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The Prospect of Auto Industry Development in Kazakhstan Kazakhstan Machine Builders Forum April 16 2013 Astana, Kazakhstan . Young- suk Hyun Ph.D Hannam University Daejeon , Korea

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The Prospect of Auto Industry Development in KazakhstanKazakhstan Machine Builders Forum April 16 2013 Astana, Kazakhstan

Young-suk Hyun Ph.D

Hannam University Daejeon, Korea

email : yshyun@hnu.krskype: yshyun88

mobile : +82-10-4270-1519

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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The Prospect of Auto Industry Development in Kazakhstan

I. Introduction

II. Demand Forecast of Kazakhstan Auto Industry

III. Auto Industry Policy Options and Lessons

IV. Policy of Kazakhstan Auto Industry

V. Discussions

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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I Introduction

Outside CIS (China, EU)

CIS (Uzbekistan, Ukr… )

CU

Russia

Belarus

Kazakhstan

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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West and East Bound Move to Kazakhstan

Russia

2.0 million prod (2011)

Customs Union 2010

- Gov. Strategy 2020 for Russian

Car Industry

- Industrial Assembly Agreement

East Bound Move

China

18.4 million prod (2011)

WTO 2013 (KZ)

Cheap Price

Largest producer & market

M&A

Kazakhstan

9,550 prod (2011)

Risk of Nutcracker

Long-term Auto Industry Dev. Plan

West Bound Move

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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Strategic Path and Natural Path

Value Added, Job Creation, Industrialization

Large small

River

Natural path

Strategic path

Ship

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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□ Kazakhstan’s Access to the WTO

Kazakhstan’s accession to the WTO will become one of the most important stages on the way to integration of the country into the global economic system.

But under the Customs Union regime, Kazakhstan cannot but follow Russia’s market opening schedule in negotiation with WTO. It will lower common customs tariffs and boost import demand.

□ Impact and Policy Implication

Lower Tariff

Lower Price of Foreign Automobile

Foreign Autos get More Competitive Power

Gain More Kazakhstan’s Auto Market

Domestic Car Makers are difficult to survive

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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Mid Growth

High Growth

Company Strategy

No Growth

Low Growth

Less Aggressive

Weak Government SupportStrong

II. Demand Forecast of Kazakhstan Auto Industry

Assumption of Vehicle Demand Forecast in Kazakhstan

Aggressive

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

slide8

Summary of KZ’s Vehicle Demand Forecast in 2020 (Units)

Summary of Three Growth Scenarios in 2020

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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III Auto Industry Policy Options and Lessons

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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WTO and Gov Auto Industry Policy

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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Establish Long-term Development Plan

□ Korean government has supported holistically for the automotive industry.

- Government’s support is important to cross the chasm.

Performance

Korea

Mainstream

Leaf frog

chasm

(Death Valley)

Developing countries

Fall Behind

Chaos (Market Opening)

Time

Infant Growth Mature

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Lessons from Korea’s Experience WTO Local Brand

Korea : 10th auto producing country (2.52 mil. production, export 978 thousands in 1995 when accessing WTO

Government strong initiative in supply and demand policy to dev local model in 1970s by local firm Hyundai Motor

3. Before WTO Korea, Gov could implement every policies to support local model and local maker : (ref: KOICA Report to Kazakhstan Gov. Feb. 2010)

4. Hyundai Motor selected “self reliance strategy” to develop local model with high risk taking entrepreneurship.

5. Korean Gov

1) special consumption tax (purchase tax : product Tax)

2) automobile tax (operating tax) to regulate foreign car import - heavy tax for large cars (most import car) after WTO

3) Emission regulation as to regulate import of large foreign car abolished as of the FTA with USA in 2012

8. Lessons

- strong gov. intervention : industry policy, local content, local model dev

- without local model, hard to increase local content

- but it was experience in 1970, 1980s before WTO

- rapid catch up strategy under GATT

china after wto dec 11 2001
China after WTO (Dec 11 2001)

1) Import Quota ; 1986-2005 (20 years) even after WTO Dec 11 2001

2) Local Content Issues 1 :

WTO 2001

over 60% foreign parts vehicle assembled in China

(below 40 local content vehicle)

 import duty (Custom tax) is same as complete vehicle 25%

EU, USA proclaim to WTO as Unfair Trade

2008 China defeated but protest again to prevent simple screw drive foreign vehicle plant in China

Abolish

3) Local Content Issues 2:

by 2005 some parts custom duty 30% ( other parts 13-17%)

2006 to comply WTO complete vehicle 25% parts : 10%

4) Local Brand Vehicle Target (2006) 40% (2005)  60% (2010) 5) regulate foreign investment

2001-2008 limit not over 50% of foreign investment in automobile industry not parts ind.

