Olaf Scholz’s Central Asia Tour
Marina Gruzer | 4 October 2024
Summary
German Chancellor Olaf Scholz conducted a three-day visit to Uzbekistan and Kazakhstan on 15-17 September to deepen economic, energy and investment cooperation.
The visit included the Kazakh-German Business Forum and a C5+Germany meeting with the heads of state from the Central Asian countries.
With growing bilateral trade and German regional investment, the agreements made between state and private institutions offer opportunities for Central Asia’s multi-vector foreign economic policy and secondary sector development. For Germany, closer economic and energy cooperation provides crucial raw material supply chain diversification capabilities.
Scholz’s initiative further developed the European Union’s (EU) strategy for Central Asia over discussions on energy, investment and migration. This reflects a developing interest in the region, emphasised by the evolving trade between Germany and key Central Asian countries. In 2023, Kazakh-German bilateral trade increased by 41% and ‘direct investment from Germany increased by 64%’. Germany has sought to diversify its energy and supply chains of critical components since the Ukrainian War in 2022. This is observed in the announced plans to set up a consortium for purchasing critical materials between the German Mineral Resource Agency (DERA) and Kazakh partners. 36 agreements and declarations worth USD 6.3 billion between private and state organisations were signed during Scholz’s state visits. The Development Bank of Kazakhstan has also signed an agreement with the German KFW IPEX-Bank for EUR 100 million to support infrastructural and industrial projects in Kazakhstan. These new deals demonstrate Germany and Central Asia’s growing efforts to diversify supply chains and willingness to strengthen economic partnerships.
Kazakhstan has emerged as a major energy and critical minerals supplier to Germany in recent years, as it became Germany’s third-largest supplier of crude oil following Russian oil import bans in Berlin. In terms of minerals, German company HMS Bergbau AG announced plans to invest USD500 million in a lithium extraction and processing plant in eastern Kazakhstan to de-risk the supply chain dominated by China. Similar cooperation on green hydrogen production was also discussed with Uzbekistan. Lithium-ion batteries are a key emerging technology used in renewable energy storage. Therefore, Germany is able to diversify supply chains of materials that are central to Germany’s automotive industry and green energy transition.
Another crucial implication is Central Asia’s growing effort to develop a strong domestic high-value goods production industry. For example, Kazakhstan seeks to attract foreign investment from the EU to develop industries such as industrial and chemical manufacturing, advanced rare-earth metal processing and information technology. Kazakhstan and Uzbekistan expressed their intentions to utilise German skills and technology transfers to localise manufacturing and produce high-value added goods and maintain raw material exports. Processing plants are also planned due to the transportation costs of raw materials from Kazakhstan to Germany. For example, HMS Bergbau will also be involved in projects featuring the processing of lithium, cobalt and nickel in Kazakhstan. Consequently, this provides an environment that could elevate Central Asian secondary economic sector development.
Matthew Henry / Unsplash
Forecast
Short to Medium-Term:
Being the first EU leader to use the C5+1 summit format to explore opportunities across the five Central Asian states since 2023, Scholz’s initiative is highly likely to help establish a more significant presence in the growing regional raw materials industry. For example, this visit has already established significant investments by European banks and firms into Central Asian infrastructure and raw materials sectors.
Long-Term
Increasing German investment and financial support for Central Asian green energy, infrastructure and material processing industries is fairly likely to provide opportunities to develop the region’s secondary sector growth capabilities. Additionally, developing German-Central Asian ties is also likely to diversify German and European raw material supply chains.
