Realising the potential of Central Asia, Mongolia and ... · PDF file... 5,654,051 km2 = 2 times bigger than India ... textile industry, ... Baltic Countries, Mongolia | Singapore

Realising the potential of Central Asia, Mongolia and Azerbaijan

Axel Nikolaus Bommersheim

Axel Nikolaus Bommersheim | Regional Head CIS, Baltic Countries, Mongolia | Singapore 9. September 2015


› Increased importance of the region for global trade› Advantages of the region› Managing trading relationships: international and intraregional› Achieving economic diversification› Countries

KazakhstanKyrgyzstan TajikistanTurkmenistanUzbekistanMongoliaAzerbaijan

› Summary

Realising the potential of Central Asia, Mongolia and Azerbaijan

1

Axel Nikolaus Bommersheim | Regional Head CIS, Baltic Countries, Mongolia | Singapore 9. September 2015 2

Ancient Silk Road

Source: Eurasia Travel


Increased importance: 21st century Silk Roads

Source: NRP, the Wall Street Journal

Increased importance: The core bridge between Europe and Asia


Region: 5,654,051 km2 = 2 times bigger than India1.3 times bigger than Europe and 0.6 times the area of China

Total population: ca. 80mln The region stretches from west to east around 6,400 km, from north to south ca. 3,000 km

Source: Commerzbank


Increased importance: Central Asia, Mongolia and Azerbaijan

Source: EBRD, World Bank

Country Population (mn)

GDP-growth 2014 (%)

GDP-growth 2015 (%)

Estimate(2016 estimate)

GDP nominal

2014 (bln. $)

GDP per capita2014 ($)

Ranking World Bank 2014Doing Business

Survey

Kazakhstan 17 4.3 2.0 (3.1) 212 13,600 77

Kyrgyzstan 6 3.6 1.7 (3.4) 7 1,300 102

Tajikistan 8 6.7 3.0 (4.1) 9 1,000 166

Turkmenistan 6 10.3 9.0 (9.2) 48 8,000 Not ranked

Uzbekistan 31 8.1 6.2 (6.5) 62 2,100 141

Mongolia 3 7.8 4.4 (4.2) 13 4,000 76

Azerbaijan 9.6 2.8 0.6 (2.5) 75 7,800 80

Increased importance: CCA´s Share in the Global Economy

GDP growth in %

2014 2015 2016

CCA 5.3 3.2 4.2

World 3.4 3.3 3.8


Source: World Economic Outlook, IMF


Increased importance: intraregional vs. extraregional foreign trade

Intraregional trade dropped ... Russia lost ground … China, European Union gained …

Source: IMF / World Bank

Trade composition change 2000 -2013


Increased importance: …. But ! GDP growth lower

› Few years CCA has been among the fastest-growing regions worldwide

› Countries that are richer in commodities grow faster

› Supercycle of commodities is over. Commodity driven Central Asian republics face major challenges

› … however…. lower prices promote diversification

2011 2012 2013 2014 2015 2016

8

6

4

2

0

-2-4

-6

160

140120100

806040200

(real GDP growth, annual percent change) (average petroleum spot price)

Source: IMF

Natural resources: Oil exporters and oil importers

Source: IMF



Natural resources: abundant!

›Kazakhstan – oil, uranium, coal ›Turkmenistan - natural gas – 4th largest worldwide›Mongolia – coal›Azerbaijan - oil and natural gas›Kyrgyz Republic and Tajikistan - water for hydropower›Uzbekistan – oil, coal, natural gas

› Vast arable land areas with about 5% of the world´s wheat production:› Kazakhstan – grain, wheat› Uzbekistan - amongst ten largest cotton producers. Wheat, fruits› Kyrgyzstan – cotton, fruits, wool, vegetables› Mongolia – 2nd largest cashmere producer (15-20%), cattle› Azerbaijan – cotton, fruits, tea, vegetables

Kazakhstan - iron ore, copper, molybdenumUzbekistan - gold. Mongolia – copper, gold, molybdenum, rare metals Turkmenistan - potashKyrgyzstan – gold, rare metalsTajikistan – aluminiumAzerbaijan – iron ore, bauxite

