Sergey Gakhov
In 2012, Kazakhstan hardly got close to the stated goal to enter into the top-50 world rating of competitiveness, and the President of the country raised the cherished bar twenty lines more up. Being among the 30 most developed countries of the world is the exact guideline announced by him as a nation-wide challenge in the new Strategy-2050.
The next, the 17th in succession, Address of the President to the people of Kazakhstan is evidently distinguished against the background of the previous ones. First of all, it was introduced as a kind of “prediction” in December of last year. Apparently, in order to give the government more time to realize the global challenges and begin their implementation as soon as possible. Secondly, in his speech the Head of the State “dismissed” ahead of time another strategic document – the “Kazakhstan-2030” which had been setting the guidelines for the development of the republic within the last 15 years.
Explaining his decision, he declared that this strategy was created for the period of statehood establishment and, if considering many basic parameters, it is already implemented: “In the strategy ‘Kazakhstan-2030’ we have planned the success of our country. We were consistently and persistently going ahead towards our objectives. Even at the peak of the global crisis of 2008-2009, the national economics continued to grow... For today we are a dynamic country with an average level of population income and rapidly growing economics.”
Along with this, according to Nursultan Nazarbayev, the paradigm of those challenges that now face Kazakhstan has been changed essentially; therefore, to accept new challenges, the country needs to expand the horizons of planning and make another “ideological breakthrough”. “When we were developing the strategy ‘Kazakhstan-2030’, no one could have imagined that such an unprecedented financial and economic world crisis would rise, as the result of which there would appear new and totally unforseeable economic and geopolitical circumstances.”
Based on this, in his Address, he proposed a draft of the new nation's political course up to the year 2050. By that time, Kazakhstan must be in the top 30 of the world’s most developed countries. Moreover, the competition for a place in the sun among the developing countries will be hard, which is why the nation must be prepared for the “global economic confrontation”.
As set for a document of such a level, the new strategy covers a wide range of issues, starting from the further development of statehood, the formation of a new social model, the effective education and health systems and to the increased level of responsibility and functionality of the State apparatus.
Nevertheless, in this article we firstly would like to stop at the range of economic challenges set by the President in his Address.
The main principle stated in the “Strategy-2050” is a comprehensive economic pragmatism. Henceforth, all decisions in the sphere of macroeconomic policy shall be taken with account of the profitability and investment recovery, competitiveness and compliance with the long-term interests of Kazakhstan.
The State should only spend within its available means and reduce the budget deficit to the lowest possible minimum. In this regard, the President ordered to reduce its level related to the Gross Domestic Product (GDP) from 2.1% in 2013 to 1.5% in 2015. He believes that it is necessary to build up the reserves for a “rainy day” by ensuring their safety in the long term perspective, and, therefore, the management of the budget and financial process should be just as careful and thoughtful, just like the private investments. “In other words, not even one budget Tenge should be wasted. The State budget should be focused on productive, if considering a long-term perspective, nation-wide projects, such as, for example, economic diversification and infrastructure development.” In parallel, the challenge shall be solved on tight control of the debt level of the public and quasi-public sector. It seems that the last thesis is especially important, taking into account that the issue of high financial leverage of some national companies part of the Samruk-Kazyna holding is already quite acute.
In the sphere of tax policy, the President declared that in the next 5 years the entire business will be transferred to the electronic mode of online reporting. In addition, starting from the year 2020 the practice of tax credit will be introduced, including release from taxes the companies and individuals who invest into production, new technologies, education and health insurance. Thus, the future tax policy at the business level shall stimulate domestic growth and exports from Kazakhstan to foreign markets, and at the level of citizens - their accumulations, savings and investments.
