Kazakhstan has launched an ambitious national program to make the country one of the 30 most competitive nations in the world by 2050. President Nursultan Nazarbayev announced the plan on Dec. 14 in his annual state of the nation address and laid out wide-ranging reforms in all spheres of the nation’s life. The plan, Strategy 2050, calls for better governance, welfare and tax system improvements, support for small- and medium-sized businesses and increased infrastructure development.
Kazakhstan has already made notable progress since emerging from the collapsing Soviet Union 21 years ago. The 2013 annual Doing Business Report of the World Bank and the International Finance Corporation (IFC) ranks Kazakhstan 49th of 185 countries surveyed and the country has attracted more than $160 billion in foreign direct investment (FDI) since gaining independence. That is 80 percent of all FDI into the five former Soviet republics of Central Asia. Kazakhstan is also considered one of the most business- and investment-friendly of the 12 members of the Commonwealth of Independent States (CIS). And Kazakhstan has already achieved its Strategy 2030 goal of becoming one of the world’s 50 most developed countries. “They only have less than 20 places to rise to crack the top 30,” international financial analyst Martin Hutchison told EdgeKz. “They could certainly do it well within the time frame they’ve set for themselves.”
That goal and the efforts to meet it are ambitious, multifaceted and cover a broad spectrum of Kazakh life and business, according to Richard Weitz, an analyst for the Jamestown Foundation in Washington D.C. “The key economic targets for the next 38 years are to define new markets, establish partnerships to promote new sources of economic growth, achieve a favorable climate for foreign investment, promote sustainable private sector business development, make small- and medium-sized enterprises the dominant form of business, develop Kazakhstan’s economic infrastructure, diversify exports beyond oil and gas, promote technological innovation, encourage ecologically responsible policies, develop agriculture and ensure adequate water supplies,” Weitz wrote in Jamestown Foundation’s Eurasia Daily Monitor.
To accomplish those goals, Kazakhstan will need to integrate its economy with global and regional environments by capitalizing on its transit potential and bolstering information technology capabilities. One such effort already underway is the construction of the Western Europe-Western China transportation corridor, a series of intercontinental highways and large capacity railway lines and terminals that will make Kazakhstan the transportation hub of Europe and Asia. These networks will link two of the greatest industrial regions and rapidly growing parts of the planet, the European Union and China.
As an oil-rich country and a reliable international partner, Kazakhstan also plans to lift its existing subsoil use moratorium in an effort to become “a regional magnet for investment.” In return, Kazakhstan will be able to attract advanced technologies and investment for its industrial development. The creation of the new Customs Union with Russia and Belarus is also already providing a major stimulus for investment in and the rapid growth of domestic industries, especially in such fields as food processing and furniture making.
President Nazarbayev has also asked the government to lift licenses and permits not directly affecting safety in the first half of 2013. This is expected to stimulate new business growth and build upon Kazakhstan’s ranking as one of the 25 easiest nations out of 185 surveyed in which to start a new business, according to the World Bank’s Doing Business Report.
Nazarbayev has also outlined a set of important democratic reforms to decentralize power, increase government accountability, expand Parliamentary powers and fight corruption. Starting this year, for example, 2,533 village and town akims (mayors), 91 percent of all mayors, will be elected. To further foster democratic standards, Nazarbayev has also urged the modernization of the nation’s legal system to ensure it is “in sync with the dynamically developing international legal environment.” As part of these reforms, four new codes, including criminal, criminal procedure, penitentiary and administrative, will be drafted with the focus on further humanization and decriminalization of economic offenses.
Kazakhstan’s Foreign Minister Erlan Idrissov (left) called Nazarbayev’s speech “a powerful large-scale document for the future.” He said “Kazakhstan 2050 is a call to the younger generation of the people of Kazakhstan to continue along the highway of our development, focusing on the establishment of a self-sufficient, modern, secular and democratic state with stable institutions and a strong economy.”
