“The Kazakhstan economy diversification as a challenge for German companies” was a slogan of the German Economy Day in Kazakhstan, held on October 1, 2010. This event has been organized in Almaty for 12 years by the German Economy Club in Kazakhstan and the German Economy Representative Office for Central Asia. The conference, which became a final chord in the list of economic events in the framework of the Year of Germany in Kazakhstan, added to summarizing the results and setting new horizons in the trade and investment relations of the two countries.
Despite the many years’ economic cooperation between Kazakhstan and Germany, German businesses represented in Kazakhstan have been for a long time in a shadow, obscured by their more active colleagues from the United States, Holland, England, Italy, and France. This was not a surprise. From the first days of its independence, Kazakhstan was putting an emphasis on development of the raw material oriented sectors of the economy. In this situation Germany, the competitive advantage of which at all times were technologies and equipment of the processing industries, had nothing to offer to Kazakhstan at that time. The economic relations were centered mainly on trade. Even in that sector the performance indicators could hardly be called prominent. The Kazakhstan-Germany commodity turnover in 2009 was $2.94 billion, or just 4.1% of the total commodity turnover of Kazakhstan. Meanwhile, judging by what the spokesmen of the government were telling at the conference, today German investors and entrepreneurs are indeed very close to their day in the sun.
According to Kazakhstan’s First Vice Minister of Industry and New Technologies Albert Rau, the beginning of the Accelerated Industrial and Innovative Development (AIID) is seen to put quite a new sign on the Kazakhstan-German relations. In his opinion, a sector of the Kazakhstan economy that can be of interest to German businesses both in terms of supply of equipment and technologies and direct participation in investment projects is mining & metallurgy. The matter is the amount of $6 billion, which Kazakhstan spends every year to import metallurgical products with an high added value. In view of this, the republic will now focus on development of its own metallurgical productions, oriented to manufacturing of the high added value products. At present, there are a few projects where German technologies will be applied. “We are ready to pursue the policy “Mineral Resources in Exchange of Investments.” This means we will provide our raw material resources for particular projects and are ready to expand cooperation in this area.
The chemical industry is of strategic importance to Kazakhstan as well. At the internal market capacity of $3.5 billion, every year the country imports chemical products in the amount of $2.4 billion. According to Mr. Rau, Kazakhstan is going to set up some chemical productions, and German businesses are already taking an active part in the process. For instance, the ThyssenKrupp Company supplies equipment for production of soda ash and fertilizers.
However, the machine-building sector has a greater potential of business cooperation. 41% of all Kazakshtani imports fell on this sector. At the market capacity of $16 billion, the republic spends $15.4 billion yearly to purchase products of the machine-building industry. Of them, $10 billion is spent to purchase products of the transport, electrotechnical, oil and gas, and agricultural engineering.
In the opinion of the Ministry of Industry and New Technologies spokesman, considering the firm demand that is provided in the above-said sectors by the backbone companies of Kazakhstan, as well as the increased customs duties in the framework of the Customs Union, it will be more profitable for German businesses to set up joint ventures on the territory of Kazakhstan and to transfer new technologies.
“To date, a design office is set up in Astana for transport engineering, in Petropavlovsk for oil and gas engineering, and in Ust-Kamenogorsk for metallurgy. The government is investing 5 million Euros in each of the design offices to duly equip them and purchase technologies. Unfortunately, today the matter centers mostly around Russian technologies, but we consider it necessary to collaborate in this direction with Germany, which is the leader in machine building.”
Albert Rau reminded that in July of this year at the Foreign Investors Council session the President of Kazakhstan put a new task to carry out modernization of all the enterprises in operation in the republic under the Productivity 2020 Program. The newly established Kazakhstan Industries Development Institute was assigned to develop this program. “The said institute will cooperate with the German Fraunhofer Institute, and the latter will provide necessary assistance. The most important thing is that their first joint work will be to develop the modernization program. 200 enterprises are selected already, and now they are going through the audit. By the end of the year, we jointly with Fraunhofer Institute will be ready to provide information on which of the enterprises will go through modernization, which of them need new managerial technologies, and which of them are interested in a strategic partnership with the German side.”
National Welfare Fund Samruk-Kazyna expresses its interest in active business cooperation development as well. According to Managing Director of the fund Kairat Aitekenov, special attention is paid by the fund to coordination of general actions, implementation of joint projects and mutually beneficial solutions. “Today, Kazakhstan, in our opinion, is seen as a most comfortable area for running business in the framework of the Customs Union, where Samruk-Kazyna is deservedly a reliable business partner for many foreign investors and businessmen”, – he announced.
