Caravanserai
Economy

Fallout from Ukraine invasion prompts calls for Kazakhstan to quit EEU

By Kanat Altynbayev and AFP

The Kazakh tenge has depreciated sharply alongside the Russian ruble, prompting the National Bank to raise its base policy rate to 13.5% and to start selling its foreign reserves on the local exchange. [Caravanserai]

The Kazakh tenge has depreciated sharply alongside the Russian ruble, prompting the National Bank to raise its base policy rate to 13.5% and to start selling its foreign reserves on the local exchange. [Caravanserai]

ALMATY -- The economic aftershocks of Russia's invasion of Ukraine are prompting calls in Kazakhstan for the nation to leave the Moscow-led Eurasian Economic Union (EEU or EAEU).

The EEU's members include Russia, Kazakhstan, Kyrgyzstan, Armenia and Belarus.

Since Russian President Vladimir Putin launched the bloody assault on Ukraine February 24, Western capitals have frozen Moscow out of the global financial system, tipping its currency into free-fall and pushing the country to the verge of default.

More US sanctions against Russia and the tightening of existing measures were expected to be announced this week after US President Joe Biden discussed the war with European allies in Brussels Thursday (March 24), US officials said.

Shoppers visit a market in Almaty on January 9. [Alexandr Bogdanov/AFP]

Shoppers visit a market in Almaty on January 9. [Alexandr Bogdanov/AFP]

A Russian ban on sugar exports has led to an acute shortage in Kazakhstan. [File]

A Russian ban on sugar exports has led to an acute shortage in Kazakhstan. [File]

Britain on Thursday (March 24) slapped sanctions on 59 more Russians and entities and six Belarusian entities in retaliation to Moscow's invasion of Ukraine.

Belarus hosted part of the months-long Russian military buildup before the invasion.

The effects of such sanctions on Russia's economy, which include efforts to freeze $300 billion of Russia's foreign currency reserves held abroad, have been palpable.

The Russian banking sector and financial system have been paralysed, while the ruble has collapsed.

Russia now faces the risk of defaulting on debt for the first time in decades.

On March 11, Bloomberg estimated in the first two weeks of the war Russian GDP fell by 2%, or $30 billion, and predicted that by the end of 2022 this indicator would drop by 9%.

'A big problem'

Kazakhstan's economy, like that of other Central Asian countries, is closely tied to the Russian economy.

As a result, Kazakhstan is suffering alongside Russia, though it was not party to the invasion.

From the start of the invasion on February 24 to March 15, the tenge sank alongside the Russian ruble, depreciating by 20% against the dollar.

The slide prompted Kazakhstan's National Bank to raise its base policy rate to 13.5% and to sell off its foreign reserves on the local exchange to support the tenge and maintain price stability.

By March 15, the National Bank had spent $815 million of its reserves to keep the tenge afloat.

Nur-Sultan has also been forced to limit currency trading.

"We are an EEU member, so our currency is pegged to the ruble, and our economy is closely integrated with the Russian economy," Daulet Akhmetov, director of Nur-Sultan StroiService, a building-material company in the Kazakh capital, told Caravanserai.

"This is a big problem," Akhmetov said.

"All these years, Kazakhstan has lost out by participating in this union, but we have held on thanks to raw material exports. But now our economy is in danger of collapse."

Now Kazakhstan is becoming the largest payer of import customs duties in the EEU, since Russia, under Western sanctions, will not make significant contributions, he said.

"Under the terms of the economic union, Russia will take 85% of the proceeds of the customs authorities of all member countries, while Kazakhstan's share does not exceed 7%," Akhmetov said.

"A reasonable question arises: what are we now, a charity?"

Nur-Sultan must urgently change these proportions -- which are "extortionate for Kazakhstan" -- or leave the EEU, he said.

Economic pain

Closer to home, pensions are now at risk, and prices of commodities are rising.

At one point, the state invested part of Kazakhstan's pension assets in Russian securities, according to Meruert Makhmutova, an Almaty-based economist and former director of the Centre for Analysis of Public Problems.

