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German Chancellor’s visit to Central Asia to bolster trade, “green” energy and critical minerals

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Germany Seeks Economic Opportunities in Central Asia Amid Global Challenges

Germany is increasingly exploring the Central Asian market in response to rising commodity prices. The war in Ukraine significantly impacted the German economy by driving up energy prices due to sanctions, further disrupting the global supply chain after the COVID-19 pandemic and pushing commodity prices even higher. As a result, Germany’s demand for cheaper energy, critical minerals, and new consumer markets has grown. Central Asian countries, rich in these resources and seeking to diversify their trading partners, presented an ideal opportunity for German trade and investment.

While Kazakhstan already maintains strong trade relations with the European Union (EU), including Germany, the rest of Central Asia has remained relatively unexplored by European markets. This has created a suitable environment for deeper engagement. As a result, high-level visits from EU, German, and French leaders to the region intensified after 2022.

On September 17, 2024, German Chancellor Olaf Scholz arrived in Astana to meet with the Presidents of Kazakhstan, Uzbekistan, Kyrgyzstan, Turkmenistan, and Tajikistan. This summit followed earlier meetings between Kazakhstan and Uzbekistan with Germany on September 15 and 16. These engagements resulted in multiple agreements focused on critical mining industries, the production of critical minerals, transportation infrastructure, green energy production, and migration.

Further Prospects in Trade Development

Over the past 15 years, two general trends can be observed in Germany’s trade with Central Asian countries, particularly Kazakhstan and Turkmenistan. One significant trend is the decline in trade turnover between Germany and these two countries starting in 2014. As shown in Figure 1, the trade decline with Kazakhstan persisted until 2016. In contrast, while there were minor fluctuations in the case of Turkmenistan, the downward trend in trade continued until 2018. Although both countries share similar major exports, the reasons for the decline in trade with Germany are quite different.

The drop in German-Kazakh trade can largely be attributed to a general decrease in the value of commodities that Kazakhstan exports to the global market, which include crude oil, nonferrous metals, and critical minerals. In 2014, the total value of Kazakhstan’s commodity exports amounted to 62.1 billion USD, but this figure dropped to 35.7 billion USD in 2015. This decline had a negative impact on Kazakhstan’s GDP and its imports, given the country’s heavy reliance on export revenues. As a result, trade between Kazakhstan and Germany fell from 2.86 billion USD in 2013 to just 1.2 billion USD in 2016. The heavy dependence of Kazakh-German trade on Kazakhstan’s commodity exports was the primary reason for the more-than-halving of trade volume within three years.

The situation with Turkmenistan, however, is markedly different. While the drop in fossil fuel prices negatively impacted Turkmen exports, this was not a significant factor in its trade with Germany, as Turkmenistan does not export natural gas to Germany. The decline in Turkmen-German trade can be largely attributed to Turkmenistan’s domestic policy regarding the value of its national currency, the Turkmen Manat. The Turkmen government imposed strict controls on imports and restricted access to foreign currencies, which led to the overvaluation of the manat. At the same time, Turkmenistan has been relatively inactive over the past decade in seeking new markets for its vast natural gas reserves. Instead, it has focused predominantly on increasing gas exports to China.

This approach may seem counterintuitive, given that diversifying natural gas exports to multiple markets could have bolstered the value of the Turkmen manat without the need for stringent import controls. The IMF reports that Turkmenistan’s total value of imported goods dropped from 8.4 billion USD in 2014 to just 2.5 billion USD in 2018, reflecting the impact of these policies. As a result, Turkmen-German trade also plummeted, falling from around 515 million USD in 2013 to 171 million USD in 2018, effectively declining more than threefold. The impact of these currency controls and trade policies also hindered any significant rebound in trade following 2018.

Unlike Kazakhstan, which experienced a recovery after 2016, Turkmenistan’s trade with Germany stagnated. By 2023, the trade volume between the two countries only marginally increased, reaching 214 million USD. Despite the potential for growth through diversification of gas exports, the continued focus on the Chinese market, coupled with rigid currency controls and import restrictions, meant that trade relations between Germany and Turkmenistan remained stunted well beyond the 2014-2018 downturn.

