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COMMENT: After Kazakhstan's elections - between stability and reform

By Ariel Cohen, Business New Europe, 28 August 2007

Category: Politics
Posted by: admin
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The Аugust 18 vote for stability in Kazakhstan is important for foreign investors in this country's energy-rich economy. Stability in Kazakhstan is also a priority for its powerful neighbours Russia and China, and for the US.


While some eyebrows were raised regarding the 88% result for the ruling Nur Otan party and the creation of a one-party lower chamber, the Majilis, President Nursultan Nazarbayev has received a renewed mandate from the voters.


Geopolitically, however, Kazakhstan is in a narrow spot, engaged in a balancing act. As a part of this geopolitical high stakes juggling number, Astana can't ignore either Moscow or Beijing.


Nazarbayev participated in the Shanghai Cooperation Organization (SCO) summit with China's President Hu Jintao and the Russian President Vladimir Putin in Bishkek, Kyrgyzstan. Then the leaders flew to Russia to watch the unprecedented manoeuvres of the SCO militaries, in which Chinese troops for the first time exercised on foreign - Russian - territory.


Earlier this year, Nazarbayev and Putin flew to Turkmenistan to secure the supply of Turkmen gas via Kazakhstan to Russia, giving the country a handsome cut in transit fees.


Relations with the US are also important for Kazakhstan. Last year, Nazarbayev came to Washington and had a good visit with President George Bush at the White House. He signed an agreement to supply Kazakh oil to the US-supported Baku-Tbilisi-Ceyhan pipeline using a Kazakh tanker fleet on the Caspian Sea.


Nazarbayev hosted Hu in mid-August and signed energy agreements that expand his country's oil and gas pipeline networks to energy-starved, fast growing China.


Some Russian experts immediately discerned that Nazarbayev is playing off Moscow against Beijing. They blamed Nazarbayev for tilting too closely to Beijing, just as several years ago they blamed him for being too pro-American. In reality, though, Nazarbayev is, well... pro-Nazarbayev. He is definitely pro-Kazakhstan.


Opposition flaws


Kazakhstan is striving to take the rotating chairmanship of the Organization for Security and Cooperation in Europe (OSCE) in 2009. OSCE election observers have not mentioned that the opposition, unfortunately, shot itself in the foot. As Kazakhstan has a high electoral threshold of 7%, it would have made sense for Social Democrats and Akh Zhol to unite. Separately, the two leading opposition parties have failed to clear the barrier; together, they got more than 7% and would have been in the Majilis.


This author talked to the opposition leaders last spring. They are not that different from each other; nor are they that far from the ruling Nur Otan. After all, most opposition leaders are former senior officials who served under Nazarbayev. These are all secular, sensible and solid people who want what is good for their country.


Erlan Idrissov, the new Kazakhstani ambassador to the US, says that democracy hasn't said its last word yet and may yet have a bright future.


"The importance of the elections is that it is the first element of the major constitutional reforms announced in May. The elections produced a new party-based parliament," Idrissov said. "We believe that the elections will open many new avenues for economic reforms, new advanced legislation facilitating joining World Trade Organization, support of private sector growth and particularly the financial sector, especially the stock market. The rule of law is an important priority for continued economic growth. Investors should feel themselves secure that the pace of economic reform will grow and deepen in quality.


"The new parliament and the government will enhance the efforts to promote such values as transparency, accountability and good governance as they were declared as top priorities. We recognize that for many people in the West a one party parliament is something difficult to digest, but our friends should understand that election is not the end of the story, rather it is the beginning the path. We believe that there will be many future elections, and every political force will have an opportunity to grow and mature.


"The Parliament will provide continued legislative support for such new economic developments as Samruk, the state-holding body which manages state assets in major sectors -- energy, railroad, telecoms, and infrastructure. Kazyna, the sustainable development fund, will also become a priority. This is an umbrella organization for the State Innovation Fund, Industrial Investment Fund, Export Credit Guarantee Corporation, Center for Market Research, and Center for Transfer of Technologies.


"Last but not least, the regional financial center in Almaty will also be boosted, which is the vision of Kazakhstan for the regional business and financial hub along the lines of Dubai and Hong Kong," Idrissov said.


Kazakhstan has unique resources which, given political stability and economic development, make investors salivate. The question is, will the parliament allow further foreign investment in "strategic" natural resources or start to follow the Russian example and limit external capital?


For example, Kazakhstan has the some of the world largest uranium reserves, estimated at 1.5m tonnes. In 2006 it produced 5,279 tonnes of uranium, annual growth of over 20%, and in 2007 is projected to increase production by over 30%. Kazakhstan is the world's No. 3 uranium producer, after Australia and Canada . Uranium prices have increased 1,000% in just five years and аre likely to rise further.


The next Kazakhstani parliament will have its hands full. The greatest challenge for a one-party parliament is not only to exercise its legislative powers, but also to control the executive branch and give expression to the country's political diversity. So far, Kazakhstan has succeeded in becoming a stellar economic performer and an investor magnet. Investors hope this will remain to be the case in the future.


Ariel Cohen, Ph.D., a regular BNE contributor, is Senior Research Fellow for Russian and Eurasian Studies and International Energy Security at the Heritage Foundation and author of "Eurasia in Balance" (Ashgate, 2005) and "Kazakhstan: Energy Cooperation with Russia -- Oil, Gas and Beyond" (GMB, 2006).