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Near the Long-cherished Line

In 2012, Kazakhstan made an outstanding leap in the WEF global competitiveness rankings, coming close to the top 50 countries. However, the inclusion of Kazakhstan in the group of countries that are in transition to innovative development, as well as the continuing imbalance for some indexes of our competitiveness, makes moving up further a big challenge.

In 2012, the number of countries covered by the WEF Global Competitiveness Report 2012–2013 reached 144. Switzerland has been showing the highest competitiveness for the fourth year running; then it follows Singapore, Finland, Sweden, the Netherlands, and Germany in the list. The United States, which topped the WEF rankings a few years ago, are now down two more points to 7th because of weak macroeconomic recovery. Along with that, despite a number of institutional problems, the largest economy of the world continues being the generator of global innovation that makes it possible for it to remain a leader. The UK, Hong Kong and Japan are closing the top ten.

According to WEF experts, since the beginning of the global recession, the countries of Northern and Western Europe have managed, in general, to significantly strengthen their position in the rankings. On the other hand, the competitiveness of some countries of Southern Europe, including Spain (36th), Italy (42nd), Portugal (49th), and especially Greece (96th), continues to suffer because of macroeconomic volatility, sovereign debt crisis, the problems in the labor market and the shortage of new solutions in the field of innovation.

Regarding the BRICS countries, they show various trends. China is still at the head of the largest emerging economies, although it is 3 points down to 29th in the ranking. India (-3 to 59th) and Russia (-1 to 67th) also showed a negative trend, while Brazil is up to 48th, having outstripped South Africa (52nd).

Amongst the states of the Middle East and North Africa, Qatar (11th) and Saudi Arabia (18th) continue to lead. The UAE (24th) somewhat improved it’s ranking, while Israel and Kuwait are down to 26th and 37th, respectively. In the group of the most competitive economies in the Latin American region, Chile (33rd) is heading, followed by Panama (40th), Brazil, Mexico (53rd each), and Peru (61st).

As for the post-Soviet states, most of them were able to significantly improve their position in the global rankings. In particular, Azerbaijan is up from 55th to 46th (it came true our dream to be amongst the top 50 economies), Latvia from 64th to 55th, Ukraine from 82nd to 73rd, Georgia from 88th to 77th, Armenia from 92nd to 82nd, Moldova from 93rd to 87th, and Tajikistan from 105th to 100th. However, Russia and Estonia (34th), Lithuania (45th), Kyrgyzstan (127th) are down one point.

Speaking of Kazakhstan, in the current report, our country has become the undisputed champion in improving its competitiveness by moving up 21 points to 51st. Only Algeria showed comparable dynamics, although negative (-23 points to 110th). Among the countries marked by outstanding performance are also Turkey (+16 to 43rd), Ecuador (+15 to 86th), Bulgaria (+12 to 62nd), and Nigeria (+12 to 115th), while the evident outsiders are Sri Lanka (-16 to 68th), Benin (-15 to 119th), Egypt (-13 to 107th), Montenegro (-12 to 72nd), and Bosnia and Herzegovina (-12 to 88th).

In general, on the background of instability in the world economy, the performance indicators of many countries in recent years show increased volatility. Thus, WEF experts pay special attention of the countries covered by the ranking to the need to ensure sustainable competitiveness, which, in their opinion, is the best strategy to restore stability.

The founder and executive chairman of the WEF, Klaus Schwab said that the differences in the level of competitiveness between and within regions, particularly those in Europe, are at the heart of the turbulence that we experience today, and exactly this fact endangers our future prosperity. We urge the governments to act more decisively, taking long-term measures aimed to increase competitiveness and to return peace to the path of sustainable growth.

In this context, the Global Competitiveness Index (GCI) as the basic instrument of the WEF rankings provides an understanding of the key areas the countries should focus on, if they want to optimize their performance indicators that are the underlying factor of their continued prosperity.

Growth on all fronts

In 2012, we have made a real breakthrough, turning out just one step away from the goal set in 2005 – to be among the "Club 50". On the seven-point scale, our performance indicators improved by 0.2 points from 4.2 to 4.4 1.

1. For those our readers who are not familiar with the WEF rankings methodology, we recommend to read our previous publications devoted to this topic in the archives of the Kazakhstan magazine (## 4’2006, 4’2007, 5/6’2008, 6’2009, 5/6’2010, 6’2011) on the website

As seen from Table 2, we observe the cardinal improvements for Kazakhstan on all three sub-indices forming GCI. In particular, by Basic Requirements subindex Kazakhstan is up from 62nd to 47th. This was contributed mainly by the two indicators – Institutions (+24 to 66th) and Infrastructure (+15 to 67th). With this, the Macroeconomic Environment subindex, thanks to which our country managed to hold back its continued drop in the rankings in recent years, seems to be beginning to exhaust its potential. Here, the increase was only 2 points to 16th. The dynamics of Health and Primary Education arises more and more worries: In 2012, of the twelve pillars, this pillar was the only one for Kazakhstan which downgraded (-7 to 92nd).

Kazakhstan is now 20 points up on the Efficiency Enhancers index from 76th to 56th, having overcome the failures of recent years. Of the six aggregate indicators forming this subindex, we completed with a rise on the five of them, and on the sixth, the Market Size, Kazakhstan’s position remained unchanged (55th). The most positive changes for our country were in Technological Readiness subindex (+32 to 55th). It is noteworthy that this year Kazakhstan has showed a slight increase even on the Financial Market Development (+6 to 115th), which, following the global financial crisis, has become a real Achilles' heel for competitiveness of the domestic economy.

As for the Innovation and Sophistication Factors sub-index, our country is up from 114th to 104th, overcoming the fall of the last year.

