OPINION: A New And Unexpected Financial Power Is Rising In The East

Stephen Blank | Senior Fellow for Russia, American Foreign Policy Council

Kazakhstan is thinking big again, despite a brewing trade conflict between its largest trade partners — the United States and China.

Specifically, it is creating what it hopes will be a regional, and ultimately global, financial hub: the Astana International Financial Center, the brainchild of the country’s president, Nursultan Nazarbayev. Nazarbayev aims to impart greater dynamism and independence to his country’s economy and establish Kazakhstan as a global leader in finance.

Modeled after similar flourishing business enterprises in Dubai and Singapore, the Center is led by Kairat Kelimbetov, the well-respected former deputy rrime minister and central banker.

The AIFC aims to develop capital markets, asset management private banking, financial technologies and Islamic finance while attracting foreign investments. The AIFC also aims to galvanize Kazakhstan’s economy.

The financial center should help it gain greater independence from a Russia under the Western sanctions, and a China that could dwarf it — even as China prioritizes Kazakhstan as one of the main partners of its Belt and Road Initiative.

The AIFC will provide new instruments and opportunities for the Kazakh government, businesses and foreign investors looking for new opportunities in a steadily growing market.

The new stock exchange is empowered by NASDAQ’s technology and boasts the Shanghai Stock Exchange, The Silk Road Fund and Goldman Sachs among its shareholders. It will host the government’s privatization program that would include such national champions as KazMunaiGaz, the state-owned hydrocarbon behemoth, Air Astana, and the national railroads.

AIFC will also facilitate Kazakhstan’s sovereign fund and private banking investments and will attract Islamic bonds (sukuk) and other foreign capital inflows.

To realize those objectives Astana has stood up an independent legal framework that, like Singapore, is based on the principles and practices of English Common Law. Moreover, top British judges and other jurists are heading the AIFC Court and regulatory bodies.

Kazakhstan is also establishing a Securities and Exchange Commission-type agency to guarantee the safety and security of stocks on its exchange. It will attract upon the expertise acquired through Kazakhstan’s well-known Bolashak program that has educated many Kazakhs abroad and continues to be a source of expanding human capital in Astana.

Clearly, the Kazakh government and the Center’s backers intend for it to become the place to go for domestic and foreign project investment in the region.

Today, Central Asian states must go to Shanghai or Hong Kong or Europe to raise capital. If this center performs as expected, Astana may gradually attract business from those centers and become a major regional center.

And given Kazakhstan’s success to date in modernizing and the expanding opportunities in Central Asia, including the reforming Uzbekistan, and Islamic finance specialty, this center could become — as intended — a regional financial center having global reach and resonance.

As this center realizes its objectives, it will help promote major U.S. foreign goals ever since Central Asian states gained their independence in 1991; one is the defense of their sovereignty against efforts by Russia and/or China to undermine it through political, economic or military means.

We already have seen that Moscow has no regard for the sovereignty of former Soviet republics. In that context, Kazakhstan’s alignment to Russia through the Eurasian Economic Union, though politically necessary, has acted as a ball and chain on Kazakhstan’s economic development.

Similarly, China has also made clear that it has little regard for the sovereignty and integrity of its neighbors. One cannot but conceive of its Belt and Road Initiative as being, among other things, a plan to subordinate regional economies to China’s.

This center may help emancipate Central Asia financially from both Moscow and Beijing. But it can also promote another desirable objective, namely Central Asian regional cooperation.

As we noted, Central Asia today may find it difficult to finance its development projects and governmental operations exclusively on its own. It must go to China or elsewhere to raise large amounts of investment capital for major projects. AIFC will provide an opportunity for the financing of regional projects by institutions located in Central Asia.

Investors, whether from the United States or the Gulf, will now be able to work with and through a reputable and well-managed center. This, too, certainly works to the advantage of U.S. interests, as the AIFC will undoubtedly welcome American investors.

Lastly, the AIFC represent Kazakhstan’s continuing commitment to thinking big and looking into the future to establish itself a sa competitive state in the tough environment of the 21st century.

The AIFC aims to help Kazakhstan go beyond being merely a raw material supplier, despite its amazing natural endowment. It is also a step in the chain of improving human capital and establishing flourishing technological environment, media and high-tech platforms for the future for its own economy and for that of Central Asia.

While this may be a time of major uncertainty and strife in international affairs, Kazakhstan remains one of the few countries that not only has a focused and sound vision for the future but is moving forward to realize it.

Stephen Blank, senior fellow for Russia at the American Foreign Policy Council, comes to AFPC from the U.S. Army War College, where he was Professor of National Security Studies.


The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.

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