6) Vehicle Safety Regulation (2005) : 9 regulations (back mirror, door lock, interior materials …

7) Minimum Export Ratio Policy (2006) : new auto plant must meet Min export Ratio

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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IV. Policy of Kazakhstan Auto Industry

Extensive inter-industry relationships

<Figure > Unit Structure of Korean Automobile Industry (2000)

Auto Industry

Steel

Machinery

Rubber & plastic

Electronics

Chemical

Source : Input-Output Table, Bank of Korea

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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Basic Strategy in Automobile and Automotive Parts Industry

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

policy options of kazakhstan auto industry
Policy Options of Kazakhstan Auto Industry

1. Strategic path : Government Strong support

2 Natural path : Government Weak support

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

malaysian path
Malaysian path

1. Gov Policy : strong gov. support for local maker, local model in 1980s “Proton” to follow Korean Hyundai Path in 1970s [Look East Policy]

Technical Assistance from Mitsubishi Motor/Japan 1995 60 % local Brand

( Proton, Perodua)

Product Tax 2004 1.1

Auto Parts custom tax decrease for ASEAN countries

Product Tax Increase for imported vehicle, local vehicle assembled

by foreign makers

Product Tax is internal tax not WTO issues but national interest

4. Strong Man PM : Dr. Mahatier

“Hereafter 20 years, Malaysia needs protection policy for local model car

4. Against and argue WTO : 2009 10 Industry Policy

Used car Import prohibited/ 50% reduction of consumption tax for local model

/Old car support to buy local model

5. Free trade in 2006 : ten year after WTO

6. ASEAN member in competing Thailand’s parts industry Japanese support

7. Motivate Indonesia to start national car “Timor Project” in mid 1990s

Indonesia : Low local content / dependent on MNC Japanese makers

Screw drive factory

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

thailand path
Thailand Path

Gov Policy : weak support , no local maker , no local model

2. Japanese production hub for ASEAN countries

production 90% Japanese Brand

2007 Eco car program

below1300cc gasoline 1400 cc diesel car

500 Million Baht Invest

100,000/ year within 5 year, engine, core parts in Thailand

 product tax 30% discount

-> no corporate tax for 8 years

-> no Tariff for Machine and facility for auto plant

induce : Honda, Susuki, Nissan, Mitsubishi, Toyota

Relatively strong parts industry by Japanese makers

ASEAN member in competing Malaysia

0th auto making country in 201 2

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

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CU and WTO to Kazakhstan’s Automobile Industry

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

forecast
Forecast

Russia

-Renault allied with AvtoVaz will export vehicles to Kazakhstan unless Kazakhstan can not develop her own automobile industry.

- Kazakhstan could impose ‘recycling tax’. But that will be hindrance to Kazakhstan’s

automobile export. Governments of vehicle export countries will retaliate on vehicles

produced in Kazakhstan (ex: China)

- How Meet Foreign and Russian vehicles made in Russia exported to Kazakhstan

China

China will build auto plant in Belarus, Russia and Kazakhstan to use CU and WTO

: Commercial Vehicle, car

3. Uzbekistan : small car export or assembly in KZ

4. EU : car assembly plant in Kazakhstan

5. Asia : Korea, Japan : car and commercial vehicle (Bus Truck)

YSHYUN, Machine Builders Forum : 16 April 2013 Astana

kazakhstan s policy options
Kazakhstan’s Policy Options

Gov Strategic Decision : Malaysia or Thailand Path

WTO (ref : China and Malaysia case)

1) More extended grace time for developing country

2) Financial Support : Corporate Tax

Recycling Tax, Product Tax, Consumption Tax

3) Tariff reduction for Plant and facility for auto plant in Kazakhstan

4) Local Content Regulation : preferential tariff for high local content car

5) safety, emission regulations (Technical Center)

3. Industry Structure : number of auto makers  increase

so many as of dealer’s perspective

4. Export Models  Local Model

- Lada Model to export to CU and other countries

- SUV Model -Commercial Vehicle

5. Local/ Foreign maker : start foreign model but target local model in the long

CAUV : Central Asian Utility Vehicle : [ref: Toyota Kijang in Indonesia]

6. Parts Industry and Localization : Local Content Regulation, Joint Venture

7. Technical regulation/standards (GLONASS system, Technical Center by Gov. )

What is Kazakhstan’s Ideal Picture in the future :

- Contingency plan

- Steering and Advisory Committee

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V. Discussions

Value Added, Job Creation, Industrialization of Kazakhstan

Large small

River

Natural path

Strategic path

Ship

1. How to protect local market under CU and WTO ?

2 How to take advantage of scale economy ?

2. How to increase value added in Kazakhstan ?

3. How to access Local content, local model

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Thank for Your Attention

Young-suk Hyun Ph.D

Hannam University, Daejeon, Korea

yshyun@hnu.kr, skype: yshyun88

mobile : +82-10-4270-1519

YSHYUN, Machine Builders Forum : 16 April 2013 Astana