The ruble vs the tenge over the last 12 months. The sharp change in February indicates the first tenge devaluation. Since then, the ruble has continued to slide, again putting pressure on the tenge. xe.com.
As the price of oil falls, and as Russia’s Central Bank struggles to keep the ruble from hitting a new record low each day, Kazakhstan’s currency is facing pressure on two fronts. The major oil producer, whose economy is tightly linked to Russia’s, already sharply devalued the tenge once this year. But facing these new challenges, can the Kazakh National Bank hold its currency stable? And can Kazakhstan keep its books balanced?
Higher output and weaker global demand have pushed the price for benchmark Brent crude to $83 per barrel, its lowest in four years, down 27 percent since June. Oil, Kazakhstan’s chief export, is still above the government’s fiscal breakeven point of $65.5 per barrel, as calculated by the IMF. But it is below $90.6, where Kazakhstan faces a balance of payments deficit that puts further downward pressure on the currency. Moreover, trade with Russia is down 22 percent this year.
Kazakhstan’s “tenge weakened in forward markets last week, responding to a drop in the price of oil and sliding ruble,” Halyk Finance, an Almaty-based investment bank, said in an October 13 note. “The weakening of the Russian ruble and falling oil prices are the main fundamental reasons of the tenge weakening in forward markets.”
Russia is Kazakhstan’s main trading partner. And because of the falling price of oil, and the effect of sanctions the West has imposed on Moscow for meddling in Ukraine, the Russian currency has fallen nearly 20 percent this year. That has put the ruble-tenge exchange rate back where it was just before the tenge devaluation (see chart).
President Nursultan Nazarbayev is in Brussels putting the finishing touches to a landmark agreement with the European Union, cementing ties with Europe even as Astana pushes ahead to join the Russian-led Eurasian Economic Union.
Nazarbayev met Jose Manuel Barroso, president of the European Commission, on October 9, to “confirm the conclusion of negotiations” on the Enhanced Partnership and Cooperation Agreement, the EU said.
The agreement – three years in the making – aims to boost cooperation in around 30 policy areas including trade and foreign and security policy, it said, and will “significantly deepen political and economic ties” between Kazakhstan and the EU (Astana’s largest trade partner and a major consumer of its energy exports).
The agreement is a far weaker deal than the Association Agreement signed by Ukraine this year, but is still the most ambitious deal to be concluded between the EU and any Central Asian state.
It “puts a strong emphasis on democracy and the rule of law, human rights and fundamental freedoms,” the EU stated, although it failed to specify how.
The visit was marred by news that France is investigating possible kickbacks involving a helicopter deal with Kazakhstan, and probing allegations that Nazarbayev put indirect pressure on Brussels to close a bribery case against Kazakhstani oligarchs.
There was also controversy over Kazakhstan’s human rights record.
French investigators are probing suspected kickbacks paid over a lucrative helicopter deal with Kazakhstan, Le Monde has revealed.
The report emerged the day before President Nursultan Nazarbayev heads to Brussels to cement Kazakhstan-European Union ties. Embarrassingly, it alleges the Kazakh president used a €2 billion contract with Marseille-based Eurocopter (since renamed Airbus Helicopter) to pressure Belgium to drop bribery charges against three Kazakhstani oligarchs.
The investigation into the Eurocopter deal (signed in 2010 when Nazarbayev was welcomed to France by Nicolas Sarkozy, then French president) on suspicion of money-laundering, corrupting public officials and receiving stolen goods began in 2012 and has been conducted in the utmost secrecy, Le Monde reported.
Last month two former Sarkozy associates who held top jobs in his administration were arrested on suspicion of involvement in paying kickbacks over the contract, the newspaper said, naming them as Jean-Francois Etienne des Rosaies, a former adviser to Sarkozy, and Nathalie Gonzalez-Prado, a former senior official at the Elysee palace.
The probe was sparked by the appearance of “suspicious funds” (more than €300,000) in the account of Etienne des Rosaies, the report said, adding that two unnamed “intermediaries” and a lawyer had been indicted.
Sarkozy is also “suspected of having put pressure in 2011 on the Belgian Senate,” at Nazarbayev’s request, over a bribery and money-laundering probe involving three Kazakhstani oligarchs as a condition for the helicopter deal going ahead, Le Monde claimed. The report did not name the oligarchs.
