Kazakhstan and the EAEU: current state and prospects

_ Bulat Sultanov, Director, Research Institute of International and Regional Cooperation, Kazakh-German University. Report given at the 8th session of the Working Group “Common Economic Space from Lisbon to Vladivostok” at the Eurasian Economic Commission. Moscow, 15 February 2018.

Prospects of cross-regional cooperation

The region of Eurasia represents an important geopolitical and geo-economic factor of world politics, a crossroad for the interests of both global and regional players. Therefore, Kazakhstan calls for making processes that are currently happening in Eurasia more constructive and reducing the conflict potential of the region by deepening cooperation and integration.

In this regard, on the 1st of April 2016 in Washington Kazakhstan’s President, N. Nazarbaev, has presented another initiative. He proposed to create a Common Eurasian Economic Space.

The President of Russia, V. Putin, has developed this initiative during The Belt and Road Forum for International Cooperation (Beijing, May 14, 2017): he proposed to create a Greater Eurasian space by uniting the potentials of EAEU, One Belt, One Road project, The Shanghai Cooperation Organisation, The Association of Southeast Asian Nations, with the participation of European Union countries. V. Putin considers that the above would allow for the first time in history to create a harmonious, balanced and comprehensive common space for cooperation from the Atlantic all the way to the Pacific Ocean.

Russia’s Foreign affairs Minister, S. Lavrov, sees the prospects of establishing cooperation with European Union in a rather skeptical way. In his speech during the “Question Time” at the Federation Council of Russia’s Federal Assembly (Moscow, December 15, 2017) S. Lavrov underlined the fact that the key to establishing cooperation with the EU does not lie in Europe, but in the US. According to S. Lavrov: “The prospects of the relations with the EU remain hostage to the Russophobic line of a narrow group of countries inside the EU, which act according to the interests of the US, not Europe. Meanwhile, the sanctions spiral, which has been launched and pushed, following the instructions from overseas, by the bureaucracy of Brussels, has done serious harm to European business (and first of all, German business). This way European business has lost part of its shares of Russian market”.

In spite of the anti-Russian sanctions that remain, European businessmen and economists see the necessity of putting the logic of economy over political ambitions of the politicians.

For instance, German Minister of Agriculture and Food Christian Schmidt, during the opening of Berlin International “Green Week” (January 18, 2017), has called for the renewal of foodstuff trade between European Union and Russia. According to Ch. Schmidt, now is the right time for restoring relations in the field of agricultural supply.

The President of German Farmers Association (DVB) Joachim Rukwied has also called for the abolition of trade restrictions and reminded the audience that before the sanctions Russia was among the three largest export markets for the EU, along with the US and Switzerland. Back then, Russia used to buy meat, fruit and vegetables from the EU for approximately 1.6 bn EUR per year. “We had been building this pattern for many years. We will need years to restore it” underlined J. Rukwied.

State of the economy in Kazakhstan

Meanwhile, the development of the economy of Kazakhstan is more and more orienting itself towards the East. Kazakhstan’s Prime Minister B. Sagintaev has stated in his report “Work results of 2017 and challenges for 2018”, presented during the expanded Government session (Astana, February 9, 2018.), that for the last ten years the development of Kazakhstan has been subject to pressure coming from external shocks and global turbulence. He considers that in spite of times being difficult and requiring quick and fundamental decisions, Kazakhstan has been able to avoid any dramatically harmful scenarios.

At the moment its economy has entered a path of stable development. International rating agencies confirm this trend and give it a stable forecast. Kazakhstan’s GDP has grown 4% this year. 60% of this growth comes from sectors of the economy other than raw materials. Foreign trade turnover has grown 25% up to $69,5 bn. The inflation has gone down to 7,1%. Public debt is below 26%. Republican budget revenues have grown 26,3%.

During 1991-2017 Kazakhstan has attracted approximately $300 bn of direct investments. 25% of foreign investments go to the manufacturing industry. About 50% of the FDI go to non-primary sectors.

