Photo: Róbert Hegedüs
Mariann Őry
26/03/2024 21:58
Kazakhstan is becoming an increasingly important player in its region, becoming economically and geopolitically more significant for the major powers. What role does Kazakhstan want to play in Eurasian connectivity?
Driven by robust growth and an expanding economy, Kazakhstan consistently reaches new milestones and continues to be the central player in the region. Positioned as a major destination for foreign investment, Kazakhstan seeks to play a central role in regional trade and investment, fostering collaboration within Eurasian nations. The nation's growth of the economy to 3.2 per cent in 2022 and the projected acceleration to 4.6 per cent in 2023, as per the International Monetary Fund, demonstrates a sustained growth trajectory within the region, further solidifying Kazakhstan's economic resilience and leadership in attracting foreign direct investments. This expansion makes Kazakhstan's economy nearly one-third larger than the combined economies of other Central Asian countries. Kazakhstan's economic stability, abundant natural resources, strong commodity market fundamentals, ongoing political and economic reforms and its 13 Special Economic Zones with tax incentives make it a major destination for foreign investment.
Considering geopolitical and economic conditions, Kazakhstan aims to be a key hub for regional trade and investment, promoting collaboration among Eurasian nations.
Kazakhstan’s position is complemented by the unique advantages offered by the Astana International Financial Centre (AIFC). Operating as a dynamic platform, it enhances the country's image by providing a legal framework based on principles of common law, an independent financial regulator, and a favourable tax regime. This makes AIFC an attractive destination for financial and non-financial firms, aligning with the goals of economic diversification and efficient capital flows.
From an economic point of view, what are the most important international cooperation projects for Kazakhstan? For example, what goals does your country pursue in connection with China's Belt and Road Initiative (BRI), the Shanghai Cooperation Organization (SCO) and the Eurasian Economic Union (EAEU)? What economic benefits do these bring to Kazakhstan and other countries in the region?
Kazakhstan's membership in regional integrations like the Eurasian Economic Union and the Shanghai Cooperation Organization and cooperation within the Belt and Road Initiative have collectively a significant impact on the global role of Kazakhstan and the entire Central Asian region.
Participating actively in the BRI, Kazakhstan views this as a strategic avenue to enhance connectivity and economic cooperation. The country leverages its strategic geographic position as a key transit hub within the BRI framework, focusing on developing transportation infrastructure. Kazakhstan, as a pivotal player, hosts two of the six economic corridors with over 50 mega projects valued at a total of $35 billion. These projects, including the Horgos International Border Cooperation Centre, Shalkar-Beineu railway, Kuryk seaport, and others, strengthen economic ties, facilitate cross-border investments, and contribute to the BRI's impact on international cooperation and economic development.
AIFC here acts as a strategic bridge, enhancing Kazakhstan's global economic and financial engagement with other economies. It has created favourable conditions for large-scale investments in crucial infrastructure projects, aligning with initiatives such as the Belt and Road Initiative.
Under this initiative, AIFC collaborates closely with prominent Chinese financial institutions, including the China Construction Bank and the Development Bank, which have provided financing totalling approximately $2.7 billion for investment projects in the mining, oil and gas sectors.
Astana International Exchange (AIX), as the capital market platform of AIFC, jointly owned by AIFC, Shanghai Stock Exchange, Silk Road Fund, and NASDAQ, represents an important step in facilitating financing for the BRI through capital market instruments. AIX enables the listing and trading of RMB-denominated equities, fixed income, and structured products, further supporting the economic goals of the BRI.
Additionally, the AIFC serves as a common platform for the Trans-Caspian International Transport Route (TITR) or Middle Corridor, fostering cooperation and integration in Eurasia. Companies like Caspian Integrated Maritime Solutions and KPMC are already structured in AIFC.
Based on the vast experiences during your career, what do you think is the secret of the success of Kazakh economic policy? How is your country attracting foreign companies and investment?
The success of Kazakh economic policy can be attributed to a combination of strategic vision, adaptability, and a conducive business environment. Kazakhstan's ability to attract foreign companies and investments rests on several key factors that showcase its commitment to economic growth and international collaboration.
Firstly, the country's strategic national vision. Kazakhstan has demonstrated a proactive approach to adapting to the evolving global economic landscape. Decisive steps have been taken to balance the allocation of executive power and strengthen the role of parliament, fostering a more transparent and accountable governance structure.
Secondly, economic stability has been a cornerstone of Kazakhstan's success. Accounting for more than half of the total nominal GDP of Central Asian countries in 2022, Kazakhstan stands out as a significant economic contributor despite the complexities of the global geopolitical situation. This resilience, coupled with rich natural resources and robust commodity market fundamentals, positions Kazakhstan as an attractive destination for foreign direct investments.
