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Вестник Челябинского государственного университета.
2019. № 3 (425). Экономические науки. Вып. 64. С. 98—109.
УДК 339.9 DOI 10.24411/1994-2796-2019-10312
ББК 65.5 (5 Каз)
KAZAKHSTAN'S FOREIGN ECONOMIC POLICY (1991-2017)
Ali Akbar Khandan
ECO College, Allameh Tabataba'i University, Tehran, Iran
Since independence, Kazakhstan's policy makers have pursued a multi-vector foreign policy and according to that policy have developed country's economic relationship with its neighbors and external powers. The major weakness of Kazakhstan is lack of its connectivity with outside world, so promoting connectivity as a mean of reaching distant markets turned to a first priority in foreign policy among Kazakh politicians, so they try to establish bilateral and multilateral relations to encourage regional and global actors and powers (Russia, China, EU, US) to participate in Kazakhstan economic development. The most emphasize was on the attraction of FDI to develop energy sector which its revenue was vital for economic reconstruction. In this article, I will analyze Kazakhstan's foreign economic policy since its independence, using the multi-vector policy. The theory of rational choice was used as theoretical frame work. The main question of the article is: what are the determinants of Kazakhstan's foreign economic policy? For answering the main question argument or hypothesis of the article is that determinants of Kazakhstan's foreign economic policy are similarly the economic objectives of the multi-vector policy of that country.
Keywords: Kazakhstan, Multi-vector policy, energy, Russia, China, EU, US.
Introduction
Since independence, Kazakhstan has played a significant role in international relations and has expanded its bilateral relations in the way that was beneficiary for economic development of that country. The Kazakh government has been successful in attracting foreign direct investment (FDI) into the oil production, so analyzing Kazakhstan's foreign economic policy, has a great importance.
Kazakhstan as a rational actor has developed its economic relations with its neighbors and external powers according to multi-vector foreign policy in order to make a balance in its foreign economic relations. This country has been pursuing integration in Eurasia to secure its economic development. In the context of multi-vector foreign policy, Kazakh government has always tried to achieve greatest possible benefits at the lowest cost and it would only happen through balancing between major actors in the Central Asian region and also by pursuing regional cooperation.
My focus will be mainly on Kazakhstan's economic relations and policies using the Multi-vector policy as the context.
In the 1990s and 2000s, the geopolitical and economic features of the region, bordering China, strongly affiliated to Russia, and yet at the same time being part of the Islamic world, created an urgent task for Kazakhstan's leadership: to establish the country as a new player in the international arena. Pragmatism as a result of geopolitical consideration had shaped
Kazakhstan's foreign economic policy. It is more understandable regarding oil and gas policy in that country, especially by paying attention to the fact that Kazakhstan is a landlocked country and it needs to secure routes for exporting its energy resources.
By considering the foreign economic policy of Kazakhstan as part of its foreign policy, it would be logical to say that after the collapse of the Soviet Union, Kazakh government for reaching its goals regarding economic development pursues the economic policy that led to the absorption of the high amount of FDI, especially from European countries and the United States.
I tried to analyze the characteristics of Kazakhstan's foreign economic policy from the time of independence, using its multi-vector policy. In this regard, the theory of rational choice was used. The rational choice theory says that, apart from ideological or emotional views, foreign policy officials design a country's policy based on the existing domestic political and economic realities and at the same time consider the international politics.
The reason for choosing of this theory was that economic goals and approaches is the basis of multi-vector policy, and this policy is a self-serving which at the same time dependent on structure of the regional and international politics.
More important reason for choosing this theory is that alongside of the geopolitical space in Central Asia and structural system of world politics, Kazakh leader and foreign policy decision makers introduce
the unique policy that simultaneously mange the country's economy and its relations with the outside world.
Part 1: Theoretical frame work
By concentrating on relations between nation-states, some scholars have clearly hoped to be able to develop a model of International Relations that would capture the basic features of the discipline. The example of economics has been influential in encouraging such ambitions.
Although the explanation of single facts is a rather important task in international relations study, it does not always spill over into the more analytical framework of study. Therefore, in order to help the study of International Relations, models from other social sciences have been introduced.
A model that has been entered from economics is rational choice. Rational choice theory is a theory that was developed within economics, later entered to political action from market behavior. It is based on certain assumptions about actors' motives and choices. The theory is based on methodological individualism and the assumption of rationality. Actions have a central place in rational choice theory. The action should be the best way of satisfying the actor's desires. What the benefit is decided by the actors' desires and goals.
Rational Choice Theory which is a framework to understand the social and economic behavior of different players and mostly is applied in economics, politics, international relations and social sciences. This approach is one of the important theories in international relations.
In fact, although it seems that it is very natural that states act rationally, but there are lots of examples that decision makers follow the ideological or even emotional behaviors in their policies. So the main aim of choosing this theory was to explain how the Kazakh decision makers follow a rational approach to shape the Kazakhstan's Foreign Economic policy which is based on pragmatism.
In this theory unlike realist (neorealist) approach that state is unit of analysis, the orientation shift away from states to the decisions that made by the leaders or other politicians. The relevant literature of rational choice theory could be review in terms of its analytic contributions and its place in helping to shape policy decisions. Here an analytic contribution has been used.
