Ш. АБЖАЛЕЛОВА

Казахская инженерная, финансово-банковская академия

магистр экономических наук

ABGALELOVA SHOLPAN

European union and Kazakhstan: cooperation and post-crisis outlook Introduction

The EU and Kazakhstan have been partners since the country’s independence, sharing a dialogue which has continually expanded. The diplomatic relations between the EU and Kazakhstan, which began over 15 years ago, have developed into an active and comprehensive long-term partnership. In the early years of cooperation this dialogue initially focused on trade and investment, but since 2002 many other important issues have been included, such as energy, transport as well as justice and home affairs.

Form of cooperation

After the first agreement between the EU and Kazakhstan on textiles and nuclear safety was concluded in 1996, the Partnership and Cooperation Agreement (PCA) between the European Union and Kazakhstan entered into force in 1999, opening a new era of EU-Kazakhstan cooperation. A number of other agreements were subsequently concluded in areas of mutual interest, including energy, transport and nuclear cooperation.

In 2007, EU Foreign Ministers further enhanced political relations with the adoption of the EU and Central Asia: Strategy for a new partnership. The strategy aims at enhancing the EU’s relations with the region as a whole and with each of its individual countries. It sets priorities for cooperation in six main areas: democracy and human rights; education; trade and investment; energy and transport; the environment and combating common threats and challenges. In 2008 Kazakhstan respectively adopted a national strategy called “Path to Europe” which sets out an ambitious program of reform to bring Kazakhstan closer to European and international standards in a multitude of spheres.

The political dialogue between the European Commission and Kazakhstan is held in various formats: at the level of EU-Central Asian foreign ministers meeting, Cooperation Council, Cooperation Committee, Sub-Committees on specific issues such as trade, energy and transport, justice and home affairs and since 2008 an annual Human Rights Dialogue. Political leaders also meet on the sidelines of major international meetings such as the UN General Assembly.

Economic relations

The EU has progressively become Kazakhstan’s first trading partner, with a 40% share in Kazakhstan’s total external trade. 48,7% of all Kazakh exports go to the EU, while 27,4% of all imports originate from the EU. The CIS countries and China are other main trading partners.

Technical assistance is an important dimension of EU-Kazakhstan relationship in terms of improvement of business climate, development of legal framework, development of SMEs, etc. Since 2005, several trade related projects have been financed by the EU with an aim to support WTO accession in Kazakhstan and develop trade policy. In 2008 the EU launched the Central Asia Invest program and supports the joint Eurasia Competitiveness Program – Central Asia Initiative.

The EU-Kazakhstan bilateral trade has been growing strongly in the recent past. Over the last decade, both exports to Kazakhstan and imports from Kazakhstan saw significant increases in money terms. Exports of Kazakhstan increased from € 1.1 bn in 1999 to a record high of € 6.0 bn in 2007. However, both 2008 and 2009 saw a slowdown, reaching € 5.4 bn in 2009. The imports from Kazakhstan grew at a much faster rate. They increased from € 2.0 bn in 1999 to € 17.8 bn in 2008, a 9-fold increase in as many years. The year 2009 experienced a decrease of 42%, reflecting the falling price of mineral oil and the worldwide financial and economic crisis. It is worth mentioning that the negative balance in trade with Kazakhstan has widened in recent years, as the imports from Kazakhstan surpassed by far the exports. In 2009, the EU had a deficit of € 5 bn in trade with Kazakhstan (€ - 12.1 bn in 2008).

In the last few years Kazakhstan was able to attract a large amount of foreign direct investments (FDI). In 2008 the total FDI inflows reached almost € 11 bn. In 2009, as a consequence of the world economic crisis, they went back to € 9.0 bn, more than level of 2007. The EU is the biggest foreign investor in Kazakhstan, accounting for more than half of the country’s total foreign direct investment. FDI inflow from the EU Member States in 2008 amounted to €6.5 bn. The two-thirds of this investment go to mining and extraction, and a quarter to services in geological exploration. Besides oil and gas, the EU investments are directed to a large range of sectors, including agriculture, food-processing, engineering, construction, services, banking and transport.

Recently, a Framework Agreement has been concluded between the Republic of Kazakhstan and the European Investment Bank. This will lay the cornerstone for mutually beneficial cooperation in future and help Kazakhstan to attract the long-term and reasonably-priced credit resources for infrastructure projects.

