The Unraveling of Kazakhstan’s Social Contract

There are many ways to interpret Qandy Qantar – meaning “Bloody January” in Kazakh, a reference to the unrest and violence of early 2022 – and the evident popular dissatisfaction with the state of the political economy in the country. Some may blame the dysfunctional bureaucracy in control of state institutions and mired in graft and corruption. Others may attribute public anger to the absence of economic opportunities stemming from Kazakhstan’s resource-dependent economy, which is under the control of politically connected elites. More have pointed to the lack of civic freedoms and limited ability of the public to influence political decisions. These claims are not mutually exclusive, of course, and have garnered public support across the political spectrum. 

One thing has become clear: The old social contact created under Kazakhstan’s first president, Nursultan Nazarbayev, is no longer satisfactory to the majority of Kazakhstan’s people. The time has come to re-evaluate it, and the biggest question is if President Kassym-Jomart Tokayev up to the challenge.

Tokayev’s “appointment” to the presidency in 2019 took place after Nazarbayev, who had been in power for nearly 30 years, stepped down. Nazarbayev’s last year in office was turbulent as more people, dismayed over living conditions and the stark inequality between the elites and regular people, protested against the government. But Tokayev’s rise to power did not assuage the growing frustration. The Oxus Society’s protest tracker shows that all but 47 of the 780 protests that occurred in Kazakhstan between January 2018 and December 2020 came after Tokayev ascended to the presidency in March 2019. 

Social dynamics are changing in Kazakhstan, and the Tokayev regime has engaged in various attempts to alleviate this public pressure. It’s important to consider what led to this situation exploding into view in January 2022 and evaluate whether Tokayev can navigate through this turbulence effectively.

Nazarbayev’s Social Contact: The Papa Era

Strong public dissatisfaction in 2022 can be contrasted to the 2000s, when Nazarbayev was lovingly nicknamed “papa.” The social contract during the “papa” era was simple: The people were given basic economic freedoms to start businesses, engage in services, and organize a relatively comfortable lifestyle for their families. The number of tourists who visited Kazakhstan continued to increase up until the pandemic.

Kazakhstan was famous not only for its stunning landscapes, but also for posh restaurants, luxury cars, and loans. Indeed, more than half of the economically active population carried debt at formidable rates, but for the first time many people also managed to own a house and a car. For example, by 2008, 45 percent of the portfolio in the Alliance Bank belonged to loans made for construction companies and mortgages. Over 70 percent of loans were medium-to-long term at the time. The availability of money pushed society to invent even more elaborate wedding traditions and expectations in the economy of gifts. The exchange rate for the national currency, the tenge, remained relatively stable, offering affordable imports to an economy that was largely based on the export of natural resources.   

Elites were able to tap into rents from the export of natural resources and the appropriation of valuable strategic infrastructure. The rise of the middle class coincided with the economic consolidation of crucial assets by elite-managed financial-industrial groups. Each established their own bank to service their interests. The Eurasian Resources Group owned Eurasian Bank and Tsesna Group owned Tsesna Bank, for example; the interests of the presidential family were served by Nurbank and Halyk Bank, while Kazcommetzbank oversaw the financial interests of smaller companies in the extractive sector and service provision. By 2015 nearly 80 percent of the banking sector was under the control of 10 banks. 

Nazarbayev’s family and friends also gained control over supporting infrastructure responsible for the delivery of natural resources and distribution of rents: Nazarbayev’s cousin, Serik Ahmetov, was in charge of the Sovereign Wealth Fund, Samruk-Kazyna; services of extractive companies, such as KazMunayGas and KazTransOil were conveniently managed by Nazarbayev’s sons-in-law; and transportation of resources to international markets remained in the hands of Nazarbayev’s eldest daughter, Dariga – besides railways, she also had connections to major airports. 

Investors reaped tremendous benefits: Soviet-era enterprises were streamlined, no longer responsible for welfare allocations (as most welfare services were outsourced or privatized altogether) and environmental payments were heavily subsidized by the government. Professional organizations of workers disappeared and it became difficult to sustain a truly independent labor union. New unions were controlled by employers.

