Recent global events like Russia’s invasion of Ukraine, as well as the Red Sea shipping crisis, have brought Central Asia well and truly into the logistics spotlight. One country at the heart of it all is Kazakhstan, where a number of public and private investments are being made to facilitate improvements in both domestic and cross-border logistics.
Figures from recent years also show a rise in foreign investment in Kazakhstan. The acquisition of MKС Logystics LLP by the KUSTO Group being a very recent example.
The acquisition of the 3PL saw the Kusto Group, headquartered in Singapore, acquire 16 warehouses in key cities like Almaty, Astana, Shymkent, Aktobe, and Tashkent. The new owners also have plans to expand this network of warehouses further.
Are deals like this a sign of the times in Kazakhstan? Could we soon see some substantial improvements in infrastructure that will elevate the position of the Middle Corridor and cross-border logistics in the region?
To get the answers to these questions and more, and get a unique insight into this often under reported region, we sought the views of Ablakhat Kebirov, General Director of Kusto Logistics.
Why foreign investment in Kazakhstan is on the up
According to Kebirov, Kazakhstan has been on a “remarkable growth path” for several years courtesy of numerous influential factors. One of these has been government reforms aimed at enhancing Kazakhstan’s attractiveness for international investment and capital protection.
Those reforms, Kebirov told trans.iNFO, have included an overhaul of the tax code, improved regulation in the oil and gas sector, and a reduction in state subsidies. In his view, these measures have created opportunities for increased private investment, both internal and external.
Kebirov also proudly noted figures from recent years that indicate an increase in foreign direct investment in the Central Asian nation:
“Kazakhstan is steadily gaining appeal for foreign direct investment from around the world, particularly from the EU. For example, the influx of foreign direct investment from the EU to Kazakhstan in 2022 reached $12.5 billion, marking a notable 23% increase from the 2021 figure. Additionally, the EU’s trade in goods with Kazakhstan totalled €40.2 billion in 2022, reflecting a significant 74% surge compared to 2021. These statistics paint a promising picture of Kazakhstan’s economic trajectory in the years to come and act as an engine of future economic growth.”
It was also reported that the total volume of trade between Kazakhstan and the EU rose again in 2023, by 3.5%. According to the Ministry of Trade of the Republic of Kazakhstan, the key trading partners of Kazakhstan in the EU are Belgium and the Netherlands.
Growth in the Middle Corridor
Some of this trade in goods will inevitably flow along the Middle Corridor intermodal route that has been subject to much attention of late.
“In the first nine months of 2023, cargo passing through the Middle Corridor surged by 88%, reaching 2 million tons, which is a record. Today, we are witnessing the revival of the New Silk Road connecting Asia and Europe like never before, and private companies should take an active part,” Kebirov told trans.iNFO.
Rail freight volumes across the board could also increase as a result of the various infrastructure projects planned in the country.
According to the Kazakh International News Agency, these projects include the construction of the Darbaza-Maktaaral railway and the Shalkar-Beineu road between Kyzylorda and Aktau, as well as the bypass project for the Almaty railway station, which is designed to cut down on travel time for shipments and alleviate 40% of cargo traffic at Almaty station.
Kebirov added that the state-owned railway operator in Kazakhstan, besides extending the rail network, is also purchasing more locomotives and trains. Meanwhile, private investors are putting their funds into building infrastructure alongside the main railways.
This, according to the Kusto Logistics General Director, “supports and ensures the operation of freight flow from the local to the main network, which includes terminals for the acceptance, loading, storage and processing of goods and connections with the local logistics infrastructure.”
Kebirov stressed that this is all part of Kazakhstan’s goal to expand capacity to 10 million tons of goods passing through its territory by 2030.
The development of the Middle Corridor is also something Kusto Logistics very much want to be a part of. Kebirov told trans.iNFO that the company’s investments “will position the whole group at the forefront of the Middle Corridor’s development.”
The General Director made it clear that Kusto Logistics is “more than willing to play an important role in bringing new technologies and business practices that will help elevate the private logistics sector operating through the Middle Corridor.”
Cross-border logistics developments
Although the Middle Corridor is obviously important, the flow of freight to and from Kazakhstan and its neighbouring countries is of course not limited to this route.