The biggest headline to come out of the weekend's Caspian Sea summit in Astrakhan, Russia, was that the five countries along the sea agreed to prevent any outside military presence from the sea. This has been a longstanding goal of the sea's two biggest powers, Russia and Iran, the result of worries that the U.S. and/or NATO would somehow gain a military foothold on the sea via security cooperation programs with Azerbaijan, Kazakhstan, or Turkmenistan.
Russian President Vladimir Putin, summing up the summit's results and formal declaration, said:
The declaration sets out a fundamental principle for guaranteeing stability and security, namely, that only the Caspian littoral states have the right to have their armed forces present on the Caspian. This was the way the situation developed over history, and we do not seek to change it now. In general, only the five Caspian countries that have sovereign rights over the Caspian Sea and its resources will resolve all matters pertaining to the region.
Kazakhstan's chances of hosting the 2022 Winter Olympics took a turn for the better this week as Norway announced it was withdrawing Oslo's bid, leaving only Almaty and Beijing interested in hosting the expensive extravaganza.
Norway pulled out of the race on October 1 citing a lack of public support for the costly venture. This year's Sochi Winter Olympics, in Russia, came in way over budget at $51 billion. The fear of ballooning costs has seen the number of contenders to host the 2022 Games dwindle from six to just two.
With Kazakhstan's economy under pressure from the downturn in close partner Russia, the country’s Olympic Committee will need to carefully watch its budget. So far, Kazakh officials are confident they can keep costs for the Almaty bid down as the city already has much infrastructure required for the Games. It has facilities built for the 2011 Asian Winter Games and is currently splashing out $1 billion on amenities for the 2017 Winter Universiade, which brings together student athletes from around the world.
Kazakh officials see the hosting of high-profile events like the Winter Olympics as great PR. “As government officials we are working hard to attract investments and being in a country recognized all over the world is very good for attracting investments,” Kairat Kelimbetov, chairman of Kazakhstan's National Bank, told TengriNews in August.
From the EBRD report: “The chart shows that Belarus, Armenia and Tajikistan (the latter predominantly through remittance flows) have the highest overall economic exposure to Russia. Such exposures are also significant for the Kyrgyz Republic, Moldova and Ukraine.”
As Russia’s economy goes, Central Asia’s follows. So it is no surprise that the current downward drift in Russia will hurt the region, potentially for years to come. Remittance-dependent countries like Kyrgyzstan and Tajikistan should be especially worried, the European Bank for Reconstruction and Development, a multilateral lender, says in a new report.
In its September regional assessment, the EBRD forecasts growth in Russia will come to a “standstill” in the coming months. Already pronounced, Russia’s economic slump is being exacerbated by the war in Ukraine and Western sanctions. The EBRD said Central Asia, and formerly communist countries more broadly, can expect “significant spill-over effects.”
New sanctions by the EU and U.S., which will dampen growth in Russia, “will negatively affect growth in the Central Asian countries.”
As in 2009, during the financial crisis, migrants and their dependents back home will be the first to feel the pain. Remittances from Russia to Central Asia fell in the first quarter of 2014 compared with the previous year, “for the first time since 2009, primarily due to the slowdown in Russia,” the EBRD said. “Particularly vulnerable are [the] Kyrgyz Republic and Tajikistan, where even a small drop in remittances from Russia is substantive, as remittances make up 29 percent and 49 percent of GDP respectively.”
A fall in remittances “may significantly dampen consumer demand in lower-income countries in the region.”
Russian President Vladimir Putin failed to score any major diplomatic victories at a summit of the Shanghai Cooperation Organization (SCO) in Tajikistan on September 12. The Kremlin appears eager to boost the six-state security bloc as its confrontation with the West over Ukraine drags on.
Putin used the Dushanbe summit – also attended by China’s Xi Jinping and the presidents of the four Central Asian members (Kazakhstan’s Nursultan Nazarbayev, Kyrgyzstan’s Almazbek Atambayev, Tajikistan’s Emomali Rakhmon, and Uzbekistan’s Islam Karimov) – to court international support for his policies in Ukraine.
Speaking after the summit, Putin said that the approaches of the SCO members on Ukraine were “identical and close.”
That looked like wishful thinking, however, given the evident concerns of his Chinese and Central Asian partners over Russia’s apparent military interventions and support for separatism in Ukraine.
Contending with separatist movements at home in Tibet and Xinjiang, China has always opposed what it terms “splittism,” while the Central Asian states – which, like Ukraine, have ethnic Russian minorities – are nervous of Russia’s regional saber-rattling.