Energy

Natural resources: … more about agriculture


Source: World Bank, Ministry of foreign economic relations Uzbekistan

››

Kazakhstan is the main producer and exporter of high quality wheat

74 % of the territory - suitable for agricultural production, representing 5.5 % of GDP and employing over 20 percent of the labour force, with 43% of the population living in rural areas

Uzbekistan More than 99 percent of the value of agriculturalproduction comes from irrigated land - challenge

Mongolian agriculture sector is dominated bylivestock

Geographical location: Proximity to key markets and „Great game“


China Security and stability

Increase influenceEnergy

Agricultural productsRaw materials

Transit integrationNew Silk Road

EU Security and stabilityEnergyProductionTradeTransitRule of law, human rights Democratic governanceEconomic integrationSocio economic development

Russia Security and stabilityInvestmentsTradeTransitEnergyRaw materials

USA Security and stability

Increase of economic integrationNew Silk Road initiative

Human rightsDemocratic governance

EnergyTrade

Geographical Location: Transit


› Kazakhstan and Uzbekistan maintain developed railroad and highway systems› Kazakhstan has app. 100,000 kilometers of roads and 20,000 kilometers of railways› Kazakhstan-Turkmenistan-Iran railway opened in December 2014 › Since 2011 the cost of moving goods across regional borders has decreased by 15 percent

Source: UNO

Geographical location: Oil and Gas pipelines


Source: Strategic International Studies, ERI

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Managing Trading relationships

CIS: Commonwealth of Independent States: Regional loose association for coordinating in trade, finance, lawmaking, security

Members: Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Russia, Belarus, Moldova. Associate states: Ukraine, Turkmenistan

Eurasian Economic Union (EEU) Regional trading bloc: Envisages the free movement of goods, services, capital, and labour among the member countries. 183m people

Members: Kazakhstan, Kyrgyzstan, Russia, Armenia, Belarus

Central Asia Regional Economic Cooperation (CAREC): Regionalcooperation in infrastructure i.e. transport and energy corridors; trade

Local members: Azerbaijan, Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan, Turkmenistan, Uzbekistan

Shanghai Cooperation Organization (SCO):Regional security and economic development / cooperation

Members: Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, China, Russia. Observers: Mongolia; Dialogue partners Azerbaijan, Armenia

WTO: Global international trade relations

Local members: Kyrgyzstan, Tajikistan, Mongolia. Kazakhstan.Observers: Uzbekistan, Azerbaijan


Achieving economic diversification

Kazakhstan - strategic partnerships with China, Canada and South Korea, modernization of new nuclear power plants, multi-modal transportation infrastructure, EXPO 2017

Turkmenistan – development of agriculture i.e. cotton and fertilizer and gas-processing industry

Mongolia - start of copper production Oyu Tolgoi, Integrated Mineral Resource Initiative, strategic raw material partnerships, construction material industry, textile industry, recycling

Uzbekistan - investments in automobile industry and textile production and free economic zone - Navoiy

Tajikistan - construction of the Tajikistan Afghanistan Turkmenistan (TAT) Railway, diversification to livestock and poultry farms, agro-processing, storage of fruit and vegetables

Azerbaijan - development of the non-oil sector, support of energy sector, infrastructure projects, 2015 the "Year of Agriculture”, tourism, events (European Games, Formula 1)

Cooperation with Germany

Project „Mineral resources for the development of Central Asia“ with the aim to modernize coal mining sector as a driver for a sustainable improvement in Kyrgyzstan, Kazakhstan,TajikistanRare earths Agreement between Germany and Kazakhstan and Germany and Mongolia respectively.


What is required to realize region´s further potential?

Further development of intraregional cooperation initiatives Strengthening the global cooperation with international partners Diversify the economy i.e. support for local processing of resources Diversify investor base Explore additional import and export flows Improve infrastructure for transit, housing, electricity, irrigation … Seek for new domestic and foreign investments Explore further natural resources Private sector should more promoted - SME Invest in education … also in training for financial institutions Invest in recycling and green energy Implement structural reforms to attract investors especially law certainty and anti-corruption Image building by public relations i.e. showing good track record and doing road shows Support stronger financial systems and tight control Strenghten domestic financial institutions for enabling them financing projects

….. A lot has still to be done. But a lot of institutions globally are keen to support.


