Kazakhstan's foreign trade turnover decreased by 12% | FinReview
2 November 2020

Kazakhstan's foreign trade turnover decreased by 12%

As of September 1, 2020, the total trade turnover of Kazakhstan amounted to 55.6 billion US dollars. At the same time, 29% of sales are in the EU market, 20% – in Russia and 18% – in China. However, due to the coronavirus outbreak, the structure of trade has been formed so that exports of Kazakh products have decreased by 18.6%, while imports — by only 6.4%, which threatens the economic development of the country.

The coronavirus pandemic has significantly affected the economic activity of all countries of the world. For the global economy, a General negative factor, in addition to the slowdown in domestic business activity due to restrictive measures, was the reduction in foreign trade. This effect of the epidemiological situation constrains not only GDP growth, but also the volume of revenues to state budgets. The development of foreign trade relations will remain uncertain for at least the next six months, but various research institutes allow their gradual recovery.
Analysts FinReview.info we studied the main results of global and regional trade, and also tried to understand how markets will develop in the next two years.

Global trade index falls to historic low

Global trade indicators for the first half of 2020 show an alarming situation. The world trade organization report found that the world’s trade index fell to 84.5% in six months. This is the lowest figure since 2007, and the values close to it were only during the peak of the financial crisis in 2008.

The negative effects of quarantine measures have affected almost all trade sectors. But the automotive industry suffered the most — the index fell to 71.8% and the airline industry, whose index is located at the level of 76.5%. Container transport showed slightly better dynamics, where the index fell to 86.9% and export deliveries with an index of 88.4%. The agricultural and technical sectors were the least affected — they were located at the same level, falling to 92.5% and 92.8%, respectively.

The situation of Kazakhstan’s exporters has also worsened against the background of the General situation in the world.

Export of Kazakhstan products decreased by 18.6%

The volume of Kazakhstan’s exports for the first eight months of 2020 amounted to 31.9 billion US dollars. In comparison with the same period in 2019, the indicator decreased by 5.9 billion US dollars.

Against the background of restrictive measures imposed around the world, Kazakhstan was forced to reduce by 16.8% the supply of mineral raw materials — a key commodity group that accounts for about 70% of all exports. Kazakh crude oil supplies in absolute terms increased by 12.7%, but in monetary terms, due to the collapse of the oil market, they decreased by 25.9%, reaching 17.1 billion US dollars. Sales of natural gas decreased by 22.2%, while sales of ores and concentrates decreased by 17.3%.

Positive dynamics, however, is observed in terms of sales of motor gasoline — its sales increased by 97.9%, but in the total volume of exports, this product group is less than 1%. Sales of tractors (an increase of 87.3%) and flour (+22.6%) also increased significantly.

The largest demand for Kazakh products is in China, Italy and the Netherlands

In the first eight months of 2020, China imported products from Kazakhstan worth 5.2 billion US dollars. This is 16.3% of the total volume of Kazakhstan’s exports.

It is noteworthy that this year China increased the supply of Kazakh oil by 46% to 1.2 billion US dollars. Thus, hydrocarbons accounted for 22.6% of Kazakhstan’s total exports to China. Supplies of copper and copper alloys also increased by 22.5%, natural gas — by 19.7%, and inorganic chemical products-by 12.1%.

Italy purchased Kazakhstani products for 4.6 billion US dollars. At the same time, almost the entire amount falls on the purchase of domestic oil.

Similarly, in the Netherlands, almost the entire volume of imports of Kazakh products is made up of oil and petroleum products. The country imported products from Kazakhstan totaling 2.4 billion US dollars.

The country’s imports decreased by only 6.4%

Kazakhstan remains highly dependent on imports for a number of product groups. For some of them, the consumer market is covered by more than 80% of foreign products. These include sugar, chicken meat, machinery, equipment, clothing, and more. Therefore, the volume of imports for the first eight months of 2020 remained at a high level — 23.8 billion US dollars.

The country began to buy 10 times more refrigeration and freezing equipment, 2 times more vacuum and air pumps, and 87% more electrical transformers.

However, this growth was offset by a 1% drop in imports of machinery, equipment and vehicles, which account for just under half of total imports. As well as a decline in the supply of gasoline by 96.2%, pipes made of ferrous metals-by 38.2%, clothing-by 18%, food and agricultural raw materials-by 8.6%.

It is important to note that a sharp decline in exports and a relatively small decline in imports affect the country’s economic development. The prospects for further development of global trade remain unpredictable due to the possible increase in the incidence of coronavirus around the world. But if quarantine measures are strengthened in the next 3-6 months, global demand will go into prolonged stagnation.

However, according to forecasts of international institutions, world trade will begin to gradually recover in the spring of 2021

The recently published world Bank report on the prospects for the global economy notes that in 2020, Kazakhstan’s GDP is expected to fall by 3%. At the same time, the decline in Europe and Central Asia will average 4.7%. Such disappointing forecasts are largely due to the decline in world trade. At the same time, the pandemic may have a more significant impact on the economic growth of countries than world Bank experts suggest. In the event of a prolonged introduction of quarantine measures, investment activity will continue to be subdued, which in turn will increase the decline in external demand.

Nevertheless, according to the WTO, despite the fact that the world trade in services index fell to 95.6% by mid-September, the recovery of the trade market in some key sectors will begin in the near future. In particular, the situation in the aviation, container transport and construction sectors is expected to improve. The remaining sectors will remain in the negative zone until the end of 2020, and the positive dynamics will be restored by the spring of 2021.

In turn, the investment Bank Goldman Sachs notes that international financial centres can save world markets, since

International financial integration strengthens the economy’s immunity to external crises

The globalization of the economy, which has become the main trend in recent decades, has erased the borders between the markets of developed countries, and goods and capital have begun to move freely. The impetus for globalization has been financial integration, which leads the rest of the economy, increasing the movement of capital at times.

International financial centres in this chain are the key transmission link of financial integration. Namely, by creating a favorable environment for investors, and thereby attracting foreign investment, they stimulate the development of economic sectors.

The Astana International Financial Centre has been operating in Kazakhstan since 2018. The financial centre has undoubted advantages in connecting the markets of Asia and Europe: Kazakhstan’s positioning as a leading country in Central Asia, close cooperation with both Russia and China, proximity to the new silk Road projects, the integration of the EAEU with the Belt and Road initiative, the country’s traditional ties with the Islamic world, and stable relations with the United States and the EU.

The main advantages of the new transcontinental routes connecting Asia and Europe through the territory of Kazakhstan are reduced financial and procedural costs. For example, delivery by land through the territory of our country is carried out 2-3 times faster, namely in 12-15 days.

The result of the program will be access for regional exporters to a huge market consisting of more than 1 billion people. Thus, the AIFC expands the borders for Kazakhstani producers, providing an opportunity to enter promising markets and thereby contributing to an increase in foreign trade.