Saturday, June 4, 2016

With some understanding of the political sensitivity of land
reform and the predominance of agriculture in Kazakhstan’s economy, let us
rehash more recent political events in Kazakhstan. There have been a lot of articles
on the April and May protests, but I in this post, I would like to try and gain
a better understanding as to why the protests came about as well as the
government’s response.

Understanding the Social and Economic Background for Meetings

The law on amendments and changes to the land code was
adopted by the previous session of the Mazhilis in November 2015. Given the
closed-doors tradition of lawmaking in Kazakhstan, while there may have been an
announcement that the bill was adopted in November, there was virtually no
public discussion about the bill’s contents. Industry insiders were probably
familiar with the bill, but it certainly was not widely discussed in the
media.Plus, the topic of land reform
did not appear in any of the pre-election platforms of the seven parties, safe
for the Ayul party, which is an agrarian
party. Though, agricultural reform is an ongoing discussion in the context of economic
diversification and development.

This recent bill on amendments to the land code resurfaced at
a press conference on the implementation of the 100 steps program on March 30,
2016 in Astana, when then Minister of Economy Erbolat Dossayev stated
that beginning July 1, 2016, local land bodies will organize auctions to sell
1.7 million hectares of land. Dossayev added that of the 1.7 million hectares,
already 645.4 thousand hectares, representing 1,271 plots, had already been
prepared for the auctions.

Dossayev’s comments marked the first time this particular
bill, and auctions were discussed in public. The dearth of information about
the exact wording of the legislation, the lack of transparency in the
law-making process and the absence of public discussions aggravated many
Kazakhs and led to the propagation of misinformation. Many in Kazakhstan claimed
that the bill would grant foreigners the right to purchase agricultural land.
However, as I have already discussed in previous posts, this is simply not
true. The proposed bill extends the maximum term of a lease for agricultural
lands from 10 years to 25 years.

Dossayev’s announcement came at an already tenuous time in
Kazakhstan’s development history, which largely fueled public response. The
move to free-float the tenge in August 2015 caused the value of the currency to
fall from 185 tenge/dollar to over 350 tenge/dollar in January 2016; the tenge
is currently hovering around 337 tenge/dollar. Meanwhile, the fall in oil
prices forced the government to rebalance its budget based on a benchmark of $35/barrel,
rather than $80/barrel. Oil-related revenues from production and transportation
subsequently fell. Moreover, Kazakhstan has suffered from the slowdown in the
Russian economy and Russian counter-sanctions. According to my discussions with
local businessmen, there have been several instances when Kazakhstani
enterprises have been unable to import goods from Europe, as Russian customs
officials prohibited the transit of such goods that supposedly violated Russian
countersanctions.

But there are other issues that exacerbated the strain of an
already difficult economic environment. According to one social activist, in
developing the left bank of Astana, several families who inhabited small dachas
were forced to evacuate their homes to make way for future development. While
these families lived in the dacha homes year round, they received compensation
for a dacha plot, rather than that for a single-family home, leaving affected
individuals homeless and disgruntled. In other instances, budgetary shortfalls
and redrawing of districts forced many schools to close. In Kostanay oblast,
for example, either schools were closed in 2014, and
in 9M 2015, another nine schools were forced to shut down. According to the
Agency of Statistics, the number of primary schools throughout the country fell
from 7,755 in 2010, to 7,562 in 2014, and 7,511 in 2015. That said, school
closures could be caused by a multitude of reasons, not all of which are
negative. Plus, displacement of residences occurs around the world, and is an
inevitable consequence of municipal development.

As demonstrated in the figure “Wellbeing indicators in
Kazakhstan”, in dollar terms, the average nominal monthly salary, per capita
nominal income of the population, and state-determined minimum level of income
to survive, all grew between 1995 and 2007, contracted in 2008-2010 due to the
global economic recession and December 2008 take-over of banks (that lead to
the February 2009 devaluation of the tenge), and then experienced moderate
growth through 2013 when global oil prices grew astoundingly. However, since
2013, all three indicators have contracted. But given the structure of
Kazakhstan’s economy, this is natural. Kazakhstan is also one of several
economies in the region that has experienced this pattern of growth, the others
being Azerbaijan, Russia and to an extent, Uzbekistan (though Uzbekistan’s
volatile currency had its own “formal” and “informal” exchange rate).