Take the mining sector as an example. ArcelorMittal, a Luxembourgian multinational steel manufacturing corporation with plants in Kazakhstan, registered 103 coal miner deaths since privatization in the 1990s. Mining workers all over Kazakhstan were also paid less than their contracts showed through elaborate corporate accounting schemes, triggering occasional protests. While workers were operating in highly precarious conditions, most companies received multiple kinds of preferences and tax breaks, despite slowing growth in the country after 2008. The “optimized” production process brought large dividends to the new elite owners, who preferred to spend money outside of the country rather than re-invest into domestic production, infrastructure, or the safety of their workers.

In 2010, the expenses of Kazakhstani citizens at Dubai Fashion Week increased by 171 percent year-to-year. Nazarbayev’s family purchased fancy properties abroad, including a mansion in the U.K. that previously belonged to Prince Andrew. The presidential family also owned prime plots of land in Kazakhstan’s major cities. In Almaty, precious lands from the National Park were transferred to close Nazarbayev family members. Land from universities and hospitals was also grabbed by construction companies owned by the inner circle.

In turn, this bonanza resulted in the merger of political elites and financial-industrial groups, including land that was controlled by a handful of companies. These financial-industrial groups paid taxes to the state budget and some proceeds went to resupply Samruk-Kazyna. Rents were plenty and accessible to the government as international oil prices remained relatively high after the U.S. Financial Crisis in 2008 and the European Debt Crisis in 2012, staying, on average at $86 per barrel and never dropping below the $40 benchmark. 

In the meantime, Nazarbayev talked about a bright future with Kazakhstan joining the ranks of the world’s 30 most competitive nations, chairing the OSCE in 2009, and being selected to organize EXPO 2017. These grand projects went hand-in-hand with loud corruption scandals and image-waxing expenses abroad.  

The Times of “Shal”

By 2014, the financial system of Kazakhstan could no longer truly sustain this bargain. As the construction boom continued, smaller banks took up short money from abroad and invested into medium-term construction projects. Several had to close and restructure their capital with the help of the government; it poured nearly $10 billion into rescuing financial institutions from bankruptcy. The U.S. dollar-Kazakh tenge exchange rate skyrocketed, and by 2019 the government was forced to conducted three technical devaluations. The import of key products and consumer goods stalled and became unaffordable to many people, who borrowed even more money to safeguard the living standard they had achieved in the years since independence. 

Non-performing loans became a loud and imminent problem. The numbers were staggering: Banks reported close to 40 percent of loans unpaid by borrowers. Loans became less affordable and more strict; businesses could no longer gain capital to cover interest rates. More and more dispossessed people were thrown onto the streets after failing to pay their mortgages. At the same time, firms close to the regime in power were taking millions from public banks and development institutions for projects that never materialized.

As people’s incomes dwindled, the rentier companies continued to expand opportunities to extract even more money from the people. Multiple companies appeared between producers and consumers in nearly every service provision. Train tickets carried a purchase tax that went directly to a company controlled by Nazarbayev’s family. Every car brought into the country came with a nearly 200,000 tenge “environmental” tax for recycling, with the tax actually going directly to a private company owned by the president’s youngest daughter, Aliya. 

Nazarbayev’s sons-in-law were also notable in establishing companies that made money out of thin air. The infamous trigger for Qandy Qantar was the doubling, in a single day, of prices for liquefied petroleum gas by companies indirectly controlled by Timur Kulibayev (married to Nazarbayev’s second daughter, Dinara Kulibayeva). 

Government officials were also building their own little empires. Some universities were controlled by the family members of former ministers of education. In private wedding celebrations, government officials openly bragged about stealing 80 percent of allocated budgets. With fewer opportunities to make money in this uncompetitive environment, the number of small- and medium-sized businesses in Kazakhstan decreased. By 2019, the existing systemic inequality was readily apparent and omnipresent. 

In early February 2019, five girls died in a house fire in one of Astana’s poorer districts while both of their parents were working. The living conditions of the family were appalling: a small rented house with a badly installed chimney was all two working adults, a mechanic and a factory worker, could afford with their salaries in the capital city. In 2019, a KPMG report noted that 162 people controlled 50 percent of the wealth in the country, while half of the population earned just 50,000 tenge per month ($130). The value of consumer loans held by banks was 2.5 times higher than in 2013 – when the government had to spend $10 billion to rescue the banking system. 

