I am very bullish on prospects for Kazakhstan, one of the most mineral-rich countries in central Asia. It has 15% of the world’s known uranium reserves, as well as major deposits of oil, natural gas, coal, iron ore, manganese, chrome ore, nickel, cobalt, copper, molybdenum, lead, zinc, bauxite and gold. Pretty good stuff.

Indeed, Kazakhstan has the Caspian Sea region's largest recoverable crude oil reserves. Its production accounts for almost two-thirds of the roughly 2m barrels per day currently being produced in the region and contributes to 30% of its GDP.

The country also has a good demographic spread, unlike Western European nations with our potentially-catastrophic pensions-timebomb problems. Just 8.3% of the Kazakh population is aged over 65, with 22.5% of the population under 14 of age. In the UK, 15.8% of the population (and rising sharply) is over 65, with 17.2% of the population being under 14.

Oil exports have been the foundation of the country’s economy for quite some time - and the revenues have ensured that GDP growth has stayed above 9% for the last 6 years.

So, with oil representing more than 50% of its export revenues, economists - and particularly the IMF - have been concerned that the country will end up suffering from what is known as “Dutch Disease”.

Dutch Disease is a phrase that was coined by The Economist magazine in the 1970s. It was used to describe the relationship between the exploitation of natural resources and a decline in the manufacturing sector.

The theory goes like this…

An increase in revenues from natural resources (in the Dutch case it was the discovery of natural gas in the 1960s) will “de-industrialise” a nation's economy by raising the exchange rate significantly.

This pulls the rug from under a nation’s manufacturing base as it makes it significantly less competitive. A boom in one part of the economy caused another vital part of the economy to collapse, upsetting the applecart in an otherwise rosy situation.

In its traditional definition, described in 1982 by economists W. Max Corden and J. Peter Neary, the booming sector was described as usually being the development of oil and gas reserves, but the definition also applies to other mineral resources.

The booming sector could also refer to agriculture, such as cocoa, but to a lesser extent. The lagging sector could also be the agricultural sector, rather than manufacturing, depending on the country.

Of course this is a very simplistic and economics is far more complicated than that, but this is a major issue for economically-fledgling nations that have major resources to exploit.

Things, however, are looking up for Kazakhstan. In its latest report, the IMF cites "impressive" growth in the non-oil sector that could help avoid oil-related growth problems.

The government has also taken a leaf out of Norway’s book and set up the National Oil Fund of Kazakhstan. This is basically a fund of “rainy day” money that will ensure stable social and economic development of the country in the future and reduce the economy’s susceptibility to unfavourable external factors.

Due to high oil prices the international reserves and assets in the oil fund have doubled in the last year to $24 billion in August 2006.

The Kazakh government can also battle Dutch Disease by stimulating non-commodity business development and job creation. It needs to make entrepreneurship easier and cut corporate taxes. Let’s hope it does.

So, it’s looking more and more likely that the country can escape the raves of Dutch Disease – and I believe the country offers an excellent investment proposition for those looking to invest further afield. P.S. If you enjoyed this article then sign up for Smart Commodities UK. It’s dedicated to searching out the investment trends that could provide our biggest profit opportunities for the next decade…

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