Effect of constraining growth in prices in Kazakhstan is short term

Azerbaijan, Baku, Feb. 24 / Trend E. Ostapenko /

The measures undertaken by the government to curb rising prices in Kazakhstan will have only a short-term effect, Kazakh Development Institute President, Doctor of Economics Magbat Spanov said. He believes it is necessary to change their whole economic system.

"In addition to lowering some fees, the state must change the structure of management in the Kazakh economy. First and foremost, the economy should be [de-monopolized]," Spanov told Trend.

Food prices soared in Kazakhstan in January. Prices on some products have increased more than threefold. For example, the price for a Russian liter of milk increased by $1.02 from $1.32 in November to $2.40. Prices of some vegetables and fruits grew from $0.41 to $1.3 per kilogram.

The Kazakh Statistics Agency gives a figure of a rise in prices at three percent for January.

The government has responded to higher prices first by demanding entrepreneurs not to artificially raise the food price.

The "Green" supermarket buys buckwheat from supplier Sultan-marketing at 380 tenge ($2.60) and sells for 607 tenge ($4.16) - a surcharge of 80 percent!" Astana Mayor Imangali Tasmagambetov was quoted as saying by Deutsche-Welle.
The Akims (Mayor's Office) and sales representatives signed a memorandum obliging the latter not to unreasonably raise prices.

Moreover, the state established a special commission to monitor prices and make appropriate recommendations. Spanov said it actually means a return to the Soviet pricing when a commission on prices is enacted.

Spanov said measures to curb prices applies to also include lower import duties on some products.

However, these measures may have a short-term effect, he said, because only the transition to a competitive economic model and fierce competition in pricing can stabilize the situation in the long term.

"Today, the leading sector of the Kazakh economy is under the control of several major vendors who set high prices for imported products," he said.

In addition, there are a number of objective and subjective factors that have led to a jump in prices in early 2011, Spanov said. "We must take into account that global food prices are rising and Kazakhstan cannot be away from this," he said.

Among the subjective reasons Spanov named are the fact that Kazakhstan's economy, despite adequate investment in agriculture, cannot fully ensure the internal market. "Kazakhstan has to import most of its products, mainly fruits and vegetables and meat," he said.

Spanov believes Kazakhstan's membership in the Customs Union may be another factor in rising food prices, as tariffs have been oriented on Russia.

Kazakhstan, Russia and Belarus formed a customs union in 2007, but officially it launched activities only from July 1, 2010.

The fact that Kazakhstan was receiving many products at a relatively low price from Bishkek also played a role in the rise in prices, Spanov said. But production volumes decreased in Kyrgyzstan due to political instability, which affected the supply of products to Kazakhstan.
Kazakhstan is capable to cover the domestic demand only through domestic production and only at 40 percent. "It is ironic that Kazakhstan, having a historical tradition of meat production, imports meat from New Zealand or Australia," Spanov said.

Earlier in the presence of vast cultivated areas and pastures, the number of sheep in Kazakhstan could reach 50 million heads, but as of Jan. 1, 2010, the figure is a little more than 10 million heads, he said.

The government, Spanov said, is taking some attempt to improve the situation with livestock. For example, about 500 heads of cattle were brought to Kazakhstan from the United States in early 2011 to improve the breeding production; however, the price of each cow was $20,000.

Most of all, Kazakhstan is dependent on imports of fruits and vegetables.

According to the forecast, which Spanov regards the most, prices will continue to grow.

Possibly, the government will maximize curbing this growth in connection with presidential elections in April. "But by the summer, if the above measures fail, the price will go up again," he said.

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