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Review of cross-border commerce
Description
According to article 26 of the Law of the Republic of Kazakhstan dated April 12, 2004 No. 544-II «Concerning Trade Regulation», frontier commerce is determined as a trade activity performed by frontier commerceentities on the frontier territory of the Republic of Kazakhstan and corresponding frontier territory of the neighboring state.
The international economic activity of frontier commerceentities of the RK is performed with the neighboring regions of Turkmenistan, Uzbekistan, and Chinese People’s Republic. The frontier regions of the Republic of Kazakhstan which are neighboring to these states are:
- In Almaty region: Alakol, Panfilov and Uygur districts;
- In East Kazakhstan region: Zaysan and Urzhar districts;
- Mangystau region: Beyneu and Karakiya districts;
- In South Kazakhstan region: Saryagash and Maktaaral districts.
In general, regional trade-economic cooperation between Kazakhstan and China, Kazakhstan and Uzbekistan, Kazakhstan and Turkmenistan is mostly presented by medium and small enterprises.
Contribution to economy
During the independence period, Kazakhstan has established trade and economic relations with many states all over the world. For the last decade the growth of finished product share in export is lower than the growth of the same parameter in many countries with developing or transitional economy. The barriers for frontier and cross-border commerce in Central Asia are still significant, which is proved by international rating by «Doing Business» World Bank, where Central Asia countries take the lowest positions in the category of «cross-border commerce».
Frontier commerce is performed by the individuals or small traders, who are often the manufacturers of the sold goods. They seldom become large dealers and do not move to large cities for trading. Small traders transport their goods on feet, by cycle, or light load vehicle. They do not have to use lorries due to small amounts of goods and geographical proximity. Basic realized goods are agricultural and consumer goods. Frontier commerce mostly depends on price difference. If the difference is high, than frontier commerce can include a large specter of domestic and foreign production, including coal and oil products. The last are usually re-exported or smuggled to other countries.
The main advantage of frontier commerce can be the freedom of people, products and services transportation. Thousands of people, mostly the residents of neighboring frontier districts, can violate custom rules to make use from the product price difference. In addition, for the inhabitants of frontier districts without developed road network, this is a reliable way to overrun agricultural production and get an access to the required goods, which are either not produced in their dwelling area, or are remote from the production areas in their country.
Kazakhstan external turnover in 2014 made USD 120.7 bln., including export at the amount of USD 79.4 bln. and import at the amount of USD 41.3 bln. Share of population involved in SME is 23%, and the share of frontier population of the RK involved in SME is 5.61%. In developed countries, the share of frontier population involved in SME is much higher. For example, this value in Canada reached 47%, and in Japan 75%. Nevertheless, annual increasing of SME entities in frontier regions of the RK witnesses about positive trend of population participation in entrepreneurship, including frontier commerce.
Structure
A positive goods turnover with frontier countries was observedin the period of 2012-2013. However, the goods turnover with China was reduced for USD 5.58 bln. in 2014 compared to 2013, with this goods turnover with Uzbekistan and Turkmenistan increases. First half-year of 2015 also showed the reduction of goods turnover with China and Turkmenistan.
Table 1. Main parameters of Kazakhstan external trade with frontier countries
Country |
Goods turnover |
export |
import |
|||
|
Total , USD thousand |
Share in total turnover, % |
Total , USD thousand |
Share in total export volume, % |
Total , USD thousand |
Share in total import volume, % |
2012 |
||||||
Uzbekistan |
1 983 305.6 |
1.5 |
1 177 906.1 |
1.4 |
805 399.5 |
1.7 |
Turkmenistan |
311 154.7 |
0.2 |
129 494.5 |
0.2 |
181 660.2 |
0.4 |
China |
21 672 728.8 |
16.3 |
14 227 834.0 |
16.5 |
7 444 894.0 |
16.1 |
2013 |
||||||
Uzbekistan |
2 115 393.4 |
1.6 |
1 145 309.9 |
1.4 |
970 083.5 |
2.0 |
Turkmenistan |
396 905.5 |
0.3 |
177 496.4 |
0.2 |
219 409.1 |
0.4 |
China |
22 738 213.6 |
17.0 |
14 373 748.0 |
17.0 |
8 364 465.5 |
17.1 |
2014 |
||||||
Uzbekistan |
2 101 609.9 |
1.7 |
1 083 947.5 |
1.4 |
1 017 662.4 |
2.5 |
Turkmenistan |
475 044.3 |
0.4 |
353 798.9 |
0.4 |
121 245.4 |
0.3 |
China |
17 156 639.5 |
14.2 |
9 799 418.4 |
12.3 |
7 357 221.1 |
17.8 |
2015 (6 month) |
||||||
Uzbekistan |
969 637.2 |
2.1 |
517 145.1 |
1.9 |
452 492.1 |
2.5 |
Turkmenistan |
107 339.1 |
0.2 |
72 312.8 |
0.3 |
35 026.3 |
0.2 |
China |
6 221 382.7 |
13.5 |
3 139 665.7 |
11.3 |
3 081 717.0 |
17.0 |
Sources: Committee on Statistics of MNE, State Revenue Committee ofMFof the RK
Frontier commerce with Chinese People’s Republic
The participants of frontier commerce-economic cooperation with the frontier districts of North-West of Chinese People’s Republic on regional level are Alakol, Panfilov and Uygur districts of Almaty Region, and Zaysan and Urzhar districts of East-Kazakhstan Region. The RK frontier population interest in the trade with china has decreased and does not stimulate the involving of different layers entrepreneurship to cross-border commerce development. The reason for this is that legislation acts, which limit privileged product import, introduction of mandatory cash register and trade registers in general economic activity. Also, in Kazakhstan regions close to China, the existing infrastructure does not provide suitable conditions for mutually-rewarding economic relations.
Goods and services trade development in frontier regions should be double-sided with the use of complex approaches to investments into production and flexible mechanisms of administrative-legal regulation. Historical neighboring of China and Kazakhstan Regions has a number of pre-conditions for special cooperation in strategic and economic spheres. Special attention should be paid to mirror development of logistics and surrounding custom infrastructure. Complex development of frontier goods turnover between Kazakhstan and China in frontier districts of Almaty and East Kazakhstan regions and XUAR CPRthere established International Center for Frontier Cooperation “Khorghos” and Frontier commerce Center «Maikapchagay-Zimunay».
Frontier commerce with the Republic of Uzbekistan
The participants of frontier commerce-economic cooperation with Chinaz district of the Republic of Uzbekistan on the regional level are Saryagash and Maktaaral districtsof South Kazakhstan Region. Economic cooperation between the Republic of Kazakhstan and the Republic of Uzbekistan is developing in stable manner. There is a significant international treaty framework between the sides, which consist of more than 60 interstate, intergovernmental, and interdepartmental documents, which covers almost all spheres of economic cooperation. Two countries have a huge potential for growing trade and economic cooperation, perspective directions of cooperation are expansion and stimulation of direct connections between entrepreneurs and administrative-territorial entities, simplification of custom and border control procedure, effective use of transport communications and water-energy resources, cooperation in the sphere of mutual investments, free capitals and work force movement, treatment and delivert of agricultural production.
Mutual goods turnover of the republics is sufficiently affected by the development of frontier commerce. In this connection, Last year Kazakhstan erected new railway station in Saryagash town, reconstructed and built new warehouses for the railway transportation of goods, opened transport-logistics center on the Arys station, considered a possibility of the freed frontier commerce zone opening. Kazakhstan pays special attention to cooperation in investment, money-credit, food, agricultural, transport spheres, science-technical cooperation, development of frontier commerce, textile and oil and gas production and a number of other industries.
In Uzbekistan there operate 124 enterprises with the Kazakhstan investments including 28 with 100% Kazakhstan capital, and 48 joint ventures. They provide an activity in such spheres as trade, construction, food industry, machine building, light industry, metal treatment. There are 715 small and medium enterprises with Uzbek capital involvementin Kazakhstan. They provide activity in the sphere of processing industry, trade, construction material production, furniture, glassware, and in the real estate sphere and service provision to enterprises.
Kazakhstan and Uzbekistan successfully cooperate within multisided cooperation. Both countries are the members of CICMA, SCO, ATC CISand transport corridors «TRASEKA» and «North-South». According to official statistical data, Kazakhstan together with the Russian Federation and Chinese People’s Republic is one of the three leading trade partners of Uzbekistan. Kazakhstan exports to Uzbekistan mostly food products (flour and plant oil), wood, energy products (oil products), medicine, ferrous and non-ferrous wastes and junk, chemicals and plastic materials. Uzbekistan supplies to Kazakhstan mostly energy products (natural gas), fruits and vegetables, cotton fiber, machinery and equipment, chemicals and plastic materials, construction materials.
Frontier commerce with the Republic of Turkmenistan
The participants of frontier commerce-economic cooperation with frontier Balkan Velayat ofthe Republic of Turkmenistan on regional level are Beyneu and Karakiya districts of Mangystau Region of the Republic of Kazakhstan. Turkmenistan and Kazakhstan have common border and the peoples of two friendly states are happy that the border between them has been peaceful and friendly. One of the measures taken for the reinforcement of the trust and reliability in frontier regions is the organization of frontier commerce. Very important mechanism, suitable for the development of trade-economic cooperation is double-sided intergovernmental commission for economic cooperation. Currently, the development of Kazakhstan-Turkmenistan cooperation is regulated by significant international treaty framework, comprising 55 documents. Basic documents are «The Agreement Concerning Friendly Relations and Cooperation» as of May 19, 1993 and «Declaration of Further Cooperation Development» as of February 27, 1997.
