On the eve of the Astana Day and his own birthday on July 5, 2018, President Nursultan Nazarbayev received perhaps the most valuable present of all — International Financial Center "Astana" (IFCA).

Speaking at the opening ceremony before a large audience that included honorary international guests, he explained its value.

«The Kazakhstan model of International Financial Center ‘Astana’ has adopted the best practices of the international financial organizations. The Center will work with both non-residents as the residents of the Republic of Kazakhstan. The IFCA members will gain access to the capital of not only Kazakhstan and the region but the entire world».

«The IFCA members receive tax exemptions for the duration of up to 50 years, a simplified currency, visa, and employment regime. This is the only center in the region that operates based on the UK judicial norms. The independence of the judiciary and the International Arbitration Court guarantee fairness and the rights protection».

«By now, the IFCA stock exchange includes 14 local and international brokers with the total volume of assets of 34 $ bln. And this number is there to grow».

In his turn, on July 4, 2018, Kazakhstan Prime Minister Bakytzhan Sagintayev informed the participants of the Astana Finance Days international forum that «the official presentation of IFCA — the biggest national mega-project within the period of the independence aimed to leap forward to the financial markets of the future» was to take place next day and, on behalf of the Kazakhstan Government, invited everyone to become IFCA members.

In his speech at Astana Finance Days, the Head of the Kazakhstan Government described IFCA and provided insight into the hopes Akorda had for it (text in bold by kz.expert). 

«IFCA, with its unique geographic situation, will provide access to the markets of Central Asia, EEU, the Trans-Caucasian region, Middle East. It is important to understand that Astana is one of the key elements of the trans-continental routs of the ‘One Belt and One Road’ global initiative. Therefore, IFCA will become the natural financial-economic bridge between Western China, Mongolia, and Europe. This will open access to the gigantic market of more than 1 bln people».

Bakytzhan Sagintayev also informed the forum participants that the Kazakhstan Government will directly support IFCA.

«The public listing of Kazakhstan’s largest national companies at the IFCA stock exchange will become our first big step. According to our plans, the national economy’s giants (Air Astana, Kazatomprom, Kazakhtelecom) will be listed. By the end of 2020, other largest companies (Kazakhstan Temir Zholy, KazMunayGaz, Samruk-Energo, KazPochta, Tauken Samruk, Kazakh Air) will have been listed».

Kayrat Kelimbetov who is in charge of IFCA management also spoke before Astana Finance Days participants. Here is a quote (text in bold by kz.expert).

«What region are we targeting? We have three big destinations. It is Central Asia in general. We would like to work with the Trans-Caucasian region, Republic of Georgia, Azerbaijan, Mongolia. The Eurasian Economic Union is also a very important destination. Here we have clear cut agreements with the leaders of the countries. And, of course, the third destination is the Silk Road’s revival initiative».

Mr. Kelimbetov also said that «at IFCA, the Ministry of Finance will place Kazakhstan’s sovereign bonds nominated in the national currency» and that «there will be a placement of the Islamic sovereign bonds before the end of the year».

Thus, starting from July 6, 2018, IFCA has been operating in Kazakhstan. President Nursultan Nazarbayev, Prime Minister Bakytzhan Sagintayev, and IFCA Managing Director Kayrat Kemimbetov have big hopes for this organization. However, we believe these hopes to be completely unfounded. And not only because Akorda’s previous attempt to create an international financial center in Almaty had failed.

Our concerns are primarily caused by the fact that Nursultan Nazarbayev, at the behest of his closest allies particularly Kayrat Kelimbetov, sanctioned the use (implementation) of the model that had proven to be successful abroad. This model, however, cannot be adopted in Kazakhstan due to the absence of certain criteria both objective and subjective.

To solve this systemic problem, the IFCA creators were forced to model it as an offshore organization. The fact that not an even somewhat «alive» stock market exists in Kazakhstan had also played into making this decision since, historically, the presence of a working stock-market always precedes the formation of international financial centers being their necessary and organic part.

Thus, de-facto, IFCA is an economic zone (organization) that, on one hand, is «hanging up in the air» so to speak since it has not been logically and historically generated by the local market and, therefore, cannot rely on it. On the other hand, this organization grants enormous benefits both tax and legal to its members. Therefore, the probability that the form (offshore, in this case) will prevail over the substance is close to 100% especially given the high corruption level among the Kazakhstan authorities.

We believe IFCA is a truly important project of the national significance. However, it is doomed to fail due to the following reasons.

• It is foreign not only to the Kazakhstan economy and society but also to the ruling elite that is avoiding the stock market like the plague.
• It has been initiated and carried out by the state, it was not born by the market itself and, therefore, for this reason alone, it will not be economically viable.
• The attempt to create an offshore zone in the corrupt country is likely to cause corruption at IFCA as well.
• The investments in IFCA will not equal the investments in the country’s economy. Moreover, they are unlikely to reach beyond the zone and, therefore, will not exert a positive influence on the level, quality, and effectiveness of the national economy let alone the level of life of most Kazakhstanis.