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 The EU's relations with Kazakhstan

 

Overview

Latest news:  
Kazakhstan and the EU set the framework for their energy relations with the signature of a Memorandum of Understanding 04/12/06
Commissioner Ferrero-Waldner visits Kazakhstan 18/10/06
The European Union & Central Asia - building a 21st century partnership -speech by B.Ferrero-Waldner 17/10/06
Commission funds disaster preparedness actions in Central Asia worth EUR 2.5 million 28/05/04


Kazakhstan: Country Profile

Political Situation

Kazakhstan was the last of the former Soviet republics to declare independence in December 1991, and is the most ethnically heterogeneous, comprising some 130 different nationalities. Nevertheless, it has been extremely successful since the collapse of the Soviet Union in maintaining political stability, harmonious interethnic relations and, more recently, in achieving sustained economic growth. Indeed, it is the only one of the five central Asian republics that has not been the site of serious ethnic, religious, or political violence in the post-Soviet period.

This relative stability and economic development can be attributed to two main factors:

  • The first is the rich oil and natural gas reserves in the west of the country, and offshore in the Caspian Sea, which have attracted some $34 billion in Foreign Direct Investment since 1991, and which have therefore inspired Kazakhstan’s recent economic boom.

  • The second is the pragmatic manner in which President Nazarbayev has overseen the country’s transition towards a secular, capitalist society whilst maintaining a relatively high level of social cohesion.

Recent Developments:

In recent years, there have been a number of developments in the human rights situation in Kazakhstan. One of the most notable changes was the announcement of an open-ended moratorium on the death penalty at the end of December 2003. Reforms of the prison and judicial systems are also ongoing, whereas an independent Ombudsman’s office, with a mandate to work on economic and social rights, was established in 2002.

Such positive developments have, however, often been overshadowed by well-publicised crackdowns on media outlets, opposition groups, and non-governmental bodies that have been critical of government policies and corruption. New legislation, such as the 2003 Law on Political Parties, has made it more difficult for opposition parties to operate legally. The law obliged all parties to re-register, whilst raising the registration threshold to 50,000 signatures, and representation in all 14 districts of Kazakhstan.

Relations between the government and the opposition have become more tense in the aftermath of the political revolutions that have swept through Georgia, Ukraine and, most recently, the Kyrgyz Republic. In January 2005, the crackdown on opposition groups was taken a step further by the banning of the Democratic Choice of Kazakhstan. It has also been expanded to deal with other potential voices of discontent such as the media and foreign NGOs. In May 2005, Kazakhstan’s Ministry of Culture, Information and Sports ordered the closure of the independent newspaper ‘Respublika’, the source of frequent articles critical of government policies, whilst tax charges were filed against the Soros-foundation Kazakhstan. Moreover, in July 2005, two laws were given legislative approval that would severely restrict the operational capacity of international NGOs by significantly tightening government oversight of financial interactions between local NGOs and international organisations, and banning local NGOs from funding political parties. In August, these laws were ruled unconstitutional by the Constitutional Court.

The Presidential elections were held on December 4th 2005. Elections returned Mr Nazarbayev for a further and third seven-year term with over 90% of the votes. The main opponent was Zharmakhan Tuyakbai. The former Speaker of Parliament lead a movement called ‘For a Fair Kazakhstan’ which was arguing in particular for an independent re-examination of the privatisation deals, and contracts involving the country’s leading resource industries, which he contended are illegally benefiting officials close to the President’s family, and thereby damaging the national economy.

The opposition protested that the ballot had been rigged and the OSCE stated that “the election did not meet a number of OSCE commitment and other international standards for democratic elections.”

President Nazarbayev arranged a referendum in 1995 that extended his term of office and expanded his presidential powers: only he can initiate constitutional amendments, appoint and dismiss the government, dissolve Parliament, call referenda at his discretion, and appoint administrative heads of regions and cities. The current government dominates all political life in the country, limiting the options available to the electorate.

Previous parliamentary elections in September 2004 and elections for regional representative bodies (maslikhats) in 2003 failed both to meet international standards.

