Danger and probability of crises in trends of cyclic development of enterprises of the republic of Kazakhstan

Purpose – The paper covers the crisis concept and discusses the current economic situation of Kazakhstan and its opportunities and threats for organizations operating in defined condition. This work has been developed in order to analyze the organizational behavior and its performance in different economic conditions. Research objectives serve as identification of particular singularity of crisis, present various causes of the crisis; present particular singularity and need in mechanisms of anti crisis strategies in Kazakhstani market.

Methodology – By analyzing year by year Kazakhstan’s economic conditions and causes of devaluation the consequences for international trade, EDB member states and private sector, including SME, was determined. Methodology used in this research is qualitative approach, interviews. Detailed it would be describes in paper.

Originality/value – The originality of this work is derived in observing current unstable economic situation in Kazakhstan caused by devaluation of national currency and its impact for national trade, EDB member states and private sector, including SME.

Findings – Kazakhstan has been strongly affected by decreasing oil prices worldwide in the middle of 2014. Summing slowdown of economic growth of country-partners such as China and Russia influenced on Kazakhstan economics as well. Depreciation of Russian currency rub decreased competitiveness of domestic producers and raised demand on Russian export products.Third reason of devaluation was overvaluation and its continuous growth of USD against other currencies. Last but not least reason was increasing liabilities in economy. The foregoing makes anti-crisis strategy development strongly required. Considering reasons for high rate of liquidated organizations in period of crisis and unsteady economic conditions makes anti crisis strategy planning key point of business success and key object of research.

1. Economic Position of Kazakhstan in Recent Years

In 2008 the world began falling into crisis, economic drop, which led to crump of big amount of financial institutions all around the world (Ocaya 2012).

In general, although by results to 2016 it can be assumed that world economic is slowly growing Kazakhstani economic has range of serious issues. 

Table 1 – GDP of RK in 2015 

Considering table 1 although economic situation seems to be growing production of goods is groping. The reason of that is not only in decreasing prices, but also that industrial sector of country has been stagnated for last 4 years.

This fact identifies of beginning new phase of crisis in Kazakhstan. Inflation measured by GDP deflator in 2015 decreased on 1,1%, which identifies deflation. Domestic producers couldn’t increase their profit due to deflation because it was belated. Due to survive in unequal competition domestic producers had to decrease prices for their products, which sometimes were lower than COGS. Decrease of customers’ demand caused shock in economic making investments useless in economic expand. In conditions of decreasing prices domestic companies were forced to reduce wages [2].

Situation in 2016 didn’t change. Gross foreign trade turnover in 2016 decreased on 29,9% or 23 bntg. Such factors as decreasing value of oil production in country, continuous sharp recession in Russian economy slowdown of economic growth rate in China and in range of western countries and volatility of main currency exchange rates. According to figures 1 and 2 in sphere of trade in 2016 amount of employees decreased on 36,3 thousand people, which is higher of usual season level of staff reduction in industry. But by the end of year

Figure 1 – Wholesale and retail trade.Amount of employees working whole working hours

Figure 2 – Wholesale and retail trade. The volume of sales of goods and changes in real wages for 2009-2016 

The lack of liquidity in the system is fraught with an increase in barter schemes of mutual settlements between counterparties, further decline in economic growth rates and, ultimately, recession. According to the Strategic Plan of the National Bank of the Republic of Kazakhstan for 2014-2018, the targeted level of monetization of the economy is indicated above 30%, however this is lower than the saturation of the developed economies in the world with money (100% or more) [3]. 

All researches has its limitation. First of them are related with time resources and its frameworks. Ant crisis strategies on enterprises are diverse topic

In all researches some delimitation applies. First are the delimitations related to the scope of the thesis, especially mentioning area of research is related to strategy and tactics. Bhamra et al. (2011) determines that research theme is close to organizational behavioral trends, performance. However, this thesis tries to prove processed view of mechanism of strategy development. This thesis is focused on studying effective ant crisis strategies only in conditions of unsteady situation in Kazakhstan, particularly in conditions of devaluation of national currency and its consequences. Therefore, all RQs were directed on researching only in enterprise context. Another limitation is that measures cover only performance indicators. Other indicators as financial or economical ones are considered to cover quantifying aspect. On this basis business health s not totally researched in this study. Furthermore, due to diversity of this theme author focused only one external factor, examining legislation, globalization and industrial trends and their effects on SME performance were not covered in this thesis. As a data collection this study adopts mostly surveys and interviews of responsible representatives of companies and approachable resources of object through Internet.