In December 2007 there was signed the Intergovernmental Agreement on the construction of the railway line «Uzen - Bereket – Gorgan» of Kazakhstan-Turkmenistan-Iran railway, which was launched in December 2014. Opening of this line ensured direct cargo supplies between these countries in the shortest possible way, which significantly reduced the journey time for through trains. In addition, new way has created about 800 new jobs for railway personnel.
Capacity of domestic market
This section describes the goods, being a subject of trade and economic relations between Kazakhstan and China, Turkmenistan and Uzbekistan. In frontier commerce of Kazakhstan among full set of basic products groups prevail the following:
• fast moving consumer goods group: cattle meat, poultry meat, cereals, vegetables and fruits etc. This position includes the products produced close to the border and in industrial agricultural complexes;
•consumer goods group: clothes, including special professional and sport wear, footwear, children goods, toys, make up, jewelry, bags, suitcases, kitchenware, gifts, linings, pillows, blankets, car accessories, tires, tools, telephones and computers, electrical tools, hotel and restaurant goods, construction materials, domestic appliances, construction equipment, agricultural machinery, pharmaceutics and etc.
Import from Chinese People’s Republic grew in 2012 and 2013 forUSD 919.6 mln.,and in 2014 it decreased for USD 1 bln. Export to Chinese People’s Republic grew in 2013 for USD 145.9 mln. compared to 2012, but in 2014 the export decreased for a total amount of USD 4.6 bln
Leading imported goods from China are: fruits and vegetables, furniture and light industry production, construction materials, domestic radio electronics, and different industrial materials. Depending on the demand among Kazakhstan population the volumes of some Chinese goods categories imported to Kazakhstan vary.But in general, for the last two tears as it was mentioned above, there is a trend for import reduction for almost all types of goods. In frontier commerce, the main Kazakhstan export position to China is presented by leather and coarse leather. But even this item is also observed to be reduced.
Trade turnover between the Republic of Kazakhstan and the Republic of Uzbekistan has growing tendency. For the last 5 years good turnover between two countries has grown for USD 0.5 bln. and in 2014 made USD 2.1 bln. The main reason for this positive dynamics of external trend is the continuing economic growth of two countries and increasing regional integration processes. For the last three years in the goods turnover between Kazakhstan and Uzbekistan there is a trend for import growth and export reduction. The import from the Republic of Uzbekistan from 2012 to 2014 grew for USD 212.3 mln.,and export volume to the Republic of Uzbekistan for this period was reduced for USD 94 mln.
Basic types of goods imported from Uzbekistan to Kazakhstan and used in frontier commerce are furniture and its accessories, textile underwear, footwear and other industrial goods with competent cost, which are produced in Uzbekistan. Permanent export good, transported by individuals through the border with Uzbekistan is flour and plant oil demanded in the territory of Chinaz district of Tashkent region in the Republic of Uzbekistan.
Trade turnover between theRepublic ofKazakhstan and theRepublic ofTurkmenistanhas growing tendency. For the last 5 years the goods turnover between two countries has grown for 4 times and made USD 453.2 mln. Within the last three years trade cooperation between Kazakhstan and Turkmenistan witnesses about positive changes. The import from theRepublic ofTurkmenistanin 2012 and 2013 grew for USD 37.7 mln., and in 2014 it was reduced for USD 98.2 mln. The export to Turkmenistancontinuously grows, for the period from 2012 to 2014 export volume grew for USD 224.3 mln.
Kazakhstan export structure to Turkmenistan is mostly presented by the production of plant origin, tobacco, flour, confectionary, fruit juices, wood, and wooden products and chemicals. Turkmenistan imports to Kazakhstanmostly oil products, cotton and textile production, fruits and vegetables, natural gas (transit), liquid pumps, construction cargos. The import in frontier commerce on the border with Turkmenistanis mostly presented by insufficient amount of food products, fruits and vegetables, flour and plant oil which are grown on the neighboring territories. The goods are not recorded by statistics and custom control within the limits of duty-free import. The situation of Kazakhstan goods export to Turkmenistanin frontier commerce is the same to import situation. Insufficient permanent demand of Beyneu and Karakiya districts population is observed to the furniture and its accessories, glassware and plumbing, and traditionally high-quality cutlery. Due to the demand reduction in the first half of 2015 there is a trend for the reduction of textile and toys import from Turkmenistan, which is apparently caused by Kirgizia joining the Custom Union.
Kazakhstan import structure by basic product groups
From January 2012 to June 2015 the goods turnover of the Republic ofKazakhstanis mostly presented by the import of the machinery, equipment, vehicles, devices and apparatus. Relative share of these goods for considered period is a half of the import (in 2012 — 50.6%, in 2013 — 53.9%, in 2014 — 53.4%, for 6 month of 2015 — 50%). From 14.5% to 16.9% of import is taken by the chemical industry production and other associated industries (including rubber resin and plastic materials). According to observations provided in 2012-2015, there determined the growth of the demand for these goods.
A part of the Kazakhstan population demand for animal and plant origin goods, finished food, is also covered by import. Their relative share in import made from 6.3% in 2012 to 7.2% in 2015. With this there is a trend for the share growth of animal and plant origin products, finished food products imported from CIS countries.Kazakhstanimported food products for the amount of above USD 4 bln.In 2014 , which is 10% less compared to 2013. According to the statement of Ministry of Agriculture of the Republic ofKazakhstanthe country covers its domestic demand for agricultural goods only for 60%, and other 40% are imported. Kazakhstanalso requires the import of metal products, which are not manufactured inside, such as wood, timbering and cellulose and paper products.
Basic industry players
The participants of frontier commerce are individuals, private entrepreneurs and, MSE entities. According to information of Committee on Statistics of MNE of the RK, the number of registered business entities in nine regions neighboring with China, Uzbekistan and Turkmenistan, which provide trading services is 1004 entities.
Table 2. The list of basic industrial players of frontier commerce by regions
name |
Registered address |
activity |
«AGNKS Consulting»LLP |
Almatyregion Panfilovdistrict г. Zharkent 77, ZhibekZholy str., app 57 |
Other retails in non-specialized shops |
«Tavidi»LLP |
Almatyregion Alakoldistrict Usharal 103, Toshenko str. |
Wholesale by other fuel |
«Alakol-komir»LLP |
Almatyregion Alacol district Bescolvlg. 1, А. Imanovstr. |
Other retails in non-specialized shops |
«Dostyk Gas Terminal» LLP |
Almaty region Alakoldistrict Dostyk |
Provision of other services non-included in other groups |
Consumer’s cooperativeof Uygentas Region |
Aktoberegion Kabanbay |
Fruits and vegetables retail in specialized shops |
«Galliastroyservice»LLP |
Almatyregion Uygurdistrict Chudzhavlg. 18, Kadyrova str.. |
Wholesale by wide variety of goods without any specification |
«Karabulak-Manrak»LLP |
East-Kazakhstan region Zaysandistrict Zaysan |
Wholesale by wide variety of goods without any specification |
«Zaysan-Nur-service»LLP |
East-Kazakhstanregion Zaysan district Zaysan Kondurina str.. |
Fuel retail in specialized shops |
Production cooperative «Nurbolat» |
South-Kazakhstanregion Saryagash district Abayvlg. 20, D. Konayeva str., app. B. |
Wholesale by wide variety of goods without any specification |
«Eco food Undustries-ltd» LLP |
South-Kazakhstanregion Sairam district Aksuvlg. 29, ZhibekZholy str. |
Drinks wholesale |
«Contact»LLP |
South- Kazakhstan region Sairam district Aksuvlg. 20, Furmanovastr, of. 12 |
Pharmaceutic goods wholesale |
«Hangry Comers»LLP |
South-Kazakhstan region Sairam district Aksuvlg. 27, Zavodskaya str. |
Wholesale by wide variety of goods without any specification |
«Simon and K»LLP |
South-Kazakhstan region Sairam district Aksuvlg. 79, Shkolnaya str. |
Wholesale by wide variety of goods without any specification |
Village consumer’s cooperative «Sayram» |
South-Kazakhstan region Sairam district Aksuvlg. 1, BeketBatyra str. |
Retail by mostly food products including drinks and tobacco products in non-specialized shops |
Full partnership «Koybagarov and company» |
South-Kazakhstan region Sairam district Aksuvlg. 42, Konayeva str. |
Provision of other services non-included in other groups |
«EKD Afganets»LLP |
South-Kazakhstanregion Tulkubasdistrict Amangeldy village |
Wholesale by wide variety of goods without any specification |
Production cooperative«Aues» |
South-Kazakhstanregion Saryagashdistrict Darbazavlg. |
Mixed agriculture |
«ТМ and К»LLP |
Mangystau region Zhanaozen Industrial zone No. 2, site 7 |
Wholesale by wide variety of goods without any specification |
«Beck-trans»LLP |
Mangystau region Zhanaozen microdistrict Rakhat 6th str., bld. 6 |
Wholesale by wide variety of goods without any specification |
Source: Association of Legal Entities“Kazakhstan Association of Custom Brokers (representatives)”
Barriers and Limits
The barriers in frontier commerceare mostly formed due to administrative regulation, the governments of implicated countries, which cause additional expenditures significantly reducing the profit from goods realization. According to the data of sociological survey and trade analysis in frontier regions of the Republic ofKazakhstan, the business entities face the berries, which can be divided on infrastructure and administrative types.