Source: Agency of Statistics of Kazakhstan

Given these developments, according to Battalova, Dossayev’s
seemingly last-minute announcement of the land reforms, and the lack of
communication as to their precise stipulations, represented “the last straw”
that prompted people to gather on the streets.

Land reform proved to be the outlet for expression of
frustration with the general economic environment. Though, not a single
protester advocated for political transformation.

Meetings took place in various cities across Kazakhstan in
April, including non-rural regions such as Atyrau, Aktau, Almaty and Astana.
There were some meetings in Kyzlorda, but there were no reports of meetings in
ayuls. These were by and large peaceful protests, as there were neither reports
of civilian injuries nor casualties. It is also important to note that there
was no Zhanaozen-level clash between police and civilians.

That said, several individuals who participated in the April
and May 21st meetings were arrested, and many have since been
released. On June 3, authorities in Astana released Aslan Kurmanbayev and Kurmangazi
Rakhmetov, and in Semey (Semipalatinsk), Marlan Esil’bayev.

Astana’s Response: formation of the Commission on Land Reform

In response to the protests that erupted in April, President
Nazarbayev moved to impose a moratorium on the land reform. On May 5,
Nazarbayev issued an edict for the formation of the 75-person Commission on
land reform.

Members of the Commission include representatives of
industry, farmers, former and current politicians and social activists,
including opposition figure Mukhtar Taizhan.

One notable opposition figure that was invited, but
ultimately refused to participate in the Commission, was Zauresh Battalova.
Over tea, Zauresh explained her reasoning. First, she had insisted that the
Commission work on a consensus only basis. This idea was rejected and the
Commission works based on majority vote. Second, she had insisted that all 55
journalists who had been arrested be released as a precondition to the first
meeting of the Commission. Third, she wanted to increase the membership of the
commission to include more members from civil society and the agrarian sector. But
this last idea was seen as unfeasible, and would cripple the Commission’s
efficacy (understandably).

But she also felt that attending the Commission on Land
Reform on May 21 would discredit her legitimacy as an opposition figure. “How
could I be in the meeting, and keep my credibility, when my people were on the
streets?”

Having met with Zauresh and other members of the opposition,
as well as government officials, it is critical to understand that neither
Zauresh nor other opposition groups seek to violate the laws or instigate
widespread social unrest. “I was a senator for two terms (1998-2005), why would
I want to break the law,” she emphasized. In the past, when permits for a
meeting were not granted, Zauresh took caution to ensure that she did not
organize a meeting, but opted for a round table or expert council on private
property instead.

Ultimately, the opposition and those in government want the
same thing – a stable, prosperous and opportunity-rich Kazakhstan – they just
need to find a way to work together. But that’s politics.

Commission activities

The Commission operates directly under the office of the
President, as Bakhytzhan Sagintayev, a top official in the Ak Orda, serves as
the Commission’s chairman. The Commission is tasked with the responsibility of drafting
a new bill on land reform that will ultimately be submitted to the Mazhilis. After
reviewing the bill, the Mazhilis will pass it and submit it to the President to
sign into law. The Commission is set to exist through December 31, 2016,
coinciding with the duration of the moratorium.

As part of the bill-writing process, Commission members will
travel around the country and discuss proposed changes with local businesses
and politicians. Already after three meetings, members of the Commission agreed
that they were ready to meet with local communities and gather their insights
on land reform. The driving goal behind the Commission is to provide a bridge
between the Ak Orda, Mazhilis and the people of Kazakhstan.

This past week, Sagintayev was in Kokshetau. News
reports of the meeting showed a fairly interesting and lively conversation
between Sagintayev and local agro-businessmen. According to reports Kazakh
media covering the meetings, the questions were mainly focused on the terms
of leasing versus purchasing land for Kazakhs. As already discussed, nearly 99%
of agricultural land in Kazakhstan is leased. At one point, there was
discussion of eliminating the ability of farmers to lease the land and increase
individual ownership, but this clause has since been redacted, as leasing
arrangements are important to allow for experimentation, and also because most
farmers simply do not have the capital to purchase land. Some farmers proposed
increased formation of cooperatives, others insisted on maintaining the current
10-year lease restriction for foreigners, and some argued that the ten years
should remain, but there should be an option to extend the lease if the
cooperation between the foreign company and local enterprise leads to a
successful outcome. Interestingly, these proposals echo, if not exactly mirror,
the ideas expressed by members of the Commission.

