A SYMBOL ON THE NEW GENERATION’S SILK ROAD: THE “ASTANA INTERNATIONAL FINANCIAL CENTRE”

Seeking to deepen its capital markets and attract more foreign capital to the country in every field, the government of Kazakhstan has begun to implement the road map it prepared in order to become the leader of the Eurasian region in the financial sector. Known for an economy based on oil and mining, Kazakhstan has stepped up the pace in putting into practice the strategy it developed to become the financial-sector leader of the Eurasian region. The stock exchange that has begun operating in the capital, Nur-Sultan; the Financial Court established within the Astana International Financial Centre, where English common law will apply; the International Arbitration Centre; and the work launched to raise the share of Islamic finance from 1 per cent to 10 per cent all form part of the Kazakh government’s strategic moves.

The Astana International Financial Centre (AIFC), on which work began after a provision allowing an international financial centre to be established in the capital Nur-Sultan, formerly named Astana, was written into the constitution in 2015, went into operation in July 2018. Based on a very large campus where Expo 2017 was also held, the AIFC has carried out work focused on demonstrating in concrete terms to international financial players the steps Kazakhstan wants to take in the financial sector. This took the form of the Astana Finance Days held in recent years. By connecting the economies of Central Asia, the Caucasus, the Eurasian Economic Union (Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan), Western China, Mongolia, the Middle East and Europe, the Astana International Financial Centre (AIFC) plays a very important role in positioning itself as a global hub for business and finance.

Dr. Kairat Kelimbetov, Governor of the “Astana” International Financial Centre (AIFC), had drawn attention to the centre’s rapidly rising position among international financial centres and stated that the centre aims to create a liquid and balanced capital market not only for Kazakhstan but for the entire region. On 25 June 2018, Kairat Kelimbetov had announced that the AIFC is focused on developing the economy of both Kazakhstan and the Central Asian region, and that it aims to become a regional financial centre within the next 10 years and a global one within 20 years.

The AIFC Management Council, chaired by President Kassym-Jomart Tokayev, also includes figures such as Jacob Frenkel, Chairman of JP Morgan Chase; Dr. Herman Gref, Chairman of the Management Board of Russia’s Sberbank; and EBRD President Suma Chakrabarti.

Astana International Exchange

The Astana International Exchange (AIX), which lays claim to being the most comprehensive exchange among the countries of the region, aims to create a capital platform that is an alternative to the banking sector by using its broad pool of financial instruments. The exchange, which cooperates with Nasdaq in the field of technology, also counts the Shanghai Stock Exchange, the Silk Road Fund and Goldman Sachs among its strategic partners. The chief executive of the exchange is Timothy Bennett, an American economist. AIX is also used as a platform in the privatisation of Kazakhstan’s large state-owned companies. The public offering of Kazatomprom JSC, the world’s largest uranium producer, was also completed on the exchange in November 2018.

The IFC Court and the International Arbitration Centre

The court and arbitration centre, which it was decided to establish in order to give international companies assurance regarding any disputes that might arise, were officially opened by President Tokayev within the framework of the Astana Finance Days event and began their work. It was announced that the court would operate according to the English common law system.

The court and the arbitration centre were structured in line with the Kazakh government’s approach of attracting Western capital to the country by appointing Western figures to critical posts. The bench will be presided over by the British Lord Harry Kenneth Woolf. The entire panel of judges consists of jurists from the United Kingdom.

The International Arbitration Centre, for its part, is chaired by Barbara Dohmann QC. Dohmann, too, is a former judge of the High Court of England and Wales. The arbitration centre aims to be the number-one point of recourse for commercial disputes in the Eurasian region. The expenses of both centres will be covered by Kazakhstan for 2 years. Thus no fee will be charged to applicants.

Islamic Finance Centre

Another important step by the Kazakh government was the road map it developed to become the region’s leader in the field of Islamic finance. Having signed a consultancy agreement with Zico Group, known for its work in this field within the Association of Southeast Asian Nations (ASEAN), the government aims to raise the share of Islamic finance in the financial system from 1 per cent to 10 per cent within 5 years and thereby to become the region’s financial centre in every sense.