Choosing the rational choice theory does not mean that other factors affecting Kazakhstan's foreign policy is ignored. In the same vein, for analyzing Kazakhstan's foreign economic policy, recognizing the characteristics of Kazakh foreign policy de-
cision makers, especially their leader, as well as its geographical location and its historical and territorial characteristics is necessary. In the next step balance of power in Central Asia and energy resources are also important in analyzing the country's foreign economic policy on the basis of rational choice theory.
Regarding the geography of Kazakhstan, the best description about the geographical obstacles and geopolitical situation of Kazakhstan is that: Kazakhstan is landlocked, more remote from Open Ocean than is any other large nation of the world, and hence more dependent on its neighbors to be both customer and vendor. It is also demographically vulnerable, almost equally split between two ethnic groups whose interests, desires, and cultures are all but antithetical. Considering its historical and territorial characteristics, it can be argue that in the one hand Kazakhstan is the only Central Asian state sharing a long border with Russia, and its large ethnic Russian population continues to reinforce Kazakhstan's cultural and historical ties to Russia. In the other hand its eastern neighbor, China, as a major economic power which also share a long border with Kazakhstan was always eager to reach the energy resources in that country. Kazakh leaders by knowing this fact uses the China as leverage against Russia. While Kazakh government uses Russian territory for exporting it oil and gas, attracted Chinese investment in the energy sector and have developed oil and gas pipelines to maintain its independency from Russia.
Regarding the characteristics of Kazakh foreign policy decision makers it could be said that Nursultan Nazarbayev, the leader of Kazakhstan's Communist party under Gorbachev, can be consider as a pragmatic leader who also gathered limited number of elites with common idea especially in the foreign policy subject. By keeping the pragmatic character of Kazakh leader and its foreign policy decision making team then it would be easy to understand the country's foreign economic policy. Some scholars believe that President Nazarbayev had no alternative to pragmatism in foreign policy making, by referencing to the geopolitical and geographical situation of Kazakhstan especially regarding Russian influence on that country. The reason behind Nazarbayev's decision in advocating multilateral format of relations was that he felt that a bilateral format will give Russia more leverage over Kazakhstan.
What qualitatively distinguishes Kazakhstan from the other Central Asian states is its leader's strong personal dedication to the idea of economic modernization, which dominates most of his speeches and addresses. Foreign policy issues occupy, on average,
18.5% of Nazarbayev's annual addresses, however, unlike them, Nazarbayev's are primarily devoted to economic issues (Patalakh; 2108:3)
In the context of the geopolitical factors affecting Kazakhstan's foreign policy, can point to what is called "the new great game" in Central Asia. Since the major world powers in the region compete with each other in this game, the Kazakh government has always striven to defend its political and economic interests from the standpoint of independence so far. From the point of view of foreign economic relations, to the mutual use of investment opportunities offered by Kazakhstan to the Western oil and gas companies in the way to achieve a balance between the power and influence of China and Russia.
Part 2: The process of emerging of the multi-vector policy
This part gives some information about the emergence of the multi-vector policy. The focus will be on two main characteristics of Kazakhstan's early independent years which were challenges to the economy, and development of energy industry, especially oil sector.
Since independence Kazakhstan has laid the foundations of a market-based economy. Its centralized reforms together with multi-vector policy brought a reputation as a stable country.
Obviously there were some major policies to secure economic objectives of Kazakh government. Making balance between major powers in the region such as Russia, china, EU and US to avoid over reliance on a single power to maintain their independency and sovereignty was one of them, pursuing cooperation in regional and global level was the other.
With the emergence of the multi-vector policy as a rational act which its primary goal was to economic reconstruction, the foreign economic policy of Kazakhstan began to shape and obviously its goals were similarly the economic objectives of multi-vector policy.
In fact political reforms got significantly less attention than economic measures, in part due to the lack of prior experience in developing such programs, and due to the international community's greater capacity to engage in macroeconomic policy and technical assistance.
In this part, firstly, the economic difficulty that Kazakhstan faced in its early years of independency would be described and then I explain, how the energy factor influences vectors of the foreign policy. In other words, how oil and gas resources have been used in the multi-vector policy and at the same time as an economic mean to achieve strategic goals.
2.1. Major challenges to the economy Economy and energy have greatly influenced
Kazakhstan's foreign policy. Like the other post-soviet republics in central Asian region, Kazakhstan right after independence faced with several major challenges to the economy. Characterizations of its economy in first years after the independence were instability and decline, according to Hindley the most severe decline occurring in 1994, when GDP fell by 12.6% (Hindley 2008:6). These harsh economic conditions made the Kazakh government to pursue some kind of foreign policy, which could help them to overcome economic difficulties in their country. So, they decided to establish good relations with great powers such as western countries and at the same time maintain their traditional relations with Russia. For managing this economic crisis and also enhancing social stability, establishing good relations with Russia came into consideration.
Avoiding too much dependent on Russia and Economic difficulties, can be consider as the reasons that made president Nazarbayev look to the West for economic assistance.
