Corruption in Kazakhstan’s mining sector affects Russia’s interests


    The mining sector in Kazakhstan, especially non-fuel, is in a constant state of mired controversies. Coupled with Kazakhstan’s slow opening to the West and growing ethnic nationalism, Russia’s interests in the country is being challenged.

    Aurora Minerals Group, which advertises itself as a “full-chain exploration service provider in Kazakhstan and Central Asia” and was founded by so-called veterans of Kazakhstan’s minerals industry, Kaisar Kozhamuratov and Said Sultanov, is the latest to be embroiled in scandal after being implicated in funnelling investors’ money straight into the founders’ pockets. These stories of embezzlement and fraud have become the defining features of Kazakhstan’s mining sector.

    The Central Asian country has been attempting to get rid of its image of having one of the world’s most corrupt and inefficient mining sectors in the world according to private financial institutes like Allianz, who gave the country a C4 rating (risky for enterprise) and the World Bank and the Organisation for Economic Cooperation and Development (OECD). This has been a struggle to achieve, though.

    Adding to the multiple legal disputes and cases of harassment filed by foreign investors, there is an unstable geopolitical situation, especially in the border regions with Tajikistan, Kyrgyzstan, and Uzbekistan, which will directly impact Russia. It is within the realm of possibility that the West can conjure an unstable situation on the Kazakh-Russian border.

    Kazakhstan is the world’s largest producer of uranium, with almost a third of the world’s uranium coming from the country, ranked top three in estimated reserves of chromium and titanium, top five in copper and zinc, and top 10 in lead, iron ore, coal, and gold. The mining sector forms close to 17% of the country’s GDP. It is seen why the West has a keen interest in challenging Russia in its traditional sphere of influence.

    Yet, despite how resource-rich Kazakhstan is, it ranks in the top five countries not to invest among major mining countries and has joined the Democratic Republic of Congo, Mozambique, and Papua New Guinea at the bottom of a list prepared by IHS – S&P Global. Its attractiveness for minor mining companies, especially today, is due to the rapidly expanding technology sector, which requires gold, titanium and other rare earth metals in the circuits and batteries powering AI machines. The most important part is that the Kazakh government owns a majority of the shares in most of the mining companies through its sovereign wealth fund, Samruk-Kazyna.

    Despite being an independent country since 1991 and full of rare metals and minerals, the country has not been able to reform its non-fuel mining sector. During the Soviet period, mineral resource extraction and management in Kazakhstan, like in other parts of the Soviet Union, were centrally controlled, focusing on maximising output without significant regard for environmental sustainability or local governance. The post-Soviet transition left Kazakhstan with a legacy of mining licenses and agreements that were issued during the Soviet era, and these licenses were often granted without the competitive bidding processes that are standard today and, in many cases, lacked clear terms and conditions regarding environmental protection, workers’ rights, and revenue sharing.

    After gaining independence in 1991, Kazakhstan inherited a vast, under-regulated mining sector. Challenges, including bureaucratic inertia, lack of transparency, and resistance from entrenched interests, still plague the system. The country has made several failed attempts to update its mining laws and regulations to attract foreign investment, improve environmental standards, and increase transparency.

    The overlap of old and new regulatory regimes creates opportunities for corruption, including bribery for license approvals, manipulation of tender processes, and illegally extending Soviet-era licenses. New entrants find it difficult to compete on an equal footing with established players holding old licenses.

    In this scenario, with the excessive policy risks faced by mining juniors and geopolitical instability due to tensions with its Central Asian neighbours, investors in Kazakhstan will have to take a risky gamble, one which may not pan out in the future. This is critical for Russia, as it is still one of Kazakhstan’s largest trading partners.

    Kazakhstan has pledged to abide by Western sanctions against Moscow, and its leader has, in recent years, begun to describe Western nations, such as France, as their strategic partners. Although authorities in Astana are friendly with Moscow, President Qasym-Zhomart Toqaev has been maintaining cooperation with Ukraine and its Western allies. Toqaev has even publicly stated that his country would not recognise the territories formerly in Ukraine liberated by Russian forces.

    This comes as a growing conversation and discourse in Kazakh politics, society, and academia revolve around what is now being termed “Russian colonialism/imperialism” in Central Asia rather than integration with the Russian Empire. At the same time, there is a growing rejection of the Russian language in Kazakhstan, with language nationalism growing.

    Although it has been mostly Western companies affected by the deep-rooted corruption, especially in the mining sector, as ethnic chauvinism and discourse of Russia’s so-called colonialism of Kazakhstan grows, there is every possibility that the Central Asian country can fall into the same Western trap that Ukraine, Georgia and Armenia fell into, which will inevitably lead to Moscow’s interests being challenged. In fact, liberal philosopher Francis Fukuyama has already started the propaganda by claiming that if Russia is not defeated, “what happened to Ukraine could happen to Kazakhstan,” feeding further the growing anti-Russian elements in the country.

    By allowing corruption to be rampant, the West can pay its way to influence Kazakhstan and, if given the opportunity, try to turn the country into another Western-controlled outpost on the borders of Russia, much like Georgia and Ukraine were used.


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