Crisis on Russian-Kazakh border jeopardises Western China — Europe trade traffic

Russia and Kazakhstan approved common border — the longest land border in the world

The 16^th Russia-Kazakhstan Interregional Cooperation Forum at which the sides discussed opportunities and potential of cooperation in border trade ended in Omsk. The forum was organised by the Russian Ministry of Economic Development, Ministry of Trade and Integration of Kazakhstan and Roscongress Foundation. The discussion took place within Development of Border Trade: Eurasian Accent session on 6 November.

The establishment of borders between Kazakhstan and Russia became the milestone of the forum. The border is 7,500 kilometres, the demarcation works are 86,7% complete. It is noted that it is the biggest land border in the world. Moscow and Astana signed an agreement on the state border as early as 2005, the process of its delimitation began at the same time — the determination of its position and direction. Demarcation will become the last stage — real demarcation of the border on the spot with special signs.

Both countries' interregional commodity exchange accounts for 70%

During the forum, Russian President Vladimir Putin met with President of Kassym-Jomart Tokayev. Moreover, initially, it was behind closed doors and lasted for about two hours and then it continued at the plenary session dedicated to border cooperation development issues. Minister of Economic Development Maksim Oreshkin and Minister of National Economy of Kazakhstan Ruslan Dalenov also delivered a speech at the meeting.

For Tokayev, who became the head of Kazakhstan after Nursultan Nazarbayev’s retirement this spring (Tokayev had been the chairman of the Kazakhstan Parliament’s Senate for six years), this will be the first meeting of a kind with Putin at the forum — in April, just a couple of weeks after the appointment as president, he already met with the head of Russia during his visit to our country.

Vladimir Putin said at the meeting that a big set of agreements and commercial agreements was prepared at the forum but didn’t provide any details. He noted that last year commodity turnover between the countries grew by 4,5% and totalled $18,2 billion, interregional commodity exchange accounts for 70%. According to him, 76 out of 85 Russian regions have already joined the turnover between the countries.

Russia invested $13 billion in its southern neighbour

“Russia is the biggest investor in the economy of Kazakhstan, the total accumulated volume of Russian investments has already amounted to $13 billion, while the investments of Kazakhstan in the Russian economy is 4 billion,” the president of Russia said. “6,500 Russian and Kazakhstan enterprises work in different border regions in both countries today.”

At the current forum, according to Putin, there will be prepared Border Cooperation Programme Concept, moreover, the length of the border is over 7,500 kilometres. He urged the leaders of border regions to actively join the future programme. The head of Russia, in turn, promised to improve border infrastructure together with Kazakhstan authorities, particularly, reduce the load on border crossings between Russia and Kazakhstan. Businesses should actively participate in joined industrial cooperation. Among big successful joint projects, Putin called the operation of the oil refinery in Orenburg Oblast with Kazakhstan feedstock, production of transborder fields of copper ore.

Caspian shelf exploration where huge oil reserves might be found is one of the key joint projects

Head of Kazakhstan Kassym-Jomart Tokayev, in turn, talked about growth in cooperation between the two countries: commodity turnover grew 3,5 times from 2003 to 2018, inflow of Russian investments already totalled $14 billion, the volume of Kazakhstan investments in the Russian economy was more than $4 billion (third place in foreign portfolio of the Kazakhstan economy). Tokayev noted that 3,200 Russian-Kazakh companies operated in Kazakhstan — it is over 38% of the total number of enterprises with foreign capital. Kazakhstan considers oil, energy and chemicals the most promising industries for industrial cooperation. According to him, first of all, Caspian Pipeline Consortium (over 1,500 km long) is responsible for the oil industry that supplied over half a billion tonnes of oil to the world market.

Russian and Kazakhstan enterprises also actively work together at Tengiz Field and other oil and gas fields, including in Caspian Sea shelf. It should be reminded that this February Lukoil promised to invest $300 million only in the exploration of the Kazakhstan shelf of the Caspian Sea. Moreover, the company has the biggest explored reserves on the Russian shelf. (What’s more, this year Lukoil and Kazakhstan completed a joint project and launched oil production in Almaty Region). Some experts suggest that oil reserves in the Caspian Sea shelf are evaluated at a third of the world’s existing ones, only the Russian shore can provide with 3 billion tonnes of oil.