2 Development of crisis situation in Kazakhstan

After declaration of independence economic situation of Kazakhstan was lower than its potential, which decreased level of inflation to single digit number at the end of 90s. However, the effect of stagnation was drop of investing activity and damage of domestic producers’ competitiveness. Figure 3 describes trends of GDP growth rates and inflation during two last decades in Kazakhstan.

Figure 3 – CPI Inflation and growth rates of GDP in Kazakhstan 

In the second part of 1990s situation with institutions and reform structures improved of the essence, building up necessary platform for further evaluation of free market economy. If in 1990s all spheres of industry were equally active, next ten years’ situation modified. Mining sector quickly became leading industry in early 2000s causing great economic increase. It engaged enormous amount of foreign direct investments (FDI) in 1900s. it was a key element of export growth in mining sector and affected on developing banking and financial sector, which is shown on figure 4.

This, respectively, impacted on growth of income of householders, increased purchasing power and positively affected on raise of consumer credits. Growth of economy level was strong comparing average annual rate of 10.3% between 2000 and 2006 [4].

Economic was developing on rate which was higher than predicted in period of “economic boom”. This lightly overloaded economic system and cased inflation pressure. Though, it was smoothed by low prices for import and advantageous evaluation of producing goods and services. Consequently, inflation rate has not changed. However, it was also influenced by monetary reforms, which supposed to maintain growth, and eventually increased amount of bank loans by 17 times during 6 years. [5] Meanwhile, increasing loans became threat for Kazakhstani economics by environmental shock because of external loans of domestic banks. As a result of all factors together it caused quickly developing inflation and increased annual inflation rate to 18.8% by the end of 2007. [4] However, Kazakhstan has been strongly affected by decreasing oil prices worldwide in the middle of 2014 since its economic system was only developing, directly related with oil export and composed by the largest share in export income. Summing slowdown of economic growth of country-partners such as China and Russia influenced on Kazakhstan economics as well. Depreciation of Russian currency rub decreased competitiveness of domestic producers and raised demand on Russian export products.

2.1 The causes of devaluation

Some negative external factors affected on economy of Kazakhstan in 2014-2015, what deteriorated situation by declining international resources (from $105 bn USD in November 2014 to $97,2bn USD in July 2015). It was an important aspect of transformation to the flexible exchange rate of Kazakhstani national currency, which in return led to dramatic devaluation on 20 August (198 – 257 KZT per USD, by approximately 30 – 37%).

First of all, the reasons are increasing competitions in oil sphere, delay of evaluating and low rehabilitation of countries, especially European, dramatic reduction of prices in energy sphere (decreased to 48,6% on first stage), consequently influencing on prices of raw materials, area where Kazakhstan is main exporter. Due to those reasons volume of export decreased Kazakhstan almost in 2,5 times.

Second, building up stronger legislation against trade with Russia, which is the primary trade partner (33% all import, 9% export, 19 % total trade), associated with political crisis with Ukraine and, as a result, devaluation of ruble, high level of inflation. Considering significance of trade between Kazakhstan and Russia, macro economical politics of Russia and sharp increasing its competitiveness complicated international relations and affected on strategically significant for industrial sphere private sector.

Third reason was overvaluation and its continuous growth of USD against other currencies, meanwhile other developing countries struggle with relatively economic slowdown and unequal monetary system of countries’ central banks.

The fourth reason was increasing liabilities in economy. Coefficient of gross foreign debt (GFD) to GDP raised approximately to 76,2 % in 2014. As a result of decreasing export foreign liabilities increased on 13,6% in 2014. During 2015 coefficient case became much worse because of foregone reasons and expanding foreign borrowings. Situation puts international liquidity under pressure, hence it gets worse because of continuous difficulty and problems with FDI.

