It’s the new Eldorado. And though its riches may prove just as illusory for the modern hydrocarbon conquistadors, it’s is almost as hard to get to. Still, foreigners love Kazakhstan, or rather they love the oil under its shores. Like many of the successor states of the USSR, Kazakhstan did not grow into independence. It was thrust into it, and its leaders cling to the old Soviet ways to feel comfortable. But they still avail themselves of the best the modern world offers, like offshore bank accounts, big kickbacks and ostentatious spending by the newly enriched, so the poor can get seriously motivated by seeing what they’re missing.
In the early post-Soviet days, the usual western corporate suspects swooped in hoping they could do their usual looting and running. But for many, the whole vision of enrichment at Kazakh expense turned into a mare’s nest. Kazakhs trace their lineage back to Genghis Khan’s hordes: they themselves know a thing or two about looting and pillaging. And they know that exacting tribute is better for long-term financial planning.
Much of the tribute is in the form of shake-down commissions from foreign oil companies and a certain quantum uncertainty about the boundaries between state and personal offshore accounts. Meanwhile, taxes on foreign firms help balance the budget, so while salaries and pensions for the common Kazakh are low, they are paid on time. A moderate kleptocracy, the family members of President Nursultan Nazarabaev are ubiquitous figures in business. One diplomat refers to his son-in-law as the Eliminator for his dealings with competition. A raid by the tax police will close down a rival until its owners see sense and the son-in-law sees a controlling interest.
Kazakh delicacies
For centuries nomadic Kazakhs measured their wealth in camels and horses. They knew their horses inside and out. Indeed, they love their faithful steeds so much that they eat them. The last time I’d visited Almaty, one of the horse meat delicacies, karta was a sort of sausage skin filled with fat, which intrigued me.
I was better off intrigued than enlightened. The Zheruik, an Almaty restaurant, is explicitly targeted at the new and affluent Kazakh elite. ‘Our marketing doesn’t target the Russians – they can come, but we don’t want them really,’ the manager explains.
The Russians, who make up half the population, may not want to come anyway, because they may get served karta: ‘Take a horse’s rectum and clean thoroughly, without removing the fat, then it should be carefully turned inside out so that the fat is inside, washed once more, and tied up on both ends.’ It’s actually quite tasty, the fat light and creamy, but it’s hardly what the cholesterol cop ordered.
Kuyrdak is a better bet, but still needs a strong stomach. It is ‘chopped sheep’s liver, lungs, hearts and kidneys cooked in the mutton fat from the tail.’ But it’s not so bad when washed down with plenty of shubat and koumys, respectively the fermented milk of camels and mares, which the restaurant patrons consume at a rate of four gallons a day. ‘It’s very useful – cleans up your intestines,’ the manager confides.
Horse trading
Obviously, anyone who wants to horse trade with people who eat horse’s rectum with alcoholic mare’s milk should be careful to count the humps on the camels before buying, as my invented ancient Kazakh proverb would have it. (The local model has two, by the way, even before you drink the koumys.)
So I was interested in how the Kazakh Stock Exchange worked. I expected a mass of insider trading, hyped analysts’ assessments and preferential access to bloated IPOs. But it wasn’t a bit like western exchanges.
In fact, most of the companies on western high-growth markets wouldn’t get a listing on KASE, the Kazakh Stock Exchange, which insists on three years of real profits and auditing by one of the big five. Its main businesses are currency trading and bonds, both government and corporate. The latter is expanding, and observers expect some spillover into equities since the new private pension funds are amassing large sums by regional standards – almost $2 bn by next year – with few instruments to invest in other than three or four-year government bonds.
The head of KASE’s information and analysts’ section, Yuri Tsalyuk, knows what’s what. He is proud of the rigorous listing standards which mean that less than two dozen companies can qualify. But this does reduce liquidity, even if they haven’t yet had a default. ‘Look at this,’ he demands, indicating the classic growth curve of the KASE bond market on his computer screen. ‘That’s a market. But look at this,’ he says switching his screen to show the random squiggles of the KASE equities index. ‘That’s not a market. Local investors don’t see a cash exit, and issuers do not want to issue stocks. The main holders are large enterprises who do not want to sell. They are so profitable, they don’t need the money.’
Equities are usually held by a few big institutions, which prefer deals behind closed doors rather than on the floor of the stock exchange in the basement of the old Ministry of Justice. KASE president Damir Karassayev loyally defends the country against charges of corruption. ‘Any developing market will frighten away investors because it is different. Whatever the westerners think is corruption is just a matter of mentality. It is just a different way of doing business.’
Well, up to a point. As a 27 year-old ethnic Kazakh, he is doubtless a beneficiary of the new system. However, there is little fear of insider trading… yet. ‘There’s not enough trading to let it happen. We don’t really have portfolio investors to be robbed.’ However, he adds, ‘We do worry about it, because insider trading can kill the market, like in Russia. But before insider trading, we have to have a market.’
International deal-making
Off the exchange, foreign companies have often found that their rock solid deals with government enterprises suddenly vanish. Expatriate lore attributes this problem to buying the wrong politician just before he falls out of favor. The KASE president admits, ‘When you argue with the government that establishes the rules, you are always a loser.’
But the companies keep rolling in. When you have the oil, and the west wants it, then wooing is the way to go. America and Russia both feel a proprietary interest in the oil – the US because that’s the way it feels about all the world’s oil and Russia because it’s a neighbor. The US wants the oil to be piped away from Russian borders – but not on the cheapest and simplest route via Iran. To reward the Turks and their friends the Israel lobby, Washington wants the most expensive pipeline, to the Mediterranean via Turkey.
And since all the oil companies want to dip into the oil reserves, few western governments condemn the cavalier local attitude to elections and press freedoms. I found myself at the British residence in Almaty, sipping champagne while wearing the belt of my red paisley silk dressing gown as a tie, having mislaid my more formal neckwear on the journey. The Duke of Gloucester was royal enough to overlook this sartorial eccentricity; indeed he may not have noticed. As we chatted, I formed the view that on his trip to promote British firms, he wouldn’t notice spots on the sun of oil-rich Kazakhstan either.
US Energy Secretary Bill Richardson and Secretary of State Madeleine Albright also visited last year. They said they wanted a pipeline through Turkey. The locals said, ‘How nice,’ and they both tootled back to Washington to tell the respective lobbies that Kazakhstan was onside. Looking at the illogical results of such furious lobbying, it is hardly surprising that the Kazakh elite look a gift horse in the mouth, and eat it whole, and unwary western companies find themselves in a nightmare.
The Speculator