As Ipek pointed in her article, it was very important for Kazakhstan to establish political and economic relations, and to enlist the support of the USA at a difficult time. Moreover, the USA actively supported Kazakh government, so that the donor states should help Kazakhstan with advantageous credits for supporting Kazakh currency and reforms. Kazakh government managed to achieve a high level of mutual understanding. (Ipek 2007:19)
The first signs of multi-vector foreign policy appeared and this policy started to take shape, only when the President Nazarbayev as a leader pursued a balanced policy as an approach to secure economic stability by the economic support of multilateral organizations backed by the United States and by establishing a strategic partnership with Russia.
2.2. Energy industry's development process Revenue from energy (mainly crude oil) export is
the main driver of the Kazakhstan's economy.
In 2016, the share of crude oil from Kazakhstan's total exports was 40% and equal to $ 13.2 billion. The figures were 48% and $ 19.8 billion in 2015, respectively (https://atlas.media.mit.edu/en/visualize).
It is obvious that oil and gas industry is one of the main drivers of the country's GDP growth, reflecting significant dependence of the economy on the industry's revenues. The rapid development of the country's oil and gas industry over the course of the decade led to a significant dependence of the economy on oil exports and oil prices.
Therefore, key priority for the Kazakh government was the development of the oil sector to increase state revenues. Kazakhstan started to become a notable oil net exporter after 2000, and has only increased since then.
In the early stages of its independence, Kazakhstan had to look both to Russia and to the West to develop its oil industry.
Kazakhstan could and would not exclude Russia. But at the same time, they had to look to the West if they wanted to build up their oil industry, attract foreign investments, generate oil revenues and reduce some of the massive dependency on Russia. The dependence on Russia on the one hand, and the need to attract large foreign direct investments into the oil and gas sectors on the other hand, required a flexible foreign policy where no strategic important country could be excluded.
The main character of development of the oil industry in Kazakhstan is the need for foreign investment from multiple investors. Nazarbayev understood early on that Kazakhstan had to be open for investments from anyone who wanted to invest in Kazakhstan so that the economy could grow. It is illustrated in one of his speech as he stated:
"The investment potential of Kazakhstan is so large that it would require resources which are not available even to the highly developed countries. Thus, the requirement for a diversified set of investors that represents dozens of countries from Europe and Asia in addition to the US is an imperative in Kazakhstan's policy" (Ipek 2007:1184).
In order to clarify presence of oil companies from different parts of the world, the below chart was drawn up.
As shown in the chart (Fig. 2.1), the Kazakh government, in addition to attracting Western companies (Mostly European) have entered a considerable number of Asian companies into its energy sector. This has been done, based on the objective of its foreign economic policy that was maximizing foreign investment in order to boost its oil and gas industry and consequently economic development.
It is important to note that despite the limited number of US companies in the Kazakh oil and gas sector, these two companies (Chevron and ExxonMobil) together with the joint US-Kazakh oil company are major players in oil production in the two huge oil fields of Kazakhstan, including Tengiz oil field.
These data in the one hand illustrate the establishment of multilateral economic relations in the context of Kazakhstan's multi-vector policy aimed at maximizing foreign investment. In the other hand it shows that while the share of Western countries in Kazakhstan's oil production and import is more than the rest, Kazakhstan's government in the context of its multi-vector foreign policy has kept its foreign economic relations with Russia and China simultane -ously. In this way, while managed to balance between the West, China and Russia, the country would be protected from potential harm from its two powerful neighbors (China & Russia).
Part 3: Trade policy
When it comes to trade policy Kazakhstan's problem situation (one variation that influences the rational choice) is how to optimize its gains from trade and remaining economically independent. To achieve these goals Kazakhstan has pursued for regional trade integration and the increase of trade with other important trading partners.
Foreign trade policy of Kazakhstan was part of its economic reform after independence, so here a quick look on the back ground economic difficulties and then the economic reforms in Kazakhstan would be helpful for understanding the trade policy of that country.
Under the Soviet Union's economic system, Kazakhstan mainly produced materials and agricultural products (particularly grain). Kazakhstan has the second-largest uranium, chromium, lead, and zinc reserves and the fifth-largest copper reserves of the world. During Soviet times, minerals were Kazakhstan's most dominant raw materials.
Fig. 2.1. Number of foreign companies in Kazakhstan's oil sector
In 1989, Kazakhstan produced 19% of all coal and 10% of all iron ore in the Soviet Union. Interestingly, the country produced only 4% of all crude oil. When the Soviet Union collapsed, these supply and demand links were disrupted, contributing to the decline of GDP. The desire to keep at least some of the old economic links alive may in part be a motivation behind Kazakhstan's close cooperation within the Commonwealth of Independent States. Since independence, the country has sought new trading partners beyond the former Soviet Union and has grappled with the difficulty of developing absent an established processing sector. Since its independence, the newly inde -pendent country has pursued a so-called "multi-vector" foreign-policy approach, seeking equally good relations with the two large neighbors, Russia and China, as well as with the United States, the European Union, and Turkey (Wandel & Kozbagarova; 2009:11).
