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 KAZAKHSTAN International Business Magazine №6, 2011
 Our Task of Priority is to Build up a Competitive and Stable Economy

Our Task of Priority is to Build up a Competitive and Stable Economy

Prime Minister of Kazakhstan Karim Massimov answers questions from the Kazakhstan business magazine.

Karim Kazhimkanovich, this year our country celebrates the twentieth anniversary since its independence. With what performance indicators has the domestic economy marked this anniversary year?

Over the two decades of its independence, Kazakhstan has implemented large-scale economic reforms and has successfully passed through a series of upheavals – including the post-Soviet economic recession, inflationary, investment and payment crises, as well as a few waves of global financial instability.

At the dawn of the country’s independence, both the imbalances inherited from the planned economy and those new, related to the acceleration of market reforms affected all spheres of public and social development.

Thus, in 19911996 there was a decline of more than 14 % in industrial production, nearly 25 % in agriculture, about 30 % in transport services, while the inflation rate exceeded 1,000 %. Today, such figures seem unbelievable even for some individual sector of the economy of the republic.

With the coming of the new millennium, Kazakhstani people clearly gained a feeling of the positive results of the conducted market reforms. After experiencing rapid growth in 2006–2007, we started to get on the path of sustainable development, when Kazakhstan's economy grew at a rate of at 10 % a year.

Along with that, the wave of instability in the global financial market in the second half of 2008 began a slowdown in economic growth and led to falling prices of the main export commodities of Kazakhstan. Since our economy was an integral part of the world economy, the global recession had a negative impact on us, resulting in economic growth slowdown to 3.3 % in 2008. Especially the negative effect was reported in the financial and real estate markets – the sectors of the economy mostly dependent on the economic situation.

The timely anti-recession measures of the Government, aimed to preserve the business and investment activity, and the most important thing – the clearly-sighted policy of our President and his political will allowed to prevent the recession in Kazakhstan and even to provide 1.2 % economic growth in 2009.

Moreover, in the recession period there were developed the mechanisms and solutions that made the domestic economy settle down to a course of post-recession development.

Since 2010 the government has been implementing a new economic challenge – to create conditions and maintain the annual economic growth rate at 7 % in the medium term prospect. All this is in line with the main priority of the socio-economic policy of Kazakhstan, outlined by the head of the republic – to be among the countries with high-income economies by increasing the GDP per capita to $15 thousand in 2015.

What are the interim results of the Accelerated Innovative and Industrial Development Program as the major strategic document of the country in the economic area?

The accelerated diversification of the economy is the main goal of the state program of accelerated industrial and innovative development of Kazakhstan. The latest statistical data indicates that the domestic economy gradually rises in the industrial track, mostly thanks to the ambitious industrial program. In January–June 2011, the country’s GDP in current prices amounted to 11 trillion tenge, while real GDP grew by 7 %, compared to the same period of 2010.

The key internal factor that added to the economic growth is the increased demand in the consumer market due to the growth of the public and private sectors. The year 2011, marking the 20th anniversary of Kazakhstan’s independence, is notable, in the opinion of experts, for the smooth and gradual recovery of economic relations between the market participants, and Kazakhstan's entry into a phase of economic growth.

By the increase in physical volume of production, among the leading sectors are the processing industry, physical metallurgy, chemical industry, machine building, and production of clothing, furniture, machines, equipment and vehicles.

At the moment, the established system of state support of the priority sectors of the economy involves more than 60 support instruments. Among them are 13 industrial and 9 functional programs to support businesses that specify measures of development by sectors of the economy and industries, as well as the layout plan of production facilities, uniting all the necessary resources in the national scale. All this is consolidated in the Industrialization Map, serving for us as a target and practical guide to action.

At the current moment, the Industrialization Map includes 609 projects worth 9.6 trillion tenge total. Moreover, it provides for the setting of 205 thousand temporary jobs and 179 thousand permanent jobs.

In 2010, 152 projects, worth in aggregate over 800 billion tenge and involving the setting of 23 thousand permanent jobs, were commissioned under the Industrialization Map. During the current year, marking the 20th anniversary of Kazakhstan’s independence, there will be launched 237 projects with a total worth of 1 trillion tenge, with the creation of about 20 thousand new jobs.

Thus, following the two years of implementation of the presidential industrialization program there will be launched 389 projects totaling 1.8 trillion tenge, and more than 42 thousand new permanent jobs will be created.

Development of the national innovation system is in progress. The percentage of “innovative active” enterprises is just 4.3 % so far, but their share increases every year. The growth of innovation is marked in all sectors of the economy, except for the construction industry. Three engineering offices and two international centers for technological cooperation with companies from France and South Korea have been set up to date.

Integrated support to domestic enterprises to promote their products in the external markets is provided. There was arranged about 30 special presentations of Kazakhstani goods and brands; 20 trade missions were set up, as well as a great number of business meetings were held. As a result, export contracts were executed to the amount of some $400 million.

At the same time, starting from the last year the state covers half of the exporters’ costs associated with entering the external markets for products. In the last year, 43 domestic enterprises were compensated the below-said costs.

To raise competitiveness of industrial enterprises, measures are taken to upgrade existing productions and develop new ones. At the moment, 155 companies have already expressed their desire to become participants of the program "Productivity 2020". However, the greater number of them represents the engineering industry and production of building materials.

In general, over the one and a half years of implementation of the new industrial program 227 projects were launched, worth about 1 trillion tenge, and 30 thousand new permanent jobs were created.

You are a supporter of the view that the global economy is likely to face a second wave of recession. In a case of the most negative scenario, what are the implications for the economy of Kazakhstan, and what is the government going to do in this regard?

