Governmental program on accelerated industrial-innovative development of the republic of Kazakhstan as a key to improving the economic situation in the post-crisis period

Governmental Program on Accelerated Industrial - innovative development of the Republic of Kazakhstan (hereinafter - the Program) was developed in response to the request of the President of the Republic of Kazakhstan on May 15, 2009.

The program is aimed at ensuring sustainable and balanced economic growth by diversifying and increasing its competitiveness. The program is a logical continuation of the Policy of economic diversification, and has integrated the basic approaches of the Strategy of Industrial and Innovation Development for 2003-2015, the Program "30 Corporate Leaders of Kazakhstan", as well as other policy instruments in the field of industrialization.

For the period until the year 2015 the main priority of the forced industrialization will be the implementation of major investment projects in the traditional export sectors, with the multiplication of new business opportunities for small and medium-sized businesses through the purposeful development of Kazakh content, subsequent conversion and processing.

National Wellfare Fund "SamrukKazyna", fuel, energetic and metallurgical companies, as well as foreign strategic investors will become the initiators in promoting national large-scale projects.

The Government will support the initiative of Kazakhstan's small and medium businesses in order to transfer advanced technology, attract foreign investors and build modern import-substituting industries, aimed at developing their orientation on export.

In order to build the foundations of post-industrial economy, the development of the national innovation infrastructure and supporting scientific and technological entry points that can be commercialized is planned to be continued. In general, governmental support of economic diversification will be implemented through the implementation of systematic measures of economic policy at the macro and sectoral levels, as well as selective support measures for specific sectors and projects.

Systemic measures of economic policy will focus on the creation of a conducive macro environment and investment climate, measures to improve productivity and competitiveness of the national economy.

Selective measures will be implemented through a combined package of financial and nonfinancial support to priority sectors and projects.

The government will systematically build its interaction with business through the formation of effective institutions of cooperation, both at the national and regional levels.

Adequate to the condition of economic policy, the trajectory of industrialization by 2015 will have an internal consistency with the resource, infrastructure, institutional and technological constraints.

The systemic nature of the mechanisms built-in the Program that encourage diversification and technological upgrading of the economy, will provide:

- enabling macroeconomic environment;

- improving business climate and encouragin inward investment;

- massive technological upgrading and development of the national innovation system;

- improvement of the human capital quality.

Concentration of resources of state and business on the development of priority sectors will be accompanied by an interactive process of congruence of government and business solutions, using modern information systems for monitoring and implementation of specific instruments.

When analyzing the current situation, we can mention what was implemented during past few years. The policy of Industrial and Innovation Development, chosen in early 2000, strategically identified the main risks of Kazakhstan's economy: the chosen way was concentrated on economy diversification and moving its away from raw-materials dependence.

During this period, the following basic institutional foundations of industrialization were created:

- the National Fund that provides stability of the economy;

- National Welfare Fund "SamrukKazyna" that consolidates state capacity to implement cutting-edge areas;

- development institutions, accompanying the process of diversification;

- interactive platform for interaction and coordination between state and business.

As a part of the investment policy the improvement of the legislative framework that defines the legal and economic framework for investment promotion has been evident. These measures helped to ensure adequate growth of the non-oil sector of the economy, provide conditions for the further establishment of small and medium businesses in the period of active growth associated with an increase in oil and gas sector. Although some outstanding results were achieved, the policy of diversification and innovation development has not been fully realized due to the presence of a number of systemic effects, objectively inherent in the resource economics emerging markets:

- symptoms of "Dutch disease" of the economy, contributing to the reproduction of the effect of redistribution of resources (investment, employment) in the commodity sector;

- market mechanism in this period was unable to give the signals to prevent "overheating" of certain sectors and could not help the state build a "correct" structure of the economy;

- policy of diversification faced the lack of the necessary critical mass for its promotion.

The scale of the emitted public investments for diversification were insufficient and scattered, which could not lead to any serious structural changes. As a result, the economy kept its focus on raw materials, and the employment structure can be characterized by low efficiency of labor potential. In 2008, when employment in agriculture was 31,5% of the population, the share of this sector in the GDP amounted to only 5,8%. During the period from 2000 to 2008 the share of manufacturing in GDP has declined from 16,5% to 11,8%, while the share of mining has increased from 13% to 18,7%.

