Over 27 years of post-Soviet transformation, the oil economies of the CIS showed the best growth rates. The economies of almost all the countries that joined the CIS have recovered from the economic shock of 1990-1995, but the recovery was uneven.
For example, in Azerbaijan and Kazakhstan the peak of the fall in 1995 was compensated by a subsequent two-fold increase, according to a study conducted by the Analytical Credit Rating Agency.
Based on the analysis of the post-Soviet economies, the researchers tried to find out what factors influenced and affected the growth of the economies of the CIS countries, and concluded that countries with raw materials orientation are experiencing problems, for example, Azerbaijan, while Kazakhstan has non-primary growth potential.
Analysts note that the growth potential of the CIS commodity economies is limited. Low factor productivity and weak implementation of investments in production capital deprive the Azerbaijani economy of stable sources of growth. The only source of growth is the recovery in oil prices. As for the Russian economy, its negative growth potential is constrained by a negative demographic trend. The exception is Kazakhstan.
The importance of oil prices in the formation of Kazakhstan's GDP is overrated. For nearly 20 years, the key factor was structural growth based on basic sources, such as labour and productive capital.
The absence of overheating in the economy of Azerbaijan will contribute to the weakening of inflation, which will reach the target corridor of 6-8%. In Kazakhstan, overheating of the economy is likely due to the excess of the final growth over the structural one, which will contribute to the strengthening of inflationary processes. From 1990 to 2017, the economies of Azerbaijan and Kazakhstan showed a maximum, more than twofold growth.
Improving the oil market, along with an impressive increase in oil production, the external balances of Azerbaijan and Kazakhstan will strengthen the national currency of the country.
All the countries that became part of the CIS, during the collapse of the USSR and the subsequent period of transformation of economies, faced a significant decrease in the level of economic activity. The peak of the economies of these countries fell in 1995, when the decrease compared to 1990 was 48% on average in real terms. The economies of Armenia and Georgia began to recover first, while the last was Ukraine, as its economy began to grow only in 2000.
From 2003 to 2007, the economies of most of the CIS countries reached the 1990 levels and surpassed them. Tajikistan by 2013 and Georgia by 2017 were the last to recover, and the economies of Ukraine and Moldova did not recover completely after the recession.
From 1990 to 2017, only Azerbaijan and Kazakhstan were able to more than double the real GDP. Economic activity in these countries increased 2.6 and 2.03 times, respectively.
The accumulated growth rates for Uzbekistan and Turkmenistan were 3.2 and 3.4, respectively, and the growth of economies was more than tripled.
However, due to the existence of a long period of overvalued national currencies, which was reflected in the appearance of the black exchange market and the significant difference between the official exchange rate and the rate on the black market of these countries, as well as the questions on the formation of official statistics of these countries at exchange rates of national currencies and price indices, in a comparative analysis of the GDP growth of these countries were not considered.
In 2018-2021, the real GDP growth potential in Russia is limited to 1.5% per year. Thus, during the analysed period, the oil economies of Azerbaijan and Kazakhstan demonstrated the most significant recovery and growth in economic activity. At the same time, the structure of deposits of growth sources in these economies differs sufficiently. In 2016-2017, economic growth in the two countries showed different dynamics.
Potential GDP growth in Azerbaijan was due to fixed capital, but stopped transforming to real growth.
Among the basic trends in the formation of Azerbaijan's GDP from 1990 to 2017, it is possible to identify a significant economic trend in the introduction of new fixed assets, mainly associated with extractive capacity. The exception is 2008 and 2010-2011, when production capacity has grown at a much higher rate in the country than labour.
Until 2000, including from 2005 to 2007, the real GDP growth exceeded the potential. The first excess can be attributed to a low level of depreciation and using the accumulated earlier capacity fund of the Soviet period. The strong gap of 2005-2007 is completely the result of the oil boom.
From 2001 to 2004 and from 2008 to 2012, the growth of the economy was not sufficiently intensive relative to its potential, that is, the growth potential of the Azerbaijani economy was not fully realised.
In the 2000s, a significant inflow of investments, mainly to the oil and gas industry, and the multiplier effect on the non-oil segments, gave the Azerbaijan economy a significant growth momentum that weakened by 2015-2016. Regular contributions to economic growth are made by fixed assets from 2012 to 2016 from 0.4 to 4%, but the effect is offset by a negative rate of factor productivity.
Neither the performance dynamics nor the basic types of resources allow the country's economy to reach the trajectory of sustainable potential growth, which makes the search for new sources of growth urgent. The decline in the potential of the economy and oil prices provoked a recession in Azerbaijan in 2016.
