Brexit's Impact on Kazakhstan

 
 

On July 8, 2016, Kazakhstan’s central bank governor Daniyar Akishev announced that the Kazakh treasury had profited from Britain’s decision to withdraw from the European Union (EU). In the days leading up to the referendum, the Kazakh central bank liquidated a portion of its pound sterling-based investments in anticipation of Brexit. According to Akishev, Kazakhstan’s central bank sold some of its British holdings at 1.4920 dollars/pound on June 22, just two days before the British pound fell to a 30 year low of 1.3229 dollars/pound.

Despite the Kazakh central bank chairman’s jubilant reaction to Brexit, Britain’s exit from the EU is likely to have an adverse impact on Kazakhstan’s economic wellbeing and geopolitical influence. As the United Kingdom has played an instrumental role in strengthening Kazakhstan’s ties with Europe, Britain’s departure from the EU could weaken Kazakhstan’s bargaining position with Brussels. If Brexit causes a recession in Britain and results in an improvement in EU-Russia relations, Kazakhstan’s regional influence could sharply decline.

Britain’s Vital Role as a Bridge Between Kazakhstan and the EU 

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Since the mid-2000s, senior British government officials have highlighted Kazakhstan’s economic potential to European financial institutions and investors. On November 21, 2006, then-British Prime Minister Tony Blair met with Kazakh President Nursultan Nazarbayev and European Bank for Reconstruction and Development (EBRD) chairman Pierre Lemierre. During their meeting, Blair urged the EBRD to upgrade its partnership with Astana, due to Kazakhstan’s emerging market status, progress towards economic liberalization, and prolonged political stability.

Britain’s efforts to strengthen Kazakhstan’s links with the EBRD were successful. In recent years, Kazakhstan has become an important destination for EBRD foreign investment. Over the past two decades, the EBRD has invested over 6.5 billion euros ($7.2 billion) in Kazakhstan. The EBRD has assisted Astana’s asset privatization efforts, invested in clean energy technology in Kazakhstan, and provided capital for Kazakhstan to diversify its economy beyond its traditional dependence on oil wealth.

Blair’s endorsement of Kazakhstan’s economic potential, encapsulated by Nazarbayev’s symbolic opening of the London stock exchange in late 2006 and “Kazakhstan: Way Forward” speech to British investors, strengthened Kazakhstan’s case for closer EU links. Praise for the Kazakh economy from senior executives at Shell Oil and the Confederation of British Industry also benefited Nazarbayev’s cause.

In synchrony with the November 2006 Blair-Nazarbayev summit in London, Kazakhstan signed a landmark memorandum with the EU pledging an expansion of Astana’s energy exports to Europe. Britain’s vital role in bringing about this deal suggests that Kazakhstan’s future diplomatic overtures to the EU might not be as successful without British support.

Blair’s cordial relationship with Nazarbayev also allayed human rights concerns amongst EU officials. Britain’s diplomatic overtures paved the way for Kazakhstan’s successful bid to head the Organization for Security and Cooperation in Europe (OSCE) in 2010. Kazakhstan’s OSCE chairmanship improved Western perceptions of Kazakhstan, and increased the willingness of European leaders to sign deals with Nazarbayev.

British Prime Minister David Cameron’s historic 2013 visit to Kazakhstan with delegates from 33 British businesses also helped deflect Europe’s attention from Kazakhstan’s egregious human rights abuses. When questioned on Kazakhstan’s political repression, Cameron insisted that from Britain’s perspective, Kazakhstan’s status as one of “most rapidly emerging countries in the world” outweighed human rights considerations.

This nonchalant attitude toward Kazakhstan’s human rights abuses spread to continental Europe. In 2008, the EU launched a bilateral human rights dialogue with Kazakhstan to promote political liberalization. However, Brussels signed a partnership agreement with Astana in December 2015, even though Kazakhstan has arguably become more repressive in recent years.

As Kazakhstan’s close diplomatic ties to Britain decreased Nazarbayev’s vulnerability to human rights criticisms by European leaders, Britain’s departure from the EU could cause Europe to pressure Kazakhstan to improve its human rights record. If Nazarbayev remains intransigent in his opposition to political liberalization, Astana’s prospects of forging an Eastern Partnership-style association agreement with the EU could dissipate.

Brexit’s Long-Term Impact on Kazakhstan’s Economy and Foreign Policy

Due to close investment linkages between London and Astana, the condition of the British economy has a considerable impact on Kazakhstan’s economic wellbeing. Britain is the third largest foreign investor in Kazakhstan, contributing 14 percent of Kazakhstan’s total foreign investment. The Kazakh central bank also holds 10 percent of its assets in British pound-denominated investments. According to Akishev, many of these assets are hard to liquidate on short notice.

Kazakhstan’s economy was shaken by a 41.5 percent decline in trade with Europe following Astana’s accession to the Russian-led Eurasian Economic Union (EEU) in 2015. Should Britain experience a recession due to Brexit, a steep decline in British trade with Kazakhstan would be an unwelcome blow to an already struggling Kazakh economy. The negative consequences of a British recession will be exacerbated by the fact that Kazakhstan’s principal trade partners, Russia and China, are respectively grappling with a deep recession and slowing economic growth

In addition to the negative economic implications of Brexit, Britain’s withdrawal from the EU could force Kazakhstan to radically shift its foreign policy. As Britain is one of the EU’s most strident critics of Russian foreign policy, many Remain supporters argued during the referendum campaign that Brexit could result in a thaw in EU-Russia relations. Should relations between the EU and Russia improve, European policymakers’ fear of antagonizing Russia could cause them to refrain from offering a more comprehensive economic integration partnership to Kazakhstan.

As Kazakhstan is keen to carve out an independent role in international affairs and fears subordination to Russian hegemony, Astana could respond to decreased EU economic linkages by pivoting strongly toward China. To cement Kazakhstan’s ties with China, Nazarbayev, as Shanghai Cooperation Organization (SCO) chairman, might advance his EEU-SCO integration objectives in a way that benefits Beijing more than Moscow.

A China-focused strategy poses considerable risks for Nazarbayev. Kazakhstan’s recent land protests demonstrated that many Kazakhs distrust China’s intentions. If a EU-Russia thaw in Britain’s absence strains Kazakhstan’s relationships with Europe, Nazarbayev could face an uncomfortable choice between risking instability by pivoting strongly toward China and entrenching Kazakhstan further within the Russian sphere.

Britain’s exit from the EU is a major blow to Kazakhstan’s economic growth prospects and geopolitical aspirations. Kazakhstan’s heightened economic vulnerability due to low oil prices will exacerbate the negative economic consequences of Brexit. Beneath the façade of optimism displayed by Kazakhstan’s central bank chairman, the future of Kazakhstan’s multi-vector foreign policy hangs uneasily in the balance.

Samuel Ramani is a DPhil candidate in International Relations at St. Antony’s College, University of Oxford. He is also a journalist who contributes regularly to the Washington Post and Huffington Post. He can be followed on Twitter at samramani2 and on Facebook at Samuel Ramani.

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