Kazakhstan's car industry moves into the fast lane

By bne IntelliNews July 18, 2013

Clare Nuttall in Astana -

Kazakhstan has seen a sharp increase in purchases of new cars in the last year, with sales breaking pre-crisis records. Rising incomes, Kazakhstan's entry to the Customs Union and legislation restricting imports of used cars have all contributed to the increase, encouraging firms such as France's Peugeot Citroen to set up production in the country and existing manufacturers to expand their operations.

Peugeot has announced plans to launch production in the northern industrial city of Kostanai in July, with the first locally assembled cars due to reach dealers in September. Expanding into Kazakhstan is part of the French company's strategy to diversify away from its base in Europe, where demand is still sluggish. Speaking to journalists in Astana in June, Peugeot general director for operations in Russia, Ukraine and the Commonwealth of Independent States (CIS), Bernd Schantz, said that the crisis in the European auto market has prompted the automaker to develop other regions with the aim of increasing the share of its business outside Europe to 50% of the total by 2015.

Kazakhstan was selected because of the rapid growth of its car market. "Kazakhstan has benefitted from political and economic development and a good investment climate," Schantz told journalists. The market has the potential to triple in size to 300,000 cars a year, Kazakhstan's Minister of Industry and New Technologies Asset Isekeshev predicted in February.

Initially, four Peugeot models will be produced at Kostanai-based Agro-Mash Holding with production to start at 4,000 vehicles a year. Production may increase to 10,000 vehicles in future. Peugeot, which will work with distributor AllurAuto, the parent company of AgroMash Holding, plans to target four cities - Almaty, Astana, Karaganda and Kostanai - which together make up half Kazakhstan's car market, in 2013, and expand mainly in the south of the country in 2014.

Peugeot is not the only company to aim to take advantage of growing demand and spending power in Kazakhstan. Several manufacturers in the two industrial centres of Kostanai and Ust-Kamenogorsk have launched 50 new models in the last three years. Kazakhstan's largest auto-manufacturer, Azia Avto, announced in May 2013 that it had dispatched the first consignments from its Ust-Kamenogorsk plant to the Russian market. However, domestic manufacturers still account for only around 20% of new cars purchased within Kazakhstan.

Petrol heads

The market as a whole saw a dramatic upturn in 2012, when around $2bn worth of new cars were purchased, beating sales in the pre-crisis consumer boom. According to the Association of Kazakhstani Auto Business (AKAB), 98,000 cars and light vehicles were purchased in 2012 - more than double the 45,300 purchased in 2011. This trend has continued into 2013, with 13,290 new vehicles sold in May, 29% higher than the 8,369 sold in May 2012. Total sales since the start of 2013 were up 72% on year to 54,342, and the AKAB forecasts that new vehicles sales for the whole of 2013 will be at least 155,000.

The association attributes this to "accumulated deferred demand, recovery of purchasing power and market lending, as well as government support for the domestic auto retail sector."

Kazakhstan has seen a steady increase in income per capita and disposable income, but still has relatively few cars on the roads, with just 214 cars per 1,000 people, compared with 523 in France and 643 in the US. "Sales are still low by international standards... in Russia 158 cars are sold per 100,000 people and in Germany the figure is 428 new cars per month; we have barely reached 83. Thus the growth potential of the Kazakhstani market remains high," says the AKAB.

Meanwhile, the average age of cars in Kazakhstan is between 13.5 and 19 years, varying strongly between regions, compared with the European average of just seven years. Along with the other Central Asian countries, Kazakhstan has long been the final destination for aging vehicles from Europe and the Far East. While demand for new cars soared in 2012, there was a corresponding 75% fall in purchases of used cars. The sale of more economy model cars, and restrictions on imports of used cars, are responsible for the fall in used car purchases, many of which still take place in the shadow economy.

The launch of the Customs Union, which removed customs barriers with Russia and Belarus, is another factor driving the market by reducing the cost of Russian made cars to Kazakhstani consumers. Kazakhstan is also set to join the World Trade Organisation (WTO) in 2013, which will result in substantially lower customs duties on cars from WTO member states.

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