Russia and Kazakhstan: 2023-24 Trade and Investment Dynamics

Posted by Written by Emil Avdaliani

Kazakhstan benefitting from Russia’s turn to the East

By Emil Avdaliani

The sanctions imposed on Russia have pushed the country to seek alternatives to the close economic cooperation that Moscow had maintained with the West. The shift to Asia benefits Russia, but it also serves as a significant development for such countries as Kazakhstan. The latter’s smaller businesses as well as entire industries are now flourishing as a result of Russia’s growing interest in Asia.

However, thriving trade and investments ties are subject to wider geopolitical challenges, and there have been bumps along the way. In the case of Kazakhstan, the authorities pledged they would require exporters to file additional documents when exporting to Russia. This follows the stated concerns from the Western countries which argued that Kazakhstan might be one of the countries increasingly used by Russia to circumvent sanctions. A 22-fold increase in the volume of electronics exports from Kazakhstan to Russia has been registered, which include such items potentially being repurposed for computer technology and military purposes.

The pressure on Kazakhstan highlights the country’s geopolitical vulnerabilities. It does not want to incur Western sanctions, but Astana also deeply values the cooperation with Russia and cannot flout the rules of its membership, along with Russia, of the Eurasian Economic Union (EAEU) free trade agreement. In 2022 the bilateral trade volume between Russia and Kazakhstan increased by US$2 billion reaching US$26 billion. Exports from Kazakhstan to Russia in 2022 increased by 25% and amounted to US$8.8 billion. However, imports from Russia decreased by 1.5% and amounted to US$17.3 billion.

Generally, however, the trajectory of bilateral trade relations has been positive for years. For example, during 2021, trade volumes between Russia and Kazakhstan reached a new high of US$24.5 billion, almost 30% more than in 2020. The expectations in Astana and Moscow are that the volume of trade may reach US$30 billion in the coming years. Kazakhstan’s Ministry of Trade and Integration even announced the benefits of trading in the national currency – Tenge. The positive trend continued in the first months of 2023. In the first quarter Kazakhstan’s exports to Russia increased by 39.2% and amounted to US$2.3 billion. Bilateral trade increased by 10.1% and amounted to US$6.1 billion.

As a result of the sanctions imposed on Russia, the trade structure began to shift. In Russia, the demand for specific goods from Kazakhstan has increased. For example, Russians began to buy more Kazakh manufactured computers, monitors, and projectors. Kazakhstan also exported iron ores and concentrates, ferrous waste and scrap, raw zinc, ferro-alloys, and coal. Primary Kazakh imports however were oil and oil products, wheat and meslin, ores and concentrates of precious metals, iron bars and gold.

In January-March 2023, Kazakhstan exported some 51% of its total manufactured products. At the same time, in the first quarter, a significant, 41% increase was recorded in deliveries to the EAEU countries – Armenia, Belarus, Kyrgyzstan and Russia. The total amount of these Kazakh exports amounted to US$2.6 billion. Additionally, the export of services grew by 34%, reaching US$7.9 billion. In turn, imports of non-primary goods to Kazakhstan increased by 47.5%, amounting to US$12.9 billion, while imports of raw materials increased by 9.8%, reaching US$1.1 billion.

It is also worth noting a significant increase in cargo transportation between Russia and Kazakhstan has been registered along the International North-South Transport Corridor (INSTC), which connects Russia with Iran and India and the Global South via Kazakhstan, Azerbaijan, and Turkmenistan. Consisting of three major corridors, such as the Western route through Azerbaijan, the Central route across the Caspian, and the Eastern – via Kazakhstan, the expansion and operation of the corridor’s three branches have been intensified over the past twelve months. For the first five months of this year, 353,000 tons of cargo were transported along the eastern branch of the INSTC, running through Kazakhstan and Turkmenistan. The figure is already 80.3% more than was achieved in 2022.

The year also ushered in a qualitatively new period in Kazakh-Russian trade relations. That year, the number of export commodities sent from Kazakhstan to Russia almost doubled from 640 to 1,050 items. Meanwhile, the expansion of economic ties with Russia falls within Kazakhstan’s overall promising foreign trade dynamic. According to the results of 2022, the foreign trade turnover of Kazakhstan reached a historical high of US$134.4 billion.

Concerning trade structures, exports from Russia to Kazakhstan are dominated by machinery, equipment and vehicles, chemical products, rubber, food products and agricultural raw materials, metals and products from them, mineral products, plant products, beverage, tobacco, plastics, ceramic, textiles and so on. Kazakhstan sends mainly mineral products, chemical industry goods, rubber, food and agricultural raw materials, engineering products, metals and various products produced from them.

Investment Dynamics

The total volume of direct investments from Russia to Kazakhstan over the past 17 years has reached about US$20 billion. In turn, Kazakh investments in Russia have amounted to about US$6 billion. The governments of the two countries also pledged in June 2023 to implement more than 100 industrial projects worth US$22 billion. By the end of 2022, the gross inflow of foreign direct investment in Kazakhstan amounted to US$28 billion, which is 17.7% more than in 2021 (US$23.8 billion).

By the end of 2021, Russia was among the top five investor countries in the economy of Kazakhstan, along with the Netherlands, the United States, Switzerland, and China.

The total inflow of foreign direct investment into Kazakhstan’s economy in 2022 amounted to US$28 billion, the highest figure over the past ten years, and 17.7% more than in 2021 (US$23.8 billion).

The largest volume of these investments came from the Netherlands – US$8.3 billion, the United States – US$5.1 billion, and Switzerland – US$2.8 billion. The volume of accumulated direct investments from Russia to Kazakhstan in 2022 amounted to US$1.43 billion. This is the highest of the US$3.9 billion investments made by Russia into Central Asia in 2022.

Suffice to say that in comparison with 2021, Russian investments into Kazakhstan somewhat dwindled in 2022 by 19.7%. However, also highlights changes in Russia’s approach toward Kazakhstan following the conflict in Ukraine and the imposition of the Western sanctions: the focus of bilateral relations between Russia and Kazakhstan has been shifted to trade relations more than bolstering investments.

Nevertheless, Russia remains one of the biggest investors in Kazakhstan’s economy. More than 50 major projects are being successfully implemented in Kazakhstan with the support of Russian companies as AvtoVAZ, Beeline, Gazprom, Gazprom Neft, KAMAZ, Kirovsky Zavod, Lukoil, Mechel, Polymetal, Rosatom, Roskosmos, Rostec, Rusal, and Yandex. Rosneft owns a 25% share in the Kurmangazy offshore field project in the Caspian Sea.

Lukoil is actively investing in the development of the Russian shelf of the Caspian Sea: but it is also investing in mining projects in neighboring countries. For example, the company has 13.5% stake in Kazakhstan’s Karachaganak project, 5% in Tengiz, 50% in the Zheniz block and 12.5% in the Caspian Pipeline Consortium which connects to the Russian Black Sea port of Novorossiysk.

There are about 8,000 companies with Russian participation and 3,348 joint ventures operating in Kazakhstan, and as stated earlier, this helped the volume of trade between the two countries increase by US$2 billion to US$26 billion. Earlier this year, the first logistics center of the Russian Ozon marketplace in Kazakhstan was opened.

The Almaty city administration also reported that Russia’s online retailer, Wildberries would also construct a logistics center in the Kazakh capital.

Kazakhstan therefore is very much part of Russia’s Pivot to Asia and significantly benefitting from it.

Emil Avdaliani is a professor of international relations at European University in Tbilisi, Georgia, and is a scholar of the silk roads.

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