The EU-Kazakhstan: the Dialogue Keeps the Pace
Our magazine had the interview with Mr. John Penny, First Counsellor, Head of Political and Economic Section, the EC Delegation in Kazakhstan, Kyrgyzstan and Tajikistan
Mr. Penny, what are the EU strategic interests in Kazakhstan and Central Asia?
At present, the particular important issue is the general stability and security in the region bearing in mind the last developments in Afghanistan. Therefore, one of the main components of the EU regional policy in Central Asia (CA) is the regional cooperation. We would like to prompt the CA countries to coordinate their development in close cooperation.
Furthermore, the EU would like to develop the economic relations with the CA countries. As for Kazakhstan, the focus is still on energy sector development but we can see an increasing interest from EU companies in non-oil fields.
Can you tell us about the EU-Kazakhstan trade and economic cooperation?
Our relations in this area are based on the Partnership and Cooperation Agreement signed in 1995, which became fully operational in July 1999. From this date, we have regular meetings of the Trade and Investments Sub-Committee, the special body of the EU-Kazakhstan Cooperation Committee. They tackle the actual issues of the EU-Kazakhstan economic relations, and problems of mutual access of goods and services. The senior officials of the European Commission (Brussels) and heads of the respective ministries and agencies of the Republic of Kazakhstan participate in these meetings. Kazakhstan is the main EU strategic partner in the region, therefore, three years ago, the Sub-Committee mandate was expanded, now it covers also the energy and transport issues.
This form of the dialogue proved to be effective. At present, the EU is the second trade partner of the Republic of Kazakhstan after Russia. Over the last six years, the EU-Kazakhstan trade turnover has been increasing on average by 18% annually. In November 2004, it reached $8.3 billion. The main Kazakh export to the EU is oil and oil products, non-precious metals, agricultural, chemical and mineral products, and textile. The export of meat and fish products has also increased. The Kazakh import includes machines, various equipment, tools, electrical products, vehicles and chemical products.
What do you think about the investment climate in Kazakhstan? What sectors of the Kazakhstani economy are most attractive for the European investors?
At present, due to development of the primary industry, the Kazakh economy is developing rapidly. Obviously, this makes the country attractive for foreign investors. Thus, the EU is the biggest investment partner of Kazakhstan. In 2004, over $3.4 billion or more than 40% of all direct foreign investments to Kazakhstan originated from the EU (the Netherlands, Great Britain, Italy, France, and Germany). Nowadays, in Kazakhstan, the major European companies–Total, Agip, ENI, Shell and British Gas - operate in Kazakhstan. The major part of the European investments is channelled into the oil-gas and steel industries, financial and legal services, as well as transport and telecommunications. At present, the food (as far as I know, some Dutch companies implement several projects in this area in Kazakhstan) and building materials (the German companies are traditionally strong in this area) industries are becoming more and more attractive. In my opinion, the tourist sector is very perspective, at present, it is poorly-developed.
As for the investment climate, the particular important factor is the rule of law and independent judicial system. Investors operating in Kazakhstan should be sure that if they have any problems, they might rely on the legal and judicial systems to protect their interests. Unfortunately, in Kazakhstan, this is not always the case, and the main reason is corruption. I think that many European companies believe that this is reason preventing investments.
At present, one of the main goals for Kazakhstan is to stop rely only on the primary industry and overcome the current disproportions. In your opinion, how the European private business may help Kazakhstan to achieve these goals?
Certainly, the European business might contribute to these goals by creating JVs in your country. Our companies have extensive experience in developing processing industries. Therefore, they might attract in Kazakhstan the capital, modern technologies, experts and skilled workers. However, there are some problems in place. As I already mentioned, our businessmen would like improvement of the investment climate, in particular, the transparent economy and stable legislation, as well as efficiency in registration and issuing work permits for expatriates.
I also would like to mention our potential to provide technical assistance and expertise. The EU has extensive regional development experience, including attracting investments, creating business-incubators, research-innovation parks and business supporting infrastructures. In the past, the EU had similar problems. The good example is Ireland. 20-30 years ago, it was a very poor country. At present, due to domestic and external investments, support and financing by the EU development institutions, Ireland is one of the most prosperous European countries. I think, this experience could be also useful for Kazakhstan.
At present, our country is actively preparing to join the WTO. Therefore, in your opinion, what are the key pre-conditions for further integration of Kazakhstan into the world economy?
As far as I know, at present, we have intensive talks on this subject, the Kazakh delegation has visited Brussels several times. On the whole, the pace and stages of this work, as well as the date of final joining will depend on the progress of Kazakhstan in all the issues relevant for the WTO.
