Is Kazakhstan’s booming economy creating as many jobs as it should?
Real investment in Kazakhstan is floundering, probably because the economy has yet to work off the excess supply of buildings that it had accumulated in the real estate bubble that burst in 2007. But the labor market is mildly encouraging. In the first half of 2011, the national rate of unemployment was 5.5%, well below the 6% of early 2010. Indeed, the nation’s unemployment rate has been dropping steadily since 2003, when it was 8.8%. Employment looks almost as good: Since early 2010, the number of employed persons in the first half of 2011 had increased 1.2% to 8.2 million.
Nevertheless, some puzzles about Kazakhstani labor are troubling. Although Almaty's unemployment rate has been dropping for years, it has been increasing relative to the nation's unemployment rate, peaking at a sixth higher in 2009. Almaty’s rate has also been consistently higher than Astana's. In fact, Almaty's rate has generally been among the highest in Kazakhstan since 2006, rivaled only by the Mangistau area. Among the lowest unemployment rates since 2006 is that in the Aktubinskaya oblast.
These facts suggest that unemployment in Kazakhstan may be mainly urban. Perhaps Almaty’s unemployment rate is high because it attracts overly optimistic migrants. But in reality, the areas with the highest rates of unemployment over the long run are not concentrated heavily in any particular region or industry, although they emphasize the south of the country a bit: Kyzylordinksaya oblast (14% above the national unemployment rate, both expressed as averages for 2003-2010), in the Aral Sea region and near the Uzbek border; Mangistauskaya oblast (13% above the national rate), east of the Caspian Sea in oil country; Zhambylskaya oblast (11% above), southwest of Lake Balkhash and bordering Uzbekistan; and the city of Almaty as well as Akmolinskaya oblast which surrounds Astana (each 7% above).
Similarly, the areas with the lowest rates of unemployment for 2003 through 2010 do not suggest any clear trends beyond a mild emphasis on northern Kazakhstan: Karagandiskaya oblast (10% below the national average), concentrated in
manufacturing and processing southeast of Astana; East Kazakhstan (9% below); Almatinskaya oblast (6% below), the large region including the area north of Almaty;
Pavlodarskaya oblast (5% below), east of Astana; and North Kazakhstan oblast (5% below).
Persistence and subsistence
These long-run trends may be somewhat stable. In 2010, the five areas with the highest rates of unemployment relative to Kazakhstan included three with high long-run rates: Mangistauskaya oblast (10% percent above the national rate in 2010); the city of Almaty (9% above); and Kyzylordinskaya oblast (2%). The five areas with the lowest rates of relative unemployment in 2010 included two with low long-run rates: Karagandiskaya oblast (5% below the national rate in 2010) and Pavlodarskaya oblast (3% below).
Despite these persistent regional effects, the disparity across regional rates may be diminishing: Their standard deviation (a popular measure of dispersion) was .053 in 2010, lower than for the period from 2003 through 2010 on average (.075). Perhaps the national labor market is improving: Workers may be more likely now to migrate from areas of high unemployment to areas of low unemployment, thus decreasing the unemployment rate in the former areas and increasing it in the latter. But one would still like to know why unemployment rates are stubbornly high in Mangistauskaya and Kyzylordinskaya oblasts as well as in Almaty.
In principle, the unemployment rate in Kazakhstan may fall partly because people become so discouraged that they cease looking for work, thus dropping out of the labor force. In that case, a falling rate of unemployment would hardly be a sign of economic health. We can check statistically for such a possibility. The labor force is the sum of employed and unemployed workers. A worker may lose his unemployment status either because he gets a job (increasing the number of employed workers) or because he drops out of the labor force (reducing the number of unemployed workers but not increasing the number of employed workers). If an increase in the number of discouraged workers dominates the labor market, then the labor force must become smaller (see the Notes). But in Kazakhstan, the annual number of newly employed workers is seven times as large as the annual reduction in the number of unemployed workers. This suggests that the economy tends to create jobs rather than discourage workers.
