Kazakhstan Embraces Eastern Partners


By Alex Walters019_022_Edge_08_Business_KZ_East_Page_1_Image_0001 

Kazakhstan’s multi-vector diplomacy and itspolicy of embracing thebroad international community have paid dividends in all directions. But nowhere has progress been greater, and the prospects for future trade and investment more stunning, than with its fellow nations of Asia to the east and south.

Kazakhstan’s engagement with Asia can be divided into four regions – with China, with the other major nations of East Asia, with the Association of Southeast Asian Nations (ASEAN) nations of Southeast Asia and with India.

Financial analyst Martin Hutchinson with Reuters Breaking News, a former merchant banker and an expert on emerging markets, told EdgeKz in an exclusive interview that China was already an obvious “dream” market for Kazakhstan and that India waslikelytorapidly become one too.

“Developing nations that are resource-rich dream of having huge reliable markets that will generate income for them and maintain a steady demand for their primary basic exports,” Hutchinson said. “China fulfills these conditions for Kazakhstan in itsappetite for oil, natural gas and uranium.”

China also offers Kazakhstan the prospect of a massive market for its meat and grain as the Central Asian nation’s agricultural sector expands, Hutchinson added. “With 1.3 billion people, China is always going to feel resource-short and Kazakhstan is still in the process of expanding its own extractable resource base in energy, mining and agriculture.”

Nor does China protect its own agriculture against imports the way the 27-nation European Union does, the analyst said. “This means there is goingto be farmore elasticity in the growth of Chinese demand for Kazakhstan’s agricultural production than the European nations can hope to match,” he said.

But beyond Chinese investment alone, Kazakhstan’s dealings with other nations are also pushing it closer to China.

Thomas Sanderson, co-director of Transnational Threats at the Center for Strategic and International Studies, a leading Washington, DC, - based think tank, told EdgeKzthat Kazakhstan also welcomes its growing ties with China and India to balance the excellent relations it enjoys with Russia to the north and the European Union and the United States to the west.

“The Kazakhs recognize that China is a rising power in Eurasia and also appreciate its balancing role to the dominant Russian influence they have lived with for hundreds of years,” Sanderson said.

For its part, China appearsboth confident in itsability to penetrate and establish itself in the long-term in Central Asia and the Caspian Basin.

However, Sanderson cautioned that sometimesthe Chinese can make missteps. “Their relations with the Kazakhs are still excellent. But they provoked widespread negative reactions in Tajikistan when they were perceived as moving too fast to establish their influenceinthat country,” he told EdgeKz.

India’s investment in Kazakhstan is also growing rapidly. India is a natural market for Kazakhstan’s uranium, oil and soaring food exports. Relations between the two countries are excellent and leaders on both sides are determined to expand the trade relationship.

Kazakhstan’s ties with the medium-sized but massively industrialized nations of Southeast Asia are growing rapidly too. This year, President Nazarbayev paid a state visit to Malaysia and Indonesia, the first time he had ever visited the world’s most populous Islamic nation. Kazakhstan also enjoys close ties to Singapore.

Asia’s prospects for growth and the spread of culture and human values have never been higher than after the first decade of the new millennium. Kazakhstan’s close and growing ties with the great nations of the continent ensure that it will be an honoured part of that epic story.

Pipelines, Transportation Link Major Regional Players

Kazakhstan’s destiny as the bridge between East and West is being written across the heartland of Eurasia in road and rail, concrete and steel. Its growing ties with the booming economies of East Asia are anchored in energy pipelines, new super-highway systems and rapidly expanding railroads. Half a millennium after the old Silk Road fell into disuse, a new web of high-tech connections that the ancient traders could never have imagined brings Asian investment and engineering to Kazakhstan, and the energy and agricultural riches of Kazakhstan to the East.

Kazakhstan’scity of Horgos on the border with China’s northwestern Xinjiang province has become a central hub in the partnership between Kazakhstan and China. It marks the eastern terminal of the historic new Turkmenistan-to-China gaspipeline, which opened in 2009. This pipeline flows through Kazakhstan and has a separate extension through which Kazakhstan’s own natural gas from its western regions flows. At full capacity, it will soon supply40 billion cubic meters (bcm) of gas - or 50 percent of the total annual requirements of the Chinese economy, straight to that giant market.

Where energy flows, transportation follows. On April 27, 2009, a meeting of regional officials from Kazakhstan and Xinjiang agreed that Horgos will also become the transportation hub where the new superhighway systems of China and Kazakhstan will meet and integrate with each other. 

This vast undertaking will integrate Kazakhstan into the economic systems of the great Northeast Asian economies. But it is also part of an even larger programme. At the urging of Kazakh President Nursultan Nazarbayev, Kazakhstan is also moving at breakneck pace to complete its part of the new Western Europe - Western China transportation corridor, also known as the New Silk Road, to connect Europe and Asia. It will be able to carry at least 50 million tons of trade per year by 2020.

President Nazarbayev told the 25th session of the Council of Foreign Investors in 2012 that the new railroad system being constructed by Kazakhstan Temir Zholy, the national railroad corporation, would also link Horgos with Aktau Port and a logistical center in Aktobe. New state-of-the-art logistical centers, including gigantic marshaling yards and storage complexes are also being built in Almaty, Aktau, Aktobe and other centres.

The Union of Kazakh Road Freighters projects that the number of trucks carrying road cargoes along the Western Europe to Western China corridor will increase in less than a decade from the current number of 15,000 per year to 100,000 per year. All those trucks will also require a network of gas stations, refreshment centres and stopovers for their drivers to rest the night.

