Astana International Financial Centre: Opportunities and prospects in new realities based on the historical evolution of leading IFCs

Astana International Financial Centre: Opportunities and prospects in new realities based on the historical evolution of leading IFCs

Erbol Nazhmidenov

Legal Adviser, AIFC Legal Services Board

Lawyer and partner of the law firm Law Council Group Law Council Group

Introduction

International financial centres (IFC) play a critical role in the global economy, acting as a link for cross-border capital and promoting financial integration (Bulatov et al., 2021; Dolgova, 2018). Modern IFCs not only support macroeconomic stability, but also stimulate innovation in the financial sector, especially in areas such as digital and sustainable finance (Wardle & Mainelli, 2024). The competitiveness of these centres is based on a combination of factors including the business environment, infrastructure, human capital and international reputation, as evidenced by data from the Global Financial Centres Index (GFCI) (Wardle & Mainelli, 2024).

In this context, the Astana International Financial Centre (AIFC), as a relatively young jurisdiction in the international arena, seeks to strengthen its position based on unique regional opportunities. Current GFCI 36 data confirm the potential of the AIFC, especially in the context of growing demand for specialized financial services in Central Asia (Wardle & Mainelli, 2024). This article provides an overview of the historical evolution of the AIFC with an emphasis on the factors contributing to its development and downturns and analyzes the potential of the AIFC in terms of international trends, identifying areas that can contribute to its long-term competitiveness.

Historical evolution of international financial centres in the context of AIFC development

IFC has always adapted to changing political and economic conditions. For the AIFC, an important stage of growth was an increase in its rating in the face of sanctions restrictions from neighboring countries.

Historically, MFCs such as London and New York have adapted to crises by offering favorable conditions for cross-border operations and attracting international capital in conditions of economic uncertainty (Kindleberger, 1974; Wardle & Mainelli, 2024). The current situation with Russian sanctions creates similar opportunities for the AIFC: Kazakhstan is strengthening the legislative framework, focusing on international standards, which makes the AIFC attractive to capital seeking stable jurisdiction in Central Asia (Bulatov et al., 2021). The examples of London and Singapore show that successful financial centres often offer a more flexible regulatory environment and a high degree of investment protection, which allows them to remain competitive in the face of global shocks (Arrighi, 1994).

The AIFC's rise in international rankings also reflects successful reforms that have allowed it to strengthen its position against the backdrop of economic instability in the region. As the experience of Hong Kong and Singapore shows, financial centres capable of offering a reliable legal system and access to global markets always attract investments from countries with limited access to the international financial system (Dolgova, 2018). In the current circumstances, the AIFC, adapting to international standards and benefiting from economic sanctions, has the potential to further strengthen its position among the world's IFCS.

The key criteria of the GFCI rating and their significance for the AIFC

The GFCI rating evaluates international financial centres based on five key criteria: business environment, human capital, infrastructure, financial sector development and reputation (Wardle & Mainelli, 2024). These criteria make it possible to objectively assess the competitive advantages and potential of the centres, including the ability to adapt to external challenges and attract international capital.

According to the latest GFCI report, the AIFC continues to rise in the rankings, strengthening its position among international financial centres amid competition with centres represented in countries with more mature financial systems such as London, Hong Kong and Singapore. Nevertheless, the AIFC, being a relatively young player in the financial market, demonstrates a special growth trajectory, focusing on attracting international specialists, which distinguishes it from more traditional centres, where a significant proportion of professionals are local specialists.

Since its inception, the AIFC has developed as a specialized international centre with an emphasis on integrating foreign knowledge and best practices. This is especially noticeable against the background of other developing centres such as Monaco and Warsaw, which, although using international resources, rely more on local staff to ensure long-term sustainability (Wardle & Mainelli, 2024). This approach of the AIFC allows it to attract specialists from various countries, thereby strengthening its authority and expanding the pool of expertise. This structural difference, in fact, forms the international reputation of the AIFC as a centre for the work of international specialists and corresponds to the characteristic that distinguishes it from centres dominated by global or local specialists.

