Causes and expected results of the anti-crisis privatization in Kazakhstan

“The government of Kazakhstan is constantly facing the problem of choosing the main directions of the administrative effort: either to rely on a self-regulating power of the market, or to strengthen the planning and administrative aspect in the economy. This duality has always been present, and both directions always lost…” – political analyst Petr Svoik (Kazakhstan, Almaty) analyzes the privatization issue and tries to answer the eternal question of “what to do?” in an article written exclusively for cabar.asia.

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The list of state companies for privatization, published before the New Year, still leaves a feeling of sensation, which will continue during many years ahead – almost everything is for sale!

The privatization list includes about 260 companies from various sectors of the economy – from oil and gas industry to agriculture. In total, there are more than 780 objects. Among them, there are such national companies as “Kazakhstan Temir Zholy”, “Kazatomprom”, “KazMunaiGas”, “Kazpost”, energy company “Samruk-Energo” (which consists of the largest power stations – Ekibastuz GRES-1 and GRES-2). The list of organizations of Republican property subject to privatization also included sanatoria of the Ministry for Internal Affairs, Kazakhfilm, International Center for cross-border cooperation “Khorgos”, recreation center “Bobek”, airports of Astana, Pavlodar, Aktau.

In fact, with regard to the degree of emotional impact on the audience and to real economic and political consequences of such a radical change in the relationship between the government and business, it is a key point of the whole anti-crisis program of the government for 2016-2020 and further years, which was, by the way, summarized in an article of President Nazarbayev “The nation’s plan – a way to Kazakhstan’s dream”.

It is a key point, first of all, from the ideological point of view: no wonder it was called the departure from “state capitalism”. Indeed, if, after more than two decades from the beginning of radical market reforms, the government puts on sale a huge set of real estate, businesses and organizations of all sorts of activities, how else can such a property system be called, if not “state capitalism”?

Our analysis should begin from this starting point – not why the government decided to so radically reject its property and institutional participation in the market economy, but why the market in Kazakh way turned out to be so much nationalized. And the answer to this key question will explain why the massive dump of state assets into a “competitive environment” once again has become the main anti-crisis government slogan.

All that had already happened at the beginning of the 1990s, again during an acute systemic crisis. Then, the phrase “denationalization and privatization”, unheard in the Soviet Union before, became the ideological and practical goal of the totality of the state policy of the Kazakh SSR, and then of the Republic of Kazakhstan. It was stated by the President, by the government and by those engaged in the legislative efforts first in the Supreme Soviet, and then in the Senate and the Majilis.

However, a large-scale denationalization did not happen: the privatization waves fired by the government were not frequent enough and were very low. First, there was a voucher company aimed at the privatization of apartments only, – with the promise of some further compensation for those citizens who did not have any apartments. The compensation never took place. Moreover, the actual housing vouchers were no longer needed either – soon (with coming to power of Nurkadilov, akim of Almaty), apartments (! Not the entire house or local area) were given to the owners of property free of charge. Then there was carried out the so-called “mass privatization” – exclusively small objects were included in this list – hairdressers, little shops, service stations, etc. Well, it was not mass either – citizens simply had no means to participate in the auctions.

This was followed by the PIK-privatization [“PIK” from Russian – “privatizatsionno-investicionnye kupony” – privatization-investment coupons – transl.]. It copied the Russian voucher company, but with some additional restrictions, which obviously emasculated this idea. If in Russia, after the vouchers and mortgage auctions, there was created a kind of stock market, in Kazakhstan, using PIKs, one could buy only very small shares of the companies, which were not thriving at that time. As a result, it didn’t yield any result.

That is, even at the stage of market romanticism, which had really gripped masses of population, and of rather democratic rhetoric of the early and mid-1990s, the ruling post-communist nomenklatura did not want to share with common people anything from really serious former “people’s” property. They reserved the most valuable objects for themselves.

