Macron’s visit to Kazakhstan and Uzbekistan: is the state of play changing in Central Asia?

Since the beginning of Russia’s full-scale invasion of Ukraine, important developments have been taking place in Central Asia. The countries in the region have been playing a careful balancing act for some years now, seeking to attract investments from the West while also maintaining relations with their powerful neighbours Russia and China. For instance, Kazakhstan has established the Astana International Financial Centre (AIFC), which adopted an English common law system. At the same time, China and Russia remain Kazakhstan’s key trading partners.

In the recent months, Aperio has been following France’s initiative to strengthen business relations with Kazakhstan and Uzbekistan. While such initiatives can certainly be seen as a positive development for Central Asia, this remains a complex region with many political, economic and social nuances that investors should keep in mind when assessing potential risks.

Changes in the power dynamics in Russia’s “sphere of influence”

Russia’s full-scale invasion of Ukraine in February 2022 marked a turning point in the relations between the Kremlin and former Soviet countries it traditionally considers as part of its “sphere of influence”. As the conflict drags on, the Kremlin’s attention and resources have shifted onto the battlefield in Eastern Ukraine, diminishing Russia’s ability to project its influence in other neighbouring states. Furthermore, the Kremlin’s war in Ukraine has created a worrying precedent for Russia’s neighbours, which must now contend with an increasingly unpredictable imperial power in their region. It is therefore unsurprising that some of Russia’s traditional allies have recently looked to strengthen alliances with other nations to reduce their reliance on their larger neighbour. Conversely, Russia’s current predicament has not gone unnoticed in the world’s capitals, with a number of countries now jostling for influence in post-Soviet states.

The state of play in Central Asia is changing

Nowhere is that more true than in Central Asia. The focal point of the so-called Great Game in the 19th century, a rivalry between the British and Russian empires for influence in the region, Central Asia is now again at the centre of the attention of world powers. Kazakhstan, the largest economy in the region, is a case in point. In early November 2023, French president Emmanuel Macron visited the country with a delegation of French business leaders, resulting in the signature of 17 commercial agreements between France and Kazakhstan worth USD 1.4 billion. A few days later, Turkish president Recep Tayyip Erdoğan visited Astana, Kazakhstan’s capital, to attend the 10th Summit of the Heads of State of the Organization of Turkic States (OTS), an intergovernmental organisation of Turkic-speaking countries which includes Turkey, Azerbaijan and the Central Asian state of Kazakhstan, Kyrgyzstan, and Uzbekistan. The region’s proximity to China and its location between Asia and Europe has also made Central Asia a natural magnet for Chinese investment. To date, China has funded more than 100 projects in Central Asia as part of its so-called “Silk Road Economic Belt”, an infrastructure plan to improve overland routes between China and Europe along the historic silk road traversing Central Asia. As part of this plan, Chinese president Xi Jinping recently pledged USD 3.5 billion in Chinese financial support and grants to Central Asian countries in May 2023.

The EU is now Kazakhstan’s largest trading partner

In this context, France is now looking to tempt some of Russia’s traditional Central Asian partners to look West. International sanctions imposed on Russia since February 2022 have underscored Europe’s need to diversity its energy sources. With its untapped hydrocarbon reserves and potential for renewable energy, Central Asia presents an attractive alternative. In recent years, Kazakhstan has become the third-largest non-OPEC supplier of oil to the European Union after Russia and Norway, accounting for 6% of the EU’s oil imports and 70% of Kazakhstan’s oil exports in 2022. The EU is indeed Kazakhstan’s largest trading partner as the destination for 39% of total Kazakh exports, representing 29.4% of its total trade in 2021. The EU is also the largest foreign investor in Kazakhstan, investing $12 billion in the country in 2022, a 23% increase from 2021.

Kazakhstan is a key energy partner for France

Most significantly, Kazakhstan is the world’s largest producer of uranium, a key component to produce nuclear fuel. Kazakh uranium constitutes 42% of the world production of uranium and contributes to almost 27% of the EU’s uranium imports in 2022. Within the EU, France is particularly reliant on uranium due to its focus on nuclear plants to secure its national energy grid. France today relies on nuclear energy for 60% of its electricity, the highest share of any country in the world. Moreover, in February 2022, Macron announced that France would spend €51.7 billion to add 14 new nuclear reactors to its existing 56 reactors over a 30-year period to reduce its fossil fuel emissions and reliance on foreign hydrocarbons. Kazakhstan currently supplies 40% of France’s uranium imports, the country’s largest share. France’s second largest uranium supplier is the African country of Niger. However, Niger was the subject of a military coup in July 2023, increasing risks to France’s supply of uranium. In light of this, Macron’s November 2023 visit to Kazakhstan was a way for France to deepen ties with an ally crucial to its energy security.

