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Regional integration, export support, digitalization — how trade industry of Kazakhstan is developing

Friday, 21 August 2020, 10:46:21

The Ministry of Trade and Integration covers a wide range of areas that affect the competitiveness of domestic products. They include the issues of international trade, export development, expansion of sales channels, as well as protection of national interests and diversification of imports. Minister of Trade and Integration of Kazakhstan Bakhyt Sultanov reported on the results of the ministry’s work and tasks for 2020-2025. 

As the minister noted, goods that help in production of goods with a higher added value should be imported. The production with a higher added value, in turn, will be exported. But at the same time, it is necessary to strive for the maximum import substitution of these components. Nevertheless, the domestic consumer should have access to goods from anywhere in the world, if there is a given demand.

Expansion of regional integration

Against the background of a general slowdown in trade in the world, the foreign trade turnover of Kazakhstan in the first half of the year also showed a decrease by 7.4%. 

According to Sultanov, in other regional associations, trade is the main stimulus for the economic activity of the participating countries. Therefore, the maximum regionalization of trade should become a key goal of the Eurasian Union.

“Kazakhstan is a large country, the population density is low. Cities are at great distances from each other and from foreign markets. Therefore, we are faced with the issue of not only creating a competitive product, but also promoting it to markets and selling it abroad — it must be transported far away to Europe or America. And so far it is profitable to carry only highly specialized goods. For example, components for aircraft construction, which are already being produced in our east, dual-use products that we started selling last year, or diesel locomotives. But for all other products we are losing, first of all, in logistics,” the minister explained.

As the head of the department noted, it is important to develop trade, first of all, with the closest neighbors. As it happens in other associations. For example, in the EU, the trade turnover between its member countries reaches 63% of all trade, in NAFTA — 47%.

It is worth noting that within the Eurasian Union, the trade turnover is only 14%. And then against the backdrop of the pandemic, it fell to 11%.

“We have something to work on in deepening trade and economic integration. And we will lobby for national interests in this field. For this, it is very important to lower barriers. This work has become more noticeable since last year with the creation of the ministry. In principle, there is also an objective reason for this. At the first stage, the tasks were to establish internal integration processes, create an institutional and legal framework. Now the time has come for practical work in the space of the economic union,” the minister said.

During the year, 16 barriers were removed and, which is very important, the time frame for the consideration by the Eurasian Economic Commission of appeals on the signs of the barrier was reduced to three months. Previously, this process could last for a year. All the country's interests are inscribed in the draft Development Strategy of the Eurasian Union. They are aimed at ensuring unhindered access of domestic goods to the markets of the EurAsEC member states.

“Within the framework of foreign trade diplomacy, we are fighting against trade protectionism. There are many cases when countries, for political or economic reasons, put obstacles to our goods. Last year, we removed barriers to the transit of our coal to Ukraine through Russian territory. The introduction of an increased import customs duty on Kazakhstani titanium sponge into the United States was not allowed. We are currently negotiating with the United States to protect the interests of our silicon producers. The issue of certification is very important. We managed to lobby in the Eurasian Union for the introduction of a system of certificate of origin of serial products. Now, Kazakhstani exporters, for example, of dairy products will not have to receive a certificate for each batch of export kefir. And it is enough to confirm once every six months with a certificate that the goods are made in Kazakhstan,” the minister explained.

Now the issue of joining interests in technical regulation and conformity assessment is being worked out with Uzbekistan. Kazakhstan considers Tashkent as a key partner in Central Asia and the largest sales market. The heads of the two states set the task of doubling the trade turnover with Uzbekistan to $10 billion in the coming years. The Central Asia International Center for Trade and Economic Cooperation, which is being created, will play a key role in this.

“We are already starting to implement a joint roadmap with Tashkent for its creation. The expansion of the geography of our exports is facilitated by the free trade zones that the EAEU creates with other countries. We already have such zones with Vietnam, Iran, Serbia, Singapore. Negotiations are underway with Israel, Egypt and India,” Sultanov said.

Export development: a new system of state support launched in the country

Exports of manufactured goods in price terms have been declining for the second year, despite the fact that physical volumes have shown positive dynamics. At the same time, in physical terms, exports increased by 6.9% or by 109 thousand tons. This year, the situation was aggravated by a pandemic and a slowdown in world trade. That is, not only prices fell, but also the demand for a number of Kazakhstani main export goods decreased.

Non-resource-based exports of goods continue to decline. In the first half of the year, the drop was 9%. The supply of zinc and lead has been almost completely reduced. But the supply of silver, aluminum oxides and hydroxides is actively increasing.

