MFA: Strategic opportunities for foreign exporters
The coronavirus pandemic hit Kazakhstan most significantly with the second wave in the summer of 2020. A significant part of the operations was closed, but after it subsided in the fall of 2020, the country proceeded to relax most of the restrictions. The third wave did not appear in KZ until March 2021. The development of the situation creates a positive development assumption for the year 2021, for Czech exporters, enhanced by the stabilization of the local currency KZT at a level of around 500 KZT per EUR, which is a value comparable to the situation in March 2020.
The country is able to cover state budget deficits for several years with transfers from the National Fund, where revenues from oil extraction are concentrated. In addition to the impact of the pandemic on the economy, Kazakhstan also had to cope with the drop in oil prices.
In 2020, Kazakhstan allocated an amount of roughly 7% of GDP to support the economy. Over 120 different measures were announced. In addition to the financing of infrastructure projects, these resources are mainly aimed at supporting the provision of low-interest loans for entrepreneurs, but the implementation of this measure has not yet reached the expected dimensions. A number of tax breaks have been introduced, both temporary (including a temporary reduction in VAT on food, tax deferrals, etc.) and permanent, mostly targeting the most affected sectors. From the point of view of the income side of the state budget, a transition to a progressive tax rate for income tax was announced.
In 2021, Kazakhstan proceeded to amend the legal framework for energy, which opens up opportunities for Czech companies. This is mainly the new Ecological Code, which introduces limits for emissions arising, among other things, in thermal power plants. This increases the pressure to install filtration technologies on the chimneys of both coal-fired power plants and thermal plants, as well as in industrial operations, since filtration has only been installed in a few cases so far, and moreover, these are often technologies from the USSR era. An essential step to enable this step to be implemented is the planned increase in feed-in tariffs by an average of a proposed 25%, which would allow thermal power plants to return to profitability after many years.
From these sources, it will be possible to finance not only the reduction of emissions, but also other modernization projects of outdated power plants – in case of improvement in the financial results of power plant operators, the possibility of credit financing from international financial institutions will finally arise. With regard to the current non-existence of a Czech company that could integrate the total supply of modernization (actually the construction of new blocks), opportunities arise for Czech solutions for partial modernizations and in the form of subcontractors. Part of the KZ party’s measures is also the transition of several blocks, especially in Nur-Sultan and Almaty, to natural gas.
According to allcountrylist, purchases of electricity from RES will also be financed from the increased tariffs (in the KZ system, RES are reimbursed for the electricity purchased by the so-called balancing centers, to which thermal power plants in particular contribute). The development described above should create the necessary economic basis for the further development of RES. In terms of opportunities for Czech companies, there is room for participation in the construction of solar power plants, especially during the preparatory phase, thus building on previous successes (the project of the largest solar power plant in the country was prepared by a Czech-Slovak consortium, the construction itself was then carried out by German entities). There are also ongoing opportunities for the modernization of hydroelectric power plants in the form of technology supplies (turbines, etc.)
In contrast to fluctuations in household consumption, the central government’s expenditure on defense continues to grow. For the year 2021, the state budget increased spending on purchases for the military and the border service by approximately USD 170 million to approximately USD billion. Opportunities exist especially for training aircraft, drones, deliveries of armed vehicles, weapons, equipment for military hospitals, etc.
Healthcare and pharmaceutical industry
Covid-19 hit Kazakhstan and its healthcare system in an unprepared state, which was fully manifested during the so-called second wave of the epidemic in the summer of 2020. The crisis proved that Kazakhstan’s existing production and import capacities were not sufficient in such an aggravated situation. This mainly concerned basic medical supplies, medicines and advanced medical technologies. The standard Kazakh method of solving crisis situations from above included the removal of officials, convictions for corruption, instructions for the accelerated provision/purchase of drugs and medical technologies, the construction of modular hospitals and their equipment, the accelerated start-up/strengthening of domestic production of necessary aids (masks, disinfection) and technologies (ventilators etc.).