One instrumental element in Kazakhstan's economic success is the AIFC. Since the AIFC’s official launch, it has registered over 2,200 companies from 78 countries and over $10 billion in investments were attracted to Kazakhstan. Such achievements were facilitated by strong principle-based regulations that help not only attract financial institutions but also foster a diverse and thriving business ecosystem. AIFC's initiatives align with Kazakhstan's goals of economic diversification and efficient capital flows, positioning it as a key player in shaping the nation's economic success.
AIFC’s alignment with the best global standards is a testament to the country’s growing attractiveness as an investment destination. In July 2023, the 38th Plenary meeting of the Financial Action Task Force (FATF) approved the report of mutual assessment, which confirmed strong compliance of AIFC’s regulator – AFSA - with Anti-Money Laundering standards. The assessment demonstrated the growing role of AFSA as the knowledge hub and trend-setter in areas of Anti-Money Laundering and Counter-Terrorist Financing in the region. According to the results of the mutual assessment, Kazakhstan was found to be compliant and substantially compliant with 33 of the 40 FATF recommendations. Only 15 out of 200 jurisdictions in the world demonstrated the same result and were put on standard monitoring. Similarly, last year, the Organisation for Security and Cooperation in Europe declared that AIFC’s tax regime is compliant with global standards of tax transparency. This recognition is an important step in demonstrating the AIFC’s compliance with global tax transparency standards.
Besides, AIFC is seeing the fastest year-on-year growth in the asset and fund management sector. Since the first quarter of 2023, the overall number of funds at AIFC has seen an 85 per cent increase. As of the end of the third quarter of this year, Assets under the Management of AIFC firms totalled 1 billion USD. Increasingly, more investors find AIFC’s regulatory coherence, agility, and certainty, as well as wide networks of partnerships among jurisdictions enabling mutual recognition, to be features that add confidence and comfort to their choice of AIFC as the place for doing business.
All of the above are factors that contribute to creating a favourable, predictable and clear framework in which international investors are comfortable to work.
How does Kazakhstan approach financial innovation? What trends are you paying attention to?
As a country committed to economic diversification and technological advancement, we are keenly focused on several key trends in the financial sector. We prioritise digitalisation and the integration of cutting-edge technologies in financial services. The rise of fintech has significantly reshaped the industry, and Kazakhstan is actively embracing innovations such as blockchain, artificial intelligence, and data analytics to enhance the efficiency and security of financial transactions.
Notably, Kazakhstan's commitment to financial innovation is highlighted during the 30th anniversary of the national currency, Tenge. In a significant stride towards modernisation, Kazakhstan proudly introduced its Central Bank Digital Currency - the digital Tenge on 15th November 2023, marking a momentous leap into the future of financial systems.
AIFC aims to position itself at the forefront of fintech development, attracting companies globally and nurturing innovation. There are three drivers that we have put in place to encourage the development of new technologies and innovations in the financial sector - the right regulatory environment, access to capital, and the right culture or mindset.
AIFC's regulatory sandbox facilitates the testing of innovative financial products, ensuring a secure transition to new technologies. The centre's advanced regulations for digital assets, effective from 1 January 2024, emphasise cybersecurity and the need for qualified IT specialists.
AIFC encourages partnerships, which is evident in projects such as the interaction between crypto exchanges and Kazakhstani banks. This pilot project facilitated secure crypto-fiat transactions, attracting over 33,000 customers and a turnover exceeding $200 million.
In response to the growing interest in Security Token Offerings, the AIFC is actively developing a regulatory framework to govern these digital asset fundraising mechanisms. This framework is designed to strike a balance between encouraging innovation and safeguarding the interests of investors.
Access to capital is a cornerstone of AIFC's innovation ecosystem, with crowdfunding companies and venture funds actively contributing. Notable successes include local company iKapitalist - raising 26.4 million USD for local small and medium-sized businesses.
As part of our commitment to sustainable finance, the AIFC is looking to improve the legal framework for Collective Investment Schemes. This reflects our commitment to a more responsible and forward-thinking approach to investing and finance. AIFC plans to refine this framework as part of a broader effort to enhance ESG-related frameworks. Obtaining the status of an ESG fund holds significant importance since it enables investors to support companies that prioritise sustainability and responsible practices but also offers potential financial benefits and risk mitigation.
Kazakhstan's approach to financial innovation involves not only anticipating trends but also proactively shaping the regulatory environment to support and guide these innovations. Overall, we aim to position the AIFC as a hub for innovative financial solutions, providing a platform for both local and global players to thrive.
Additionally, AIFC actively engages in trends like AI, machine learning, immersive reality technologies, and cloud computing, positioning itself as a centre for talented IT professionals.
How do you see the Hungarian government’s Eastern Opening policy and its increasing cooperation with Central Asia and the Turkic countries? Do you think it is a good, mutually beneficial approach?
In my view, it is a strategic move that holds the potential for mutual benefit. This diplomatic and economic initiative aligns with Kazakhstan's broader commitment to fostering partnerships and connectivity, both regionally and globally.
