Kazakhstan’s economy: Short-term recovery and long-term structural transformation

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Stakeholder Opinion

File photo. A general view on buildings in the Kazakh capital of Nur-Sultan, Kazakhstan, 7 June 2019. [Igor Kovalenko/EPA/EFE]

Two key speeches by President Tokayev in January revealed important clues as to the political direction Kazakhstan will take on the political, economic and social fronts.  Alberto Turkstra has had a deeper look.

Alberto Turkstra, Project Manager, Diplomatic World Institute

On 15 January, in his speech at the opening of the first session of the Parliament of the VII convocation, Tokayev outlined his vision for reforms in the coming parliamentary cycle, including comprehensive reforms on improving quality of life, effectiveness of state institutions, their decentralisation and digitalisation.

Comprehensive privatisation of Kazakh state assets will continue, with Kazpost, KazMunayGas and Air Astana, all set to be privatised.

Political modernisation measures announced include reducing the threshold for political parties to enter the Majilis from 7 to 5% and an additional option in voting ballots “against all listed options”.

Then, on 26 January, at the expanded government meeting, President Tokayev identified seven priority areas for the year ahead: the restoration of economic growth, attracting investment and developing the country’s competitive human capital.

What can be inferred from these two speeches is that short-term and robust counter-cyclical macroeconomic policies to counter the effects of economic slowdown as a result of COVID-19 and low oil prices will sit alongside concrete steps to lay the ground for the structural transformation of the Kazakh economy as it moves towards greater diversification and innovation.

During its thirty years as an independent nation, Kazakhstan’s economy was able to grow rapidly facilitated by a long commodity super-cycle characterised by high commodity oil prices. It helped the country transition from lower-middle-income to upper-middle-income status in less than twenty years.

Kazakhstan also set up the National Fund of the Republic of Kazakhstan (NFRK) with revenues from the oil and gas sector in order to finance budget deficits and stabilise the economy during periods of slowdown.

The collapse of oil prices in the second half of 2014 exposed the country’s vulnerability to commodity price swings.

With the end of the commodity super-cycle and the recurrent volatility in oil prices exacerbated by low demand from Kazakhstan’s main trading partners (Russia, China, the EU) derived from the COVID-19 pandemic, competition from shale gas extraction and the shift to renewable energy sources in numerous high-income countries to replace fossil fuels, Kazakhstan has entered a period of economic diversification to overcome its high dependence on natural resources.

As alluded to by President Tokayev in his two speeches, support to the private sector and Small and Medium Enterprises (SMEs) will play a critical role, which have borne the brunt of the economic impact.

According to the results of the UNDP Socio-economic Impact Assessment (SEIA) survey, quarantine measures have led to the rupture of supply chains for 42% of SMEs. Yet SMEs form the economic backbone of many countries as engines of growth, job creation and innovation, and Kazakhstan is no exception.

In Kazakhstan, however, the SME sector has yet to reach its full potential. The share of SMEs in national GDP and their share of total employment is still below the OECD average, although the trend has been positive. In 2019, SMEs employed 38% of the active population and their share in national GDP increased to 28.5%.

Kazakhstan has set a firm goal for this share to increase to 50% by 2050, in the country’s Vision 2050 Document, which aims to make the country among the 30 most developed by the middle of the century.

In recent years, Kazakhstan has worked to create enabling conditions for the development and expansion of SMEs and start-ups through various programmes and instruments at the national and local level, such as high-tech parks, business incubators, etc.

One such example is the international technology park of IT start-ups Astana Hub, set up at one of the pavilions of the EXPO-2017. The Astana Hub offers start-up development programs including a start-up school, and various incubation and acceleration programs.

Kazakhstan has also the potential to develop a competitive manufacturing sector in order to transfer resources from low to high value-added activities. As indicated in the State Programme of Industrial-Innovative Development (SPIID) for the period 2020-2025, manufacturing needs to further develop in the context of current trends of digitisation and automation.

Furthermore, in order to reach high-income status, Kazakhstan will need to expand the manufacturing sector to above 18% of total output, a threshold below which practically no country has achieved high-income status according to a ADB study.

As of 2019, this figure stands at 11.5%, according to World Bank statistics. To bridge this gap, this will require investments in R&D, innovation and human development – all themes raised by President Tokayev.

The share of Kazakhstan’s GDP spent on R&D is currently 0.17%. Increased R&D spending is essential for “the comprehensive development of the national innovation system and the increase in the country’s competitiveness” the SPIID 2020-2025 document indicates. Strong R&D capacities are also key to industrial diversification by expanding firms’ production capabilities and increasing product sophistication.

Last, strong investments on human capital are essential for the country to transition into a diversified, highly productive economy. This demands a workforce with flexible skills to adapt to structural shifts in the economy and changing labour conditions defined by rapid technological change.

Enhancing human capital will require not only addressing significant spatial disparities between rural and urban areas, but also modernising the Vocational Education & Training (VET) programmes, and making them adaptable to new jobs to reduce the prevailing skills imbalances in the Kazakh labour market.

To this end, the Kazakh Ministry of Labour and Social Protection and the Eurasian Resources Group announced in 2019 the creation of an Atlas of New Professions of Kazakhstan, “a map forecasting promising industries and professions for the next 10-15 years.

It will help us understand which areas will be actively developing, which new technologies, products and management practices will appear within them and which new specialists will be required by employers”, says Sayasat Nurbek, a prominent education management expert.

The Atlas divides jobs into three categories including new professions emerging as the outcome of rapid technological development; those changing and suffering modifications; and those disappearing.

To conclude, following the important policy speeches President Tokayev has delivered in the month of January, this article has briefly touched upon the structural economic transformations ongoing in Kazakhstan.

The Kazakh government has a two-fold task: to ensure a sustainable and inclusive recovery from the impacts of COVID-19 while not losing sight about the structural transformation of the economy including accelerated development of manufacturing industry and a big privatisation push to inject greater dynamism in the economy and promote diversification, thereby decreasing the exposure of the Kazakh economy to volatile commodity prices.

This will ensure Kazakhstan remains on track to becoming an open, modern, innovative and knowledge-intensive economy.

Subscribe to our newsletters

Subscribe