Picturesque Nur-Sultan had been growing as a tourism hub pre-Covid, and has continued to attract FDI during the pandemic. (Photo by Meiramgul Kussainova/Anadolu Agency via Getty Images)

Nur-Sultan, the capital city of Kazakhstan, is no stranger to transformation. Formerly known as Akmolinsk in the 19th century, during Russian rule, and then Tselinograd after the 1960s, the city was renamed Astana in 1997 when it became Kazakhstan’s capital. However, 22 years later, following the resignation of long-term Kazakh president Nursultan Nazarbayev, the metropolis was once again recast, this time as Nur-Sultan.

While it is anyone’s guess what the city might be called next year, one thing is certain: Nur-Sultan is one of Eurasia’s most exciting, competitive and fast-growing economic hubs (alongside Kazakhstan’s largest city and economy, Almaty). The ever-rising topography of the city, especially its eye-catching skyscrapers, is testimony to this. With a rapidly growing population of 1.1 million people (see the chart below) this real estate boom is no surprise.

Covid-19 did not slow down investment to Nur-Sultan

Nur-Sultan, located on the banks of the Ishim river that divides the city into two parts (known as the Left Bank and the Right Bank), is neatly positioned between Europe and Asia, making the city an effective transport, communication and logistics centre between the two continents.

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Like its population, Nur-Sultan’s economy has grown exponentially since it became Kazakhstan's capital – with powerhouse sectors revolving around industrial production, transport, communications, trade and construction. Nonetheless, the city has not been spared the enormous hardships of Covid-19.

Kazakhstan’s economy was in good shape before the pandemic, with gross domestic product (GDP) growth of 4.5% in 2019. The following year, however, GDP fell to the lowest mark (-2.6%) since the late 1990s – a time when the country was beginning to boom following its transition from a formerly Soviet, centrally planned economy to free markets (an ongoing process).

However, Nur-Sultan was not spared the hardships brought about by the Covid-related slowdown. For one, the city’s tourism industry, which had begun to blossom over the past eight years, has been negatively impacted (see above chart). On the flip side, unemployment in the city has remained fairly low at about 5%, thanks to government support. Meanwhile, Nur-Sultan welcomed record-high foreign direct investment (FDI) in 2020 to the tune of $2.6bn (Tg1.1trn), 20% more than in 2019, according to the city’s press service.

Thus, while most countries and cities around the world saw a 42% decrease in FDI last year on average, according to the UN Conference on Trade and Development (UNCTAD) World Investment Report, Nus-Sultan (and Kazakhstan) bucked the trend. One of the main reasons for this is the fact that Nur-Sultan barely suspended construction work in 2020, allowing building to go on under strict sanitary regulations. As such, the city’s housing boom did not cease. The city also benefitted from a number of foreign investment projects in the production of medical masks and protective suits.

The boom in foreign investment to Nur-Sultan continued into 2021, with $528m invested over the first five months. Most of this went to real estate, which received more than $216m, while transport attracted $20m. Wholesale and retail trade ($8.6m) and education ($5.1m) also saw impressive numbers. The top three most active investors in Nur-Sultan were Singapore, the United Arab Emirates and Turkey.

Real estate has driven investment to Nur-Sultan

Even better news came in the summer period, which saw the city seal a $1.3bn investment in the Abu Dhabi Plaza, a 300m skyscraper that will be home to Central Asia’s highest observation deck. Other major projects from this year include a fleet of electric buses and new secondary schools.

Considering that the city boundaries of Nur-Sultan have tripled over the past two decades, it comes as no surprise that the metropolis has boasted Kazakhstan’s fastest construction rates over the past five years (in both residential and commercial real estate).

Nur-Sultan’s economic resilience during Covid-19, a national trend, is reflected by the success of the country’s foreign portfolio investment opportunities, namely the 2020 bond issue for KazMunayGas, Kazakhstan’s state-owned oil and gas company based in the capital. The bond was highly oversubscribed and the company achieved the lowest yield among issuers in the Commonwealth of Independent States.

Further evidence of this stability is the fact that Kazakhstan’s sovereign wealth fund, Samruk-Kazyna (also headquartered in Nur-Sultan), maintained its credit rating of 'BBB' with a 'stable' forecast, according to Standard & Poor’s. Samruk manages key national assets across oil and gas, transport, mining, telecommunications and more, as part of the country’s privatisation drive.

Traditional sectors are still big for investment 

The Covid-19 pandemic was not the first economic crisis faced by resource-rich Kazakhstan over the past decade. The collapse in oil prices in 2009 and 2015 battered aggregate demand, rocked the stability of the country’s financial sector, and decreased FDI to the country (as the above chart shows).

To this day, Kazakhstan’s oil industry and metallurgy have been, by far, the main target for foreign investors, accounting for more than 70% of the country’s total FDI stock, based on 2019 figures from UNCTAD.

It is no surprise, therefore, that these sectors were hit the hardest by Covid-19, with oil and gas seeing a 30% drop in foreign investment compared with the previous year. However, in manufacturing and industry (the country's next-largest sectors), investment remained largely stable.

Nur-Sultan boasts Kazakhstan’s fastest-growing manufacturing sector and ranks second in the country’s industrial production index. This production is concentrated in building materials, food/beverages, mechanical engineering and rubber products.

A spree of foreign companies have already spotted the opportunities across these sectors, including names such as Coca-Cola, Germany’s Kunststoffe, South Africa’s Paramount Group, Turkey’s Astana Yutariya, Turkey’s KAE, Poland’s Selena Group and others. Many of these companies have established their operations in Nur-Sultan’s two special economic zones, Astana-New City and Astana Technopolis.

Investors of this variety have continued to enter the capital, with 2021 seeing the arrival of a major foreign bread producer. In short, while Nur-Sultan’s high-potential tourism industry will likely take several years to recover from the effects of the Covid-19 pandemic, it is full steam ahead for the city’s industry and manufacturing sectors. That said, the city’s most exciting space to watch, quite literally, is its fast-rising real estate sector.

This is the sixth and final article in Investment Monitor's 'Future of Eurasian Cities' series. Click here to read about Baku, here for our profile on Tbilisi, here for our feature on Almaty, here for the piece on Tashkent, and here for Yerevan.