Within the framework of the financial-system structure prepared by Kazakhstan’s founding President Nursultan Nazarbayev, foreign capital coming into the country is also granted full tax exemption until the year 2066. In addition, with the newly launched Expat Centre, work has also begun on resolving the problems of foreign companies’ employees more quickly.

Kazakhstan’s First Digital Bank Focused on Islamic Banking Is Being Established

Planning for what is to be Kazakhstan’s first full-fledged digital bank, which will focus on developing Islamic banking products and on investments facilitated by the application of state-of-the-art fintech products, is nearing completion.

It was also announced that the AIFC and Qatar-based Al Rayan Investment (ARI) are in the process of signing a Memorandum of Understanding (MoU) establishing a framework for cooperation in the licensing process in the coming months. Governor Dr Kairat Kelimbetov said, “We welcome Al Rayan Investment’s decision to establish a fintech bank in the AIFC. The presence of such a respected and well-known financial institution in the AIFC demonstrates the confidence of the international business community in our financial centre. We believe that Al Rayan Bank will contribute significantly to the development of the Islamic finance industry in Kazakhstan as well as in the region, and will promote the AIFC as an international Islamic finance centre.” and thereby shed light on their partnership with Qatar in Silk Road projects.

Adel Mustafawi, Group CEO of Al Rayan Investment, said, “Kazakhstan, and the AIFC in particular, was chosen as the first market for Al Rayan Investment’s international expansion. Kazakhstan is a new hub offering significant potential for Islamic finance in Central Asia; the AIFC represents the most suitable platform for us because it is founded on the same international best-practice regulatory principles as our own domicile, the Qatar Financial Centre. This should accelerate our ability to offer our first-class products and services in such a promising market.” and thus also signalled that the goals would extend over a wider area.

Green Finance

Green finance refers to investments and other financial instruments that aim to deliver environmentally friendly, energy-efficient and low-carbon projects. Green bonds, concessional loans, subsidies for green projects and so on are the principal green finance instruments. These financial instruments lead to the development of green projects that would be impossible under standard financial conditions.The AIFC Green Finance Centre was created on 1 June 2018 with the aim of developing and promoting green finance in Kazakhstan and the Central Asian region. The centre has begun offering its services, as a first priority, to potential issuers, investors and market players in preparing to issue green bonds on the AIFC Exchange (Astana International Exchange).

Kazakhstan Aims to Become the Centre of Bitcoin Mining

Kazakhstan is becoming an important destination for Bitcoin (BTC) miners seeking cheap electricity because of lower margins in the cryptocurrency market. According to recent reports, the oil-rich Central Asian country expects the total money invested in local crypto-mining operations to double by the end of 2020 and expects to attract 738 million dollars over the next three years.

The main mining players in Kazakhstan, foreign companies from China, Japan and “other Asian countries”, have started their operations. In addition, Genesis Mining, an international cloud-mining company with farms in many countries, and Bitfury, another non-Chinese mining powerhouse headquartered in Amsterdam, are also present in this field.

When it comes to cryptocurrency mining, the price of electricity has always been one of the main factors. However, after the Bitcoin halving took place in May 2020, the price of electricity became even more important. The halved reward prompted miners to sell their equipment or to relocate it to regions with cheaper electricity such as Kazakhstan, Russia, the Middle East and South America.

According to Thomas Heller, global business director of F2Pool, he continues to state at every opportunity that, alongside the abundance of cheap electricity, Kazakhstan’s geographical location also makes it “a rapidly growing hub for Bitcoin mining activity”. “Kazakhstan is in the most favourable location for mining. The climate is cool and it is close to China. The fact that Chinese miners are moving older-generation machines from China to Kazakhstan in order to benefit from cheaper electricity prices outside the Sichuan hydro season is making this country a popular place. ”

Will Kazakhstan Rank Among the Top Three?

In June 2020, Askar Zhumagaliyev, Kazakhstan’s Minister of Digital Development, Innovation and Aerospace Industry, announced that the Ministry plans to attract investment of 300 billion tenge, or 738 million dollars, for activities related to cryptocurrency mining by 2023.

These ambitious mining plans of Kazakhstan may seem surprising at first, but the foundations that support the country’s goals are in place, and, together with its extremely strong structure, all the statistical work is also being carried out.

Keywords: Astana Kazakhstan Finance

Translated from the Turkish original.