Yerlik Ali. Kazakhstan's Export Opportunities in the African Countries

Yerlik ALI

Kazakhstan's Export Opportunities in the African Countries

Over the past 15 years, African economies have experienced unparalleled rates of economic growth. The continent as a whole has achieved significant success in its development.

The dynamics of economic development in Africa are driven by the improvement of economic and political management, creation of a business climate and an increase in foreign capital inflow.

The previous two-decades growth resulted in a significant increase in the number of middle-class population in Africa. According to analysts, the aggregate middle class of the Dark Continent will keep growing and its share of the population will reach 40-42 percent by 2060. At the same time, it is expected that the poverty level, by contrast, will decrease and the proportion of people living on less than $1.25 a day will decrease down to 30–33 percent in 2060 (in 2010 - 44 percent).

However, the economic growth is not uniform and is not observed in all countries of the continent. Only those which have significant natural resources, political stability and managed to develop realistic programmes of economic reforms have achieved the greatest success. Among such countries, we can distinguish primarily the sub-Saharan states.

The main drivers of the African economy are Egypt, Nigeria and South Africa. The dynamically developing countries include Angola, Burkina Faso, Chad, Côte d'Ivoire, Ethiopia, Ghana, Kenya, Malawi, Mauritania, Mozambique, Niger, Rwanda, Senegal and Uganda. Among the failed economies are Burundi, Democratic Republic of the Congo (DRC), Republic of the Congo, Somalia, South Sudan and Zimbabwe.

In general, as UN experts point out, production in Africa, both in general and per capita, will steadily grow until 2050-2060. By that time, most African countries, the population of which is expected to reach 2.7 billion people (in 2010 – one billion people), will be among upper-middle-income countries.

The International Bank for Reconstruction and Development (IBRD) makes even more optimistic forecasts - most African countries will receive the status of middle-income countries (defined as at least $1,000 per person per year) by 2025 if the current growth rates are maintained.

In 2013, Africa was already the fastest growing continent in the world – 5.6 percent per year. The African Development Bank estimates that cumulative GDP will grow at an average of 6 percent per year until 2023. For example, in 2007, in terms of GDP growth, Africa outperformed East Asia and steadily holds this advantage.

Africa has vast natural resources and is the youngest continent in the world in terms of the share of young people.

Fifty-four African countries are of great interest to international investors as a commodity market and a rapidly growing consumer market. Social and economic reforms comprehensively carried out on the continent have become irreversible. Countries are at the stage of primary industrialisation and infrastructurisation.

We can state the beginning of the implementation of large-scale transit, transport, water and energy projects linking the Dark Continent from west to east and from north to south. The African Union, at the behest of the leaders, makes efforts to create a “pan-African" favourable investment climate conducive to a rapid return on investment (experts note that the return on investment period is one of the shortest in the world). Agenda 2063, an ambitious but fully realistic continental comprehensive programme, has been adopted. The economic, trade and investment links of African regional economic organisations (Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), Economic Community of Central African States (ECCAS) and Economic Community of West African States (ECOWAS)) are growing.

https://au.int (African Union)

International investors race to invest in Africa. Among the major countries of the world – India, Korea, People's Republic of China (PRC), Turkey, the USA and the European Union (EU) – which have long and systematically invested and traded with the continent, we can see the growing number of middle-level countries that are in a hurry to take their place in Africa.

There is a positive perception of the potential of the continent despite the longstanding problems of the region; namely hunger, inflation, poverty, corruption and authoritarian political regimes. However, in most African countries we can clearly see the development of democratic processes and confident steps towards improving economic policy.

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As for the export opportunities of Kazakhstan in Africa, it should be noted that there are niches on the continent that can be filled by Kazakh business and bring substantial benefits. These areas primarily include pharmaceutical and chemical industries, the food industry, engineering, agriculture and mining. There are favourable opportunities for the participation of Kazakhstan's construction companies in building road infrastructure facilities, prospects for the supply of weapons and military equipment to the African market and possibility of training African students in higher educational institutions of Kazakhstan.

The pharmaceutical industry in Africa today is not properly developed and is almost entirely focused on import. The market is not developed, but the potential is multi-million.

Due to the tropical climate, widespread poverty and poor nutrition, food shortage and limited access to vaccination and quality medical services, the African population is prone to various diseases. The World Health Organisation (WHO) estimates that 24 percent of all global diseases are in Africa. In addition, it meets almost no basic hygienic and sanitary standards. In this case, we should note the actual absence of the production sectors of the pharmaceutical industry. For this reason, African countries are heavily dependent on the import of drugs and medicines. As we see it, this market segment is promising for Kazakh manufacturers.

The export of products of Kazakhstan's chemical industry is a favourable area. Considering that there is practically no domestic production in Africa, and the growing agribusiness needs these products, Kazakh businesspeople could well have been able to supply fertilisers and mineral raw materials to the African market.

