CIC Meeting - Remarks by Mr Gerald Frost at the CIC Launch in London - 5th November 2003

Your Royal Highness, Dr Hindley, Excellencies,

The West is bound to have more to do with the Caspian region over the next decade and beyond, but it is almost certainly the region of the world about which we know least. Through research and publications, the aim of the CIC is consequently to foster greater knowledge and understanding of the region, the challenges it faces and the opportunities in doing business there. At least initially, we will concentrate on Kazakhstan because it is the region’s economic engine and political pace-setter.

The reason for the greater contact that is likely to occur between the West and the countries of the Caspian region – and the main reason why many are here this evening - is oil.

In the ten-year period following independence Kazakhstan has received US$13 billion in foreign investment to develop its oil and gas industries, most of it from the West. Kazakhstan possesses the Caspian Sea’s largest recoverable crude oil reserves, and accounts for two thirds of the 1.5 million barrels per day being produced in the region. Western analysts estimate that the country’s proven combined onshore and offshore reserves are between 9 and 17.6 billion barrels. Kazakhstan is therefore poised to become an increasingly influential player in world markets, becoming one of the world’s top five producers within the next decade. Production has doubled since Independence and is increasing at around 15 per cent a year

Its no surprise, therefore, that in a world thirsty for oil, everyone – at least every government that is - wants to be friends with Kazakhstan. It would seem that Kazakhstan is fully prepared to reciprocate. Much of recent gains in oil production have been due to the completion of the 940 mile-long Caspian Pipeline Project which takes the oil to the Black Sea where it is pumped into tankers that carry it to Western markets. But Kazakhstan’s energy policy is a reflection of geographic and political as well as economic realities: while the Kazakhstan government maintains excellent relations and with the West, and with Britain and the US in particular, it has recently reached agreement on the construction of a pipeline to China, and its has cooperated extensively with Russia in the development of its energy resources. The next decade is likely to witness the construction of a network of pipelines and the diversification of its markets, as well as continuing improvements in domestic economic performance.

Following an ambitious programme of economic liberalisation, which most recently has included land reform, Kazakhstan has achieved 12 per cent annual growth rate since 1999, and economic growth is set to continue at around 7-10 per cent. Estimates for GDP growth for the present year have been upgraded from 6.5 per cent to 8 per cent. The country was the first of the ex-Soviet states to pay off its debts to the IMF and it did so seven years ahead of schedule. Earlier this year, the IMF announced that it was withdrawing its permanent representative from Kazakhstan because his services were no longer required. Kazakhstan was also the first to acquire and S&P rating.

Inflation, which reached spectacular heights following the launch of the tenge at unrealistic tenge/doller rate, has been tamed. The government’s current inflation target is 4.5 to 5.5 per cent while the number of those living below the poverty line has gradually fallen if not at the rates that many would like. Nevertheless, these are remarkable achievements.

Of course, continued economic progress depends crucially on political stability.

Kazakhstan is a secular state, in which Islam is the dominant faith, but its neighbours include those in which stability is threatened by Radical Islam and terrorism. Since Independence, Kazakhstan has consistently clamped down on terrorism, and contributed to international anti-terrorist measures – it currently has specialist troops engaged in post-conflict reconstruction work - while promoting religious and cultural tolerance. Post-Soviet Kazakhstan has witnessed an extraordinary growth in religious observance, with new mosques, churches and synagogues springing up almost everywhere. Religious organisations are allowed to play a full role in the construction of civil society, and to educate the young, but not to take part in politics. Its record in this area has won praise from the Pope and the Chief Rabbi of Israel, and it perhaps provides some important lessons for others.

It is not possible this evening to give a full account of the challenges faced by modern-day Kazakhstan, its problems, the criticism it has faced, or its huge economic potential – but I hope I have said sufficient to convince you of its growing importance on the international stage, and to increase the appetite of those whose knowledge of the region is slight, to know more.

It is not our intention to take questions on our work this evening since this has scarcely begun, but I look forward to seeing you on many future occasions. There is a website at www.caspianinfo.org on which you can find news and analyses of developments, and we hope that you will take the opportunity to read this, to read our publications and to remain in contact. Thank you for listening and for coming this evening.