Russia may have set the bar pretty high, but Kazakhstan still has to be one of the most extraordinarily business-unfriendly places on the planet. A visit to this vast Central Asian state is like a modern reworking of Malcolm Bradbury’s satire Why Come to Slaka?, which catalogued the dubious attractions of a fictional East European state in the Cold War.
On the surface, this giant, underpopulated nation is doing remarkably well. From being virtually bankrupt a decade ago, the two main cities — Almaty in the south, and the northerly capital of Astana — now brim with confidence and cash. Mercedes and Bentleys jostle for road space with Ladas and Moskvitches; octogenarian babushkas take out loans with HSBC and Citibank to refurbish their plush inner-city apartments. On the road north from Almaty to Shymbulak and Medeo — the beautiful venues for the 2011 Asian Winter Games — sits a surreal collection of millionaire houses, each boasting at least one Mercedes (for the owner’s wife) and one Lada (for her decorator).
This new money flows from Kazakhstan’s vast natural resources. The country’s topographical bleakness belies a wealth of minerals and energy. Uranium, tin, molybdenum, coal and zinc abound, as does a lot of very high-grade potassium (as the title song of Borat put it, ‘all other countries have inferior potassium’). And there’s oil by the sheikh-load — up to 125 billion barrels, much of it in the world’s last untapped super-giant field, Kashagan, straddling the Caspian Sea.
Ten years ago, Kazakh politicians welcomed foreign investors with open arms. Everyone from ExxonMobil to Shell rushed in, as did hundreds of smaller mining firms, many of them based in Canada. They paid taxes, built schools, and gradually refilled the central bank’s coffers. But the country’s self-confidence grew with its wealth — and so did the whispers within Astana’s bureaucracy. The foreigners didn’t pay enough tax or employ enough Kazakhs. They were hoarding information about the true mineral wealth under the land they leased from the government — a common charge that is almost impossible to disprove.
As these rants against foreign businesses became increasingly frenzied, many decided to leave. Two Canadian-owned firms, PetroKazakhstan and Nations Energy, sold out to Chinese corporations after being squeezed almost to death by government interference. British Gas sold its 17 per cent stake in the Kashagan oil field for $1.8 billion in April 2005. As one expat oil executive put it, ‘Why hang around when the bills and taxes and government inspections are mounting, and the field is continually being delayed?’
Even China’s state-run behemoths are not spared by Kazakhstan’s fickle authorities. In recent weeks, two officials in a local subsidiary of China National Petroleum Corporation were found guilty of hoarding information relating to oil and gas reserves. One former manager of a Canadian mining firm said his company was looking to sell out after being audited no fewer than 56 times in a single month. ‘There’d be one team going out the back door with a chunk of money that we’d paid them — and another group coming in the front, looking for their cut.’ In terms of corruption, incidentally, Kazakhstan ranked equal 111th in Transparency International’s global league for 2006 — above regional counterparts such as Russia, but alongside such paragons of business hygiene as Nicaragua, Albania and East Timor.
As always, corruption starts at the top. President Nursultan Nazarbayev is hugely respected by his citizens, and rightly so: he has kept the economy on an even keel while raising the wealth of the people, even if most of it has fallen into the hands of the well-connected. He has also balanced the onerous and capricious demands of China to the east, Russia to the north, and the United States and Europe to the west. But his government is a working shrine to nepotism. One of his sons-in-law, Timur Kulibayev — the 458th richest man in the world, according to Forbes — is a major shareholder in several leading Kazakh firms, including Halyk Bank. Another, Rakhat Aliyev, was in February abruptly dispatched to serve as Kazakh ambassador to Austria after the disappearance of two former officials of another domestic lender, Nurbank. The wife of one of the missing officials, Zholdas Timraliyev, alleges that her husband was kidnapped when he declined to hand over the manager-ial rights to a local business centre to a business connected to Aliyev.
Meanwhile, the straitjacket into which Astana is trying to squeeze foreign corporations is about to be tightened. The country’s subsoil laws, which have been successively reinforced over the years, now grant the state first rights over any energy or mineral wealth. Not content with that, this February the country’s new premier, Karim Masimov, said the government was prepared to alter, and even cancel, existing operating licences held by foreign energy and mining firms.
Rising wealth has brought increased bureaucracy as well as rampant nationalism and corruption. Astana has loaded itself up with new officials, each one in need of a cushy office, a respectable title and a new Mercedes C-Class. Many spend their time inventing new rules for foreign business, and finding ever more ingenious ways to extort money from them. All this is creating enormous antagonism within the foreign business community — which by and large consists of a hardy crew well versed in navigating their way through the minefields of central Asia.
‘They’re killing the goose that laid the golden egg,’ says one London-based oil and gas banker who travels regularly to the region. ‘They’re under huge pressure to diversify their economy away from minerals and oil, but so far they haven’t managed it. So rather than embracing foreign investors, who bring money and know-how and equipment and technology, they attack them with bows and arrows and pitchforks and calculators. All of this bureaucratic meddling has soured the climate for everyone, and all the foreigners are just worn down by the experience.’