How should poor countries which find themselves rich in oil and gas use their wealth in order to build a sustainable future for their people? There is a wide range of options and plenty examples of how to get it wrong.
At one extreme, currently in the news, Venezuela has been earning vast amounts from its oil wealth for the past 80 years. Yet most of its people remained impoverished, leading them ultimately to place faith in Bolivarian radicalism as personified by the late Hugo Chavez.
That proved unable to withstand the downturn in oil prices and the country is now seen as an economic basket case and an increasingly authoritarian one at that. How is it possible to have so much wealth for so long and to get it so badly wrong? Yet how many lessons are learned by others setting out on the same path?
Caracas is a chaotic city, seemingly in permanent gridlock. If you can imagine the polar opposite – an oil-fuelled capital city which is the epitome of good order and creative urban planning – then I suggest Astana, capital of Kazakhstan, as the model. No cheap fuel, no traffic jams and wide avenues as part of the futuristic infrastructure.
In 20 or 50 years time, will Kazakhstan be judged to have got it right, in terms of how to use its oil wealth? Will trickle-down economics have worked their magic to reach every part of the world’s ninth biggest country? Or will Astana have become a fading monument to another experiment in squandering the bonus bestowed by nature?
Who knows but, for the time being, it certainly represents a very different approach and one which is of great interest to UK business. For scores of North Sea companies and thousands of itinerant oil workers, such names as Tengiz, Kashagan and Karachaganak are of crucial importance – particularly because of the downturn at home. These are the big Kazakh oil fields.
Kazakhstan has been producing oil for more than a century, most of that time as part of the Soviet Union. It is in the 25 years since independence that the great Astana vision has been formulated and put into effect. I suppose it helps to have political continuity – President Nazarbayev, the man behind it, has been in power for all of that time!
Essentially, the oil money has paid for a brand new capital city where previously there was a small town in the middle of the country. The population has grown to more than one million and the scale of construction shows no sign of easing off. It is either a massive vanity project or an inspired vision – take your pick!
This is a country in search of enhanced international status, which was the rationale behind seeking and winning World Expo 2017 which is currently being held on a large, futuristic site close to Astana. The plan is that the site will subsequently become the base for a financial services sector, serving the whole South Asia region.
Wearing my UK Business Ambassador hat, I spoke at the opening of an Engineering Day in the British pavilion, bringing some of our companies together with Kazakh partners. There are currently at least 50 such partnerships working successfully in the oil and gas sector with many more opportunities ahead. Leading companies such as Shell and Wood Group support these supply chain hook-ups.
“Future Energy” is the Expo theme and the whole show serves as a reminder of how much intellectual effort is going into all the technologies which will be needed to create the low-carbon future. Scottish and other UK institutions and companies are at the cutting edge of many of these technologies but the competition is fierce.
For example, one of the displays in the UK pavilion highlights the potential of Graphene, an ultra-light material which was first separated from lumps of graphite at Manchester University. The two scientists responsible were awarded the Nobel Prize in Physics. Now the possibilities for its deployment seem to be virtually limitless.
“In the home of Graphene,” enthuses the Expo brochure, “the UK is leading a wave of scientific breakthroughs that will shape the future of energy and create new possibilities for the way future generations live”. At the more modest end of potential uses, a display of ultra long-life light bulbs offer a practical economic benefit for today’s consumer!
However, away from the limitless visions offered by Expo, the focus of the UK’s trade and investment effort in Astana is still firmly on oil and gas. Over the next ten years, it is expected that there will be £80 billion worth of investment by the various field operators, led by Shell. The British Embassy’s trade team is hoping to help secure £10 billion worth of that business for UK companies.
A thousand miles from where the oil flows, Astana continues to grow and grow. Where all the people are going to come from to fill these apartment blocks currently being constructed is far from clear. But it is beyond doubt that, as long as there are oil revenues to pay the bills, money will continue to flow into the development of this ultra-21st century capital city.
That takes us back to the question of whether this is the best way to use these resources. Certainly, I can think of worse ones! A lot depends on whether Kazakhstan can broaden its economic base – not least through developing its other mineral and energy-based potential – and educate its young people to play their full part in all of that.
I think it just might succeed where others have fallen back into oil-funded complacency. Having intermittently witnessed the extraordinary changes over the past 20 years, and the scale of plans now being implemented, I would put a few bob on Kazakhstan turning itself into a success story – and the more the UK continues to contribute to its evolution, the better all round.