Kazakhstan’s economy grew by 4% year-on-year in 2017 (from 1% in 2016) and looks set to replicate that strong growth again this year, Chris Weafer, senior partner and founder at Macro-Advisory in Moscow, said in an email to investors, summarising a report issued on May 11.

“The key driver of last year’s recovery and this year’s expected growth is the combination of rising oil output and the oil price recovery,” Weafer wrote.

“Despite last year declaring that the country would prioritise the Nurly-Zhol diversification strategy, the government is much more focused on an energy development strategy,” he added.

“The Oil & Gas Strategy is the greater priority, as it will deliver economic recovery and growth over the medium term and, hopefully, provide the resources and time to allow the Nurly-Zhol plan to be developed. These are the twin priority programs,” Weafer wrote.

Operation Successor

There is a lot of discussion about who will succeed Kazakhstan’s President Nursultan Nazarbayev in 2020, but almost nothing has been done to show a succession process is underway, Weafer wrote,noting that instead, the president is consolidating his position and engaged in a number of social and nationalist programs, which consolidates his own position. He will be 80 in 2020 and may run for another term or, he may nominate a successor close to 2020.

Tenge is tracking the ruble

Weafer noted that although the tenge did not follow the recent ruble collapse after the US sanctions against Russia the National Bank of Kazakhstan (NBK) will keep the tenge-ruble rate in the 5.3-5.6 range so as not to lose competitiveness with Russian producers and suppliers. The high oil price should keep the rate at the upper end of the range.

Turning to investment themes, Weafer noted that there are a number of very attractive investment themes for strategic investors. “These are based on both the ambitions of the Oil & Gas Strategy and Nurly-Zhol as well as those associated with the expanding BRI rail network and the new Astana Financial Center. The president’s recently announced five-step social program should also expand demand for housing and related services,” he wrote.

According to Weafer, Kazakh local debt should be clearable by Clearstream in July and by EuroClear later this year. That will boost foreign investor interest in local debt from the current 2% level. Local debt is also attractive because of the aggressive easing cycle, which the NBK is engaged in. The benchmark rate has more to fall.

He noted that Kazakh equities have been amongst the best performing in the world for the past two years. A new bourse, in Astana, plus a new online retail platform and a commitment to stick with the privatization plan, should help provide further support.

S&P affirms and warns

Finally, Weafer reminded that international rating agency Standard & Poor’s (S&P) has affirmed the country’s sovereign rating at BBB-, with a stable outlook. But S&P warned about unresolved problems in the banking sector.