Title: Kazakhstan's Economy since Independence: Does the Oil Boom Offer a Second Chance for Sustainable Development?
Abstract: Click to increase image sizeClick to decrease image size Notes By 1998 Kazakhstan ranked below neighbouring Uzbekistan, a self-styled gradual reformer, on the EBRD transition index (see European Bank for Reconstruction and Development, Transition Report 1998, Table 2.2.1). Trade reform commitments included in 1998 IMF-supported programmes were not implemented. Kazakhstan, however, maintained its commitment to current account convertibility, unlike Uzbekistan and Turkmenistan, which responded to economic difficulties by introducing draconian exchange controls in 1996 and 1998 respectively. The emigration was to a small extent offset by immigration of Kazakhs from the former USSR and Mongolia; UNDP, Human Development Report Kazakhstan 2000, p. 6, estimated the number of Kazakh repatriations over the 1990s at 260,000. In part this was a reaction to the first phase of privatisation, which was considered to have favoured other ethnic groups because Russians had held better jobs associated with better housing allocation and Uzbeks and other minorities had run the small service businesses. During the transition from central planning inequality increased and there were substantial movements within the income distribution (Anderson & Pomfret, 2003 Anderson Kathryn Pomfret Richard Consequences of Creating a Market Economy: Evidence from Household Surveys in Central Asia (Cheltenham, Edward Elgar 2003 [Google Scholar]). By the start of 1995 only a third of vouchers had been used (Kalyuzhnova, 1998 Kalyuzhnova Yelena The Kazakhstani Economy: Independence and Transition Basingstoke, Macmillan 1998 [Crossref] , [Google Scholar], p. 76). According to Sandor Thoenes, 'Kazakhstan's Sale of the Century', 'speed differentiates Kazakhstan's privatisation more than anything. One company asked a consultancy to submit a proposal for a three-week legal and commercial investigation for a bid. Two days later the consultancy found that the company had already won the bid'; see Financial Times, 25 October 1996 (quoted in Kalyuzhnova, 1998 Kalyuzhnova Yelena The Kazakhstani Economy: Independence and Transition Basingstoke, Macmillan 1998 [Crossref] , [Google Scholar], p. 78). These included Halyk Savings Bank (the country's largest), Borly coalmines, the largest trade centre in Almaty, two oil companies and a number of metal producers (Olcott, 2002 Olcott Martha Brill Kazakhstan: Unfulfilled Promise Washington, DC, Carnegie Endowment for International Peace 2002 [Google Scholar], p. 286 n. 38). In late 2002 the state raised $199 million when it sold its residual 34.6% stake in the copper mining company Kazakhmys through public tender. In April 2003 the state's 31.8% stake in Aluminium of Kazakhstan was sold to Corica, a subsidiary of J&W Holding AG (Switzerland) for $21 million. In May 2003 the auction of the state's 25.1% share in an oil exploration JV with Chinese National Petroleum Company (CNPC) and Aktobemunaigaz was won by CNPC for $150 million. Luong (2004 Luong Pauline Jones Economic "Decentralization" in Kazakhstan: Causes and Conseqences in Pauline Jones Luong (ed.), The Transformation of Central Asia, Ithaca, NY, Cornell University Press 2004 pp. 182 – 210 [Google Scholar], p. 203), writing about the 1997 decentralisation legislation, explains this legislation in terms of clearing up contractual inconsistencies which had arisen from oil and gas investors' accumulation of legal obligations to both central and regional governments during a de facto decentralisation period (1995 – 98) in Kazakhstan's institutional development. In September 1998 Kazakhstan sold its share of the consortium to Phillips Petroleum and Inpex. In summer 2001, after Agip became sole operator, the consortium was renamed AgipKCO (Agip – Kazakhstan North Caspian Operating Company). By February 2003 LUKoil had invested $1 billion in Kazakhstan, with a 15% stake in the Karachaganak gasfield, 50% in Turgay (Kumkol), 5% in Tengiz and 15% in the CPC (Rutland, 2003 Rutland, Peter. 