The third year of implementation of the State Program of Forced Industrial-Innovative Development has passed. The results have shown that the Government's efforts to diversify the local economy through the creation and development of new industries have borne fruit. So, in the year 2012, machine construction became a leader by growth of volume of production. However, the overall slowdown in economic growth as a result of the decline in global demand for raw materials indicates that the overall structure of the economy of Kazakhstan has not changed dramatically.

As we know, the main goal of the program is getting rid of FIID commodity dependence by increasing the weight of the manufacturing sector in the total volume of industrial production. It is clear that this can only be done through the establishment of new and modernization of existing enterprises. In this context, Kazakhstan Industrialization Map became the key mechanism of realization of the program. It is designed to help the State and business in making the right investment decisions and achieving interconnection projects initiated by the private sector, infrastructure and resource potential of the country.

To date, the Map brings together 779 projects with total investment of 11.1 trillion KZT, which provides for the creation of more than 220,000 jobs during construction, and 181,000 for the period of operation.

At the end of first three years of implementation of the Government Program (GP) FIID, within the limits of the Map, 537 new industrial projects with a cost of 2.1 trillion KZT have been put into service, which ensured regular employment of more than 57,000 men. Currently, these enterprises have already released products amounting to more than 1.5 trillion KZT, including 913 billion (5.5% of the total volume of industrial production) only in the year 2012. "Thus, during that time, two-thirds of the invested money had already brought real products to our new economy," stressed the President of Kazakhstan as part of celebration of the day of industrialization at the end of last year.

Thanks to the implementation of the FIID program, the domestic industry has implemented a type of production-marine steel structures, turbine bridges, composite metal-plastic pipes, energy-saving led lights, tableted medical supplies, mixed fodder with added minerals, etc.

In 2013 it is planned to introduce other 136 projects with total cost of 1.1 trillion KZT, creating 23,000 jobs. Among them the following can be noted: the new Ferroalloy Plant in Aktobe, production of burnt anodes in Pavlodar, hoop production in Kostanai, photovoltaic plates production in Ust-Kamenogorsk, bitumen plant in Aktau reconstruction of generating unit #6 of Aksu State District Power Plant (SDPP), as well as the expansion of the production facilities of Himpharm JSC in Shymkent. In addition, according to the Prime Minister Serik Akhmetov, construction of a factory for manufacture of mineral fertilizers in the Zhambyl region, full-cycle plant in Ust-Kamenogorsk, glass and wood plants in the Aktyubinsk region, expansion and reconstruction of Ekibastuz SDPP-2 will be started in 2013.

With regard to State support, today it covers all projects included in the Map of industrialization. So, for the last three years the State aid was received by more than 400 innovative productions, more than 1,500 of exporters of non-commodity products, 2,500 participants of the program "Business road map" and 44 productions, upgraded within the program "Efficiency-2020". In total, there is more than a hundred different support tools working at the moment – from innovative grants to subsidized bank loans. In addition, administrative barriers have been reduced by 30%, additional incentives for innovators and investors have been established.

Such unprecedented measures should ensure the achievement of the following targets for the year 2015:

·    The growth of nominal Gross Domestic Product (GDP) by 50%, and real by 15% compared to 2008;

·    The growth of labor productivity in manufacturing industries by 50%;

·    Reduction of energy intensity by 10%;

·    Bringing non-commodity exports of up to 40% of the total;

·    An increase in the number of innovative enterprises of up to 10% of their total number.

According to the latest report by the Ministry of Industry and new technologies, the following three FIID’s years in development of economy of Kazakhstan there are positive trends. In particular, in January–September of 2012 the country's GDP was 20.4 trillion KZT, increasing compared with 2008 by 4.3 trillion KZT, or 71.4% and in real terms by 16.7%. There has been a steady growth in the manufacturing sector: last year, the volume of production had reached its maximum for the last five years of 5.262 billion KZT. (Index of Physical volume (IPV) – 100.7% compared to the year 2011). The best growth performance was shown by machine construction – by 16.2%, manufacture of non-metallic mineral products – by 10.6% and light industry by 8.3%, chemical by 5.9% and the pharmaceutical industry – by 5.6%.

As they say, one drop of poison infects the whole bottle of wine. The negative rate last year was shown by the metallurgy and manufacture of fabricated metal products (except equipment), those against the fall of world prices and demand for metals decreased by 1.5% and 2.2%, respectively. As a result, the combined weight of these industries in the manufacturing sector (over 40%) a planned increase in the share of processed products in the GDP observed in recent years (in 2009 – 10.5%, in 2010 –11.3% in 2011 – 2012, 11.4%) ended.But worst of all is the Kazakhstan furniture makers, which seems first to have experienced the effects of increased competition within the Customs Union, reducing their production by 8.7%.

If we talk about productivity of our processors, for the last three years it has increased by 1.4 times (actual increase of 37.6%) from $37,800 per person in 2008, up to $51,800 in 2012. In particular, the growth in machine construction was 195%, manufacture of non-metallic mineral products, 186.5 %, metallurgy – 186.1%, chemical – 181.9%, light industry – 133.3%, and pharmaceutical industry – 132.1%.

