The "Evolving" Economy of Kazakhstan | Economics Explained

this is kazakhstan and yes i know what you're all thinking and yes in the interest of full disclosure we are definitely cashing in on the hype surrounding the second borat but in fairness so is the nation itself even still this country is so much more than that with one of the most let's call it exciting economies in the world what was once a mistreated soviet state has gone on to be the largest and wealthiest economy in central asia one that is welcoming foreign trade international investment and advanced development of technology to continue its growth into the future on top of this it's a central member of one of the most interesting and influential however overlooked trading blocks operating in the world today but of course it's not been without its difficulties it may very well be the most prosperous nation in central asia but central asia is a rough old neighborhood to be the king of what with it being home to some dream destinations like kyrgyzstan tajikistan turkmenistan and uzbekistan and also neighbouring countries like pakistan and afghanistan oh by the way a side note is that stan when translated from persian just means a land of so kazakhstan just kind of translates to a land of kazakhs which are the ancestral people of the nation hopefully that gives some clarity to this rather samey naming scheme in and around this area but all of that's to say that kazakhstan hasn't and won't have it easy in its quest to become a properly developed nation but that doesn't mean that they can't do it so to see what's behind this country's stubborn development we need to look at a few key areas what went on under soviet rule what has the country been doing since the collapse of the union and what is their plan for the future oh and of course while we're here we have to put the country on the economics explained national leader board this episode of economics explained was made possible by our fans on patreon if you would like to gain early access to these videos before they're uploaded to youtube as well as participate in exclusive q a sessions which are now held every saturday at 9 30 eastern standard time please consider supporting our channel at patreon.com economics explained now if we look at kazakhstan's place in the world it is easy to see that it has not had a stable upbringing to its north there is russia east is the unstable chinese region of xinjiang south is all of the various stars with all of their various problems like pakistan and india shaking their fists at one another constantly and to top it all off there is the caspian sea and the ukraine to the west if a rowdy neighborhood wasn't enough kazakhstan is also the largest landlocked country in the world which means it misses out on international trade via shipping which is a huge disadvantage the cherry on top is that its capital city is the second coldest in the world between ottawa in third and ulanbantar the capital of mongolia winning this very unwanted title this doesn't mean that it's totally out of luck though in fact the country is home to some of the largest deposits of various natural resources in the world and it has in many ways been able to use this less than ideal position to its advantage a convenient trait that was exploited by the soviets following the fall of the russian empire the kazakhs experienced a brief period of autonomy before eventually been subjected by bolshevik rule and been folded into the ussr for the first few years not much changed in the region but more and more controls eventually got placed on the state collectivism was forced upon the primarily agricultural region where farmers who once worked for themselves were forced to work for the state these farmers were forced to not only produce food for themselves and their communities but also to help feed the people of the rapidly expanding union which combined with poor management meant famine was inevitable this unfortunate reality plagued the nation for the next decade and a half and real change only started to be felt during world war ii the soviet war effort required a lot of natural resources and kazakhstan was fortunately plentiful in pretty much everything the new mechanized battlefield required this was the first time the region was properly introduced to heavy industry but even still most of the factories mines and railroads were operated by russian workers while the domestic population remained in the fields this tenuous relationship built on russian superiority spilled over into other areas of the economy as well for the first few years under soviet rule the administrative capital city of kazakhstan was orenburg which was a city populated almost entirely by russians on account of it actually being in russia not in kazakhstan to make matters worse kazakhstan had one more use to the soviet union beyond being a stockpile of farm workers and natural resources it made for a fantastic bomb site the soviet nuclear program tested hundreds of weapons over decades in test sites all over kazakhstan causing untold ecological damage to the nation and its people this program was actually kept pretty secret early on for obvious reasons but the impacts were almost impossible to ignore long term this was one of the driving forces behind mass protests in kazakhstan in the late 1980s which eventually culminated in the nation's independence being declared in december of 1991 just 10 days before the complete collapse of the soviet union this was in many ways great decades of soviet oppression were over and the nation could finally work on serving its own people first but it also meant that now it was out on its own the economy of kazakhstan shrunk drastically after the fall of the soviet union the nation was at the time heavily reliant on natural resource exports to fuel production efforts in russia and in exchange they would receive equipment infrastructure and skilled technicians to make this all work with the soviet union gone kazakhstan lost this relationship even as one-sided as it was however they still had their oil and natural resources a point which was not lost on the soviet-era leader turned president nurse although nazarbayev much like russia and other ex-soviet states kazakhstan had