The Kazakhstan Mechanical Engineering Industry: Initiative vs. State Support
EditorialThe event, which was organized by the Ministry of Industry and New Technologies of the Republic of Kazakhstan jointly with Engineering Workers Union of Kazakhstan with the support of Kazakhstan exhibition company Iteca was visited by ap. 900 delegates. In addition to the plenary meeting, there was a series of roundtable discussions on specific segments of the engineering complex within the forum. This approach has proved very effective, allowing the government and business to express its positions on a number of acute problems.
Opening the plenary meeting, the Prime Minister Serik Akhmetov read out to delegates a word of salutation of the President Nursultan Nazarbayev in which he clearly stated his position on the development of the industry: “Kazakhstan machine-building complex in the foreseeable future should be one of the key sectors of the economy. To do this, the government has created all conditions: formed institutional and legal framework, improving investment climate, improved public-private partnership”.
For his part, Mr. Akhmetov said that over the past ten-odd years, the volume of production of domestic machine building grew from 45 billion to KZT 680 billion: “On the one hand, it is more than 12 times, and on the other hand, if we take the structure of our economy, it's quite a bit”, – said the Head of the government, noting that without modernization and reconstruction of the industry in the future simply cannot do. “We need new technology, new equipment. Without this it is impossible to produce competitive products”.
For the other part, the Minister of industry and New Technologies of the Republic of Kazakhstan Aset Isekshev considers that the forced industrialization of the economy is inconceivable without the dynamic development of mechanical engineering: “Think yourself: having a huge potential manufacture of high added value products, Kazakhstan remains a major importer of machinery. In total imports of the country it is $17.8 billion or 40%”. However, this fact demonstrates the opportunities offered for engineering companies growing economy with the long-term demand for their products from the oil and gas, mining and metals, energy and agricultural sectors.
Even now, despite the crisis, engineering has become the most dynamic industry: in the period of the SIID program the volume of output grew more than doubled – from 300 billion to KZT 657 billion, and the Head of MINT hopes, by 2015 it will exceed KZT 1 trillion.
In part, this expectation is confirmed by high rates that machine-building industry demonstrated in the first three months of this year. Thus, when industry-wide growth of 21.3% in the manufacture of electronic and optical products increased by 15%, and the vehicle almost a factor of 2 – to 96%. Labour productivity in industry is 2.3 times higher than those of 2008. Although it should be noted that the level remains low and this is one of the most important on the agenda.
Speaking about the expansion of marketing outlet of production of domestic machine building the Minister said that in addition to the traditional sales of transformers and capacitors, oil and gas valves and accumulators, Kazakhstan producers have recently succeeded for the export of new products. Adjusted industrial supply of batteries in China, commercial vehicles, X-ray equipment, water meters and electricity, as well as household and electrical products - to CU states, locomotive - in the states of Central Asia. In addition, in partnership with the Belarusian machine builders started to produce new versions of combined harvesters, farm equipment, implements and wheeled tractors.
However, as assured by Mr. Isekeshev, all these successes, “do not break focus” in his ministry, which constantly conducts monitoring of development of the industry, including the evaluation and solution of the accumulated problems, and early detection of potential threats at an early stage. It is necessary to adopt a number of other systemic measures, the first of which – providing qualified human resources. This requires the active development of the dual training system, the timely response of the education system to the emerging demand in qualified engineers and technicians.
As an illustration of such approach he called the project of the Inter-regional center for training and retraining of personnel for the engineering industry in Ust-Kamenogorsk. Designed for 700 students, it should be put into operation this year.
In addition, the ministry together with the International Programs Center at the presidential scholarship “Bolashak” initiated a program of passage of foreign training for engineers and technicians.
Speaking of the innovative component of this industry, Mr. Isekeshev noted the poor development or complete absence of research and development activity. To solve this problem, the government has already set up four engineering design offices, whose tasks include the acquisition, adaptation and development of design and technical documentation for new products. In addition, this year in Almaty on the basis of Information Technologies Park “Alatau“ should appear fifth office- design office of instrument making.
Recalling that in order to overcome technological backwardness and low energy efficiency of domestic enterprises developed a state program “Performance 2020”; the Minister expressed the hope that its implementation will be able to improve their competitiveness. Indeed, among the main tools of the program – the allocation of innovation grants, reimbursement of the costs of employing skilled engineers and technical consultants, as well as long-term leases at favorable rates.