2.1.1   Consequences for international trade

Considering results of foreign trade in Kazakhstan during four cases of devaluation collapse, it can be concluded, that situation is emerging. According to the CSMNE RK ratios foreign trade of Kazakhstan is susceptible to crisis. It presents us that external trade turnover has decreased on 15,5bn USD or 26,2% (59,4 bn USD – 43,8 bn USD) by the end of 2015. Third year in a row situation has been worsening. Export has fallen by 27% or $ 9,7 bn USD for only a year, as well as import has dropped by 24.9% or $ 5,8 bn USD ($ 23,4 bn 17,6 bn USD), although not so significantly. In 2014-2015 volume of external trade decreased by 57,6bn, which is almost the in a half. In the beginning of 2016 level of foreign trade was approximately equal to level of 2009. Summing up, the implemented strategies are impugning its efficiency.

Surprisingly, that even after four cases of collapses, outcome balance of external trade of goods is still positive. Results of Foreign trade has been decreasing during last 3 years, in 2016 this amount dropped till 2,7bn UDS, comparing to 2014 it was 14,3 bn USD. The lowest point of this trend was reached in April – June 2016, which estimated as 1,9bn USD. Considering area of service, it has negative outcome. GDP, as well, is in dramatic situation, having deficit on current account about 20%.

Foregone information highlights the pressure pressing on currency and not strong enough to resist against USD. Hence, there was slight increase of investments in private sector, but it was only the result of taking loans between companies. Also record amount of investments was registered, mainly because of realization mining and oil sector projects. This process caused slight decrease of devaluation temp. so examining rates from 2014 to 2016: 1) overvalue of dollar against tenge to 43,5%; 2) devaluation tenge against euro 29,8%; 3) weaken tenge against ruble by 9,3%; 4) $ 50 + / $ 5 per barrel; it could be concluded the negative effect of deficit [6]. According to Investment Halyk Finance, due to slow temp of ol prices recovery, limited resources for improving t would take more time for developing external trade relation system.

2.1.2   Consequences for the EDB member states

Transformation to flexible exchange rate could correct its payment balance and current account is expected. First of all, external indicators would be corrected after achieving balanced level of exchange rate due to increasing Kazakhstani economics’ competitiveness and improving foreign trade level. Also positive influence on financial market was predicted by providing strong maintain of income and repay deprivation of income due to decreasing oil prices.

However, there was possibility of high level of damage on economic due to significant slowdown of real sector. Effect on producing services was also considerable because of decreasing demand from householders. Positive and short-term outcome from export area, implemented anti crisis measures or good agricultural performance indexes couldn’t recoup devaluation’s negative influence on consumption. Increased tempt of inflation, coming back to previous monetary system as an option, raise of interest rates, low level of liquidity of tenge and other outcomes are predicted in economics because of high correlation of import in consumption. Banking system ought to resist negative outcomes of devaluation, contrary high correlation between banking system and USD rate.

The straightforward impact of KZT devaluation on Russian system won’t be diverse.Consequently, drop of competitiveness of Russian products and lowering demand on Kazakhstani goods import would have high but not determinative influence due to Kazakhstani export takes little part of segment. In 2014 t was estimated only about 1 % of all FD in Russian import-export relations. Conducting there are some risks of worsening economic performance of some Kazakhstani organizations, which have debts to Russian market agents. 

In the interim, devaluation effects on Russian market caused by changes on Kazakhstani market could be considered as essential due to its outcomes. It would negatively effect on large amount of market participants and creating unsteady conditions, caused by devaluation of currency of next door neighbor because of common economic system. It could cause drop of FDI and deteriorate loan systems by increasing additional pressure on the volatility of RBL because of strict risk estimating system. It might make an important negative impute on economic trends, especially in producing area.

Restricted impact, which have been faced earlier, spread on country members of Eurasian Development Bank, because of limited relationships ant trade part.

