OCT. 7 2015 (The Conway Bulletin) – The Kazakh Central Bank will probably delay its high-profile move to Astana from Almaty because of the worsening financial crisis, Central Bank chief Kariat Kelimbetov said. The Central Bank is the last remaining major government institution based in Almaty. It was slated to move to Astana by 2017.
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(News report from Issue No. 251, published on Oct. 9 2015)
OCT. 5 2015, TBILISI (The Conway Bulletin) — Signalling that a regional economic crisis is worse than it had thought, the Georgian finance ministry said it would scrap a flagship policy that would have cut corporation tax and encouraged business growth.
The Georgian Dream government said earlier this year that it wanted to copy an Estonian tax policy that scrapped corporation tax on profit re-invested into businesses in order to generate more growth. The downside was that, in the short term at least, tax receipts would also drop.
And now, at a meeting to discuss the government’s proposed budget for 2016, deputy finance minister Giorgi Kakauridze said that plans to introduce the tax cuts this year had been pushed back indefinitely.
“This is quite a difficult process, fraught with quite a lot of risk,” media quoted Mr Kvirikashvili as saying. “Yes this [model] has its positive sides, but there are lots of negative aspects as well, so it has to be thoroughly considered. No final decision has been made in which direction this reform will go.”
The bottom line is that Georgia’s budget relies heavily on corporation tax. To cut this tax now, with the economy worsening, would be fool- hardy, the government appears to have decided.
Analysts, though, were scathing and said the tax reform should never have been discussed in the first place.
“It is not the first time Georgian Dream has promised changes they’re unable to keep. They should have known that the economic crisis would make this reform a bad idea.” said Giorgi Aptsiauri, economist at the Georgian Institute of Politics. “Income from corporation tax is a large part of the budget. They can not afford a cut in revenue with the current economic situation.”
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(News report from Issue No. 251, published on Oct. 9 2015)
OCT. 2 2015 (The Conway Bulletin) – Tourist numbers to Georgia are rising, the government said when it issued new data which showed that revenue from tourism rose to $430m in the second quarter of this year — a 6% increase from the same period in 2014. The government has been promoting Georgia heavily as a tourist destination.
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(News report from Issue No. 251, published on Oct. 9 2015)
OCT. 6 2015 (The Conway Bulletin) – Car imports to Azerbaijan halved in the first eight months of the year, the Azerbaijani statistics committee said. It said in Jan-Aug, Azerbaijan imported 21,147 cars, down from 39,198 in the same period in 2014. Azerbaijan’s currency has devalued this year and new regulations mean imported cars have to take a higher grade of petrol than previously, making it harder to import older cars.
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(News report from Issue No. 251, published on Oct. 9 2015)
OCT. 7 2015 (The Conway Bulletin) – Kazakhstan-based Eurasian Resources Group said it has opened two credit lines with Russian lender VTB, highlighting its need for cash during this turbulent economic period. The two loans total $352m and will be used to upgrade two aluminium plants.
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(News report from Issue No. 251, published on Oct. 9 2015)
OCT. 6 2015 (The Conway Bulletin) – Data from the Russian Migration Service showed a 17% fall in Uzbek migration into Russia during the first 9 months of 2015 compared to the same period last year. The economic downturn in Russia and the fall in the rouble-dollar exchange rate have discouraged Uzbek workers from travelling to Russia for jobs.
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(News report from Issue No. 251, published on Oct. 9 2015)
OCT. 7 2015 (The Conway Bulletin) – Armenia will keep its interest rate at 10.25% or higher in the medium term to beat rising inflation and maintain stability, media quoted Nerses Yeritsyan, deputy chairman of Armenia’s Central Bank, as saying. Regional pressures have dented economic growth across the S.Caucasus.
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(News report from Issue No. 251, published on Oct. 9 2015)
SEPT. 30 2015, TBILISI (The Conway Bulletin) — Real estate prices in the Georgian capital have fallen by 15% this year, a drop that industry insiders blame on the collapse in the value of the lari currency.
In an interview with The Conway Bulletin, Anna Jalagonia, president of the Georgian Association of Realtors, said a 40% fall in the lari since last summer had spooked foreign investors.
