Although ruled by an autocrat whose colleagues have a tendency to meddle in the economy in pursuit of their own personal gain, the Kazakh economy is becoming one of the most developed economies in the CIS, including Russia. Three factors are contributing to Kazakhstan’s success: oil, foreign investment and better banking. Kazakhstan enjoyed GDP growth of 14 percent in the first half of 2001 after growth of 9.6 percent in 2000 (CIS Statistical Bulletin, #14, July 2001). Much of the acceleration in growth this year and last has been due to higher oil output and, especially last year, higher prices. Production of oil and gas condensate in Kazakhstan was up 18.9 percent in January-August. The opening of the Caspian Oil Pipeline this year will boost oil exports and output next year.
The second major factor in boosting the Kazakh economy has been foreign direct investment. Early on, the Kazakh authorities recognized that they had neither the capital nor the expertise to develop Kazakhstan’s energy resources by themselves. As important, they also decided that foreign companies could better manage many large formerly state-owned Kazakh enterprises, including the Karaganda steel works. The relatively early introduction of capital and better management of these companies has generated very substantial gains in output and productivity, contributing to recent rapid rates of growth.
The final factor is banking. The financial system has been a source of weakness in all the former Soviet transition economies. Although some of the problems of the sector were created by government policies of using banks to funnel funds to loss-making enterprises so as to keep the enterprises in business, a large share of banking sector problems were self-inflicted. For reasons of gullibility or worse, bank officers lent deposits to enterprises that had no intention of repaying the loans. Kazakhstan now has the best-run banking system in the CIS, in large part because most of the banks are in private hands (see below). This fall, it is selling the state-owned third of Narodny Bank of Kazakhstan. Although financial intermediation as a share of GDP is low in comparison to developed market economies, banks in Kazakhstan play a much larger, healthier role in the economy than they do in other CIS states.
The only sobering cloud on the horizon is the current account balance. After moving heavily into surplus in 2000, a surge in imports is driving the balance into deficit in 2001. In the first half of the year, the deficit ran US$550.8 million, of which US$530.1 million was incurred in the second quarter (National Bank of Kazakhstan Report, September 2001). If the Kazakh government does not keep growth in aggregate demand under control, Kazakhstan could face a nasty balance of payments adjustment in the coming years.
KAZAKH FINANCIAL SECTOR POSTS GOOD FIRST HALF RESULTS.