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Update No: 293 - (27/05/05)
The threat of contagion not so great
The events in neighbouring Kyrgyzstan and now Uzbekistan are disturbing for all
the other regimes in Central Asia. But the Kazak one has less to fear than the
rest for one very good reason - its economy is growing flat out at around 10%
per annum and has been for years. This creates a totally different context than
prevailed in desperately poor Kyrgyzstan or impoverished Uzbekistan.
Moreover, the regime is not so grim as in Uzbekistan. It does not have thousands
of political prisoners. The old Soviet ways die hard but were it not for
President Nazerbayev's typically Central Asian view that his country is a family
business, his would be regarded as one of the best bright hopes amongst the FSU
nations. As it is Kazakhstani President Nursultan Nazarbayev is offering his
people a vision of an economically bright future
The EEC, not the EU, is the issue
In the Western-oriented part of the FSU, the key question is that of joining the
EU. Elsewhere, the newly formalized Eurasian Economic Community (EEC) represents
the most ambitious effort to create a customs union and free trade zone among
the newly independent states since the break-up of the Soviet Union, wholly
independent of the EU.
Nazarbayev has been chosen to guide the organization's critical early phase of
development, which seeks to avoid the pitfalls that have hampered regional
cooperation initiatives during the last decade. One of Nazarbayev's chief
challenges will be ensuring that Russia does not assume disproportionate
influence over the organization.
On May 31st in Minsk, Nazarbayev, once a prominent Kazakh Communist and popular
Soviet politician, became the head of the EEC's coordinating State Council.
Russian president Vladimir Putin nominated Nazarbayev, and the heads of Belarus,
Tajikistan, and Kyrgyzstan endorsed the nomination. So this long-time advocate
of blending economic alliances and national sovereignty now finds himself
charged with coordinating the EEC after 10 years of post-Soviet economic trial
Since signing the EEC integration treaty in Astana in the fall of 2000, member
states have ratified a package of 18 supplemental implementing documents.
Modelled in part upon successful integration efforts such as the European Union,
the North American Free Trade Agreement (NAFTA), and Mercosur, the treaty draws
its primary inspiration from a decade of abortive experiments among the former
The 1991 treaty creating the Commonwealth of Independent States (CIS) includes
language about a "common economic space." But this was more
problematic than many expected, and countries have struggled to establish
mechanisms for moving people, goods, and services across borders. The past
decade's jump in international trade and investment largely bypassed the
economies of the CIS. What's more, lacking coordinating mechanisms, CIS
countries started trading less with each other: trade among members declined as
a proportion of CIS total trade. Nationalism and one-upmanship, as well as
bureaucratic obstacles, fostered a climate of protectionism and economic
To combat this syndrome, CIS agreements have long sought to further coordinate
monetary, customs, employment, tax and investment policies across the region.
CIS countries have been formally pledged to a free trade area since 1993, when
they signed an Economic Union Treaty to reduce internal tariffs, create common
external tariffs, and establish a system for payments and settlements. This
treaty and its many successor agreements, though, incorporated few effective
sanctions or enforcement powers. And the neo-colonial flavour of Russia's early
dealings with the CIS made many nations suspicious. So energy-rich states like
Turkmenistan and iconoclasts like Uzbekistan began favouring bilateral
The EEC grew out of a reiteration of the CIS principles by Belarus, Kazakhstan
and Russia. These trade-motivated states declared a customs union in 1994 that
effectively endorsed existing trade provisions. Kyrgyzstan signed on the next
year, and Tajikistan joined in 1999. The EEC augments the customs union with
sanction and enforcement powers.
Integration arrangements only work when they can equitably spread burdens and
benefits. In the early days of the CIS, Russia appeared to be ready to assume
the role of integrator. But Russia's CIS neighbours reacted charily to even well
intentioned overtures. The states needed a structure in which members could
sanction or punish each other - and small states could resist Russian
machinations. Enter Nazarbayev.