But the rate of increase in jobs is not impressive -- an average of 2.2% from 2003 through 2010. This may provide enough jobs for youths entering the labor market; the rate of population growth in 2009 was 1.6%. But it is just a fraction of the growth rate of the national economy, and it occurs in spite of the fact that the burgeoning sector of services is labor-intensive. In Kazakhstan’s economy, all is not as well as it seems. -- Leon Taylor, tayloralmaty@yahoo.com
Notes
1. To determine the importance of “discouraged workers” (that is, people who no longer look for work) to Kazakhstan’s economy, let’s measure their impact on the labor force, which sums employed and unemployed workers.
Denote the labor force as LF; the number of employed workers, as E; and the number of unemployed workers, as UN. Then LF = E + UN. Using dX to denote a change in X, dLF = dE + dUN. Considering these changes, we may ignore movements from the unemployed ranks to the employed, or in the reverse direction, since they do not affect the overall size of the labor force.
The number of employed workers may change in either of two ways that affect the size of the labor force: An entrant gets a job; or a worker loses his job and decides not to look for another (i.e., he leaves the labor force). In the first case, dE > 0; in the second case, dE< 0.
The number of unemployed workers may also change in either of two ways that affect the size of the labor force: An unemployed worker leaves the labor force (dUN < 0); or an entrant begins looking unsuccessfully for work (dUN > 0).
If the increase in the number of discouraged workers dominates other changes in the size of the labor force, then dLF < 0. From 2003 through 2010, the size of Kazakhstan’s labor force has never decreased. But its growth has been slow, at the average annual rate of 1.7% over this period.
References
Statistical Agency of Kazakhstan. www.stat.kz The source of all raw data used in this article.
Sunday, August 21, 2011
Thursday, August 11, 2011
Smile, please: A statistical snapshot of investment in Kazakhstan
Is the economy as strong as it looks?
Kazakhstan’s economy is developing along the lines of richer economies. The fastest growing sectors emphasize services: Trade (growing 14.3% in the first half of 2011, compared to the same period in 2010) and communications (16.5%), according to data from the national statistical agency. Construction (1.7%) still stagnates, as it has since the bursting of the real estate bubble in 2007. Vacancy rates may be high. Agriculture (1.5%) continues its 20-year decline relative to the rest of the economy. Despite the government’s “forced industrialization” program, industry (5.8%) grew less rapidly than did the economy on average. In general, although Kazakhstan is best-known as an oil exporter, it is shifting toward services and may already verge on a post-industrial era.
Despite a yearly growth rate of 6.8%, the economy may still be coping with an excess supply of buildings and equipment that arose from the real estate boom. In 2007, housing construction in Kazakhstan was eight times higher than in 2003, peaking at 490 billion tenge ($4 billion) -- 4% of the entire economy (measured as gross domestic product). The boom was most conspicuous in Almaty, where construction value was 12 times higher in 2007 than in 2003 and accounted for 30% of all housing construction in Kazakhstan. The bubble burst quickly: In 2009, housing construction decreased 39% in Kazakhstan and by more than 50% in Almaty and Astana, which had accounted for nearly two-thirds of all such construction in 2007. Kazakhstani construction began to recover slowly in 2010, when it had increased 3.4% since 2009. But in Almaty, the slump continued. In 2010, housing construction there had fallen by a fifth since 2009 and by nearly two-thirds since 2007.
Peanuts in Pavlodar
Even now, real investment -– the addition of physical capital to the economy – remains anemic. Normally, June is one of the busier months in Kazakhstan for investment in “fixed capital” – hard-to-move things used in production, such as office towers and factories. But this June, fixed-capital investment had fallen 2% since the previous June. In the city of Almaty, investment in the first half of 2011 was 2% below that of early 2010.
Growth rates for investment in fixed capital vary sharply across regions. For the oblast around Karaganda, a manufacturing and processing center, investment in the first half of 2011 was almost a fifth above that for early 2010. For West Kazakhstan, investment fell by nearly two fifths, reflecting the long-run decline of agricultural regions. One reason for such sharp fluctuations is that investment in many rural areas was small to begin with, so a change of given size looks relatively large. For example, housing construction in Pavlodar in 2010 came to only 3 billion tenge ($21 million).
