For any emerging economy to attract international investors, it needs to meet two critical conditions: it must have political stability and also a high degree of economic predictability.

In 2019 President Tokayev inherited what looked like a stable political structure and an economy very exposed to oil price volatility. In reality, the stability was fragile and finally broke in January 2022. Since then, Tokayev has steadily rebuilt control and created a system of governance that can create a more normal, i.e. stable, political environment for the future. In parallel, he has identified economic and bureaucratic weaknesses and is on a mission to fix them.

The (March 15) constitutional referendum marked the latest important step in Tokayev’s program to reform Kazakhstan’s political structures and decision making. That is an important backdrop for the planned economic improvements and industrial modernization. There are still many steps to be taken to achieve the latter, but the list of priorities has been laid out for the remainder of the president’s current term, to November 2029.

At this point, Kazakhstan can accurately be described as an autocracy with a dominant political party, no real opposition candidate for President, and suppression of dissent. At the same time, it does have a court system that often rules against the government and a relatively lively civil society. After the coup attempt in 2022, President Tokayev made Constitutional changes that limit him (and successors) to one seven-year term in office. This month’s constitutional reform this year will create a unicameral Parliament, the Kurultai, which will have more power.

On the face of it, these appear like reforms intended to transfer power from the President to the Parliament, which should make the political system less autocratic. The issue is that the reforms of 2022 were intended to increase the role of Parliament (Majlis) in overseeing the government, but failed to do so, something that seemed to be managed by the Presidential Administration. The March 15 changes (effective from July 1) seek to rectify that.

President Tokayev has also set up a new body, the People’s Council. It will assume the functions of the Assembly of the People of Kazakhstan and will consist of 126 people with the Chairperson appointed by the President. Issues of interethnic and interfaith harmony will be transferred from the Assembly of People of Kazakhstan to the People's Council. It will be included in the Constitution, and new laws will be created around it. Tokayev said the initiative would mark “a new stage” in the country’s political transformation and must be implemented only with the people’s consent.

Tokayev also stated that the days of a family-clan system in the Kazakh government are now over, referring to the structures in place during former president Nazarbayev’s regime. "The principle of meritocracy (the principle of management according to which the most capable people should occupy the highest management positions) is being established in the civil service. There is no longer a family-clan system in the government. When appointing people to positions, knowledge and professionalism are taken into account first and foremost," Tokayev said.

The referendum also addressed the question of possible leadership succession in that it restored the position of vice-president. It is now expected that Tokayev will nominate his preferred successor, most likely Prime Minister Olzhas Bektenov (now 45 years old), and then use his remaining three years in office to assess whether Bektenov will be able to provide political stability through the next decade and be capable of delivering continued economic progress and social improvements. If not, we may still see a move from the very loyal parliament to propose a presidential term reset - as happened in Russia and Uzbekistan and is expected in the Kyrgyz Republic.

The optimistic scenario is that Tokayev is right in his plans and will find a way to transfer power to the Parliament and allow more plurality into Kazakhstan’s political system. This should make the system both more stable and more transparent. The negative scenario is that extremist or nationalist parties come into power, or that corruption shifts its locus from the executive to the legislature.

Economic predictability is better than it used be, in that there is evident growth in non-resource sectors of the economy, such as in agriculture, transport and logistics and in construction. But there is a way to go yet. Last year, headline growth was an impressive 6.5%. The key driver was the completion of the expansion phase in the country’s biggest oil field, Tengiz, which added over 250,000 extra barrels per day to production and exports.

At the start of this year, Tengiz suffered a big drop in production because of a major oilfield fire, and oil exports were disrupted through the Russian Black Sea port of Novorossiysk because of drone attack damage. That meant headline GDP contracted by 2.8% YoY in January and is estimated to have been almost flat in February. However, the government remains confident of another strong year because of several hundred new industrial projects scheduled to come online in 2026.

One of Tokayev’s economic priorities is to stop the subsidies to the budget from the sovereign wealth fund (Samruk-Kazyna) and to achieve a balanced budget by 2030. Last year the deficit was at 3% to GDP.  This could be achieved with additional taxation and an ending of subsidies but mostly it will be as a result of the changes Tokayev hopes to make to the terms of the three major oil PSAs (legacies from the Nazarbayev era) so as to boost the state’s share of revenues.

In recent weeks the International Oil Companies (IOCs) in the Karachaganak oil project agreed, under pressure, to settle a claim brought by the government for a reported $3 bln and that money is expected to go to the budget. Current and outstanding claims against the operators of the Kashagan oil field now exceed $160 billion and it is expected this will be settled before the end of Tokayev’s term, with a much lower total, but enough to balance the budget.

Otherwise, the country is in a relatively good financial position with public debt to GDP holding around the 25% level and the aggregate value of sovereign wealth funds and national bank reserves almost equal to the value of total Kazakh foreign debt.

As part of the industrial reforms, Tokayev wants to prioritizing investment efforts in products which are expected to see continued high global market demand and where there will also be a supply deficit. This includes copper production, tungsten, uranium, and some metals used (or expected to be used) in battery production. These, and other critical minerals (CRAMs) are in high demand from the U.S. and the EU as both need to replace China risk for important industrial metals. Both are very actively engaged with Kazakhstan – which may have the largest diverse base of CRAMs in the world – and explains why there has been not a single official complaint about Kazakhstan’s recent anti-LGBTQ+ legislation and the arrest of critics of the referendum.   

Several projects have been agreed with western investors in CRAMs projects (e.g., copper and tungsten) where the output will not be exported in a raw form but will be processed into a higher value product, such as copper wires and battery materials. Moving up the value chain, e.g. also using gas for chemicals and plans to double refinery capacity by 2030 so as to eliminate expensive oil product imports and to boost more valuable exports, is also a key part of Tokayev’s plan.

Tokayev is also very focused on creating a domestic AI industry and plans to build major data centers and battery storage facilities. Investors in these areas are also expected to help create centers of scientific and engineering excellence in the country so that future university graduates will have more opportunities at home.

Kazakhstan has made a lot of progress in terms of political, industry, bureaucratic and economic change since the catalyst provided by the failed coup in January 2022. There are still several significant challenges to be overcome before the economy is safe from oil volatility and can be considered relatively predictable. But the recent referendum now firmly establishes the other criteria for investors, political stability, in that it has given Tokayev solid decision-making control and makes no room for any form of opposition. He now has three remaining years (although that could be ten if he wants it) to complete economic and industrial reforms to drive growth and wealth creation in the next decade.