As it is known, 2010 is the year of Germany in Kazakhstan. Within the framework of the year, Germany is planning a number of events devoted to the cultural, social and economic aspects of life in the Federal Republic of Germany. In the economic area, the first sign was the Investment and Trade Forum “Kazakhstan – Germany: Expand Your Business in the Heart of Central Asia”, held mid February in Almaty. In the course of the event, organized by Corporate Communication Agency VIPromotion, its participants discussed the result of Kazakhstan-German trade and economic relations and attempted to set priority tasks to further expand relations between business communities.
According to Gerold Amelung, FRG’s Consul General for Kazakhstan, who opened the forum, the cooperation between our countries that was actively developing in the last twenty years, gained a new impetus in the last year. In 2009, more than 100 events devoted to Kazakhstan were held in FRG within the framework of The Year of Kazakhstan in Germany. Germany got the possibility to represent its economy in Kazakhstan in 2010. Gerold Amelung believes that the potential of further development of Kazakhstan-German relations extends to practically all sectors of the economy, from trade, agriculture and light industry to investments in the financial sector and partnership in the area of technologies. “Despite the crisis, the interest of German businessmen to Kazakhstan is rather large, and they are ready to uncover it. Concerning me personally, I think that the German economy, owing to its innovative structure and strong technological development, seems an ideal partner to implement the Kazakhstan government’s program aimed at development of small and medium business”, he emphasized.
Eldar Kunayev, Deputy Head of the Almaty-based Representative Office of the Kazakhstan’s Ministry of Foreign Affairs, shared the achieved results in the area of economy. According to him, today Germany is the major trade partner of Kazakhstan in Europe, while Kazakhstan is the leading partner of FRG in Central Asia. The high level of cooperation is based, among other things, on the diplomacy development. Because the 924 thousand Germans that left Kazakhstan for their historic motherland and the 230 thousand Germans who are still living in our republic are the thing that unites our countries. More than 500 enterprises with the participation of German capital have been set up in Kazakhstan. Such well-known concerns as Siemens, Daimler, Volkswagen, ThyssenKrupp, MAN, Knauf, HeidelbergCement, Bayer, and Bosch consider Kazakhstan a reliable partner in Central Asia. The total amount of investments in our economy by Germany, according to Eldar Kunayev, is more than $3.6 billion, while the investments in Germany by Kazakhstan come to over $3 billion.
Timur Nurashev, Chairman for Investments of the Ministry of Industry and Trade, announced these other figures. “From 1993 through late September of 2009, the direct investments flow from Germany in the economy of Kazakhstan exceeded $550 million, while the capital investments by Kazakhstan in Germany were $240 million. However, considering the fact that during the years of its independence, Kazakhstan has raised in the form of foreign direct investments (FDI), in aggregate, more than $100 billion, these indicators can hardly be called remarkable. In the opinion of Nurashev, the explanation for this is that “unfortunately, in the structure of FDI in Kazakhstan by sectors of the economy it is observed an evident disproportion: More than 70% of all investments are made in mining and geological exploration.
In this situation, Kazakhstan intends to pay maximum attention to the processing industry, which has just 9% of all FDI in the republic. In view of the above, the Kazakhstan’s government relies on active participation of German businessmen in implementation of the state-run program of the industrial and innovative development facilitation, launched in the current year. Within the framework of the program, 11 sectors were selected, on which the efforts and support of the state will be concentrated. Priority will be given to projects with the high value added in such sectors, as machine building, agriculture, oil processing and petrochemical development, infrastructure, electrical power engineering, metallurgy, the construction sector, and pharmacy, i.e. these are the sectors, where Germany is traditionally recognized as a world leader. According to Nurashev, today the given sectors account for more than 300 projects, both those which are being implemented and those that require financing, to the total amount of about $100 billion.
The Head of the Committee for Investments promised that those German investors, which make a decision to take part in the given initiative, will be able to rely on two types of preferences from the state. This is the exempt from payment of customs duties in the import of equipment for implementation of investment projects, as well as state in-kind grants, including plots of land and other state property, which can be transferred gratis for implementation of projects in the priority sectors of the economy, not related to the extracting industries. One more mechanism of state support is the development of special economic zones, which have already proved their efficiency in the world. Within the framework of the SEZ, the investors will be provided plots of land, relevant infrastructure will be set up, the treatment of a special free customs area will apply, and considerable tax remissions will be provided.
