Kazakhstani Tenge in 2016: Getting affected more than our close neighbors, and how it affected the life in Kazakhstan.

Hello dear readers!

This blog is based mostly on my research about my home country’s currency Kazakhstani Tenge. However, I have also decided to add about the outcomes of the crisis, which will partly consist from my own knowledge since I lived through that already one-year-old devaluation and financial crisis.

Intro

Kazakh Tenge (KZT) hasn’t been much volatile for the last 10 years until 2015 except some two small devaluations. According to the website xe.com which tracks currency rates, the Kazakh Tenge stayed around 120 KZT per 1 USD from at least year 2005 until February 2009 when it devalued by 25%. The rate stayed around 150 KZT per 1 USD until February 2014 when the Tenge fell again by about 20% and then became 180. It stayed around 180–190 until 21st August 2015, when it unexpectedly suddenly fell to 255 KZT per 1 USD, making a roughly 40% negative change. That was when the government announced they will make Tenge a “floating currency”, meaning that the currency will now become very volatile, relying on the foreign-exchange trade. But to the citizens of Kazakhstan it actually meant that our national currency continued to fall unpredictably until the rate reached 390 KZT per 1 USD on 21st January 2016. However, fortunately after that the Tenge started to strengthen and reached currently its strongest value in 2016 as 326 KZT per 1 USD on 4th May 2016. This was followed by a fluctuation of the rate between 330 and 340. After a terrorist attack in Almaty on 18th July, Tenge gradually fell until one week after on 26th July when the Tenge rate had dropped abruptly from 344 to 354 (by 3%) per USD. However, later the Tenge was able to come back slowly to its usual 2016 rate of around 340 KZT per 1 USD.

A small, but significant detail: did the terrorist attack in Almaty on 18th July affect the currency rate, and was the abrupt 3% devaluation just because of that?

I believed that the terrorist attack somehow had a relationship with the devaluation of Tenge in one week from 339 to 354 KZT per USD. I thought it could be indirect — maybe after the terrorist attack the demand for Kazakhstan’s products have dropped, or maybe the demand for US Dollars in Kazakhstan may have increased because more people wanted to leave Kazakhstan after hearing that now even Kazakhstan is the victim of terrorism.

However, I wanted to find the real proven answer, so I wanted to check whether the devaluation on that week may have happened not just to our currency. First of all, I decided to check out the USD/RUB rate (using xe.com website) in late-July 2016 in case if something may have happened to oil in that time (Russia is dependent on oil — in August 2012, oil and gas took 45% out of the export commodities of Russia. Another sign that it’s dependent on oil is that similarly, after the oil prices have dropped, Russian Ruble started to drop significantly). Besides the fact that Russia also depends on oil like we do, checking the Ruble rate was a good idea because Russian economy literally influences Kazakhstan’s economy — it’s because they are our largest partners, and we both are in the same Eurasian Economic Union. Technically, the currency rate of Ruble can affect the currency rate of Tenge, but it’s not vice versa which is also the reason for the terrorist attack in Almaty not affecting the Russian economy at all.

I found out that between 18th July and 25th July the Russian Ruble had dropped by about 5% (which is the similar case for KZT) from 62 to around 65 RUB per USD. I decided to check the crude oil price after that. I went to the website dailyfx.com/crude-oil and saw that both Crude Oil Brent and Light Crude Oil prices have dropped after 20th July. The dropping of oil price was quite significant — Light Crude Oil’s price had dropped roughly by 11% between 22nd July and 2nd August, while Crude Oil Brent’s negative change was about 9–10%. After that, I drew a conclusion that the devaluation in late-July happened mainly because of oil-prices. That reason is reliable because of three main points :

  • Previous cases: Kazakhstani tenge dropped mainly because of low oil prices at the end of 2015 and in 2016 as well. Russian Ruble had the similar case.
  • In late-July 2016, KZT was not the only currency to devalue. Russian Ruble had also devalued and in the similar amount/percentage.
  • It can be evident that KZT is tied to crude oil price — it dropped until late-January 2016 and started to strengthen just like the crude oil price.

Getting affected more than our close neighbors.

At first, I didn’t actually pay attention to the fact that our neighbor country, Kyrgyzstan, with a far weaker economy, has a smaller “size of crisis”, which is evident from the fact that their national currency, Som (KGS), today (28th August 2016) has a value lowered by only about 23% compared to 2 years ago (28th August 2014), while KZT today has a 88% lower value than it had exactly two years ago. In the last two years, from August 2014 until April 2015, KGS had dropped from 3.4 KZT to 2.9 KZT per 1 KGS. This rate stayed until August 2015, when the Tenge devalued by 40% against every single currency. Tenge, being tied to oil prices, fell quite a lot until January this year, where it reached its lowest point ever — 5.15 KZT per 1 KGS. That was when the Kyrgyz Som became stronger than the Russian Ruble — because Russian Ruble is also tied to oil prices.

