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

  • In light of the extreme oil price weakness into 2016, the macroeconomic and social stability outlook for Kazakhstan - the biggest oil exporter in Central Asia - has deteriorated even further, prompting us to take an even more bearish outlook on the country's growth prospects. Nevertheless, the possibility of economic and/or banking sector collapse remains limited due to the strong sovereign risk profile.

  • While the Kyrgyz som has been stable in recent trading against the US dollar, we expect the currency to depreciate significantly in 2016. The National Bank of Kyrgyzstan, which has propped up the som through heavy FX intervention, will discontinue this policy due to limited FX reserves. As a result, mounting depreciatory forces in the form of lower remittances from Russia and reduced gold exports will come to the fore, significantly weakening the som....

Kazakhstan Operational Risk Coverage (10)

Kazakhstan Operational Risk

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BMI View: 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 66.3 out of 100 for Labour Market Risk, putting the country in first position in Emerging Europe.

Kazakhstan has a strong history of education provision, and boasts a workforce with...

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...

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...

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...

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...

Kazakhstan Industry Coverage (24)

Agribusiness

Kazakhstan Agribusiness

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BMI View: The interest of foreign investors in the Kazakhstan livestock industry supports our view that this is the sub-sector with most growth potential. Poultry production in particular is expected to perform well over the next five years. The development of the livestock industry ties into another key trend we expect to take hold over our forecast period: the diversification of arable production away from the bedrock commodity, wheat. Feed grains will assume greater importance, particularly corn, in the grains complex. The dairy industry is growing from a weaker base than that enjoyed by meat producers, so we expect state-funded schemes to play a more significant role in its medium-term development and modernisation.

Key BMI Forecasts

  • Wheat production decline to 2018/19: 4.9% to 14.6mn tonnes...

Autos

Kazakhstan Autos

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BMI View: A combination of a still-sluggish economy and a weakening currency will lead to further challenges for the Kazakh new vehicle sales market in 2016. We are forecasting 2% sales growth for the sector as a whole, with commercial vehicles set to outperform passenger cars. For Uzbekistan, the near-term outlook is also challenging and we are forecasting 1.5% sales growth for the sector, with commercial vehicles again set to outperform passenger cars.

Vehicle Sales By Country
(2013-19)
f = BMI forecast. Source:...

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

Defence & Security

Kazakhstan Defence & Security

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BMI View: Kazakhstan's determination to develop a solid domestic defence manufacturing base has been exemplified in its strong push to setting up numerous joint ventures and partnerships with key foreign industry players as well as its efforts to organise its own international exhibition of weapons and military equipment - KADEX. With a somewhat unstable regional environment, Kazakhstan will see to its defence expenditure being increased over our forecast period in an effort to be ready to combat any potential breaches in security. However, BMI believes that if it is to truly excel in this field and achieve its goal of creating a strong...

Food & Drink

Kazakhstan Food & Drink

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BMI View: Devaluation of the tenge in early 2014 and again in August 2015, together with elevated consumer price inflation (forecast to reach 9.0% in 2015), will impact household spending in Kazakhstan. However, private consumption is set to remain the primary driver of economic growth in the longer term, which keeps our outlook positive for spending on food and drink. Future drivers of growth will be portfolio expansion by major manufacturers and importers, including...

Freight Transport

Kazakhstan Freight Transport

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BMI View: Over the course of both the short and medium term, road freight will cement its dominance across the freight modes in terms of both total volumes handled and y-o-y growth. In 2016, annual gains in road freight will be 11.0%, while air freight will see steady y-o-y growth of 5.60%, rail freight will see annual gains of 1.81% and we forecast y-o-y increases of 3.20% in inland waterways. Underpinning our confidence around Kazakhstan going forward is the country's imminent accession to the World Trade Organisation, which undoubtedly signals the willingness of the West to accommodate Kazakhstan's demands due to its growing geopolitical significance - a boost to the freight industry.