Another important indicator: percentage of innovation active enterprises increased in 2011 to 5.7% of the total number, and this is the best indicator in recent years. Herewith, the amount of their products was 235.9 billion KZT, which was up 66%more than in 2010 and more than 2 times higher than the level of 2008.

With regards to the export of Kazakh goods, at the end of 9 months of the year 2012 its volume grew by 5.7% and amounted to nearly $70 billion. The supply of goods abroad increased by 18% and reached $18.3 billion. If we talk about the structure of the processed exports, as before, the large amount in it will have taken intermediate consumption goods – 14.8 billion. Thus, metals, metal-roll, oil products and semi-raw minerals in stable demand in foreign markets. In this group, flour exports grew by 32%, yellow phosphorus by 12%, fertilizers by 19%, and polypropylene by nearly 117.5%.

Exports of consumer goods from January to September of last year amounted to $ 2.8 billion, which is increased 26% more than the year before. This was primarily due to the growth in exports of mineral, agricultural, and food products, including cigarettes, by 85%, household chemicals by 60%, chocolate by 30%, confectionery products by 10%, pharmaceutical products by 11%, pasta by 90%.

Most exports are capital goods that for 9 months of the year 2012 has increased by 188%, to $754 million. In particular, there was a 66.3% increase of delivery of transformers in Russia, Uzbekistan, Ukraine and Kyrgyzstan.

It should be noted, that in spite of the fact that the situation with exports of our goods did not radically change, there was noted a fall in export to the countries of Customs Union (CU), those in common were reduced by 8% or by $526 mln. It happened because of a reduction of cost of volumes of raw materials (coal by 70%, ores and concentrates by 41%) At the same time, exports of processed products to market CU rose by nearly 45%.

Perhaps the most outstanding results within the FIID program were achieved by domestic machine constructors. However, this is largely due to low starting conditions, with which they began the industrial breakthrough. In its days, the hasty privatization, ineffective management and lack of investment to the modernization of machine construction plants led to the fact that a share of their products in the total volume of industrial production in Kazakhstan fell from 16% in 1990 to 3% in 2008 and the depreciation of the equipment of enterprises exceeded 60%. Herewith the demand for machinery has been mainly satisfied by import, which exceeded domestic production in 2009 by more than 5 times (282.5 billion KZT against 1655.7 billion KZT). Moreover, by the time of crisis the sector has suffered most. First of all it occurred due to an investment nature of demand for machinery by the oil and gas industry and construction. With the onset of the crisis companies representing these industries abandoned large-scale investment in the expansion and modernization of production, focusing on maintaining the efficiency of its operations.

In the post-crisis environment a program for the development of machine construction on the 2010–2014 period has been adopted, within which the following tasks have been set: to increase by the end of 2014 the production volume of machinery products to 588 billion KZT, provide a growth of gross value added by 74% compared to the year 2009 and raise productivity to 7,592 KZT.

In the program, it was decided to stake on the development of oil and gas, mining, agricultural, electrical and railway machine construction and the automotive industry. Among the measures of State support, which have contributed to the accelerated machine constructors breakthrough, the exemption from VAT of Kazakh goods originating in the customs treatment "Free warehouse" as well as a reduction of 50% with up to 30% of the criteria of sufficient processing for harvesters, machinery and other machinery products can be noted.  

In addition, to develop new kinds of products with technological development, the national agency has established four industrial transport design offices: Transport (Astana) and agricultural machine construction (Astana) and mining-and-metallurgical (Ust-Kamenogorsk) and the petroleum equipment (Petropavlovsk). Only in 2012, with the participation of these development design offices there were 225 Kits of design-technological and normative and technical documentation for new products for the machine construction enterprises developed. The Agency said, nowadays development design offices are some of the strongest teams of design engineers in the country using the latest technology, including 3D printing.

Over the last three years, within the map of industrialization, machine constructors have already implemented 44 investment projects, including 14 operational plants with investment of about 91 billion KZT for only the last year.

In this industry of industry production of new kinds of production have been started, including trucks and passenger wagons, passenger cars and trucks, industrial batteries, combine harvesters, wheeled tractors, hinged agricultural equipment, mobile drilling units, special equipment, led lamps and lamps, photovoltaic modules, and much more.

So, only in 2012, the quantity of cars produced rose to 19,000 pieces which is 2.3 times more than in the year 2011. As a result, cars made in Kazakhstan took a fifth part of the domestic market auto retailers. The production of combine harvesters have been increased 2 times, tractor production grew by 11%. 