Moreover, to the local business as to the “leading force of the national economics” and the more effective owner, the President promised to conduct a second wave of large-scale privatization of the “enterprizes of non-strategic nature”, which will become the mechanism of reallocation of responsibilities between the State and the market. Before the end of the first half of the year 2013, the Government should repeal all permits and licenses that do not directly affect the “life safety of the citizens of Kazakhstan” by replacing them with the notifications. A legislation will be introduced, where the business itself will regulate the quality control of provided goods, works and services. And, apparently, so that it would be a really collective decision, the Head of the State ordered to introduce in the republic a model of compulsory membership in the National Chamber of Entrepreneurs. According to him, it will provide the delegation of wide powers and functions of State Authorities in the field of technical and vocational education and small business integrated service support to this structure.
The specific target indicators from the point of view of the development of domestic entrepreneurship are indicated in the Address. By 2030, the share of small and medium-sized enterprises (SMEs) in the country’s economics is expected to at least double. “Unfortunately, the current distortions in the taxation system of small and medium-sized enterprizes impede their development and growth. Therefore, before the end of 2013 the Government should make amendments of the legislation directed to a clear distinction between the concepts of micro, small, medium and large businesses. However, we should not increase the burden on small and medium business segments”, the President underlined.
Searching the points of economic growth
As such, the Leader of the nation outlined the infrastructure and innovations. And this is understandable. These exact segments of Kazakhstani position in the world rating of competitiveness are the most weak for today.
In regards to infrastructure, its development will be made in two directions. On the one hand, it is necessary “to move to the regions within the country”, and on the other (that is more interesting) – to operate “in the frames of integration of national economics into the global environment”. It is about creating industrial transportation and logistics facilities outside of Kazakhstan. “We need to go beyond the existing ideas and create joint ventures in the region and all over the world – in Europe, Asia and America. Such as, for example, the ports in the countries with direct access to the sea, transportation and logistics hubs at key transit points of the world and so on. For this purpose, a special program ‘Global Infrastructural Integration’ shall be developed.”
The approach is correct for sure, and in terms of export development, perhaps, it is the only one possible for Kazakhstan. However, if, for example, to remember the annual “battles” around the grain terminals in the ports of the Black Sea, it may seem that it is not so simple to realize this idea.
As for large transit projects that are being implemented at the present time, the President set a no less ambitious objective to increase transit traffic through Kazakhstan by the year 2020 by two times, and by 2050 – by ten times!
Speaking of the internal infrastructure, its establishment must also be subject to the principles of profitability. “We need to build only where the build-up would lead to the development of new businesses and job creation. Domestically, we have to create “infrastructural centers” for “covering” remote regions or regions with insufficient population density with vital and economically required facilities.” In this regard, Nursultan Nazarbayev ordered the Government to develop and adopt a state program on the development of infrastructure within the current year.
As a priority in the sphere of innovations, the Head of State announced the revival of the cluster approach (the interest to which weakened in the recent years due to the lack of visible results). Now, taking into account international trends, these are the innovative second-generation clusters. “The main drivers of growth are not industrial enterprizes, but the centers of innovation and knowledge, such as universities, technological and engineering organizations. This creates a “triple helix” of correlation of business, universities and the State.”
In this regard, the President ordered to develop a concept of formation of perspective national clusters in the first half of 2013. This work will be controlled by Kairat Kelimbetov, the Deputy Prime Minister (who has, by the way, been “in the know” long ago). And in order for this process to get the new organizational development, a National Agency of Development JSC will be created in Kazakhstan. Under its control, all current state development institutions and financial organizations, which while being part of Samruk-Kazyna showed their willing to the “narrow profile” investments, will be transferred. “We have to finish the practice of electoral support of individual companies or industries. We should only support those industries that perform socially important and strategic functions and prove their effectiveness.” (Hopefully, the next attempt of Mr. Kelimbetov to make an innovative breakthrough will be more successful than the previous ones.)
Another stated priority in the strategy is a large-scale modernization of agriculture. In order to make the Republic a leader of the global food market, the President proposed to increase cultivated areas and ensure significant rise of yield capacity (primarily, through the introduction of new technologies); as well as to focus on the creation of world-class livestock forage. “We have to create competitive national brands focused on the ecological sustainability. I gave the challenge to our agro-industrial complex to become a global player in the sphere of environmentally-clean production.” For its part, the State undertakes the commitments within the current year to develop a system of legislative and economic incentives for the formation of medium-sized and large agricultural productions oriented to application of new agro-technologies; and by the year 2020 to increase the state support of agriculture by 4.5 times. And as a “stick” for negligent farmers there will be inducted higher tax rates on the lands that have not been developed within a certain period after their provision. As a result of taken measures by the year 2050 the share of agricultural sector production in the country's GDP is expected to increase by 5 times!