Realising the potential

The new silk road – the way for further economic integration!

Opportunities› Raw material processing - creating value› Growing middle class› Infrastructure development› „Bridge“ between Europe and Asia

Threats› High transportation costs› Limited access to world markets› Possible ethnic and water conflicts › Affected by volatile commodity prices › Slowdown of important export markets

Strengths› Huge areas of arable land › Abundant natural resources› Geographical location› Transit› Human resources› Growing population

Weaknesses› Slow pace of structural reforms › Weak regional cooperation › Lagging market transformation› Financial integration into global markets› Limited financial ressources› Landlocked


Kazakhstan

› Area 2,724,900 km²› Population 17.4 mln› Capital Astana – Financial center Almaty› Borders Russia, China, Kyrgyzstan, Uzbekistan, Turkmenistan, Caspian

See› Climate continental› Political system presidential republic – politically stable› Currency Tenge (KZT) , Rate 1 EUR = Tenge 270,--› Ratings S&P BBB+ / Moody’s Baa2 / Fitch BBB+ › WTO-Member since 2015› EEC member of European Economic Community

Source: (German Trade Invest) GTAI

Principal exports 2014 (share %) Principal imports 2014 (share %)

Mineral products 72 Machinery & equipment 17Raw materials 5 Chemicals 11Base metals 5 Vehicles and spare parts 10Natural gas 4 Food products 9


Trade relations



SWOT-Analysis

Strengths• Abundant natural resources (new

exploitation in Kashagan)

• Huge agricultural potential

• Top performer in the region

• Wealthy National Fund

• Stable political situation

• Foreign investors welcomed

Weaknesses› Dependence on exports of raw materials› Legal uncertainty› Bureaucracy› Lack of skilled workers in technology sector› Exchange rate vulnerability› High transportation costs

Opportunities• Strong demand for machinery, equipment

• Increasing diversification in transport, food, pharmaceutical and service sectors

• Growing middle class boosts consumption

• Expansion of the export sector

• EXPO 2017

Threats• Still too low diversification of economy

• Introduction of Tenge´s free float and the influence on the banking system

• Influence from sanctions on Russia via the Eurasian Economic Union

• Slow recovery of commodity prices


Kyrgyzstan

› Area 199,951 km²› Population 6 mln› Capital Bishkek› Borders China, Kazakhstan, Tajikistan, Uzbekistan› Climate continental› Political system parlamentary republic – political unrests in 2005 and 2010› Currency K. Som, Rate 1 EUR = K. Som 73› WTO-Member since 1998 › EEC since August 2015


Precious metals, mainly Gold 44 Refined mineral goods 21

Refined mineral goods 11 Cars spare parts 16

Textiles 8 Machinery and equipment 10

Cars and spare parts 8 Chemicals 9



Trade relations



SWOT-Analysis

Strengths• Hydroelectric potential

• Gold resources

• Potential for touristic activities, visa- free regime for many foreign citizens

• Relatively low customs duties

Weaknesses• Increased vulnerability for external

shocks

• Affected by economic crisis in Russia Poor diversification of economy

• Lack of highly qualified specialists

• Dependence on external energy supply

• Underdeveloped transport infrastructure

Opportunities• Cooperation opportunities in mining and in

agricultural sector

• Chances in projects, financed by international organizations

• The construction of a gas pipeline (Central Asia–China) between Turkmenistan and China via Kyrgyzstan could create transit fees

Threats• Political instability and ethnic conflicts

• Continious migration of skilled workers

• Slow implementation of structural reforms


Tajikistan

› Area 143,100 km²

› Population 8 mln› Hauptstadt Dushanbe› Grenzen Uzbekistan, Kyrgyzstan, China, Afghanistan› Climate dry subtropical› Political system presidential republic› Currency Somoni TJS, 1 EUR = TJS 7› WTO-Member since 2013


