V.

Economy

The economy of Kazakhstan is largely based on its extensive natural resources. Kazakhstan’s vast steppes support wheat farms and livestock grazing. Abundant fossil fuel and other mineral resources lie beneath the land. Heavy industry was developed to support the extraction of these mineral reserves, giving the country a relatively diversified economy. In the 1990s the service sector increased in importance, due to an increase in retail outlets and financial services. In 2005 the gross domestic product (GDP), which measures the value of goods and services produced in the country, was $57.1 billion. Services (including education, health care, and retail trade) produced 53.7 percent of GDP, industry (including mining, manufacturing, and construction) produced 40 percent, and agriculture produced 7 percent.

At the beginning of the 20th century the Kazakh economy was based primarily on nomadic agriculture. The country underwent a rapid transformation during the Soviet period. Large sections of the northern steppes were converted into state farms, and some industry was introduced. Soviet planning also tightly tied the region to Russia. Most communication and transportation routes led through Russia, complicating Kazakhstan’s transition to an independent economy following the breakup of the Soviet Union.

The economy of Kazakhstan declined precipitously following independence. The GDP immediately fell by more than half, as economic decline throughout the former Soviet Union resulted in plummeting regional trade. The economy continued to decline through most of the 1990s. Austerity measures began to bring Kazakhstan’s skyrocketing inflation under control in 1995, but the country faced a severe balance-of-payments problem due to its massive foreign debt. The growing fiscal crisis came to a head in 1999. That year, the government implemented an emergency program that included massive reductions in government jobs. Helped by growing regional demand and market prices for Kazakhstan’s products, the economy significantly improved in 2000. The government has remained committed to the transition to a free-market economy, although reforms have proceeded slowly. For example, it implemented several phases of mass privatization, with the goal of transferring the majority of state-owned enterprises and farms to the private sector. The government also opened the economy to foreign investment, which has tended to focus on the extraction and export of the country’s large petroleum and gas reserves.

Kazakhstan is home to the Baikonur Cosmodrome, the leading space center of the former USSR. During the Soviet period the complex was operated almost exclusively by residents of Russia and created very little benefit for the Kazakh economy. Following independence, the facility was leased to Russia.

A.

Agriculture

Before 1920 agriculture consisted primarily of herding livestock on the country’s expansive grass-covered plains. Wool, meat, milk, and other livestock products are still leading agricultural commodities, but the nomadic lifestyle of the herder has almost completely disappeared. During the Soviet period crop cultivation was greatly expanded, due in part to widespread mechanization and the construction of large-scale irrigation projects. Kazakhstan is a major producer of wheat, which is grown primarily in the north. Other crops include rice and cotton, which are grown on irrigated lands in the south. In 2003 the government of Kazakhstan passed a land reform bill that allows for private land ownership for the first time in the country. Opponents of the law voiced concern that it would benefit wealthy individuals who could afford to purchase large tracts of land, rather than farmers who work the land.

B.

Mining

Mining is the leading branch of industry in Kazakhstan. The republic contains large reserves of tungsten, lead, copper, manganese, iron ore, gold, chrome, and zinc. It also possesses great quantities of coal, petroleum, and natural gas. The value of mineral extraction increased substantially in the 1990s. The increase is attributed to private investment, which has enabled the sector to benefit from new efficiency-boosting technologies and processes.

Kazakhstan contains two of the world’s largest oil fields: the Tengiz field, located on the eastern shore of the Caspian Sea, and the offshore Kashagan field. The Tengiz field was first discovered in 1979, but it remained undeveloped until 1993. The Kashagan field was discovered in 2000 and is believed to contain reserves exceeding those of Tengiz. The country’s largest known gas reserves are also located near the Caspian Sea, at the Karachaganak field. Foreign investment has been key to development of the fields and their distribution routes. The Caspian Pipeline Consortium was formed in 1993 to address the lack of viable oil and gas pipelines from landlocked Kazakhstan. The consortium involves international oil companies and the governments of Kazakhstan, Russia, and Oman. In 2001 the consortium opened a new pipeline from the Tengiz field to the Russian Black Sea port of Novorossiysk. Domestic use of the country’s oil and gas is hindered by the lack of pipelines connecting producing areas in the west with consuming areas in the populous southeast and industrial north. The country therefore exports gas and oil through Russia and imports its energy needs from Turkmenistan and Uzbekistan.

C.

Manufacturing

Manufacturing is also an important industrial branch in Kazakhstan. Much of the country’s manufacturing is centered on refining ores, creating petrochemicals, and processing agricultural products. Other sectors include heavy engineering works, which produce machinery and machine tools, and light manufacturing such as the production of textiles.

D.

Energy

Kazakhstan’s distribution system for electricity is split into two networks: the Russian network in the north and the Central Asian network in the south. A legacy of the country’s years as a part of the Soviet Union, this inefficient arrangement forces the country to import electricity for regional needs even though it produces more than enough to meet demand. In 2003 some 84 percent of electricity was generated in thermal plants, nearly all of which burned coal. Hydroelectric facilities produced 16 percent of the electricity. Kazakhstan’s only nuclear power plant, which began operating in 1973 at Aktau on the Caspian Sea coast, was permanently shut down in 1999 due to safety concerns.

E.

Currency

In 1993 Kazakhstan issued its own currency, the tenge (132.90 tenge equal U.S.$1; 2005 average). The tenge can be freely exchanged with the currencies of other countries. The previous official currency, the Kazakh ruble, was a parallel currency to the Russian ruble and was printed in Russia.

F.

Foreign Trade

In 2003 exports earned $12.9 billion and imports cost $8.4 billion. Chief exports were crude petroleum, refined and unrefined metals, coal, and cereals. Imports included machinery, vehicles, consumer goods, foodstuffs, and natural gas. Although Kazakhstan conducts trade with a diverse number of countries, Russia is by far the largest single trading partner.

Since gaining independence, Kazakhstan has become more integrated into the world economy while also seeking closer economic integration with other former Soviet republics. In 1994 Kazakhstan signed a partnership accord that established economic contacts with the European Union (EU). Also that year, Kazakhstan formed a trilateral economic and defense union with Uzbekistan and Kyrgyzstan; with the addition of Tajikistan in 1998, the four nations formed the Central Asian Economic Union (renamed the Central Asian Economic Forum in 2001). In 1996 Kazakhstan formed a customs union with Belarus, Kyrgyzstan, and Russia to reduce or eliminate barriers to trade; in 1998 Tajikistan also became a member. In 2000 these five countries broadened the scope of the customs union by founding the Eurasian Economic Community (EAEC) to coordinate trade policies and promote economic interaction. Kazakhstan is also a member of the Economic Cooperation Organization (ECO), which promotes economic cooperation between Islamic states.