Will Kazakhstan Become a Developed, Well-off Country?
Yuri Shokamanov, Ph.D. in economics, First Deputy Chairman of the Kazakhstan Statistics Agency
Yuri Shokamanov, Ph.D., is the author of around 90 research papers, including Trends of Human Development in Kazakhstan (2001) and Human Development in Kazakhstan: Calculation Methods and Analysis (2003).
He is a national human development expert for UNDP, co-author of all Kazakhstan’s national human development reports and the textbook Human Development in Kazakhstan for college students.
Mr. Shokamanov also lectures on management, pricing and statistics at the Eurasian Institute of Market and on general statistics theory at the Almaty Academy of Economics and Statistics.
"We’ve chosen the right path. The results are striking. We have a unique chance to spur our onward movement based on these achievements. This is the path that will make Kazakhstan a developed and well-off country in the global community of nations."
Excerpt from the Kazakhstani President’s National Address. Astana, 18 February 2005
Strategic Basics of Kazakhstan’s Development
All socioeconomic programmes currently under way in the country have been developed in compliance with the Strategy for Kazakhstan’s Development until 2030. They are also of international importance as they target the implementation of the Millennium Development Goals adopted in 2000 at the UN General Assembly by 190 nations, including Kazakhstan. The Kazakh president’s annual national addresses are in no way less important as they serve as general guidelines. Any of these addresses is a logical continuation of the policy pursued during previous years. It is based on existing conditions and takes into account the needs and challenges of our times.
If we go back to last year’s address we will see the following words at the end of the second section: "By my order, work is being done to strengthen the social dimensions of reform and shape a new social policy. The latter shall be announced in a year." The results of this work are evident in the last presidential address of 18 February 2005 which contained a number of measures to be taken in order to speed up economic and social progress, advance democratic processes, and implement the nation’s foreign political priorities..
Global Changes in Kazakhstan’s Socioeconomic Development
According to the UNDP1, Kazakhstan ranked 78th among 177 countries by the human development index (HDI) in 2002. Among the CIS countries, Russia had the highest HDI (57th). It was followed by Belarus (62nd) and the Ukraine (70th). It is noteworthy that the HDIs of all the CIS countries fell by 20-59 ranks as compared to 1990. For instance, Kazakhstan’s HDI fell 24 places (Table).
1. UNDP’s Human Development Report 2004
1995 saw the most dramatic fall of human development figures when Kazakhstan’s HDI rank dived from the 54th to the 93rd position (a 39 point decline). Subsequently, in 1996-2002, the human development situation was gradually improving in Kazakhstan and the country’s rating climbed by 15 notches (Graph 1).
The main reason why Kazakhstan’s HDI rank worsened in 1990–1995 was a 4.6-year decrease in people’s life expectancy from 68.1 to 63.5 years (this accounts for 52% of the deterioration). The second factor (37%) was an economic decline resulting in a 38.6% reduction of GDP. The third cause (11%) was a reduction (from 80% to 73%) in the total number of the population aged 5-24 years receiving education.
In 1996–2004 the human development situation improved to some extent. This was largely attributed (48%) to the economic growth causing a GDP growth of 68.5% as compared to 1995 and 3.5% as compared to 1990. The 2.5-year increase in life expectancy (to 66 years) and an 11% increase in education coverage (to 84%) equally affected the growth of Kazakhstan’s HDI (26% each).
Having seen a considerable reduction in human development potential during the first phase of the transition period, the country is now catching up; hence the necessity for setting tasks that will secure the increase in all human development components including life expectancy, total educational coverage, and per capita GDP.
In 2004, GDP in real terms surpassed its maximum value of 1990 by 3.5% (Graph 2). The trend parabola, which was built using data from 1990–1997, provides a vivid prognosis of economic development over the next seven years. Typical of other CIS countries as well, these dynamics of economic development seem to arise from a certain pattern of economic transition.
I believe that several years after the economy goes back to its initial condition, there will be a different model for its development. Economic growth will gradually reduce from 9% in 2006–2010 to 8% in 2011–2020 and then to 6% in 2021–2030. As a result, by 2010, Kazakhstan’s GDP will increase by 2.5 times (against 2000), fivefold by 2020 and eightfold by 2030.