Infrastructure barriers are usually associated with that frontier territories due to their remoteness from region centers do not have the reasonable infrastructure development. These districts are usually characterized by lack of modern motorways, insufficient number of border checkpoints and their poor equipment, insufficient number of logistics centers, unsatisfactory condition of elevating and loading machinery, used on the existing bonded warehouses.
Administrative barriers in frontier commerce mostly arise in case of regulation of some types of activities associated with this type of trade:
• nontariff regulation which includes the compliance withrequirements of technical regulations and standards, and the procedures established by goods and services certification bodies;
• restriction of free transportation of services and goods, connected with the entrepreneur’s necessity to obtain licenses for import and export and for provision of specific trading types;
• tariff regulation provided by neighboring states;
• compliance with tax legislation norms of the neighboring countries;
• tax and custom regulation of Kazakhstan and neighboring countries legislation;
• migration policy, including visas to foreign countries, passport change, obtaining permissions for cross-border vehicles transportation.
Currently, onlyin the Republic ofKazakhstanthere executed 94 technical regulations, 32 technical regulations on the territory of the Custom Union Countries and accepted by Eurasia Economic Commission. Specifications provided by these regulations are distributed for a wide range of goods. The necessity to obtain production safety certificates, issued by the authorized bodies of the neighboring countries, for each products batch imported to Kazakhstan, significantly increases the expenditures of the entrepreneurs in frontier regions.
During the verification of products safety the entrepreneurs of the frontier regions usually face the following:
• absence of authorized laboratories in frontier regions, which causes significant material and time loss to the external economy dealers, and which are associated with the samples delivery, that can be sometimes oversized and heavy, to perform the tests;
• absence of the possibility to perform certification of spare parts and accessories delivered separately (apart from finished device), including delivered for the production of new goods and for the repair and maintenance of previously imported goods;
• multiple time increasing for the certification and its cost rise.
Due to entry into force of the Custom Union technical regulations, the list of goods,which are liable for mandatory safety verification,has been gradually increased. Due to insufficient number of authorized certification centers the cost of this service has grown for 10 times and higher.It is ridiculous, when the product cost is USD 10 and its certification cost makes sometimes from KZT 45 to 90 ths. Obtaining of serial certificates for the period of three years for good group costs about KZT 1 mln. (depending on good type and its number). Increased expenditures of the entrepreneurs in frontier regions lead to great product cost rise.
Kazakhstan entrepreneurs, who export its production to theRepublic ofUzbekistan, face the problem of non-recognition of Kazakhstansafety certificates and goods test reports. In frontier regions, state bodies, which issue approval document (licenses and approvals), are located in best case in region centers, been significantly remote from the borders with the neighboring countries. This causes great time loss for the frontier commerce participants as according to sociologic survey data the number of entrepreneurs, who use online services provided by state bodies of the Republic ofKazakhstan, made from 0 to 5%.
One of the parameters, which influences the price formation, is an amount of custom duties. When Republic ofKazakhstanjoined the Custom Union the average level of import duties increased from 6.2% to 10.6%. This has also increased on the prices growth of the imported and sold goods. Due to Kazakhstan joining WTO there planned the reduction of import costs for a number of goods up to 6.5%. Similar happened in Chinese People’s Republic, when due to joining WTO, the amount of import duties was decreased twice from 9.8% for the import of cosmetics, clothes, and sport footwear.
In some cases, the states’ soles discretion increasing of rates of excise and import custom duties negatively affect the development of frontier commerce. Embargos, which are regularly introduced by Uzbekistan for cargos import, prevent trade development between UzbekistanandKazakhstan. As a result, such activities led to the trade reduction, which consequently caused the reduction of population welfare in frontier regions. For example, in 2011 the Republic of Uzbekistan, which is the main consumer of Kazakhstan flour, introduced an excise duty of 15% for imported flour, which caused the reduction of flour export in the first 6 months of 2013 for 45% from 1200 ths. to 709 ths. ton.
The differences in normative regulations of currency operations cause serious problems. Thus, according to the Decree of Central Bank of the Republic ofUzbekistan, Uzbek business entities should purchase currency according to market rate, which is twice higher than official one, which leads to significant cost rise of Kazakhstan exported products. In addition, temporary terminations of import agreements conclusions between the entrepreneurs of Kazakhstan andUzbekistan, introduced by Ministry of External Economic Relations, Investments and Trade of theRepublic ofUzbekistan,hardens the cooperation between the entrepreneurs of both countries.
The list of potential opportunities for entrepreneurs
In frontier regions of Kazakhstan the trade activity of the business entitiesis directed to the satisfaction of population demand for food products and consumer goods. As the assortment of realized in frontier regions consumer goods is presented by the foreign production, the creation of suitable conditions by eliminating the barriers for external economy will be a potential opportunity for the development of processing enterprises and trade increasing.
According to the information from official sites of districts’ akimats, the economy of frontier territories of Alakol, Panfilov, Uygur, Saryagash, Maktaaral and Urzhar districts has agricultural orientation. The priority direction of Zaysan district is the development of mining industry. Beyneu and Karakiya districts are oriented for oil production. Considering basic specialization of the frontier districts economies, the increasing of frontier commerce by Kazakhstan production can become a base for the growing of agricultural production and its processing.
The presence of 1723 enterprises for agricultural and other natural materials processing, and light and pharmaceutic production in Kazakhstan frontier regions, signifies about the present potential for the development of food, pharmaceutic and light industry products frontier commerce. State support of the current enterprises for Kazakhstan origin goods production and processing, elimination of the barriers for frontier commercedevelopment will enable domestic products to be compatible on internal and external markets, which will positively affect the development of frontier commerce.
An important factor for successful implementation of potential opportunities was Kazakhstan joining to WTO. GATT norms recommend formation of the preferential exclusions from the rules of most-favored-nation treatment for neighboring countries, frontier districts — remote for about 15 km from the both sides of national borders for the simplification of trade, goods and services exchange in case, if they are produced or consumed directly within these territories. World Bank recommends the introduction of such preferences for the entrepreneurs located 30 km away from the state border.
Potential opportunities for the support entrepreneurship initiatives in frontier commerce can include the following:
1. Elimination of administrative and organizational barriers, which prevent efficient development and functioning of entrepreneurship by custom administration simplification for physical transportation of individuals and for the transported goods –excluding the transportation frequency and limits for the amount of the imported or exported goods, which ensures trade development and creates conditions for the productions development in frontier regions.
2. Upgrading of normative-legislation base, which governs tax sphere in terms of taxation managing reduction, technical regulation sphere in terms of potential import/export of the goods with the provision of compliance certificate.
3. Development of entrepreneurship informational provision and ensuring of availability of state informational resources will provide the entrepreneurs with the opportunity of timely participation and reaction for the governmental initiatives concerning economic development of frontier regions, external trade of the country in general, and will serve as a stimulation factor for the international integration development.
4. Formation of the positive public opinion and popularization of entrepreneurship under the condition of the properly arranged cooperation of custom authorities and local executive bodies will turn frontier commerce into additional channel of external trade and economically mutually profitable cooperation between the business entities in frontier zones. Frontier commerce will be beneficial for the development of production technologies exchange and joint production and finally ensures the creation of transcontinental transit corridors in international transportation system.
SWOT-analysis
This section provides detailed analysis of the weak and strong sides, threats, and development opportunities for frontier commerce.
Table 3. SWOT-analysis of frontier commerce sector
Strengths |
Weaknesses |
• Low expenditures for the organization, construction and maintaining of market infrastructure; • Low cost of the trade point rent; • Low cost of market entry; • Minor expenditures for goods delivery; • Mobility of goods assortment change due to consumer preferences of the local population. |
• Low level of consumers’ rights protection; • No availability to collect the information about sells volumes; • Sellers have no cash-registers; • Low qualification of management personnel on the market; • Low quality goods availability • Strong competition on the market |
Opportunities |
Threats |
• Frontier regions population involvement and poverty reduction; • Investment in the development of economic relations with frontier regions of neighboring countries; • Opportunity to organize direct sells of the socially important goods to the population on fairs; • Local manufacturers can present their products to potential local and foreign clients with no marketing costs |
• High possibility for realization of smuggled and fake products; • Reduction of tax collection rate; • Reduction of investment attractiveness degree; • No sanitary-epidemiology requirements are met |
Source: Association of Legal Entities “Kazakhstan Association of Custom Brokers (representatives)”
Frontier commerce inKazakhstanis performed at the territory of Almaty, East-Kazakhstan, Mangystau and South-Kazakhstan regions. Frontier commerce is performed by individuals and small entities which are often the manufacturers of the sold goods.Basic counteragents of Kazakhstanfrontier commerce are Uzbekistan, Turkmenistanand China.