France is an important trading partner for Kazakhstan

As of 2022, France was Kazakhstan’s fifth largest trading partner ahead of China, mainly due to longstanding business ties which include the Kashagan offshore oilfield project with French energy giant TotalEnergies as well as a uranium mine run by French company Orano in partnership with Kazakh state nuclear firm Kazatomprom. According to data from the Kazakh Foreign Ministry, in 2022, the trade volume between the two countries rebounded to pre-pandemic levels, reaching $4 billion, and further increased 21.1% between January and August 2023 to reach $2.7 billion. Key Kazakh exports to France include crude oil, uranium, titanium, sulphur, hydrogen, inert gases, and other nonmetals, as well as motors and electric generators. France’s main exports to Kazakhstan include vaccines, blood serums, turbojet and turboprop engines, gas turbines, medicines packaged for retail sale, coal electrodes, radar and radio navigation equipment, and electric transformers, among other items.

A large number of new contracts were signed between Kazakhstan and France

As part of the agreements signed between France and Kazakhstan in November 2023, Alstom, a French company which specialises in the manufacturing and servicing of rail transport equipment, will notably invest in the production and maintenance or railway locomotives and components for the Kazakh transport industry. The improvement of the Kazakh railway infrastructure is indeed crucial for the development of the Trans-Caspian International Transport Corridor (TCITC), a strategic commercial rail and sea route between China and Europe which transits through Kazakhstan. In the field of renewable energies, TotalEnergies, Kazakhstan’s National Wealth Fund and the KazMunayGas national oil and gas company signed a joint venture agreement for the construction of wind power stations in the country. Both countries also signed a declaration of intent for a partnership in the much sought-after area of rare earth minerals. Besides uranium, Kazakhstan produces 16 out of the 30 rare earth materials that are critical to the EU economy, including phosphorus which accounts for 70% of the EU’s supply of the mineral.

Kazakhstan is looking for French assistance to develop its civilian nuclear industry

While France largely looks to Kazakhstan for its energy security, Kazakhstan is in return seeking French knowledge to develop its domestic nuclear power industry and engineers. France’s state-owned electricity company EDF is currently in the running to build Kazakhstan’s first nuclear power plant. Moreover, Kazakh nuclear company Kazatomprom and its French counterpart Framatome signed an agreement on the development of mutually beneficial cooperation in the field of the nuclear fuel cycle, as well as the education and training of nuclear specialists. However, the topic of nuclear production remains controversial in Kazakhstan, a country which was the Soviet Union’s main nuclear testing ground in the 20th century. Kazakh president Kassym-Jomart Tokayev announced to that effect in September 2023 that the construction of the country’s first nuclear plant will be subject to a national referendum. Furthermore, France’s EDF will be competing with its Chinese and Russian counterparts in the event the country greenlights its first nuclear plant.

Uzbekistan is another important strategic partner for France

Emmanuel Macron continued his November 2023 trip to Central Asia by visiting Uzbekistan, marking the first trip of a French president in the country since 1994. Uzbekistan is another country holding a strategic position for France’s energy security as its third supplier of uranium behind Kazakhstan and Niger. Macron’s visit to the country followed a previous visit to France by Uzbekistan’s president Shavkat Mirziyoyev in November 2022 during which French uranium producer Orano, the State Committee for Geology and Mineral Resources of the Republic of Uzbekistan and the Uzbek state-owned uranium producer Navoiyuran signed a strategic agreement laying the foundations for the development of new uranium mines in the country. During their meeting in Uzbekistan, both presidents also reiterated their countries’ close cooperation with a portfolio of current and prospective projects exceeding €10 billion and involving French energy, mining, and utility companies Orano, EDF, Total and Suez, among others.

The UK also has significant ties to the region

Central Asia is also a region of strategic importance for the UK. Notably, the UK is one of Kazakhstan’s top investors, contributing USD 661 million to Kazakhstan’s economy in 2022. During a visit to Astana in March 2023, then British Foreign Secretary James Cleverly signed a number of bilateral agreements with Kazakh counterparts, which notably included a memorandum of understanding on a strategic partnership in the areas of critical minerals and green hydrogen. Beyond trade relations, London is also a popular destination for Kazakh elites. According to a Chatham House report released in 2021, Kazakh citizens were the fifth largest group of applicants to be granted golden visas for UK residency in the UK between 2008 and 2015. The footprint of Kazakh elites is noticeable in London’s property market: ultra-high net worth individuals from Kazakhstan are reported to own at least GBP 530.4 million worth of luxury property in London.

Central Asian elites favour the UK property market

Some of London’s luxury property belongs to politically exposed Kazakh nationals. Notably, in 2019, the British National Crime Agency (“NCA”) issued two Unexplained Wealth Orders (“UWOs”) regarding three London properties collectively worth GBP 80 million. Shortly thereafter, the British media revealed the identities of their owners to be the Dariga Nazarbayeva, the daughter of Kazakhstan’s former President, and her son Nurali Aliyev. In April 2020, the NCA’s attempt to force Aliyev and Nazarbayeva to explain the source of their wealth failed after a judge in the British High Court discharged the UWOs. In 2016, the former British Prime Minister David Cameron pledged that the UK would end ownership of its property through secretive offshore structures. However, in many cases, London properties owned by Central Asia elites remain purchased through offshore companies to conceal their true ownership. This suggests that the total value of properties owned in London by Central Asian elites is in fact much higher than the reported figures.

