Thursday, January 13, 2022
“Golden Bridge”
Kazakhstan flatters German companies
By Marina Zapf
Kazakhstan’s President Tokayev wants to attract German companies to his country. Mass protests and orders to shoot destroy the charm offensive, but the location remains attractive for companies.
The President of Kazakhstan wanted to “build a golden bridge” to Germany. Kassym-Jomart Tokayev came to Berlin two years ago with this intention. The foundation for this may have been laid since then. But the current national crisis has abruptly interrupted the economic opening of the Central Asian country, which is a good seven times the size of Germany. Hard-won trust is broken – especially when an order to shoot is issued against anti-government demonstrators.
In fact, Kazakhstan has recently become more attractive for the German economy. Around 300 companies are active in the former Soviet satellite state. Tokayev wants more than good trade relations – in the pre-Corona year 2019, the bilateral trade volume was 4.6 billion euros. At the end of 2019, he proposed joint modernization projects worth 2 billion euros. To date, this has resulted in 25 projects with an investment volume of 1 billion euros. Not only Kazakh raw materials are important for the energy transition, but also extensive steppes, which are ideally suited for wind and solar systems as a source for generating green hydrogen.
So there is a lot of future and sustainability at stake in a country that has a two-chamber parliament but is run in an authoritarian manner. Now the head of state is fighting in the capital Nursultan and the economic metropolis Almaty against unrest critical of the government – and, it seems, also for his own survival. In the second week of the crisis, which began with resentment against socially highly intolerable auto gas prices, Tokayev declared that the threat to security had been averted by a “coup d’etat”: “Complete order has been restored in Kazakhstan.”
By Tuesday he had replaced his predecessor Nursultan Nazarbayev, who was still the strong man in the country with good connections in the security apparatus, as chairman of the Security Council, dismissed the head of the secret services and appointed a new head of government. The number of those arrested, stated as 10,000, is reminiscent of the purges in Turkey after the failed coup d’état against President Recep Tayyip Erdogan in 2016. According to state information, 16 people were killed and more than 1,600 injured among the security forces. The previously mentioned number of civilian deaths of 165 is “verified”.
“Acute Danger”
While Tokayev sees “terrorists” at work and suspects militant Islamists from Central Asia and the Middle East to be among the attackers, observations by the armed militiamen of initially peaceful demonstrators support another scenario. As the foreign trade chief of the Association of German Chambers of Industry and Commerce (DIHK), Volker Treier, said after consulting the delegates’ office in Kazakhstan, “it cannot be ruled out that the predecessor sent out certain paramilitary elements to bring the weakened head of state into even greater distress – possibly with the aim of deposing him”.
The DIHK and the Chambers of Commerce maintain a headquarters in Kazakhstan for the whole of Central Asia. “During the incidents of the past few days, the German companies on site initially focused on the issue of acute danger and the safety of their own employees,” says Treier. Some directly or indirectly witnessed gunfire and violent clashes in Nursultan and Almaty. “Communication was interrupted, and the Internet was paralyzed for a few days,” he says. The exchange only took place at the beginning of the week. Most managers and employees are still staying at home. Economic life is largely at a standstill.
The crisis in the 30th year of independence is a major setback for Tokayev’s policy of economic opening and diversification in the oil and gas producing country. Kazakhstan was stable, had good World Bank ratings as an investment location, Tokayev did not dodge questions about corruption, it is reported, but presented foreign investors with plans against it. In an interview with Deutsche Welle in 2019, he spoke of 7,000 assets that he wanted to privatize, including natural resources, logistics and transport.
Geopolitically, the former diplomat followed a course that favored neither China nor its neighbor Russia or interested American partners. Kazakhstan is the only country in the region to have signed a partnership and cooperation agreement with the EU in an effort to transfer technology. The so-called multi-vector policy was intended to create the fairest possible competitive conditions. “In contrast to the Belarusian ruler Lukashenko, for example, Tokayev has gained confidence as the head of Kazakhstan through his economic modernization partnership with Germany and the EU,” says Treier.
Long wish list
In order to diversify the presence of foreign investors, Tokayev spoke with former Chancellor Angela Merkel about agreements in the areas of green economy, water management, tourism and sustainability. Talking to business associations, he wished for cooperation in the areas of rare earths, transport, engineering and agriculture, but also in cutting-edge technologies and digital services. As an incentive, he offered tax exemption in special economic zones and the rapid provision of land for German companies.
Opportunities for cooperation with the Volkswagen Group were also on the wish list. Although Hyundais, Toyotas, Chevrolets or Chinese brands are built locally in domestic assembly plants, VWs are imported from Russian production. In addition to machines, chemical products and electrical engineering, German exports also include vehicles and car parts. The railway company KTZh concluded a management cooperation agreement with Deutsche Bahn for improved passenger transport and is working with DB Engineering to expand the rail infrastructure.
Kazakhstan is not the only one that is ascribed immense importance as a hub as part of its new connectivity strategy. The country is investing in rail and road infrastructure because it wants to position itself as a natural logistical hub of the Eurasian Economic Union between Europe and Central and Southeast Asia as well as China. Small batches – or dangerous goods such as batteries and battery parts for electric cars – are now being delivered by logisticians from China to Western Europe completely by road and via Kazakhstan due to a shortage of containers, the foreign trade portal GTAI reported in 2021. By rail, one of the Transasia Express routes runs from western China via Kazakhstan and Russia to Europe.
“Trust is quickly lost”
“Of course, the current destabilization can be at the expense of the country’s cautious opening process, which has been noticeable for several years,” fears DIHK foreign trade chief Treier. Nevertheless, local German companies hoped that the situation would normalize quickly and that the course of economic reform would be resumed in a few weeks. Because they have obviously invested heavily. According to the Bundesbank, the volume was 505 million euros in 2019, but the Committee on Eastern European Economic Relations estimates it at around 1.3 billion euros today.
In addition to the Siemens Energy and Linde groups, the 25 projects that have been started include companies such as HeidelbergCement, the building materials manufacturer Knauf, the agricultural machinery manufacturer Claas, manufacturers of pipe systems and pumps, as well as solar and wind park companies such as Goldbeck Solar and Svevind.
“Trust is quickly lost,” says Treier. Of course it is a crisis situation for the approximately 300 German companies on site. In this phase, new entrepreneurs are not likely to set off for Kazakhstan. But the location remains attractive for German companies not least because of its raw material resources. If the security situation calms down again, the economic uncertainty could soon subside again. For the time being, however, there is still a state of emergency.