Popular types of the realized goods in frontier commerce are agricultural and consumer’s goods. 1,004 business entities are involved in trading in frontier regions of the country.
Basic barriers for frontier commerce of Kazakhstan are associated with infrastructure and administrative regulation.
Solving of the existing problems of frontier commerce will ensure the stimulation of frontier regions development, involvement of the local population and simpler access to new markets for the domestic manufacturers.
Review of entrepreneurship in commerce
Description
Retail trade sector is one of the rapidly growing economy areas of Kazakhstan. At presentthe retail trade of the country is at the stage of transformation. From year to year a share of modern retails stores are increasing and putting out such sales channels as market and counter stores. However, a tradition of trading at the market, where a major share belongs to small participants, is still strong in Kazakhstan.
According to the expert opinion, a share of the chain retailers in the retail turnover varies from 7-8% up to 10-15%. The Research Agency “DAMU Research Group” estimates percentage of the retail in the amount of14%. The major part of the money turnover at the retail market is generated at the trade market and in the shopping centers of the first generation. Despite this fact a “street” trade concentrated in the immediate neighborhood of the central city streets is widespread in the country.
Increase in number of retail chains, consolidation of small trade participants, modernization of the trade market are forecasted in the coming years. Strengthening of competitive practices related to entrance of foreign retail chains at the market of the country is expected due to the membership of Kazakhstan in WTO, CU. Competition of trade chains will be concentrated around aggressive marketing strategy, implementation of a new service technology, infrastructure modernization and construction of new retail facilities.
Industry Contribution into the Economy
In 2014 percentage of wholesale and retail trade and auto and motor services in the GDP of the country constituted 15.5%.By virtue of its specificity the trade gravitates to places of the most population concentration. So 1/3 part of GDP of Almaty city is received in the trade sphere, and in Astana city trade share constituted 22% of GDP for the same period.
Trade sphere provides employment to 1.25 mln.of people that constitutes 15% of the employed population of the country (2014). Activity of 36% of individual entrepreneurs and 26% of small enterprises is intimately connected with trade.
Field Structure
Following the result of 2014 54% of the overall retail turnover belong to the share of trading enterprises, like “stores”, and the other significant part (46%) to “trade markets”. The overall majority(95%) among the trading enterprises constitutes “neighborhood store” with legal structure of “limited liability partnership” and “individual entrepreneur”.
Retail turnover volume via internet-stores was estimated in the amount of USD 700mln. in 2014. In general, internet-stores constitute 1.5-2% of the retail turnover volume.About 60% of the internet trade market belongs to Almaty city, and 20% to internet-stores of Astana city. The other regions of the country in aggregate constitute 20% of the internet sales market.
As of today there is no unified and standard classification of retail facilities. The Research Agency “DAMU Research Group” distinguishes seven formats of retail facilities subject to peculiarities of Kazakh trade practice.
Format 1.“Neighborhood store”
“Neighborhood Store” is a retail facility, often consisting of the only commercial subject. Facilities of such format salea specialized narrow range of essential commodities up to 5,000 items at the sales area up to 100 sq.m. “Neighborhood store” is usually not included into the retail chain and has no own parking lot. As of today 41% of sales premises of Kazakhstanbelong to this format. “Neighborhood store” does not correspond to modern requirements and is not characterized by high inventory turnover. In general, it is necessary to reduce share of retail facilities of this format in Kazakhstan due to opening of advanced competitive formats.
Format 2. “Mini-market”
“Mini-market” includes retail facilities selling up to 5,000 items of specialized or general assortment of goods and having own consumer parking lot and sales spaces of 100-500 sq.m. 18% of sales areas of the country referred to the format “Mini-market”. It should be noted that such quantity is estimated as “insufficient”. Pursuant to the international practice a share of this format of the retail facilities shall be at the level from 25% up to 35% of all sales areas. Format “Mini-market” may be consolidatedinto the chain companies, such as“Cash&Carry” and “Discounter and Soft Discounter”. In general in Kazakhstan this format has a slow development dynamics as the domestic investment capital is oriented at shopping centers and shopping and leisure centers with area over 5,000 sq.m.
Format 3.“Supermarket”
Format “Supermarket” is a retail facility represented by several commercial subjects with specialized or general set of products in assortment of 1-25 thou.items.Supermarkets may be included into trade chains, have own customer parking lot and sales area of 500-3,000 sq.m. Following the valuation of the Research Agency “DAMU Research Group” a share of format “Supermarket” constitutes 12% of sales areas in the country, whereas pursuant to recommendations of experts a share of this format shall be at the level of 35-50% of sales areas. This format of trade in Kazakhstan is more prospective as opposed to the format “Hypermarket” due to prevailing of small towns in the country, where placement of trade facilities of the format “Supermarket” is economically feasible.
Format 4.“Hypermarket”
Format “Hypermarket” is a retail facility represented by several commercial subjects and sales specialized or general set of products in assortment of 5–25 thou.ofitems. Hypermarkets have own parking lot, sales area over 3,000 sq.m. and are often an integral part of the trade chains. At present format “Hypermarket” occupies not more than 5% of all sales areas in Kazakhstan. Pursuant to expert recommendations a share of this format shall be at the level of 15–20% of sales areas of Kazakhstan. 3-5 product hypermarkets may be placed in large cities with population of 300-500 thou.people.
Format 5.“Specialized shopping center”
Specializedshopping centersare represented by a large number of commercial subjects having common sales area over 1,000 sq.m., own consumer parking lot and may be a part of the trade chain. Specialized assortment, such as construction materials, furniture, household appliances etc. may be represented by 1-25 thou.ofitems.In Kazakhstan this format occupies about 12% of overall sales areas. According to the expert estimate a percentage of the retail facilities of this format shall be at the level of 15-20%.
Format 6.“Shopping center”
Shopping center is a retail facility represented by several commercial subjects, selling general goods in assortment over 25 thou.ofitems and occupies sales area over 1,000 sq.m. Retail facilities of this format have own parking lot. In addition, the shopping center may be a part of the trade chain. In Kazakhstan about 7% of overall sales areas belong to this format. Pursuant to the expert recommendations a share of shopping centers shall be at the level of 25-40% of sales areas. It is important to emphasize that all previous formats of the retail facilities are not direct competitors for the shopping centers as they are usually lessees of the areas in the shopping centers.
Format 7.“Shopping and Leisure Center”
Shopping and leisure center is a retail facility represented by a large number of commercial subjects, with overall sales area over 3,000 sq.m. that bothsales general assortment of goods (fast moving consumer goods, clothes, furniture, electrical appliances etc.), and provides services, entertainment and catering (cinemas, beauty salons, food-courts, playing zones etc.). Retail facilities of such format have over 25 thou. items of goods. Shopping and leisure centers may be a part of the trade chains and shall have their own consumer parking lot. In Kazakhstan this format occupies about 5% of sales areas. Subject to modern world tendencies a share of such format retail facilities shall be at the level of 35-50%. Shopping and leisure centers as well as shopping centersare not direct competitors for retail facilities of “supermarket”, “hypermarket” and “specialized shopping centers” formats as they all can be lessees of sales areas in the shopping and leisure centers.
Trade Market Capacity
Retail turnover volume is a key performance indicator of trade company activity. In in the RoK2004 the retail turnover volume was at the level of 1.2 bln.tenge, by 2014 the retail turnover volume grew up to 6.3 bln.tenge. Over the period under consideration the turnover of retail enterprises increased by 5.5 times. An annual growth rate of the retail turnover constituted 19% for the period 2010-2014.
The retail turnover volume per capita is also an important indicator. Over 10 years retail turnover volume per capita increased by 4.5 times from 81.5 thou.tenge in 2004 up to 368 thou.tenge in 2014. The growth rate of the retail turnover volume constituted 14%for 2014.
Analysis of the retail turnover structure under the categories of goods indicates that over the period 2004-2014 a share of food commodities in the retail turnover of the RK decreased by 5% from 34% to 29%. Herewith, a share of non-food goods in the retail turnover of the republic increased from 66% up to 71%. It proves that population is more interested in non-food goods or so called durable goods (clothes, household appliances, furniture etc.). It is obvious that this is a positive tendency showing improvement of population living standards.
Table 1.Overall retail volume in the RK
|
2010 |
2011 |
2012 |
2013 |
2014 |
Overall retail volume, bln.tenge |
3 197,1 |
3 865,8 |
4 567,7 |
5 474,3 |
6 332,3 |
Growth rate, % |
21% |
18% |
20% |
16% |
Source: Committee on Statistics of the MNE of the RK
Pursuant to the polling carried out by the Association of the TradingEnterprises of Kazakhstan, food commodities are bought most often. 55% of respondents daily buy food products, and 33% of the respondents note that they buy products several times a week. The population buys household cleaning products one time per month (34%) or several times per month (21%). Respondents buy furniture one time per year (43%) or 1 biennially (54%). 63% of population purchase construction materials at least once a year.
