KAZAKHSTAN:  THE AUTO INDUSTRY – ARE WE READY FOR THE KAZMOBILE?

Photo: AziaAvto Assembly Line/Company Website
Photo: AziaAvto Assembly Line/Company Website

A local economist recently suggested that the time is ripe for Kazakhstan to launch its own car brand, according to KazInvest.  Denis Krivosheyev said that such a locally developed brand car could be ready to sell in Kazakhstan, Russia and beyond within three years.

The statement implies that Kazakhstan’s auto-making industry is maturing, perhaps to the point where it can move beyond car assembly for foreign brands into genuine local car manufacturing.

Kazakhstan is already producing cars?

Yes indeed!  A quite large and growing number of them in several brands, including Skoda, Chevrolet, Kia, Lada, SsangYong, and Hyundai.

The Ministry for Investment and Development succinctly summarized the situation of the vehicle-building industry in Kazakhstan as reported on 16 October 2015 in Kazinvest.

…in 2014 Kazakhstan assembled more than 40 thousand motor cars. There are several companies in Kazakhstan producing motor vehicles: “ASIA AUTO”, “Saryarka automotive industry”, “Agromashholding”, “Hyundai”, “SemAZ”, and “KamAZ engineering”.  The companies produce 42 kinds of passenger cars, 21 types of trucks, 18 types of load carriers, 3 types of tractors and 3 models of buses.  Kazakhstan plans to launch two large projects on cars’ assembling.  After the implementation of these projects Kazakhstan will annually produce up to 200 thousand motor cars.

That summary does not mention that most of the vehicles are produced with some local content, and the Government wants to nudge this up from 20% to at least 30% in the near future.  Local content means for the support industry: more local employment, a boost for gaining know-how and technology, the development of a local supply chain, and hopefully growth in suppliers’ profits.  It should also mean increased tax revenue from the support industry.

The industry may be set to grow despite current economic difficulties in the CIS.  At the recently held meeting i Astana between President Putin of Russia and President Nazarbayev, President Putin expanded on a statement he made in 2012, as reported in RT Questions that the Russian automobile manufacturer AvtoVAZ would open a factory in the east Kazakh city of Oskemen to produce up to 120,000 vehicles a year.

And to bring the story further up to date, one of the local auto companies has been turning out electric vehicles – the microvan KIA Soul EV – since last December.

At the outset of 2015, the auto industry was about to make a quantum leap forward when the Eurasian Economic Union (EEU) went into effect in January, opening up the huge Russian market to competition from Kazakhstan.

Previously, cars produced in Kazakhstan could not compete effectively in Russia due to import tariffs and Russian subsidies for its auto industry.  Those tariffs fell away on January 1, 2015.

Unfortunately, shortly thereafter Russia’s rouble was heavily devalued.  Far from opening up the Russian market, the cheap rouble meant that intending buyers in Kazakhstan could purchase equivalent model cars in Russia far cheaper than in Kazakhstan.  This is one of the reasons pressure was on Kazakhstan’s National Bank and the Government to reciprocate with an unplanned “devaluation” of the tenge.

According to the head of the National Bank, this was a floating of the tenge, not a devaluation, but whatever it was the tenge lost more than 26% of its value on August 20.  The Government also fought back to prop up the auto industry by making cheap loans available to buyers of cars made in Kazakhstan, as detailed in an article in the April 20, 2015 issue of The Astana Times.

This story has not yet played out fully although both the rouble and the tenge seem to have reached a certain stability which may allow Kazakhstan’s auto makers to once again plot their way forward in the tariff-free EEU.

The vehicle production business in Kazakhstan didn’t just happen through the efforts of local entrepreneurs spotting an opportunity and then putting risk capital into greenfield industrial projects.  On the contrary, the Government of Kazakhstan, with President Nursultan Nazarbayev leading the way, has been working hard for years to diversify the economy of the country away from its current heavy reliance upon the export of crude oil, minerals and metals, and agricultural products.  The establishment of a vehicle manufacturing industry was identified for investment, and funds were made available.

Kazakhstan is not (yet) like Sweden in this field.  With a population of only 10 million, the Swedes have a long history in their auto industry of producing authentic local vehicles that compete in the international market place.  Indeed, according to Wikipedia, Sweden’s two passenger car manufacturers – Volvo AB and Scania AB (maker of Saab cars) – export 85% of their cars (and 95% of the heavy vehicles they also make).

Perhaps it is not farfetched to suggest that by 2018 or 2019 Kazakhstan may be selling Kazmobiles throughout the CIS and maybe beyond.

oooOOOooo

“So many people drive their own cars today that it is difficult to remember that in the early 1990s there were three kinds of cars on Almaty’s streets: large numbers of government-owned cars driven by chauffeurs, known only as drivers; privately owned cars whose drivers mainly patrolled the street as gypsy taxis; and actual taxis.  The streets were so empty of cars that congestion might then have been defined as when more than seven or eight cars were parked on Lenin Avenue (Dostyk Avenue now) in front of Hotel Kazakhstan.  Otherwise, the streets were entirely clear of parked cars.  Really.  That’s hard to believe with people now having become so accustomed to the difficulty of finding a place to park.  It’s as if cars descended on Almaty like a swarm of locusts and forgot to move on.”

From West Meets East in Kazakhstan

Learn more about Kazakhstan by reading my book – West Meets East in Kazakhstan.  This consists mainly of articles I wrote for The Almaty Herald newspaper in the 1990s and later years.  The book is about my perceptions as an American expatriate of life in and around Almaty in the 1990s. The book is available in soft cover or as an E-book through publisher AuthorHouse, and the websites of Amazon  and Barnes & Noble.

In some countries, the book may not be available through Amazon or Barnes & Noble if they do not store copies in their overseas warehouses.

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