The Commission first met on Saturday, May 14, from 10 AM to
almost 5 PM. The second meeting of the land commission on May 21 lasted from 10
AM to 7 PM and coincided with the meetings (not really a coincidence). The third meeting of the commission on
Saturday, May 28 only lasted from 10 AM to 2 PM, and nearly 30 of the 75
members on the Commission spoke. All Commission meetings are broadcasted on
television.

Future implications

On one hand, the public broadcasting of the Commission
proceedings is a positive step in terms of transparency. The public broadcasting
of the Commission meetings is not only extremely entertaining for political
science junkies like myself, but it is also a wonderful way to gain insights
into the arguments made by some of the country’s most senior officials. We so
rarely get to hear these voices. The government also created a website to update the public on land
reform.

On the other hand, over tea, a former official raised the
question, why was the decision made to form an independent Commission on land
reform instead of hand the topic to the Mazhilis? After all, the Mazhilis was elected
in March 2016 and its Constitutional responsibility is to write and approve laws.
This could have potentially been an opportunity
for the members of the Mazhilis to enhance the institutional legitimacy of the
legislature by being on the frontlines of the government response to a major
dispute. Since land reform is a long-term issue, it could have been
constructive to assign the Mazhilis, a permanent institution, with the
responsibility of solving the issue, rather than delegating this to the
Commission that is slated to disband by the end of the year.

When I asked members of the Commission as to why the
Mazhilis was not directly involved, I was told that a Commission would be more
inclusive and allow for greater civilian outreach. The Commission brings
together individuals with a range of experiences and is therefore better
qualified to tackle an issue as complicated as land reform. Plus, many of the
members of the Commission formerly served in the Mazhilis.

As a follow up, I asked some Commission members how they
plan to work with the Mazhilis in the fall, and what would happen if the
Mazhilis rejects the proposed bill. All three Commission members I spoke with
indicated that there was no exact plan yet, but that they did not anticipate an
issue and fully expected that the Mazhilis would pass the bill without major
qualms. Though, they noted that in the fall, the Commission and members of the
Mazhilis would likely engage in a constructive dialogue.

The other challenge facing the Commission is that it has an
extremely ambitious reform agenda. Land reform is a complex, systematic issue
that will not be solved in six months or even one year. Drafting and ultimately implementing
amendments to the land code requires meticulous coordination between multiple
government agencies in Astana and in the regions. While the Commission is divided
into four working groups that meet during the week – economics, communication
and mass media, law and implementation – there is still such a wide range of
complex topics that it will be challenging to coordinate policy formation,
project implementation and monitoring.

Just to show the scope of topics discussed in the context of
land reform – at Saturday’s Commission meeting, members all emphasized the need
for technology (a buzz word), but offered different notions as to the terms for
foreign companies to bring such technology on leased land. One Commission
member argued that foreign companies leasing agricultural land should have
limits on the amount of visas available for foreign employees, or that
companies can bring their own workers to train Kazakhs, but that this training
period be limited to six months (fortunately this comment was ignored since
training takes more than 6 months, especially in a cyclical sector like
agriculture, but the idea could very well resurface).

There were also important topics that were not discussed at
Saturday’s Commission meeting. For example, agricultural land is still
appraised (valued) according to the old, Soviet method, but there are
discussions within members of the agricultural professional community of the
need to introduce a new valuation code that takes into account infrastructure
development and soil quality. The Soviet method assigns a value to a certain
area of land, and is less flexible with respect to fluctuations in the market,
according to one official. Perhaps this was discussed offline among members of
the economics sub-Commission, but as demonstrated by the recent wave of
protests, it is important to at least discuss this in public.

Having observed a meeting of the Commission, read about
previous Commission meeting and interviewed officials, it appears that there
are a lot of very difficult but important questions being introduced and
discussed. But there are more questions raised than answers given, which is a
natural part of the legislative process. Such questions should be debated and
researched at length, with the ultimate result being a written bill available for
public viewing and commenting. So far, members have engaged in constructive
debates, but it is 4 weeks in, and there is six months left to the
year.

Solving a complex issue like land reform is a long-term
process that requires the participation of multiple government organs,
continued communication with the public and constant engagement by legislators.
The Commission on land reform was formed to complete all of these activities,
as well as fulfill an extremely ambitious, well-intentioned reform agenda. The
current economic environment makes this all quite challenging, but it will be
interesting to observe the Commission progresses over the coming months.

