The Kazakhstan economy is extremely well-endowed with large tracts of arable land and rich reserves of coal, oil, and rare metals. Animal herding was the mainstay of the nomadic Kazakh population before their incorporation into the Soviet Union; wool production remains an important agricultural product today, along with grains and meat.
Like other countries of the former USSR, Kazakhstan faced serious economic dislocation after 1991, resulting from the disruption of trade with other post-Soviet republics, an end to the flow of official revenues from the Soviet central government, the decline in state production orders, and the need for sudden currency adjustments. Estimated GDP fell by 8.5% in 1991, 14% in 1992, 15.3% in 1993, and 25% in 1994. Overall output is estimated to have shrunk by one-third between 1990–93. Positive if weak growth returned in 1996, when real GDP increased1.1%, followed by an increase of 1.7% in 1997. Recovery was then arrested briefly by the effects of the Russian financial crisis, as real GDP declined 1.9% in 1998, but growth resumed in 1999 with a rise in real GDP of 2.7%. Economic and fiscal reforms in 1999 and a rise in world energy prices help spur growth to 9.6% in 2000, and to an estimated 12.6% in 2001. Meanwhile significant progress has been made in bringing inflation under control. After independence, inflation reached a staggering 2,000% in 1993, declining to 35% in 1994 and 1995, and to 28.6% in 1996. In 1998, in the recession accompanying the Russian financial crisis, inflation fell to 1.9%. With growth in 1999, inflation grew to 8.3% and 13.2% in 2000. However, prudent monetary policies instituted in 1999 helped reduce inflation to an estimated 6.6% in 2001. Fiscal reforms helped to transform a general government deficit equal to 5% of GDP in 1999 to a surplus equal to 2.9% of GDP in 2001. Registered unemployment was only 3.3% in 2001, although according to US State Department and CIA estimates, actual unemployment ranged between 10% and 30%.
A revitalized energy sector supported by substantial foreign investment has been the main factor in the economy's strong performance, but economic reforms and good harvests have also been important elements. Privatization legislation adopted since 1992 has promoted the rapid transfer of small shops and services to the private sector, although large-scale privatization has gone much slower. In 1996, the government concluded an agreement for the 1,580-km (990-mi) Caspian Pipeline Consortium (CPC) pipeline to run from the western Tengiz oil field to the Black Sea. The CPC was officially opened 27 November 2001. Foreign investment in Kazakhstan's oil industry has helped boost production, with prospects of the country becoming one the world's largest producers at 2.5 million barrels per day by 2015. Such optimistic predictions rest largely on three major oil and gas fields—Tengiz, Karachaganak, and Kashagan—the last of which was hailed by analysts as the world's largest oil discovery in 30 years. In January 2001, the president decreed the establishment of the National Fund for the purpose of protecting the economy from the effects of swings in the price of oil and other commodities. In February 2002, the president decreed the formation of a new national energy company, KazMunaiGaz, formed through the merger of Kazakoil, the state oil company, and TransNefteGaz, the state oil and gas transport company. The main purposes of KazMunaiGaz are to ensure a single state policy on energy issues, and to better compete with foreign energy companies.