2003. Russia's Response to U.S. Regional Influence. NBR Analysis, 14, 4: pp. 27 – 50 [Google Scholar], p. 49), and in April 2003 LUKoil and Kazmunaigaz signed a joint venture agreement to develop the offshore Khvalynskoe field. In early 2003 two Chinese state firms offered British Gas $1.23 billion for its 16.7% share of the Karachaganak oil and gas venture but existing shareholders exercised their rights to pre-empt the bid; later in the year CNPC took control of the North Buzachi oilfield, and in December 2003 Sinopec bought a 50% share in three large exploration blocks near Tengiz. Trans-World Metal Corporation, Japan Chrome, Ivedon International and White Swan are sister companies owned primarily by a group of Russian metal traders, headed by an Israeli, David Reuben, reportedly with close ties to Kazhegeldin. Sale of the Pavlodar and Aksu aluminium facilities to the Trans-World Group was especially controversial (Olcott, 2002 Olcott Martha Brill Kazakhstan: Unfulfilled Promise Washington, DC, Carnegie Endowment for International Peace 2002 [Google Scholar], pp. 161 – 163; Richard Behar, 'Capitalism in a Cold Climate', Fortune, 12 June 2000). Although Trans-World's influence waned after 1997, it received substantial compensation ('Trans-World settles with Kazakhstan', Financial Times, 8 February 2000). After Kazhegeldin's fall from power, one of the original partners, Aleksandr Mashkevich, attempted to grab company assets, reportedly with President Nazarbaev as a silent partner (Olcott, 2002 Olcott Martha Brill Kazakhstan: Unfulfilled Promise Washington, DC, Carnegie Endowment for International Peace 2002 [Google Scholar], pp. 139 – 140). A suit filed in London in autumn 1997 by an international businessman named Farhat Tabbah accused Balgymbaev, three US businessmen and a subsidiary of Mobil of cheating him out of millions of dollars. Although the suit failed, it stimulated US investigations which led to a high-profile trial of one of the US businessmen (James Giffen, a former Adviser to President Nazarbaev) under the Foreign Corrupt Practices Act and to the conviction of a second of the US businessmen (Bryan Williams, a former Mobil executive) to 47 months in jail for failure to declare in his tax return monies received from Giffen. The two high Kazakhstan officials implicated in the US cases, originally referred to only as KO1 and KO2, were identified in April 2004 by the New York court as Nazarbaev and Balgymbaev. In May 2000 a buy-out was agreed which turned over Almatyenergo to Access Industries, a group headed by Len Blavatnik, a businessman with close ties to Nazarbaev. Vasilkovskoe was finally sold in 2000 to an Israeli diamond dealer, although some reports claimed its real owner was Floodgate Holding, a company registered in the Dutch Antilles (Olcott, 2002 Olcott Martha Brill Kazakhstan: Unfulfilled Promise Washington, DC, Carnegie Endowment for International Peace 2002 [Google Scholar], pp. 166 – 167). For more details see Seymour M. Hersh, 'The Price of Oil; What was Mobil up to in Kazakhstan and Russia?', New Yorker, 9 July 2001, pp. 48 – 65. Steve Le Vine, 'Kazaks Face Money Laundering Charge', Wall Street Journal, 6 July 2001. Data from European Bank for Reconstruction and Development, Transition Report 2003; cumulative FDI 1989 – 2002 of $13,568 million or $938 per capita is the highest in the CIS, although less than FDI in Poland, Hungary or the Czech Republic. Kazakhstan has, for example, gradually slipped down the Transparency International Corruption Perceptions Index, ranking 100th out of 133 countries in 2003 (Transparency International, 2004 Transparency International Global Corruption Report 2004 Transparency International, Berlin 2004 [Google Scholar]). European Bank for Reconstruction and Development, Transition Report 2003, p.158. Kalyuzhnova et al. (2003 Kalyuzhnova, Yelena, Vagliasindi, Maria and Casson, Mark. 2003. Recent Developments in the Short-term Employment in Kazakhstani Firms. Comparative Economic Studies, 45, 4: pp. 466 – 492 [Google Scholar]), using industrial survey data from 1996 – 98, found no difference in efficiency apart from within the sub-group of export-oriented firms, where there was some evidence of privatised firms' superior efficiency. Table 1 suggests a lack of short-term benefits at the macroeconomic level from the privatisation of the 1990s. IMF estimates from International Monetary Fund, 'Cross-Border Issues in Energy Trade in the CIS Countries', IMF Policy Discussion Paper PDP/02/13, December 2002; see also International Monetary Fund (2003 International Monetary Fund Republic of Kazakhstan: Selected Issues and Statistical Appendix IMF Country Report No. 