Thursday, June 2, 2016

In 1980, Kyrgyz-Soviet
writer Chingiz Aitmatov (1928-2008) published The Day Lasts More than a Hundred Years. The novel opens with
Ukubula informing her husband Burannyi Yedigei, a railman in Kyrgyzstan, of the
death of their elderly neighbor Kazangap, who died alone in his home. Out of
respect for the beloved Kazangap, Burannyi Yedigei organizes a traditional, Kazakh burial “with full honor” (p.25).

As Burannyi Yedigei prepares for the burial, reaching out
to Kazangap’s son, acquiring a two-humped Bactrian camel and planning the journey
from the Boranly-Burannyi railway junction, across the Sarozek desert, to the
Naiman tribe’s cemetery of Ana-Beiit, he is forced to redirect his route
relative to the Soviet railway that transverses the steppe, disrupting the traditional path. As

Buryanni Yedigei encounters different characters, the intransigence of traditional, nomadic norms and their clash with modern, Soviet institutions emerges as a central theme in the story.

Each chapter opens
with a few lines of poetry (below), reinforcing the notion that Soviet
industrialization of the steppe disrupted traditional nomadic routes and
impeded on sacred spaces.

Trains in these parts went from East to West,
and from West to East.

On either side of the railway lines in these
parts lay the great wide spaces of the desert – Sary-Ozeki, the Middle lands of
the yellow steppes.

In these parts any distance was measured in
relation to the railway, as if from the Greenwich meridian.

And the trains went from East to West, and from
West to East.

When Burannyi Yedigei informs Shaimerden, the dutyman at the Boranly-Burannyi railway junction, of Kazangap’s death, Shaimerden responds,
“he [Kazangap] completed his life journey.”

“What’s Soviet rule
got to do with it? People have been praying over the dead for centuries.”
(p.21)

In many respects, Burannyi Yeidgei’s
journey in The Day Lasts More than a
Hundred Years and his devotion to traditional, nomadic ideology is a metaphor for understanding the political, social
and cultural sensitivities surrounding contemporary land reform in Kazakhstan.

As a historically
nomadic people, Kazakhs retain a very intimate relationship with land.
There is a Kazakh saying, “land is mother, and you do not rent your mother.” There
is also the idea of “Atameken” which means land of forefathers/ancestors (ata is Kazakh for father, and meken is Kazakh for place of living or
being). Today, Kazakhstan’s national palace of entrepreneurs – the major
organization that includes all legally registered businesses – also bears the
name Atameken.

“We Kazakhs fought for
our land against the Zhungars [and other tribes]…think of all of the blood shed, all the warriors who died,” Kenzhegali
Sagadiyev affirmed in an interview. Having fought centuries for control over the territory of contemporary Kazakhstan, Kazakhs understandably feel a sense of
defensive, proprietary ownership over the land and its resources.

Traditional Kazakh
mentality also impacts notions of private property. In the United States, an
individual or an entity owns title over a specified area of land. This
individual purchases the land at a market-determined rate, and depending on the
zoning code, is entitled to develop the land how he/she sees fit. Individual ownership is legally codified in a written contract. However,
in Kazakhstan, a Western notion of private property ownership has not yet
materialized due to a nascent institutional environment as well as the
lingering impact of Soviet and Kazakh norms of land ownership. In traditional
nomadic culture, each tribe or group of tribes controlled a given area. Tribal ownership over said territory was not formalized through written
contracts, but was established through inter-tribal negotiations (or war) and
was an understood, widely accepted norm. Each Kazakh tribe had a land they
inhabited in the summer, and another land in the winter. This was collective
ownership, not individual ownership. Plus, property was collectively owned by members of a
tribe, as there was no individual who claimed title over an area.

When I asked
Kenzhegali Sagadiyev how Soviet rule impacted the traditional Kazakh thinking,
reinforcing Burannyi-Yedigei’s devotion to nomadic values, he stated, “our
Kazakh mentality did not change, and remains to this day.”

An adherence to
tradition permeates other aspect of modern Kazakh society. Most Kazakhs
memorize seven generations of their family trees, as it is forbidden to marry
someone related to you within those seven generations. According to the tradition of Shildekhana, following the birth of a
newborn, both the baby and mother stay home for forty days. At the end of this
period, family members gather to celebrate the healthy mother and baby’s entry
into the world.

