The Baltic Course

We Need Each Other

By Olga Pavuk

Latvia's Prime Minister Andris Berzins made an official visit to Kazakhstan in early September. The Baltic Course was part of the large group of over 70 people accompanying him on this trip. Despite the tight schedule of meetings and talks in the new Kazakh capital of Astana, we managed to exchange words with one of the country's most colorful figures - Kazakhstan's Economics and Trade Minister, Zhaksybek Kulekeyev.

An agreement on trade and economic cooperation between Latvia and Kazakhstan took effect in early 1991. Bilateral agreements about the use of Latvian ports, transit procedures, cooperation in transportation by railway and air have all been signed long ago. What is obstructing closer cooperation between our countries?
I believe that there is legal framework in place for mutual business. The problem probably lies somewhere else. Traditional ties between our regions were severed in the early Nineties. An informative vacuum occurred. We started building market relations, dealt with domestic issues. In business, young people educated in the West took the most active role. Naturally, they had good knowledge of Western companies. This is no secret, because such an approach also prevailed in Latvia as well as in Kazakhstan - everybody was looking to the West. In principle it was a normal trend, we wanted to get the most advanced technologies, the best management in the world. But we ousted vast experience accumulated over years of cooperation. In general, there is nothing wrong with this - we intentionally strode apart to later understand how much we really need each other. I think the time has come when we feel an actual need for each other. I mean, a period of sobriety, of conscious unity is setting in. Of course, this unity differs dramatically from what we used to have. It is about strengthening trade and economic ties. We, both you in Latvia and us in Kazakhstan, have a market for mutual business. There are common interests. We in Kazakhstan know of Latvian goods. There are no political or economic obstacles. Simply contacts have to be established between business people of our countries. Therefore I am convinced that meetings like this, held on the governmental level are needed and this should be continued.

During the recent Kazakh visit, three intergovernmental documents were signed: an agreement on cooperation in communications; a tax convention preventing double taxation; as well as a declaration of intent to form a task force to organize a trilateral commission to solve issues related to rates for transit transportation, involving Kazakhstan, Russia, and Latvia, possibly also involving Belarus, if necessary.

The current surplus in Kazakh trade balance with Latvia is mostly due to cotton deliveries. But receding world prices for cotton made its transportation through Latvian ports unprofitable. What will the future bring for cotton?
Cotton production in Kazakhstan is insignificant in comparison with Uzbekistan, Kyrgyzstan and Turkmenistan. We make only some 250,000 tons annually while our neighbors produce about 3-3.5 million tons of cotton every year. Therefore I think cotton is not the most important or the most interesting theme for us. We have to look in other areas where we will be able to expand trade and economic cooperation. As for cotton exports through the Baltic ports, it is a very demanding product requiring special safety measures upon reloading. Evidently, our cotton is exported via Latvian ports because you have the conditions to ensure it will be transported safely.

Ferrous and non-ferrous metals are important Kazakh export items. At the talks with Latvia's economics minister you mentioned possible sales of scrap metal to the Latvian metallurgy plant Liepajas Metalurgs. How realistic are such deals?
Of course, our main export products are oil, gas, ferrous and non-ferrous metals, and grain. In recent years, the share of mechanical engineering products has also increased to our pleasure. As for scrap metal, Kazakhstan has huge reserves of this while processing capacities are insignificant. Many of our businessmen are willing to export scrap metal. Last year we exported 2 million tons, of which some 70 percent went to China, parts to Iran and Turkey and a small amount to European countries. There is a chance for Latvia but our businessmen have to determine whether it makes sense to send scrap metal to the Baltic states. It depends on railway rates and the price that Latvian metallurgists can offer. I know that some five years ago fairly large amounts of scrap metal were exported to Latvia but I cannot really say why these traditional contacts ceased.

