Opening of Astana’s International Financial Centre
Thursday, 08 February 2018
Astana has set an ambitious goal for AIFC and envision it to become the financial hub for Central Asia.
An unusual experiment for the entire post-Soviet region has just been launched by Kazakhstan. On 1 January, this Central Asian republic inaugurated Astana’s International Financial Centre (AIFC). The initiative is launched as part of the country’s long-term strategy to develop its financial service industry and accelerate the diversification of its economy. In becoming a financial service hub, the authorities hope to tap into opportunities in the emerging marketing surrounding it.
Astana has set an ambitious goal for AIFC, and envision it to become the financial hub for Central Asia, the Caucasus, Eurasian Economic Union, the Middle East, West China, Mongolia and Europe. The new financial centre is planning to attract $40 billion of investments by 2025 and ensure about 1% growth in the carbonless GDP of Kazakhstan.
AIFC focuses on the development in several financial service areas, such as the capital markets, asset management, private banking, FinTech, Islamic Finance and Green finance.
One key factor of Astana’s new finance centre is the attractive business environment and the presence of a separate legal and regulatory system based on the principles of the British Common law, according to which the Financial Court and the Arbitration Centre have started their operations this year. These measures will assure fairness and justice in its operations and will greatly enhance the credibility of Kazakhstan in the eyes of the investors.
As part of AIFC’s infrastructure, the Astana International Exchange will also play a vital role in developing the region’s capital markets. It is especially important, given the country’s massive privatization program of public state-owned companies, including the national oil and gas company, railway operator, postal operation, air carrier, power producer, mining companies and the world’s largest uranium producer.
The quality assets with high intrinsic value will certainly generate interest from both strategic and financial investors whereas the exchange platform, 25,1% stake of which is owned by the Shanghai Stock Exchange, will support and justify their investment decision by ensuring security and legal certainty.
In addition to Chinese investment, Islamic financing also plays an important role in attracting funds. Its share will roughly amount to one fifth of the total investments. Islamic banks will be able to introduce new financial technologies, such as crowdfunding and micro-financing.
The independent regulator of AIFC was recently accepted as a full member of the Islamic Financial Services Board and Accounting and Auditing Organisation for Islamic Financial Institutions. Membership of these respected international Islamic bodies will facilitate the development of the Islamic Financial Services industry in Kazakhstan, which will position Kazakhstan’s economy further in the Eurasian region.
Another strategic partner, American NASDAQ, is reportedly interested in acquiring 7% of the financial centre and will implement state of the art market technology for Astana’s International Exchange to ensure sufficient access for investors to attractive financial instruments.
Other prospective clients in the new financial centre include foreign high net worth individuals from neighbouring countries, mainly Russia and China, which Western banks fail to get onboard due to their strict regulatory requirements or sanctions placed on citizens from these states.
Domestic affluent individuals may also play an important active capital-injection role in Kazakhstan’s capital market. Kazakhstan’s population have savings estimated to amount to more than $55 billion. Coincidently, wealthy Kazakhi citizens have transferred an estimated $170 billion to foreign accounts in various tax heavens. AIFC could become an attractive alternative in repatriating the capital for these investors.
In addition, as a country pioneer in promoting FinTech instruments and developing niche markets, such as Islamic and green finance, AIFC will take a leadership role to work closely with financial, government and industrial sectors to cater for investors in these markets.
AIFC participants are granted various incentives such as tax exemption for 50 years (corporate income tax, personal income tax, land tax, property tax), simplified currency, visa and labor regimes for participants and employees of AIFC as well as the connectivity of Astana with the key financial centres around the world via direct flights and the open sky policy.
Kazakhstan is the largest and most oil rich country in Central Asia, bordering Russia and China with a territory larger than the whole of Western Europe but with roughly the same population as the Netherlands. Since its independence in 1991, the country’s development has been closely watched as a barometer for Central Asia, where fears of instability abound.