In terms of the domestic economic outlook, the Kazakh National Bank (KNB) expanded the trading...

Infrastructure

Kazakhstan Infrastructure

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BMI View: In line with the strong headwinds facing Kazakhstan's economy, the construction industry, particularly private investment, is being squeezed. The low oil price and volatile tenge have provoked far-reaching expenditure cuts, although initially this will largely affect social spending. Infrastructure investment is viewed as part of the long-term plan to diversify the economy and will holds significant long-term potential, especially in the rail and energy industries.

Latest Updates And Structural Trends

  • Growth in the construction industry will average 5.8% over our 10-year forecast to 2024, with the possibility for this to...

Insurance

Kazakhstan Insurance

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BMI View: Kazakhstan's insurance industry is small by global standards, but developing rapidly. Life insurance in particular is expected to experience healthy double-digit growth rates, driven by growing awareness of the benefits of various life products as well as demographic trends which support increased demand for later-in-life and retirement savings products. The more established non-life sector is expect to see slower growth over the forecast period and will also see more extensive contractions in US dollar terms in the short term due to the devaluation of the tenge.

Headline Insurance Forecasts (Kazakhstan 2012-2019)
...

Metals

Kazakhstan Metals

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BMI View: Tin prices will be capped by US dollar strength in 2016, leading us to trim our price forecast to USD14,500/tonne. Beyond 2016, prices will recover gradually as the global tin market posts sustained market deficits and inventories dwindle.

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Global - Tin Supply, Demand & Price Forecasts
2014 2015e 2016f 2017f

Kazakhstan Metals

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BMI view: We have revised our aluminium price forecast from USD1,575/tonne to USD1,600/tonne in 2016, as the tightening market provided an earlier than expected floor in Q116. Aluminium prices will gradually edge higher as the global market moves into a deficit by 2018.

...
Global - Aluminium Supply, Demand & Price Forecasts
2014 2015e 2016f 2017f

Kazakhstan Metals

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BMI View: Globally, iron ore prices will remain subdued due to weak demand growth in China and expanding output by major miners in Australia and Brazil. China will see output slow as the country's iron ore miners operate on the higher end of the global iron ore cost curve.

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Global Iron Ore Forecast
2014 2015e 2016f 2017f 2018f

Kazakhstan Metals

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BMI View: Nickel prices will bottom in 2016 as weak production drags the global market into deficit. For instance, we expect Chinese imports of nickel to grow over the coming quarters. Prices will begin 2016 weaker than we had previously expected and we have thus revised down our 2016 average price forecast to USD9,000/tonne from USD10,500/tonne.

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Global Nickel Forecasts
2013 2014 2015e

Kazakhstan Metals

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BMI View: We have revised down our average copper price forecast for 2016 to USD4,900/tonne. We expect prices to find a floor over the first half of 2016, and begin to stabilise thereafter, supported by production cuts and modest consumption growth.

Global - Copper Supply, Demand & Price Forecasts
2014 2015e 2016f 2017f 2018f ...

Kazakhstan Metals

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BMI View: Gold prices will prove resilient in 2016 due to a dovish shift in global monetary policy and elevated systemic financial sector risks. However, we do not foresee a sustained multi-year recovery and the mining sector will thus remain under significant stress. We forecast slowing mine production growth and increasing consolidation.

BMI Gold Forecasts
2014 2015 2016f 2017f ...

Kazakhstan Metals

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BMI View: Global steel prices will remain subdued due to a persistent steel oversupply over the coming quarters. From 2017 onwards, steel prices will gradually edge higher as the global steel surplus will narrow due to Chinese supply moderation.

Steel Price Forecast
2014 2015 2016f 2017f 2018f 2019f...

Kazakhstan Metals

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BMI View: We maintain our average zinc price forecast for 2016 of USD1,750/tonne. We expect zinc prices to reach a floor over the first half of 2016, and begin to stabilise thereafter, as production cuts shift the market to a deficit.