There are opportunities for the export of processed agricultural products. This category includes flour, cereals, fats and oils and confectionery. Our businesspeople have accumulated experience in this area, since in 2018 Kazakhstan exported processed products to 48 countries of the world. At the same time, such factors as the constantly growing population, undeveloped industry and industrial infrastructure, inefficient agriculture management and absence of agribusiness reinforce the trends associated with the import of these products.

Agriculture is the basis of the economy of the Dark Continent countries. The arable land development level remains low. These countries need to carry out agricultural research.

The African market is attractive for the export of the whole range of products of Kazakh engineering – transformers, batteries and bearings, as well as metallurgical products (ferroalloys and steel pipes). Considering that agriculture plays the main role in the economy of the absolute majority of African countries, the demand for agricultural equipment and components is steadily increasing. In this context, it would be quite possible to use the capabilities of the Pavlodar Tractor Plant and other of Kazakhstan's enterprises.

In supplying military and technical products, it is difficult to compete with such major players as the PRC, Russia and the USA. However, given the growing need of the continent in armaments, military equipment and component materials, particularly Russian ones, we could consider the possibility of Kazakhstan Engineering entering the African market, which includes more than 20 military enterprises and is under the trust management of the Ministry of Defence and Aerospace Industry of Kazakhstan. In this regard, the invitation of African countries to the KADEX international exhibition, held annually in Kazakhstan, seems promising.

Assistance in training African personnel in educational institutions of Kazakhstan could serve as an important area of Kazakhstan-Africa cooperation. It should be noted that Kazakhstan, as early as in the 1980-1990s, trained qualified personnel for African countries. We need to renew the good tradition of the past and provide African students with the opportunity to study in Kazakhstan.

We are dynamically developing trade and economic relations with such African countries as Algeria, Côte d'Ivoire, DRC, Egypt, Ghana, Kenya, Morocco, Rwanda, Senegal, South Africa and Tunisia.

Over the past three years, there have been positive trends associated with an increase in the turnover of goods with the countries of North Africa, which on average have doubled and in monetary terms have amounted to tens of millions of dollars. For example, in 2018, the trade turnover with Morocco increased by 67 percent reaching $145 million; with Tunisia, by 66 percent amounting to $42.2 million; with Algeria, by 51.5 percent reaching $146.7 million and with Egypt, by 25.6 percent amounting to $83.9 million. In all these countries, with the exception of Egypt, Kazakh export exceeds import. Sulfur (all types), gas, petroleum products, flour products and metal products are among the most important export items.

Export prevails in trade and economic cooperation with South Africa. In 2018, this indicator amounted to $24.6 million, while the total turnover was $46.9 million. The main item of Kazakhstan's export is sulfur, which is used as a raw material for the production of agricultural fertilisers.

Among the East and West African countries, Senegal is the most promising one in terms of increasing Kazakhstan's export. At the end of 2018, export to this country amounted to $13.18 million out of a total turnover of $13.19 million. Sulfur (all types) and polyphosphates are among the most important export items. As for Côte d'Ivoire, Ghana, Kenya and Rwanda, trade and economic relations with these countries are dominated by import; tea, coffee and cocoa are traditional export items for these countries.

Economic relations between Kazakhstan and Ethiopia are developing. By the end of 2019, construction materials production will be launched in the north part of the country with the assistance of Kazakh investment. Kazakhstan also invests in the DRC.

In the whole, Kazakhstan's export to African countries in 2018 reached $582 million, while cumulative export is almost two times more than import. A conservative estimate shows that domestic export could increase significantly over the next two-three years.

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In addition to increasing Kazakhstan's export, it is also necessary to develop investment cooperation with African countries. In this context, contacts could be developed on the principle of Kazakh investment in return for increasing export. This mechanism is quite applicable in the social and economic conditions of the African countries, which have a strong need to attract foreign investment and are in constant search for new partners.

To fulfill these tasks, African countries have created favourable investment opportunities in accordance with which the rights of foreign investors are protected and the state does not interfere in their affairs. Conditions have been created for the free movement of capital both within countries and beyond. The economy of African states is characterised by a sufficient degree of openness.

Among the advantages of doing business in the developing economies of Africa are the following: a wide range of opportunities (benefits, preferences, tax holidays) in various promising sectors; market scale and potential, as well as limited competition; simplified procedures for starting a business; relatively safe and stable business environment; adequate level of education among the local population and knowledge of English.

Significant prospects will be opened up by the entry into force of the African Free Trade Zone, which unites 44 countries and is the first step towards the creation of a common African market. To date, the relevant agreement has already been ratified by the parliaments of 21 countries. Upon ratification of the document by 22 countries, the agreement will enter into force.

