Fragile stability

Kazakhstan’s economy continues to be dominated by its oil and gas sector, which accounts for approximately half of the country’s exports and over 40% of government revenue. The reliance on hydrocarbons underpins the country's non-diversified economic structure, making it vulnerable to fluctuations in global energy markets. Despite challenges in the mining sector, including a -2.4% decline in output from maintenance at major oilfields, the overall economy showed resilience in 2024. The construction, transportation, logistics, manufacturing and retail sectors have expanded, fueled by robust credit growth and increasing domestic demand.

Inflation remains a concern. After moderating earlier, a spike in food prices and service costs, combined with currency depreciation, pushed headline inflation to 8.4% in November 2024. The National Bank of Kazakhstan (NBK) responded with a surprise 100bps hike, raising the policy rate to 15.25%, with other hikes likely in 2025. Inflation is expected to peak at 9.2% in mid-2025 before gradually easing, but it will remain above the 5% target until 2027. Monetary policy is expected to remain tight through late 2025 unless fiscal reforms signal credible consolidation. The Kazakhstani tenge’s weakness, partly due to the Russian ruble’s volatility, has provided some support to exporters but has also added to inflationary pressures. With international reserves at USD44.6bn, the NBK has the flexibility to stabilize the currency if necessary.

Kazakhstan’s business environment presents a mix of opportunities and challenges. The government’s interventionist policies, such as mandated foreign currency sales by public entities and fiscal rule reinstatements, have aimed to stabilize the economy but often introduce uncertainties for businesses. Political stability remains fragile, exacerbated by industrial unrest. In November 2024, oil sector workers in Zhanaozen staged strikes over pay and conditions, reflecting long-lasting dissatisfaction within the energy sector. This industrial action followed a series of earlier protests over fuel price increases and wage disparities in recent years that culminated in the intervention of special Russian forces in January 2022, highlighting ongoing economic vulnerabilities and institutional fragilities.

The broader political landscape is marked by President Kassym-Jomart Tokayev’s efforts to consolidate power following unrest in 2022. His administration has prioritized cracking down on dissent, curtailing media freedom and civil society activities to prevent further upheavals. This authoritarian turn could deter investors, although Kazakhstan continues to attract interest due to its resource wealth and strategic location. Following the exit of several Western companies from Russia, Kazakhstan has positioned itself as a viable alternative, attracting FDI in the consumer goods and renewable energy sectors.

The proposed Russia-China pipeline, with routes passing through Kazakhstan, exemplifies the nation’s strategic importance in regional energy logistics. If realized, the project could significantly enhance transit revenues and bolster energy supplies, fostering industrial growth. However, the potential for geopolitical tensions and sanctions related to Russia remains a concern. Meanwhile, recurring strikes in key industries, such as the oil sector, underscore the social and economic risks that could impede the country’s business climate. Overall, while Kazakhstan’s near-term prospects are buoyed by infrastructure development and sectoral diversification, addressing fiscal imbalances, mitigating political risks and fostering a more pluralistic environment will be critical for long-term stability and growth.