Kazakhstan and the EAEU: total foreign trade reached $78.1 billion since 2015 | FinReview
16 July 2019

Kazakhstan and the EAEU: total foreign trade reached $78.1 billion since 2015

The trade turnover of Kazakhstan with the EAEU countries in the first four months of 2019 reached $6.1 billion. In trade turnover structure of Kazakhstan and the EAEU, Russia forms 91.8% of all foreign trade.

Mutual relationships of Kazakhstan with the EAEU in 2018 demonstrated the systematic development of bilateral and multilateral cooperation. According to the results of 2018, the trade turnover of Kazakhstan with the Union countries reached $19.1 billion, which is 10.1% more than last year ($17.4 billion). According to the latest data of 2019 (January – April), mutual trade amounted to $6.1 billion (+ 0.1%).

Russia still remains the largest trading partner of Kazakhstan. For the first four months of 2019, two countries’ trade has already reached $5.7 billion (a year earlier – $5.6 billion). Maintaining current growth rates, in 2019 the Kazakhstan-Russian trade turnover can exceed $18 billion. Russia forms 91.8% of all foreign trade within the structure of trade turnover of Kazakhstan and the EAEU.

The total volume of Kazakhstan foreign trade in 2018 amounted to $93.5 billion (+ 20.5% per year). Current year, in January – April, the volume reached $28.7 billion. The share of countries – participants of the EAEU in the composition of Kazakhstan trade turnover is 21.3%.

In the structure of commodity turnover between Kazakhstan and EAEU, import traditionally dominates, the share of which for the first four months of 2019 was 69.6%, which is equivalent to $4.3 billion in monetary terms. Exports, in turn, form 30.4%, or $1.9 billion.

The general direction of trade relations of the countries participating in the EAEU remains more oriented towards third countries than the partners in the Union. Thus, in 2018, according to the EAEU, the external trade turnover of the EAEU increased by 18.8%, from $634.2 billion to $753.4 billion. In general, over the four years of the EAEU functioning, foreign trade turnover has increased by a third.

Nevertheless, mutual trade within the EAEU has significant growth potential, including through the development of industry collaboration between enterprises of the Union members. At the end of 2018, the volume of mutual trade of the EAEU amounted to $59.7 billion – by 9.1% more than a year earlier ($54.7 billion), and from the end of 2016 the figure increased by 38.8% .

One of the key factors of development of mutual trade between the EAEU countries was the measures taken in 2018 at the national and supranational levels to create joint markets within the Union. These measures should ensure an increase in the speed of integration processes and the formation of transparent mutually beneficial conditions for the cooperation of all participants.

For example, over the years of EAEU existence, single markets for labor, services, medical devices, and medicines have been created. This year it is planned to complete the creation of a joint electricity market, which will allow establishing transparent pricing and will give an impetus to the growth of this industry; by 2025, it is planned to create common markets for oil and oil products, gas, and transportation services, as well as a financial market.

The key element that stimulates the growth rate of the economies of the EAEU member states is investment activity, the dynamics of change of which contribute to the all-round development of the financial systems of the allied countries.

Investment flows from the EAEU countries to the economy of Kazakhstan continue to show a positive trend. At the end of 2018, the gross inflow of FDI into the republic amounted to $1.6 billion and increased by 19.5% over the year. The majority investor is Russia. Over the past year, the gross inflow of FDI from the RF reached $1.5 billion, – for 22.2% more than previous year. The share of Russian investments in 2018 increased to 6.2% (from 5.9% in 2017). Thus, the investment partnership of Kazakhstan with Union countries continues to strengthen. At the same time, the share of investment flows from the EAEU in the total volume of FDI to Kazakhstan is still not so large: 6.4% (5.4% in 2017), which, in turn, indicates potential for growth.

The most priority sectors of the Kazakhstan economy for investors from Russia are: manufacturing industry – 3.1 billion tenge; wholesale and retail trade, repair of cars and motorcycles – 2.1 billion tenge; mining and quarrying – 2.1 billion tenge; financial and insurance activities – 1.4 billion tenge; transport and storage – 1 billion tenge. By the end of 2018, the total volume of investments attracted to the listed industries amounted to $9.8 billion, or 88.6%.

In turn, domestic investors reduce outflow of direct investment abroad, and to the EAEU countries in particular. In 2018, Kazakhstan investors financed the economies of the Union countries in the amount of $442.6 million, which is 33.6% of all investment flows of the country. One of the key factors for outflow of investments reduction and their active consolidation within the country was the transition of Kazakhstan to a new model of economic growth. The implementation of this model should ensure GDP growth of 4.5–5% per year.

The total economic volume of the Union countries in 2018 is $1.9 trillion dollars, with a population of 184.1 million people. 2018 showed a positive change in all economies of the Union. The growth of Kazakhstan’s GDP was 4.1%, Russia – 2.3%, Belarus – 3%, Kyrgyzstan – 3.5%, Armenia – 5.2%.

