Our comprehensive assessment of Kazakhstan's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Kazakhstan, as well as the latest industry developments that could impact Kazakhstan's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Kazakhstan before your competitors.

Country Risk

Kazakhstan Country Risk

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CORE VIEWS

  • We believe the deteriorating domestic demand outlook for Central Asia will make the region more susceptible to Islamist radicalisation. Out of the five Central Asian states - Kazakhstan, Turkmenistan, Uzbekistan, Kyrgyzstan and Tajikistan, we believe the latter two to be most exposed to the threat of radicalisation.

  • We expect the Kyrgyz som to remain on a more gradual depreciatory trajectory in 2015 than its Tajik counterpart. The Kyrgyzstani economy faces more limited depreciatory pressure from falling remittance inflows and smaller inflation costs, while the authorities face higher political pressure than Tajikistan, underpinning our view.

  • Tajikistan's social and political scene will become increasingly unstable in the coming quarters, as the country grapples with the shock stemming from Russia's economic...

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Kazakhstan Operational Risk Coverage (10)

Kazakhstan Operational Risk

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Kazakhstan is a regional outperformer for Labour Market Risk in BMI's Operational Risk Index. The country has a high level of migrant workers, boosting the size of the labour force. A highly level of literacy, as well as low costs, means businesses will not struggle to hire from within the domestic workforce. However, risks are present in the form of relatively poor urbanisation rates for the country, as well as only a small percentage of the labour force with tertiary education. Taking these factors into consideration, we score Kazakhstan 65.3 out of 100 for Labour Market Risk, putting the country in first position in Emerging Europe, ahead of all of its immediate neighbours.

Kazakhstan has a strong history of education provision, and boasts a workforce with a 100% literacy rate. With the entirety of the workforce having at least basic numeracy skills, investors are unlikely to need to seek employees abroad, reducing...

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Kazakhstan Operational Risk

Kazakhstan Crime & Security

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Kazakhstan poses modest security risks to foreign business travellers, expatriates, and tourists. For the most part, the greatest risks to these groups are petty crime such as pick-pocketing and theft, rather than violent crimes. However, we believe that public security risks could increase once President Nursultan Nazarbayev, 74, leaves office. Nazarbayev has led Kazakhstan since the late Soviet era, and a potential power vacuum after his departure could increase political instability.

Terrorism is a relatively new phenomenon in Kazakhstan, which has seen a series of small-scale attacks in the last three years. There are concerns that the segments of the population could become radicalised by Islamic extremists from nearby countries. Kazakhstan's proximity to Afghanistan and Russia's North Caucasus - two hotbeds of Islamic militancy and extremism - exposes it to regional threats. We expect terrorism and political violence to become a more...

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Kazakhstan Labour Market

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Kazakhstan fares reasonably well with regards to labour market risks, with a high level of primary education boosting basic skills among the workforce, while low levels of unemployment point towards a developed labour market. The key risk to investors here is the poor quality of tertiary education in the country and declining secondary education enrolment rates, which could indicate a long-term decline in the quality of the available workforce. Overall Kazakhstan has a score of 61.1 out of 100 for Labour Market Risk, putting the country in 7 th position in Emerging Europe, ahead of all of its immediate neighbours with the exception of Russia, while globally Kazakhstan sits in a competitive 34 th position.

High employment rates and a good volume of female labour force participation help to boost Kazakhstan's score for size of labour force, which at 58.9 puts the country in a very positive 2 nd place in the...

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Kazakhstan Logistics

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Kazakhstan's transport network presents potential investors with some substantial risks, with low road density and long rail transit times creating extensive delays when importing and exporting goods. Although the export market is well developed, it is mainly focused on oil and oil related products, and as a result the logistics network, particularly the ports, are largely unsuitable for the transport of other goods. For these reasons, Kazakhstan's score in the Logistics Risk Index is 41.5. This places it in 23 rd position in the Emerging Europe market, and in 112 th position globally. While it fares better than its neighbours in Central Asia, particularly Uzbekistan and Kyrgyzstan, Kazakhstan still has a long way to go if it is to achieve its aim of being a key transit point between Asia and Europe.

Covering a vast expanse of 2,724,900 square kilometres, much of it desert, Kazakhstan contains difficult terrain to cross...

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Kazakhstan Trade & Investment

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Kazakhstan's trade and investment environment presents potential investors with some substantial risks, with corruption endemic throughout the government and judiciary systems and poor legal enforcement limiting protection of intellectual property. While exports are strong, the import market is limited and there are extensive bureaucratic barriers to operating in the country. Overall, Kazakhstan has a Trade and Investment Market Risks score of 49.45, ranking 22 nd in Emerging Europe and 80 th globally.

