Strategy Note /

Kazakhstan protests but key risk remains succession

  • Protests against higher fuel prices (after price caps were lifted) grew and morphed into anti-corruption ones this week

  • President Tokayev cut the increase by half, imposed a partial state of emergency, and accepted government's resignation

  • Protests signal popular frustration under authoritarianism but succession remains the core risk for Kaz's stellar stocks

Kazakhstan protests but key risk remains succession
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
5 January 2022
Published byTellimer Research

Protests of a rare scale and scope

Protests against fuel price increases (following the government's removal of price caps), which started on 2 January, grew to a scale and took on a more politicised agenda (calling for the resignation of the government and anti-corruption investigations) which is rare in Kazakhstan.

President Kassim-Jomart Tokayev has responded by reducing the fuel price increase, imposing a partial and temporary state of emergency, and accepting the resignation of the government.

At this stage, there appears to be little risk of a major threat to the long-standing, authoritarian political system. President Tokayev retains effective tools for suppression, he appears to retain sufficient support from former President Nazarbayev, and Kazakhstan's relations remain (uniquely) well balanced between Russia, China, and the US.

Discontent under authoritarianism

These protests are a reminder of the country investment case risk posed by pent-up frustration in the population (which is unlikely to go away any time soon and may pose a bigger risk if oil prices were weak for a sustained period) and they may delay the ongoing economic reform agenda (focused on diversifying away from the reliance on oil exports, which directly drive about 20% of GDP, and which include greater development of local capital markets).

Kazakhstan scores poorly across a range of national governance metrics:

  • 38 (on a scale of 0 to 100) in Transparency International's Corruption index.

  • 3.1 (on a scale of 0 to 10) in the EIU Democracy index.

  • 23 (on a scale of 0 to 100) in the Freedom House Freedom index.

  • 0.13 (on a scale of 0 to 1) in the V-Dem Liberal Democracy index.

  • 50 (on a scale of 0 to 100, where 0 is the top score) in the RSF Press Freedom index.

Succession the core risk

But the core risk remains succession. Kazakhstan seemingly managed the succession from almost three decades of post-Soviet rule under former President Nazarbayev (aged 81) to the current incumbent Tokayev (68) very smoothly in 2019. For much more on this, see Kazakhstan: Succession risk could spoil its appeal among oil peers, May 2020.

This was initially achieved by:

  1. Nazarbayev retaining the role of an eminence grise, institutionally via his role as Chairman of both the National Security Council (a position which Tokayev took over on 5th January 2021) and the ruling Nur Otan party (until he resigned in December 2021), and informally as he represented Kazakhstan in meetings overseas (most recently with Russia President Vladimir Putin on 28 December 2021).

  2. Tokayev maintaining centralised control over the state, institutionally via the constitutional powers he inherited from the Nazarbayev era (to appoint the prime minister, cabinet, and local administrative heads, veto legislation passed by parliament, dissolve parliament, initiate constitutional amendments, command the armed forces) and the overwhelming control of parliament (eg the ruling party has over 70% of seats in the lower house), and via de facto influence over elections and media.

Benign economic backdrop

With a broadly benign oil price outlook, in 2022, real GDP is growing c4%, the fiscal deficit is merely 1.5% (fiscal breakeven oil price is US$84), and the current account deficit is merely 1.4%, according to IMF forecasts. While external debt is still very high – over 90% of GDP – the short-term portion is merely 5% and the sovereign wealth fund buffer (Kazakhstan National Oil Fund and Samruk Kazyna) amounts to c80% of GDP. Inflation is 8.7%, according to the latest reading, but interest rate policy is prudent at 9.5% (up 50bps in 2021).

Stellar stocks

Kazakhstan equities are dominated by Kaspi (fintech), Kazatomprom (uranium), and Halyk (bank) – all listed in London. Each of these stocks were stellar performers in 2021. Weakness in share prices driven by these protests should be temporary.

Kazakhstan's stellar 2021 performers