He also drew attention to the fact that the State conducted “systematic work” to secure markets for the products of domestic enterprises, in particular – by increasing its share in the procurement of national companies, strategic enterprises, public offices and users of subsurface resources. For example, last year was purchased 2,553 units of domestic vehicles in the amount of KZT 11.7 billion. According to preliminary results of 2012 the Company Group “Samruk-Kazyna” signed with the Kazakh suppliers of engineering products contracts for the procurement of goods in the amount of KZT 456.4 billion.
“The government will support all initiatives to develop non-oil exports ... within the scope of increasing competition in the integration processes the government will take all possible and optimal measures to protect domestic producers, including through the implementation of the offset policy, which will lead to the development of localization of production of components and services”, – said the Minister.
According to him, the joint work of the state, national companies and businesses are allowed to create an innovative cluster of railway engineering in Kazakhstan, finished products which are not only locomotives, cars and power units, but also parts to them.
According to Mr. Isekeshev, first or last, on the same path will be the car industry which, in accordance with the arrangements inside ТС, to the year 2017 to bring the location of the assembly to 50%. This is especially true in view of the fact that the regime of free storage, which allows duty-free import of parts, will be valid only until that date.
The Chairman of engineering workers guild of the Republic of Kazakhstan, deputy Majilis Meyram Pshembaev, noted that today Kazakhstan has everything you need to activate a large engineering, while at the same time proposed a number of mechanisms to stimulate this process. Thus, he recommended that the Government adopt effective experience of Germany, where the company, which is taken for the release of a new product for the country, the state after the start of production reimburses from 30 to 50% of the costs of the action. “This compensation is not given directly to the entrepreneur, and directed him to repay the loan at the bank. This would be a significant industry support, the more that a similar mechanism, we start to use the agro-industrial complex in the dairy industry”.
In addition, Mr. Pshembaev proposed to prolong the regime of free storage for domestic producers under the CU and after 2017.
Separately, he focused on the situation in the agricultural machinery industry, which, according to him, is one of the most problematic. “Today Kazagrofinance, included in the holding KazAgro works primarily with foreign suppliers, often not directly with the factories, through dealers. This has a negative effect on the state of the domestic agricultural machinery”. Leasing companies and especially Kazagrofinance should give priority to domestic enterprises whose products should be made available on lease at lower interest rates than similar foreign.
Mr. Pshembaev also emphasizes that sectorial programs in energy, agriculture and other sectors should include mandatory sections on the development of the relevant type of mechanical engineering.
However, the mechanical engineers of the republic should find its own niche in the forthcoming World Exhibition EXPO-2017, taking an active role in the creation of the “green economy”. “For example, in the rivers of the Southern and Eastern Kazakhstan at the time planned to build 350 small hydropower stations, but, obviously, we will be forced to purchase the turbine for them abroad. We believe that it is necessary to create a design center for power machine building, as was successfully done in other sectors, and to manufacture turbines in our country“.
As for the development of МСБ in the field of engineering, in the opinion of Mr. Pshembaeva, “hope only on state is not wise, it's a solvable problem for the companies themselves“.
As an example, he cited the oil and gas area, where there are more than 100 companies producing more than 350 types of equipment. Moreover, the engineering workers guild of the Republic of Kazakhstan, KazMunaiGas and the major oil companies have established a joint commission, which has already “worked“ about two thousand items of oil and gas equipment and spare parts, production of which will be developed in our factories.
Topic machine building in the oil industry continued the general director of Belkamit JSC Pavel Beklemishev, who believes that today in this industry, came a crucial point. “As they say, there would be a blessing in disguise: the crisis stimulated the participation of the state, and the ice was broken”. According to him, it is now 90 machine-building enterprises link their fate with oil and gas. Although they are all quite diversified and manufacture their products to other industries, however, as a rule, from 50 to 70% of its total volume is the equipment for the oil and gas sector. At the same around these enterprises active service companies and suppliers. Started to establish communications with the scientific and engineering organizations.