Kazakhstan still has a long way to go before it can achieve the standards of the OSCE, over which it has ambition to preside in 2009.

Foreign Policy

Kazakhstan is an active member of the UN, OSCE and other international organisations and supports multilateral efforts to face up to global threats such as terrorism, drug trafficking and the proliferation of weapons of mass destruction.

In its relations with the leading global and regional powers, Kazakhstan has shown itself keen to pursue a multi-vector foreign policy. Its cultural tolerance and the political pragmatism demonstrated by President Nazarbayev have allowed it to preserve a fine balance in the relationship between Russia, China and the US, all of whom are vying for increased influence in the central Asian sub-region. Indeed, in his State of the Nation Address on February 18th 2005, the President emphasised Kazakhstan’s continuing ‘activist, multifaceted and balanced’ foreign policy, placing priority on relations with Russia, China, the United States and the European Union in that order.

Regional cooperation:

From the EU’s perspective, Kazakhstan represents a reliable partner for promoting its objective of regional stability through regional cooperation in central Asia. Indeed, it must form the cornerstone of any such initiative, given its relative economic strength (Kazakhstan accounts for two-thirds of the GDP for the whole central Asian region), and its leading position within the region. On the other hand, however, Kazakhstan has, like Uzbekistan, been on occasions uncooperative towards the Kyrgyz Republic and Tajikistan on easing trade and transit restrictions for goods and seasonal migrant workers on their way to Russia (sometimes out of fear of drug trafficking).

At present, Kazakhstan is a member of the following regional/sub-regional organisations:

  • Central Asia Cooperation Organisation: First established in 1994 as the Central Asian Economic Community to promote economic integration between the four Central Asian republics. Rechristened as the CACO in 2002, Russia was included in May 2004. In October 2005, the decision was taken to merge the organisation with the Eurasian Economic Community.

  • Conference for Interaction and Confidence-Building measures in Central Asia (CICA): 16 state pan-Asian security organisation established under Almaty Treaty of June 2002

  • Eurasian Economic Community: Established in October 2000 to include Russia, Ukraine, Belarus, Kyrgyz Republic, Kazakhstan and Tajikistan. Moldova and Ukraine gained observer status in 2002. Interesting organisation as it incorporates states from both sides of Caspian Sea, and thereby linking central Asian states still covered by PCAs with those now covered by the ENP. Merged with CACO as of October 2005.

  • Shanghai Cooperation Organisation: Established in 2001 and brings together the four central Asian states (Kazakhstan, Kyrgyz Republic, Uzbekistan and Tajikistan) with China and Russia.

In spite of the plethora of regional integration initiatives, and the vast range of issue areas for cooperation, however, concrete results have so far been modest. Nonetheless, the need for greater regional cooperation to deal with areas of mutual vulnerability, particularly in the energy and environmental sectors, remains unabated.

Economy, Trade and Investment:

Kazakhstan holds the leading economic position in Central Asia. During the last five years (2000-2004), the economy has been growing at an average annual rate of 10%, one of the fastest in the world. Income per capita, at the end of 2005, is expected to rise to around $3200, some 75% higher than in 2000.

Kazakhstan’s economic boom is closely linked to the rich oil and gas resources in the west of the country, and offshore in the Caspian Sea. At present, Kazakhstan produces 1.1 million barrels per day of crude oil, but intends to triple this output in the next 10 years with 80% being exported. This increase will mainly come from the exploitation of three huge oilfields: Tengiz, Karachaganak, and Kashagan. It is also on the cusp of becoming a significant producer of natural gas. Indeed, it is estimated that the country’s GDP, which in 2004 stood at $40.7 billion, will double in size by 2008, and triple by 2015, as a result of increased oil and natural gas production.

The sustained high growth rates recorded in recent years are also reflected in the increased inflows of foreign direct investment (FDI) into Kazakhstan. Since independence, it has attracted some $34 billion of outside investment, giving it the highest FDI per capita rate amongst all CIS countries. In both 2003 and 2004, FDI passed the $2 billion mark.

