Kazakhstan’s Post-Industrial Policy: the New Priorities for Economic Development
Mazhit Yessenbayev, Minister of Industry and Trade of the Republic of Kazakhstan
Since its first years of independence, Kazakhstan has proved itself to be a reliable and promising partner in the opinion of the investment community, thanks to its having followed a circumspect and consistent policy. As a result, significant amounts of foreign investment have been attracted into the Kazakh economy. This has allowed several large international projects to be implemented, mainly related to hydrocarbon production, which is the primary source of budget receipts.
Reviewing the progress that Kazakhstan has made over the ten years since its independence, Kazakh President Nursultan Nazarbayev has emphasized the necessity of developing domestic export-oriented production. All the more so, now that the appropriate legal framework has been created, and there are economic sectors with a high potential. It is time to develop a new post-industrial policy, which implies a diversion of investment from the raw material sector to the manufacturing and processing industries.
An analysis of the situation has proved that the Kazakh economy is developing rapidly, mainly due to growth in production and high investment activity in the extractive sector, especially in the oil industry (89% of foreign and 52% of all investments are allocated to the raw material sector). The Government believes that the hydrocarbon sector will continue to exert a great influence on the Kazakh economy in the medium-term. This resource should be used to create the conditions for diversification of the economy and priority development of competitive products with a high added value.
The accelerated expansion of investment in fixed capital, along with steadily increasing customer demand, form the only source of stable economic growth in the long-term. By 2015, the average increase in investment should total at least 10%. It is also essential to broaden the kernel of investments in innovation.
The problem of moving to a balanced economic structure, which will be able to ensure sustainable development, can be only solved by carrying out definite structural changes in industry and imparting a new quality to industrial development. Hence, the State Industrial and Innovation Programme is aimed at promoting long-term sustainable economic growth in Kazakhstan through modernization of industry and diversification of the economy, by creating conditions for manufacturing competitive products—high technology items and ones that will increase exports.
The most crucial problems facing the manufacturing and processing industries are investment deficit, capital consumption, lack of higher stages of raw materials processing and, as a result, a high level of materials and power production, out-of-date technology and plant facilities, lack of efficient interaction between science and production, and a dearth of state-of-the-art management.
The Programme of Industrial and Innovation Development, which is currently being worked out, sets priorities for development of the manufacturing industry, new science-intensive and high technology production, up-to-date infrastructure and information technology, innovative small businesses, science and education.
Implementation of these priorities relies on a series of measures proposed by the Government, aimed at upgrading production facilities and technology in industry, developing higher processing stages, and producing goods and services with a higher added value, which will be able to enhance the competitive strength of the Kazakh economy in world terms.
In this Age of Globalization of the world economy, Kazakhstan can only stand against the escalation of international economic competition by enhancing the competitive strength of its industry in domestic and foreign markets.
Both domestic and foreign investment are very significant in this matter, so the core of the above measures lies in their aim of improving the investment climate, particularly in manufacturing industry.
An important problem is the necessity of competing for foreign investment with other countries, especially Russia and China. Taking into account the more capacious markets of these countries, the investment climate in Kazakhstan needs to be much more attractive.
Due to the rapid growth in domestic investment, the share of foreign direct investment in the gross investment in Kazakhstan has decreased to 34%, which is still considerable. Along with its direct economic effect through tax revenues, increased employment, encouragement of Kazakhstani suppliers and expansion of the domestic market, foreign direct investment exerts a beneficial effect in technology transfer, extension of advanced management experience, marketing, logistics, staff development, etc. At the same time, the potential of foreign investments has not been adequately realized outside the oil production sector.
I will now introduce the main provisions of the State Industrial and Innovation programme, that are expected to play a decisive role in the future of Kazakhstan, which is gathering and concentrating all its productive, financial and intellectual potential for a sharp spurt in development.
The Government has worked out a comprehensive programme of measures, including tax and customs regulations, and monetary, antimonopoly, trade and investment policies. The ways of solving the problems described above are different for different industries and economic sectors.
Taking into account the current situation in investment policy, it is necessary to maintain stable contracts and legal control; continue to deregulate the economy; reduce the number of types of activity subject to licensing; simplify the procedure of approving investment documents; upgrade the quality of manpower resources by reforming the vocational education system; improve the transport, telecommunications, energy and information infrastructures; systematize work on attracting potential investors; strengthen protection of ownership for investors, creditors and minor shareholders; and speed up the application of international standards to financial accounting by enterprises.
