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Nur Otan Wins Kazakhstan’s Parliamentary Elections. What Comes Next?
No comments · Posted by Alena
Kazakhstan’s leading political party, and the party of President Nazarbayev, Nur Otan, won the parliamentary elections on January 15 with 81% of the vote. Although international observers from the Organization for Security and Cooperation in Europe (OSCE) largely criticized the election for its ‘undemocratic’ nature and a high voter turnout, monitors from the Commonwealth of Independent States (CIS) recognized the victory as fair.
Nur Otan’s political monopoly was broken by the pro-business party Akzhol and the Communist People’s Party of Kazakhstan (KNPK) joining the parliament for the first time. Akzhol polled 7.5% and the KNPK 7.2%. However, with Nur Otan retaining its parliamentary majority, Kazakhstan’s economic priorities and direction are likely to remain the same.
Despite a small number of demonstrations that urged a boycott of the elections, the party is still viewed by many as the best guarantor of political and economic stability, something that has set Kazakhstan apart from its neighbors.
While U.S.-Russia relations strain amidst continuing elections protests in Moscow, St. Petersburg, and other cities, the State Department swore in Michael McFaul as the new U.S. Ambassador to the Russian Federation. McFaul replaces John Beyrle as the first non-career diplomat to become Ambassador to Moscow in three decades.
McFaul is known as an outspoken yet diplomatic critic of Russia’s authoritarianism and specialist on democracy and Russian elections. Under the Obama Administration, he was the Special Assistant to the President and Senior Director of Russian and Eurasian Affairs on the National Security Council, and he has become best known in the recent past as the architect of the U.S.-Russia “Reset” strategy.
McFaul’s swearing in came in mid-December after Senator Mark Kirk (R-IL) lifted his hold on the process. Kirk initially blocked McFaul’s nomination over concern that, with McFaul as Ambassador, the White House might share missile defense information with Russia without congressional approval. Kirk lifted his hold, however, after receiving a letter of reassurance from the administration and after new language was added to the defense authorization bill, requiring the administration to inform congress of its plans to share sensitive information with Russia 60 days in advance.
Ambassador · elections · McFaul · reset · Russia
Shop till you drop.
As the Internet becomes accessible to more Russians (see recent blog post), barriers for e-commerce —from convincing potential customers of the validity of online purchases to ensuring their delivery of these purchases—are diminishing.
e-commerce · internet · Russia · technology
The December 4, 2011, Russian Duma elections demonstrated that the Internet is playing an increasingly important role in Russia. According to media reports, protests that spread after the elections were led by Russia’s youth, who had organized themselves on the Internet. The protesters had spread their messages through video-sharing and microblogging sites such as YouTube and Twitter and social media networks like Facebook. The Internet during the past several months has also shown its potential to propel previously little-known individuals into positions of prominence; there was a sudden leap in the number of mentions of prominent anti-corruption blogger Aleksey Navalny in the Russian news media as his online movement spilled out onto Russia’s streets.
While events such as Moldova’s Twitter “revolution” and the Arab Spring have led pundits to ask if the Internet in many developing nations is truly free or only nominally so, key members of Russia’s government have maintained for over a decade that the Russian Internet is indeed free. According to CNN, in 1999, four days before becoming president, then-Prime Minister Vladimir Putin held a conference with Russia’s leading Internet entrepreneurs and promised to allow Internet freedom and to not resort to “Chinese or Vietnamese models” of censorship. Putin has largely stuck to this belief, and in his annual televised call-in show on December 16, 2011 he reiterated that “restriction of online freedoms is technologically complicated, politically wrong, and is not needed in Russia.” Security Council Secretary Nikolai Patrushev, who headed the Federal Security Service (FSB) during Putin’s first two presidential terms, seconded this sentiment in a recent interview, noting that, “attempts to stop people from communicating are in principle counterproductive and even amoral.”
