NUR-SULTAN – In his recent wide-ranging interview with the Kazakhstanskaya Pravda newspaper, Bakhyt Sultanov, Minister of Trade and Integration of Kazakhstan since June 2019, shared his views on efforts to regulate domestic trade with a view of stimulating it, the country’s export potential and measures to support it, as well as the relations with Russia within the Eurasian Economic Union.
The Ministry of Trade and Integration is almost five months old. With your long-time experience in economics, now you’re dealing with trade matters. What is the first thing you plan to work on in nation’s trade policy?
Actually, I have dealt with trade barriers and have been Minister of Economy and Finance. But yes, leading trade as an industry is a new and very interesting thing for me.
President Kassym-Jomart Tokayev set two interconnected tasks for us; first, to regulate domestic trade and second, to support non-resource exports and their promotion in foreign markets, including searching for new ones.
The trade policy of any state is always aimed at improving the conditions for the country’s participation in international trade and here it is impossible to separate domestic from foreign trade. The role of the state is seen in influencing the competition of domestic and imported goods in the domestic market and improving the competition conditions for national goods in foreign markets.
Therefore, on the one hand, we are creating the conditions for increasing the competitiveness of our products in the domestic market and on the other, we must build effective stimulation of export growth. But one must also understand that export growth can only happen when there is something to export.
In mid-October, President Tokayev raised the issues of trade and export, which he previously spelled out in the state-of-the-nation address. How is the ministry preparing to ensure product promotion in all regions of the country?
The President focused on the fact that we already have a number of export support tools provided by Atameken Chamber of Commerce, KazakhExport and QazTrade. Now, we are talking about the need for combining all measures into a “single window.”
We can always enter foreign markets only with raw materials, but for the economy, it is much more profitable when goods of high processing are sold. In this case, state revenues grow where the currency returns, where the collected tax volumes increase. Accordingly, the well-being of the population is growing – additional funds appear for the development of healthcare, roads and housing programmes.
Is it possible to say that your ministry is becoming a supporter of the concentration of all support tools in one hand?
Not in the same hands, but in the single window. The same Public Service Centres do not replace, for example, the Ministry of Justice by registering real estate or issuing certificates of registration at the place of residence, but they make life much easier for us.
We want both business and investors to easily and comfortably do their job, having the opportunity to receive all services in one place with a single export support partner. But I repeat once again – the development of domestic trade and access to foreign markets should go hand in hand.
I believe the distortion that we have now, when our stores are filled with imported cookies and we sell flour abroad, is wrong. We must create such conditions in order to expand the interest of Kazakh producers primarily in the Kazakhstan market, to make our products competitive in the domestic market.
And how can that be done?
The main task of the state in the field of trade is to help exporters export as much of their products as possible, making their products competitive, both in the global market and, more importantly, in the domestic one. For the latter, we need to find tools to limit imports.
This can be done in different ways, from the application of customs duties to technical regulations. We can’t do anything with customs – the duties are the same for the entire Eurasian Economic Union (EAEU), but with partner countries we don’t have any duties at all. There remains competition in price and quality.
Technical regulations are responsible for the quality. Today, technical regulation is one of the proven, effective tools to support the “simple things economy” in Kazakhstan. In fact, it is a barrage measure against unscrupulous imports. Therefore, we are reviewing our quality standards in accordance with international requirements.
When we begin to trade competitive goods domestically, with the right measures of state support, steady demand will be ensured in the foreign market. Conversely, if our product can compete on shelves in other countries, for example, in price, then [it can compete] in domestic stores and even more so.
You once said you intend to create a product pipeline. Please explain what it is and when it will be executed.
The product pipeline is a continuous supply chain of direct sales from producer to consumer.
The main idea is the creation of wholesale distribution and transport logistic centres and fulfillment centres. That is, goods, especially when it comes to food products, should take place where they are stored, where they can be sorted or packaged and where wholesale buyers can find their goods without much effort.
Now, how is the system built? The manufacturer grew and the trader arrived – he then bought, resold to another trader in the neighbouring region; the third came – he bought and took away the product for export. As a result, either everything is exported from the country abroad, as is the case with grain and fruit, or the price on the domestic market is huge, because there is simply nowhere to store leftovers.
We have a significant shortage of containers for storing agricultural products. There are dry warehouses, but few warehouses are there to keep low temperatures. As a result, we have nowhere to store, for example, the same grapes and apples. With the proper approach, we can get fresh fruit on our tables all year round.