On January 1, 2018 international reserves of the country have accounted for $88.8 bn.

Particular attention has been directed towards the development of infrastructure. In 2015-2017, 2000 km of highways and1376 km of railways have been built; most of the runways in the airports have been restored.

Kazakhstan has also completed the construction of its part of the Western Europe – Western China Transit Corridor (2.857 km), which affects more than 240 settlements across five regions.

It has also started filling the Trans-Caspian International Transport Corridor with cargo traffic, taking into account the completion of the train track “Kars-Akhalkatsy” between Turkey and Georgia. The income from transit shipments has accounted for 353 bn tenge.

A task has been set, which consists in increasing the income from all kinds of transit up to $5 bn and expanding the transit from China to Europe to 2 mn containers.

China has been especially active in the field of development of the transport infrastructure. We consider that China fears a possible naval blockade from the US and their allies. Therefore, it is interested in developing land roots towards the markets of European and Middle Eastern countries through Kazakhstan and republics of Central Asia.
Kazakhstan supports the coupling of the project of the Economic Belt of the Silk Road with the Eurasian Economic Union as it intends to become a linking point between East and West. At the same time Kazakhstan supports the coupling of its “Nurly zhol” (Light Path) program with the Economic Belt of the Silk Road.

Kazakhstan – EAEU

Considering the continuous criticism from the national-populists, Kazakhstan’s authorities see EAEU as an economic association with common rules of the traffic of goods, capital services, work force. At the same time, Kazakhstan’s President N. Nazarbaev calms the Western countries by continuously underlining the fact that this is not in any way an attempt to restore the USSR. He has also been drawing the attention of the Western partners to the necessity of getting rid of the Cold War stereotypes, which prevent everybody from looking towards the future.

In spite of the general rejection of the Eurasian integration by the West, the majority of Kazakhstan’s population still supports integration and cooperation with Armenia, Belarus, Kyrgyzstan and Russia as these are the countries with which Kazakhstan has had close economic, historic and cultural ties of cooperation for centuries. Aspiration towards integration is supported in Kazakhstan not only by the older generation, that is to say, by people who have spent most of their life in USSR, but also by the young.

The Customs Code of the Eurasian Economic Union entered into force on January 1, 2018. Kazakhstani state authorities together with national business associations have implemented a set of organizational and preparation measures. Kazakhstan has, for instance, sent 552 amendments (38% of all amendments), 65% of which were accepted. The new Customs Code has been synchronized with a number of Kazakhstan’s laws: changes have been introduced to the Customs code, Economy code, the Code of administrative offences, etc.

Kazakhstan’s turnover with EAEU countries is currently showing a stable increase. In this regard, we can remember alarmist moods in the articles of certain Kazakh publicists dedicated to the worrying decrease of Kazakhstan’s turnover with EAEU countries, and among them, with Russia, in 2015-2016.

In January- November 2017 Kazakhstan’s foreign trade turnover accounted for $69 450,1 bn. Its export was $43 065,2 mn, import – $26 384,9 mn. Its trade balance grew 1.7 times.

Mutual trade of Kazakhstan with EAEU countries accounted for $15 599,2 mn, which stands for 22,46% of Kazakhstan’s foreign trade turnover.

In January- November 2017 mutual trade of Kazakhstan with EAEU countries grew by 28% yoy. Its export accounted for $4 600,3 mn (an increase of 31,3%), import for $10 998,9 mn (an increase of 26,7%).

The first economic partner of Kazakhstan inside the EAEU is Russia with $14 394 mn turnover (92,27%). In January-November 2017 export to Russia accounted for $4 074,2 mn (an increase of 33% compared to January-November 2016), import to $10 319,8 mn (an increase of 26,4% yoy).

Kazakhstan’s turnover with other EAEU countries is considerably lower.

