Future of Kazakhstan is Created Today
Phillip Pardo, The Vice Rector for International Programs of the Kazakhstan-British Technical University
Having been in Central Asia for ten years and in Kazakhstan for the last seven years I find myself in a unique position with a few other expatriates to have witnessed the changes that have taken place during the crucial transition period. I had an opportunity to see how the country transformed from the state of a near comatose patient to a regional leader. I consider myself a part of this process and, therefore, I would like to share with you my reflections about Kazakhstan and its future.
Kazakhstan over the last 12 years (since independence) has gone through 3 distinct Phases in my opinion:
(I) Shock… caused by the break up of the Soviet Union which can only be characterized as negative as evidenced by negative growth, a negative outlook on the future and disorientation on a very personal level.
(II) Stabilization… thanks to hard nosed applications of Macro Economic medicine by a very active Central Bank, political stability based on an understanding that any act of recklessness would lead to certain ruin, billions of dollars of foreign capital aimed at promoting economic growth especially in the resource sector and the far sighted action of privatizing personal dwellings, apartments, flats etc…which lowered demand pressure for public goods by assuring most people of at least a roof over their heads. This was coupled with limited market liberalization that created favorable circumstances to attract foreign investments and gave momentum for positive economic growth.
(III) Growth or even by some measures Hyper Growth… the current phase may be characterized by some as inflationary however in my view it is the normal reaction to a long period of self imposed rationing and a natural longing by very well educated people to participate in what they see as a global improvement in living standards. Main indicators of this growth are dramatically increased levels of construction, renovation and car ownership as well as a steep rise in wages for those individuals in high demand specialties.
It is important to mention that the positive changes that we have witnessed were connected not only with the progressive course of the country’s leadership, but also with the favorable situation with the prices in the oil market.
Using the language of the theater, partially due to the availability of oil resources, partially due to the instability in the surrounding countries, Kazakhstan has changed from the country that was the actor of the second plan in the minds of those who try to stage the future of the CIS to the actor that surpassed even the most optimistic forecasts.
This situation is likely to sustain within the next 10 to 15 years, which will be a period of opportunity to transition away from a pure dependency on resources. The economy of Kazakhstan cannot be left to the vagaries of oil prices, even though these are forecast to be high. Kazakhstan must embark on a bold quest to transform itself and use it’s oil wealth to guarantee a bright future for itself and it’s neighbors. This is the best insurance for the world that Central Asia will not fall prey to extremist movements or allow foreign forces to influence it’s policies which may be detrimental to all.
Besides, over the last few years there has been a growing awareness of Kazakhstan’s potential to impact the future of Central Asia and perhaps the world in general. It is therefore absolutely imperative that a good set of economic models be found which can be adapted to the realities of the region. As we speak Kazakhstan is deeply involved in analyzing its future alternatives using Michael Porter’s Cluster analysis approach. A number of clusters have been isolated and are being proposed as areas of special development emphasis to be focused on by all stakeholders.
A number of objections however have been made against the cluster concept, as it is most likely to be applied in Central Asia. Firstly, it is important to note that Kazakhstan lacks the critical mass of local businesses prepared for cooperation that could be organized into clusters. Secondly, it is noted that cooperation between target companies may not be available because Kazakhstan is still in the early stages of development of a capitalistic society where competition is absolute and all market players seek to achieve a monopoly. Thirdly, because of its Eastern nature the community will always feature attempts to achieve dominance in the competition for scarce resources. Fourthly is the continuing tendency towards government intervention which when applied to clusters could be counter productive. In short the argument can be made that a cluster policy is appropriate for a certain stage in the development of capitalist society’s to avoid a modern form of monopolies to develop but Kazakhstan is instead a transitional economy experiencing a shift from agriculture to industry in combination with de-industrialization of the Soviet economic system, while raw material industries continue to dominate the economy.
Although this cluster approach has merit and continued work in this field should by no means be halted because it will help to bring about the necessary policy changes for the development of very important sectors of the economy, I believe that a broader overarching vision must be encouraged which will be more easily communicated and understood by the whole population. This vision should be based on clear successful examples of countries and economic systems that will bring to the people of Kazakhstan the possibility to buy into their own future as well as promoting a belief in their ability to reach these goals.
If you look at the big numbers that affect the economies of all countries in a big way, you find some striking similarities between Kazakhstan and two other countries in the world. Canada and Australia can claim so much in common with this Central Asian republic that we could classify them as "sister" countries. Land mass, geography, climate, population density and size, educational levels, natural resources, agriculture and even diversity of their populations have conspired to give Kazakhstan a base which is similar to Canada and Australia 50 to 70 years ago.
A social analysis of the country also shows large similarities with the social democratic societies that have evolved in Canada and Australia. Because of it’s recent communist past the population of Kazakhstan expects that certain acquired social prerequisites (perks) will be somehow maintained in the future especially now that the country is poised on the edge of becoming quite wealthy because of Oil.
