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New Reality: Kazakhstan Searching for Its Place in The Global Economy



Today, the global economy is being put to the test. The list of challenges includes the special military operation in Ukraine, large-scale anti-Russian sanctions, an aggravated food crisis, disruptions in global supply chains, and globally rising inflation. Changes have not spared Kazakhstan, a country forced to seek out its place amid the new, constantly changing conditions of the global economy. To understand how deeply the country is integrated into the global economy, it is worth taking a look at Kazakhstan’s foreign trade in 2021. On the one hand, data suggests that its foreign trade is distributed fairly evenly among the three major regions, namely Europe (31%), Asia (32.6%) and the CIS (32.7%). On the other hand, the situation would be very different when the structure of exports and imports is analyzed. Almost 80% of goods are exported from Kazakhstan to nations outside the former Soviet Union—that is, to Europe and Asia. At the same time, about 50% of imports come from the former Soviet republics—primarily, Russia—while another 20% of imports comes from China. In fact, Kazakhstan sells minerals to global markets, and—with the currency earned—the country buys consumer goods, electronics, machinery, equipment, food and building materials from its nearest neighbors. In other words, such imports feature everything necessary for life. This model appeared more than 20 years ago to become the basis of the “Kazakhstani economic miracle”, turning the nation into the second economy of the post-Soviet space. Within this model, the drivers of economic growth are exports of minerals and services, which redistribute imports and financial flows, and create the bulk of jobs in the formal and informal sectors of the economy.

Over the past 10 years, Russia’s share of Kazakhstan’s foreign trade has steadily been increasing, while that of the EU has been declining. In 2011, Russia and the European Union accounted for 18.4% and 40.8% respectively. By 2021, the share of Russia rose to 24.2%, while the same indicator for the EU shrank to 29.6%. Today, Russia emerges as Kazakhstan’s key trade partner. Thus, it accounts for more than 40% of Kazakhstan’s imports. In 2021, more than 70% of timber and forest products, pulp and paper products, metals and goods from them, more than half of building materials and food products, more than 40% of chemical products, and a quarter of the machinery, equipment and vehicles imported into Kazakhstan came from Russia.

Under these conditions, Kazakhstan’s main interest is to maintain and diversify exports to an extent possible, as well as to secure sustained imports of food and key consumer goods.

Let’s take a closer look at Kazakhstan’s exports. Minerals, primarily crude oil, form the basis of exports. According to the Ministry of Energy of Kazakhstan, oil exports from the Republic in 2021 amounted to 67.6 million tons. Almost 80% of Kazakhstan’s oil is exported through the Caspian Pipeline Consortium (CPC). The consortium connects Kazakhstan’s fields with the port in Novorossiysk, from where oil is shipped to tankers for delivery to consumers in Europe, the Middle East, as well as South and East Asia. In 2021, the pipeline carried 53.1 million tonnes of oil from Kazakhstan’s largest field, Tengiz (26.6 million tonnes), as well as from Kashagan (15.7 million tonnes) and Karachaganak (10.3 million tonnes).

Kazakhstan is one of the five largest oil suppliers to Europe. At the same time, Kazakhstan’s oil is mainly shipped to southern European countries—namely, Italy, Greece, and Spain. In the first half of 2022, against the backdrop of Russia’s special military operation in Ukraine, Kazakhstan’s exports to Europe rose to $18.8 billion, as compared with only $11.6 billion over the same period last year.

Kazakhstani oil is also transported through Transneft’s pipeline system, being mixed with Russian oil, for loading on tankers in Novorossiysk and the Baltic port of Ust-Luga. According to the Central Dispatch Center of the Fuel and Energy Complex of the Russian Ministry of Energy, the volume of Kazakh oil shipped in 2021 in Novorossiysk amounted for 7.1 million tons, and in Ust-Luga 5.9 million tons respectively.