Railway segments expand actively also. So on December 2009 in Astana there was hold a presentation of the first assembled in Kazakhstan fifth-generation one-section freight mainline diesel locomotive Evolution Series-TE33A. Nowadays, Locomotive Kurastyru Zauty JSC has manufactured already more than 180 such locomotives, and the level of localization of the assembly brought to 32%. In 2011, in the capital launched a plant of Tulpar-Talgo, which had already has produced 52 passenger wagons. Finally, in December 2012, another venture of railway machine construction cluster was found – Elektrovoz Kurastyru Zauyty Ltd. The new plant, in which construction has been invested 11.2 billion KZT, will annually produce up to 50 two-section freight electric locomotives KZ8A.

The process of creation of a new segment for Kazakhstan is supervised by NC Kazakhstan Temir Zholy JSC, which together with Assembly plants with a view to deepening their localization is actively developing production of subassemblies and components. As the President of the national operator Askar Mamin had informed, during last year alone the production volume of the railway machine construction products amounted to 155 billion KZT, and the current rate will increase to 206 billion KZT. So, together with the "Transport technologies" LLP, the company have started the construction of the Rail and Beam plant in Aktobe with the capacity of 430 thousand KZT based on Siemens-Voest-Alpine technology. One more common project of Kazakhstzn Timir Zholy (KTZh) is production in cooperation with General Electric and Transmashdiesel of diesel engines with a capacity of 300 units per year

In General, according to Chairman of the Machine Construction Union of Kazakhstan Mejram Psembaev, enterprises of the complex in the year 2012 have already produced goods for more than 650 bln KZT, provided the growth of gross value added by 130% (compared to 2009) and increased productivity to 8285 thousand KZT. Thus at least two targets of the sector program have been fulfilled ahead of time. It is important that besides meeting domestic needs, the machine construction industry actively enters foreign market. So, for the first half of 2012, the export volume of machinery products stood at $559.9 million, which was 76% more than the previous year.

Machine construction advances are largely due to their active participation in the "Efficiency-2020" program, which implies an increase in labor productivity in the priority sectors of economy from 1.5 to 3 times, reducing energy consumption at 30–40%, as well as increasing the capacity of up to 80%.

As the most vivid example of the effectiveness of the program, the project of Munaymash JSC on modernization of mechanical manufacturing oriented towards production of petroleum products can be pointed to. Within long-term lease financing for companies, in October 2012, 12 modern multifunctional machines made in Japan, the United States and Brazil have been commissioned. This will reduce the time of mechanical machining of parts and production costs, and the most important thing is to increase labor productivity. At the end of 2012, the indicator on Munaymash (at 85% load) increased by 3 times.

However, although the part of machine construction in total volume of the industry in recent years has grown to 4%, it is still not comparable with the same metallurgy (11.6%) and far from its indexes of 22 years ago. This means that offset the impact of fluctuations in world prices for industrial metals, the industry is yet able to focus mainly on import substitution.

One of the main problems identified within the first three years of implementation of the State program of FIID was underutilization of new businesses. So, yet in July of last year, summing up the first half of the five-year period of industrialization, the President of Kazakhstan, noted that only half of the 255 projects launched in the middle of the year 2011 (that is, those have had at least one year on the "promotion"), had been loaded by more than 60%.

Even then, Nursultan Nazarbayev called on Ministers and Akims to move away from simplistic understanding of industrialization. "For some people the most important thing is to give an attractivereport: cut the ribbon-and forget.” The Governors are not fully aware of the situation. The Map should include priority projects that produce high-tech products and have a basis in reality. State agencies, and local governments first of all, should contribute to the implementation of projects, not only at the initial stage but until reaching full production capacity. Then you will see at once who does not comply with its obligations. "

And yet, despite last year's warning, the problem still remains relevant. So, on January 10, 2013, during the selector Government meeting, the head of Ministry of Industry and New Technologies (MINT), Aset Issekeshev reported that 7 of the projects entered in 2010are still idle. In addition, for 18 projects of those presented during the second half of 2012, commissioning certificates have not been available and acts have been submitted till the end.

In this regard, Prime Minister Serik Akhmetov criticized executive bodies for “inattention and poor coordination” in the implementation of FIID program and projects of industrialization map. "For each bad project, Plans of actions for taking projects to a capacity have been approved. There must be strict controls on its performance. A pragmatic approach in implementing of projects should minimize risks, taking into account the new realities, including participation in the Common Economic Space (CEA) and the forthcoming accession of our country to the World Trade Organization (WTO). "

Here you must take into account one important point. Some projects have got in the Map in the first phase of industrialization and those in fact correspond to purely private initiative, often already were weakly development in terms of marketing, costing and sales markets. And that is why, actually, officials have nothing to be held accountable for.

Another thing is production running through public funding. According to Serik Akhmetov, 7 of 12 investment projects imposed for three "FIID’s years by Sarmuk-Kazyna have less than a 50% increase. And this is a serious reason to ponder. Because State holding companies have colossal resources and access to the means of the National Fund, they should become engines of diversification and industrial-innovative development of the country. At the moment, the National Welfare Foundation (NWF) Samruk-Kazyna JSC implements the 74 most important and major projects with total cost of $54 billion, which already during the second five year period of FIID must become a basis for the development of new small and medium-sized innovative productions. That is why the price of failure may be too high...