Kazakhstan’s Car Industry: Fast and Furious

By Alex Lee

Automobile Manufacturing KazakhstanThe “Fast and Furious” movie series is well-known the world over among car lovers. The series’ characters enjoy the thrill of speed, but sometimes pay a serious price when they hit curves in the road.

The same may be true for Kazakhstan’s automobile industry. Automobile manufacturing in the heart of Central Asia is growing at an unprecedented rate and significant expansion is planned in coming years, experts tell EdgeKz. But bumps in the road ahead could also cause a serious crash.

“Today, 3.7 million Kazakh citizens own vehicles. In Astana region alone, there are more than 380,000 registered vehicles, every fifth citizen owns personal transportation. On average, there is a car in every second household,” said Erik Sagymbayev, president of the Azia Avto car manufacturing company in Ust-Kamenogorsk. “Let’s do a little math. The average [monthly] salary in Kazakhstan is KZT 107,000 (US$700). This is to say that one of the family members of any Kazakh household could afford to pay for an automobile made in Ust-Kamenogorsk [by Azia Avto] within 16 months,” Sagymbayev said.

Kazakhstan is a wide open space. And from the earliest nomads of the vast ancient steppe, owning a means of transportation has been steeped in the Kazakh culture. And with such wide-open spaces and a relatively small population (only 17 million people in an area the size of Western Europe), public transportation is not yet a viable option in most areas. So transportation means cars. And Kazakhs love their cars.

In 2013, Kazakh citizens in total bought 163,000 vehicles worth more than $3 billion, a massive consumer industry in a country of 17 million people. Also in 2013, Azia Avto alone set a new record of more than 30,000 cars that were sold by its dealers. “Just a few years ago, these numbers didn’t seem possible to achieve. Today, this is an interim step towards expansion,” Sagymbayev added.

And the industry has been expanding with more than 30 domestic makes available in Kazakhstan. Kazakhs have responded by buying 75 percent of their cars from domestic or Russian manufacturers, which don’t require in import tax.

Industry of KazakhstanHowever, the Kazakhs’ love and need for cars is not going unnoticed internationally. “To ignore such colossal import potential that opens a new market for us would be reckless. We don’t have so many trade niches in our [Kazakh] economy,” Sagymbayev noted.

Kazakhstan does have a 30 percent tax on imported vehicles, but it is still below the costs for citizens of other nations to import cars. “For instance, in Singapore, to purchase a car there is a $20,000 fee only to get the right to buy a vehicle, a tax in the amount of 41 percent of the price of the car, and 140 percent of the price of the car fee to register it. As a result, a regular S-class Mercedes sedan would amount in total to $150,000,” said Sagymbayev. “This is the most extreme instance. Coming back to Central Asia, in Uzbekistan, the tax on a vehicle is the same as the price of it. More extreme instances are in China, [South] Korea, India and Thailand.”

But it doesn’t seem like Kazakhs will be forced to import cars any time soon. Azia Avto alone has 25 dealer centers in Kazakhstan and produced 26,500 motor vehicles in 2013. And it’s not just in the high density areas of Almaty and Astana that people are buying. Only one third of the company’s sales were in those two population areas.

And for 2014, Azia Avto is reaching even higher with numerous new models. By 2020, the manufacturer is planning to produce more than 40,000 cars for the Kazakh market and more than 70,000 cars for markets in Siberia, Far East Russia and federal Russian regions. “We are not talking about hypothetical possibilities. These markets are stipulated within the frames of agreements with our partner alliance Renault-Nissan-Avtovaz,” said Sagymbayev.

Bumps in the Road

There is no doubt that Kazakhs love their cars and buy a lot of them in relation to the population size of the country. But Kazakhstan’s new Customs Union with Russia and Belarus, along with its expected accession to the World Trade Organization could pose serious challenges to the industry’s rapid acceleration.

Kazakhstan Automotive IndustryKazakhstan’s 17-million market is tiny compared to Russia’s nearly 144 million population. “We need a guaranteed access to the markets in Russia and other countries within the Customs Union. It is no secret that all projects, without exception, are oriented towards export to Russia,” Sagymbayev said.

Sagymbayev added that the Customs Union also brings increased competition so Kazakhstan must ensure its auto industry can maintain its cost competitiveness. Sagymbayev suggests bolstering cost competitiveness through improved engineering infrastructure under private-state partnerships, through tax incentives and other tools that have proven successful abroad.

The country’s automakers will also need to expand production under the customs-tariff policy, which was introduced within the Customs Union and is still current.

In 2014, Russia imposed a 10-20 percent utility duty of the cost of a vehicle imported from Kazakhstan, which poses difficulties for Kazakh automakers. “If this position continues, then the potential of the Customs Union in auto making will not be realized. And Kazakh investors might lose their interest in the auto industry,” Sagymbayev commented. “This factor certainly disturbs us, as all big auto making projects are tightly connected to exporting to the Russian market.”

Sagymbayev also cautions that Kazakhstan’s expected accession to the WTO and the world market participation that WTO  membership brings could damage the country’s emerging car making industry.Kazakhstan Car Industry

“When a country has already formed a strong auto industry that can compete with other markets, accession theto the WTO would not be as harmful. When the necessary investments have been involved (car making is a capital-intensive industries), when the production of auto parts had been established, when the domestic manufacturer has strong positions on the internal market, then we can talk about open competitiveness with imported goods. But the Kazakh auto industry is only taking its first steps and, therefore, weakening of any protection of the national market could be devastating for the auto industry. It was no accident when our President said, ‘before engaging the WTO actively, we need to stand firm’,” cautioned Sagymbayev.

Kazakh officials negotiating the WTO membership, as well as those working out the details of the Customs Union, like the President, have always stressed the need to protect Kazakhstan’s interests.

So many in Kazakhstan’s car industry are hoping they won’t have to hit the brakes any time soon.

Trending Kazakhstan News

The Astana Times
The Astana Times