Kazakhstan: Perspectives on Eurasian integration

Essay



As a member of the Moscow-led EEU, Astana has suffered from Russia’s economic slowdown, and now aims to become the transport and gas hub of Central Asia

After experiencing fast economic growth since 2000 thanks to high oil prices, Kazakhstan’s economy has been suffering from their decline since late 2013. It has also been hit by Russia’s economic troubles – especially the drop in the rouble – because since 2010 it has been part of the Customs Union (CU) with Russia, which became the Eurasian Economic Union (EEU) in 2015.

Kazakhstan’s future economic growth depends on the development of infrastructure and regional trade. The country aims to become the largest business and transit hub of the Central Asia region, a bridge between Europe and Asia. It considers China’s One Belt, One Road (OBOR) initiative and the EEU as means to this end

 

Background

At the 25th meeting of the Foreign Investors’ Council in May 2012, President Nursultan Nazarbayev proposed the New Silk Road project, under which Kazakhstan would become the largest business and transit hub of Central Asia. The initiative, also known as One Belt, One Road (OBOR), was formally announced by Chinese President Xi Jinping in Astana in September 2013.1

Kazakhstan receives significant Chinese investment in natural resource extraction, and China is an important destination for its mineral exports. As analyst Vladimir Fedorenko has commented, the “Chinese approach to Central Asia is based on advancing China’s own economic and business interests. China sees Central Asia as an important region that will help promote its own economic growth via trade routes that satisfy the Chinese demand for hydrocarbon resources. China gladly makes generous investments in the Central Asian infrastructure if it finds that these investments will benefit the Chinese economy.”2

Russia, Belarus, Kazakhstan, and Kyrgyzstan made the first effort to create a customs union in the mid-1990s, but the project remained on paper only. Then, in 2009, Russia began to accelerate the integration process. The Customs Union between Belarus, Kazakhstan, and Russia has been operational since 2010. In 2011, the three countries formed a common customs territory. The EEU was launched on 1 January 2015; Armenia became a full-fledged member the following day, and Kyrgyzstan on 12 August.

The main argument in favour of these initiatives was economic – that Kazakh businesses would gain access to a common market of 170 million people. However, there was no consensus within Kazakhstan in favour of the union.

The creation of the Customs Union and then the EEU opened serious divisions in Kazakh society. The EEU is unpopular among the population, and the annexation of Crimea has Kazakhs worried that their country might be the next victim of Russia’s imperial ambitions. In 2012, the opposition suggested a referendum on membership of the Customs Union and the EEU’s Single Economic Space.3 At the beginning of 2014, an anti-Eurasian movement was established, based on an idea of the EEU as a threat to Kazakhstan’s sovereignty. The war in Ukraine and the West’s sanctions against Russia have led some to say that it is dangerous for Kazakhstan to be in a union with Russia.

The Russian rouble’s fall in 2014, when it lost more than half its value against the US dollar, made Russian goods much cheaper than Kazakh goods, causing problems for local producers.4 The deputy chair of the National Chamber of Entrepreneurs has said that the lack of customs controls at the border with Russia caused a “substantial growth of grey trade and the increase of shadow turnover”.5

From time to time, Russia tries to promote the idea of creating a common monetary market and single currency. But Kazakhstan has turned down all such discussions. Deputy National Economy Minister Timur Zhaksylykov said: “Kazakhstan has a clear and consistent position on excluding the possibility of introducing a single currency within the Eurasian Economic Union.”6

Free trade has not always run smoothly. Kazakhstan has on several occasions restricted sales of Russian food, including meat, citing safety concerns. Russia has cited similar reasons for imposing bans on Kazakh dairy products and fruit, though these have since been lifted or eased. Nevertheless, Kazakh officials remain optimistic that the EEU will help the country’s economy to grow.

 

Opinions on OBOR

Economics

In interviews conducted for this project, government officials, businesspeople, political analysts, and economists agreed that Kazakhstan has a strong demand for infrastructure to develop transit, “as a tool to boost economic growth owing to the fall of energy resource prices and economic problems of Russia”. Kazakhstan “definitely needs Chinese investment and other resources (know-how, etc.) to support its infrastructure projects, especially due to the lack of foreign sources of capital”. Respondents think that China is also in favour of this because “China must be interested in improving its infrastructure in the west part of the country”.

China is the second-most important import partner to Kazakhstan after Russia. Respondents estimate Kazakhstan’s potential to develop into a significant export market for China respondents as “limited due to a relatively small population and low purchasing capacity.” But, at the same time, Kazakhstan is important for the development of China’s western regions. One interviewee noted that “some work has been done to improve road and railroad infrastructure. However, more work is needed to reach an appropriate and required export level from China.”

