Triple Challenge for Entry into the Top 30

Kazakhstan has no other options but to enter into the 30 most developed countries. This was stated by the President of Kazakhstan at the meeting of the Eurasian Emerging Markets Forum, which Astana hosted in September this year. The triple challenge that faces the country to achieve this goal comes down to the development of human capital, the rational use of hydrocarbon resources, and the diversification of the economy and its integration into the global economy.

The Emerging Markets Forum, with the first event dating back to 2005, is held regularly in various countries of the world. To date, 18 meetings of it have been held: 7 global ones and 11 regional. The regional Eurasian forum covered two main topics – the entry by Kazakhstan into the top 30 most developed countries of the world and the development of trade and investment in Eurasia.

The plenary session of the forum was open for attending by journalists, and the highlight of this event was Nursultan Nazarbayev’s presentation of the Strategy "Kazakhstan-2050". In his welcoming speech in the opening of the forum, he expressed confidence that in the future global development model Kazakhstan will find its rightful place, and will certainly enter in the top list of the most advanced nations. "If we want to be a developed country, we have no alternatives, but this. In general, in the opinion of many international experts, Kazakhstan is among several countries in the world that have all the chances of a strong success in the foreseeable future by the middle of the century." The President recalled that the Strategy "Kazakhstan-2050" was presented nationwide in December last year, and this document is seen to be the basis for all policies and programs related to further development of the country.

He also said that the government of the country clearly realizes the competitive advantages of Kazakhstan, such as the vast territory of the country, the abundance of natural resources, the vast farmlands, the considerable potential for "green" energy, and they know how to turn them into economic and social successes. At the same time, the government has an understanding of those factors that can be potential barriers on the way. "Kazakhstan has the low density of population; almost half of the population in the country lives in rural areas, and many populated areas are located remotely and far from the centers of economic growth. This limits the possibility of universal access to high quality education, health care, employment, and infrastructure. We are still at risk of developing a "Dutch disease", – Nursultan Nazarbayev admitted.

In addition, the extracting sector of the economy still has the greater share of FDI. This sector inherited from the Soviet period of high energy intensity at a relatively low level of labor productivity. The infrastructure of transportation, housing & utilities, and communications needs upgrading. "Barriers are not the ground to stop the development, but a good challenge for self-improvement. We will work to turn barriers into opportunities for development."

Further, he outlined his vision of the concept of a "developed country", which, in his opinion, is complicated and multi-sided. Today, this category includes the countries with the highest GDP per capita, but this is only a quantitative index which, by the way, is criticized by some experts that it did not reflect the qualitative changes.

However, all the developed countries are knowledge-intensive, with the dominant sector of services and the high performance. Scientific knowledge and high-tech industrial sectors play a leading role in ensuring the economic growth of these countries. "Based on the current concept of a developed country, Kazakhstan will have to not only advance much in its development, but needs extensive and comprehensive modernization. According to expert estimates, the impact of global trends over the next 15 to 20 years will be favorable for Kazakhstan. This gives us a "bunch of opportunities" to achieve a maximum result in a short time. Kazakhstan's path to a developed country must come from everyone's desire to change themselves, to change Kazakhstan, and to make the latter a part of the global world. The desire for a new advancement is the main concept of the nation for the next decade."

According to Nursultan Nazarbayev, the goal of entering the 30 most developed countries requires building a "flexible policy", since the key to success in a changing world is in the ability to quickly and correctly respond to the changes. "No one can predict with certainty what kind of the world it will be by the year 2050. Some minor events can turn into trends, and some trends can appear suddenly, out of nowhere. For example, in the 1970s, no one could imagine that in 40 years China will become the world's second economy. No one could predicted the collapse of the Soviet Union and the "two lost decades" in Japan. The same as now – a real picture of the future world may be very different. The experience of the most developed countries evidences that exactly the transition to the knowledge-intensive economy provides at the same time flexibility, dynamism and sustainability of economic growth, and prosperity of the country as a whole."

Therefore, the path to the entry by Kazakhstan in the 30 developed countries in the world should be based on the creation of a knowledge-intensive market economy, meritocracy, pragmatism, the rule of law, as well as permanent structural changes through innovation. Exactly these principles provide a basis for using by people of their potential and business initiatives, give everyone equal rights and opportunities, create an atmosphere of freedom, fair competition and justice. "They create incentives for the continuous quest for new knowledge and the growth of professionalism. All our policies and measures must be subordinate to them, and clearly aligned with them. The basis for the new economic policy should be the following two most important things. The first one is the creation of all necessary conditions for human development, as the latter is the main engine of innovation. The second thing is the improvement of the institutional environment that provides conditions for the development of business and entrepreneurial initiatives."

