TBY talks to Bakytzhan A. Sagintayev, Minister of Economic Development and Trade, on Eurasian economic integration, support for SMEs, and his expectations for 2012.
TBY Kazakhstan will enter into the World Trade Organization (WTO) and Eurasian economic integration at the same time. How do these two processes complement each other?
BAKYTZHAN A. SAGINTAYEV The Customs Union (CU) is, first and foremost, a favorable environment for attracting mutual investment and establishing joint production, taking into account the available economic potential in each state. As a result, a single market for goods without tariff and non-tariff barriers has been created, and entrepreneurs are free to move their goods among the 170 million people in the CU. To date, the process of forming the CU has been completed, and the legal basis, which includes more than 70 international agreements, has been formed. The Common Economic Space (CES) agreements came into force on January 1, 2012, and the parties have proceeded with closer integration—the building of the CES. Accession to the WTO, as well as the formation of the CU and the CES, is a priority for our country and for our partners. The process of accession to the WTO began in 1996. Integration into the world trading system is inextricably linked with the formation of the CU. From its inception, the legal framework of the CU and the CES has been built according to the principles of the WTO, and its norms concerning the scope of CU regulations will become part of our legal system. Kazakhstan has signed protocols on the completion of bilateral negotiations in terms of market access for goods and services with 29 WTO member states. In general, we are confident that negotiations on Kazakhstan’s accession to the WTO are in their final stages. Kazakhstan’s participation in the work of the WTO will improve not only the competitiveness of the national economy, but of the emerging economies of the CES as well. Our country’s entrance into the organization would mean that Kazakhstan is “ready to play by international trade rules.”
How is Kazakhstan improving its SME base?
In order to expand state support for entrepreneurship in the country, the program Business Road Map (BRM) 2020 has been developed and is operating today. The program is a logical continuation of the implementation of our road maps in 2009 and 2010. Meanwhile, the emphasis has shifted to post-crisis development. The measures provided in the BRM 2020 have been used successfully in many countries around the world. One of the other tangible measures that can be taken to improve the business climate in the country is the alleviation of administrative barriers. The Ministry, with the assistance of the World Bank, USAID, and representatives of the business community, have developed plans to adopt a new legislative concept, whereby a single law will determine an exhaustive list of permits with their categorization by degree of risk. The law will also establish uniform requirements for the issuance procedures. Reforming the licensing-permit system will be accompanied by a parallel transfer to an electronic format. At this stage, the government has introduced a draft law to reduce the number of licenses and permits by one-third.
Which segments of the economy have benefited from Eurasian economic integration?
Kazakhstan’s entry into the CU is already yielding results. Each year, the trade turnover of Kazakhstan within the CU grows by more than 40%. In 2010, turnover increased by 40.5%, and in 2011 by 40.8%. Moreover, the share of trade with Russia and Belarus in Kazakhstan’s total turnover has increased from 18.5% in 2010 to 19.4% in 2011. In January 2012, mutual trade between Kazakhstan and CU countries amounted to $1.4 billion. Thus, the abolition of customs procedures and other control types (except at the border) promotes bilateral trade between our countries. One of the positive aspects is the fact that Kazakhstan has created a more liberal fiscal policy and investment climate than that of its partners in the CU, and therefore has a better chance to attract foreign capital and create joint ventures. In particular, Russian business is attracted by favorable investment legislation and effective measures designed to support businesses in Kazakhstan. A particularly important aspect is the political and economic stability of the country. For example, individual income tax in Kazakhstan is 10%, and VAT is 12%, while in Russia and Belarus these are higher. The excise tax rate per ton of gasoline in Kazakhstan is KZT5,000, in Russia it is KZT19,000, and in Belarus it is KZT61,000.
To what extent will Kazakhstan be affected by a possible second wave of the global financial crisis?
At present, Kazakhstan is well prepared for the crisis. To date, the international reserves of the country, including the foreign exchange assets of the National Oil Fund, amount to $80.6 billion. This accumulated financial strength will ensure stable economic development in the future. In the years of previous crises, Kazakhstan gained considerable experience in carrying out anti-crisis measures for the improvement and strengthening of the economy with minimal government interference in market processes.
What is your economic outlook for the medium term?
The economy of Kazakhstan in 2012 will be developing under important global trends. Squeezed external demand requires adequate measures to accelerate our economic growth through internal resources. We estimate that GDP in 2012 will grow by 6% in real terms compared to the previous year. The main factor behind this growth will be internal demand. The forecast for industrial growth is 3.9%. Growth in this sector should be assured by the outpaced growth rate of the manufacturing sector, which should be around 7.1%. The expansion in the sector is caused by an ongoing trend of high growth in production volumes for the machinery, chemical, and metallurgy sectors, as well as the non-metallurgy mineral production sector. Because of the agriculture sector’s dependence on weather conditions and the cyclical nature of harvesting, we forecast a decrease in the harvest index by 13% in 2012. However, the negative tendencies in agriculture will not affect the country’s economic growth as a whole. The growth of value-added services in 2012 is predicted to be 8.5%. We also foresee a high growth rate for trade (12.7%), transport (7.9%), and communications (8.2%). Our estimates for inflation are within the forecasted corridor of 6%-8%. Economic growth in 2013-2017 may be more balanced and focused on internal coordination of the sectors in growth rates, which excludes an extreme increase in demand that could be caused by credit activity. Economic growth in 2013-2017 is predicted to be between 6.3% and 7.7%. The main growth factor in 2013-2014 will be internal demand, which may grow by as much as 10.3% on average, and in 2015-2017 by 7.4%. The value of investment inputs in GDP growth is estimated to be higher than that of 2008-2011. As a whole, over the forecast period a high rate of capital savings will occur, with the share of investment in GDP estimated at 30.1% in general.
© The Business Year