In the retail turnover a percentage of regions is distributed unequally. The biggest turnover is concentrated in the large cities of the country. In 2014 a large share of the retail turnover was received in Almaty city (26%). It should be noted that a share of Almaty city reduced by 30% in 2014 compared with 2010. Over 5 years (2010-2014) there is a tendency of the turnover growth in Astana city, which share is represented by 11% of the retail turnover in the country. The least share of the retail turnover in the country belongs to Mangystau region (2%), North Kazakhstan region (2%) and Kyzylorda region (3%).
г. Алматы |
Almaty city |
Карагандинская |
Karaganda region |
Алматинская |
Almaty region |
Западно-Казахстанская |
West Kazakhstan region |
Акмолинская |
Akmola region |
Мангистауская |
Mangystau region |
г.Астана |
Astana city |
Актюбиская |
Aktobe region |
Павлодарская |
Pavlodar region |
Атырауская |
Atyrau region |
Кызылординская |
Kyzylorda region |
Восточно-Казахстанская |
East Kazakhstan region |
Южно-Казахстанская |
South Kazakhstan region |
Костанайская |
Kostanay region |
Жамбыльская |
Zhambyl region |
Северо-Казахстанская |
North Kazakhstan region |
Figure 1.Regional structure of the retail turnover of the RK, %
Source: Committee on Statistics of the MNE of the RK
Number of IndustryPlayers
A distinctive peculiarity of the trade sphere is that retail services are implemented in the territory of the trade market, store and commodity warehouse location compared to other fields which products may be sold far from the region of its production.
In Kazakhstan a number of trade markets are annually reduced. If in 2004 935 markets were registered, then at the end of 2014 there were 752 markets. Market structure suffered some changes from 2004 to 2014. If in 2004 ultimate markets had 68% of all markets of the country, then in 2014 they had only 62%. For the period under review a share of food markets changed slightly and remained at the level of 9%. A share of non-food markets changed significantly, 19% in 2004 compared with 17% in 2014. Apositive dynamics of specialized marketsshould be noted. Percentage of such markets grew from 4% in 2004 up to 12% in 2014.
|
|
|
|
Figure 2.Trade market structure in terms of specialties, %
Source: Committee on Statistics of the MNE of the RK
In the nearest time reduce of the total amount of trade markets is expected, as they often cannot compete with and transferinto the format of fixed-site shopping centers or shopping and leisure centers.Strengthening of the market specialization is also possible that will come to reduction of ultimate market share. Food retail markets, save as agricultural markets, may practically disappear.It is supposed that a significant part of the markets will be transformed into trade and logistic markets servicing wholesale trade flows.
According to estimate of the Research Agency “DAMU Research Group” consolidation of the retail market in Kazakhstan constitutes 14%. This indicator is calculated on the basis of data on sales areas and turnover. It should be noted that according to the turnover indicators consolidated retail chains in Kazakhstan occupies up to 65% of the whole retail turnover of the trading enterprises.
10 largest chain player of retail trade may be distinguished in Kazakhstan.
1. “Magnum” is represented by 11 retail outlets in Almaty city (8 outlets), Astana city (1 outlet), Karaganda city (1 outlet), Shymkentcity (1 outlet). Sales area of all stores constitutes 80 thou.sq.m. According to estimates of the Research Agency “DAMU Research” turnover in 2014 reached USD 500 mln.
2. Chain “SMALL” includes 34 retail outlets in Almaty city (14 outlets), Astana city (6 outlets), Kyzylordacity (4 outlets), Pavlodar city (4 outlets), Taldykorgancity (4 outlets), Kokshetaucity (1 outlet), Tarazcity (1 outlet). Sales area of all stores constitutes 30 thou.sq.m. According to estimates of the Research Agency “DAMU Research” turnover in 2014 reached USD 400 mln.
3. “Ramstor” is represented by 26 retail outlets in Almaty city (14 outlets), Astana city (5 outlets), Aktau city (2 outlets), Oralcity (2 outlets), Atyraucity (1 outlet), Karaganda city (1 outlet), Shymkentcity (1 outlet). Sales area of all stores constitutes 37 thou.sq.m. According to estimates of the Research Agency “DAMU Research” turnover in 2014 reached USD 400 mln.
4. Chain “Green” includes 40 retail outlets in Almaty city (35 outlets), Astana city (3 outlets), other cities (2 outlets). Overall area of all stores constitutes35 thou. sq. m. According to estimates of the Research Agency “DAMU Research” turnover in 2014 reached USD 300 mln.
5. “Metro” is German retail chainrepresented in Kazakhstan by 8 outlets in Almaty city (2 outlets), Astana city (1 outlet), Aktobe city (1 outlet),Karaganda city (1 outlet), Pavlodar city (1 outlet), Oskemen city (1 outlet), Shymkentcity (1 outlet). Overall area of all stores constitutes about 60 thou.sq.m.According to estimates of the Research Agency “DAMU Research” turnover in 2014 reached USD 250 mln.
6. Chain “Anvar” was historically established in Aktobe city. Today in Kazakhstan the chain includes 25 retail stores in Aktobe city (18 outlets), Astana city (1 outlet), Atyrau city (1 outlet), Kyzylorda city (1 outlet), Karaganda city (1 outlet), Kostanaycity (1 outlet), Aktau city (1 outlet), Oral city (1 outlet). Overall sales area of all stores constitutes about 7thou.sq.m. According to estimates of the Research Agency “DAMU Research” turnover in 2014 reached USD 40 mln.
7. Chain “InterFood”includes 7 self-service stores under the trademarks “City Plus” and “InterFood” in Almaty city (5 outlets), Kapshagay (1 outlet), Taldykorgan (1 outlet). Overall sales area of all stores constitutes about 5 thou.sq.m. According to estimates of the Research Agency “DAMU Research” turnover in 2014 reached USD 60 mln.
8. Chain “5 minut” (ex-chain “Bakhus”). Today the chain is represented by 6 retail outlets in Astana city. Overall sales area of all stores constitutes about 5 thou.sq.m. According to estimates of the Research Agency “DAMU Research” turnover in 2014 reached USD 50 mln.
9. Chain “Yuzhny” is a regional chain represented in Karaganda city by 14 outlets. Overall sales area of all stores constitutes 5 thou.sq.m. According to estimates of the Research Agency “DAMU Research” turnover in 2014 reached USD 35 mln.
10. Chain “Astykzhan” includes 3 retail stores in Astana city (2 outlets), Kostanaycity (1 outlet). Overall sales area of all stores constitutes about 6 thou.sq.m. According to estimates of the Research Agency “DAMU Research” turnover in 2014 reached USD 50 mln.
In addition to the above listed there are many other trade chains in Kazakhstan, that are not so large or only starting their activity at present. Thereto may be included general chains – “Korzina” and “Ayan” in Karaganda city, “A2” and “Astana mirvkusa” in Astana city, “Osynda market” an “Realist” in Almaty city etc.
Previously existing chains such as “GROS”, “SIM Market”, “7Я”, “Tomat”etc.could not refrain at the market for various reasons. Russian chains “Pyaterochka” and “Vester” also could not withstand competition on the part of the Kazakh chains and were closed in Kazakhstan.
In addition to these retail chains there are over 1,000 internet stores in Kazakhstan. However, it should be noted that an ordinary Kazakh internet buyer has no borders. The Kazakh people are acquainted with such trade services as Ebay, Alibaba, TaoBao, Lamoda etc. The major internet sales volume belongs to web-site of Air Astana Airlines (USD 150 mln.), coupon service web-site Chocolife.me (USD 30 mln.). There is no information on turnover of Kazakh internet stores with rare exceptions. In general, it is known that leaders of retail sales in Kazakhstan are such web-sites as Sulpak.kz, Alser.kz, Lamoda.kz.
Barriers and Restrictions
This section reviews the main barriers and restrictions of entrepreneurship in retail trade industry.
Deficit of Sales Areas
At present a key problem of domestic retail development is deficit of sales areas referred to categories “1”, “2”, “3”, “4” (with area 100 sq.m. and more). This problem is worsened by the fact that in a sing of the area deficit, renal cost and sales price remain high even in case of inactive market. Thus, area deficit and high rental cost lead to escalation of expenses of the retail business and to overestimated prices for goods in the retail stores.
Undeveloped Transport and Logistic Infrastructure
Underdevelopment of transport and logistic infrastructure is the most significant barrier in the domestic trade development. These circumstances will lead to ineffective logistics of goods and increasing in transportation, storage and recycling costs. In its turn it has an adverse effect on competitiveness of all trade system of the country and leads to increase in prices for consumables.
Deficit of Skilled Personnel of Middle and SeniorManagers
Personnel problems of trade sector are typical of the major economy areas. They may be defined as follows:
• ineffectivenessof vacation and technical education system. No centralized state monitoring of staff needs and staff planning.
• underdevelopment of information exchange between tradingenterprises and higher education system in training of personnel and T&VE;
• actual absence of trade specialties in the higher education and T&VE system;
• lack of short-term business education system (trainings, seminars, master-classes) in regions. They function only in Almaty city. The other cities and settlements of the republic have no information on modern tendencies in trade;
• incompliance of professional skills level of the domestic top managers with level of their foreign colleagues from West Europe countries and the USA;
• overestimated price and unavailability of highly qualified top managers of world level able to bring the domestic commercial companies at the international company level.