Hutchinson agreed with this assessment. “Kazakhstan is doing well and it has plenty of opportunities to rise rapidly a lot further up the main international indices for best business and investment climates around the world. These lists and indices are very important,” the British analyst said. “Major multinational corporations around the world take them very seriously and are guided by them in their strategic decisions about where to invest and build major production facilities for the long term.”
Kazakhstan would be best served by recognizing where it is already strong and focusing reform efforts in sectors where it is poorly ranked in international economic and business reports, Hutchinson said. Kazakhstan should also look to successful role model nations that have already completed a transition to the type of free market industrial economy that Kazakhstan is now undertaking. Its close ties with such countries as South Korea and Singapore in Asia and Turkey in the Middle East show that its policymakers are already thinking in these terms.
Among the most important areas in need of reform in order for Kazakhstan to achieve its Strategy 2050 goals, said Hutchinson, are fighting corruption, improving the construction permitting process and improving the ease of trading across borders. “The fight against corruption is an obvious one… But while the government realizes that, by its nature, changing the mores of society in doing business and building the kind of national standards and inspection systems to ensure transparency and meet the demands of global banks and investors is an ongoing, slow and steady task.” Hutchinson added, however, that results can be achieved more quickly by reforming the current bureaucratic system to make it easier to initiate construction projects, which will create new jobs and have a broad impact on the economy.
Currently, Kazakhstan ranks only 155 out of the 185 nations on the World Bank/IFC report for ease of obtaining constructing permits. It ranked nearly at the bottom, at 182 for ease of cross-border trade. “These are the two weakest points in what is overall an extremely impressive rating,” Hutchinson said. “Improve these two and Kazakhstan will shoot up the World Bank rankings and also improve on other major lists on ease of doing business.” The government of Kazakhstan feels the same way. In early February, Prime Minister Serik Akhmetov chaired a cabinet meeting devoted primarily to new legal and administrative reforms to improve the country’s competitiveness within the next year. Streamlining the construction permit process was among the top priorities, as was the effort to improve better conditions for cross-border trade.
Indeed, rapid progress should also come in the area of cross-border trade. The Parliament of Kazakhstan has just approved its first new border security master law in 20 years. The law will make it possible for citizens of Kazakhstan to enter and leave the country using only their regular IDs. It has the dual goals of improving security against international terrorism and transnational crime while making it easier for imports to enter the country and be transported across its borders. Kazakhstan is also now close to finally joining the World Trade Organization and hopes to use the opportunity to boost international trade. Kazakhstan’s membership in the Customs Union with Russia and Belarus and its work creating a Common Economic Space with those countries also make it an attractive base for companies wanting to enter the Russian market while operating out of Kazakhstan’s more business-friendly climate.
The challenge of outperforming so many countries, most of them older, and with larger populations, to become one of the top 30 competitive nations on earth by 2050 is a formidable one. But the benefits it would provide to the people of Kazakhstan for generations to come are incalculable. German politician Lothar Theodor Lemper, president of the Otto Benecke Foundation, believes it can be achieved. “Constant development has (already) made Kazakhstan a respected and exemplary model (for other nations to follow),” he recently said. But most of all, Lemper added, “Kazakhstan compares favorably with other states due to its spirit of optimism.”
Legal and Business Licensing Reforms
Kazakhstan already ranks among the top 25 countries for its laws encouraging the creation of new businesses. But under the Strategy Kazakhstan 2050, the nation’s entire legal system is undergoing a sweeping restructuring to create the most favorable legal climate for private business in Central Asia. “Kazakhstan is committed to creating and maintaining the best investment climate in our region. Investments in Kazakhstan are safe and protected by the rule of law,” Kairat Umarov, the country’s new ambassador to the United States, told a John Hopkins School for Advanced International Studies forum in Washington, D.C., on Feb. 13.
