Kazakhstan in the EAEU: Economic Cooperation and Financial and Economic Effects

12.07.2020 | Case Studies | Kassymkhan Kapparov, Akmaral Kamaliyeva

This resource presents the key aspects of Kazakhstan’s membership in the Eurasian Economic Union (EAEU) since the time of its accession to present-day. The paper focuses on the impact of this framework of cooperation on the economic and financial situation in Kazakhstan.

This resource is part of the series, “Joining the Eurasian Economic Union: Perspectives from the Eurasian Business Community,” which features analysis from renowned economists from EAEU member states and Uzbekistan. This series follows the CIPE-supported virtual roundtable held on October 13, 2020 in partnership with the American Chamber of Commerce in Uzbekistan. The event recording is available in both English and Russian

 

This paper presents the key aspects of Kazakhstan’s membership in the Eurasian Economic Union (EAEU) since the time of its accession to present-day. The paper focuses on the impact of this framework of cooperation on the economic and financial situation in Kazakhstan.

It was developed through detailed analysis of the development dynamics of mutual trade between Kazakhstan and the EAEU, as well as Kazakhstan’s foreign trade more broadly. Further, the study analyzes the impact of EAEU membership on the Kazakhstani internal market for goods and services and the process of developing public policy.

The last section of the study describes Kazakhstan’s trade and economic relations with other regions: China, the U.S., the EU, and other Central Asian countries. The study integrates both qualitative and quantitative data in its analysis. The paper refers to data from reliable databases such as the Eurasian Commission, Kazakhstan governmental bodies, the Statistics Committee, and International Trade Center (Trade Map). The study also takes into account the findings of both local and international researchers.

The top three advantages that EAEU membership poses for Kazakhstan are:

  • Kazakhstan’s special customs status, granted by the union, allows the country to have membership in both the EAEU and WTO. The exceptions that result from membership in both organizations means that the free movement of goods in Kazakhstan will have lower rates of import customs duties, in comparison with the Unified Customs Tariffs required by the EAEU.
  • Non-commodities account for more than half of all products supplied to EAEU countries. In this regard, the EAEU market is important for Kazakhstan, particularly when it comes to supporting local export-oriented producers.
  • Kazakhstan’s participation in the EAEU has contributed to the consolidation of assets in the banking and telecommunications sectors. This factor can be seen as positive in the short-term as it has led to banks resuming loan distribution and the development of telecommunications infrastructure. However, its long-term impact remains to be seen.

Disadvantages for Kazakhstan include, but are not limited to:

  • Over the past year, Kazakhstan had the highest deficit in mutual trade with the EAEU member states.
  • Many non-tariff (technical and administrative) barriers to trade, as well as unfair competition, still exist.
  • Kazakhstan’s participation in the EAEU has not helped the country to diversify its economy, as was expected when Kazakhstan was considering joining the Eurasian Customs Union in 2010.

The main takeaways of the paper:

The EAEU member countries, particularly Russia, remain the most important trading partners for Kazakhstan. However, Kazakhstan currently has the highest deficit in mutual trade with EAEU states. Entrepreneurs in Kazakhstan are critical of the many non-tariff barriers and unfair competition that prevail in the EAEU. This demonstrates the absence of effective communication between the business community and the government. This study found that measures are currently being taken to establish a dialogue mechanism between the government and the National Chamber for Entrepreneurs of Kazakhstan “Atameken.” Nevertheless, Kazakhstan has neither observed significant economic returns nor direct benefits from membership for its citizens.

Recommendations:

Five years after its establishment, the EAEU is still suffering from a number of structural problems that prevent the organization from becoming something more than a Customs Union. An overall recommendation is to further harmonize legislation within the EAEU. The Kazakhstani government in collaboration with the National Chamber for Entrepreneurs of Kazakhstan “Atameken” should draft a clear strategy that would encourage increased exports of goods and services from Kazakhstan to EAEU member countries.

Outlook for Kazakhstan and the local business community for the next 3-5 years in the EAEU:

At the Eurasian Economic Union e-summit in May 2020, President of Kazakhstan Kassym-Jomart Tokayev postponed his signing of the EAEU’s 2025 Development Strategy, stating that it was necessary to first ensure the movement of goods without barriers and restrictions. The free movement of goods would be very beneficial for the local business community and the economic interests of Kazakhstan for years to come. However, post pandemic development may alter the strategic plans of the EAEU, which suggests the need for a far more coordinated response from its member states.

Kazakhstan’s role in the EAEU in the next 3-5 years depends on its economic outlook. If oil prices remain at their current level, then the economy and local businesses will suffer, and the government will have to be more practical in its foreign trade policy. At the same time, a decrease in oil profits would necessitate the promotion of non-oil exports, especially in neighboring countries and EAEU member states.

Partner testimonial on participation in the CIPE-supported conference “Joining the Eurasian Economic Union: Perspectives from the Eurasian Business Community for Uzbekistan” in October 2020:

The virtual conference organized by the American Chamber of Commerce in Uzbekistan, supported by CIPE, provided a platform for economists from each EAEU member country to share their well-rounded analysis and assessment of the current state and development of the EAEU. Each country has its own views on the priorities and weaknesses of the EAEU. Open discussion of these topics during the conference allowed us to gain a deeper understanding of the integration process and generate new insights about the prospects of the Union.

 

Kassymkhan Kapparov is a managing partner at EMCG, a consulting company based in Almaty, Kazakhstan that provides independent economic research on developing countries for international organizations and a founder at Ekonomist.kz. Kassymkhan has many years of experience in the field of economic research for international organizations such as the World Bank, ADB and UN, government agencies and multinational companies. His research areas include development issues of the developing economies, including FDI, knowledge-based economy, innovations and mineral resources-driven economic growth. Kassymkhan received his MBA from Yokohama National University (Japan) under the IMF Scholarship Program and holds an MA and BA in Economics from Al-Farabi Kazakh National University (Kazakhstan).

Akmaral Kamaliyeva is a researcher in the field of economic and social development of Kazakhstan and Central Asian countries. As an analyst at EMCG, she has been consulting international organizations such as the World Bank, the Eurasia Foundation in Central Asia, and others. Her research interests include local budgeting, monotowns, public policy reforms, and the resource curse. Akmaral received her BSc in Development Studies from Lund University, Sweden under the Lund University Global Scholarship program.