The Halyk Finance Department of Trade Ideas analyzed the implications of the military conflict between Russia and Ukraine on Kazakhstan’s economy, including the impact of sanctions, the relocation of Russian businesses, a decrease in imports from Russia, and an increase in business activity, as reported by inbusiness.kz.
"The close economic ties between Kazakhstan and Russia clearly illustrate the vulnerability of a small open economy in the event of unforeseen negative events in a large partner country, thereby underscoring the relevance of a multi-vector approach, which must inevitably encompass the economic aspect as well. In this context, we believe that the growing economic interaction between Kazakhstan and China, as well as with other countries, can and should be developed accordingly," the analytical note states.
The national currency's exchange rate and inflation are most sensitive to external shocks
Many countries around the world, still recovering from COVID-19, faced a new crisis triggered by Russia's special military operation in Ukraine in early 2022. The shocks from this conflict were multifaceted and included manifestations such as a sharp increase in inflationary pressure due to the significant role of Russia and Ukraine in supplying global markets with essential raw materials, from grains to oil and gas. Given the importance of the conflict parties as transport arteries, disruptions in supply chains had an additional negative effect on both prices and the regularity of industrial operations. The situation was exacerbated by sanctions from Western countries and those that supported them, as well as retaliatory sanctions directly from Russia. As a result, many foreign companies were forced to cease operations in Russia at a loss, while Russian entities subsequently left their previous locations in Western countries. Currency fluctuations were also noted – the ruble and, in particular, the Kazakhstani tenge. The consequences of this operation continue to be felt today, albeit in a less pronounced form due to the adaptation of countries to this extraordinary event.
To assess the impact of the war in Ukraine on the Kazakh economy, let’s look at the main macroeconomic indicators of the republic since the onset of the conflict in 2022. As of now, the war has been ongoing for three years, allowing us to understand what Kazakhstan has gained or lost, considering its historically close economic ties with the Russian Federation.
Given Kazakhstan's small open economy, i.e., its high dependence on external processes, the onset of the conflict in Ukraine primarily negatively affected the exchange rate of the tenge, which depreciated against the US dollar by nearly 15% following the ruble, from 434 in February (monthly average) to nearly 500 in March 2022, while the Russian ruble plummeted by more than a third, respectively (see Fig. 1). Historically, the exchange rate of the tenge has averaged around 5 per 1 ruble since 2000. The connection between the tenge and the ruble was due to the fact that for many years, Russia maintained its status as Kazakhstan's largest trading partner, and it was with this country that Kazakhstan had the structurally highest trade balance deficit. Although formally Kazakhstan competes with Russia in the extraction of raw resources, its smaller economy, lack of access to the sea, and slow progress in developing the manufacturing industry "cemented" its dependence on the larger and more diversified economy of its northern neighbor.
Thus, the tenge's exchange rate against the ruble, due to the underdevelopment of currency risk hedging instruments in the local market, typically serves as a benchmark for the tenge against other currencies, which is vividly evident during periods of turbulence that periodically shake the Russian currency. As a result, since the beginning of 2022, the tenge's exchange rate weakened by 21% against the US dollar by early 2025, which was still less than the 30% drop in the ruble against the latter. For comparison, Azerbaijan, which is also heavily reliant on raw material exports, maintained a fixed currency exchange rate without changes, while the Uzbek sum lost 20% against the US dollar. In the context of geopolitical tension, the tenge is undoubtedly experiencing negative effects from the ruble, but existing buffers in the form of currency assets from the National Fund help support the tenge, albeit with a tendency towards depreciation due to structural weaknesses in the economy.
Figure 1. Dynamics of USDRUB and USDKZT exchange rates
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Source: Central Bank of Russia, National Bank of Kazakhstan
As noted above, the significant role of Russia and Ukraine in supplying the global market with a wide range of food and energy products manifested itself in a sharp increase in the prices of these goods, further exacerbated by disruptions in established supply chains and the depreciation of the national currency, in Kazakhstan's case. The extreme vulnerability of Kazakhstan's economy to imports, where certain positions exhibit 100% dependence on external supplies, was evident in the fact that inflationary pressure in the country was more significant than, for instance, in Russia. During 2022-2023, double-digit inflation was recorded (averaged over the year).
Part of the high inflation level in Kazakhstan was driven by an internal expansionary budget policy with large-scale social support measures and stimulation of the real estate market, a significant share of imports from Russia, where price increases were noted, as well as an ill-timed moment for launching reforms in the pricing of housing and communal services tariffs (the situation in the sector became critical, making it impossible to delay reforms).
As a result, since 2022, consumer prices in Kazakhstan have risen by 43%, exceeding the figures in Russia – 31% and globally – 23%. Directly in the first year of the war in Ukraine in 2022, inflation in the republic exceeded 20% and was the highest since 1997. Thus, Kazakhstan still lacks effective market mechanisms, suffers from insufficient diversification of trading partners, and the purchasing power of Kazakhstani incomes has deteriorated more significantly in recent years compared to other countries worldwide.
Figure 2. Dynamics of inflation, %
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Source: Central Bank of Russia, National Bank of Kazakhstan, IMF
Businesses from Uzbekistan and China among the leaders in doing business in Kazakhstan
One of the noteworthy trends resulting from the war and subsequent sanctions against Russia has been the active relocation of businesses from that country to Kazakhstan. According to statistical data, 2022 saw a sharp increase in the number of companies with Russian roots. In just one year, their number nearly doubled from 7.9 thousand to 15.7 thousand. In 2023, this trend continued but on a smaller scale, and in 2024, a decrease in the number of active enterprises was even noted. Ultimately, since 2021, the number of companies from Russia has increased by 138% or nearly reached 19 thousand, and their share rose to 42% from 31% before the military actions. Interestingly, an even more noticeable influx of companies during the same period was recorded from China (+158%), Belarus (+148%), and Uzbekistan (+198%). However, in the cases of Uzbekistan and China, there was a factor of enhanced economic integration, where the war's impact was indirect, as the industry profiles of companies from these countries significantly differed from those of Russia.
Figure 3. Number of active enterprises with foreign participation
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Source: National Bank of Kazakhstan
Figure 4 illustrates the areas of activity of companies by country, clearly showing that even among Russian and Belarusian companies, there are quite significant differences in their areas of operation. Russian businesses primarily focused on sectors such as business services and education, while, for example, Chinese companies showed interest in practically all niches of business activity.
One of the important areas of Russian companies' activity is, of course, telecommunications and IT. In this sector, the number of enterprises from Russia increased by 700% during the reviewed period, making them dominant – 2.6 thousand out of 3.5 thousand, with a share of 75%! In our opinion, this sector has become an unwitting beneficiary of the conflict due to the relocation of Russian companies. For example, InDriver, Yandex, Playrix, and others transferred part of their businesses to Kazakhstan. Against this backdrop, the export of IT-related services from Kazakhstan grew sevenfold from 2022 to 2023, exceeding $600 million, outpacing other business-related services.
Figure 4. Increase in the number of active enterprises with foreign participation since the beginning of 2022, %
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Source: National Bank of Kazakhstan
It should be noted that there were also losses. Due to sanctions, major entities such as the subsidiaries of Sberbank and Alfa Bank had to cease operations in Kazakhstan. However, given the highly competitive banking market and the rapid development of fintech platforms, their exit did not have negative consequences for the local economy. According to official reports, government agencies are working to attract foreign companies from Russia to Kazakhstan, but this process is not large-scale due to the small capacity of the Kazakh market and infrastructure deficiencies