The great race

Are Kazakhstanis catching up with Russians in income?

The first shall be last, and the last….

Today, the average Kazakhstani is nearly as rich as the average Russian.  On the eve of independence in 1992, the gap in their incomes per capita (adjusted for inflation) was nearly a third.  Since then, the gap has steadily dwindled to less than 5% in 2013, according to World Bank data.  Continuing Western sanctions against Russia probably reduced the gap in 2014 as well.  

Indeed, the gap will probably disappear this year or next, as the graph below makes clear.  It shows the ratio of real income per capita in Kazakhstan to that of Russia.  (For example, Kazakhstani income was 68% of Russia’s in 1992.)

The gap has sometimes grown in response to economic events, but rarely for longer than a year.  Three incidents are conspicuous:

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      1)    In 1995, Kazakhstani income fell to 67% of Russian income, down from 69% in 1994.  This was probably due to the hyperinflation surrounding introduction of the tenge, which replaced the Russian ruble here.  In 1996, the ratio was back up to 71%.

(     2)   In 1999, the ratio fell to 74% -- from 76% in 1998, about the time of the ruble crash.  Perhaps the ratio fell because Russia was recovering from the crisis. The ratio in 2000 held steady at 74% but surged to 79% in 2001.

(     3)   In 2008, the ratio fell to 83%, down from 86% in 2007.  Did Russia handle the global financial collapse in 2008 more astutely than Kazakhstan? In any event, the 2009 ratio was 89%.

      Political independence was not an economic panacea in Central Asia – although it may have been one for Russia, which has gained ground on the West since 1992.  The ratio of income per capita of the euro area to that of Russia fell from 1.86 in 1992 to 1.56 in 2013. The US-to-Russia ratio also declined, though not as severely, from 2.38 to 2.18.

     

Kazakhstan is the only country in Central Asia to creep up on the Russians economically until breathing down their necks.  In 2013, average income in Kyrgyzstan was only 13% of Russia’s.  It had been 17% at the dawn of independence, in 1992.  The corresponding figure for Tajikistan was 10% in 2013 (15% in 1992); for Turkmenistan, 58% (41%); and for Uzbekistan, 21% (16%).  Did civil war ruin the economies of Kyrgyzstan and Tajikistan?  

Which brings us to the 64 thousand tenge question: What is Kazakhstan doing better than Russia or the rest of Central Asia?  And the 128 thousand tenge question:  Is Russia shoehorning Kazakhstan into an economic union in order to control a potential rival? --Leon Taylor tayloralmaty@gmail.com

Notes

To calculate average income, I used gross domestic product per capita from the World Bank’s World Development Indicators (worldbank.org).  To adjust for inflation, I used purchasing power parity, expressed in 2011 international dollars.  An international dollar is the amount of local currency that will buy the same amount locally as a dollar would in the United States. 

It is more common to use the current exchange rate to express purchasing power in international comparisons.  For example, if the current exchange rate is 200 tenge per US dollar, and if income in Kazakhstan is 200,000 tenge, then the conversion is $1,000. 

But this conversion is sensitive to changes in the exchange rate that have nothing to do with the nation’s productive capacity, which ultimately determines a resident’s purchasing power.  For example, Kazakhstan’s central bank devalued the tenge by 25% and 19% in 2009 and 2014 respectively.  But Kazakhstan’s capacity to produce did not suddenly fall by that much.  So economists prefer measures based on purchasing power parity.