Much has changed for European governments and businesses alike since Russia decided to launch a full-scale invasion of Ukraine in February 2022. Since then, attention has shifted to Central Asia, to the delight of Central Asian leaders, who have received invitations to European capitals, Brussels, and welcomed to the region high-ranking Western officials seeking to strengthen and explore new economic or political ties.
These Western officials barely conceal that they do not come for horse milk or yurts – but to reap low-hanging geopolitical fruits while planting geoeconomic seeds for the future. The office of Frank-Walter Steinmeier, president of Germany, distributed a press release ahead of his visit to Kazakhstan and Kyrgyzstan last summer that read: “The President’s travels underline the geopolitical significance of Central Asia. In this difficult neighborhood to Russia and China, he signals Germany’s partnership to the Central Asian states.”
After Vladimir Putin decided to send troops toward Kyiv in 2022, German Chancellor Olaf Scholz held a speech in the German Bundestag where he described the impact with a term that stuck with political analysts at home and abroad. The word “Zeitenwende,” German for “change of times” or “watershed moment,” has since been associated with high expectations that Germany will change its foreign and security policy drastically, and the German government has come under strong criticism for not living up to these expectations.
Zeitenwende Means Realpolitik
But in Central Asia, a region previously peripheral to the mental maps of European politicians and businessmen, some reverberation of this Zeitenwende can be felt. The flurry of high-level exchanges with Western officials testifies to the emergent good times for multi-vector foreign policies in the region.
Germany has significantly intensified its business and governmental contacts with Central Asia in an effort to find new partners for exporting goods and importing raw materials necessary for the German economy.
This comes much to the delight of Central Asian diplomats.
In March, five ambassadors and an economic attache from Central Asia and Azerbaijan met with German industry representatives. Together they sketched out the vision of a “green corridor” transporting hydrogen and green electricity from Central Asia over the Caspian Sea and through the Caucasus to Europe. To support this effort, the ambassadors have been courting German investment. Tajikistan’s ambassador to Germany also promised the export of green aluminum, granted that new hydrogen power plants would be built.
Germany’s Growing Economic Footprint in Central Asia
For the German government, after visits by President Steinmeier and Foreign Minister Annalena Baerbock to the region, Chancellor Scholz landed a minor diplomatic success in September by becoming the first European leader to pick up on the proliferating C5+1 format, pioneered by Japan at the foreign minister level back in 2004 but most prominently associated with the U.S. initiative launched in 2015, later mirrored by Russia, China, and others.
The joint statement issued by the Central Asian and German leaders stated that the parties welcomed a proposal to hold their next meeting in Central Asia in 2024. The German government did not confirm a concrete date upon The Diplomat’s request. The second C5+Germany summit seems likely to be Kazakhstan, as Kazakh President Kassym-Jomart Tokayev has invited Scholz for a bilateral visit to his country.
The unknown timing of Scholz’s next visit to the region aside, an intensification of contacts at the level of government and business this year is already noticeable. In addition, the first full-fledged EU-Central Asia summit in Uzbekistan is on the horizon.
Among the most notable developments this spring was a meeting between Tokayev and Chairman of the Board of the German Eastern Business Association Cathrina Claas-Mühlhäuser. At the meeting, Tokayev, described Germany as “a strategic partner of Kazakhstan in the EU” and stressed that German direct investment had increased by 64 percent in 2023, reaching $770 million. Special attention was paid to cooperation in the agricultural sector, which comes as no surprise for a country that aspires to become a regional grain and agri-food trade hub. In this regard, Tokayev recalled his proposal to establish a Regional Center for Sustainable Agriculture and praised the national presence of CLAAS, the German agriculture machinery manufacturer of which Claas-Mühlhäuser is also the chair of the supervisory board. The company entered the Kazakh market in 2021, when Tokayev inaugurating its newly constructed assembly plant in North Kazakhstan.
At the same time, both large companies and German federal states, which have their own economic interests, play an important role in establishing economic ties between Central Asian countries and Germany.
In May alone, several German business delegations visited the region. A delegation from Rhineland-Palatinate visited Uzbekistan and Kyrgyzstan from May 11 to 18 to explore economic opportunities and strengthen bilateral ties. A Saxony delegation, during its trip to Uzbekistan from May 12 to 17, focused on searching for skilled young laborers to address workforce shortages in their region. Also ahead is the German Health Business Initiation Trip to Kazakhstan and Uzbekistan from June 3 to 6. This trip aims to promote German health businesses and explore collaboration in the health sector. In addition, a delegation of the German Eastern Business Association, from July 4 to 6, will attend the German-Uzbek Economic Council to discuss bilateral economic issues and opportunities.