Exports of services in the first quarter of this year also decreased by 5.8%. The largest drop was shown by travel and passenger transport services. This once again speaks of the need to diversify exports and move to the production of goods with higher added value and more stable demand.

In the current difficult environment, Kazakhstan is pursuing a proactive policy of supporting non-resource exporters. Last year, more than 300 Kazakhstani companies, with the assistance of the Ministry, took part in 50 foreign exhibitions and concluded 63 export contracts for 114 billion tenge.

State support of manufacturers of processed products allowed 277 export-oriented enterprises to reduce their costs by 6.8 billion tenge in 2 years. They can invest the released funds in increasing the volume of production. Accordingly, their tax deductions from export earnings also increased.

“We are initiating another support tool — subsidizing the interest rate on export financing. This will support contracts for the supply of high-tech products to foreign markets. There is already a specific list of enterprises awaiting this form of support and ready to export such products worth more than 300 billion tenge annually. We are in touch with exporters around the clock. For example, this year we helped to deliver 10 tons of honey from Lepsinsk to the United Arab Emirates. In April, they also managed to organize an air express for 22 tons of meat products. Last year, for the first time, we organized the export of our batteries to Italy. Flight and navigation simulators were sent to Cambodia (also for the first time),” the minister informed.

In addition, a new system of state support has been launched in Kazakhstan — the acceleration of exporters. The business will receive assistance in intensive export development - with support up to entering new markets (experience of Canada, Australia, Russia, USA, Germany). In the food industry, about 40 companies have been selected that are preparing to export to China.

“In total, according to our calculations, support for export acceleration by 2025 will allow another six hundred Kazakhstani enterprises to join the ranks of confident exporters (today there are 400 exporters). This will ensure an increase in export supplies by $ 410.2 million and the receipt of additional tax deductions by 34.5 billion tenge,” Sultanov said.

In general, the analysis of the prospects for increasing exports shows the potential for 16 priority commodity items for $13.5 billion. In the near future we will approve roadmaps for their promotion. For priority services, including in the field of transport, tourism and IT, there is a potential to increase exports by $4.4 billion.

Main part in modernization of trade infrastructure is digitalization

Sultanov noted that the electronic trading system, for example, will allow to involve domestic producers and foreign partners, will ensure the competitiveness and transparency of transactions. Stock quotes will reflect market conditions in real time. This will eliminate the very possibility of price collusion.

To form a coherent and effective trade and logistics infrastructure, a national commodity distribution system is being created. It will unite farmers, buyers, transport agents, intermediaries and retailers into a single cluster. Not only technically, but also informationally.

24 wholesale distribution centers, connected by a single digital system, will optimize the supply chain of products from manufacturer to consumer, create the necessary conditions for storage, efficient distribution and sale of products.

Reducing commodity losses will provide farmers with the opportunity to invest further in increased productivity. In addition, full direct access of a private manufacturer to sales markets and pre-sale trade infrastructure will significantly increase the income of both the private trader and the industry as a whole. The consumer, in turn, will receive quality, safe products and improved service. Moreover, the prices for socially important food products will be reduced by 45%. This will save about 60 billion tenge for consumers annually.

It is important that the national distribution system will ensure price stability and eliminate seasonal and rush ‘'deficit” surges, as we saw in March-April this year.

“In the development of our industry, we also focus on e-commerce. This is a global trend that has intensified during the pandemic. If for the entire last year in Kazakhstan the volume of the electronic market amounted to slightly more than 700 billion tenge, then only in the first half of 2020 the volume of online trade amounted to 432 billion tenge. Until the end of this year, we expect 900 billion. And by 2022, the volume of online purchases may reach 2 trillion tenge, or 13% of all retail trade in the country. According to our forecasts, by 2025 the share of e-commerce will reach 15% of the retail market,” the head of the department said. 

E-commerce greatly simplifies and speeds up retail, especially international retail. To help entrepreneurs get used to the global electronic trading platforms, the ministry is negotiating with Alibaba, Ebay, Amazon and Wildberries. 43 Kazakh companies are already trading on gold Alibaba accounts, 3 more companies are preparing showcases. 21 Kazakhstani companies trade on Wildberries.

“We have agreed with Wildberries that the company will build logistics centers in Nur-Sultan and Almaty with the creation of about 5 thousand jobs and an area of ​​100 thousand square meters,’’ said the minister.

There are already 3 fulfillment centers in Kazakhstan, where more than 350 thousand postal items are processed daily. By 2025, their number will be increased to 15, and the number of postal items will grow to 82.8 million.