Contract work tells the same dismal story but in broader terms. It totaled 166 billion tenge ($1.1 billion) in May 2011, a fall of nearly 3% from the previous May. Throughout the first half of 2011, contract work came to 711 billion tenge ($4.9 billion), down by 3% since early 2010. It was up by nearly a third in the Pavlodar region, and down by more than two-fifths in West Kazakhstan. Work in the city of Almaty had declined by more than a fifth. Most active was the Atyrau area –- oil country -- which accounted for a fourth of all contract work in the nation. Historically, the Atyrau oblast and Almaty city have each accounted for a fifth of national investment in non-financial assets. In general, Kazakhstani investment in early 2011 fell by about 5% from early 2010.
The one bright spot in construction may be for homes. Throughout Kazakhstan, home construction in the first half of this year came to 171 billion tenge ($1.2 billion), or under 2% of the national economy. The absolute amount was a fifth higher than in early 2010. Regional growth rates varied from an increase of nearly two-thirds in South Kazakhstan to a fall of two fifths in the Pavlodar oblast. In the city of Almaty, home construction was up by more than a third, to 31 billion tenge ($212 million). By June 2011, however, national homebuilding was slowing again. It was 43 billion tenge ($300 million) that month, an increase of just over 2% from the slump in the previous June.
In terms of floor space, residential construction ready for occupancy was stagnant in 2010 at 6.4 million square meters, the same as in 2009. Such construction was also at a standstill in Almaty, which (with Astana) comprises almost two-fifths of all such building in Kazakhstan. How to fully recover from the real estate bubble remains a nagging –- and unasked -– question in Kazakhstan. -- Leon Taylor, tayloralmaty@gmail.com
Notes
1. All output figures are adjusted for price changes, usually via a construction cost index.
2. Dollar conversions use the official exchange rate.
References
Statistical Agency of Kazakhstan. All data are from the agency’s Web pages at www.stat.kz . Warning: The agency’s work is unreliable. Its English is misleading, mistaking "contraction" for "contract." And it often miscalculates statistics -– for example, computing the annual change in fixed investment by dividing the 2010 estimate by the 2011 one rather than the reverse.
Kazakhstan’s economy is developing along the lines of richer economies. The fastest growing sectors emphasize services: Trade (growing 14.3% in the first half of 2011, compared to the same period in 2010) and communications (16.5%), according to data from the national statistical agency. Construction (1.7%) still stagnates, as it has since the bursting of the real estate bubble in 2007. Vacancy rates may be high. Agriculture (1.5%) continues its 20-year decline relative to the rest of the economy. Despite the government’s “forced industrialization” program, industry (5.8%) grew less rapidly than did the economy on average. In general, although Kazakhstan is best-known as an oil exporter, it is shifting toward services and may already verge on a post-industrial era.
Despite a yearly growth rate of 6.8%, the economy may still be coping with an excess supply of buildings and equipment that arose from the real estate boom. In 2007, housing construction in Kazakhstan was eight times higher than in 2003, peaking at 490 billion tenge ($4 billion) -- 4% of the entire economy (measured as gross domestic product). The boom was most conspicuous in Almaty, where construction value was 12 times higher in 2007 than in 2003 and accounted for 30% of all housing construction in Kazakhstan. The bubble burst quickly: In 2009, housing construction decreased 39% in Kazakhstan and by more than 50% in Almaty and Astana, which had accounted for nearly two-thirds of all such construction in 2007. Kazakhstani construction began to recover slowly in 2010, when it had increased 3.4% since 2009. But in Almaty, the slump continued. In 2010, housing construction there had fallen by a fifth since 2009 and by nearly two-thirds since 2007.
Peanuts in Pavlodar
Even now, real investment -– the addition of physical capital to the economy – remains anemic. Normally, June is one of the busier months in Kazakhstan for investment in “fixed capital” – hard-to-move things used in production, such as office towers and factories. But this June, fixed-capital investment had fallen 2% since the previous June. In the city of Almaty, investment in the first half of 2011 was 2% below that of early 2010.
