Economic Relations: Worrying View of Kazakhstan

The German economy is also looking at the unrest in Kazakhstan with concern. The country is by far the most important trading partner in the region – not just for oil.

Apparently dozens of dead and more than 1,000 injured: Kazakhstan is currently being shaken by unprecedented protests and military intervention against demonstrators. The trigger for the unrest that broke out over the weekend was resentment at the significantly higher fuel prices at the petrol stations in the oil and gas-rich ex-Soviet republic with more than 18 million inhabitants.

“The German economy is looking at the current situation in Kazakhstan with great concern. We urge you to renounce violence and to strive for a peaceful settlement of the conflict,” said Oliver Hermes, chairman of the Eastern Committee of German Economy tagesschau.de. Rapid calming of the situation is essential to avert further bloodshed, destabilization of the country and thus damage to Kazakhstan as an economic and investment location.

Kazakhstan ranks 53rd among the most important trading partners

The Eastern Committee of German Business has been working with Kazakhstan as a foreign trade association since 2016. “In terms of area, Kazakhstan is the ninth largest country in the world and at the same time by far the most important German trading partner in Central Asia,” continued Hermes. Stability is of great importance for the entire region – also against the background of the recent developments in Afghanistan.

According to the Federal Statistical Office, Kazakhstan was ranked 53rd in the ranking of trading partners in foreign trade in 2020. In the pandemic year, trade turnover had fallen to around 3.86 billion euros. In the first ten months of 2021, however, Kazakh exports to Germany grew by almost 47 percent to three billion euros, which can mainly be explained by the increased raw material prices. At the same time, German exports shrank by more than six percent to 1.1 billion euros. This makes Kazakhstan one of the few countries with which Germany has a trade deficit.

“In terms of German imports, Kazakhstan is in 45th place, in terms of German exports in 60th place. In the post-Soviet states, the country is the most important trading partner after Russia and the Ukraine,” explains Viktor Ebel, economic expert at the state-owned foreign trade company Germany Trade and Invest (GTAI) and responsible for the Central Asia region, in conversation with tagesschau.de. It is not for nothing that the location of the German Chamber of Commerce (delegation of German business for Central Asia) based in Almaty.

“Reliable Oil Supplier”

According to the East Committee, Germany exports machinery, chemical products, motor vehicles and motor vehicle parts, electronic products and electrical engineering in particular to Kazakhstan. According to GTAI expert Ebel, machines are at the top of export goods with a share of almost 30 percent. Conversely, metals, chemical products and, above all, crude oil are imported from the country.

“Kazakhstan has been a reliable oil supplier for the past 20 years,” emphasizes Ebel. In 2020, around 7.5 million tons of crude oil were exported from Kazakhstan to Germany. That is around nine percent of all German oil imports. This puts Kazakhstan in sixth place among the most important supplier countries.

The country also has many other raw materials, including rare earths, which are important for the energy transition and high technology. In 2012, Germany and Kazakhstan entered into a partnership in the raw materials, industry and technology sectors.

Pioneer in economic reform in Central Asia

Around 480 German companies are active there. The Eastern Committee estimates that the German investment volume is 1.3 billion euros. “As far as the investment climate is concerned, Kazakhstan leads the way in the region,” says Ebel. This is due to the fact that the republic pioneered reforms in the 1990s and early 2000s with privatizations and the safeguarding of investments. In addition, so-called production-sharing agreements have been concluded with western companies, which enable investments and the modernization of the raw materials sector. As of 2010, however, some measures have been reversed.

The Kazakh economy consists largely of mining and the extraction of oil and natural gas. In addition, the manufacturing industry, the construction industry and agriculture also play a role for German companies. Among them are some well-known names such as the building materials manufacturer Knauf, the industrial gas group Linde, the agricultural machinery manufacturer Claas, Siemens Energy and Heidelberg-Cement. In addition, according to Ebel, general health insurance has been introduced, which means that many hospitals are bringing their medical technology up to date. This niche also offers opportunities for German companies.

Kazakhstan is also of great importance as a transit country. After all, here, for example, the railway line runs from Germany to China, Germany’s most important trading partner. The country is therefore part of the major Chinese project “New Silk Road”. This is intended to reduce the costs for transport to Europe. Especially during the Corona crisis, when many ports in Asia closed and when the Suez Canal was blocked, transport by rail and road via Kazakhstan was very important, according to Ebel.

Important partner for green energy

Sparsely populated land, lots of sun and wind: Kazakhstan also offers good conditions for the expansion of renewable energies. “Just because of its size, the country has unbelievable potential for all renewable energies – both for hydropower, wind power and solar energy,” says Ebel. That is why Kazakhstan, where electricity generation should be 15 percent green by 2030, is an important partner in the energy transition. Many projects are currently being implemented.

For example, the German investor and project developer Svevind Energy GmbH is planning several large-scale solar systems and wind parks with a total output of up to 45 gigawatts in the vast steppe regions of western and central Kazakhstan. The electricity is to be used primarily for the production of green hydrogen, which can be resold to Germany.

For all these reasons, the German economy is worried about the current developments in the Central Asian state. Ebel compares the whole thing with a neighboring country of Kazakhstan: “The situation in Kyrgyzstan, where there have been more violent riots in recent years, has caused uncertainty among investors and companies.” As a result, many Western investors withdrew their money there. In Kazakhstan, the size of the market and membership in the Eurasian Economic Union, from which many investors and trading partners come, speak in favor of a lower level of escalation. It could be problematic, however.