NOV. 10 2015 (The Conway Bulletin) – In what it described as a push to promote competition, the Kazakh government said it will cut subsidies for bread, petrol, and animal husbandry. In particular, the government will cut subsidies for wheat producers from 2,500 tenge/tonne ($8) to zero. The government may be looking to save money.
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(News report from Issue No. 256, published on Nov. 13 2015)
NOV. 9 2015 (The Conway Bulletin) – Georgia’s government wants to tweak the national budget for a second time this year to increase funding for one of its key policies — creating an improved universal health care system.
Finance minister Nodar Khaduri said that increased revenue from tax and a reduction in the regional aid budget would pay for the increase in health care spending.
Earlier this year, the ruling Georgian Dream government submitted a budget which included a drop in revenue raised by taxes, a fall it linked to a regional economic downturn. That thinking has now changed.
The universal healthcare that the Georgian government wants to build is one of their headline policies. It will now absorb around 16% of the health ministry’s total budget.
“It is a successful program and many people apply to use it,” media quoted Mr Khaduri as saying. “So it became necessary to add funds to this program.”
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(News report from Issue No. 256, published on Nov. 13 2015)
NOV. 9 2015 (The Conway Bulletin) – Armenia wants to increase exports of electricity, natural resources minister, Levon Shahverdyan, said, more evidence that it wants to become a region energy exporter. Iran and Georgia are both dealing with power shortages.
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(News report from Issue No. 256, published on Nov. 13 2015)
NOV. 11 2015 (The Conway Bulletin) – Kazakhstan wracked up a $4b current account deficit in the first nine months of 2015, the Central Bank said, a direct consequence of the fall in the price of oil and gas — its main exports.
This deficit compares with a $6b surplus in the same period last year and shows the impact of the collapse in energy and commodities prices.
The volume of Kazakhstan’s oil and commodities exports was the same in the first nine months of this year compared to last year but they dropped, heavily, in value, earning Kazakhstan far less cash.
The Central Bank data will intensify pressure on the Kazakh government to diversify its economy away from oil and gas.
And Kazakhstan’s monetary policy also played a role in current account deficit too.
Until the Central Bank abandoned its US dollar peg in August, after stubbornly refusing to devalue alongside the Russian rouble, Kazakh exports to Russia were just too expensive. And this hurt Kazakh industry. Russia is one of its main export market.
And this showed up in Kazakhstan’s trade balance. Although still positive, it shrank by almost two thirds. In Jan-Sept 2015, Kazakhstan’s exports exceeded imports by $10.7b, a drop from $30.6b during the same period in 2014.
These figures are a stark reminder of the impact of the regional economic malaise on Kazakhstan. The 40% devaluation of the tenge after the Central Bank ditched its US dollar peg will help Kazakh exporters but the government really needs an increase in oil and gas prices to restore its revenues.
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(News report from Issue No. 256, published on Nov. 13 2015)
NOV. 9 2015 (The Conway Bulletin) – Uzbekistan’s Central Bank dropped the value of its sum currency to 2,706 sum/$1, down from 2,635/$1, a drop of 2.6%. On the Black Market, the dollaruz.com website reported that the fall was even greater. Currencies across Central Asia are under increasing pressure from a fall in the value of commodities and a recession in Russia.
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(News report from Issue No. 256, published on Nov. 13 2015)
NOV. 10 2015 (The Conway Bulletin) – State workers in Kazakhstan will receive pay rises next year of 7-29% to offset the devaluation of the tenge, media reported quoting social development minister Tamara Duysenova. The figures show just how pronounced the anticipated devaluation-linked inflation is likely to be.
The tenge has fallen by 40% in value since its US dollar peg was ditched in August and analysts have warned of a corresponding surge in inflation.
This has already begun to seep through. The Central Bank said that annualised inflation jumped to 9.2% in October, double the rate in September. The announcement on the size of the state pay rises, though, suggests more price rises are likely.
Most of the state employees that Ms Duysenova said would receive a pay rise were doctors, nurses and teachers.
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(News report from Issue No. 256, published on Nov. 13 2015)
NOV. 13 2015 (The Conway Bulletin) — The whole post-Soviet region has faced a steep economic downturn over the past year, leading to regional trade imbalances that have travelled across borders.
Initially, the fall in the value of the Russian rouble hit the Kazakh tenge. Despite a 20% devaluation in Feb. 2014, the tenge’s peg to the US dollar made it increasingly expensive against the rouble. When the rouble started to lose double- digit value against the US dollar, the tenge held its US dollar trading point, making it increasingly expensive. For the first eight months of this year, cheap Russia goods flooded Kazakhstan.
Eventually, in August, the Kazakh Central Bank effectively ordered another devaluation by ditching a US dollar peg. The graph below illustrates this clearly. It shows the rouble/$1 rate and the rouble/tenge rate matching each other until August. The value of the rouble, according to the graph, halves against the US dollar and the tenge.