Nazarbayev released his grip on power on March 19, 2019, resigning and passing the presidency to a handpicked successor: Tokayev. The era of “Shal” – a Kazakh word meaning “a crank” – was passing.

Tokayev’s Social Contract: From “Furniture” to a Dictator 

Tokayev played his hand well. After coming into the presidency in 2019, he managed to secure a stable ruling tandem with Nazarbayev through numerous public protests and the COVID-19 pandemic. The implicit social contract between the political “family” (the Nazarbayevs and their inner circle) and the population was based on the ability of the former to control most of the wealth in Kazakhstan, while the latter remained relatively free to benefit from the ability to travel, trade, and buy goods (with loans from family-controlled banks, of course).

But the protests that appeared after 2019 highlighted problems with the existing order. The social contract did not work for the majority of people anymore, they could no longer afford the most basic living standards, such as utilities. This was evident in the nature of protests, which besides the typical rights-based demands for the respect of human rights and the rule of law, now attracted people who felt entitled to official assistance but found it lacking. A recent book by Balihar Sanghera and Elmira Satybaldieva dove into the rationale behind these protests, summarizing the logic: If government officials can appropriate land and property for themselves, why can’t they do the same for me, a person who needs just a small bit of help?

It was a reasonable question for mothers with multiple children who saw their living standards plummet due to inflation and rising housing prices. It was also a reasonable ask for squatters who occupied state land and created makeshift housing blocks, essentially slums, to have somewhere to live while precious land in national parks was privatized and illegally appropriated by officials in power. It was also logical for people whose homes were destroyed by various explosions, flooding, and fire to ask for help from the state in rebuilding their shattered lives. So too for farmers who took loans to operate, but could not pay them back due to trade and travel restrictions during pandemic, or farmers whose herds died because of drought, rendering them unable to make a living.

Initially, Tokayev scored points among the desperate. He forgave a quarter of a million loans held by the poorest people and eased the loan burden for another 2 million. He increased the amount of child support by 10,100 tenge. He traveled to major centers of crisis and directed his administration to assist people who suffered. In addition, he introduced the concept of the “Listening State,” promising the people an opportunity to be heard. Several institutional fora followed, ostensibly designed to fulfill this promise.

A National Council of Public Trust was established that included notable public figures. Their mandate was to meet with people and transfer their aspirations and grievances directly to the president. Unfortunately, not much came out of the council. Tokayev then established a wider forum, the National Kurultai. 

In addition, the law on political parties and protests were changed. Among other changes, the threshold for party registration was lowered from 20,000 to 5,000 members. But, by September 2022, no new parties had been registered. After the snap presidential elections in November 2022, two new parties were finally registered. But the Democratic Party of Kazakhstan, headed by Zhanbolat Mamai, which had submitted 20,000 signatures in line with the law before it was amended, remains unregistered and Mamai is facing criminal charges. 

Some analysts may blame the tandem period, the division of political power between Nazarbayev and Tokayev, for the ineffectiveness of the post-2019, pre-2022 reforms. Nazarbayev continued to hold political authority in key government institutions, including the Security Council and a Senate seat via his eldest daughter; he chaired the Assembly of People of Kazakhstan and the dominant political party, Nur-Otan. Tokayev was nicknamed a “mebel” – a piece of furniture – who occupied the visible space of the presidency while the real power remained in the hands of Nazarbayev. The tandem between the Presidential Administration and the Library, where Nazarbayev’s administration moved after his resignation, operated in a seemingly smooth order. Tokayev made superficial reforms and engaged in populist rhetoric, while the established political economy as outlined above continued to be dominated by special interests affiliated with Nazarbayev’s friends and family. 

2022 has not been so easy for Tokayev’s regime. The social contract was no longer satisfying Kazakh society, which shifted from a docile population to a highly politicized society with myriad calls for more agency, access to decision-making at the local level, and the redistribution of wealth in the years after 2019 especially.

Right after New Year’s Day 2022, massive public protests took place all over the country. They devolved into street violence and shooting. In response to the the growing unrest, Tokayev reportedly gave a “shoot to kill” order. More than 238 people died during “Bloody January”; hundreds were injured and tortured by law enforcement bodies during and after. 

