Is Kazakhstan helping Russia to avoid economic sanctions?

26.10.2023, 13:20 exclusive.kz

Kazakhstan is serving as an important source of ‘parallel imports’ to Russia, thus helping the latter to evade international economic sanctions, according to experts.

Last year, Kazakh ‘parallel imports’ to Russia amounted to an estimated 10-20bn dollars, according to Rakhimbek Abdrakhmanov of the independent School of Applied Politics (KSAP).

President Kasymzhomart Tokayev has maintained that Kazakhstan is complying with the sanctions imposed on Russia over its invasion of Ukraine.

However, being in a single customs zone with Russia and allowing free conversion between the tenge and the rouble, it is technically impossible for Kazakhstan to comply with the sanctions, Abdrakhmanov told Exclusive.kz.

A recent report by KSAP pointed out “an abnormal rise” in Kazakhstan’s external trade in 2022.

The exports jumped by 32 percent, or 10bn dollars, compared to 2021, reaching 84.4bn dollars. For comparison, in the past seven years the exports never went above 60bn.

“Strangely”, imports also increased by 10bn dollars compared to 2021, reaching 50bn dollars, which is “unprecedented [annual rise] in the country’s modern history, and hard to explain”, the report said. Since 2015 annual imports have stayed at around 34bn dollars a year.

“Thus, the 10bn dollar increase in exports and imports shows that we brought in goods worth 10bn dollars and then quickly exported them ‘somewhere’,” the KSAP report says.

It says that since in 2022 there has been no rise in Kazakh citizens’ income, which could lead to a rise in internal consumption and more imports, “the only rational explanation is what is known is ‘parallel imports’”, the report adds.

Abdrakhmanov described Kazakhstan’s ‘observance’ of the sanctions against Russia as “working to rule”.

“We are doing only as much as is formally necessary, but nothing to really prevent parallel imports. Our strategy is to avoid secondary sanctions.”

Kazakh banks do not work with sanctioned Russian banks or businesses. But they can work with smaller Russian banks and companies, as long as official contracts with them do not mention the banned goods.

There are no customs checks on the Kazakh-Russian border, so banned goods can be bought for cash in Kazakhstan and freely taken out to Russia. In addition, Russian citizens can register a business in Kazakhstan within a few days.

Also, the KSAP report says, there has been a rise in Russian money transferring companies’ activity in Kazakhstan — they can transfer considerable sums in roubles to the country and use them to purchase sanctioned goods for the Russian market.

The major Russian logistics company OZON has begun investing in building or buying logistics centres in Kazakhstan. It has also been expanding activities in Kyrgyzstan and Armenia, the KSAP report noted.

Abdrakhmanov said that the rouble’s free convertibility in Kazakhstan was a major factor that facilitated ‘parallel imports’.

What’s more dangerous for Kazakhstan’s economy is that given the Russian Central Bank can print the rouble in unlimited amounts, Russia is, “in fact, exporting to Kazakhstan its own inflation chaos”.

“This kind of ‘export’ might have unpredictable consequences. In essence, Kazakhstan is becoming a kind of ‘a piggy bank’ which they [Russia] can break any time they like,” he said.

“Kazakh society is paying extortion money, or ‘war tax’, to its ‘ally’”, Abdrakhmanov added.

Another factor helping Russia use Kazakhstan to evade sanctions is the lack of transparency and control over Chinese imports, with an estimated 6-10bn dollars worth of Chinese goods entering the country illegally every year. These goods can be easily re-exported to Russia.

Abdrakhmanov said all these factors could not be removed in one day.

“Kazakhstan could not put an end to ‘parallel imports’ to Russia even if it really wanted to”, he said.

To ensure complete compliance with the sanctions against Russia, the Kazakh government would have to exit the Eurasian Economic Union and ban free exchange of the rouble in the country.

Russia would definitely hit back, trying to hurt Kazakhstan both economically and politically.

It could, for example, suspend the operation of the Caspian Pipeline Consortium, launch an all-out information war and stir up ethnic conflicts.

“Kazakhstan remains vulnerable and still lacks independence in its relations with the Kremlin,” Abdrakhmanov said.