In comparison with other international centres, the AIFC focuses its development on creating favorable conditions for foreign experts, which contributes to accelerating the implementation of global practices and innovations in the financial sector of Kazakhstan. According to the GFCI criteria, this contributes to faster growth in the categories of business environment and human capital. This strategy not only increases the attractiveness of the AIFC for international investors, but also gradually shapes it as a highly specialized hub for the Central Asian region, in particular for those who are looking for an alternative to traditional financial centres limited by local regulations or conditions. Thus, the focus on attracting international specialists allows the AIFC to develop along a different trajectory than that of locally oriented centres, and strengthens its competitiveness in the international arena. The question about the future trajectory of development in terms of specialists remains open: will the AIFC seek to replenish a number of its employees with more highly qualified specialists and develop in a global context according to this criterion, or will it grow local specialists with the potential to become global professionals in the long term with the help of international specialists? Considering the relevance of this issue, we, LCG specialists, strive to create a gateway between the AIFC and local personnel for the sustainable development of local specialists, contributing to the expansion of the horizons of their professional activities.

AIFC development prospects in the context of the evolution of international financial centres

The historical evolution of the IFC demonstrates that their success and sustainability depend not only on economic conditions, but also on the ability to adapt to rapidly changing external factors such as political instability, global economic crises and changes in legislation, avoiding rigidity. The examples of London, New York and Singapore show that IFCs face waves of both growth and recession, while their successful development is ensured by constant investments in infrastructure, integration of technological innovations and the creation of a stable regulatory environment that allows attracting international capital (Kindleberger, 1974; Arrighi, 1994). London, for example, has experienced several financial downturns, but has adapted by creating derivatives and Eurobond markets, which has allowed it to remain among the world's leading financial centres. Singapore, in turn, has built its reputation through the introduction of innovative financial technologies and support for green finance, which has allowed it to become competitive in highly competitive conditions with Hong Kong and Shanghai (Dolgova, 2018). These centres have overcome obstacles by relying on flexible legislative norms and using crises as an opportunity to strengthen their positions.

For the AIFC, given the current GFCI data, an important strategy will be to focus on international experience and actively adapt to changing realities. Thus, in the context of increasing regional risks and sanctions restrictions for neighboring countries, the AIFC can become an alternative financial channel for international investors seeking stability in Central Asia. The attracted foreign specialists, who contribute to the transfer of best practices and increase the competitiveness of the centre, play an important role here. The successful experience of integrating international staff in London and Singapore confirms that the involvement of foreign specialists strengthens the centre and increases the trust of global investors (Bulatov et al., 2021).

Based on the current ranking and historical examples, the AIFC has the opportunity not only to strengthen its position in the region, but also to become a highly specialized international centre focused on digital and sustainable finance. This assumption can be confirmed by chart №29 in the GFCI rating, which illustrates the deviation of the AIFC rating from the general average: despite its recent creation, the AIFC already bypasses almost half of the IFC worldwide (51.2% in percentile ratio). Thus, following the historical experience of project-type IFC like Singapore, investments in fintech and green finance, creation of a flexible regulatory environment and strengthening of international reputation can allow the AIFC to overcome current challenges and adapt to future changes in the international financial arena.

Conclusion

Considering global trends and the successful experience of other international financial centres, the AIFC has real potential to further develop and strengthen its position. Its ability to adapt to changing economic and political conditions makes it a promising player for Central Asia and the international financial community.

Liability exclusion

The information in this note is not legal or professional advice. No part of it should be relied upon, and no part of this note can be used in place of obtaining legal advice. The information in this note is intended for general informational purposes. It should also be noted that the law and its application may have changed since the publication date of this note. If you have any questions, please contact us (WhatsApp: +7 (707) 384 83 52, email: info@lcg.kz).

Reference list: :

Arrighi, G. (1994). The long twentieth century: Money, power, and the origins of our times. Verso.

Bulatov, A., Habarta, A., & Sergeev, E. (2021). International financial centers as channels for foreign investment inflow to European cities. Journal of Globalization Studies, 12(1), 101-116.

Долгова, А. Ю. (2018). Международные финансовые центры: макроэкономическая роль и факторы конкурентоспособности. Московский государственный институт международных отношений (университет) Министерства иностранных дел Российской Федерации.

Kindleberger, C. P. (1974). The formation of financial centers: A study in comparative economic history. Princeton University Press.

Wardle, M., & Mainelli, M. (2024). Global Financial Centres Index 36 (GFCI 36). Z/Yen Group Limited.