There have also been some global changes in GDP structure in the past 15 years. This is due to both different production dynamics in different sectors and different production price dynamics within these sectors. While the price level in the overall economy (GDP deflator) grew by 56,000 times in 2004 (vs. 1990), in agriculture it went up only by 22,200 times, and in industry by 101,200 times.
Whereas agriculture and industry were the basic economic spheres in Kazakhstan in 1990 with 34% and 20.5% of GDP, respectively, in 2004, industry’s share increased by 1.5 times to 31.1% and that of agriculture fell by 4.3 times to 7.9%. Trade now runs second in the GDP structure with 11.4%, whereas it was previously only at the fifth position with 8.2%.
It is also remarkable that the extractive component of the country’s economy has strengthened. In 1990 only 0.5% of GDP was related to the oil and gas sector and in 2003 it was around 14.3%. Currently, 36% of industrial production, 39% of construction, 11% of transport and 3.2% of real estate transactions are related to the oil and gas sector. This development pattern leads to lower economic security and poses a threat to Kazakhstan’s sustainable economic development.
In the 1990s, the area under basic crops had more than halved from 35.2 million hectares in 1990 to 15.3 million in 1999, including cereals from 23.4 to 11.4 million hectares. At the same time, the year 2004 saw a certain increase in the area under crops: generally to 17.5 million hectares, and cereals to 13.9 million hectares.
By 1999, livestock reduced by a factor of three, including cattle by more than two times, and sheep and goats by three and a half times. Afterwards, there was some growth in livestock and poultry numbers. So far, cattle increased by one quarter (by the end of 2004) and the number of sheep and goats by one third.
The reduction in physical production and the fact that the growth of agricultural production prices is five times lower than that of industrial process (as compared to 1990) lead to lower gross added value in the agricultural sector as compared to industry. This has the most drastic effect on socioeconomic development opportunities in farming regions. In this regard, it is time to adopt a host of measures to develop the country’s agricultural complex and the production and social infrastructure of the rural areas.
Kazakhstan’s contemporary labour market is notable for its self-employed population, whose numbers grow annually. In 1991 individuals employed at enterprises and organisations accounted for 95.8% of employment and only 4.2% formed the self-employed category, but in 1999 the indicators changed to 54.9% and 45.1% respectively. In 2004 the share of self-employed comprised almost 38% or 2.7 million persons, 2.4 million of whom are independent workers. These are the individuals whose remuneration directly depends on revenues and their own consumption is considered part of that revenue. Rural residents comprise 1.7 million of these workers (55% of the total employment).
In all, employment reduced by 7% in 2004 (vs. 1991) and totalled 7.2 million persons.
The transition period brought with it unemployment. In 1994–1999 the number of unemployed ranged from 500,000 to 1,000,000 persons and unemployment levels were at 8-14%. Since the beginning of the year 2000, there has been a trend towards a decrease in unemployment thanks to the growth of production and the creation of new jobs. In 2004, unemployment was at 8.4%.
As we can see, the transition period replaced a near 100% employment rate with high unemployment figures. Today, nearly 40% of the employed population is self-employed, the majority of which are independent farmers with low and unstable sources of income. It is therefore crucial to encourage them to work in economic sectors with higher and more stable incomes.
The decline in the economic situation has also resulted in poverty. In 1998, 39% of the population had income used for consumption that was lower than the living wage. Subsequently this figure has been noticeably reducing and fell to 15% in 2004 (preliminary estimates).
The income gap within the population has also been growing. The decile coefficient—the ratio between the incomes of the richest and poorest 10% in the nation—increased to 11.3 times by 1998. The Gini coefficient2 (calculated based on decile distribution of incomes) grew to 0.376. According to preliminary data, these indices reduced considerably by 2004, to 7 times and 0.3 respectively.
2. The Gini coefficient defines the extent to which the actual income distribution between numerically equal population groups deviates from the line of their even distribution. The statistical measure of income equality ranges from 0.0 to 1.0. An absolutely equal distribution of incomes throughout all population groups is defined by 0.0, while absolute inequality (when one person has all the income) is defined by 1.0.