Another export route for Kazakh oil is deliveries by tankers from the port of Aktau (the design capacity is 11.6 mln tons a year, but in fact much less is exported) to Baku, and then pumping raw materials through the Baku – Tbilisi – Ceyhan pipeline to Turkey and subsequent delivery by tankers to buying customers. Kazakhstan also supplies oil to China. Transportation is possible through the Atasu – Alashankou main oil pipeline with a capacity of 20 mln tons a year. According to KazMunayGas, the supplies through it amounted to 12 million tons in 2021, of which 10 million tons were transported under the equivalent circuit, when Russia supplies oil to Pavlodar refinery in Kazakhstan, and the Kazakh side sends the same amount of oil to China.

Kazakhstan is trying to find alternative routes for oil exports through Azerbaijan and Russia amid numerous CPC disruptions in 2022. On July 7, 2022, a meeting on the development of transport and transit capacity of the country was held under the chairmanship of President of Kazakhstan Tokayev. The meeting was attended by the leadership of the government, heads of relevant ministries and agencies, as well as national companies. President Tokayev said it was necessary to take a set of measures to ensure safe and uninterrupted exports of Kazakhstani products. At the same time, the country’s leader called the diversification of oil supplies the most important task. Moreover, the Trans-Caspian Route is a priority. KazMunayGas was instructed to work out the best option for its implementation, including the possible involvement of investors in the Tengiz project. While the government of Kazakhstan was tasked to take measures together with the Kazakhstani investment holding Samruk-Kazyna to increase the capacity of the Atyrau – Kenkiyak and Kenkiyak – Kumkol oil pipelines to expand supplies in the eastern direction.

On August 24, 2022, Kassym-Jomart Tokayev visited Azerbaijan to meet with President Ilham Aliyev. The meeting took place against the background of negotiations of the Kazakh state oil company KazMunayGas with the trading arm of the Azerbaijani state company SOCAR on the sale of additional 1.5 million tons of Kazakhstani oil through the pipeline from Baku to Ceyhan (port in Turkey) and 3.5 million tons through the pipeline to Supsa (port in Georgia). This agreement will soon be signed.

It is obvious that it will not be possible to significantly increase the volume of oil transportation in other directions in the short term, on account of the limited capacity that the existing infrastructure has. The port infrastructure of Aktau and the neighboring port of Kuryk on the Caspian Sea would need to be reconstructed to transport such a volume of oil. Nevertheless, a strategic decision was made to gradually reduce shipments through the CPC and increase oil exports using infrastructure in other ways. Besides, it becomes clear that there is a need to increase the potential of non-commodity exports, which can compensate, at least partially, for the losses from the unstable operation of the consortium.

On the other hand, a threat to stable economic growth lies in the severe restrictions that international sanctions against Russia and reciprocal restrictions from the Russian side pose to Kazakhstan’s most important source of imports.

The military operation in Ukraine and anti-Russian sanctions imposed since the beginning of the year have led to disruptions in supply chains, exacerbating the global food crisis. Worldwide, food prices are skyrocketing. Climate change is no less of a threat to food security—heat wave and prolonged drought in Europe and China, floods in Pakistan.

The external environment has a rather grave impact on Kazakhstan’s economy. Alongside difficulties with exports, the country is experiencing problems with the purchase of basic goods, primarily food. One of the main problems is the global food crisis, followed by global price increases and shortages of goods. This summer, the deficit of some, such as sugar, has been notable. Export restrictions on sugar, wheat, flour, sunflower, large and small cattle, which were imposed in the spring and summer of 2022, are only effective in the short term. A systemic solution to food security in Kazakhstan requires comprehensive development of the country’s agro-industrial complex and its productivity. However, dependence on supplies of seeds and mineral fertilizers from Russia, which accounts for 80% of all imports of these products, stands in the way of transformation of agriculture in Kazakhstan.

