What will Kazakhstan look like post crisis?

President Kassym-Jomart Tokayev has a small window of opportunity to effect much needed reform to Kazakhstan’s economy and investment climate. Benjamin Godwin, Head of Analysis at PRISM Political Risk Management investigates.
Benjamin Godwin
Benjamin Godwin
Head of Analysis, PRISM Political Risk Management

Since achieving independence in 1991, investors have viewed Kazakhstan as an island of stability in an otherwise turbulent region. Offering a combination of extensive natural resources, political stability and pro-investment economic policies, Kazakhstan has been one of the most attractive destinations for investors in the former Soviet Union.

However, this image was shattered in January as the country was rocked by a wave of political instability. On 2 January, a localised protest erupted into a national protest movement of unprecedent scale. As the protests spread, a spectacular rupture emerged in Kazakhstan’s ruling elite. In a remarkable turn of events, Kazakhstan’s former president Nursultan Nazarbayev, who had remained the unofficial leader of the country, was ousted from power by his handpicked successor, President Kassym-Jomart Tokayev.

Tokayev’s economic reform plans

Since prevailing in a struggle for power over Kazakhstan’s state apparatus, Tokayev has set out a programme to address the worsening socioeconomic conditions in the country and announced a reckoning with the country’s state-owned enterprises and oligarch class, which together control much of the country’s wealth. With the country’s institutions and oligarch class in a state of flux following the crisis, the president now has a small window in which to enact these reforms.

Since assuming the presidency in 2019, Tokayev has called for structural reform to Kazakhstan’s ossified economy. His plans include the development of market relations through better regulation, liberalisation of areas of the economy such as the gas market, and action to break the hold of oligarch-linked companies over critical sectors.

Another key goal for Tokayev is to reduce the role of the state in the economy through privatisation. With state-owned enterprises (SOEs) accounting for approximately 40% of Kazakhstan’s GDP, there is certainly plenty of scope to reduce the size of the state. A major challenge will be moving these enterprises into private hands in a transparent manner that does not further concentrate wealth and market power in the hands of the country’s economic elite.

In the case of Kazakhstan’s largest SOEs, the government has long proposed an IPO programme, with listings planned on the London Stock Exchange. Target companies for listings include national oil company KazMunayGas, national gas company QazaqGaz (formerly KazTransGas), national airline Air Astana, as well as the state energy and rail companies. Tokayev has called for IPOs of most of these companies in the next two years – a highly ambitious target and a form of ‘shock therapy’ to force these SOEs to adopt the governance and reporting requirements of listed companies.


Tokayev is also an advocate of decarbonisation, having previously announced a carbon neutrality goal for 2060. This will require considerable foreign investment in the exploration and production of natural gas, the plans for which the president set out last year. It will also require Kazakhstan to rapidly increase the volume of investment in renewable energy sources, a sector in which it has already begun to attract foreign investment.

For Kazakhstan, the urgency of decarbonisation is real. Its carbon intensive exports could suffer heavily as a result of the European Carbon Border Adjustment Mechanism, a European Union carbon tax which could be adopted as early as 2023.

Genuine action needs to follow the positive rhetoric

Overall, investors should be pleased by Tokayev’s largely pro-market and pro-investment rhetoric. However, we continue to advise caution for several reasons. First, commitments to investors made in the Nazarbayev era could be revised. Already, Kazakhstan has pulled out of an investment deal with the United Arab Emirates due to the involvement of oligarchs that have fallen out with Tokayev.

Second, in an attempt to win popular support, Tokayev has demonstrated a populist streak that could negatively impact investors. While he has sought to reassure investors that Kazakhstan retains an ‘open door’ policy for investors, a number of his policies will cause concerns within the investment community. Already, he has called for the reallocation of wealth from the oligarch class, price controls on agricultural and fuel products, higher taxes in the mining sector, and increases in local content requirements for major enterprises.

A critical final question is whether Tokayev has the resolve and the ability to deliver on such reform. Most of the proposals set out in the past month are not new. Yet, a combination of institutional and elite resistance – as well as fears of popular unrest – have prevented reform in the past. The crisis has given Tokayev an unprecedented opportunity to reform Kazakhstan’s economy. It remains to be seen, however, whether he will take up the challenge.

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