The extensive nature of the development of Kazakhstan's largest businesses that are oriented towards a quick profit from the export of raw materials, did not allow switching to higher conversion stages and the domestic market in the changing world market conditions.

Initiatives of the Government did not receive an adequate support of the business community, as a young national business has not fully grown to the extent to become an active player in the diversification and to build a new, innovative business in Kazakhstan, to break through and compete in the global market, attract global leading companies as strategic partners.

The specifics of Kazakhstan’s national small and medium business are determined by its ability to occupy the vacant niche, guaranteeing a fast return on investment (domestic non-tradable sector of the economy: real estate, trade, the local construction industry, trade, mediation and service sectors).

Accordingly, the business priorities were not correlated with the priorities of the government on the development of the industries manufacturing goods with a high added value. These tendencies were reflected in a corresponding portfolio of investment projects, in the development institutes and banks. The crisis that took place in the past couple of years has forced the national economy to look for new markets and innovational products. The most optimal way to be chosen for a post-crisis development is a forced industrialization.

International experience suggests different approaches to industrialization: the strategy of "catching up", "traditional specialization", "post-industrial development. Based on the structure of Kazakhstan’s national economy, at this stage of development the most appropriate strategy for industrialization of the economy of Kazakhstan is the strategy of "traditional specialization” that is commodity-based with a subsequent shift of primary production to higher conversion stages. Today, as competition increases in emerging markets and it is important to quickly seize the markets, both internal and external, maximize and implement the potential of the Customs Union with an accessible market - 170 million people. In addition, the unique geographical position of Kazakhstan makes it possible to carry out and win the position of an effective global intermediary in Asia and the CIS (Russia, Central Asia, China, Iran, and India). In order to expand available markets for the active presence of the enterprises of the Republic of Kazakhstan it is necessary to provide an intensive support for non-commodity exports of agriculture, textiles and tourism.

The main condition for successful implementation of the industrial policy should become an increase in factor productivity and competitiveness of national economy. The upcoming industrialization will require transition from an even policy of regional development to a point approach of urban development and areas with high growth potential and high economic activity.

The effectiveness of the industrial policy depends on the consolidation of efforts of business and government on the development of priority sectors, as well as the development of effective institutions and mechanisms of their interaction. For the coming period the industrialization policy will focus on rapid development of non-extractive industries sector through development of "traditional specialization”, which will become catalysts for industrial innovation processes.

The Government’s efforts will focus on developing the following priority sectors:

- traditional: oil and gas, mining and smelting complex, nuclear and chemical industries with the subsequent transition of primary production to higher stages;

- based on the demand for subsoil users, domestic companies and the state: engineering, construction industry, pharmaceuticals;

- production of a non-commodity sector that is focused mainly on the export, that are: agro-industry, light industry, tourism;

- sectors of the “Economy of the Future”, which will play a dominant role in the global economy over the next 15-20 years: information and communication technology, biotechnology, alternative energy, space activities.

The list of these sectors is not exhaustive and will be supplemented in the implementation of the Program.

In the process of diversifying the economy, the state will oppose the implementation of inefficient projects, so the main criteria for selecting projects for support will be the productivity, efficiency and export orientation, associated primarily with the possibility of realizing the potential of the Customs Union.

When implementing the Program, the support of the industries with export potential is an issue of a great importance. Tourism is one of the industries that has a big potential for development in the framework of the Program. In recent years, the positive dynamics of development of tourist industry of the country could be generally observed: in 2008, the total number of visitors compared to the year 2007 increased by 3,1%, the volume of domestic tourism grew by 8,2%, outbound tourism grew by 15.3% . The investments in the development of tourist facilities increased from 47 billion tenge in 2005 to 97 billion tenge in 2007 and in the year 2008 this figure rose to 129.3 billion tenge.

