Kazakh Ruler’s Post-Oil Overhaul Falters as Succession Looms

Updated on
  • Nazarbayev faces opposition to land sales, threat of extremism
  • Uncertainty over 76-year-old’s heir also jeopardizes reforms

As Kazakhstan’s leader celebrated his 76th birthday this week, the social bargain that’s underpinned his more than quarter-century in charge is crumbling.

President Nursultan Nazarbayev’s plans to retool his nation for an era of low-cost crude are meeting resistance from protesters opposed to land reforms and, more recently, from religious radicals. The struggle to implement his overhaul is distracting the former Soviet Union’s longest-serving ruler from an ever-more urgent task: planning the transition to a successor.

“Nazarbayev’s social contract, whereby the population enjoyed relative prosperity in exchange for managed authoritarianism, has expired,” Kate Mallinson, a partner at London-based political risk advisory firm GPW & Co., said by e-mail. The “two or three hundred elite families” who control the economy are “unlikely to promote any meaningful reforms.”

While the government insists reforms in central Asia’s largest energy producer will proceed despite simmering discontent, investors and international lenders are becoming skeptical about its ability to deliver. Jostling among would-be heirs over who’ll succeed Nazarbayev, Kazakhstan’s ruler since 1989, is compounding those doubts.

‘Real Crisis’

Warning of a “real crisis” after oil’s slump, Nazarbayev unveiled plans to revive growth by selling government assets, overhauling state institutions and fighting corruption. The tenge is the past year’s second-worst performer against the dollar, losing almost 45 percent. Inflation surged to the fastest since 2008 last month.

Economic change is unavoidable if Kazakhstan is to trim its dependence on commodities and shield itself from external shocks, according to the International Monetary Fund. Without reforms, “Kazakh and foreign investors would likely take their money elsewhere,” Mark Horton, the lender’s mission chief for Kazakhstan, said by e-mail.

One of Nazarbayev’s first proposals -- allowing companies part-owned by foreigners to join auctions for 1.7 million hectares (4.2 million acres) of land -- sparked demonstrations among opponents fearing Chinese investors would swipe Kazakh territory. While Chinese buyers may not “control the land legally, in practice they will,” said Talgat Omarov, an activist with the Alash Zholy protest movement.

Explain Reforms

Extremism is another worry. Last month’s Islamist attack in the northwestern town of Aktobe, which killed 26 people, reflects frustration among younger Kazakhs over corruption and income inequality. Declining living standards and “an erosion of trust” in the authorities have made some “ready to challenge any government-sponsored change,” according to Mallinson.

Prime Minister Karim Massimov has acknowledged that Kazakhstan must better explain the reforms to its people. Nazarbayev, seeking to map out a transition from his rule, said after parliamentary elections in March that economic change must be completed before any decision to “redistribute power between president, parliament and government.” He postponed the land sales after the unrest.

Amid the discontent, the government is acting to boost employment particularly in rural areas, Massimov said Thursday, according to his press service’s Twitter account.

The state must expand credit programs to enable the “very large influx of young people from rural areas” who’ve moved into the cities to start businesses, National Economy Minister Kuandyk Bishimbayev said Friday, according to the prime minister’s website.

Succession Tremors

The protests “have increased the need for the president to offer the population some evidence of a commitment to political reform,” said Eimear O’Casey, an analyst at Control Risks. “Tensions over succession inevitably undermine the reform agenda.”

The risk of naming a successor is that part of the Kazakh elite rejects Nazarbayev’s choice, according to Dosym Satpayev, director of the Almaty-based Risk Assessment Group. “Competing elites may always find support in society, especially taking into account that the protest mood is already high,” he said by e-mail.

Despite the obstacles, it’s time for Nazarbayev to deliver on his promises, according to Christos Kostopoulos, lead economist for Central Asia at the World Bank.

While the government’s sending out the right messages about the need for greater private-sector involvement in the economy, only “effective results on the ground will convince” investors, he said by e-mail.

(Updates with Massimov in 10th paragraph, economy minister in 11th.)
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