A Year on, Kazakh Devaluation Brings Ostriches to the Steppe

  • From farming to fashion, tenge’s slump gives companies an edge
  • ING: Kazakh currency’s real effective rate is near record low

Aliya Akhmetova has no complaints about the 40 percent collapse in the Kazakh tenge. One year after the government took the decision to stop supporting the currency, sales at her online fashion start-up have tripled.

“Customers were saying they’d looked round the malls or made shopping trips to Dubai and come to the conclusion that foreign clothes were just too expensive,” Akhmetova, the founder of Heybaby.kz, said by phone from Astana. “Look at Russia. Their designers are booming, their plants are loaded with orders after the ruble fell” in recent years, she said. “This will come to Kazakhstan too.”

The decision last August to match devaluations by China and Russia is starting to give Kazakh entrepreneurs a much-needed edge on their competitors. The tenge’s appreciation since January hasn’t erased that advantage: its 8 percent advance amid an emerging-market rally still lags behind gains in regional rivals Belarus and Kyrgyzstan, and particularly Russia, where the ruble has surged 19 percent.

Before the central bank switched to a free-floating currency regime on Aug. 20, local businesses were fighting for market share as Kazakhs loaded up on cheap Russian cars and food. Now they’re poised to shunt them out of the market.

Ostrich Gloves

“We were pleading for a devaluation -- the ruble had been allowed to fall, but the tenge was left as it was, so Kazakhstan was flooded with Russian goods,” said Ruslan Sharipov, president of the Kazakh Poultry Union in Astana. “Now we look at the Russians and we keep our prices a bit lower.”

The devaluation has pushed the farmers he works with to seek new customers abroad even via branching out into ostrich farming. Currently a small operation, companies will start raising the African bird for its meat and leather on an “industrial scale” to focus on exports, he said.

“We will learn how to produce ostrich-leather gloves and handbags,” Sharipov said. “The price is good and the demand is there.”

The tenge has recouped some of its losses as a rebound in oil prices boosted foreign earnings for Central Asia’s biggest energy producer. Should crude continue to trade around $50 per barrel, it will appreciate a further 9 percent to 310 per dollar, according to Oleg Kouzmin, an economist for Russia and the Commonwealth of Independent States at Renaissance Capital in Moscow.

Real Rate

“We still think the currency has upside potential,” said Dmitry Polevoy, chief economist for Russia and the Commonwealth of Independent States at ING Groep NV in Moscow.

Those gains are unlikely to worry businesses like Akhmetova’s. The tenge’s real effective exchange rate, measured against Kazakhstan’s major trading partners while stripping out the effects of inflation, is still near a record low, according to ING.

Overhauling the nation’s currency regime has brought casualties. Kazakh banks made more than a third of their loans in foreign currencies and a weaker tenge means their customers will struggle to pay, Moody’s Investors Service warned in March.

“The biggest challenge is still how to make tenge fully flexible without creating problems for the banking sector and the economy and how to find a proper balance between currency and monetary policy,” ING’s Polevoy said.

As Kazakhstan’s gross domestic product heads for its first contraction since 1998, the central bank said it’s starting to see “signs of a gradual restoration of economic activity,” according to its second-quarter survey of businesses, published on Aug. 17. Companies are adapting to the free-float regime, and agriculture and retail industries saw demand increase in the three months through June, it said.

For the fashion designer, Akhmetova, that means Heybaby’s blouses and pencil skirts are flying off the hangers.

“There was a time when you could get bargains shopping for Russian goods,” she said. “But now it’s more beneficial for Russians to buy ours.”

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