One of the factors that led to the reduction of the number of tourists entering the Republic of Kazakhstan was a low attractiveness of the tourist industry’s objects because of their moral deterioration and the lack of infrastructure. A small number of placements in line with world standards leads to underutilization of capacity to provide a full range of services to incoming tourists, and as a consequence a comparatively low level of economic returns. Efforts to create a tourist image of Kazakhstan and the promotion of national tourism products to the world market were undertaken. For these purposes, provided the participation of Kazakhstan in the largest international tourism exhibitions in Madrid, Berlin, Beijing, Seoul, Tokyo and London was provided. In the framework of the Program, the main task for the economy in this sector is to improve the competitiveness of the tourism industry and the attractiveness of Kazakhstan as a tourist destination. The targets will be to increase the total income of organizations providing services in the field of tourism activity by 2015 by no less than 12% of the level of 2008.

The industry development will be directed at the creation of competitive infrastructure of the tourism industry, the formation of national tourist products, promotion of domestic and international markets.

As a part of a competitive tourism infrastructure the following questions are planned to be worked out:

- allocation of land by local executive bodies for the construction of roadside infrastructure along the transport corridor;

- establishment of engineering and communication infrastructure in the newly created objects of the tourism industry;

- developing a model of a project construction of roadside infrastructure;

- funding interest rates for financing the investment projects of national tourism cluster along the transport corridor “Western Europe - Western China ".

The tourist industry needs to be provided with a high-qualified human resources. Staffing requirements for the tourism industry for 14 qualifications will be met through training in universities and 77 specialized schools and colleges. The conditions for improving the quality of education in tourism major will be created by auditing a public university for certification the quality of tourism education «UNWTO-TedQual» and the development of professional standards in the tourism industry.

In order to promote the competition at the market of providing services for tourists, the following measures will be undertaken:

- ensuring the establishment of legislative conditions for the consolidation of tourist operators;

- establishing the centers of tourist information in the regions with the potential to develop a tourist sector.

Developing the sectors of the “Economy of the Future” also has a very important meaning to the Program on accelerated industrial-innovative development.

Large-scale introduction of information and communication technology (hereinafter - ICT) is a prerequisite for increasing productivity and creating conditions for the integration of domestic enterprises in the global economy.

The growing demand of business and population for telecommunication services has led to a significant increase in revenues of telecommunications operators. According to preliminary results of 2009, revenues from the provision of telecommunication services amounted to 430 billion tenge, or 7.5% higher compared to 2008.

The most dynamically developing service is providing Internet access (an increase of 22% in the year 2009 compared to the year 2008), local telephone connection services (19%) and the mobile segment (9%). The greatest growth was possible due to the development of backbone networks of fiber-optic communication Kazakhstan’s operators and the unique geographical location of the country.

In order to maintain high growth and accelerate the development of the ICT sector in the Republic of Kazakhstan it is necessary to solve a number of existing problems:

- administrative barriers for companies working in the field of information technology (imperfect customs clearance procedures and registration of information products);

- low percentage of "local content" in the purchase made by public institutions and companies with state share that are related to information technology;

- issue of personnel recruitment in ICT companies;

- low investment activity in attracting venture capital for financing innovations.

In the ICT sector the Republic of Kazakhstan is planning to develop the following areas:

- improving the system of “electronic government”;

- creating a communication infrastructure for information exchange within the Customs Union;

- installing electronic services, including the services in the sector of social security, health, transport and communications sector and in agriculture.

In the educational field it is planned to double the number of state grants for studying for information communication major compared to the number of such government scholarships in the year 2009. The educational programs for these majors are planned to be modified in compliance with the international standards of education.

Successful implementation of the Program on accelerated industrial-innovative development will contribute to sustainable and balanced growth through its diversification and increasing competitiveness in the long run. The main qualitative results of the program will be:

- the increase of production factors in an industrial field;

- developing and strengthening the national innovation system;

- reducing the concentration of the economy and the role of small and medium enterprises in the industrialization process;

- efficient organization of the productive forces of industrial sectors,

- the growth of human capital.

RESOURCES

1. The Message of the President of the Republic of Kazakhstan “New decade - new economic growth - new opportunities for Kazakhstan” from January 29, 2010.

2. The Message of the President of the Republic of Kazakhstan “From crisis to renovation and development” from March 6, 2009.

3. “Governmental Program on Accelerated Industrial-innovative development of the Republic of Kazakhstan for the years 2010-2014” from May 15, 2009.

4. The Report of the Government of the Republic of Kazakhstan on the results of social and economic development of the country over the year 2009.