Availability of Financial Funds
High cost of borrowed financial resources causes a significant delay of the trade industry of Kazakhstan in the world tendencies and level of infrastructure. This circumstance is the constraining factor of the retail facilities construction.
The average value of credit resources of an ordinary entrepreneur for construction of the own retail facility constitutes 15–20% per annum. In addition short terms of repayment of borrowings bring entrepreneurs to a nonplus, as the investments into the infrastructure development return within decades. At present low return indicators the trading companies of Kazakhstan may serve only interest on credit of the Second-Tier Bank, but not the principal of loan. Correspondingly the trading companies need credits at the rate not exceeding 7-8% per annum, that Second-Tier Bank may not receive without corresponding mechanisms of the state support.
Underdeveloped Internet Trade System
Internet tradeis regulated by the Decree of the Government of the RK dated September 10, 2007 No. 786 “On Adoption of E-Commerce Rules in the Republic of Kazakhstan”. This document is the first statutory and regulatory enactment in the country that defined rules of the internet trade market. In practice the aforementioned Decree of the Government neither state any efficient rules, nor encourage development of e-commerce in Kazakhstan. In connection herewith it is necessary to fasten development of unified legislative document for regulation of e-commerce market.
Lack of Mechanisms and Instruments of State Support
As of today the trade industry is not included into the list of priority economic sectors. Correspondingly, entrepreneurs in the tradesector cannot rely on essential mechanisms of the state support. The list of priority types of activity for implementation of state projects approved by the Decree of the Government of the RK dated May 8, 2003 No. 436, as amended by the Order of the Head of the Committee on Statistics of MNE of the RK dated May 21, 2015 No. 79. According to the amendments the list is added by a subclass 41.20.3 (construction of fixed-site retail facilities of the 1st category with area over 10 thou. sq.m.) Thus, pursuant to the order of the MNE of the RK only new objects over 10 thou.sq.m. may rely on receiving investment preferences. Correspondingly, assess to this preferences is not possible for MSE and is limited for the large business, as it is economically feasible to build objects above 10 thou.sq.m. in Almaty and Astana.
Exchange Risk Insurance
In Kazakhstan almost all retail trade and service enterprises, with rare exceptions, lease premises and directly depend on a rent price. Depending on business specificity this cost item constitutes from 5% up to 30% of the companies’ turnover. In case of increase in rent pricethat depends on foreign currency in major sales premises lease agreement, a retailer has to increase the end price of goods to retain its profitability that obviously leads to increase in inflation level in the country. Due to this fact states-members of EAEU take the corresponding measures envisaging amendment of the legislation directed at prohibition of the rental rates calculation depending on the currency exchange rate (USD, EUR). For example, the Ministry of Industry and Trade of the Russian Federation prepared a draft law prohibiting rental rates for retailers in the foreign currency. The State Property Committee of the Republic of Belarus plans to cancel connection of the rent to the foreign currency. The corresponding amendments and supplements are prepared to the Order of the President of the Republic of Belarus dated March 29, 2012 No. 150 “On Some Issues of Lease and Free Use of Property”.
Administrative Barriers
There is no calculation formula of standards for minimal availability of sales areas for population and liability of the local executive bodies (hereinafter referred to as LEB) for their performance. The Order of the Minister of National Economy of the RK dated February 28, 2015 No. 156 “On Approval of Standards for Minimal Availability of Sales Areas for Population” has no calculation formula of standards for minimal availability of sales areas for the population, in practice they are of a declarative nature as there is not liability of LEB for their nonperformance.
As of today the list of retail facilities are not updated. The list shall be added with new types of commercial activity that are at the market: mobile retail facilities (foodtracks), distribution companies, trade and logistic centers, trade cooperatives.
Overregulation of Trade Markets
Due to introducing amendments to the Law of the RK “On Trade Activity Regulation” envisaging requirements on transfer of the trade markets to fixed-site retail facilities, there are serious problems concerning meeting of the requirements in the regions as this rule does not consider potential and possibility of regional trade markets.
Undeveloped Rural Trade System
The remote settlements in Kazakhstan are characterized by deficit and sometimes absence of sales areas. It is not economically reasonable to open stores in the settlements with low consumer demand and insufficiently developed infrastructure for retails companies.
Markets Development
One of the most debating points on the retail trade development became tasks for strengthening requirements to the trade market infrastructure and their modernization, social protection of persons engaged in the entrepreneurial activity at the markets. As of today neither official department conducts system and long-term work on trade market infrastructure development (demolition, rebuilding, enlargement, improvement, modernization etc.). At the same time the system work requires corresponding serious calculations, plans of moving (demolition), complex marketing researches, preparation of engineering infrastructure, program ofemployment for free man power upon liquidation of markets, plans on compensation of expenses upon moving and liquidation of markets etc.
Separate trade markets, understanding importance of quality improvement of the services provided, carry out modernization of trade markets at their own expense. At present 11% of all markets are in the process of modernization, 20% has been modernized and reconstructed, and the remaining 69% of trade markets have to come over modernization process. The great majority has problem concerning:
- allocation of land plots by LEB;
- passing licensing procedures (SACSA, EC, HIS and etc.);
- ensuring access for LEB to the engineering infrastructure communications;
- problems with access to cheap and long-term financing.
Problem Areas of Trading Enterprises Readiness to EXPO 2017
Despite the taken measures within the NationalPlan on Organization and Holding InternationalSpecializedExhibitionEXPO-2017, approved by the decree of the Government of the Republic of Kazakhstan dated January 15, 2013, issues on trade service organization are solvedinsufficiently:
• street and mobile trade development is not envisaged. In many countries of the world attended by the tourists the street trade is understood as completely normal phenomenon. In Almay and Astana cities this trade format is almost liquidated;
• level of retail prices in the trading centers of Almaty and Astana cities compared with developed tourist destination of the world (Thailand, Malaysia, Dubai, Antalya etc.) are not characterizedby low value and availability.
List of Potential Opportunities for the Entrepreneurs
Trade Markets
According to the opinion of Association of Legal Entities “Association of Trading Enterprises of Kazakhstan” within the trade market segments in a sign of observed processes of the trade infrastructure modernization, changing regulatory and legal framework, constantly transforming shopping preferences there are the following possibilities for entrepreneurship:
• Practically all available trade markets shall be actively transferred to the modern formats of trade. Not fixed-site spontaneous markets trading with counters and containers shall be reorganized in more modern shopping centers.
• for Kazakh and foreign potential investors there is a possibility to choose among 750 markets of the republic the most prospective partner and offer to modernize the trade market in the partnership. Firstly, the commercial potential is explainedby the fact that the majority of these markets exists for a long time and are located in the attractive and comfortable parts of Almaty city, Astana city and regional centers. This situation is a good possibility for domestic Second-Tier Bank that might actively participate in trade infrastructure modernization being a bridge between increasing requirements of statutory and regulatory enactments and trade markets, deficit of qualitative sales areas and commercial potential of unique location of trade markets in the cities of the country.
• Trade markets may be reorganized not only in the shopping centers and shopping and leisure centers, but in trade and logistics centers. Problem of underdevelopment and high expenses of domestic trade is explained by absence of qualitative sales areas, as well as unbalanced and unregulated trade and logistic flows in the domestic trade. This problem represents a commercial potential for marketsthat might have become distribution centers for the nearest settlements and regions.
Trading Enterprises (Retail Stores)
In the retail stores segment the greatest potential is occurring in the following areas:
• Very low level of the retail trade consolidation and availability of undeveloped territories for development in the regions create conditions for potential possibility in the trading sphere. Kazakh retail chains are still afraid of mastering new regions. The main reason lies in a weak customer demand, high rental price of sales areas, custom to work for higher margin in the major cities. Profit rate, which retail chains got used in Almaty and Astana cities, does not allow them working in such cities as Kyzylorda, Taldykorgan, Semey, Turkestan, Merke, Zheskazgan etc.
• Retail chains shall start to work not for operational profit, but for market capitalization of the whole business by the example of large world retail chains. It is possible to reach high capitalization of the retail chain company in Kazakhstan firstly due to maximum transparency of business. It is necessary to publish a turnover of the company, plans for enlargement, annually and quarterly achievements, strategic development with the suppliers, implementation of innovations in business processes at the official web-sites.
• Weak, but not hopeless formats “neighborhood store” have the largest potential in horizontal cooperation between all similar formats. It will allow them optimizing logistics expenses, operations management (accounting, marketing, and jurisprudence), decreasing supplier’s purchase prices, implementing unified system of monitoring and planning of goods flow.
Electronic commerce
E-commerce in Kazakhstan is at the earliest stage of its development. Experts note that the internet trade market grows by 30-50% annually. This indicator is several times higher than growth indicators of the retail trade. Therefore, competent and well-balanced strategy, control over expenses, logistics improvement, wide coverage of regions, fast delivery, forced and addressed advertising for the target groups in the Internet network, enhanced sales service will allow occupying a place in the growing market of internet trade.
The retail trade of Kazakhstan is at the stage of transformation and transfer to modern trading formats. At present the retail trade is mainly conducted through trading enterprises of a “store” format (54%) and trade markets (46%). The absolute majority (95%) among trading enterprises constitutes “neighborhood stores”.