After Russia imposed a temporary ban on the export of crops from March 15, 2022, the sowing campaign in Kazakhstan was jeopardized, as seeds were needed by Kazakhstani farmers for variety renewal and variety change. Only after the problem was raised at the level of deputy prime ministers in early April 2022 did Russia lift the temporary ban on exports of wheat, rye, barley, and corn seeds to the EAEU countries.

The fact that Russia imposed quotas on the export of mineral fertilizers, and later suspended their shipment for export due to logistical problems in the first half of 2022, also had a negative impact on agriculture in Kazakhstan. At an expanded government meeting held on July 14, 2022, President Kassym-Jomart Tokayev pointed to the critical dependence on imported mineral fertilizers, noting that the country needs to engage in the production of phosphate and potash fertilizers. This will reduce their import from abroad, primarily from Russia.

The key economic contradiction between Russia and Kazakhstan is that Moscow wants to use the EAEU in general and Kazakhstan in particular to expand parallel imports and financial transactions amid international sanctions. At the same time, Nur-Sultan is not interested in expanding re-exports of sanctioned goods and equipment to Russia, for fear of secondary sanctions. It is more important for the country to maintain the existing volume of purchases of Russian goods and food, as well as to establish stable channels of supply of minerals to global markets.


For now and in the short term, Kazakhstan will have to tackle several challenges at once. First, there is the instability of the Caspian Pipeline Consortium as a key export channel, technological disruptions in its operation, real problems with the safe navigation in the Black Sea, as well as the planned increase of the Turkish side fees for passing through the Bosphorus and Dardanelles from October 7, 2022. Second, restrictions on exports of grain crops, mineral fertilizers, fuel, and some goods imposed by Russia and other countries will continue to push the prices up. Third, problems with payment for imports from Russia cannot be ruled out. Finally, the country is wanting large-scale investments to see the reconstruction and expansion of transport and logistics infrastructure, necessary to diversify its exports and increase transit facilities. All this will occur against the backdrop of the political transition, which should end with an early election of the president of Kazakhstan in autumn 2022 and the parliament of the country (the Majilis) in mid-2023. In a situation when the events of January 2022 are still strong in people’s minds and the decline in economic growth and living standards is acutely felt, the opportunities for successful implementation of the outlined plans are highly questionable.

From our partner RIAC

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Baltic reality: High inflation and declining of living standards



The Baltic States’ economy is in bad condition. The latest estimate from the EU’s statistics body shows that Eurozone inflation is continuing to soar to record highs.

The Baltic countries continue to be the hardest hit. These states in particular are experiencing the highest levels of inflation in the Eurozone. Thus, inflation in Latvia and Lithuania hit 22.4 per cent and 22.5 per cent respectively. Estonia also has seen inflation rise year on year from 6.4 per cent in September 2021 to 24.2 per cent in September 2022. The more so, the Baltic States continue to see soaring energy and food prices which lead to declining standard of living.

The Bank of Lithuania has published its latest economic forecast and revised gross domestic product (GDP) growth projections for 2023 from 3.4% to 0.9%.

Statistics Lithuania also reports that in September 2022, the consumer confidence indicator stood at minus 16 and, compared to August, decreased by 5 percentage points. The decrease in the consumer confidence indicator in September was determined by negative changes in all of its components.

According to SEB bank economist Tadas Povilauskas, the number of poor people in Lithuania will increase. Living standards will be affected by rising food and energy prices. The current price of natural gas is too high and the economy cannot “go” with it. It is evidently that energy prices shocks have far-reaching effects on Lithuanian economy and population.

The main cause of such state of affairs is deteriorated relations with Russia. Russia has lately been the EU’s top supplier of oil, natural gas, and coal, accounting for around a quarter of its energy.

The conflict in Ukraine and political confrontation between Russia and the West has exacerbated the energy crisis by fuelling global worries it may lead to an interruption of oil or natural gas supplies from Russia. Moscow said in September it would not fully resume its gas supplies to Europe until the West lifts its sanctions.