In his presentation Mr. Aitekenov listed some projects, under which the fund is planning to cooperate with companies from Germany. In particular, he reminded that during the visit of German Chancellor Angela Merkel to Kazakhstan, Entrepreneurship Development Fund Damu and GTZ (Deutsche Gesellschaft für Technische Zusammenarbeit) executed a memorandum of cooperation in setting up the structures, contributing to the development of small and medium business in Kazakhstan.
The Samruk-Kazyna’s spokesman called the activities of ThyssenKrupp, which built a plant for production of silicon metal from gangue quartz in the Karaganda Oblast, an example of successful bilateral cooperation in the area of industrialization. The German concern acted as a supplier of equipment, organized the selling of products to the ЕS market, and is a shareholder of the joint venture.
This year, the subsidiary company Tau-Ken Samruk executed a MoU with German Elpro to carry out joint studies in the mining sector and mining & metallurgy, involving the development and introduction of up-to-date science intensive and efficient technologies.
Another memorandum of cooperation for joint development and implementation of projects in the chemical and nuclear industries contributes to urging bilateral cooperation in the nuclear field. This memorandum was signed on July 18, 2010 between Kazatomprom, Center for Engineering and Technologies Transfer, and German Chemieanlagenbau Chemnitz Company.
One more subsidiary, the United Chemical Company, is seen to become a partner of the German investors in the chemical industry. Currently, it is carrying on negotiations with LANXESS and Evonik over joint production projects.
This year, under the support of Samruk-Kazyna Fund, Kazakhstani Chimfarm JSC and German Company Berlin-Chemie executed a memorandum of cooperation on joint activities to set up a licensed production of infusion solutions.
During the German Chancellor’s visit to Kazakhstan, the National Company Kazakhstan Temir Zholy and Siemens signed one more important document. In the framework of this memorandum, it is provided for to set up a joint venture for production and servicing of railway infrastructure facilities. The plans are to invest some $2 billion in the project within the next 10 years. Besides, Siemens entered into contracts with the national company КEGOC to supply and install safety and automation systems for electric power substations and with Kazpochta to set up a mail routing center in Almaty. It is worthy noting that the latter expanded its business in Germany as well. The matter concerns the establishing in Hamburg on a parity basis with HPO Service GmbH of a joint venture Kazpost GmbH, which will engage in provision of services in logistics and postal services to German enterprises, running business in Kazakhstan.
Summarizing his speech, Mr. Aitekenov emphasized that Samruk-Kazyna and subordinated companies are ready to jointly implement prospective projects. “All necessary resources and requisites for this are available. We always keep the door open for any dialogue, new business ideas, advanced technologies, projects and investments”.
In his speech at the conference, Bulat Sultanov, Director of Kazakhstan Institute of Strategic Studies (KISS) under the President of Kazakhstan shared his quite interesting and even provocative thoughts. According to him, the policy of Germany with regard to Kazakhstan is pursued through the prism of a regional approach, and officially Berlin considers our country as part of Central Asia. The other specific feature of the German policy in the region is its close integration with the EU policy. The KISS Director believes such an approach requires rethinking. For the last 19 years Kazakhstan has made numerous attempts to initiate the setting up of integration associations with the Central Asian states, but this idea ended in a fiasco. De-facto, following the worsened situation in Kyrgyzstan and Tajikistan, the brewing crisis in Uzbekistan, and an unclear situation in Turkmenistan, the implementation of integration projects in the region is postponed for an uncertain period of time. “Thus, I believe the policy of Germany with regard to Central Asia shall be focused on building up bilateral relations separately with each of the Central Asian states and pay less attention to coordination with the EU policy”, – Mr. Sulnatov stressed.
It is clear that on the political plane Germany would like to stay on the Euro-Atlantic partnership track, but the economic future of this country, in the opinion of the expert, is nevertheless seen on the East. “In fact, the countries of Central and Eastern Europe and Russia are of major interest to Germany. Of course, it would be nice to add Kazakhstan to this list to complete the logical line.” For the German economy, the fact that Kazakhstan positions itself as a Eurasian country, in contrast to its Central Asian neighbors which are the typical Asian states, should become that of principle. It is necessary to take into account also the fact that the Customs Union between Kazakhstan, Belarus and Russia started operating in the current year.
