HOW THE KAZAKHSTANI ECONOMY IS FORMED

Many are likely weary of the constant stream of fragmented data about Kazakhstan’s economy. Understanding becomes a bit easier if we accept a few basic facts:

• The economy is not a competition between sectors — everything is interconnected.

• The economy is essentially a "tangle" woven from three or four main “threads,” meaning chains of intersectoral purchases.

  
  

Let’s break this down using specific figures from 2022 — the situation hasn’t changed significantly since then. We’ll keep things simple by leaving out unnecessary details.

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In 2022, Kazakhstan’s GDP was 104 trillion tenge, or $225 billion. This figure represents all goods and services produced over the year — and accordingly, purchased by someone.

Right away, there's an important caveat – according to our estimates, 5.5 trillion tenge, or 5.3% of GDP, is “not real.” This is roughly the size of the entire construction sector and represents what’s known as “imputed consumption” – when goods or services are produced for personal use rather than for sale.

For example, there is a sector called "real estate activities" that hasn’t declined in over 20 years, despite multiple crises. Up to three-quarters of its “income” may come from “imputed housing” – meaning that if you own a home, it's as if you’re renting it from yourself each month. As the total housing stock (in square meters) grows over time, the sector appears to be “growing” as well. That’s why calculating monetary indicators for such sectors – like tax or credit burden – is often misleading, since they will always appear artificially low.

So, what about the rest – the “real” economy?

Here, we need to move away from the old Soviet approach – analyzing production by sector. Anyone with even a basic understanding of business knows that what matters is not how much you produce, but how much you can sell. This is especially relevant if you're in the middle of a value chain: I might be able to produce more flour, but what's the point if people aren’t eating more bread or other products?

Thus, in classical economic theory, analysis starts from demand. Roughly speaking, demand comes from four major, independent groups:

1. Individuals, or regular consumers. In economic terms, these are "households" or families, since that better reflects purchasing logic (we don’t buy diapers for ourselves individually).

2. The government, when it provides us with “free” services – education, healthcare, or policing.

3. Businesses, when they make long-term investments (though ultimately, the cost is borne by other groups).

4. The external world, when we export goods to foreign consumers.

These groups initially generate final demand – for instance, when you buy bread at the store or when we export oil abroad. That immediately accounts for 61% of GDP. Then, intermediate demand kicks in – for example, bread requires flour, grain, electricity, and so on. This is the "multiplier effect," which adds another 34%.

Here’s how the GDP breakdown looks through the lens of those four groups:

1. The External World (Exports)

This is the first and most crucial pillar. It creates a value chain responsible for 34% of GDP – 22% directly and 12% indirectly. In other words, a third of Kazakhstan’s economy depends on foreign buyers – and that’s not even counting the additional impact from taxes and wages, which support demand in other groups.

Half of export demand comes from crude oil. Other key sectors include:

• non-ferrous and precious metals and their ores,

• ferrous metals,

• land transport,

• the agro-industrial complex.

  
  

What’s even more interesting is which industries critically depend on export demand through intermediate links. Key examples:

• parts of manufacturing (machinery repair and installation, metal processing, rubber and plastic products, non-mineral products, electronics, and optics);

• wholesale trade and all transport services;

• indirect financial services (auxiliary services, insurance, pension provision).

  
  

This segment is characterized by large corporations, including foreign ones. It’s classic B2B, integrated into global chains, with global pricing and product standards.

These are often closed systems (e.g., mineral deposits, specialized equipment) – economic "enclaves" with operations managed through tight supplier relationships. It’s not a typical market. Financing usually comes from inside the corporation or from foreign parent and global capital.

Again, we should question how appropriate it is to include Kazakhstani bank lending in GDP when the economy doesn’t really depend on it.

2. Households (People)

The largest pillar of the economy – 37% of GDP, including 25% directly and 12% indirectly. This is even more than exports.

Which industries critically depend on household income, even if indirectly?

• agriculture and fisheries, food production;

• light industry, pharmaceuticals, furniture and finished goods;

• utilities;

• retail trade, including automobiles;

• air transport, postal services, couriers;

• hotels and restaurants;

• telecommunications;

• financial services and insurance;

• real estate activities;

• healthcare (notably via compulsory health insurance);

• entertainment, leisure, arts.

Anything that negatively affects household demand – including consumer credit – will directly impact these sectors. When regulation is tightened or lending restricted, it’s no surprise these sectors suffer, and GDP fails to double.

3. The Government

This pillar generates 11% of GDP – 6.5% directly and 4.4% indirectly. The government’s uniqueness lies in the fact that it creates and fulfills its own demand (via public institutions). It supports sectors such as:

• public administration, defense, social security, social services, education (partially), and healthcare;

• forestry;

• publishing and information.

  
  

The government may play a smaller role in the formation of GDP, but it is crucial for providing public goods and leveling the playing field. These goals are non-economic, but we must remember that the resources for this part of the economy are extracted from other sectors – via taxes, duties, fines, etc.

Where is business? Business operates throughout all chains as the provider of goods and services. However, at the macro level, business does not set the agenda – it responds to existing demand. Consumer preferences and price signals drive thousands of businesses to compete. Long-term investments were excluded from this analysis precisely because they differ from raw materials and semi-finished goods only in their usage period – exceeding one year.

We also excluded the nonprofit sector due to its small size – 0.4% of GDP.

We hope that viewing the economy through the lens of the 3–4 main buyer groups and their interconnected chains somewhat simplifies understanding. The indicators of individual sectors can then be linked to the conditions of specific demand sources.

Moreover, each branch of GDP has its own “story,” so broad generalizations and averages won’t help in understanding the true state of affairs.