The government of Kazakhstan paints a rosy picture of the national economy. The value of production is to grow 7% per year, a torrid pace compared to those of most nations that are several times richer than any in Central Asia. Since the population has been growing 1% to 2% annually for several years, income per capita in Kazakhstan would rise 5% to 6% per year. At that rate, your means for buying things would double every 14 years or so (Note 1).
This forecast is not entirely detached from reality. Global oil prices have doubled over two years – always good news (for a few years, anyway) for an oil exporter like Kazakhstan. Some speculate that rising demand for automobiles in China may push the global price of a barrel over $100 again. This winter, the price for West Texas Intermediate crude should average $83, estimates the U.S. Department of Energy.
Unfortunately, Kazakhstan’s economy remains basically the same, warts and all, as during the 2008 financial crash. Although the government has pumped billions of dollars into the commercial banks, they are still as weak as kittens. This May, bad loans totaled $17 billion, over a fourth of the nation’s bank portfolio, said the International Monetary Fund (which lends foreign currency to countries in emergencies). At that time, the IMF projected 4% growth for Kazakhstan’s economy but conceded that it might manage 6% in years to come if the banks would get their act together, presumably orchestrated again by Astana. (The IMF has since raised its 2010 forecast to 5%.) In a gallant gesture to the government, the IMF in public forebode enlarging clearly upon the possibility that the bank bailout, and the increased deposit insurance, might tempt banks to return to go-go lending someday. At the moment, Kazakhstani banks aren’t lending.
Well, OK, the press release from the IMF actually said: “The ongoing sharp increase in nonperforming loans (NPLs) across banks and economic sectors reflects banks’ excessive exposure to currency induced credit risk stemming from the combination of a low and dollarized deposit base, the reliance on foreign funding, and risky lending practices.” Perhaps the IMF would favor us with a translation into English. It might have meant that Kazakhstani bank loans were going bad because, after the tenge lost a fourth of its value in February 2009, borrowers paid banks back in weaker tenge than they had received; the foreigners who dominated loans to the banks were demanding stronger dollars than they had lent; and, the devaluation aside, the banks lent recklessly.
The IMF is not the only moderate skeptic of the claim of robust economic health here. A few months ago, the Asian Development Bank – which addresses long-run prosperity – put economic growth in Kazakhstan at just 2.5% this year and 3.5% next year, contingent on $80 oil barrels. The ADB noted weak banks, over-reliance on oil and gas exports, and a stubborn government deficit.
If you live on the eastern shore of the Caspian Sea, then you may share the government’s enthusiasm. In Atyrau, home of the Kashagan oil project, investment in immobile assets rose a fourth over the year, accounting for more than a third of the nation’s fixed investment. In the oblasts of Mangistau and Western Kazakhstan, pay in the first half of this year rose more than 8% (even adjusting for price changes) compared to 2009. Atyrau and Mangistau also had the nation’s highest pay rates -- 140,000 and 120,000 tenge per month, respectively.
What about Almaty, the central nervous system for the economy? Prosperity is, er, just around the corner.
In the first quarter of 2010, fixed investment in the city had dropped by a seventh over a year, or twice as much for Kazakhstan.
Construction in the city also disappointed. In the first three quarters of 2010, the number of apartments started in Almaty rose only 6% from 2009, a year of world recession. The increase in square feet here was 3%. On both dimensions, Almaty lagged Astana.
Homebuilding in Almaty fell 30% over a year, although it had risen slightly for the nation -- and sharply for Astana, where the value of construction exceeded Almaty's by nearly a third.
The rising star is not the city of Almaty but the oblast. It accounted for more than a fifth of the nation's homebuilding value in early 2010, rising by a fourth over a year.
Pay in the city of Almaty remained high in early 2010 at 100,000 tenge per month -- more than a fourth above that of the oblast and the nation. Adjusted for inflation, pay in the city rose less than 4% over a year, about the same pace as for the nation.
To some extent, such trends would hold for even a healthy economy. High pay rates often rise less rapidly than low rates, because of their larger base. A 10% rate of growth is easier to achieve on a wage of 20 tenge (add two tenge) than on 20 million tenge (add two million). The outskirts of a mature city grow more rapidly than the downtown because of more abundant, and hence cheaper, land. Almaty’s new subways may strengthen the temptation to move to the sticks, by helping suburbanites commute in comfort to downtown. Finally, Almaty has many vacant residences; why build more?
All this notwithstanding, Almaty’s economy still relies on ailing banks. Rising oil prices in 2007 obscured the banks’ weakness and so made their plunge more precipitous. Here we go again? – Leon Taylor, tayloralmaty@gmail.com
Good reading
Asian Development Bank. 2010. Outlook 2010: Macroeconomic management beyond the crisis, pages 117-8. Kiyoshi Taniguchi and Asset Nussupov wrote the chapter on Kazakhstan. www.adb.org/Documents/Books/ADO/2010/ado2010.pdf
Baskin, Brian. 2010. China's oil demand is poised to push up prices. The Wall Street Journal. November 8. www.wsj.com
International Monetary Fund. 2010. Regional Economic Outlook: Middle East
and Central Asia. October. www.imf.org/external/pubs/ft/reo/2010/mcd/eng/10/mreo1024.pdf
References
Silk Road Intelligencer. 2010. IMF ups growth forecast. June 11. www.silkroadintelligencer.com
Silk Road Intelligencer. 2010. Kazakhstan adjusts growth forecast as GDP grows by 7.6 percent in first four months. May 12. www.silkroadintelligencer.com
The Statistical Agency of Kazakhstan. 2010. Source of raw data used here on construction, investment and pay. www.stat.kz
The United States Energy Information Administration. 2010. Short-Term Energy Outlook. November 9. www.eia.doe.gov/steo/contents.html
Notes
1. Given some continuous rate of growth r, income follows an exponential function over time t: Y(t) = Y(0) e^(rt), where 0 indexes the initial time. We want to know how quickly income will double, so we seek t* that satisfies Y(t*) =Y(0)e^(rt*) = 2Y(0). Simplify the last equation to get e^(rt*) = 2. Taking natural logs, rt* = nl 2. Roughly, t* = 70/r%, the Rule of 70. In our example, r is 5% or 6%, so income doubles in 70/5 to 70/6 – 14 years or a little less.
No comments:
Post a Comment