EEU Brings New Challenges and Opportunities for Kazakh Mining and Metallurgical Sector

The Eurasian Economic Union (EEU) will undoubtedly enhance Kazakhstan’s economy. However, it will not happen overnight and experience so far demonstrates that competition is increasing in the common market.

Радостовец для сайтаThe lack of fair competition and equal opportunities are what is most concerning to the Association of Mining and Metallurgical Enterprises. For instance, Russia has more large industrial enterprises, which generally have much higher productivity at lower cost per unit of output. Therefore, those companies can afford to reduce prices by 30 to 40 percent, thereby squeezing out competitors from adjacent markets, while Kazakh producers may lose their niche and consumers.

Moreover, Kazakhstan’s antimonopoly service continues counting share dominance subjects exclusively in the national market, neglecting the need to conduct calculations in the common market or at least in cross-border territories. I believe that the competition authorities of Kazakhstan, Russia and Belarus should focus on holding joint anti-dumping investigations, as the common economic space presents a real opportunity to use antitrust regulation. Even a slight change toward fair prices will benefit individual enterprises and significantly increase budget revenues.

External conditions have also not been in favour of Kazakhstan’s mining and metallurgical complex, with world prices decreasing for metals. In addition, while large Russian companies are increasing their product supplies to Kazakhstan, they are not as keen to actively construct new plants here. In my opinion, it is high time for Kazakhstan’s government and National Chamber of Entrepreneurs to start negotiations with major companies to undertake obligations establishing conditions under which enterprises would build new plants in Kazakhstan on the basis of the recently adopted law on investment.

However, we do observe some improvements. The government has established the Council for Mining and Metallurgical Complex (MMC), headed by Prime Minister Karim Massimov. The idea of creating a council was initiated by the National Chamber of Entrepreneurs and in particular its leader, Timur Kulibayev. The MMC is primarily a tool to facilitate communication between business people and the government to examine problems affecting companies and the region.

In April, the government revised its policy concerning business support and discounts for individual companies. When the Sokolov-Sarbai Production Association (part of the Eurasian Group ERG) exported only 350,000 tonnes of iron ore to China in January instead of the planned 430,000 tonnes, supplied 170,000 tonnes in March and did not conduct any shipping at all in April due to the fall in the demand and price in the targeted Chinese market, the government provided support in the form of reducing differential freight rates. As a result, Sokolov-Sarbai quadrupled the volume of transportation in June. Addressing critics who insist that discounts for individual companies are not welcome in the negotiations on the accession to the WTO, I want to use Russia as an example of a World Trade Organisation (WTO) state that uses exclusively applied tariffs.

At the same time, I am still convinced that Kazakhstan urgently needs to stimulate an investment activity system. I want to appeal to the head of state and the deputies to adjust the law on the government regarding the empowerment of the cabinet in the field of economy, allowing it to enter into agreements with investors and referring to the tax and other preferences for the implementation of investment projects. On one hand, we will achieve the common denominator of the EEU legal base and on the other, take care of business’ shortage of “long” money, as the maximum tax-favoured policy will attract more investors to Kazakhstan. It will also expand the tax base.

Generally, tax cuts on extraction of natural resources, for example by 50 percent, can be one of the key incentives to revive investment activity in the MMC. Another stimulus may be the elimination of discrimination by industry when dividends of subsoil industries are additionally taxed at 5 percent. Meanwhile, Kazakhstan can use the tax incentives to convert the economy to high technology. In this respect, the association proposes to extend the new construction benefits presented to investors in April for modernisation and technical re-equipment of existing enterprises. Experts estimate that it would increase production, reduce costs and improve product quality. Moreover, similar benefits are used in all developed countries. Business people investing in production get preferences.

If the government continues expanding the practice of systematic consultation with the business community, Kazakhstan will be able to provide an adequate response to business challenges and needs and achieve total efficiency.

The author is the Executive Director of the Association of Mining and Metallurgical Enterprises.

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