Trade sector of Kazakhstan

Halyk Finance ResearchOctober 18, 2017

The trade in Kazakhstan is the largest sector of the economy after the oil and gas sector (18% of GDP) and one of the most important in the service sector that generates 17% of GDP of the country. The trade demonstrated some of the fastest growth rates in comparison with other sectors of the economy. For example, before the crisis year 2009, retail growth per year averaged 13%, and even after 2009 until the slump of oil prices in 2014, the retail trade turnover grew by the same 13% on average per year. However, the main drivers of growth prior to 2015 were: growth of incomes of the population, bank loans, a fixed exchange rate which provided stable import prices, currently all of these factors have significantly weakened, resulting in a subdued growth of trade turnover.

The trade in Kazakhstan is the largest sector of the economy after the oil and gas sector (18% of GDP) and one of the most important in the service sector that generates 17% of GDP of the country. The trade demonstrated some of the fastest growth rates in comparison with other sectors of the economy. For example, before the crisis year 2009, retail growth per year averaged 13%, and even after 2009 until the slump of oil prices in 2014, the retail trade turnover grew by the same 13% on average per year. However, the main drivers of growth prior to 2015 were: growth of incomes of the population, bank loans, a fixed exchange rate which provided stable import prices, currently all of these factors have significantly weakened, resulting in a subdued growth of trade turnover.

The trade is the largest industry in the non-primary sector, while it also provides employment to more than 15% of the employed in the economy. By the number of employees, trade moved into first place among the branches of economy in the first half of 2017, providing employment for more than 1.3 million people, while every other is self-employed in this sphere.  

In the structure of taxes by economic sectors, taxes from trade stand at 10% of the total budget income coming from large and medium-sized enterprises in 2014-2016.

The volume of wholesale trade in 2016 totaled T18 trillion or approximately $52 billion and more than twice the retail trade turnover. More than half (52%) of the volume of wholesale trade is concentrated in Almaty, another 17% in Astana, thus it is obvious that wholesale trade located in cities with the highest demand, on the other hand, this also means that it is absolutely undeveloped elsewhere.

The volume of retail trade in 2016, amounted to T8 trillion or approximately $23 billion. The retail trade turnover is increasingly formed by non-food products, which account for 70% in Kazakhstan, approximately 50% in Russia and 90% and higher in developed countries. It should be noted that the low share of food in total trade turnover in Kazakhstan is due to the high self-sufficiency of the population in agricultural products in rural and suburban area.

There has been some lengthening of stocks duration in the current period in comparison with the more favorable period of 2010-2013. In that period, stocks in days of trade accounted for 48 days in retail, in wholesale for 49 days. Accordingly, in the current period they are longer by 20 days in retail and by 5 days in wholesale and it is related to the multiple slowdown of non-food goods turnover from 17% in 2010-2014 to 0-2% from 2015 on, in some way also due to a greater vulnerability of the demand under the influence of exchange rate volatility. The turnover of non-food goods in dollar equivalent decreased by 25% in retail, by 32% in wholesale trade on average since 2015.

One third of all enterprises in the country and about half of the individual entrepreneurs are involved in trade sector. The attractiveness of the trade is on the decline – the total number of active enterprises increased by 32% from 2010 and on, but in trade, their number increased by only 11%. The increase in the number of individual entrepreneurs was also more modest in trade as compared with other industries. Small businesses account for three quarters of total trade turnover, the proportion of large and medium – one quarter, of which 70% belong to large enterprises.

From about 2010, the trading floor space belonging to individual entrepreneurs, have doubled to nearly 10 million sq.m., while the trade floor space of enterprises rose only half to 3.2 million sq.m.

The demand for civilized trade formats in Kazakhstan is present, but it is extremely vulnerable during economic downturns to small entrepreneurs and bazaars, selling less quality products at more affordable prices. The transition to modern formats trade has slowed down, currently the shares of civilized and other trade does not change – the percentage of individual entrepreneurs including selling at bazaars is almost 50%.

The availability of retail space of modern formats per person in Astana and Almaty in comparison with other cities of the world says about the adequate supply of commercial real estate. So, shopping square in Astana are at a level between St. Petersburg and Moscow in Almaty this value is relatively smaller.

The commissioning of new retail space of all formats in Kazakhstan seriously outstripped market capabilities. The retail revenue per sq.m. of retail space in 2016 fell almost 8% in real terms relative to 2010, due to more than two-fold increase in the floor-space of retail buildings. The turnover per capita in the same period increased by 40% in real terms while population growth only came at 10% in this period and revenue growth at 50% in real terms. Thus, it can be concluded that the potential for trade growth is present, but it is tied to the sphere of efficiency gains, rather than to the extensive expansion of retail space.

The internet trade in Kazakhstan makes only its first steps. The share of online purchases has exceeded 1% of total retail trade in 2016. Currently, around half of all households and about half of the mobile subscribers in the country have access to the Internet.

The lending activity currently almost stalled. The volume of issuance of new consumer loans, which reached 20-30% of the non-food sales volumes in 2012-2013, while at the beginning of the current year it amounted to almost zero due to constrained demand for consumer loans. However, in March-August 2017 the growth in consumer credit approached 11% of the volume of sales of non-food items in the respective period.

The loan to deposit ratio of individuals demonstrates that the population has become more cautious borrowing from banks and since 2010 is a net creditor of the banking system. In the middle of the current year the loan/deposit ratio of individuals stood at 0.5 (loans fully covered by deposits). Accordingly, it can be concluded that the population adjusted their consumption and sees no need to borrow while deposit rates are at an attractive level.

The low level of urbanization, among other things, impacts the development of trade. The cities with a population of over 100 000 accounted for 86% of the turnover of retail trade. In turn, the cities also vary widely by trade indicators. Almaty accounted for 28% of the turnover of the entire retail trade of the country, while Astana accounted for 11% share, then, with a significant lag follow Karaganda with 7% share and Aktobe with 6% share. In these same cities, including Ust-Kamenogorsk, the per capita retail trade turnover is close to or exceeds T1 million a year.

For the first nine months of this year, the retail sales grew by 6.4% in annual terms, after zero growth in the same period of 2016. Accordingly, high value of trade growth rate largely reflected the effect of low base last year. There hasn’t been dramatic improvement in incomes, and the autumn uncertainty with exchange rate weakening already put pressure on inflation, which adversely affects retail sales, which in September declined by 6% to the previous month. With this in mind, we expect the growth of retail trade by 2% this year. The prospect of the next year, a slight acceleration to 2.4%, the main drivers of growth we see a slow recovery in oil prices, improving economic situation, stop in decline in real wages and increased demand for consumer loans. Wholesale trade growth we see at the level of 1.4% in the current year and 1.7% in 2018. At the same time, the low share of civilized trade, at only a quarter of the total, gives great opportunities for qualitative growth of the industry.

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