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EAEU market, industrial cooperation and trade: Development of Kazakhstan in the system of economic integration

Tuesday, 24 November 2020, 16:13:08

Today at the site of the Central Communications Service, a briefing was held on the topic “Kazakhstan and the EAEU. Current Processes of Economic Integration.’’ Vice Minister of Trade and Integration Zhanel Kushukova, Vice Minister of Agriculture Nurbek Dairbekov, Vice Minister of Industry and Infrastructure Development Dinara Shcheglova and Vice Minister of Finance Kanat Baedilov spoke about the advantages, barriers and further plans for integration.

Vice Minister of Trade and Integration Zhanel Kushukova said that the legal registration of the Organization has been completed, which allows in practice to ensure the freedom of movement of goods, services, capital and labor migrants.

“Mutual trade of the Republic of Kazakhstan with partners during the functioning of the EAEU has grown by 33%. There is an increase in the physical volume of Kazakhstani exports by 4%. In the structure of Kazakhstan's exports to the EAEU countries, 58% falls on the share of processed products. The assortment of the export basket has more than doubled,’’ said Kushukova.

The share of investments from EAEU countries rose to 6% of total FDI.

The number of enterprises with the participation of the EAEU member states in Kazakhstan has doubled since 2015 (6,272 as of Jan. 1, 2015, 12,829 — as of Nov. 1, 2020).

 

Important advantages of Kazakhstan's participation in EAEU

According to Kushukova, first, there is a capacious consumer market of 184 million people. This makes it possible to increase the export of goods with a high and medium degree of processing.

Second, when carrying out labor activities in the EAEU member states, all the necessary conditions have been created for the citizens of our countries — educational documents are mutually recognized, periods of stay without registration in the territory of the state of employment are established within 30 days from the date of entry, and there are no restrictions on employment in general.

Third, there is a single market for services in 53 sectors. Permits and qualifications for construction, tourism, wholesale and retail trade, advertising and other sectors are mutually recognized.

Fourth, reducing the paper burden when moving goods to the EAEU by eliminating the customs declaration of goods, mutual recognition of certificates of conformity, veterinary and sanitary documents, etc.

Fifth, expanding sales markets under free trade agreements. The concluded free trade agreements with Vietnam, Serbia, Iran, Singapore provide an opportunity to further increase the export of goods worth more than $1 billion.

Sixth, access to the infrastructure of partner countries and the provision of internal tariffs for transportation.

Seventh, the presence of a body that allows you to quickly and objectively solve problematic issues of mutual trade.

 

What factors prevent full realization of EAEU market potential?

Kushukova outlined a number of factors that currently impede the full realization of the potential of the common EAEU market.

First. Barriers to mutual trade.

The development of the markets of the EAEU partner countries reveals the existing ones, and in some cases causes the introduction of restrictive measures in relation to Kazakhstani exports.

Of the 62 proven barriers, 51 were removed, of which 25 were Russian. Hidden obstacles continue to operate, incl. administrative.

According to expert estimates, the identified barriers of the EAEU “cost” $660 million of Kazakhstani exports annually.

Second. Non-compliance in sensitive sectors.

Access to government purchases of individual partner countries is limited (regional certification, non-recognition of bank guarantees and digital signatures, local content requirements, etc.). Veterinary, sanitary, customs control of goods is shifted inland. Electronic exchange of information about goods moved within the EAEU has not been established (out of 89 general processes of the integrated information system of the EAEU, 19 processes have been launched).

Both factors are also associated with a high degree of intersection of tradable industries in the EAEU countries, which leads to unfair competition.

 

Measures taken to remove barriers in EAEU internal market

As noted by Kushukova, in order to promote the interests of the Republic of Kazakhstan, the Government is carrying out systematic work.

For effective expert study, an Interdepartmental Working Group was created on the basis of the ministry, which, among other things, considers the issues of removing barriers in the EAEU internal market.

Local executive bodies are involved in the work to remove barriers in the ministry. This allows us to pinpoint the problems faced by domestic manufacturers.

To establish a direct dialogue with business, the ministry has created a Public Reception Office on Kazakhstan's participation in the EAEU and the WTO, which will conduct consulting and explanatory work with visits to the regions. Also, for this purpose, work is underway to create an information Internet portal.

