By Amanda Lahan, The PBN Company, Washington, DC

The Customs Union between Russia, Belarus and Kazakhstan has been officially established. The leaders of the three countries signed a formal agreement creating a unified customs union at a November 27 meeting of the Eurasian Economic Community (EurAsEC) in Minsk. A unified system of external tariffs will be put in place by January 1, 2010, while the unified Customs Code, still in the draft stage, will take effect on July 1, 2010.

Approximately 92% of the new tariffs are identical to Russia’s existing tariff system, meaning that Russia won’t have to change much. Considering that Russia has a larger number of tariffs than either Belarus or Kazakhstan, these two countries will have to increase their duties on some goods or put brand new duties into place. Kazakhstan alone will have to raise tariffs on more than 5,000 goods. Once the tariffs are in place, any increase or decrease will have to be negotiated by the governments of all three countries, making any changes a complicated process.

Other tariffs are yet to be determined. Russia currently has much higher import duties on cars - especially used cars - than Belarus or Kazakhstan, and is concerned that lowering these duties will result in a flood of imported used cars from these two countries, especially Belarus. While Russia has export duties on oil in place, Kazakhstan does not. Both of these thorny issues are not expected to be resolved any time soon.

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The economic crisis has done little to dampen the enthusiasm of Kazakhs for lavish weddings. Yekaterina Syrtsova, Associate Account Manager, The PBN Company, Almaty, marvels at the glitz and wonders how it all adds up.

If you have ever visited Almaty, chances are you have been stuck in traffic amid two or three honking wedding corteges. This summer it has often felt like one happy couple’s celebration is everyone else’s traffic jam.

Wedding-induced bottlenecks have been prevalent this year, and looking at the splendor of the wedding corteges lined up in front of the Almaty Central Civil Registry Office every weekend, one might think that the crisis had actually passed Almaty by.

This year, the typical traffic-snaring Almaty wedding has not only featured Hummers and while limos. It is a two-day celebration with over 100 guests and complete with western designer clothing, a hired tamada (toastmaster), musicians, dancers, fireworks and even white doves liberated at the ceremony. All adding up to a minimum $8,000 price tag.

What is significant is that these newlyweds are not just the nouveaux riches with cash to burn. Relatively average income couples and their families are taking out massive loans to foot the bill. The Kazakh banks may be surviving on state support, shoring up their balance sheets and refusing mortgages, but it seems that bank managers are still saying ‘I do’ in granting wedding loans.

By Bruce Wilson, Senior Consultant, The PBN Company, Almaty

Karim Masimov, Kazakhstan’s Prime Minister, has floated the idea of requiring foreign businesses that operate in Kazakhstan to keep a share of their funds in domestic banks. The need to help Kazakh banks is understandable, but would the proposal have a detrimental impact on the economy?

Kazakhstan’s banking sector still has serious problems, despite significant emergency investments by the government. Many banks, burdened by enormous foreign debts, are also mired in corruption scandals, and the damage to their reputations has further dampened economic activity throughout the country. Foreign investors, so the theory goes, are the ideal candidates to step in and help to bolster the banks’ balance sheets.

Foreign businesses have a vested interest in Kazakhstan’s economic health in general and the viability of the financial sector in particular. However, the merits of Masimov’s idea must be off-set against the additional damage that may be done to Kazakhstan’s international reputation. The proposal will be seen abroad as an additional challenge to investing in Kazakhstan - a constraint adding to the existing costs and risks of doing business in the country. If foreign businesses reduce their investments as a result the plan will backfire, further hampering Kazakhstan’s ability to attract capital and technical know-how. Ultimately, it may reduce the competitiveness of Kazakh products in the global market, raise prices for local Kazakh consumers and hinder rather than expedite Kazakhstan’s economic recovery.

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By Yekaterina Syrtsova, Associate Account Manager, The PBN Company, Almaty

Kazakh and western retail companies are pushing ahead with expansion plans despite the crisis.