Kazakhstan has made considerable progress in foreign trade policy which is another institutional prerequisite for functioning market processes and by pursuing this policy, a national economy could be open to foreign competition. However, protectionist tendencies in Kazakh economy seem to be on the rise.
During the last decades Kazakhstan has become a more open economy and more open to international trade. Export significantly surpasses imports. Kazakhstan exported for 37.3 USD billion in 2016, a decrease from 46.6 USD billion in 2015 (www.focus-economics.com/countries/kazakhstan). Kazakhstan imported for 27.9 USD billion in 2016, a decrease from 33.8 USD billion in 2015 (Ibid). The reason for the decline in exports and imports over the previous year was the decline in oil and gas prices in international energy markets, which led to a decline in exports first, and secondly, to lower the state of imports. Fuel and energy dominate exports, while imports consist mainly of machinery and food (www.imf.org/external/pubs/ft/scr/2011/cr11151.pdf).
The increase of trade openness in the start of the 2000s went hand in hand with the increase of oil and gas production. Kazakhstan started to become a major oil producer and exporter, by 2010 it exceeded 82 million tons per year. Therefore oil was the main driver behind the increase in trade. The emphasis on exports of natural resources has helped to open these economies and many channels now link them to the global economy, including trade in goods and services.
Data show a strong positive correlation between the economic performance of Kazakhstan and the intensity of their external links (Asian Development Bank Institute; 2014:17).
Underlying reform in Kazakhstan is a desire to integrate more deeply with the global economy and to establish Kazakhstan as a significant player in global markets. Kazakhstan's trade policy goal has always been to optimize gains from trade and remaining economically independent (Hindley; 2008:8). To achieve these goals Kazakhstan has pursued for regional trade integration and the increase of trade with other important trading partners.
Due to the Kazakhstan's land locked position, Geography is an important element in its trade policy. As she believes, "geography matters". According to this fact the major trade partners of Kazakhstan are Russia, China.
3.1. Regional trade policy and integration
As described before, promoting regional trade and integration was one of the main means to achieve economic development as a goal of multi-vector policy and at the same time foreign economic policy of Kazakhstan.
After the collapse of the Soviet Union in 1991, Kazakhstan and the other CARs signed a number of preferential and regional trade agreements with one another in order to revive previous linkages and as a way to secure market access for goods within the newly created Commonwealth of Independent States (CIS). In light of the malfunctioning payments arrangements and exchange rate convertibility among the CIS states, limited preferential trade agreements seemed a useful instrument to re-establish old trade relations. So far, Kazakhstan has signed seven FTAs with its regional neighbors. Beside these seven bilateral agreements between Kazakhstan and its neighbors, that is not in the focus of this article, Kazakhstan is a central and active member in a number of regional initiatives that aim for deeper trade integration, which itself is the core of country's foreign trade policy (Bastas; 2013:51).
Vinokurov called Kazakhstan 'the Eurasian bridge', implying a country with geographic, cultural and historic affiliation to both Europe and Asia. Based on this concept, the Kazakh president has proposed a number of far-reaching integration projects that are widely known as 'Eurasian' projects. (Vinokurov; 2010:25). 'Eurasian integration' in the former Soviet Union and the special role which Kazakhstan has to play in this process is the most important dimension of trade policy of Kazakhstan regarding regional integration.
Over the last decade and base on the Kazakhstan's particular priority which is regional economic cooperation and integration, Kazakhstan has become one of the most dynamic countries in the world, both
in terms of its economic development and foreign relations. Kazakhstan is a member of a number of international organizations, including the Commonwealth of Independent States (CIS), the Eurasian Economic Community (EAEC), and the Eurasian Economic Union (EEU), Common Economic Space (CES), the Custom Union (CU). Kazakhstan has good relations with all of its neighbors and continuously works on strengthening economic cooperation and integration with neighboring countries.
3.2. Global trade policy
Although, since 2000, Kazakh exports and imports have grown significantly in both monetary and physical dimensions, but exports have been limited to raw materials such as crude oil, natural gas, ferrous and non- ferrous minerals, cotton and wheat.
Geographically, exports are also concentrated on a small number of markets: the People's Republic of China (PRC), the European Union, and the Russian Federation. In particular, the PRC is a major economic partner of Kazakhstan for both exports and imports. Like the other Central Asian countries, Kazakhstan is also gradually reorienting its exports and imports toward Turkey, Iran, and other Asian partners.
As The Ministry of Foreign Affairs of Kazakhstan emphasizes, the development of economic diplomacy is one of the most important directions of Kazakhstan's foreign policy. It also emphasizes that "multilateral cooperation is an important component of economic diplomacy" (http://mfa.gov.kz/en/con-tent-view/ekonomicheskaya-diplomatiya).
Regarding this policy and to serve its economic development, Kazakhstan actively joined international organizations and initiated regional trade agreements.
The important aspect of Kazakhstan's global trade policy is participation and member-shipment in international economic organization like WTO and the most important dimension of its regional trade policy is participation in regional economic programs like EEU as an initiator or active actor.
Since Kazakhstan is the ninth largest and landlocked country in the world with tremendous natural resources, the major way to construct and develop its economy was to export raw materials including minerals, crude oil and natural gas. So attracting foreign direct investment to excavate these natural resources and then exporting them has always been two main objectives of Kazakhstan's trade policy.