In August, though, there is a sharp correction in the trading rate of the rouble/tenge. It diverges, violently almost, with the rouble/$1rate. The graph shows that the tenge is still stronger than the rouble compared to June 2014, but the differential is reduced.
And this is where the ripple effect carried through to neighbouring Kyrgyzstan.
Thee blue line on the graph represents the rouble/som rate. It, broadly, matches the peaks and troughs of the rouble/$1 rate, suggesting an informal peg to the US dollar.
The Kyrgyz Central Bank, though, has clearly tried to devalue the som independently too, as the rouble/som rate diverges slightly from the rouble/$1 rate.
The yellow line shows the tenge/som rate, and clearly depicts the change in relative values of the two neighbours’ currencies. The som has been weaker against the tenge for most of the year, as shown by the fairly shallow but pronounced trough. This changes after the tenge devaluation in August.
A currency domino effect, although slower than analysts had predicted, is rippling through Central Asia. The rouble is an optimal benchmark to observe this phenomenon.
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(News report from Issue No. 256, published on Nov. 13 2015)
NOV. 9 2015 (The Conway Bulletin) – In what is likely to be the only IPO on an international market by a company from Central Asia and the South Caucasus this year, Bank of Georgia completed the listing of its subsidiary Georgia Healthcare Group on the London Stock Exchange.
It sold a 29% stake in Georgia Healthcare Group, raising around £63m ($96m) to invest into two hospitals it has bought in the past couple of years in Tbilisi.
Georgia Healthcare Group is the largest private healthcare provider in Georgia, owning 42 hospitals and medical centres.
Although the IPO came in below the initial price range, Nikoloz Gamkrelidze, Georgia Healthcare Group’s CEO, was upbeat.
“A public listing enhances our ability to take advantage of the significant market growth prospects of the Georgian healthcare sector,” he said. “The primary proceeds will be used to fund our immediate growth plans, aimed at helping us achieve at least a doubling of our 2015 revenue by 2018.”
Reports earlier this year also suggested new legislation introduced by the Georgian government had forced Bank of Georgia to sell a large stake in its healthcare unit.
Georgia Healthcare Group had targeted a price range of 215-315p but instead had to settled for 170p, perhaps a reflection of the poor economic conditions in Emerging Markets in general and in the South Caucasus in particular. Since announcing the IPO in August, Bank of Georgia shares have lost 13% on the London Stock Exchange, possibly setting its healthcare unit up for its lower-than-hoped-for IPO pricing.
Even so, the Georgia Healthcare Group IPO, gave Western investors a rare chance to buy into the former Soviet Union. Over the past couple of years, London IPO plans from Kazakh companies in particular, have been shelved as an economic downturn triggered by low oil prices, worries about Emerging Markets and a recession in Russia bite.
Both Kazakhstan and Uzbekistan have announced they want to carve up some of their main state-owned companies and that they will look for IPOs on major international stock markets but these sales are a long way off.
Georgia Healthcare Group joins its parent company Bank of Georgia as the only two Georgian companies listed on the London Stock Exchange.
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(News report from Issue No. 256, published on Nov. 13 2015)
NOV. 9 2015 (The Conway Bulletin) – Under a scheme designed to help people in Kazakhstan who hold mortgages in US dollars cope with the devaluation of the Kazakh tenge, the Central Bank said that it had refinanced 3,500 mortgages by Nov. 1. The programme will run until March or April 2016.
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(News report from Issue No. 256, published on Nov. 13 2015)
NOV. 6 2015 (The Conway Bulletin) – Uzbekistan’s government said it wanted foreign investors to buy stakes in state-owned enterprises, part of a privatisation plan it said was designed to bring expertise into some of its biggest companies.
Deputy PM Rustam Azimov made the statement at an investment forum in Tashkent.
“[The plan is] to attract strategic investors who are able to bring new technology and equipment (and) organise the production of modern and competitive products,” Reuters quoted Mr Azimov as saying.
He cherry-picked three companies, seemingly as a teaser to pique foreign investor interest. These were cement maker Kizilkumcement, chemical producer Ferganaazot and electronics plant Foton.
For foreign investors, though, Uzbekistan has always been a complicated to do business in. It holds a high level of natural resources, mainly gold, gas and cotton, but is riddled through with corruption and intrigue. Western companies have previously had their assets taken by the Uzbek state too.
It remains to be seen if Uzbekistan is serious about opening up to foreign investors — and also whether these investors are Western, Korean, Chinese, Russia or from elsewhere.
The Uzbek government does need to raise funds though to deal with the current economic malaise.
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Copyright ©The Conway Bulletin — all rights reserved
(News report from Issue No. 256, published on Nov. 13 2015)