Yet Scholz’s visit to Central Asia remains key – and remains unconfirmed as of publication.
An Alternative Market to Russia?
The ongoing war in Ukraine has significantly impacted global trade dynamics, prompting many businesses to relocate their activities from Russia to Central Asia, including German corporates. For instance, in April, Henkel relocated its operations from Russia to Kazakhstan, signaling a broader trend of businesses seeking stability and alternative opportunities in Central Asia.
This shift underscores Central Asia’s growing importance as a hub for logistics, energy, and skilled labor. As German delegations continue to explore and invest in the region, it is evident that these efforts are pivotal in reshaping trade relations and economic cooperation in a future post-war landscape.
Nonetheless, none of the Central Asian states can replace Russia as a trade partner. Currently, Russia still ranks 38th among Germany’s top trading partners, while Kazakhstan takes 45th and Uzbekistan 87. Kyrgyzstan, Turkmenistan and Tajikistan are only minor export markets, with the latter ranking 152nd only. Tellingly, German business delegation trips to Central Asia have largely avoided Tajikistan and Turkmenistan.
It therefore remains to be seen if the watershed in Germany’s foreign policy and trade relations will affect all Central Asian states equally.
Germany’s Internal Problems
In Astana, at the 40th anniversary meeting of the Berlin Eurasian Club, Claas-Mühlhäuser noted Germany’s extensive efforts to diversify its foreign economic relations to increase the sustainability of supply chains and production, as well as the significant potential of Kazakhstan as an important partner in achieving the goals of the German economy.
In the face of the challenges confronting the German economy, Central Asia’s importance as a partner is set to rise. But one of the main obstacles to effective engagement abroad deserving the label Zeitenwende is German-made: its economic engine is losing steam.
As Germany has gone from a European growth leader to a laggard, The Economist asked last year if Germany was once again “the sick man of Europe?” Admittedly, the Zeitenwende, proclaimed by Germany’s Scholz in the wake of the watershed moment of Russia’s invasion of Ukraine, has led Germany’s energy-dependent economy to face significant challenges due to its previous reliance on Russian gas.
The German government is now increasingly focusing on its industry at home, handing out lavish subsidies to global champions like Intel or Tesla to build factories in Germany, while trying to prevent its domestic industry from offshoring production facilities. Sluggish economic growth causes difficulties in public finances – constraining Berlin’s ability to be an influential actor across the globe, including in Central Asia.
In November last year, Berlin was hit by a Constitutional Court ruling that tore a 30 billion euro hole in its national budget. The Foreign Office and the Ministry for Economic Cooperation and Development are among the first to fall victim to the budget cuts the Ministry of Finance is pressing for – and with it the disbursement of official development assistance (ODA), of which Germany is the world’s second-largest donor.
Svenja Schulze, Germany’s chief minister for international development cooperation, has already warned that Russia could fill any gap left by the West, and that “development cooperation is also about geostrategic interests.”
The budget shortfall also triggered public criticism of federal spending; “bicycle lanes in Peru” and ODA for gender-sensitive trainings in China have almost become proverbs for wasted public money. Unsurprisingly, the right-wing populist opposition has been most vocal about cutting development assistance and international climate financing. But the Christian Democrats, who are most likely to form the next government, have also called for a recalibrated approach to ODA.
For the Central Asian states this may not directly threaten existing development cooperation – only Uzbekistan has been listed among Germany’s 65 international partners – but it also means that there is nothing to gain either.
German-Central Asian Business Activities
Although Tokayev’s “New Kazakhstan,” as he brands his political and economic reforms, looks pretty much like the old Kazakhstan in terms of democratization, his policies have aimed to better the country’s business and investment climate, a fact also appreciated as an opportunity by Germany Trade & Invest (GTAI), the national foreign trade agency. At the same, GTAI lists the fragile rule of law, bureaucracy, and corruption as the main threats to German businesses in Kazakhstan, while positioning Astana’s need for modernization and economic diversification as a major opportunity. The conditions for the large solar and wind parks or green hydrogen development are particularly promising.