10 large players of the retail chain stores are distinguished in the country. In addition to these retail chains there are over 1,000 internet stores in Kazakhstan.
Percentage of regions in the retail turnover is not equally distributed. The major share of the turnover is concentrated in the large cities of the country (Almaty city – 26%, Astana city – 11%). The main problems of the retail trading are connected to lack of qualitative sales areas, unavailability of long and cheap monetary funds, lack of staff, meeting the requirements of the modern market, underdevelopment of transport and logistic system.
Increase in number of retail chains, consolidation of small trade participants, modernization of the trade markets are forecasted in the coming years.
Review of exchange business
Description
The potential of exchange trade is used partially in the domestic economy; the role of commodity markets is often institutionally underestimated. Nowadays, the price for manufactured and realized goods and services is arbitrary and monopolized at the domestic market. As a result, due to inadequate pricing disproportions occur between the sectors, sub-sectors and spheres of activity of economic entities of the national economy, which has a negative effect on the development of entrepreneurial activity in the country.
Contribution to the economy
About 100 kinds of commodities are sold in the world, and they account for 20% of international trade. Raw stores and raw materials constitute two-thirds of the goods traded on commodity exchanges. This shows the great role of pricing of exchange trade. A complete, well-developed modern market economy is inconceivable without its integral part — the sphere of commodity and stock exchanges. In other words, commodity and stock exchanges act as a market economy institute attributes. A developed market is characterized by a high level of wholesale commodity trading. Commodity exchanges provide all the conditions for the functioning of market for a particular product in the mode of perfect competition, which is the ideal of the classical market.
Exchange trade provides a free, competitive, objective pricing, balanced, equilibrium and equivalent exchange at the wholesale market, providing economic agents with reliable price indicators. At the same time, commodity exchanges provide realization of not only physical commodities, but also of future goods “on time” (spot goods) and “for future use” (futures transactions), as well as provide insurance against risks due to unforeseen changes in prices and market fluctuations, in other words force majeure through hedging and price quotes, settlement of disputes. By and large, today exchange trade is an anti-crisis and anti-inflationary market tool, which is very important for our country. It can be a valuable anti-corruption instrument of the state at announcing of tenders for placing state procurements of goods and state procurement tenders for execution of works and services, ensuring openness, impartiality, independence, transparency and conditions, which are preventing corruption.
Exchange trade is developing not only structurally and functionally, but also technologically. Modern commodity exchange, using the achievements of scientific and technological revolution, has enriched its instrumentality by electronic exchange trading at the global Internet space, leaving in the past traditional voice bids in large rooms.
Structure
During 2014, 25878 trades were held in total in the republic, 96.4% of them are in the city of Astana. The remaining minor part of trades has been held in South-Kazakhstan region. In 2014, the turnover of the transactions made amounted to 1244 bln. tenge. The largest share of an exchange trading turnover on the trades made accounts for plant products – 58.7% (731.4 bln. tenge), of which 58.1% – for wheat and meslin, 0.6% –for barley. The analysis shows that 21.6% of the total turnover on the exchange transactions was derived from the trade of mineral products (fuel, ores, petroleum and petroleum products). The trading volume of ETS in the grain market in 2014 amounted to 2060.9 mln. USD. This sum is about 375.8 bln. tenge, when converted it into the national currency by the exchange rate for December 31, 2014 (182.35 tenge per USD). That is, it becomes evident that more than a half of the grain turnover is realized at the commodity exchange ETS (731.4 bln. against 375.8 bln. tenge).
Exchange trade in Kazakhstan is carried out in three modes: classic auction, double counter auction and standard auction.
Figure 1. The structure of the turnover on the stock by exchange trading modes, in percentage
Source: ALE “Union of commodity exchanges of the Republic of Kazakhstan “Otan”
1) Share of the turnover on the stock by a classic trading mode, in % to total
2) Share of the turnover on the stock by the mode of a double counter auction, in % to total
3) Share of the turnover on the stock by the mode of a standard auction, in % to total
Capacity of the domestic market
According to the Committee on Statistics of NEM RK, the turnover of 16 stock exchanges amounted to about 1 244.4 bln. tenge in 2014, showing the 15-fold growth compared to 2010, that reflects the increased role of the commodity exchange market as a mechanism for fair pricing.
The largest share of the exchange trading turnover by the transactions made accounted for the share of wheat and meslin (58.1% of revenues), 21.6% – for mineral products (fuel, ores, petroleum and petroleum products). At the regional level, Astana city is at the lead by the number of exchange trades with a relative share of 96.4%. At the same time 65% of the trades were made by a classic mode, 25% – by a standard auction mode, the remaining 10% – by the mode of a double counter auction.
Major industry players
23 major participants of exchange trade may be distinguished today in Kazakhstan. 2 members of these were inactive in 2014 – JSC “Commodity Exchange Almaty”, JSC “International Universal Commodity Exchange “Astana Gold KZ”.
Table 1. A list of major players of exchange trade
№ |
business name |
provided works, services and goods |
1. |
JSC “Commodity Exchange “Eurasian Trading System” |
Conduction of exchange trades, state procurement, post-trade services |
2. |
JSC “International Commodity Exchange “Kazakhstan” |
Conduction of exchange trades |
3. |
JSC “Universal Commodity Exchange “Astana” www.utb.kz |
Conduction of exchange trades |
4. |
JSC “International Universal Commodity Exchange “Diamond” |
Conduction of exchange trades |
5. |
JSC “Kazakhstan International Commodity Universal Exchange “El Kazyna” |
Conduction of exchange trades |
6. |
JSC “Commodity Exchange “Zhibek Zholy” www.zzb.kz |
Conduction of exchange trades |
7. |
JSC “Eurasian Oil Commodity Exchange “Kazyna” |
Conduction of exchange trades |
8. |
JSC “International Universal Commodity Exchange “Bereket” |
Conduction of exchange trades |
9. |
JSC “Specialized Fuel and Energy Commodity Exchanges” |
Conduction of exchange trades |
10. |
JSC “Commodity Exchange of agricultural producers, users of mineral resources and state agencies” |
Conduction of exchange trades |
11. |
JSC “Commodity Exchange “Samruk” |
Conduction of exchange trades |
12. |
JSC “Kazakhstan Commodity Exchange” |
Conduction of exchange trades |
13. |
JSC “Commodity Exchange of Zhambyl region” |
Conduction of exchange trades |
14. |
JSC “Universal Commodity Exchange “Eurasia” |
Conduction of exchange trades |
15. |
JSC “Commodity Exchange “Caspian” |
Conduction of exchange trades |
16. |
JSC “Universal Commodity Exchange of the International Congress of Industrialists and Entrepreneurs” |
Conduction of exchange trades |
17. |
JSC “Kazakhstan Universal Commodity Exchange “Accept” |
Conduction of exchange trades |
18. |
JSC “International Universal Commodity Exchange “Shygys” |
Conduction of exchange trades |
19. |
JSC “Commodity Exchange “Kazakhstan Electronic Trading System” |
Conduction of exchange trades |
20. |
JSC “Universal Commodity Exchange of Eurasian Cooperation” |
Conduction of exchange trades |
21. |
JSC “Almaty Commodity Exchange” (is considered inactive (salyk.kz) since 18.04.14) |
Conduction of exchange trades |
22. |
JSC “International Universal Commodity Exchange “Astana Gold KZ” (is considered inactive (salyk.kz) since 15.04.14) |
Conduction of exchange trades |
23. |
JSC “Commodity Exchange “Saryarka” |
Conduction of exchange trades |
Source: Survey of the condition and prospects of development of exchange trade in the Republic of Kazakhstan
Barriers and restraints
The development of exchange trade in Kazakhstan has a quite large potential. However, some difficulties in regulation and infrastructure provision do not allow realizing the full range of benefits of trade on the exchange. Domestic commodity market does not have a broad line of spot instruments and derivatives market instruments, does not carry out its function on transparent market pricing to the full extent. The problem is worsened by insufficient penetration of the electronic exchange trading services, particularly at the level of end-customers due to lack of understanding of the benefits of centralization of trading, concentration of liquidity and transactions, subsequent electronic payments.
There is a nonconformance of the standards and certification methods of the goods with international requirements, which negatively affects the electronic exchange trading. Especially many difficulties arise in export transactions. Strong and highly capitalized clearing centers, which are limited in dealing with currency conversion due to legal restrictions are absent, which can lead to the problem of clearing payments between the trading participants. Moreover, requirements to the clearing centers on the size of the authorized capital, the professional qualifications of the staff and information systems are not set at the legislative level. In general, there is a lack of awareness of business and public about the presence and capabilities of commodity exchanges.
As a result of studying the international experience of the stock trading and analysis of organizational and economic condition of the Kazakhstan stock trading, the following weak points of exchange trade have been identified:
• There is no legal provision that allows clearing centers to carry out operations with currency for the calculation mechanism with contractors;
• Normative legal acts, regulating foreign trade and currency transactions, are poorly integrated with the legislation at the organized commodity markets. Currency legislation of Kazakhstan does not take into account the specifics of the conclusion of such transactions at the commodity exchanges. In this connection, there is the problem of participation of stock exchanges and clearing centers in settlements between customers to provide guarantees for such payments. Inevitably the question arises of converting the currency received from a non-resident by its transfer to a resident and the current currency regulation rules do not permit such a transfer without the conversion;
• At the legislative level, there are no set requirements to the clearing centers on the size of the authorized capital, the professional qualifications of the staff and the requirements to the used software will be brought in only from January 1, 2017.
