(EnergyAsia, November 25 2015, Wednesday) — Faced with its worst economic and financial downturn in nearly a decade, Kazakhstan is looking again to China to repeat its rescue act of 2008-2009.
According to the International Monetary Fund, Kazakhstan will have the region’s worst performing economy this year as its growth will slow to just 1.5% from nearly a third of last year’s 4.3%, and to 2.4% in 2016. A toxic combination of low oil prices, weak domestic demand and decline in external trade will likely turn the country’s years of fiscal and current account surpluses into deficits in 2015.
Central Asia’s largest economy is also paying the price for its heavy economic dependence on sanctions-hit Russia and slowing China, an ironclad formula that produced annual double-digit growth most of this century when those two countries were super performers themselves. All of Central Asia is hurting from Russia’s sharply devalued currency and recessed economy hit by Western sanctions over Moscow’s conflict in Ukraine.
In response, Kazakhstan devalued its tenge by 19% against the US dollar last year and allowed it to sink another 26% this year. But that won’t be enough to stop the current account turning from a surplus of nearly US$6 billion last year into a deficit of US$5 billion with inflation to surge past the official target of eight percent.
Sufficiently desperate, President Nursultan Nazarbayev is once again turning to China as the likely white knight that had previously rescued the Kazakh economy from the depths of the last financial crisis in 2008-2009.
Thanks largely to Beijing’s financial and political support, Kazakhstan and Turkmenistan were able to develop the foundation of Central Asia’s pipeline and support infrastructure to export oil and gas to China.
On December 12, 2009, Nazarbayev and other Central Asian leaders together with China’s then president Hu Jintao jointly inaugurated the Kazakh section that started up the 1,833-km Central Asia–China gas pipeline network. Two days later, the Chinese leader was in Turkmenistan to complete the launch of the new pipeline network that has played a major role in Central Asia’s economic take-off this decade.
From just over US$6.8 billion in 2005, Sino-Kazakhstan trade rose to US$20 billion in 2010 and US$28 billion in 2013 as China’s gas demand surged. But reflecting the slowdown in both economies and the decline in oil and gas prices, bilateral trade value plunged by over 21% last year. The two sides have scaled back their plans and are aiming to achieve bilateral trade of US$40 billion by 2020 instead of 2016.
In a series of intense meetings between May and September, Nazarbayev and Chinese President Xi Jingping agreed to strengthen ties and increase cooperation in trade, and joint investments in energy, infrastructure and high technology projects. This year, the two leaders have signed agreements to implement 25 energy, industrial and infrastructure projects worth a total of US$23 billion.
The Kazakh leader, who has been in power since his country’s independence from the former Soviet Union in 1991, has endeared himself to Xi with his pledge to support Beijing’s most important projects, the Asian Infrastructure Investment Bank (AIIB) and the revived, expanded Silk Road.
China is poised to add to its already substantial presence as the leading foreign investor in Kazakhstan with more than US$17 billion worth of assets. Chinese firms will implement rail and road projects through Kazakhstan as part of China’s grand plan to link up the continents of Asia and Europe under its Silk Road strategy.
For its contribution to the Kazakh economy, China may yet land the most coveted prize: approval for state-owned China National Petroleum Corporation (CNPC) to buy into the giant northwestern Karachaganak gas condensate field to add to its 8.33% stake in the Kashagan oil field.
Karachaganak is controlled by Karachaganak Petroleum Operating B.V. (KPO), according to UK’s BG Group, which owns a 29.25% stake in the company. Its partners include Italy’s ENI (29.25%), US major Chevron (18%), Russia’s LukOil (13.5%) and Kazakhstan’s state-owned KazMunaiGas (10%).
Karachaganak accounts for around 45% of the country’s total gas production and approximately 16% of total liquids production. It holds around nine billion barrels of condensate and 48 trillion cubic feet of of gas, according to BG.
In September 2013, CNPC paid US$5 billion for a stake in the Kashagan oil project in the Caspian Sea.