Search by keyword

A post-pandemic world: what awaits the economy of Kazakhstan

BACK TO NEWS

A post-pandemic world: what awaits the economy of Kazakhstan

Shumaila Yousafzai, Associate Professor of Entrepreneurship at the Nazarbayev University Graduate School of Business, assessed the current and future impact of the global COVID-19 pandemic on the economy of Kazakhstan. Her article is based on the KPMG report on “The impact of COVID-19 on key sectors of the economy of Kazakhstan”, as well as the opinions of industry leaders

There is a growing concern about the economic and social impact of the new virus that is associated with the spread of the second wave of COVID-19 and stricter restrictions. According to a recent KPMG report, it is highly likely that the coronavirus pandemic will lead to one of the deepest crises in Kazakhstan since World War II and the collapse of the Soviet Union. The scale of the current global economic crisis caused by it is still difficult to fully assess. 

The crisis and the subsequent lockdown led to a sharp reduction in businesses in various industries, markets, interruptions in supply chains, flight cancellations, and restrictions on the free movement of citizens. Demand for oil has declined and global oil prices have collapsed. 

All these unfavorable macroeconomic factors indicate that the country is facing a crisis and a long period of recovery in various industries. These indicators are projected to lead to a significant decrease in Kazakhstan’s GDP in 2020 (-2.5% compared to growth GDP in 2019, which amounted to 4.5%) and the aggravation of the economic crisis in the Republic.

Although depreciation of the tenge caused by falling oil prices and demand for base metals will negatively affect consumer demand, however, experts of the World Bank believe that it will also strengthen the competitive position of enterprises operating in the export-oriented industries of Kazakhstan. 

According to KPMG, the most vulnerable sectors are non-food retail, aviation, oil and gas, mining, transport, energy and utility sectors. 

Currently, all Kazakhstani companies optimize their working capital, develop and implement an anti-crisis action plan: either postpone or review capital-intensive investment projects by considering less expensive options for their implementation. 

So, many businesses quickly responded to the new reality and moved the bulk of their employees to remote work. The retail sector and food producers are focusing on reducing the range and on a lower price segment due to the expected decline in purchasing power. 

Airports are reviewing their strategies for managing commercial space (giving priority to large players rather than small and medium-sized enterprises), and are also exploring the possibility of paying more attention to cargo transportation. 

Real estate companies that manage shopping and entertainment centers are revising their marketing strategies to focus on social distancing and safety. 

One of the most important strategies is to focus on accelerated digitization of sales channels and interaction with customers. 

“COVID-19 has once again confirmed that digital sales channels, such as digital marketing in social networks, are not only the future but also the present of our industry. No one knows how long the lock down will last and how investor’s habits will change, but one thing is clear: the online world will prevail over the offline one” said Nurdaulet Aydosov, Chairman of the Board of Directors of Jysan Invest JSC, in an interview with KPMG. 

Victoria Rassvetalova, a financial director of Sanofi-Aventis Kazakhstan LLP, believes that “the current situation with COVID-19 allowed us to determine the optimal forms of interaction. This is a side benefit for further digitization of all corporate processes”. 

Although the government has taken some measures to support small and medium-sized businesses, KPMG consultants note that large businesses also need significant government support to overcome the crisis. 

The Asian Development Bank (ADB) recently commended Kazakhstan’s efforts to support its population, including assistance to vulnerable groups. During the lockdown period, Kazakhstan became the only country in Central Asia that provided social assistance to its citizens, paying 42,500 tenge (about $100) to vulnerable segments of the population in the first few months of the pandemic. 

A package of fiscal stimulus of the government of Kazakhstan, which accounts for 9% of the country’s GDP, is expected to ease the economic downturn. The ADB approved a $1 billion budget support loan to Kazakhstan to reduce the spread of the disease and mitigate the negative impact of the pandemic; support the country’s efforts in the areas of health, social protection and employment; and support the government’s strategy to restore the economy after the pandemic. 

”The government’s economic package includes providing liquidity to local companies through guaranteed loans, deferred tax payments, and other tax incentives for small and medium-sized businesses — at least 42% of which are owned or managed by women – and workers in the sectors most affected by lockdown, such as tourism, ” the ADB said. 

The pandemic has also increased inequality in Central Asian countries and, in particular, in Kazakhstan, exacerbated by a weak social protection system. Lena Simet, a senior researcher on poverty and inequality at Human Rights Watch, suggested that with so many Kazakhstanis already facing poverty, there could be dire consequences if the government does not urgently provide and expand financial assistance during and after the quarantine. 

However, there are no eternal crises, and a downturn is always followed by a rise. The IMF forecasts a global, although the uneven, economic recovery in 2021, expecting growth to reach 5.2%. However, of course, significant risks remain, including a new wave of the virus. 

As the financial crisis of 2008 showed, those who take care of investing in themselves, in their market value, will succeed in recovery. It is no coincidence that during the crisis there is a surge of interest in business schools – the MBA diploma provides advantages in the labor market. This is confirmed by the figures: since the beginning of the pandemic, the MBA program at the Graduate School of Business at Nazarbayev University has received 29% more applicants compared to the previous year. 

Education has always been the best investment, and a crisis is a good time to acquire new knowledge, skills, leadership and managerial competencies that will help you get out of it faster than others. 

Shumaila Yousafzai is an Associate Professor of the Department of Entrepreneurship at the Nazarbayev University Graduate School of Business. She has a PhD and a University degree in research methods from Cardiff University (2005, 2003), and a Master’s degree in E-Commerce from Coventry University (2001). Shumaila has an international reputation in the field of research, which is confirmed by 63 publications. 

Original of the article here