Kazakhstan's export market is driven largely by the lucrative oil industry, which accounts for more than 70% of total exports; total exports currently account for over 51% of GDP. Moving forward, the government is keen to diversify the export market, through a range of programmes contained under the National Strategy 2030 including introducing new manufacturing businesses to the country. FDI is relatively high in...

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Kazakhstan Industry Coverage (15)

Agribusiness

Kazakhstan Agribusiness

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BMI View: Although the 2014/15 grain harvest has disappointed, the government is encouraging exporters to take advantage of climbing prices for wheat. The lowest quality grains will compete with imported corn for the animal feed market. Improving the quality of domestically produced animal feed is high up the agenda in the government's Master Plans for the beef and poultry industries. We expect the sustained investment in improving inputs and providing financial support to commercial farms that the plans commit to will see meat production picking up pace. Despite the falling value of the tenge due to the oil price slump, we expect strong economic growth to 2019, which will enable the government to continue to support agricultural development in the country.

Agribusiness Market Value
BMI Market Value By Commodity (2011...

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Autos

Kazakhstan Autos

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BMI View:  BMI's outlook on auto production and sales in Kazakhstan and Uzbekistan remains positive, despite a slowdown in sales figures in the first eight months of 2014. Both countries boast solid macroeconomic fundamentals and both are seeing strong demand for cars from their citizens.

Turning to production first, Kazakh auto production looks set for strong growth over BMI's five-year forecast period to 2017. This reflects new production plans by carmakers  Toyota Motor and Russia's AvtoVAZ and Kazakh AutoBIPEK.

Kazakh auto production looks set for strong growth over BMI's forecast period to 2018. We ...

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Commercial Banking

Kazakhstan Commercial Banking

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...
Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Defence & Security

Kazakhstan Defence & Security

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BMI View:  At present, Kazakhstan and the other four Central Asia countries, Turkmenistan, Tajikistan, Uzbekistan, and Kyrgyzstan have limited defence budgets, yet numerous requirements. While BMI expects these budgets to increase incrementally over the coming years, BMI also expects the budgetary and underdevelopment challenges to limit those increases considerably. These countries face numerous internal and external security challenges, including border disputes, criminality, and domestic and transnational terrorism.

BMI expects Kazakhstan's defence spending to have reached USD2.4bn by the end of 2014 and USD2.6bn by the end...

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Food & Drink

Kazakhstan Food & Drink

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BMI View: The devaluation of the tenge in early 2014 and elevated consumer price inflation (forecast to stay at over 8% in 2015) will impact on household spending in Kazakhstan. However, private consumption is set to remain the primary driver of economic growth and this keeps our outlook positive for spending on food and drink. Future drivers of growth will be portfolio expansion by major manufacturers and importers, including strong marketing and promotional campaigns targeting younger and more aspirational consumers. The Kazakh government's recently announced financial incentive, offering up to 30% cash back to foreign investors in newly created firms, should boost investment into domestic companies...

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Freight Transport

Kazakhstan Freight Transport

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Following a year that saw increasing volumes across all modes of Kazakhstan's freight transport sector, BMI believes 2015 will signal further growth in line with the country's macroeconomic outlook.

Total trade is projected to pick up with our Country Risk desk forecasting a year-on-year (y-o-y) increase of 6.4% in 2015 following an estimated growth of 5% in 2014.

The most potential for growth and development in Kazakhstan's freight transport sector remains in the country's rail freight market. The country's exports are concentrated on the freighting of bulk products, namely oil and grain. The country's rail freight sector has developed to cater for these needs and will continue to do so in the longer term, as both commodities look set to continue dominating Kazakhstan's trade sector.

Rail freight is also in high demand as Kazakhstan develops its role as a conduit for...

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Infrastructure

Kazakhstan Infrastructure

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BMI View: The Kazakh infrastructure sector is facing severe challenges stemming from falling oil revenues, a weakened Russian rouble and governmental spending cuts. However, preparations for the 2017 World Expo as well as the country's rich natural resource endowment will provide for distinct investment opportunities and some growth relief and continued investments. Following a generally weakening domestic economy, including falling loan and private consumption levels, we nonetheless expect infrastructure and construction growth to remain far below previously expected levels.

Key Trends And Developments

  • Against the weakened economic background, the government was forced to adjust its 2015-2017 budget plan, including a drop in public...

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Insurance

Kazakhstan Insurance

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BMI View : Kazakhstan's insurance sector is small and is dominated by its non life lines of business. The immaturity of the market is to some extent a reflection of its consumer base, divided between large corporate clients and private individuals who have yet to show an appetite for voluntary products, particularly life insurance. Through the forecast period we do not expect other than modest growth across all insurance segments.

We believe that Life business will continue to show very modest growth through to 2019, but starting from a low base it will continue to be overshadowed by the non-life market. As disposable income rises consumers appear to be more interested in purchasing health insurance than life products and we anticipate that this sub sector will outperform the non life sector as a whole.

