12 December 2017

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CURRENCY

A NEW PHASE

Azerbaijan and Kazakhstan to create a qualitatively different regional cooperation

Author:

15.04.2017

The observers have predicted the effectiveness and productivity of the official visit of the Kazakh President Nursultan Nazarbayev to Azerbaijan long before it actually took place. Although his agenda has been disclosed only partially, the expectations were initially high due to a number of issues of mutual interest.

The agenda was indeed full: after the meetings in the narrow and expanded format, the parties signed the Joint Declaration of the Presidents of Azerbaijan and Kazakhstan and five other documents including the Strategic Cooperation Agreement on Logistics and Railway Transport Engineering between the national railway departments of both countries; Protocol on Amendments to the Intergovernmental Agreement on Double Taxation; Intergovernmental Agreement on International Road Transport; Program of Cooperation between the Ministries of Foreign Affairs for 2017-2018; Intergovernmental Cooperation Agreement on Quarantine and Protection of Plants.

The documents signed in Baku should be a basis for a new stage of relations between the two countries. However, this is not a complete list of areas of mutual interest. Both parties stated that we should witness a sharp increase in indicators covering all spheres of bilateral cooperation in the coming years.

The presidents discussed all pending items on the agenda in detail including the growth of the trade turnover, bilateral investments, and cooperation in nternational transport projects.

 

Trade

Mutual trade remains the main area of cooperation between Kazakhstan and Azerbaijan. However, the parties are not satisfied with the current level of trade turnover. As indicated by President Ilham Aliyev, existing indicators "reflect neither our potential nor our intentions."

According to the Kazakh side, the commodity turnover between Kazakhstan and Azerbaijan reached $137 million in 2016. Despite the direct marine communication, Azerbaijan's share in Kazakhstan's foreign trade turnover was only 0.2% last year, while the trade turnover between the two countries increased by 8.3% compared to 2015. Moreover, Kazakhstan's exports are more than three times higher than imports from Azerbaijan.

According to the Eurasia.expert, Kazakhstan supplies oil and gas resources, chemical raw materials, grain, barley, tobacco products, rolled steel and electrical equipment to Azerbaijan. Azerbaijan’s supplies to Kazakhstan include petroleum products, ethylene polymers, components for machinery and mechanisms, and prefabricated building structures.

According to President Aliyev, Azerbaijan buys diesel and electric locomotives from Kazakhstan but it is also interested in building ships for Astana at the Baku shipyard. There is also a large untapped potential in agriculture. According to President Nazarbayev, the volume of imports of vegetable products from Azerbaijan increased 12 times only within a year.

The traditional market for the sale of Azerbaijani agricultural products is Russia. However, Kazakhstan seems to be a promising market and therefore, has rather big advantages over Russia due to regular problems with the customs in the latter. And often these obstacles are created artificially, by far-fetched pretexts, and the governments of the two countries have to interfere to resolve the situation. Incidentally, a long queue of Azerbaijani trucks was formed on the Azerbaijani-Russian border just during the visit of the Kazakh delegation to Baku. This time however, the Russian customs officials suspected the suppliers in re-exporting Turkish vegetables banned in Russia.

Immediately after his return from Baku, Mr. Nazarbayev ordered to introduce a special customs regime for the Azerbaijani logistics center in Aktau, reports the Azerbaijani Ministry of Economy. Astana is interested both in increasing the volume and range of imported Azerbaijani products. "If you look at the import and export of Kazakhstan and Azerbaijan, it turns out that we buy goods that we have from far away places. Take the sugar, for example. There is a serious shortage of sugar in Kazakhstan. That is why we buy it. But we can buy it here [in Azerbaijan]. Azerbaijan buys cigarettes for about 250 million. We can supply half of this volume, etc.," stated President Nazarbayev for his press-release in Baku.

Initially, the parties had planned to increase the bilateral trade volume to $0.5 billion in the next three years. However, considering that the transport agencies of Azerbaijan and Kazakhstan have already concluded a deal for $0.5 billion, now both countries face an ambitious challenge to hit a $1 billion mark in trade turnover by 2020. The details of how Baku and Astana actually intend to reach this milestone will be clear next month, at the upcoming meeting of the intergovernmental commission. Both presidents instructed their governments to develop a roadmap in all areas of cooperation.

 

Transport

Meanwhile, the plans to increase the volume of mutual trade sevenfold require the expansion of the transport-logistic and transit traffic through the Caspian Sea. "We look forward to the commissioning of the Baku-Tbilisi-Kars railway this year, which will significantly reduce the time spent on transporting goods from Asia to Europe and from Europe to Asia through our territories. All necessary infrastructures have been created both in Kazakhstan and Azerbaijan. It is encouraging that the first cargo was shipped to Azerbaijan from the new port of Kuryk a few days ago, and this is also an indicator of our potential,"said President Aliyev.

Mr. Aliyev added that over the past year, the transit of goods through Azerbaijan and Kazakhstan has significantly increased including an eight-fold growth on some of the shipped items.

 

Meanwhile, due to anti-Turkish sanctions of Moscow, the flow of Turkish goods to Central Asia through Azerbaijan has sharply increased in the past two years. Ukraine is also interested in using the Azerbaijani route for trade with Kazakhstan and other Central Asian states.