In general, the appearance in the world of such wholesale distributing centres (WDC) is caused not only by a seasonal overabundance of any product, but by changes in consumer tastes. People want to have fresh food on their tables. WDCs will need to provide the ability to store products cool and frozen, each product in the mode it needs. So that they can be stored and transported all the way, from production to consumption.
But the modern buyer also wants to know where, when and by whom the product was made. When WDCs are interconnected by a single information system for recording product flows, product information will be available to the buyer. Moreover, we plan that the WDCs will provide services for the completion and packaging of products for retailers, from sorting and washing to packaging.
For customers, WDCs are a blessing. What about sellers?
First, losses during storage and transportation will be reduced by at least two times. This is additional income to manufacturers. Secondly, it will reduce our dependence on food imports; lower logistics and storage costs will make Kazakh products more competitive.
Besides, I think a Kazakhstan buyer will buy strawberries in winter with great pleasure, for example, from Shymkent and not from Israel.
There is another important plus from WDCs and transport and logistics centres. Their work will simplify the entry of our products into foreign markets and the transit of goods through Kazakhstan. In addition, in our opinion, the product pipeline will provide the basis for creating a single pool of producers together with our neighbours for joint export to other countries.
Let’s talk about the QazTrade export support centre created by your ministry. Can you explain what its task is and how it differs from other structures working to support exporters?
When I started to delve into the topic, I found out that we have a lot of structures involved in supporting exporters. Kazakhstan Export insures, the Centre for Industry and Export promotes goods and reimburses the costs of the exporter, BRK Leasing provides loans and Atameken Chamber provides service support. That is, one exporter needs to get around a lot of organisations in order to get the full range of services.
To make you understand how difficult this is, remember how citizens went for information before the creation of public service centres – in one organisation they stood in line for three days, then in another. While you collect all the signatures under one certificate, a week can pass.
When an entrepreneur does this, it hits the business, for which every minute is precious. Therefore, we, as the body shaping the state policy in the field of foreign trade, decided to create a single window for exporters, including potential ones. QazTrade becomes a kind of public service centre for businesspeople who already sell their goods to foreign markets or just plan go abroad with their products. QazTrade is called upon to work with all exporters of processed products, providing support at any stage of the activity – from the idea of export supply to post-contract service.
That is, the businessperson will not need to run around different organisations; he will be able to come to one place and get advice and state support for financing the project and help in finding a potential partner.
And what is Kazakhstan standing today with non-resource exports?
Not as good as we would like.
Do you mean a decrease in export volumes?
Not only. This year, the decline in exports is associated with global trends – a drop in oil prices and U.S. sanctions against Iran. The first reduced our exports by $2.7 billion. But the temporary restriction of Kazakhstan’s metal supplies to Iran led to a reduction in the physical volume of exports; here, it is a drop of $300 million.
Apparently, this is precisely what caused the order of President Tokayev to seek access to new markets.
In the conditions of instability and unpredictability of economic relations between a number of states, there is a need to diversify our trading strategy. That is, on the one hand, we must move away from the predominance of raw materials in the export structure, while developing trade in non-commodity goods. On the other hand, we must build our exports in such a way that in the situation that is happening with Iran, we could be able to sell our goods in other directions to buyers of other states. And the more there will be such buyers, the better for us.
We analysed the markets of different countries. It turned out that our products can occupy very impressive niches. For example, in China, our food products, metal products and chemical industry will be competitive. Only 60 items can increase our exports by $1.6 billion.
China has long been interested in Kazakhstan’s agribusiness and product line. What about other countries and other goods?
The analysis showed that in the export of cigarettes there is a growth potential of four times (from $94.2 to $371.6 million) and this is only for the markets of China, Russia and the countries of Central Asia. In these regions there is the potential to increase the supply of soft drinks and water as much as five times; pasta, almost six times.
Soft drinks and water?
That’s right. We studied the markets of different countries for their import of different product groups. For example, China annually imports various soft drinks worth $113 million. Now, our share in this import is very small – only $100,000. But we, in principle, can occupy more than 6 percent of Chinese water imports – there is a potential to increase our supplies to $7.4 million.
Our drinks will be competitive in the markets of a number of countries, including the European Union (EU), the U.K. and even South Korea, Japan and Singapore.
Our sweets can conquer their niches in the markets of both our closest neighbours and in Europe and Asia. For example, according to our estimates, we can win even 1 percent of the market in Switzerland.
Switzerland? Are you sure it will work out?