Much of the increased attractiveness of Kazakhstan as a destination for foreign investment can also be attributed to the relative success with which its government has restructured its centrally-planned economy to move towards a more free-market based system. Its successes in this regard include:

  • The creation, almost from scratch, of a sophisticated financial services sector (the most advanced in the former Soviet Union)

  • Introduction of a private pension plan

  • Privatisation of the electricity industry.

  • Civil service reforms

  • Decentralisation to give greater autonomy to local government in its 14 administrative provinces.

  • Creation of a National Oil Stabilization Fund, which has hitherto accumulated more than $ 4 billion in oil revenue savings.

  • President Nazarbayev has also taken advantage of Kazakhstan’s oil and gas wealth to massively increase government funding of health, education and social welfare programmes. Indeed, a $2.5 billion rise in spending in these sectors is planned for the period 2005-8. The government has also demonstrated an increasing willingness to innovate in the sphere of science and technology, including the launch of an expanded three-year Space programme worth some $350 million.

    In spite of these achievements, a number of challenges remain to be dealt with if Kazakhstan is to maintain its current high rates of growth, FDI and government spending.

  • Diversifying the Economy: The Kazakh economy is currently heavily dependent on its energy resources, with oil and fuel products accounting 63% of the country’s exports in 2004. The distribution of FDI by sector is similarly unbalanced, with 46% going to the oil and gas sector, and only 0.03% to agriculture.

  • Competitiveness of non-oil exports: As a result of increased oil (and natural gas) exports, and significant capital inflows, particularly into the energy sector, the tenge is appreciating 8.4% a year against the dollar, making it difficult for other exports to remain competitive, and thereby hampering diversification.

  • Income inequalities: Although GDP per capita is estimated to have risen by 75% since 2000, the overall poverty rate remains relatively high (16-17%), and exceeds 25% in some rural regions. To counteract this, greater investment is needed in capital resources in the agricultural sphere.

  • EU-Kazakhstan bilateral relations:

    The leave sitePartnership and Cooperation Agreement (PCA) with Kazakhstan, initially signed in January 1995, has been the legal framework for EU-Kazakhstan bilateral relations since it entered into force at the start of 1999. In 2002, dialogue between the two sides was expanded by including Energy and Transport issues in the mandate of the existing Subcommittee on Trade and Investment (forming a new TIET subcommittee, and by establishing a new Subcommittee on Justice and Home Affairs (JHA). 2005 has seen the sixth meetings of both the Cooperation Committee (6th April, Brussels), and the Cooperation Council (19th July, Brussels), as well as the fourth meeting of both the TIET and JHA subcommittees (Nov 17th and 18th).

    The seventh Cooperation Committee was held in Astana in April 2006 and on July 18th 2006, the eighth Cooperation Council will be held in Brussels.

    With the PCA now being in its sixth year, its implementation is becoming ever more important. The Community’s technical assistance programme, Tacis, is now focusing more explicitly on PCA implementation projects in Central Asia.

    With the EU major revision of cooperation instruments under negotiation for 2007-2013, Kazakhstan should benefit from the Development Cooperation and Economic Cooperation Instrument (DCECI). To ensure continuity with the regional cooperation programme 2000-2006 and the associated assistance under TACIS Regional Programme, Kazakhstan may also benefit from funding through the European Neighbourhood Policy Instrument (ENPI) Eastern Regional Programmes on the basis of Art 27 of the ENPI Regulation.

    Aside from the PCA, other bilateral agreements are in force between EU and Kazakhstan. These include:

    • Steel Agreement: In operation 2002-4, but currently under renegotiation. Autonomous measures are in place for 2005.
    • Nuclear Safety: Agreement between Euratom and Kazakhstan on cooperation in the field entered into force in June 2003
    • Nuclear Fusion: Cooperation agreement signed in November 2002 and subsequently ratified.
    • Peaceful use of nuclear energy: Cooperation agreement currently under negotiation

    The EU is represented in Kazakhstan by 11 Member State Embassies (Czech Republic, France, Germany, Greece, Hungary, Italy, Lithuania, Netherlands, Poland, Spain and United Kingdom, as well as a Commission Delegation accredited to Kazakhstan, the Kyrgyz Republic and Tajikistan. Belgium will have an embassy in Astana in the course of 2005.

