Economic Relations between Kazakhstan and Russia
p> These documents envisage the introduction of maximally simplified
procedures for acquiring citizenship and for movement without visas; they
also offer possibilities for contract work and military service; assert the
rights of possession, use, and disposal of property; create conditions for
exchange of currency and transfer of sums of money by individuals and
corporate entities of Kazakhstan and Russia; and many other provisions
which reliably protect the rights and interests of the citizens of the two
countries. Yet another sphere in which combining the efforts of all the
interested parties is needed is the legal status of the Caspian Sea. The position of the Republic of Kazakhstan on this issue is based on
the need for an early drafting and signing of a convention on the legal
status of the Caspian Sea, of which a draft was worked out by the
Kazakhstan foreign ministry and sent out to all the interested states as
early as March 1994. Unfortunately, there has been no response to this
initiative for quite a long time now, and the agreement on regional
cooperation on the Caspian Sea issue is still at a standstill.
At the same time preserving this unique object of nature is a task that the
present generation must be worthy of. The events of the recent years thus prove conclusively the need to
proceed to a new level of integration, which will fully conform to the
vital needs of the peoples. International experience shows that any
interstate association goes through various states in its development,
becoming enriched in the process with new forms of cooperation. The
Eurasian Union should be seen as just one of such transitional forms
capable of optimizing the solution of the problems facing the Commonwealth. From the time of the publication of the draft EAU project, politicians
and scholars have been paying close attention to it. Four major scientific
and practical conferences were devoted to this subject, as were hundreds of
publications in Kazakhstan, Russia, and other states. Politicians,
scholars, and diplomats continue to study the EAU project with great
attention.
The current period in history is characterized by a radical breakdown of
the old way of life. Society now faces difficult issues, and each person is
subject to serious trials It is quite natural under these conditions that
the peoples of Kazakhstan, Russia, and other countries with an interest in
the unification of the Commonwealth will find it easier to overcome these
difficulties together. A balanced attitude toward the past, a persistent
realization of the present potential, and confidence in a more certain
future - only these things will be able to give the peoples of our
countries a natural feeling of spiritual harmony and a sense of full-
blooded life. History is offering us a chance to enter the 21st century in a
civilized manner. One of the ways to achieve that, in my view, is the
realization of the integration potential for the establishment of the
Eurasian Union, which will reflect the objective logic of the development
of the post-Soviet space and the will of the peoples of the former Soviet
Union to achieve integration. This is how President Nazarbayev, the author of the Eurasian project,
characterized the development of this idea and his current vision of its
future: "I still remain an adherent of integration of post-Soviet space. As
I formulated my vision of integration I laid no claims to total realization
of all the provisions of the project, being fully aware of all the
political connotations of that period. Two considerations were my primary
motivation. First, I wanted to generalize within a single whole the most
realistic proposals for further integration, which simultaneously appeared
in the countries of the post-Soviet space. Second, I wished to interrupt
the indecently drawn-out pause in the activities of the CIS institutions. In the last two years there was movement in the CIS countries on some
issues that had been at a standstill, including 4. VITAL PROBLEMS OF THE PRESENT-DAY STATE OF KAZAKHSTANI-RUSSIAN RELATIONS The Present State and Prospects for Economic Cooperation between
Kazakhstan and Russia.
The top priority area of Kazakhstan’s policy in foreign trade is the
strengthening of economic cooperation with Russia and consistent
integration of the economies of the CIS countries. This is determined by
the traditionally strong economic links, a high level of mutual
complementarily and interdependence of two economies of a once unified
state, the size of the commodity market and identify of economic problems
awaiting solution. “Analysis of the results of development of the economy
of the former USSR and of experiences of economically advanced nations,”
President Nazarbayev stressed, “shows that the transition to the market is
objectively necessary and historically inevitable.” The main feature of the present-day situation in Kazakhstan is the
increasing impact of the mechanisms that have evolved in the years of
reform and a weakening of the effect of non-market factors. In the initial
stages, the underdeveloped state of such important instruments of the
formation of the market as privatization, de-monopolization, absence of a
competitive environment, were the main sources of inflation in the
republic, a worsening state of the finances of enterprisers, an acute
shortage of turnover capital, a fall in production due to falling demand
and real earnings of the main mass of the population, as well as growing
abuses in trade and banking structures. The prevailing technological, economic and organizational standards
made a significant impact on the potential of foreign trade relations. “The
cohesion of the economic space of the former USSR was affected through
centralized state planning implemented by command-administrative
management. In the process, the country’s economy worked as a ‘single
workshop’, and not all production and economic links here were rational
from the market point of view. The transition to a market economy
throughout the economic space of the former USSR required a profound
restructuring, and this called for considerable resources and time,” Ex-
Prime Minister A.M. Kazhegeldin stressed. The policy of liberalization of foreign trade activity and of open
economy did not result in 1993 in any growth of exports. It amounted to
$1.5 billion, thus remaining at the 1992 level. Shifts in the geography of
Kazakhstan export due to the re-orientation of foreign trade links to
industrially developed nations resulted in the strengthening of raw
materials exports. The share of machines, equipment and transport vehicles
in the export dropped to 2 percent, and the share of fuel and energy
complex and that of metallurgy rose to 80 percent. Rising domestic prices
prevented partners from concluding long-term foreign trade deals,
stimulating instead commodity exchanges. The share of barter and clearing
deals in export operations made up more than 26 percent. More than 56
percent of imports were affected through exchange of commodities. Barter
operations were mostly in the nature of structurally unbalanced exchanges.