When it comes to Uzbekistan, statistics cited by Kebirov show a visible increase in volumes:
“In 2022, mutual trade between Uzbekistan and Kazakhstan increased by 30% and reached $5 billion. However, in 2023 it decreased by 10%, amounting to $4.4 billion. One of the reasons is the increase in the export of Chinese cars to Uzbekistan and the reduction in the export of cars from Kazakhstan to Uzbekistan. Uzbeks began to buy more Chinese cars,” said the Kusto Logistics General Director.
How is all this cargo transported then? As Kebirov explained, rail freight dominates:
“As for transit transportation, almost 90% is carried out by railways. In Kazakhstan, the railways are owned by the Government and managed by the national company Kazakhstan Temir Zholy (Kazakhstan Railways, KTZ). KTZ reported that as of December 2, 2023, 26.1 million tons of cargo were transported across the border with China, including 386,958 wagons or 14.7 million tons, through the Dostyk-Alashankou border crossing (+17% by 2022), and through the Altynkol-Khorgos crossing -369,449 wagons (11.4 million tons, +30%).”
Despite these figures, there are still a number of hurdles to be navigated as regards cross-border logistics in the Central Asia region.
“Despite significant progress being made in the development of the Middle Corridor, there are still some challenges that need to be overcome in cross-border regional transport. For example, operational inefficiencies and significant costs sometimes limit the full efficient realisation of regional transport. Additionally, the route itself is not fully predictable, with delays varying between 14 to 45 days depending on travel conditions and border crossings,” Kebirov told trans.iNFO.
Where investments need to be made
What can be done to improve this situation then? Kebirov said that Kusto Logistics’ Management team sees the potential in the creation of modern terminals and warehouse centres using advanced technologies.
Indeed, the company’s 2024-2026 development includes the construction of centres in major cities in Kazakhstan. According to Kebirov, the centres would span over 100,000 square metres and consist of class A and B warehouses with advanced technologies, equipment, and automation systems.
Elaborating further, Kebirov said:
“Kusto strongly believes in regional infrastructure investments and has been vocal about the need to prioritise regional cooperation on these issues. As regional infrastructure improves, this will incentivise the private logistics sector to expand its already-existing capacity. For example, establishing state-of-the-art multimodal logistics centres across the region, which is one of the future goals of Kusto Logistics, will depend on the viability of newly constructed transportation routes and growth in regional trade.”
Why the investments are necessary
Why are investments such as these required in Kazakhstan? Kebirov told trans.iNFO that the infrastructure is needed to meet the expectations of manufacturers and distributors representing international companies.
According to the Kusto Logistics General Director, in the Almaty market alone (the largest city in Kazakhstan) there is a shortage of class A and B warehouses to the amount of about 1 million square metres.
Moreover, the rental price is quite high, ranging from 4,000 to 7,000 tenge (around $9 to $15 per square metre). Kebirov also notes that this is even comparable to some EU markets and significantly more expensive than neighbouring Kyrgyzstan and Uzbekistan, where the equivalent price is around 2,000 tenge.
Kebirov then told trans.iNFO of how these high prices are curtailing attempts by logistics outsourcing companies in Kazakhstan to woo large clients.
“Due to the lack of a high-quality market for logistics outsourcing companies (3PL+), many companies are trying to develop their own logistics services (Magnum and Metro for instance), which is not always effective, and there are many “pain points”. Most proposals for logistics outsourcing are associated with large warehouse complexes (DAMU logistics for example), however, the price of rent and services exceeds the expectations of large clients.”
Domestic logistics
With regards to the domestic situation, Kusto Logistics claims its acquisition of MKC has provided it with the necessary logistics competence to manage cargo flows in local markets, and also opened up new opportunities in the regional logistics space.
At the time of the acquisition, MKС Logistics had already been operating a network of 16 warehouse complexes. Covering a total area of more than 200,000 square metres, these facilities are located in the cities of Almaty, Astana, Shymkent, Aktobe, and Tashkent.
Currently, the company’s services cover the acceptance, processing, storage and transportation of cargo (in the 3PL+ format) for large companies in the markets of Kazakhstan and Uzbekistan. However, Kusto Logistics aims to expand this portfolio to 4PL and 5PL logistics.
“By implementing all these plans, along with our investments in expanding our own rolling stock fleet, we will move closer to creating a unified ecosystem that combines mainline railway, road transportation, and local logistics services integrated through a network of terminals and warehouses across the region,” concluded Kebirov.