To measure the status of regional trade in Kazakhstan's foreign policy, Kazakhstan's trade volume with the countries of the region is compared to the total volume of its exports and imports.
In 2016 Kazakhstan's largest trading partner in Central Asia was Uzbekistan; accounted for 4.9% of total exports and imports. Tajikistan, Kyrgyzstan and Turkmenistan were in the next places, respectively.
In the Caucasus region, Azerbaijan by accounting 0.5% of Kazakhstan's total exports and imports was in the first place.
In general, the share of each of the Central Asian and Caucasian regions of Kazakhstan's total foreign trade in 2016 was 5.61-0.45% of total exports and 4.47-0.27% of total imports. Accordingly, the share of these countries in Kazakhstan's import was negligible and the trade balance was in the interest of Kazakhstan.
Russia accounted for 11% of total exports and 35% of total imports, making it the largest Kazakhstan's partner in terms of imports and third in terms of exports after Europe and China that year.
European countries, with 50% share of Kazakhstan's total exports, were the largest export partner in 2016.
Turkey, as a country with common cultural and ethnic origins with Kazakhstan, accounted for 6.3% of Kazakhstan's total exports and imports, commercially higher than the United States.
Iran, as an influential country in Central Asia, was at a higher position than India and Pakistan, accounted for 1.23% of Kazakhstan's foreign trade in 2016.
To enhance its revenues from trade, Kazakhstan has developed important trade relationships with all of the competing major players. The regional trade integration with Russia may prove to be an important economic opportunity for Kazakhstan. Even with the perusal of a deeper regional economic integration by Kazakh leader, other important actors in Kazakhstan's social environment are very much included. Countries from the EU are significant export partners, while Russia and China dominate as import partners. The United States is a vital investment partner.
In 2016, the share of Central Asian countries (Kazakhstan's neighbors) in the total trade of the country was 5.1% in the export and 4.47% in the import. These shares are low compared to other Kazakh business partners (EU, Russia and China), which can be explained by two reasons.
As the first reason, one can say that since most of Kazakhstan's exports are made up of minerals and crude oil, the main buyer of such materials is mainly industrial countries that they process and then sell them with value added. Therefore, the countries of the Central Asian region, which themselves, like
Kazakhstan, export the raw materials are not important export destinations of Kazakhstan. In the import sector, similarly, since the import requirements of Kazakhstan are processed materials and industrial goods, the countries of the region that are not the producers of such goods, are not among the countries of origin of imports.
The second and perhaps more important reason behind the lower share of under discussion countries in Kazakhstan's trade is the definition of Kazakhstan's strategic partners in its multi-vector policy. Based on this policy, a large part of trade relations are being carried out with these partners, namely the European Union, Russia, China and the United States, and other regional economic powers such as Turkey.
Thus, Kazakhstan's main priority for engaging in regional economic organizations is not trade with its neighboring countries in Central Asia, but the transit of goods and the availability of labor are the main issues that in some way are related to Kazakhstan's economic development.
Regional integration has been pursued by Nazarbayev for a very long time now, but there are some serious risks in integrating its economy even more with its bigger and stronger neighbor. Concerns about getting too dependent and not being able to benefit from the integration are valid.
Part 4: Energy policy
Energy resources, in particular crude oil, play a decisive role in Kazakhstan's foreign economic policy, with the bulk of its GDP generated from crude oil exports. On this basis, Kazakhstan's foreign economic policy will be addressed in the energy sector.
There is obvious link between multi-vector policy and foreign economic policy of Kazakhstan especially when we are talking about energy sector of the country. Kazakhstan's economy is based on raw materials exporting, mainly crude oil, so the main determinant of its foreign economic policy which at the same time was an objective of multi-vector policy is attracting of 200 billion dollar of FDI between 2005 and 2017 in country's energy sector.
Since Kazakhstan is the ninth largest and landlocked country in the world with tremendous natural resources, the major way to construct and develop its economy was to export raw materials to the world market then later restructure its economy. So these natural resources including energy resources (mainly crude oil), always have the important role in multi-vector policy and then Kazakhstan's foreign economic policy.
Kazakhstan has two main goals concerning its energy policy, representing its problem situation. First, it wants to reduce its dependency on the Russian pipeline system, thus routes diversification has since independence been a top priority for the government, as stated by the former Kazakh foreign minister, Kasymzhomart Tokayev, in 2003: "As far as pipelines are concerned, our policy is clear and simple, have as many export routes as possible" (Hanks 2009:264). Second, as a crucial ingredient of staying independent, another top priority for the Kazakh government is remaining in control over its oil sector and not letting any foreign actor become too powerful (Bastas; 2013:26). Likewise, the KazMuniGas was formed as a state-owned Kazakh company in the energy sector, which currently holds a major part of the stock of all three main oil fields of Kazakhstan.
According to Cohen, the newly independent state faced several alternatives in the energy policy field. It could nationalize the extractive industry like the Middle Eastern countries or like Russia transfer some energy assets to the private sector. Both scenarios turning Kazakhstan's oil resources into a geopolitical tool (Cohen; 2008: 116).
