Kazakhstan Economy Outlook

May 30, 2009
Key economic indicators 2003 2004 2005 2006 2007 2008
Real GDP growth (%) 9.3 9.6 9.7 10.7 8.9 3.1
Consumer price inflation (av. %) 6.8 6.7 7.5 8.4 10.8 9.5
Exchange rate Tenge:US$ (av) 149.58 136.00 132.88 126.09 122.60 122.55
Exchange rate Tenge:€ (av) 168.79 169.04 165.42 158.27 167.8 167.75
Budget balance (% of GDP) - - - - -1.7 -1.9

Since independence in 1991, Kazakhstan experienced the fastest economic growth in the region, enjoyed as a result of a wide range of social, economic and political reforms. With average GDP growth rate around 8.5 % since 2000 the country is among the fastest growing economies of the world and outpaced all other Central Asian states by far.

Because of its strong macroeconomic performance, Kazakhstan became the first former Soviet republic to repay all its debts to the International Monetary Fund (IMF) in 2000, seven years ahead of schedule. In March 2002, the U.S. Department of Commerce graduated Kazakhstan to market economy status under U.S. trade law. The change in status recognized substantive market economy reforms in the areas of currency convertibility, wage rate determination, openness to foreign investment, and government control over the means of production and allocation of resources. In September 2002 Kazakhstan became the first country in the CIS to receive an investment-grade credit rating from the major international credit rating agency Moody’s. In January 2005 the Organisation for Economic Cooperation and Development (OECD) upgraded Kazakhstan’s country export risk rating, moving it from the 5th to the 4th group of risks.

According to the United Nations Education Index that measures educational attainment in 176 countries across the globe, Kazakhstan is ranked number 21 with the score of 0.966, which is significantly higher than the world average. In fact, Kazakhstan’s score places it ahead of such developed countries as United Kingdom, Germany, Italy, Japan and Switzerland.

FOREIGN TRADE

Foreign trade turnover shows a similar evolution. It has been rising over the past 10 years at an annual average growth rate of 19,1 % (highest rate for the 1995-2006 period worldwide) to reach US$109,1 billion by the end of 2008 placing Kazakhstan into the top 35 countries of the world with the trade turnover over US$100 billion.

The volume of Kazakhstani export in 2008 has reached US$71,2 billion, an increase of 49% compared to 2007 figures. The larger share of the export volume comes from export to far-abroad (non-CIS) countries (US$60,1 billion), while export into CIS countries amounted to US$11 billion (15,6%). The main purchasers of Kazakhstani production are: Italy (16,7% of total export volume), Switzerland (15,8%), China (10,8%), Russia (8,7%), France (7,6%), Netherlands (6,5%), Iran (2,9%).

The breakdown of the largest items of Kazakhstan’s export is as follows:

  • Mineral resources (73%)
  • Metals and metal production
  • Agricultural production (4.2%)
  • Chemical industry production (3.5%)
  • Machinery, transport vehicles, equipment (1.8%).

The volume of import into Kazakhstani markets in 2008 was US$37.9 billion, an increase of 15.7% compared to 2007.

Import from far-abroad countries accounted for US$20.4 billion (53.8%) and from CIS countries – US$17.5 billion(46.2%). The main suppliers of imported goods and services are Russia (36.3% of the total volume of import), China (12%), Germany (6.8%), Ukraine (5.6%), Italy (3.3%) and France (2.1%).

The breakdown of the largest items of Kazakhstan’s export is as follows:

  • Machinery, transport vehicles, equipment (40.8%)
  • Mineral resources (15.8%)
  • Metals and metal production (16.8%)
  • Chemical industry production (10.5%)
  • Agricultural production (7.9%)
  • Timber and timber produce (2.8%)

Negotiations on Kazakhstan’s accession into the WTO initiated in 1996 are at the closing stage now. Kazakhstan is currently in active bilateral talks with 26 EU countries and is planning to become a full member of the organization by 2010.