According to Kazakhstan’s National Chamber of Entrepreneurs, the business community wants the country to be part of the OBOR project. But many are not aware of the opportunities that OBOR offers their businesses. According to one business person: “There is a lack of relevant information. China has been pushing the project on the government level, ignoring the grassroots level.” According to another, “this initiative has the highest political support but looks controversial due to the Customs Union. The business community’s expectations are associated with the transit potential and opportunities around it. Political risks also add ambiguity.”

The economic incentives for Kazakhstan to join the OBOR initiative should be considered in terms of its location between China, Europe, and South Asia. In the view of one interviewee, the “leadership of Kazakhstan clearly understands that China is a rising global power, and in the near future it will definitely have capacity to directly influence the global agenda. So it is better, or maybe safer, to actively join its project.” The OBOR initiative is therefore seen as an alternative or reserve option in case the EEU fails.

China is strengthening its presence in the energy sector, particularly in terms of large oil projects: there are two pipelines transporting oil and gas to China. Kazakhstan wants support for an international exhibition, Expo 2017. It also wants to diversify its transport infrastructure, to build a terminal in the Chinese province of Lianyungang in cooperation with China, and to increase transport links to the sea.

Interviewees said that Kazakhstan would probably not agree to China using its own materials, companies, or workforce to construct the OBOR infrastructure. Kazakhstan protects its market, and its procurement policy for such projects explicitly promotes national suppliers. China might work with neighbouring countries to invest in the project, but local companies must be chosen through a transparent bidding process. On the other hand, if the economic situation worsens, and Kazakhstan cannot find any other sources of foreign investment and capital, the Kazakh leadership might have no option but to agree to China’s terms.

Politics

Kazakhstan’s political incentives to join OBOR are based on balancing Russia’s influence. The project has the highest possible political support; no disagreement within government is visible to the general public. There is consensus among policymakers that the project could boost the country’s economic growth in the near future.

Interviewees were divided as to whether Kazakhstan has already benefited from OBOR. One said: “I don’t think that there are any projects that have already been successfully implemented; up to now, there is no significant evidence of benefits for our economy. There are only talks on potential benefits for participants of the Silk Road initiative.” Another said: “I think Kazakhstan is rather gaining indirect benefits as a result of being part of the Chinese initiative. As an example, recent deals worth more than $20 billion signed during the recent visit of our president to China can be taken.”

Kazakhstan has had some negative impacts from OBOR: “Road accidents have increased on the newly built segments of highways; pollution shows a growing trend; occasionally, farmers and people living in villages see constraints in access to agricultural lands and pastures.”

When asked about the level of detail of the Chinese leadership's engagement with OBOR, one interviewee answered that “the concept of the Silk Road project is still extremely vague; there is no clear political document or concrete blueprint that would describe how the Chinese government is planning to implement the Silk Road initiative”. Another said “I don’t think that there was a detailed assessment by the Chinese leadership; the project was rather a reaction of Chinese leadership to the changing geopolitical situation in the region (establishment of the EEU) and in the global arena (US action to contain China).”

Public opinion and media

The Kazakh population is not well informed about OBOR. The project does not have offices or contact people in Kazakhstan, and all OBOR matters are discussed directly with President Nazarbayev. The project has been implemented using a top-down approach, and public opinion has not been explicitly consulted. As a result, public perceptions of China have not changed in Kazakhstan since the announcement of the project. According to interviewees, the topic has not gained any “significance in public discourse, our public do not pay attention to this issue, and discussion is confined to the expert community”.

China’s communication about OBOR in Kazakhstan has concentrated on the official level. PR efforts include frequent high-level visits, work by diplomatic channels and embassies, and economic cooperation, and depend heavily on traditional tools such as holding conferences, large-scale public events, projects supported by multilateral development banks including the Asian Development Bank, the newly established Asian Infrastructure Investment Bank (AIIB), consultations, and student and research exchanges.

Recently, the Chinese government has made some efforts to engage with non-governmental actors through organising trips to China for Kazakh bloggers, youth delegations, and others. But language and cultural differences still pose significant obstacles for China in its efforts to promote its initiatives.

There has been no broad public discussion about the pros and cons of cooperation. Articles and interviews on the subject are published only in the official media in the context of their connection to national infrastructure projects, planned investment, and top-level visits to Kazakhstan and China.7 Several conferences and roundtables with government representatives and government research institutes have been covered by local media.8

Recent changes in the public mood could hamper further cooperation. Large numbers of people have been protesting about proposed land reforms.9 This is highly unusual, because public meetings require preliminary permission from local authorities. Since 24 April 2016, protests against changes to the country’s Land Code have spread across the country. The amendments would allow foreigners to rent agricultural land for 25 years, and enable land to be sold or leased at auction. These amendments were approved in November 2015 but will come into effect on 1 July 2016. The protesters fear that the change will allow Chinese investors to buy out their land. The general public opinion is: “We can’t give land to the Chinese. If they come, they won’t leave.”