It is obviously that the conflict in Ukraine dramatically worsened the situation on the markets, as Russia and Ukraine account for nearly a third of global wheat and barley, and two-thirds of the world’s exports of sunflower oil used for cooking. Ukraine is also the world’s fourth-biggest exporter of corn.

According to Euronews, the prices of many commodities – crucially including food – strained global supply chains, leaving crops to rot, caused panic in many European countries, including the Baltic States.

High inflation has become the direct consequence of sanctions imposed on Russia. As for the Baltic States, the lack of wisdom to find compromises and blindly following the European Union’s decisions have lead to declining standards of living. The desire to punish such huge state as Russia played a cruel joke on the Baltic States. It will be difficult to explain the population why they should turn down the heating in homes, schools and hospitals over the winter.

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Policy mistakes could trigger worse recession than 2007 crisis

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The world is headed towards a global recession and prolonged stagnation unless fiscal and monetary policies holding sway in some advanced economies are quickly changed, according to a new report released on Monday by the UN Conference on Trade and Development (UNCTAD).“There is still time to step back from the edge of recession,” said UNCTAD chief Rebeca Grynspan.

‘Political will’

“This is a matter of policy choices and political will,” she added, noting that the current course of action is hurting the most vulnerable.

UNCTAD is warning that the policy-induced global recession could be worse than the global financial crisis of 2007 to 2009.

Excessive monetary tightening and inadequate financial support could expose developing world economies further to cascading crises, the agency said.

The Development prospects in a fractured world report points out that supply-side shocks, waning consumer and investor confidence, and the war in Ukraine have provoked a global slowdown and triggered inflationary pressures.

And while all regions will be affected, alarm bells are ringing most for developing countries, many of which are edging closer to debt default.

As climate stress intensifies, so do losses and damage inside vulnerable economies that lack the fiscal space to deal with disasters.

Grim outlook

The report projects that world economic growth will slow to 2.5 per cent in 2022 and drop to 2.2 per cent in 2023 – a global slowdown that would leave GDP below its pre-COVID pandemic trend and cost the world more than $17 trillion in lost productivity.

Despite this, leading central banks are sharply raising interest rates, threatening to cut off growth and making life much harder for the heavily indebted.

The global slowdown will further expose developing countries to a cascade of debt, health, and climate crises.

Middle-income countries in Latin America and low-income countries in Africa could suffer some of the sharpest slowdowns this year, according to the report.

Debt crisis

With 60 per cent of low-income countries and 30 per cent of emerging market economies in or near debt distress, UNCTAD warns of a possible global debt crisis.

Countries that were showing signs of debt distress before the pandemic are being hit especially hard by the global slowdown.

And climate shocks are heightening the risk of economic instability in indebted developing countries, seemingly under-appreciated by the G20 major economies and other international financial bodies.

“Developing countries have already spent an estimated $379 billion of reserves to defend their currencies this year,” almost double the amount of the International Monetary Fund’s (IMF) recently allocated Special Drawing Rights to supplement their official reserves. 

The UN body is requesting that international financial institutions urgently provide increased liquidity and extend debt relief for developing countries. It’s calling on the IMF to allow fairer use of Special Drawing Rights; and for countries to prioritize a multilateral legal framework on debt restructuring.

Hiking interest rates

Meanwhile, interest rate hikes in advanced economies are hitting the most vulnerable hardest

Some 90 developing countries have seen their currencies weaken against the dollar this year – over a third of them by more than 10 per cent.

And as the prices of necessities like food and energy have soared in the wake of the Ukraine war, a stronger dollar worsens the situation by raising import prices in developing countries.

Moving forward, UNCTAD is calling for advanced economies to avoid austerity measures and international organizations to reform the multilateral architecture to give developing countries a fairer say.

Calm markets, dampen speculation

For much of the last two years, rising commodity prices – particularly food and energy – have posed significant challenges for households everywhere.

And while upward pressure on fertilizer prices threatens lasting damage to many small farmers around the world, commodity markets have been in a turbulent state for a decade.

