Economy

Caution, State Shrinking

In the intervening years to 2050, the Kazakhstani economy will undergo a transformation guided by the comprehensive, nearer-term National Vision 2025. In doing so, it will become both diversified and […]

In the intervening years to 2050, the Kazakhstani economy will undergo a transformation guided by the comprehensive, nearer-term National Vision 2025. In doing so, it will become both diversified and digitalized to leverage the information era. Also coming is a top-down shift toward the free market to better attract foreign investment.

Vision 2025

Approved in late 2017, the vision targets sustainable growth in step with OECD nations.
Supported by business-friendly law, related policy will maximize Kazakhstan’s human capital and rethink employment dynamics. It shoots for ambitious annual growth of 4.5-5%, lifting GDP per capita to USD46,100 by 2025. Maximizing export opportunities in global supply chains will demand looking beyond the hydrocarbon comfort zone to sectors of promise. Timur Suleimenov, Minister of National Economy, told TBY that the 2025 strategies target “GDP growth of no less than 4.5% within eight years.“

Investment Appeal

To gauge good investment bets you can do worse than talk to a private equity fund. According to Talgat Kukenov, the CEO of The Abraaj Group Kazakhstan, the country beckons for its “strong economic ties with Turkey, China, and Russia, three economic drivers of the region (rendering the nation) a transportation hub for Eurasia, which enables investors to reach other Eurasian markets including the Caucasus, Russia, and China.“
Private investment activity is in evidence, and total FDI is observed at about USD12 billion for 6M2017 according to Minister Suleimenov, underpinned by greater state commitment to PPP activity across key economic sectors. He notes, too, that current decentralization of power ceding greater financial autonomy to the regions will “incentivize them to work closely with taxpayers and investors.“

Time to Expand the Field

A recent World Bank report entitled The Economy is Rising: It is Still All About Oil, was hardly ambiguous in its assessment of Kazakhstan. In 9M2017 GDP growth upped gears to gain 4.3% YoY, greatly outpacing the 0.4% rise of the same period of 2016. And yes, this was indeed floated on revived global oil prices, and locally as production kicked off at the Kashagan offshore oil field in the Caspian Sea, with the spoils of the black stuff also felt in the non-hydrocarbon economy.

Maximizing the Potential

Yet, Suleimenov noted that while oil and gas and mining together are growing at about 8-10%, “we see a significantly big increase in manufacturing, which has grown over 7% (while the) pharmaceuticals industry (…) is growing at about 37%.“ To this add the sterling performance of external trade, soaring 35% last year from 2016. Of note, Kazakhstan’s new tax code revises tax preferences for the real sector by scrapping benefits of questionable success and expanding preferential tax regimes for bread-and-butter investor considerations such as special economic zones, financial leasing, and renovation.

The Flight Now Boarding…

In 2017, Kazakhstan ranked 81st in the World Economic Forum’s World Competitiveness and Travel Competitiveness Index. Yet by 2025, Kazakhstan plans for tourism’s share of GDP to reach 8%, up from today’s 0.9%, both on adventure and heritage tickets. It would then rival sectors such as transportation (8%), construction (5.9%), and agriculture (4.9%).

A Growth Sector

The national vision foresees the share of agriculture in GDP growing 500% by 2050 through stimulus packages. Averaging at 4.4% in 2001-16, domestic agricultural growth has recently outpaced that of the remaining economy. Close to one-fifth of the working population tills the soil. And yet the large number of unfeasibly small agricultural units is seen as an Achilles’ heel, impairing value chains that bring regulated quality standards, resulting in calls for land reform.

Down to Earth

With mining being a notable sector, the new Code on Subsoil and Subsoil Use came into effect on December 27, 2017 replacing the 2010 law. With the exception of uranium extraction, which remains subject to the old contractual system for investors, other mining activities including oil and gas will now be legally subject to licensing.