    The Community’s co-operation strategy towards the Central Asian region is set out in the leave siteCommission’s Strategy Paper for Central Asia 2002-2006.

    Political relations

    The EU has a vital role to play from Astana’s perspective as a balancer between the rival energy and geopolitical interests that Russia, China and the US have in Kazakhstan and the surrounding sub-region. Whilst recognising the geographical (and cultural) distance separating the country from the EU, Kazakhstan’s Foreign Ministry has expressed interest in the new European Neighbourhood Policy (ENP). It has also proposed to develop Kazakhstan’s bilateral foreign policy with EU member states through the broader framework of its policies towards the EU. This means that relations with the EU will be given precedence over those with individual member states.

    From the European Union’s perspective, Kazakhstan represents not only an important source of energy outside of the Middle East, but equally a guarantor of stability in Central Asia, and a potentially long-term strategic partner in the region. The EU considers Kazakhstan to be a trusted partner for achieving the objective of contributing to regional stability in Central Asia by promoting better cooperation among the countries of the region.

    Bilateral trade relations

    Kazakhstan is by far the EU’s largest trading partner in Central Asia. Bilateral trade between the two totals will exceed €10 billion (0.3% of total EU trade) in 2005, with the EU running a bilateral trade deficit of €2.5 billion. This is greater than the combined bilateral trade that the EU enjoys with the other four central Asian countries, and three southern Caucasus states put together.

    Exports from Kazakhstan to the EU are mainly made up of mineral products (fuel accounts for 85.4% of total EU imports from Kazakhstan), other raw materials and heavy industrial goods, including iron and steel and chemical products.

    A new EC-Kazakhstan agreement on trade in certain steel products was signed on 19th July 2005. This agreement sets quantitative limits for some flat steel products and will apply until 31st December 2006. It gives Kazakh steel producers larger opportunities as the quantitative limits were increased by 70% for 2005 and will reach a level of 205 000 tons in 2006.

    Kazakhstan has also applied to the European Commission to be granted ‘market economy’ status, and this request is currently under review by relevant services.

    See for more detailed information on bilateral trade the European Commission’s external trade website.

    Foreign investment

    Foreign Direct Investment from the EU has constantly increased since the early 1990s such that, by 2002, the EU had for the first time overtaken the US as the leading source of FDI in Kazakhstan. This position was confirmed in 2003, with 38.8% of total FDI coming from the EU, mostly from the UK, Italy and the Netherlands, the seats of leading oil companies. Over the last six years, Kazakhstan has witnessed unprecedented FDI growth rates in the last six years (from $1.8 billion in 1999 to $4 billion in 2004). This has meant that Kazakhstan’s FDI/GDP ratio has amounted to 7%, one of the highest ratios in the world. 80 to 90% of total FDI goes to the oil and natural gas sector, including not only large oil projects, but also a wide range of other activities supplying the oil and gas sectors (transport, services, infrastructure equipment and engineering) where many other EU companies are represented. EU investments in sectors unrelated to oil are relatively limited in comparison – but include banking, agro-business and metals.

    WTO accession

    Kazakhstan is presently working towards accession to the World Trade Organisation, an aspiration which the European Community is actively supporting through technical assistance (Tacis) for the necessary reform efforts. WTO accession should provide an opportunity to reduce existing trade barriers and push forward internal reforms.

    EU Assistance

    The Community’s co-operation strategy towards the Central Asian region is set out in the Commission’s Strategy Paper for Central Asia 2002-2006. A new Strategy Paper for Central Asia for 2007-2013 is under elaboration.

    The EU has provided assistance totalling € 1,132 million to the countries of Central Asia over the period 1991-2004. Out of this, € 516 million has been provided through the Tacis programme.

    Kazakhstan has received € 159.5 million through Tacis national allocations since 1991.

    The situation with respect to the most recent Action Programmes (AP) Tacis, FSP and EIDHR is the following:

    EC assistance to Kazakhstan 2001-2005: Main instruments

     

    TACIS

    EIDHR

    DIPECHO-Central Asia - (Disaster Preparadness) Total bilateral Kazakhstan
      Track I
    Central Asia
    Track II
    PCA/Tempus
    Kazakhstan
    Micro-projects
    Kazakhstan
    Regional
    Central Asia
       
    2001

    n.a.