Normally, the exchange rate for RUB/KZT was 5 KZT per 1 RUB. I mean, not normally, but that was the usual average. It did go over 5 KZT for a Ruble for a while, but in most cases in the last 10 years it was less than 5. However, I started paying attention to the Ruble’s exchange rate only in mid-March 2016, when the Tenge devalued by 3% against the Ruble and the rate became more than 5 KZT per 1 RUB. Since then, 95% of the time until today, it stayed over 5 tenge per ruble, and the lowest it went was 4.89. Now the exchange rate is 5.24 KZT for a ruble, which brought my attention up to make a research on it.

I personally considered as 5 KZT per 1 RUB as the “default, normal exchange rate”. When the Ruble fell dramatically in early-2015, I knew at that time Russia had more financial crisis than we do. If the rate is less than 5 Tenge, then it meant for me that Russia has a stronger crisis now than we do. However, if the rate is more than 5 Tenge per Ruble, which is now the case since spring, then I thought that somehow Russia’s started healing, and now we are in a more desperate situation.

The reason behind it.

That fact about the current Ruble exchange really bothered me and I decided to think about it deeper. I have recapped that Russia is less dependent on oil than Kazakhstan, and decided to search it up in facts. I have found the chart below on the website http://www.aktau-business.com/2014/03/24/chtoby-ponyat-pochemu-kazahstan-postoyanno-stalkivaetsya-s-problemami-devalvacii-davayte-razberemsya-chem-i-s-kem-my-torguem.html which states that 77% out of the total export of Kazakhstan in 2013 contained oil.

I have found this image/chart (It says on google images that it’s from wikipedia, but the page is somehow deleted) below which shows that Oil and Gas contained 45% of the total Russian Export in August 2012. I believe the numbers/percentage hasn’t really changed, but I am sure that Russia’s export still contains less percentage of oil than Kazakhstan even if it has changed.

I decided to research Kyrgyzstan’s export chart as well. Before I have never heard about Kyrgyzstan exporting oil or being a country which produces oil. I have found the chart below also in google images, and it’s from the website http://www.stanradar.com/news/full/1245-kakie-tovary-eksportiruet-kyrgyzstan-v-strany-dalnego-zarubezhja-dannye.html

The chart states that 7.1% of total Kyrgyzstan’s export in 2012 contains of fuel and energy commodities. It literally proves the fact that Kyrgyzstan’s currency and economy is barely dependent on oil prices. The devaluation of Kyrgyz Som may have been caused either by the dropping demand for their other export commodities, or more likely because the demand for Kyrgyzstan’s products may have dropped due to the crisis in Kazakhstan and Russia, since they are the main trade partners for the Kyrgyz Republic.

Kazakhstan in 2016: Life after the devaluation

A lot has changed in the last year. Mostly, it’s the way people live and spend their money which has changed. People who traveled a lot in 2015 now travel less and book cheaper hotels and flights than in 2015. People started to stuck up food earlier, because when the Tenge was falling, no one knew what it’s next rate would be. Since the Tenge was falling and falling, people expected it to continue to fall — and when the currencies fall, the price for commodities and food in stores usually goes up, because some products were imported to Kazakhstan from other countries. But it’s not only about the commodities…

Literally, a lot has happened. But people still live. Life still goes on. Maybe the change was in a positive way…well, okay, let me explain it in different categories.

The crime rate has increased and driving on the streets became worse

I don’t know whether the fact that driving on the streets became more dangerous is relevant to the current crisis, but I am pretty sure it is very relevant to the fact it doesn’t picture the city in a safe and pleasant way.

According to the website numbeo.com, the crime rate in Almaty is 48.79. About a year ago, this number was around 43. Even if this source is not really reliable since not many Kazakhstani citizens know English to take a survey to get an accurate result, and all the information may have been entered by random people, I believe there must be a reason behind in these numbers to be rising.

As a citizen born and living in Almaty, I can say that it has become a little bit unsafe this year compared to last. The number of homeless people begging for money has increased in Mosques and streets, and they started doing that in some apartment districts, while the last time it was done was 5 years ago. While I surf in the internet through the news, I can see more often people getting murdered as well as other unpleasant news such as car crashes and illnesses.

The prices for products don’t rise a lot, but their quality drops

I can tell that last year, the food quality in markets, groceries, bazaars, restaurants, and cafes in Kazakhstan was better than this year. As I was reading news in the internet, I started seeing more often about how some people got poisoned from McDonald’s, Del Papa (Italian restaurant), and other places for food. By the way, McDonald’s has opened in Kazakhstan only this year. First McDonald’s opened in March 2016 in Astana, while the first McDonald’s in Almaty opened in mid-June 2016. According to the website of McDonald’s in Kazakhstan, the cost of Big Mac is 800 Tenge ($2.35 according to today’s exchange rate of 340 KZT per USD), and the cost of Small Fries is less than a dollar. That gives some doubt about the quality of their food, since if McDonald’s in the USA and in many other countries is already a low-quality cheap fast-food restaurant, and they are trying to cook food out of the same products in Kazakhstan as they do in other McDonald’s restaurants around the world. If they want to do that, then the prices for food in Kazakhstan’s McDonald’s are supposed to be the same as in the USA. But that is not the case. Literally, out of which “crap” do they make food in Kazakhstan’s McDonald’s then? No one knows.

