AS the global economy sinks into recession, for many countries increased infrastructure spending will change from a long-term development goal to a vital short-term boost for employment, and across Central Asia both China and the EU will need to step up their efforts.
The biggest country in Central Asia, with a population of 18 million, is Kazakhstan, which has become an important area of focus for both the Belt & Road Initiative (BRI) and the work of the European Bank for Reconstruction and Development (EBRD).
Kazakhstan has huge oil and gas fields, but its budget will suffer from the recent collapse in oil prices, due to the demand slump and the standoff between Russia and Saudi Arabia.
Development bank funding will be needed to keep the economy on track, and efforts are also being made to improve access to private sector capital, including via stocks and bonds issued on the Astana International Exchange (AIX).
The AIX was established as part of the Astana International Financial Centre (AIFC). AIX shareholders are AIFC, Shanghai Stock Exchange, Silk Road Fund, Goldman Sachs and NASDAQ, the latter providing the trading platform.
AIX operates within the AIFC regulatory environment, a constitutionally separate jurisdiction within Kazakhstan, which is based on English common law principles. AIX is regulated by the Astana Financial Services Authority, an independent regulator established within the AIFC.
In late March China Construction Bank (CCB) issued the first ever RMB bond in Central Asia. CCB Astana branch sold 1 billion yuan (US$141 million) worth of bonds paying a 2.95% coupon to professional investors.
The so called Falcon Bonds, which have a two year maturity, are listed both on AIX and the Stock Exchange of Hong Kong.
The proceeds will be used to support general corporate purposes concering local infrastructure and BRI projects in Kazakhstan.
"The bond will promote the development of an offshore RMB market in the AIFC, Kazakhstan and Central Asia," AIFC governor Kairat Kelimbetov comments. He adds that the listing was a result of close Kazakhstan-China financial cooperation under the framework of the BRI.
Tim Bennett, CEO of the AIX, noted that the bond is the first RMB product of the AIX Belt & Road Market. "This issue is an innovative model of financing Belt & Road Initiative projects, which will contribute to the development of the local economy and create new job opportunities,” he says.
CCB officially opened its Kazakh branch last September. The Astana branch, the first foreign commercial bank’s branch registered under AIFC jurisdiction, has been appointed as RMB clearing bank in the AIFC.
AIX Belt & Road Market is a key segment, where RMB securities, including bonds, equities and other products can be listed and traded. AIX is expecting more RMB issuances from diversified issuers which will contribute to establish AIX as the RMB securities listing and trading centre for Central Asia.
“CCB Astana branch will work with AIFC and AIX on building the offshore RMB centre which implement the joint communique issued after bilateral talks between President Xi Jinping and President Kassym-Jomart Tokayev outlining the promotion of bilateral local currency settlement jointly by China and Kazakhstan,” says Wang Songhua, senior executive officer of CCB Astana branch.
Within the BRI, the Khorgos Gateway dry port plays an important role. It is one of Kazakhstan's primary dry ports for handling trans-Eurasian trains, which travel more than 9,000 kilometres between China and Europe.
In fact, Kazakhstan was the location for the original announcement of the BRI, in a speech given by Chinese President Xi Jinping at Nazarbayev University in Astana in September 2013.
Last year Chinese Vice Premier Han Zheng visited Kazakhstan, and attended the 12th Astana Economic Forum and the Second China-Kazakhstan Local Cooperation Forum. During the three-day visit, Han also held a meeting with Kazakh President Kassym-Jomart Tokayev.
Jointly constructing the Belt and Road has become the main theme of China-Kazakhstan cooperation, Han said, adding that the two sides have made great progress in aligning development strategies, setting up cooperation mechanisms and implementing major projects. China is willing to continue deepening alignment of the Belt and Road Initiative and the Kazakh "Bright Road" economic policy, he added.
The Asian Infrastructure Investment Bank (AIIB) works independently outside of the BRI framework, and has also been active in Kazakhstan.
The 100MW Zhanatas wind power plant, located in south Kazakhstan's Zhambyl region, was the first project funded by the AIIB in Kazakhstan, with the bank providing a US$46.7 million loan. The plant is a US$130 million joint venture between Dubai based Visor International and China Power International Holding Limited, a subsidiary of State Power Investment Corporation.
Given its size, geographical position and oil wealth, Kazakhstan is a country where the EU and China see an opportunity for cooperation as well as competition in linking Europe and China, and it is high on the agenda for the EBRD.
On March 3, EBRD president Sir Suma Chakrabati made a speech to the Kazakhstan Senate, in which he noted that Kazakhstan "is an ever more important part of the New Silk Road, which is transforming the region into a hub for trade and investment," adding that "the AIFC is another powerful symbol of Kazakhstan’s ambition to spread and share prosperity across the region as a whole."
Outside the oil and gas sector (where most of the global oil majors are active in exploration and development), the EBRD is Kazakhstan’s largest foreign investor, under an Enhanced Partnership Framework Agreement.
In February the EBRD signed an agreement for the Big Almaty Ring Road PPP, also known as BAKAD.
Chakrabati described it as "the region’s first proper PPP", and one that the project finance world has been following very closely. It is expected to open the doors to increased private sector participation in infrastructure financing both in Kazakhstan and beyond.
And last December another Memorandum of Understanding was signed setting out the role of the EBRD in helping develop the Kazakh healthcare sector.
The EBRD has also been active providing loans for renewable energy plants in Kazakhstan, with a portfolio of six projects.