Tokayev initially blamed “20,000 foreign terrorists” for the street violence and deaths, in part as a pretext to bring in troops from the Collective Security Treaty Organization (CSTO) to ensure his own regime’s survival. But after the unrest died down, the state engaged in a cleanup of independent activists and civil society groups. Law enforcement bodies illegally tortured individuals in custody in an attempt to fabricate evidence in the form of confessions to support the official story of foreign terrorists. The detention and abuse of a noted Kyrgyz jazz musician exposed this effort for the fraud it was. 

Qandy Qantar resulted in the outright demise of the power tandem. 

Nazarbayev officially left politics and his family members also left high-profile public positions, including vacating the chairmanships of the Central Election Committee, KazMunayGas, and KazTransOil. Criminal investigations against several family members began, and they “voluntarily” returned property and portions of wealth to the state. 

Tokayev followed up with promises to build a “New Kazakhstan” that will be fair, transparent, and supportive of people in need. He introduced a new fund “For the People of Kazakhstan” and forced elite-controlled financial groups to chip in some of their proceeds. The money was to be spent on providing services not offered by the state to citizens. However, the fund was soon embedded in a corruption scandal, with accusations of billions of tenge going to, among other things, dysfunctional medical equipment.

Tokayev also staged a country-wide referendum on 56 constitutional changes in the summer of 2022, which included a new Constitutional Court and a mixed election system, as well as provisions safeguarding the presidential right of appointments even to Maslikhats (local representative bodies). Tokayev then introduced a single, seven-year term for the presidency and called for a snap election. The presidential election on November 20, 2022, was farcical. In the style of his predecessor, Tokayev won over 80 percent of votes, competing against an array of approved opponents who were unable to pass even a 5 percent threshold. The second-place finisher in the election was the “against all” option.

A year after Qandy Qantar, behind veneers of official promises for fairness and justice, multiple people remain behind bars after forced confessions, bearing the scars of torture, while police are being pardoned, and torture cases against them officially closed. 

Rather than protesting the bureaucracy and state institutions that cover up each other’s deeds, more activists are paying attention to the real locus of power. It does not reside in elections or the judicial system; it sits with those who have power over major economic assets and the state budget. The political economy remains in the hands of the old president’s friends and relatives, the few resignations aside. Nazarbayev’s relatives continue to own Kazakhstan’s major banks, as well as shares in national companies, and significant infrastructure. Nazarbayev himself has faced no charges. 

None of the groups that initiated the revision of the social contract in the country is satisfied. Entitlement protests continue to take place. Mothers with multiple children still complain about the burden of loans and the inability to obtain subsidized mortgages. Some categories of government workers and students were promised an increase in their incomes, but this gambit at co-optation will not create a significant boost in their lives, and not for long if it does at all.

Rights-focused activists are also dismayed over staggering differences between what Tokayev says and what the regime does in practice. They engage in investigative journalism to educate the public about how strategic assets are acquired and how money is spent. The Public Fund (Elge Qaytaru) serves as an imminent critic of the regime and aims to return stolen assets back to the country and its people. Social platforms such as FactCheck and ProTenge diligently monitor state expenses. 

Despite these efforts, money from the budget continues to be spent frivolously, while cities suffer from shortage of water, heat, and electricity. One report claimed that officials in Pavlodar spent millions on ice sculptures at a time when the city’s heating systems were failing. Meanwhile, individuals continue to take loans to pay off other loans and credit cards in order to live the lives they were promised. 

The utterly dysfunctional bureaucracy is facing a strong public backlash. 

Holding a country like Kazakhstan in political balance is an art, but not many share its aesthetics. With more sanctions on Russia, Kazakhstan will face broken supply chains and limited exports. In light of this, it is easy to predict more popular protest and dissatisfaction in the months to come. In response, Tokayev will have to show his real face: that of a dictator who relies on force to discipline the population. His recent warning regarding severe punishment of opposition is yet another proof of his intentions.

However, the people of Kazakhstan have changed. They are more active now, more interested and more politicized. The regime had better listen and seriously work to redraft the social contract. Even more, it needs to implement what it preaches in practice: a “new” and “fair” Kazakhstan, a listening state with a human face. Otherwise, Qandy Qantar may last for another season.