 

Opinions on the EEU

Economics

The business community of Kazakhstan views Russia’s EEU initiative as a “purely government-led initiative that does not take into consideration the interests of SMEs [small and medium enterprises]”. It is disappointed in the lack of opportunities presented by the project so far, especially because it coincided with economic slowdown, and because economic sanctions against Russia indirectly affect the Kazakh economy.

The business community has diverging interests with regard to the EEU. Major exporters of raw materials are very interested in the project. SMEs stress economic concerns, because they do not see any significant benefits for themselves. Kazakhstan’s exports to Russia have shrunk significantly. Occasionally, EEU members have used non-tariff barriers to protect their respective domestic markets. The global economic slowdown, decreased oil prices, and depreciation of the Russian rouble have undermined Kazakhstan’s economy, with two devaluations undertaken, and other negative effects expected.

What were the economic incentives for Kazakhstan to join the EEU? There were high hopes in the initial stages that the EEU would offer great economic opportunities to business, providing access to a common market of over 170 million people. Economic ties with Russia are still strong; most export goods, even if not traded with Russia, pass through Russian territory, so gaining access to Russian infrastructure was welcomed. Unfortunately, as one interviewee said, “from the beginning the EEU has had more of a political format than an economic one”.

Politics

How is Russia’s EEU initiative perceived among administration officials and policymakers from different institutions? “There is a consensus that the EEU was initiated by the president and fully supported by the administration.” “The EEU is perceived as a political project; officials themselves do not see any significant economic benefits for the country.”

It is difficult to identify the political incentives for Kazakhstan to join the EEU. Respondents speculate that “it was the decision of the president”; and that “it is more a political union that benefits one country” – that is, Russia.

No diverging opinions on the EEU are heard within the different relevant ministries. “All decisions are taken for execution as an order.” But there is no consensus among policymakers concerning Kazakhstan membership in the EEU – simply, “no one voices alternative points of view on this issue”.

When asked about areas in which Kazakhstan has already profited from the EEU, respondents answered either “no benefits” or “simplified customs and passport control at borders”. In the opinion of those interviewed, negative experiences with the EEU included “indirect impact of the anti-Russian economic sanctions”, “uncertain geopolitical situation in the region due to tension between Russia and Ukraine”, and “trade conflicts between members of the Eurasian Economic Union”.

 

Public opinion and media

Public perceptions of Russia have changed in Kazakhstan since the announcement of the EEU. The creation of the EEU’s predecessor, the Customs Union, in 2009 did not cause much concern in Kazakhstan. But the rise in prices due to the increase in Kazakhstan’s customs tariffs forced people to think about the consequences for their wellbeing. Russia’s annexation of Crimea showed that the alliance with Russia could have negative consequences for the welfare of the country. Public opinion on Kazakhstan’s membership of the EEU differs depending on ethnicity and social status. The public is divided: some support the EEU, others oppose it. But most people in Kazakhstan believe that Russia is trying to restore the Soviet Union.

The EEU has been widely discussed in the national media. Civil society representatives have conducted press conferences, forums, and roundtables at which they recommended that the government refrain from joining the Customs Union and avoid signing an agreement on the EEU.10

 

Comparing OBOR and the EEU

Kazakh officials are optimistic that the EEU and OBOR will create new growth in the Kazakh economy. Both initiatives have the highest political support. According to Kazakh authorities, economic pragmatism should prevail, and the authorities hope to harmonise them and bring them into line with one another. However, Russia and China may have different views. Some interviewees thought that “officials feel safer cooperating with the Russian side rather than with China”.

When asked whether businesses would prefer to cooperate with China on OBOR or with Russia on the EEU, respondents said: “Kazakhstan adheres to a multi-vector policy and tries to find a consensus between the two initiatives”, but “due to the cultural and language differences, the Chinese market is still not considered as a priority for the local business community”.

One problem is that the two initiatives are not properly aligned. According to officials, OBOR and the EEU should link up in harmonisation of technical requirements, integrated infrastructure, a permanent negotiation process on customs, and financial and legal issues, among other things. So far, this has not happened. One interviewee said: “The difficulties emerge from restricted access of goods and services from non-EEU countries.” Another said: “The Silk Road initiative at this stage is seen as a way towards integration into the regional infrastructure. Trade facilitation, customs, financial systems, and other issues around it are at the early stage of discussion.”