Aluminium 32 Petroleum products 10

Cotton fibre 16 Wheat 5

Electricity 3 Flour 3

Other 49 Other 78



Trade relations



SWOT-Analysis

Strengths• Willingness for reforms

• Export of aluminium, electricity, cotton

• Positive track record of government support

Weaknesses• Poverty and slow development

• Weak infrastructure

• Banking system relatively small

• Dependence on transfers from migrant workers in Russia

• Foreign exchange reserves

Opportunities• Cooperation in foreign aid development

projects

• Potential to become a gas exporter

• Potential to benefit from transit charges by a gas pipeline

Threats• Tensions regarding use of water resources with

neighbours

• Proximity to areas of tension

• Civil war during the 90s still affects political situation locally


Turkmenistan

› Area 488,100 km²

› Population 5.8 mln› Capital Ashgabat› Borders Kazakhstan, Uzbekistan, Afghanistan, Iran, Caspian Sea› Climate continental› Political system presidential republic › Currency Turkmen Manat, Rate 1 EUR = 3.9 TMT › Economy natural gas reserves (4th place in the world), production of

cotton, fertilisersPrincipal exports 2013 (share %) Principal imports 2013 (share %)

Natural gas 67 Machinery and equipment 26Petroleum products 15 Base metals 16

Oil

Cotton fibre

11

2

Means of transportation

Chemicals

8

5



Trade relations



SWOT-Analysis

Strengths• No. 4 worldwide by natural gas resources

• Huge oil-, iodine-, bromine- and potash resources

• Producer of cotton and fertilizers

• Growing interest in cooperation with foreign partners

• Low indebtedness

Weaknesses• Strong governmental regulation, minor

reforms

• Poor economic diversification, high dependence on gas export

• Intransparency, limited information on economy available

• Inefficient implemented laws

• Bureaucracy

Opportunities• Investment projects in oil- and gas sectors

• Development of transit infrastructure

• Participation in construction projects

• Modernisation of the agriculture sector

• Development of natural gas fields

Threats• Stagnation of economic reforms

• Scarce protection of investors

• Lack of improvements in privatisation of the economy


Uzbekistan

› Area 447,400 km²› Population 31 mln› Capital Tashkent› Borders Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, Turkmenistan› Climate moderate› Political system presidential republic› Currency Sum, Rate 1 EUR = 2,900 Sum


Energy and oil products 54 Machinery and equipment 40

Gold 12 Chemicals 16

Cotton 8 Food products 11

Non-retail pure cotton 6,6 Base metals 8



Trade relations



SWOT-Analysis

Strengths• Hydrocarbon, ore and construction materials

Agriculture: a world leader in cotton production

• TOP-10 list of the gold producing countries

• Most populated republic in Central Asia, young population (65% are younger than 30 years)

• A modest diversified manufacturing industry, automobile sector

• Very central location in Central Asia

Weaknesses• Strong governmental influence on business

• Lack of legal certainty

• National currency Sum has limited convertability

• Highly dependency on commodity exports

• Infrastructure

Opportunities• Technical and technological backlog in all

sectors of economy

• Numerous development projects in the industry and infrastructure sector

• Enormous potential for cultural tourism that remains largely untapped

• Growing environmental technology (energy efficiency, water, garbage)

Threats• Little progress in economical liberalisation and

foreign exchange regime of the SUM

• Tensed political relations to the neighbour due to water access (TJ)


Mongolia

› Area 1,564,000 km²› Population 3 mln› Capital Ulaanbaatar› Borders Russia, China› climat continental› Political system parlamentary republic› Currency mongolian Tughrik, Rate 1 EUR = 2.17 MNT › WTO-Member since 1997› Economy very high GDP-growth. Coal mining, copper, molybdenum, gold,

rare metals, cashmere


Raw materials 63 Oil 24

Oil 11 Machinery, equipment 13

Machinery and equipment 1 Vehicles & spare parts 10



Trade relations



SWOT-Analysis

Strengths• Huge reserves of natural resources, coal,

copper and gold, rare metals

• Second largerst producer of cashmere wool

• Progress in liberalization and democratization

• Tourism

Weaknesses• Barely diversified economy

• Shortage of skilled professionals

• Small domestic market

• Relatively high foreign debt

• Insufficient infrastructure and high transportation costs

Opportunities• High investments in infrastructure, coal mining

and residential building

• High demand for consumer goods

• Foreign investors welcomed

• Potential for use of renewable energy resources

Threats• Strong dependence on two main export

and import markets

• Stong dependence on commodity sector


Azerbaijan

› Area 86,600 km²› Capital Baku› Borders Armenia, Georgia, Iran, Russia, Turkey› Climate continental› Political system presidential republic› Currency new Manat (AZN) , Rate 1 EUR = 1.17 AZN › Ratings S&P BBB- / Moody’s Baa3 / Fitch BBB-› WTO-Member applied for accession