The above data has had a slight calming effect on those who opposed the idea of Kazakhstan entering the EAEU, and first of all on the national-populists who had tried to prove the Eurasian economic integration to be useless.

We should also take into account another important factor: the consequences of the latest neo-Islamic development vector of Turkey, recently taken by R. Erdogan. It led to tensions in its relations with the West on the one side and, on the other, it weakened the support of the so-called Turkic integration, provided by Turkey, but directed from Washington, in order to discredit the EAEU project.

Even today we can observe this kind of propaganda, which is the reflection of the struggle among Kazakhstan’s political elite. The fact that this kind of (dis)information attacks happen more and more often and on a regular basis is rather alarming.

Here are some examples of such propaganda. On February 1, 2018 information on “Russian officials who are discussing possibilities of getting $800 mn of compensation from the producers of flat-rolled products from Kazakhstan” was ejected into Kazakh media.

Earlier, in November-December 2017 Russian customs officials have detained 120 tons of peers and apples, which have being smuggled into Russia as Kyrgyz and Chinese goods. Politically engaged Kazakh experts reacted immediately: they accused Russia of “purposely making enemies”. An economist M. Spanov called for “not trusting Russia so blindly” as “it somehow forgets that we are an independent country”. According to M. Spanov, “Russian system is failing under sanctions, so, they need an enemy that would allow them to unite in the context of the pre-election race. It is clear that they can not cope with exterior enemies, that is why they start striking at their allies.” Note that M. Spanov doesn’t deny the obvious fact of Kazakhstan and Russia being allies!

It is reassuring that the Kazakh authorities hold to a clear and well-defined position on the question of cooperation in the EAEU. Kazakhstan’s President, N. Nazarbaev, said during his meeting with V. Putin (Moscow, December 27, 2017): “Today the cooperation in the framework of the EAEU shows well its necessity and feasibility”. The following declaration of N. Nazarbaev, oriented towards the future, has drawn our attention: “I consider strengthening our relations, then continuing to do so, and then passing that task to another, as my objective.”

The highest Kazakh officials share this position. They assess the situation in a realistic way and don’t follow the Russo-phobic mood of Kazakh experts. For instance, during the February 7, 2018 session, the Chairperson of the Senate of Parliament, N. Nigmatulin was answering the requests from the deputes and numerous addresses from national businesses and sectoral business associations. During this session he noted that Kazakh officials don’t offer enough protection to the rights and interests of national manufacturers on the EAEU arena. He gave the example of the situation with deliveries of Kazakh cement to Russia. According to N. Nigmatulin, Russian producers freely export approximately 700 000 tons of cement per year into Kazakhstan, while Kazakh factories experience serious difficulties for the deliveries of the same product to Russia. According to N. Nigmatulin, the origin of this kind of situations lies not in Russia’s plots or intrigues, but in the fact that Kazakh representatives in the integration establishments were late to react to the implementation in Russia of the new standards and new rules of certification, and thus put national producers into an unfavorable position.

Conclusion

During his speech at the session on non-proliferation of mass-destruction weapons of the UN Security Council (New York, January 19, 2018) Kazakhstan’s President N. Nazarbaev said: “Success or failure of the modernization of the system of global security depends directly on the capability of the global community to overcome military anachronisms. We should leave in the past separation of the countries into military blocks, the existence of which becomes provocative and has no sense”.

Thus, in the context of the remaining global financial instability, growing geopolitical tension, it is necessary to start implementing reforms of the world political, economic and financial institutions, considering the changing balance in the world, and taking into account interests of all countries, big and small, in the West and in the non-West.

In this regard, we consider that the project of the Common Economic Space between Lisbon and Vladivostok, proposed be the initiative group, is viable and promising and can be seen as a part of the United Eurasian Economic Space.

Today we are standing at the beginning of a long journey. We think that it is suitable here to quote a Chinese saying, which says: “A thousand year journey starts with the first step”.
Thank you for your attention.

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