Nartegin Tokkazy | 09.04.2024
The Russia-Ukraine War: A Double-Edged Sword for Kazakhstan's Economy
The war in Ukraine sent shockwaves rippling through the global economy, and Kazakhstan, a Central Asian nation strategically located between Russia and China, was not spared. The initial impact was a sharp devaluation of the Kazakh tenge. The currency lost a staggering 20% of its value against the US dollar within the first two weeks of the conflict, mirroring the depreciation of the Russian rouble. This devaluation significantly increased the cost of imports, a major factor contributing to Kazakhstan's inflation surge, which reached a concerning 19.6% by November 2022, according to data from the Kazakhstan National Statistics Bureau. This inflation spike eroded the purchasing power of Kazakh households, impacting their standard of living.
However, the war also presented Kazakhstan with some unexpected economic opportunities. As a major oil and gas producer, with proven oil reserves exceeding 30 billion barrels, Kazakhstan benefitted from the disruption of Russian energy exports caused by Western sanctions. Global demand for Kazakh oil skyrocketed, leading to a significant increase in export revenue. This windfall is evident in Kazakhstan's export figures, which reached a staggering $65.8 billion in the first nine months of 2022 – a remarkable 47.5% jump compared to the same period in 2021.
Despite the financial benefits, this newfound reliance on oil exports comes with its own set of challenges. The sanctions imposed on Russia have significantly disrupted supply chains, making it difficult for Kazakhstan to obtain crucial inputs for its manufacturing sector, which contributes around 14% of the country's GDP. This disruption threatens to stall domestic production and hinder economic diversification efforts, which aim to reduce Kazakhstan's dependence on the oil and gas sector. Additionally, Kazakhstan's close economic ties to Russia create a vulnerability, as its own economy is intricately linked to the health of the Russian one. Russia is Kazakhstan's largest trading partner, accounting for over 20% of its total trade volume. Any further deterioration in the Russian economy would likely have a negative cascading effect on Kazakhstan.
The war has also exposed Kazakhstan's vulnerability to geopolitical pressures. The intervention of the Russia-led Collective Security Treaty Organization (CSTO) in quelling protests in Kazakhstan in January 2022 served as a stark reminder of the country's dependence on Russia for security. This, coupled with the ongoing war in Ukraine, has pushed Kazakhstan into a delicate balancing act on the world stage.
While President Tokaev has condemned the war in Ukraine, he has also been cautious not to completely alienate Russia. Kazakhstan remains a member of the Eurasian Economic Union (EEU), a trade bloc dominated by Russia, and has refrained from imposing sanctions on its northern neighbor. This cautious approach reflects the complex geopolitical situation Kazakhstan finds itself in.
Looking ahead, Kazakhstan's economic future remains shrouded in uncertainty. The war in Ukraine shows no signs of immediate resolution, and the long-term economic consequences are still unfolding. To navigate this complex situation, Kazakhstan will need to carefully manage its oil revenue, prioritizing the diversification of its economy to reduce reliance on Russia. This could involve further development of its agricultural sector, which employs over 20% of the workforce, and fostering the growth of its information technology and renewable energy sectors. Additionally, Kazakhstan needs to actively strengthen its relationship with other trading partners, particularly China, which has already emerged as a significant investor in Kazakhstan's infrastructure projects. The war has served as a wake-up call, urging Kazakhstan to chart a more independent economic course to ensure long-term stability and growth.
However, the war also presented Kazakhstan with some unexpected economic opportunities. As a major oil and gas producer, with proven oil reserves exceeding 30 billion barrels, Kazakhstan benefitted from the disruption of Russian energy exports caused by Western sanctions. Global demand for Kazakh oil skyrocketed, leading to a significant increase in export revenue. This windfall is evident in Kazakhstan's export figures, which reached a staggering $65.8 billion in the first nine months of 2022 – a remarkable 47.5% jump compared to the same period in 2021.
Despite the financial benefits, this newfound reliance on oil exports comes with its own set of challenges. The sanctions imposed on Russia have significantly disrupted supply chains, making it difficult for Kazakhstan to obtain crucial inputs for its manufacturing sector, which contributes around 14% of the country's GDP. This disruption threatens to stall domestic production and hinder economic diversification efforts, which aim to reduce Kazakhstan's dependence on the oil and gas sector. Additionally, Kazakhstan's close economic ties to Russia create a vulnerability, as its own economy is intricately linked to the health of the Russian one. Russia is Kazakhstan's largest trading partner, accounting for over 20% of its total trade volume. Any further deterioration in the Russian economy would likely have a negative cascading effect on Kazakhstan.
The war has also exposed Kazakhstan's vulnerability to geopolitical pressures. The intervention of the Russia-led Collective Security Treaty Organization (CSTO) in quelling protests in Kazakhstan in January 2022 served as a stark reminder of the country's dependence on Russia for security. This, coupled with the ongoing war in Ukraine, has pushed Kazakhstan into a delicate balancing act on the world stage.
While President Tokaev has condemned the war in Ukraine, he has also been cautious not to completely alienate Russia. Kazakhstan remains a member of the Eurasian Economic Union (EEU), a trade bloc dominated by Russia, and has refrained from imposing sanctions on its northern neighbor. This cautious approach reflects the complex geopolitical situation Kazakhstan finds itself in.
Looking ahead, Kazakhstan's economic future remains shrouded in uncertainty. The war in Ukraine shows no signs of immediate resolution, and the long-term economic consequences are still unfolding. To navigate this complex situation, Kazakhstan will need to carefully manage its oil revenue, prioritizing the diversification of its economy to reduce reliance on Russia. This could involve further development of its agricultural sector, which employs over 20% of the workforce, and fostering the growth of its information technology and renewable energy sectors. Additionally, Kazakhstan needs to actively strengthen its relationship with other trading partners, particularly China, which has already emerged as a significant investor in Kazakhstan's infrastructure projects. The war has served as a wake-up call, urging Kazakhstan to chart a more independent economic course to ensure long-term stability and growth.
