Economy

The 1990s were economically extremely difficult for Kazakhstan. The break-up of the USSR led to the loss of the traditional partnerships and markets of Kazakhstan's industries, which had been developed to meet the needs of a command economy, and Kazakhstan experienced a sharp economic contraction in the early part of the decade. The Russian financial crisis of 1998 brought a further blow. Food production also decreased sharply in the early 1990s, following the dissolution of the collective farm system, and there was a decline both in the acreage of arable land and in the number of livestock. Since 2000, however, annual economic growth has averaged 8%, helped by rising world market prices for oil and many of the metals exported by Kazakhstan. Per capita GDP has increased 12-fold since 1994, the unemployment rate has declined, and Kazakhstan has shown a marked improvement in respect of indices of poverty.

Oil has been an important factor behind Kazakhstan's recent economic success. In 2010, Kazakhstan produced some 80 million tonnes of crude oil, and it is on track to produce 150 million tonnes a year by 2015. Three major fields operated by foreign consortia are at the heart of this planned growth. The onshore Tengiz oilfield and Karachaganak gas condensate field are already in production. The offshore Kashagan oilfield is being developed by Italian operators AGIP KCO, at the helm of a large consortium. But this huge field, one of the largest discoveries worldwide in recent decades, represents a tough challenge: it is deep, under high pressure, rich in noxious hydrogen sulphide and lies in shallow waters of the Caspian subject to ice cover for several months of the year. It has already been subject to project delays and cost overruns.

Export routes for the oil include the Caspian Pipeline Consortium (CPC) and Atyrau-Samara pipelines into Russia, the Atasu-Alashankou pipeline, opened in 2006, into China, and plans to feed into the Baku-Tbilisi-Ceyhan pipeline, running from Azerbaijan to Turkey, by tankers plying the Caspian. While still keen to attract foreign know-how, Kazakhstan has become increasingly assertive as regards the negotiation of new oil deals, in demanding a larger role for Kazakhstan's state hydrocarbons company KazMunaiGas as well as in increasingly tough taxation and environmental regimes.

Kazakhstan's natural resource wealth does not stop at oil. Kazakhstanis like to boast that, beneath their soils, almost everything in the periodic table of elements can be found, and the country certainly has a wide range of minerals: gold, silver, copper, lead, chromite, phosphorous, iron ore, beryllium, manganese, titanium, bauxite and many more. It has ambitions to become the world's largest exporter of uranium, and also has appreciable reserves of coal. In agriculture, Kazakhstan is a significant exporter of grain.

The Kazakhstan authorities are alive to the risks of a heavy dependence on exports of oil and minerals: for example, those of the so-called 'Dutch disease', where overheating causes the rest of the economy to become uncompetitive. The Central Bank has worked hard to control the money supply, to mitigate the risks of inflation. Kazakhstan established a national oil fund, using a model borrowed from Norway: the idea is that oil receipts will be used in part for currency stabilisation, in part to support activities promoting the diversification of the economy. In the latter regard, the government has identified a series of priority economic clusters they aim to promote, including petrochemicals, textiles and tourism. There are some considerable challenges facing the diversification programme; for example as regards securing a workable future for the large heavy machine building plants, whose activities were often focused on the needs of the Soviet defence industry, which the country has inherited from the Soviet period.

Kazakhstan's recent economic growth has also been marked by a rapid recent expansion in the services and construction sectors, the latter including the many building projects in the new capital of Astana. The heavy external indebtedness of many Kazakhstani banks meant that the impact of the US sub-prime mortgage crisis striking in 2007 was pronounced in Kazakhstan, though advanced planning did enable the government to put aside funds for public works projects during the crisis. Property prices in Almaty and Astana, which had fallen 45% from their peak in 2007, are now climbing again, though high interest rates keep many Kazakhstanis off the property ladder.

The past few years have also seen a large increase in Kazakhstani investments overseas. Kazakhstan is a major investor in both Kyrgyzstan and Georgia, and its companies are increasingly looking further afield. Private equity funds such as the Kazakh Growth Fund, supported by the European Bank, are spearheading this expansion.

President Nazarbaev has set Kazakhstan the task of joining the ranks of the world's 50 most competitive economies. In 2010, Kazakhstan was ranked 72nd, immediately below Bulgaria and above Peru. Economic growth is hampered by a number of factors, including continuing high levels of corruption and the need to reduce bureaucracy.