President Nazarbayev has turned Kazakhstan into a Central Asian powerhouse. He is 73, and shows no sign of giving up the reins. But there are riches at stake, and people waiting in the wings. Kazakhstan has won kudos from international investors, for having successfully exploited its oil and gas reserves, ensuring GDP growth of 5% a year and annual GDP of over £120 billion, with a population of less than 17 million; and a landmass covering an area greater than continental Europe. The country is bidding to join the world's top 20 economies by 2050. The building of a modern capital city, Astana, in 1997, at very considerable expense, is another facet to this modernisation.
Compared with the neighbouring 'stans' – old fashioned if not dubious and utterly corrupt – Kazakhstan has a stable and pragmatic government. The appointment by President Nazarbayev of a cadre of young ministers, when the country gained its independence, at the expense of the old Communist elite, has ensured continuity of administration and, if some observers are to be believed, an improving corruption picture. One local commentator observed, 'these men have stayed in place for the last fifteen years. They are no longer buyable. They are quite well off, and are less interested in the money than in the legacy of their retirement. They don't want that blotted by a failed project.'
The other story
That is the modernising PR story that Kazakhstan would like to present to the world, helped by any number of pensioned-off western politicians, led by one Tony Blair. However, the opponents of Nazarbayev say that the President's legitimacy and methods are far from modern. A long line of fatal accidents and feuds has led to the claim that the President, who recently had the Kazakh parliament vote him a lifetime Presidency (only revocable by parliament itself), is the enemy of democracy. Kazakhstan has just one significant political party, Nur Otan ('Fatherland Ray of Light'), and all elections (and a referendum) since 1991, when Nazarbayev took the reins of power in the then newly independent country, have given him a statistically unlikely 90% of the vote.
Most opponents have kept their head beneath the parapet but some have put their head above it, and paid the price. These include Zamanbek Nurkadilov, a leading opposition politician and former major of Almaty, who died in 2005 in mysterious circumstances, purportedly as a result of suicide. Another was Altynbek Sarsenbayev, who was murdered, (according to an FBI investigation), by security service agents, at the instigation of the President's son-in-law Rakhat Aliyev. Sarsenbayev had been co-chairman of the opposition Naghyz Ak Zhol (True Bright Path) party.
Aliyev himself, at one time a head of the tax and internal security investigation offices, subsequently quit the country in 2007 after apparently challenging the President. Greatly enriched, but divorced from his wife at the President's instigation, he currently lives in Malta, and has made many allegations of corruption against the President. Aliyez has supported the campaign of Mukhtar Ablyazov, the former head of BTA Bank, who allegedly stole billions from the company, while claiming that the prosecution was a fabricated response to his anti-Nazarbayev political opinions.
The controversy that surrounded one of Kazakhstan's leading companies adds fuel to the fire. The City of London, the UK media and many regulators will not forget quickly the scandal sparked by Eurasian Natural Resources Company (ENRC) when it took advantage of liberal listing policies in the mid-2000s to get a listing in London. Six years later, with much blood spilled on the carpet, the company pulled out of the London Stock Exchange. This has greatly embarrassed Nazarbayev, and tarnished his modernising image.
ENRC's control of Kazakhstan's abundant bauxite reserves and aluminium smelting facilities had enriched a succession of entrepreneurs active in the former Soviet Union, and afterwards, including Marc Rich, the commodities broker, the Russian Chernoy brothers, and the Reuben brothers. Next to elbow in on the aluminium resources was a trio of Central Asian businessmen: Aleksandr Maskevich, a Kyrgyz who took Israeli citizenship, Alijan Ibragimov also a Kyrgyz, and Fattokh Shodiev, an Uzbek. Shodiev, a suave and talented former diplomat, is thought to have close ties to Nazarbayev and his family, in particular to Timur Kulibayev, a wealthy and well-connected Kazakh businessman.
Assessments of the three men's stake in ENRC range between 35% and 44% of the business, alongside other Kazakh investors, including Kazakhmys with 26% and the Kazakh Government with 12%. Kazakhmys is a copper company – reportedly part owned by the President himself – also listed on the London Stock Exchange; run by Vladimir Kim, it has remained relatively free of controversy.
