Kazakhstan Chamber of Commerce in the USA


China becomes Kazakhstan’s leading trading partner

Posted on December 25, 2011 by Alex

With a superpower on its doorstep, Kazakhstan looks set to reap dividends from its partnership with its Eastern neighbor. China’s government has set high targets to develop its western Xinjiang region into an industrial hub, including $100 billion of investment in 23 new infrastructure projects. Kazakhstan will be a key supplier for this huge scheme. The country’s share of foreign trade in the Xinjiang region in 2008 reached 40 percent, giving the Central Asian nation unrivalled exposure to what is expected to be one of China’s fastest-growing regions.

Almost all Kazakhstan’s exports to China are raw materials, and China overtook Italy as the country’s leading export partner in 2010, accounting for 17.1 percent of all Kazakh exports. Oil and oil products made up 45 percent of exports in 2009. Mining products – ore, slag and ash – accounted  for 16 percent; iron-based metals, 15 percent; copper and brassware, 13 percent; and chemicals, seven percent. Kazakhstan’s share of imports varies from 10 percent to 60 percent of total Chinese imports across different product types.

Large-scale investment in Kazakhstan appears to be part of China’s global strategy to  secure energy sources for its growing economy. China National Petroleum Corporation (CNPC),  the state energy company, is the largest corporate investor in Kazakhstan, with investments amounting to around $7 billion to date. Total Chinese investment  over 1991-2010 reached $13.5 billion, with the majority directed to the energy sector and energy-related services. Part of this funding was provided in the form of loans and credits, giving China access to Kazakhstan’s mineral resource base.

Investment from Asia is not restricted to China, however.  Japan, India and South Korea are becoming increasingly important partners. The state nuclear holding company, Kazatomprom, teamed upwith Toshiba and Sumitomo in 2010 to mine rare earths in ventures worth $300 million, while Japanese companies have been busy looking at Kazakh agribusiness.

India has held state-level talks on civil nuclear cooperation, while PNB – which became the first Indian bank to enter the Kazakh market when it bought Dana Bank in December – plans to expand its network, and said in February  that: “The close relationship between India and Kazakhstan is one of the factors in our decision to [come to Kazakhstan].”

Meanwhile, in April, LG Chem –  one of South Korea’s largest chemical manufacturers –  announced plans to invest up to $1.3 billion in the second stage of an integrated chemical complex in the Atyrau region of Kazakhstan.

When it comes to sectors, investment flows remain dominated by oil and gas projects, which took in close to half of foreign direct investment (FDI) in 2010. Mining took a large chunk out of the total, but manufacturing (including chemicals), retail and transport and communications infrastructure all attracted healthy volumes, too.

This pattern reflects the government’s recognition that it needs to use the opportunity offered by energy-powered  growth to diversify the economy. Kazakhstan launched a long-term project for Diversification of Kazakhstan’s Economy in 2004. The European Bank for Reconstruction and Development announced it was willing to invest $1 billion to help the program in 2010.

This strategy should open further trade and investment opportunities. As the Organization for Economic Cooperation and Development says: “Kazakhstan has clear competitive advantages in non-energy sectors,” identifying agriculture, chemicals and information technology (IT) as among the most promising.

Kazakhstan’s agricultural sector has extensive arable land resources, high regional demand prospects, growing domestic consumption and an absence of distorting government support in most agribusiness sectors. Specifically, the grain, meat and dairy subsectors are where Kazakhstan shows the greatest potential to successfully compete on global markets.

The largest of the agrichemicals sectors in terms of volume and market value is the mineral fertilizers sector. Kazakhstan has all the basics in place for developing its fertilizer production: deposits of four billion to 15 billion tons of phosphate rock, significant reserves of natural gas and sulfur, and low-cost access to ammonia.

Moreover, with a low current level of fertilizer use, the country’s large potential domestic market remains untapped. It also has major market opportunities in the growing neighboring economies of Central Asia, China and India.

The IT sector in Kazakhstan is nurtured by domestic demand and global requirements, but is still relatively small. The country has strong potential for the provision of IT outsourcing. The government of Kazakhstan has made a commitment to enhance education, particularly in IT. With the low cost of labor compared with key regional competitors such as Russia and existing skill levels, the IT sector is taking advantage of strong demand for its services from government, local businesses and foreign investors already based in Kazakhstan. A high level of broadband penetration and mobile connection compared with its neighbors also make Kazakhstan a potential platform for IT businesses in Central Asia.

SOURCE: Invest in Kazakhstan, 2011, p. 40

Print Friendly

Leave a Reply

↑ Top