Kazakhstan Comes On Strong

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Former President Bush, left, greets Kazakhstan President Nursultan Nazarbayev as he arrives at his home in Kennebunkport, Maine, on Tuesday.

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Credits went where they belonged: "New banks immediately accomplished their basic function — that of extending credits to encourage budding businesses," says Ulf Wokurka, a former Deutsche Bank director and now CFO of Samruk, Kazakhstan's holding company, which runs such giants as KazTelecom and oil and natural gas firm KazMunaiGaz.

The state rapidly privatized over 10,000 trading, service and industrial firms. As often happened in post-Soviet countries, the best of these firms were sold off to insiders, shoring up the power bases of important clans. But the biggest economic engine was oil, and that required outside help. Says Mikhail Dorofeyev, public relations director of KazMunaiGaz: "We offered oil to the West in exchange for technology, know-how and money."

To help attract that money, Kazakhstan established a single investment regime for both domestic and foreign investors, and since 1993 over $40 billion in gross direct foreign investment has flowed in. Now Kazakhstan is churning out 1.2 million bbl. of oil a day — and exports 80%. Nazarbayev plans to triple the volume and join the group of 10 leading oil exporters within a decade.

The results have been phenomenal. Over the last six years Kazakhstan's GDP growth has averaged 10%, and it hit 9.3% in the first six months of this year. Tax collecting stands at over 95%. Kazakhstan has a BBB positive outlook investment rating from Standard & Poor's. The E.U. and the U.S. have recognized Kazakhstan as a "market economy," and it has a firm chance of joining the World Trade Organization this year.

Though it's careful not to annoy Russia — ever a major and jealous presence and a key market — Kazakhstan nevertheless had a pipeline built, allowing transport of its oil directly to China. To Russia's chagrin, it also joined the U.S.-sponsored Baku-Tbilisi-Ceyhan (BTC) pipeline that breaks Russia's long-standing monopoly on delivering Caspian Sea oil to world markets, though the pipeline does not cross its own territory. The plan was to lay an additional pipe across the Caspian seabed to Azerbaijan's capital, Baku, but Russia protested, citing potential ecological damage. So Kazakhstan ships oil there by tanker.

The country's new oil wealth is spreading throughout its region and beyond. Its big businesses are buying land and building hotels along Georgia's posh Black Sea coast and in Moscow, purchasing big banks and companies in Siberia, and investing in the telecommunications network of Nepal. Kazakhstan is the only country in Central Asia that attracts rather than supplies guest workers. "Kazakhs don't work in other countries' markets as vendors," proudly comments Zhenis Kasenov, an Astana dweller. "Kazakhs come there as buyers."

Oil wealth, however, often brings corruption in its wake, and for three years the country has been embroiled in "Kazakhgate." In March 2003, in the most far-reaching charges ever brought under the Foreign Corrupt Practices Act, U.S. prosecutors charged James Giffen, an American businessman who was once a key Nazarbayev adviser, with funneling $78 million in bribes from oil companies to Kazakhstan's top leaders. Kazakhstan has flatly denied that its officials have done anything wrong, and Giffen has denied the charges against him. His case is scheduled to go to trial in January.

The temptations of oil money make political reform all the more imperative. There are some promising signs. The 2005 U.N. Development Program Fact Sheet praised Kazakhstan as "thus far the only country in the region that has begun a civil-service reform program." In Astana, Kuat Akizhanov, 30, head of the social-economic analysis department of the all-powerful presidential staff, holds a law degree from the University of Virginia, which he obtained under Kazakhstan's state-paid training program. He says his young Western-educated counterparts now constitute a tight network in major state institutions and private companies. "Even now," Akizhanov says, "we're mapping out our prospective kids' future. That's what the country picked up our school tab for — to help make it that stable."

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