When the move to gain outside investors for ENRC was first mooted by Mashkevich, Ibragimov and Shodiev – the 'Trio' – the Exchange was so enthusiastic it allowed them to bypass its rules requiring 25% of stock to be made available to local investors. That raised eyebrows but nothing more. Once listed on the exchange, the stock raced quickly into the FT100.
Within two years, the Trio had decided to invest in natural resource assets in Africa, in a bid to diversify away from Kazakhstan, and thus protect themselves against the risk of political change (or threat to their powerbase) at home. They moved into the Democratic Republic of the Congo (DRC). This brought them into contact with a shadowy Israeli commodities trader, Dan Gertler.
Deals between the Trio and Gertler took place between 2009 and 2011, and, as details appeared in the press, a spotlight was turned on the Trio's approach to business. Gertler, purportedly a friend of the DRC's President Joseph Kabila, had persuaded influential Congolese around the President to sell him licences to mining assets, that had formerly been owned by, among others, the Canadian mining company, First Quantum. The opportunity to change ownership occurred when the country was reviewing licences obtained during its recently ended civil war. Gertler 'flipped' assets – including the massive Kolwezi copper business and a number of DRC mines – at a handsome profit, with ENRC an eager buyer. Indeed, in some cases, ENRC is said to have paid Gertler before Gertler had even paid the seller in DRC. It was subsequently claimed by NGOs and others, including the Africa Progress Panel, an NGO chaired by Kofi Annan, that the people of DRC had lost £435 million as a result of Gertler and ENRC's asset trading.
The great and the good
The shadowy nature of these deals, coupled with the bad publicity, caused concern inside the ENRC Board of Directors, many of whose members had chosen not to push the main shareholders (who were not on the board) for too much detail about the deals. These were the 'Great and the Good' of the UK corporate establishment, selected for their reputation rather than any mining or commodities expertise, to give this unusual company the patina of respectability. Some members of the Board, notably Johannes Sittard, an academic metallurgist and former executive with Mittal steel group, were closer to the Trio than others.
The Board's response to the media blitz was belated and ineffectual. One member said, 'this was the most dysfunctional and divided board on which I have ever served.' Ken Olisa, a former independent director, ousted in June 2011 at the instigation of the Trio on the day before the AGM would have voted him a further term, said the three businessmen were scheming behind the backs of the Board. He memorably observed that ENRC was 'more Soviet than City.' That soundbite touched a raw nerve both in the City of London and in Kazakhstan.
Speculation about the company's activities in Africa focused on possible payments to presidents of African countries. The law firm Dechert (hired by the company to investigate whistleblower allegations in Kazakhstan) wrote to ENRC's General Counsel, specifically alleging 'cash payments to African presidents.' The letter said that the 'payment(s) had been sanctioned by a senior executive.' When Dechert later resigned, not having been able to conduct its investigations as thoroughly as it would have wished, the resignation letter was leaked to the UK media, in April 2013.
The African activities of ENRC had already come to the attention of the UK's Serious Fraud Office, and it had engaged in an extended private discussion with the company's directors hoping that an agreed deal – coupled with an admission and payment – could be reached. This was strongly resisted by the Trio, who appeared intent on brazening out the interest of law enforcement. But when the Dechert resignation letter was leaked to the media, the SFO announced a formal investigation into 'fraud, bribery and corruption relating to the activities of the company or its subsidiaries in Kazakhstan and Africa.'
An investigation of this severity was the final nail in the coffin for the company's UK stock exchange listing, and the company took steps to leave the City. The company would be returned to its Kazakh owners, although the Trio still appears to be clinging on to the control and ownership of their stake. It is too early to speculate on the implications for the Trio of events in London, and the President's response, with some speculating that the President wants ENRC to return to its Kazakh rump, and sell the African assets. Others have suggested that the President may pressurise the Trio to sell their stake back to the country, perhaps to the sovereign wealth fund Samruk-Kazyna.
Whoever wins out in the end, the shareholders in ENRC are the losers: they paid 540p for their shares in 2007 and received 218p in October 2013.
