«We need to look into the past in order to understand the present and foresee the future»
N.A.Nazarbayev

Highlights of Economic Development of EAEU

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The need to maximize benefits offered by the Eurasian economic integration requires attention to the following problems and to their solutions.

The need to maximize benefits offered by the Eurasian economic integration requires attention to the following problems and to their solutions.

1. High priority solution of key problems that form the basis for integration.

On 24 December 2013, at the meeting of the Supreme Eurasian Economic Council in Moscow, the President emphasized that «at this stage, it would be more relevant to focus on a coordinated and coherent policy, on the formation of a common market in the areas that are of interest to all the participants. In areas where we have reached a single policy level, such as trade policy with third countries, and this must surely be preserved. However, in other areas, I find it redundant to use such comprehensive concepts as «common policy» and «common market».

Earlier, on 24 October 2013, at the meeting of the Supreme Eurasian Economic Council in Minsk, the President of Kazakhstan reiterated the need of «focusing on finalization of agreements reached in the field of oil and gas transportation, railway tariffs, and electricity».

2. The main efforts of the Customs Union and the Common Economic Space should be aimed at achieving the major impact of modernization and efficiency improvement of extraction and processing of raw materials.

A significant part of the industry of Belarus, Kazakhstan and Russia must be targeted at resolving this task. At the same time, the modernization of extractive industries, fuel and energy, and chemical and metallurgical complexes stimulate the development of many related industries, which must become technological.
In his address to the participants of the VIII KAZENERGY Eurasian Forum, the President of Kazakhstan, Nursultan Nazarbayev, said, «Kazakhstan remains committed to mutually beneficial international cooperation in the energy sphere. One of the principles of the country’s development is the transition from raw material extraction to cooperation in the field of processing energy resources and exchange of the latest technologies».

Obviously, in the short run, one of the key tasks of Kazakhstan and Russia should be developing a common energy strategy in the framework of the Eurasian Economic Union. It is necessary to find the most optimal and rational strategy for the use of huge oil and gas reserves, as well as coal and uranium.

Speaking at the same forum, the Minister of Energy and Infrastructure of the Eurasian Economic Commission, Danial Akhmetov, stressed the importance of increasing the efficiency of extraction of raw materials and introduction of new technologies in this field. A key factor is the development of pipeline transportation to expand the geography of supplies, mainly in the direction of Southeast Asia and China. It is equally important to improve the quality of public and corporate governance of the oil and gas sector. According to him, cooperation in the oil and gas industry will determine the «role and place of the integration association created by Russia, Kazakhstan and Belarus in the world’s energy market».

Among the main challenges in this field, according to the Minister of the EEC, are the currently developed alternative methods of extracting oil and gas. «According to experts, in the past five years, the production of shale oil has increased from 8 million in 2007 to 100 million last year (2012 — editor’s note.), Shale gas production is growing almost at the same pace. „Shale revolution“ has led to radical changes in the structure of the world market: scientists predict that after 2020 there will be a new technology, which will engage the deposits of China, Jordan and Mongolia into production, and in the case of this scenario, there will be an inevitable decline of extraction in traditionally exporting countries," said D. Akhmetov.

According to the EAEU Treaty, the formation of a common market of oil and petroleum products and the provision of access to the gas transmission infrastructure will be realized in stages by 2025, based on the progressive development of concepts, programs and agreements.

3. Development of the common transport and communication infrastructure, connecting Europe and Asia, the Euro-Atlantic, Asia-Pacific and North American economic regions.

It is necessary to build transport and information communications not only on a national scale or even a group of countries, but as a whole, based on the interests and characteristics of all the Eurasian space. Nursultan Nazarbayev emphasized, „In economic terms, we cannot just become a bridge (it is too utilitarian and narrow). We must become a competitive economic and communicative space that links dynamic economies of the European Union, East, South-East and South Asia“.

We should create global transport and logistics hubs, transnational freight forwarding corporations with the latest logistics and information technologies, and advanced international standards, to reduce transcontinental costs significantly.

The highway „Western Europe — Western China“ is already being built across the territory of Kazakhstan, Russia and Belarus and it will speed up the supply of goods to the markets of these regions by 3.5 times.
According to the EAEU Treaty, access for road transporters to the domestic market of each of the Member States will be provided in stages. This aspect will be described more in details in the program of transport liberalization, which will be developed by 1 July 2015. Liberalization is scheduled for the period from 2016 to 2025. In particular, Kazakhstan will provide access to the domestic market from 2025.

Currently, within the framework of transformation of the common customs zone into a common economic space, experts of the three countries identified activities for the creation and development of an integrated information system of foreign and mutual trade of the Customs Union. An agreement on information exchange in the field of statistics was signed.

