This article is part of our special report Kazakhstan: recovery and renewal.
With the support of authorities and growing green credentials, the Astana International Financial Centre (AIFC) is well placed to play a key role in the country’s recovery and sustainable economic development, experts say.
“I believe that the unique opportunities of AIFC should be maximally used to restore economic growth, attract investment and develop regional cooperation,” Kazakhstan’s President Kassym-Zhomart Tokayev said after last week’s meeting of the AIFC management council.
When the AIFC, the brainchild of Kazakhstan’s First President Nursultan Nazarbayev, was inaugurated two years ago, foreign dignitaries stressed the importance of the project to the Chinese-led Belt and Road Initiative (BRI), also referred to as the New Silk Road.
However, with the increased importance of sustainability and climate action, the AIFC’s green-steer is proving to be one of the financial centre’s strongest assets.
The AIFC is based on common law, with English as the working language, and is following the lead of successful international financial hubs in Singapore, Hong Kong and Dubai in a bid to attract foreign direct investment and create the best juridical environment in the post-Soviet space.
“Summarising Nur-Sultan’s strengths is very much the idea that it is positioned ideally for the development of green finance,” said Michael Mainelli, Executive Chairman of the Z/Yen Group, a London-based commercial think-tank, consultancy and venture firm.
The Z/Yen Group produces a half-yearly index of global financial centres where AIFC ranked 72 out of 108 cities, just behind Moscow.
Decarbonising China’s Belt and Road initiative is “going to take quite a bit of work, given the scale of the infrastructure that is implied there,” Mainelli said.
“Certainly, Nur-Sultan has found an excellent position both for funding that and being the location for dual, tripartite and four-way deals in that area.”
After international pressure, Chinese President Xi Jinping said in April 2019 that BRI would now be ‘open, clean and green,’ attempting to allay fears of environmental degradation, debt traps and corruption risks many feared China’s massive infrastructure project will result in.
Last year’s BRI Forum produced Green Investment Principles for Belt and Road Development (GIP), non-binding principles that require financial institutions to publicly commit to conducting environmental impact assessments and disclose environmental information for their investments.
Astana International Exchange (AIX), the AIFC’s stock exchange branch created in partnership with Nasdaq and the Shanghai stock exchange, signed up to the green principles.
The AIFC’s plans to contribute to the sustainable economic development of Kazakhstan through scaling circular economy, invest in infrastructure and leveraging the so-called ‘fourth industrial revolution’ that is bringing about greater digitisation and data-driven business models.
“But what is innovative for us, may not be innovative in Hong Kong or in London since the AIFC is in the early stages of growth,” AIFC’s Chief Strategy Officer, Alexander Van de Putte, said, adding that “over time, of course, we will try to continue to reinvent our business”.
Because of coronavirus, “the oil endgame is being accelerated… and this will have implications for Kazakhstan and other natural resource-rich countries but also, we believe, it will create opportunities,” Van de Putte said.
While more than 70% of the Central Asian country’s electricity is currently produced by coal-burning, the development of renewable energy has become an important agenda item under the post-Soviet state’s new leadership, and the country is stepping up efforts to transition to low-carbon development, diversify the economy and bring private capital and investments.
Kazakhstan has pledged to bring its share of renewable energy to 3% in 2020, 10% by 2030 and have half of its energy coming from green sources by 2050.
The country’s vast windy steppes and 3,000 hours of annual sunlight offer a lot of green potential to tap into.
Since its inauguration in July 2018, the AIFC is now home to 500 companies from 35 countries and has trained and re-trained about 5,000 local professionals who provide government services to expatriates, and has developed a ‘green bond taxonomy’ to classify green projects.
“The digital financial centre is one of the key priorities that we have,” AIFC’s chief economist, Baur Bektemirov said.
“We are now, for example, able to register companies and give licenses online.”
The AIFC has also set up a ‘regulatory sandbox,’ which has already allowed 17 fintech startups to innovate, develop and scale products in a safe, temporarily relaxed regulatory environment.
However, to achieve its aspirations to become the leading financial centre for the larger region spanning from Eastern Europe to Western China, the AIFC will have to transition from frontier to emerging market status — by primarily increasing market liquidity — on leading global market indices to allow larger inflow of capital.
“Obviously, when we talk about the local capital market, we understand that we are at the very early stage of development and the liquidity levels are still very low, it is a shallow market,” Bektemirov said.
“This is why when we started the journey of developing capital markets we had in mind key anchor projects, and one of the most important projects was the privatisation program of the government.”
“The government now has committed to reduce its share on the market and it is privatising a number of key assets,” he added.
Earlier last month Kazakhstan’s sovereign wealth fund Samruk-Kazyna raised more than $200 million by selling a 6.3% stake in the world’s biggest uranium miner Kazatomprom that accounted for nearly 24% of global uranium production in 2019.
A few days later, however, authorities announced the postponement of the privatisation of the fund’s other assets for the years 2021-2023 — which included the state-owned oil and gas company, airlines and the national railway company — due to high market volatility, low energy prices and economic downturn.
The role of the availability of finance for the region’s green transition is also at the top of the EU’s agenda.
“We need to and want to facilitate through available financial instruments this transition into green economies,” Peter Burian, EU’s Special Representative for Central Asia, told the ‘Astana Finance Days’ online conference last Wednesday (1 July).
“We also highlighted in our conversations [with Central Asia’s leader] that maybe this crisis might be serving for something good. It may be used to do things differently, to really move towards more sustainable, green recovery and in the end more sustainable economic and social models.”
Burian said that he sees an increase in the interest of EU companies in the region, but they expect that governments create a welcoming and secure space where they can operate on the same standards.
“We believe the region is at a very important historic crossroads.”
“If things can be improved quickly and with the centre of economic gravity moving further East, I think Central Asia has all the potential to recover quite quickly and attract a lot of investments for building connectivity, for really serving as a hub of connections between Europe and Asia,” Burian added.
Greening and green finances, as well as digitalisation, were set to dominate the agenda of the EU-Central Asia Economic Forum in Kyrgyzstan’s capital, Bishkek, which is now postponed to 2021.
[Edited by Zoran Radosavljevic]