Left to be relatively free and expand on its own, the Internet in Russia is now increasing in penetration more quickly in Russia than in any country in Europe, and social media usage is growing faster in Russia than in any other country in the world. Internet penetration is currently around 42 percent (59.7 million users), and while this may not seem like much now, it marks a sixfold increase over 2002, and the number is expected to double in the next few years. On top of that, the whole of the Russian Internet (RuNET) itself is expanding, having added over 84,000 domain names in the last month alone and currently totaling approximately 4.5 million across the .ru and .рф domains.
With the December 8 Working Party recommendation of Russia’s admission to the World Trade Organization (WTO) and the WTO Ministerial Conference’s approval on December 16, there is finally a light at the end of this seventeen-year long tunnel. Russia’s WTO accession process has progressed rapidly in the past few months. The EU and Russia announced on October 21 that they had settled all outstanding bilateral differences hindering accession.
October 24 saw Russia’s last-minute acceptance of the Information Technology Agreement (ITA) in which the country agreed to eliminate tariffs on high-tech goods covered by the ITA. This was a relief to many U.S. high-tech companies who were concerned that import tariffs would not be eliminated. In addition, on November 8, the U.S. Trade Representative (USTR) finalized a substantive agreement with Russia regarding sanitary and phytosanitary standards. Russia and Georgia signed an agreement on November 10 for a third party to monitor trade through the disputed Abkhazia and South Ossetia regions, jumping a final and rather high hurdle to accession. Finally, on November 11, the Working Party approved the Working Party report in Geneva, as well as the goods and services schedules. The accession package was then referred to the Ministerial for final approval.
Now that Russia has been formally invited to join the WTO, it has six months to complete its domestic ratification procedures, which in Russia’s case will take the form of a Duma vote, and officially notify the Geneva Secretariat of its acceptance.
Intellectual Property · Jackson-Vanik · Russia · U.S.-Russia · WTO
Earlier this year, the Ministry of Economic Development predicted there would be no capital flight in 2011. By August, the ministry revised this to $40 billion and by November, it rose to $70 billion. The latest announcements suggest that capital flight for October amounted to $13 billion, bringing the year-to-date total to $62.3 billion with the Finance Ministry admitting that the government is “ready for the situation to worsen.” Deputy Minister Andrei Klepach believes net capital outflow is expected to continue in 2012.
Despite the increase in capital outflows these numbers show, there is a lack of consensus on the causes of capital flight and on the extent to which it is occurring. On October 26, Prime Minister Vladimir Putin announced that capital inflow would reach $100 billion this year, but actual figures suggest Putin’s figure is inflated at least sixfold. Putin’s number includes the funds entering Russia through foreign direct investment, which, as independent economists note, include “participation in share capital, reinvested income and other investments” (such as repaying loans). Thus the percentage of this that can be considered actual new investment is much lower than $100 billion. President Dmitry Medvedev voiced similarly optimistic opinions in a November 19 announcement that the country is becoming increasingly attractive to foreign investors and that more government spending is needed to speed up this process via “promotion of Russia’s economic successes.”
While the President and Prime Minister remain optimistic, the majority of observers concur that capital flight is occurring on a large scale, yet they fail to agree on its causes. Vladimir Tikhonov, chief economist at Otkritie Capital blames general global volatility for investors leaving the domestic stock market as investors search for safe havens. Russia’s low deposit rates and a weak ruble have not made it an attractive enough location for their assets. Tikhonov notes this is true for domestic exporters as well, as they increasingly deposit their currency gains abroad. While Putin demanded an end to this practice in his recent presidential nomination acceptance speech, it is unclear what measures will be put in place to disincentive storing capital abroad.
capital outflow · foreign investment · reform · Russia · WTO
In a much anticipated move, Kazakhstan has called for an election to remake the lower house of Parliament – The Majilis. This has been expected since last April’s presidential election when Nursultan Nazarbayev was re-elected with an overwhelming majority of votes. The Kazakhstan constitution stipulates that parliamentary elections cannot be conducted the same year as a presidential election. So, January is the first possible opportunity for this parliamentary election.
