Kazakhstan is rarely top of the international news but during its June 9 snap presidential election it hit the front page as some vigorous protests broke out, resulting in the arresting of hundreds of people on the streets. The pictures that went around the world of police officers even dragging anguished grandmothers to waiting detention vehicles were a disaster for a nation that has spent fortunes on buffing its image as modern, open and dynamic.
The demonstrations in fact came to the boil after a number of simmering protests, typically driven by people determined to use the milestone election (held after the resignation after three decades of autocrat Nursultan Nazarbayev) to highlight what they feel are entrenched economic injustices, occurred over recent months. Strong protests in multiple cities even took place before Nazarbayev’s resignation, during February. February ended with Nazarbayev announcing a $3.6bn drawdown from the country’s rainy day fund to mitigate some economic hardship. Nevertheless, smaller protests continued to take hold, though mostly in the capital Nur-Sultan (renamed from Astana after “Elbasy”, or Leader of the Nation Nazarbayev stepped down, without truly relinquishing power, for he continues to exercise authority from behind the scenes, making the election a patent sham).
Even when the protests were political, with slogans calling for political change in what is essentially a fake democracy as any opposition forces have since the demise of the Soviet Union and the start of Kazakh independence been kept sufficiently in check, economic concerns were the pressing matter for many. The simple reality is that Kazakhstan’s recovery in economic growth in recent years, which rose to 4% in 2017 and 4.1% in 2018 after a 1% GDP gain in 2016, has been a poor general quality of life indicator in the country. After the deterioration of growth during the slump in world oil prices that set in during 2014, quality of life has never appeared to truly pick up for ordinary Kazakhs.
In a country with a national average wage of around $450, much of the population finds itself at the bottom of the average. This is particularly visible in the public sector where some paltry salaries before June 1 were as low as KZT30,000 or $75-$78, right at the level of the official Kazakh minimum wage. An individual on a minimum wage salary would barely be scraping by as the country’s subsistence minimum last registered at KZT28,324 in May, according to official figures from the State Statistics Committee.
The figures are especially alarming as public sector salaries have stood dormant in the country throughout the past several years despite prices in the country rising significantly. Annual inflation in 2016 stood at 8.5%, before slowing to 7.4% in 2017 and 5.4% in 2018.
“The economy grew as a whole, but per capita incomes did not grow. Therefore, now we [are trying to] bring them into compliance. We are doing this so that the real incomes of the population correspond to the real growth of the economy itself," then economy minister, Timur Suleymanov, was quoted as saying by local news website Tengrinews last October 31. It marked a rare case of a top official acknowledging the poor economic conditions faced by many Kazakh citizens.
Populist pay hike
On June 1, the government introduced a 30% pay hike for public sector employees. The move was undoubtedly a populist one, carried out ahead of the snap election.
When announcing the pay rise decision in March, Interim President Kasym-Zhomart Tokayev—set to become Nazarbayev’s handpicked successor as permanent president with first election exit polls showing him dubiously receiving around 70% of the vote—said it would "directly affect the lives of more than a million civil and state employees".
The pay hikes, though, may not be sufficient to quell the still brewing public discontent in the country longer term, as the intensity of the election day protests showed. One Kazakh elementary school teacher told bne IntelliNews that even with her slightly improved salary, which stood at $100, she still had to rely on the safety net provided by her family members to be able to afford anything beyond groceries and other basic essentials. An article recently published by RFE/RL cited a similar example involving a janitor. To take care of her family of six, the janitor told how she had to supplement her $120 salary with sales of fresh milk to co-workers and neighbours.
Severely understated unemployment
Beyond concerns over incomes, the Kazakh population may also be facing a severely understated unemployment problem. The country’s unemployment rate fluctuated between 4.8%-5.4% in 2018, according to official figures.
This level of employment prevailed in previous recent years as well. Independent observers see underemployment, which stands at 14%-16% across the general population, as the real problem, however, Central Asia Caucasus Analyst wrote on May 23.
Tokayev’s government will have a lot to tackle going forward, if it truly aims to address the nation’s grievances and stop protests gaining momentum and, at least, stop the demonstrations hitting the level seen during the 2016 land reform protests.
Yet even if the government manages to address all the social grievances of citizens, a number of risks remain within the Kazakh economy that may hinder its efforts.
Double whammy of oil and Russia
Kazakhstan saw its growth plummet during 2015-2016 due to the double whammy of weak oil prices and sanctions that hit Russia, a major trading partner with Kazakhstan given the unbroken links stemming from the Soviet era. Those close ties also reflect in the Kazakh currency's dependence on the Russian ruble. Whenever the ruble faces downward pressure, the tenge often takes a fall as well. The tenge, of course, is also at the mercy of oil prices.
Kazakh consumers generally benefit from a stronger tenge (against the dollar), given the great number of goods that are imported. When the tenge reaches new levels of weakness, prices are bound to grow, weakening the buying power of local salaries.
The currency broke a new all-time low by reaching KZT384.53 against the greenback on June 7, according to figures from the central bank. The drop panicked citizens who fear the government will stop supporting the tenge after the election, but even if you put this nervousness down to ‘election fever’ it does not mean there is no legitimate basis for Kazakhs to worry. The recent downward trajectory of Brent crude price does not look too encouraging either.
The hydrocarbon-rich country now has the jitters over its resource curse for the first time in many years. In an effort to diversify the economy away from oil export-reliance, Kazakh authorities have decided to tangle with what could turn out to be another dangerous addiction, namely dependence on Chinese investment and China’s economy. Some analysts view China as a clear and present source of risk to Kazakhstan’s economic growth given the worries that China will experience a prolonged economic slowdown.
China’s presence in Kazakhstan and Central Asia is growing relentlessly. A big proportion of China’s Belt and Road Initiative (BRI) investments are concentrated in logistics and infrastructure as Beijing wants to transform parts of Kazakhstan into a transit zone, as part of a modern-day ‘Silk Road’, for the export of Chinese goods, particularly to European markets. Yet China also sees Kazakhstan as a potential exporter of “ecologically clean” food and agricultural products to its market, something Kazakhstan is betting on with a substantial diversification into agricultural production.
China has also become the main consumer of Kazakh copper. Kazakh refined copper output grew by 8.8% to 149,499 tonnes in the first four months of 2019 partly thanks to China’s demand.
Some notable Chinese projects planned for Kazakhstan include pumping $1.1bn into its auto manufacturing sector. The scale of the plans was unveiled after a subsidiary of China’s Genertec bought out a 51% stake in Kazakhstan’s largest automobile manufacturer.
Another big project being rolled out is the Kazakh-Chinese transport, transit and trading hub Khorgos International Centre of Boundary Cooperation (ICBC). The hub recorded an 8% y/y increase in trade visitors to 1.2mn in 2018.
Cargo turnover via Kazakhstan grew by 7.3% y/y to 596.07bn tonne-kilometres (tkm) in 2018, partially thanks to BRI-supported projects.
Botched light-railway investment
However, the ex-Soviet state recently found itself botching a $1.9bn deal on the construction of a light-railway system. Although it was meant to start operating in 2020, the construction of the project and China’s lending for it were halted after state-owned Kazakh company Astana LLRTmanaged to sink $258mn of $313mn provided by China Development Bank for the project. The funds were apparently deposited into the troubled Bank of Astana, where they were lost less than a month later when the bank’s licence was revoked in September 2018.
The case might be an isolated one or it may indicate general ineptitude within some Kazakh state-owned companies. If this case goes unresolved, it may end up costing more Chinese investments desired by Kazakh authorities for supporting growth.