Those include Russian Finance Ministry bonds and the bonds and depository receipts of companies such as Gazprom, Sberbank, Rosneft, Vneshtorgbank and Norilsk Nickel -- which have ended up on US and EU sanctions lists.

"These companies' shares have collapsed, and the UAPF [Unified Accumulative Pension Fund] will be forced to record losses when revaluing these assets," Makhmutova told Caravanserai.

"All of us depositors have lost some of our pension savings," he said.

Meanwhile, Russia is taking measures that directly contradict the EEU principles of free movement of goods across borders.

On March 10, Russian authorities banned the export of sugar and grain to EEU countries until the end of August to protect the domestic market, despite having grain stocks that cover 150% of domestic needs.

The measure was necessary to prevent the re-export of these products to third countries, said the Russian Economic Development Ministry.

The move apparently targeted Kazakhstan, which after a weak harvest increased grain purchases by 77%, or 2.3 million tonnes, since last July, making it the third largest buyer of Russian grain after Turkey and Egypt, according to the Russian government.

The Russian export bans have led to an acute sugar shortage in Kazakhstan and panic buying.

'Kissing a corpse'

"Russia itself is already ... violating many principles of mutually beneficial co-operation -- earlier violations included artificial obstacles to Kazakh manufacturers' entry into the Russian market," Dosym Satpayev, a political scientist and the director of a risk assessment team from Almaty, wrote March 18 in an article for Forbes.kz.

"And now, under severe sanctions, Russia is imposing restrictions on the export of certain goods, including to EEU countries."

Kazakhstan has grounds for withdrawal from its union with Russia in Article 3 of the Treaty on the EEU, which covers basic principles such as ensuring mutually beneficial co-operation, equality and the consideration of the national interests of the parties, said Satpayev.

Under EEU documents, members of the union must "harmonise their legislation on the financial market" by 2025 -- even though Russian will largely be a pariah state by that point, he noted.

"'Harmonising' with [Russia's financial system] will be like kissing a corpse," said Satpayev. "The leadership of Kazakhstan already has to think about how to avoid this kiss."

"Many of our entrepreneurs have long been disappointed with the EEU, which actually benefits only Russia," said Akhmetov, the director of the building-material company.

"All these years they [Russian officials] have been shielding their market from us with artificial barriers, while our manufacturers have been losing their home market to an influx of cheap Russian products," he wrote.

"But now it is obvious that there is no way we can stay in the EEU: Russia and Belarus will drown us along with themselves."

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30 Comment(s)

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Everybody should be grateful for everything Russia has been doing for them selflessly for all these years.

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Take a hike and go to your shitty Russia, you fucking Vatnik

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Thanks to Russia the USA and its allies didn't manage to make a second Afghanistan, Syria, Libya, or Lebanon out of Kazakhstan and other CIS countries. Their strength is in the Union with Russia, not the other way around. Russia is the only guarantor of security in the CIS. Those who don't understand it will regret being so short-sighted and stupid.

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That's right, if we don't leaving, Europe and the States will give us yet another Afghanistan or Syria, Libya, Lebanon, and many other countries.

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If we carry Russia on our back since we can't compete. and it's convenient for Russia, and also carry other EEU countries on our shoulders because our economy is larger - because they are even poorer than we are - we will break down and crash. The EEU is not beneficial for Kazakhstan in particular. Essentially, all the EEU countries are working for Russia, especially these days. We are a poor, developing country, but we will become an impoverished developing country. Who benefits from it? I'm not going to vote for Tokayev if he fails to arrive at the right decision to leave the EEU and establish mutually beneficial bilateral relations.