Growth rates for investment in fixed capital vary sharply across regions. For the oblast around Karaganda, a manufacturing and processing center, investment in the first half of 2011 was almost a fifth above that for early 2010. For West Kazakhstan, investment fell by nearly two fifths, reflecting the long-run decline of agricultural regions. One reason for such sharp fluctuations is that investment in many rural areas was small to begin with, so a change of given size looks relatively large. For example, housing construction in Pavlodar in 2010 came to only 3 billion tenge ($21 million).
Contract work tells the same dismal story but in broader terms. It totaled 166 billion tenge ($1.1 billion) in May 2011, a fall of nearly 3% from the previous May. Throughout the first half of 2011, contract work came to 711 billion tenge ($4.9 billion), down by 3% since early 2010. It was up by nearly a third in the Pavlodar region, and down by more than two-fifths in West Kazakhstan. Work in the city of Almaty had declined by more than a fifth. Most active was the Atyrau area –- oil country -- which accounted for a fourth of all contract work in the nation. Historically, the Atyrau oblast and Almaty city have each accounted for a fifth of national investment in non-financial assets. In general, Kazakhstani investment in early 2011 fell by about 5% from early 2010.
The one bright spot in construction may be for homes. Throughout Kazakhstan, home construction in the first half of this year came to 171 billion tenge ($1.2 billion), or under 2% of the national economy. The absolute amount was a fifth higher than in early 2010. Regional growth rates varied from an increase of nearly two-thirds in South Kazakhstan to a fall of two fifths in the Pavlodar oblast. In the city of Almaty, home construction was up by more than a third, to 31 billion tenge ($212 million). By June 2011, however, national homebuilding was slowing again. It was 43 billion tenge ($300 million) that month, an increase of just over 2% from the slump in the previous June.
In terms of floor space, residential construction ready for occupancy was stagnant in 2010 at 6.4 million square meters, the same as in 2009. Such construction was also at a standstill in Almaty, which (with Astana) comprises almost two-fifths of all such building in Kazakhstan. How to fully recover from the real estate bubble remains a nagging –- and unasked -– question in Kazakhstan. -- Leon Taylor, tayloralmaty@gmail.com
Notes
1. All output figures are adjusted for price changes, usually via a construction cost index.
2. Dollar conversions use the official exchange rate.
References
Statistical Agency of Kazakhstan. All data are from the agency’s Web pages at www.stat.kz . Warning: The agency’s work is unreliable. Its English is misleading, mistaking "contraction" for "contract." And it often miscalculates statistics -– for example, computing the annual change in fixed investment by dividing the 2010 estimate by the 2011 one rather than the reverse.
Wednesday, August 3, 2011
Unreal estate
Why does Almaty’s economy lag the nation’s?
What’s afoot in the Almaty market for real estate?
Four years ago, its price bubble burst. In 2007, the price of a new square meter of residential space in the city was nine times higher than in 2000, according to the national statistical agency. Then the price slid by a third. This presaged the collapse of several of Kazakhstan’s largest banks, which had lent for mortgages as if tomorrow would never come (and it almost didn’t).
The problem lay in the nature of a real estate price, which has two components. One is for improvements to the land, such as buildings, roads, and water pipes; the other, purely for the location. Rents in the center of the city are much higher than those on the outskirts, because people pay for convenience. The central business district is close to colleges, hospitals and workplaces. Growth of the national economy increases these rents by raising labor productivity and wages. You’ll pay more to be able to commute comfortably to a better job. In 2007, “land rents” (as economists refer to location value) had been rising far more rapidly than the expected rate of national economic growth. Being unreasonably high, they were headed for a crash that summer.
Construction costs in Kazakhstan are rising by only 3% per year, so land rents in Almaty probably account for the bulk of the continuing decrease in residential prices. But new-home prices here remain two-thirds above the nation’s. Probably that’s largely because of the convenience of living in the nation’s largest city.
Almaty banks are about as exposed to real estate now as in 2009. Construction loans still account for nearly a fifth of all bank loans, totaling 18.8% of all loans in June 2011. The figure for June 2009 was 19.7%, according to data from the country’s central bank, the National Bank of Kazakhstan. Of all bank loans, only a fourth are in “standard” shape, according to the National Bank’s latest Statistical bulletin. More than half are “doubtful,” and a fifth are outright “losses.”
