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bne IntelliNews – Kazakhstan adds tennis to investment profile as championships come to Nur-Sultan

Kazakhstan is gaining a reputation for more than just its oil and gold: the Central Asian Republic is fast becoming a rising star in international tennis. Nur-Sultan will welcome some of the world’s top players this year as it plays host to the prestigious ATP-500 championships, according to a recent announcement by the Kazakhstan Tennis Federation.

The ATP-500, previously scheduled to go to Beijing in early October, is the fourth-highest tier of men’s tennis. This year, the Beijing Open will be substituted for an ATP-500 tournament in Nur-Sultan, which will immediately follow the Astana Open in late September.

The tournaments are set to welcome some of the biggest names in tennis, including men’s world number one Daniil Medvedev and Kazakhstan’s own Wimbledon champion Elina Rybakina.

“We are delighted that the ATP has entrusted Kazakhstan with the privilege of hosting these prestigious international tennis events. The decision by the ATP to turn to us as the priority candidate to host a tournament in the ATP Tour 500 series is yet another testament to our joint success in building upon our established reputation and using global best practices to enable Kazakhstan’s transformation into one of the world’s leading tennis locations”, said Bulat Utemuratov, President of the Kazakhstan Tennis Federation, in a press release.

Earlier in July, Elina Rybakina became the first Kazakh ever to win Wimbledon. She turned down a bonus offered by the Kazakhstan Tennis Federation, asking for it to be invested in grassroots tennis in Kazakhstan instead. She added that her win from her would not have been possible without the backing of the Kazakhstan Tennis Federation.

The two tournaments are bound to bring extra attention to Kazakhstan from international investors and tourists. For those hoping to get better acquainted with the central Asian country before it reaches the headlines, here’s an overview of its economic and investment profile.

From regional power to leading economy

With strengthening domestic consumption, robust macroeconomic fundamentals and convincing demographic health, Kazakhstan is set for a bullish recovery from the pandemic. The government has ambitious growth targets, which seek to turn it into one of the 30 most developed countries in the world by 2050. In the shorter term, Kazakhstan must consolidate its status as a growing regional power and start forging links further afield.

Kazakhstan is already going to significant lengths to secure this: a series of bold reforms since the 1990s has aimed to make the country an alluring destination for foreign capital, resulting in $11.1bn of Foreign Direct Investment (FDI) in the first half of 2021 alone – up 30% year-on-year. And President Kassym-Jomart Tokayev personally leads the country’s Committee of Foreign Investors, which met in December 2021 to much ceremony in the President’s grand residence.

“Systematic and comprehensive work has allowed us to become the biggest economy in Central Asia, and one of the fastest-growing in the post-Soviet space,” said President Tokayev. “Since Independence, we have attracted more than $370bn of Foreign Direct Investment. The Government has made supporting investors a priority,” he emphasized.

Sectors to watch

The bedrock of Kazakhstan’s economy is commodities. Oil and metals constituted 65% and 15% of the country’s exports respectively in 2020. Both have benefitted over the last year from the rallying commodities markets, in addition to output agreements by the members of OPEC+.

With 99 of the 110 elements of the periodic table found in Kazakhstan’s soil, it’s no surprise that metals and mining are responsible for around 20% of GDP. They are also a big draw for investors – responsible for more FDI than any other sector in 2019. At the Kazakhstan Global Investment Forum 2020, Ros Lund, a specialist at the UK Department of International Trade, extolled Kazakhstan’s mineral exploration potential, describing the country as “a real hot spot globally.”

As part of its drive to lure more foreign investors into the market, Kazakhstan’s government has developed a new mining code to liberalize the sector. It came into effect in 2018, and has since resulted in licenses being granted faster than ever for the exploration of Kazakhstan’s rich reserves.

Oil is another magnet for FDI inflows. With proven oil reserves totaling 30 billion barrels, Kazakhstan is an undisputed regional powerhouse when it comes to natural resources. China accounts for a quarter of foreign investment in oil, with the China National Petroleum Corporation spearheading the Kazakhstan-China pipeline, which runs all the way from the shore of the Caspian Sea to China’s Xinjiang.

President Tokayev recently announced his intention to diversify pipeline infrastructure to get oil from Kazakhstan’s vast Tengiz Field to China and the west.

In addition to natural resources, the Kazakh government has vowed to put Central Asia’s biggest economy on a secure growth footing by developing other emerging areas of Kazakhstan’s economy. That will mean supporting sectors with high growth potential, building infrastructure to support them, and promoting them to international investors.

So which sectors are preparing for capital boosts? Tourism is surely one: In 2020, this industry represented significantly under 1% of Kazakhstan’s GDP, yet it has the potential to become an economic linchpin. With tourist numbers rising steeply before the pandemic (up 10.2% year-on-year in 2019), further growth is expected once international travel picks up again. Kazakhstan’s reliable and cheap train network facilitates this, as does national carrier Air Astana, which is reportedly considering an IPO next year.

In the first year of the pandemic, Kazakhstan reportedly lost over 70% of its inbound flight traffic and as a result suffered a loss of over $680.55 million dollars. According to the Chair of the Kazakh Tourism national company, Talgat Amanbayev, tourism rates are quickly recovering with 6.5 million domestic tourists being recorded in 2021, beating the pre-pandemic record and bringing $249 million in income to local hotels. In February, Kazakhstan also brought back its no-visa policy for over 70 countries, hoping to attract tourists in the coming years.

