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 KAZAKHSTAN International Business Magazine №1, 2006
 Development of Human Potential in Kazakhstan:Will We Manage to Join the World's Top 50 Most Competitive Countries?
Development of Human Potential in Kazakhstan:
Will We Manage to Join the World's Top 50 Most Competitive Countries?
Yury Shokamanov, Ph.D in economics, First deputy chairman of the Kazakhstan Statistics Agency
Economic Development and Human Capability Expansion
Theoretical work done by Nobel Prize winner Amartya Sen had a crucial impact on developing modern understanding of the development process, in particular his work Development as Capability Expansion1 published in 1989. Sen considered the development process not as increasing material or economic prosperity but as the process of expanding human 'capability', i.e. capability of living a long and healthy life, capability of accessing knowledge, capability of achieving more and so on. At the same time, the process of expanding capabilities depends above all on the expansion of people's freedom of choice.
1. Sen A. Development as Capability Expansion // Journal of Development Planning. - 1989. - No.19.
On the basis of these ideas, a group of experts from the UN Development Programme (UNDP) adopted a conceptual approach to 'human' development (or human potential development) and later published the first world report on human development for 19902, which subsequently became annual. The main aim set for economic development through the idea of human development is not GNP (Gross National Product) growth but the capability of developing a human being himself and expanding his freedom of choice. This concept currently strikes a global chord which is echoed in all the keynote documents adopted by international organisations working with the UN.
2. UNDP. Human Development Report 1990. New York: Oxford University Press, 1990.
Thanks to its attractiveness, the idea of human potential development has rapidly spread throughout the world. Kazakhstan, which since 1995 has been publishing a national report on human development with the assistance of the UNDP, has been no exception. A number of state programmes have already been adopted on the basis of this report, which is presented annually to members of Parliament, executive bodies, NGOs and the public. One of the most important programmes is the long-term Strategy for Kazakhstan's Development until 2030, which pays close attention to human development.
The President's annual state-of-the-nation address plays a crucial role in specifying development goals and missions. Continuing the line of previous addresses, the President's address on 1 March 2006 sets out a new important task for the government – to join the world's 50 most competitive countries. Along with recognising the role of a competitive and open market economy as a foundation of a prosperous and dynamically-developing society, the address also clearly defined other components which would enable Kazakhstan to claim such a status – these are a socially-oriented, free and democratic society; a lawful state built on a balanced system of political checks and balances; inter-confessional, inter-ethnic and inter-cultural accord, and so on.
One of the criteria for assessing Kazakhstan as being among the world's 50 most competitive countries is its ranking in the human development index published in annual reports by the UNDP.
State of Affairs and Dynamics of HDI in Kazakhstan
According to the UNDP world report on human development in 2005, Kazakhstan occupies 80th place in the human development index (0.761) among 177 states in the world. However, according to 2003 data, the country occupied 78th place ($6,671 in purchasing power parity (PPP)) in GDP per capita. This means that Kazakhstan will have to meet a complicated and ambitious challenge to be listed among the top 50 countries which have the highest HDI indicators. At the moment, 57 countries already have an HDI exceeding 0.8, which makes it possible to regard them as countries with a high level of human development. A further eight countries, including Russia, have an HDI exceeding 0.79, which means that they may join the group of leaders in the near future.
Among CIS countries, Russia (62nd place), Belarus (67th) and Ukraine (78th) have higher HDI rankings than Kazakhstan. However, if we consider specific indicators of human development, then the situation is not that unambiguous. Kazakhstan occupies second place in the CIS after Russia in GDP per capita (respectively $6,671 and $9,230 in PPP of the national currency3), whereas in life expectancy at birth we are last but one, ahead of only Turkmenistan (respectively 53.5 and 62.4 years). In the gross enrolment ratio4 our country is only in fourth place in the CIS (85 per cent).
3. Purchasing power parity of the national currency means the amount of national currency units needed to purchase a similar basket of goods and services which can be purchased for 1 US dollar in the USA.
4. Gross enrolment ratio is the ratio of the number of all enrolled at any age to the number of population aged 5-24.
Proceeding from data from UNDP reports, two stages can be singled out in the dynamics of human development in Kazakhstan and other CIS countries. The first stage (1990-95) is characterised by a sharp drop in all the main indicators of human development which led Kazakhstan to move from 54th to 93rd place in terms of HDI in the world. In the second stage (1996-2003) the indicators of human development started a slow recovery and Kazakhstan climbed to 80th place. However, this standing, as in other CIS countries, is still worse than the results in 1990.
Since the absolute figures on HDI in the UNDP reports are not compatible in dynamics (because of periodical changes in methodology to calculate them), in the national report for 2005 we used the methodology of the latest report to recalculate data on Kazakhstan's HDI for the previous years (see Table 1). The calculations showed that between 1990 and 1995 our country's HDI fell by 50 millesimal points. The main reason for this, which accounted for 52 per cent of the drop in HDI, was the 4.6-year decrease in life expectancy at birth. The economic recession was the second factor, accounting for 37 per cent, and the drop in gross enrolment ratio was the third reason (11 per cent).
