Goldman Sachs became one of the first investors in the newly established Astana International Exchange (AIX) when the American bank obtained 4.1 percent of the stock exchange’s total issued share capital on Oct. 1.
The investment bank was cautious, however, by choosing a five-year put option to protect its investment against a decline in the value of the shares below the purchase price. After all, it has been less than a year since the newest international stock exchange was created by the Astana International Finance Center (AIFC) in cooperation with the Shanghai Stock Exchange as a shareholder.
The partnership with NASDAQ is providing technology to trade securities. Nevertheless, the buy-in by one of the largest investment banks in the world clearly signaled a level of confidence that the new financial institution is up to a good start.
When Kazakhstan’s President Nursultan Nazarbayev announced the ambitious project to launch an international finance center in Astana three years ago, many questioned whether the country was ready for such an advanced undertaking.
Ultimately, such centers belong to London, Singapore and Dubai, not to an emerging economy still vulnerable to oil prices pressure and served by a banking system still undergoing reforms, skeptics said. The commercial logic for investors to go to Kazakhstan instead of other established financial centers in Asia also seemed elusive.
But the Astana International Finance Center (AIFC) has been officially opened for three months now and is currently preparing to begin the public offering for major Kazakh companies on its stock exchange, including Kazatomprom, Kazakhtelecom, Air Astana and, KazMunaiGaz.
The center is led by its current Governor Kairat Kelimbetov, who previously served as governor of Kazakhstan’s central bank, First Deputy Prime Minister, Minister of Economic Development and Trade, and CEO of the country’s $78 billion sovereign wealth fund, Samruk-Kazyna.
Modeled on Singapore and Dubai financial centers, AIFC is independent of Kazakhstan’s legal system and operates according to U.K. securities and corporate law. It has an independent financial court and arbitration, headed by British jurists, and offers a preferential tax regime.
The chairperson of the Astana Financial Services Authority, the Center’s Regulator is Lady Barbara Judge, the head of U.K.’s fraud prevention service, who was instrumental in opening U.S. capital markets to foreign companies when serving on the U.S. Security and Exchanges Commission in the 1980s.
Housed in the futuristic Expo-2017 building in Astana, the center’s official language is English. Local employees are coming from Kazakhstan’s Bolashak national scholarship program. Kelimbetov says the center will employ thousands of recipients of Bolashak, which since 1993 has been sending the best and the brightest to earn university degrees abroad — in the United States, Europe, Japan, China and Russia.
AIFC’s ambition is to become a major financial hub for Central Asia, the Eurasian Economic Union (EEU), the Caucasus, Western China, Mongolia and possibly Eastern Europe. The geo-economic calculation is evident: there are no serious financial markets between Shanghai and Frankfurt, and if Astana is successful, it could provide a wide range of non-banking financial services to a significant, and so far neglected, emerging market.
The Astana International Exchange will be the vehicle to privatize the national champions of Kazakhstan: the oil and gas major KazMunayGaz (KMG), uranium producer Kazatomprom (accounting for 40 percent of global uranium production and controlling the world’s second-largest proven reserves), Samruk Energy, Kazpost and Kazakhstan railway company TemirZholy.
Astana is hoping that its new platform for financial services will stimulate the country’s banking system reform, drive economic growth and make privatization more transparent — thus helping also address corruption as one of the problems plugging the country.
Timing is everything. Kazakhstan is launching the privatization of its biggest companies as Beijing is advancing its Belt and Road Initiative, a massive infrastructure and investment project to connect China with Eurasia and Europe. China has identified Kazakhstan, Iran and Pakistan as partners in connecting the Chinese market with Central Asia and the Middle East.
AIFC may become a gateway to the Eurasian Economic Union for large investors such as China, India and Japan. Recent regional developments, particularly Uzbekistan’s drive for rapid economic development and search for foreign investment, place the AIFC in an advantageous position, as Tashkent may also seek financial services in Astana and thus avoid the impediment of international sanctions against Russia.
It may be a long run to achieve Kazakhstan’s long-term ambition — to join Organization of Economic Cooperation and Development and be among the top 30 countries in the world. But Kazakhstan has often aimed high, particularly in developing its economy, and so far, thanks to its natural resources.
Pursuing a successful strategy to attract large foreign investments, it has moved from extreme economic hardship in the 1990s to becoming a regional economic leader. Now it is expecting its first international clients in an advanced financial center built in the heart of the steppes.
Maybe it is true that if you build it, they will come…
Margarita Assenova is the Jamestown Foundation’s director of programs for the Balkans, the Caucasus and Central Asia. Her latest book is Eurasian Disunion: Russia’s Vulnerable Flanks (2016).
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.