Privatization was based on geostrategic balance between global and regional players including Russia, America, European and Chinese energy companies which Kazakhstan seek partnerships among them. This potential partnership was based on geostrategic balance of that era.
The process of privatization led to the presence of multinational oil and gas companies in the Kazakh oil fields which in academic texts is known as internationalization of oil production (Bastas; 2013:27) that shaped a part of Kazakhstan's foreign economic policy in the energy sector. Before going through to privatization, a general overview of the oil and gas figures in Kazakhstan is essential in order to clarify the importance of these resources in the economy of the country.
Kazakhstan's oil production over the past five years is shown in the chart (Fig. 4.1).
Kazakhstan has the second-largest oil reserves as well as the second-largest oil production among the former Soviet republics after Russia.
Today Kazakhstan is among the top 15 countries in the world when it comes to essential oil reserves, having 3% of the world's total oil reserves. 62% of the country is occupied by oil and gas areas, and there are 172 oil fields, of which more than 80 are under development. More than 90% of oil reserves are concentrated in the 15 largest oil fields (KazMunayGas: 2016).
HI
1,69
1,68
2012 2013 2014 2015 2016
Fig. 4.1. Kazakhstan's oil production over 2012-2016, million barrels per day Source: BP statistical review.
In order to understand the importance of oil in the economy of Kazakhstan, the following Table 4.1 shows the share of it in country's total exports over the past five years.
Table 4.1
Share of oil in Kazakhstan's export
Year Total exports Oil Exports % of total exports
2012 $83.8B $46.1B 55
2013 $74B $44.9B 61
2014 $68.3B $39.7B 58
2015 $40.9B $19.8B 48
2016 $32.8B $13.2B 40
Source: OEC web site.
For studying Kazakhstan's energy policy, the main elements that should be considered, are decisions made by Kazakhstan regarding investments and development of its resources through selling rights to companies and export routes. Henriksen believes, there is a close relationship between Kazakhstan's energy resources and its foreign policy. They mirror each other through general patterns in Kazakhstan's development of energy projects, and through the development of multiple export routes in different directions (Henriksen; 2013:90).
Therefore, the most important component of Kazakhstan's foreign economic policy is the extraction, production and export of energy resources. This section of Kazakhstan's foreign economic policy has various dimensions which would be explored in this part.
4.1. Internationalization of oil production
As a strategy, a balanced approach that was adopted by Kazakh government considered to be consistent with the country's foreign policy priorities, and based on this approach the Kazakhstani leadership believed that Kazakhstan would be able to maintain partnership with key players in the region and employ oil revenues to maintain sustainable economic development in the country. This strategy, in a short time
turned Kazakhstan to the most attractive CIS country for foreign investment. Thus, foreign companies and multinational companies entered to the energy industry of Kazakhstan.
The energy sector has been a favorite of regional and international actors for geopolitical reasons. Kazakhstan, considering its advantages in having huge oil and gas reserves alongside domestic political stability and non-tension foreign relations, has succeeded in linking the interests of foreign actors and its interests and providing favorable conditions for attracting foreign investment and developing its oil and gas sector.
By adopting a multi-vector foreign policy, Kazakhstan provided a favorable channel for attracting foreign investment and technology in its oil sector. In the period from 2005 to 2017, it attracted about hundreds of billion dollar foreign investment in the energy sector, mainly oil and gas.
The Kazakh government gave the priority to well-known international companies that were simultaneously interested in investment in the country's oil industry and its internal values and considerations.
In the first phase, according to the measures used by Kazakh government for evaluation foreign companies, Transnational companies such as Chevron, ExxonMobil, Agip/Eni, Royal Dutch Shell, British Group, Total, Impex and others succeeded to win the competition.
In the second phase it was Canadian, Middle Eastern and Russian companies that established their presence in the Caspian region. The presence of Chinese companies became more obvious in 2005 and 2006.
Although, internationalization of oil industry was one of top priority for Kazakh government, but another top priority for the Kazakh government is remaining in control over its oil sector and does not let
any foreign actors become too powerful to maintain country's independency. For fulfilling this objective they establish a state owned company called KazMuniGaz.
It is clear that the Kazakh government's policy of not letting any foreign actor have too much control of its oil sector has been successful because Kazakhstan still retaining control through KMG and PetroKazakhstan. No foreign company has single-handedly more than 11% ownership in total (Fig. 4.2).
This policy planned strategically and carefully not to let any foreign actor have too much influence over the Kazakh oil sector, while at the same time enabled Kazakhstan to bring modern technology and knowledge to its oil industry.
4.2. Pipeline policy for securing energy export
As Kazakhstan is landlocked between Russia and China, it did not have any option but to export its oil through Russian territory, especially in the first days after independence. Aware of this fact, Russia tried to dictate the terms of price along their own lines and volumes supplies of Kazakhstan's oil.
The leader and other foreign and economic decision-makers in Kazakhstan, aware of the limitations in energy export routs, have come up with a pipeline policy in the context of multi-vector policy and as part of energy policy, which aimed at independence against Russia in term of energy export.
Therefore, to protect its energy security, Kazakhstan started to diversify its export routes.