The republic suffer considerable losses due to inadequate knowledge of the
market conditions and the desire to access foreign markets at any price. A noticeable feature of Kazakhstan economy is the low level of the
development of machine building, which is not up to present-day
requirements, and this makes an adverse impact on other branches of the
economy, as it results in the common shortage of metal-tooling products.
This aggravates the shortage of spare parts and of products used in several
adjacent branches of industry and adversely affects the standards of
servicing.
Some of Kazakhstan most important tasks in 1994 were the closure of, and
changing production lines at, non-viable enterprises and development of
promising export-oriented ones, which also satisfy domestic demand. This
called for a set of measures to identify enterprises in the state of
depression, closing down unprofitable lines of production in energy-
consuming industries and rehabilitation and reorganization of non-
profitable production lines. The basis of the development of Kazakhstan, just as of Russia and many
other CIS countries, is export of natural resources. In 1994, the
government introduced regulations for the licensing of natural resources,
and a law was adopted on payments for utilization of natural resources. It
was at that time that efforts were initiated to attract domestic and
foreign investors to develop the fuel and energy complex. The development
began of the Tengiz, Karachiganak, and some other oil yields at oil fields
continued to be introduced. Open – cut coal mining was expanded at
Ekibastuz, Maykubek, and Shubarkul coalfields, with the aim of reducing the
mining of coal underground at low-profit and non-profitable mines of the
Karaganda coalfields. In the metallurgical industry, the development of production of
ferrous metals and the raw-materials basis of such production continued,
including the revamping of the Karaganda metallurgical plant with the aid
of foreign investment; its re-orientation toward the iron ore pellets of
the Sokolovsko – Saribai mining association; the development of production
of stainless steel and rolled metal and the building of an electric
metallurgical plant for the production of stainless steels in Aktobe;
further development of ferrous alloys in Aktobe and Aksu and of its raw-
materials basis –the Donskoy ore –dressing plant; the re-orientation of
idle production lines of JSC Khimprom to the production of ferromanganese.
Organizational measures were taken in 1994 to develop production of
fireproof materials. At the same time there was a fall in the production of ferrous
metallurgy due to an aggravation of the raw materials and fuel shortage and
a parlous state of equipment at enterprises of this industry. The decline
in industrial production was to a considerable extent due to non-solvency
of enterprises in view of their insufficient financial resources, non-
payment by the buyers for products delivered, and weak financial
discipline. The decline in non-ferrous metallurgy continued, as production of
copper, titanium, and manganese fell. To check the decline in this branch
of industry, the production lines at the Chilisai ore-dressing plant
switched to a different product; the Zyryanovsky lead plant was rebuilt,
and its commissioning was brought forward; the raw – materials basis for
the titanium industry was created, as was the Syrymbet tin field, the tin
being produced at the Tselinny chemical plant. The functioning gold mines
and ore-dressing plants were revamped, and work was accelerated to develop
major gold fields at Vasilkov, Bakyrchik, and Akbakai. In 1994, the share of machine-building industry and machine tooling in
the overall industrial production continued to fall, amounting to six
percent. Low investment activity, non- competitiveness of the Kazakhstan
machine-building industry, limited financial consumer capacity
predetermined an almost twofold reduction volumes in most types of machine
–building branches even compared to the crisis-ridden year of 1993. The situation was worst in the chemical and petrochemical industries,
whose production capacities far exceeded the republic’s domestic needs.
Considerable share of the product was exported to other CIS countries and
the “far abroad”, but the enterprises suffered from shortage of raw
materials, even shortages of oil, which is produced in Kazakhstan itself.
JSC Polipropilen, AKPO, Khimvolokno production association used imported
raw materials only. In 1994, the decline in most types of petrochemical
products reached 55-60 percent. Oil refining dropped by 20.3percent. The timber, woodworking, and papermaking industries suffered from
shortage of raw materials. Between the beginning of 1993 and the end of
1994, the production of timber fell by 21 percent, and this had a negative
effect on the state of production at sawmills and woodworking factories.
The production of saw-timber, chipboard, and cardboard fell by 31.9, 59.3,
and 47.5 percent respectively, but the production of paper increased
threefold. In 1993 and 1994, decline in production also continued in the
construction materials industry. Production of cement declined to the level
of 1973, while production of pre cast concrete products dropped to the
level of 1974. There was a considerable drop in production at enterprises
producing asbestos cement pipes and coupling (by 34.2percent), linoleum (by
40.3 percent), cement (by 61.6 percent), asbestos (by 71.2 percent), bricks
(by 78.8 percent). Production of sanitary wares dropped by 25 percent. During the last five years, GDP volumes continued to fall, declining
roughly twofold; the greatest decline (by 25.4 percent) was observed in
1994, and in 1995 it was almost nine percent.