Yet, according to the agency, Kazakhstan shows a deficit in skilled labor in technological sectors and depends strongly on developments in Russia and China.
For Uzbekistan, GTAI pinpoints the involvement of German companies in the country’s modernization of drainage and drinking water infrastructure as a further area of potential.
In another analysis, however, the agency conducted interviews with German business and logistics representatives. While appreciating the political will for development of the so-called “Middle Corridor” between Europe and Asia – a transport route promoted by Brussels, Beijing, and Central Asian capitals alike – the assessments are rather skeptical, if not outright dismissive. As logistic experts put it, the Middle Corridor is unlikely to play any significant role in global trade, except for some added resilience in trade flows.
This skepticism was also uttered by some of the German and European business representatives at the Investors Forum for EU-Central Asia Transport Connectivity in January, where they discussed trade and transport barriers that make it a cumbersome and unreliable process to get cargo via ships over the Caspian Sea and then carry them on via road and railway. Across Central Asia, border controls and customs lack digitalization, unified procedures and transparency; in Turkmenistan, lorry drivers struggle with Ashgabat’s strict visa regime.
And at the recent Berlin Eurasian Club’s meeting in Astana, Head of the German Economic Representation in Central Asia Hovsep Voskanyan said about the logistical situation: “German companies primarily want to purchase processed materials, such as aluminum wire, rather than raw ores, while Kazakhstan produces high-quality finished products. Transporting bulk raw materials from Kazakhstan to Germany is not economically viable, under current logistics conditions. Therefore, we must establish initial processing stages in Kazakhstan.”
But Brussels is eager to address these trade barriers together with private businesses and local governments. At the forum in January, the European Commission, together with international financial institutions including its own European Investment Bank, announced a pooled investment of 10 billion euro.
The Central Asians, on the other hand, pitched pet projects and tried to position themselves as transports hub to attract investment. For example, Turkmenistan highlighted its Turkmenbashi port, while Kazakhstan’s transport minister apparently expressed a wish to sell his country’s aviation infrastructure. “We are ready to hand over the remaining 22 airports of Kazakhstan to European investors for management,” he said.
It was an interesting offer from a country that accounts for 80 percent of Germany’s trade in Central Asia. And figures are rising: bilateral trade turnover between Germany and Kazakhstan increased by 25 percent in 2023, and German businesses invested over 5 billion euro in the country. Although there has been a focus on Kazakh oil supplies to Germany after the Russian invasion of Ukraine, 90 percent of German investments flow outside the resource sector. And according to the Kazakh government, about a thousand companies run on German capital.
Critical Raw Materials: Securing German (and European?) Supply Chains
Meanwhile, the German Eastern Business Association has warned that Germany is missing opportunities, namely Kazakhstan’s abundance of critical raw materials and the promising potential for green hydrogen.
Indeed, Astana and Berlin concluded a resource and technology partnership way before the European Union inked a strategic partnership for critical raw materials, batteries and hydrogen value chains in November 2022. Nevertheless, the Kazakh-German partnership has not really taken off after signing in 2012.
In addition, Germany’s industry has remained complacent, lacking any comprehensive and clear-eyed strategy to secure much-needed materials such as copper, graphite, cobalt and lithium. And the number of businesses professionalized in mining abroad has dwindled, too.
To change this, the Berlin-based Association of Foreign Mining and International Raw Materials Activities suggested pooling resources in a joint venture project uniting German corporations. It’s an idea that has been seconded by the German Eastern Business Association and the Federation of German Businesses – and considered a potential option by the German Mineral Resource Agency.
But the ball is already rolling. In 2022, HMS Bergbau became the first German company to acquire majority shares in a Kazakh corporation with the licenses to explore, mine, and process lithium, cobalt, tantalum, and nickel, eventually implementing the bilateral resource partnership. The company then announced two more such acquisitions during Steinmeier’s visit in June 2023.
According to the Kazakh government, the German company is expected to invest $700 million in a lithium mining project in East Kazakhstan. German geologists have already started work.
With this key project, the German company is also one step ahead of other EU countries.
The Kazakh government, meanwhile, has announced a targeted increase of 40 percent between 2024 and 2028 for its rare earth metals sector. In a recent speech to the Majilis, the Kazakh parliament, Minister for Industry and Construction Kanat Sharlapayev highlighted strengthened cooperation with several Western countries, including the United States, the EU, and the United Kingdom.