    15

    1,120

    0,500

     

    16,12

    2002

    11

    6,3

    0,500

    0,520

    0,8

    6,8

    2003

    15

    6,3

    0,350

       

    6,65

    2004

    14

    6,3

    0,300

    1,00

    0,5

    6,6

    2005

    15

    6,5

    n.d.

    n.d.

     

    6,5

    Total

    45

    40,4

    2,270

    2,02

    1,3

    42,670

    From the budgetary year 2002 onwards, the Tacis assistance for Kazakhstan is based on the Strategy Paper 2002-2006 and the Indicative Programme 2002-2004 for Central Asia, which are based on the following “three-track” approach, consisting of 1) a regional programme, 2) nationally identified regional priorities and 3) poverty alleviation.

    From 2007 onwards, the EU assistance will be based on the Strategy Paper 2007-2013 and the Indicative Programme 2007-2010. The areas of priorities at the national level will the following:

  • Promotion of Central Asia regional cooperation and good neighbourly relations
  • Poverty reduction and increased living standards
  • Support for good governance and economic reform.
  • At the regional level, the projects will focus on:

    • Energy, transport networks and market integration
    • Environment
    • Border and migration management: the fight against organised crime and customs
    • Education, science and people to people activities.

    Success stories

    In Kazakhstan, Tacis has reached very positive results in projects implemented in the following sectors: public administration reform, support for the development of local governance, SME development and support for NGO development.

  • A good example of an individual highly successful project is the assistance to the Customs Dogs Training Centre in Almaty, which now trains customs dog handlers from other countries in Central Asia and thus contributes significantly to the fight against drugs.

  • Another example is the Tacis project to raise sanitary standards in laboratories in the fish industry in Atyrau on the Caspian coast. This project subsequently enabled Kazakhstan to resume its export of caviar and other fishery products to the EU in 2002.

  • Important regional Justice and Home Affairs programmes from which Kazakhstan benefits are the Border Management Inititiative for Central Asia (BOMCA) and the Central Asia Drugs Action Plan (CADAP), which are two major EC contributions to regional stability and the fight against drug trafficking and hence, indirectly, terrorism.

    For a full list of current EU-funded projects in Kazakhstan, please consult the Delegation website.

    Basic Data on Kazakhstan:

    Independence: 16 December 1991 (from Soviet Union)

    Constitution: Adopted by national referendum on 30th August 1995

    Legal System: based on civil law system

    Suffrage: 18 years of age: universal

    Executive Branch: President Nursultan Nazarbayev, re-elected on 4th December 2005 for a third seven-year term. The President is the chief of state, and appoints both the Prime Minister (currently Daniyal Akhmetov since 13th June 2003) and the Council of Ministers.

    Legislative Branch: Bicameral parliament comprising the Senate (39 seats; 7 senators are appointed by the President; the remaining 32 are popularly elected to serve six-year terms, two from each of the 14 oblasts, Astana and Almaty), and the Majilis (77 seats: members are popularly elected to serve five-year terms, with 10 selected from the winning party’s lists.) The last elections for the Majilis were held on 19th September and 3rd October 2004, with the ruling Otan party winning 42 seats.

    Government type: Republic

    Capital: Astana

    Area: 2,717,300 km2

    Population: 15,185,844 (July 2005 est)

    Population growth rate: 0.3% (2005 est.)

    Life expectancy at birth: 66.55 (UN, 2005.)

    Net migration rate: -3.34 migrant(s)/1,000 population (2005 est.)

    Ethnic groups: Kazakh 53.4%, Russian 30%, Ukranian 3.7%, Uzbek 2.5%, German 2.4%, other 8% (1999 census)

    Religions: Islam, Russian Orthodox, small protestant minority

    Languages: Kazakh (state language), Russian (official language)

    See for a fuller set of social and economic indicators the leave siteWorld Bank country fact sheet for Kazakhstan.

    Latest update: June 2006


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