OPINION:
ANALYSIS/OPINION:
The global financial world is changing, as President Trump would say, big league. This week marks the next-level escalation of the trade war between the United States and China as POTUS attempts to roll back decades of the hollowing out of American manufacturing in favor of emerging markets in the Pacific.
However, in the face of this international turmoil, as long-term trade and financial flows are disrupted, opportunities exist. Those nations and companies that understand this will reap the financial rewards. The new Astana International Financial Center (AIFC) in Kazakhstan could very well be one of the more successful efforts in this regard. Its fate is the matter of location, timing and vision.
As someone who traveled the world for almost twenty years visiting offshore financial jurisdictions from the Channel Islands to Hong Kong while on Wall Street, I understand the wealth and influence this type of enterprise — an international financial hub — can bring. What it takes is a sustained commitment to the rule of law, infrastructure resources and a niche that will draw business. That niche could be nice beaches for yearly board meetings, like in the Caribbean, proximity to London, the other global financial center, as in the Channel Islands, or the connection of the Chinese mainland to Hong Kong.
Astana is in the middle of huge earthquakes of geopolitical and economic change in Central Asia. The Chinese Belt and Road Initiative runs right through Kazakhstan on its way to Europe. Although primarily an Islamic country, Kazakhstan is mostly secular and has a strong Christian heritage as well.
It is the ninth-largest country in the world geographically and the dominant nation economically in Central Asia. It borders the lucrative Caspian Sea with its vast energy reserves. With trade wars blossoming across the planet, what better place to bring people together and to connect financially.
The AIFC will focus on several areas, including asset management, private banking, capital markets development, Islamic finance and financial technologies. It is the Islamic finance angle that interests me the most, and where I see a big payoff for this Kazakh effort to build a new, regional financial jurisdiction, on a par with Cayman or Jersey. Islam is booming across the world and so is the need to provide Islamic financial services. This could be Astana’s edge.
There are no serious financial markets between Shanghai and Frankfurt. This is where the national champions of Kazakhstan will float, including Kazmunaigaz — the Kazakh Oil and Gas national petroleum and gas company — and others. With Uzbekistan now rising, the hope is they may come to Astana’s financial markets, and possibly others that are trying to escape Russian sanctions.
In addition to Sharia-compliant transactions, the unique rule-of-law efforts for AIFC are also worth noting. Recently, Kairat Kelimbetov, the governor of AIFC and the former Kazakh Central Banker spoke to Bloomberg, saying, “We are implementing the English common law-based framework for the first time in the vast region from Eastern Europe to Russia, Caucasus, Central Asia, to China and parts of South East Asia. This is an enormous market rich with natural resources, social and financial capital. I am sure that Western and Asian investors are interested in the region, but there are certain perceived risks, which increase potential costs. By offering a safe and stable platform with the protection of shareholders rights, sound legal system with the best judges from England and Wales, and overall safe environment, we are alleviating a number of risks for those investors.”
Legal and fraud risk are top concerns for investors in the region. If Kazakhstan can fulfill this goal of a trusted system based on English law, served by Western judges and lawyers, the results could be off the charts in this critical part of the world.
And the ongoing transformation surpasses the investment sphere. Kazakhstan is going back to the Latin alphabet, getting rid of the Cyrillic, which could scare off many customers due to concerns of not being able to integrate with the rest of the financial world.
Kazakhstan went far, introducing a trilingual education (Kazakh, Russian and English), and AIFC will be the place where this bold effort could pay off. This is a unique application of the English law and language in the heart of Eurasia. This approach will be tested in the years to come, as the English law and language are a big attraction for folks to adjudicate disputes in English in an area where the post-Soviet justice system is still lagging behind.
It is good to see a project where Americans, Chinese, as well as Gulf Arabs and Russians, can find common ground. From a geo-economic perspective, this is a win-win. Everyone is planning on making money, everyone will be eating lunch.
What it will take to achieve this dream is a sustained commitment to building a city and an institution where people will want to come and work, where the rule of law can be trusted, where expertise in Islamic finance is a given, and where infrastructure is elevated to the best in the world.
Kazakhstan and the AIFC have their work cut out for them, but the eventual payoff could be enormous.
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