Kazakh Economic Discontent Boils Over

"Kazakhstan's enormous reserves of oil, coal and precious metals offered the promise of a prosperous future for the nation following the dissolution of the Soviet Union. Yet Kazakhstan's relative prosperity hasn't protected the country's leadership from popular anger over corruption, low salaries and the outsize wealth of a small group of oligarchs.

That helped turn resentment over a rise in fuel prices into a broader protest against the country's authoritarian leaders and the state of the economy.

The crisis deepened Friday as Kazakh President Kassym-Jomart Tokayev gave the order to police and army to shoot protesters without warning. Clashes between demonstrators and security forces have already led to dozens of deaths and prompted Russia to send paratroopers to help Mr. Tokayev.

"The surprising scale of the unrest and disorder that we've seen suggests that this is something more than just unhappiness about rising fuel prices," said Nigel Gould-Davies, a former British ambassador to Belarus.

"Relatively speaking, Kazakhstan has been a major overperformer of the post-Soviet period in Central Asia, and had a much better economic record than the states around it," Mr. Gould-Davies said.

"And yet that hasn't averted this extraordinary eruption," he said. "The wider comparative perspective of success has clearly not insulated the regime from discontent."

After Kazakhstan became an independent state in 1990, many businessmen close to the government amassed huge wealth through privatization and ownership of natural resources. Some of the country's tycoons have been embroiled in international banking scandals and many of the richest are now living abroad in places such as London.

Only 162 people account for 55% of total wealth in the country, according to a report by accounting firm KPMG. The country, the largest of the former Soviet states in Central Asia, has five billionaires in Forbes's World's Billionaires list, stemming from the mining and banking sectors.

"This system of decision-making continues to reflect the interests of a relatively small group of players, whether counted in terms of individuals or their business vehicles or holdings," researchers Simon Commander and Ruta Prieskienyte wrote in a recent paper at the IZA Institute of Labor Economics.

Given Kazakhstan's position as a big commodities exporter, the unrest has roiled global markets, with investors bidding up oil and uranium prices. The country represents 40% of the world's uranium production, making it world's largest supplier of the radioactive material to utilities in the U.S., China and elsewhere.

Uranium surged around 8% this week, the most since September. Traders said that while mining operations appeared to be unaffected, the concern was focused on the ability to transport uranium out of the country.

Oil prices rose, too. Kazakhstan is a member of the Organization of the Petroleum Exporting Countries Plus and produced about 1.7 million barrels of oil a day in November, according to the International Energy Agency, just under 2% of what the world consumed each day last year.

Chevron Corp., which owns 50% of the joint venture that runs Kazakhstan's Tengiz oil field, a $37 billion project that is four times the size of Paris, said it had cut some production after protests in the facility. Exxon Mobil Corp. also has a stake in the project.

Local bitcoin mining companies were also affected by an internet shutdown that forced miners -- computers that race to unlock new bitcoin and validate transactions -- offline. As of August 2021, Kazakhstan was the world's second-largest venue for cryptocurrency mining, behind the U.S., according to data from the University of Cambridge, after many miners fled to the country last year in search of a nearby locale with cheap energy prices following China's clampdown on miners.

Kazakhstan has long been regarded as one of the more successful former Soviet countries in Central Asia, growing faster than its neighbors and attracting foreign investment. It built a new capital, where the skyline is punctuated by gleaming skyscrapers and Western-style shopping malls.

But the resource wealth hasn't trickled down to much of the population, instead spawning a large group of tycoons. The minimum wage is less than the equivalent of some $100 a month.

Corruption is a persistent source of anger. Kazakhstan ranks 94th on Transparency International's Corruption Perception Index. The government has repeatedly promised to address high-level corruption and privatize state assets but efforts have fallen short, observers say.

These underlying issues have now boiled over.

On Jan. 1, a fuel-market reform came into effect. It ended subsidies on liquefied petroleum gas, which many Kazakhs use for their cars.

Prices nearly doubled overnight, leading to protests in the oil-rich region of Mangistau, where up to 90% of vehicles run on LPG, according to local authorities. The government has since promised to reduce the price.

"With few channels to hear and address popular discontent, and authorities in the major cities often out of touch with the lives of ordinary citizens, the LPG price protests ripped open a moment of popular frustration," said Zachary Witlin, senior analyst at risk consulting firm Eurasia Group.

The crisis now threatens to further undermine the country's economy and affect the investment climate.

Tightening state finances during the pandemic meant that authorities had little bandwidth to stimulate the economy, leading to stagnating wages and work stoppages, risk consulting firm Teneo wrote in a note to clients this week. This week, the country's sovereign bonds were hit and, with the local exchanges closed amid the protests, global investors sold stocks in some Kazakh companies listed in London." [1]

1. Kazakh Economic Discontent Boils Over
Kantchev, Georgi. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 08 Jan 2022: A.1.