Kazakhstan’s banking sector is also slated for an injection of foreign cash. It is already benefitting from a trend for credit card tourism which has been seen Russians flock to neighboring countries to open bank accounts after Visa and Mastercard stopped issuing cards within Russia.

In the longer term, though, the innovation and healthy competition in Kazakhstan’s financial sector make it a promising pick among Central Asian countries. Kazakhstan’s banks are notable for the relatively low level of government involvement – ​​only one of the country’s banks is part-owned by the state.

Kazakh banks already enjoy significant investment from overseas, with leading commercial bank Halyk Bank and fintech Kaspi both listed on London’s Stock Exchange.

Bulat Utemuratov, the long-serving President of the Kazakhstan Tennis Association, is an illustration of the perks of Kazakhstan’s growing international status for local banks. He struck a deal with UniCredit in 2007 when Italy’s largest lender bought his 92% stake in Kazakhstan’s ATF Bank at the height of the credit boom. Beyond the banking sector, Utemuratov’s private equity firm Verny Capital also sold its shares in zinc producer Kazzinc to global commodities giant Glencore in 2012 and 2013.

Utemuratov brought a similarly enterprising approach to the task of developing tennis in Kazakhstan. He has spent $85 million of his own money building tennis centers in Kazakhstan’s expansive steppe. Under his leadership of him, the Kazakhstan Tennis Association set about building strong national teams by first attracting talents from abroad (like Rybakina, who was born in Moscow and switched allegiances), while also training up younger generations of homegrown players with the help of international coaches. With tennis as with banking and mining, Utemuratov will no doubt hope that Kazakhstan benefits from a growing international reputation.

Also in line for a cash injection is agriculture, which grew by a remarkable 6% in 2020 in spite of global supply chain turmoil. A drought in 2021 did little to dent the increased level of output, which was buoyed by a 33% increase in fixed capital investments in the sector.

Kazakhstan is the world’s ninth largest country, and has masses of arable land – steppe and meadows as well as mountains and deserts. This has already made it one of the top 10 exporters of grain, with 15.4 million hectares of grain crop being farmed. 75% of the country’s territory is suitable for agriculture, but only 30% is currently in use, so the potential for growth is significant. Already, China’s CITIC Construction is in the process of investing $600 million into Kazakhstan’s cattle industry, while food processing conglomerate COFCO has invested heavily in Kazakhstan’s tomatoes and tomato paste.

Renewable energy is another non-extractive industry worth noting. With its vast plains of uninterrupted steppe, Kazakhstan is ideally suited to wind energy in particular, with an estimated potential capacity of 760GW – more than 10 times the total amount of power which Kazakhstan needs. When solar power from Kazakhstan’s deserts and hydroelectric power from its wide rivers are added to the mix, it is clear that Kazakhstan could be a world leader in clean energy. As it stands, just 0.6% of power installations in the country are renewable energy facilities, but that is set to change, with a partnership between the European Bank for Reconstruction and Development and the Climate Investment Funds attracting $0.8bn of funding for clean energy in 2019 alone.

new friendships

This all spells good news for the international investor. With GDP set to grow by as much as 3.6% this year, as well as significant appreciation potential in the tenge and a sovereign rating upgrade overdue, Kazakhstan’s fundamentals are sturdy.

“A mix of strong growth potential, expanding markets, a decent policy agenda and solid accumulated buffers make Kazakhstan a top medium-term story and an appealing investment opportunity for both equity and fixed-income investors,” EM-focused investment bank Renaissance Capital wrote in a report in February.

As a member of both the Eurasian Economic Union (with a market of 185 million consumers) and the Commonwealth of Independent States, Kazakhstan is not short of places to look for investment.

Neighboring China has also demonstrated a keen interest in Kazakhstan. China accounts for around 15% of the Republic’s trade balance, and has plans to invest big in Kazakh infrastructure. Due to Kazakhstan’s rail connectivity, its relatively flat topography, and its vast area, Kazakhstan will form a crucial part of China’s Belt and Road initiative.

rumored 51 projects initiative would see China transfer the production facilities of 51 enterprises to Kazakhstan. Details about the notional plans remain vague, however.

But the two countries are already cooperating in the mineral and metallurgical spheres, with trade links and Chinese investment supporting growth in Kazakh mining, and the China Development Bank funding aluminum and iron ore extraction.

Kazakhstan will be hoping to expand its successful cooperation with China over infrastructure and minerals to support previously unexplored sectors of the economy. A new facility building Chinese buses in Karaganda will no doubt be seen as an example of the many new directions in which the desired trading partnership could develop.

“In January-February of this year, foreign trade turnover increased by 52.5% and amounted to $18.2bn,” said Kazakhstan’s Minister of National Economy Alibek Kuantyrov in a report to the Cabinet in April. It is no coincidence that the value of fixed investments grew by 1.5% in the same period.

As banks seek to interact with more sectors of the real economy and the government aims to increase the penetration of underdeveloped industries, new areas of Kazakhstan’s economy are set to flourish. Foreign investment has never been so important – or so appealing.

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