The trade turnover of Kazakhstan with the EAEU countries directly affects the GDP per capita. With an increase in exports and imports of Kazakhstan with the Union countries by $1 million GDP per capita increases by $473. At the same time, the impact of trade with the EAEU countries on GDP growth per capita is 65%. Taking into account that GDP per capita depends on a number of other factors, the resulting relationship indicates the high role of the EAEU for the development of the national economy.

There are more than 6 thousands Russian-Kazakhstan enterprises in Kazakhstan that implement and plan to implement about 100 joint projects totaling $20 billion. Among the largest companies are Gazprom, Lukoil, Rosatom, Mechel, Rusal, Rostec, AvtoVAZ, etc.

According to the results of 2018, the most significant project of Kazakhstan and Belarus remains a joint venture for the assembly of dump trucks, launched in 2015, KazBelAZ LLP in the Karaganda region. Among the Belarus enterprises in Kazakhstan there are about 40 entities created with the participation of Belarus capital and more than 170 subjects of the dealer network; 8 joint assembly plants also operate. Promising is the project on the creation of Belarus drones in Kazakhstan, announced at a meeting of the intergovernmental commission of the two countries in November 2018. In addition, Kazakhstan participation in the shareholding of the Gomselmash enterprise is being considered, which will create conditions for the expansion of industrial cooperation between the two countries.

Kazakhstan relations with Kyrgyzstan are also lined up in a positive vector, despite difficulties in mutual trade. In order to solve border issues, in August 2018, Kyrgyzstan signed a law on ratification of the agreement between the governments of the two countries on the regime of the state border. The agreement defines the rules for the maintenance and crossing of the border between states, the admission of persons, vehicles and movement of goods. In September 2018, the Majilis of the Parliament of Kazakhstan approved the draft law “On ratification of the Treaty between the Republic of Kazakhstan and the Kyrgyz Republic on the demarcation of the Kazakhstan-Kyrgyz state border” at a plenary session.

Bilateral cooperation of Kazakhstan with Armenia developed more moderately, with an emphasis on the sphere of trade in goods. In 2018, the parties mainly discussed prospects for strengthening cooperation in trade, investment, entrepreneurship and migration.

Among the key projects of Kazakhstan in 2018, significant in terms of integration processes, it is necessary to note the official opening on 5 July 2018 of the “Astana” International Financial Centre and the AIFC exchange – AIX. The financial centre is regulated on the basis of Common Law, which opens up broad opportunities for integrated interaction. The President of Kazakhstan, Kassym-Jomart Tokayev, at the EAEU Summit on 29 May 2019, said that the AIFC is ready to act as an agent of the EAEU pairing with the initiative of the Belt and Road Initiative of the Government of the People’s Republic of China. In practice, this will mean that the AIFC will attract infrastructure investments through a unique research and exchange ecosystem, which will then be used to implement projects throughout the EAEU.

Last year was also full of events within the framework of the general concept of the EAEU development and the interaction of the regulatory authorities of the countries. One of the most important of them in 2018 was the adoption of the Declaration on the further development of integration processes within the EAEU, which was signed on 7 December in St. Petersburg, during a meeting of the Supreme Eurasian Economic Council.

The following areas of high priority were:
• ensuring maximum efficiency of the single market of the EAEU and the realization of its opportunities for business and consumers;
• formation of the “territory of innovation” and stimulation of scientific and technical breakthroughs;
• unlocking the potential of integration for people, improving their well-being and quality of life;
• formation of the EAEU as one of the most significant centers for the development of the modern world, open for mutually beneficial and equal cooperation with external partners and building new interaction formats.

Special attention is paid to digitalization. At the meeting of the EAEU on 14 May 2018, the First President of Kazakhstan, Nursultan Nazarbayev, proposed to organize the work of the Office for Management of Digital Projects and Initiatives based on the future of the International Technopark of IT Startups in the city of Nur-Sultan as part of the implementation of the EAEU Digital Agenda. At the same time, the implementation of the Union’s digital agenda serves as a national priority for the Republic of Kazakhstan.

On 7 June Y2018, the National Bank of the Republic of Kazakhstan and the Central Bank of Russia signed an agreement on cooperation and exchange of information in the field of supervision of the financial market. At the end of 2018, the banking sector of the countries – participants of the EAEU was represented by 578 banks, with a total assets of $1.6 trillion. Almost the entire volume is concentrated in Russian STB – 92.5%. It is followed by Kazakhstan banks with a share of 4.5%.

There are 14 banks with foreign capital in Kazakhstan, 4 of which are subsidiaries of the largest Russian STB. The assets of the banking sector of the Republic of Kazakhstan as of April 2019 amount to $64.7 billion ($ 24.6 trillion); in turn, the assets of subsidiary banks in Russia amount to $7.6 billion and occupy 11.7% of the Kazakhstan market for STB.

These events are only a small part of all the past for 2018, which demonstrates the progress in the implementation of the Treaty on the EAEU. Bodies of the EAEU are actively working to expand the coverage of integration processes in the most important areas between the member countries of the Union.