An action plan was approved and is being implemented to eliminate barriers in partner countries that are sensitive for Kazakhstani exporters. To realize the economic potential of Kazakhstan within the framework of Eurasian integration, the Government has identified the following main priorities.

1. Ensuring the free movement of goods within the EAEU.

“In order to realize this goal, we are holding meetings, have developed amendments to the methodology for identifying barriers in order to accelerate the processes of qualifying barriers and removing them. We have also developed a number of amendments to the institutional legislation, which give us more competence to respond to such manifestations,” said the vice minister.

2. Institutional strengthening of negotiations.

In order to strengthen the representation of Kazakhstan in the Eurasian Economic Commission, it was proposed to introduce fixed-term contracts, conduct a national selection of personnel, and certify the Commission's employees. These initiatives have been supported by our partners.

For the purpose of institutional strengthening of the negotiating position of Kazakhstan, the Government has developed legislative amendments. Their adoption will allow at the legislative level to outline the boundaries of participation in the EAEU, strengthen the coordination of state bodies in the negotiation process, provide competence to introduce adequate measures, and develop a clear and understandable algorithm of actions in dealing with barriers.

3. Development of cooperation between countries.

Today, only 30% of traded goods are cooperative goods, which are integrated in the future into the production of a deeper redistribution. This is an insignificant share, according to the vice minister, it is necessary to strengthen this part.

“The solution of these very issues — the elimination of barriers, the full fulfillment of obligations under the agreement, the development of cooperative ties, the opening of new markets — will give us full experience of all the benefits of the creation of the Eurasian Economic Union. We, as a coordinating body, and other state bodies directly involved in the negotiation processes, are making every effort for this,” said Kushukova.

 

Financial settlements in EAEU: Entrepreneur chooses the currency

Vice Minister of Trade and Integration Zhanel Kushukova spoke about the share of the Kazakh currency in trade with the EAEU countries. “We do not have any restrictions or special regulated forms for entrepreneurs to choose the currency in which they want to carry out mutual settlements. Moreover, within the framework of the Eurasian Economic Union,’’ Zhanel Kushukova noted.

According to her, each entrepreneur chooses in which currency it is more convenient and profitable for them to pay.

“Naturally, we have historically trade ties with the Russian Federation that are very strong, a very large volume of trade, which makes entrepreneurs prefer to pay in national currencies. It must be said that within the EAEU, about 76-77% of settlements are carried out in national currencies. The Russian Federation has a larger market, so the lion's share is occupied by settlements in Russian rubles, the tenge accounts for about 1.5%,” explained the vice minister.

 

Kazakhstan plans to restrict export of some drugs abroad

Zhanel Kushukova, answering journalists' questions, said that the Ministry of Health of Kazakhstan intends to impose a ban on the export of certain types of drugs.

“On Nov. 6, a meeting of an interdepartmental group was held, during which the Ministry of Health expressed concern about a possible shortage of medicines during the pandemic. In order to prevent such negative manifestations, it was proposed to introduce a ban on the most popular medicines, which are in high demand in such a difficult period for our country,” she explained.

According to the vice minister, 59 items will be banned, including personal protective equipment — masks and gloves.

“Now such an order is being developed by the Ministry of Healthcare, now there is no ban, it will be after the corresponding order is issued. I think it will be adopted within the next month,” said Zhanel Kushukova.

According to Kushukova, the reason for introducing the ban is to prevent a shortage of drugs and an increase in prices for them. This year, all the EAEU countries are faced with an unprecedented situation in which the whole world began to act differently — not in accordance with the rules that we have, in general, adopted.

“In our agreement, it was stipulated that if we are talking about ensuring national security, the health of citizens, then we can accept such restrictions,” the vice minister assured.

 

Kazakhstan has no reasons for leaving EAEU

Some media outlets stipulate the opinions of experts on the losses of the Republic of Kazakhstan from participation in the EAEU.

“We contacted one such expert, whose position was very popularized. We looked at his methodology. The expert agreed with us that objective indicators were used in this technique, but they were used subjectively. He based it on the negative trade balance of Kazakhstan with the Russian Federation,” said the vice minister.