to embrace the free market pretty much overnight fortunately this transition was assisted by a world that was desperate for their oil programs like innogate which saw oil and natural gas connections made to the newly formed european union gave the nation some much needed bankroll the european countries involved were more than happy to pay to have this infrastructure set up if it meant they had a cheap and above all else reliable source of energy coming from the caspian sea a luxury that was not afforded to them during the times of the soviet union europe did more than just act as a piggy bank too the expertise offered by the partnership meant the nation was able to massively ramp up production which fueled a steady rise in gdp over the next decade the nation with its newfound expertise in digging stuff out of the ground on mass was also uniquely positioned to take advantage of the massive growth in china leading into the 21st century in just a few short years kazakhstan had developed thousands of miles of oil pipelines that would go to fuel growth centers in asia the middle east europe and even their old mates in russia to the north now this growth was great and all but it did make the nation a wee bit over reliant on oil wealth and with this over alliance came the usual problems of oil wealth regular manufacturing would already have had a hard time gaining traction in the nation on account of its poor geographic location for shipping when it is considered on top of this that any industry would need to compete against the oil industry it made substantial growth all but impossible this is a phenomenon known as dutch disease and we have seen it time and time again on our videos covering nations with a large oil industry apart from norway because norway is just perfect but dutch disease wasn't the only issue plaguing the nation rampant corruption and social tension have been bubbling away under the surface but all of that tends to be ignored when the country is making lots and lots of money for everyone which it was until oil prices started collapsing the revenue from kazakhstan's core industry has taken a massive hit in recent years despite production being stronger than ever because the price of oil has effectively halved from where it was 10 years ago this hit to the bottom line meant that those issues started to come to the forefront the biggest amongst them was corruption you see the thing about corruption is that nobody really cares too much so long as everybody is getting rich but as soon as that money dries up fingers start to get pointed very quickly at who it was that squandered that oil revenue the optics of corruption also negatively impact any other industries that could have had any hope to fill in the gaps left by the shrinking natural resource sector now this has all hit kazakhstan very hard but where other nations had completely folded in on themselves like venezuela or other more unstable middle eastern states kazakhstan has maintained some level of stability the nation's secret to weathering this storm has been its ability to get by with a little help from its friends kazakhstan is a member of the cis or commonwealth of independent states which is a group made up of a select number of ex-soviet nations these nations that make up the cis have developed agreements very similar in nature to the european union to trade freely back and forth between one another not only in goods and services but also in labor allowing for the efficient allocation of expertise to developing industries one of the key industries that has come out of this is space flight given their ongoing relationship kazakhstan houses one of the most active space launch sites in the world serving both russian space expeditions as well as a host of private ventures like the united launch alliance now the relationship between all of the different serious states is unbelievably complicated it makes game of thrones look like a dinner party but the takeaway here is that everybody is surprisingly cool with kazakhstan this kind of popularity extends beyond their ex-soviet comrades as well kazakhstan is one of the very few nations in the world that has strong diplomatic and economic relations with china russia and the united states the united states was actually the first country in the world to recognize kazakhstan's independence in 1991 and this was for the same reason they are such great friends today the us was very keen to rubber stamp the death of the soviet union russia of course has its cis relationship and china is also more than happy to extend the olive branch to kazakhstan because it is such a central piece of its belt and road initiative we have spoken of the chinese belt and road initiative many times on this channel before but in brief it's a plan by the chinese government to build road rail and ocean connections from mainland china across asia and the middle east all the way to europe to build strong stable trade routes if you want to learn more about this go and watch our video on why china will be the big winner in 2020 now this is important to kazakhstan for a few reasons firstly of course its terrain and position in the world make it a logical place to run those roads through this would open up a world of possibilities you see up until now it's been pretty difficult to get anything other than oil out of kazakhstan their oil pipelines are world class but their transportation infrastructure less so a highway and rail system that physically connects china russia and europe through kazakhstan would be a massive win for the nation it has already done well for itself being a middleman and this would certainly take that role to the next level the other reason that this would be so important to kazakhstan is that it plays into its modern philosophy of just being the option that people settle for which sounds like an insult but it's actually a huge compliment we have spoken endlessly about the importance of stability and confidence on this channel before people feel comfortable to spend money or start a business or invest in areas where they are confident of stability if kazakhstan is truly going to take advantage of this belt and road initiative it is going to need to show the world that it can be the most