Earlier this month Metro Cash & Carry, the German retailer, laid the foundation stone for its first supermarket in Astana and announced plans to build 10-15 stores in Kazakhstan. Arzan, a big local market player, unveiled two shopping centers in Almaty last year, and Magnum Cash & Carry followed suit, promising to establish supermarkets across the country. In a further sign that the sector is undergoing a shakeup, at the start of 2009, the chain SM-market bought supermarket chain Gross.

According to research published in newspaper Panorama, the annual turnover of the Kazakh retail sector is $2.5 billion for food sales and $8 billion for other goods. This is leading economists to speculate about a possible ‘hand off’ within the economy, whereby consumer spending takes over from oil and metals as drivers of growth, or at least as a counterweight to recession.

Consumers may be able to play this sort of role in shaping Kazakhstan’s economy, but key issues must first be addressed. Logistics is a major problem, particularly the lack of distribution platforms and storage facilities, as Stephen Kreeger, Country Director for Metro Cash & Carry Kazakhstan, told Kapital. Andrey Revin, Finance and Business Development Director of Eurasia RED, a big local developer, also cites the lack of both quality selling space and local franchisers selling international brands.

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By Yekaterina Syrtsova, Associate Account Manager, The PBN Company, Almaty

The proposed Customs Union between Russia, Kazakhstan, Belarus - and now possibly Kyrgyzstan - has received extensive coverage, with much attention focused on the impact on Russia’s accession to the World Trade Organization. However, while there are many potential benefits for Russia in terms greater access to Kazakh markets, what is in the Customs Union for Kazakhstan? A lively debated has been prompted about the economic and the political merits of going along with Russia’s proposal.

The Union is an obvious win for Kazakh industries that supply the Russian market, such as metallurgy, coal and chemicals. It will stimulate development of Kazakhstan’s Russian exports in these sectors by eliminating the customs duties they currently pay, making them more competitive. The Union will also simplify on-going issues relating to transit of Kazakhstan’s oil through Russian pipeline systems. For many years transit routes in general - and the expansion of the Caspian Pipeline Consortium in particular - have been a matter of political dispute with Moscow. That situation may now change.

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By Blake Marshall, Senior Vice President & Managing Director - Government Relations, The PBN Company, Washington DC

Prime Minister Vladimir Putin’s June 9 announcement that Russia will discontinue its World Trade Organization (WTO) negotiations in favor of a new Customs Union with Belarus and Kazakhstan took many by surprise, including high-ranking officials in Russia and trade negotiators in Europe and the United States.

Despite the fact that Putin’s decision appears to many to have come out of the blue, the notion of a three-country Customs Union has been under discussion for several years. While the withdrawal from WTO negotiations in favor of reapplication as a bloc is unconventional, it is consistent with Russia’s political and economic strategies on both a geopolitical and a regional level.  Several objectives seem to emerge from this stance:

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By Julia Kosygina, Intern, The PBN Company, Washington, DC

In his 1904 article, The Geographical Pivot of History, British geographer Sir Halford Mackinder emphasized the “Eurasian heartland’s” critical role in global politics. More than 100 years later, the battle for Eurasia continues as Kazakhstan prepares to chair the Organization for Security and Cooperation in Europe (OSCE), the world’s largest international security organization. On June 11, 2009 Washington, DC’s Center for Strategic and International Studies (CSIS) and Institute for New Democracies (IND) held a conference entitled Kazakhstan’s OSCE Chairmanship Agenda. The event was the product of a special task force created to promote Kazakhstan’s 2010 OSCE chairmanship. According to a Eurasianet report, the Kazakh government gave $29,000 to CSIS and IND to write several reports and hold conferences in DC and Astana.  This ambitious PR initiative provided some interesting insight on Kazakhstan’s leadership potential.

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By Yekaterina Syrtsova, Associate Account Manager, The PBN Company, Almaty

Thirty active Kazakh government blogs have been set up since Prime Minister Karim Masimov started a campaign on January 30 to encourage blogging among ministers, governors and heads of various state agencies. All the blogs follow a Q&A format, but now new questions are being raised as the blogs take on unexpected uses.