Kazakhstan, a landlocked, export-oriented state rich in minerals and oil,
has strong impetus to improve regional trade and integration. Dissatisfied with
the failures of CIS cooperation, Nazarbayev in 1996 set up an Integration
Committee, headquartered in Almaty, Kazakhstan, to develop a framework to
coordinate financial markets, services, commodities, labour, and regulations.
The committee studied the formation of ASEAN and NAFTA in hopes of coordinating
a new system. The result - the EEC treaty - could fulfil Nazarbayev's
long-standing vision of national independence closely linked to free
market-based inter-state economic cooperation.
Unlike the initial customs union, the EEC seeks to survive as its own
decision-making body. It has its own court and the power to boot members who
refuse to play by its rules. It also gives itself some negotiating
responsibilities within other international organizations such as the WTO. And
while the EEC is not intended to limit the sovereignty of its member states, it
seeks recognition from the United Nations as a regional international
Of course, Russia will exercise 40 percent of the voting rights and will be
responsible for meeting 40 percent of the organization's operating expenses.
(Belarus and Kazakhstan each have 20 percent of the shares. Kyrgyzstan and
Tajikistan each have 10 percent.) But the EEC Charter specifies that a vote on
major policy issues will require two-thirds agreement, so Russia would have to
have at least two other states supporting it to win a vote on a major issue. On
the other hand, Russia seems likely to exercise veto power on major initiatives.
For this reason, critics argue that the EEC amounts to Soviet-era "pokazuka,"
something convenient that only addresses perceptions rather than structures.
Uzbekistan President Islam Karimov, who also attended the CIS Heads of State
meeting in Minsk, was quoted in the Russian press as denigrating the EEC,
observing that similar arrangements had been tried before and failed. He noted
that not even the EEC proponents could distinguish it from the earlier attempts
at forming a customs union and free trade area. But there are reasons to believe
that the EEC is different.
For one thing, Russia's position in the region has changed. After many years of
trying to create a sphere of influence in Central Asia, Russia found many
Central Asian countries distancing themselves. And those countries gained
leverage in other ways. The rouble devaluation following the financial collapse
of 1998 made Central Asian consumers a hungrier (and more important) market for
Russian manufactured goods. More important, Russia's imbroglio in secessionist
Chechnya, with its guerrilla attacks on civilians, made Russia eager to curry
favour with moderate Muslim leaders of the Central Asian governments. But the
EEC's new sanctioning and steering powers are designed to prevail even when
Russia feels expansive. It will have substantially stronger coordinating powers
than its predecessors and will have the ability to impose sanctions on
Nazarbayev's "Eurasianism" must steer the CIS away from the economic
nationalism of the early '90s. That won't be easy, but Nazarbayev has some
structure in place. After all, the CIS helped stabilize the economic climate by
allowing for a relatively civilized break-up and avoiding the "Yugoslavia
syndrome." States that can hang together loosely for an interim period can
learn to craft lasting mechanisms: the U.S., after all, had to live under the
Articles of Confederation before imagining the Constitution. Optimists hope the
EEC marks a similar inflection point.
Fitch rates Kazakstan Bank Alliance
Fitch Ratings assigned Kazakstan's Bank Alliance with long-term, short-term and
support ratings, the agency said in a recent report. The ratings are based on
the possibility of support to the bank from the Kazak authorities in case of
need. The individual rating reflects the risks associated with Alliance's rapid
growth, its modest performance and still relatively small size, as well as
certain weaknesses in the operating environment, the report said, New Europe
However, it also took into account the bank's adequate capitalisation,
successful business development and good liquidity. Alliance was founded in 1993
in Pavlodar and merged in 1999 with another mid-sized regional bank. New
shareholders acquired Alliance in 2001. Since then it has grown to become one of
the larger banks in Kazakstan, ranked sixth and fifth by assets and equity at
Kazakstan, Uzbekistan discuss cooperation
Negotiations on developing trade between Kazakstan and Uzbekistan were held in
Tashkent on April 28th. Last year goods turnover between the two countries
increased 44% totalling US$425.9m. The potential of both countries' economies
permits increasing it up to US$1bn and stretching it to a higher level. The head
of the delegation of Kazakstan, Deputy Prime Minister and Minister of Industry
and Trade, Sauat Mynbayev, said recently that three protocols were expected to
be signed in the course of the talks, Kazinform reported.
