Kazakhs eye Europe as economy falters

Feb 15. Asia Times. MONTREAL

By Robert M Cutler

Kazakhs eye Europe as economy faltersKazakhstan’s faltering economic growth, masked last year thanks to a bumper harvest, is clearly exposed by the latest monthly figures, which show a decline to 4.8% expansion in gross domestic product (GDP) on an annualized basis for January and 3.8% year on year.

Growth this year would decline only to 6.9% overall, the State Statistics Agency of Kazakhstan projected earlier. GDP increased 7.5% last year, up on the 7.3% gain in the previous 12 months, thanks to the grain harvest more than doubling to 27 million tonnes from 12.2 million tonnes. Industrial output grew only 3.5% in 2011, against 10% in 2010.

President Nursultan Nazarbayev had set out a 10-point plan for economic growth in his annual “state of the nation” address in January, listing employment as the number one priority and accelerating government programs for social transfers and investment.

He ordered that the state draw on the National Fund of Kazakhstan, the country’s sovereign wealth fund, to invest in large-scale industrial projects (pointing to the construction, metallurgy, and forestry sectors in particular) that would be complemented by a program to improve training and increasing entrepreneurship skills.

The fund, established to stabilize the economy against external shocks, held US$45.5 billion at the end of 2011. The president also seeks to create a more mobile labor force. The country’s 16.7 million people are scattered across an area four times the size of Texas.

Expansion of industrial production fell in January to an annualized 1% rate, despite increased output in the chemical, metallurgical, and machine-building sectors.

The good harvest and higher international energy prices helped the current account surplus jump to $13.6 billion last year from $3 billion at the end of 2010, according to estimates released last week. Energy prices averaged 39.3% above the 2010 figure.

Abundant food supply kept a lid on domestic food-price inflation last year, at 6.5%. Overall inflation for 2011 declined to 7.4% from 7.8% the previous year. The country’s central bank projects this to hover between 6% and 8% for the next several years. January inflation was 5.9% compared with a year earlier.

Nazarbayev’s determination to increase industrial production is also in response to riots in December in the oil-producing city of Zhanaozen (formerly Novyi Uzen’) in the west of country, which left at least 17 dead. Such protests, and there have been others less notable in the recent past, are as much as an economic as a political concern, as they can delay industrial projects and discourage foreign direct investment (FDI).

The activity of nine Special Economic Zones (SEZs) is to be enhanced. The zones are governed by a July 2011 law designed to improve the efficiency of their management and functioning, attract professional management companies, and provide tax incentives.  Of these zones, the best known is perhaps the “Khorgos-Eastgate” SEZ, established on the Chinese border late last year after years of bilateral planning. Among other things, this SEZ will enable Chinese firms to manufacture products with a “Made in Kazakhstan” stamp for duty-free export to Russia and other members of the Eurasian Economic Community. It also facilitates the integration of transport and logistics.

Other SEZs, intended as magnets for FDI, are being established in South Kazakhstan province, to focus on textiles; in Atyrau, on the Caspian Sea, to focus on petrochemical industry; in Pavlodar in the north, also to focus on chemicals and petrochemicals; in Karaganda in the center of the country, to focus on the metallurgy and metal processing sector; and in the capital Astana, to focus on industrial development. Four more are planned, distributed across the national territory.

Kazakhstan is seeking also to diversify its foreign investors, looking beyond China, the United States, and Russia, to Europe. Foreign Minister Erzhan Kazykhanov this week revealed in Washington that his country intends to sign an agreement on cooperation with the European Union. Kazakhstan’s trade turnover with the EU rose 32% in 2011 over 2010. Kazykhanov was attending a conference of the Atlantic Council marking the 20th anniversary of the establishment of diplomatic relations with the US, which was the first state to recognize independent Kazakhstan).

The announcement follows by several days the successful conclusion of a visit by Nazarbayev to Germany where, after being received by Chancellor Angela Merkel, the two sides signed nearly 50 agreements for economic cooperation including contracts estimated to be worth between US$3 billion and $4 billion.

They also agreed to establish a “strategic partnership” allowing German mining firms access to rare earths and other industrial commodities in the Central Asian country. Germany will in exchange invest in technological development in Kazakhstan. It signed a similar agreement with Mongolia four months ago, also targeting rare earths mining.

Dr Robert M Cutler (http://www.robertcutler.org), educated at the Massachusetts Institute of Technology and The University of Michigan, has researched and taught at universities in the United States, Canada, France, Switzerland, and Russia. Now senior research fellow in the Institute of European, Russian and Eurasian Studies, Carleton University, Canada, he also consults privately in a variety of fields.

http://atimes.com/atimes/Central_Asia/NB16Ag01.html

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