A young population and low unemployment rate make Kazakhstan an attractive retail market, with YoY growth suggesting this is only the beginning.

Retail sales in Kazakhstan have increased on average 12.5% YoY between 2010 and end-2013, according to the Statistics Agency. This coincides with an increase in per capita GDP from $8,750 in 2010 to $13,000 in 2013, according to data from Planet Retail and the World Bank. Private consumption was also up 16.1% in 2013, with poverty levels also dropping below 4% in 2012 and suggesting that Kazakhstan's middle class is finding its feet. Indeed, nearly 70% of the 17 million-strong population is between 15 and 64, while around one-fifth are below 14. Unemployment of around 5% also suggests that there is plenty of work available, wrapping up a series of indicators that would more than pique the interest of any retailer.

The current trend on the retail scene is formalization, a key challenge the sector needs to overcome in order to meet the expectations of a more wealthy clientele. But with large supermarkets accounting for less than one-quarter of sales, there's work to be done—the two leading grocery retailers, Magnum Cash & Carry and Ramstore Kazakhstan, accounted for just 2% of retail sales in 2013 by value. That said, the formal sector did overtake the informal sector in overall retail trade back in 2011, when it accounted for 51.5% of the total, according to bne. And the sector has also been positive for the real estate market, with the demand for new malls spiking, especially in Almaty and Astana. International brands have also taken notice, with Inditex Group bringing several brands to the country in 2010 and luxury brands including Louis Vuitton, Gucci, and Christian Dior all opening stores in 2012 at Esentai Park, a mixed-use project featuring a 34,900-sqm shopping mall in Almaty.

It is yet to be seen, however, what the impact of currency devaluation in early 2014 will have on the retail sector. In February, the tenge was allowed to depreciate by around 19%, bringing it to KZT185 versus the US dollar. This sparked fears that prices would begin rising at checkouts, despite assurances from the government that monitoring would ensure that any price hikes were kept under control. Soon after the announcement, however, some retailers closed their shutters in order to begin repricing, while tenants can also expect increasing rents as payments are commonly made in US dollars in order to protect landlords from currency fluctuations.

But the reality on the ground is certainly enticing to investors, with growth in formal retail shoring up a new generation of managers capable of working with international brands at the franchise level. Interesting to watch will be how the sector develops outside of Astana and Almaty, with Atyrau a budding hub thanks to its role in the hydrocarbon industry. Elsewhere, however, and especially in the south, there is plenty of room to grow as saturation is reached elsewhere.