Although largely ignored in the Western media, the visit of Kazakh President Nursultan Nazarbayev to China in 2010 marked a dramatic new stage in the relationship between the two nations. Nazarbayev and President Hu Jintao of China took pains to describe their relationship as a “strategic partnership” in their joint communique on the visit. When President Hu returned the honour on his own visit to Kazakhstanin June 2011, President Nazarbayev commented, “Our cooperation and our relationship are mutually beneficial both for Kazakhstan and China. We intend to fully strengthen these relations and strengthen our trust and everlasting friendship.”

Indeed, China has now moved to a second stage of investment in the Kazakh economy. China’s giant state-owned-corporations continue to make multi-billion dollar deals with their Kazakh counterparts. But now much smaller Chinese companies are, with full government support, also making their own investment deals with intermediate-level Kazakh companies to develop the energy wealth of the Caspian Basin and advance Kazakhstan’s 2030 industrial development strategy.

The Kazakhstan-China partnership is essential for the long-term prosperity, security and success of both nations. The leaders in Astana and Beijing recognize this and are committed to it.

Kazakhs, Koreans Cooperate Across a Continent

At first sight, Kazakhstan’s friendship with South Korea seems improbable, but it hasproven to bestrong and enduring, and its roots go backa long way.

South Korea has emerged asa strong ally and trading partner of Kazakhstan inEast Asia and the Central Asian nation has become amagnet for investment and mining agreements with South Korea’s corporate industrial giants.

Kazakh and South Korean corporations have teamed up to develop a major aluminum-making complex to help expand the Kazakh steel industry, and to develop the Akkas super-gas field in Iraq. But even those two projects are only the tip of the iceberg. The two nations have developed a de facto strategic alliance that is extending the power of them both across Asia.

Kazakh President Nursultan Nazarbayev has paid repeated visits to South Korea and has been an enthusiastic partner to current South Korean President Lee Myung-bak. The two leaders have agreed to forge a far-reaching alliance between their major industrial corporations, not just in each other’s countries, but to invest in other nations and natural resources around the world.

South Korean companies have already invested more than $2 billion in Kazakhstan and more than 300 Kazakh companies are reported to be doing business in South Korea. South Korean companies have also already carved out major roles in the supply of machinery for the Kazakh oil industry and play a major role in Kazakhstan’s huge program of construction projects.

A consortium of South Korea’s Kogas Corporation and Kazakhstan's national oil and gas company KazMunaiGas (KMG) landed the much-coveted contract to develop the Akkas super-gas field in western Iraq.

The two companies agreed to produce a peak level of 11.2 million cubic meters (mcm) of natural gas per day from the Akkas field to be sold at a price of $5.50 per barrel of oil equivalent (BOE). The Akkas super-gas field contains 156 million cubic meters. That means it contains almost 5 percent of all the 3.13 trillion cubic meters of natural gas in proven reserves in Iraq.

South Korea and Kazakhstan have also signed agreements for two $4 billion projects to build a thermal power plant and a petrochemical complex in the Central Asian nation.

Under the terms of an inter-government agreement, South Korea is guaranteed a 70 percent stake in a $4 billion project to build a coal-fired power plant in the southern city of Balkhash. South Korea’s Korea Electric Power Corp (KEPCO) and Samsung C&T currently hold a 35 percent stake each in a project to build a 1,320-megawatt coal-fired power plant in Balkhash that, when online, is expected to generate about 7 percent of Kazakhstan's electricity needs.

Further west, South Korea's LG Chemical and Kazakhstan Petrochemical Industries (KPI) have also signed a contract to establish a joint venture to develop a $4 billion project to build a petrochemical complex in Atyrau on the northern banks of the Caspian.

Despite the global financial crisis bilateral South Korean-Kazakh trade is rising towards a volume of $900 million per annum.

Even deeper ties, however, underlie these prosperous economic relations. Already 100,000 South Koreans live as permanent residents or skilled workers in Kazakhstan, and the Kazakhs look to the Koreans to provide them with the experienced industrial mentors they need.

The two nations also share ancient ethnic roots and cultural inks. South Korea only regained its independence after a dark era of colonial exploitation by Japan in 1945, and Kazakhstan emerged into independence at the beginning of 1992 following the collapse of the Soviet Union.

Both nations have strong but tolerant central governments. South Korea prospered under a series of authoritarian presidents before enjoying a relatively smooth transition to democracy. Kazakhstan’s government has also been moving very slowly and cautiously towards extending democracy.

South Korea is one of the leading economic nations of Asia, with an industrial base and financial reserves vastly greater than its geographical and demographic size. It is densely populated and, apart from coal, it is resource poor.

Kazakhstan is the ninth largest nation in the world, but very under-populated with 16 million people stretched out over 1 million square miles. It has an abundance of oil, uranium and natural gas that South Korea needs to ensure its continued prosperity and economic security through the 21st century.

The South Koreans have made no secret that they want to reduce as much as possible their dependence on oil imports from the unstable and always volatile Middle East.

The Kazakhs also have diversified widely in their successful efforts to attract the high-tech, entrepreneurial, investment, financial and industrial expertise they need to transform their nation. And South Korea can provide these services without being large enough to threaten establishing an eventual hegemonic role in Kazakhstan.

Both nations share an enthusiastic commitment to exporting and maintaining their prosperity by full participation in the global economic community. And both of them put great importance on maintaining and expanding close strategic as well as trade ties with China.

International investors can, therefore, expect major Kazakh and South Korean companies to join forces to develop many more natural resources across Asia and the Middle East. The flow of Kazakh energy resources to South Korea will also grow.

The Seoul-Astana axis has only begun to exert a powerful influence across Asia.