In 2012, President Nursultan Nazarbayev signed 62 new laws and another 61 draft laws are currently under consideration by Parliament. And the government is keeping up that breakneck pace. “This year, the government will submit 53 draft laws for the consideration of Parliament,” Prime Minister Serik Akhmetov (left) told a cabinet meeting in January. And on Jan. 23, President Nazarbayev outlined a series of new policy proposals to streamline the government system and reduce bureaucracy. These build on current streamlining successes, including a 30 percent reduction from 47,000 to 37,000 in number of akimats, or municipal administrations, over the past six years. This progress “is the result of major efforts the government has made to improve the business climate,” Economy and Budget Planning Minister Yerbolat Dossayev told the cabinet. “Kazakhstan has climbed 30 places on the World Bank’s Enterprises’ Register from 55th to 25th due to the simplified procedure we have introduced for setting up new businesses and ending the requirement that a fixed capital sum must be guaranteed for three months after the registration.”
Kazakhstan now ranks 55th on the World Bank’s “resolution of insolvency issues” listing thanks to recent reforms. These include accelerated rehabilitation proceedings, expanding the powers of the liquidator and requiring improved qualifications for this role. “The requirements on provision of information on bankruptcy have also been changed, as have the requirements on the expansion of creditors’ rights,” Dossayev said (below right).
Prime Minister Akhmetov also instructed the government that sweeping measures are needed to streamline and modernize Kazakhstan’s construction industry. “The construction sphere as a whole needs systematic measures,” he said.
Finance Minister Bolat Zhamishev told the cabinet that the government is also streamlining its procedures for regulating imports and exports and expected these reforms to boost international trade. Zhamishev said the volume of Kazakhstan’s international trade depended on the activity of 14 government agencies covering more than 50 official procedures. Over the next two years, all these procedures will be computerized and all licenses and official authorizations could then be applied for and approved online, he said. This new system will allow foreign companies to significantly reduce their costs in obtaining licenses and permits to do business in Kazakhstan. “In 2012, the (finance) ministry developed a new electronic information system for exports that has already been tested in the regions of Kostanay and Karaganda,” Zhamishev said. “In the second half of 2013, the ministry will begin a trial run of its electronic system to register imports too. This will reduce the costs associated with international trade.”
The government is also working to modernize the country’s patent reform process to promote domestic inventors. It recognizes that intellectual property law is essential to promote national competitiveness and fulfil the Strategy Kazakhstan 2050. In 2013, the government will also introduce a new edition of the Criminal Code, the Criminal Procedure Code, the Criminal Executive Code and the Code of Administrative Offences to Parliament.
Industrial Development: Beyond Oil and Gas
Kazakhstan is already the fastest growing industrial and high-tech economy in Central Asia. Strategy Kazakhstan 2050 looks to build on that success and create a secure and prosperous economic future.In his annual address to the nation on Dec. 14, President Nursultan Nazarbayev said the new strategy will create a powerful national industrial sector that does not depend on oil and gas resources to generate jobs and wealth. On Dec. 25, 11 days after unveiling the new national strategy, the president announced a new wave of major investment projects around the nation.
He inaugurated work on a high-speed 4G LTE (fourth-generation long-term evolution) network in Astana and Almaty, which will launch a new era of telecommunications in the country and discussed recent successes implementing the 2010-14 State Program for Accelerated Industrial-Innovative Development (PAIID).He also said work had begun on building three chemical industrial plants and a metallurgical complex, including the Kazazot Company’s program to expand production of ammonia, nitric acid and ammonium nitrate in the Mangystau region. The new plant will cost 5.610 billion tenge ($37.29 million) and will boost national ammonia and ammonium nitrate production by 50 percent. It will satisfy the country’s full demand for nitrate fertilizers while producing more for export.
Arcelor Mittal Temirtau in the Karaganda region has also built a new factory complex to make industrial gases financed by the Linda Group in Germany. It will increase the production of oxygen, nitrogen and argon. The Sareko Company in the Akmola region is building a 4.43 billion tenge ($30 million) factory to make high-tech products from rare earth metals with an annual production capacity of 1,540 tons.