With respect to
questions over state policy, Kazakh sensitivity to foreign activities on Kazakh
land materialize in debates over reforms to the subsoil code and the terms on
which foreign companies have access to subsurface resources – notably heavy and
rare earth minerals, oil and gas. Kazakhstan has an extremely generous
maternity leave policy, wherein mothers can be home with their children for up
to three years (though they are only paid during the first year), all the while
reserving the right to return to work. All women, even those who are unemployed
or work informally devoid of a contract, are eligible for these benefits.

At a press conference
for members of the Russian press on the sidelines of the Astana Economic Forum,
I asked Ali Abdikarimovich Bektayev, a current Nur-Otan member of the Mazhilis
originally from South Kazakhstan Oblast, about the idea of “Atameken” and
Kazakh resistance to foreign ownership of the land. I asked given widespread
opposition to granting foreigners the right to purchase land, how does he foresee
this mentality informing discussions on the terms of leasing land. Will the
length of a lease for foreigners be extended to 25 years or remain at 10 years?

Bektayev pursed his lips, grew reticent for a moment, and affirmed that Kazakhs
do in fact have a special relationship to land, and it is unlikely that
Kazakhstan will permit foreigners to directly purchase land. But Bektayev was
unable to answer my question with respect to the length of leases.

Moreover, at the meeting of the Presidential
Commission for Land Reform on Saturday, quoting Marx, one Commission member
argued that private property should not exist in Kazakhstan at all. The idea of
one individual owning a certain portion of land is ridiculous, as land is not a
good (tovar), rather, it is a form of
livelihood and the source of all other goods and being. The government should
own all land in Kazakhstan, and individuals (including citizens of Kazakhstan)
should only be permitted to rent land. Other members observed that if
foreigners are allowed to lease land for up to 25 years, over the course of
that period, a new generation of foreigners (Chinese were specifically cited)
will live there, and the land will no longer be inhabited by Kazakhs, but by
foreigners. Another delegate commented, Kazakhs fought so long for their land,
why would they give that up?

As an American, from a
cultural perspective, I consider the long-term leasing of land to foreigners a
positive development, as it encourages assimilation. If a newcomer cultivates economic
value and raises a family on Kazakhstan’s agricultural land, then this family
will most likely become assimilated into Kazakhstani culture. Their children
will attend school in Kazakhstan, forge friendships with locals, and speak Russian and Kazakh. While
Kazakhstan does not necessarily require migration to sustain population growth given the high birth rates,
certainly any high-value labor should be welcomed – especially in a country
that has over 120 different nationalities.

Younger businessmen on
the Commission, such as Nurzhan Altayev from Atameken, and Bissetayev, possessed
more liberal view towards land ownership, arguing that long-term leases were
necessary to secure foreign direct investment. In China, leases for
agricultural land are for 99 years. Ten years is simply not a sufficient amount of time
for agriculture, where bank loans are made for at least 50 years, and payback
period is usually in excess of 50 or 100 years. Plus, it makes no sense if a
land lease is for ten years, but a lease on a tractor is for 50 or 100 years.

Other individuals on
the commission who were willing to grant foreigners the right to lease
agricultural land advocated that leases should come with limitations with
respect to visas for foreign workers, lease length and scope of activities.

That said, nearly all
members of the committee agreed that Kazakhstan will not permit foreigners to
purchase land, echoing the sentiment expressed by protesters on May 21st.

It is also worth noting that this is not the
first time in recent history Kazakhstan has grappled with land reform. The
introduction of Kazakhstan’s first land code in 2003 – marking the introduction
of private property into the legal nomenclature – was so controversial that then-
Prime Minister Imangali Tasmagambetov was forced to resign. Since then, attempts
to amend the land code, especially in 2011 when the land code was modified to grant
companies with over 50% foreigner ownership the right to rent land for 10
years, were met with protests.

In short – traditional
Kazakh notions of land ownership influences the debate on land reform today. Both political elites and ordinary Kazakhs
feel this intimate relationship with land. In the future, Kazakhstan’s
policymakers must reconcile historically cultivated, nomadic notions of land
ownership with modern desires to attract foreign direct investment in a legal
framework that is consistent with global business practices.

Wednesday, June 1, 2016

It was a busy week in
Astana and took some time to process all of the materials. In addition to my
excursion to Rodina, I conducted interviews with officials on the sidelines of
the Astana Economic Forum, attended the IMF Press Conference with Prime
Minister Karim Massimov and IMF Managing Director Christine Lagarde, and observed
the Presidential Commission on Land Reform. It was a busy and fascinating week,
and I will attempt to present the complexity of land reform in a multi-part
blog series.