Latvian oil transit businesses are very much interested in the oil theme. What possible solutions do you see in this field?
The oil and gas sector will take up an increasing share in our economy with every year. For now it plays a relatively minor role - 8 or 9 percent of the GDP. That's not much. Today we produce 35.5 million tons of oil and gas condensate. By late 2005 we want to raise this figure to 65 or 70 million tons annually. Then we will need extra transportation capacity for Kazakh oil. Kazakhstan is interested in any direction of oil transportation. Our oil reserves will last for 100 years at the rate of 100 million tons extracted annually, and the only restricting factor is the poor structure of the oil and gas sector. Of course, investors - all major oil companies operating in Kazakhstan - are investing towards the improvement of this structure. Nevertheless, the existing oil pipeline system through Russia allows for transportation of oil in enormous amounts, including via Latvian ports. We are interested in both Latvian and Lithuanian ports. Multi-directional transportation of oil is an issue of utmost interest to us. And it is good that we speak about this already today. There are issues that require solutions involving several countries - Russia, Kazakhstan and Latvia as well as Belarus. I think that a compromise is possible, economic profitability exists, and ports in Latvia are very good - there is no shortage of capacity. But we are also studying the situation in other countries as well.

How promising, in your opinion, is oil transportation via Ukraine, bypassing Russia?
We have very good relations with Ukraine in this respect as some of our oil companies have become shareholders in certain Ukrainian oil refineries. Thus, Kazakh companies can derive additional profits. Transportation of oil and gas through Ukraine seems to me to have acquired a somewhat different, political nature today. We are also aware of Russia's feelings concerning the construction of a pipeline through Belarus to bypass Ukraine. I am not ready to say now how substantiated this approach is from the economical viewpoint. Anyway, Kazakhstan will use the Russian pipeline system.

What are the underlying reasons for a lax performance by Latvian-Kazakh joint ventures? Which industries do you find to be most promising for mutual business?
Indeed, out of 44 Latvian-Kazakh joint ventures registered in Kazakhstan, only 8 or 9 companies are actually doing any business. These are small companies with insignificant registered capital amounts. But there are prospects for common business activities. Some potential directions were outlined at the meeting with Latvian businessmen. We could organize joint ventures in Latvia for production of pharmaceutical products. This is the most interesting theme as the Kazakh domestic market for medicines is estimated at 300 or 400 million US dollars while local production can meet domestic demands by only 10 percent at best. The remaining 90 percent of medications are imported. This is the most prospective market - people will always need medicine, just like bread and milk. Furniture production is also an interesting theme, considering our knowledge of the potential of Baltic producers. We are also interested in the recycling of household waste and processing agricultural products.

Which branches of Kazakh economy hold the greatest attraction for foreign investors?
This calls for classification. Major strategic investors, as a rule, prefer industries requiring large investments - first of all, the oil and gas sector, mining and metallurgy complex in need of billions of dollars of investments. Medium and small investors choose the processing industry. There are very many joint ventures in food processing.
We lead among CIS states by foreign investments. In 2000 we received 2.7 billion US dollars in foreign investments, our estimate for 2001 is USD 3.5 billion and we expect the figure to top USD 4 billion in 2002. On the one hand, we are glad. On the other hand, the structure of incoming investments should improve because, for the most part, investments are still being made in the oil and gas sector and developing mining and metallurgy. As for mechanical engineering, the food industry and light industry, there's no influx of large foreign capital. Latvia's experience in the pharmaceutical industry is very important for us.

How did Kazakhstan solve the issue of land sale?
We do not sell only agricultural land - it can be taken under lease for 49 years. As for urban land under industrial facilities, there are no problems - businessmen can buy land, build plants, etc. The prices are not high. In Astana there are special conditions, and upon making an interesting proposal one may even get free land within the Astana special economic zone.

What specific results do you see for the Kazakh economy from the visit by the official Latvian delegation?
I believe that after the official visit by the Latvian prime minister, Latvian businessmen will learn more about the economic and political situation in Kazakhstan. Filling the informative vacuum will help to expand cooperation between our countries. Businessmen, who came to Kazakhstan even started establishing contacts with their Kazakh colleagues in the course of this visit. As for my ministry, we handle various issues - in particular, the development of industry, transportation, trade. The visit will undoubtedly help deepen bilateral relations in these areas. We are actively negotiating WTO membership for Kazakhstan, and I personally see benefit in the signing of all mutual agreements required between our countries.

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