Publication: Monitor Volume: 6 Issue: 26

In 1998, Kazakh GDP fell 2.5 percent despite rising GDP in the first half of the year. The aftereffects of the Russian financial crisis and a terrible harvest derailed the modest economic recovery that began in 1996. In 1999, after a poor first half, GDP rose an estimated 5.0 percent in the fourth quarter, following a 5.5 percent rise in the third. For the year as a whole, GDP was up 1.7 percent (Russian agencies, Central Asia and Caucasus Report, Vol. 3 Issue 3). The positive, albeit modest figure, is quite a turnaround. Earlier in 1999, many outside analysts and Kazakh economic policymakers feared a severe economic collapse. This threat has now dissipated. The growth in GDP was only partly due to a recovery in industry. Industrial output rose 2.2 percent in 1999 (Russian agencies) as dramatic increases in international oil and commodity prices induced mines and oil companies to raise production over the year. Mining and extraction accounts for more than a third of industrial output and was up 9.5 percent last year; crude oil output alone was up 12 percent. Industry also benefited from the sharp decline in currency in April. The fall in the value of the tenge has resulted in significant import substitution in Kazakhstan, helping domestic manufacturers. The recovery of demand in Russia, which accounted for 29 percent of Kazakh exports in 1998, has also boosted growth through greater exports. While exports on a customs basis in the first 10 months of 1999 were still down 8.7 percent from the same period in 1998 (Interstate Statistical Committee of the CIS), both higher commodity prices and greater demand in Russia led to dramatic growth in exports in the final months of last year (October exports were up 73 percent). Because imports for the first ten months of 1999 fell 11.6 percent, Kazakhstan is still registering a significant trade surplus on a customs basis.

Growth in Kazakhstan in 1999 was also due to a much better harvest. After an abysmal grain harvest in 1998, agricultural production soared 28.9 percent in 1999, increasing agriculture’s share of GDP from 8.4 percent to 10.2 percent. Investment in basic capital also rose 3.8 percent in 1999 as construction began to recover, contributing to the rebound in GDP as well. Growth in investment occurred despite a fall in direct foreign investment to an estimated US$960 million, down from US$1.13 billion in 1998. The government’s continuation of its “blue chip” privatization program, which includes the sale of stakes in several Kazakh oil and mining companies, should boost foreign investment levels this year and contribute to the economic recovery. Prospects for an acceleration in GDP growth in 2000 are promising as long as commodity prices stay firm and the Russian economy continues its recovery.

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