• There is a problem of harmonization of national legislations of the countries of the Customs Union. So, the difficulty for the development of stock exchange transactions arise in the connection of different sizes of VAT rate of EAEC countries and the presence of excise taxes on gasoline and diesel fuel in some countries.
The development of the legislation on commodity exchanges and their activities in Kazakhstan is far behind the development of the banking law, currency regulation, legislation on securities markets, which have already been thoroughly developed but without taking into account the specifics of the relations, which are being established and which are necessary for the proper functioning and development of the organized commodity markets.
The list of potential opportunities for entrepreneurs
The potential opportunities for the development of commodity exchange trading are not industry-specific. Taken together, the potential stock trading opportunities may be grouped to the possibility of increasing access to exchange trading, the creation of economic incentives for the participants and the status enhancement of stock exchange transactions.
Increasing access to exchange trading
1. Completing the list of commodities with oil and oil products, liquefied gas, determining minimum batches sold through commodity exchanges.
Of the existing 63 contracts for oil production, only 32 cover the responsibilities on oil supply to the domestic market. The total volume of 32 contracts is approximately 3 mln. tons per year, with domestic demand – 15 mln. tons. The proposed minimum volume of oil sold on commodity exchanges, should be 20%. Similar requirements are encouraged to establish for liquid fuels (gasoline, diesel fuel). For example, the minimum volume of fuel in Russia, obligatory for realization through commodity exchanges, are captured in legislation (motor gasoline – 10%, diesel fuel – 5%, jet fuel – 10%, fuel oil – 2%, liquefied petroleum gases for household needs and road transport – 5%). Realization of these potential opportunities will lead to the formation of an effective market price, increase the accessibility and openness of the domestic market of oil and oil products, eliminate unnecessary intermediation and increase the number of direct buyers and sellers.
2. Inclusion of the building materials (facing bricks, building glass, bitumen, mortar, travertine, marble, granite) in the list of imported commodities, determining minimum batches sold through commodity exchanges and the stipulation of conditions of transactions (foreign and domestic trade operations). Realization of this measure will simplify the pricing mechanism for these building materials and increase the tax base due to the transparency of stock exchange transactions.
3. Inclusion of ferrous scrap in the list of commodities, determining minimum batches sold through commodity exchanges, taking into account the acceptance of the national standard of the Republic of Kazakhstan “Metals ferrous secondary. General specifications”.
4. Broad involvement of large farms and agricultural consumer cooperatives to exchange trading as the optimal channel of sales of agricultural products with the system of risk insurance.
Creation of economic incentives for the participants of exchange trading
1. Amendments to the paragraph 2 “The taxpayer has the right to reduce the taxable income for the following types of income:” of the Article 133 “Reduction of the taxable income” of the Tax Code in the part of the inclusion of subparagraph 8) “income from the value growth at the realization by trading at the commodity exchange, functioning on the territory of the Republic of Kazakhstan, the goods within official quotation on the commodities of the commodity exchange in the day of trading, reduced by the losses caused by the realization by trading at the commodity exchange, functioning on the territory of the Republic of Kazakhstan, the goods within official quotation on the commodities of the commodity exchange in the day of trading”; Realization of this measure will create conditions for the elimination of the shadow turnover of significant funds and, as a consequence, increase the tax base and increase the attractiveness of commodity exchanges for market subjects, including foreign ones.
2. Amendments to the paragraph 2 “Financial transactions, exempting from value added tax, include:” of the Article 250 “Financial transactions, exempting from value added tax” of the Tax Code in subparagraphs 2-1) “transactions with commodities” , 3-1) “services of brokers and (or) dealers, engaged in professional activity at the commodity exchange market on the basis of a license in accordance with the legislation of the Republic of Kazakhstan”, 6-1) “services of interbourse clearing” (by analogy with the application of these rules for exchange trade). Implementation of these potential opportunities will make exchange activities more attractive, by that, the released exchange funds could be spent on technological modernization and training of the staff.
Status enhancement of stock exchange transactions
1. Amendment to the Government Resolution “On approval of the List of officially recognized sources of information on market prices” from March 12, 2009 №292 in the part of inclusion of the new source of information in the list “The data posted on the official Internet resources of the RK commodity exchanges”, the publisher and the country of publication of which is “Commodity exchanges of RK”, with the name of the goods (services) “according to the list of commodities, approved in accordance with the legislation of Kazakhstan at commodity exchanges”. This measure will increase the flow of customers to commodity exchanges, create prerequisites for the formation of national stock market indices, and provide the obtainment of objective indicators of prices at the domestic market of commodities, included in the list of commodities.
2. Amendment to the Law of RK “On the state regulation of production and turnover of certain types of oil products” from July 20, 2011 in the part of the protocol definition of exchange trades as a document certifying the origin and quality of base oil and (or) gas condensate. This will facilitate the removal of a large volume of oil products from shadow, the obtainment of indicative data of prices by regions, the reveal of dumping prices, as well as the expansion of the potential suppliers of raw materials for domestic refineries.
3. Amendments to the Order of the Minister of National Economy of Kazakhstan “About approval of the Rules of purchases of goods, works and services by subjects of natural monopolies, the costs of which are taken into account when establishing the tariffs (prices, charge rates) or their threshold levels and tariff estimates for the regulated services” from January 20, 2015 №18 in the part of the enabling of natural monopolies to make purchases of goods at commodity exchanges with the recognition of the transaction market price, formed on the commodity exchange;
4. Reporting synchronization of electronic systems of commodity exchanges and the state information system “Register”, which will allow users of mineral resources to make purchases at commodity exchanges, without duplication of reporting.
The exchange trade of the country is at the stage of formation. The exchange trade in Kazakhstan has a fairly large potential for development, which is not fully realized under current conditions. The existing product market is developed unevenly. Exchange transactions among the regions of the country are mainly concentrated in Astana (96.4% of all trades). In commodity items, stock trading is dominated by wheat and meslin (58.1% of the turnover), mineral products (21.6% of the turnover). 23 large participants are functioning at the exchange trading of Kazakhstan. Solving the problems of the opening access to exchange trading, the creation of economic incentives for the participants and the status enhancement of stock exchange transactions will allow passing to the next level of development of the exchange trade and commodity markets of Kazakhstan.
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regional chambers of business
Astana
Astana
Kazhymukana str., 8a
Т: +7 (7172) 91 90 80
E-mail: astana@palata.kz
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Almaty
Almaty
Gogol str., 111
Т: +7 (7272) 25 18 30
E-mail: almaty@palata.kz
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Akmola region
Kokshetau
Abay str., 96
Т: +7 (7162) 72 25 48
E-mail: kokshetau@palata.kz
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Aktobe region
Aktobe
Sankibay ave., 22 / A, BC "Kazyna"
Т: +7 (7132) 74 46 07
E-mail: aktobe@palata.kz
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Alma-Ata`s region
Taldykorgan
Abay str., 254 "A"
Т: +7 (7278) 40 14 99, 40 14 98
E-mail: zhetysu@palata.kz
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Atyrau region
Atyrau
Satpayev str., 78
Т: +7 (7122) 76 36 55, 77 76 06
E-mail: atyrau@palata.kz
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East Kazakhstan region
Ust-Kamenogorsk
Victory ave., 6
Т: +7 (7232) 25 12 87
E-mail: oskemen@palata.kz
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Jambyl Region
Taraz
Aitiev str. 5A
Т: +7 (7262) 55 59 00
E-mail: zhambyl@palata.kz
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West-Kazakhstan region
Uralsk
T. Masina str., 67
Т: +7 (7112) 50 05 84
E-mail: uralsk@palata.kz
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Karaganda region
Karaganda
Buhar zhyrau ave., 49, 8th floor
Т: +7 (7212) 50 40 55
E-mail: karaganda@palata.kz
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Kostanay region
Kostanay
Al-Farabi str., 116
Т: +7 (7142) 59 79 60, 39 42 08
E-mail: kostanay@palata.kz
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Kyzylorda region
Kyzylorda
Aiteke str., 28
Т: +7 (7242) 40 08 91
E-mail: kyzylorda@palata.kz
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Mangistau region
Aktau
35 microdistrict, building of the Chamber of Entrepreneurs of Defense
Т: +7 (7292) 30 37 68, 30 29 25
E-mail: aktau@palata.kz
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Pavlodar region
Pavlodar
Lomov str., 21
Т: +7 (7182) 67 62 21, 66 03 11
E-mail: pavlodar@palata.kz
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North-Kazakhstan region
Petropavlovsk
Abay str., 29
Т: +7 (7152) 50 36 15
E-mail: petropavl@palata.kz
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South-Kazakhstan region
Shymkent
Kunaev Boulevard, 21, Business Center "Altyn Orda", 3rd floor
Т: +7 (7252) 99 55 00
E-mail: shymkent@palata.kz
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