4. Building an important competitive advantage of Kazakhstan, Russia and Belarus in food production.

Considering the growing demand for food in the world, Nursultan Nazarbayev believes that „In the framework of the SES and the CIS, it is important to seek to create a Eurasian food pool. This project is important not only in terms of providing the population with food produced in the member states of the SES, but also in terms of creating favorable conditions for export of food outside the SES. We are able to coordinate the development of national agro-industrial complexes, especially, the grain industry, to develop the foundation for a common competitive and export policy in the global food market, to use the national infrastructure network consistently for external supplies of grain“.

Similar opportunities exist in meat production.
When the EAEU Treaty was prepared, Kazakhstan achieved agreements on developing by 2016 of a new method of calculation of the state support of agriculture based on international principles. This will strengthen the support of domestic agricultural producers and make this support equal to the support in Belarus and Russia.

Altogether, this will help to convert the Eurasian integration into an important incentive for development of agriculture in the participating countries; this will lead to a reduction in the costs of transportation, storage and sale of agricultural products and make it possible to form new market institutions in the agro-industrial sphere (insurance, banking, leasing, exchanging, etc.)

By now, the Concept of Coordinated Agricultural Policy of the Customs Union and Single Economic Space member states has been approved.

5. Increasing the rate of accumulation and concentration of investments in breakthrough areas of global economic growth.

In the last decade, despite the crisis in advanced countries, the expenses for developing the components of a new technology system and the scale of their application has grown at a rate of about 35% per year.
According to the Deputy Prime Minister, Minister of Industry and New Technologies, Asset Issekeshev, Kazakhstan’s funding of the SPAIID from the state budget is not enough. If one looks at the targeted transfers focused on diversification, like the program „Performance-2020“, their share is less than 5 percent of the state budget.
Both within each country of the CU and the SES and on the scale of the entire integration project, investments into the production of the new technological system must be increased annually at least by a factor of 1.5. The total share of R&D expenditure in the GDP should reach 4%.

6. Changing the position of the private sector in the transition to innovative development.

For the time being, most entrepreneurs are not ready for qualitative changes and for transition to a new format of doing business.In this regard, the accession to the WTO is a necessary shock therapy that is required for a „reset“. Here, the CU and the SES play a very important role as a preparatory platform for a smooth transition to functioning in open international markets with common trade rules.

It is advisable to take advantage of two factors. Firstly, a significant portion of innovative development projects must be implemented by state agencies for state money, and only when these projects follow the trajectory of new technology development opportunities, they may be transferred to the private sector. Secondly, it is necessary to form incentives to increase the innovative activity of entrepreneurs (measures of tax, customs and tariff policy aimed at stimulating the commercialization and adoption of new technologies, etc.)

Under the conditions of integration process activation in the three countries, it becomes important to establish closer interaction of business structures of the CU and SES states for the development of the export capacity of these countries.

Throughout the whole process of work on the EAEU Treaty, the state bodies of Kazakhstan actively cooperated and considered all the provisions together with the business community represented by the National Chamber of Entrepreneurs, which unites more than 800 thousand entrepreneurs. The Chamber officially submitted more than 120 different comments and suggestions to the government. About 90% of them, that is, the vast majority of business proposals became the official position of the Kazakhstani negotiating group, which largely managed to defend and to put them into the final version of the Treaty.

7. Creation of a common financial market of the three countries, which will ensure effective allocation of capital, diversification of risks and increase of competition in the market of financial services and will remove barriers to mutual access.

The Member of the Collegium (the Minister) of Economics and Financial Policy of EEC, Timur Suleimenov, said, „It is important for integration processes to occur simultaneously in the commodity and financial markets. Because the trade between the SES member countries is gaining momentum, now it is the time to work towards the integration of financial markets of our countries, expanding mutual trade in financial services in the banking, insurance sectors, securities markets between the countries participants of the CU and the SES“.

In particular, by 2020, it is planned to complete the process of harmonization of the national legislations in the field of financial services and to ensure access to financial markets for professional participants, the residents of the SES through a process of mutual recognition of licenses in the banking, insurance sector and the securities market.

For this purpose, an agreement was prepared on the requirements for activities in the financial markets of the SES, which should approximate the approaches to the regulation of the activities in the financial sector. In addition, an agreement was drafted on information exchange between competent authorities, which will enable supervisors to share not only public, but also confidential information.

In accordance with the EAEU Treaty, by the proposal of the Kazakhstani side, the supranational authority regulating the financial market will be located in Almaty, which will ensure a unified approach to the management of the participants of the integrated financial market.

Currently in Kazakhstan, there are 38 banks, 17 of which are with foreign participation, 14 are the daughters of the largest banks of the world.