The Baku — Tbilisi — Ceyhan (BTC) pipeline and Kazakhstan — China oil pipeline Atasu — Alashankou are some samples of the results of this pipeline policy.
By diversifying its energy export routes, Kazakhstan not only decreased its dependence on Russian oil pipelines, but started to compete with Russia for foreign markets. For instance, Kazakhstan joined the BTC pipeline to compete with Russia for the European market and had a lot of deals with China to earn a good position before its competitor, Russia (Nurgaliyeva; 2015:93).
Kazakhstan's energy policy in the pipeline sector could be analyzes from two perspectives. In the one hand, Reducing Kazakhstan dependence to the Russian pipeline was one of its foreign policy priority, in the other hand the arrival of foreign corporations demanded the construction of a system of export oil and gas pipelines. Thus, building new pipelines for transportation oil and gas with foreign companies' participation became another strategic tool in the hands of Kazakh leadership which could enhance balancing approach in the foreign economic policy context.
From an economic point of view, a pipeline between China and Kazakhstan, which is in line with the increasing presence of the Chinese in the Kazakh oil production sector, was being put into operation. Construction of this pipeline resulted in an increase in exports and, as a result, an increase in oil revenues for Kazakhstan.
Fig. 4.2. Ownership in major international oil consortiums in Kazakhstan Source: Bastas; 2013:36.
Furthermore, from strategic perspective, building the new energy routes was important for two reasons: first, Kazakhstan had to assure export routes that would guarantee its ability to fill the demand for "black gold" particularly to the West and China, and second, to gain independence from Russian energy infrastructure.
So, Kazakh government decided to actively participate or initiate pipeline projects as a part of its foreign economic policy which also could be seen as a part of Kazakh multi-vector foreign policy.
4.3. Energy markets policy
According to International Energy Agency (IEA), in 2016 most of Kazakhstan's oil (approximately 75%) is exported to European countries. Around 16% of Kazakh oil is exported to Asia, 13% of which is imported by China, and 3% is allocated to other Kazakhstan oil importer countries in Asia the rest is allocated to the other parts of the world that are the buyers of the Kazakh oil (IEA; 2017).
As indicated in the previous sections, Kazakhstan is partly dependent on Russia in the energy transportation sector, although it tries to reduce this dependency through the diversification of energy transmission lines. In the production sector, while balancing the presence of foreign companies, it has provided space for Chinese investments.
In the energy market sector, it has allocated a large part of its export oil to European countries, which can be considered as one of the balancing act between major actors in the framework of multi-vector policy and can be considered as one of the determinants of its foreign economic policy.
Energy market policy is linked to diversification of oil and gas pipelines, which can be analyzed as part of foreign economic policy in the context of multi-vector policy. In fact, as the European and Chinese enthusiastically set new pipelines to increase their security of energy supply, Kazakhstan has used its position in favor of its own interests. In this way, while increasing export capacity and increasing oil sales to these countries, in particular China, on the one hand Kazakh revenues will increase, and, on the other, Kazakhstan's dependence on Russian-controlled pipelines will be reduced.
For achieving economic and political goals, Kazakhstan has balanced between the three great powers both in development of oil and gas, as well in export routes by favoring development of three pipelines that supports their interests. Kazakhstan has developed its resources in accordance with its pragmatic multi-vector policy.
By using this strategy regarding investment decisions, Kazakhstan has progressed toward reaching the goals of the multi-vector policy, and limit foreign influence by balancing against Russia, the United States and China. It is important to be aware that these goals have been pursued in a closely connected manner in regards to both economics and politics.
Given the geopolitical position of Kazakhstan, there is a direct relationship between Kazakhstan's energy policy and its multi-vector policy. The close relationship between energy and foreign economic policy in Kazakhstan, and the multi-vector policy used by Kazakh leadership and government as a tool for development of Kazakhstan's economy and its energy resources.
In general, as a summary of the efforts of the Kazakh government in the energy sector and its foreign economic policy in the context of multi-vector policy, one can be said that Kazakhstan's leadership, with its multilateral approach, could attract significant amounts of foreign investment in its oil industry in the first years after independence, which led to a significant increase in oil production which resulted to increase revenues and then economic prosperity of Kazakhstan.
In the pipeline policy, the goals of the Kazakh government, were firstly expanding oil export in order to earn more money and contribute to the country's eco -nomic development, and secondly to reduce its dependence on Russia. In this regard Kazakhstan by using the increase in crude oil production entered itself in the spotlight of Europe and China for constructing energy transmission lines from, as the result several new pipelines were constructed and Kazakhstan, as mentioned in the relevant section, reached out part of its objectives in this sector.
In relation to energy markets, on the one hand, China, which wanted to export oil produced by Chinese companies into its territory to enhance its energy security, increased its share of oil import from Kazakhstan. On the other hand, Europeans who are concerned about the security of their energy supplies from Russia, while supporting the construction of independent pipelines, are looking to buy oil and gas from Kazakhstan, and see this country as one that can resolve parts of their concerns about energy security.