stable nation in the unstable neighborhood that it inhabits with this will come foreign investment which will allow the nation to develop into other industries and become a central player in central asia rather than nothing more than a pit stop between europe and china if it is going to achieve this stability though it will need to do a few things to embrace globalization the organization for economic cooperation and development or oecd is an intergovernmental international organization that works to build national policies around running strong growth-based economies that will work to better the lives of the citizens living within them and also the nations trading outside them or at least that's the theory now kazakhstan is not a member of this club but that doesn't mean that it doesn't listen to the lessons learnt by this organization one of the key prescriptions of the oecd is that government bodies only account for a maximum of 15 percent of national output the reasoning behind this is of course it encourages a healthy free market but even more so if there are a range of competing private businesses it alleviates the opportunity for corruption a government official can't give out sweetheart deals if the government doesn't run that particular industry now of course this can only reduce corruption it can't eliminate it but privatization of key industries throughout the nation and the embrace of foreign direct investment are certainly a step in the right direction especially considering that the nation is still putting in place taxes to ensure that the people are seeing the benefits of these natural resources this goal of responsible privatization and cooperation with more and more international bodies is part of a bigger strategy to really change the image of the nation from an authoritarian ex-soviet oil nation to an open and free country ready to be the bridge that unites the east and the west and offers safe passage through an otherwise hostile region there is a lot of money in pumping oil out of the ground or being the center of cheap labor but there is even more money in being a good middleman it is of course anecdotal but perhaps this is best shown with a treatment of what everyone thinks of when they think of kazakhstan when the original borat film was released in 2006 the government of kazakhstan was outraged by an admittedly unfair portrayal of what life was actually like in the nation the response was extremely hostile and pretty in line with what you might expect from an authoritarian regime in 2020 a borat sequel has been released and the response from the kazakhstan government was to co-opt the hype and fuel its tourist campaign with it now that is some next level national marketing okay so now it's time to put kazakhstan on the economics explained national leader board alongside all of these other nations and honorary mentions i suppose starting with size the nation's gdp of 179 billion as of 2018 is far from its peak back when oil prices were more favorable but it still does make it a decently powerful economy in its own right it gets a 5 out of 10. gdp per capita is around 9 000 us dollars per year depending on what's going on with those all-important oil prices this puts it securely into the global middle class and gives it a score of 5 out of 10. stability and confidence is improving but the nation is far from a switzerland or singapore just yet i have no doubt that things will continue to go well for this country if they keep on doing what they are doing but as of now it can only really get a 3 out of 10. growth is another weird one this is the chart of the nation's gdp and when it's growing it's growing fast but its historical over reliance on fossil fuels means that this growth is not sustainable at least without changes and a long-term vision it gets a 4 out of 10 only because its 10-year rolling average is still pretty strong finally industry well oil and gas is great and it has propped up the economy through some times of less than stellar management but one industry does not an economy make and until it can establish itself as the bridge between east and west it can only get a 3 out of 10. all in all this gives kazakhstan an average score of 4 out of 10 putting it into last place on our leaderboard at least so far but let's walk away from this calling it a very exciting work in progress rather than a finished masterpiece right now the economy of kazakhstan is something worth exploring for so many different reasons in less than 30 short years the nation has managed to place itself quietly at the center of some massive global developments both metaphorically and literally the nation has the potential to act as a friendly middleman but getting that role will involve a leap of faith it is easy to run a government fueled by oil money the leaders of such nations can make themselves as well as their friends and family very rich so it's a tempting proposition but it's not one that can last forever casting aside that temptation in order to make the transition to an economy with light government influence and an economy reliant on being a stable safe house for global trade will likely pay off but it certainly won't be an easy transition either way kazakhstan will be an economy to watch because if nothing else it will be a strong indicator of just how well the world is getting along hi guys i hope you enjoyed the latest video if you did please consider liking and subscribing this video is made possible by our patrons over on patreon so if you enjoy this video please consider supporting the channel like these awesome people did thanks guys bye

Channel: Economics Explained

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Keywords: the economics of kazakhstan, the economy of kazakhstan, the economics of kazakhstan explained, the economy of kazakhstan explained, kazakhstan economics explained, kazakhstan economics, kazakhstan economy explained, kazakhstan economy, kazakhstan economic policies, how the Kazakhstani economy works, Kazakhstani economics, Kazakhstani economy, Kazakhstani economy explained, Kazakhstani economics explained, economics explained, economy of kazakhstan, economy explained

Id: uz4QaFHFo1A

Length: 17min 6sec (1026 seconds)

Published: Thu Nov 05 2020