Interview with the Prime Minister of the Republic of Kazakhstan Serik Akhmetov.
In 2013, the economy of Kazakhstan has been functioning in the condition of a relatively slow recovery and continuing risks in the global economy. No coincidence that many international organizations reduced their global economic growth forecasts for the current year.
All this caused a decrease in demand and, consequently, the decline in Kazakhstan's exports. For the first 8 months of 2013, exports amounted to $55.2 billion, down 5.1%. Imports reached $30.7 billion, an increase of 5.7%. The government managed to maintain a trade surplus at $24.5 billion.
The economic growth was conditioned, first of all, by active government support, as well as the implementation of the Address by the President of the Republic of Kazakhstan "Strategy Kazakhstan-2050: new political course of the established state".
Timely support provided under the state and sectoral programs intensified internal factors of growth, such as an increase in consumer demand, industrial production and services, the small- and medium-sized businesses, and investment.
Preserving macroeconomic stability also produced a positive effect. Inflation has been 3.3% since the beginning of the year. International reserves of the country, including those in the National Fund, increased by 5.5% to $90.8 billion.
As a result, the retail trade turnover increased by 15% and services by 7.7%. Capital investments showed an upward trend as well, having increased by 7.9% in the current year.
Moreover, compared to last year, this year demonstrated a revival in industrial production by 2.1% over the reporting period. The production of natural gas rose by 4.7%, metallurgical ores by 6.8%, and crude oil by 3.1%. The output of products of ferrous metallurgy increased by 0.9% due to measures aimed at the country's industrialization.
The agricultural sector shows stable results. The gross agricultural output rose by 5.5%. Gross grain harvest amounted to about 20.5 million tons, with export potential estimated at 10.09 million tons. Of course, the implementation of Agribusiness-2020 facilitated these indicators.
Economic growth is also provided due to the increased output by small- and medium-sized businesses. As you know, under the program Business Road Map 2020, the state provides considerable support to entrepreneurs. For example, for the last three years under this program 3,359 projects have been approved, totaling 807.8 billion tenge; 145 thousand jobs have been preserved, and about 40 thousand new jobs have been created.
A great help to preserve jobs and to develop the labor market was Employment Road Map 2020. The unemployment rate in the country declined from 5.8% to 5.2%, while the share of self-employed from 33.3% to 30.9%.
Health indicators are improving and the educational network in the country is developing. The coverage of children with preschool education and training under the Balapan program almost has doubled from 36.2% in 2009 to 71.5% in 2013.
Thus, I would describe the situation in the economy of Kazakhstan as fairly stable. In the condition of declining external growth factors, the government acted as a stabilizer and stimulator.
What economic problems do you think are the most topical for our country? What is being done by the Government to resolve them?
In general, our priority is to implement the tasks set by the President in the Address to the nation, delivered at an expanded meeting of the Government.
As you know, Kazakhstan is amongst the five most dynamic economies in the world. In the Global Competitiveness Index of the World Economic Forum our country ranks the 50th among 144 countries, having moved to the group of countries where the importance of the factors of efficiency and innovation is increasing.
Along with that, still a major challenge for the Government is to ensure the diversification of the economy and to improve the quality of economic growth. The latter two are the goal of the Industrial and Innovative Program, which is currently underway. For the last three and a half years, under the Industrialization Map 563 projects totaling 2.1 trillion tenge have been introduced into operation, and more than 60 thousand permanent jobs have been created. We will continue to actively work to perform this important program for Kazakhstan’s economy.
In order to strengthen the positive trends, to increase efficiency and to make the programs focusing on more precise things, we started preparing the second phase of it. In the framework of its second phase, the program will focus on an active role in development of the regions of the country, the improving of competitiveness of domestic products, the growth of productivity and export potential, the implementation of innovations, and the reduction of resource- and energy-intensity of the economy.
For this, it is planned to create the national and regional clusters that are of top priority, as well as to implement important investment projects related to the development of industries with high added value. The government has outlined the measures aimed to improve and raise the effectiveness of the system to fund industrial and innovative projects, and to increase the investment attractiveness of the economy.
An important task is the development of SMEs. Its share in the economy is still small, accounting for about 20% of GDP. Therefore, the Government, together with the recently established National Chamber of Entrepreneurs, will continue working on the improvement of this business environment, the development of infrastructure to support small businesses, and the raising of competitiveness of domestic entrepreneurs.
The banking sector should play a greater role in supporting businesses. Therefore, the reduction in the number of troubled bank loans is under the constant attention of the Government. We started work to gradually toughen the limits on idle assets. We expect that their percentage in the loan portfolio of STB will not exceed the projected indicators of the National Bank, and by the beginning of 2014 this percentage will fall to 15%. Relevant response measures applied to the banks and their shareholders are provided for in in the laws of the Republic of Kazakhstan.