The protocols aim to secure favourable conditions for trade and investments
between Kazakstan and Uzbekistan. Mynbayev stressed the free trade regime
between the countries envisages withdrawals and restrictions. The point was to
reduce the nomenclature and the number of withdrawals and restrictions.
Kazakstan's 2004 foreign debt swells to 32bn Euro
Kazakstan's foreign debts increased 39.9% to 32.08bn Euro in 2004, the country's
National Bank said recently, Interfax News Agency reported.
Long-term debts represented 28.45bn Euro of that, short-term debts 3.58bn Euro.
State guaranteed state foreign debts increased 1.2% to 3.67bn Euro.
Non-guaranteed state foreign debts owed by companies and organisations in the
private sector increased 48.8% to 28.66bn Euro from 19.27n Euro, including debts
owed by lending institutions that increased to 6.86bn Euro from 3.514bn Euro.
Kazakstan's gross domestic product (GDP) expanded 9.4% to 5.543 trillion tenges
in 2004 and 9.3% year-on-year in the first quarter of 2005. Prime Minister,
Danial Akhemtov said in a presidential press release. During a meeting with
president Nursultan Nazarbayev, Akhmetov reported on the fulfilment of points in
a recent presidential letter to the Kazak people. "The government has to
keep under constant control the points in the letter associated with improving
citizens' social conditions, and special attention also has to be paid to the
question of setting Almaty up as a financial centre for the Central Asian
region," Nazarbayev said. GDP for this year is forecast at 5.85 trillion
tenges, 7.9% more than last year.
FOREIGN ECONOMIC COOPERATION
Russia-Kazakstan economic ties expand
A roundtable meeting was held by the Russian embassy in Kazakstan and Russia's
Trade Representation at the Centre of Science and Culture to discuss expansion
of Russia-Kazakstan trade and economic cooperation, Kazinform reported recently.
The acting trade representative of Russia to Kazakstan, Constantin Kuzmichyov,
outlined the general tendency in trade and economic cooperation of the two
states. The participants also predicted that there are good chances for further
cooperation in the oil and gas sector, engineering, agriculture, transport and
other industries, with the key role belonging to the innovation and high-tech
Meanwhile, Kazak President Nursultan Nazarbayev recently visited Moscow to meet
his Russian counterpart Vladimir Putin, the president's press service reported.
This was the third meeting between the two leaders this year. Putin personally
The main topics of discussion during the meeting were the reformation of the CIS
and promotion of interaction within the Unified Economic Area between Kazakstan,
Russia, Ukraine and Belarus. Extensive projects in machine engineering, energy
and metallurgy was also discussed.
Commenting upon the development of bilateral economic cooperation, Putin pointed
out the record growth of goods turnover between the countries which in 2004 was
up 1.5-fold and exceeded the bar by US$8bn. The head offices of Russian
companies and joint Russian-Kazakstan enterprises, such as LUKoil Overseas
Services LLP, KazRos-Gas, ROSNO, Alfa-Bank, Transaero and other companies also
participated in the roundtable discussion on how to expand trade and economic
cooperation between Russia and Kazakstan.
The objective of the campaign was to study the current problems and digest the
perspectives of trade and economic partnership between Russia and Kazakstan. The
participants of the sitting emphasised the investment attractiveness and
efficient level of Kazakstan's banking system. They pointed out great
opportunities in development of interaction in oil and gas industry,
agriculture, and agricultural machine engineering and transport sector.
World Bank to finance Kazak agro development
The World Bank and the Kazak government recently signed a loan agreement for a
Kazakstan Second Agricultural Post-Privatisation Assistance project. Until now,
the overall share of loans in the agriculture sector of Kazakstan amounted to
US$136m, New Europe reported.