It is clear that today some current imbalances in the economies of developed and developing countries are likely to adversely affect the growth of world production and to worsen the overall situation on a global scale.

With such current trends I would distinguish the following main risks to the global economy.

First, it is a potential risk of the United States default on its government debts, despite the recent raising of the ceiling to increase borrowing. The development of this scenario is fraught with considerable negative consequences for the global economy, which can result in sharp changes in exchange rates, falling stock indices and securities prices. For many countries, it also threatens the depreciation of U.S. dollar-denominated international reserves. A considerable budget deficit, coupled with a chronically negative balance of trade of the largest economy in the world will certainly slow down global economic growth in the medium-term prospect.

The other risk is the lack of clear plans for fiscal consolidation, high levels of sovereign debt and budget deficits in large countries with advanced economies, first of all, in the Euro zone. No less important is the condition of China’s economy, the overheating signs of which, along with other factors, are also likely to slow down the global economic growth and bring the raw material prices to collapse.

Due to the openness of Kazakhstan and its integration with the global economy, this will negatively affect us. The experience of the 2009 recession showed that in the event of the next wave of recession all sectors of Kazakhstan’s economy, regardless of their export market orientation or domestic market orientation, will be affected.

As it was already stated, we have plan B for this case. It assumes as the basic conditions the reduction in global demand for export commodities, including the falling prices of Brent crude to a level of $40 per barrel in 2012–2015.

In the event of an adverse development scenario in the external markets, stimulation of economic growth should be provided by influencing the domestic factors and domestic demand. This will be implemented by means of stimulation of ultimate consumption and gross capital formations.

During the recession the economic policy of the Government will be focused on intensification of consumption and investment activities owing to the previously created reserves and maintenance of optimal proportions of reproduction.

Consistency of instruments of the fiscal and monetary policies, coupled with measures of structural and investment policy will be the main option for achieving sustainable growth.

Given the fact that Kazakhstan's economy is already operating in the framework of the Customs Union, and from next year of the Single Economic Space (SES), are our countries ready for coordinated action to fight a possible recession?

In December 2010 there was executed an agreement on coordinated macroeconomic policy of the Customs Union member countries, which specifies the directions of the policy, principles of its development, procedures and mechanisms for joint decision-making.

This agreement involves the creation of favorable conditions to increase sustainability of the Customs Union member countries’ economies to external shocks. So, every year we will negotiate a number of scenarios each time for a three year period to develop forecasts of socio-economic development, and hence the national budgets. This will include oil prices, pace of global economic growth, national currencies exchange rates to the dollar and euro, and so on.

It is assumed that the efforts of the governments will focus on sustainable economic development and macroeconomic stability.

As you know, Russia completed bilateral negotiations with the EU and is on the verge of accession to the WTO. What progress has Kazakhstan made in this direction so far and how, in your opinion, can membership of our countries in the WTO affect the integration process within the SES?

It is clear that the accession to the WTO is one of the foreign economic priorities of our country. We can say already that the negotiations on accession by Kazakhstan to the given international organization is at their final stage – bilateral negotiations on entering the Kazakhstani market for the goods and services of 26 WTO member countries, including the European Union, are accomplished.

Moreover, we have a principal arrangement with our partners on the Customs Union that the WTO rules concerning the matter of regulation in the framework of the given integration association, become part of the Customs Union’s legal system.

This means that all the commitments made by the country which was the first who acceded to the WTO, become part of the contractual framework of the Customs Union. In fact, the existing contractual framework allows us to adapt future obligations of our countries as members of the WTO and Eurasian Economic Union.

At the moment, Kazakhstan ranks 36th in the IMD competitiveness rankings and 72nd in the WEF competitiveness rankings. In your opinion, on what areas should the government and businesses focus to improve these indicators?

According to the latest rankings for the Global Competitiveness Index of the World Economic Forum, Kazakhstan retained the 72nd position, the same as in the previous year, among 142 countries in the world. With this, there was marked improvement in the average score of our country in overall competitiveness rankings.

By major macroeconomic indicators Kazakhstan is among 50–60 most competitive economies in the world. These are the indicators such as the gross national savings and general government debt (12th position), government budget balance (16th), wastefulness of government spending (50th), national GDP in U.S. dollars by purchasing power parity and its share in the world GDP (53rd), and GDP per capita in U.S. dollars (59th).

Some social indicators were accessed as high; these are access to education, tax system, quality of the transport and communication infrastructure, protection of investors, and the most important thing – public trust of politicians.

In general, the results of better known ratings show that the main competitive advantages of Kazakhstan are the macroeconomic stability indicators. International experts already said that Kazakhstan is among the three fastest growing economies in the world. We are behind Qatar and China only.

In the WEF rankings, Kazakhstan is a leader in macro-economic stability in the Central Asian region and is practically on a par with the developing countries of Europe and Asia.

In the IMF rankings by the "Economic Performance" factor Kazakhstan is ahead of developed countries such as Italy, Denmark and Spain.

Both the rankings indicate positive results in the field of taxation, aimed at reducing the tax burden on the non-oil sector of the economy, reduction of administrative barriers, and improving the efficiency of tax administration.

In general, Kazakhstan continues its activities to improve competitiveness, first of all, through social and economic modernization and implementation of the government policy on industrial and innovative development.

We focus our attention on development of business, financial institutions and innovations, also on raising investments in high-tech sectors of the economy.

Among the problems the government will have to solve is insufficient development of the competitive environment, poor culture of innovation management, underdevelopment of the stock market and low accessibility of financial services.

We clearly understand that the building up of the competitive and sustainably developing economy is a priority task for the state institutions and society. The solving of this critical task, no doubt, will provide long-term economic prosperity of Kazakhstan.

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