economy of kazakhstan: myths and reality. new economic policy

Economy of Kazakhstan:Myths, Reality,

New Economic policy

Introduction

Part I. Terms and terminology

Part II. Economic reality

Part III. New economic policy

Part IV. Infomedia and National Idea

Conclusions.

Appendixes

Part I

Import substitution and export orientation;

Market Models;

Financial terminology;

Book «Kazakhstan Economy: Myths and reality. New economic policy»Aidarkhan Kussainov, Almaty 2016

Part II

Intro; Resource curse; Investment attractiveness; Oil illusions; Oligopoly in economy; Consumer goods market: structure, import share, inflation; Processing (non-oil) Industry; Dollarization; Evolution of economic policy;


Part III

Introduction; Principles of new policy; Weak tenge, high savings rate; Tax&custom policy , state financing; Priorities in state investments; Export promotion; Changes in state governance;


Part IV

Introduction; Menthal de-dollarization; Changes in discussions on economic issues; Changes in public (social) contract; Thoughts on society changes; National Idea. How it works; Social fair state;


Appendixes

Papers written in jan-march 2007 Real Estate market research;

The role of real estate in economy of Kazakhstan;

Currency market analysis.;

Scenarios of financial market development


Terms and Terminology

Import substitution

Export orientation

Market models and specifics

Financial definitionBook «Kazakhstan Economy: Myths and reality. New economic policy»

Aidarkhan Kussainov, Almaty 2016

Import substitution. Outcomes

Example: villageOutcomes:Corruption;The blur of the role of state;Bet on internal market;Oligopolization.


Export orientation

Example: villageOutcomesCompetitionOligopoly – competitive advantage.IdeologyPatriotism


Market models

Perfect competition: polipoly. Monopoly.Oligopoly.Monopsony.

Each market requires its own regulation.


Financial terminology

Nominal exchange rate. Purchasing power parity Real effective rate index.National Fund and resourse curse.


Nominal rate and PPP.

0

200

400

600

800

1000

1200

1400

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

ЗП USD (ППП)

ЗП USD (номинал)

Salary (USD PPP)

Salary (USD nominal)

0

20

40

60

80

100

120

140

160

180

200

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Курс по ППП

Среднегодовой курс

PPP exchange rate

Average nominal rate


PPP coefficient

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Kazakhstan China Russian Federation

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7Kazakhstan China


Import tariffs (WB)

0

2

4

6

8

10

12

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

RUS KAZ CHN


REER index

RF KZNom

. Rate

Import

proce.

Real.

Rate

Index REEER

Base yearprice

100 RR

500 TNG

5 500 TNG

5 100

Inflation 20% 10%

Next year price

120 RR

550 TNG

5 600 TNG

4,6 92

Price RF

Price KZ

Nom.

Rate

Import

proce.

Real.

Rate

Index REEE

R

Base yearprice

100 руб

500 тг 5 500

тнг 5 100

Inflation 10% 20%

Next year price

110 руб

600 тг 5

550 тг 5,45 109

Import price goes up. Domestic production and export increase.

Import cheaper – decline in domestic production


National Fund and Resourse Curse

Inflow of «unearned money» – currency appreciation – increase in internal income- inflation – decline in domestic industry

Example. Countries «Happy» vs «Ozz»National fund is to keep economy now.


Economy: Myths and reality.

Resource curse; Investment attractiveness; Oil illusions; Oligopoly in economy; Consumer goods market: structure, import

share, inflation; Processing (non-oil) Industry; Dollarization; Evolution of economic policy;


Dutch didease

-10000

-5000

0

5000

10000

15000

20000

25000

30000

2001

2002

2003 20

420

0520

0620

0720

0820

0920

1020

1120

1220

1320

14

Прирост внешнего долга (искл. межфирменный долг)Прирост Национального Фонда

National Fund increase

85,0

90,0

95,0

100,0

105,0

110,0

115,0

-20 000,0

-15 000,0

-10 000,0

-5 000,0

0,0

5 000,0

10 000,0

15 000,0

20 000,0 Торговый баланс без экспорта нефти (индикатив)

РЭОК (правая ось)REEF (right axis)

Trade balance excl oil (ind)


External debts increase (excl interfirm and state)

NBRK changed the base year of REER

70,075,080,085,090,095,0

100,0105,0110,0115,0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Q1

2016

РЭОК 2000

РЭОК 2013REER 2013

REER 2000

Investment attractiventess

Foreign investments are Kazakhstani export.

