STRATEGY 2025 TARGETS 4.5% GDP GROWTH WITHIN 8 YEARS

Kazakhstan 2018 | ECONOMY | VIP INTERVIEW

TBY talks to Timur Suleimenov, Minister of National Economy, on a positive outlook for the Kazakhstani economy, PPP implementation, and the financial sector.

Where does Kazakhstan stand today in terms of how 2017 progressed and which macroeconomic factors have contributed to this positive outlook?

We have seen growth of 4% in the first 10 months of 2017, which is excellent and is in line with our positive scenario. The contributing factors include the rise in oil prices. Whether we like it or not, we have to acknowledge that the oil price plays a significant role in our economy. The improved price for oil and commodities in general was a gain, as was the increased production from the Kashagan oil field. In mining we see huge additional excavation works going on, likely directly attributable to the increased commodity prices. Oil and gas and mining together are growing at about 8-10%. In addition, we are also seeing a significantly big increase in manufacturing, which has grown over 7%. The pharmaceuticals industry is in fact a champion of the economy and is growing at about 37%. Another great contributor of Kazakhstan's GDP growth is trade. External trade has picked up tremendously, growing by about 35%, and we see our trade balance improving greatly from 2016. There has also been an increase in investment, with a relatively stable growth of about 5%. We are tracking not only investment overall, but also those in the private sector, and the economy is growing not only on the back of state-run and sponsored programs. Private investment is also boosting the overall performance of the economy. FDI is a great contributor as well, and total FDI stood at about USD12 billion for six months.

The Ministry of the National Economy's Strategy 2025 targets GDP growth of no less than 4.5% within eight years. What are the main drivers and keys to achieving this goal?

We want the private sector to play a more active role in the economy than it is currently. Privatization will undeniably improve the quality and volume of growth. Hopefully by 2025 we will have fully privatized to the level that we want to, including KazMunayGas (KMG) and other Samruk Kazyna assets, and we will not have any non-core assets at the regional and municipal levels. Another driver is moving from a centralized economy, where all the decisions are made in Astana, to a more decentralized model. We would like to give our regions more economic freedom and, with that, the means of achieving their goals. We do have some local taxes, though in our budgetary system currently only four regions are donors to the republican budget—Atyrau, Almaty, Mangystau, and Astana. We have to funnel large amounts of money back into all the other regions and we would like to change this. The way to do it is to give them greater taxation authorities, though we have yet to finalize the mechanisms we will use for this. This change will not only provide additional tax revenues and mechanisms for the local authorities, but also incentivize them to work closely with taxpayers and investors. We also want to focus more on exports; we cannot run our economy and sustain economic growth based solely on the consumption model we previously relied on with the influx of big oil money and consumer spending. While exports will play a large part, we want to add another component to this with non-natural resources exports.

What opportunities will reforms to the PPP laws bring in the long run for private-sector involvement in the economy?

Many countries have been trying to implement and harness PPPs. It is tough, especially for countries with a Soviet background where everything has to be controlled and repeatedly checked for accountability. We thus have to change the mentality and the law, and the way we operate our models is new as well. It is tough and somewhat subjective to define a fair return for private sector investors; it is not written in the budget code or government resolution. It depends on negotiations or otherwise the investor will walk away. This is holding back significant PPP implementation in Kazakhstan. Hopefully potential investors will see our dedication toward reform as a positive sign. We see a large increase in PPPs on a local and regional level, for example for kindergartens and small sports centers and waste management plants. We are introducing many changes to our budget code and laws on PPPs; for example, we have cut back on the time and procedures required and introduced a more efficient sharing of risk. We have also shared our responsibility with the regions; obligations up to about USD20 million can be taken at the local level.

Overall, what can we expect from the Kazakhstani economy in 2018?

We will grow from a higher base in 2018 compared to the 1.1% we had in 2016. Therefore YoY growth will be more difficult in 2018 because we will have to expand more in absolute terms than we did in 2017. Hopefully, inflation will be lower and real GDP growth will help in that way. Growth of 3.5% or perhaps 4% is manageable for 2018. In terms of emerging sectors, I have been positive about our financial sector for a while now. Our program to assist banks to become more solvent and ready to lend is on the way and with any luck the financial sector will be much more active. Everything else should be business as usual. Certain key assets will be privatized, which is great for investors. In addition, it will create better governance, transparency, and management of those companies according to international standards.