Partnership in spite of crisis
The German businessmen are hoping to improve the business climate.
Despite the deteriorating economic situation, the German businessmen don’t abandon their businesses in Kazakhstan, seeking new opportunities for further work with the local customers. According to Mr. Jörg Hatch, Head of the German economy representative office in Central Asia, our country remains one of the most reliable partners in the region.
How things recently have changed in the area of business cooperation of our countries?
Unfortunately, for the past two years, the trade turnover between Germany and Kazakhstan decreased. If in 2013 our trade volume amounted to 6.7 billion euros, the last year, it barely reached 4 billion euros. There are two reasons for it. Firstly, the devaluation and, accordingly, deteriorated solvency of potential importers. Secondly, the decreased value of exported raw materials. Of course, Kazakhstan did a lot to get rid of commodity dependence, however, the falling petroleum and metal prices occurred before the adequate measures have been taken. Unfortunately, it is no longer possible to make money by selling raw materials and investing them in the development of the industry. Kazakhstan mainly supplies the oil to Germany. Physically, the volume of exported raw materials has not declined, but its price dropped, and it had influenced the total results. In 2014 Kazakhstan export amounted to 4.5 billion euros, and in 2015-only 2.8 billion euros. This situation is not only for Kazakhstan but also in other countries of Central Asia. If we look at the region as a whole, Kazakhstan is a leader in trading with Germany. Uzbekistan occupies the second place (about 430 million euros), the third is Turkmenistan (over 300 million), followed by Kyrgyzstan (60 million) and Tajikistan (47 million euros). And compared to last year, these Republics also have the reduced trading volumes. No one can say when commodity prices will go up. It depends on many factors, and not only on the problems in the markets of Kazakhstan and Russia. There is also a crisis in Chine that affects the economies of neighbouring countries.
At the same time, the activities of German firms in Kazakhstan have not changed. I rather do not know such companies that decided to cease operations due to the difficulties in the local market. They are looking for an opportunity to continue working with their customers, although they feel that not “everything gonna be alright”. Yes, they master the markets in other countries, such as Russia. But at the same time, they treasure their business in Kazakhstan.
As to the German investments, compared with the previous year, the picture has not changed either for better or for worse. According to the results of 2015, the volume of FDI from Germany amounted to about 350 million euros. Of course, it's not so much. But we can't compete with Holland or Britain, with their investments in Kazakhstan closely linked to petroleum business. It's not our "playground" because the majority of German enterprises are the medium-sized businesses. I'm not talking about such large companies as Knauf, HeidelbergCement, Metro Cash & Carry or Linde Gas Kazakhstan. There are smaller firms that produce pumps, valves, pipes and other engineering products.
Yes, it would be desirable to see more German investors in Kazakhstan, but I repeat like a mantra: give us the time. If German companies will see positive developments in this market, the investments will follow. No one will come to Kazakhstan and will invest money without having studied the country.
Tell us about the results of survey made among the members of the Union of German economy regarding the business climate in Kazakhstan.
The study involved the assessment of business activity and the overall state of the local economy, as well as visa policy between Germany and Kazakhstan. About 1 500 readers took part in the survey, among the subscribers of a monthly mailing list of the Representation of German economy in Central Asia, as well as 110 members of the Union of German economy in the Republic of Kazakhstan.
Assessing the business environment, the entrepreneurs could choose from "excellent" to "very bad" grade. As expected, no one dared to put the highest grade, in most cases the choice was at the level of "satisfactory" and even "bad". Uncertainty of respondents is due to dropping of Kazakhstan's GDP growth, which, according to the results of 2015, amounted to 1.7% vs. 4.3% in the previous year. The evaluation also was influenced by the depreciation of the currency of Kazakhstan, heavy dependence on imports and a considerable decline in the purchasing power of the population. As a result, the previously growing retail trade, in September 2015 decreased by 0.7%, compared to the same period of the previous year. It is assumed that in 2016 the private consumption will fall by a further 2.2 per cent.
With regard to the overall development of the Kazakhstan economy in 2016-2017, none of the businessmen dared to make a positive forecast, and some even suggested a further decline. 44% of respondents believe that the economy is expected to be stagnant and will show little growth. It expresses the mood of the companies-members of the Union: it will not be easy, but we shall just survive during this period.
As the advantages of Kazakhstan, the respondents mentioned the political stability, economic relations with neighbouring countries, as well as the level of labour costs. The respondents are sufficiently satisfied with the governmental support and flexibility of Kazakhstan’s labor legislation. In the list of comments, the main ones focus on training, public procurement transparency, fighting corruption and crime, legal protection.
What is your personal assessment of the business climate in our country?
It is difficult for me to judge it, compared to a representative of any particular firm. The Representation of the German economy, unlike the private companies, work simultaneously in so many areas. We have projects in the field of energy efficiency, renewable energy, medicine and construction materials. A German company, involved in a specific segment, can assess the situation quite differently. Personally, I am still convinced that Kazakhstan has a good market and it is one of the most reliable partners in Germany in the Central Asian region.
We certainly feel that we're getting fewer requests from Germany. But it is connected not only with economic problems in Kazakhstan. The German companies decide based on the situation at home, i.e. in Germany. They open their production facilities abroad only if their businesses are not going very well and they have to look for new markets. If a company is full of orders, it just don't have the time or resources to do business in other countries. The Union of German economy in Kazakhstan makes every effort to attract the attention of the German businessman. We arrange meetings of entrepreneurs of two countries and we annually participate in the days of the German economy. Meanwhile, this year we opened considerably less German offices and LLPs, than in the past. However, it is not excluded that the entrepreneurs could establish their companies in Kazakhstan without assistance of our Organization, for example, with the help of consultants.
What problems hinder the development of economic relations between our countries?
I can't say that here we are working without problems. But we have a platform, where we can always discuss the painful issues together with their Kazakhstani partners. Now in Kazakhstan, we are revising some rules in the legislation, including our entrepreneurs. For example, it was planned to introduce the taxes not only on the income derived from transactions in the territory of Kazakhstan, but also on the payments from the parent organizations. Currently, we are conducting a debate on this issue, and I think we will find some solution acceptable to both parties.
Now there are active discussions in Kazakhstan regarding the reform of land law. What do you think about it?
If Kazakhstan wants to attract foreign investment in agriculture, the entrepreneurs must ensure that in this country they will quietly work within a certain period of time at the legislatorial level. Remember the events that took place around the new law: the amendment which refers to the extension of leases to companies with foreign participation to 25 years, sparked a public outcry and it was just frozen for the time being. On the one hand, I understand people's discontent: there were all sorts of rumors, and some of them can be justified. But what businessman would invest its money in the development of the agriculture, knowing that over 10 years it should leave it all? I'm not going to criticize the Kazakhstani Government, it is not my business. But still, I think that people should be persuaded of the need for these measures.
As to the agricultural reforms, the decision thereon must be taken quickly because there are great opportunities in this area not only for foreigners but also for the local businesses. One should use the latest technology, modern methods of transportation, handling and storage of products to obtain better yields. I believe that agriculture is a very important industry, with a potential for successful cooperation with German firms.
Jörg Hatch was born in 1962. In 1986 he graduated from the Department of Journalism of the Moscow State University and worked as a journalist. In 1998 he was appointed as a Head of Mission of German economy in Uzbekistan, in 2004 he moved to the Representative office of the German economy in the Russian Federation. Since 2008 -Head of Representation of the German economy in Central Asia. In 2008-2012- a Managing member of DWK Board. Since December 2012 he is also a Chairman of VDW.