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Global - Zinc Supply, Demand & Price Forecasts
2014 2015e 2016f 2017f 2018f

Kazakhstan Metals

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BMI View: Lead prices will gradually edge higher as the global lead market will shift into deficit by 2017 as production growth will slow over the coming years.

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BMI Lead Price Forecast
Current* 2016f 2017f 2018f 2019f 2020f

Mining

Kazakhstan Mining

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BMI View: Kazakhstan's mining sector remains well placed for long-term expansion over the next few years, with the country taking advantage of its geographical location to position itself as an important supplier of commodities to the Asian and European markets. While we forecast the prices of key mined commodities such as coal, copper and iron ore to remain weak through to 2020, the sector is well placed to take advantage of the upside and, in particular, renewed demand from the likes of China and India. Strengthening trade links with these markets appear to support his strategy.

...
Kazakhstan Mining Industry Value Forecast (2015-2020)
2015e

Oil & Gas

Kazakhstan Oil & Gas

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BMI View: We maintain a positive outlook for Kazakhstan's oil production, thanks to huge underground potential and the delayed Kashagan field expected to come online in 2017, with the Tengiz project forecast to start production in 2021. Our forecasts for gas and refined products consumption have been revised down for 2016 as economic headwinds impact consumer spending.

Headline Forecasts (Kazakhstan 2014-2020)
2014 ...

Petrochemicals

Kazakhstan Petrochemicals

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While Uzbekistan and Kazakhstan are set to open new petrochemicals facilities, there are strong downside risks associated with depressed export markets, uncompetitive feedstock prices and sluggish domestic demand. Investment decisions are being postponed and plant construction is being delayed due to ongoing problems facing the Central Asian economies.

In 2015, Central Asia's petrochemicals capacities include 240,000 tonnes per annum (tpa) ethylene, 125,000tpa polyethylene (PE) and 120,000tpa polypropylene (PP). The size of the industry was far less than the size of just one world-scale petrochemicals complex in the Middle East, yet Central Asia is only just leveraging its significant potential in terms of feedstock due to massive upstream resources.

  • Uzbekistan should begin commercial operations in 2016 at an ethane cracker with capacity to produce 400,000tpa of ethylene as well as downstream units with...

Pharmaceuticals & Healthcare

Kazakhstan Pharmaceuticals & Healthcare

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BMI View: The establishment of a national health insurance fund will markedly boost sales of pharmaceuticals in Kazakhstan. A reliance on foreign pharmaceutical imports, the population's increasing access to healthcare and the government's long-term vision to become a top developed country will see attractive revenue earning opportunities presented to multinational drugmakers. However, lower than expected real GDP growth for 2016 to 2020 due to low oil prices and tenge devaluation affecting purchasing power will dampen market growth in the short term.

Headline Expenditure Projections

  • Pharmaceuticals: KZT350bn (USD1.57bn) in 2015 to KZT382bn (USD1.15bn) in 2016; +9.3% in local currency terms and -26.8% in US...

Power

Kazakhstan Power

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BMI View: This quarter our view on the Kazakhstan's power market remains largely unvaried. We continue to expect healthy growth in Kazakhstan's power sector over BMI's 10-year forecast period to 2024, in terms of generation and consumption. Although coal will continue to maintain its dominance over our ten-year forecast period to 2024, non-hydro renewables will grow rapidly, with a slew of foreign-...

Telecommunications

Kazakhstan Telecommunications

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BMI View: We maintain a cautiously optimistic outlook for the Central Asian telecommunications market as a whole. There are some growth opportunities in the region, particularly with regard to 3G and 4G technology Uptake. Nevertheless, state interference and political risk remains the most important risk of doing business in the Central Asian region. This was again amplified as government involvement became a key theme over the course of 2015. In Turkmenistan, a new state-owned company was created to spur competition, in Kyrgyzstan, state-owned Kyrgyz Mobile Company was sold to state-owned MegaCom and in Uzbekistan, state-owned Uzmobile launched a GSM network to better...

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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