However, they had to share it, and very generously, with the so-called foreign investors, those real ones and artificially created by the authorities themselves. Among real foreign investors, there were transnational companies, like Chevron, which received the most promising oil field at that time – Kulsarinskoe, as well as members of the Karachaganak consortium. Later, these foreign companies were supplemented by Chinese companies who first received Kulsarinskoe, then Zhanazhol oil fields, and then reached the Caspian Sea. Artificially created “foreigners” included, above all, the “Eurasian” group, such as “Korean” and others, among which ferrous and non-ferrous metallurgy was distributed.

The organizational form of such redistribution of property, creating an alliance of local power-oligarchic capital with transnational, was the so-called “privatization on individual projects”, following the “mass” projects. As a result, almost the entire ferrous and non-ferrous metallurgy and partially the electric power industry of Kazakhstan were in private ownership. However, this does not remove the assumption that the same state control over this area is carried out through such formal owners.

As for the “oil industry”, its large part – in volume and in quality – was privatized in favor of real foreign owners, according to the “multi-vector” principle – the United States, Europe, China, Russia. However, the most problematic fields, together with the oil and gas pipelines, are left under the control of a national company.

As a result, there were not any mass owner and private enterprises distributed on a competitive basis. The “economic complex” inherited from the USSR became the property of a very small number of subjects, which collectively could be classified as a symbiosis of the state and transnational comprador capitalism.

Admittedly, the actual nationalization of the economy – even in market conditions, even with the participation of private property – more than natural for Kazakhstan conditions for, at least, two fundamental reasons:

Firstly, it follows from the form of government, which is not diversified like the European parliamentary model. It has preserved from Soviet times the principle of the personal autocratic and centralized vertical structure. Needless to say, that the privatized economy was inevitably lined up under the same personalized vertical structure. It could not be otherwise.

It happened at the very beginning of market reforms – in times of crisis and penniless 1990s. The growth of commodity prices that began in the 2000s, having happily fed the already established “state capitalism” with currency resources, simply finished its logical design. Namely: there appeared a holding “Samruk-Kazyna” over all remaining state-owned national companies, and there appeared centralized “development institutions”.

Similarly, the business community, who first had started to unite into industry associations, was then brought under the vertical of the National Chamber and its regional branches. At the same time, at the legislative level, all businessmen turned out to be mandatory contributors in the National Chamber – in fact, under the additional targeted tax for maintaining “the Ministry of Entrepreneurship”.

The second fundamental reason is an objectively little competitive and highly monopolized market of Kazakhstan. Most of the economic entities in the national economy and almost all the major ones are natural monopolies. There is a very small niche, in which there can be a real and full competition. And even this niche has only an additional or auxiliary character. But such an economic structure also requires continuous public administration.In fact, we have the phenomenon of immersion into the geopolitical, economic and information context of the 21^st century that could be called “market feudalism”, in the sense that the ruling system in Kazakhstan is much more in line with pre-industrial sovereign-vassal relationship, in the framework of which political and economic positions are given as reward.

Due to this feudal quality inscribed in the current market context, coupled with the objectively monopolized structure of the economy, the government of Kazakhstan is constantly facing the problem of choosing the main directions of the administrative effort: either to rely on a self-regulating power of the market, or to strengthen the planning and administrative aspect in the economy.

This duality has always been present, and both directions always lost….

Thus, the non-interference of government in a free folding external balance of payments of Kazakhstan, reliance on foreign investment and external funding of the Kazakh banks have steadily expanded and secured the country’s dependence on raw materials exports and imports of manufactured goods, coupled with the increasing external monetary dependence. The continuing efforts to create numerous sectoral and regional programs, all sorts of “breakthrough” projects either “choked” at the beginning of implementation, or gave only a relative effect, even at the highest governmental efforts, such as the FIID program.

Hence, due to this duality, there arises another challenge – corruption. All is objective: the autocratic hierarchy – not the most modern way of governance – has one definite benefit: the ability to implement major objectives. If, however, there is no common objective concentrating the efforts of all implementing bodies, and there are lots of different attempts to rely both on the market and on the administration, the apparatus finds itself an activity, which is natural to a patronage-clientele system – distribution of economic flows passing through it. Especially taking into account that in an equally vertically constructed economy, all meaningful economic flows must pass through one or another bureaucratic authority.