Speaking about the program of Forced Industrial and Innovative Development (FIID), the President ordered to begin development of a detailed plan for the next phase of industrialization starting from now. “We need a scenario for development of future technological trends. As a result, the share of non-resource exports in the total volume of exports should double by the year 2025 and triple by the year 2040.”
According to the plan of Nursultan Nazarbayev, by the year 2050 Kazakhstan should completely upgrade its production assets in accordance with the latest technological standards. “We have to focus the State program of the Forced Industrial and Innovative Development for the import of industrial facilities and exchange of technologies. For this we need a sub-program on creation and development of joint international companies and profitable for the country partnerships.”
At the same time, the Head of State indicated the need to introduce a new system of management of natural resources: “Now the maximum accelerated introduction of raw materials on the international markets, which will be destabilized in the event of another financial collapse, is required. Our main importers can significantly reduce the purchasing of raw materials, and prices may fall sharply. Our advanced strategy will allow to accumulate means very fast before the beginning of market destabilization; the means will help the country to survive later during the period of a possible global crisis.”
According to the Head of State, the technological revolution changes the structure of the consumption of raw materials. For example, the introduction of technology of composites and new types of concrete devalues the reserves of iron ore and coal: “This is another factor to increase the prduction rates and supply of natural resources to the world market in order to take advantage of the current high world demand for the interests of the country.”
The approach proposed by the President is quite logical. However, the question still remains: how to maximize the profit of raw materials while at the same time increase the share of non-resources exports by a large amount? Even now the Government admits that the latter index is one of the most hard-to-target indicators of the FIID program. Thus, in 2008, the share of the non-resource sector reached 28.2%, and by the results of the previous year, it was only 26.8%. And this is despite the fact that the volume of delivery of processed products abroad increased by 34% in 2011. In such a situation, it might be more appropriate to track the dynamics of growth of absolute index as a target indicator.
The model of relations between Kazakhstan and foreign investors has been finally fixed in the “Strategy-2050”. The country no longer needs money to make money. “We have to attract investors only upon the terms of the delivery in our country of the most modern technologies of production and processing. We should allow investors to produce and use our raw materials only in exchange for the creation of new industries in our country”, the President underlined once again.
As for the financing sources of the transition to a new economic policy, the role of the “Drive engine” will play the National Fund: the funds of which will primarily be spent for long-term strategic projects. In addition, passing the accounts of all the private Pension Savings Funds (PSFs) to the newly created Unified Pension Fund, the State has been able to use these funds as “long” and low-cost financial resources for the accelerated development of all sectors of the economics, and, especially, the infrastructure, as well as the support of wide development of entrepreneurship. As Nursultan Nazarbayev declared, “such consolidation and management under the supervision of the National Bank will help dispose the savings of our citizens more effectively and safely. Part of savings need to be directed for the financing of real economics, help the objectives of industrialization and development of entrepreneurship through the market funding of the banks. For the same purpose through the securities market it is required to attract the resources of the insurance market”.
It is clear that the key to successful implementation of the Strategy should be the availability of the appropriate human resources. In this regard, the President offered to attract the best foreign specialists through the outsourcing programs. “The use of managerial staff with extensive international experience and knowledge will give a double effect: we will both be able to upgrade our production management, and to also train our local staff. This is a new experience for us.”
However, this approach is possible to be implemented at the level of the business sphere, but hardly may be applied in the sphere of public management. “Varangian” cannot be appointed to the official position. This means that Kazakhstan will have to improve its own managerial resources, producing new state personnel which are capable to both allocate the budget of the country, and thoughtfully and effectively invest in the new economics.