In this regard, it is necessary to ensure a new quality at all levels of the educational system in the country, from the accessibility of pre-school education for all children, including those under the age of 3 years, regardless of social and financial status of their parents, to the high level of quality of secondary, vocational and higher education. The system should provide not only knowledge but also skills to apply the knowledge in practice. It also should introduce modern teaching methods and actively use information and communication technologies. "We have to create an effective system of vocational education. We plan to build at least two world-class colleges in Astana and Almaty. We need without delay to respond to the structural changes in the labor market, introducing learning throughout life. For adaptation of higher education to the needs of the knowledge-intensive economy, we need to ensure the integration of universities, science and business. The challenge is that each level of education would give the knowledge and skills that are in demand in the economy and in life." In this context, it is logical to focus on the training of teachers, to take comprehensive measures to improve the qualification of teachers, to create incentives for professional growth of teachers and increasing the prestige of this profession in society.

In addition, the development of human capital in many respects depends on conditions such as the quality of health care and a healthy lifestyle. "Every citizen of the country should have access to clean water, air, and a full bio. To improve the quality of health care, we focus, in the first place, on prevention and early detection of diseases. Primary health care should cover all urban and rural communities and to be the backbone of our health system. We need to implement the principles of joint and several liability of the state, the employer and the employee for the employee’s health. In 2015 the Social Health Insurance Fund will start operating."

The second most important area of the strategy the President considers the improvement of the institutional environment, which involves forming a flexible and efficient system of economic, political and legal institutions. "Their primary goal is to ensure the formation and preservation of a favorable environment for the development of entrepreneurship, self-motivation of every citizen and ensuring its rights. The 2008 recession forced the government to play a more active role in the regulation of economic processes. It is clear that for the long-term and sustainable development, the reducing role of the state and the strengthening of market mechanisms are the only option. The state will gradually reduce the share of state ownership in the industrial and infrastructure facilities. A new stage of privatization, the program "People's IPO” and the additional issue of securities on a regular basis will be the main measures to achieve this goal."

Improving the conditions for running business and the development of entrepreneurship is also inextricably linked with the continuation of the policy to reduce administrative barriers. "In the first place, it is necessary to remove barriers in international trade, to improve customs administration and overall regulation of foreign trade activity. Structural changes and the transition to a knowledge-intensive economy reinforce the importance of protecting intellectual property. In this regard, the important work for us to simplify and accelerate the registration of titles of protection for intellectual property."

According to the Kazakh President, the effectiveness in a market economy, the partnership and the pragmatism in society is achieved through a decentralized system of relations. In this case, a clear separation of powers between levels of the government, the strengthening of revenue sources of local budgets, and the development of local governance should be the solution to regional differentiation in the level of life. "We will develop the practice of corporate governance in public sector organizations, giving them more autonomy. But still the strategic control over the results of their activities is important."

He also drew attention that the judicial system in Kazakhstan should be, both in theory and in practice, accessible and transparent, simply and quickly resolving disputes. "An honest and faithful performance of professional duties by judges and their independence in judicial decisions provide an effective remedy. This makes the society confident in the fairness, impartiality and independence of the court. So, this is a challenge."

Among the conditions that lead to the growth of entrepreneurship and creative development of every citizen of the country, Nursultan Nazarbayev sees the eradication of corruption. In this regard, he promised to conduct a comprehensive institutional reform of the judicial system. "All of these challenges will find a resolution in the new Criminal Code and Criminal Procedure Code, which will be introduced by the Government to the Parliament in the near future."

Also, efforts should be taken to build an effective system of public governance, which involves the deepening of the principles of meritocracy, the creation of "social mobility", the strengthening of professionalism, including through the development of an effective team of top government officials. "I am confident that the improvement of the institutional environment and the development of human capital will allow our country to lay a solid foundation for the development of the knowledge-intensive economy and competitiveness in the long term. These two main priorities should be the focus for the next decade. A strong base of institutions and human capital will be the foundation, relying on which Kazakhstan will be able to implement large-scale changes and to stand up to global change in the long run."

An important issue is the policy in the field of territorial development. According to the President, the country's long-term objectives will be the creation of four competitive metropolises of a global level and a number of "smart", "green", comfortable and safe cities. "This will be the physical frame for the formation of a knowledge-intensive economy. The practice of other countries teaches that innovation develops in large cities."