I would say from personal experience and from watching the recent debates in the USA that these include some sort of universal health care, a good education system which provides for the basics as well as for retraining of older workers to meet international standards and adequate pensions and dignity of life for the elderly and the disabled.
To accomplish this new transition it’s time to liberate the engine of creation and creativity by eliminating all corporate taxes on all but the top 300 companies or those involved in resource exploitation (minerals, Oil & Gas, wood, water etc…) and adding to Michael Porter’s model an even more far reaching goal of emulating similar successful economies (such as Canada and Australia) and reaching high in the global marketplace. Additionally, taxation liberalization, if we can call it so, could become a driver for investments flow to Kazakhstan and possibly will be an economic generator for next 10-15 years. The benefits of such changes in tax policy have been shown to be very beneficial in many countries over the last ten years and are usually held back by a bureaucracy which is protective of it’s own interests.
Next on the list of absolute needs is the improvement of infrastructure of the country. As is the case in Australia now where the Economist magazine recently said: "the constraints are all on the supply side", the national infrastructure of Kazakhstan both real and social must be invested in quickly or it risks becoming a hostage to it’s own success.
A situation currently exists where we have apartments selling at US$1000 to US$1500 per square meter on average in midtown Almaty but where the roads are becoming impassable except to the ubiquitous Land Cruisers and Jeeps. Cities like Astana are growing fast and attracting thousands of people every year but are outstripping even the boldest infrastructure plans.
The improvement of infrastructure is very capital intensive so Kazakhstan should probably put its Petroleum Fund to use on this infrastructure renewal. This would mean that public works departments, Akymats, utilities, school districts, Universities and Hospital centers could be allowed to borrow part of the funds needed for a project from the Petroleum Fund at very low rates and repay these over a 20 or 30 year period. The approval process would have to demonstrate long term economic viability by being vetted through the National Bank as well as public support of the borrowing through a referendum process the size of which would depend on the impact the project would have on the community, region or even the country as a whole.
If we start now, the complete renovation of the infrastructure of the country: hospitals, roads, schools, airports, electrical networks, water and sewage networks could be done within ten years. The country will never be in a better economic conjuncture… it has money from Oil & Gas, a ready and educated population (old and young), the ear and good auspices of international bodies and governments from all over the world and the local enthusiasm of the people that the last successful years have created in all areas of life.
This is "the good, the bad and the ugly" (if we use the analogy with the movie by Alberto Grimaldi with participation of Clint Eastwood, 1966) as the story goes… The good is that Kazakhstan has a unique opportunity to make itself into a country which will be regarded as one of the most economically healthy and regionally advanced. The bad is that it must make its move now or the dark forces that surround it may take hold in the minds of the less patient. The Ugly is that all this is to avoid the potentially consequences that await those who do not understand that social peace can only be achieved through economic development and the improvement of individual lives.
Mr. Pardo is the Vice Rector for International Programs and the Director of the Business School at KBTU. Before that he served as the Dean of Continuing Education at the Kazakhstan Institute of Management, Economics and Strategic Research (?IMEP).
Mr. Pardo participates in a number of consulting projects in strategic planning, bank finance, and evaluation. He takes an active part in negotiations on mergers and acquisitions of companies. As a Director of Business Assessment of "Rice Group, Central Asia", Mr. Pardo was responsible for the activities associated with the evaluation of the cost of property share in commercial, industrial and service companies. Holding an MBA degree in Finance, Mr. Pardo occupied the position of the Chief Manager of Taxation in such companies as: "Delloitte and Touche" and "LeBoeuf, Lamb, Green and McRay". He used to work in Canada, USA, Belgium, Kazakhstan, Uzbekistan, and Azerbaijan.
Mr. Pardo is a former President of the only "Rotary Club" in Kazakhstan.
Future of Kazakhstan is Created Today Phillip Pardo
Oil and Gas Complex 2005: Midway Passed Editorial Overview
Caspian Pipeline Consortium: History, Reality and Future Ian MacDonald
Bearings: Stimulating Economic Progress! Ikram Raimbekov
Kazakhstan’s Power Market Askhat Ospanov
Investor M: We Give You Quality and Reliability Lyubov Makarova
An Overview of Warehousing in Almaty Stanislav Glazkov
Invest Capital Realty: Warehouses, Logistics, and Infrastructure Saken Toilybayev
Amendments to the Investment Law: Shortcomings and Advantages Sayat Zholshy & Partners Law Firm
Kazakhstan’s Banking Sector: Status and Outlook Nikolai Andriyanov
The Art of Selling: 3 Secrets That Can Help You Double Your Income! Patrick V. Valtin
What Do People Work for? Fatima Chapkhaeva