Driving Industry

The automotive sector weakness of 2014-2016 was reversed with the roughly 20% recovery of 2017. The Association of Kazakhstan Automobile Business targets 50% production localization by end-2019 from today’s approximate 36%. Industry data reveals a doubling of the share of automotive industry in machine building overall.

Shrinking the State

The government seeks to reduce the non-oil deficit of its consolidated budget to under 8.5% of GDP in the 2018 budget. Accordingly, it has reduced its core spending by cutting noncore transfers to state-owned enterprises (SOEs) by roughly 2pp of GDP. This year’s budget also features a pronounced cut in oil fund consumption, from USD13.5 billion (8.5% of GDP in 2017) to USD8 billion (4.6% in 2018).

Privatization

According to technology futurist Paul Saffo, there are two kinds of fools: “One who says this is old and therefore good, and the other who says this is new and therefore better.“ Kazakhstan has sought to avoid being either by treading cautiously on structural reform and privatization under presidential council. The second privatization wave was 71% completed in January 2018. The Complex Privatization Plan for 2016-2020 that also covers entities held within the Samruk Kazyna Sovereign Wealth Fund encompasses 904 facilities. As of January 2018, 1,255 facilities await liquidation or rationalization. Key economic entities such as Air Astana, KazMunayGas, and Kazatomprom are earmarked for privatization in 2018.
This is encouraging because the numbers in the aforementioned WB report paint a telling economic portrait, where the total assets of SOEs remain at approximately two-thirds of GDP. Moreover, such enterprises are ostensibly held by three major holding companies that sit on over 90% of total assets. Clearly, this means that key economic sectors ranging from ICT to utilities, and from education to healthcare remain in the public domain, artificially buoyed by the national budget, but arguably lacking the innovative oxygen of market forces. The public sector employs around a quarter of the workforce, which in part explains the government’s hesitancy to rush headlong into the hallmark downsizing involved. And it is by finetuning the close to 50% of the workforce classified as individual entrepreneurs and self-employed, and the roughly one-third of the workforce employed at SMEs that the social cost of privatization is to be mitigated. The Business Roadmap 2020 and the Productive Employment and Mass Entrepreneurship Program are two tools the government has at its disposal in doing so.

A Digitalized Economy

As of December 2016, Kazakhstan had 13.93 million internet users making for a penetration rate of 76.8%. Meanwhile, the Digital Kazakhstan program, launched in December 2017, involves the meatier issue of building a nationwide digital infrastructure in preparation for the myriad wonders promised by 5G. By government forecasts, a prospective eco-system of high-tech entrepreneurship, a catalyst of innovation, promises 300k new jobs by 2022. The estimated investment requirement from the quasi-public sector is USD508.69 million, to which state coffers will add a further USD424.41 million; by 2025 the scheme is officially estimated to have generated a return of between 4.8 and 6.4 times.
In his book After the Neocons, political thinker Francis Fukuyama writes that “International institutions like the IMF and World Bank have sought to use conditionality in structural adjustment loans as a means of artificially stimulating demand for reform in countries where it is low.“ In conclusion then, we note that Kazakhstan has attempted to grasp the economic reform nettle on its own terms. Its vision, if realized, will leave it in good stead for tomorrow.

You may also be interested in...

Diplomacy

Moving Capitals

Kazakhstan/Nigeria/Indonesia/Egypt

View More

Economy

Kazakhstan & Uzbekistan: Reform?

Economic Policy Changes in Central Asia

View More

Energy & Mining

Steppe on It

Kazakhstan's Renewable Woes

View More

Diplomacy

Nazarbayev Steps Down

Kazakhstan's Changing Political Scene

View More
Astana,/,Astana,Kazakhstan

Economy

What the world wants

Kazakhstan's bold plans

View More
Astana:  The Next 20 Years

Real Estate & Construction

Astana: The Next 20 Years

Smart City

View More
Off Script

Health & Education

Off Script

Adopting Latin Script

View More
Know This

Health & Education

Know This

View More
Prescription:  Localization

Health & Education

Prescription: Localization

Pharmaceuticals

View More
View All Articles