Investments are sign and result of economic success. By their own they are not drivers.

Ratings and investment climate are secondary attribute


Investment flow

-2 000,0

0,0

2 000,0

4 000,0

6 000,0

8 000,0

10 000,0

Участие в капитале без реинвестиций

Долговые инструменты

Реинвестиции

Loans

Re-investments

0,0

10 000,0

20 000,0

30 000,0

40 000,0

50 000,0

60 000,0

70 000,0

80 000,0

90 000,0

31.1

2.20

0531

.12.

2006

31.1

2.20

0731

.12.

2008

31.1

2.20

0931

.12.

2010

31.1

2.20

1131

.12.

2012

31.1

2.20

1331

.12.

2014

31.0

3.20

1530

.06.

2015

"Свободный" долг

межфирменная задолженностьInterfirm loans

“Free” loans


Share capital excl reinvestments

Tax burden (PWC)


State financing

0%

10%

20%

30%

40%

50%

60%

0

1000

2000

3000

4000

5000

6000

7000

8000 Трансферты из Нац Фонда

Ненефтяные доходы

Доля трансфертов в доходах бюджета (прав. Ось)

0%

2%

4%

6%

8%

10%

12%

14%

16%

дек.12 июн.13 дек.13 июн.14 дек.14 июн.15

доля кредитов НУХ Байтерек в общем корпоративном портфеле банков второго уровня


Oil illusions

0

10

20

30

40

50

60

70

80

90

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

(про

гноз

)20

17 п

редп

ол20

18 п

редп

ол20

19 п

редп

ол20

20 п

редп

ол

Экспорт (млн. тонн)

Добыча (млн. тонн)

010000200003000040000500006000070000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

(про

гноз

)20

17 п

редп

ол20

18 п

редп

ол20

19 п

редп

ол20

20 п

редп

ол

Номинальные доходы от экспорта нефти (млн. долл. США)


Oligopoly. Regionalization matters.

Republican stat RealityАлматы

А

Б

В

Астана

Г

Д

Е

Актобе

И

К

Шымкент

Ж

З

Казахстан

А

Б

В

Г

Д

Е

Ж

З

И

К


Oligopoly. Value chain.

BazaarsBoutiquesRetailDrugstores

WholesellersDistributors Middlemen

Brend holders


Oligopoly. Examples.

Banking Telecom Pharma Construction Warehouses, malls, cinema. Agriculture Wholesale: petroleum, brand holders,

«middlemen».


Consumer goods market

0

50

100

150

200

250

Цена импорта

Маржа оптовика

Транспорт Маржа регионов

Розница Конечная цена

Import priceTransport

Wholesale margin

Region margin

Retail margin Final price


Import share in consumption


Import share in consumption

23

20

15

25

17

42

Services etc Domestic prod

"Import style" domesic goods Import trade margin

Import itself

Domestic goods Import


Inflation and devaluation

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

YtY devaluation Annual Inflation


Inflation drivers. Oligopoly and state monopsony (since 2009)

0

0,5

1

1,5

2

2,5

3

3,5

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Wholesale to retail ratio


0%

50%

100%

150%

200%

250%

2006 2008 2010 2012 2014

Import pricesProducers pricesWholesale prices

Processing (non oil) industry

0

2000

4000

6000

8000

10000

12000

14000

16000

Processing industry (excl. metallurgyand non-metal mineral production)

Consumer Import

Goals of state program (2011) «Productivity 2020»: «to 2015: …increase of

average capacity load of participants to 70 %;

to 2020 года:… average capacity load of participants to 80 %.»

Ready reserves for non-oil export are about 15 bln. USD– comparable with oil export volumes.


Importers vs Exporters

Distortion

Exporters – oil companies

Importers – domestic economy, SME

No domestic production.

Right

National production (exporters are part of it).

Import –supplemental, auxiliary purchases.


