Kazakhstan, Russia Increase Supply Chain and Interregional Cooperation as Putin Visits Astana

Bilateral trade and huge investment plans as Astana and Moscow look ahead

By Chris Devonshire-Ellis

The Russian President, Vladimir Putin, has been on an official visit to Kazakhstan. Putin arrived in Astana on November 9, and was personally met by the President of Kazakhstan, Kassym-Jomart Tokayev. An official welcoming ceremony for the Russian leader took place in Akorda, the presidential residence, after which both Presidents took part in a meeting of the Forum for Interregional Cooperation.

Energy

Kazakhstan possesses some of the world’s largest gas reserves, and has designs on supplying the EU. That suits Putin fine, Russia is also a major gas exporter and will want to mix Russian gas with Kazakh supplies to sell onto the EU. Russia is applying the same logic to EU gas supply terminals in Turkiye and Azerbaijan. Russian gas will reach the EU regardless.

Consequently, Russia and Kazakhstan signed agreements in the energy sector, with Russia building three renewable thermal power plants in Kazakhstan, signing a package of documents worth US$100 billion.

On November 1, 2023, an agreement was signed between Kazakhstan and PGazprom for a period of 15 years, providing for the transit of Russian gas to Uzbekistan.

In addition, Russian oil enters China via Kazakhstan, while Kazakh oil is exported through Russia’s Krasnodar region. China’s Belt & Road initiative is also unthinkable without Kazakhstan, through which Chinese goods enter Russia and Europe.

One of the most sensitive and at the same time large-scale issues of economic cooperation between the two countries is Kazakhstan’s plans to build its own nuclear power plant. The cost will run into billions of dollars.

Astana has repeatedly stated that it will choose a contractor company from many proposals on the world market. At the same time, on November 9, statements were made clearly showing that the Russian state corporation Rosatom is well within the running. Almasadam Satkaliev, Kazakhstan’s Minister for Energy stated that “Russian nuclear technologies are now the safest, most efficient and cheapest in terms of construction… We understand the competitive advantage of Russian solutions.”

Infrastructure

Elsewhere, Putin and Tolayev agreed that by the end of the year, new railway checkpoints (in addition to the existing six) will be opened on the Kazakh-Russian border for the import of lumber and other raw materials. The parties also agreed on the supply of timber from Russia.

Kazakh Vice Prime Minister Serik Zhumangarin is to consider other opportunities to ensure the smooth monthly transit of Kazakh iron ore raw materials to Russia, while the countries will also expand air travel. In particular, the number of QAZAQ AIR flights to Novosibirsk and Chelyabinsk will be increased. Vladimir Putin said that Russia will continue to supply and increase the Kazakh domestic market with agricultural products and food. Kazakhstan plans to increase climate-controlled product storage capacity by one million tons, as losses of Kazakh domestically produced agricultural goods have reached up to 40% due to deficiencies in logistics and storage systems between Kazakhstan and Russia.

Kazakh President Tokayev noted that the two countries could cooperate in developing markets in China, India, and the Middle East, and along with the growing importance of the International North-South Transport Corridor (INSTC), necessitate the development of storage infrastructure, including grain elevators and fruit storage facilities.

He stressed the development of new logistics directions through Central Asia and the capacity enhancement of existing routes to China, announcing plans to modernize the Caspian ports of Kuryk and Aktau and build over 1,300 kilometers of railways in Kazakhstan within the coming three years.

Both countries are part of the INSTC, with Russia’s position extending north-south and Kazakhstan’s east-west. They unite at the Caspian Sea, hence the importance of improved capacity and facilities at Kazakhstan’s Caspian Sea Ports.

Agriculture

Kazakhstan and Russia are among the top ten world leaders in grain exports, accounting for almost 10% of arable land and 9% of pastures and hayfields globally. The volume of gross agricultural output has more than doubled in Kazakhstan over the past five years, alongside agricultural exports approaching US$6 billion per annum.

Over the next five years, Kazakhstan plans to implement nearly 900 investment projects in the agricultural sector totaling 2.7 trillion tenge (US$5.7 billion), Tokayev said.

Tokayev also spoke about increasing the share of processed products in the agricultural sector to 70% within three years. “We should not compete with each other in the internal market of the Eurasian Economic Union. We need to jointly look for ways to increase the availability of fertilizers for our farmers and enter foreign markets,” Tokayev said, saying it was necessary for Moscow and Astana to coordinate efforts to ensure the food security of the two countries and their allies.

Tokayev also announced plans to modernize the water sector, including the ongoing implementation of a joint roadmap for intensifying cooperation with Russia to conduct research in the basins of the Ural and Irtysh rivers.

Tokayev highlighted the importance of developing modern agricultural science and actively introducing innovations in the agro-industrial sector. He emphasized that Kazakhstan will reorient state support measures in the mechanical engineering sector to small-unit assembly and related industries.