03/211 July 2003 [Google Scholar]). Chevron was reportedly unhappy at Mobil's buying into Tengiz, but in 1997 Chevron itself sold a 5% stake in the joint venture to LUKoil. Delays in the late 1990s and early 2000s in agreeing new investment were related to the increased number of principals and Chevron's wariness of its partners. The $12 calculation is reported in International Monetary Fund (2003 International Monetary Fund Republic of Kazakhstan: Selected Issues and Statistical Appendix IMF Country Report No. 03/211 July 2003 [Google Scholar], p. 9), and also by Gaël Raballand (a World Bank economist) & Ferhad Esen (a petroleum economist in the research department of a French bank). Raballand & Esen (no date) estimate that the costs would have been reduced to $8 if PetroKazakhstan could have joined the CPC, but it was induced by the Kazakhstan government to sign on to construction of a 700 km link to the existing pipeline network which will reduce its transport costs to $9.5 per barrel. The CPC is half-owned by Russia (24%), Kazakhstan (19%) and Oman (7%), and the other half is divided among ChevronTexaco (15%), LUKoil (12.5%), ExxonMobil (7.5%), Rosneft/Shell (7.5%), Agip (2%), British Gas (2%), Kazakhstan Pipeline Ventures (1.75%) and Oryx Caspian Pipeline (1.75%). After the dissolution of the USSR, the CPC (then consisting of Transneft, Kazakhstan and Oman) was awarded the rights to transport oil from Tengiz to the Black Sea, but negotiations dragged on how much Chevron should pay towards construction. In 1997 LUKoil/Arco purchased 5% of Tengiz, and in 1996 Mobil bought 25% of Tengiz, and together with other investors the Tengiz partners took a half-share in the CPC. The 1760 km long Baku – Ceyhan pipeline is due to become operational in 2005 with an eventual capacity of one million barrels of oil per day. Initially it will mainly serve Azerbaijan, but as Kazakhstan's Caspian oil output increases it is expected that substantial amounts will be exported via the Turkish port of Ceyhan, especially if Azeri production begins to decline at the same time. To understand the heightened expectations since the late 1990s see the survey by Ruseckas (1998 Ruseckas, Laurent. 1998. Energy and Politics in Central Asia and the Caucasus. Access Asia Review (National Bureau of Asian Research), 1, 2: pp. 41 – 84 [Google Scholar]), who in 1997 placed Kazakhstan's total proven oil reserves at 10 billion barrels and considered $18 per barrel as a reasonable, but perhaps optimistic, world price over the life of the reserves. Seven years later IMF (2003 International Monetary Fund Republic of Kazakhstan: Selected Issues and Statistical Appendix IMF Country Report No. 03/211 July 2003 [Google Scholar], p. 16) placed proven reserves at 30 billion barrels, with potential new discoveries in the northern Caspian and technical change making a doubling of this figure plausible. In 2004 the world oil price reached $40 per barrel and in early 2005 has exceeded $50. The 1995 law permitted trading in lease rights, but they were not traded much in practice and appear not to have been accepted as collateral for loans. The June 2003 land code introduced the principle of private ownership of land, but private ownership is restricted to Kazakh residents and only applies to about a third of the country's land area. Whether the new code will increase farm productivity and improve access to capital is yet to be seen. According to IMF (2003 International Monetary Fund Republic of Kazakhstan: Selected Issues and Statistical Appendix IMF Country Report No. 03/211 July 2003 [Google Scholar], p. 23) estimates, TFP in agriculture declined by an annual average of 1.8% during 1996 – 2001, when TFP growth averaged 5.8% in industry, 9.5% in construction and 4.0% in services, and labour productivity fell by 8.2% per year in agriculture while it was increasing by more than TFP in the other sectors. The increased trade in farm products after Kazakhstan's own WTO accession, which is likely to follow Russia's closely, should yield an overall net benefit through lower prices to consumers, while seriously harming only domestic producers of sugar (Weber, 2003 Weber, Gerald. 