INVESTMENTS

Today, as evidenced by international experts’ assessments, Kazakhstan ranks among the countries, most attractive for foreign investments. According to the Index of FDI attractiveness, Kazakhstan ranked 23 out of 141 countries in 2007. In World Bank’s “Doing Business” ranking Kazakhstan climbed 10 positions from 80th in 2007 to 70th in 2008. Foreign direct investments into Kazakhstan account for about 80 % of all capital inflows into the Central Asian economies, with EU countries being the most important source of investments. The stable political situation and investment-friendly government policies further encourage foreign investment.

According to the data provided by the National Bank of Kazakhstan, for the period from 1993 to 2008 total inflow of foreign direct investments in Kazakhstan’s exceeded US$100 billion. In 2008 the total inflow reached US$19.8 billion. Major investors into Kazakhstan are United States – US$32 billion (19.2% of total volume of FDI inflow), Netherlands – US$30 billion (18.1%), United Kingdom – US$14.1 billion (8.5%).Based on the breakdown of FDI inflow by type of economic activity, the majority of FDIs was still directed into geological exploration and research, which accounted for 41.9% of total amount of inflow (40.3% in 2007). Oil&gas production accounted for 22.2% of FDI inflow in 2008(31.6% in 2007) while financial intermediation received 15.7% of FDI inflow (2.9% in 2007). Overall, FDI inflow into oil&gas industry exceeded US$8.5 billion, which is 5% more than last year.

The levels achieved are the result of favorable business environment, sustained by the advanced investment legislation, active measures of support for foreign investments as well as overall economic and political stability in the country. In addition to attractive investment climate, one of the key factors impacting investor’s decision making is a scale of targeted market. Abundance of energy resources and close proximity to vast markets of neighbouring countries make Kazakhstan strategically positioned as a convenient base for development of export-oriented manufacturing. According to the Ministry of Industry and Trade data, consumer markets of Central Asia and neighbouring territories of Russia and Western China may cover over half billion population.

The legislative base of conducting investment activity in Kazakhstan is regulated by the “Law on Investments” dated 8 Jan 2003, which was recognised as one of the best among countries with transitional economies. The law contains all guarantees of investor rights protection customary to international practice, for instance, guarantees of use of income, nationalisation and requisition guarantees, guarantees of contract stability and others. In addition, the Law makes provisions for government support measures for investments into top-priority industry sectors, which will be extended in equal measure to both domestic and foreign investors.

In 2009 a new tax law was passed, which stipulated a gradual decrease in corporate tax rate from 20% in 2009 to 17.5%in 2010 and 15% in 2011. This stands to significantly increase Kazakhstan’s investment attractiveness as even in the neighbouring Russia, the corporate taxation is much higher. In addition to local legislation, Kazakhstan has signed mutual investment protection agreements with 42 countries.

NATIONAL PRODUCTION

Kazakhstan has the 9th largest oil reserves in the world (5.3 billion tons) preceded only by Saudi Arabia, Iran, Iraq, Kuwait, UAE, Venezuela, Libya and Russia. Kazakhstan’s reserves account for 3.2% of world proven reserves of oil and 1% of gas. According to the data compiled by the Ministry of Energy and Mineral resources, production of oil, including gas condensate, reached 70.6 million tons in 2008, an increase of 5% compared to last year. Net oil export amounted to 62.8 million. 12.3 million tons of refined oil products were produced: 2.4 million tons of gasoline, 3.9 million tons of diesel, 3.1 million tons of fuel oil, 3.9 million of jet fuel. Production of gas in Kazakhstan in 2008 reached 33.5 billion m3, out of which 5.6 billion were exported. The volume of processed gas amounted to 16.1 billion m3, while the volume of domestic gas consumption was 8.9 billion m3 (3.9% increase compared to 2007). As of January 2009, the volume of natural gas reserves kept in underground gas storehouses equalled to 1.9 billion m3. According to the forecasts, the production of oil and gas in Kazakhstan is set to reach 80 million tons of oil and 47 billion m3 of gas by 2010 and 130 million tons and 50 billion m3 of gas – by 2015.