Western China — Europe trade traffic under threat due to the crisis on Russian-Kazakh border

Tokayev unexpectedly raised the border problem. According to him, today’s infrastructure at checkpoints doesn’t comply with modern requirements. Additional checkpoints are needed. Moreover, he was surprised that China had such an experience of solving checkpoint problems, and related talks were held even with Uzbekistan. The Russian minister of economic development agreed with him. According to the Russian side’s data, there is a “critical situation”, with huge hours-long queues, one of the biggest checkpoints operates twice more than needed, the others work three times more. As a result, traffic of Western China — Europe suffers. Oreshkin says that a joint programme to reconstruct and modernise checkpoints along the border is needed.

How the two countries’ ministers had different numbers of the border population equal to 10 million

Curiously, the economy ministers of Russia and Kazakhstan evaluated the population of border regions differently. So according to Oreshkin’s calculation, it is 25 million in 12 Russian regions and 7 Kazakhstan regions. And according to Ruslan Dalenov’s data, it is already 35 million people… And the Kazakhstan economy minister thinks that these 35 million people have a common economy with $260-billion turnover. He promised to increase the volume of investments to the fixed capital of joint enterprises to $315 billion by 2024. Despite the discrepancy in estimates, the sides agreed to jointly solve infrastructure problems following the experience of solving border and economic problems with the European Union (however, the total border length notably gives way to the border with Kazakhstan). The sides also positively noted the growth of high conversion goods, not just feedstock, in commodity turnover to 82%. Dalenov offered to augment the turnover to $20 billion, but this magic number had already been mentioned a year ago (see below), but it hasn’t been possible to achieve it yet.

In conclusion, President of Kazakhstan Tokayev offered to stage the next forum in Kazakhstan and dedicate it to the solution of ecological problems and “green growth”. Putin agreed with the proposal.

Kazakhstan fell out of top 10 trade partners of Russia in 2018…

It should be reminded that in 2018 turnover of Russia and Kazakhstan was $18,2 billion having increased by 6,58% (US$978,6 million) compared to 2017 and rose just by $1 billion. Last year, Russia’s export to Kazakhstan was almost 13 billion rubles (by 4,8% more or $600 million). Russia’s imports from Kazakhstan was just $5,3 million, it rose by 7,7%. The share of Kazakhstan in the total external commodity turnover of Russia is 2,6% today, and last year it fell almost by 0,4% — so Kazakhstan went down from the 10^th to the 11^th position. Russia exports mainly cars and equipment (a fourth of the volume), minerals (17,4%), metals (15%), chemicals (17%) and agricultural produce (11,8%) to Kazakhstan. While Kazakhstan exports minerals (38%), metals(31,4%), chemicals (16,8%) to Russia, So the biggest reduction in imports of Russia from Kazakhstan in 2018 were in copper, aluminium and zinc. It is noteworthy that a year ago exports from Russia to Kazakhstan grew by 9%, while imports from Kazakhstan to Russia did almost by 10%. It was expected that the volume of commodity turnover between the countries would have reached $20 billion by late 2018, moreover, Russia accounted for over 20% of all external commodity turnover of Kazakhstan.

Tatarstan already committed itself to increase turnover with Kazakhs to $1 billion

At a meeting of the Intergovernmental Commission on Cooperation between the Russian Federation and the Republic of Kazakhstan last October, President of Tatarstan Rustam Minnikhanov said that the task given to Tatarstan was to increase commodity turnover between the Republic of Tatarstan and Kazakhstan to $1 billion. If this is possible, it will be quite an important contribution considering that the growth in turnover in 2018 was $1 billion. The Tatarstan authorities saw the promotion of KAMAZ products and petrochemicals to the Kazakhstan market as one of the goals: “It is necessary to promote our tyres, compressors, gas pumping stations… We are about to cooperate in shipbuilding”.

Vice Minister of Economic Development of Russia (previously head of VEB) Sergey Gorkov talked then about plans for economic cooperation with Tatarstan. He said that commodity turnover between Kazakhstan and Russia had already exceeded $17 billion by that moment. It was expected to be 18,5 billion, but this didn’t happen either. Gorkov noted that oil and gas accounted for the lowest amount in commodity turnover with Kazakhstan, primarily it is a “healthy natural turnover, first of all, equipment for the processing industry, machinery for chemical and petrochemical enterprises, metallurgy”. Russia and Tatarstan called pharmaceuticals and mechanical engineering as promising areas for exports to Kazakhstan and mentioned KAMAZ again.

It should be noted that KAMAZ is having tough times today. Over 9 months in 2019, KAMAZ increased its loss 6,6 times almost to $2 billion (during the same period a year ago the loss totalled $288 million). The company explained it saying that there is “a complicated situation in the Russian market in commercial vehicles as well as the investment cycle of the company due to the launch of sales of a new generation of K5 cars”. Nowadays precisely Middle Asia and Kazakhstan are major export markets for KAMAZ.