Every year Kazakhstan buys more goods from Russia than sells there. This is primarily due to the structure of our exports, most of which are raw materials — oil, oil products. They go to third countries, not to the Russian Federation, since it itself is the largest resource holder. Finished goods occupy an insignificant share and are supplied more to the domestic market and to some extent to the territory of the Russian Federation. And vice versa, from the Russian Federation we buy more machine-building equipment, household appliances, household chemicals, food products. That is, goods that are either insufficiently produced in our country, or are not produced at all. Accordingly, such an imbalance occurs.

“Based only on this trade imbalance, the expert came to the conclusion that we are losing from this union. It is not right. We must further look at what we gain from this. We acquire the opportunity to enter this market, the ability to challenge some illegal actions if our export is limited, that is, we create conditions for the business to enter and we can protect it normally by measures when accessing this market. Because it is very unprofitable to develop in the conditions of the limited domestic market. And we needed to get access to the free market. This was the main goal of creating the EAEU,” said Kushukova.

As for the withdrawal from the EAEU, according to the Vice Minister of Trade and Integration, this is a very extreme measure, but Kazakhstan has no restrictions on leaving the EAEU: neither legislative nor in the agreement is provided. There are certain procedures by which this is done. At any moment, when Kazakhstan considers it necessary, and considers that its economic interests are somehow infringed upon, then, of course, it will be able to leave the Union.

“As of today, there are no preconditions or conditions for us to consider this a necessary deed. On the contrary, we see an increase in numbers, a positive trend in our relationship, an increase in cooperation, large joint projects. Integration is not a quick process when we need to generate income. This has to be tested over time. We are still a young integration association. He is only 5 years old. And we are already seeing positive results, and I think in the future we will see economic benefits from our participation in the Union,” assured Kushukova.

 

Development of industrial cooperation

Vice Minister of Industry and Infrastructural Development Dinara Shcheglova said that from the very beginning of the EAEU operation, this direction was among the priorities and now a sufficient number of tools and mechanisms have been formed for the further development of industrial cooperation in the EAEU.

“As a result, we see that in 2015-2019, cooperative supplies in the manufacturing industry increased by more than one and a half times, due to an increase in trade between the Republic of Belarus, the Russian Federation and the Republic of Kazakhstan. We plan to maintain a positive pace of development of industrial cooperation in the EAEU. For this, a systematic and comprehensive approach is being laid for the development of industrial cooperation in the EAEU for the next five years, which will be reflected in the Main Directions of Industrial Cooperation for 2021-2025,” Shcheglova said.

According to her, this will make it possible to most efficiently load domestic production capacities of enterprises with orders, form the most promising economic ties between consumers and suppliers, ensure stable delivery of products in accordance with demand and available resources, and increase the growth of the economy and human capital.

Also Atameken NCE is actively involved in the development of industrial cooperation.

“We put the emphasis on the Eurasian network of industrial cooperation, subcontracting and technology transfer. This project involves the creation of a digital ecosystem for the selection of the most effective partners for industrial cooperation and subcontracting, the involvement of small and medium-sized enterprises in the production chains of large manufacturers,” said Scheglova.

For the development of high-tech and innovative products in the EAEU, through the joint efforts of the member states, Eurasian technological platforms have been formed and interstate programs are being implemented in priority sectors.

“In general, we observe that membership in the EAEU gives a positive dynamics to the development of the country's economy, and industrial cooperation creates a multiplier effect: new ways of developing industry, prospects for growth in the economy, increasing jobs in domestic enterprises, tax revenues to the budget, technology transfer and innovations, etc." added Shcheglova.

 

Development of agro-industrial complex in EAEU system

Vice Minister of Agriculture Nurbek Dairbekov informed that the Eurasian Union was formed in order to create conditions for the stable development of the economies of five countries, improve the living standards of citizens, ensure comprehensive modernization, cooperation and increase the competitiveness of national producers.

In accordance with the Treaty on the Union in the field of the agro-industrial complex, an agreed (coordinated) agro-industrial policy is being implemented, the purpose of which is:

  • effective implementation of the resource potential;
  • ensuring fair competition between the subjects of the member states;
  • creation of equal conditions for access to the common agricultural market.