Our view is that there will be a significant...

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Mining

Kazakhstan Mining

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BMI View: We expect consistent growth in Kazakhstan's mining industry through 2018, averaging 2.5% on average per annum and reaching a value of USD37.6bn. Growth will be derived from increasing output of both industrial and precious metals, including coal, copper, gold and iron ore, which together account for the bulk of the value of Kazakhstan's mining industry. We forecast copper output to grow the fastest in percentage terms through to 2018.

Kazakhstan has one of the richest mineral reserves in the world, and is in the top ten in size for a number of major minerals. It has the potential to overtake current major mineral producers but needs substantial investment from foreign companies which have the necessary capital and technology to develop its deposits. Poor infrastructure...

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Oil & Gas

Kazakhstan Oil & Gas

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BMI View: Although prolonged delays at the Kashagan field are continuing to suppress Kazakhstan's huge underground potential, we maintain a positive longer-term outlook for the country's oil and gas sector, which is expected to see its oil and gas production levels nearly double over our forecast period to 2024.

Headline Forecasts (Kazakhstan 2013-2019)
2013 2014e 2015f ...

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Petrochemicals

Kazakhstan Petrochemicals

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Russia's economic problems stemming from its trade war with the West are having a negative impact on the Central Asian petrochemicals market with Kazakhstan's imports dropping sharply in 2014. BMI's latest Kazakhstan and Uzbekistan Petrochemicals Report anticipates further falls in imports as both states prepare for a surge in capacity in 2016.

Both Kazakhstan and Uzbekistan will have sufficient production to cover domestic needs with a surplus likely to stimulate polymers conversion and boost exports. The Central Asian market is robust and growing fast, providing a sound basis for new petrochemicals capacities.

Most consumption will be focused on finished products with a lack of domestic plastics converters to fulfil demand. This could change as domestic petrochemicals capacities evolve, enabling local sourcing of cheap raw material for the manufacturing of end products.

  • The ongoing...

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Pharmaceuticals & Healthcare

Kazakhstan Pharmaceuticals & Healthcare

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BMI View: Within the pharmaceutical sector, the Kazakh government is looking to reduce its import reliance and also to serve its growing healthcare needs. In light of the Kazakh government's commitment to ramping up healthcare expenditure and incentivising foreign investment, we believe multinational companies will localise manufacturing to a limited extent. Given the logistical challenges, limited skilled labour and a lack of necessary infrastructure, we expect that investment in local production will primarily occur through larger companies.

Headline Expenditure Projections

  • Pharmaceuticals: KZT335.18bn (USD1.87bn) in 2014 to KZT395.60bn (USD2.04bn) in 2015; +18.0% in local currency terms and +9.4% in US dollar terms.

  • Healthcare: KZT1,740.14bn (...

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Power

Kazakhstan Power

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BMI View: We expect healthy growth in Kazakhstan's power sector over BMI 's 10-year forecast period to 2023, in terms of generation and consumption. Coal will retain its dominance, accounting for over 80% of the country's energy generation by 2024. However, non-hydro renewables will grow rapidly, with a slew of foreign-financed wind and solar projects in the pipeline. The government also plans to restart the exploitation of nuclear energy, helped by Kazakhstan's vast uranium wealth. Power production will comfortably meet demand, with Kazakhstan's dependence on energy imports decreasing over the 10-year period. For much of the forecast period,...

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Telecommunications

Kazakhstan Telecommunications

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BMI View: Mobile number portability looks set to become a major trend throughout the Central Asian region, as a number of regulators look to introduce it. Kazakhstan and Kyrgyzstan have reached a saturation point in terms of mobile subscribers and the launch of MNP will facilitate increased competition between operators, encouraging innovative tariff plans and likely driving down ARPUs. MNP is less of a concern in Uzbekistan and Turkmenistan, where organic growth prospects remain. Transitions to 3G will continue to be vital across the region and though 4G is available, it will remain too expensive for mass uptake. Government interference in the sector remains the key risk in the telecoms industry, however, and we tend to believe that this high risk outweighs the potential rewards at the time.

Key...

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Water

Kazakhstan Water

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BMI View: This quarter we have revised our forecasts due to the release of additional historical data, and expanded our coverage to include non mains consumption, desalination production, together with additional wastewater and consumption revisions to factor in the new content. Overall we take a positive outlook for the services sector, although we note that heavy water consuming industries will continue to have difficulties in many regions owing to rising desertification.

The greatest issue in Kazakhstan continues to be that of water scarcity in many regions. However, although there are some developments in the more stringent billing for and metering of water consumption, over the longer term we believe the country will need to look to alternative water resources, particularly recycled water. However, the improvement of...

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