Moreover, the plans are to start creating a single economic zone (SEZ) from 2012; thus, “for the German companies, the concept of “the narrowness of the market” is no more relevant with regard to Kazakhstan.” With this, Bulat Sultanov proposes to consider the SEZ not as a competitor of the EU, but as a strategic partner. “I.e. today, we should think of a single economic zone, stretching from Rotterdam to Vladivostok and from Arkhangelsk to Almaty, and in prospect, to China and South Asian states.”
In the opinion of the KISS Head, of course, Kazakhstan is interested most of all in cooperation with Russia and China; however, “in view of national security and normal balance” it counts that Germany will be representing its businesses in our country more actively. For this, it is necessary to change the structure of German investments in Kazakhstan. Today, they are mainly financial activity, transactions with real estate, trade, and repair of cars and household equipment. “Of course, this is good that Kazakhstan now has demand for quite alot of other things, as our country started the implementation of the Accelerated Industrial and Innovative Development Program. If German business continues investing in exports and imports, it will never be able to outstrip its more flexible competitors.”
He gave an example of the USA, which has invested in Kazakhstan for the years of its independence $30 billion. Majorly, this money came to the raw material sector. However, in the today’s condition of diversification of the Kazakhstani economy, the United States is changing its investment priorities as well. General Electrics built a locomotive assembly plant in Astana; American investors actively invest in information technologies and agriculture. “Thus, when we speak of changes in geopolitics, we speak of technological changes, so it is necessary to have quick-thinking, flexibility and healthy pragmatism. Thinking with old categories in the light of a new economy is fraught with the loss of previous competitive advantages for Germany in the conditions of global competition”, – Mr. Sultanov summarized.
Probably, there is some truth in the above words; however, reproaching Germany for a lack of pragmatism is hardly apt. The Germans know exactly what their competitiveness is built on and how to maintain it. Despite the fact that German concerns have productive facilities all over the world, the innovation component and most up-to-date production facilities are still concentrated on the territory of Germany.
Quite interesting facts related to this were announced by Ernst Pfister, Minister of Economic Affairs of the German state of Baden-Wurttemberg. He came to the forum as the head of business delegation from the said federal land. The latter is called the “land of investors” in Germany. With a population of 11 million people, Baden-Wurttemberg covers an area 75 times less than that of Kazakhstan. The GDP in the economy of that land reaches $450 billion that is $41 thousand per capita. This is more than Belgium, Sweden, or Norway. Here they produce more machine-tools than in the USA. This federal land is the world’s center of medicine with export of medical products reaching $20 billion and automobile production of 1 million autos a year. Here they actively develop telecommunication, electronics and IT, and bio- and nanotechnologies. According to Mr. Pfister, the fundamentals of the economic power of Baden-Wurttemberg are investments in Research & Development. Every year 4.4% of the GDP is spent for these purposes. For comparison, this indicator is 1.8% in Europe, 3% in Japan, and 3.5% in the USA. As a result, this land is considered the most innovative and technologically developed region in Europe. The index of patent issue here is twice that of the USA and three times bigger than in Japan.
Unlike Kazakhstan, Baden-Wurttemberg has just one resource – they are people and their creative ideas. Thus, the human resources development is the major priority in this land. It is not a surprise that the Germans are expecting same approach from their potential partners. “The flow of investments from Baden-Wurttemberg will mainly depend on the availability of skilled manpower in the country they invest in. We have to know that there are people in Kazakhstan who will be able to work with our high-tech machine-tools”, – the German Minister said.
The final part of the Day of German Economy in Kazakhstan involved the sharing of experience by German firms, operating in Kazakhstan. The spokesmen of the firms told their colleagues, who came to Kazakhstan for the first time, about their practice of running business. The complexities in obtaining licenses and various permits were called a major problem among others. However, in general, German entrepreneurs quite positively assess business opportunities in Kazakhstan. “Many of those from Germany who enter the Kazakhstani market believe that it can not be good here; nevertheless, it is fair business. The only thing is that everyone has to know and obey the law. This aspect is especially important, since there are many controlling agencies here and we have to communicate with. We realize that we should do everything they require and give no cause to find fault. If one works transparently by 100%, the controlling agencies will not find a reason,” – Siemens LLC General Director Kay Zwingenberger said.
In conclusion we would like to add that in the framework of the Day of German Economy of Kazakhstan, the Kazakhstan-German Business Council for Strategic Cooperation had its first session. The setting up of this structure and the development by the Ministry of Industry and New Technologies of a separate draft road map of innovative and investment cooperation between the two countries till 2014 say that from now on these issues will be on a firm track. This means that we have every chance to bring economic partnership between Kazakhstan and Germany to the new level.