Kazakstan-International Financial Relations

Shortly after independence, Kazakstan began seeking diversification of its commercial activities, which had focused completely on the Soviet Union until 1992. Because the regime has been stable and abundant natural resources make investment potentially profitable, the search for new foreign partners has been successful in many cases, although substantial limitations remained in the mid-1990s.

Foreign Investment

World Bank figures showed foreign direct investment in Kazakstan of US$400 million in 1993, projected to rise to an annual average of about US$775 million by 1997. By mid-1994, fourteen British firms, fifty American firms, and twenty-four French firms were registered as investors. A March 1994 survey showed one foreign acquisition in the republic, twenty-five new economic projects, and seventy working joint ventures, with total foreign investment of $US10.44 billion. Average investment was computed at US$108.7 million, but that figure was distorted by Chevron's huge single investment in the Tengiz oil development project.

In the mid-1990s, Kazakstan's investment climate was considered liberal compared with that of the other non-Baltic former Soviet republics. In December 1994, existing trade legislation was consolidated into the Law on Foreign Investments, which, among other things, offered foreign investors 100 percent ownership of enterprises and full conversion of profits into hard currency. Liberal tax incentives, including a five-year initial forgiveness of all corporate taxes, also have been implemented. Regulations have been loosened on the export of precious metals and on terms for foreign participation in oil field development. For these reasons, international investor ratings place Kazakstan high among the former Soviet republics.

The international lending community also has been attracted to Kazakstan. In 1994 the Paris Club of Western creditor countries committed US$1.33 billion for use in reconstructing Kazakstan's industry and agriculture. The sum was the first large-scale foreign assistance received by the republic. Kazakstan also received US$296.9 million in trade credits in 1994, US$220 million of which came from Japan. Projections called for Kazakstan's external debt to peak at US$5.1 billion in 1996, then begin to decline. However, that figure was based on expectations of drastic increases in foreign oil sales by 1996, an eventuality made impossible by the intervening decline in output.

Foreign Trade

Traditionally, most of the goods that Kazakstan produced for export went to markets in Russia and elsewhere in the Soviet Union. In 1990 some 88.7 percent of Kazakstan's exports followed this route, including more than 70 percent of its industrial production and mined products and 27 percent of its agricultural production. By 1992 the trade situation among the CIS countries was characterized by the World Bank as "verging on the chaotic," with the old Soviet payments system deteriorating and a common currency, the ruble (see Glossary), showing uncertain value. That situation prompted Kazakstan to undertake a vigorous search for diversified trade markets, and in fact its exports to the CIS declined by nearly 80 percent between 1990 and 1994. By 1994 Russia still accounted for 40 percent of Kazakstan's total trade and for 74 and 80 percent of the republic's total CIS exports and imports, respectively. Kazakstan's largest volume of non-Russian CIS trade is with Kyrgyzstan, Uzbekistan, Belarus, and Ukraine, all of which are net importers of Kazak goods. The most important West European trading partners are Germany, the Netherlands, Switzerland, the Czech Republic, and Italy (see table 11, Appendix). Non-CIS Asian countries account for 11 percent of trade, with China the major partner in this category.

The predominant pattern of trade has continued from the Soviet era: exports are mostly raw materials, and imports are mostly manufactured goods. Ferrous and nonferrous metals--mainly rolled steel, copper, ferroalloys, zinc, titanium, and aluminum--account for 40 percent of export earnings, followed by oil and petroleum products (33 percent) and chemicals (10 percent). Energy products are also the largest import category, mainly because of the ongoing geographically determined exchange agreement that sends Russian oil from western Siberia to refineries in eastern Kazakstan and oil from Kazakstan's western oil fields to refineries across the border in Russia. Thus, in 1994 some 31 percent of imports were energy products, followed by machinery, equipment, and vehicles (29 percent); chemicals; and food. By 1994 private traders also imported large amounts of consumer products that did not appear in official statistics.

In 1994 Kazakstan's total exports were worth US$3.076 billion, and its imports were worth US$3.488 billion. Comparison with 1993 is not meaningful because in that year unstable ruble values and heavy barter transactions skewed statistics. In fact, an estimated 70 percent of 1994 trade also was in the form of barter. Of the 1994 totals, US$1.266 billion, or 41 percent, of exports went to the "far abroad," beyond the CIS, and US$1.286 billion, or 37 percent, of imports came from the "far abroad." Experts forecast slightly lower overall export figures in 1995 because of restricted access to Russian pipelines. The trade deficit with non-CIS partners is financed by borrowing from international financial institutions. The deficit with CIS partners is financed simply by delaying payments to Russia.

Data as of March 1996