By far the most popular government blog to date is the Prime Minister’s. Despite some complaints about the efficiency of official blogs, most questions have been answered and Karimov even posts video responses. There have been obvious positive changes in official blogging, improving the overall quality of the Internet in Kazakhstan.

Interestingly, Kazakhstanis have started to use the official blogs as a way to complain about the dishonesty of their employers. The PM’s blog is full of posts describing what is said to be an “epidemic of companies firing employees and reducing staff”. According to the complaints, firms are not paying social security allowances and are asking that employees take “indefinite salary breaks” or are “forced to leave ‘voluntarily’.”

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By Yekaterina Syrtsova, Associate Account Manager, The PBN Company, Almaty

At the end of April the Majilis, Kazakhstan’s lower chamber of Parliament, unanimously passed draft amendments to the media law which, if enacted, would give authorities the right to block any local or foreign website in Kazakhstan on the grounds of “violating national legislation.”

Aimed at regulating “online resources” such as blogs, forums, social networks, chat rooms and even online shops and libraries, the law gives them all the legal status of “media outlet.”  The Prosecutor General of Kazakhstan would have the right to issue a decision to block a website, and the decision would then have to be approved by the City Court of Astana.

According to a post on NewEurasia.net, a blog network on Central Asia, “many bloggers believe that the government wants a legal tool for filtering the web.” For example, LiveJournal, a leading Russian-language blog platform, has been blocked in Kazakhstan since early October last year without any official explanation.

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By Yekaterina Syrtsova, Associate Account Manager, The PBN Company, Almaty

A typical Central Asian “guest worker” in Almaty usually makes half as much as any local would get for doing the same job.  Regardless, opportunities to work in Almaty - even without an official work visa - are often too good to pass up due to the lack of prospects at home.  However, the crisis has now also taken its toll on the job market for guest workers - and there have been unpleasant consequences.

Almaty has always been particularly attractive for guest workers that come from other Central Asian republics, particularly Uzbekistan, Tajikistan and Kyrgyzstan.  According to www.nur.kz, a Kazakh news site, there are three million migrant workers in Kazakhstan as a whole, including seasonal workers.

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By Yekaterina Syrtsova, Associate Account Manager, The PBN Company, Almaty

Devaluation, recession, inflation and redundancy - today all these words are familiar to everyone. Almost all industries in Kazakhstan, from energy and metallurgy to food and services, are suffering in the current economic climate. However, there is one particular field that is more profitable than ever - second-hand shops.

Before the crisis, it was taboo to mention that one shopped at a second-hand store. Times, however, are changing. As Elena, a successful shop owner, points out to Svoboda Slova newspaper, instability works in favor of second-hand shop owners. Those people who used to turn their noses up at the smell of second-hand clothes are now turning them up at sky-high prices in regular stores.

The idea is not new, though. During Soviet times there were so-called “commission stores” where all sorts of used goods - ranging from clothes to furniture - were sold. That was the only way to get new clothing during those times of shortage. Then, during perestroika, sympathetic Western countries started sending humanitarian aid that ended up behind the counter.

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By Yekaterina Syrtsova, Associate Account Manager, The PBN Company

People in Kazakhstan feel surprisingly optimistic about the country’s economic situation, according to a recent poll by the Post-Crisis World Institute and the Public Opinion Foundation.  Interfax reports that only 16.6% of people believe that life will get harder before the summer, while 35.4% expect that the situation will improve.  The latter figure stands in contrast to Russia and Ukraine, where far fewer people (12.6% in Russia and 6.5% in Ukraine) expect the situation to get better before the summer.

Kazakhs also look favorably on their government’s anti-crisis measures - BusinessNewEurope reports that “66.3% [gave] their government a thumbs up, against 40.7% in Russia and just 13.5% in Ukraine.  Of those that criticized the government for its action (or lack of it) the numbers were 9.2% in Kazakhstan, 21.5% in Russia and a whopping 74.3% in Ukraine.”

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