German View on the Investment Potential of Kazakhstan and Prospects for Regional Development
Our magazine continues its series of publications on economic co-operation between Kazakhstan and its major trade partner in Europe, Germany. However, according to data provided by the National Bank of Kazakhstan, Germany accounts for a small share of total foreign investments in Kazakhstan (about 2%).
The German Ambassador to Kazakhstan Mr. Andreas R. Kerting has agreed to comment on these statistics and present his own view of the problem.
Would you please give reasons why German investors prefer the investment market of Russia or other East European countries to that of Kazakhstan?
Indeed, every investor chooses the country for starting up business on his own, taking into account all factors that influence investment process. Nevertheless, the prime concern for any foreign investor, who is interested in production activity other than raw material production, is home market capacity of target country and availability of export opportunities. Unfortunately, the capacity of the Kazakhstani market is low, as the population is only about 15m people. It cannot be compared with Russian or East European markets. That is why the number of German joint ventures is much greater in those countries.
German businessmen, who are considering joint ventures with Kazakhstan, should take into account the great market opportunities in Central Asia. But, even though the former Soviet republics have formed the Central Asian Economic Union, some barriers to external trade still remain there. The relative remoteness of Central Asia from Europe is another obstacle for full-scale economic co-operation. Information on the situation in East Europe can be obtained from numerous sources on a regular basis, whereas information on economic development in Kazakhstan is rather limited. In addition, German businessmen understand the mentality of Europeans more easily than that of Asian people.
There are some reasons, which are specific to Kazakhstan. As oil and gas industry is the most dynamically developing sector in the country, the bulk of foreign investments are directed there. As it happens, Germany does not have any transnational oil companies, and German businessmen are mindful of the bad experience of KazGerMunai with the Kazakhstani oil and gas sector.
But I would like to point out that there are some good examples. German businessmen are successfully implementing projects in the financial sector of Kazakhstan. German capital has shares in Bank TuranAlem, which is one of the largest commercial banks in your country. Three major German banks (Commerzbank AG, Deutsche Bank AG and Dresdner Bank) have opened representative offices in Kazakhstan. Bankgesellschaft Berlin is also going to open an office in the near future.
The co-operation in the transport and communications sector is expanding. Whilst in the past Lufthansa airlines in Kazakhstan offered only a few flights a week, now there is daily air service between our countries. Note the number of business-class passengers is increasing, which is an evidence of the growing activity of German entrepreneurs in Kazakhstan.
I would like to point out again, that German business is concentrated mainly in manufacturing industries and is represented by small and medium-sized enterprises.
As you probably know, the Kazakhstan Government adopted a Strategy for Industrial and Innovative Development for 2003-2015, which is aimed at attracting investments in raw material processing and manufacturing sectors and at developing small and medium-sized enterprises. In your opinion, how can German private sector assist Kazakhstan in achieving these goals?
At present, in Germany there are many businessmen who are willing to make investments in the manufacturing sector of your country. They possess modern technology for establishing new production operations and renovating old ones and are experienced in organizing such operations around the world.
However, in my opinion, the Kazakhstan Government does not pay sufficient attention to organizational measures aimed at promoting close and direct contacts between the businessmen of our two countries.
Indeed, large forums, such as International Investment Conference ‘Astana – New City’ held in Germany are indispensable, but day-to-day painstaking work for setting meetings between potential partners, organizing exhibitions and presentations in both Germany and Kazakhstan is also very important. These activities are advantageous for both countries.
Many former citizens of Kazakhstan, who left the country for various reasons during the 1990s, now live in Germany. Some of them have accumulated enough capital, experience and knowledge for conducting business. They do not have any problems with the language barrier and understand traditions, customs and everyday life of the Kazakhstani people very well. And they would like to start up their own business in your country, but this excellent potential is not being realized.
Small and medium size business enterprises with the participation of foreign capital can be really helpful for developing this sphere, provided that a special advisory body is established under Prime Minister of Kazakhstan. At present, successful development of the oil and gas sector is greatly due to activity of the Foreign Investors Council’s work groups under the President of Kazakhstan. Also much work has been done for improving the investment climate in the mining industry. I think that such good practices as these should be put to use.
Are there any Kazakh and German negotiations on our country’s entry to WTO?
This is a very interesting question! Germany indirectly participates in those negotiations through the European Union. Even though the E? represents only supranational interests, its ultimate objective is the benefit of all member states. I find it to be a good example of regional integration.
Does it mean that Kazakhstan would be better to enter WTO in alliance with Russia, Ukraine and Belarus?
The example of European countries demonstrates the necessity for Kazakhstan to join efforts with other CIS countries for entering WTO. The advantages, which the country could gain by delegating some of its authority in the negotiation process to some supranational body, may significantly surpass the benefits from individual entry to WTO. The question, however is whether it is ready to delegate this authority right now? After all, Kazakhstan is a newly independent state. It is hard to tell, which interests would prevail – political or economic? Also, Ukraine’s position about entry to WTO has not been cleared yet. The official economic interests of Kiev lean sometimes towards Europe, sometimes towards Russia.
You have paid great attention to the problem of regional integration. However, introduction of a common currency as a basis for joining markets does not always have a positive impact on the development of national economies. Is it possible that significant strengthening of the euro against the dollar would have a negative impact on economic development of EU members?
When the new European currency was first introduced, many Europeans were disappointed at the falling rate of the euro against the dollar on the international exchanges. This caused serious anxiety among all EU countries. And now when the dollar is losing its dominant position to the euro, again there are those who complain.
However, the following statistics reflect the real situation in German market. About 10% of exports are to the USA but the bulk of exports are to EU countries. Therefore, German exporters will suffer minimal damage. Of course, German goods exported to America become more expensive as a result of the stronger euro, but the German economy will be able to compensate for its losses from the USA market by buying cheaper materials from other countries.
According to some international experts, it is impossible to attract investments into the manufacturing industry without establishing efficient mechanisms for protecting the home market. How helpful will those mechanisms be for the Kazakh economy?
Similar protective mechanisms for national producers exist on European markets. However, they are used for the initial phases of business, and thus promote its development. However, these are short-term measures, because long-term protection usually leads to the creation of non-competitive enterprises producing goods, which cannot compete with the import of similar goods due to price-quality relation.
I still think that the Kazakhstan Government should focus on regional integration. The most promising direction here is establishing a common market with Russia, because of the similar state of market reform in your countries. And there is the history of good neighbourly relationships between them, which could provide a good base for an economic union.
The Central Asian market is impressive in size, but integration processes here are slow and complicated. Kazakhstan is undisputed leader here in terms of economic reform, and it is certainly ahead of its neighbours in its economic development. Some Central Asian states have already started reforms, which are still faltering. Economic integration with those countries is necessary, but the results are debatable.
In 2002, trade turnover between Kazakhstan and Germany grew by 3.5% against 2001 and reached 1.8bn euro. The Kazakhstani exports to Germany were 1.16bn euro, which is 1.5% lower than in 2001 (1.174bn euro). Imports from Germany stood at 0.63bn euro, which is 14.2% higher than the previous year.
In the first quarter of 2003, the trade turnover comprised 33% of the volume observed for the corresponding period last year. The Kazakhstani exports to Germany increased by 45% and imports from Germany by 7.4%.
Source: Statistisches Bundesamt
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