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Betting on Kazakhstan's Rich Resources

December 20, 2011 | About:
Kazakhstan has spent the past few weeks celebrating 20 years of independence. There is much to celebrate. For the past decade, Kazakhstan has performed better than any of the ‘Stans with growth of 8% per year. This growth is twice as much as Turkmenistan and six times more than Uzbekistan. Both Turkmenistan and Uzbekistan are more densely populated and maintain larger cities than Kazakhstan. The country’s large growth is not what was expected from the last of the soviet era countries to seek independence. Kazakhstan held out as long as they could, resisting the influence of the west. Now that they are an independent nation they have set their minds to exploiting the land’s vast resources.

Kazakhstan might be seeking more fair play from outsiders in regards to domestic resources. Kazakh’s state-owned oil company, KazMunaigas (KMG), recently obtained a 10% interest in the BN-ENI led Karachaganak Petroleum Operating group, which has been developing the Karachaganak oil and gas field since the mid-100s. Kazakhstan is currently working to obtain an additional 5% interest. Kazakhstan is also making moves to increase Uranium production by the state nuclear company, Kazatomprom, to 21,346 metric tons in the coming year. The company expects its net income and its output to increase this year as well. KazMunaigas (KMG) maintains a fairly consistent share price as well as dividend payments annually of around 5%. Not bad for a Kazakhstan oil and gas company. Another fundamental positive for the company is that it holds no debt on its books. 5.2% of the Guggenheim Frontier Markets ETF (FRN) holdings are situated in Kazakhstan. A larger stake of the companies in this fund hail from the energy sector.

Kazakhstan is currently the world’s largest producer of uranium and will soon join the world’s top 10 oil-producing countries. The Kashagan oilfield in the Caspian Sea will be coming online soon bringing Kazakhstan long-awaited growth in their oil production. This growth will aid in expanding the country’s foreign direct investment as well. With more companies noting the incredible opportunity in this small nation, financing will be much easier to come by for those wishing to do business here.

Kazakhstan does have its problems, mainly with regards to corruption. Transparency International ranks Kazakhstan below Tunisia and Egypt on global corruption. There have been incidences of authorities behaving aggressively toward foreign investors or corporations operating in Kazakhstan. In one such situation a company was harassed with a front of tax fraud and several of its employees were forced to flee the country to escape prison sentences. The political process is making changes, though. Parliamentary elections take place in January. Currently the entire parliament is stacked with members of the president’s party. The forthcoming elections are already breeding opposition parties. One newly formed party supposedly represents the country’s businessmen. The party’s leader, however, might be more inclined to protect his own interests. Even so, protecting his own interests or those of Kazakhstan’s more powerful businessmen, it remains to be seen what that will translate to in terms of foreign direct investment for the resource-rich nation. Growth in Kazakhstan is largely dependent on outside funds and corporations.

Overall, Kazakhstan presents a unique opportunity for foreign investors. As the country takes control of its resources and political responsibilities there could be a large margin of profit involved for the patient businessman. KazMunaigas (KMG) is continuing to expand even as their production grows. Kazakhstan could very well turn out to be a nice play for the patient investor. The majority of the risk lies within their political process. And we are already seeing a movement take shape to make those necessary changes.

About the author:

Mary Posey
I am an avid fan of financials and investing. I regularly contribute to Seeking Alpha as well.

Visit Mary Posey's Website


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