There are certain historical grounds and opportunities to further develop and strengthen Kazakhstan's relations with African countries.

First, being a young and independent state, our country has never acted as a coloniser and this is a crucial aspect in relations with the countries of the continent and in recent times, we have already provided material and technical assistance to several African countries. In addition, the peoples of many African countries still have positive memories of Soviet assistance, which our country was a part of.

Second, the position of Kazakhstan in international affairs, including international peace initiatives, reforming the UN and the Security Council, countering international terrorism, anti-nuclear initiatives, etc., is close to most African countries. In this regard, it should be noted that during the UN General Assembly sessions, in more than 70 percent of cases African states voted in solidarity with Kazakhstan during our membership in the UN Security Council.

Third, a number of countries of the continent consider Kazakhstan as a new partner for business development, investment attraction and import growth.

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As it is known, since the beginning of 2019 a set of measures has been launched in Kazakhstan to expand the geography of supplies and the range of goods totaling 500 billion tenge (US$1.3 billion). It is expected that credit financing of exporters through the instruments of the Development Bank of Kazakhstan will increase by 80 billion tenge (US$207 million). New types of state guarantees in the amount of 102 billion tenge (US$264 million) will be introduced and mechanisms will be implemented to reimburse part of the transportation costs of domestic exporters. There are plans to organise trade and economic missions, national exhibitions abroad, product marketing promotion, comprehensive analysis of sales markets, reimbursement of a part of the product certification costs to exporters, etc. These export support tools can contribute to access to new markets, including Africa.

Kazakhstan is implementing a national export strategy, the output of which is expected to increase non-resource export 1.5 times by 2022. At the same time, the agricultural sector should become a driver of the economy. For a number of African countries, we can become an exporter of agricultural products; we can also produce organic food with further export to Europe and America. In this regard, the statement of Elbasy Nursultan Nazarbayev about the need to revise the principle of subsidies and the transition to product insurance is relevant. This is how all foreign companies of Asia and Europe work with African partners, insuring their products.

Over recent years, the manufacturing industry has reached 32 percent in the total export of Kazakhstan. The state provides financial and service support to exporters, covering more than 1,800 commodity producers. At the same time, the key sales markets are China, the Eurasian Economic Union (EAEU) and the EU countries, together covering 65 percent of export. In addition, every year seven-eight new products are brought to foreign markets. This increasing export potential should also be focused in the African direction. However, at present, 27 countries have been identified as promising sales markets for goods and services, among which there is not a single country of the Dark Continent. That is, Africa is out of the sight of the state agencies that are aimed at developing export on all continents. This fact holds back Kazakh exporters, since the support and participation of the state is important for them at the initial stage.

The export growth programme of Kazakhstan provides for a 40-percent increase in food export by 2021. It is Africa that can become a promising area, where annual demographic growth ranges from 2-2.5 percent or 20-25 million people per year.

By 2020, about 658 investment projects worth about $59 billion will be implemented in Kazakhstan. In addition to the export growth, the product line has also expanded – supplies of household appliances, buses, metal rolling products, construction materials, vegetable oils, sugar, paper and other products increased to foreign markets. The export of these goods amounted to $1.5 billion. All products are valuable and can be competitive in the African market.

We believe that in order to implement these goals, it would be appropriate to establish a Business Council for the cooperation of Kazakhstan with the countries of Sub-Saharan Africa, open KazakhInvest front offices in countries where we are developing trade and economic ties, establishing contacts between business circles and creating joint ventures.

In addition, it would be useful to sign a free trade agreement between the EAEU and the most active countries of the continent taking into account prevailing Kazakh export. This document would increase the export of Kazakhstan's non-resource products by opening the markets of these countries, simplifying trade customs procedures, eliminating tariff and non-tariff barriers and deepening cooperation in a number of priority economic sectors.

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In conclusion, it should be emphasised that the national programme for the export development of the country has been drafted; all that remains is to implement it and the African vector could serve as a one of the promising areas. Kazakhstan is only at the stage of showing its growing interest in developing cooperation with African countries. We are still at the beginning of this promising path. Domestic business is eyeing up, estimating the risks and opportunities, and it needs help and support.

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ABOUT THE AUTHOR. Yerlik Ali – Ambassador Extraordinary and Plenipotentiary of the Republic of Kazakhstan to the Federal Democratic Republic of Ethiopia, Permanent Representative of the Republic of Kazakhstan to the African Union. He has been holding responsible posts of the civil service of Kazakhstan since 2007.

He has the diplomatic rank of Second-Class Envoy Extraordinary and Minister Plenipotentiary. He is fluent in English. He has state awards: Kurmet Order (2012) and commemorative medals.

Created at : 13.06.2019, 11:45, Updated at : 13.06.2019, 11:45