The second major trend that can be observed from Figure 1 is the sharp rise in Germany’s trade with Kazakhstan, Uzbekistan, Tajikistan, and Kyrgyzstan. The crisis in Ukraine triggered a strong reaction from the European Union, including its largest economy—Germany. As sanctions on Russia targeted the import of Russian fossil fuels, specifically oil and natural gas, energy prices in Germany soared. By 2022, energy prices had spiked to 235 euros, effectively doubling compared to the previous year. This sharp increase in energy prices subsequently drove up the cost of commodities and products across the board, resulting in significant inflation. The inflation, in turn, lowered the competitive price of German products on the global market.

As German industries faced higher production costs, the need to discover new, emerging consumer markets intensified. This also included the growth in the need for the sources of cheap critical minerals and fossil fuels. Central Asia, with its rapidly growing population and strengthening market potential, emerged as one such region. The rise in trade reflects Germany’s increasing interest in diversifying its economic relations as it copes with the economic fallout from the conflict in Ukraine and the energy crisis. Central Asian nations, for their part, reciprocated this growing interest from Germany, recognizing the opportunity created by the Russian focus on Ukraine.

Between 2021 and 2023, the German trade turnover rose by 59.9% with Uzbekistan, 104.7% with Kazakhstan, 121.3% with Tajikistan, and a huge 1239.7% with Kyrgyzstan. Within the same period, the trade turnover with Turkmenistan dropped by a slight 0.6 per cent. The increase in trade volume and value has also impacted the individual share of each Central Asian country in the total German-Central Asian trade. The surge in trade with Kyrgyzstan led to a decline in the share of trade with other countries in the region. Nevertheless, overall trade turnover between Germany and the Central Asian countries has risen significantly, from around 2.7 billion USD in 2021 to 5.6 billion USD in 2023. This represents an impressive growth of approximately 110% within just two years, largely due to the revitalization of the Trans-Caspian Trade Route amid the conflict in Ukraine.

Local interest in “Green” Investments and Technology

The rising interest in green energy production among Central Asian countries was a key focus during the Second Central Asia-Germany Summit in Astana. This interest grew sharply after the 2022 blackout, which left southern Kazakhstan, Uzbekistan, and Kyrgyzstan without electricity during the winter. This energy crisis transformed Uzbekistan from a country that exported natural gas into one that now imports it. The blackout also led to Uzbekistan’s adoption of the “Green Economy” concept, further boosting regional interest in green energy cooperation. A key example of this cooperation is the agreement signed by the energy ministers of Uzbekistan, Kazakhstan, and Kyrgyzstan for the construction of the Kambar-Ata 1 hydropower plant on the Naryn River in Kyrgyzstan. This project demonstrates the region’s increasing focus on renewable energy as a solution to its energy needs, a field where Germany is one of the key partners.

The leaders of Uzbekistan, Kazakhstan, and Kyrgyzstan have highlighted the importance of launching the second phase of the “Green Central Asia” program. The first phase of the program was initiated after the signing of the Joint Declaration of Intent by the foreign ministers of Germany, Central Asian countries, and Afghanistan during a high-level conference at the Federal Foreign Office in Berlin on 28 January 2020. The aim of the program was to leverage German expertise, investment, and support for local projects while fostering collaboration on implementing national plans and international agreements like the Paris Agreement. It also focused on research and further development with local institutes and universities.

One of the key German institutions that has played an active role in this process is the German Society for International Cooperation (GIZ). In 2021, GIZ helped Central Asian countries adopt a joint plan of action on water and land management, waste management, and compliance with international environmental agreements. GIZ’s role includes offering policy advice and organizing training seminars, such as those focused on climate change, for local administrative staff. In addition to GIZ, several other German institutions are involved in the region, including the Helmholtz Centre Potsdam — German Research Centre for Geosciences (GFZ), the Kazakh-German University, the Potsdam Institute for Climate Impact Research, and the Martin Luther University Halle-Wittenberg. These organizations have worked together to implement modern, satellite-assisted technologies aimed at predicting environmental disasters, with a focus on anticipating water shortages.