People started traveling abroad less

The demand for international flights has dropped, since for Tenge-keepers it became almost twice more expensive to travel overseas. The passenger traffic for international flights at Astana Airport in January-June 2016 has dropped by 6% compared to the same period in 2015. But that obviously doesn’t mean that the citizens of Astana started travelling less internationally by 6%.

On February 2016, I had to fly from Almaty to London via Frankfurt using Lufthansa. In fact, Lufthansa hasn’t decreased flights to Kazakhstan during the crisis period at all. I was wondering why, and I found out an answer when I was returning home from Frankfurt to Almaty that same month. The plane was about 85–90% full, which is very great and profitable considering the fact that tickets for Lufthansa are a bit more expensive than they should be. I realized that most of the passengers were not the citizens of Kazakhstan — many were Germans who were originally from Kazakhstan but moved to live in Germany, but there were also tourists. Visa is not required for German citizens for a up to 15 days stay in Kazakhstan.

Another reason for the international passenger traffic not dropping too much is the re-structuring of Air Astana. Air Astana started offering cheap, attractive and convenient deals for transit passengers. Transit traffic has obviously grew a lot in 2016, since it also became much cheaper to fly via Kazakhstan. The proportion of international citizens vs Kazakhstan citizens on flights to/from Kazakhstan has changed.

— — — —

Now, I want to describe some different types of people who benefited from this crisis, and who suffered.

People who won in this crisis:

People who earn in and/or stock their money in US Dollars or any currency, not really depending on oil, but live in Kazakhstan.

People who earn in US Dollars but live in Kazakhstan didn’t get affected by the crisis. Conversely, they benefited from the devaluation of Tenge, because the prices in Kazakhstan for cars, products, e.t.c. in US Dollars have dropped, since what costed 180,000 Tenge in 2015 was $1000, and what costed 180,000 Tenge in 2016 is worth a little bit more than $500, but the prices in Tenge didn’t rise much and will not because it was prohibited by the government.

Foreigners either visiting Kazakhstan or travelling via Kazakhstan’s airports.

This depends from what country the foreigners are from, but in general, travelling to or via Kazakhstan has became cheaper in US Dollars, Euros, British Pounds, and many other currencies. For instance, a return ticket from London Heathrow to Bangkok via Astana and Almaty if booking in advance costs only $745pp the lowest. Citizens of the USA, UK, France, Japan, Germany, Spain, Korea, and many other countries don’t need a visa to visit Kazakhstan for a stay up to 15 days, so that deal would be even more attractive to foreigners. Air Astana has made some special sales and programs to attract tourists to Kazakhstan and to increase the transit traffic via the airports of Astana and Almaty. However, the prices in US Dollars are low mainly because if Air Astana would rise them (they don’t really need to since the oil has become cheaper), it would become too expensive for Kazakhstan’s citizens (now it’s already expensive enough) to travel so the demand for their flights will drop.

Hotel prices in Kazakhstan have also dropped (in USD, of course) , regardless of whether it’s The Ritz-Carlton Almaty in the tallest in Almaty building Esentai Tower, or whether it’s a traditional-style guest-house. Prices for food, cars, and other commodities in American Dollars have also dropped.

People who earn in US Dollars but have a bank loan in Kazakh Tenge.

Those people literally succeeded in the crisis financially, or in other words, saved their money in their pockets. You could have got a bank loan to get yourself a new apartment or a car in Tenge a couple of years ago, for instance, and now you have to pay less in Dollars.

— — — -

So those were the main categories of people who won in the crisis, but there are a lot more minor categories. Now let’s see for whom the crisis turned up a big, bad financial nightmare.

People who lost in this crisis:

A little bit.

People who earn in Tenge and pay in Tenge, not having any relationship to the US Dollar. That is the case for the majority of people who live in Kazakhstan. People who are applicable to this category have lost from little bit up to a decent amount, since the prices for many things went up, but not all salaries and pensions were raised.

A lot.

People who travel overseas but earn in Tenge. People who have bank loans or debts in a currency other than Tenge (it depends, though). People who study in international schools which pay in Dollars or people who study abroad but earn in Tenge. They all lost a huge amount of money, since they pay almost twice as much as they did in Tenge before.

— —-

It will take me forever to list all the categories of people who won and lost, so I believe I should end my blog on this note. Thank you everyone for spending time to read my blog, and please do comment below, share your ideas and thoughts on the article!

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