Confident Kazakhstan’s ambitions for Central Asia’s central role

Kazakhstan is in a good spot. It has the support of the West and is benefiting enormously from China’s Belt & Road Initiative. It’s even becoming, in relative terms, a diplomatic power in its own right —­ the Geneva of Central Asia.

  • By Elliot Wilson
  • 10 Oct 2018
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Many words or phrases have been used to describe Kazakhstan since it became an independent nation in 1991. “Oil rich” is certainly one: it boasts the world’s 12th largest reserves. Another is “buffer zone”, with Kazakhstan sandwiched between China to the east, Russia to the north and a host of smaller and often turbulent Central Asian states to its south. It’s also simply vast, covering an area the size of Western Europe.

But in recent years, a new word has entered the lexicon when Kazakhstan is summoned to mind: confident. Over the past year, it has quietly become the leader of a region that has long needed co-ordination and cohesion.

In March 2018, President Nursultan Nazarbayev hosted a meeting in Astana of the presidents of all five Central Asian states. Two things emerged from the first conclave of its kind in 20 years, each important in its own way. First, the leaders decided to make it an annual event, an idea that would have seemed outlandish even five years ago. Much has changed in the intervening period, however, notably the death of Islam Karimov and his replacement as president of Uzbekistan by the less autocratic and more technocratic Shavkat Mirziyoyev.

Second, Nazarbayev informed his presumably well briefed peers that Central Asia was now strong enough to solve its own problems and did not need any external “mentors”. These, notes one Washington-based analyst, were “calculated words from a wily political operator who speaks when he has something to say. It was him telling Russia there were red lines they should not cross.”

This point is worth exploring. Russia’s relationship with Kazakhstan has always been changeable, veering between the strong and the brittle. Moscow views the Central Asia state as falling well within its sphere of influence, part of what President Vladimir Putin refers to as Russia’s “near abroad”.

In pure economic terms, the two nations have historically seen mostly eye-to-eye. Kazakhstan exports foodstuffs, including meat and organic wheat, and imports machinery and chemicals. Russia is by far the biggest buyer of Kazakh goods and services, accounting for $19.2bn of its exports in 2017, or 39% of the total, according to the CIA World Factbook.

But when it comes to political and security matters relations can get choppy. In August 2014, the same month that Russian tanks crossed the border into eastern Ukraine, Putin was asked at a press conference if there would be a “Ukraine scenario” when Nazarbayev was replaced as president.

Putin’s reply was a dagger to Kazakhstan’s pride. Rather than rebuff any suggestion that Russia might invade and annex part of the country as it has done in Ukraine and Georgia, he reminded his audience that Kazakhstan “never had statehood” prior to the demise of the Soviet Union. It did not go unnoticed in Astana that Russian nationalists view a huge strip of the country, from Petropavl to Oskemen, as part of their territory. Kazakhstan’s leaders fumed and fussed but quietly and in private.

BALANCED RELATIONSHIP

Yet in recent years a once lopsided relationship that saw Moscow firmly holding the whip hand has become more evenly balanced. The reason for this is two-fold. First, Kazakhstan has grown weary and even worried at the quarrelsome, zero-sum-game way Putin treats friends and enemies alike. True, the Kazakh economy remains overly dependent on the production and export of oil. GDP slowed sharply in 2015 and 2016 when oil prices fell, then bounced back in 2017 and 2018 when they rose.

But Russia’s long economic malaise, which stems partly from an inability to embrace genuine reform augmented by the impact of Western sanctions, has been keenly felt on the other side of the border — and, indeed, across the region.

“Poor growth rates in Russia drag on growth rates in Kazakhstan while a weak rouble means a weak tenge,” notes Stephen Blank, senior fellow for Russia at the American Foreign Policy Council (AFPC) in Washington. “An unstable Russia is a serious problem for Kazakhstan. Putin has zero interest in economic reform and that fact alone will continue to drag down his economy and economies across Central Asia.”

Kazakhstan has even begun pushing back in the security realm. The two sides have co-operated on military affairs since 1992, the year it became a member of the Collective Security Treaty Organization, a Russia-led alliance, and Astana usually supports Moscow at the United Nations.