“There are 13 Kazakhstani digital trading platforms in Kazakhstan. Marketplaces such as kaspi, chocofamily, technodom, mechta and others. To support them, the issue of additional exemption from CIT and IIT is being considered. Together with the National Bank, we are working out the issues of stimulating the development of e-commerce through payment systems,” Sultanov said.

Protection of consumer rights and technical regulation

According to the minister, the development of trade should not be in isolation from the struggle for the quality of goods and services. Therefore, the fourth important area of ​​work of our ministry: consumer protection and technical regulation.

Technical regulation is one of the most effective tools for supporting the economy of simple things and a protective measure against unfair imports. But it is possible to prohibit low-quality domestic production only with the help of the consumers themselves.

“There are 18 million consumers in Kazakhstan. These are 18 million demanding quality controllers of goods and services. The change in the legislation allowed us not only to expand the tools for public control, but also to launch the creation of a full-fledged national system of consumer protection. We have introduced a three-stage system for the consideration of complaints and are working on the creation of a Unified information system for receiving complaints on the principle of one window,’' the minister said. 

Improving the system of technical regulation contributes to an increase in consumer satisfaction with the quality of goods and services. State and interstate standards are developed annually on the basis of advanced international documents. Their use allows enterprises to ensure high quality products and the growth of their own competitiveness. In 2019, 1,000 new national standards were developed, and another 2,500 will be developed in the next 5 years (including replacing the outdated ones).

As an example, Sultanov cited the introduction of Halal standards this year. They are designed taking into account the requirements of the Organization of Islamic Cooperation, the Institute of Standards and Metrology of Islamic Countries, MS Standards (Malaysia) and a number of others. An electronic system of accreditation of entities issuing certificates of conformity has been introduced. This eliminates the possibility of falsification and forgery of documents. Our short-term plans are to create an internationally recognized product certification system.

“Therefore, we stake on the formation of a modern laboratory network. Already a third of the 904 testing laboratories in the country is included in the ECE Unified Register. The laboratories will be modernized in new directions. All our initiatives to ensure comprehensive protection of the internal market are reflected in the new draft Law ‘On Technical Regulation’,’’ the head of the department noted.

Business must initially produce high quality products that can compete in international markets. Unsafe and substandard products will be screened. Conscientious entrepreneurs and ordinary consumers will benefit from this.

Sultanov stressed that the last year was a shock for trade and the world economy as a whole. The current reality is transforming the world. Kazakhstan needs to respond to all challenges quickly and efficiently.

How it was done during the state of emergency

“You remember that when people went into quarantine and massively bought food, prices for certain foodstuffs soared. Unreasonably. Just on the rush demand. Then we had to apply non-market measures — to set price caps for some goods. This helped and prices returned to an adequate level: food inflation this year, even with the March jump, is generally lower than in the past few years. At the same time, in March, the subjects of trade and services were exempted from paying taxes on property and the wage fund, deferred loans and access to concessional lending under the State Program Business Road Map - 2025,’’ explained the head of the department.

The ministry has identified key tasks for the near future.

First. Work continues on the draft Strategic Directions for the Development of Eurasian Economic Integration until 2025. Along with the development of basic directions, it lays the foundations for economic cooperation in areas that are new for the EAEU, such as health care, education, science, tourism, sports and environmental protection. Everything that is provided by the Strategic Directions is in the national interests of our country.

Second. The implementation of comprehensive plans to restore the country's economic growth for 2020 and in the medium term will allow to restore the business activity of traders in a shorter time frame, as well as provide maximum support to exporters from the state.

Third. The ministry has created a draft State Program for the Development of Trade of the Republic of Kazakhstan for 2021-2025. The tasks and vectors of trade development defined in it were repeatedly discussed with business and stakeholders. The draft Program provides for both legislative improvement measures and tools to support business and develop trade infrastructure.

Fourth. Creation of a multi-format distribution system. By the end of 2022, 24 wholesale distribution centers will be put into operation in all regions. This will make it possible to form a national system for delivering goods from the field to the counter with the lowest costs and expenses for domestic producers, and most importantly, to ensure food security. At the same time, the population will receive fresh and cheaper food products.

Fifth. As part of the creation of a full-fledged national system for protecting consumer rights, it is necessary to complete the creation of a Unified Information System for Receiving Complaints and an Interdepartmental Council. They will allow concentrating all consumer protection measures in one place and will ensure proper control over the effectiveness of decisions taken by government agencies.

Sixth. During the upcoming parliamentary session, the draft Law "On Technical Regulation" will be presented to the deputies for consideration. It is aimed at solving large-scale problems of product safety, life processes, human health and the environment.

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