2003. Russia's and Kazakhstan's Agro-food Sectors under Liberalized Agricultural Trade: A Case for National Product Differentiation. Economic Systems, 27: pp. 391 – 413 [Google Scholar]). In July 2003 the Development Bank's capital was $270 million, the Investment Fund's authorised capital was $148 million and that of the Fund for Innovation was less than $20 million. The Export Insurance Corporation had less than $50 million. The combined capitalisation of all of these institutions amounted to less than a fifth of the oil fund's assets and less than a tenth of the country's gold and foreign exchange reserves; see International Monetary Fund, Staff Report for the 2003 Article IV Consultation, 7 May 2003, p. 5. The government has earmarked a more substantial one billion dollars for a three-year programme (2003 – 05) for restoration and development of the agricultural sector, but this too is unlikely to be sufficient, even if it is well used. See for example the literature review and regression analysis in the first two sections of Sala-i-Martin & Subramanian (2003 Sala-i-Martin Xavier Subramanian Arvind Addressing the Natural Resource Curse: An Illustration from Nigeria IMF Working Paper WP/03/139 Washington DC, International Monetary Fund July 2003 [Google Scholar]) and the unpublished papers by Damania & Bulte (2003 Damania Richard Bulte Erwin Resources for Sale: Corruption, Democracy and the Natural Resource curse unpublished ms, University of Adelaide and Tilburg University 2003 [Google Scholar]) and Bolaky & Freund (2004 Bolaky Bineswaree Freund Caroline Trade Regulation and Growth World Bank Policy Research Working Paper No.3255 March 2004 [Google Scholar]). The Dutch disease literature has a lengthy theoretical pedigree, but empirically Dutch disease appears to be the least important link. Sala-i-Martin & Subramanian (2003 Sala-i-Martin Xavier Subramanian Arvind Addressing the Natural Resource Curse: An Illustration from Nigeria IMF Working Paper WP/03/139 Washington DC, International Monetary Fund July 2003 [Google Scholar]) reject Dutch disease explanations of Nigeria's dismal growth record and emphasise the institutions link. Auty (2001 Auty, Richard. 2001. Transition Reform in the Mineral-rich Caspian Region Countries. Resources Policy, 27, 1: pp. 25 – 32 [Google Scholar]) suggests that Dutch disease effects will be small for the formerly centrally planned energy-exporting countries, but they face a high risk of policy failure because abundant rents discourage economic reform. Other authors have suggested other links, e.g. resource abundance reduces the incentive to invest in human capital, but these have not received much attention in the empirical literature. The deleterious effect of volatility was emphasised in the case studies in Gelb (1988 Gelb Alan et al. Oil Windfalls: Blessing or Curse? (New York, Oxford University Press 1988 [Google Scholar]). Hard landings were typical of crises of the 1990s; both the Mexican 1994 crisis and the Thai 1997 crisis could have been avoided or moderated if the governments had been willing to accept six months earlier that the reversal of a boom had to be accommodated by slower growth. When the Indonesian government turned to the IMF for assistance after its 1997 crisis and reduction of the budget deficit was a key condition for such assistance, most of the immediate burden fell on cuts in cooking oil subsidies, which fell disproportionately on the poor. The poverty among plenty aspect of Indonesia's experience is reflected in Transparency International (2004 Transparency International Global Corruption Report 2004 Transparency International, Berlin 2004 [Google Scholar]) ranking the Indonesian president at the time of the crisis as the most corrupt politician in the world, measured by the amount of public revenue diverted to his family; the same report paints a very similar picture of diversion of public revenue in Kazakhstan. There are several strands to this intellectual history. An influential one in the twentieth century was the staple theory associated with Canadian economists, adopted by Douglass North to explain nineteenth century US history, and applied by Robert Baldwin to the twentieth century Third World. Tornell & Lane (1999 Tornell, Aaron and Lane, Philip. 1999. The Voracity Effect. American Economic Review, 89, 1: pp. 22 – 46 [Google Scholar]) analyse competition for, and dissipation of, rents as the source of the resource curse.
Publication Year: 2005
Publication Date: 2005-09-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 109
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