It presents an opportunity to strengthen economic ties and cooperation between Hungary and Central Asian countries, including Kazakhstan, which has consistently emphasised the importance of diversifying economic partnerships. Hungary's focus on the East resonates with our goals of expanding collaboration beyond traditional avenues.
Kazakhstan, as a pivotal player in Central Asia, welcomes initiatives that promote economic development, trade, and investment. The Eastern Opening policy provides a platform for increased engagement in areas such as trade, technology, and innovation, fostering a more interconnected and resilient global economy.
Moreover, the historic and cultural ties between Turkic countries offer a foundation for deeper collaboration. Kazakhstan values the cultural and historical connections within the Turkic world and sees potential in leveraging these ties for mutual economic benefit.
During the 10th Summit of the Organization of Turkic States (OTS), Astana was awarded the status of the financial centre of the Turkic world. Astana has earned its reputation as one of the leading financial centres in Eastern Europe and Central Asia, as recognised by the Global Financial Centres Index. The AIFC, functioning as a financial hub, plays an essential role in attracting investors and supporting businesses, offering a conducive environment for company growth not only in Central Asia but also beyond.
As a platform between East and West, AIFC welcomes initiatives that promote international cooperation and economic development. We believe that Hungary's Eastern Opening policy can serve as a catalyst for increased financial engagement, trade, and investment between our regions.
Our financial ecosystem, with its advanced regulatory framework, can provide the right environment for businesses and investors looking to explore opportunities in Central Asia and the Turkic countries. We see potential for collaboration in areas such as fintech, capital markets, asset and fund management and infrastructure development.
Addressing the recent OTS summit in Astana last year, Hungarian Prime Minister Viktor Orbán said that Hungary is ready to participate in the work of the Turkic Investment Fund and maintains its earlier commitment to contribute 100 million euros. Why is that important? What opportunities does this hold?
Hungary's financial commitment demonstrates a strong willingness to engage economically with the Turkic nations. This support can be utilised for joint investment projects, fostering economic development and growth in the participating countries. Hungary's participation in the Turkic Investment Fund aligns with the broader goal of strengthening bilateral ties, representing a tangible expression of Hungary's commitment to building robust economic partnerships with the Turkic world, fostering trust and cooperation.
The 100 million euros pledged by Hungary can serve as a catalyst for various investment projects in sectors such as infrastructure, technology, and sustainable development, unlocking new opportunities for economic advancement. Notably, the AIFC can serve as an ideal platform for facilitating and overseeing these projects, providing a stimulating environment for collaboration and investment between Hungary and the Turkic countries.
What opportunities exist for financial cooperation between Kazakhstan and Hungary? What are the results so far?
Financial cooperation between Kazakhstan and Hungary presents a spectrum of opportunities, and recent developments indicate tangible outcomes. Following Prime Minister Viktor Orbán's visit to Kazakhstan, both nations are poised for collaborative growth.
The commitment to jointly implement major projects reflects a shared vision for enhancing investment cooperation. The collaborative ventures envisioned in this partnership are expected to contribute substantively to economic development and growth for both nations.
Despite ongoing geopolitical tensions, trade turnover between Hungary and Kazakhstan grew by more than 20 per cent last year, underscoring the resilience and effectiveness of the economic collaboration between the two nations.
Finance is one of the sectors holding the most prospects for the two countries. There are several reasons for that, such as the fact that both jurisdictions are situated in the same region of Eastern Europe. Geographically, Kazakhstan is partly located on the European continent and hence, Kazakhstan and Hungary have been closely interacting on margins of the Group of Banking Supervisors from Central and Eastern Europe and the European Regional Committee of IOSCO for years.
Cooperation in the financial sector rests on regulatory trust. AIFC’s independent regulators, the Astana Financial Services Authority and Magyar Nemzeti Bank (MNB), are on the path of enhancing their cooperation to a new phase. This was substantially facilitated by the informal Roadman of cooperation between AFSA and MNB, outlining the intentions of the two regulators to boost cooperation in several areas of capital markets. Enhanced cooperation is demonstrated by the signing of the Memorandum of Understanding between AFSA and MNB in November 2023. The Memorandum outlines the importance of regular contacts at the senior level, exchange of information on market developments and cooperation in outreach events.
In general, asset management, brokerage, crowdfunding and banking might be very promising areas of cooperation. A recent example is Equilibrium Capital's recognition as the first Hungarian company to manage foreign funds in the AIFC. This achievement positions Hungary as an active participant in financing projects related to green energy and healthcare, showcasing a commitment to sustainable development goals. Additionally, Equilibrium Capital's intention to create investment funds in Kazakhstan points to the potential for deeper financial engagement. This move aligns with the broader objectives of the partnership, presenting opportunities for investment in various sectors and further solidifying financial ties between the two nations.
As of today, there are six Hungarian companies registered at the AIFC that provide services in such sectors as agriculture, renewable green energy, and technology development.
The author is managing editor at Eurasia