Publicly, the government cites the need to seat a new parliament ahead of a potential second financial crisis that many expect. A more provocative reason relates to the eminent Russian Federation parliamentary elections. Many expect the Russian election to result in some degree of success by “opposition” parties. In holding its parliamentary elections as quickly as possible, Kazakhstan is seeking to limit the potential spill over from the Russian elections.
Presently, only a small part of the Kazakhstani population – about 10 thousand people - are investing in securities traded on the stock market. But the planned “People’s IPO” program is set to change that and seeks to involve Kazakhstani citizens in the market. The problem is that no one knows when the IPO will start.
At the XIII Congress of the Nur Otan party in February 2011, President Nursultan Nazarbayev said: “The People’s IPO provides an opportunity to hundreds of thousands of ordinary people to have shares of the largest companies, as well as a new investment tool to increase savings…” In September of this year, on the President’s instruction, a special program to place the shares of the national companies comprising the National Welfare Fund Samruk Kazyna in the domestic market was approved.
The President highlighted that the first IPO in the framework of the Program should take place at the end of 2011. In the beginning of August, NWF Samruk Kazyna announced that shares of Samruk-Energo, Kazakh company Electricity Grid Operating KEGOC and KazPost will be offered until the end of 2011. Shares of JSC NC KMG, JSC Kazakhstan Temir Joly, and JSC Kazatomprom will be placed on the stock market in 2012-2013.
Investment · IPO · KASE · Kazakhstan · privatization
President Dmitry Medvedev’s $33 billion privatization plan, and the zeal with which the current administration appears to be pushing it, demonstrates Russia’s interest in changing the hold of the state over enterprise. The fiscal need for privatization in Russia is clear after the government depleted funds from the National Wealth and Reserve Funds (the Reserve Fund went from $132.63 bln in November 2008 to $25.6 bln this month). This poses a risk for the economy in the case of falling oil prices, as IMF Chief Christine Lagarde emphasized in a conference this week in Moscow.
The recent auction of Russian Railways’ Freight One, which controls around 23% of the country’s rail stock, provides insight into the privatization program’s progress. On October 28, Vladimir Lisin, the billionaire owner of Russia’s Universal Cargo Logistics Holding (UCL Holding), won the Freight One auction with an uncontested $4.2 billion opening bid. On the one hand, Lisin’s bid for the company fell into the upper ranges of Freight One’s independent valuations (though only slightly above its listing price), fulfilling the first goal of the privatization plan –– to raise capital. As for the second aspect, another state company has been sold, and Lisin’s history of managing a listed company and his expertise in the transportation sector increase the likelihood that this purchase will lead to improvements in the company’s efficiency and will increase future outside investment. Thus, at face value it appears the program is succeeding.
However, the extent of “competition” in the sale is questionable. The auction was open only to “legal entities registered in Russia, non-state corporations that have a strong financial position and experience operating railway rolling stock.” Such restrictions are reasonable when it comes to parting with strategic sectors and do not necessarily indicate lack of fairness or openness to competition. However, despite earlier reports of “fierce competition” (originally between six bidders), the only two bidders in the auction were Lisin and Gunvor’s Gennady Timchenko, both of whom already control a significant portion of Russia’s transportation infrastructure and purportedly have equal influence in the government.
On October 22, The Daily Telegraph reported that Kazakhstan had hired British ex-Prime Minister Tony Blair and his team to advise the Government of Kazakhstan on issues related to economic reforms in the state and implementation of these reforms. In addition to economic advising, the former Prime Minister will give his counsel on problems related to Kazakhstan’s reputation in the West.
The politician’s press secretary confirmed the future partnership with Astana, but refused to comment on the former Prime Minister’s salary level. According to different sources, for one year of work, Blair will earn from £8 to £12 million.
Mr. Blair’s opponents repeatedly have accused him of “making money” on the relationships that he acquired while working as head of the British government. Since leaving office in 2007, Blair has become an official special envoy to the Middle East, launched the Blair Faith Foundation, and offered consulting services to foreign governments. Blair has been criticized over his role as envoy for the Middle-East Quartet, with his detractors alleging that he has been almost invisible and, in any case, hugely compromised by his role in the Iraq war.