Banking & Finance

The Kazakh Chairman of the Agency for Regulation and Development of the Financial Market (ARDFM) Madina Abylkasymova said that the number of mutual payments for trade turnover between Kazakh and Russian banks increased by 55% over the past year and by 11.5% over the seven months of 2023. The total volume reached 9.2 trillion tenge (US$21 million) in the January-July period.

According to her, given the large trade and economic turnover between Kazakhstan and Russia, it is important to ensure uninterrupted payments between the banks of the two countries. To this end, work has been established with the Central Bank of Russia to open correspondent accounts in non-sanctioned Russian banks.

“Since last year, we have opened a large number of new accounts in Kazakh and Russian banks. Correspondent accounts have also been opened in our Kazakh banks. We are observing very positive dynamics, there is an increase in trade turnover and mutual payments between the two countries,” Abylkasymova noted.

She added that the ARDFM is constantly working to facilitate the opening of correspondent accounts between commercial banks of the two countries. According to Madina Abylkasymova, currently 65 Russian banks have opened 205 correspondent accounts in banks of Kazakhstan. At the same time, 19 Kazakh banks have 137 correspondent accounts in Russian financial institutions.

“This allows for transfers and payments between the two countries to service trade and economic turnover, as well as to service payments between individuals.”

Bilateral Trade Trends

Russian President Vladimir Putin said that bilateral trade grew by another 7% in January-August this year, while also noting the expanding use of national currencies in export-import transactions. Both have committed to withdrawing from US dollar use in bilateral and regional trade, and reverting to their respective sovereign currencies. Both the Russian Ruble and the Kazakh Tenge are now traded on their respective stock markets.

The main trading partner of Kazakhstan in the EAEU and the CIS is Russia. Its share in the total volume of foreign trade turnover is 92%. Based on the results of seven months of 2023, Kazakhstan’s trade turnover with the EAEU countries increased by 5.6%, to US$16.5 billion. Vladimir Putin clarified that in January–August 2023, countertrade increased another 7%. He also added that the total volume of Russian capital investments amounted to US$17 billion (according to Tokayev’s estimates to US$20 billion).

In August, it became known that in the six months after the start of Russia’s full-scale invasion of Ukraine (February 2022), supplies of Kazakh sourced high-tech goods to Russia increased significantly. Exports of high-tech products to Russia increased 12.2 times from US$15 million to US$184 million.

The US authorities subsequently released a document that listed a list of countries transhipment points through which restricted or controlled export goods are known to pass before they reach Russia or Belarus. There are 18 states in it, including Kazakhstan and China.

The authorities of Kazakhstan have repeatedly stated that they do not support the idea of grey export of sanctioned goods to Russia, and the Kazakh State Revenue Committee denied the re-export of sanctioned items through Kazakhstan. However, there is also the parallel import issue. This is the import of goods into a particular country without the permission of the copyright holder. Last June, Putin signed a decree that allows certain goods to be imported into the country as part of parallel imports. These include perfumes, clothing and footwear, watches, furniture, paper, appliances, transport, electronics, metals, and fuel. Kazakhstan traders are selling goods to Russia from third-party countries within the EAEU.

In April, members of the US and EU delegation said that secondary sanctions would be imposed on Kazakh companies and banks for helping Russia circumvent restrictions imposed on it. In June, some Kazakh banks began to refuse ruble payments from entrepreneurs in Russia, and had refunded of payments in rubles.  The situation remains fluid.

Interregional Cooperation

At the Forum for Interregional Cooperation, attendees of more than 30 regions of the two countries participated, with Russia and Kazakhstan sharing a 7,599 km border. Putin noted that cooperation between these regions plays a vital role for the development of bilateral relations.

Putin and Tokayev assessed bilateral trade, with some differences over the actual volume. Tokayev, speaking about mutual trade turnover for 2022, stated the amount as US$27 billion. Putin said “According to our statistics, it was US$28.2 billion.” What is clear is that bilateral trade volumes have been growing fast – up over 30% since 2021.

Plans for the future were discussed during negotiations, first tete-a-tete, and then in an expanded format, thereby confirming the allied level of relations between the two countries.

Russian President Vladimir Putin called Kazakhstan “Russia’s closest ally.” According to him, the partnership between the two countries is of a particularly privileged nature and is based on the principles of mutual respect. The Kazakhstan President, Kassym-Jomart Tokayev, noted the absence of fundamental problems in relations with Russia and a brilliant future for the two countries in what has been their fifth personal meeting this year.

Investments

“Russia is the undisputed leader in the number of enterprises with foreign capital in Kazakhstan, with 20,000 Russian invested companies operating in the country,” Tokayev said.

Tokayev pointed out the energy sector, where collaboration was brought to a new level with the agreements on the transit of Russian oil to China and gas to Uzbekistan through Kazakhstan’s territory.