Raising the competence of labor resources and the quality in the country remain the key issues. We realize that sustainable development of Kazakhstan in the long term is impossible without a strong human capital. In this regard, we will take consistent steps to ensure better access to healthcare and education and to raise their quality.
Regarding the issue of the population’s employment, the new program Employment Road Map 2020, which I already mentioned, is adopted. This program, along with the instruments to promote productive employment, contains the mechanisms improving the balance of the labor market.
All this will contribute to income growth and reduce the shortage of highly qualified personnel.
This year, the Government initiated an increase in some taxes. What results do you expect from implementation of the new fiscal policy in 2014?
First and foremost, our initiatives are designed to eliminate disproportions in taxation and to boost the economic activity. These initiatives are provided in the recently adopted Concept of the new fiscal policy.
Active discussion of tax innovations is a normal process, typical of many countries, including developed countries. Discussions make it possible to take a more weighted decision and to come to a consensus.
Let us consider, for example, the increase in property tax. This measure will affect the base value of a square meter of residential housing, as this figure has remained unchanged for 12 years now. In the future, this will allow gradually bringing it closer to the market value.
With a view to gradually approach the rates adopted in the developed countries, the excise taxes on tobacco products and strong alcohol are also increasing. Of course, the increase in excise rates is primarily an economic measure. However, the positive trend is the reduction in consumption of alcohol and tobacco products. This is important for a healthy lifestyle.
I believe that the concerns regarding the possible growth of the shadow economy are unfounded. The projected increase in excise rates on alcohol and cigarettes will not happen instantaneously, but gradually. In other words, manufacturers and markets are given the time and possibility to adapt to the new conditions.
In addition, the increase in taxes on property and transport and the excise duties on manufacture of alcohol and tobacco products will provide additional revenue to the budget and will increase the revenue base of the regions. This will give more possibilities to address local issues.
The core sense of the initiatives on tax increase is an attempt to consistently improve taxation, and we will continue working in this direction. I stress again that this important work will be carried out stage by stage, taking into account the current socio-economic situation, the state of the markets and the impact of measures taken.
What, in your opinion, are the main risks and dangers for Kazakhstan’s economy in 2014?
Dangers of this kind we associate primarily with external factors. The mutual connection between the countries that has considerably increased causes vulnerability of the national economies in times of recessions and negative trends in the global financial system.
Any decision-making in the major economies of the world have an impact on the global economy, including the economy of Kazakhstan. As for us, we are tightly integrated into it. These decisions include budget deficits in developed countries, the programs of monetary and crediting stimulus in the U.S., and the growing consumption in China and other countries that are our partners.
We should also examine the impact of economic trends observed in the regions. Thus, the total public debt of the Eurozone, as of the end of the second quarter of the year, was 93.4% of GDP, or 8,874.6 billion euros. By estimate of EU experts in the coming year, for example, Greece is likely to need additional support in the amount of 5 billion to 6 billion euros. Among the risks is the possible strengthening of the yuan, which can result in reduced attractiveness of Chinese exports. Another point of attention is the slowdown in economic activity in the Russian Federation. Given the mutual economic interference of our countries, the slowdown of Russia's economy in 2013 is likely to slow down Kazakhstan's economy by 0.1 % from the projected level of 6%.
Taking into account that in Kazakhstan’s export structure the shares of exports to the EU, China and Russia account for 52.6%, 16.5 %, and 7.1%, respectively, the reduction in demand for exported products from these countries carries a risk of lower growth in export-oriented sectors of the national economy and the shrinking of domestic demand.
The Government on a regular basis monitors the situation on the commodity and financial markets. Under the anti-recession plan, early response measures are taken, as well as a standard package of measures is developed; the latter will apply, depending on the external economic trends.
The implementation of the development programs, which I have mentioned above, is aimed to increase the resilience of our economy to external adverse conditions. These programs are SPAIID, Business Road Map 2020, Employment Road Map 2020, Single-Industry Towns Development Program 2012–2020, as well as other sectoral and regional programs.
Deepening of cooperation in the framework of the Customs Union and the Common Economic Space is also aimed at further diversification and competitiveness of Kazakhstan's economy.
The Government does not abandon its plans for Kazakhstan's accession to the World Trade Organization. At what stage is this process at now? When, in your forecast, we will become a full member of the WTO?
Accession to the WTO is among the challenges of the foreign policy at the coming stage. The time of accession to the above international organization depends on the dates of completion of negotiations with the WTO member-countries. I must say that to date a great deal of work on Kazakhstan's accession to the WTO has been done, and the negotiations are at their final stage.
At the same time, the multilateral negotiations on a number of sensitive issues continue. They relate to the provision of subsidies, the requirements to the local content in procurements of mineral producers, the sanitary and phytosanitary measures, the technical barriers to trade, and the scope of agricultural support. I should add that in the future the whole package of agreed and signed documents will be ratified in accordance with national laws.