President Nazarbayev also announced the building of the Vostokmashzavod steel car castings factory in eastern Kazakhstan, the Shu shunting locomotives factory in the Zhambyl region, the Kazakhtsement dry method cement plant in East Kazakhstan, the Zenchenko K wind power plant in North Kazakhstan and the Korday-Shu Company’s high pressure gas pipeline in the Zhambyl region.
In 2012, 162 new industrial factories opened around the country. “In the Aktobe region, in 2010-11, 51 new industrial projects worth 183.8 billion tenge ($1.22 billion) were commissioned and more than 4,000 new jobs were created. In 2012, 13 projects worth 4.5 billion tenge ($29.93 million) were launched and 451 new jobs were created,” Aktobe Mayor Erhan Umarov announced on Dec. 25.Ardager Akzhigitov, chief of the Kyzylorda Region Business and Industry Management Agency, said more than 20 major factories opened there in 2011-12.
The Munaymash Company has also built a new factory making machinery for use in the oil industry in Petropavlovsk. “We have implemented a unique and innovative project in our enterprise, which has no parallels in the Commonwealth of Independent States,” said Munaymash Chairman Sergey Grigorenko. “The new factory will improve its product quality to international standards, expand the range of products for export, reduce production costs by 20 percent and cut energy costs.”
Almaty is the country’s biggest city and main financial center. Some 43 factories costing 319.4 billion tenge ($2.12 billion) are being built in the region. In 2012, 14 projects worth $19.5 billion were opened there. And Halillula Gran Aka, director of Kaztorgtrans, said a major flour production factory making 39,000 tons of flour per year has opened in the Kostanay region. “The total cost of the project is over 450 million tenge ($2.99 million). We plan to export flour to Central Asian countries, including Afghanistan,” he said.
Thanks to these new factories, the nation’s 2050 visions are already well on the way to coming true. As Winston Churchill said, “Facts are better than dreams.”
Trading with the World
Kazakhstan’s new Strategy 2050 is driven by a passion to embrace the global community from which the country was cut off for so long. The next significant step in this process will be joining the World Trade Organization (WTO). WTO accession has been a goal for more than a decade and a half and the country is close to reaching that milestone. Already, “95 percent of existing laws are in compliance with WTO norms. To sum up, there is momentum to finalize all the outstanding issues. We plan to become a full-fledged WTO member this year,” Kazakhstan’s Ambassador to the United States Kairat Umarov told the Johns Hopkins School for Advanced Studies Forum in Washington, D.C., on Feb. 13.
Operating under the umbrella of the WTO makes strategic sense, according to American analyst Ryan Olson of the Washington, D.C.-based Heritage Foundation. “These nations can now take advantage of lower tariffs on trade with Russia and China and will, as transit countries, benefit directly from increasing trade volume between the two countries,” he wrote in his blog.
Kazakhstan’s eagerness to join the WTO, as well as the enthusiasm to join of its neighbors Turkmenistan and Tajikistan, “is not surprising,” Olson wrote. “Sandwiched between two trading giants—Russia and China—they form a collective trading bridge across Central Asia.” However, Kazakhstan looks set to benefit more from WTO accession than either of its neighbors because of its larger and more prosperous economy, and its documented hospitality to private enterprise and foreign investment. The Heritage Foundation’s 2013 Index of Economic Freedom lists Kazakhstan as the only nation in Central Asia that ranks above the world average.
Kazakhstan was also a founding member of the Customs Union and Common Economic Space (CES) with Russia and Belarus. This makes it an attractive base for multinational corporations that want to expand into the Russian market of 150 million people. The creation of the CES “is the highest level of integration, which provides for free movement of capital and labor,” Meruert Abusseitova, director of the R.B. Suleimenov Institute of Oriental Studies at the Ministry of Education and Science, wrote in China’s Global Times newspaper on November 21, 2012. “The prospects for regional integration in the post-Soviet space are determined not so much by the adoption of political decisions, but by the real interests of social and business organizations in integrated cooperation,” she continued. “In this regard, the CES model should rationally combine the features of corporate integration on the level of business structures, and state features that are based on international agreements defining the principles and mechanisms of integrated cooperation.”
