ECONOMY OF KAZAKHSTAN
Kazakhstan is the largest, richest and most economically advanced country in Central Asia — which also includes Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan — and because of its large deposits of oil, seems most likely to succeed at reaching full developed nation status. In 2006, Kazakhstan had become the dominant nation of Central Asia economically, generating 60 percent of the region's GDP, primarily through its oil/gas industry. The country has vast mineral resources.
Kazakhstan, geographically the largest of the former Soviet republics, excluding Russia, possesses substantial fossil fuel reserves and other minerals and metals, such as uranium, copper, and zinc. It also has a large agricultural sector featuring livestock and grain. In 2002 Kazakhstan became the first country in the former Soviet Union to receive an investment-grade credit rating. Extractive industries have been and will continue to be the engine of Kazakhstan's growth, although the country is seriously pursuing diversification strategies. [Source: CIA World Factbook =]
Kazakhstan is landlocked, with restricted access to the high seas. Although its Caspian Sea ports, pipelines, and rail lines carrying oil have been upgraded, civil aviation and roadways continue to need attention. Supply and distribution of electricity can be erratic because of regional dependencies, but the country is moving forward with plans to improve reliability of electricity and gas supply to its population. The government realizes that its economy suffers from an overreliance on oil and extractive industries. =
Kazakhstan has embarked on an ambitious diversification program, aimed at developing targeted sectors like transport, pharmaceuticals, telecommunications, petrochemicals and food processing. In 2010 Kazakhstan joined the Belarus-Kazakhstan-Russia Customs Union in an effort to boost foreign investment and improve trade relationships. The Customs Union evolved into the Eurasian Economic Union in January 2015. During 2014, Kazakhstan’s economy was hampered by Russia’s slowing economy, the weakening ruble, falling oil prices, and problems at its Kashagan oil field. Kazakhstan devalued its currency, the tenge, by 19 percent in February and in November the government announced a stimulus package to cope with the economic challenges. =
Economic Statistics for Kazakhstan
GDP (official exchange rate): $225.6 billion (2014 est.). GDP (purchasing power parity): $420.6 billion (2014 est.), $402.1 billion (2013 est.), $379.3 billion (2012 est.), country comparison to the world: 43. Kazakhstan’s GDP has increased every year since 2000. In 2004 the estimated GDP was US$39.8 billion, an increase of 9.3 percent over 2003. The 2005 figure was US$47.4 billion. Gross National Product (GNP) was estimated in 1993 at US$26.5 billion. [Source: CIA World Factbook =, Library of Congress, December, 2006 **, Library of Congress, March 1996 *]
Growth: GDP - real growth rate: 4.6 percent (2014 est.), 6 percent (2013 est.). 5 percent (2012 est.), country comparison to the world: 58. Growth was over 10 percent in 2000, 2001 and 2002, and 9.3 in 2003, 9.4 percent in 2004 and over 9 percent in 2005, 2006 and 2007. Oil expansion accounted for most of the growth. Average growth between 1990 and 1998 was 1.9 percent. In 1994 the estimated growth rate -25.4 percent. In the early 1990s, growth was hindered by Soviet-era specialization and centralization, and slow privatization. = ** *
GDP: per capita (PPP): $24,100 (2014 est.) $23,400 (2013 est.), $22,400 (2012 est.), country comparison to the world: 74. In 2005 per capita GDP was US$3,118. Average annual income in 2003: $11,190. Gross National Product (GNP) was estimated in 1993 at US$1,530 per capita. = ** *
