The local capital market has shown stable growth within the last two years.
Republic of Kazakhstan
Country Facts
Federation of Euro-Asian Stock Exchanges
During 2017 Kazakhstan has been steadily recovering from economic downfall caused by slump in oil prices and exacerbated by regional crisis involving sanctioned Russia and slowing down China. The economy grew at around 4% in 2017 as oil prices seen an upsurge and reached 70$ per barrel in the first weeks of 2018. Economic growth has picked up since the start of 2017 during which National Bank managed to reduce inflation which exceeded 17% during crisis hit years of 2015 and 2016 to around 7% throughout 2017. Oil exports soared in the end of 2017 with the long overdue industrial launch of Kashagan oil field. At the start of 2018 Kazakhstan signed a strategic contract with European Bank of Reconstruction and Development aimed at improving competitiveness and diversifying economy to cope better with external shocks.
Back in 2015 president Nursultan Nazarbayev unveiled a document called “100 concrete steps to implement five institutional reforms” in order to give the country not only a clear direction where it is being taken but also to show the international community a certain checklist of the economy’s recovery and progress. The institutional reforms touch upon various economic aspects but the foremost and toughest aim of them is to reduce the government participation in the economy and let it develop based on competitiveness and rules of free market. Efforts to restructure and privatize state owned enterprises especially those in non-energy sector would enable development of diversified and vibrant economy. Thus it is a crucial task for the government, top business executives and regulators to implement structural reforms as the era of high oil prices has been passed and Kazakhstan faces a new reality at the dawn of informational and technological period.
Under President Nazarbayev’s decree a new state company Kazakh invest was established in the beginning of 2017 in order to attract FDI into the economy. A dozen of local offices in every region of Kazakhstan as well as foreign offices in key country partners such as China, Russia and USA were established to act a single window to consult foreign investors about investment opportunities in the country. This act together with prudent fiscal and monetary policy of National Bank
should encourage investment into the region’s non-oil economy.
Banking sector of Kazakhstan has faced one of the hardest crises since financial crisis in 2008 as the lending remained flat to nonfinancial sector during 2017. A few banks defaulted as well as one of the largest banks Kazkommertsbank was announced for National bank bailout of 2.1 trillion KZT. This was caused by a poor quality of loan portfolios as NPL level in some of the banks exceeded as much as 85% share of total loans. With the exception of government lending expenses such as Housing savings program lending activity of commercial banks is stagnating as the interest rates are unattractive for small and medium sized enterprises. In June 2017 National bank launched a program worth 700 billion KZT for recapitalization of commercial banks to improve their financial stability and ensure that NPLs are sufficiently provisioned. This recap package is estimated to rehabilitate commercial banking industry.
Parallel with the banking crisis the stock market of Kazakhstan has been steadily developing. Despite the fact that the local capital market is still in its infancy state it has shown stable growth within the last two years. Last year commercial bonds together with several new FX securities were introduced at the Kazakhstan Stock Exchange (KASE). 8 issuances of commercial bonds were listed worth 13,3 billion KZT with 11-14,88% annual interest in 2017. KASE has also enhanced its market data business by introducing non display information service, launching KASE News weekly broadcast, etc. These initiatives are aimed to raise financial literacy of Kazakhstan’s business society and general population and promote capital markets as an alternative to commercial bank financing. Kazakhstan has received “Frontier” status in FTSE country ranking and now aims to jump into “Emerging” category. In order to achieve that transition, large technical work is being performed in order to comply with industry best practices such as T+2 settlement cycle as well as trading using central counter party. During this coming few years KASE will pull up its risk management practice up to a par with industry standard to become attractive for foreign investors and comply with rigorous regulation present in the stock exchange industry.
Economic Development and Outlook
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