EBRD ‘excited’ about Kazakhstan’s modernisation

Gwilym Jones speaks at the EURACTIV event. [EURACTIV]

Europe’s reconstruction and development bank is excited about investing in Kazakhstan under the announced third stage of the country’s modernisation, always looking to combine investment with policy reform and technical advice, the head of the bank’s Brussels office said on Tuesday (19 June).

Gwilym Jones, head of the European Bank for Reconstruction and Development’s Brussels office (EBRD), shared his thoughts during a discussion about the EU’s role in the modernisation of Kazakhstan, hosted by EURACTIV.

Kazakh President Nursultan Nazarbayev announced last year the Third Modernisation of Kazakhstan.

The first one was the creation of an entirely new state following the collapse of the Soviet Union, based on the principles of market economy. The second one was the creation of the country’s new capital, Astana. The third builds on accelerated technological renovation, digital technologies and investing in human capital.

Jones said that Kazakhstan is one of the top five countries in which the EBRD invests, and that in the last few years it has started to become what many economists call a middle income country.

In terms of numbers, he said that the EBRD has invested “a lot” in Kazakhstan – €600 million last year, over a billion the year before. More than €8 billion has been invested in the country’s economy so far, “always looking to combine investment with policy reform and technical advice”.

For the EBRD, an institution majority-owned by the EU institutions and the member states, the strong relationship between the EU and Kazakhstan was key to underpinning everything they do in the country, Jones said.

He added that the development of the EU’s revamped Central Asia strategy, to be announced next year, is something the EBRD follows extremely carefully and would reflect in their own strategies with the individual countries.

Jones added that Kazakhstan is a country with “solid, but not spectacular GDP growth” of 3% to 4%. To accelerate this growth, the modernisation programme was put on the table, so that Kazakhstan could go one step further and catch up with more developed countries, the EBRD official added.

Modernisation in Kazakhstan, Jones argued, means more that basic infrastructure, more than simple market institutions, it is about more sophisticated ones, and it’s a time of opportunity, because in his words the country needs to capitalise on its strategic position between China and Europe, to deliver added-value not just transit.

The EBRD official made reference to China’s Belt and Road initiative linking Western China to Western Europe, in which Kazakhstan is often described as “the buckle in the belt”.

Kazakhstan will benefit enormously from Belt and Road initiative

Kazakhstan, the most impressive reformer in the Central Asian region, is set to benefit enormously from China’s Belt and Road initiative as an equal partner, Kate Mallinson of Chatham House said at an international conference marking the 20th anniversary of Astana, on 5 June.

Jones offered “a flavour” of what the EBRD does in Kazakhstan, although the actual list of projects is much larger. They include Project Nautilus to support acquisition of two offshore support vessels to be employed in the Turkmen sector of the Caspian Sea, a company called Intellpack to distribute warehouse equipment and promote the best available technology and the Almaty public-private partnership (PPP) for the ring road of the country’s largest city.

Putting in place such a PPP is no easy task, he warned, explaining that this requires the right kinds of laws and a lot of confidence from investors. In the same logic he mentioned the project of doubling of the capacity of the Astana airport, in which the EBRD made sure that it also opened up the private sector to provide services.

The EBRD official also mentioned, in the municipal sector, an important project co-financed by the bank, with 12 Kazakhs cities, in which the state budget helped the cash-constrained municipalities to co-invest.

Another example of combining investment with policy reform is the overcoming of restrictions on women to work in specific sectors: EBRD invested in the bus sector, in the mining sector, worked with their Kazakh counterpart for making legislative changes where required to allow women’s participation in those sectors.

Three common angles

Regarding the Kazakh modernisation strategy, he said there were three angles which fitted well with the EBRD investment plans. The first one, he said, was connectivity, which included linking to the Belt and Road initiative.

EBRD has invested €1.2 billion in the Kazakh transport sector in the last few years, including on modernising the railways rolling stock, he said.

Mirroring messages from the European Commission that advise Kazakhstan not to be merely a transit country, Jones said that the key element is to make sure that local value-added is coming from this huge project, and making sure that Kazakh companies are part of global and regional value chains.

“This is about recognising what you are good at, and where you have weaknesses”, he said, explaining that for instance, on the manufacturing side, EBRD’s strategy was to push Kazakhstan not to go for full manufacturing, because the competition is high, but more in the middle segment, on components, “where the Kazakhs can do it”.

“In the end, we need to have bankable projects”, he said, adding “we’ll always push for that kind of realism”.

Jones also highlighted the “very big” potential of the Kazakhs agriculture sector. He said there had been a large increase in arable land, the capacity to boost serial production was “really high” and demand was also there, both in the region and in China. He added EBRD hoped to do more with the government to make sure the conditions are right for the private sector to be able to develop in the agricultural sector.

The second big angle, as described by jones, was capital markets, another aspect of modernisation EBRD sees as key. He explained this as having the funds channelled to the right places and people in the most efficient way.

He referred to the new Astana International Financial Centre (AIFC), to be inaugurated in two weeks’ time, as “great news” to take advantage of the Belt and Road initiative, and called the vision that it would become a business financial hub  for the initiative “very exciting”. He said EBRD was working with AIFC to build capacity, to help with expertise on what regulation and expertise is needed for issuing securities, or Green bonds.

Major plans for Hong Kong-style hub in Central Asia revealed

Wheels are in motion to set up a Hong Kong-type financial hub in Kazakhstan, following the unveiling of plans by the governor of the Astana International Financial Centre (AIFC) at an international conference marking the 20th anniversary of Astana, on 5 June.

The third angle, which Jones called “absolutely fundamental”, is energy. He argued that Kazakhstan is very rich in energy resources, but is also one of the most energy-inefficient countries in the world. One percentage point of GDP production in Kazakhstan costs more energy that almost anywhere else in the world. This is why greening the economy, trying to drive out inefficiency and modernising with best available technology in his words is key, and so is the development of renewables, who have a huge potential in Kazakhstan.

Jones said that last May EBRD signed a very big solar renewable project, to be co-financed with the Asian Development Bank (ADB), for a 50 Megawatt plant in southern Kazakhstan. He explained that this was agreed in local currency, saying this was a “very big plus” for the country, because it avoided the fluctuation of local currency, reducing the risk for the client.

Jones concluded by saying that all the activities he described fitted well with the modernisation strategy and that EBRD had big hopes to bring this investment and reform agenda forward.

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