The summit ended with the signing of a joint declaration containing a pro-forma call for “restoration of peace in Ukraine” (and a declaration of opposition to “unilateral and unrestricted” deployment of anti-missile systems, in a side swipe at the United States).
Gas-guzzling Kazakhstan – where the jeep has long since overtaken the horse as the favored means of transport – has been urged to save fuel, as a months-long gasoline shortage continues to distress drivers across Central Asia.
On September 2 Energy Minister Vladimir Shkolnik urged the people of his oil-rich country to cut back on consumption, suggesting carpooling and downsizing to small cars from the road-hogging jeeps his compatriots favor.
Kazakhstan is entering its third month of gasoline shortages, with long queues forming in many cities at filling stations, some of which have unilaterally imposed rationing.
The minister’s remarks caused a storm of protest on social media, as Radio Azattyq reported, prompting users to question if Shkolnik would be driving his neighbors to work and wonder where all the oil their country pumps is going, if not into their tanks.
As with so many of Kazakhstan’s economic woes these days, the answers to Kazakhstan’s fuel conundrum lies over the border in Russia, where rising prices mean Kazakhstani importers can no longer afford to buy fuel to sell at home.
This is due to the devaluation of the tenge in February, which has priced importers out of the Russian wholesale market, Aset Magauov, head of the Kazenergy industry association told Bnews on August 29. With prices at the pump controlled by the state in Kazakhstan, retail prices fell lower than wholesale prices in Russia, making imports uncompetitive.
Russia's Defense Ministry has announced plans to hold large-scale military maneuvers near the border with Kazakhstan. The announcement comes as relations between Moscow and Astana sink to their lowest level since the collapse of the Soviet Union, amid heightened regional tensions over the war in Ukraine.
Military exercises involving 4,000 troops and 400 pieces of military hardware will take place in the southern region of Altay in mid-September, Major Dmitriy Andreyev of Russia’s Strategic Missile Troops said on September 3, as quoted by RIA Novosti.
Andreyev described the maneuvers – in which troops will practice repelling strikes by precision weapons and counteracting saboteurs – as part of the Strategic Missile Troops’ “training plan.” However, Kremlin-controlled RIA Novosti did not miss the chance to note that recent military maneuvers in other parts of Russia “have aroused the concern of Western countries in the context of the situation in Ukraine.”
The announcement came amid a chill in the usually warm Russo-Kazakh relationship. Kazakhstan is a close ally of Russia and a fellow member of the Customs Union free trade zone, which is set to become the Eurasian Economic Union (EEU) in January. The two presidents, Kazakhstan’s Nursultan Nazarbayev and Russia’s Vladimir Putin, generally enjoy an affable personal relationship, too.
However, Astana’s loyalty has been tested to the limits by Russian policy in Ukraine, and by Moscow’s heavy-handed attempts to dictate its own vision of the EEU on other members.
Russia's Vladimir Putin has issued an ukaz on authorizing an agreement to accept Armenia into the Eurasian Union, a planned back-in-the-USSR bloc, but this may or may not make Armenia's membership actually happen.
Armenia's membership in the Russian- championed Eurasian Union, and its already active element, the Customs Union, has long smacked of a Nordic epic song, with multiple characters and events putting the spokes in Armenia's wheel. Customs-Union members Belarus and Kazakhstan are Armenia skeptics, and generally less keen about the Kremlin's everyone-with-a-Soviet-past-is-welcome policy.
Putin's September 1 order, though, includes unnamed, "minor" changes to the terms of Armenia's membership. It is unclear if this refers to concessions on the Armenian-championed breakaway territory of Nagorno-Karabakh. Kazakhstan, with an eye to Turkic ally, Azerbaijan, which claims Karabakh as its own, strongly opposes Armenia's attempts to bring breakaway Karabakh into the Customs Union..
Recent statements by both Putin and Kazakh President Nursultan Nazarbayev, though moderated by courtesies, suggest a muffled disagreement between Moscow and Astana. Some believe that Russia's stance on Armenia and its campaign in Ukraine have contributed to the reported chill.
Nazarbayev said that he would quit the Eurasian Union if the terms of membership are changed or if the membership poses threat to Kazakhstan's independent statehood. Putin issued a reminder that Kazakhstan "had never had statehood" before Nazarbayev.