This first post
provides an overview of the patterns of ownership of Kazakhstan’s agricultural
lands and a discussion on the current status and economic productivity of the
country’s agricultural sector.

My second post will
discuss the political history of land reforms in Kazakhstan, including the
various arguments presented by different factions in recent months. The third
post will discuss the politics of land reform, including an overview of the
President’s Commission on Land Reform.

------------------------------------------

Before we analyze the
politics of agricultural land reform – the subject of the most recent wave of
political unrest in Kazakhstan that forced by Minister of Economy Yerbolat
Dossayev and Minister of Agriculture Asylzhan Mamytbekov to resign – let us
first gain a more comprehensive understanding of agriculture in Kazakhstan. I
hope to prove that land reform is just one small component in the broader
challenge of agricultural reform in Kazakhstan.

Kazakhstan is largely
an agrarian country, with 43% of the country’s workforce in rural regions, where
agriculture is the primary employer. It is no surprise land reform is so controversial
given this demographic reality.

As demonstrated in the
Figure, “Employment Dynamics in Kazakhstan (2004-2016)”, while the agricultural
workforce has remained relatively stable since 2004, the country’s urban
population has increasing steadily since 2012. This is largely due to internal
migration, as agriculture remains a low-valued sector that offers low wages and
few opportunities for upward mobility. These structural-economic factors, in
conjunction with the relatively rapid development of the cities of Almaty and
Astana, have resulted in a wave of internal migration in recent years.
According to the Agency of Statistics, there was a positive net migration to
Astana through 2014, though in 2015, for the first time since 2004, the city
experienced a net migration outflow of 2,488 workers (compared to an inflow of
17,880 workers in 2014). Meanwhile, between 2004 and 2015, South Kazakhstan
Oblast, Zhambyl Oblast and Karaganda oblasts experienced a net outflow of
workers. This change in population dynamics, as mentioned by officials on the
Presidential Commission on Land reform, is one of the reasons why Kazakhstan’s
agricultural sector lags relative to other major agricultural producers.

Source: Agency of Statistics of Kazakhstan

According to the
Agency of Statistics, Kazakhstan’s total population in 2014 totaled 17.16
million, of which 7.7 million (45%) were rural inhabitants, while 9.43 (55%)
lived in cities. This trend continued in 2015 with 43% of the population in
rural regions, and 57% in urban areas. Preliminary data for 2016 suggests that
the 43% - 57% division holds constant.

Source: Agency of Statistics of Kazakhstan

Because agriculture is
considered a low-value vocation, there is little emphasis on training and the
development of expertise. Last week, I had the pleasure of having tea with
Kenzhegali Sagadiyev, a two-time deputy in the Mazhilis (3rd and 4th
sessions), current President of IT University in Almaty, former President of
the National Academy of Sciences of Kazakhstan (Almaty, 1994-1996) and rector
of the Kazakhstan agricultural academy (Astana, 1996-2000).Sagadiyev shared a conversation he had with
an Israeli official, where Sagadiyev asked what explains Israel’s phenomenal
performance in the area of agricultural production, since the country has
limited natural rainfall and is mostly covered by desert. The Israeli official
responded, “every farmer is a scientist and a student (ucheinyi).” This is precisely the sentiment that should be applied
to the agrarian workforce in Kazakhstan – only through a more efficient use of
labor and technology can Kazakhstan’s agricultural sector thrive.

There are three types
of agricultural enterprises in Kazakhstan: agricultural enterprises or holdings
(сельское предприятие), country worker/farmer holdings (крестьян), and household population (сельское население).
The breakdown of gross output in tenge terms by each of the three categories is
visible in the Figure “Breakdown of gross agricultural output by enterprise
type.”

As evident in the
chart, while output across all types of agricultural organizations has
increased since 1999, production has generally increased since 2006, albeit
with slight periods of reduced output in 2010 and 2012. By 2015, the agricultural
(rural) population generated 43.25% of gross output, while countrymen and
farmers made 32.11% and large farming enterprises 24.64%. This means that large
industrial farms, like Ivan Sauer’s Rodina’s farm, only constitute one quarter
of Kazakhstan’s total agricultural output. Small farmers and plots are
responsible for the remaining two-quarters of agricultural output, when
measured in tenge terms.