The overall dynamics of competitiveness of Kazakhstan looks very promising. Of 111 indicators, forming the final GCI index, Kazakhstan’s position has improved on 83 of them, worsened on 20, and remained unchanged on 5 indicators. Three more indicators are new in the current year, so there is no basis for comparison.

The number of fields which Kazakhstan could consider its advantages continues to grow (Table 3). At the moment, we are among the top 50 countries on 29 indicators (against 25 in 2011). In particular, in 2012, our country has crossed "the targeted line" by Transparency of Government Policymaking (+21 to 32nd), the Efficay of Corporate Boards (+31 to 36th), the Cooperation in Labor-Employer Relations (+29 to 49th), as well as by the two new indicators – Gov’t Services for Improved Business Performance (13th), and the Mobile Broadband Sunscriptions, where we take a 27th position.

According to the authors of the report, Kazakhstan has archived the most progress in Technological Readiness. So, the Availability of the Latest Technologies has increased considerably (+13 to 90th), also Firm-Level Technology Absorption (+22 to 91st), the FDI and Technology Transfer (+15 to 85th). Thus, we can say that the accelerated industrial and innovative development policy and the more focused investment policy are beginning to bear fruit. In addition, the steps of the government, such as the creation of the National Agency for Technological Development, regional technoparks, industrial design offices and commercialization offices, pin hopes that in the future all these indicators will be showing only an upward trend.

For our part we would like to draw your attention to the cardinal changes in institutional development. Although many of the indicators of this group still are not our strengths, positive dynamics are evident. In particular, Property Rights have extensively improved (+30 to 77th), also Irregular Payments and Bribes (+35 to 64th), Judicial Independence (+17 to 94th), the Reliability of Police Services (+15 to 96th), and Protection of Minority Shareholders’ Interests (+24 to 89th). Public Trust in Politicians (+9 to 37th), Transparency of government policymaking (+21 to 32st), Wastefulness of Government Spending (+19 to 31st), and the Gov’t Services for Improved Business Performance (13th) ensure considerable support to the competitiveness of Kazakhstan.

Analysis of the aggregate indicator Goods Market Efficiency indicates that the fears of Kazakhstani businessmen over negative effects from the country's accession to the Customs Union have also dropped significantly. Despite the fact that by the Trade Tariffs we still occupy 102nd place, businesses have already marked improvements in Prevalence of Trade Barriers (+48 to 64th), and the Burden of Customs Procedures (+25 to 77th).

As for the cons, then of the 111 indicators of GCI, 82 remain shortcomings of our competitiveness. Along with that, the list of indicators by which we are below the 100th position fell from 44 to 26 for the year. The most critical areas, in our opinion, are presented in Table 4. First of all, the increased level of Kazakhstan’s dependence on imports (Imports as Percentage of GDP) is a concern. To date, it is the indicator on which we gave the weakest position (-9 to 125th). No better things are with the dominance of primary industries in the domestic economy (Nature of competitive advantage – +5 to 124th). Despite some positive changes, still the weak link is the Soundness of Banks (+11 to 120th) and the Local Supplier Quantity (+4 to 120th). In the segment of the basic factors of competitiveness, in the critical zone are the Quality of Roads (+8 to 117th), Life Expectance in years (-3 to 104th) and high Inflation (+7 to 107th).

If we talk about indicators in which we showed the largest decline, here we should note decrease in Primary Education Enrollment (-12 to 102nd) and Secondary Education Enrollment (-17 to 35th), the Venture Capital Availability (-13 to 105th), and the State of Cluster Development (-25 to 110th).

The transition to a new level

The key news in the 2012 WEF report, which can greatly influence the further climbing by Kazakhstan of the ladder of global competitiveness, was the transfer of our country into the category of countries with an intermediate position between the 2nd and 3rd stages of economic development. This became possible thanks to the growth of GDP per capita to $10,694 in 2011.

We should remind that the WEF classifies the level of economic development of countries into three groups (or stages). In the first group, there are the countries that are focused on basic benefits, such as raw materials, market size, etc. The second group involves the countries that are based on efficient development, and the third one the countries that grow due to innovation. There are also two intermediate stages between the first and second stages, and between the second and third stages. When determining the position of a country on this scale, WEF takes into account the GDP per capita and the level of the economy dependence on natural resources. So, if 70% of exports are raw materials, competitiveness of the country is considered more dependent on the factors, comprising the Basic Requirements subindex. Exactly because of this, Kazakhstan had remained for a long time in the group of raw material-oriented economies, occupying an intermediate position between the first and second stages of economic development.

The transition to the next level for us ensures that the role of the basic benefits for the competitiveness of Kazakhstan will gradually decline, and the factors of efficiency and partly innovation will come to the foreground. To demonstrate all the seriousness of this challenge, we should mention that now we have to play by the same rules as Malaysia (25th), Estonia (34th), Bahrain (35th), Poland (41st), Turkey (43rd), and Brazil (48th).

In this regard, it is very exemplary to compare our current results and those we had 6 years ago. We should remind that in the 2006 WEF report, after recalculating the data by using the new method, Kazakhstan de facto was 50th, which is comparable to the current 51st. On the Basic Factors subindex, we were 57th, on Efficiency Factors 49th, and on Innovation 73rd. Today, these are 47th, 56th and 104th positions, respectively. It is easy to see that at the moment, Kazakhstan's competitiveness is less balanced than in 2006, and we look worse exactly in those areas which play a much greater role for us today. So, there is a reason to think over.

Table of contents
New Frontiers ahead of us  Erkebulan Iliyasov 
No Changes with Banks  Editorial 
Grain Heights  Editorial 
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