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  • Privatization in Kazakhstan

    19.07.2017 | Comments | Economy | 237 Daniyar Nurbayev

    After the collapse of the Soviet Union, all former Soviet Union countries adopted market economies instead of planned economy. Market economy implies the presence of the private companies, while during the Soviet Union all companies were state-owned. Therefore, the former Soviet Union countries had to carry out privatization programs, by selling state-owned companies to private investors.

    Kazakhstan, as one of the former Soviet Union countries, also conducted privatization programs. The country started its privatization program by adopting “the program of denationalization and privatization of state property in the Kazakh SSR for 1991-1992” on 13 September 1991[1]. According to Akanov (2015), during this privatization program, 3,700 joined stock companies were opened, and 36,000 real estate and property complexes were sold to private investors. However, it was noted that the privatization program was not as successful as it was expected[2].

    The next stage of privatization program started by the decree of the President of Kazakhstan, Nursultan Nazarbayev, on the “National Program of Denationalization and Privatization in the Republic Kazakhstan for 1993-1995” from March 5, 1993. Ermakovich et al. (1996) note that during the privatization period 4,477 state objects were privatized. It was also noted that during that period over 7,500 freight transports, which previously were in state ownership, were privatized. Overall, with this second stage of privatization, the government got over 2.5 billion tenges.

    The third stage of privatization started from 1996 to 1998. In 1996, the government adopted the program on “Privatization and Restructuring of State Property in the Republic of Kazakhstan for 1996-1998[3]”. According to the President of Kazakhstan, Nursultan Nazarbayev[4], over 2,000 state-owned joined stock companies and LLPs and 11,800 social sphere objects (such as kindergartens, recreation centers, stadiums, health centers, dormitories, canteens, etc.) were privatized. Overall, in this privatization stage, the government gained over 85 billion tenges.

    The fourth stage of the privatization was during 1999-2000. In 1999, the government adopted the program on “Privatization and Improving the Efficiency of State Property Management for 1999-2000”. The President of Kazakhstan, Nursultan Nazarbayev notes that during that period 953 state-owned joined stock companies and LLPs were privatized. It was also noted that during that period in order to improve the management of strategically important state-owned companies, the government sold its shares in companies, such as Mangistaumunaigas, Aktobemunaigaz, Kazzinc, Ust-Kamenogorsk Titanium and Magnesium Plant, Sokolovsko-Sarbay Mining and Processing Enterprise, Aluminum of Kazakhstan, Kazchrome, Kazakhtelecom, and Kazakhmys to private investors. Those four stages were the first wave of privatization, while the second wave of privatization started in 2014.

    Those were important programs that allowed reducing the share of the government in the economy. Therefore, in order to decrease the share of the state in the economy to 15% of GDP, the government decided to start a new privatization program. The government adopted “Comprehensive Privatization Plan for 2014 -2016” on April 30, 2014. The government planned to sell 782 of quasi-state companies and reorganize or liquidate 380 of quasi-state companies, in particular, 32 objects of republican property, 416 object of municipal property, 106 objects from the National Welfare Fund Samruk-Kazyna, 15 objects from the  National Holding Baiterek, 32 objects from the National Holding Kazagro, 8 objects from the investment holding Parasat, 2 from the National Infocommunication Holding Zerde and 174 objects from different social entrepreneurial corporations. It is worth mentioning that the government planned that the shares of national electric grid company KEGOC and regional electricity distribution company Mangistau REK would be selling their shares to the public in 2014. It was also noted that the shares of the leading power producer Samruk-Energo, regional gas transportation companies KTG Aimak and KTG Almaty, telecommunications operator Transtelecom and railway transportation company KazTemirTrans would be sold in 2015, and the shares of the national uranium company Kazatomprom, national railway company Kazakhstan Railways and sulfuric acid plant SKZ Kazatomprom in 2016.

    However, because of negative external macroeconomic factors, the plan was not fully realized. According to the Ministry of the National Economy[5], only 240 state objects were privatized during the period. It was noted that the total sales of those objects amounted 78.7 billion tenges, in particular, 5.5 billion tenges were gained from sales of republican property, 2.9 billion from municipal properties, 2.9 billion tenges social entrepreneurial corporations, 37.3 billion tenges from national holdings, and 30 billion tenges from others. It is also important to note that the government hold only KEGOC's IPO in 2014, while IPOs of other companies such as Mangistau REK, Samruk-Energo, KTG Aimak, KTG Almaty, Transtelecom, KazTemirTrans, Kazatomprom, Kazakhstan Railways and sulfuric acid plant SKZ Kazatomprom was postponed to a new privatization program.

    On December 30, 2015, the government adopted the “Privatization Plan for 2016-2020[6]”. According to the plan, the government is going to sell 780 companies, in particular, 12 large state-owned enterprises, to be privatized on a priority basis; 65 large subsidiaries, affiliates of national holdings (Samruk-Kazyna, Baiterek, Kazagro) and other legal entities affiliated with them offered to be transferred to the competitive environment on a priority basis; 173 subsidiaries, affiliates of Sovereign Wealth Fund Samruk-Kazyna JSC offered to be transferred to the competitive environment; 49 state-owned enterprises to be privatized; 367 communal property enterprises offered to be transferred to the competitive environment; and 129 subsidiaries, affiliates of national holdings and other legal entities affiliated with them offered to be transferred to the competitive environment.

    Despite the fact that the previous privatization program was not successful, the new one is expected to be more successful. The first reason of fail of the previous plan is the fact that at that time the country’s economy was suffering from the shortage of liquidity in tenge. It was a time when the tenge overnight index average (TONIA) reached 318%, while during pre-crisis times the rate was 3-5%. Because of the high shortage of liquidity, investors could not find funding to buy the privatization objects. However, today, there is much more liquidity in tenge, and country’s economy is gradually growing. Therefore, this new privatization programs will attract more private investors.

    The second reason is the opening of the Astana International Financial Center (AIFC). According to the Minister of National Economy, Yerbolat Dosayev, the government plans to sell some of the privatization objects in the AIFC, meaning that during the new privatization not only domestic investors but also foreign investors will participate in the privatization process. Increased demand will allow selling most of the privatization objects for a higher price.

    Overall, if the current external macroeconomic factors will not change significantly, there is a high possibility that the government may reach its goal of reducing the share of the government in the country’s economy. However, if external macroeconomic factors are not stable (for example decline in oil prices), which might affect the economic growth of the country and seriously reduce the liquidity in tenge, then the privatization plan may not be successful.



    Ermakovich. V, Kozarzhevsky P and Pankow J. (1996) Приватизация в Республике Казахстан, Центр социально-экономических исследований

    Nursultan, Nazarbayev (2006), The Kazakhstani way.

    Nursultan, Nazarbayev (2006), The Kazakhstani way.

    Tags: Kazakhstan, Privatization, Economy


  • Junior Research Fellow

    Daniyar Nurbayev

    Daniyar Nurbayev is a research fellow at the Eurasian Research Institute. Daniyar completed his bachelor’s degree in Finance in the Kazakh-British Technical University in 2013. In addition, he holds Masters degree in Finance from the Kazakh-British Technical University (2015).