Source: Agency of Statistics of Kazakhstan

According to the
Agency of Statistics, as of May 2016, of the 1.3 million small and medium enterprises
(SMEs) registered in Kazakhstan, 14% were small legal entities, 0.2% were
medium-sized legal entities, 72% were Individual Enterprises (IPs – many
traders in Baraholka are registered as IPs, and this is a very easy, simplified
form of business registration that any consultant, accountant or contractor
could fill out to register their activity with the tax authorities), and 14%
are small farms (крестьян).

According to Kairat
Bissetayev, chairman of the Union of Potato and Vegetable Growers in
Kazakhstan, that represents over 300 farmers throughout the country, the soil
quality and low rainfall in these northern regions lend themselves to larger,
industrial-like farms that focus on the cultivation of potatoes, wheat, and
barley. In contrast, southern regions contain greater numbers of small,
family-owned farms that grow fruits and vegetables.

In terms of employment
by sector, in Q1 2016, 16% of the workforce was employed in the agricultural
sector, compared to 19% in Q1 2015. The number of workers in agriculture has
actually declined since 2010, when the sector employed 2.29 million individuals
(28% of the employed workforce), compared to 2.19 million (26%) in 2011, and
1.55 million (18%) in 2015. The decline is likely caused by internal migration
within Kazakhstan, as the majority of economic opportunities are concentrated
in major cities. Though, it is important to note that agriculture is one of the
most informalized sectors in Kazakhstan, which means that statistics do not
likely capture the full scope of employment.

Source: Agency of Statistics of Kazakhstan

In short, across a
variety of indicators, agriculture is an important component of Kazakhstan’s
economy. However, agricultural production accounts for less than 20% of GDP and
is a dismal source of budget revenue; over 50% of Kazakhstan’s budget comes
from oil-related revenues. Thus, any (attempted) modification to the 2003 land
code will inevitably run into obstacles, given the predominance of agriculture
as a source of livelihood for thousands of Kazakhs.

The bill “On
Amendments and Additions to the Land Code of the Republic of Kazakhstan,” was
initially passed by the Mazhilis in November 2015. Most Kazakhstanis were
largely unaware of the bill, until then-Minister of Economy Dossayev referenced
it at a press conference in March. While widespread public reaction ultimately
forced the government to place a moratorium on land reform through December 31,
2016, and form a Presidential Commission to draft a new one, it appears that
the government did a poor job communicating the essence of the bill to the
public, and the wildly misinformed public voiced fallacious accusations. For
example, individuals protesting the reforms claimed that the bill would grant
foreigners the ability to purchase land in Kazakhstan. This is not true, as the
bill proposed the following changes:

The extension of the time period a foreigner
can lease land in Kazakhstan from 10 years (currently) to 25 years.

The bill stipulates that individuals who are
married to foreigners (someone who is not a citizen of Kazakhstan) are
prohibited from purchasing land, as this could be a mechanism of transferring
property rights.

The bill preserved the existing law that allows
a joint venture wherein a foreign company owns 49% (less than 51%) to purchase
land. But there are also stipulations that effectively grant the Kazakhstani
partner the ability title over the land in the event of a sale, or issue.

The legislation does
not grant foreigners the right to purchase land. In fact, based on my
interviews and the exchanges at the Presidential Commission, there is almost a
near consensus that Kazakhstan will not allow foreigners to purchase land. The
main questions are: should foreigners be permitted to lease land, and if so, on
what terms and for what period of time?

Currently, the
majority of agricultural land in Kazakhstan is leased. According to data from Jerturaly.kz, the government website
established to inform the public on land reform, of the 100 meters of
agricultural land, 99.5 million hectares (98.7%) are rented, and 1.3 million
hectares (1.3%) are privately owned. Leasing agreements enable farmers,
especially those with little experience who are just starting out, the
opportunity to experiment without taking on the long-term commitment of a land
purchase. Plus, leasing the land is more often than not the most financially
feasible option.

Recognizing the importance
of agriculture to employment, and the fact that most agricultural land in
Kazakhstan is leased, any future amendments to the land code must be made
conscious of these realities, and done in a way that would make Kazakhstani agriculture
an attractive and safe destination for foreign direct investment.