Russian influence remains dominant in Central Asia

The economic importance of the UK and EU to Kazakhstan explains in part why Astana refused to recognise the legitimacy of Moscow-sponsored referendums in September 2022 which rubberstamped the annexation by Russia of four regions of Eastern Ukraine. Furthermore, Kazakhstan officially complies with Western sanctions on Russia. Aside from the economic rationale, Kazakhstan’s decision to abide by Western sanctions also stems from fears for its own territorial integrity. Ethnic Russians indeed make up around 15% of Kazakhstan’s population and mostly live in the North of the country, close to Russia’s border. Legitimising Russia’s annexation of territories in Eastern Ukraine could therefore create a dangerous precedent for Kazakhstan. However, despite the current war in Ukraine, it is very unlikely that Kazakhstan will fully align with Western countries and shun its neighbour to the North. The country has been particularly adept since the fall of the USSR at preserving good relations with Russia while maintain a balancing act between competing interests in the region.

Kazakhstan is suspected of aiding Russian sanctions evasion

Despite Kazakhstan’s official stance that it complies with Western sanctions on Russia, economic indicators seem to paint a different picture. Imports of consumer goods from the EU to Kazakhstan increased 89% in 2022 compared to 2021, a trend which continued in 2023 with a similar increase of 89% in the first two months of 2023 compared to the same period in 2022. According to data from the EU’s Eurostat database, Kazakhstan imported €1 million worth of washing machines from the EU in December 2022, four times the number imported in December 2021 before Russia’s full-scale invasion of Ukraine. According to a May 2023 report from the Organized Crime and Corruption Reporting Project (OCCRP), aside from consumer goods, Kazakhstan is also suspected to be a conduit for dual use products which could be used by the Russian army. In 2021, so few drones were imported into Kazakhstan that they did not appear in official economic data in the country. However, in 2022, the country reportedly imported almost $5 million worth of drones, almost entirely from China, and exported drones worth $1.23 million to Russia. Similarly, Kazakhstan’s import of microchips has dramatically increased. In 2021, $35 million worth of microchips were imported into the country according to official statistics. However, in 2022 that figured doubled to over $75 million. At the same time, the value of Kazakhstan’s export of microchips to Russia skyrocketed from a modest $245,000 in 2021 to $18 million in 2022 – a seventyfold increase. In recent months, US authorities have publicly raised the prospect of targeting Kazakh companies and banks with secondary sanctions. In July 2023, the US sanctioned firms in the neighbouring Kyrgyzstan for assisting Russian sanctions evasion, raising the prospect of a similar move in Kazakhstan.

Corruption, human rights abuse, and political instability remain significant risks in Central Asia

In addition to sanctions risks, Kazakhstan and its Central Asian neighbours also remain authoritarian countries with high levels of perceived corruption, poor human rights records, and a recent history of political instability. Transparency International’s 2023 Corruptions Perception Index ranks Kazakhstan 93rd out of 180 countries with a score of 39/100, indicating a high prevalence of perceived corruption in the country. Uzbekistan ranks even lower, 121st out of 180 countries with a score of 33/100. Kazakhstan notably saw mass protests and civil unrest in January 2022 resulting from a sharp increase in oil prices in the country, and eventually leading to a political regime change. During the week-long violent unrest and crackdowns, 227 people were killed and over 9,900 were arrested according to Kazakh officials. International NGO Human Rights Watch pointed out that Kazakh authorities failed to investigate the serious loss of life and other grave human rights violations during and immediately after the protests. In Uzbekistan, protests broke out in the autonomous Uzbek region of Karakalpakstan in July 2022 over a proposal from the Uzbek president to revoke the region’s autonomous status. According to Uzbek authorities, 18 protesters were killed and 243 injured, prompting criticism from human rights organisations.

Central Asian countries, predominantly Kazakhstan and Uzbekistan, have attempted to introduce reforms to reassure foreign investors. Notably, in 2018, Kazakhstan sought to strengthen its economy by establishing the Astana International Financial Centre (AIFC), which adopted an English common law system, independent of the country’s civil law regime. Nevertheless, due to their geographic position and historical ties to Russia, Central Asian countries are unlikely to renounce their local ties and fully rely on relations with the West. The region has a lot to offer to Western Investors who, if proceeding with due cautiousness, stand to benefit from this untapped potential.

Vassili Tsarenkov, Analyst

vassili.tsarenkov@aperio-intelligence.com

Tamara Moule, Analyst

tamara.moule@aperio-intelligence.com

Aperio Intelligence regularly advises clients including large corporates, law firms, and regulated financial institutions on risks related to Central Asia. Our Russia, CEE and Central Asia team has extensive experience with conducting research into companies and high net worth individuals with political connections in the region, as well as producing country risks reports and business sector assessments. In our research we rely both on carefully assessed public record data, and trusted human sources on the ground who can provide additional insights and context.

If you have any questions, please contact Veronika Konecna, head of Russia, CEE & Central Asia, at veronika.konecna@aperio-intelligence.com.