GDP - composition, by sector of origin: agriculture: 4.9 percent; industry: 29.5 percent; services: 65.6 percent (2014 est.). GDP - composition, by end use: household consumption: 47.7 percent; government consumption: 10.5 percent; investment in fixed capital: 24.3 percent; investment in inventories: 3.7 percent; exports of goods and services: 40.8 percent; imports of goods and services: -27 percent (2014 est.). Services contributed 54.7 percent, industry 38.6 percent, and agriculture 6.7 percent of the 2005 GDP. = **
Inflation rate (consumer prices): 6.7 percent (2014 est.); 5.8 percent (2013 est.). Inflation slowed from 17.8 percent in 1999 to 9.8 percent in 2000 to 6.9 percent in 2001. In 1999 devaluation of the national currency caused inflation to rise dramatically, but the rate for 2000 was only 9.8 percent, and it has remained below that level in subsequent years. In 2004 Kazakhstan’s inflation rate was 6.9 percent, and in 2005 it rose slightly to 7.6 percent. The official target for 2006 and 2007 was in the range of 5.7 to 7.3 percent. =
Kazakhstan experienced hyperinflation after independence in the early 1990s. In 1993 and 1994 the inflation rate was 1,880 percent. After that inflation was brought under better control with tightened loan policy. In 1995 inflation was estimated to be around 190 percent. *
Unemployment rate: 5.1 percent (2014 est.); 5.2 percent (2013 est.). In the early 2000s, unemployment was estimated to be around 14 percent, as high as 50 percent in cities away from the oil fields. =
Gross national saving: 28.6 percent of GDP (2014 est.), 27 percent of GDP (2013 est.) 26.1 percent of GDP (2012 est.), country comparison to the world: 35. =
Macroeconomic Issues in Kazakhstan
Debt - external: $163.2 billion (31 December 2014 est.), $150.5 billion (31 December 2013 est.), country comparison to the world: 37. [Source: CIA World Factbook =]
Exchange rates: tenge (KZT) per US dollar: 179.3 (2014 est.), 152.13 (2013 est.), 149.11 (2012 est.), 146.62 (2011 est.), 147.36 (2010 est.), 157.75. = Exchange Rates in May 2003: 1 US Dollar = 157.75 tenge. 1 tenge=about .75 US cents. In October 1994: 1 US Dollar= 57 tenge. 1 tenge=about 2 US cents.
The economy of Kazakhstan remains largely state controlled. The tenge is free convertible. Regular interventions by the National Bank keeps exchange rates stable against its “basket of three main benchmarks: the euro, the Russian ruble and the dollar. Surprisingly oil represents only 15 percent of GDP. The private sector is 78 percent of GDP (2003). Food processing and the financial sector are large growth industries.
As much as 30 percent of Kazakhstan’s GDP is accounted for by the “shadow economy,” particularly in rural areas. A key economic goal is membership in the World Trade Organization, finally achieved in 2015. As oil continues to spur rapid growth, key goals of mid-term economic policy are diversifying the economic base by expanding non-oil manufacturing, raising agricultural productivity, and improving the environment for small and medium-sized enterprises. [Source: Library of Congress, December, 2006 **]
The healthiest parts of the economy are the oil, gas, and mineral extraction industries. However, infrastructural decay and slow structural reform have delayed the recovery of those sectors from post-Soviet lethargy. Foreign investment in Kazakhstan has been frustrated by complex bureaucratic rules, and the domestic consumer market is restricted by the very low average wage of US$96 per month. [Source: Glenn E. Curtis, Library of Congress, March 1996 *]
The Central Bank of Kazakhstan, President Nazarbayev, and the Council of Ministers play a strong role in economic policy making. The bank has advocated market reform and inflation control the most strongly of the three. Experts rate Nazarbayev's economic initiatives as erratic. The exchange rate of the tenge against the United States dollar has improved steadily, allowing upper-class Kazakhs to expand foreign goods purchases.