As a result, the apparatus struggle against the corruption within the systemically corrupt apparatus of power, objectively escalating during the crisis impoverishment of economic flows, begins to knock about itself and turns into a peculiar form of “anti-crisis” existence of such a system.

The large-scale program of privatization of state assets, coupled with an objective of conversion of “Samruk-Kazyna” into a “compact holding”, is taking place against this general background. Why now, what are the main reasons for this departure from the “state capitalism”, and how this campaign can end?

A common reason is clear: a systemic crisis, and that something must be done.

At this critical moment, the state-bureaucratic capitalism makes a natural choice for itself – not in the direction of the State, but in the direction of the market, i.e in the direction of avoiding their own responsibility by moving into the “competitive environment” of everything that used to bring political and economic advantages to the ruling oligarchy, and now brings only costs and problems.

So, first, the national currency rate was transferred to “market regulation”. Now the intention is to transfer state assets to the market, too. And here it is necessary to say that the main motive is to copy the behavior of the same Russian “big brother” – the same state-capitalist and oligarchic-comprador ruling vertical. This mirroring of policy decisions is the motive of those ostensibly economic decisions that were ostensibly determined by the actual Kazakh crisis circumstances.

So, just by copying the behavior of the Russian ruble, Kazakh currency was sent to the “free” floating. And privatization plans of the Kazakh government are copying the equally ambitious privatization plans of the Russian government.

And both are motivated, by all the evidence, by an external force, which can be called foreign consulting. It is well known (though not widely advertised) that under the government of Kazakhstan and the National Bank, as well as in Russia, there have always been a variety of consulting organizations, missions and offices that support those or other development programs, providing various services to the authorities, and at the same time, “prompting” an economic, but in fact, a political strategy to them.

Of course, representatives of the missionary agencies did not like the nomenclature oligarchic nationalization of the economy, but during the “fat” years of high commodity prices, they had no reason or chance persuade the authorities to act in another way. And, frankly, there was no need in it, because such a ruling system and the economy inscribed in the clan-nomenclature hierarchy are precisely optimal for the external – raw material and monetary – exploitation.

Another matter is a systemic crisis, which covers not only Kazakhstan and Russia, but in fact, the entire global system, built on the non-equivalent “free” market exchange between developed and “developing” economies. The natural reaction of the global capital on its own system crisis is the slogan of “all – to the market”, reflected in the anti-crisis programs of Kazakhstan and Russia.

This “anti-crisis” slogan fits well in the interests of the ruling bureaucracy and its affiliated business, as a formal consolidation of state property, which has long been transferred into the possession and control of individuals, clans and groups, is necessary for both parties at a critical moment.

But it is a secret underlying motive. The official motive is to optimize the composition and structure of management of the remaining state property.

It is expected that the number of companies in NC “KazMunayGas” will be reduced from 206 to 75 (in 2002, when “KazMunayGas” was just created, 48 subsidiaries and affiliates were in its composition), KazakhTemirZholy- from 102 to 30, “Kazatomprom” -c 82 to 38, “Samruk-Energo” – from 38 to 19.

There is another non-secret purpose, which the government did not emphasize at this time (probably, they no longer hope for its implementation): finally creating a Kazakh securities market. Filling the local stock exchange with domestic “blue chips” was declared more than once, but was always postponed in previous years. The last such attempt declared at the level of head of state were “People’s IPO» and selling of very small packages of two or three companies to a narrow range of purchasers.

Incidentally, the most sensational items of the current privatization list – KazMunayGaz, Temir Zholy, Kazatomprom, etc. – are the same IPO. That’s why even the complete execution of privatization plans in this part – that is, selling of 5-10 per cent stakes will add little to the lack of financial “instruments” on KASE, will not affect the companies’ management structure and will not help much with the investment resources.

As for the chances of the execution of privatization plans for the sale of objects as a whole, the previous experience gives a hint here. Remember, the current privatization list is not the first. The government tried to implement an almost similar plan to sell state-owned property during the crisis of 2007-2008. And just by the time of publication of the current list, the Finance Minister B. Sultanov informed the public about the achievements, from which the new wave springs:

“235 of our assets in the amount of 78 billion Tenge have been sold today, and the national budget received 7.6 billion KZT; 20 billion Tenge was received by the local budgets through the sale of 107 objects of communal property. National holdings received 138 billion Tenge thanks to the transmission into a competitive environment of 43 sites, and national companies received 3 billion tenge. This is much less than what the government hoped for.

