The military entry of Russia to Ukraine left no one in the world indifferent. Western countries consider the recent actions taken by Vladimir Putin against the neighbouring state as a war and unleash an array of sanctions against Russia. The changes in the geopolitical arena relate to Kazakhstan, too.
Dzhamal Khairetdinov is an Almaty-based entrepreneur. He is the head of department of the Almaty auto centre. It is one of joint Kazakhstan-Russia enterprises. The company manufactures buses and special-purpose automotive equipment: vans, drawbar trailers, dump trucks, and crane trucks.
According to him, after Kazakhstan joined the EAEU, the volume of export and the range of goods have increased. Business was going well and the enterprise was planning to expand, but then combat operations began in Ukraine.
“I’m afraid we will close down now. Russian entrepreneurs have already implied that we could possibly declare bankruptcy because importers began to refuse from supplies of materials to the Russian Federation on February 24. Nearly 100 people will lose their jobs in my department. Materials went up in prices since yesterday. Of course, we will have to raise our prices, too. We will not get any subsidies from the state,” Khairetdinov said.
Russia is the main trade and economic partner of Kazakhstan. Russian companies are top five key investors by the volume of money invested into the country’s economy. Russia is also the absolute leader by the number of enterprises with foreign capital in Kazakhstan. In 2018, the trade turnover rate with Russia was 17 billion dollars, and in 2021, it was the record-breaking amount of 24 billion dollars.
After the National Bank of Kazakhstan floated tenge, the national currency has two key factors of exchange rate formation mechanism. The first one is the oil price movement, and the second one is the Russian rouble exchange rate movement.
Since early 2022, the exchange rate of the Russian currency to dollar has declined by 9 per cent, and since November 2021, the fall has exceeded 14.0 per cent. However, the tenge exchange rate has disregarded the confrontation between Russia and the West for a long time due to high oil prices. But since February 24, the dollar exchange rate in Kazakhstan continues to rise. In some exchange offices, the American currency is sold for 474 tenge. According to Kazakhstan financial experts, the foreign currency could be sold for as high as 500 tenge.
“The tenge is already losing value. It means that prices of imported goods will continue to rise. Construction materials are brought from outside, so their price rise can lead to rising housing prices. Many prices are based on Russian prices. So, it’s no wonder that inflation is taking place here. And our government did not have time to publish its plan for this year. So, this situation creates another burden on our government,” said economist Maksat Khalykov.
According to forecasts of financial expert Sayasat Kabenov, the rouble will continue to lose its value in the near future, which will have impact on tenge. Therefore, prices of imported goods will continue to rise following the inflation.
“First, Kazakhstan imported goods for 41 billion dollars by last year’s results. We receive half of these goods from the CIS. Second, we have increased our basic rate by 13 per cent. It will lead to the rise in credit interest rates. In our country, prices of everyday products will be rising,” he said.
The border areas of Kazakhstan have been the first to feel the impact of the situation between Russia and Ukraine. The longest borderline of Russia is with Kazakhstan, it is 7,598.8 kilometres long. The border passes through Astrakhan, Saratov, Orenburg, Chelyabinsk, Kurgan, Omsk, Novosibirsk regions and Altai Territory. Residents of border regions of Kazakhstan worry because they cannot buy food and medications in Russia now.
The family of Sarsenbai Yensegenov lives in the village of Ganyushkino, Atyrau region of Kazakhstan, which has common border with the town of Kharabali, Astrakhan region of Russia. It is only three-hour drive away from them, while it takes 10 hours to get to Atyrau.
“All residents buy food, go to beauty salons, receive medical treatment there. Food products have gone up by 30-40 per cent from today. Now my family will be buying food in Atyrau and we’ll be spending a lot of time and money. This is very unprofitable for us,” he said.