Official statistics of the Ministry of Health of the KZ state that during the pandemic, 19 health facilities were built/reconstructed, 44 types of drugs against covid-19 were purchased, 3,264 artificial lung ventilation devices were delivered (of which 1,500 were domestically produced), over 41,000 beds equipped with oxygen supply, 53 x-rays delivered to regional hospitals, most of them domestically produced. Since December 2020, the preparation of Kazakhstan for vaccination began, which was officially launched on 02/01/2021. Vaccines are provided by purchase from Russia (Sputnik V), license production of this vaccine was also launched in Karaganda, and clinical tests of the domestic vaccine QazCovid-in are finishing.
The accelerated modernization and retrofitting of the healthcare sector in Kazakhstan can currently represent an interesting opportunity for Czech companies. Czech medicines can offer good quality at a lower price, but certification and, not inconsiderably, political pressure can be a problem. That Czech companies have built up a good initial position on the local market is proven by the fact that in 2019 the export of pharmaceuticals from the Czech Republic to Kazakhstan reached a value of over USD 10 million, but only half of that last year.
Medical technology and medical equipment sector, incl. specialized, is still not significantly developed in Kazakhstan and thus provides opportunities for the export of Czech companies. From the point of view of state support, it is possible to expect priority for projects for the development and production of quality medical materials, more careful selection of pharmaceutical importers or increased imports and subsequent pressure on the joint production of medical technologies. Digital solutions in the field of healthcare also represent a perspective.
Agricultural and food industry
Kazakhstan is a country with considerable potential for its agriculture. The economically active population is 18.1% in the field of agriculture, but is nevertheless dependent on imports for many foodstuffs. Efforts to increase self-sufficiency are currently intensifying. Considering the important role of the state in the local economy, the export prospects depend to a large extent on the final form of the state support policy that will be adopted during the next 2 years.
The current program for the development of beef cattle and the industry program for dairy cattle until 2027 creates a constant demand for the import of breeding cattle for meat, dairy and meat-milk use in the total number of one million head. The removal of the ban on the import of cattle from the Czech Republic in December 2020 creates an opportunity for the export of Czech breeding cattle. Advanced experience in artificial insemination will be required to solve the problems of breeding transformation of cattle. The low quality level of breeding poultry in the country creates a demand for the import of hatching broiler eggs. The development of horticulture in Kazakhstan in principle depends on the import of high-quality planting material (seedlings), while the share of imports of some fruit and nut crops reaches 90%.
Increasing the stock of cattle and poultry will require the expansion of existing farms and the construction of new farms. The new premises will require new equipment and facilities for housing, watering and feeding, milking parlors, etc. The need for veterinary drugs and vaccines will increase, which are imported in significant volumes, including from the Czech Republic. Another effect will be an increase in the need for feed, both produced locally and imported, especially in the form of premixes and additives. The increase in the fodder base will directly depend on the technologies used for growing fodder crops, the amount of fertilizers used and agricultural technology.
The current state of agricultural equipment in the country, the lack of own machinery and the pressure of the state to increase cultivated land in the coming years will necessarily require significant changes in the machine park, intended for tillage, as well as tractors. In this case, it is necessary to take into account the specific prerequisites for the localization of the production of similar equipment in Kazakhstan. The government’s planned production of final plant and animal products for export purposes foresees an increase in capacity, which will require efficient facilities for industrial food processing, including bottling and packaging lines.
The range of food products exported from the Czech Republic to Kazakhstan has crystallized as a result of the specifics and limitations of Kazakh agriculture, be it geographical (beer, mineral water), soil-climatic (malt, hops, poppy) or technological specifics (starches, food flavors). The export of baby food (milk substitute, supplementary feeding, diet and medical food) is promising, because it is not produced in the country in packaged form and therefore lacks a long-term shelf life.
Likewise, there is a need in pet food, especially cats and dogs, where import dependence reaches 99%. For supermarkets specializing in imported products, it is possible to expect an interest in maintaining a diverse assortment with limits given by price comparison. These are, for example, beer, dairy and meat products, semi-finished products, canned goods, confectionery products. Here, however, a lot will depend on the development of the exchange rate of the Kazakh tenge against CZK. The export of Czech wines, especially rosé and white, as well as fruit distillates, still has unrealized potential.
Embassy of the Czech Republic in Nur-Sultan
e-mail: [email protected]