However, during the time of the reform considerable changes took place in
the structure of GDP: The share of services grew sharply – from 32 percent
in 1992 to 47 percent in 1995; the share of commodity production declined
by 12 percent. The volume and share of services mostly grew in the trade, .•.
•3 • ti '
Competitiveness of the Kazakhstan machine-building industry, limited
financial consumer capacity predetermined an almost twofold reduction in
production volumes in most types of machine-building branches even compared
to the crisis-ridden year of 1993. The situation was worst in the chemical and petrochemical industries,
whose production capacities far exceeded the republic's domestic needs. A
considerable share of the product was exported to other CIS countries and
the "far abroad," but the enterprises suffered from shortages of raw
materials, even shortages of oil, which is produced in Kazakhstan itself.
JSC Polipropilen, AKPO, Khimvolokno production association in Kustanai,
Shymkentshina production association used imported raw materials only. In
1994, the decline in most types of petrochemical products reached 55-60
percent. Oil refining dropped by 20.3 percent. The timber, woodworking, and papermaking industries suffered from
shortages of raw materials. Between the beginning of 1993 and the end of
1994, the production of timber fell by 21 percent, and this had a negative
effect on the state of production at sawmills and woodworking factories.
The production of saw-timber, chipboard, and cardboard fell by 31.9, 59.3,
and 47.5 percent respectively, but the production of paper increased
threefold. In 1993 and 1994, decline in production also continued in the
construction materials industry. Production of cement declined to the level
of 1973, while production of pre cast concrete products dropped to the
level of 1974. There was a considerable drop in production at enterprises
producing asbestos cement pipes and couplings (by 34.2 percent), linoleum
(by 40.3 percent), cement (by 61.6 percent), asbestos (by 71.2 percent),
bricks (by 78.8 percent). Production of sanitary wares dropped by 25
percent. During .the last five years, GDP volumes continued to fall, declining
roughly twofold; the greatest decline (by 25.4 percent) was observed in
1994, and in 1995 it was almost nine percent. However, during the time of the reform considerable changes took place
in the structure of GDP: The share of services grew sharply - from 32
percent in 1992 to 47 percent in 1995; the share of commodity production
declined by 12 percent. The volume and share of services mostly grew in the
trade] in banking and finances, insurance, and realty, while the share of
everyday services fell. In other words, the main trend in the changes of
macro-economic proportions was a move towards parameters characteristic of
countries with well-developed market economies. The share of consumption of
end products rose to 69 percent of utilized GDP as contrasted with 58
percent in 1993. Investment in 1995 amounted to some 30 percent of GDP. Beginning in the second half of 1994, certain positive changes began to
occur: a decline in the rate of inflation, a growth in accumulation of
capital, a stabilization in the exchange rate of the national currency, a
decline in the banks' interests rates, and a relative growth in industrial
production. The rate of inflation steadily declined from 4.9 in June 1994 to 3.2
percent in April 1995. The decline in production, which sharply Increased
in November 1993 through March 1994, practically, ceased in some branches
in 1994. As a result, industry as a whole grew by 0.3 percent in September,
by 1.1 percent in December, and by 1.2 percent in April. As distinct from
the previous years, a certain stabilization of production, which began in
June 1994, was accompanied by a certain slowing down rather than
acceleration of inflation.
The rate of price growth in the production and consumption sectors of the
economy in 1995 slowed down. The highest inflation occurred in January (an
increase of 108.9 percent compared to the previous month), and the lowest,
in August (102.1 percent). The annual index of consumer prices throughout
the republic was estimated at 160 percent (the monthly index, 104.3
percent, whereas the annual index of inflation of consumer prices in 1994
amounted to 1256 percent, which corresponds to a monthly inflation rate of
123.4 percent. (The annual index of production prices was at the level of
141.2 percent). The positive dynamics in the consumer and wholesale prices was achieved
above all by harsh financial and credit policies and the government's
measures aimed at stage by stage liberalization of prices and tariffs for
commodities and services, which resulted hi a sharp reduction in the range
of regulated prices. At the beginning of 1996, only the prices of electric
power, heating, gas, passenger and freight railway traffic were regulated,
and at the local level, regulation involved prices" and tariffs of communal
services and the services of urban passenger transport. In 1995, the monetary and credit policies were characterized by changes
in the monetary and credit instruments of the National Bank, its operations
at the inter bank credit, currency, and stock markets, and the development
of the market of state securities. Whereas hi 1994 and January 1995 the
principal instruments were centralized and auction credits, in 1995 the
emphasis shifted from state-apportioned credits to the development of
securities markets and auction credits.
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