First of all, we are talking about Astana and Almaty. "In these two cities, small and medium businesses are the most actively developing, as the greater part of the working-age population work in these companies. Also, the latter have the most developed infrastructure. Now we have to form them into large centers for R & D, development of innovation and entrepreneurship, to create a network of intellectual and innovative clusters or so-called science parks. The first intellectual & innovation cluster is already formed in Astana on the basis of the Nazarbayev University. Subsequently, this practice should be passed to other agglomerations. They should become centers of particular interest for the population which provide educational, information and transport services of high quality, where competition is intensified, as well as an attractive environment for investment are created. In these centers of growth it is necessary to introduce modern infrastructure – to develop high-speed bus routes, light rail tram lines, and metro, to expand information and communication technologies."

To make the transition to the knowledge economy efficient, we have to balance and coordinate strategies in the field of management of energy resources, development of renewable energy sources, energy efficiency, and industrial development. According to the President, the raw material resources and, in particular, energy, should cease to be a basic source of income for the state, but only support the growth of a diversified national economy. "This is a key task for the government. In this context, the energy policy should be refocused on the sequence, sustainability and environmentally friendly use of energy resources."

In particular, the government should carefully consider various approaches to the policy of management of petroleum resources, ranging between the aggressive scenario of their extraction and the conservative one. This situation is because of the three types of assets, namely the petroleum reserves of the fields, the financial assets of the National Fund, and the social infrastructure, exactly the unrecovered petroleum reserves have a positive rate of profitability in the long prospect. Therefore, the Cabinet of Ministers should decide what level of production is sufficient. "The advantages of the conservative approach are the stability of production and export of petroleum resources till 2050 and the stability of revenues to the National Fund. In the aggressive scenario, we can quickly lose capabilities for export of petroleum resources. Besides, this will greatly increase the risk of development of a "Dutch disease". For our people and the state, it will be enough to produce 2 million barrels," – said Nursultan Nazarbayev.

At the same time the country should launch a program of development of alternative energy sources and energy efficiency. Due to renewable energy sources alone, which Kazakhstan has a considerable potential for the country can produce 50% of all electric power in the country by the year 2050. "To reduce the energy intensity of the economy by 2050, we need to bring energy efficiency to the level of China. This means that before 2020, the annual reduction in energy consumption should be at least 2.5%, and after 2020 – 3.5% per year." For this, the government will create the Clean Energy Development Agency, the fund to support projects in the field of alternative energy sources, and energy service companies; also, the "Leader in Energy Efficiency program will be developed."

The industrial policy of Kazakhstan, in the opinion of the head of the country, needs major changes and the giving up of "fading" spheres of production. "We should limit the number of priority sectors of the economy to implement the accelerated industrial and innovative policy. Otherwise, it will lead to the dissipation of resources and the lack of particular results. For competitiveness in the future, we should start focusing on high-tech sectors today. For this, we should strengthen research capacity in the areas of production, such as "clean energy", robotics, nanotechnology, genetic engineering in agriculture, and aerospace industry in unoccupied niches." In addition, a high-tech sector of services, in the first place, those in geological exploration and engineering, information and communications, as well as comprehensive services in production and servicing of nuclear reactors and nuclear power plants should be formed.

Agriculture has great potential in the long term. "The growing global demand for food products, the increasing number of population in developing countries and the global climate change create strong incentives for the development of this sector of the economy. We should implement new technologies and start using for agricultural purposes the previously undeveloped lands in arid and semi-arid regions. It is important to intensify research in agriculture, to create conditions for increasing the investment attractiveness of the sector and to expand the access to finance. We need to transfer to the rational use of resources, including through the development of genetically modified foods."

The President also emphasized that the new approaches to economic policy must be in accordance with the principles of the green economy. "These principles are sustainable development, low energy intensity, the development of alternative energy sources, and the rational use of resources. Thus, this is an innovative development with minimal impact on the environment."

Speaking of the open and active integration policy of Kazakhstan, Nursultan Nazarbayev said that the vast territories of the country, the small number of population, and the fact that Kazakhstan is an inland country pushes the country to such policies. However, the above factors are not the exhaustive list. "Openness to international trade was one of the factors that added to achievement of the sustainable growth in the emerging markets. That was the path the developed countries followed in the post-World War II period. We can use the geographic locality of the country at the crossroads of Europe and Asia as an advantage. The country has great transit potential and prospects of its development. Our trade relations with other countries should be built on openness and pragmatism. This concerns both the Customs Union and the WTO, and the region of Central Asia."