What the President knew
The ENRC debacle not only casts a cloud over the carefully crafted PR image that Kazkahstan wishes to show to the world, it also rebounds on a President who works closely with the business elite, and has stakes in its companies. 'Nothing happens in Kazakhstan without the President's knowledge and permission,' observed one observer. Global Witness, for example, has produced compelling evidence showing that companies close to the President have a large stake in Kazakhmys. Disclosures during the trial of James Giffen, a US citizen accused of bribery under the Foreign Corrupt Practices Act, showed payments to President Nazarbayev of £53 million. Giffen, a middleman for oil companies seeking concessions in the country, was a close associate of the President. At his subsequent trial, he argued he was representing the US Central Intelligence Agency and, in making undisputed payments to the President of Kazakhstan, was acting for his country.
The issue for foreign investors, however, is less about the wealth of the President than the political risk he has created; and here, succession is the key. President Nazarbayev has failed to grasp this nettle, regarding the nomination of a successor as tantamount to empowering a rival to replace him before his life's work is done. Those seeking to assert a claim have quickly been shown who is boss.
Nazarbayev is 73, and has long been rumoured to have health problems; talk about a succession is inevitable. Possible successors to the President fall into two distinct groups: those who are part of the current political and corporate establishment, and those who have fallen foul of the incumbent. It is a moot point as to whether the next holder of power in Kazakhstan will benefit from having been associated with Nazarbayev, or having a record of opposition.
Among the candidates from the current establishment are:
Timur Kulibayev: the country's third richest man and the President's son-in-law, is a former Chairman of the Management Board of Samruk-Kazyna sovereign wealth fund and a member of the Board of Directors of Gazprom. He fell temporarily out of favour for his mismanagement of the riots at Zhanaozen, in December 2011, which resulted in the deaths of twelve miners. He is now thought to have returned to favour. He is the man who famously bought Sunninghill Park from the Duke of York, Britain's roving business ambassador, who maintains close links with Kazakhstan.
Imangali Tasmagambetov: the Mayor of Astana, and former Kazakh Prime Minister. He has the political skills.
Kassym-Jomart Tokayev: another former Prime Minister and head of the UN office in Geneva. He is the chairman of the Senate, and, according to the constitution, is next in line to succeed the President.
Sauat Mukhametbayevich Mynbayev: the Chairman of Kazmunaigaz is another highly respected member of the local business and political elite, who is in the running.
Leading contenders of those who have either left the country – by force or by choice – and those currently in jail, include:
Akezhan Kazhegeldin: a former Finance Minister and Prime Minister, who today lives in London. He is well respected by the expatriate Kazakh community but scorned by the elite inside the country, who (according to a local businessman) 'resent an outsider telling them what to do.' Sources close to Kazhegeldin say that Nazarbayev has nevertheless consulted him on economic issues at discreet overseas locations.
Mukhtar Djakishev: a former executive at Kazatomprom and Deputy Minister for Mineral Resources. His conviction for corruption, leading to a prison sentence, has been widely criticised.
Aron Atabek: a dissident poet who was jailed in 2010 for eighteen years after being accused of orchestrating mass disorders, in protest against the demolition of a shanty-town, a charge he vehemently denies.
Vladimir Kozlov: the leader of the Alga! political party, was a defendant in the first political trial in Kazakhstan, in 2012. He was accused of inciting workers at Zhanaozen. The US commented that Kazakhstan was using its criminal-justice system 'to silence a leading opposition voice.' Kozlov was found guilty, and is currently serving a prison sentence; Amnesty International classifies him as a 'prisoner of conscience.'
'Après moi, le déluge'
Nazarbayev can only go on for so long. The international community needs to decide to what extent his top-down regime undermines the prospects for building sound economic and political stability. Are the President's economic achievements and his rebranding built on sand? Is Kazakhstan another Ukraine, one more post-soviet country with deep-down corruption, but no deeply embedded institutions? Is Kazakhstan another Egypt – a strongman's castle that could collapse at a moment's notice? Or is there something more solid to this country, which leads the region in terms of its current wealth and apparent stability.
The succession to his all-powerful presidency will be Nazarbayev's greatest test. Ironically, it will occur when he is (most likely) no longer with us.