Navigating Economic Waters in Times of Economic Sanctions

Global geopolitics is never as predictable as theorists prescribe. And in the twenty first century, too many factors are making it difficult for the more traditional thinkers to make sense of reality. The ongoing conflict in Ukraine has ripple effects on many parts of the world and Kazakhstan, being closely tied to that country through its common history and demographic composition, cannot be left unconcerned.

When the US and EU started imposing sanctions on Russian individuals and companies in late April, Kazakhstan was largely unaffected. By May, the European Bank for Reconstruction and Development (EBRD) has downgraded its 2.7 per cent growth forecast for Kazakhstan to just 1.4 per cent – as long as the crisis doesn’t escalate. With further sanctions being placed by more countries on the Russian Federation, it can be expected that Kazakhstan will feel more pressure on its own economy.

Kazakhstan, Russia and Belarus have signed an agreement on May 29, 2014 to go ahead with the Eurasian Economic Union, and the new entity is planned to be officially working on Jan. 1, 2015, if the parliaments of all three countries approve the agreement. This union will further integrate the already existing economic links created by the Customs Union that has been in effect since 2010. Originally planned as a purely pragmatic relationship, new political interests add challenges for Kazakhstan and may put hurdles for the country’s talks for WTO accession.

But challenges always give rise to opportunities. Chairman of the Committee for State Inspection in Agro-Industry (Agroprom) of the Agriculture Ministry of Kazakhstan SaktashKhassenov, referring to the fluent economic situation in light of sanctions on Russia and Russian sanctions on the West, even said, “I think, here, we have an opportunity to increase exports, and it is primarily grain exports.” He also addressed the issue of beef exports. “It is matter of price only. We are exporting beef, and I must say, the volume of exports is increasing every year. It is a matter of price, because compared to the beef that Russia imports from Argentina, Brazil, our prices are uncompetitive,”Khassenov concluded.

According to the head of the National Chamber of Entrepreneurs of Kazakhstan AblaiMyrzakhmetov, Kazakhstan has plans of occupying the niches previously held by the now banned importers of agricultural products. “The President has clearly stated Kazakhstan’s position: we stand for a peaceful resolution [of the conflict in Ukraine] and support a constructive dialogue. However, we see some new opportunities emerging. You have witnessed Russia introduce sanctions against traditional suppliers of food products, fruit and vegetables, such as Moldova and Poland. Clearly, Russia will try to develop its own production, but for us, too, there are opportunities in the areas that will be hit by the sanctions. [We should] increase our production of these goods, especially of agricultural products, which is achievable,” Myrzakhmetov said.

The energy sector, however, is more vulnerable. Being a landlocked country, Kazakhstan relies on its northern neighbour to export around 30 per cent of its crude oil. In 2013 Kazakhstan exported 15.4 million tonnes via the Atyrau-Samara pipeline, owned by Russian pipeline monopoly Transneft, in which it is blended with Russian oil, and another 6.3 million tonnes by rail from the Tengiz oilfield to the Russian Black Sea port of Taman.

Another 28.7 million tones of Kazakh crude from Tengiz were exported via the Caspian Pipeline Consortium led by Chevron. The route, running to the Russian Black Sea port of Novorossiysk, has the status of an international pipeline but traders have said it could also face problems if stricter sanctions on Russia were imposed because some Russian oil is blended into the pipeline.

Russia is Kazakhstan’s leading trading partner with annual trade exceeding 23.5 billion dollars. A shrinking Russian economy is not all that appreciated by Kazakhstan, after all, the two countries share the world’s longestuninterrupted border spanning 6,846 kilometres.

The only other countries that can take Kazakh exports are China, and the neighbours across the Caspian Sea. Iran and Kazakhstan have a well-established oil trade route through the Caspian Sea and Azerbaijan may see expansion in the Baku-Tbilisi-Ceyhan pipeline.

In the extended meeting of the government on Aug. 6, YerbolatDossayev, erstwhile minister of economy and budget planning and now head of the new Ministry of National Economy, said Kazakhstan has worked out a separate action plan to mitigate the effects of the ongoing crisis in Ukraine. “Together with government agencies, we have developed an anti-crisis plan dependent on further development of the national economy. We have also drawn up a special action plan in case further sanctions are introduced against Russia and the situation in Ukraine deteriorates. This plan will be updated in September 2014,” Dossayev told President Nazarbayev and his colleagues then.

But the President, in his turn, accepting six newly appointed ambassadors in the Akorda presidential palace on August 12, has stated that “The ongoing conflict in Ukraine [and] the destabilisation of the situation in the Middle East and other regions of the world are consequences of the global crisis that have spread beyond the economic and financial spheres. In these challenging times, it is of utmost importance that further escalation of the conflict and toughening of sanctions against each other should be prevented. This is a road to nowhere. Finding areas of common ground and negotiating is the only option. Kazakhstan continues to be committed to this option and is doing its best to influence the situation. The main thing is not to stop looking for peaceful means of conflict resolution.”

It remains to be seen whether any further sanctions will be imposed on the largest economy of the emerging Eurasian Economic Union, and how thesground and will affect the future of Kazakhstan’s economy.