However, this area has its own specifics. “Oil and Gas sector of the Republic of Kazakhstan is multinational – we work with national companies, as well as with the European, and Arabic, and Chinese ones. On the way, as I understand it, the Indian and Korean companies. So we have to work and compete with virtually the entire world, because foreign companies are adhering to the best practices”. By “global best practices” foreign users of subsurface resources often mean “everything, native,“ and because the Kazakhstan machine builders operating in the oil and gas industry have been asking the government to ensure competition is really equal. “I was a witness to how after a regional meeting with one of our colleagues have approached Chinese colleagues and said, “We will turn to the black list”. And it is not for the failure of supply, not for poor quality equipment, but simply for criticizing. Excuse me, but to be on our land and to hear such a statement – is unpleasant“.
In this regard the chair of Belkamita said that the government and KMG should be more strictly to protect the interests of domestic producers, representing Kazakhstan’s position in negotiations with foreign partners. “However, we are not asking for privileges and preferences, we ask precise execution of contractual obligations. And accession to the WTO will not change these contractual obligations“.
However, he acknowledged that there is certain passivity on the part of Mechanical Engineers. For example, when he asked the representatives of 45 engineering companies who were involved in negotiations with users of subsurface resources, then raised his hand, only one person. “Today we have a unique moment in the country: there is stability, economic base, we have the president – a metallurgist, and the prime minister began to work as a lathe operator. These are people who understand what engineering. We should take advantage of it,“ – concluded Mr. Beklemishev.
Perhaps the most interesting and heated discussions have revolved around a “junior“ of domestic engineering – automobile industry. And they have begun the day before the plenary meeting, during the relevant roundtable discussion where is twofold tendency. On the one hand, given the low start there has been rapid growth in automobile industry, and with another - our producers now run into a number of issues that might in the short term, this growth is not only slow, but does stop.
Opening the roundtable discussion the Vice-Minister of industry and New Technologies of the Republic of Kazakhstan Albert Rau said that in 2012 the country had sold about 100 thousand new cars, of which 20 thousand – domestic production. Thus, according to him, the market capacity is much higher because most of 4,000,000 vehicles registered in the country is second-hand, and soon they will be utilized. In this regard, the Government is developing a strategy for the development of the automobile construction or manufacture industry, which includes passenger, cargo and commercial segments. It envisages three scenarios that depend on the growth of GDP (and the well-being of our citizens), as well as a package of measures of state.
“Our dream is to produce 300 thousand cars a year. We proceed as in the domestic market capacity and of the plans to export that we have, first of all from the point of view of the exchange of names“.
This ambitious goal was put in question by the Managing Director of the consulting agency Qncepto Oleg Alferov. So he thinks that it is now Kazakhstan incomplete vehicle manufacturers, not only cannot go to the neighboring Russian market, but slowly and surely give their potential niche to competitors from Russia. And this process can be stopped only by lowering the price of production of a domestic auto industry.
“If Kazakhstan has the tariff protection on imported pressure on the outer edge (albeit very mild by international standards), then there is no possibility of restricting the import of products of the Russian car industry. And this threat is not just growing: we have today is actually a creeping expansion, so forgive my Russian colleagues – it is accomplished fact“. As a result of those niche markets that could take the cars made in Kazakhstan, now go in favor of the Russian factories. “And time is on their side, as the Kazakh projects unfold very moderate pace“. In such circumstances, increase competitiveness can only decrease the cost – the cost of our manufacturers has become cardinal lower than that of its neighbors. “Now there are Kazakh plants – but the difference in the rate of VAT and the cost of energy. It is quite a lot, but not enough to counter such a powerful threat as the Russian car industry. The rest of the conditions of state is not radically different from the Russian, and on such items as access to capital and the possibility of transportation, our investor is less attractive position than the Russian“, – said the expert.
The process of allocation of production capacity in the former Soviet Union is nearing to finale, and Kazakhstan have time to jump into the last car of the train – it is a matter to appropriate agencies: will they be able to offer a competitive strategy for the development of the automobile industry, and the main thing – to do it.
Thus, the basic problem of the domestic automobile industry is not reduced to a lack of demand in the domestic market – it is just what is growing. According to the same agency Qncepto, sales of private and light commercial vehicles in 2009–2012 in Kazakhstan increased by 4.5 times – from 21.5 million to 95.3 million units. Another thing is that our businesses are not trendsetters in this fast-growing market. According to Mr. Alferov, share of Russian origin cars in that time increased from 35.5 to 49.8%, while Kazakhstan – from 17.4 to 21.7%. This means that the Russian factories gain the most from the introduction of restrictive import duties on vehicles from third countries. And this circumstance the expert suggested to consider the main intermediate result of the development of domestic automobile industry for the first three years of CU.