Conclusion
The emergence of multi-vector policy as Kazakhstan's foreign policy was a rational move by Kazakhstan as it was the best thing to do in the situation that Kazakhstan found itself in, after independence. In that situation the economy was in bad shape and the oil sector needed
to be developed as quickly as possible since revenues from natural resources is the Kazakh government's main income. This could be done by opening up for support and investments from the West and by promoting a strategic relationship with Russia.
Based on rational choice theory, Kazakhstan was considered as an independent entity whose foreign economic policies were influenced by international system, and simultaneously, the country's process of decision-making is based on the national interests and rational choice, then on these bases, shaping its relations with neighboring countries and global and regional powers.
Kazakhstan foreign policy can be analyzed both within system level and state level. In regard to domestic condition, ethnic composition of a state is one of the main factors that should be considered.
The road map for economic relations or foreign economic policy was in the broader foreign policy, known as the multi-vector policy. Central feature of the multi-vector policy is pragmatism which means that Kazakhstan has been following a cost-benefit analysis in foreign policy as a rational actor. Thus, a pragmatic foreign policy to develop its offshore oil and gas resources freely, with the active participation of Western oil firms and governments, was crucial to overcoming the dual challenges of state-building and economic recovery in this landlocked country.
To optimize its gains from trade, Kazakhstan did not exclude any of the competing big powers and facilitated a good trade relationship with all of them. Its regional trade integration with Russia is an important economic opportunity to increase the level of trade in the region. Countries from the EU are significant export partners, while Russia and China dominate as import partners. The United States is a vital investment partner.
Oil production is the backbone of the economy of Kazakhstan and its most rapidly developing sector, generating a substantial portion of the gross national product and providing a large part of budget revenues and hard currency earnings for the country. A major portion (58.5%) of investments in Kazakhstan is provided to the oil and gas sector. Since independence, the bulk of Kazakhstan's
export revenue has come from oil and, to a lesser degree, gas and other natural resources. The energy sector has also been the primary target for FDI, which Astana has consciously sought to diversify as a means of giving a wide range of partners a stake in its success. Since the early 1990s, international oil companies have taken a leading role in the development of Kazakhstan's energy. Today, lower oil prices and questions about the commercial viability of Kazakhstan's giant Kashagan field have tempered foreign investors' enthusiasm, but Astana remains committed to diversifying both its trading partners and the contents of its exports.
In sum, geopolitical situation, geographical obstacles along with pragmatic character of Kazakh leader resulted to the foreign economic policy in which attracting large volume of foreign direct investment to extraction industry especially in oil and gas sector, became its top priority. Moreover, Kazakhstan struggled with its aforementioned dependency dilemma Vis-a'-Vis Russia, particularly in terms of exporting its oil. While the main challenge for Kazakhstan has long centered on how to decrease its dependence on the Russian-controlled pipeline system, the full development of its enormous oil fields required time and capital to build infrastructure. Therefore, Kazakhstan gradually had to pursue a Western orientation in its foreign policy.
Its geopolitical situation gradually changed so that the priority shifted to a need to balance the interests of Russia, China, and the United States. When it became clear that Russia did not have sufficient financial clout and technology to develop the huge oil resources in Kazakhstan, Nazarbayev turned to the major Western oil companies. His main strategy was to diversify sources of funding to safeguard economic stability during the state-building process and consolidation of his power. In fact, the economic assistance of the multilateral agencies was critical for the Kazakhstan economy.
Consequently, the Kazakh government, based on its foreign economic policy, was simultaneously able to properly exploit its oil resources then maintain country's economic development, and illustrate the country as independent entity.
Сведения об авторе
Али Акбар Хандан — магистр региональных исследований, ЭКО-колледж, Университет им. Алламе Табатабаи, Тегеран, Иран.
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2019. No. 3 (425). Economic Sciences. Iss. 64. Pp. 98—109.
ВНЕШНЕЭКОНОМИЧЕСКАЯ ПОЛИТИКА КАЗАХСТАНА (1991—2017)
А. А. Хандан
ЭКО-колледж, Университет Алламе Табатабаи, Тегеран, Иран
С момента обретения независимости казахстанские власти проводят многовекторную внешнюю политику и в соответствии с этим развивают экономические отношения страны с ближним и дальним зарубежьем. Наиболее слабой стороной Казахстана являются недостаточные связи с внешним миром, и работа в этом направлении в целях выхода на отдаленные рынки стала приоритетной во внешней политике Казахстана, поэтому они пытаются установить двусторонние и многосторонние отношения (Россия, Китай, ЕС, США). Наибольшее внимание уделялось привлечению ПИИ для развития энергетического сектора, доходы от которого имеют жизненно важное значение для экономического восстановления. В данной статье автор анализирует внешнеэкономическую политику Казахстана с момента обретения независимости. В качестве теоретической основы использовалась теория рационального выбора. Главный вопрос статьи: каковы детерминанты внешнеэкономической политики Казахстана? Для ответа на основной вопрос аргументом или гипотезой статьи является то, что детерминанты внешнеэкономической политики Казахстана аналогично являются экономическими целями многовекторной политики этой страны.
Ключевые слова: Казахстан, многовекторная политика, энергетика, Россия, Китай, ЕС, США.
