CONFERENCE CALL: Kazakhstan refuses to see the elephant in the room

By bne IntelliNews May 22, 2015

Naubet Bisenov in Astana -


Kazakhstan appears to have adapted well to the twin shocks of low oil prices and a slowdown in Russia, but Moscow’s ban on imports of Western foodstuffs, a measure to counter Western sanctions, has taken a toll on Kazakh government coffers.

According to the Kazakh Statistics Committee, the country’s economy expanded by 2.2% y/y in the first quarter of 2015, a better-than-expected performance given the government predicted that GDP will increase by a meagre 1.5% in 2015 against 4.3% in 2014. Last summer when the price of oil was still flying high the government had forecast the economy to grow by 5% this year.

All the sectors of the economy performed reasonably well, but taxes on imports, a measure used in the calculations of Kazakhstan’s GDP, fell by 0.5% in the first quarter of 2015. 

IFIs, such the IMF, the WB and the EBRD, and the government admit that the low price of oil and the Russian slowdown, partly blamed on Western sanctions, are affecting economic growth in Kazakhstan and Central Asia. At the same time, the decrease in taxes on imports indicates that Russia’s counter-sanctions against the West in the form a ban on imports of Western foodstuffs are hurting Kazakh fiscal positions.

Speaking at a panel session on managing spillovers from the Russian slowdown in Central Asia at the Astana Economic Forum on May 21, Kazakh Finance Minister Bakhyt Sultanov said that the government had learnt to live without revenue from the oil and gas sector as the Kazakh budget does not directly depend on revenue from the extractive sectors: all proceeds from the extractive sectors are accumulated in the National Oil Fund and are released to the budget in form of annual guaranteed transfers. 

According to law, the government can tap into the National Fund to the tune of KZT1.7tn (€8.5bn) a year in 2015-2017. In November President Nursultan Nazarbayev pledged up to $3bn annually on top of the guaranteed transfer to fund development projects in the country.

From Russia with love?

“A sharp decrease in the price of oil clearly impacts on oil revenues and this is reflected in the National Fund, while we [the government] continue to receive a guaranteed transfer and thus the stability of the budget is maintained,” Sultanov said. “But there is a direct impact [on the budget] via export customs duty or via import of Russia’s problems through customs duties on imports.” 

Kazakhstan levies a customs duty on oil exports at $60 per tonne, while customs duties on goods imported to Eurasian Economic Union (EEU) member states are pooled together and shared between the members according to their respective shares. With Armenia joining the EEU, the share of Belarus was expected to go down to 4.65% from 4.7%, the share of Kazakhstan to 7.25% from 7.3% and Russia’s share to 86.97% from 88%, according to Itar-Tass

The basis for the distribution of import duty collections was established before Russia’s economic troubles started and it is not clear whether Kazakhstan will insist on the revision of shares. Kyrgyzstan’s accession to the free-trade bloc will reduce the existing members’ shares further.

“We share import customs duties in proportions and Russia’s share is the greatest. When there is a greater decrease in imports of goods to Russia our import duty collections also go down,” Sultanov told bne IntelliNews on the sidelines of the forum. Asked whether Kazakhstan would demand compensation or revision of shares, Sultanov said: “This question should be asked to the Eurasian Economic Commission.”

Elephant in the room

On top of the reduction in import duty collections because of the Russian ban on imports of Western foods, Kazakhstan has effectively been blocked from importing foodstuffs from Western countries by Russia: fearing re-exports of Western products from EEU member states to Russia, Moscow has practically imposed an embargo on Kazakhstan-bound Western food transiting Russia. Earlier this month Rosselkhoznadzor, Russia’s agricultural watchdog, blocked the transit of nearly 400 tonnes of Polish apples to Kazakhstan, citing violations of customs regulation. 

Despite being members of the free-trade bloc, Kazakhstan and Russia have been engaged in tit-for-tat trade wars, targeting one another’s food items that are competitive in the other country. In the past two months Kazakhstan has restricted imports of Russian petroleum products, meat, poultry and confectionary, while Moscow banned Kazakh dairy products and vegetables. Both countries claimed the products had not met either technical or safety regulations. 

Kazakhstan denies it is waging a trade war with Russia, which is the country’s largest supplier, accounting for over a third of total imports. While bragging about prospects of integration in the former Soviet space and even admitting that intra-bloc trade is going down, Kazakh officials bne IntelliNews spoke to all denied that Kazakhstan and Russia are engaged in tit-for-tat small trade wars.

“We are not waging a [trade] war against anyone,” National Economy Minister Yerbolat Dossayev told bne IntelliNews on the sidelines of the IMF/WB Spring Meetings in Washington in April“We are simply implementing technical standards.”

“Where do you see trade wars?” Bakhytzhan Sagintayev, the first deputy prime minister and Kazakhstan’s chief negotiator on the EEU, asked bne IntelliNews on the sidelines of the Astana forum on May 21. “There are no bans. If a fake product enters our market, respective government bodies identify it. Are you ready to eat fakes?” Sagintayev commented in reference to the Kazakh consumer rights protection body’s discovery of pig DNA in Russian beef products. “Otherwise, we have open borders.”

Timur Suleimenov, the Eurasian Economic Commission minister for the economy and financial policy, told the panel that the commission was working on a “white book” to come up with recommendations on how to solve the existing problems which would be submitted to a meeting of the member states’ prime ministers at the Kazakh resort of Burabay, north of Astana, on May 29. 

“A white book has been drafted and this is a process,” Suleimenov told bne IntelliNews after the panel. “I can say that there are no such things [as trade wars] and it is not a government policy. [...] Issues regarding sanitary, veterinary and phitosanitary wellbeing are in the competence of national governments,” he said, absolving the commission of failing to enforce free-trade rules. “This issue is strictly linked to the safety of the population and it is not linked to any political or economic considerations.”

It seems that Kazakhstan is suffering more from its integration with Russia than gaining as the government claimed when it took the country into the Customs Union with Russia and Belarus in 2010, which transformed into the Eurasian Economic Union on January 1, 2015. While Russian imports fell by 13.1% year on year to $1.65bn in January-February, Kazakh exports to Russia plummeted by 34.6% to $536.7mn.

The union, which was supposed to open up the 170mn-strong markets of member states for Kazakh producers, is now creating a headache for strongman President Nursultan Nazarbayev’s government as though it was sold to the Kazakh public as “purely economic”, it is increasingly resembling a political union with little economic benefits, at least for some members. 

Apart from disagreements between the existing members, Kyrgyzstan's ordeals in trying to become a fully-fledged member of the union, which some regard as an alternative to the EU in Eurasia, suggest that the EEU might well be stillborn.

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