With a record like that, it’s easy to understand why bank lending in Kazakhstan remains, to put it mildly, sluggish. Total lending in June 2011 was only 3.2% higher than in June 2010, according to data from the National Bank. Adjusting for inflation, lending has fallen 5%. Compared to June 2009, lending has declined 19.7% (again adjusting for price changes). One apparent consequence is an anemic construction industry, which has grown only 1.7% since the first half of 2010, according to the national statistical agency. In Almaty, construction value (adjusting for inflation) is down by a fourth since the first half of 2010. In terms of space, new residences have declined by a fifth since early 2010. Sluggish banking and construction have created a quagmire for the economy of Almaty, home to two thirds of all bank loans in Kazakhstan.
Though lending is declining, its composition has not changed much. Short-term loans in June 2011 amounted to 1.3 trillion tenge ($9 billion) -- just 7.4% above that of the previous June, according to National Bank data. Adjusting for inflation, short-term lending was stagnant.
Medium- and long-term lending was 6.6 trillion tenge ($46 billion) -- 5.3% above that of the previous June. Adjusting again for inflation, that lending had fallen by 3%. This may be prudent behavior. Our banks must finance their long-term loans partly with short-term money obtained abroad, so when one of their loans suddenly goes soft, they may find themselves short of money to pay off their own creditors. Nevertheless, medium- and long-term lending still comprised more than 83% of all lending, according to National Bank data. Should a price bubble recur, banks in Kazakhstan could again be at risk.
Bubble trouble
Why would land rents rise too rapidly? Well, real estate lenders often finance a price bubble because they do not have to pay all the costs of doing so. Suppose that the bubble bursts, reducing the collateral of the bank’s loans and endangering its own net worth. If the bank is big enough, the government will bail it out, thus insuring its managers against their own mistakes. In fact, since 2007, the government of Kazakhstan has acquired large stakes in several leading banks. (True, in a few cases, it has also pursued charges of mismanagement.) Also, a commercial bank here could sell shaky loans to an arm of the central bank, the Kazakhstan Mortgage Company.
Housing bubbles may also form because lenders and borrowers do not consider the actual value of the land. Instead, they will create a loan whenever the land rent seems to be rising rapidly enough –- for whatever reason –- to enable them to sell the land (or the loan) at profit. The English macroeconomist John Maynard Keynes pointed to this possibility in 1936. It may explain why a financial bubble appears and disappears rapidly. People buy assets when the bubble is growing, stimulating it to grow faster; and they sell assets when the bubble is bursting, hastening its demise. Never a dull moment in the real estate market. -- Leon Taylor, tayloralmaty@gmail.com
Good reading
John Maynard Keynes. The general theory of employment, interest and money. London: Macmillan. 1936. Chapter 12 analyzes financial speculation.
Arthur O'Sullivan. Urban economics. Sixth edition. New York: McGraw-Hill. 2006. Analyzes land rents.
References
National Bank of Kazakhstan. Monetary and credit statistics. www.nationalbank.kz
National Bank of Kazakhstan. Statistical bulletin. 2011. www.nationalbank.kz
Statistics Agency of Kazakhstan. Various series. 2011. www.stat.kz The pages in Russian are more informative than those in English.
What’s afoot in the Almaty market for real estate?
Four years ago, its price bubble burst. In 2007, the price of a new square meter of residential space in the city was nine times higher than in 2000, according to the national statistical agency. Then the price slid by a third. This presaged the collapse of several of Kazakhstan’s largest banks, which had lent for mortgages as if tomorrow would never come (and it almost didn’t).
The problem lay in the nature of a real estate price, which has two components. One is for improvements to the land, such as buildings, roads, and water pipes; the other, purely for the location. Rents in the center of the city are much higher than those on the outskirts, because people pay for convenience. The central business district is close to colleges, hospitals and workplaces. Growth of the national economy increases these rents by raising labor productivity and wages. You’ll pay more to be able to commute comfortably to a better job. In 2007, “land rents” (as economists refer to location value) had been rising far more rapidly than the expected rate of national economic growth. Being unreasonably high, they were headed for a crash that summer.