Until 2005, the real growth of Azerbaijan's GDP demonstrated negative dynamics. The negative impact was exerted by the oil conjuncture. From 2006 to 2014, there was a positive trend, which was replaced by stagnation.
The element of external conjuncture is the effect of the oil prices on world markets, when the price for Brent oil is taken for the proxy, and the relative position of the current price level is calculated with reference to the 40-year average.
Beginning in 2010, the actual rate of GDP growth in Azerbaijan slightly deviated from the potential. The decline in the economy in 2016 is due to both the oil factor and the dynamics of the economy's potential. In 2015-2016 the trend of relative oil prices became a negative factor.
At the same time, the economy did not suffer an even more significant decline only thanks to the factor of the business cycle, which can be linked with the devaluation of the national currency and the subsequent tight monetary policy of the authorities.
At the end of 2017, the non-oil part of GDP showed an increase of 2.7%, reflecting the positive contribution of the business cycle component.
In 2017, oil prices acted more as a deterrent, which resulted in a nominal increase in GDP by 0.1%. From 2018 to 2019, Azerbaijan's GDP should be fixed in the growth zone, given quite positive expectations regarding the dynamics of oil prices. However, the lack of full-fledged sources for such growth will keep pace at the level of potential growth rates.
As a result, it is not necessary to expect a significant level of overheating in the economy of the country, which minimises the risks of a gradual weakening of inflationary processes and, correspondingly, the output of average annual inflation to the target level set by the Central Bank of Azerbaijan for the period 2018-2019 at 6-8%.
The dynamics of the smoothed rate of Kazakhstan factor productivity demonstrated growth up to 2003 inclusive, the value of the indicator at the end of the period was 6.4%, falling to 1.4% in 2016. This fits into the overall understanding of the process, indicating a better comparison base, as well as a weakening multiplier effect from the oil boom in 2000-2007.
At the same time, the positive dynamics of factor productivity remains. There are opportunities in the country's economy to increase the return on the contribution of basic production resources.
The potential growth of Kazakhstan's economy as a whole coincides with the actual. Since 2014, the gap between the two indicators is practically not observed, and its values on average fluctuate at about zero level.
Microcycles of business activity in Kazakhstan since 2011 follow a wavy development trajectory. At the same time, the duration of microcycles is small, two years from peak to peak, while in economic theory lasts three to four years. According to ACRA forecasts, the positive dynamics of the country's business cycle in 2018 will be replaced by a negative one.
The overall trend of the dynamics of micro-cycles of business activity is positively directed. Local minima from cycle to cycle are less negative, and peaks from cycle to cycle are more positive. Understanding the role of microcirculation in the formation of Kazakhstan's GDP becomes a new tool that allows us to identify the state of a protracted crisis.
Thus, the weak economic dynamics of 2015 was a consequence of factors of the business cycle and the oil conjuncture, which were mutually compensating, and the result of 2016 was the negative phase of the cycle and the impact of the conjuncture.
To overcome stagnation, the Kazakh economy was helped by the growth potential, rather than the oil price factor.
In 2016, the economy of Kazakhstan, which was close to stagnation a year earlier, demonstrated a steady rise. The structural rate of GDP growth contributed to this as the result of the realisation of the fixed capital and labour resources accumulated in previous periods.
In general, during the entire period of the new economic history of Kazakhstan, with the exception of 2013 and 2015, structural growth played a decisive role in the development of the country's economy, which empirically refutes the generally accepted idea of the key role of the oil price factor.
In 2016, the final growth rate of the economy in real terms emerged as a result of the positive contribution of structural growth, including employment, productive capital and productivity, and the public sector and the negative impact of the business cycle and the oil price factor.
ACRA expects data for 2017 to show some decrease in the positive contribution from structural growth. A more important role will be played by the external environment, which is associated with relatively high, by 40% above the average level, oil prices.
In the period from 2018 to 2019, the only near neutral factor will be the business cycle of the economy. In connection with the excess of the actual level of GDP growth over the potential there is a probability of overheating in the economy, which can strengthen inflationary trends.
In February 2018, consumer inflation in annual terms at 6.5% fit into the current target corridor set by the macro-regulator at the end of 2018 at 5-7%. However, support for inflationary processes with potential overheating may be a risk for the implementation of the target and require the regulator to take additional measures to withdraw liquidity.
By Andrey Korolev for Liter (Kazakhstan).
