Roscosmos launches its space missions, for instance. But it has also sought to forge strong partnerships elsewhere, with the West and Beijing and an evolving central Asian regional market.

Oil and gas links

Much of this diplomacy has been centred around the energy trade, with the country sitting atop immense crude oil deposits — said to be the 12th largest in the world. Kazakhstan’s oil industry is today capable of producing around 1.7 million barrels per day (bpd), about the same as Norway or Nigeria, and has attracted investment from a host of British and other international companies. They include Royal Dutch Shell, which is a partner in the flagship Kashagan field, and BAE Systems, which is the joint owner of the national flag carrier Air Astana.

As a landlocked country (it is the largest landlocked nation in the world), Kazakhstan’s strategic partnerships have been closely shaped by its energy export routes. Major pipelines fan out across the country, heading north into Russia, east toward China, as well as across the Caspian Sea and out to Turkey for onward export to the West and beyond. Its pipelines also connect the country to other central Asian neighbours including Turkmenistan and Uzbekistan. As well as oil and gas, Kazakhstan is also among the world’s top 10 coal producers, reflecting its immense natural resources wealth that underpins the economy.

Undiscovered country

Yet little is known about this distant country, located 6.5 hours flight time from London, beyond its crucial oil and other exports. In 2021, it celebrated 30 years of independence following the collapse of the Soviet Union in 1991, a milestone on a journey that has seen much transformation. In those decades, the oil sector has helped to fuel rapid economic growth, much of it under the long stewardship of former president Nursultan Nazarbayev.

The capital itself is a testimony to this with its futuristic architecture, technology and communications infrastructure, and bustling commercial interests as the primary home for the large state-owned corporations. While there are reminders of the Soviet era, there are also the trappings of modern-day wealth, which has helped to ease some of the stark disparities of the 1990s.

There has been a resurgence too of the main religion, Islam, which was suppressed under Soviet rule. The main languages spoken, Kazakh and Russian, reflect the nation’s diverse ethnic make-up, with Kazakhs representing about two thirds of the population, ethnic Russians just under a quarter and smaller minorities the rest.

Although Kazakhstan is not exactly on the global tourism circuit, the capital does attract an increasing number of travellers in addition to the hordes of overseas business executives that fly in daily. Culturally, the capital also boasts sports teams like FC Astana, which regularly competes in the UEFA Champions League against British and other European clubs — it beat Manchester United 2-1 in a UEFA Europa League match in 2019.

Bilateral trade

Given Kazakhstan’s sheer size and natural resources base, then the potential for future trade is vast. Total bilateral trade with the UK was worth £1.4 billion (US$1.8 billion) for the year to the end of Q2 2021 — down 31% on the same period a year before, largely because of the effects of the Covid-19 lockdowns.

The highest volumes were reached in 2016 when bilateral trade stood at £3 billion (US$3.9 billion) highlighting scope and potential for more. The balance of trade is skewed in the UK’s favour — its total exports for the year stood at £777 million (US$1 billion).

Key exports include power generators, scientific instruments and machinery. In the other direction, Kazakhstan exported £631 million (US$833 million) to the UK, mainly non-ferrous metals. Overall, the country ranks as the UK’s 65th largest trading partner.

British investment in Kazakhstan is also strong and growing. The involvement of Shell and BAE Systems, alongside other names like Ernst & Young, reflect the diverse range of ties that now span far beyond oil and gas.

Diversification drive

Despite the economic turbulence of the past couple of years, Kazakhstan’s fundamental prospects remain strong. In 2020, output contracted for the first time in over 20 years due to reduced oil production, lower crude prices and subdued domestic activity.

While the 10% growth rates of yesteryear may be a thing of the past, the economy is once more back on the up, with estimated growth put at around 4% for 2022. And there are plenty of grounds for optimism as the Government seeks to diversify beyond hydrocarbons and into new industries. This diversification means more manufacturing inside Kazakhstan and greater efforts to add value to local production and boost homegrown skills.

Kazakhstan is adjusting to new leadership too following the retirement of Nazarbayev and the 2019 election of Kassym-Jomart Tokayev. The World Bank ranks the country as the 25th easiest place to do business, highlighting the Government’s “can do” approach.

The UK is not alone in its interest in Kazakhstan though. International heavyweights have likewise noted its dynamism of recent years and its long-term potential, from PepsiCo to Procter & Gamble, who are now actively courting the growing consumer market.

Expanding business links

Yet established industries remain the cornerstone of Kazakhstan’s prosperity today. These sectors have helped pour many billions of dollars into the sovereign wealth fund, the Kazakhstan National Fund, which is designed to invest in the country’s long-term future and help iron out any volatility from over exposure to commodities. Nonetheless, these core industries remain vital domestically and even to the world’s future.

Kazakhstan is the largest uranium producer in the world, for instance, and holds the second biggest reserves after Australia. This is an area enjoying something of a renaissance as interest in nuclear power grows, a way of producing zero carbon electricity.

State-owned Kazatomprom is the biggest single producer, operating five of the ten largest uranium mines in the world. It is majority owned by the sovereign wealth fund, with 25% floated on the local stock market and the London Stock Exchange (LSE). This forms a part of a broad privatisation drive to reduce the role of the public sector and cut the Government’s share of the economy to around 15%.

The stock market listing also reflects deepening ties in the financial markets. In 2020, Kazakh fintech firm made a successful initial public offering (IPO) on the LSE worth US$6 billion — the biggest London international tech IPO of the year.

Future potential

Going forward, Kazakhstan is squaring up to other changes and challenges. That includes a commitment to achieve carbon neutrality by 2060, which is particularly challenging given the country’s outsized hydrocarbon sector, reliance on coal, and high per-capita greenhouse gas emissions at present.

What was seen as central Asia’s first “tiger economy” continues to pioneer in other ways too, such as exploring digital currencies, and is well placed to exploit its geographical advantage on China’s east-west Belt & Road Initiative. Overall transit volumes have increased exponentially in recent years from 47,000 TEUs (tonne equivalent units) to around 2 million TEUs today, reflecting huge upgrades in its roads and rail transport network.

The country aims to be among the top 30 most developed nations under its Strategy 2050 blueprint, which means a long-term commitment to nurturing further trade. To facilitate this, it has established 13 special economic zones across the country to encourage investment in new areas.

These offer free land, simplified foreign labour employment procedures and access to established infrastructure and digital networks, plus preferential tax rates. While mining and natural resources activities still account for the largest share of foreign direct investment (FDI), there has been an uptick in interest in downstream processing, agribusiness and mechanical engineering activities.

These are all areas that Kazakh Invest, the nation’s investment promotion agency, is keen to champion. Given the success of Kazakhstan in transitioning from the Soviet era thus far, it’s a fair bet that the nation will continue to surprise in years to come.