ASTANA (TCA) — Oil-rich Kazakhstan needs to take the maximum use of its huge hydrocarbon and mining sectors revenues at a time when the country’s economy is being affected by low oil and commodities prices. In this context, we are republishing this article by Anton Artemyev, the executive director of the Soros Foundation Kazakhstan, originally published by EurasiaNet.org:
Kazakhstan is an implementing country in the Extractive Industries Transparency Initiative, and it recently published its 10th annual report, providing exhaustive details about the country’s oil, gas and mining sector and the revenues it earned in 2015.
Although they provide the public with a good overview of the industry, these detailed reports risk losing their purpose, unless the government can not only demonstrate its openness to communicating information, but also show that it takes accountability seriously. In Kazakhstan’s case, given its current economic predicament, it is important to ensure that every tenge counts.
EITI’s purpose is to hold governments and corporations accountable: it compares the revenue of what the government said it received from companies and what companies claimed to have paid authorities. The reconciliation of those two figures is intended to demonstrate publicly that the both sides were acting in a transparent manner. While small discrepancies are occasionally recorded, usually comprising well under 1 percent of the overall money involved, they do exist. An independent administrator, namely a recognized auditing firm, then tries to make sense of any discrepancies.
EITI has evolved internationally to include reporting on beneficial ownership (which physical persons actually own the shares in companies) and contract transparency. Kazakhstan, however, may only begin reporting on beneficial ownership in 2020.
Kazakhstan’s first decade of EITI reporting was dedicated to understanding the scope of the industry. Kazakhstan’s population knew that the country was wealthy, but it was unclear just how wealthy it was. Now we know.
From 2010-15, Kazakhstan earned approximately $160 billion USD from its oil, gas and mining sector. With just $12 billion USD in 2015, the country suffered a significant decrease in revenue, compared to the consistent years of 2011-14, during which revenue hovered around $30 billion USD per year.
When figured within the context with Kazakhstan’s population, revenues between 2010-2015 amounted to about $9,400 USD per Kazakh citizen over the six-year period.
While the government has managed to attract foreign investment to some of the world’s most challenging oil and gas fields, and has correctly insisted on strong local content policies to develop those fields, there is still much work to be done.
Despite this revenue, a blessing for any country, significant development challenges remain, as underscored by the OECD’s Multidimensional Review of Kazakhstan. The review, published in 2016, measured Kazakhstan against thirteen other countries, including Australia, Azerbaijan, Brazil, Chile, Malaysia, Norway and Russia. Some of the results include:
- At 71 years, Kazakhstan’s life expectancy is one of the lowest in the measured countries, with a nearly 10-year difference in life expectancy between men (67.2) and women (75.9).
- In education, math and science were nearly at the bottom, and reading levels were the lowest. There are many possible reasons for these conditions, but one of the likeliest is a lack of quality teachers and comparatively low state expenditures on education. Low teacher salaries offered by the state do not attract enough qualified teachers. Disarray in the education sector has also created fertile ground for corruption: students can buy grades in Kazakhstan, as well as “better” healthcare and other public services.
- Corruption perceptions are still doggedly high, according to Transparency International’s Corruption Perceptions Index. In the 2015 survey, Kazakhstan, in 123rd place, finds itself below that of Azerbaijan (119), China (86) and even Bosnia and Herzegovina (76). Singapore, Astana’s much-discussed example, is in the eighth position, one of the world’s least corrupt countries.
A great feature of the EITI system is that it brings together governments, private sector entities and civil society organizations. While all three do work together in Kazakhstan’s National Stakeholders Council, there are not as many opportunities for the engagement of broader civil society as there should be. Indeed, one of the EITI’s central goals, and a key requirement, is that the transparency initiative leads to a broad “national discussion” about the use of natural resources. After 10 years of EITI in Kazakhstan, that national discussion has yet to really begin.
EITI’s main problem in Kazakhstan is that the process’s main output – its annual report – is significantly underutilized. Reports are produced, rushed through, presented during a news conference and then sit on a government website, rarely downloaded and indeed used. It is important to note that accountants prepare the reports. While accountants are very good with figures, many have a difficult time writing in a way that is interesting and easily understood by the average reader. This is why recent attempts to produce popular, comprehensible versions of EITI reports are so important and EITI sponsors should focus more on them.
Paper copies, important particularly for the regions, are few and far between. The current attitude is that the annual reports are on the Internet, so the burden is on the public to find them. This is a mistaken approach: even civil society organizations involved in EITI have so far failed in communicating these reports in a meaningful way to the country’s citizens.
Kazakhstan takes its reputation in the international community very seriously, and has ambitions to join the OECD in the future. EITI has the potential to cast Kazakhstan’s government in a positive light as an exemplar of fiscal responsibility. The country has taken some significant steps within the EITI framework, but more needs to be done.
EITI still lacks meaning to Kazakhstan’s most important stakeholders – its own citizens. Kazakhstan’s opportunity rests in maximizing the impact of energy sector revenues on such public spheres as health, education and infrastructure development. Under the current, challenging economic conditions, the government needs to be smarter with its money, as well as more transparent and more accountable.
The focus of the last decade for Kazakhstan has been on how much money is at stake in the extractive industries. The next 10 years should focus on government spending decisions and practices. The government of Kazakhstan should prepare itself for those questions when they come.