Speaking about financial support, Timur Nurashev noted that the German Investment and Development Society (DEG) and its subsidiary KFW (German government-owned development bank) developed fruitful relations with Kazakhstani development institutes for co-financing of investment projects with low interest rates. Here, certain results are achieved. In particular, according to Managing Director of the Kazakhstan Development Bank (KDB), Eldar Tenizbayev, the KDB interact actively with the German equipment suppliers in such sectors as foodstuff production, agriculture, power engineering, metallurgy, and chemical industry. “The KDB is importing German equipment on 18 projects to the total amount of $1.5 billion”.
Deputy Chairman of Board of JSC State-Owned Insurance Corporation for Insuring Export Loans and Investments, Gulnar Khasenova, devoted her speech to the protection of German investments in Kazakhstan. She told about the new product, launched in the last year specially to insure political risks of foreign investors. “If your investments are directed for development of further processing, we agree to consider your investments as the subject of insurance against political risks. Thus, we recognize that sometimes the human factor, which is constantly present in the implementation of joint projects, causes concerns”. Among the covered risks, Gulnar Khasenova named expropriation, nationalization, re-privatization, limitation, or ban for export of currency, civil war or mass disorders, unilateral termination of contract, or failure by the Kazakhstani counter-partners to fulfill their obligations, as well as political changes in the country, which can negatively affect business development. Speaking about the benefits of cooperation with the structure, which it represents, Gulnar Khasenova pointed out: “This product gives a huge advantage, since there is nobody better than us who can gather the best information about your Kazakhstan partner in the territory of Kazakhstan. I understand that you have Hermes, carrying out analogous functions. But we live in this country; we know local mentality and can outline the picture of those potential risks which can threaten your investments”.
In the opinion of the speakers from the Kazakhstan side, the launch of the Customs Union (CU) between Kazakhstan, Russia and Belarus from January 1st of 2010 opens great opportunities to German companies, which decided to invest in the production in Kazakhstan. It allows eliminating customs barriers and reducing the cost of cargo transit. According to Rustam Abdusalamov, Managing Director of JSC Corporation for Development and Advancement of Export KAZNEX, to Kazakhstan and Germany, the CU is the platform for creation of new niches. “Before we spoke only about import and trade financing, now we have an opportunity to create new productions with lesser barriers and bureaucracy… This is the floor where any entrepreneur can implement a project, be successful and develop markets for selling products”.
Meanwhile, not all independent experts share the optimism of officials. In the course of the forum, Chairman of Kazakhstan Association of Customs Brokers Gennady Shestakov shared his opinion that the CU has a number of negative features as well. “This is the new system of risk management in the trade between Kazakhstan and the Customs Union. The game rules will be changing seriously. We already have criticism against the Code, and the Customs Union Committee is hastening to solve these matters. Moreover, neither Russia, nor Belarus has signed the Kyoto Convention on the customs procedure simplification, although Kazakhstan did this in full volume. The second thing is the relatively big increase in the customs duties practically on all commodity groups which were imported from Germany that will affect their competitiveness. So, Germany will have to keep pace with these game rules”.
It is worthy to note that the representatives of the German side themselves are welcoming the creation of the CU, since now it has a large territory and large potential market. At the same time, they pointed out the lack of information on the principles of operation of the CU. Now to Germany as the observer, it is quite important to realize what sort of regulation the new union will be.
One more ambiguous topic, raised in the course of forum, is trade financing. According to the Head of the German Economy Representative Office for Central Asia Yorg Hetch, this is an important and crucial question, which has been affecting greatly the trade relations between FRG and Kazakhstan for the last nine months. He believes that the problem with the debt restructuring of BTA Bank is being solved for a too long period of time and “in that direction which the German side is not happy with”. On the one part, the matter concerns a relatively large amount of German money, which if they are repaid, then only during a very long period of time. On the other part, if no solution is found satisfying both of the parties, then “the necessity will arise to think about the system of financing and insurance of trade relations itself”. At the moment, considering the current uncertainties, some projects with the attraction of financing from Hermes remain frozen.
The representatives of German business talked about the necessity to eliminate bureaucratic barriers and to simplify the procedure of getting permits for engagement of expatriates to work in Kazakhstan.
Even with all this in view, the forum completed on an optimistic note. Its participants stated that today’s priorities of Kazakhstan completely coincide with the possibilities of Germany. A certain closeness of mentality has to allow German companies successfully exchanging their experience, know-how and technologies with Kazakhstan business.