In the framework of the integration process, the National Bank of the Republic of Kazakhstan is actively cooperating with the central banks of the SES countries. Since 2012, the exchange rate policy has been coordinated by the Advisory Board on monetary policy of the SES member countries, which consists of the heads of central banks. The main issues are associated with the implementation of information exchange and mutual consultations on the activities of central banks in the monetary sphere. At this stage, it is more important to form an accurate evaluation and understanding of the actions of our neighbors in the monetary, financial and foreign exchange markets.

On 15 November 2013, at the International Conference held in Almaty dedicated to the 20th anniversary of the national currency — Tenge, the Chairman of the National Bank of Kazakhstan, Kairat Kelimbetov, said, „Kazakhstan has no obligation on introduction of a single currency, and it is not derived from the content and nature of the signed integration documents. Moreover, the introduction of a single currency is a long and complex process that requires coordination of not only monetary parameters, but also of a common fiscal policy. For the time being, it is too early to speak about this extent of integration. The EU came to a common currency, the Euro, for almost 50 years“.

Ensuring competitiveness of the domestic financial market under the conditions of opening „financial boundaries“ after the accession of Kazakhstan to the WTO and establishment of a common financial market in the territory of the SES requires a fast transition to international standards of regulation that should strengthen the capital base of financial institutions.

To ensure the stability and security of financial and monetary system of the SES and, then, the EAEU, it is advisable to increase the use of regional currencies in international payments. To this end, it is necessary to establish the Union’s own payment system in the territory of the Union.

In order to set up the milestones of the development of integration processes for the future and to agree on a long-term policy of the development of financial markets, to develop transparent rules, the Eurasian Economic Commission considers it appropriate to proceed with the development of the Single Financial Market Development strategy within the SES.

8. Development of cross-country economic, primarily industrial, sectoral cooperation and integration.

It is necessary to develop innovation and investment projects based on deepening scientific and technical industrial cooperation and creation of Eurasian technology platforms.

An obstacle here is that the post-Soviet countries have not yet created favorable economic conditions for reaching a new level of development. Underdevelopment of manufacturing industry makes it difficult to form a basis for cooperation with the purpose of integration of these sectors.

In the short run, we should focus on the broader technology alliance of the countries — close industrial cooperation and building up production chains that will strengthen links between enterprises. In particular, in the energy, aerospace, and nuclear industries, in agriculture and medicine of the future.

It is greatly important to develop direct links between enterprises, to implement overall sector and cross-sector programs and to promote sub-regional cooperation.

In accordance with the EAEU Treaty, a common electric energy market is to be set up by 2019 through the integration of national electricity markets of Kazakhstan, Russia and Belarus. The concept (until 1 July 2015) and the program of formation of a common energy market (by July 1, 2016) will be developed and approved by the Supreme Economic Council at the level of Presidents. After approval of the Concept and the Program, the member states will conclude an international agreement on the formation of a common electric energy market.

„Taking into the complexity of the task that we face, as well as the differences in the models of electricity markets, changes in the levels of the energy industry, we have come to the conclusion that we need the three-stage formation of a common energy market“, — said the Minister of EEC for energy and infrastructure, D. Akhmetov, during the VIII KAZENERGY Eurasian Energy Forum.

According to him, during the first phase, the efforts of the EEC will focus on increasing interstate trade of electricity, for which the parties should harmonize the existing legal framework of bilateral trade, technical regulations and standards, should transform the structure of certain public vertically integrated companies in the electricity sector dividing the activities into competitive and monopolistic, should form the legal basis for the creation of supra-national governance structures.

During the second phase, access will be provided to the national wholesale electricity market to participants from other countries, which would require harmonization of national legislation regulating the electricity circulation, as well as introduction of relevant changes, and further harmonization of the regulatory framework of technical regulation. In addition, during this phase, structures and mechanisms should be formed to control the overall market, such as a common trading platform, an organization that controls the functioning of the common market, in particular, an agency for interaction — a regulator, a coordinator — a system operator; it is also expected to create an association of operators for main networks.

During the third phase, the national electricity markets are supposed to be integrated into the common electricity market, for which its legal framework should be completed, exchange trading organized, clearinghouse and other controls bodies established. In addition, an operator for management of interstate main networks may be created. According to D. Akhmetov, the implementation of the tasks of all these phases will result in the creation of a competitive and liquid common electricity market». According to experts, this will allow covering the needs of our countries, reducing costs and improving the efficiency of our energy capacity approximately by 7 percent,« — said the Minister of the EEC.

