Kazakhstan: Foreign Reliance

Lee M Cashell
Lee M Cashell
2 min read

The economic and geopolitical situations of Kazakhstan’s key trading partners (Russia and China) can serve to severely hamper the economy, as seen in the contemporary. The dire economic situation currently enduring in Russia, has direct repercussions for Kazakhstan, with the IMF estimating that a 1% lower growth in Russia reduces Kazakhstan’s growth by 0.1%-0.2% as a result of lower trade and FDI. With the Russian economy contracting and the ruble (RUB) decrepitating against the tenge, exports to Russia have been affected. According to the OECD, the Kazakhstan’s economy could be further harmed if Russian banks have to reduce their activities as a result of further sanctions. Russian banks in total account for about 9% of banks assets in Kazakhstan. The exposure of the Kazakhstan economy to Russia, is further exacerbated by official economic ties in the form of the Eurasian Economic Union (EEU), a free trading zone that also includes Armenai, Belarus and Kyrgyzstan. Although the agreement has the potential to boost regional trade between the countries, the membership makes hedging contagion from Russia more difficult as internal trade barriers between the countries are lifted. For example, ruble depreciation, and the resulting cheaper imports has put companies in Kazakhstan under pressure, especially those of the non-oil industry such as producers of motor vehicles and food products. Imports from Russia however have not been restricted on the wider scale.

 

Kazakhstan flag

 

Trade with Kazakhstan’s other main trading partner China is flourishing with non-oil exports expanding by around 20% per annum. Traditionally, Chinese growth has played a role of real importance in sustaining high prices for primary exports. However, the slowdown of the Chinese economy, growth and thus demand for natural resources has resulted in lower export growth to the country. Lastly, geopolitical tensions between Russia and the West poses a challenge to export growth especially for non-oil goods. Over 50% of Kazakhstan’s exports are sold to the Europe Union, most of which pass through Russia as a key supply route. These trades are likely to be disrupted by trade disputes between Russia and the EU, with checks at the border leading to long waiting times and other complications.

 

DEMOGRAPHICS

The country faces in many ways a unique demographic situation, which is likely to pose a challenge in the medium term. Kazakhstan’s dependency ratio is expected to rise from 46% to between 55%-60% by 2020, and remain at high levels for a significant period of time. This is as a result of the population movements of the 1990’s, during which time smaller cohorts of people were born. These smaller cohorts will arrive on the labour market at the same time as the baby boom generation post-WWII enters retirement, thus increasing the dependency ratios. This demographic scenario will increase the budget deficit, through increased welfare and health sector spending.

 

CORRUPTION

Despite the privatization of the Kazakhstan economy from 1991, public and state-owned entities still account for 30% - 40% of GDP at present, with the rest of the economic clout concentrated among a small number of private actors. This constrains investment and dynamism in the economy, with investment into Kazakhstan being lower than comparable countries at 23% of GDP. Strong price controls in a number of markets, discretionary intervention by state actors and restricted competition in key markets results in distorted price signals and limited opportunities for new entry. Corruption and perceptions of corruption, affecting multiple state functions have had a negative impact on doing business in the country. Government has taken on new anticorruption measures; however, the challenge remains significant.

 

 

 

Leave a Comment
Recent Articles
Subscribe


Sign up to receive the Propeterra's newsletter and exclusive property news and updates. You can unsubscribe at any time by clicking on the unsubscribe links in our emails.

 

 

posts by tag

See all

Market Cover_Emerging Markets-1

 

Market Cover_Frontier Markets-1

 

Market Cover_Special Situations-1-1

 

Market Cover_Developed Markets-1

 

Recent Articles

2 minutes read

It’s Ski Season! Four Resorts to Invest In Now

The swish of skis, the powder on the slopes and the crisp mountain air… With Covid restrictions easing, many holidaymakers’ thoughts are turning to travel - and with the winter sports season in full flow, what better time to look at the resorts that offer the most bang for your investment bucks? Read on for Propeterra’s rundown of our favourite ski destinations - including some you’d never have expected!

Niseko, Japan

Japan might not seem like an obvious skiing destination, but the snow at Niseko is hard to beat. Located in the northern Japanese island of Hokkaido, the annual snowfall is a staggering 15 metres - so unlike some less fortunate resorts in warming parts of Europe, your good skiing is practically guaranteed. Niseko is also renowned for its beautiful scenery and luxury accommodations - and with New Chitose International Airport a short two hour drive away, as well as the Hokkaido Shinkansen connection coming in 2030, it’s never been easier to travel there.

Prime investment opportunities available now include the Pavilions Resort Villas and the Ginto Residences - and for more information on the area, Propeterra’s Niseko Report is available for download now.

3 minutes read

Affordable Housing - the ADB and Lessons from the UK

The Asian Development Bank (ADB) recently released a briefing paper attempting to
learn lessons from the UK as to successes and failures of affordable housing policy. It is
justifiable to critique the UK’s faltering policy of delivery over a number of decades, but
this is precisely why it is a fruitful area of enquiry from analysts considering other parts
of the world. The UK has benefitted from significant resources, and policymakers have
been under considerable pressure from the electorate to ensure adequate housing across tenures. This is why the Chief of the Urban Sector Group at the ADB, Manoj Sharma, saw fit to commission this work, and report on its conclusions.

3 minutes read

Back to desks and back to the city!