Petroleum products 91 Machinery & equipment 28

Food products & animals 1 Food products 12

Metals 1 Metals 11

Chemicals & petrochemicals 1 Transport equipment 9



Trade relations



SWOT-Analysis

Strengths• Oil and gas

• Agriculture

• Transit

• Growing population

• Refining capacity

Weaknesses• Underdeveloped non-oil sector, lack of

private investments

• Weak legislative and regulatory framework

• Low diversification of the economy

Threats• Dependence on oil and gas export

• Low liberalization progress

Opportunities• Increased production of domestic resources

(oil and gas)• Growth in middle class boosts consumption• Development of construction, logistics and

service infrastructure

How Commerzbank supports you in the region – mitigating risks?

› Regional Coverage by representative Offices in Almaty, Tashkent, Ashgabat, Baku, Tbilisi

› Long-lasting experience in the region with experts around the globe

› Local and international contacts to realize business opportunities

› Approximately 110 financial institution relationships

Core products – in this region› Commercial payments› Letters of Credit› Guarantees - Stand-By/Letter of Credits› Trade Facilitation Programmes of ADB, EBRD, IFC› Medium- and long-term loans in cooperation with

Export Credit Agencies › Foreign Exchange


Nothing is faster than already being there!

Source: CommerzbankAxel Nikolaus Bommersheim | Regional Head CIS, Baltic Countries, Mongolia | Singapore 9. September 2015

Processing Centers in Asia and Europe

Processing capability 18 hours per day

5,000 FI clients in 204 countries

Over EUR 50bn Commercial Credit Lines for FI Clients

8% Increase in Export Letters of Credit

5% Increase in Guarantee Transactions

COBADEFFDOC: New Single Entry Point

Special focus on Trade in 2014 and beyond

We strive to make you more successful

T

Supply Chain DefinitionsJoint initiative of ICC, BAFT, EBA, IFA and others to have a common definition of supply chain financing and related products

BAFT – Master Trade Loan DocumentationMaster Document subject to English as well as New York law

Trade Finance: A New Asset ClassVarious groups working on the establishment in order to attract alternative investors

Drivers: expected growth of world trade coupled with Basel III capital restraints

ICC Trade RegisterReports - low risk of trade reconfirmed

Shaping the Future

Trade Services: Expertise and experience since 1870


Trade Services - Expertise and experience since 1870


Trade Facilitation Programmes (TFP)

• Coverage of the political and commercial risk arising from international trade transactions in favour of „confirming banks“

• Assistance and Facilitation of International Trade


Expected growth of global trade

Source: World Trade Organization (WTO), Commerzbank

+15%

+11%

2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

5

10

15

20

Global Trade of Goods (Export volumes)USD Trillion

2014


Commerzbank at a glance

Commerzbank is chosen Bank No. 1 for the German Mittelstand and is one of the leading retail and corporate financing banks in Germany and has a wide spread network around the globe.

We accompany the global business of our clients.

› Founded: 1870 as "Commerz- und Discontobank" in Hamburg › Balance Sheet: EUR 558 bln. (12/2014) › Core Capital Ratio: 11,87% (12/2014) › Rating: Baa1 / P-2 (Moody's)

BBB+ / A-2 (S&P)BBB positive / F2

› Employees: 52.000 thereof 12.019 abroad› Clients: 15 mln. Private private customers, one mln. business

and corporate clients› Presence: 1.200 entities / branches in Germany

worldwide: 23 branches, 35 Representative Officesfurther subsidiaries and Group companies inmore than 50 countries



Axel Nikolaus BommersheimRegional HeadDirectorCommerzbank AG, MSB-FI Frankfurt/M.Tel. +49 69 136 23656Mail [email protected]

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Realising the potential of Central Asia, Mongolia and ... · PDF file... 5,654,051 km2 = 2 times bigger than India ... textile industry, ... Baltic Countries, Mongolia | Singapore