A free-floating exchange regime for Kazakhstan’s national currency, the tenge, is taking its toll on retail trade as the cost of imports rise. While prices have not changed overnight, shopkeepers in the commercial capital of Almaty say they will be bound to increase prices in line with a hike in tenge prices of new supplies delivered at the current exchange rate.
The authorities’ announcement of the free floating exchange rate – first on August 20 and then reintroduced on November 5 – has resulted in a slump in the tenge’s value against the dollar by 63.4% to KZT307.87 as of November 9. In a situation where the exchange rate is failing to reach the bottom and then try to find an equilibrium “set by market demand and supply, taking account of fundamental internal and external macroeconomic factors”, Kazakh shoppers seem to have adopted a wait-and-see attitude, cutting down on unessential spending and switching back to corner shops and informal markets popular during the crisis-hit 1990s, from modern shopping malls and supermarket chains.
According to the Kazakh State Statistics Committee, retail trade showed negative growth of 0.7% on year and 4.1% on month in September. Out of a total KZT538.6bn (€1.62bn) worth of retail trade, trading enterprises and organisations accounted for KZT268.8bn, while markets and individual entrepreneurs for KZT269.7bn (given poor reporting standards at markets and corner shops, the actual figure could be significantly higher) – the latter overtaking the former and increasing its share to 50.1% of total retail trade from 48.9% in August.
Total retail trade contracted by KZT10.5bn in September compared with August, with trading enterprises and organisations’ turnover falling by nearly KZT12bn.
Retail trade reached KZT4.42tn in January-September, up 2.4% on year – a meagre increase compared with growth of 12.2% seen in the first three quarters of 2014.
Retail sales have skyrocketed in Kazakhstan over the past 15 years on the back of a booming oil-based economy, which created rising disposable incomes and growing consumerism in society. Sales increased by 1,000% to KZT6.3tn in 2014, reaching per-capita sales of KZT363,000 (€1,640) against just KZT38,000 (€280) in 2000.
The fall in retail sales in September mirrors the continuing decline in living standards of ordinary Kazakhs as a result of slowing economic growth since the beginning of the year: in real terms, per-capita income fell by 6.5% between January and August. One of the deepest falls in retail sales in September was observed in the western oil-rich regions of Aktobe, Atyrau and Mangistau – by 6.3%, 5.6% and 10.3% – where the average income is significantly higher than the national average.
Kazakhstan’s economy is expected to grow by just 1.5% in 2015 against 4.3% in 2014 and 6% in 2013 as a result of the low oil and other commodity prices, as well as low demand for Kazakh exports in its major trading partners – Russia, the EU and China.
Along with falling incomes combined with uncertainty around the exchange rate, the sluggish growth in retail sales so far this year could also be explained by Kazakhs going on shopping sprees in Russia, where goods were much cheaper because of a relatively overvalued tenge until its devaluation on August 20. Indeed, according to central bank data, Kazakhs bought up the Russian currency to the tune of RUB185bn (€2.7bn) in January-September, but the monthly figures started showing a decline in September – RUB15bn against RUB25bn in August.
Stocks and prices
According to official data, prices increased by 1% and 5.2% on month respectively in September and October, including those of foodstuffs by 0.6% and 4.6% and of non-foodstuffs by 2% and 10.2%. In annual terms, prices increased by 9.4% in October.
Unlike previous devaluations, the sharp depreciation of the tenge and associated inflation have not immediately translated into price rises in the shops of Almaty. Many retailers say they haven’t increased prices and are selling goods that are in stock at pre-devaluation prices. “However, prices are changing and going up for new supplies,” Zhadyra, a sales assistant at a specialised, mostly imported, wine and spirits shop in Almaty, tells bne IntelliNews. “Despite the ongoing crisis, our sales haven’t gone down.”
Other retailers, from electronics to food to clothes, explain that they want to keep the “old prices” for as long as their supplies allow, because “no-one has money now” to pay higher prices. At the same time, Aksulu Umarkulova, a 60-year-old owner of a corner shop selling food and small items, says suppliers have started delivering new stock at higher prices. “We are a food shop and our stocks do not last,” she explains. “Prices of some items, mostly imported sweets and spirits, have gone up by 5-20% so far.”
Tatyana, a 30-something translator from Almaty, who describes herself as “thrifty”, agrees that she hasn’t noticed any significant increase in prices of foodstuffs she buys. However, she fears that, as President Nursultan Nazarbayev has warned, Kazakhstan’s current economic crisis will be “long-lasting” and it will depress economic activity in the country, limiting employment opportunities. “I haven’t felt the crisis and consequences of the devaluation financially so far, except for my trip to Goa [in India] will now cost considerably more than I would like,” she tells bne IntelliNews.
Tatyana explains that when the tenge reached the upper limit of its trading corridor just before it was abolished in August, she bought smartphones for her husband and her son, knowing that the exchange rate directly impacts the price of such imported goods. “I have also managed to buy all kinds of necessities for my child – a skateboard, a bike, a smartphone, clothes and shoes” when the tenge started falling, Tatyana says.
In a potential further blow to retailers in Kazakhstan, she could be one of many shoppers who will turn to alternative sources to the potentially prohibitively expensive imports in tenge terms in the future. “Hopes are being pinned on all kinds of Chinese and other online shops like Alibaba, where everything could be bought significantly cheaper than in Almaty, albeit for dollars,” she suggests.