Government Concerned at Capital Flight

The Kazak government has voiced alarm at the rate at which capital is being transferred out of the country. NBCentralAsia analysts offer two reasons why this is happening – first, investment projects inside Kazakstan tend to require a lot of capital so local businesses prefer to invest in other countries; and second, there is a degree of uncertainty about the country’s long-term political prospects.



Prime minister Danial Akhmetov last week described the rising trend of capital flight as “problematic”. Capital is flowing out of Kazakstan, he said, even though it offers the best investor protection measures anywhere in the Commonwealth of Independent States.



Akhmetov said that government should do more to work with Kazak businesses and banks to encourage them not to invest large sums abroad while local projects go begging. “Our own businesses are suffering from lack of support,” he said.



The prime minister is right in the sense that Kazakstan has in recent years become a major investor in certain former Soviet countries, particularly Russia and Georgia, where it has invested eight billion and 1.7 billion US dollars, respectively.



One NBCentralAsia economic expert said Kazak investors were increasingly seeking to diversify geographically, adding that he viewed outward investment as perfectly normal and in tune with general global trends.



“Domestic projects that might look attractive are very capital-intensive,” he said, explaining that much of the capital flight is attributable to investment flows to less costly investments in neighbouring countries. For example, he said, a plastics factory in Aktau is currently seeking some 300 million dollars in investment, a sum which would challenge the capacity of even the biggest Kazak banks. And the plant will take a long time before paying for itself.



Nor does the Kazak government provide many incentives for local investors, the expert said.



NBCentralAsia analyst Yaroslav Razumov agreed with this point, but said this was less the fault of the government than a systemic problem characteristic of the Kazak economy.



But there are other factors, such as long-term political risk, which Razumov thinks also plays a part in stimulating capital flight.



“Concerns about the situation following a change of regime [after President Nursultan Nazarbaev steps down] are encouraging the wealthy to seek alternative, failsafe investments outside the country,” he said. “I wouldn’t say that domestic risk is actually growing… but the way the political situation is developing suggests that it could happen.”



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)