Economic shockwaves (continued)
Business and Economics2 Comments
A few weeks back, just after the collapse of Lehman Brothers, I wrote here about the potential reverberations the current financial/economic crisis may have on Central Asia. It wasn’t rocket science to predict serious problems for Kazakhstan as they were visible well before the markets evaporated around the globe.
The Economist now runs a piece on the effects the global downturn will have on the region. No new insights are presented, but interesting to see the story picked up by a larger publication. Some tidbits:
Sharp declines in commodity prices and demand for metals have led Kazakhstan’s big mining companies to cut production and send thousands of workers on leave at half-pay. The drop in oil prices means it will not be possible to replenish the national oil fund as quickly as might be needed. “The safety cushion that we had has disappeared,” says Tulegen Askarov, a well-known economist. Moreover, no detailed programme has been revealed on exactly how the $15 billion will be used—alarming in a country notorious for corruption. “This lack of transparency scares everyone and undermines the trust,” says Mr Askarov.
So how about the other countries? The Economist deems Kyrgyzstan vulnerable due to the high activity of Kazakh banks and construction there, while Uzbekistan and Turkmenistan are too isolated for the crisis to have had much impact yet. Eurasianet ran an article on Turkmenistan the other day, echoing that assumption yet warning of the negative effects a “new” Russian financial crisis may have on the country.
Think remittances: Hundreds of thousand of labour migrants from Central Asia are working in Russian and Kazakhstan. With construction grinding to a halt on many building sites, they will send home less remittances. Countries heavily dependent on their labour migrants, i.e. Kyrgyzstan and Tajikistan, look increasingly exposed to the financial/economic crisis. Elsewhere in the world, a slump in remittances is also high on the agenda (here, here and here)
It’s then somewhat welcome to hear that experts such as Grigory Marchenko, former chair of the National Bank and now Halyk Bank’s boss, strike a somewhat more optimistic note, trying to put things into perspective:
He recalls the 1998 financial crisis, when Russia defaulted, oil fell to $10 a barrel, and Kazakhstan had its worst harvest in decades. Yet its economy started to grow the very next year, and to boom in 2000.
I’ll set a reminder to look at that sentence again next year.
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Tajikistan became quite a grim place now. It s the first time here and the different crisis’ from last year made life much harder. Food prices went up three times on the market, if you are in a supermarket, it is much more expensive, some goods are even more expensive than in Europe. Especially basic food items are much more expensive like rice.
Another issue is fuel. 1,5 years ago a liter of 92 was 500 Sum in Uzbekistan, now it is 1200 Sum, Taxi prices tripled in Tashkent. More and more people are leaving the region, esp. in Tajikistan. And the crisis even did not arrive completely.
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The general picture seems fairly mixed on the whole. As you rightly note, Kazakhstan did endure the first pangs of the liquidity crisis almost before anybody else in the world, which has put its top-tier banks in the arguably fortunate position of having been forced to repackage their rotten loan portfolios early.
Severe storms may yet be around the corner with some misjudged short-term loan coming from maturity, but the Kazakh government’s recently proposed partial nationalisation of the top four banks suggests it will happily shoulder the brunt of whatever is to come.
On another positive note, inflation is noticeably slowing down by the month (13.9 percent year-on-year in October, down from by 18.2 percent year-on-year in September). Clearly, this is in part a result of the economic slowdown, but the government assiduously interventionist policy in the agriculture and fuel products market could also leave their mark.
The issue of how transparently the billions of dollars that the government has committed to pumping into the economy are used is crucial, however. With state fund and holding companies being bundled together, and being put into the hands of trusted presidential cronies, there is not much room for optimism. One can only hope that the clientelistic fashion in which public funds are disbursed will nonetheless have a positive long-term impact on the national economy.
On the issue of employment, metals companies have indeed been seeking to shed workers, only to strong-armed into rethinking their approach to saving money by a persuasive government. Indeed, under an agreement with the government, companies like London-listed Kazakhmys have undertaken to re-train a number of employees while they work on half-pay, while introducing a moratorium on the employment of new workers.
In Kazakhstan, the government seems to acquit the task that would be performed by trade unions anywhere else.
Even the picture on remittances will not be clear for some time. There are concerns for obvious reasons, but none of the main candidate countries _ Kyrgyzstan and Tajikistan _ have registered any rise in returning migrants. Likewise, the Russian Foreign Migration Service swears blind that official quotas for foreign workers (which obviously do not realistically represent the number of migrant labourers in that country) will remain virtually unchanged.
In a recent article in Russian business daily Vedomosti, the writer argued that migrant workers are nonetheless unlikely to return to their home countries in the event of downturn in the construction sector, preferring instead to try and seek other work or agree to lower salaries.
In the case of Tajikistan, remittances have actually grown over the past year, as economic conditions deteriorate to the point that yet more able-bodied and skilled workers continue to flee the country. The issue is obviously relative, since the country will suffer from a woeful economic state for the indefinite future, but it does not seem as though any downturn in the country can necessarily be directly correlated to the short-term financial crisis.
Kyrgyzstan does, unlike Tajikistan, have a lending sector significantly exposed to Russia and Kazakhstan, although again the issue there seems to be more of a long-term humanitarian nature unfortunately.
One aspect that seems to have been largely overlooked amidst the financial crisis potential fallout in Central Asia is the potential geopolitical gains that regional hegemonic powers _ Russia and China _ could stand to make out of their neighbours’ misfortune.
At last week’s SCO summit in Astana, Chinese premier Wen Jiaobao committed to providing struggling countries with soft loans and technical assistance in the agricultural sector _ not something on which largely rural nations like Tajikistan and Kyrgyzstan should need to rely. Beijing is more interested in these unilateral, strings-attached forms economic cooperation than the model that British Prime Minister Gordon Brown has called for in suggesting that China should allocate more of its reserves to the IMF’s bailout funds.
Likewise, Russia has made a point of mostly distributing its largesse, whether as investment or aid, without going through intermediaries like the United Nations and looks set to build on that trend.
Both Moscow and Beijing seem first and foremost interested in cultivating their influence and engendering a culture of dependency and self-centred benefits.
In theory, this should not necessarily be a bad thing in itself, but incompetent leadership threatens to endanger any advantages that Central Asian countries stands to accrue from aid and infrastructure projects underwritten by China and Russia. As nations in the region continue to fail in creating any workable framework within which to properly integrate their economies, it is outsiders that will benefit in lean times.
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