Macroeconomics in Kazakhstan in the 1990s
In 1996 most of Kazakhstan's economy was still state-owned and lacked fundamental restructuring, despite large-scale privatization of smaller enterprises in the preceding years. Some large firms have been sold to solid international companies (such as the Republic of Korea's (South Korea's) Samsung, which now manages the Zhezqazghan Nonferrous Metallurgy complex and refinery), but many were awarded to unknown companies whose contracts later were cancelled. In June 1996, the government sold the country's largest oil refinery at Shymkent, Yuzhneftegaz, one of its largest oil enterprises, and the Vasilevskoye gold mine, one of the largest in the world, by public tender to foreign companies. Those sales, together worth an estimated US$1 billion, were a major departure from previous policy and were aimed at improving the confidence of international investors. [Source: Glenn E. Curtis, Library of Congress, March 1996 *]
Many of the state enterprises concentrated in northern Kazakhstan were far in debt and unable to pay wages to their workers. The transfer of the national capital from Almaty along the border of Uzbekistan to Astana in the industrial north, which began in the 1990s, was an attempt to revive that zone, as well as to retain the cadre of Russian technical experts who continued to leave the country. *
The Western oil companies Chevron and Mobil invested heavily in the Tengiz oil fields offshore in the Caspian Sea, but they were frustrated by a long dispute with the consortium of Kazakhstan, Oman, and Russia over the structure of a new delivery pipeline. The common customs regime established with Russia in 1995 accelerated trade, but conditions favored Russia in the early years. [Source: Glenn E. Curtis, Library of Congress, March 1996 *]
Sectors of the Kazakhstan Economy
Agriculture: Large-scale misallocation of land in Soviet Virgin Lands program, emphasizing cultivation over livestock, continues to distort land use. Main crops wheat, cotton, and rice; main livestock products meat and milk. State farms continue to dominate, 1996; land privatization minimal. [Source: Library of Congress, March 1996 *]
Industry and Mining: Outmoded heavy industry infrastructure inherited from Soviet era, specializing in chemicals, machinery, oil refining, and metallurgy; coal, iron ore, manganese, phosphates, and various other minerals mined. Some light industry. Industrial productivity hampered by lost markets and enterprise debt. *
Energy:Plentiful reserves of oil, coal, and natural gas make energy production dominant industrial sector. Offshore Caspian Sea fields, still in early production stages, have huge capacity; extraction expanding with Western investment and new pipeline project. Natural gas fields, notably Karachaganak, expand output in the 1990s. Thermoelectric power plants, main source of power, fueled by lignite mines. Kazakhstan remains a net importer of energy and fuel. *
Fiscal Policy: Centralized system; fundamental streamlining of tax code, emphasizing taxation of individuals over taxation of enterprises. Exports: Mainly raw materials: metals, oil and petroleum products, natural gas, chemicals. Imports: mainly energy products, machinery, vehicles, chemicals, and food. *
Inflation, Wages, and Currency in Kazakhstan in the 1990s
The freeing of government price controls, followed by introduction of the tenge as Kazakhstan's independent currency unit, set off hyperinflation, which badly eroded real wages, pensions, and savings. Introduced in November 1993 at approximately five to the United States dollar, the tenge fell to about fifty-six per dollar by late November 1994. Subsequently, the currency remained relatively stable, falling only to sixty-four per US$1 at the beginning of 1996. The tenge's stabilization was due in part to the government's determination to control the state budget, in part to the availability of an IMF stabilization fund, and in part to the backing of government reserves of US$1.02 billion in hard currency and gold. By 1995 inflation had decreased substantially from the levels of 1993 and 1994, when the rate was 1,880 percent, although the annualized rate for 1995 was estimated at midyear at 190 percent, well above the prime minister's target figure of 40 percent. [Source: Library of Congress, March 1996 *]
Inflation strongly affected wages and family budgets. In July 1994, for example, nominal wages in the republic increased by an average of twenty times, but the costs of food, services, and goods increased by more than thirty-two times in the same month. As a result of such conditions, real wages in the republic declined by about one-third in the first half of 1994. The overall average monthly wage in the republic in February 1995 was 3,650 tenge, or about US$61 at the exchange rate of the time. In mid-1995, the overall average wage was 4,613 tenge, but the disparity between industrial and agricultural wages was growing steadily: the industrial average was 7,452 tenge, the agricultural average 2,309 tenge. Wages in service occupations such as education and health are quite low, and government employees in those occupations often are not paid on time. Chronic nonpayment of wages has caused strikes in industrial enterprises and coal mines. *