Yet in April 2018, when America tabled a motion at the UN to identify those culpable for a deadly chemical attack in Syria that killed at least 40 people, Kazakhstan supported the motion. It caused shock and dismay in the Kremlin. “Kazakhstan is tired of the way Russia acts,” notes a defence analyst who focuses on events in Central Asia. “Moscow is growing more isolated from world affairs and it doesn’t want any part of that.”

For its part, Astana has reacted to Moscow’s irascibility by allocating more of its attention to Washington. US-Kazakh relations are strong and long-standing but the country has pushed the envelope by supporting America on security issues. In June, it agreed to allow America to use two of its Caspian Sea ports, in Aktau and Kuryk, as transit points for shipping non-military cargo to Afghanistan. Russia’s heightened sensitivity to the threat of any neighbouring state aligning itself with Washington was underlined when its foreign minister, Sergei Lavrov, warned the West “not to put [the] Central Asian nation in front of a false choice”.

And so to the other factor that might help to explain Astana’s slow drift away from Moscow as well as its burgeoning self-confidence. In its formative years, Kazakhstan was forced to learn the hard way. It had few friends and was landlocked, dirt poor and surrounded by equally penurious or restive states.

Yet within a few short years it had, notes AFPC’s Blank, gained “incredible diplomatic strength”, building robust commercial, financial and political links with Europe and the US while positioning itself as an unthreatening regional ally to a sinking Russia and a rising China. “Kazakhstan has always been highly adept at maintaining the right balance with its main trading partners,” says Annette Bohr, an associate fellow at Chatham House’s Russia and Eurasia Programme.

As China’s financial and economic power grew, Kazakhstan’s leaders racked their brains about how to deal with the rising superpower. Scroll back a decade and you find a balance of power tipped firmly in Beijing’s favour. China needed Kazakhstan for its oil and its minerals and for help in keeping Xinjiang, its westerly province, secure and stable — but little else. To visit Almaty, Kazakhstan’s most populous city, 10 years ago was to find a place fearful of Beijing’s intentions and wary of the financial clout of its big state firms.

BELT AND ROAD CENTRAL

Then in October 2013, President Xi Jinping unveiled his Belt & Road Initiative (BRI), an attempt to redraw the global trade map in China’s image. In its early years, the eyes of most seasoned observers were drawn to the BRI’s sheer scale and ambition and to the financial and political influence it allowed Beijing to wield over strategically important and capital poor states like Pakistan.

Yet that ignored a salient fact: that at the heart of BRI is China’s desire to be able to transport finished goods to and from Europe by rail circumventing the US-controlled Malacca Strait. Beijing is focused on two overland routes: a southern path that ploughs a furrow through Iran and Turkey before entering Europe via the Balkans and a northern one that takes in Russia and eastern Europe. But both routes, once they leave China’s western border, pass first through the same country: Kazakhstan.

This puts it in a very strong position. “Kazakhstan is absolutely vital to the Belt and Road Initiative,” says Charles Robertson, global chief economist and head of macro strategy at Moscow-headquartered, emerging market focused investment bank Renaissance Capital. “It can be argued that it is more important than any other BRI country.”

In recent years, the nature of Chinese investment in Kazakhstan has shifted. A focus on extracting and importing energy and minerals has been replaced by a far longer term strategy of transforming the Central Asian state into a valued and hugely valuable logistics and trans-shipment hub.

China is laying a fresh 2,700km long ribbon of tarmac from west to east that will complete a 7,000km highway running from Europe to Xinjiang. Last year, Cosco bought a 49% stake in the Khorgos Gateway, a transit point on a particularly remote stretch of the Sino-Kazakh border. The state-run shipping giant plans to invest billions of dollars in the ‘dry port’, with the aim of slashing the time and cost of transporting goods between China and Europe by rail. It currently takes around 25 days to complete that journey but border delays and antiquated infrastructure mean sea freight is still 10 times cheaper.