In 1996-2004, our country's HDI grew by 56 millesimal points, with the main role (48 per cent) played in this by economic growth at this stage, as a result of which GDP grew by 68.5 per cent on 1995 and exceeded by 3.5 per cent the level in 1990. Almost equally (respectively 27 per cent and 25 per cent) a 2.7-year increase in life expectancy at birth (to 66.2 years) and an increase by 11 percentage points (to 84 per cent) in gross enrolment ratio improved HDI in this period.
Thus, a demographic factor – life expectancy at birth – played the main role in making the country's HDI decline at the first stage and is the least important component of HDI growth at the second stage. However, this indicator in Kazakhstan (63.2 years according to the UNDP report for 2005) is quite low compared not only with countries which have a high HDI (78 years), but also with many countries with transitional economies (68.1 years). Attention should also be paid to the fact that significant gender inequality in life expectancy is observed in Kazakhstan; this was 11.4 years in 20045.
5. Kazakhstan's Demographic Yearbook. 2005. Statistics Compilation. p. 31.
Following the fall in human development potential at the first stage of the transitional period, we are now in the position of a country which is catching up. That is why Kazakhstan has to accomplish specific tasks to ensure significant growth in all the components of human development – to be precise, life expectancy, gross enrolment ratio and GDP per capita – to be among the top 50 countries which have a high HDI.
Economic Trends
In January-December 2005, GDP grew by 9.4 per cent (according to preliminary data), which shows a trend of high economic growth (over 9 per cent) for the sixth time (see Diagram 1). In real terms, GDP grew by 13.4 per cent on 1990 and 63.3 per cent on 2000 (which is taken as the basis for doubling GDP). If such a pace continues, then GDP in 2007 will practically double (195 per cent) on 2000, and will exceed it by 150 per cent in 2010.
Growth in gross added value (GAV) in goods and services production (respectively by 9.8 per cent and 10.4 per cent) was somewhat higher than growth in GDP. This was because growth in financial intermediary services, which are calculated indirectly (FIS), was much higher (48.5 per cent), leading to a larger decrease in GAV of other sectors (FIS of the entire economy is subtracted from the sum of GAV of other sectors).
Among six major sectors of the economy which in total account for over 80 per cent of the country's GDP (see Table 2), the highest growth rate was in the construction sector (37.8 per cent), the lowest in industry (4.6 per cent). Deflator of GDP or rate of growth in producer prices of goods and services was 16.1 per cent in the overall economy. However, the highest price growth was in industry (23.3 per cent), the lowest in agriculture (6.9 per cent).
In 1990-2005, the structure of GDP changed significantly (see Diagrams 2 and 3). The share of agriculture dropped five-fold, but that of industry and trade, on the contrary, grew by almost 50 per cent. The share of 'other services' grew by over 100 per cent. The structure of GDP changed less significantly on 2000. However, the share of agriculture steadily decreased, whereas that of the construction sector grew.
Nominal GDP in current prices grew almost by 200 per cent from 2,500bn tenge to 7,500bn tenge (see Diagram 4). GDP in dollar terms also grew by 200 per cent from $18.3bn to $53.9bn at the average annual exchange rate of the National Bank. However, the exchange rate of the tenge to the dollar changed insignificantly: it stood at 142.14 tenge per US dollar in 2000 and 138.22 tenge per US dollar in 2005. Relative stability of the exchange rate of the tenge to the dollar over six years means that the rate of nominal GDP growth is similar to the growth of GDP in dollar terms.
After 2000 GDP deflator was mostly higher than real GDP growth. As a result, the growth of nominal GDP by 190 per cent between 2000 and 2005 has more to do with the increase in prices (deflator) by 75.5 per cent than real growth which was 63.3 per cent.
In 2005, GDP per capita at the average annual exchange rate of the National Bank was $3,500 and in PPP $8,100. If high economic growth rates (over 9 per cent) were to continue, GDP per capita will grow annually by about $1,000 and will exceed $13,500 in 2010. These results have now been achieved by Estonia, which occupies the highest place among the post-Soviet countries – 38th in the HDI (0.853). Life expectancy at birth is 71.3 years in Estonia and gross enrolment ratio is 92 per cent.
On the second indicator, Kazakhstan has the chance to achieve this level in 2010, but on the former, bearing in mind the quite weak trend of improving the situation, it may fail to catch up with Estonia even in 2020.
Life Expectancy in Kazakhstan
The UN significantly decreased the forecast life expectancy at birth for CIS countries (by 0.8-5.2 years) in its human development report for 2005 compared with the previous report. This is because CIS countries are still using Soviet criteria for live births and stillborns in their birth statistics, which understate infant mortality. According to UN experts, infant mortality rates in CIS countries are far higher than those registered under old methodology. For Kazakhstan forecast of life expectancy at birth was lowered by three years, which decreased HDI and respectively Kazakhstan's ranking in HDI by two places (from 78th to 80th) despite growth in other indicators of human development.