“Investors prefer to wait because of the unstable situation in the country,” she said.
This bodes badly for Georgia, whose economy is to a large extent dependent on foreign investment.
Like the rest of the region, a slump in oil prices and the sluggish economic performance of Russia, the region’s main driver, has undermined Georgia’s economy. The Central Bank has spent millions of dollars trying to protect the value of the lari, inflation is rising and GDP growth rates are being revised down.
Neli Goguadze, director of the real estate agency Kibe, said that the situation in Georgia’s real estate sector had reached a tipping point.
“The problems began a few months ago due to the devaluation of the national currency,” she said. “For there to be a revival, the market needs a serious boost.”
Last month, the Central Bank increased its key interest rate to 7%, it’s highest rate since December 2011, as it tried to support the lari.
But some real estate analysts said that this interest rate increase may actually cause more problems.
“Real estate transactions are usually made in US Dollars,” said Papuna Kokhtashvili, owner of the Georgian franchise of US-based RE/MAX Property Advisors. “The increase in interest rate for loans results in a reduction of demand for property.”
And is could get worse, as Ms Jalagonia of the Association of Realtors explained during her interview.
“At the end of the year the situation will be worse as the national currency rate will continue to influence the market and winter and the fall are usually slow times for real estate acquisition. That combined will be a problem,” she said. “Prices for residential real estate have already fallen by about 15% and will continue to decline.”
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(News report from Issue No. 250, published on Oct. 2 2015)
Globally, Switzerland-based Glencore was the biggest loser in September with around $14b wiped off its market cap. The market pushed down Glencore shares mainly because of worries over its large debt pile but the sell-off still pressured other commodities-orientated companies including miners in the South Caucasus and Central Asia.
And the drop in commodities prices it also a sovereign issue in Central Asia and the South Caucasus with national budgets partially reliant on income from sales. This will hurt Kazakhstan in particular, although it will reverberate across the region.
Analysts were quick to point the finger at weak Chinese demand for commodities, especially copper, for the drop in prices. Copper is regarded as a good conductor of electricity and heat and used widely in manufacturing.
“With China slowing down and a lot of uncertainty, fears in the market have intensified, and the reduction in the pace of demand growth for all commodities has seemed to send everybody off the cliff,” Ed Hirs, professor of energy economics at the University of Houston told Bloomberg.
China uses more than half of world’s copper production and any fluctuation in its demand curve has significant effects in the markets. A strong US dollar and uncertainty over Fed interest rate decisions has also hit commodities prices.
London-listed KAZ Minerals, formerly known as Kazakhmys, is particularly exposed to Chinese copper demand whims. Its main product is copper and China is one of its main clients.
Shares in KAZ Minerals were down 20.5% in one week closing at 84.65p, its lowest ever price. It later rebounded above 90p, due to a wave of short-term rebounds across the sector.
KAZ Minerals/Kazakhmys has been portrayed as a company closely interlinked with the elite in Kazakhstan.
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(News report from Issue No. 250, published on Oct. 2 2015)
ALMATY, OCT. 2 2015 (The Conway Bulletin) — Kazakhstan’s Central Bank raised its new key interest rate to 16% from 12% in an attempt to contain rising inflation.
The increase in the overnight repo rate, made the key interest rate in September, highlights how heavily the Central Bank underestimated the rate that inflation would rise after a devaluation of its tenge currency in August. The tenge is now trading at 272/$1 compared to 188/$1 before it was cut from its US dollar peg on Aug, 20.
“Considering the economic data and prospects for growth the National Bank decided to raise its key interest rate to 16% to keep inflation in the medium-term target range of 6-8%,” the Central Bank said in a statement.
But bolstering the strength of the tenge may have been the Kazakh Central Bank’s main objective for the interest rate rise. Despite promising not to intervene in the currency markets after ditching the US dollar peg, the Kazakh Central Bank has spent $1b propping up its currency and keeping it away from the 300/$1 floor that it has threatened to fall through.
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(News report from Issue No. 250, published on Oct. 2 2015)
