Click Here E-Commerce Comes to Kazakhstan

By Mike Coleman

Kazakhstan’s vibrant economic growth continues to outpace that of most other nations – indeed, the sprawling Central Asian leader ranks among the top 10 fastest growing economies in the world. While much of that growth is fueled by Kazakhstan’s vast oil and gas resources, the smaller, less traditional e-commerce sector is showing significant economic potential, as well. Internet use is steadily rising in the rapidly-modernizing nation, and more and more Kazakhstan citizens are jumping into the exciting new realm of online commerce. In 2000, less than one-half of one percent of all Kazakhs had regular access to the internet. Today, more than 50 percent of the population is surfing the web and logging on with increasing frequency to business websites offering a wide array of goods, services and entertainment options.

CNP Processing, an international business research firm, reports that internet advertising revenues generated from Kazakhstan-based businesses accounted for $1 million U.S. dollars in 2007, about $3 million in 2007 and more than $5 million in 2010.

Meanwhile, e-commerce reached more than $300 million in sales overall in 2012 and that number is expected to continue rising.

shutterstock_22539928E-commerce growth in Kazakhstan, while not explosive, has been steady – and for good reason. Kazakhstan’s steadily rising incomes, low population density and vast land mass make it an ideal candidate for a robust internet-generated, mail-order business sector. Outside businesses are taking notice. Lamoda, a Russian company that sells trendy, high-quality clothes online, opened for business online in Kazakhstan a year ago, in March 2012. Within six months, U.S. investment giant JP Morgan reportedly pumped at least $50 million into Lamoda to help grow its online business in Kazakhstan and other Commonwealth of Independent States countries.

Alexios Shaw, Lamoda’s point man in Kazakhstan, told Business New Europe that his company sees vast potential in the country due to a lack of competition in the online retail market and a growing appetite for upscale, international brands that are non-existent or hard to find. “Retail is waking up with international players such as Saks Fifth Avenue entering in the market, but internet retail is primitive,” Shaw was quoted as saying. “Low competition was an obvious reason why the market was attractive for us. E-commerce also has a natural advantage in a country like Kazakhstan, provided you have on the ground infrastructure or a good delivery partner.”

Kazakhstan Temir Zholy, Kazakhstan’s national rail carrier, provides a good example of the growing demand for e-commerce in the country. The carrier reported selling 21,000 tickets online during the first three months of 2011. It sold 260,000 tickets online in the same period one year later. However, that still falls far short of the government’s goal of selling 40 percent of all rail tickets online. The Kazakh government, realizing the potential for job creation, has been working steadily to improve the efficiency of the nascent internet economy. In 2004, the Kazakh Parliament began to move toward more internet deregulation, which has led to a dramatic increase in competition among internet service providers and fueled a corresponding rise in Internet usage.

At the same time, overseas telecommunications suppliers have begun to recognize significant business potential in Kazakhstan’s heretofore untapped market. Telecommunications powerhouses such as Motorola, Lucent, Siemens, Alcatel, Nokia, Daewoo and Nortel Networks are now operating in Kazakhstan, and some have sought and secured long-term partnerships with local telecom companies to sell their smart phones, modems and other devices.

shutterstock_83976451Some of Kazakhstan’s largest internet portals, including Namba.kz, Nur.kz, Gameworld.kz, Kiwi.kz, Nur.kz, are reportedly working to establish a professional association devoted to helping develop Kazakhstan’s e-commerce potential. Experts say despite significant growth in Kazakhstan’s e-commerce sector over the past decade, the market is still small in terms of both turnover and the number of participants. One major potential obstacle to the growth of e-commerce in Kazakhstan is the prevalence of pirated entertainment such as music, films and games. At a 2012 press conference in Almaty, ShavkatSabirov, vice president of the Internet Association of Kazakhstan, suggested the government impose punitive measures against portals that tolerate the posting of pirated content by affiliated websites. Sabirov proposed that offending portals be subjected to a “three-snaps” policy, meaning any portal found in violation of the pirated content policy be given two warnings and a third offense would result in revocation of the portal’s license.

Not everyone in the Kazakh e-commerce sector advocates such an aggressive approach. StanislavIgnatov, director of the Kiwi.kz web portal, a video hosting platform, said the policy prescription would stifle growth in Kazakhstan’s burgeoning e-commerce industry, especially if neighboring states don’t implement similar policies. “If we start eliminating one and all web sites with some pirated content Kazakhstan’s sector of the Internet will die,” Ignatov said at the same news conference.

A thousand years ago, the Silk Road was an important trade route between Europe and Asia. Despite the obstacles to growth, many observers of Kazakhstan’s emerging e-commerce sector envision the emergence of a similar, albeit more modern, thread of commerce linked by the click of a computer mouse.

Almaty Company Finds Online Success

When it comes to selling goods and services over the internet in Kazakhstan, Almaty-based Chocolife is the undisputed leader.

Chocolife, found on the internet at www.chocolife.me, provides deeply discounted tickets to entertainment events, services and products. The company contracts with traditional businesses to provide their goods and services at a fraction of the regular price, delighting consumers who are just becoming aware of the power of the internet. Although the vendor sells their product through Chocolife at a discount, they still benefit because the collective purchases – hundreds or even thousands of people buying through Chocolife at one time – result in high sales and widespread public exposure for businesses who associate with Chocolife, which helps to win new customers.

Chocolife was launched in April 2011 and by the end of 2012, the ambitious company had racked up more than $1 billion in sales. The company boasts more than a half million subscribers who receive daily updates on new deals available to them exclusively through the internet. About 1,500 of those subscribers purchase deals from Chocolife every day.

shutterstock_127488653RamilMukhoryapov, director of Chocolife, told EdgeKz that his company is among very few specialists in the e-commerce market in Kazakhstan, so naturally it is a learning experience. “We have to learn from our own mistakes: how to do a day-to-day delivery in Kazakhstan (taking into consideration the purchase transaction and packaging), how to deal with returns and how to do thousands of deliveries a day,”Mukhoryapov said. “Additional complications are caused due to long distances in Kazakhstan and a low-density of population.”

Although e-commerce – using the internet to buy goods and services – is a relatively new concept in Kazakhstan, Mukhoryapov said Kazakhs are adapting quickly. After all, who doesn’t like a great deal? And the purchases should increase as more and more homes become connected to the internet. “There is a real readiness to do purchases via the internet and it will be increasing together with an increase in penetration of the Internet and the speed the online shops do their work,” he explained.

Mukhoryapov said the Kazakh government seems to realize the value of e-commerce and wants to maximize its potential for the nation’s economy. The Kazakh Parliament has already adopted one law legitimizing “e-money” – internet financial transactions – and is working on another to reduce value added tax rates for companies who do business online. “It is important to stress that the state makes no difficulties or barriers for e-commerce development as there is no strict regulation of the Internet,”Mukhoryapov said.

He also suggested some things the government and loan industry could do to help boost e-commerce in Kazakhstan. “Introduction of online crediting tools would help to boost demand,” he said. “This requires changes in the policies of loans processing. This would allow a person to get a loan right at their home by signing the necessary bank documents using digital signatures. If the state could assist in the implementation of such laws it would facilitate the introduction of online bank lending.”

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