Strategy Note /

Kazakhstan election gives Tokayev until 2029 for Saudi-style reform

  • President Tokayev wins unsurprisingly, with 81% of the vote, amid 69% turnout. He is limited to one term of seven years

  • Higher public spend on wages, pensions, healthcare, education likely: affordable given post-Covid fiscal deficit of 1-2%

  • MSCI Kazakhstan valued at 8x PE and 7% dividend yield: the consensus may be too pessimistic on Saudi-style reform

Kazakhstan election gives Tokayev until 2029 for Saudi-style reform
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
21 November 2022
Published byTellimer Research

Incumbent President Tokayev unsurprisingly won the 20 November election with ease. Turnout was 69% and his share of the vote was 81%. His term is a single one of seven years, a limit incorporated into the political reforms via a referendum that he championed earlier this year.

For now, the indications are that Tokayev will increase public spend on wages, pensions, healthcare and education – well within Kazakhstan's means given an IMF fiscal deficit forecast for 2022 of 2% of GDP.

He will also continue Kazakhstan's almost unique tradition of balancing China, Russia and the US-EU in foreign policy – a neutral stance that has been tested and preserved through the domestic protests and the Russia-Ukraine war.

Whether he can emulate the sort of economic reform to state-owned enterprises and sovereign wealth introduced in a short time in another commodity exporter with a concentration of political power, Saudi Arabia, remains to be seen.

Kazakhstan can afford more public spend

The performance and valuation of Kazakhstan equities, which account for 8.4% of the MSCI Frontier index, suggest that consensus expectations of such a transformation are low.

  • The MSCI country index (56% weight for fintech Kaspi, 29% uranium supplier Kazatomprom, 15% bank Halyk) is down 31% year to date in total US$ return terms.

  • Forward PE is 8x, alongside a 7% dividend yield and a real effective exchange rate within 3% of its 10-year median.

If there is follow-through on the implementation of long-awaited structural economic reform, eg transport, education and energy infrastructure upgrade (the Nurly Zhol plan announced in 2014) and privatisation (the Comprehensive Privatisation Plan approved in 2020), then the Kazakhstan investment case becomes very appealing.

Kazakhstan equities still valued way below pre-protest peak

Tokayev until 2029 but political risks remain

Tokayev has already overseen the removal from positions of political and economic power of former President Nazarbayev and his patronage network, following the catalyst of mass protests in January 2022, and the institutionalisation of some of these changes, via a referendum on the constitution in June 2022.

These are changes that have reduced the risks of dictatorship and kleptocracy. But they have not yet established a path to competitive democracy, profound reform of state-owned enterprises, or, at least, Saudi-style reinvestment of sovereign wealth (ie privatisation and the use of the proceeds to diversify the local economy away from raw commodities).

Kazakhstan constitutional reform referendum in June 2022

And the risks remain that if he is unchallenged politically then Tokayev might use his authority to craft his own patronage network and push for constitutional change that enables him to continue beyond 2029, or that the vested interests tied to Nazarbayev revive and seek to reassert themselves.

Very poor starting point on political risk

As a result of the concentration of power under 81 year-old Nursultan Nazarbayev, president from April 1990 to march 2019, and the powerful eminence grise behind Tokayev until the mass protests of January 2022, the starting point in Kazakhstan for politics interfering with free market economics is very poor.

Kazakhstan's poor national governance scores
  • Democracy score of 3.1 (on a scale of 0 to 10, where 0 is least democratic, on the EIU index), closer to Russia's 3.3 than Georgia's 5.3.

  • Liberal Democracy score of 0.13 (on a scale of 0 to 1, where 0 is least democratic, on the V-Dem index), closer to Russia's 0.10 than Georgia's 0.51.

  • Corruption score of merely 37 (on a scale of 0 to 100, where 0 is most corrupt, on the Transparency International index), closer to Russia's 29 than Georgia's 55.

  • Financial secrecy score of 63 (on a scale of 0 to 100, where 100 is most secret, on the Tax Justice Network index), closer to Russia's 60 than Poland's 46.

  • Press Freedom score of 48 (on a scale of 0 to 100, where 0 is the most restricted, on the Reporters Without Borders index), between Russia's 39 and Georgia's 59.

  • Governance score of -0.32 (on a scale of -2.5 to +2.5, where -2.5 is the weakest, on the World Bank index), closer to Russia's -0.65 than Georgia's 0.40.

  • Private sector regulation score of 0.14 (on a scale of -2.5 to +2.5, where -2.5 is the weakest, on the World Bank index), closer to Russia's -0.44 than Georgia's 1.11.

Neutral foreign policy tested and preserved

President Tokayev has also demonstrated that, in foreign policy, he is capable of balancing relations with all regional and global powers in the manner of Nazarbayev:

  • Russia trade ties (10% of exports, 35% of imports) – Russian troops were vital in suppressing violent protests at the start of 2022 and Kazakhstan abstained in the March 2022 UN vote to condemn Russia;

  • US-EU condemnation of Russia – Tokayev publicly criticised President Putin's plan to annex occupied territories while sharing a stage with him in St Petersburg in June 2022; and

  • China's Belt and Road expansion – Tokayev was host to General Secretary XI Jinping's first overseas trip post-Covid in September 2022.

Related reading

Kazakhstan votes to end Nazarbayev-style rule; adds reform to commodity tailwind, June 2022

Kazakhstan protests but key risk remains succession, January 2022

Kazakhstan impact on Uranium, Ukraine, Bitcoin, Putin's succession, FM equities, January 2022

OPEC+ decision suits Saudi, US, Russia but no oil price relief for importers, June 2022