Kazakhstan macro: gradually increasing trade with Europe to remain an important GDP driver
A few weeks ago, we briefly broached the evolution of the 2024 aggregate structure of Kazakhstan's balance of payments and some issues related to the recent volatility of the tenge. In this report, we concentrate on some details of foreign trade statistics that provide additional color on economic trends and possible future developments.
The current account balance in Kazakhstan has traditionally been negative apart from some periods of soaring oil prices. However, the country’s trade balance has always been in surplus, and the deeply negative income balance was and still is the main reason for the current account's being in the red. The repatriation of profits by foreign investors who have stepped into the Kazakh oil and gas sector is the main culprit for this. That said, the economy still depends on capital inflows.
China, Russia, and Italy are Kazakhstan's main trade partners in terms of the overall foreign trade turnover. Italy mainly imports hydrocarbons (similar to another EU country, the Netherlands). Trade with these three countries accounted for about 55% of Kazakh's total foreign trade turnover last year. Shell and ENI invested in the North Caspian oil projects and now appear as key importers of Kazakh oil in Europe. Russia supplies nearly one third of Kazakh imports, and China comes in second with its one-quarter share.
Looking ahead, we see more government effort to attract foreign investment in the manufacturing and services sectors. As, due to the lasting conflict in Ukraine, European investors may be cautious about investing in Kazakhstan, the Kazakh government has naturally shifted toward Asia, and Arab countries, in particular. The latter will likely increase investments in the service sectors, while amid geopolitical uncertainty European investors will likely remain cautious about investing in manufacturing segments—at least for the time being. In any case, potentially rising foreign investment in Kazakhstan's service sectors (focused mainly on domestic needs) will mean growing pressure on the income balance, which will remain strongly negative in the foreseeable future.
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