Oil-an-gas-bearing regions of Kazakhstan, where 172 oil fields and 42 gas fields are located (80 of which are in production), occupy approximately 62% of Kazakhstan’s territory. Major Kazakhstan’s reserves (over 90%) are concentrated in 15 largest oil fields – Tengiz, Kashagan, Karachaganak, Uzen, Zhetybay, Zhanazhol, Kalamkas, Kenkiyak, Karazhanbas, Kumkol, Buzachi, Severnye, Alibekmola, Prorva Central and Eastern, Kenbai, Korolevskoe. More than half of total reserves are coming from two gigantic oil fields – Kashagan and Tengiz.

Along with the abundance of oil and gas resources, Kazakhstan boasts the world’s largest chrome reserves, as well as 2nd largest uranium, 3rd largest zinc and 4th largest lead reserves in the world. In addition to this, Kazakhstan ranks in the top ten for coal, bauxite, iron ore, gold and silver reserves. Kazakhstan also exports diamonds.

Agriculture accounted for over US$7 billion of Kazakhstan’s GDP in 2008. Grain and cattle form the base of the country’s agricultural production. Approximately 85% of Republic’s territory are suitable for agricultural production, 47% of nation’s work force are occupied in agro sector. Historically, livestock breeding dominated Kazakhstan’s agriculture. The main products of livestock breeding include dairy products, leathers, meat and wool. The main grain crops of the country include wheat, barley, cotton and rice. Grain export, one of the major sources of hard currency inflows, ranks among the leading export commodities in Kazakhstan’s foreign trade. According to the estimates of Ministry of Agriculture, Kazakhstan is the 8th largest exporter of grain in the world whereas in export of wheat flour, Kazakhstan was number 1 in the world in 2008 preceded by US, Canada, Australia, EU, Russia, Argentina and Ukraine. Export of grain in 2008, taking into account flour export in grain equivalent, amounted to 6 million tons at the crop of 15.6 million tons. Revenues from export of grain and flour in 2008 calendar year reached US$2.5 billion. Overall, average annual production of grain for the last three agricultural seasons amounted to 17.4 million tons, while volume of export – to 8 million tons.

RECENT DEVELOPMENTS

Since mid-2007, however, Kazakhstan’s rapid growth was adversely affected by the global financial crisis. Decline in capital flows, depressed commodity prices and unfavourable external conditions are widely expected to lead to a slowdown to a 2-3% growth rate in 2009. In response to the critical economic conditions, the government of Kazakhstan has developed a coordinated and focused approach to tackle the consequences of global crisis on the economy of Kazakhstan in the form of comprehensive complex of anti-crisis measures targeted at stabilising the financial sector and supporting strategic sectors of real economy including agriculture, manufacturing and industrial infrastructure. Priorities of current economic policy are the diversification of the economy, namely the strengthening of the non-oil industries to reduce the country’s dependence on natural resources.

Main economic indicators, 2008:

  • GDP (1-12′2008) – US$135 billion
  • Industrial production – US$84 billion (increase of 2,1 %)
  • Investments into fixed assets – US$31,7 billion (increase of 4,6%)
  • Average salary – KZT 59722
  • International reserves of National Bank – US$46,7 billion (as of 31.12.2008)
  • National Bank refinancing rate – 10.5% (as of Dec 2008)
  • FDI, 2008 – US$19.8 billion
  • Foreign trade turnover, 2008 – US$109,1 billion (increase of 39,9 %)
  • Registered 283,744 companies
  • Sources: National Bank of Kazakhstan, Ministry of Industry and Trade of the Republic of Kazakhstan
  • GDP per capita:
    • (2005) US$ 3771.3
    • (2006) US$ 5291.6
    • (2007) US$ 6814
    • (2008) US$ 8132

    GDP per capita, US$

  • Unemployment Rate:
    • (2005) 8.2%
    • (2006) 7.8%
    • (2007) 7.3%

    Unemployment Rate

  • Capital Investment Growth:
    • (2005) 22.1%
    • (2006) 10.6%
    • (2007) 13.5%
    • (2008) 4.6%

    Capital Investment Growth