What negative and positive effects can be expected from our accession to the WTO?
In general, the membership in WTO provides favorable access to external markets. This involves predictability and stability of trade relations, the new possibilities for the development and the elimination of discrimination in trade, and the protection of national interests. The potential of the country for development of its own exports, and the availability of raw materials, components and spare parts from abroad will grow in the context of WTO. It is also important that the bringing of foreign trade in line with the WTO standards will add to the transparency of procedures. For example, simplification of licensing and customs procedures for imported products and the reduction in the number of goods and services that require licensing will ensure predictability of economic policies and will favorably impact the development of entrepreneurship in Kazakhstan.
In addition to economic advantages, the accession to WTO will bring favorable image dividends. This is also an opportunity to show all the participants of the global market that Kazakhstan (together with the other members of the Customs Union) is a reliable business partner with a stable and transparent business environment.
We associate negative effects with increased competition of imported goods due to a certain reduction in import duties, as well as the denial to use prohibited industrial subsidies.
I stress that the accession to WTO is a significant step for our country. Therefore, not only the Government, but also the domestic business community should get prepared for it.
Kazakhstan has been part of the Customs Union and a member of the Common Economic Space for a few years now. How do you assess the consequences of integration with Russia and Belarus? What are the pros and cons?
Kazakhstan and its partners on the CU act in international relations as a single integrated economic unit. This undoubtedly contributes to the strengthening of the national economies. By creating a single customs zone, we considerably enlarged the size of the domestic market. The total market of the Customs Union is $2 trillion, the human resources are 168 million people, the total area is 20 million km2, and the total production potential is $600 billion.
Within the Customs Union area, the conditions of movement of goods are simplified; the customs control at the internal borders of the economic union is abolished. Much is being done to remove administrative barriers for businesses.
Elimination of customs procedures and the other types of control (except for border control) at internal borders of the CU boosted bilateral trade between our countries. In the last year, the trade turnover of Kazakhstan with Russia and Belarus increased by 6.9% (or $1.6 billion) to $24.6 billion. Moreover, according to the Agency for Statistics, in January–June this year, the trade turnover between Kazakhstan and Russia increased by 10.2% to $11.8 billion, compared to the same period of 2012.
Owing to Kazakhstan’s tax policy and investment climate which are more liberal than those of other member-countries to the Customs Union, Kazakhstan has greater chances to attract foreign capital from abroad and the CU countries to create joint ventures. In particular, such factors as the favorable investment laws, the effective measures to support entrepreneurs and the economic stability, what is crucial, attract Russian businesses to our country.
For example, the individual income tax in Kazakhstan is 10% and the value-added tax is 12%, whereas in Russia and Belarus they are higher. The excise rate on a ton of petrol in Kazakhstan is 5 thousand tenge, in Russia 19 thousand tenge, and in Belarus 61 thousand tenge, for comparison.
Not surprising that many joint ventures are established today. One of the largest and most successful projects between Kazakhstan and Russia is KAMAZ-Engineering, manufacturing trucks in Kokshetau. The Kazakh-Belarusian joint production of tractors "Belarus" was set up on the basis of SemAZ in Semipalatinsk and the combines “Yesil” on the basis of AgromashHolding. There are other successful examples of such cooperation.
I want to note that due to economic integration, the size of the market for Kazakhstani producers increases 10 times. Foreign direct investment increases as well. So, since the establishment of the Customs Union, the FDI in the processing industry of Kazakhstan has grown by 88%, from $1.8 billion in 2009 to $3.4 billion in 2012. The total FDI over these years have increased by 34%, from $21.4 billion to $28.3 billion.
Kazakhstan is a country which is distant from major markets and has almost no access to sea ports. Therefore, special attention is given to the provision of more favorable conditions for the access of domestic exporters to Russia’s transport infrastructure. This will allow us to reduce transport costs and, consequently, to raise the competitiveness of Kazakhstan’s products on the markets of third countries.
The potential of the Common Economic Space (CES), within which the freedom of movement of services, capital and labor force is provided, is also considerable. The Common Economic Space gave local entrepreneurs additional opportunities as the reduction of transaction costs and, consequently, the release of working capital, which can be directed for business development.
For example, in the field of rail transport, starting from January 1, 2013, every country of the CES applies a uniform tariff for the carriage of goods (the export tariff, the import tariff, and domestic tariff).
In general, the unification of tariffs provides transparency of their application and contributes to the creation of equal competitive conditions for commodities and commodity producers. The volume of traffic carried out by Kazakhstan’s consignors through Russia and Belarus is quite considerable, reaching about 17.2 million tons, based on data for 2012. For comparison, I stress that the traffic of Russian and Belarusian cargoes within the territory of Kazakhstan in the last year amounted to about 8.6 million tons. In this context, the unification of tariffs for our domestic consignors is quite important.
As you can see, the benefits and advantages of integration speak for themselves.