Economic Newsletter on Kazakhstan |October 2020 CONTENTS MACRO-ECONOMICS & FINANCE ..................................................................................... 2 ENERGY & NATURAL RESOURCES ..................................................................................... 6 TRANSPORT & COMMUNICATIONS ................................................................................ 10 AGRICULTURE ................................................................................................................. 12 CONTACTS ...................................................................................................................... 16 The Economic Section of the Embassy of the Kingdom of the Netherlands in Kazakhstan intends to distribute this newsletter as widely as possible among Dutch institutions, companies and persons from the Netherlands. The newsletter summarises economic news from various Kazakhstani and foreign publications and aims to provide accurate information. However, the Embassy cannot be held responsible for any mistakes or omissions in the bulletin. ECONOMIC NEWSLETTER, October 2020 Embassy of the Kingdom of the Netherlands in Kazakhstan MACRO-ECONOMICS & FINANCE Council for Improving Investment Climate considers prospects for economic recovery At a meeting of the Council for Improving the Investment Climate chaired by Prime Minister Askar Mamin, issues of economic recovery in Kazakhstan in the post-pandemic period were considered. Ambassadors accredited in the country of the US William Moser, of the UK Michael Gifford, of Canada Nicholas Brousseau, of the EU Sven-Olov Carlsson, of the Netherlands Andre Carstens, Director of the OECD Eurasian Division William Thompson, Director of the EBRD Representative Office in Kazakhstan Agris Preimanis, Chair of Shell in Kazakhstan Olivier Lazare, as well as representatives of EY and Deloitte reported on the prospects of international financial institutions and the investment community in Kazakhstan. The anti-crisis measures taken by the Government helped to smooth out the economic recession due to the pandemic — positive dynamics have been preserved in the real sector of the economy, in particular, construction (10.5%), agriculture (5%) and manufacturing (3.3%). Head of the National Bank tells how the economy of Kazakhstan ends 2020 By the end of 2020, a deficit is expected in Kazakhstan. The head of the National Bank, Yerbolat Dossayev: "By the end of 2020, a current account deficit of minus $4.2 billion, minus 2.5% of GDP, is expected. Exports of goods will decrease by 21.7% to $45.5 billion. This will be facilitated by a decline in oil and metals prices, as well as a decrease in oil production due to compliance with the terms of the OPEC+ deal. The decrease in exports will be partially offset by a decrease in income payable to foreign direct investors working in the commodity sector. Imports of goods will decrease by 15.5%, and amount to $33.8 billion. This is due to a decrease in the effective demand of the population and business due to the spread of COVID-19, as well as a planned slowdown in the implementation of investment projects in the oil and gas sector.” The decline in GDP in 2020 is expected at the level of 2-2.3%. Oil and not only: what Kazakhstan offers to the world According to the statistics committee, over 7 months of 2020, the export of Kazakh products abroad fell by 13.3% compared to the same period in 2019. The country received $28.6 billion from foreign trade. A decrease is noted for most of the main export goods, from rolled steel products and wheat to oil and ferroalloys. In general, over 7 months of 2020, goods were sold abroad for $321.7 million, which is far from the worst result. Over 6 years it was higher only once in 2019. But physical sales are now at their lowest level since at least 2013.Exports to China decreased by 30%, amounting to $241.1 million. Revenue from sales to Russia fell to 37.3 million, and to Ukraine to 9.1 million. But there is also good news. There were no exports to Turkey in January-July 2019, and now this country ranks second in terms of purchases at $46.1 million. Another common feature is that the physical volume of exports is at the lowest level over the past at least 8 years at 11.3 million tons. Oil and petroleum products from bituminous rocks, an important commodity for the economy of Kazakhstan, also showed a large decline, by more than 45%. In January-July 2020, Kazakhstan sold 2.56 million tons of wheat and meslin abroad. Compared to the same period in 2019, the physical volume of exports fell by 22.4%, or almost 740 thousand tons. Every year more and more ferroalloys are exported from Kazakhstan. Shipments have been growing for the fifth year in a row, exceeding 1.1 million tons in January-July. On the other hand, less and less money comes in, and the trend is also stable, as revenues are falling for the fourth