EU and Kazakhstan Cooperation Programs and Projects

Through manifold cooperation and assistance programs the EU further promotes stability and prosperity in the region, thus making Kazakhstan a reliable partner for the EU with shared principles and goals. Since 1991, more than 300 projects amounting to € 140 million have been funded by the EU to support Kazakhstan directly. The biggest share of this funds is allocated to policy advice and technical assistance to the government based on European experience, in sectors jointly identified as priorities.

Economic and Social Development, Investment and Trade

The EU has always supported Kazakhstan’s efforts towards economic diversification by offering economic know-how and expertise, as well as assistance in the preparations for WTO accession. The EU initiated its first action to support the development of small and medium enterprises (SMEs) in Kazakhstan as early as 1994. Kazakhstani SMEs benefited from 10 national and 2 regional programs with a total funding of € 10.7 million. The EU support programs in the field of SME development were particularly focused on upgrading professional skills of local staff and reinforcing networking with European partners. In 2009-10, the Central Asia Invest (CAI) program provided an additional € 5.4 million to strengthen small and medium businesses in the region.

Strengthening Energy and Transport links

Kazakhstan and EU’s relationships in the energy and transport sector are of great importance to both countries. There is common interest in diversifying export routes, demand and supply structures and energy sources. A constructive dialogue based on the Energy Memorandum of Understanding has built a platform for Kazakhstan and Europe’s closer cooperation in the field of energy. INOGATE (Interstate Oil and Gas Transport to Europe) is one of the core programs which support the European Union and Kazakhstan’s cooperation in enhancing energy security, supporting sustainable energy development and attracting investments towards energy projects of common and regional interest. More than € 70 million has been allocated under INOGATE. The main flagship program in the transport area is the TRACECA (Transport Corridor Europe-Caucasus-Asia) program which aims at supporting the political and economic development in the region, by means of improving international transport links. Cooperation in this area was further enhanced thanks to the signing in June 2009 of a Memorandum of Understanding in the field of transport networks development between the EU and Kazakhstan.

Environmental Sustainability and Water

Both, Kazakhstan and Europe face specific challenges in the field of environment. Access to water, climate change and sustainable use of natural resources: these issues have been at the top of the global and regional agendas for several years. The EU collaborates with Kazakhstan and other Central Asian partners, their governments, other local and international organizations to help face these challenges. The cooperation of Kazakhstan and the EU in the field of environment protection is aimed at developing a functioning system of pollution and compliance charges, improved waste management, improved environmental monitoring and enforcement of regulations, reduction in pollution, improved river basin management. More than 3 million Euros are allocated to implement projects in this field.

Education and Research

Good education at all stages is essential to fully develop the enormous potential of Kazakhstan’s youth. With its focus on vocational education, higher education and research, the European Commission cooperates with Kazakhstan closely in those areas where European practice and experience can serve to best address the needs of partner countries and where mutual links contribute to building stronger partnerships. Scholarships, joint research hand exchanges between European and Central Asia Universities are at the centre of many European Commission education programs such as Erasmus Mundus, CAREN, Joint Research Framework Program and Tempus. The implementation of the Education Initiative for Central Asia under the EU-Central Asia strategy is well advanced, including increased scholarship exchanges and increased assistance to capacity building.

Strategies for Post-Crisis Period: EU dimension and EU-Kazakhstan cooperation

Amid signs that the global financial and economic crisis is waning out, national governments and international organizations are involved in preparing strategies for the way forward and to unwind the huge stimulus packages that have been deployed to combat the crisis. Both the European Commission and the government of Kazakhstan have announced their respective “Strategies 2020” for a successful exit from the crisis and to achieve sustainable economic and social development. These strategies are meant to bring forward necessary transformation and to put the countries back on track.

The Europe 2020 strategy is a fresh approach designed to help Europe exit the current crisis and move beyond. Three priorities lie at the heart of the new strategy:

- Smart growth: developing an economy based on knowledge and innovation.

- Sustainable growth: promoting a more resource efficient, greener and more competitive economy.

- Inclusive growth: fostering a high-employment economy delivering social and territorial cohesion.

EU targets, adopted by the European Council on 25-26 March 2010 include:

- Increase the employment rate: the employment rate of the population aged 20-64 should increase from the current 69% to at least 75%, including through the greater involvement of women, older workers and the better integration of migrants in the work force.