At the plenary meeting of the topic of “car industry issues“ once again raised the president of “Astana Motors“ Nurlan Smagulov, who said that Kazakhstan should follow the example of South Korea, Japan and the United States, where the government went to unprecedented steps to support its auto industry. “We cannot complain: At this stage we have received subsidies, we have received infrastructure grants, but as part of the integration processes and in anticipation of the entry into the WTO to literally manually start helping automotive industry. For example, without the help of the state, without the creation of laboratories for technical regulations and without the test sites, we cannot obtain certificates here in Kazakhstan, and they will not admit it, because we do not have their own testing laboratories. Without the intervention of the state, without having to invest in such national laboratory, we will not be able to develop their motor industry“.
Another problematic issue with which he spoke directly to the Prime Minister, concerned the subsidy leasing, and in particular the fact that today, under the law of financial institutions and the Fund “Damu“ may subsidize the purchase of foreign technology from public and private companies. “There need to be more responsible with respect to the domestic auto industry ... to gain a certain amount, we need to keep our government contracts and municipalities – the city and region – commercial vehicles bought from our company. I think it needs to further tighten control, and if analogs produced in Kazakhstan, the state agencies from buying the same technique in other states, especially as more and subsidize it from the budget“.
At the same time, Mr. Smagulov drew attention to the fact that in Russia there is a discussion on the introduction of disposal fee for the Kazakh technical equipment, which can be used to start in July this year. “If it happens, it will be discrimination against national interests. I cannot speak for the government, but Kazakhstan should be adequately acted against Russian exports, – he said. Kazakhstan is a young automobile country, and there are our first steps, and the fact that we have up to 2017 there is a regime of free warehouses, it was agreed at the different “inter-governmental commission“. We certainly do localization to 2017 (even if it requires large investments), but abort it unilaterally, produce threats against Kazakhstan's exports to Russia, I believe, is wrong, it is premature and in bad faith within the framework of cooperation in CU. The Head of state last week at a meeting with businessmen reiterated that Kazakhstan will defend its national interests within the framework of the Customs Union to the Kazakhs did not have any complexes in relation to that which is prepared for the role of our country in CU. I hope that our government has consistently taken the same position”, – said the Head of Astana Motors.
Summing up the debate, Serik Akhmetov has advised members of the engineering industry used to improve the competitiveness of their enterprises any emerging opportunities: “No government will ever pretend to take low-quality, non-competitive products“. For it needs modernization, and to conduct it, he recommended to be more active in raising funds in the procurement of various companies, primarily users of subsurface resources.
According to the Premier, if the field works and services local content reaches 50–60%, then the goods (which include engineering and production), it is only 4–6% of the total procurement. “Increase in the year by 1–2% and see what inflows immediately go into the industry. State government (and you yourself say about it) take all measures to support, but at all times maintain in all directions is not possible, do not have money, you know? That is only through modernization, just across the frames, only through equipment leasing, which will direct you once again for the modernization of production and an increase in its location, will be able to be competitive“.
At the same time, Mr. Akhmetov said that Kazakhstan is no alternative to the integration of the CU and SES, as well as entry into the WTO. “If Nurlana (Smagulova – Ed.) Is not 3 years ago urged to collect cars and thereafter location, and 7-8 years ago, it's probably different now be performed. If we let “John Diry“, we would have subsidized the production of it. But today, high-tech agricultural equipment we produce, and therefore have to take it abroad and, of course, create the conditions for leasing subsidies. But without it we cannot in such a short time to process nearly 20 million hectares of land to plant our traditional culture ... Lets let go”. That's what the Prime Minister commented on the proposal Meiram Pshembaeva and Nurlana Smagulova limit subsidized leasing of imported products.
Responding to the argument expressed earlier about the “threat“ in CU, Serik Akhmetov stated firmly that any changes to the agreement on the specific conditions for the automobile industry of Kazakhstan until 2017 no one is going to make, “No one threatens no one. This is a normal negotiation process is grinding. And as you would like, just two years in ТС and do not get ground? This is a normal process, and we will follow it. For this we need to learn negotiation processes and agree on what should be our economies, our three countries. Kazakhstan is always ready to cooperate we have the most favorable conditions for doing business, so I propose to create in Kazakhstan good JC. And for our part we will try to create the conditions to ensure that your business has flourished”, – concluded the Prime Minister.