Although the UN-brokered Black Sea Grain Initiative has significantly helped to lower global food prices, insufficient attention has been paid to the role of speculators and betting frenzies in futures contracts, commodity swaps and exchange traded funds (ETFs) the report said.

Also, large multinational corporations with considerable market power appear to have taken undue advantage of the current context to boost profits on the backs of some of the world’s poorest.

UNCTAD has asked governments to increase public spending and use price controls on energy, food and other vital areas; investors to channel more money into renewables; and called on the international community to extend more support to the UN-brokered Grain Initiative.

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‘Sanctions Storm’: Recovery After the Disaster

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After the start of the special operation in Ukraine, a “sanctions storm” hit Russia; more sanctions were imposed against Russia in a few months than against Iran in decades. But a catastrophe did not take place, and the stage of stabilization came.

Indeed, almost all the weapons in the sanctions arsenal were used one after another: commodities exchange was suspended in some sectors, export and import controls were put in place, restrictions on air and sea transportation were introduced. The sanctions have spread to the investment and financial sectors, paralyzing many transactions with the West and complicating them with the East. An image impact came from the mass withdrawal of foreign business from the Russian market—not directly caused by the sanctions, but demonstrating “over-compliance,” excessive submission to them.

In the public mind, the destabilizing wave created the impression of the end of the story of the market economy in Russia, an impending catastrophe. But the catastrophe did not happen. The stage of stabilization has come, and it is important to use it correctly.

What to do?

In the near future, the Russian authorities and business will have to solve three groups of interrelated tasks. First, they must provide the domestic market with necessary goods, and restore value chains by the use of alternative partners. Second, they need to establish reliable financial mechanisms for working with these partners. Third, it is necessary to look for new growth points for the future, industries in which dependence on the West was critical. It is important to work out the possibilities: for new partners entering the markets and for attracting investors from friendly countries, as well as trying to integrate into new value chains.

Partners, first of all, include China and India. The southern direction is also not unpromising—to begin with, this includes Iran and Turkey, as well as a search for investors in the Arab world and the development of logistics routes through the Middle East. Nevertheless, in all areas, the key obstacle is the threat of secondary sanctions by the United States and the EU—which means that the second task becomes the main one: building a safe infrastructure for financial cooperation.

China remains Russia’s first trading partner—but despite the strategic partnership on the political level, large Chinese companies and banks that are active in the international market are suspending cooperation with Russia, fearing secondary US sanctions. In these conditions, it is important to work on explaining the nuances of the sanctions policy for Chinese business, creating secure payment channels that do not depend on foreign banks or on the dollar and the euro, and developing profitable package offers. Beijing seeks to use the opportunities opening up in the Russian market to occupy the vacant niches and strengthen the yuan in international payments, which means that its interest in finding a common solution is high.

A similar situation is developing in the Indian market, with the difference that Indian business is more connected than Chinese business with America, and its awareness of doing business in Russia is lower. As a consequence, Indian companies and banks integrated into the global economy will comply even more closely with sanctions restrictions, despite their interest in developing ties with Russia. Accordingly, even more active informational work is needed to establish Russian-Indian business ties, as well as the creation of a secure settlement mechanism. India already has similar experience, from doing business with Iran. In particular, UCOBank was formed to trade with it in rupees. Similar structures can be created in the Russian direction.

If the necessary channels are laid, both China and India can not only replace some Western goods in Russian markets, and ensure purchases from the Russian energy, agricultural, and military-industrial sectors—preserving their prospects for business—but also become zones of qualitative economic growth. Chinese partners can become a support in the development of bilateral cooperation in the fields of electronics and digital technologies (including 5G), and Indian, in pharmacology and high-tech agriculture. It also makes sense for business to look at these countries from the point of view of the development of green technologies in energy and agriculture, and the introduction of ESG practices, since these countries are also interested in this.

From our partner RIAC

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