We already may witness the progress of Kazakhstan in harmonisation of technical regulations and standards. The European Commission supports Kazakhstan to achieve this goal by implementing Tacis projects. They focus on examination of the Kazakh legislation and its harmonisation with the WTO requirements and the EU standards, developing recommendations, and providing the international expertise and know-how. Thus, in February this year, the project on expertise of the draft-law on technical regulations and development of technical rules pursuant to the WTO requirements was accomplished. At the same time, in cooperation with the Ministry of Economy and Budget Planning of the Republic of Kazakhstan, the project to improve the Kazakh licensing system was launched. It should result in development and adoption of the Licensing Law, one of the most important laws of the year.
The other major project is Assistance to Kazakhstan in Accession to the WTO: Harmonisation of Technical Regulations and Standards. This two-year project financed by the EU starts in April this year, its budget is 1 million euro. The project will focus on harmonisation of the legislation, capacity building, institutional building and assisting the Standardisation Committee to join the international and European accreditation and standardisation organisations.
Please note that to be fully in line with the WTO principles, Kazakhstan should fully liberalise its economy. Furthermore, the market-based economy is a pre-condition for successful integration of Kazakhstan into the world economy.
You are the member of the Board of Directors of the European Business Association in Kazakhstan. In your opinion, what is the role of this organisation in promoting cooperation between Kazakhstan the European business community?
In 1999, the European Commission assisted in establishing EUROBAK to represent the European business community in Kazakhstan. At present, 108 European and Kazak companies, and the EU-member state diplomatic missions are its members. EUROBAK aimed to develop the European business in your country, expand trade, promote the profile of Kazakhstan in the EU and provide the necessary consultations and contacts. The range of activities of this association is wide: some of its participants are the members of the Foreign Investor Council under the President of the Republic of Kazakhstan, its representatives are also included into the Kazakh delegations and trade missions to attend the international exhibitions and conferences.
The European Commission keeps close contacts with EUROBAK, since this gives an opportunity to know the business community opinion on the situation in the country. Prior to each Trade and Investments Sub-Committee meeting, the Brussels officials have the meetings with the EUROBAK representatives, where they discuss important problems and issues to be raised at the Sub-Committee.
In addition, EUROBAK applies directly to the authorities. In March this year, the association sent the letter to Danial Akhmetov, Prime Minister of the Republic of Kazakhstan, expressing disagreement with the decision to transfer international flights from Almaty to Astana. You may be know, this is very important issue at present. British Airways, KLM and Lufthansa have made substantial investments to develop the infrastructure and market in Almaty. Thus, they do not want to lose their investments and are not happy to be transferred to the less profitable and less developed routes. Furthermore, this decision is questionable bearing in mind the plans to make Almaty the regional financial centre. I had meetings with many representatives of the banking sector, they said if they do not have direct flights to Almaty, this proposal will not be viable.
In my opinion, this situation could send a very negative message to the European business. The state, where political considerations affect the economy, where market realities and mechanisms could be ignored, is hardly possible to consider as a country with the market economy.
However, I believe that the Government of the Republic of Kazakhstan will be able to find a compromise.
How is the EU-Kazakhstan cooperation developing in the social and humanitarian areas?
In this area, the cooperation is implemented through the whole number of projects. For example, we can mention the European Initiative for Democracy and Human Rights, grants for NGOs dealing with social issues, support of free and fair elections. The Tempus Programme covers the education, its budget for Kazakhstan is 1.5 million euro. It focuses on exchange between the universities, development of curricula, etc. In addition, we have the scientific cooperation framework programme–at present, many Kazakh scholars are involved in joint researches: environment, medicine, nuclear safety, etc.
Kazakhstan has close cultural relations with many EU member-states. Annually, upon the initiative of the EC Delegation the European Film Week is held in Almaty. The Kazakh audience may watch our films in the original language (with the Russian subtitles). Traditionally, this event is held in May and contemporised with the Europe Day, which is celebrated by the EU countries on 9 May.
This year, the EC Delegation has decided to expand the event. In addition to the European Film Week, in the framework of the Europe Days in Kazakhstan, we will have the exhibition of French and Czech photographers, exhibition of architectural models, book-fair together with the Republican Young Reader Library and the European cuisine presentation, where chefs of the European restaurants will demonstrate their chef-d'oeuvres. The event will enjoy the active support of the EU member-state embassies accredited in the Republic of Kazakhstan, Almaty Akimat and EUROBAK. The event will be opened on 7 May in the National Museum of the Republic of Kazakhstan.
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