- Improve R&D and innovation intensity: the current EU target of investing 3% of GDP in R&D should be kept, but the focus should be on impact rather than input. The Commission proposes developing an indicator which would reflect R&D and innovation intensity.

- Achieve the 20-20-20 environmental goals: reduce greenhouse gas emissions by at least 20% compared to 1990 levels or by 30%, if the conditions are right; increase the share of renewable energy sources in our final energy consumption to 20%; and a 20% increase in energy efficiency.

- Raise educational levels, in particular by reducing school drop-out rates and increasing the share of the population having completed tertiary or equivalent education. Targets will be set in June 2010.

- Promote social inclusion, in particular through the reduction of poverty. Further work is needed on the indicator for this target. Heads of State and Government will return to this issue in June 2010.

On the other hand, the Government of Kazakhstan formulated strategy 2020 focusing on three primary areas: improvement of business climate; stable functioning of the financial system; and improvement of reliable legal environment. By 2020, Kazakhstan plans to enter the top 50 countries for most favorable business climate. With an integrated approach in place for development, entrepreneurship is at the heart of state policies. The comprehensive information packages, soon to be launched, will be called “The 2020 Business Road Map” and will aim at “enforced industrial and innovative development”. This program will comprise industrial diversification in non-resource sectors based on state actions to support business initiatives.

Future outlooks

Both, Kazakhstan and the EU are facing new challenges which can only be successfully tackled through joint efforts and common work. These include: coping with the pressure of living in an ever-globalizing world, tackling climate change and dealing with illegal migration, fighting terrorism, and increased drug and human trafficking from Central Asia to Europe.

There are also many important events which are bound to affect EU-Kazakhstan economic relations in the near future. One of the key challenges is mitigating the consequences of the global financial and economic crisis. This is an area where Kazakhstan and the EU should work closely together. The European Council kicked off the Europe 2020 Strategy at its spring 2010 meeting on 25-26 March by agreeing on the thematic priorities for the strategy, setting a number of headline targets and eliciting proposals for flagship initiatives from the Commission. European leaders also agreed that the European Council must improve the economic governance of the European Union and increase its role in economic coordination and the definition of the European Union growth strategy.

The EU will continue to support Kazakhstan’s quest for economic reform, diversification and private sector development. The EU will also support Kazakhstan’s efforts for accession to the WTO providing trade-related technical assistance and policy advice to facilitate the creation of legislative and institutional frameworks, as stronger convergence of Kazakhstan toward EU standards and its regulatory system would be beneficial to further increase trade flows and investments.

Acknowledging the importance of economic diversification in Kazakhstan, the EU will continue to support initiatives for know-how transfer and capacity building, with a view to promoting sustainable development by improving local skills and potential (science and technology, innovation, tourism), promotion of SMEs, development of basic infrastructure.

Mutual cooperation in the nearest future in the energy field will be continued in a number of ongoing and planned regional assistance projects. The energy dialogue will be extended to cooperation in new areas in the nearest future, such as energy efficiency, renewable energy, clean coal technologies and carbon capture and storage issues as well as development of energy infrastructure.

The main areas of the EU and Kazakhstan’s cooperation in the transport sector will be the extension of trans-European transport networks as well as EU Black Sea regional transport cooperation. The dialogue will be conducted in the framework of TRACECA and other cooperation programs and projects.

The European Commission will continue to harbor close dialogue with Kazakhstan in the environment field. Adoption of climate change mitigating measures, preserving biodiversity, using water resources more responsibly will remain the main priorities in this area. The role of the Central Asia Regional Environmental Centre (CAREC) will be important in environmental protection and sustainable development, and in particular the preparation of the ministerial conference “Environment for Europe”, that will be held in Astana in 2011.

Although many things have been achieved thanks to the EU and Kazakhstan’s constructive dialogue and common work, there is much more to be done. The partnership between the EU and Kazakhstan is a long term commitment which will continue to bear fruit as it deepens. Kazakhstan and the EU are currently taking stock of their achievements with a view to renewing their Partnership and Cooperation Agreement to reflect the progress achieved in the last decade and tackles the challenges ahead. Kazakhstan has set an ambitious goal – to be among the world’s most competitive countries. The EU, together with the EU Delegation is ready to work closely with Kazakhstan to help it achieve this.

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