In an interview,
Bissetayev observed that the proposed amendments to the land code will not have
a major impact on the future development of Kazakhstan’s agricultural sector. Rather, Bissetayev emphasized the need for
investments in agricultural production technologies that will enable farmers to
add value-added to their products. For example, potato growers in Kazakhstan do
not manufacture French fries or other secondary products, and this is one clear
area where Kazakhstan could compete, particularly in the Commonwealth of
Independent States. The largest supplier of French fries to fast food chains in
Europe and the region, according to Bissetayev, is Netherlands-based Farm
Fritters, using potatoes from Poland. American companies are also active
worldwide (surprise!). While potential foreign investors in Kazakhstan seek
investment guarantees, such assurances are related to financing and legal
shareholder structure, rather than land ownership. Plus, Kazakhstan’s
agricultural community does not necessarily seek expertise in the simple cultivation
of crops – Kazakhstan needs technology and production.

Moreover, Bissetayev
emphasized that natural, environmental conditions make agriculture in
Kazakhstan a very high-risk sector. Kazakhstan has very low precipitation
levels and a relatively short growing season. Between May and August, the
average annual precipitation is 10 mm in Northern Kazakhstan, and 250 mm in
Southern Kazakhstan. In comparison, in Southern Russia the average
precipitation is 350-400 mm, in Belarus 600 mm, and in regions in South
America, this could reach, or exceed, 700 mm. Meanwhile, Belarus receives 600
mm. Consequently, Kazakhstan suffers from a poorer soil quality, on average.

The high-risk nature
of Kazakhstan’s agriculture exacerbates the challenges associated with securing
credit. In Kazakhstan, Bissetayev asserted that most credit is issued with a
payback period over 50-70 years, when it should be closer to 70-90 years. Under
the old exchange rate (prior to the August 2015 devaluation), farmers could
secure credit at an interest rate of 4-6%. Recently, however, rates have
hovered in the range of 9-12%, and sometimes 15%.

Ultimately,
agricultural land reform is important given the centrality of agriculture in
Kazakhstan’s economy, but it is a relatively minor question in the broader
context of reforms and modernization.

Wednesday, May 25, 2016

Greetings again from Astana! I have been fortunate enough to have some extremely interesting conversations with respect to land reform, agriculture and politics in Kazakhstan. I have additional meetings planned, so I will refrain from extensive commentary for now. That said, I wanted to share some photos from today.

I was fortunate to accompany a group of Russian journalists visiting the dairy production farm owned by Ivan Sauer. Sauer is of German origin but was born and raised in Kazakhstan. Having first joined the firm in the 1970s, during the Soviet Union, Sauer has since led the facility for nearly 29 years. He is largely considered an authoritative voice on agriculture in the country.

While we were unable to meet with Sauer, due to a last-minute commitment on his part, it was nonetheless interesting to tour the facility. While I am certainly not an agrobusiness expert, walking through a cow ranch and driving through the Rodina complex in my business clothes was a thrill. More seriously, having toured the Talgo facility and other factories in the Astana Industrial Zone, it was interesting to observe an enterprise that was established during the Soviet era (specifically 1961), and whose structure has largely since been preserved. The business still grants generous social benefits to workers, such as a 200,000 tenge bonus for a family expecting a child.

Rodina does not, however, export products overseas. Most of Rodina's milk products are sent to Astana, with grain and other goods delivered to other parts of Kazakhstan. When I asked our guide, and the vice manager of Rodina, if the change in the valuation of the tenge affected the business, he responded that it does, but failed to go into detail. The biggest impact of tenge devaluation in this respect is probably on the price of commodities. But since the firm is largely established and not in need of start-up capital, I presume it is weathering the storm alright.

Some fun facts about Rodina and agriculture in Kazakhstan:

First, grain constitutes around 40% of Rodina's annual revenues. This is actually quite standard for agriculture in the Northern Oblasts of Kostanai, Akmola, Karaganda and Northern Kazakhstan Oblast. Agricultural enterprises in these provinces tend to include large land holders and producers of commodities such as grain, potato and soy, according to Kairat Bissetayev, Chairman of the Board of the Union of Potato and Vegetable Growers of Kazakhstan (more on my interview with Bissetayev later).

Second, as seen in a photograph, the plant partly relies on power from the wind turbine, which produces 750 KWh/hour. This helps the firm reduce power costs and increase energy efficiency, while taking advantage of the wind on the steppe.

Third, as seen in the photo, Rodina has a lot of cows. Over 500 to be precise. They are all from Holland and are "the Netherlands variety", which is apparently the best in the business.

Fourth, the private homes in the photo were actually a result of a joint project between Rodina enterprise, the government program "Kazakhstan 2020" and the program "Nurly Zhol." Insofar as most of the 625 employees of Rodina live and work in the enterprise complex -- and their kids go to the local school -- the Rodina management provides housing.