The Gem in Central Asia

Strong ties

Two months ago president Abdullah Gül of Turkey warmly shook hands with president Nursultan Nazarbayev of Kazakhstan at a joint press conference in Astana. They had a good reason for all the smiles and firm handshakes because they had just wound up a two-day business forum, during which nearly US$ 400 million in deals had been concluded following 1400 meetings between Kazakh and Turkish companies. Trade between the two countries now stands at US$3 billion, but president Gül said that the target now was to achieve US$10 billion in the near future. At the same time, president Nazarbayev stated that some 144 businesses will start working this year, and nearly US$5 billion has been invested so far. There will be new businesses amounting to US$ 25 billion within his ‘Strategy 2020’ programme, and he urged Turkish companies not to miss out on investment opportunities. He also remarked, “Of a total of US$ 108 billion of investments in Central Asia, 80% of this is allocated for Kazakhstan. We have revamped our infrastructure and increased investors’ confidence”. The Turkish media noted that the two leaders have vowed to boost bilateral trade and address conflicts in the region, as both countries will continue to play an important role in Central Asia.

Last month president Nazarbayev celebrated his 70^th birthday and parliament honoured him with the title ‘Leader of the Nation’, thereby granting him special powers for the remainder of his life. This included immunity from prosecution and protection of all assets of the president’s family. As The Economist was quick to note, ‘the new law coincidentally was proposed less than two weeks after the violent overthrow of Kurmanbek Bakiyev’, the then president of the troubled, neighbouring Krgyzstan. Nazarbayev has been president of Kazakhstan for almost 20 years, having previously served as secretary of the country’s Communist Party. Earlier this year, he declared that Kazakhstan was one of the fastest developing nations in the world and announced that its national endowment fund now exceeded US$ 50 billion, having grown more than 25-fold in 10 years. Not bad going for a country that only won full political independence following the break-up of the Soviet Union in 1991. In a recent UK national newspaper supplement on Kazakhstan, one of its contributors writes, ‘Under the astute guidance of president Nursultan Nazarbayev, the country has transformed itself from a fossilized, Soviet-style, centrally planned society into a modern and vibrant market economy. The president cites such economic powerhouses as South Korea and Singapore as the type of economic models that he wants Kazakhstan to emulate’. Without taking away any of the president’s achievements, he is able to operate from a position of strength. As the world knows Nazarbayev has at his disposal a real treasure trove of minerals, including huge deposits of coal, copper, platinum, uranium, gold and, of course, oil. In fact, it is said that one quarter of the world’s remaining reserves of oil lie beneath the Caspian Sea.

Remarkable recovery

A western journalist based in Kazakhstan’s second city, Almaty, reports that between 2000 and 2007 the country grew at almost double digit rates buoyed by rising oil and other commodity prices and massive foreign direct investment. Then came the global financial crisis and Kazakhstan became one of the first countries to take a direct hit when its banks were unable to refinance US$ 45 billion of foreign debt. As he says, “the government’s severe restructuring measures and ambitious diversification programme to reduce dependence on natural resources and hence vulnerability to fluctuations in commodity prices, prompted Thomas Mirrow, president of the European Bank for Reconstruction and Development (EBRD) to comment that the restructuring of the banking sector has been "remarkable".

In June 2010, China and Kazakhstan agreed to build and finance a gas pipeline and to deepen atomic energy ties, thereby extending China’s influence in Central Asia. As with the Kazakhstan-Turkey deal, mentioned earlier, China’s president Hu Jintao and the Kazakh president have also entered into a number of deals whereby their respective state companies will give Beijing greater access to resources, and allow Kazakhstan to diversify its energy exports. All this is indicative of what is developing into a geopolitical tug-of-war between Russia, China and the West for the untapped riches of Central Asia, and in particular for those on offer from Kazakhstan. China’s ambitions in the region strongly compete with those of Russia who feels it still has the right to exert influence in its former satellite states. It’s no secret that Europe wants a share of the goodies, knowing that the energy-rich region is an obvious alternative supplier of gas.

The latest issue of Business Monitor International’s (BMI) Kazaksthan Infrastructure Report Q3 2010 indicates that sizeable lending and investment has returned to Kazakhstan’s construction sector, after a lull earlier this year, especially as the government is making concerted efforts to accelerate its industrial development programme. The government continues to pump funds into industrial, oil and gas development, confirming president Nazarbayev’s claim that some 144 infrastructure projects worth US$ 5.3 billion are to be completed in 2010. BMI is expecting the construction sector to return to 2.97% growth this year. Preparations for the 2011 Asian Winter Games, which will be held in Astana and Almaty, are being stepped up with the government allocating an additional US$ 297.53 million on top of the US$ 726 million set aside in 2008. At the same time, the EBRD has continued its active role in recent months as Kazakhstan’s largest investor outside the oil and gas industry. It has recently made investments in the water, electricity and freight transport sectors as the bank urges the country to step up diversification.

The 21^st century ‘Silk Route’

Of significant relevance today is the construction of the transcontinental Western Europe-Western China highway, a mega project that will form part of the integration of the Kazakhstan transport network into the Eurasian transport system.

Here, history is repeating itself. For many centuries the Great Silk Road connected a complex network of trade routes from Europe to Asia, thus providing the opportunities to establish contact with the great civilizations of China, India, the near East and Europe. Millions of trade caravans, diplomatic missions, merchants and representatives of religious circles travelled along it. Today, no less significant will be the modern cargo (estimated to be 33 million t by 2020) that will travel the new highway corridor in three main directions: China – Kazaksthan, China – Central Asia, and China – Russia – West Europe.

Investing in ‘dry’

At the time of writing, the Jambyl Cement Company’s new 1.1 million tpa dry process plant at Mynaral in the Moiynkum desert is expected to become operational in October 2010 following equipment tests currently under way. The US$230 million cement project, which is a joint venture between the Vicat Group, France (60% share), Homebroker (30%) and the International Finance Corporation (10%), has been described by Kazakhstan’s president Nazarbayev as “the biggest enterprise of the country’s construction industry”. The plant’s strategic location will enable it to not only supply cement for the construction of the Western Europe-Western China highway, it will also provide cement for the Balkhash Thermal Power Station.

Shymkentcement (part of the Italcementi Group), based in the southern Kazakhstan region, supplied cement for the construction of the Baikonur space centre at Almaty and for the Tashkent airports, as well as the Kashirsk and Nureksk hydroelectric stations, plus many other well known facilities in the country and in neighbouring countries. In the first quarter of this year, Steppe Cement Ltd increased its share of the cement market from 18 to 21%. Analysts at the company estimate that Kazakhstan’s cement market will be about 5.7 million t this year, an increase of 11% on 2009. This may seem low for a country the size of Western Europe, but we are reminded that Kazakhstan’s landscape stretches from mountainous, heavily populated regions in the east to the sparsely populated, energy-rich lowlands in the west, and from the industrialized north, with its Siberian climate and terrain, through the arid, empty steppes of the centre to the fertile south, but with a population of only 16.273 million.

The proposals outlined by Kazakhstan’s Minister of Transport and Communications, Abelgazi Kusainov, calls for dynamic transport infrastructure development and improvement. This, with the country’s plans to build its first nuclear power plant, and the government’s efforts to accelerate industrial development, must be a major challenge for the cement industry to continue a programme of modernisation. Add to this similar calls for international investment and the country’s heavy bias towards industrial, oil and gas projects, and the opportunities are apparent for further growth and success.

Author: Paul Maxwell-Cook

Read the article online at: https://www.worldcement.com/europe-cis/01082010/the_gem_in_central_asia/