It is also necessary to continue to improve tax treatment, specifically, a general reduction in the tax burden. Another important step is to introduce accelerated depreciation of fixed-capital assets in the manufacturing industry.
Favourable conditions should be created for attracting investment into the natural monopoly sector. The state should stop granting benefits to individual entities and industries, and promote the development of exchange trade as a powerful mechanism for forming and maintaining a level playing field.
Material changes should be made in the customs regulation field, such as improving administration, simplifying bankruptcy and change of ownership procedures, reduction of duty on imports of high technology equipment, raw materials and goods for the manufacturing industry, and reduction in import duties that force the owners of non-competitive enterprises to restructure their production substantially.
The Government also believes that the problem of inter-regional disparities in development is no excuse for poor distribution of facilities and an unequal competitive environment, which will cause direct economic damage. The Programme provides for encouragement of efficient regional distribution of production facilities; compliance with the principles of economic freedom and supremacy of market forces; geographic mobility and flexibility of production factors (in particular, capital and manpower resources) for the purpose of free inter-regional circulation; prevention of the formation of monopoly structures and isolation, which is a result of underdeveloped transport, telecommunications and energy infrastructures; and creation of conditions for the maximum involvement of all regions in industrial development.
Foreign economic policy is aimed at preventing discrimination against Kazakh exports by developing regional integration (in particular, within a common free market zone), and continuing preparations for Kazakhstan to join the WTO, in coordination with the country’s major trading partners.
It is planned to liberalize the export of Kazakhstani capital necessary for access to foreign markets and its active involvement in international division of labour and diversification of risks.
The competitive strength of Kazakh industry, internal and export, depends directly on Kazakhstan’s integration into ISO. At the same time, the introduction of regional and branch standards, particularly EU standards, is also essential because Kazakhstani foreign trade follows the lead of EU countries. It is necessary to speed up the introduction of API standards in the manufacture of equipment and goods for the oil industry. It is also necessary to speed up a certification procedure for Kazakhstani producers on the London metal exchange, in order to resist transfer pricing.
To implement all these plans, a number of institutional measures should be taken. Taking account of the situation in the domestic economy and the experience of highly developed and rapidly developing countries, the following support measures have been proposed. To develop exports of goods and capital, it is necessary to set up a state corporation for export insurance and support Kazakhstani exporters in promoting their goods in export markets, e.g. to establish trade and investment representative offices. Such representative offices would promote Kazakhstani exports, protect the interests of exporters, orient potential investors with respect to investment opportunities in Kazakhstan, hold initial negotiations with them and ascertain their investment terms.
Small innovation businesses should be supported by creating innovation technology parks with a developed infrastructure and low cost services to small innovation companies.
The State Investment Fund will be established for government financing of the highest priority projects, particularly those related to infrastructure development.
The State Innovation Fund, which could co-operate closely with technology parks, international venture capital and science and technology centres in commercializing domestic and foreign research, is expected to participate in financing promising scientific research in the field of engineering, including applying it to production.
Any government financing should involve open, transparent bidding procedures, including the participation of independent experts and expert councils.
The above-mentioned raft of measures has a promising future, as it concerns almost every economic sector, making the economy more mobile and efficient. The previous years of reform in the Kazakh economy have proved the efficiency of measures taken by the Government. This is a good base for the creation of a new post-industrial policy in Kazakhstan. At the present time Kazakhstan comes first among the CIS countries in terms of several social and economic development factors. One of the elements in Kazakhstan’s present well-being is the active involvement of foreign investment in the domestic economy.
Kazakhstan’s efficient policy on distribution of investment resources, protection of investors and creation of a favourable investment environment were the determining factors in Moody’s Investors Service conferring the first Baa3 investment credit rating with a stable outlook on Kazakhstan. It is worth mentioning that Kazakhstan is the first CIS country to receive this rating.
The fact that the European Community and the USA have conferred market-economy status on Kazakhstan may be considered as an appreciation of the reforms which have been carried out by the Government, including those aimed at creating a favourable investment climate. It should be mentioned that Kazakhstan was the first CIS country to receive this status from the leading world powers.
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