Many enterprises made wage payments in merchandise rather than money; this practice led to a large volume of merchandise resale at bazaars, either by workers or by private wholesalers. The actual level of consumer welfare was unknown because prices and the availability of goods changed rapidly. Because Kazakhstan lacked a strong consumer-goods industry, imports began to replace CIS products, notably clothing, housewares, and electronics. In 1995 wage increases continued to lag behind the rising cost of living, causing spending power to decline by 2 to 3 percent per month. *
The greatest losses in real wages were suffered in industrial (and mostly Russian) northern Kazakhstan. One consequence of declining purchasing power was that families devoted as much as 10 percent of their budgets to the purchase of foreign currency, presumably as a hedge against inflation. In 1995 the purchase of food became the largest family expenditure, exceeding 50 percent of average budgets. Even so, purchases of all categories of foodstuffs declined in the republic, while purchases of nonfoodstuffs dropped 40 percent or more. *
Diversification of the Kazakhstan Economy
The Kazakhstan economy has remained poorly diversified. Oil accounts for more than half of Kazakhstan’s industrial output, and many other industries are dependent on it. Between 1994 and 2003, frequent changes of prime minister made government economic policy inconsistent and commitments to economic reform and diversification ineffectual. [Source: Library of Congress, December, 2006 **]
In the post-Soviet era, the labor-intensive agricultural sector became steadily less productive. The machine-building sector, producing construction equipment, agricultural machinery, and some defense items, has grown, however. As oil continues to spur rapid growth, key goals of mid-term economic policy are diversifying the economic base by expanding non-oil manufacturing, raising agricultural productivity, and improving the environment for small and medium-sized enterprises. **
Kazakhstan has embarked on an ambitious diversification program, aimed at developing targeted sectors like transport, pharmaceuticals, telecommunications, petrochemicals and food processing. [Source: CIA World Factbook =]
Investors have been encouraged to invest in non-resource-based sectors such as information technology, agriculture and food processing. With terms for oil investments so favorable to the Kazakhstan government many oil companies are no longer willing to invest if there is so much oil money floating around. Kazakhstan’s banking industry has really taken off developing ways that the oil money can be used.
Economies of Central Asia
There are hopes that Central Asia could reemerge as the crossroads for a new Silk Road, providing transportation links for a variety of goods between Asia, the Middle East and Europe. Nations with oil and gas need pipelines to get them out. Those without oil and gas hope to profit by having pipelines cross their territory.
As a result of merely being cogs in the centrally-planned Soviet economy, all the Central Asian nations have economies that are too specialized and too dependent on Russia for markets and supplies to make a real go of it on their own without some serious changes.
Unemployment rates are very high in all five Central Asian countries but there are no reliable figures on exactly how high. Young people have difficulty getting jobs without connections. The streets are full of idle young men. There are concerns that these young men will be recruited by terrorists.
Regional economic cooperation, another type of unity that has received substantial lip service in the 1990s, has failed to materialize on a large scale. All five republics joined the Economic Cooperation Organization (ECO) shortly after independence, and Kazakstan, Kyrgyzstan, and Uzbekistan established a limited common market in 1994. But Uzbekistan vetoed the membership of unstable Tajikistan, and Turkmenistan refused to join. Existing arrangements within the free-trade zone have not significantly promoted large-scale commerce within the group of three. For all five republics, Russia remains the top trading partner because much of the emphasis in their agricultural and industrial infrastructures remains the same as when the republics had assigned roles in supplying Moscow. Those roles and dependence on Russian trade are changing slowly in the mid-1990s, however, as diversification occurs. [Source: Glenn E. Curtis, Library of Congress, March 1996 *]
Several factors encourage economic rivalry rather than cooperation. Water, a crucial resource for agriculture and power generation, has been the object of bitter bilateral and multilateral disputes both before and after independence. In the 1990s, the republics at the headwaters of major rivers, Kyrgyzstan and Tajikistan, have chafed at apportionment of water consumption favoring downstream consumers Turkmenistan and Uzbekistan, and Turkmenistan has complained about excessive water consumption by the Uzbekistanis upstream. Kyrgyzstan and Uzbekistan have come close to conflict over water in the Fergana Valley, where vital agricultural reform and land privatization programs are endangered by unresolved water disputes.*