Dollarization (mentality)Weak in reality Strong in mentality

-10,00%-5,00%0,00%5,00%

10,00%15,00%20,00%25,00%30,00%35,00% External debt increase

(excl. state and interfirmdebts) to GDPBanks debt increase toGDP

0%

20%

40%

60%

80%

100% Share of USD-tied loans intotal loansShare of USD-tied mortgagesin all mortagages

250

300

350

400

450

Янва

рьАп

рель

Ию

льО

ктяб

рьЯн

варь

Апре

льИ

юль

Окт

ябрь

Янва

рьАп

рель

Ию

льО

ктяб

рьЯн

варь

Апре

льИ

юль

Окт

ябрь

2012 2013 2014 2015

thsd. Thg Model price

«Roof» index Almaty

Доходы от операций с недвижимостью (Алматы)


Income from real estate operations (Almaty mln tng)

Part III. New economic policy.Export orientation.

Weak tenge. High savings rate.

Market protection. Cheap and good non-tradeable sector

Active export marketing support

Social values change


Weak tenge. High savings

REER at 40-50 (relates to 6-7 tenge/rr.)

Expensive consumer loans and mortgages.

Stock market development conservation.

High inflation: 8-11% in 2016-2017, and 7-9% to 2018.


Houshold savings in banks


-2 500 000

-2 000 000

-1 500 000

-1 000 000

-500 000

0

500 000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Net savings

Net savings (excl.mortgages)

Tax policy

Tax credits and restructuring.

Debt withdrowal

Moratorium on SME check

No change in VAT model

No sales tax

Progressive income tax


Custom policy

Import tariffs increase.

Non-tariff barriers development.

Tightening Kazakhstani position in EAEU being in.


State financing. National Fund.

Switch from investments and subsidies to loans for working capital. Decrease such exposure from 2018.

Financing of budget deficit in 2016-2018. Financing of priority sectors of economy


Priority sectors

Infrastructure: transportation, energy, communication.

Melioration and agriculture

Education

Health


Export promotion

Infrastructure

Export credits, guarantees and insurance

KazAid

Exporters Board

Information policy


Realization

Systematic, complex and macroeconomic approach

Government structure change. Reconsideration of state participation. Information media (space) management.

Ideas change.


Policy priciples

Systematic vs manual

Complex vs project or situation related

Macroeconomic vs “pactical”


Government structureCurrent Proposed

Integration Minister Energy National Economy Investmens and

development Culture&Sport Eduction&Science Health and social

development

TradeNatural resources Infrastructure IndustryRegional Development Information and CultureEducation, Science and

sport.Health and social

developmentBook «Kazakhstan Economy: Myths and reality. New economic policy»


Quazi-state sector.

Liquidation of Samruk-Kazyna and other national holdings

Kaznex Invest capitalization and transfer of function from Damu.

Kazexportgarant capitalization.Changes in Development Bank of

Kazakhstan functions.Book «Kazakhstan Economy: Myths and reality. New economic policy»


Part IV. Infomedia and national Idea.

De-dollarization

New information policy and media (space)

Changes in social contract. Thoughts on changes in society

Social fair stateBook «Kazakhstan Economy: Myths and reality. New economic policy»


Part IV. Introduction


Information policy

Active policy

Board of Mass Media Governors

Focus on successes of businesses and people abroad

Promotion of kazakhstani goods


Social contract

From paternalism to partnership.Significant changes in society. (Separate research)

Support of public initiatives and financing NGO’s

New communication formats


Social specifics

15 – 25 world look formation. 25 – 35 realization. Carrier, family. 35 – 45 Thought about society. 45 – 60 surrounding improvement. 60+ Philosophy.

35-60 years – active social life

40-55 years – public opinion managementBook «Kazakhstan Economy: Myths and reality. New economic policy»


Changes in society

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1994 1999 2004 2009 2014 2019

Доля в общем электорате

Доля в активной части

Доля во влияющей части

New generation in society

New generation in active part of society

New generation in managing part


Public mind evolution

We think Reality


StabilityAgreementPaternalism

DevelopmentCooperationPartnership

Value comparison

New Old

Practical care and local benefit.

Global care.

Family values. Close circle.

supporters, same-thinkers.

State – partner. State – feeder and protector.

Fair. Equality.

Real results. Programs and strategies.


National Idea

Characteristics. Light and pharos Simple and emotional Meet expectations 1-2 generationCreation and management. Stuffing Fine tuning Modification

Different mentality. Individual vs public

Competition Posession Time Expansion Attitude to the world Ethics


New senses of «Mangilik El»

New concept of social state in Kazakhstan.

Transformation to «society if mutual success» to 2025.


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