Nine interregional and commercial agreements worth US$83 million were signed, including building a plant to produce shelf-stable bakery products, manufacturing lifting equipment, and equipment for industrial milk cooling. Cooperation agreements were also signed between the Atameken National Chamber of Entrepreneurs and the Russian Chamber of Commerce, alongside a contract on using and cultivating forest planting material.

The negotiations primarily affected the economic component of relations between the two countries. In part, they overlapped with the 19th Forum of Interregional Cooperation held in Kostanay (currently, out of 89 regions of Russia, 76 have direct ties with Kazakhstan), as a result of which a number of new agreements and memoranda were prepared, as well as additional commercial contracts totalling about US$100 million.

The traditional interaction between the two countries has been is space: the Kazakh Baikonur Cosmodrome has been reserved for use by Russia until 2050, while the next launch of the Soyuz-5 launch vehicle is planned for 2025. Close cooperation in the security sphere has been tested in practice at the beginning of 2022, it was the CSTO peacekeeping forces that came to Kazakhstan’s assistance during mass unrest, with Russian soldiers helping restore order before returning to Russia.

In total, as a result of the negotiations, Vladimir Putin and Kassym-Jomart Tokayev signed seven documents in Astana, those mentioned and the manufacturing and assembly under licence of Russia’s Lada cars.

External Geopolitical Pressures

Nonetheless, there are geopolitical issues to consider.  Andrei Grozin, the Head of the Central Asia and Kazakhstan sector of the Institute of CIS Countries, and senior researcher at the Institute of Oriental Studies of the Russian Academy of Sciences, has stated that against the backdrop of the recent visit of French President Emmanuel Macron to Kazakhstan, Russia needed to confirm its position in the energy sector.

It is an important sign that Vladimir Putin’s visit to Astana took place less than ten days after Emmanuel Macron’s visit to Kazakhstan, which, as Reuters put it, took place under the disapproving gaze of Moscow. And although Macron’s main goal was to arrange supplies of Kazakh uranium to France (after the events in Niger, this country dropped out of the list of main uranium suppliers to Paris), the second goal, according to Le Monde, was “to move the former Soviet republics beyond their dependence on Russia” through the construction of a French-designed nuclear power plant in Kazakhstan with French contractors.

However, day before the Putin-Tolayev meeting, a long-term contract was signed between the Kazakh national company Kazatomprom and the Chinese company China National Uranium Corporation Limited for the supply of uranium.

“On the one hand, this is a thumbs down on the French. On the other hand, the question of the format and timing of cooperation with Rosatom is obviously dragging on.” said Grozin. However, the delegation that arrived in Kazakhstan with the Russian president included a discussion of the agenda of cooperation in the energy sector.

Kazakhstan’s Geophysical Importance

Russia-Kazkah cooperation is vital for Kazakhstan in the oil and gas industry. Russia has been solving Kazakhstan’s energy needs for the last year, with supplies of fuels and lubricants, electricity and natural gas, including transit to Uzbekistan. But there are also larger-scale projects in this industry to jointly sourced Russian and Kazakh gas exports to South Asia. This means the construction of new gas pipelines.

According to Grozin, the negotiations addressed practical issues related not only to the energy sector, but also to transport and the future expansion of the global restructuring of continental routes that Russia is developing from West to East and South. Kazakhstan’s place in this global project is difficult to overestimate. Kazakhstan is the world’s ninth largest territory, and without taking into account its national interests, projects cannot be implemented. Kazakhstan, due to its geographical location, can cut off or connect, depending on Astana’s position.

Russia however also has a wide reach with the global Southern mega-region, including South Asia, the Middle and Near East and the post-Soviet states of Central Asia. Grozin said “It is important to continue working on practical resolution of issues related to energy, transport and the expansion of global transportation. Such efforts will help strengthen regional cooperation and create a favourable economic environment for all stakeholders.”

The result was the Presidential signing of a joint statement and a plan of joint actions of the two countries for the next three years.

These include long-term projects in energy, air travel, and the mutual opening of educational institutions. In general, considered the background of the event, and Putin and Tokayev’s statement of partnership and alliance in combination with multi-billion dollar investment packages speaks volumes. It means that attempts to tear Kazakhstan away from Russia, which have been attempted by NATO and EU policies, have been unsuccessful.

Summing up the meeting, the leaders of the two countries emphasised that the partnership between Moscow and Astana is strategic. “I would like to emphasise that, in any case, this is how we look at it in Russia, we are not just allies, we are the closest allies,” Vladimir Putin said.

In this regard, it is extremely important that the Russian President emphasised that the partnership between Russia and Kazakhstan is based on the principles of mutual respect, recognition of sovereignty, territorial integrity and non-interference in internal affairs.

Compiled and edited by Chris Devonshire-Ellis. Sources: Astana Times, AsiaLS, Kursiv, and Kazinform

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