Another important agreement was reached during the German-Kazakh Business Forum on September 16, 2024, involving a Memorandum of Understanding (MoU) between the Kazakh Ministry of Science and Higher Education and the German company Svevind Energy. This MoU outlines their collaborative efforts on researching the development and production of green hydrogen in Kazakhstan. President Kassym-Jomart Tokayev highlighted that Svevind Energy has invested $50 billion into green hydrogen production, aimed at exporting to the European Union.

The significance of green hydrogen production and its export potential was also emphasized by Shavkat Mirziyoyev during his speech at the Central Asia-Germany Summit. Moreover, the Presidents of Tajikistan and Kyrgyzstan discussed the importance of hydropower and the potential for energy production in the region, leveraging its rich water resources. Central Asia possesses substantial potential for producing green energy that can be exported, particularly to the EU. A key market for such energy is facilitated by an agreement between Azerbaijan, Kazakhstan, and Uzbekistan to construct a high-voltage undersea electric cable across the Caspian Sea. This cable will connect to another undersea cable to be built through the Black Sea, ultimately leading to Romania and Hungary. This infrastructure will enhance regional energy cooperation and facilitate the export of green energy to European markets.

Further Agreements in Critical Minerals Production and Mobility

Following the rise in energy prices and the consequent increase in commodity prices, the demand for cheaper critical mineral sources surged in the European market, particularly in France and Germany. Central Asia, especially Kazakhstan and Uzbekistan, is rich in these resources. However, both countries have historically lacked the financial resources and modern technologies needed for greater production. This gap created an opportunity for cooperation between German and local companies.

During the Uzbek-German and Kazakh-German business forums on September 15 and 16, 2024, the leaders of both countries emphasized the importance of collaboration and investment in critical minerals. Several key agreements were reached, including the Joint Declaration on Cooperation in the Field of Critical Minerals between Germany and Uzbekistan. Another significant agreement was the Memorandum on Mutual Cooperation for the production of potassium salts and boric acid from the Satimola deposit in the West Kazakhstan region, signed between Qazaq Kalium Ltd. JSC and KfW Bankengruppe, Euler Hermes Group. These partnerships further demonstrate the growing strategic importance of Central Asia in supplying critical minerals to European markets.

When it comes to agreements on mobility, the situation varied among the Central Asian countries. During the Kazakhstan-Germany Summit on September 16, 2024, the two sides adopted a Joint Declaration on Cooperation. This included a significant clause introducing a visa-free regime for EU citizens visiting Kazakhstan for up to 30 days. Additionally, the declaration supported efforts to facilitate the visa process for Kazakh citizens traveling to the EU.

In contrast, the situation was different for Uzbekistan and Kyrgyzstan. During the Uzbek-German Summit on September 15, President Shavkat Mirziyoyev expressed satisfaction with the signing of an Agreement on the Migration of Workers. Meanwhile, at the Central Asia-Germany Summit, Kyrgyzstan’s leader raised the issue of specialists’ migration from Kyrgyzstan to Germany.

While Kazakhstan achieved an agreement on visa-free travel for EU citizens, Uzbekistan and Kyrgyzstan focused on easing migration rules to Germany. This reflects the economic importance of remittances from nationals working abroad in these countries. Both Uzbekistan and Kyrgyzstan demonstrated a strong interest in facilitating labor migration, as these remittances constitute a significant portion of their GDP.

Conclusion

The value and volume of Central Asia’s trade with Germany rapidly grew, more than doubling between 2021 and 2023. This upward trend is likely to continue, driven by agreements reached before and during the second Central Asia-Germany Summit in Astana. Germany is expected to play a key role in green hydrogen production, which is mutually beneficial—Central Asia benefits from green energy development, while Germany plans to import Kazakh green hydrogen. Additionally, Germany will remain a crucial partner in research and technology, especially for predicting water shortages and providing administrative training through collaboration between German institutions like GIZ and local universities.

Given Central Asia’s wealth of critical minerals, particularly in Uzbekistan and Kazakhstan, as well as Germany’s financial resources and technological expertise, long-term cooperation in mineral extraction, production, and export is also anticipated. The partnerships will likely extend to migration issues and transportation infrastructure, with an emphasis on incorporating Central Asian projects into the EU’s Global Gateway initiative. This underscores Germany’s and the EU’s commitment to long-term cooperation with the region, fostering sustainable growth and mutual benefits.

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