Kazakhstan’s President Kassym-Zhomart Tokayev secured a resounding victory in the presidential election on 20 November, securing 81% of the popular vote, though the poll “lacked competitiveness” according to the Organization of Security and Cooperation in Europe (OSCE.) Indeed, Tokayev’s biggest challenger proved to be the “against all” category on the ballot paper, which scored 5% of the vote, well ahead of the other five candidates.

Tokayev returns to office during a period of geopolitical instability. The Ukraine war has created an enormous rift in the West’s relations with Russia, with little hope that political or economic relations will be normalized for the foreseeable future. This year has also seen a considerable rise in tensions between the United States and China, particularly over the island of Taiwan.

Kazakhstan, which borders both Russia and China and is the recipient of major investment from the United States and Europe, straddles all the major interests in these conflicts. And thanks to constitutional amendments hurriedly passed early this year, Tokayev will serve a single seven-year term, making him a fixture in the region until 2029.

The strategic focus of Western nations will be to ease Kazakhstan further from Russia’s orbit. Creating new trade routes that bypass Russia will be a key focus of these efforts. However, Western nations will also have to contend with China, which, since the outbreak of the Ukraine war, has seen its role as a key security actor growing across the Central Asian region. This was most clearly seen during the visit of President Xi Jinping to Astana in September, where he offered Kazakhstan a Chinese security guarantee, the first such pledge it has made to a Central Asian nation.

While China wishes to preclude any intervention in Kazakhstan by Russia, it has also been clear that it does not want to see Western — particularly US — influence in the region. While China and Russia might not exactly see eye to eye on the Ukraine war, they strongly agree that Central Asia should not drift into the West’s orbit.

Western nations have sought to engage with Kazakhstan by supporting President Tokayev’s political reform program. Since assuming power, he has passed a series of measures that have seen the death penalty abolished and elements of competition injected into Kazakhstan’s otherwise ossified political system. However, progress is slow and, by altering the constitution on his term limits, the president has undermined many of the reforms that were designed to make elections more pluralistic.

Democratic nations should also continue to hold the Tokayev administration to account for the response to the unrest seen in January, when security forces used lethal violence against protestors in Almaty and Russian forces were deployed to the country. While there is little doubt that violent elements had overtaken the protests, the president has yet to provide his people with a comprehensive account of what occurred. Nor has he allowed independent figures to participate in the various investigations that are looking into the January events.

Get the Latest
Get regular emails and stay informed about our work

The economy is a less knotty area in which Western nations can engage Kazakhstan. It so happens that key aspects of President Tokayev’s economic agenda play very well to the specializations of Western nations, as well as international financial institutions such as the European Bank of Reconstruction and Development (EBRD).

Currently, Kazakhstan’s economy is largely dependent on major extractive industries, most notably oil and gas, as well as metals and mining. While these industries have brought great wealth to the country, many are based around bloated state-owned enterprises that are often centers of corruption and rent seeking. Furthermore, they employ relatively few people and their presence has prevented the development of other segments of the economy.

To tackle these issues, President Tokayev set out a market reform program, which he states will overcome the creeping stagnation and oligarchization of the economy. The primary thesis is that market reform can remove the inefficiencies in the economy that have benefitted vested interests and prevented more equitable growth.

A central pillar of this agenda is reducing the role of the state in the economy and increasing the size of the country’s capital market. This month, national oil behemoth KazMunaiGas launched an initial public offering on Kazakhstan’s two stock exchanges. The government promises that an international listing — likely on the London Stock Exchange (LSE) — will follow. KazMunaiGas is one of a number of state-owned enterprises (SOEs) up for privatization. Smaller enterprises are to be auctioned off, while larger utilities are to be listed.

Capital market development is an area where Western nations – particularly the United Kingdom and Western international financial institutions – have tremendous experience. Already, Kazakhstan offers companies based at its international financial center access to a legal system that is based on English common law. It has also consistently chosen the LSE as a location for listings — most recently, the state uranium miner KazAtomProm in 2018. The initial public offering (IPO) has been a resounding success, resulting in greatly improved governance and transparency at the company. There are still early days for Kazakhstan, but the country has clearly signaled it wishes to pursue a Western model of capital market development.

Another promising area for Western engagement is in the energy transition. Kazakhstan, an oil giant which is overwhelmingly powered by coal energy, may seem an unlikely candidate to become a hub for green energy. However, its vast expanses of steppe and desert lend themselves well to both solar and wind generation.

In 2020, Tokayev committed Kazakhstan to reaching carbon neutrality by 2060. Earlier this year, it published a strategy to pursue this, envisaging the adoption of gas as a transition fuel as it develops its renewable capacity. Together with institutions such as the EBRD, Kazakhstan has already created a legal framework for renewable energy and a vibrant market for wind and solar. In recent years, the bid price for renewable energy auctions has fallen dramatically, a sign of both investor confidence and a genuinely competitive market. Just this week, 10 companies took part in a state-run auction for a 50 MW wind farm in the Aktobe region.

The push to decarbonize is not simply driven by a desire to lower Kazakhstan’s carbon footprint. The country faces serious challenges with air pollution linked to coal power. It is also beginning to experience electricity and gas shortages due to the failure to replace electricity-generating infrastructure dating to the Soviet era. The Tokayev administration also faces the incoming European carbon tax, the European Carbon Border Adjustment Mechanism, which could make Kazakh exports to Europe extremely uncompetitive.

There are already a number of Western energy giants present in Kazakhstan that are under shareholder pressure to take steps toward decarbonization. They could become a hub of expertise and capital for Kazakhstan. In recent weeks, several companies, including Germany’s Svevind and Fortescue Future Industries, an offshoot of Australian mining giant Fortescue, have signed major agreements on the development of green hydrogen. Kazakhstan is also in search of technical expertise to help solve issues such as building its electricity grid capacity, something that Western governments and companies would be able to fund.

Finally, the country also has a role to play as a key supplier of minerals in the energy transition. It is home to metals such as nickel and copper, as well as a range of rare earth elements such as lithium, all of which are central to the technology required for energy transition. President Tokayev has pushed for more exploration of these resources and the Kazakh government is actively engaging with Western partners for assistance in developing market conditions to build these industries.

At the COP27 climate summit earlier in November, Kazakhstan and the European Union signed an agreement on closer integration in strategic value chains, with specific reference to rare earth metals, batteries, and hydrogen.

These economic developments will be closely watched by Russia and China, and will not be welcomed by them. But for now, the West has an opportunity to expand its interests in Kazakhstan in the best possible way; its companies and financial markets can help bring greater wealth.

Ben Godwin is Director of Analysis – PRISM Political Risk Management

Read More From Europe's Edge
CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America.
Read More