Kazakhstan Expands Trade Relations With United States and Europe

Executive Summary:

•  Kazakhstan is looking to bolster trade relations beyond Eurasian Russia to the European Union and the United States partly due to Moscow’s war against Ukraine and sanctions imposed against Russia, limiting economic opportunities.
• The rich natural resource deposits in Kazakhstan will likely attract many foreign investors from the United States and European Union who are looking to decrease their dependence on China for rare-earth exports.
•  Moscow and Beijing are unlikely to react to Astana’s efforts due to Russia’s deteriorating economic ties with Europe and China’s continued use of transportation links through Kazakhstan to reach Europe.

Wedged between Russia and China, Kazakhstan has long sought to broaden its international opportunities via “multi-vector” diplomacy (see EDM, January 3, 2023). Since Russian President Vladimir Putin’s full-scale invasion of Ukraine in February 2022, Kazakhstan, fearful of collateral damage from Western sanctions, has increasingly focused on expanding its relations beyond Eurasia, particularly with the United States and the European Union. Last year marked a milestone in bilateral US-Kazakh trade, which reached a record high of $4.1 billion, a 30-percent increase from 2022 (Daryo.uz, June 15). Kazakhstan’s expansion toward Europe and the United States indicates a significant change in policy and turn away from Russian influence and a rise in international investment in Central Asia’s economy, further solidifying the region’s place on the international economic stage.

The interest in expanding trade has been pronounced at the highest levels of Kazakhstan’s government. In a June 14 meeting with US Trade Representative Katherine Tai, President Kassym-Jomart Tokayev noted that over 600 American companies are successfully operating in Kazakhstan. He attributed this to Astana’s commitment to improving its investment climate, liberalizing the economy, and fostering industrial development (Inbusiness.kz, June 14). Kazakhstan is also deepening its relationship with the European Union as it broadens its options beyond Russia’s and China’s often chauvinistic and arbitrary policies. In 2023, the European Union reported that trade with Kazakhstan reached nearly $46 billion, a 5.6-percent increase from 2022, and that the European Union was Kazakhstan’s largest trading partner (European Commission, May 14).

The recent outreach to the European Union and United States reflect Kazakhstan’s yearslong effort to attract more foreign direct investment (FDI). Astana’s efforts have been largely successful. From January to September 2023, Kazakhstan received $19.7 billion in FDI. The Netherlands leads the list of foreign investors with $4.6 billion, followed by the United States at $3.1 billion, Switzerland at $1.9 billion, Russia at $1.8 billion, and China at $1.4 billion (Informburo.kz, February 1).

The United States has been a major investor in Kazakhstan, with total FDI surpassing $65 billion. During Tai’s visit, Tokayev repeatedly lauded the importance of her presence in enhancing the already robust partnership between Astana and Washington (Akorda.kz, June 14). Addressing the enduring and multifaceted cooperation between the two countries over the previous three decades, Tokayev commented, “Our countries have strengthened strategic partnerships in many areas, including trade, investment, security, human rights, and democracy.” He noted the record-high bilateral trade in 2023 and the increasing number of US companies operating in Kazakhstan. Tai expressed her gratitude for the opportunity to discuss strategies for enhancing trade relations and the importance of creating conducive conditions for greater economic cooperation. She emphasized the potential of the Trade and Investment Framework Agreement to facilitate this process, stating, “This visit is pivotal in exploring new approaches to develop our trade ties further and strengthen economic interaction.”

Overall, economic development in Kazakhstan is better than it was in 2023. According to Kazakhstan’s Economic Research Institute, in the first half of 2023, the country attracted $13.3 billion in FDI, 4-percent ($546 million) less than in the same period in 2022. At the same time, FDI from the United States decreased from 23 to 14 percent ($3.2 billion to $1.9 billion) before rallying by year’s end (Bizmedia.kz, October 10, 2023).

The United States has increasingly expressed interest in decoupling Kazakhstan from Russian influence beyond financial means by investing in alternative transport infrastructure alternatives to Kazakhstan’s Soviet legacy. On November 21, 2023, a joint statement released by Kazakhstan and the United States during the annual United States-Kazakhstan Enhanced Strategic Partnership Dialogue noted, “The participants also emphasized the importance of facilitating sustainable development of transport routes, identifying the Partnership for Global Infrastructure and Investment as a potential avenue to address this goal. The two sides desire to continue working toward permanent normal trade relations. The delegations intend to continue consultations on sanctions policy” (US Department of State, November 7, 2023).

The US agenda toward Kazakhstan is relatively simple. On January 4, US Ambassador to Kazakhstan Daniel N. Rosenblum remarked during a roundtable discussion at the Caspian Policy Center that Washington’s two priorities in its relationship with Astana are “stability and sovereignty” (Casp-geo.ru, January 29).

The European Union and the United States seek to lessen their reliance on China’s rare-earth extraction and processing capabilities. In line with that and as part of efforts to attract more FDI, the Kazakh government is preparing to declassify Soviet-era data on Kazakhstan’s rare and rare-earth metals deposits (see EDM, July 1). Prime Minister Olzhas Bektenov announced the move on June 18 in his response to a letter from Andrei Lukin, chair of Kazakhstan’s Parliamentary Committee on International Relations, Defense, and Security. Lukin’s letter had cited World Bank statistics that “Kazakhstan has more than 5,000 undiscovered [rare-earth] deposits worth over $46 trillion” (Kursiv.media, June 18). Building on earlier success, Bektenov said that the data was to be declassified to attract investment to the mining sector, as was the case with lithium, tantalum, niobium, and other elements all now being developed due to similar efforts in 2021.

Increased US investment interest in Kazakhstan conveniently coincides with Astana’s fiscal projections. The draft National Development Plan of Kazakhstan (NDP) until 2029 has been published on the government’s “Open Regulatory Legal Acts” portal, supplanting the current NDP valid until 2025. In the next five years, the government plans to ensure gross domestic product growth rates of up to $450 billion by 2029 at 6–7 percent per year (Legalacts.egov.kz, February 19; Kursiv.media, February 6). The new NDP hopes to increase the production of metals and other minerals by 40 percent, an area likely to receive substantial FDI from the United States and European Union as Washington and Brussels seek to lessen Russia and China’s near monopoly.

Revenue generated from such mining would bolster Astana’s ambitious economic projections. Speaking in late 2023, Kazakh Prime Minister Alikhan Smailov stated that the government intends to double the economy to $450 billion by 2029 while attracting at least $150 billion in FDI over the next five years (Prime Minister of Kazakhstan, November 25, 2023). To put the government’s goals in perspective, Smailov noted that since independence, foreign companies have invested more than $410 billion for projects in Kazakhstan.

While Kazakhstan’s neighbors are doubtlessly discomfited by Astana’s eager pursuit of US and European FDI, their responses will likely be constrained. Russia, preoccupied with its war against Ukraine, will hesitate to risk one of its few remaining bilateral trade relationships. China will be loath to threaten its transport links through Kazakhstan to the lucrative European market. In the interim, Tokayev would do well to consider Vito Corleone’s sage advice: “Keep your friends close and your ‘frenemies’ even closer.”