Why not? If our sweets are no worse than Swiss, then yes. In the same Switzerland, not only local chocolate is sold; last year, $830 million of confectionery was imported into that country.
This is the beauty of trade and increased competition – that different countries can trade identical goods with each other that differ in price, taste and appearance. The consumer chooses. If the Kazakhstan candies meet all the technical standards of confectionery adopted in Switzerland, then they will be able to gain access to the market of this country. And I’m sure they will find their buyer, because at least the taste of our sweets is no worse.
Today, it is important that a business initially builds its production with a focus on international markets, eliminating the problem of poor product quality, poor packaging and limited supply. Products manufactured to the highest standards are competitive by definition. The central element of Kazakhstan’s trade policy should be the definition of the term “quality,” as well as the associated pair, price and quality.
The task of the Ministry of Trade and Integration and QazTrade is also to review our quality standards in accordance with international requirements. As for the standards of foreign markets, the role of QazTrade as a single window of support for exporters will also be expressed in informing our manufacturers about the specifics of technical regulations of a potential importing country and in assisting in obtaining certificates of conformity.
How should you react to the offer of a number of specific Kazakh goods for trade with the United States? Are we able to compete with other countries supplying goods to North America?
With pride. Indeed, being in Washington on Oct. 18 as part of a bilateral meeting with U.S. Secretary of Commerce Wilbur Ross, our side proposed to increase the export of Kazakh products. We are ready to supply at least 50 commodity items worth more than $800 million to the United States. For now, we will not talk about what kind of positions this is, as it is all in the negotiation stage.
We discussed issues of bilateral cooperation in the field of domestic and foreign trade and export of goods and services and talked about the implementation of commercial and investment projects and about joint projects with Tyson Foods.
The United States is one of Kazakhstan’s main strategic partners. The volume of trade between our countries in 2018 reached $2.2 billion; in the current eight months, it has already reached $1.4 billion.
What specific Kazakhstan goods will conquer the world market?
All that are produced in Kazakhstan. For example, our batteries can take up a quarter of all imports to India and almost two-thirds of Moldova’s needs. According to our estimates, we have the potential to increase the export of batteries to Europe and Central Asia alone to $180 million – three times more than we are exporting now.
Our containers made of cardboard, paper and plastic can be traded in the Czech Republic, France, Hungary, Slovenia and Spain. By the way, we saw that our malt beer can even be exported to the Czech Republic; annually, imported beer worth more than $20 million is imported into that country. So why should this import not be from Kazakhstan?
In our opinion, the most potential countries for our goods are China (a possible increase in the supply of goods by $1.3 billion), Germany ($796 million) and France ($730 million).
And how will this affect the structure of exports?
If according to the results of last year about 74 percent of all exports were raw materials, then by 2025 the structure will be more balanced. We believe that increasing non-resource exports through potential will lead to a decrease in the share of raw materials to 57 percent. That is, trade abroad with processed goods will increase. According to our forecasts, by 2025 we expect to increase exports by 17.6 trillion tenge (US$45 billion), of which raw materials export is by 13.4 trillion tenge (US$34 billion), export of processed goods by three trillion tenge (US$8 billion) and export of services by 1.2 trillion tenge (US$3 billion).
In addition, many projects are being implemented as part of industrial policy. Out of 4,000 investment projects planned before 2025, 185 with a total value of over $106 billion are export-oriented. These are projects for the production of clothing, paper, finished metal products, drinks and much more.
Another issue concerns barriers. Recently, the Ministry of Trade reported that it was able to “break” the Russian side and force them to increase the monthly limit of Kazakh coal to Ukraine from an average of 90,000 to 140,000 tonnes monthly. But at the same time, you said that we need to be able to ship at least 200,000 tonnes per month.
In the matter of coal transit, Kazakhstan, unfortunately, has become a hostage to the complex relationship between Moscow and Kiev. In the middle of the summer, the Russian Federation imposed restrictions on trade with Ukraine, which affected our exports.
Since July, we have been conducting on-going negotiations with Moscow, demanding that the Russian side comply with the basic principles of the treaty on the EAEU in terms of ensuring the freedom of transit of our goods to third countries. The actions of our EAEU partners should not impede Kazakhstan’s economic ties with other countries.
Hopefully, we can solve this problem. Moreover, it is considered not in a bilateral format, but at the EAEU site. The Eurasian Economic Commission has also identified quotas for transit coal supplies from Kazakhstan to Ukraine as an obstacle with signs of a barrier.
So, we do not “break;” we call for work within the framework of the general laws on which the EAEU is based.