ANVAR SAIDENOV Governor of National Bank

t was economic reforms that saved Kazakhstan from the post-Soviet nightmare. While it is true that investment commitments in the oil industry bought time for policymakers in the 1990s, the country’s macroeconomics would be in shambles without the farsighted reforms of the Nazarbayev administration. In 1998, oil prices dipped to $10 per barrel, but despite painful adjustments, privatization was less chaotic than in Russia. Today, more than 85 percent of GDP is in private hands and the country is on the World Economic Forum’s list of competitive economies.

“The main components of success were the early economic reforms, the mechanisms to implement the structural changes and political backing from the top,” says Anvar Saidenov, Governor of the National Bank. That is not to say there was no resistance. Pension reform was attacked, but the legislation passed in 1998. Pension funds have since turned into a unique class of long-term mutual institutional investors. As for the financial system, there were over 200 banks in 1994 and 3000 percent inflation. After consolidation, only 34 banks are left and data for 2005 shows the consumer price index (CPI) at 7.2 percent. “In times of change, you must be strong,” says Mr. Saidenov.

The official figure for 2005 is not out yet, but GDP is estimated to have grown 9.2 percent. In terms of per capita income, it has risen to $7,800 at purchasing power parity (PPP). Meanwhile, unemployment hovers at 8 percent. The stress is now on minerals processing and financial services. Shifting the economic base away from oil will make Kazakhstan less vulnerable to external shocks. No one pretends that last year’s tentative budget surplus of $365.7 million was not linked to petroleum exports. But business people have noticed the country’s unique combination of fossil fuels and a healthy industrial base. Kazakhstan is competitive in steel, copper, coal, textiles, foodstuffs and machinery, and its workforce, 98 percent literate, is the best in Central Asia.

The only wild card is where Chinese demand is going. “We cannot get away from global processes,” says former Finance Minister Arman Dunayev. Sectors like construction could use geographic proximity to supply western China with building materials, or use domestic railways as a transit route for Chinese products. The idea is not to shy away from strategic investors, but in the future, innovation is key and large public-private partnerships will be imbued with a diversification ethos.