 

Recommendations for the EU

The EU is one of Kazakhstan’s main trading partners, accounting for almost a third of its external trade, and Kazakhstan is interested in the West as a hedge against the growing influence of Russia and China. The country is geostrategically important to the EU thanks to its location, and represents a bridge to China. Moreover, Kazakhstan’s position as a supplier of hydrocarbon resources makes it a crucial partner.

  1. The EU should play the role of an external balancer to China and Russia’s competition for power in Kazakhstan and Central Asia. Regional stability depends on economic stability. At present, Kazakhstan and other Central Asian countries are suffering from turbulence in Russia and the slowing growth of China’s economy.
  2. OBOR is at an early stage of development, and often vague on details. The public perception in Kazakhstan is that it looks more like a philosophical concept than a concrete action plan. The EU should take the opportunity to identify its own position on OBOR.
  3. The EU should promote trade and cooperation at Central Asian level, taking Kazakhstan into account as an engine of regional synergies and a link with neighbouring countries. China and Russia are working with Central Asian countries on an individual basis in most cases, preferring bilateral relations.
  4. The EU should pay attention to Russia’s growing military presence in Kazakhstan, and forecast its potential consequences for regional stability and security.
  5. The EU can help science and technology industries in Kazakhstan by sharing knowledge and developing partnership programmes. Kazakhstan is interested in becoming a technological and innovation hub of Central Asia, and the EU should coordinate its projects with Kazakhstan’s needs.
  6. The EU should strengthen dialogue and cooperation between EU and Kazakh businesses, and support and promote rule of law in the country.
  7. The EU should support public participation in decision-making by promoting government dialogue with business and citizens in order to take into consideration their views on OBOR and the EEU.

 

 

1 “Promote People-to-People Friendship and Create a Better Future”, Speech by President Xi Jinping at Nazarbayev University, Astana, 7 September 2013, available athttp://www.fmprc.gov.cn/mfa_eng/topics_665678/xjpfwzysiesgjtfhshzzfh_665686/t1076334.shtml.

2 Vladimir Fedorenko, “The New Silk Road Initiatives in Central Asia”, Rethink Institute, Washington, DC, August 2013, available at http://www.rethinkinstitute.org/wp-content/uploads/2013/11/Fedorenko-The-New-Silk-Road.pdf.

3 “Chego ozhidat’ Kazakhstanu ot predstoyashchego referenduma”, Total.kz, 6 November 2012, available at http://total.kz/politics/2012/11/06/chego_ozhidat_kazahstanu_ot_pred.

4 Abdujalil Abdurasulov, “Kazakhs find uneven playing field in Russia’s trading bloc”, BBC News, 26 April 2015, available at http://www.bbc.com/news/world-asia-32403837.

5 “Vnutri EAES rastet ob’em serogo tovarooborota”, 365info.kz, 30 May 2015, available at http://365info.kz/2015/05/vnutri-eaes-rastet-obem-serogo-tovarooborota/.

6 “Edinoi valyuty v EAES ne budet – MNE RK”, Kazinform, 22 April 2015, available at http://www.inform.kz/rus/article/2768268.

7 See “Novyi Shelkovyi put’ otkroet dlya Kazakhstana unikal’nye vozmozhnosti dostupa na mirovye rynki”, Official Website of the Prime Minister of Kazakhstan, 4 August 2015, available at http://www.primeminister.kz/article/view/34; “Kazakhstan potratit $20 mlrd, chtoby stat’ zvenom novogo Shelkovogo puti”, Zakon.kz, 17 April 2015, available at http://www.zakon.kz/4704496-kazakhstan-potratit-20-mlrd-chtoby-stat.html.

8 “Sozdanie Evrazii: ekonomicheskii poyas Shelkovogo puti”, Forbes Kazakhstan, 17 April 2015, available at http://forbes.kz/finances/integration/sozdanie_evrazii_ekonomicheskiy_poyas_shelkovogo_puti.

9 “Kazakhstan’s land reform protests explained”, BBC News, 28 April 2016, available at

http://www.bbc.com/news/world-asia-36163103.

10 Khalil Mukanov, “Antievraziiskie nastroeniya krepchayut”, Sayasat, 5 March 2014, available at http://sayasat.org/articles/823-antievrazijskie-nastroenija-krepchajut; “‘Antievraziiskii forum’ v Almaty”, Radio Azattyk, 12 April 2014, available athttp://rus.azattyq.org/content/antievraziiskii-forum-almaty/25330706.html; Oras Jandosov, “My ne mozhem byt’ v odnom soyuze s gosudarstvom-okkupantom”, Ratel.kz, 6 March 2016, available athttp://www.ratel.kz/raw/myi_ne_mojem_byit_v_odnom_soyuze_s_gosudarstvom-okkupantom/.


Absorb and conquer: An EU approach to Russian and Chinese integration in Eurasia

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