Kazakhstan Seeks to Avoid Resource Curse

Publication: Eurasia Daily Monitor Volume: 10 Issue: 208

(Source: tengrinews.kz)
Kazakhstan, as other natural resource-rich countries, faces a difficult task of diversifying its economy and avoiding the resource curse. Indeed, the share of natural resources rents in GDP, which is the sum of oil, natural gas, coal, mineral, and forest rents, in Kazakhstan was 38.2 percent in 2011 (data.worldbank.org). In comparison, in Russia it was 22 percent, in Turkmenistan 43.9 percent, and in Uzbekistan 27.9 percent.
Back in 2009, President Nursultan Nazarbayev announced that Kazakhstan would adopt a new strategy of economic development based on the Finnish model of a knowledge-based economy. In other words, Kazakhstan was ready to move beyond developing just its extractive sector. The main components of this strategy consist of: 1) the development and consolidation of market economy institutions, 2) reliance on small- and medium-sized enterprises (SME) as the main vehicles of economic diversification, and 3) the creation of new, cutting edge technology sectors. The recent meeting of the Kazakhstani government held on October 10 and chaired by President Nazarbayev was dedicated to the discussion of the implementation of this strategy (nomad.su, October 16).
Kazakhstan’s success in developing and consolidating its market economy institutions is well known. The World Economic Forum’s Global Competitiveness Report (weforum.org) and World Bank/International Finance Corporation’s Doing Business (doingbusiness.org) reports have consistently rated Kazakhstan among the fifty most competitive and business-friendly countries in the world. Remarkably, the 2013–2014 Global Competitiveness Report ranks Kazakhstan 23rd in the world in the important category of macroeconomic stability. Healthy market economy institutions created a necessary foundation for the expansion of the SME sector and for attracting foreign direct investment (FDI) and foreign expertise to develop technological innovation-based economic sectors. 
In the Organization for Economic Cooperation and Development (OECD) countries, the SME sector is the backbone of the economy, accounting for over 95 percent of enterprises and up to 70 percent of employment. As of January 1, 2013, the share of SMEs in Kazakhstan’s GDP was only 17.8 percent and they employed only 28 percent of the labor force (www.eng.stat.kz). Earlier this year, the government announced plans to boost the SME sector to 40 percent of GDP by 2020. Their growth in Kazakhstan is closely connected to the second wave of privatization that will include the education, health care, IT and social services sectors. The basic mechanism of privatization will be the public-private partnership—generally considered in the West to be the most expeditious path for creating a dynamic SME sector—whereby the government partners with successful businessmen to privatize an entity through renting it with the right to purchase, pay by installments, and even transfer without payment. 
Public-private partnerships are a key to the successful creation of new, innovation-based sectors of the economy. One of the key initiatives in this respect is the development of renewable energy resources to also “green” other sectors of the economy. Kazakhstan’s leadership in green economy development was recognized at the third session of the Committee on Environment and Development of the United Nations’ Economic and Social Commission for Asia and the Pacific (ESCAP), held in Bangkok on October 29–31 (http://www.unescap.org/news/asia-pacific-countries-gather-discuss-regional-cooperation-environment-and-development). Moreover, ESCAP sees the Green Bridge Partnership initiative by the Kazakhstani government as a platform to promote green economy growth in the entire Asia-Pacific region. The initiative was developed through a partnership between the government and the non-governmental organization (NGO) Coalition for the Green Economy (http://www.greengrowth.org/?q=news/kazakhstan-ans-escap-discussed-green-economy-cooperation). 
Kazakhstan’s climatic conditions are favorable for the development of solar and wind energy. The goal set by the government is to increase the share of renewables in electricity production from the current 0.5 percent to 11 percent by 2030 and 39 percent by 2050. Kazakhstan has already put into operation a wind-powered electricity station in Zhambyl and a solar panel manufacturing plant in Temirtau. 
The development of the renewable energy sector comes at a high price. The cost of the Zhambyl station and Temirtau plant, for example, is $130 million and $100 million, respectively. At the October 10 government meeting, Nazarbayev cautioned against relying exclusively on state funds to develop the renewables sector and pointed to the need for employing public-private partnerships as well. Some progress in this direction has already been made. In Mangystau province, for example, three projects to build wind power stations are underway that have been financed by private investors—19.5- and 42-megawatt (MW) stations in Tupkagarski district and a 150-MW station in Karakiyanki district (nomad.su, November 1). 
Despite its high cost, the development of the renewables sector has become a priority for Kazakhstan because it goes hand-in-hand with technological innovation, identified as a means for the country to become one of the thirty most developed countries by 2050 (see EDM, February 28). The 2017 World Expo, to be held in the Kazakhstani capital, is another mechanism to spur this kind of innovation. Reportedly, the Expo will be powered exclusively by alternative sources of energy (http://en.tengrinews.kz/industry_infrastructure/All-EXPO-2017-facilities-to-work-on-renewable-energy-16688/). 
Kazakhstan’s diversification strategy also calls for developing nuclear energy and the automobile industry. The country already has an advantage in nuclear energy, accounting for 35 percent of world’s uranium production. The objective now is to produce and export value-added products such as processed uranium and nuclear reactor fuel, requiring creating in-country capacity to process uranium oxide into uranium hexafluoride as well as producing fuel assemblies. By 2015, Kazakhstan plans not only to export 30 percent of the world’s uranium, but also capture 12 percent of the world’s uranium conversion market, 6 percent of enrichment, and 30 percent of the fuel fabrication market (Republic of Kazakhstan: Country Profile 2012, p. 45).
Automobile manufacturing is a new industry in Kazakhstan and is predicated on rising domestic demand as well as projected exports to the Russian market. Expanding this sector also aims to rebalance regional economic development as the two largest car manufacturers—Oskemen-based Azia Avto and Kostanai-based Allur Group—are located in northern and eastern parts of the country. The two local car makers cooperate with international manufacturers from countries including Germany, the United States, South Korea, Russia, Japan, Ukraine, Italy and France. In its “Kazakhstan: Automotive industry experiences rapid growth” report, published on October 15, the Economist Intelligence Unit forecasts a rapid growth for the industry based on the fact that only 21 percent of the 68,750 new cars and light vehicles sold in Kazakhstan in the first half of 2013 were manufactured or assembled in the country, while the projection is that 300,000 cars will be sold annually in the coming years.
In the past, Kazakhstan has succeeded in reaching ambitious goals it set for itself. Achieving diversification of the economy and becoming one of the thirty most developed economies by 2050 will not be easy, but the country’s past successes provide plenty of hope for its success.