year. Over 7 months, exports amounted to $974.5 million. Kazakhstani products go to 41 countries of the world, but more than 60% of all revenue is 2 ECONOMIC NEWSLETTER, October 2020 Embassy of the Kingdom of the Netherlands in Kazakhstan provided by only two of them, China at $413.3 million, minus 7.4%, and Japan at $198 million, minus 34.1%. Over 7 months, 11.3 billion cubic meters of natural gas went abroad. Most of all, about 4.6 billion, went to China, which paid the most, $932 million. This is only slightly lower than the level of the previous year at 974.9 million. But in the countries of the post-Soviet space, there is a significant decrease in pumping. The third place in the list of the main export goods of the country is held by products of inorganic chemistry, including uranium. Over 7 months, it brought in 1 billion 318.9 million dollar, which is the highest value in the last 4 years. This is the first product from the ranking, the export of which has grown over the year, by 26.8%. The growth is based on an increase in sales revenue to China at plus $266.3 million, to 528.6 million. Kazakhstan and EU step up mutual cooperation The EU is Kazakhstan’s principal trading partner, representing 40% of external trade. The EU is the main foreign investor in Kazakhstan, accounting for 48% of the total (gross) foreign direct investment. The entry into force of the Enhanced Partnership and Cooperation Agreement (EPCA) in March 2020 has marked the beginning of a new stage of EU-Kazakhstan relations. It is the first such agreement the EU has concluded with any of its partners in Central Asia. The Agreement provides an expansive framework for cooperation, not only including the fields of trade and economy, but equally encompassing the socio-cultural and political realms of Kazakhstan-EU relations. The EPCA also foresees to further deepen and strengthen EU-Kazakhstan cooperation in the fields of innovation and green technologies, transport, logistics, education, energy, and environmental protection. The Agreement aims to create a stronger regulatory environment for businesses in areas such as trade in services, establishment and operation of companies, capital movements, raw materials and energy, government procurement, and intellectual property rights. The EPCA seeks to offer a platform and provide opportunities both for European and Kazakh business partners to meet and exchange views and best practices. Kazakhstan up on World Bank’s Worldwide Governance Indicators scale The country has improved its performance in the World Bank’s Worldwide Governance Indicators project that measures good governance in more than 200 countries since 1996. The report covers six dimensions of governance – voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption. These indicators aggregate different data sources and combine the views of businesses, citizens, and expert survey respondents. In this report, Kazakhstan performed best in the regulatory quality indicator that reflects the perceptions of the respondents on the government’s ability to develop and implement sound policies and regulations in private sector development where it received 61.06 percent from the total 100 percent scale. The nation has made steps in creating a favorable investment climate and continues its efforts in doing so. The World Bank’s latest Doing Business report also noted the country’s latest measures to support investors. In government effectiveness, Kazakhstan received 57.69 percent. The indicator measures the “quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies.” Kazakhstan gained 45.51 percent on the political stability indicator that demonstrates perceptions of the likelihood that the government will be “destabilized or overthrown by unconstitutional or violent means, including politically-motivated violence and terrorism.” In this report, Kazakhstan made strides forward in all indicators, except for voice and accountability, a category which “captures perceptions of the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of 3 ECONOMIC NEWSLETTER, October 2020 Embassy of the Kingdom of the Netherlands in Kazakhstan expression, freedom of association, and a free media” where it received 14.78 percent on the total 100 percent scale. USA, China, the Netherlands trim investments in Kazakhstan External investments in Kazakhstan decreased by $4 billion. In the first half of 2020, gross direct investments amounted to $8.1 billion, while for the same period in 2019 they exceeded $12 billion. The decrease is by 33%. Investments from the USA decreased the most, by 64.3%, to $1 billion, followed by China by 59%, to $378 million, France by 35%, to $349 million, and Switzerland by 31%, to $689 million. Negative dynamics in investments was also observed from the Netherlands, Japan and Turkey. Investments from these countries in Kazakhstan decreased by 26.4%, 24.1% and 22.5%, respectively.