For example, we can find the results of the previous campaign in the media:

By the end of 2013, 482 of 713 assets and facilities were siphoned off the structure of “Samruk-Kazyna” National Welfare Fund companies, including 405 sold to the private sector. In 2014, only 24 of 59 objects for sale were sold. And (according to the deputy chairman of the National Welfare Fund “Samruk-Kazyna” Elena Bakhmutova) nobody was interested in some of them at all, 13 of assets were put up for auction twice, and 11 assets – three times. For example, nobody was interested in foreign assets of JSC “Samruk-Kazyna”, and among those companies that were offered for sale three times, there were such companies as LLP ” Birzhan-Atyrau”, LLP “Bas Balkhash 2004”, JSC “Kaskor-Transservice”. The results of last year are similar: only 9 of 22 assets planned for sale moved to a competitive environment. Terms of sale of certain assets were transferred to the current year.

We can surely predict that the current campaign will be even more sluggish, against the background of a much sharper contraction of the economy in comparison with the post-crisis years of 2010-2014 and of the double devaluation of tenge.

Hence the question of what consequences for the economy and for the population can be expected from the privatization campaign can be answered as follows: these consequences will be minor.

In fact, there is simply a legal form of redistribution of property behind all this large-scale privatization – it is transferred from the formal public to the private status. The arrival of some new owners, especially from abroad, is not expected, first of all, because almost all the privatized objects are either directly related to an infrastructure controlled by the State – through rates and investment – or to an auxiliary field that exists almost exclusively at the expense of budget commissions and payments.

Accordingly, the “competitive environment” for this kind of business entities is the interaction with the public tender and procurement commissions, where networks have already been established, and strangers are not welcomed. Of course, the dense work with tariff adjustments for obtaining favorable rates will also take place, and, of course, again without “outsiders”.

Another thing is that in Kazakhstan, there are spheres for the entry and operations of new and serious foreign investors – export-oriented agriculture, first of all, as well as high-tech process spheres in the ferrous and nonferrous metallurgy. China and European investors are seriously interested in it. But that’s another story, which does not fit into the framework of the privatization strategy.

Within the framework of the privatization strategy, there will be sold only some of the objects for sale for a price, which is non-critical from the point of view of the real amount that the government needs. And even these payments will go to the budget and mainly disperse for the services and maintenance of the same privatized quasi-state property.

The idea to make a holding company “Samruk-Kazyna” “compact and efficient” will most likely fail, too. Since the power is actually built on the vertical management, its system-integrated business will reflect the same structure. A different development would mean disagreement and disorganization, and nothing more.

Of course, the task of reducing the administrative apparatus and increasing its effectiveness is too urgent and waiting to be solved, but it is naive to expect the solution from the apparatus itself, at least, because the bureaucratic structure automatically replaces the task of its reduction with the creation of additional “optimization” units with a wide staff. And it is happening now.

So what should Kazakhstan expect as a result of the anti-crisis program of the government, including the privatization?

In general, it should expect a natural development and deepening of the systemic crisis, a part of which is the exhausted political and economic system itself. This system, like a poor guy caught in the quagmire, only accelerates its bogging down by its reflex movements.

Our own anti-crisis answer to this question does not fit in this article format. In principle, it can be explained by a formula “Not more of the market, but more of the State”. And by the way, the President’s decision that was recently announced (February 10) to invest large sums of money, including from pension savings, into infrastructure projects is a step in this direction. Another thing is that such a large-scale investment is undertaken only for the crisis “plugging holes”, and so far, it is in no way associated with the necessary restructuring of the economy and its governance. As a result, safety and repayment of government and pension investments are questionable.

In the most compressed form, our formula is as follows:

NO – to devaluation, YES – to a fixed exchange rate of the national currency! NO – to the privatization of infrastructure companies, YES – to the nationalization of raw material exporting complexes!