Currently, Kazakhstan already produces 19 out of the 34 critical raw materials the European Union needs the most. Europe already sources about 79 percent of its phosphorus from Kazakhstan, which is also its largest supplier for titanium metal.
This is a new chapter for Kazakhstan as well, as the exploration of lithium has been very much in its infancy; Soviet-era surveys were classified and no comprehensive studies have been conducted since then. In 2022, Tokayev announced that the country might hold 50 to 100 tonnes of lithium reserves.
“Made in Kazakhstan with German Quality”
These economic embraces are also supported by bilateral governmental cooperation. Reportedly, German Minister of Economy Robert Habeck confirmed the preparation of specific projects between both national geological services by this summer. And Central Asian ambassadors have met with representatives of the German Bundesländer.
During a visit to Berlin this year, a Kazakh delegation promoted a formula already used by Tokayev in his visit to Berlin: “Made in Kazakhstan with German quality.” The message is clear: Astana wants to attract German investment and know-how to become a processor and producer, not a mere supplier of raw materials.
For this, Tokayev also proposed to Scholz the idea of setting up a consortium with German businesses to implement joint projects. The first steps in this direction have already been taken. In February, according to the Kazakh Industry and Construction Ministry, three key companies, along with the German Lithium Institute (ITEL) formed a lithium consortium, including German building materials producer Knauf Gruppe, logistics and construction shareholding Günther Papenburg AG, and Roxtec, a Swedish manufacturer of cable and pipe seals.
Previously, Papenburg and ITEL have also explored Lithium cooperation with the Uzbek government.
The Gas Europe Wants: Green Hydrogen from Mangystau
June 2023 wasn’t Steinmeier’s first trip to Kazakhstan – he paid a visit in 2017 – but it was his first visit to the eastern Mangystau region, which spans from the Caspian Sea shore into the vast Kazakh steppe. He was the first European leader to visit the oil-rich region, though he did not come for oil. Instead, he arrived for a test drilling for green hydrogen production: the Dresden-based Svevind Energy Group is about to realize Hyrasia One, a flagship project worth 50 billion euro investment and of “strategic importance” for the Kazakh government.
Hailing Hyrasia One as one of the largest projects of its kind, Tokayev views his country as a potentially leading global producer of green hydrogen.
The project involves the construction and operation of a desalination plant, a 40 GW renewable energy plant (wind and solar) and a 20 GW water electrolysis plant with an annual production capacity of 2 million tonnes of green hydrogen or 11 million tonnes of green ammonia from 2032 on.
Despite the promising potential of turning Central Asia into a big hydrogen business, there are limits to the hype. “Kazakhstan has to balance its Green Hydrogen mega-project with domestic and ecological constraints,” argues Agha Bayramov, an energy expert at the University of Groningen. This includes the additional stress hydrogen production puts on the region’s already scarce water resources and the lack of domestic demand. He also finds that the country has not developed the needed awareness of the transformative power of hydrogen to kick off a larger momentum. National investment in research and development has remained insufficient.
But that’s a knowledge gap Germany and other European companies might fill, while Russia pushes the construction of nuclear power plants and focuses on fossil fuels in Central Asia.
Will Germany Maintain Momentum?
Russia’s invasion of Ukraine has indeed generated momentum for Germany’s engagement with Central Asia, and German businesses are among the pioneering EU businesses to tap into critical raw materials, hydrogen value chains and a young export market of about 80 million people.
However, many more players show an increased interest. And Central Asian leaders are far from being exclusive in their choice of partners. Rather, they are embracing new opportunities coming from Europe as they also deepen their economic ties with Russia and China. Naturally, this keeps the issue of sanctions circumventions through Central Asian territories a great concern.
Germany, in comparison to most other European countries, benefits from the fact that it had already established relatively strong bilateral ties in education, culture and diplomacy well before the Ukraine crisis, for example, the technology and raw materials partnership signed in 2012.
But the country will need to keep up the momentum – and not forget to keep coordinating with the EU’s ongoing efforts. Creating exclusively German business consortiums for lithium may not be enough at a time when the European Commission is attempting to establish an infrastructure investment coordination platform for Central Asia. (Notably, from overseas, the United States has set up its own Critical Minerals Dialogue with all five Central Asian states.)
Last but not least, one issue may also test Germany’s newfound love for Central Asia: Will the countries resist authoritarian backsliding and instead develop into free market economies that are more reliable than Russia or China?