The implementation of an agreed (coordinated) agro-industrial policy is carried out in 7 priority areas. These are:

  • forecasting;
  • state support for agriculture;
  • regulation of the common agricultural market;
  • formation of uniform requirements in the field of production and circulation of products;
  • export development;
  • scientific and innovative development;
  • integrated information support for the agro-industrial complex.
  • There are certain developments in each direction.

For example,

1) an integrated forecasting system in the agroindustrial complex for the medium term has been formed (indicative indicators, a methodological base for forecasting supply and demand balances and indicative indicators, medium-term forecasts of agro-industrial complex development, supply and demand). These forecasts should ensure the balanced functioning of domestic food markets, allow assessing the dynamics and directions of development of agricultural production, and increase the investment attractiveness of the agro-industrial complex, taking into account the capacity of the EAEU market.

2) sensitive agricultural products are identified, for which comprehensive reviews are formed with the identification of industry problems and directions for their development. On the basis of the reviews, consultations will be held and promising directions for the development of integration processes will be worked out.

Reviews are carried out both horizontally and vertically in the industry; from the availability and security of agricultural land to the sale of finished products, including the distribution of raw material zones, the provision of means of production, the availability of production facilities, storage tanks, measures of state support, conditions of customs and tariff, technical regulation, etc.

This will allow for a more thorough identification of specific problematic issues and find the most optimal ways to solve them on the territory of the Union through domestic technologies and resources.

3) uniform approaches have been formed in the field of state support for agriculture (methodology for calculating the permitted level of state support measures, the procedure for organizing and conducting negotiations and consultations, the procedure for paying compensation in case of violation of obligations, state support measures for agriculture, a methodology for taking into account the impact of differences in the conditions of economic activity on the level of measures of state support for agriculture);

4) two sectoral agreements aimed at unifying the requirements for the production and circulation of seeds and breeding products have been adopted.

The implementation of the provisions of the Agreements on measures aimed at unifying the selection and breeding work with farm animals within the EAEU will allow coordinating work in the field of livestock breeding and unifying the requirements for the production and circulation of breeding products, will help to increase the genetic potential of animals, increase the production of competitive breeding products , reducing dependence on its imports and increasing the volume of mutual supplies.

The adoption of the Agreement on the circulation of seeds of agricultural plants within the framework of the Eurasian Economic Union will eliminate obstacles in mutual trade in seeds, reduce dependence on imports and accelerate the introduction into economic circulation of new promising varieties of agricultural plants and high-quality seeds produced in the Union.

5) work is underway to form coordinated actions in the field of export development.

6) the formation of mechanisms for scientific and innovative cooperation in the agro-industrial complex is nearing completion (a list of promising R&D in the agro-industrial complex until 2020, the register of R&D in the agro-industrial complex, the procedure for organizing joint R&D).

The adopted documents will provide an opportunity for the Union to implement promising joint research in the agricultural sector. This will increase the efficiency and effectiveness of the use of the scientific potential of the EAEU countries, eliminate duplication of research and build up cooperation in scientific and innovative activities in the field of the agro-industrial complex.

7) the subsystem of the agro-industrial complex of the EAEU member states functions within the framework of an integrated information system.

8) adopted technical regulations that establish mandatory requirements for products. So, since 2012, the EAEU has been operating technical regulations on the safety of grain, food products, fat and oil products, food additives, flavorings and technological aids, milk and dairy products, meat and meat products, etc. All this contributes to the entry into the market EAEU of higher quality and safer agri-food products.

According to Dairbekov, despite the general decline in the economy of the Union countries, in Kazakhstan for 9 months of this year, the growth of agricultural production was 5%, and since the Union was functioning, production has grown by 13.4%.

Exports in comparison with 2015 increased more than 1.5 times to $2.6 billion, imports decreased by — 7.5%. The volume of supplies to the member states of the Union increased by 33.6%.

In 5 years, Kazakhstan increased the volume of exports of vegetables 9 times, fruits 4.5 times, dairy products almost 2 times to the market of the EAEU member states.

“And this is far from the limit. Kazakhstan has the potential to significantly increase the volume of exports of both agricultural products and products of deep processing. However, despite the positive dynamics, in practice there are still problems associated with the free movement of our goods. The reason for this is the still remaining obstacles and barriers to trade, which have not yet been eliminated, and they are connected, as a rule, with the existing reference norms in the law of the Union, which allow to restrict the movement of trade at the national level,” Dairbekov noted.