The project has a total cost of 96.1m Euro and the World Bank is contributing
35m Euro towards its financing. This project will assist farmers and small- and
medium-sized rural enterprises to get access to commercial financial services
that would lead to overall agricultural development, one of the key sector of
the economy of Kazakstan that still provide livelihood to over US$40 of the
population, make it more competitive and improve living conditions of the rural
The Agricultural Post-Privatisation Assistance project will enhance access to
rural financial services by strengthening and expanding the rural advisory
services programme, supporting agricultural risk management initiatives,
developing and implementing new financial instruments by commercial banks and
leasing companies, and finally supporting rural micro-finance schemes to rural
micro entrepreneurs that are currently excluded from the formal banking sector.
Kazinform quoted Loup Brefort, country manager for Kazakstan, as saying this
signed agreement confirms the interest of the government and the World Bank to
work closely together to strengthen agriculture. This loan will provide
resources to improve access to finance for small and medium agricultural
entities, he said.
After signing, the loan agreement will be submitted to the Kazak parliament for
ratification and the loan would be declared as effective. Then the agreement
would be available to the public and the project implementation would begin.
Meanwhile, the government and the World Bank are in the process of finalising
agreement on a second project in the sector, the Agriculture Competitiveness
Project, which would soon be submitted to the World Bank board of directors. A
rebound in Kazakstan's agricultural production and growing investment needs have
increased the demand for financial services in agriculture and long-term
"The second Phase of the project was included in the list of priority
budget investment projects (programmes) for 2005-2007 which compose the Medium
Term Plan for Socio-Economic Development for 2005-2007 approved by the Kazakstan
government decree as of August 31st 2004 and corresponds to the objectives of
the State Agricultural and Food Programme of Kazakstan for 2003-2005 issued by
the decree of the president in 2002, said Kazak Finance Minister, Arman Dunayev.
MINERALS AND METALS
Alumina production up 2.9%, steel down 38.2%
Kazakstan increased alumina production 2.9% year-on-year in the first
quarter of 2005 to 370,079 tonnes, the State Statistics Agency said recently,
Interfax News Agency reported.
Unprocessed zinc production rose 25.1% to 92,133 tonnes and unprocessed lead
production was up 10.5% to 37,671 tonnes, but refined copper production fell
4.7% to 100,889 tonnes. Meanwhile, Kazakstan reduced production to flat rolled
steel products 38.2% year-on-year to 956,102 tonnes in the first quarter of
2005. The total included 37,741 tonnes of tin-plate and tin-plated sheet, down
47.5% and 107,135 tonnes of galvanised steel, down 46.6%. Kazakstan reduced
crude steel production 29.2% year-on-year to 956,102 tonnes. Ferroalloy
production went up by 9.5% to 381,610 tonnes.
South Korea, Kazakstan to jointly mine uranium
South Korea and Kazakstan agreed on April 22nd to establish a joint company to
mine uranium in the west-central Asian country to ensure Seoul a safe supply of
the mineral, officials said recently, Last year both countries signed an
agreement on the matter at a summit between the heads of state.
The officials at the ministry of commerce, industry and energy said that the
company, to be set up within the year, is projected to go on line in 2008 and
start full-blown production in 2010 with an annual output of 1,000 tonnes.
"The ability to mine uranium will better shield the company from price
fluctuations in the international market," a ministry official said. South
Korea operates 19 nuclear reactors, but does not mine the mineral independently
or in cooperation with a third party. In 2004, Seoul imported 3,239 tonnes of
uranium to meet its domestic needs, Yonhap said.
The country relies on imports from Australia, the United States, France, Britain
and Canada to provide the bulk of its uranium needs. It also imports some from
South Africa and Kazakstan. Apart from the uranium project, Kazakstan and South
Korea inked a protocal that calls for the joint development of the Zhambyl oil
field of the Caspian Sea, South Korean News Agency reported.