New Stock Exchange in Kazakh capital backed by Shanghai and Nasdaq exchanges and Goldman Sachs, among others. But Analysts unconvinced new financial hub can tap international investor money without greater transparency of project details.

One of the primary goals of the Chinese backed Astana International Financial Centre (AIFC), the newly established regional financial zone in Kazakhstan’s capital, is to boost funding for projects under Beijing’s Belt & Road Initiative, its transcontinental infrastructure strategy, the Governor of the zone said in an interview.

Although the new stock exchange set up in the economic zone is backed by a number of prominent global financial firms, questions remain over whether it can improve investment conditions in particular the transparency of Belt & Road projects to attract significant amounts of money from international investors.

The Shanghai Stock Exchange owns 25 per cent of AIFC’s Astana International Exchange (AIX), while the state run Silk Road Fund owns 5 per cent of AIX’s shares. US investment bank Goldman Sachs and stock exchange Nasdaq also have stakes in the stock exchange in the Kazakhstan capital of Nur-Sultan, which began operations in November last year.

Kairat Kelimbetov, the former Governor of the National Bank of Kazakhstan, who heads AIFC, said he believed AIFC and AIX would play a vital role in financing Belt & Road projects, which have been funded mostly by China’s State entities.

“We’d like to develop financial capabilities for the next generation of Belt & Road projects,” Kelimbetov said.

Chinese President Xi Jinping launched the Belt & Road plan in Kazakhstan in 2013, outlining his vision to build a series of infrastructure projects to link Asia with Africa and Europe, and boost regional and world trade. The question remains how all the projects under the initiative will be funded.

Kelimbetov argued that AIFC and AIX are part of the answer.

“There are two ways of raising capital for these projects,” he said. “One is straightforward, through direct investment. AIFC can be the right platform to create joint ventures and special purpose vehicles or different funds.

“The new stock exchange in Nur-Sultan offers a better platform than had ever existed in our part of the world,” Kelimbetov said. “It is a modern trading platform that uses Nasdaq’s [American] trading system, with market rules similar to those in major financial centres, and a diversified investor base. We already have six international brokers, including three Chinese ones.

“We also believe in attracting retail investors a major part of the transactions on our stock exchange are due to retail investors allowing us to access another large pool of capital.”

Modelled on the Dubai International Financial Centre, AIFC seeks to host a wide variety of financial market players, including family offices, wealth managers, securities traders and financial technology firms. All of these could be potential investors in Belt & Road projects.

However, the success of AIFC and AIX is not assured. An earlier attempt to make Almaty, Kazakhstan’s biggest city, a regional financial hub ended in failure. The bank sector in Kazakhstan, central Asia’s biggest oil producer, came under severe pressure following the global financial crisis in 2008 as oil prices plummeted, leading to the defaults of several large banks. Some Kazakh banks still face high bad debt ratios.

So far, there have been only a few listings on AIX, largely from the resource sector. Kazakh state firm Kazatomprom, the world’s biggest uranium miner, and Polymetal International, a gold and silver mining company operating in Russia, Kazakhstan and Armenia, were among the offerings on the exchange.

Analysts are not yet convinced that AIFC or AIX can tap the appetite among international investors to put money into expensive infrastructure projects when those projects often lack transparency.

“These projects have tended to be agreed bilaterally and with heavy government involvement, with Chinese entities the leading sources of investment,” Zachary Witlin, Senior Analyst at US based research and consulting firm Eurasia Group, said.

“There is also little connection between Belt & Road Initiatives in neighbouring Central Asian states, beyond a mutual interest in attracting investors, so AIFC should be viewed as an issue for Kazakhstan-China relations while the centre is still trying to take off.”

Witlin said there was an increasing need for transparency about which Belt & Road projects were making progress and about the structure of their funding in Kazakhstan. “It is difficult to track this information, and this may be feeding negative perceptions among the local population about the goals and intentions of projects,” Witlin said.

“If working with the AIFC means more information is provided in detail, that would be a welcome development.”

Kazakhstan has taken on a number of large-scale infrastructure projects to better connect with China, Central Asia and Europe under the Belt & Road banner. The railway connecting Aktau with Khorgos the primary road border crossing between Kazakhstan and China is under construction, while last year brought the completion of an upgrade of the 305km (190-mile) stretch of the road that connects Khorgos with Almaty, one of Central Asia’s major economic centres, along the New Eurasian Land Bridge Corridor.

Kelimbetov said Kazakhstan had been funding these projects itself, adding that AIFC was better equipped than the previous attempt to build a financial centre in Almaty.

“All these factors rely on a new institutional structure that we have at the AIFC and that was not available when we attempted to develop a regional financial centre in Almaty,” he said. “I am quite confident that this will help us to overcome any challenges.”