The tenge blues

 

About the growing conflict between Kazakhstan and Russia, my savvy old colleague from Tulane, the econometrician Mark Kennet, has an insight: “Around the world, there is constant friction between politics and economics, with governments following the path of least resistance. This is no exception. Kazakhstan is landlocked, and depends on Russia to make its economy go; thus, rightly or wrongly, whatever the government says publicly, it is inextricably tied to Russia.”

Yes, Kazakhstan is landlocked from oceans, although of course it does border the Caspian Sea in the west. The largest oil fields in Kazakhstan are Caspian.

In addition to geography, culture binds Russia and Kazakhstan.  The Russians have been in Kazakhstan since the 18th century, not always with Kazakhstani approval. In Soviet times, ethnic Russians dominated the government and the population, outnumbering the ethnic Kazakhs.  When Kazakhstan became independent in 1991, the ethnic Russians struggled with the ethnic Kazakhs for power.  The latter won, and hundreds of thousands of ethnic Russians emigrated to their homeland.  Today the Kazakhs are the largest ethnic group in Kazakhstan.

Mild ethnic tensions linger, largely over the languages. In Almaty, the lingua franca is Russian; in rural areas, it’s Kazakh.  The official language is Kazakh, which many ethnic Russians don’t speak. At KIMEP, an international university, virtually all students speak Russian; but only a much smaller number, I would say, are fluent in Kazakh.

The Russian and Kazakhstani economies are similar.  Both emphasize oil exports and nurture state-directed enterprises. In a panel study of the two countries over a recent 15-year period, explaining real income per capita and controlling for oil prices and industrialization, a dummy variable for Kazakhstan is statistically insignificant. In other words, the unique characteristics of Kazakhstan don’t enable it to out-produce Russia.

Finally, both countries belong to the Eurasian Economic Union, which the Kremlin dominates. 

But the importance of trade to Kazakhstan is decreasing, giving way to domestic services. Exports in 2019 amounted to 30% of GDP; in 2008, 57%. 

And Russia no longer dominates Kazakhstani trade. Russia buys a tenth of Kazakhstan’s exports; China and Italy buy more. Russia does dominate world sales to Kazakhstan; it accounts for 37%, more than twice China’s share.  Since two-thirds of Kazakhstan’s imports are capital goods, you could argue that by stabilizing the exchange rate of tenge for a ruble, the National Bank was making life more predictable for Kazakhstani manufacturers. Or you could argue that the Bank held steady that exchange rate simply because that was what it had always done.   

So decoupling would be difficult, but the question is whether Kazakhstan should try anyway. At the moment, the Kremlin can punish Kazakhstan for political incorrectness.  The main pipeline for Kazakhstan’s oil exports, the product of the Caspian Pipeline Consortium, runs through Russia, and the Russian courts this summer briefly banished Kazakhstani oil from the CPC pipeline for allegedly environmental reasons.  Coincidentally enough, these bans occurred right after Kazakhstani President Kassym-Jomart Tokayev criticized Putin’s War.

In self-defense, Kazakhstan is shifting oil to a pipeline running east from the Caspian Sea to China. Another pipeline runs to Baku, in Azerbaijan, west of the Caspian Sea, but it is probably too small for Kazakhstan to rely on. So it looks like Kazakhstan might decouple from Russia a bit by coupling with China.  

This has a political cost, because the Kazakhstani on the street is more suspicious of the Chinese than of the Russians.  Maybe he prefers the devil he knows to the one he doesn’t. For example, about six years ago, the Chinese began leasing farms in Kazakhstan. The domestic protest was so strong that Astana declared a moratorium on such leases in 2017.  Last year, Tokayev signed a bill banning sales or leases of farmland to foreigners. –Leon Taylor, Baltimore tayloralmaty@gmail.com

 

Note

Most of these trade figures are from the World Integrated Trade Solution at the World Bank. WITS is a useful resource. 

 

Good reading

Catherine Putz. Kazakhstan bans sale of agricultural land to foreigners.  The Diplomat. May 18, 2021.