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The article is clearly biased; it can't pass a reality check! The EEU doesn't get in our way; at least, and it gives us a reason to do our "homework." That there are no Kazakh goods in neighboring Russia is a lie! There are dairy products, confectionery, pasta, and many other things! My relatives who live there buy all these foods happily, and have no problem with them! If Kazakh goods are not competitive, it's undoubtedly not our neighbor's fault.
Now back to your comment: what more do we have??? Who are we going to carry on our backs? Let's get it straight: Kazakhstan is either a "wow" - and carries everyone on its back - or a poor, developing country! We've got nothing of our own except our pumped-up smugness! After the January events, Tokayev failed to do anything about the country's leadership. He's changed the street signs, but all the faces remain the same, and the replacements/resignations were "fake and superficial."
All more or less decent infrastructure is in private hands one way or another! Foreigners own most of it! The country gets chicken feed under lopsided treaties! Everything is built upon kickbacks! Kickbacks make up part of the system and life already! We have not even been able to retrofit our gas processing plants for so many years to increase output! It's time to open up our eyes, be honest about it, and not look for any explanations abroad! Maybe the reason is the inaction and embezzlement that has shrouded everyone and everything. Talking about you

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The Customs Union is dying already. No one would want to cooperate with Russian companies, because they can be slapped with secondary sanctions at any moment.

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I think we shouldn't be hypocrites and make short-sighted decisions harmful to our economy. We need to substitute imports for most goods and services rather than [practice] bureaucracy, since we do it only on paper. Our government must address the problems of the Customs Union that is detrimental to our Kazakhstani goods in Russia and Belarus. I don't know what agency deals with it specifically, but they are either incompetent or silent. Russians and Ukrainians, may peace and kindness be with you. Don't be the victims of pro-Western or pro-Russian propaganda.

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You should enjoy a friend like Russia. Otherwise, it will be hard. It's time to choose who you are with - the hawk, the bear, or the dragon. You can't be all alone - they will devour little Kazakhstan. Russia is not the worst friend. Those telling us they don't need Russia, and that we can live in this world on our own, are simply narrow-minded. They don't understand we can go up in flames here. Morons.

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At least someone is reasonable...

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Bullshit

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Just stupid

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Leaving all the unions with Russia immediately!!!!!

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Kazakhstan should not leave this union and it doesn't need to pause its membership. Kazakhstan should get Kyrgyzstan and Tajikistan together, set up a meeting of the EEU and the Customs Union, and expel Russia from the Customs Union and the EEU for its invasion of Ukraine, and Armenia for the occupation of Azerbaijani territory and leave the CSTO for the same reasons.

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Russian warship, go f..ck yourself!

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I support it!!! Follow in the wake of your warship!!!

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Gotcha, Ukie!

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The fifth column is barking. Russcism is worse than fascism!

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mal

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Good article. Even Nazarbaev, when first joining this organization, proclaimed we would leave it if they would infringe on our sovereign rights. In my opinion, this is the time to do it. Kairos time, as they say.

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Maybe not leaving yet, but temporarily suspending our membership is mandatory. Russia never wholly carried out its obligations before, but Kazakhs pay for its mistakes and incompetent leadership. On what basis? It's not beneficial for Kazakhstan. Our economy is too small to compete with the Russian economy but big enough compared to the other EEU members, and we are pulling both of them to the grave. What are we, a charity organization? Let officials pay Russia out of their pockets if they need disadvantageous unions for whatever reason, but we didn't sign up for that. I demand we leave!

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I want to add we need to leave the EEU because of Russia, and forge closer and mutually beneficial cooperation with other EEU countries.

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It's better off to co-operate with Russia and improve EEU treaties than having China or the USA take us (because we are economically weak). After all, Russia is our neighbour, and since we are stuck between the two big countries, we need to join something anyway, at least until we develop our economy. Olga

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Nonsense. Times have changed.

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That's right - the Taiga union has turned into a mess. Russia is waging a war of aggression and getting sanctioned for that, but what do we have to do with it? Kazakhstan didn't sign up for that. We need to suspend our participation in the Customs Union and then leave it. Russia won't be able to do anything about it any more. It has no army :)))

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They have done and blocked all three KTK terminals allegedly "for repairs," but they can do worse things.

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That's even better. That means oil should bypass Russia.

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I agree; they are already throwing a wrench in the works. The CPC is not the only example. They have already banned grain and sugar exports; it contradicts the EEU agreements, and that is just the beginning. We will see what else our 'partners' have in store for us.

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