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Kazakhstan eyes European investment in mining, energy
Question of the Day
BERLIN — Kazakh officials hope that recent trade deals with Germany and France will lead to a trade pact with the European Union that will fuel the Central Asian nation's economic development.
"The government is making a strong effort to go beyond oil and gas, and is seeking also to diversify its foreign investors, looking beyond China, the U.S. and Russia to Europe," said Robert Cutler, who specializes in energy security and geoeconomics at Carleton University in Ottawa, Canada.
Kazakhstan's economy recovered quickly from the global financial crisis of 2009, soaring to a growth rate of 7.1 percent in the first half of 2011 over the same period the previous year.
But growth rates are slowing: The economy is expected to grow 4.8 percent in 2012, Mr. Cutler said.
This slowing, along with a desire for political stability following social unrest among oil workers in December, prompted Kazakh President Nursultan Nazarbayev to announce in January efforts to further industrialize and diversify the economy.
"The energy sector is currently the single largest contributor to the state coffers and thanks to this, Kazakhstan has impressive economic growth," said Lilit Gevorgyan, an analyst at IHS Global Insight, an economic analysis and marketing intelligence firm in London. "But there are social consequences as well to this type of monotype economy."
'Virtual periodic table of elements'
Ms. Gevorgyan said deadly oil riots in the western town of Zhanaozen in December highlights the vulnerability of the former Soviet republic's long-term political stability. That has prompted Kazakh officials to promote small and medium-sized businesses and a "stronger and wider middle class."
Meanwhile, Europeans are searching for a reliable supply of industrial raw materials — and Kazakhstan's wealth of rare earth and other mineral deposits make it an attractive investment.
"Kazakhstan has long been known to be a virtual periodic table of elements," said Mr. Cutler. "The problems have been to develop the deposits and get them to market in a commercially viable manner."
Copper, zinc and other metals vital for industrial processes already are "on tap," Mr. Cutler said, adding that Kazakhstan now wants partners to help mine its uranium and rare earths.
In turn, "companies from developed capitalist economies have been lining up to try and negotiate deals," he said.
On Feb. 8, Kazakhstan and Germany signed trade and economic development agreements worth a total of $4 billion, which Mr. Nazarbayev described as a "breakthrough" in a joint press statement with German Chancellor Angela Merkel.
Kazakh and French officials discussed similar bilateral deals in mid-February.
One central aspect of the Kazakh-German deal established a partnership on raw materials, industry and technology between the two governments.
One of the world's largest manufacturing sectors, Germany is among the largest consumers of raw materials and depends heavily on the import of industrial metals and minerals.
A steady supply of rare earths — which are used to manufacture items such as computers, batteries, catalytic converters and solar panels — is high on Germany's agenda.
"Access to raw materials is not only dependent on technological possibilities but also on an economic and political framework," German Economics Minister Philipp Rosler said after the deal was signed. "The agreement with Kazakhstan establishes that framework, which will allow [German and Kazakh] businesses to move forward with contracts."
For Kazakhstan, Germany's expertise in metallurgy and green growth make it an attractive partner, which could pave the way for joint initiatives in other sectors like construction, industrial and agricultural engineering, transport and energy efficiency, analysts said.
While in Berlin, Mr. Nazarbayev appealed to industries to "bring German technology and German machines to Kazakhstan," and work with Kazahks in the chemistry, rare earths, pharmaceuticals, metallurgy and oil and gas sectors.
The Kazakh-German deals were signed just days after Kazakh Foreign Minister Erzhan Kazykhanov revealed on a visit to Washington that his country hopes to sign similar deals with the European Union, which Mrs. Merkel has said Germany would back.
Over the past year, Kazakhstan has renewed economic and trade ties with France, Italy, Great Britain, Austria and Switzerland. In September, Mr. Nazarbayev visited Paris to oversee the signing of agreements on mining, energy and aviation between France and Kazakhstan.
Energy efficiency and environmental sustainability also are becoming increasingly important for Kazakhstan: Mr. Nazarbayev said in Berlin that his nation would adopt a leading role in the promotion of green growth in Central Asia.
The Kazakh Ministry for Industry and New Technology signed a non-legally binding declaration of intent with the German Environment Ministry, promising to deepen cooperation in energy saving, energy efficiency and renewable energy.
In return, the German Environment Ministry has signaled it will support Kazakhstan in creating a national emissions trading scheme modeled on the European one, to be set up this year.
But some observers are not convinced.
"The Kazakh government has hailed plans of developing IT [information technology] and green technologies, but realistically they are likely to continue to focus on the nation's mineral wealth," Ms. Gevorgyan said.
For all the talk of diversification, Ms. Gevorgyan said the big deals still are conducted on the state level and little is done to nurture medium-sized businesses that "still face nepotism, corruption and ineffective bureaucracy."
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