Ambassador Umarov summed up the international outreach efforts when he said that “Kazakhstan looks forward to enhancing its trade relations with the world and with the region. We would like to see Kazakhstan as a trade and logistics hub, just as it was during the Great Silk Road.”
New Government Team to Manage Reforms
Kazakhstan has launched a bold new strategy to bring industry, jobs and increased prosperity to its outlying regions and make it one of the 30 most competitive nations in the world by 2050. Along with new policies and new legislations, President Nursultan Nazarbayev and Prime Minister Serik Akhmetov have brought in a talented new team of go-getting, experienced technocrats to carry them out.
Bakhytzhan Sagintayev had already proven a success as regional governor in Pavlodar, minister of economic development and trade and deputy chairman of the ruling Nur Otan Party. Now the 49-year-old Sagintayev has been named first deputy prime minister. As Prime Minister Akhmetov’s right hand man, Sagintayev has been tasked with creating a new of ministry of regional development to funnel investment and growth around the country. President Nazarbayev announced the new ministry on Jan. 16.
Economics and Trade Minister Yerbolat Dossayev and Environmental Protection Minister Nurlan Kapparov (right) have also been given increased powers and a vote of confidence from the president. Both are experienced managers with impressive backgrounds in government and in business. Dossayev used to be a senior executive with the Lancaster Group, an Almaty-based investment company specializing in the trade of oil, gas and metals. Kapparov is his old business partner and has a Master’s degree from Harvard University’s Kennedy School of Government.
Dossayev’s Economics and Trade Ministry is also being restructured as the Ministry of Economy and Budget Planning. “The ministry will also focus on encouraging local entrepreneurship. Several internal committees are being created that help outline the new ministry’s aims. These include a committee on construction, housing, and utilities; a committee on entrepreneurial development; and a committee on land resources,” analyst Eli Keene wrote in Al Farabi News on Feb. 21.
President Nazarbayev “also decided to transfer the government’s budget planning functions from the ministry of finance to the new ministry of economy,” GeorgiyVoloshin, of the Central Asia-Caucasus Institute (CACI) at Johns Hopkins University in Washington, D.C.wrote in Asia Times Online on Feb. 8. “This structure will hence be responsible for the short- and long-term strategic management of budgetary funds in line with Nazarbayev’s idea of keeping the national budget permanently balanced and focusing state attention on large-scale investment projects rather than on smaller ones, which would be better implemented by privately owned companies,” Voloshin wrote.
The president has also named Marat Tazhin as his new secretary of state. Previously, Tazhin repeatedly served as deputy head of the Presidential Administration and secretary of the Security Council. Voloshin described him as “a leading strategist of the presidential team” and predicted he would act as Nazarbayev’s point man in ensuring the necessary policies to develop the Strategy 2050 program are implemented.
Two other government heavy-hitters have also been given important new functions in Akhmetov’s team: Deputy Prime Minister Krymbek Kusherbayev has been made governor of the Kyzyl Orda region, which Voloshin wrote, has “great potential, including a major oil production, but… is in the doldrums.” MukhtarKul-Muhammed also returns to his old post as minister of culture and information, where he will direct, among other things, the introduction of the Western, or Latin, alphabet for the Kazakh language.
Voloshin said the new appointments and government restructuring marked “Kazakhstan’s shift toward more rigorous public spending together with budget planning and forecasting, as well as the establishment of a ministry dealing exclusively with the issues of regional and local development.” In other words, they reflect the continuing commitment of the government to ensure that the benefits of growth and industrialization are shared among all of the country’s more than 16 million people.