Presently, the poverty level is 2/3 defined by the ratio between per capita propensities to consume to the living wage and 1/3 defined by income inequality. Given the current income inequality, the indicator should be increased from 1.6 to 2.5 times to eliminate poverty. The decile coefficient should be reduced to six times and the coefficient index to 0.29 by supporting the poorest population groups.
Factor and regression-correlation analyses of quarterly research on 12,000 households in 2001-2004 determine that poverty may be completely eradicated by 2010. This is given that the government plans to introduce a new living wage standard in 2006, which will include a larger consumer goods basket and an increase in the non-foods portion of the living wage from 30% to 40%.
Target Indicators of Kazakhstan’s Socioeconomic Development until 2030
The President said, during the conclusion of his annual national address, "We don’t want to swallow the dust, running behind the speeding train of global civilisation. For this purpose we need to join our efforts, concentrate the intelligence and talents of our people, and use this potential." We need to pose concrete tasks if we really want to make Kazakhstan a country with a high level of human development. Some of these tasks, for the period until 2015, have been defined in the Millennium Development Goals; an interim report on this progress will be presented by the nations of the world at the UN General Assembly at the end of 2005. At the same time, it is crucial to specify the goals for the period until 2030.
The most ambitious goal is to ensure life expectancy growth to 75 years, considering 39 countries have already passed this threshold. In Kazakhstan, this indicator is only 66 years. Given the slow dynamics of this indicator, we should strive to achieve a 70.5-year life expectancy (this is the maximum that was reached in 1986–1987) by 2015. By 2020, this indicator should go up to 72.5 years and by 2030 to 75 years.
The second target is total education coverage of the population. By 2010 it should be increased from the current 84% to 92%, and then to 100% by 2015. This means that all youth should be involved in the educational process and receive not only secondary, but also vocational education.
The third indicator is per capita GDP in US dollars calculated by the purchasing power parity (PPP) of the national currency3. Over the past five years, it has been growing dynamically. According to the UNDP1, Kazakhstan placed second (in terms of this index) in the CIS (after Russia) in 2002. By our estimates, per capita GDP in 2004 by PPP amounted to $7,200 in Kazakhstan and $9,700 in Russia. If the ratio between Kazakhstan’s and Russia’s economic growth remains constant (as over the past three years) it can be expected that Kazakhstan will be the CIS frontrunner (in terms of this indicator) by 2016.
3. PPP is the number of national currency units needed to purchase the consumer and investment goods and services basket similar to that which that can be purchased for $1 in the USA.
To achieve the contemporary level of a developed country’s economic development, we need GDP growth of 7.5% per year over the second decade of the 21st century and 5.5% per year in the third decade. Implementing the Strategy for Industrial and Innovation Development should produce such results. However, at the end of the day, we need to develop science and research. It is important to remember that in the Soviet Union, the salary of an academy of sciences officer was higher than that of a minister.
Implementing these targets will help Kazakhstan reach the current economic development level of the United Arab Emirates and Latvia by 2010 (49th–50th positions in terms of the HDI), Singapore and Portugal by 2020 (25th–26th positions), and Norway and Sweden by 2030 (1st–2nd positions).
Will Kazakhstan Become a Developed, Well-off Country? Yuri Shokamanov
The Oil and Gas Industry: A Year's Auspicious Beginning Editorial Overview
Subsoil Use in 2004: Investment Statistics Elvira Dzhantureyeva
Changes in Kazakhstan’s Local Content Rules for Oil Operations Abai Shaikenov, Anthony Cioni
Oil in the CIS: Economic and Sovereign Rating Implications Special Report of Fitch Ratings Agency
Bogatyr Access Komyr: Investing into the Future Dennis C. Price
Power Industry: Regional Export Potential in Central Asia Loup J. Brefort
IPO: Russia's Experience and Kazakhstan's Outlook Askat Ospanov
New Opportunities in Kazakhstan's Real Estate Market Oleg Batratchenko
Eight steps to launching a brand, the PR way Al Ries, Laura Ries
How to Efficiently Manage a Business Mark DeEulio
Putting Together A Statistical Management System Klaus Hilgers
The Science of Selling Harry Frisch, Michael Bang
All People Are Different Fatima Chapkhaeva