The Kazakh government has brought in the EBRD to transform its economy, the first time the multilateral has been chosen to spearhead the industrial revolution of a leading recipient country.
Kazakhstan’s government is handing billions of dollars of annual state revenues to a handful of multilaterals, led by the EBRD, as it strives to revolutionise its energy and metals-heavy economy and to generate greater returns from domestic assets.
The Kazakh government’s reformist agenda will see the state divert $5bn into new industries such as renewables, transport and power transmission. At least $2.75bn will be channelled through three multilaterals including the EBRD — which will absorb the lion’s share of the new investment capital — as well as the European Investment Bank and Asian Development Bank. That number is set to rise if plans to revolutionise Kazakhstan’s economy work.
The EBRD’s leadership was clearly delighted at being chosen to spearhead the industrial revolution of a major recipient economy. “It’s the first time we’ve ever done this,” said Olivier Deschamps, managing director for Turkey, eastern Europe, Caucasus and central Asia. “Kazakhstan has contributed to our projects before. But this is billions over years not a few millions. This is a different scale. We believe it will be a game changer in increasing the impact of the bank and scaling up our investment.”
The plan is relatively simple. Kazakhstan’s government will hand the cash to the EBRD-led team, which will then “choose the projects we want, and design them,” said Deschamps. “The state then comes in as a co-financier, providing grants and technical assistance, or as a revenue back-up when it comes to PPPs [public-private partnerships].” The EBRD has €4.7bn vested in 170, mostly private sector, projects around the country.
Deschamps insisted that investments would be chosen based on the promise of returns, and on their ability to diversify the nation’s industrial base, rather than on the premise of political patronage. “We are in charge totally of choosing our projects,” the EBRD executive insisted.
Central to the plan is the promise to upend an economic policy that, to the naked eye, has served the central Asian state well. Kazakhstan’s economy grew by 6% year on year in 2013. Yet robust topline figures conceal increasing frustration at the pace of reform.
Development aspirations “have been a bit stuck by implementation bottlenecks”, Deschamps said — most visible in the delays hobbling drilling in the vast Kashagan oil field. The return of the reformist Karim Massimov, a respected economic manager and trusted aide to president Nursultan Nazarbayev, for his second stint as premier in April 2014, surprised few.
Virtually the first thing Massimov did on his return to office was to call on the EBRD. “On the second day back in the saddle as premier he called us in to chat, and we’ve been talking about projects and funding since then,” said Deschamps. “He wants to get a viable and sustainable PPP system in place, and we are looking at changes in legislation that will make them bankable. He knows what reform means.”
The EBRD clearly hopes this will first become a model that works, and then becomes a template for the region. If other countries adopt a similar policy, it will justify all the hard work put in by the multilateral over the past 23 years.