Especially, impact of undervalued currency in Kazakhstan on Belarus wouldn’t be significant in trade sphere. By the results of Belstat, Kazakhstan takes only 2,4% of Belarusian export in 2014. In 2013 FDI takes less than 1% between Kazakhstan and Belarus both ways. However, financial market could be affected psychologically negatively by adaptation of new strategies of “monetary system”.

Affection on Kyrgyzstani national currency is little more expanded than on Russian ruble. Kazakhstan plays an important role in FDI of Kyrgyzstan. Summing up, some employees, Kyrgyzstani residents, about 40% fulfill financial operations, such as receiving wages, related with agricultural and food production in Kazakhstani currency. Kyrgyzstan had important anticipation on integrating with Kazakhstan. National currency had felt pressure and undervalued by 3-5% with respect of USD and 50% with respect of KZT on inner market. However, the NB RK declaimed investing operations. It seems that it takes time to stabilize situation. Highly increasing of Kyrgyzstani export could be reached by sustaining exchange rate. If some procedure would be implemented, it positively influenced on currency sum exchange rate, but negatively influence on production sector.

Other country which was influenced by devaluation is Armenia. Their trade exchange volume is limited less than 0,1 %. Though it constrained its opportunities of FDI.

Tajikistan’s FDI situation is strongly related with ruble trends with the respect of dollar. In this condition transformation of currency exchange rate policy seemed not to have important impact on exchange rate of Tajikistan currency. Hence, Kazakhstan takes significant segment of external trade, about 14,5 %, related on oil, gas and corn both ways. So it is not anticipated any important changes in both ways trading [7].

2.1.3Consequences for private sector, including SME

It is obvious, hat crisis directly influenced on private sector’s performance of companies. Only 13 % of organizations raised their performance qualitatively over last year. Main problems areas are considered to be slowdown of oil prices recovery, slowdown of Chinese economy growth and political situation worldwide.

Kazakhstani and Russian organizations seem to have common prospects for current development. Insecure of organizations in private sector is caused by foregone reasons, such as collapse of energy and oil prices, devaluation of tenge and ruble and as a consequence decreased competitiveness.

Almost half, 44% of organizations predict growth of income during following years, which is higher than last year, due to facing diverse factors. Main outcomes of the crisis for organizations determined as planning of reducing losses, freezing investing activity, reduction working places in 77% of cases in Kazakhstan, and comparing to Russia 64%, only 40% of companies consider merger as an option of restricting and only in 25% of all organizational decisions of restricting is outsourcing [8].

Merger is one of the vindicated tactics for surviving in crisis times. In 2016 most popular partners to merger with are government, industrial associations, supplier. Last option is the most used in Kazakhstan in 2016, though start-ups as a potential partner of merger didn’t succeed, in line with scientific subjects.

Unstable economic situation doubts effectiveness of human resources system of enterprises. The mostly used directions of evaluating human capacity planning are implementing training and organizational learning of head stuff fulfilling their obligation activity in changing environment, focusing on their corporate culture. Less and less companies put such aspects as wages, bonuses and other material aspects as prior [11].

Production sphere is anxious about governmental reaction to debt problems and changing monetary system and social tense. Mostly of concerns are related on economical changers. In situation, where firms depend on governmental investments, concern a range of companies.

Conclusion

In order to develop the research the concept of crisis has to be discussed. The paper covers the crisis concept and discusses the current economic situation of Kazakhstan and its opportunities and threats for organizations operating in defined condition.

If company couldn’t improve its liquidity the best using strategy would be merger. Implementation innovations could not only have negative idea s increase in expenses but it also impacts significantly on profit improvement. It has been distinguished that employing innovations Kazakhstani companies increased efficiency of earning gross profit, net income and profit per sale and among that decreased the interest payments. The common results companies employed investment strategies have been showing. Among increasing efficiency of earning gross profit, net income and profit per sale and decreasing the interest payments it improves the efficiency of debt payment and increases assets not increasing liabilities.

The least efficient strategy has been considered is merger strategy as it negatively effects on liquidity and liability.

In order to improve organizational performance, stay stable and/or survive in unsteady economic conditions the problem areas needed to be solved have to be defined.

References 

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