Few, certainly in Kazakhstan, doubt this is the future of trade. According to Roman Vassilenko, deputy minister of foreign affairs, the number of ‘intermodal’ freight containers shipped by rail from China to Europe via Kazakhstan jumped from zero in 2010 to 200,000 in 2017. The number is on track to hit 2 million by 2020, generating, predicts Vassilenko, $5bn in annual transit fees.

This, analysts say, is a once-in-a-lifetime opportunity. China’s commitment to BRI offers Astana a gilded chance to develop and diversify an economy that has long struggled with two limitations: its overwhelming dependence on oil revenues and a shocking lack of good infrastructure.

Perhaps the only foreseeable danger in allowing China to build new highways, railways and dry docks would be to borrow heavily from China Development Bank, Export-Import Bank of China or one of Beijing’s big commercial lenders. That has been the bane of states that bought in early and heavily to the BRI, most notably Pakistan and Sri Lanka. “Getting into debt with China is poison,” notes AFPC’s Blank.

That seems unlikely to be a problem for Kazakhstan. Yes, it’s already one of the biggest BRI beneficiaries. An estimated 62 China-led projects are underway, worth $30bn. But while Beijing’s investment in the country dwarfs its exposure to almost every other belt-and-road state, its political leaders appear determined to treat the country with kid gloves. “The intent is not to annoy Kazakhstan,” says a veteran development official in the Chinese capital. “We want to be partners and [the message from the top] is clear: that the money we are investing in Kazakhstan is our own. We do not expect anything in return.”

REGIONAL FOCAL POINT

Astana’s growing confidence in its ability to mould and plan for its own future and to become the focal point of the region is visible wherever you look. In April 2017, it announced plans to Latinise its alphabet, abandoning the Cyrillic script imposed during Soviet rule. The decision made good sense in a country keen to integrate further into the international order — though it ruffled feathers in Moscow, already uneasy about its eroding position and influence in Central Asia.

The Kremlin has been further rattled by Nazarbayev’s interpretation of ‘Eurasianism’. To Russian nationalists, the concept argues in favour of the recreation of a ‘Greater Russia’, a single state with Moscow at its core. But Kazakhstan’s president sees it as a chance to put Central Asia at the heart of world politics and for each state in the region to be allowed to build relations with external powers at its own discretion.

The country’s increasingly central role in events with bearing on regional and even global affairs was highlighted in August 2018 when the leaders of Azerbaijan, Kazakhstan, Iran, Russia and Turkmenistan met in the Kazakh city of Aktau to decide on the legal status of the Caspian Sea. This was a delicate dance between five countries equally suspicious of each other’s motives in the oil-rich inland sea.

To the surprise of many, the quintet reached a landmark agreement that promised to end 27 years of diplomatic wrangling. Russia was a clear winner, securing pledges from the other four nations to keep ‘foreign’ (i.e. US) military bases out of the Caspian. But Moscow was also forced to compromise. It promised not to block a proposed gas pipeline between Turkmenistan Azerbaijan. The treaty also opens the door to Kazakhstan “to lay a new oil pipeline across the sea to Azerbaija thereby circumventing Russia”, notes Chatham House’s Bohr.

Even Russia seems to be quietly buying into Kazakhstan’s newfound role as an economic and political mediator. When Putin and Turkish president Recep Tayyip Erdogan met in late 2016 to determine the right venue for Syrian talks, there was only one city on the short list: Astana. In March 2018, the Kazakh capital hosted the ninth round of peace talks, with the now-named ‘Astana Process’ bringing together the leaders of Syria, Russia and Turkey.

This is not to say that Kazakhstan’s future is guaranteed. Astana talks a good game on structural reform, and on the importance of promoting industries from agribusiness to chemicals to mineral processing. Yet its economy remains heavily reliant on the price of oil, a situation that is unlikely to change in the short term.

Nazarbayev’s much-heralded ‘2050 Strategy’, which aims to transform Kazakhstan into a top 30 economy by mid-century, is dependent on forcing through root-and-branch reform, something that is anathema to the political and commercial elites. And at some point Astana will need to direct its attention to deciding who will succeed Nazarbayev. Until that question is resolved, it will continue to hang in the minds of regional leaders and foreign investors alike.

  • By Elliot Wilson
  • 10 Oct 2018

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