The republics still offer a similar range of commodities for trade. Their common emphasis on cotton, natural gas, and oil limits the potential for advantageous commerce within the group and fosters rivalry in trade with outside customers. Some of the commercial relationships that have developed--such as the sale of fuels to Kyrgyzstan and Tajikistan by the other three fuel-rich republics--have been one-sided and subject to shutdown in response to nonpayment or in attempts to gain economic and political leverage.*
Economic Problems in Central Asia
The five republics have several major problems in common. All remain in the economic, military, and political shadow of their giant neighbor to the north. In the mid-1990s, Russian policy makers, encouraged by a very vocal nationalist faction in the federation, speak openly of recapturing influence in the "near abroad"; Central Asia usually is the first region cited as an example. In the first two years of independence, the five republics remained in the ruble zone , their monetary activities restricted by the nonconvertibility of the old Soviet ruble that remained the currency of that grouping. In 1993 all but Tajikistan introduced new currencies with limited convertibility. Russia had attempted to keep Kazakstan and Uzbekistan in a new Russian ruble zone, but ruble distribution problems and harsh conversion conditions forced those republics to follow the independent course of Kyrgyzstan and Turkmenistan. The Tajikistani ruble (for value of the Tajikistani ruble) introduced in 1995 remained closely connected with its Russian counterpart. In 1996 Kazakstan and Kyrgyzstan established a new customs union and other economic ties with Russia and Belarus, hoping to gain selected advantages while avoiding large-scale concessions that would increase Russian influence. [Source: Glenn E. Curtis, Library of Congress, March 1996 *]
The Soviet legacy includes an economic infrastructure in which all republics depend heavily on other republics for vital inputs. A complex Soviet-designed system of pipelines and electric cables connects the five republics. Pending completion of Turkmenistan's new line to Iran, only one railroad line leading out of Central Asia connects the region with a destination other than Russia (the one line goes only to the Xinjiang Uygur Autonomous Region in China). Heavy industry in all five republics also has depended heavily on local Russian skilled labor.*
The Central Asian republics also suffer common geographic disadvantages. All are landlocked and located far from potential markets outside the Commonwealth of Independent States (CIS) and the Middle East. Nations such as Azerbaijan and Afghanistan, through which goods must travel overland to reach Western markets, still are quite unstable, and others such as China and Russia are powerful neighbors with a history of taking advantage of weaker nations that need commercial favors. Kazakstan and Turkmenistan, both in need of a route to move oil and gas to Western customers, have been especially frustrated by Russia's failure to support new pipelines. The landlocked position also presents a national security obstacle.*
Although the region is blessed with ample arable land, most of that land becomes useful only when irrigated. Large-scale irrigation, in turn, has taken a huge toll on the hydrological systems of the region--in the most obvious case, the system that feeds the fast-disappearing Aral Sea. Regional cooperation on the Aral Sea problem, recognized as one of the most serious environmental crises in the world, received much lip service and little action in the first half of the 1990s. By 1995 an estimated 36,000 square kilometers of the sea's bed had been exposed, and an estimated 3 million inhabitants of nearby Turkmenistan, Uzbekistan, and Kazakstan had developed chronic health problems associated with that process. In October 1995, a United Nations (UN)-sponsored regional conference produced the Nukus Declaration, which resulted in the promise of intensified joint efforts to stabilize the sea and a pledge of US$200 million from the UN and the World Bank for regional development and aid. [Source: Glenn E. Curtis, Library of Congress, March 1996 *]
Economic and Business Customs in Kazakhstan
As much as 30 percent of Kazakhstan’s GDP is accounted for by the “shadow economy,” particularly in rural areas. Inefficiency left over from the Soviet period endures. Some shopowners still count out change with an abacus. People still shop at state-owned stores. Free trade exist mostly at the markets, kiosks and among the sidewalk vendors.
In the 1990s, many enterprises made wage payments in merchandise rather than money; this practice led to a large volume of merchandise resale at bazaars, either by workers or by private wholesalers. The actual level of consumer welfare was unknown because prices and the availability of goods changed rapidly. Because Kazakhstan lacked a strong consumer-goods industry, imports began to replace CIS products, notably clothing, housewares, and electronics. [Source: Library of Congress, March 1996 *]
In the early 2000s, Kazakhstan started to become a nation of savers. The number of people with bank deposits rose from between 20 and 25 percent in the 1990s to between 70 and 75 percent in the mid 2000s. Credit cards are becoming widely used. Some banks are encouraging their customers to use debit cards.