In addition, the maintenance of economic stability and the improved national wealth of neighboring countries will produce a positive effect on the development of Kazakhstan, since it will help minimize potential risks associated with drug trafficking, the threat of terrorism and religious extremism, and the exacerbation of ethnic conflicts. "As an active participant of discussions at the G20 forum on the current fate of the world, Kazakhstan de facto ended up in this club of world development. Now our task is to work it out so that this status was eventually enshrined in law."

At the conclusion of his speech, the President of Kazakhstan stressed that he provided just a brief summary of his vision of the approaches to the development of the country in the long term. Now a detailed action plan is under development, which will be published soon. "I am confident that it will help Kazakhstan enter into the 30 most developed countries and to lay the basis for addressing new challenges after 2050. We have proceeded to this work. Last year, the government was given an assignment to develop a concept for Kazakhstan’s entry into the 30 most developed countries. Given today's findings, in the drafting of the concept, it is necessary to take into account the proposals made and before the end of this year to complete the work on the project. For more than 20 years we have been aspiring to achieve what we have now: a prosperous society, a strong and rapidly growing economy. This is a solid foundation for new starts. But for a decent and secure future for our next generations, there are a lot of things ahead that we have to do."

Meanwhile, the foreign guests that made their speech at the plenary session of the forum, did not wait for 2050, but noted that today’s Kazakhstan plays a relatively important role in the region and the world. Thus, the ex-President of Poland Aleksander Kwasniewski called our country the "exporter of stability" in Central Asia, and the Development Strategy until 2050 an "ambitious document". In addition, he expressed confidence in its ultimate implementation. "I am convinced of this because I know Kazakhstan very well. I came here for the first time in the early 1990s, when the country was surviving a dramatic period. Today, 22 years since then, I think we should congratulate Kazakhstan on the achievements. Today it is a stable country. It has overcome the recession and worked well on the global stage."

In his turn, the former Federal Chancellor of Austria Alfred Gusenbauer supported the idea of Kazakh President that the developing countries should use the challenges of the XXI century to their advantage, to build an economically sustainable future. "The world is at the beginning of a global change which will happen before 2050. This is the period when the players and the rules are changing, and we will face new complicated challenges. However, the different approach to this was stated today by President Nursultan Nazarbayev: We should not escape from these challenges, but use them to our advantage. We should use these challenges and build on their basis for a more economically sustainable future for our counties. For this, we will use the strategies that will allow us to take advantages. I can say that I am among the group of optimists of the world population, which face the future with optimism, despite all the challenges." The Ex-Chancellor drew attention of the forum participants to the two aspects which the developing countries should take into account in the achievement of long-term goals. "The first one is the elimination of inequality. This is necessary not only because of morality: every person is an economic player and economic actor. And only with less inequality, we will be able to engage all people in the productive economy." Besides, we have to launch a so-called educational revolution. "We have to use one hundred percent of the potential of our young people and to involve them in basic education; this is especially important for a country such as Kazakhstan. Because if the number of population in the country is just 17 million people, each person is important. It is only through the provision of high quality education at all levels, you will be able to achieve the goals you set," – said Mr. Gusenbauer.

According to former Italian Prime Minister Romano Prodi, Kazakhstan is likely to enter into the top 30 developed countries much earlier than 2050, and the developed countries can help Kazakhstan with this. Along with that he noted that although today’s Eurasian region is a net exporter of fuel resources, the consumption of oil and gas in this region has increased in the past decade. Therefore, considering the fact that Kazakhstan's economy is among the top 11 most energy-intensive economies in the world, Mr. Prodi supported the thesis of President Nursultan Nazarbayev of the need to get away from hydrocarbon dependence and focus on renewable energy sources.

Then, the forum session had continued behind closed doors to the press, and the findings of the forum were summarized later on for the press by Deputy Prime Minister of Kazakhstan Yerbol Orynbaev. He said that finally the event can be called a success. In the course of the forum, the participants discussed the issues and challenges that President of Kazakhstan raised in his speech. Along with this, the experts considered the issues of integration in the Eurasian space. The Deputy Prime Minister assured that the proposals made by the President and the experts' proposals will be considered by the Government in the development of the concept for the entry of Kazakhstan into the top 30. He stressed that the participation in the forum of representatives of large international organizations evidences the increased attention of the expert community to the development of new markets in the Eurasian continent, to the processes of integration of the East and West, and the special role that is given in this to the Central Asian region, and especially Kazakhstan.