Retail sales growth has slowed to 5.8% in 2019. The growth in retail sales in January-December, at constant prices was weaker than 6.5% yoy achieved in 2018. Slowdown in sales growth occurred despite the State’s comprehensive measures – increase of salaries, pensions, suppression of inflation, reduction of debt burden of the population and subsidization of interest rates on mortgages.
Almaty, as the country's largest consumer market, showed the strongest growth in retail sales (+12.1% yoy) and contributed almost half to the overall growth, while significant part of regions were marked by rather weak figures - less than 3% on average. The main factors of a more restrained dynamics of retail trade turnover in 2019, in our opinion, were strong devaluation expectations of the population, as a result it preferred currency exchange points to shops, as evidenced by the fact that the growth rate of purchases of dollars by the population at the exchange points was four times higher than the rate of retail sales growth. In addition to the flight to the FX currency, there was a weaker sales rate in the regions except the three largest cities of the republic (Almaty, Nur-Sultan, Shymkent), which showed an increase of only 2.4% yoy compared to 3.5% yoy in 2018.
The size of the consumer market in Kazakhstan in dollar terms amounted to almost $30 billion. Most recently, at its peak in 2013, the retail sales turnover had reached $36 billion, but subsequently due to the weakening tenge it fell to $23 billion in 2016 and since that time it is slowly recovering. Relative to the size of the national economy, retail sales are at a fairly low level – 16.5% of GDP. At the moment, per capita sales are 24% lower than at the peak of 2013 and it may take another 3-4 years to restore consumption to the pre-crisis level of $2 thousand per capita.
The growth in the volume of new consumer loans exceeded 40%. In addition to the announced initiatives to increase the salaries of state employees and an additional incentive in the form of forgiveness of bad consumer loans, it is necessary to note a significant increase in consumer lending this fall, when the growth of new loans in November grew by more than 40% yoy. Against this background, the ratio of retail loans to deposits has consistently increased since 2018 from 0.56 to 0.74, demonstrating an increase in the debt load of the population, while companies, on the contrary, were reducing their debt burden.
More than 70% of the total retail turnover was formed by small enterprises and individual entrepreneurs. Civilized trade is steadily expanding in Kazakhstan, but this process is proceeding at a slow pace. Individual entrepreneurs account for the largest share in trade – 41.9% of the total turnover, and together with small enterprises – more than 70%, while the share of medium and large enterprises in retail sales is below 30%. The low penetration of modern trade formats reflects the presence of a high share of the shadow economy – about 30% of GDP (2017), while trade is the largest industry with a shadow turnover. Trade is the biggest employer in the country – 16% of all employees are concentrated in it. In 2017, trade moved to first place by the number of employees among all sectors and holds this place firmly. At the same time, in terms of level of salaries, trade is not present in the top ten. The salary in trade was 8% lower than the national average.
Thanks to the government intervention, inflation was restrained – 5.4% yoy in 2019. The main contribution to price increases was made by food products, which form almost 40% in the price index. Their prices went up throughout the year with an increase of almost 10% in a year, which offset the impact of lower tariffs on services. In addition, the effect of the State support measures will soon be exhausted, and this year, without another intervention by the state, the effect of a loosened coil spring may be realized, which can provoke an increase in prices, especially considering the availability of suitable soil for this – increased inflationary expectations of the population. State intervention in the price formation in 2019 had a temporary effect – the costs were shifted to state monopolies. With this in mind, the potential acceleration of inflation in 2020 could have a negative impact on future growth rates of trade turnover.
The outlook for the next year is moderately optimistic. Against the backdrop of growing consumer confidence, supported by higher salaries in the public sector and deferred demand caused by a strong increase in foreign currency purchases in 2019, the retail turnover, in our opinion, will improve slightly. Retail lending, in our opinion, will slightly weaken, but will maintain double-digit growth rates, which will somewhat weaken its effect on sales. Amid growth in export revenue next year, Tenge will be relatively stable, which will support the expansion of imports. Despite the uncertainty associated with the influence of government agencies, consumer prices are expected to rise no higher than last year's level in 2020. We expect growth in retail sales at 6.4% in 2020.