Currently, there are over 20 obstacles that negatively affect the development of the agricultural sector. The main volume of these obstacles falls on the spheres of phytosanitary and veterinary-sanitary control, as well as technical regulation.

 

Development of trade turnover within Eurasian integration

Vice Minister of Finance of the Republic of Kazakhstan Kanat Baedilov said that thanks to the Eurasian Union, Kazakhstan's business opened a common 180 million market, there are no customs borders, goods in the Union are circulated without customs declarations.

“This allowed our entrepreneurs to freely trade, export Kazakhstani goods, which means it gives them the opportunity to earn money. During the period 2015-2019, the trade between Kazakhstan and the EAEU countries increased by 33%,” Baedilov said.

Within the framework of the single market, the paid amounts of import customs duties are distributed to the budgets of the member states according to established standards. In recent years, there has been a dynamic of growth in receipts in the Union.

“Our country, within the framework of the Union's work, has a positive balance of such receipts, having received an additional over 360 billion tenge in the budget. That is, in fact, we receive more, than we give to other countries,” Baedilov noted.

Unified customs rules and approaches will significantly reduce both the transit time itself and the financial costs of the business.

For example, if before the creation of the Union, the transit transportation of goods from Europe to Kazakhstan took from 7 to 15 days, now it has decreased to 5-10 days.

“But this is not the limit and we are not going to stop at the achieved results. Today, through the joint efforts of the countries of the Union, work is being carried out to fully transfer transit into electronic format. For the purpose of online monitoring of transit cargo, we plan to use navigation seals. Having correctly built the system using the latest technologies, we ensure freedom of transit for Kazakh carriers throughout the Union, giving them the opportunity to deliver goods, without any obstacles, in just a couple of days,” Baedilov said.

The solution of these tasks will be ensured through the introduction of the Goods Traceability System in the Union. The legal basis for this has already been created.

“Our common task for the Union is to see the full movement of goods from the exporter (manufacturer) of products to the end consumer. Thus, creating conditions for our entrepreneurs to conduct foreign economic activities, ensure the competitiveness of our goods and find sales markets is a priority for the state in the formation of common markets," Baedilov summed up.

Answering journalists' questions that the metallurgical companies of Kazakhstan ArcelorMittal Temirtau, SSGPO, KSP Steel are losing their positions in the Russian market due to the actions of Russian competitors, Shcheglova informed that the ministry is monitoring industrial metallurgical companies, including for JSC Arselormittal Temirtau, JSC Sokolovsko-Sarbai mining and processing production association and LLP KSP Steel.

‘’Arselormittal Temirtau JSC is not expecting a decrease in the volume of exports to the Russian Federation and other directions in the coming years. For 10 months of 2020, the export of steel products to the Russian Federation amounted to more than 1 million tons, the plan for 2020 is more than 1 million 300 thousand tons, that is, the growth will be 4.5%,” Shcheglova said.

Thus, in January-October of this year, Sokolov-Sarbay Mining and Processing Production Association JSC shipped 4,102 thousand tons to Chinese consumers. This is 2.1 times more than the same period in 2019. In addition, in November-December 2020, it is planned to ship another contracted volume of 1,100 thousand tons.

As for KSP Steel LLP, in addition to deliveries to the Russian Federation, the enterprise is considering the possibility of exporting seamless pipes to other sales markets.

Shcheglova also assured that today, despite various statements, there are no restrictions on the export of scrap in Kazakhstan.

Earlier, the ministry introduced restrictions on the transportation of scrap to ensure the safety of the population and the environment. However, they concerned the removal of scrap and waste of ferrous and non-ferrous metals by road. This ban has been in effect since 2018 and ended on Oct. 22, 2020.

By rail, a ban on the export of ferrous and non-ferrous metal scrap existed in the period from 2014 to 2018.

The dynamics of the export of ferrous scrap in 2016-2019 shows that the main importers of Kazakhstani scrap are the Russian Federation, Uzbekistan and Turkey.

The total volume of scrap exports from Kazakhstan for 10 months of 2020 amounted to 297,255 tons. Of these, in the directions: to the Russian Federation amounted to 269,748 tons (91%), to Uzbekistan amounted to 27,058 tons (3.1%).


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