At the same time, our calculations based on statistics of neonatal mortality (under age of one month) and stillborns show that the infant mortality rate is understated in Kazakhstan by no more than 33.3-41.2 per cent. This decreases life expectancy at birth by a year, i.e. this indicator stands at 65 years in Kazakhstan at the moment. We will need 25 years given the pace of growth of life expectancy in the past decade to reach Estonia's level. Only by 2030 will Kazakhstan have the chance to reach this relatively low level of life expectancy, whereas it has already reached 75-82 years in 42 countries.
Life expectancy at birth can be increased by decreasing death rate. Demographic tables show both quite a high death rate among our population and significant gender differences in mortality rates. This means that 43.1 per cent of newborn boys and 19.2 per cent of newborn girls will not reach the age of 60, and one man in four and one woman in 10 aged 50 will not reach the age of 60 (see Table 3).
Gender differences in mortality rates among the population have a significant impact on human development in general. The average age of the first marriage has been increasing in recent years: for men from 26 to 26.7 years in 1999-2003 and women from 23.2 to 23.7 years6. At the same time, from age 27 men are outnumbered by women: as of early 2005, at age 27 there were 998 men for 1,000 women and at age 30 there were 9827.
6. Kazakhstan's Demographic Yearbook. 2004. p. 114.
7. Calculations based on Kazakhstan's Demographic Yearbook. 2005. pp. 26-28.
These gender differences show that at the moment of marriage there is a shortage of men. According to the 1999 census, 14.1 per cent of people aged 30-34 never married8.
8. Data of the 1999 Kazakh census. The Kazakhstan Statistics Agency.
Over-mortality of men means that four in 10 men aged 30 do not reach 60 (38.7 per cent). This increases the number of widows and fatherless children. In turn, this leads to a shortage of income in a family and reduces opportunities to receive an education, which magnifies the risk of unemployment. In the end, the human development opportunities for a widow and children in other spheres such as health, housing and so on decrease. In 2005, the situation concerning the heightened mortality rate of the population in general, and men in particular, did not ease, but, on the contrary, became even more severe. According to preliminary data, the mortality rate in 2005 grew by 0.3 points on the previous year to 10.4 deaths per 1,000 people. Life expectancy at birth fell by 0.3 years to 65.9 years, comprising 71.7 years for women (72 years in 2004) and 60.2 years for men (60.6 years), i.e. gender difference in life expectancy at birth grew to 11.5 years.
Thus, the country is experiencing quite low life expectancy at birth, with a weak and unstable trend of growth. At the same time, gender differences in life expectancy are not decreasing but, on the contrary, increasing. In this connection, the causes of this state of affairs should be studied more thoroughly and the main factors influencing life expectancy should be identified, and a special programme for improving the health of the country's people and reducing deaths should be drafted.  Priority should be given to measures to restore the highest level of life expectancy at birth (70.5 years) in 2015-20, which Kazakhstan experienced in 1987.
What Results Can Kazakhstan Achieve in the Human Development Sphere by 2015?
Taking into account high economic growth rates, we can expect GDP per capita to double every eight years, which means GDP per capita will increase to $12,000 in PPP in 2010. There are about 20 countries now which have a larger GDP per capita than Kazakhstan, although it is less than $10,000. That is why we will be able to move up by no more than 20 ranks, that is, of course, if the development of states with GDP per capita from $10,000-12,000 in PPP does not slow down. There are about ten states of this kind.
Despite this, Kazakhstan will in any case join the group of countries with a high HDI because the level of GDP per capita at $12,000 in PPP makes it possible to exceed the threshold of 0.8 in HDI, which is regarded as a criterion for entry into the group of countries with high levels of human development (see Table 4).  This is so even if we have relatively low growth in life expectancy at birth (we forecast it to be 67.5 years in 2010) and gross enrolment ratio (95 per cent).
Thus, by 2010 Kazakhstan is capable of achieving the current level of the world's top 50 most developed countries in terms of human development. However, all the countries will be trying to improve the human development situation through implementing the requirements adopted under the Millennium Development Goals. Bearing this in mind, we expect Kazakhstan to move from its current 80th place to 65th in HDI.
The modern achievements of civilisation are not automatically secured, just because we desire them. That is why, once again, we must pay attention to the President's state-of-the-nation address in 2004: 'We do not want to eat dust behind the train of world civilisation. For this we all have to exert our strength, gather all the intellectual capabilities of our people into one fist and use its potential.'
The analysis of only a few indicators of human development shows that the aim of turning the country into one of the world's top 50 most competitive states will indeed demand significant efforts and possibly greater time.

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Lifelong Construction  Vladimir Kananyhin 
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