«We will increase our ability to export electricity to other countries. In addition, Belarus will become able to replace the lost capacity of Chernobyl. Kazakhstan will have a unique opportunity to transit electricity and to use its natural resources. In addition, it is well known that 48% of the electricity of the Russian Federation is from gas. With the current trend of increasing cost of gas, there is a potential for using another — non-gas — power generation sources. Thus, our territories will involve a new product of high enough quality with a huge export potential to third countries," he stressed.

According to D. Akhmetov, the basic principles of a common energy market of the three states have been formed, and its model is being developed. «This work nearing its completion by the next year (the model of a common market) will be presented to experts for discussion», concluded the Minister.
On the eve of the tenth Forum of Interregional Cooperation of Kazakhstan and Russia with the participation of the Presidents of the two states, held in Yekaterinburg, the start of the construction of a new full-cycle car factory in partnership with the Russian AvtoVAZ was officially announced in Ust-Kamenogorsk.

The new plant will produce 120 thousand cars a year. It will be a complex of related and complementary manufactures, and it will provide 12 thousand work places. The project is implemented within the framework of public-private partnership. The national budget allocated 6 billion KZT. «This event will start a new page in the cooperation between Russia and Kazakhstan," said the Deputy Minister of Industry and Trade of the Russian Federation, Gleb Nikitin.

On 11 November 2013, in Yekaterinburg, the officials signed a roadmap to enhance the industrial cooperation of Kazakhstan and the Russian Federation for 2013–2014, a Memorandum of Understanding between the Ministry of Industry and Trade of Russia and the Ministry of Industry and New Technologies of Kazakhstan to increase cooperation in the field of industry, and a preliminary contract of oil transportation through the Republic of Kazakhstan and guarantees.

The goal is not only to raise the growth rate of GDP, but also the budget revenues and the income of population. There is a need for balancing the level of industry and intra-industry trade, the similarity of the quality of goods, the calculation procedures, etc.

The EAEU Treaty provides that the common medicine market will operate from 2016. The Kazakhstani side insisted on the formation of a market based on good pharmacy practices. The related agreement will be negotiated and signed by 1 January 2015.

Within the framework of the Eurasian Economic Union, a gradual formation of services market is foreseen. Liberalization is supposed to be based on «road maps» in accordance with the decisions of Presidents of the states.

The Treaty lists service sectors that are not subject to liberalization. They include the sector of telecommunication services and horizontal restrictions that apply to all service sectors (e.g. restrictions on land ownership, fiscal subsidies, local content etc.)

9. Active investment and technological cooperation with the United States, European Union, China, and the Asian-Pacific Economic Community.

The EAEU as a whole and Kazakhstan in particular cannot ignore other areas of the Eurasian integration and be limited only by this scope of integration. The objective prerequisites of cooperation between the CU/SES and the mentioned countries is being built very well. Russia and Kazakhstan are countries that produce and export natural resources, and the EU and China, on the contrary, are countries that consume and import natural resources the most.

Under the conditions when Russia and Kazakhstan have a strong commodity market, and the EU and China have a powerful consumer market, the integration interests of both the parties are mutual.

In October 2013, in Astana, President Xi Jinping called not only for increasing mutual trade, but also for bringing the relationship to a new level. He outlined the major areas of the large-scale project «Economic Zone of the Silk Road». The first area is a constant exchange of views on various issues of the economic strategy for the development of specific integration programs between the two countries. The second one is building an integrated transport infrastructure from the Pacific Ocean to the Baltic Sea. The third one is strengthening trade links through elimination of all kinds of barriers and increasing the speed of delivery. Finally, the fourth area is strengthening currency flows. Regarding the latter point, Xi Jinping offered Kazakhstan to make settlements in national currencies. According to him, it will significantly reduce the costs of transactions and will allow the countries to counter financial risks more successfully and to increase the international competitiveness of the economy of the entire region. An important outcome of the visit of the President of China was the signing of 23 bilateral documents totaling to more than 35 billion USD.

The current situation requires reviewing of the relations with China on a new systemic and long-term basis and enhancing the use of its strategic opportunities for the development of Eurasian integration.

Expansion of the economic potential of the country, industrial-innovative orientation of the economy, and issues related to the improvement of the investment climate in the country require activation of «economic diplomacy». Kazakhstan intends to expand economic cooperation with the European Union and Asian countries, and continue to work on harmonization of the main priorities of the further foreign policy in the context of the tasks set by the President in the Strategy «Kazakhstan-2050».

The foreign economic activity is transformed from a complement factor of internal development of Kazakhstan to a required condition for proper functioning of its economy.

On 28 April 2014, during his lecture in Moscow State University, N. A. Nazarbayev concluded that the «Eurasian integration provides us with a common strategic advantage on the eve of the Third global industrial revolution» .



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