According to economist Meruert Makhmutova, the deposit of Kazakhstan in the subsidiary bank of Sberbank of Russia is estimated at 50.7 billion tenge, and the Unified Savings Pension Fund (ENPF) invests money to the shares of Russian companies, too. But because of the war unleashed by Russia against Ukraine, securities of Russian companies lose their value, while the State Duma of the Russian Federation stated about the military confiscation of bank deposits.
“The ENPF of Kazakhstan might need to write off these investments and deposits upon asset revaluation. I doubt there will be anyone who wants to buy or return them. Thus, the ENPF will incur losses, just like every depositor. We, citizens, finance the Russian aggression unwillingly with our pension savings because of the investment policy of the National Bank and the waffling policy of the government,” Makhmutova said.
Besides, the economy of Kazakhstan will suffer seriously from the Western sanctions against Russia because the countries are in the EAEU, which shapes the unity of economy, finances, said Dos Koshim, head of ‘Ult Tagdyry’ public association.
“This is just the beginning of sanctions. Every time, the sanctions have their effect only in 1-1.5 years because the need for prohibited items emerges later. For example, drilling oil refining machines work now, and when they become unserviceable, then we’ll have the problem because there will be no opportunities to get them,” Koshim said.
The situation between Russia and Ukraine can also affect the investment attractiveness of Kazakhstan. Investors may take their securities from the country, said financier Zhasulan Kusherbaev.
“Russian production companies face restrictions on transactions abroad. Some of these companies work in our country, too. The reduction in their economic activity can have a negative impact on our GDP. The tenge exchange rate will suffer because many of our fellow countrymen are withdrawing their deposits. We see that investors are already refusing to cooperate with our country now. We’ll see the result in a few months,” Kusherbaev said.
Candidate of economic sciences Omarkhan Oksikbaev said that now the task of the government is to develop the anti-crisis programme immediate and not to repeat previous mistakes. In 2014, the tenge lost its value against dollar from 155 to 185 units because of the events in Crimea.
“But we had some reserve money in the National Fund back then, and now the situation is quite different. Kazakhstan will run into debt to the World Bank. If there’s inflation, it will be the beginning of the end. Also, I think that Russia will try to sweep the world market via us and Belarus. This will hit local producers hard,” he said.
According to experts, the decline in the Russian economy will be taking place within 1-1.5 years by 1-2 per cent per year. The growth of GDP in Kazakhstan in 2022-2023 can also decline from 4 per cent to -0.5-1.0 per cent per year. The growth of GDP of Kazakhstan in 2022-2023 may decline from 4 per cent to -0.5-1.0 per cent per year. And the annual inflation in both countries can exceed 9-10 per cent due to devaluation processes.
However, some Kazakhstan-based experts think that the current dollar to tenge rate increase is just the result of panic and rush. Moreover, sanctions can partly have a positive impact on the economy of Kazakhstan.
“Because of the decline of the rouble, the Russian imports are now cheaper, which may ease the inflation pressure in Kazakhstan, but in future this will make the economy even more dependent on Russia. Besides, if Russian banks are disconnected from the international payment system SWIFT, Russian banks’ subsidiaries can provide services to their customers through Kazakhstan, thus improving our country’s banking system and increasing taxes to our budget,” financial analyst Andrei Chebotarev said (cited from tengrinews.kz).
On February 27, Alibek Kuantyrov, minister of national economy, said to Qazaqstan TV channel that the government prepared a package of anti-crisis measures.
“Oil price has reached 100 dollars per barrel. This is the highest price in the last seven years. It will help us replenish our budget and National Fund,” said the key economist of the country.
On February 25, president of Kazakhstan Kasym-Zhomart Tokayev welcomed prime minister of Russia Mikhail Mishustin in Nur-Sultan. They discussed joint measures designed to prevent the reduction of the trade turnover between the two states amid the escalation of the situation in Ukraine and imposed international sanctions against Russia. Now airplanes of Russia fly to Turkey, Egypt and Dubai via Kazakhstan. According to some experts, now Russia will be entering the world market via Kazakhstan.
Title photo: RFE/RL