Economic Conditions of Central Asia
The traditional place of business has been open air markets and bazaars. Central Asians are used to the market style of commerce and being choosy shoppers rather than the Soviet style of waiting in lines and buying stuff from shops with limited choice. The market buildings today are not like bazaars from the Silk Road era. Many are housed in Soviet-era concrete structures supported by exposed girders.
Among other Central Asia, Uzbeks have a reputation of being traders and businessmen. They were merchants on Silk Road and shopkeepers in the Soviet era.
The possessions of many people consist primarily of carpets. Wealth has traditionally been kept in the form of carpets jewelry and gold, which has been regarded as a hedge against inflation. The pickings at the local stores are pretty slim. Canned goods are sometimes more than a year old and the best goods are kept under the counter for customers who are friends of the store manager or who are willing to pay extra.
“Immediate face-to-face relationships are the determining factors for most action among all Central Asian cultures, and rules take a backseat to subjective obligations. Most are very polychromic...and mostly re highly risk adverse.”
Business Customs in Kazakhstan
According to kwintessential.co.uk: Meeting and Greeting: 1) The handshake is the common greeting. Two hands are often used. 2) Handshakes tend to be gentle. 3) Many Kazakh men will not shake hands with women. A woman should extend her hand, but if it is not accepted, she should not be insulted. 4) Maintain eye contact during the greeting. 5) Shake hands at the end of a meeting, prior to leaving. 6) If you meet someone several times in the same day, you should shake hands each time. 7) Wait to be introduced to everyone, usually in order of importance. 8) Academic and professional titles are used in business. 9) People are called by their title and surname. 10) Wait until invited before using someone’s first name. [Source: kwintessential.co.uk <|>]
“Business cards: 1) Business cards are extremely important to establish one’s position, navigate bureaucracy and open doors. 2) Likewise, show the card of someone significant when trying to gain access or secure an appointment. 3) Business cards are exchanged without a great deal of ritual. 4) It is advisable to have your business cards printed in Russian on one side and English on the other. 5) Make certain that your title is included on your business card. <|>
“Communication Styles: Protecting relationships and people’s honour is important. As a result Kazakhs finesse what they say in order to deliver information in a sensitive and diplomatic manner. They tend to speak in a roundabout fashion rather than a linear fashion. They respond more favourably to gentle probing rather than direct questioning. At the same time, many Kazakhs have a somewhat volatile demeanour and can raise their voice to get their point across. They are known for their fierce arguments. You may wish to retaliate in kind, but do so cautiously as there is a fine line between standing up for yourself and appearing overly aggressive. Hierarchy is respected in Kazakhstan. Someone more senior is never ever contradicted or criticised, especially in public. You will be expected to treat senior Kazakhs in the same manner.” <|>
Business Meetings in Kazakhstan
According to kwintessential.co.uk: Meeting styles vary by the type of business entity. Private industry is often more focused and westernized; things are a little bit more fluid. Public entities, on the other hand, follow lots of protocol and red-tape (leftovers from the Communist era). The latter may involve many more meetings and patience. The hierarchical nature of the culture means that Kazakhs will want to meet people of similar rank. Therefore, it is important to forward the bios of all team members well in advance of any meeting. [Source: kwintessential.co.uk <|>]
“T-shaped tables are often used for meetings so that both sides can be seated opposite each other. The top Kazakh at the meeting will sit at the head and his staff will be seated in decreasing order of rank. Your team should attempt to seat themselves in the same manner. In some companies, there is an emerging trend to seat peers next to each other to facilitate conversation.<|>
“There is generally a fair amount of small talk before business is discussed. This may take place over tea and sweets. Wait for the other party to bring the conversation to business. Spend time in relationship building; as a family orientated people they want to be sure you are trustworthy, affable and reliable. <|>
“The most senior Kazakh at the meeting opens the discussion and introduces his team in rank order. Although meetings have a start time, they seldom have an ending time. They are masters at delivering roundabout speeches. Therefore, it would be impractical to predetermine when a meeting will finish.” <|>
Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.
© 2008 Jeffrey Hays
Last updated April 2016