And most importantly, Kazakhstan is interested in the transit of goods from China to Europe via Azerbaijan. "Kazakhstan is involved in the new Silk Road project implemented under the One Belt – One Way strategy proposed by the People's Republic of China. A railway communication is starting from the border of China to the Caspian Sea with a total length of about 2,000 kilometers. This line is already operating. The construction of the motor road West China - Western Europe is also ongoing with 2,700 kilometers of highway already in place. Now we are discussing the transportation of containers from China. As you have probably heard, they reach Western Europe and the UK in 14 days, and it takes 40-45 days to deliver them through seas and oceans. But now the question is if we can ship them to Europe via the Caucasus, that is via Baku through the Caspian Sea," explained the Kazakh president.

According to preliminary estimates, the annual volume of traffic will be approximately $6-7 billion, a substantial part of which will pass through Azerbaijan. At the same time, Azerbaijan's transit earnings may exceed $0.5 billion. However, President Ilham Aliyev stressed that there was not enough infrastructure for this. At present, the parties are actively working on reducing and unifying transit tariffs in Azerbaijan, Kazakhstan, Turkey, and Georgia – the countries used for the international East-West transport corridor.

"We already have made some achievements. The instructions that we gave today will make the new route both the shortest and the most attractive route economically," stated Ilham Aliyev.

 

Oil

As was expected, Nursultan Nazarbayev also discussed the transit of Kazakh oil through the Baku-Tbilisi-Ceyhan (BTC) pipeline during his recent visit to Baku. Without going into the details of the talks, the Kazakh president noted that Astana intends to use this route to transport its oil to global markets in the future.

In fact, the Kazakh oil produced at the Tengiz field has been flowing intermittently through the BTC pipeline since 2008. In addition, about 3 million tons of Kazakh oil is transported by rail through Azerbaijan to the Georgian port of Batumi.

But given the forthcoming production increase at the Tengiz field and the launch of the Kashagan field, the parties agreed in 2008 to create the new Kazakhstan Caspian Transportation System (KCTS), which is supposed to ensure the transportation of oil by large-capacity tankers from the Kazakh port of Kuryk to Baku before it is injected into the BTC pipeline. The initial annual capacity of the KCST shall be 23 million tons reaching 56 million tons in the future.

However, the delays associated with the expansion of the Tengiz field and the launch of the Kashagan field affected the implementation of the KCTS project in a timely manner, although the existing pipeline capacities were sufficient for the export of the Kazakh oil. Since the launch of the Kashagan field in late 2016, the oil production in Kazakhstan has been growing rapidly. According to the Azerbaijani Minister of Energy, Natig Aliyev, the export capacities of the Tengiz-Novorossiysk, Atyrau-Samara, Atasu-Alyshankou pipelines and the Caspian Pipeline Consortium are not sufficient to meet the forecasted substantial growth in Kazakhstan's export potential. This objectively increases the need for the transportation of the Kazakh oil through KCTS and BTC.

"After all, four shareholders involved in the development of the Kashagan field are also the shareholders of the BTC pipeline with a total of 15% in stakes. Given the forthcoming commissioning of the Kashagan field, these companies will be able to deliver 150,000 barrels of oil daily to the European markets via BTC," said Natig Aliyev.

Accordingly, we can expect an earlier implementation of the KCTS project, which once again proves the importance of the BTC for the Caspian littoral states.

 

Investments

Another important area of ​​cooperation between Baku and Astana is the promotion of mutual investment. "I am very glad that Azerbaijan began actively investing in Kazakhstan by opening the Logistics Center in Aktau, and constructing an energy plant in Aktau. These are direct Azerbaijani investments that will strengthen our trade and economic cooperation," said President Aliyev.

It should be noted that Azerbaijan has invested $20 million in the construction of the logistics center in Aktau, which was commissioned in 2015 by the Azersun Group of Companies.

Mr. Nazarbayev believes that Azerbaijan can very well increase the share of investments in the Kazakh economy. 130,000 ethnic Azerbaijanis, the citizens of Kazakhstan, must serve as a connecting bridge in this case. "I know that they are opening joint ventures, creating businesses and helping us improve our relations. I think that we need to support this," said President Nazarbayev.

 

Fertile ground

This year, Azerbaijan and Kazakhstan celebrate the 25th anniversary of the establishment of diplomatic relations, and Nursultan Nazarbayev's visit to Baku was timed precisely to this date. Relations between the two states are based on historical and geographical proximity, the commonality of cultures, languages and the religion. They were not overshadowed by any political, economic or other contradictions.

Kazakhstan has always supported for the territorial integrity of Azerbaijan as far as the settlement of the Armenian-Azerbaijani conflict is concerned. And even as an ally of Armenia in the Eurasian Economic Union and the Collective Security Treaty Organization, Astana has repeatedly prevented Yerevan's attempts to use its membership against Baku. Currently, Astana's stance on the Karabakh issue is especially important for Baku in the light of Kazakhstan's election to the UN Security Council.

Being the holders of common culture, Azerbaijan and Kazakhstan also unite in the activities of integration associations such as the Turkic Council, the Parliamentary Assembly of Turkic-speaking countries (TurkPA), and the International Organization of Turkic Culture (TURKSOY).

Personal relations between the leaders of Azerbaijan and Kazakhstan also play a significant role in building trustful and friendly ties between the two countries.

All these factors coupled with the current level of development of both states create fertile ground for establishing a qualitatively new level of cooperation. This is particularly relevant considering the difficult situation associated with the global economic crisis. Either way, the discussions held in Baku demonstrate that the positions of Baku and Astana coincide on all issues, and the agreements reached will also create a new level of regional cooperation.



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