Construction costs in Kazakhstan are rising by only 3% per year, so land rents in Almaty probably account for the bulk of the continuing decrease in residential prices. But new-home prices here remain two-thirds above the nation’s. Probably that’s largely because of the convenience of living in the nation’s largest city.
Almaty banks are about as exposed to real estate now as in 2009. Construction loans still account for nearly a fifth of all bank loans, totaling 18.8% of all loans in June 2011. The figure for June 2009 was 19.7%, according to data from the country’s central bank, the National Bank of Kazakhstan. Of all bank loans, only a fourth are in “standard” shape, according to the National Bank’s latest Statistical bulletin. More than half are “doubtful,” and a fifth are outright “losses.”
With a record like that, it’s easy to understand why bank lending in Kazakhstan remains, to put it mildly, sluggish. Total lending in June 2011 was only 3.2% higher than in June 2010, according to data from the National Bank. Adjusting for inflation, lending has fallen 5%. Compared to June 2009, lending has declined 19.7% (again adjusting for price changes). One apparent consequence is an anemic construction industry, which has grown only 1.7% since the first half of 2010, according to the national statistical agency. In Almaty, construction value (adjusting for inflation) is down by a fourth since the first half of 2010. In terms of space, new residences have declined by a fifth since early 2010. Sluggish banking and construction have created a quagmire for the economy of Almaty, home to two thirds of all bank loans in Kazakhstan.
Though lending is declining, its composition has not changed much. Short-term loans in June 2011 amounted to 1.3 trillion tenge ($9 billion) -- just 7.4% above that of the previous June, according to National Bank data. Adjusting for inflation, short-term lending was stagnant.
Medium- and long-term lending was 6.6 trillion tenge ($46 billion) -- 5.3% above that of the previous June. Adjusting again for inflation, that lending had fallen by 3%. This may be prudent behavior. Our banks must finance their long-term loans partly with short-term money obtained abroad, so when one of their loans suddenly goes soft, they may find themselves short of money to pay off their own creditors. Nevertheless, medium- and long-term lending still comprised more than 83% of all lending, according to National Bank data. Should a price bubble recur, banks in Kazakhstan could again be at risk.
Bubble trouble
Why would land rents rise too rapidly? Well, real estate lenders often finance a price bubble because they do not have to pay all the costs of doing so. Suppose that the bubble bursts, reducing the collateral of the bank’s loans and endangering its own net worth. If the bank is big enough, the government will bail it out, thus insuring its managers against their own mistakes. In fact, since 2007, the government of Kazakhstan has acquired large stakes in several leading banks. (True, in a few cases, it has also pursued charges of mismanagement.) Also, a commercial bank here could sell shaky loans to an arm of the central bank, the Kazakhstan Mortgage Company.
Housing bubbles may also form because lenders and borrowers do not consider the actual value of the land. Instead, they will create a loan whenever the land rent seems to be rising rapidly enough –- for whatever reason –- to enable them to sell the land (or the loan) at profit. The English macroeconomist John Maynard Keynes pointed to this possibility in 1936. It may explain why a financial bubble appears and disappears rapidly. People buy assets when the bubble is growing, stimulating it to grow faster; and they sell assets when the bubble is bursting, hastening its demise. Never a dull moment in the real estate market. -- Leon Taylor, tayloralmaty@gmail.com
Good reading
John Maynard Keynes. The general theory of employment, interest and money. London: Macmillan. 1936. Chapter 12 analyzes financial speculation.
Arthur O'Sullivan. Urban economics. Sixth edition. New York: McGraw-Hill. 2006. Analyzes land rents.
References
National Bank of Kazakhstan. Monetary and credit statistics. www.nationalbank.kz
National Bank of Kazakhstan. Statistical bulletin. 2011. www.nationalbank.kz
Statistics Agency of Kazakhstan. Various series. 2011. www.stat.kz The pages in Russian are more informative than those in English.
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