Strategy

of Innovative Industrial Development of Kazakhstan

for 2003-2015

 

 

To ensure stable development of the country on the basis of diversification and modernization of the economy through creation of conditions for production of competitive products and export growth, Decree of the President of the Republic of Kazakhstan, dated to May 17, 2003, approved Strategy of Industrial-Innovational development of the Republic of Kazakhstan for 2003-2015.

The authors of this strategy is the Ministry of Economy and Budget Planning of the Republic of Kazakhstan in partnership with the Ministries of Industry and Trade, Education and Science, Transportation and Communications, Labor and Social Protection of the Population, Energy and Mineral Resources, Finances of the Republic of Kazakhstan, Agency for Regulation of Natural Monopolies and Protection of Competition, and the National Bank.

Strategy of industrial-innovational development of the Republic of Kazakhstan aims at forming of the state’s economic policy of the Republic of Kazakhstan in the period before 2015 and is focused on achievement of stable development of the country by means of economic diversification and shifting from extraction to processing.

Major objectives of the Strategy of Industrial-innovational development of the Republic of Kazakhstan are as follows:

Production of competitive and export-oriented products, works and services in processing industries and in the sphere of services is the major issue of the state’s industrial-innovational policy.

Against the background of globalization, economy of Kazakhstan has encountered a series of objective problems, among which there is extraction industries predominance, insignificant integration into the world economy, weak inter-branch and inter-regional economic integration within the country, low consumer demand for products and services at the domestic market (small economy), underdeveloped production and social infrastructure, general technical and technological backwardness of enterprises, absence of effective relations between science and production, low spending on R&D, incompatibility of management with objectives of economic adaptation to globalization and transition to the economy of service and technology.

To resolve the issues and to achieve set-forth objectives and goals within the framework of the Strategy, it is proposed that besides intensification of operations of the Bank for Development, ad-hoc institutes of development, such as Kazakhstan Investment Fund, Corporation of Export Insurance, and Innovational Fund will be created. They are supposed to be the major tools of the Strategy implementation. The said institutes will be pursuing the policy of investment into establishment of new and development of already operating enterprises with high value added and will be rendering support to R&D relying upon comprehensive analysis of promising sectors and enterprises.

National Fund of the Republic of Kazakhstan

National Fund of the Republic of Kazakhstan was established by respective Presidential Decree as of August 23, 2000 with a view of ensuring stable socio-economic development of the nation, accumulation of funds for generations to come (saving function), reduction of the economy’s dependence on negative external factors (stabilizing function).

The Fund is the totality of financial assets accumulated on the Government's account in the National Bank of Kazakhstan.

The Fund’s stabilizing function is realized in the form of transfers to the central and local budgets. This compensates for losses defined as difference between the approved and actual tax revenues of the budgets from extraction sector enterprises. According to the National Bank, the Fund’s assets as of May 2006 make up USD 8. 631 billion.

Bank for Kazakhstan Development

Bank for Kazakhstan Development was established April 25, 2001 in pursuance of the Presidential Decree as of December 28, 2000 titled “On the Bank of Development of Kazakhstan”.

The main goal of the Bank is enhancement of the state investment-related activities efficiency, development of production infrastructure and processing industries, encouragement of internal and foreign investments into the national economy.

The need for establishment of the Bank for Kazakhstan Development was called forth by the necessity to ensure sustainable development of the national economy, especially its real sector.

As of April 1, 2005, the Bank for Kazakhstan Development has approved for financing 27 investment projects totaling USD 780.3 million, the share of the Bank reached USD 349 million, among the projects approved in 2005 there’s a project worth USD 4 million, with the Bank being the only investor.

Investment Fund of Kazakhstan JSC

Investment Fund of Kazakhstan JSC (IFK) was established pursuant to respective government regulation as of May 30, 2003.

The main goal of the IFK is to contribute to implementation of the Strategy of Industrial – Innovational Development of the Republic of Kazakhstan for 2003-2015 through attracting investments into promising enterprises.

The need for establishment of the IFK was called forth by underdeveloped equity market, rather low capitalization of domestic companies, and lack of adequate mechanisms to ensure inflow of investments into processing industries.

The IFK participates in financing of investment projects targeted at extension, reconstruction, and technical upgrade of already operating and establishment of new enterprises to manufacture goods and render services. As of April 1, 2005, the Investment Fund approved for 18 projects totaling USD 935,4 million, with the share of the Bank making up USD 80,3 million.

National Innovation Fund JSC

National Innovation Fund JSC (NIF) was established pursuant to respective governmental regulation as of May 30, 2003.

The core of the NIF’s operations is promotion of innovation-related activities in the country, including offering support to development of technology-intensive enterprises.

On the whole, NIF stimulates venture function of the market economy. This particular function is of great importance to creation and development of high-tech sectors – IT, electronics, biotechnology, etc.

NIF is intended to provide solutions to the package problem of absence of efficient market mechanisms to adopt innovations, the problem being inherent to all post-Soviet countries.

Given the inadequate development of venture institutions within the country, there’s a legal framework being worked out to stimulate and regulate venture activities. As of April 1, 2005, the Innovation Fund approved 51 projects totaling USD 130,4 million, with the Fund’s share being USD 100,9 million. Among the projects there were 30 projects approved for financing in 2005, totaling USD 11,9 million, the Fund’s share being USD 8,1 million.

As of April 1, 2005, the aggregate chartered capital of the institutes of development made up over KZT 111 billion (USD 847 million). On the whole, in 2005 there were 29 projects approved, totaling USD 525,2 million, with the share of local institutes of development standing at USD 21,5 million.

There have been three stages defined in the implementation of the Strategy of Industrial-Innovational development of the Republic of Kazakhstan:

First stage 2003-2005, will make changes in the legislation and in sectoral programs of development, will define volumes of financing allocated to science, education, and training of specialists. Also, this is the period in which institutes of development - through which the state will ensure its participation in realization of the program - will be created.

Second stage 2006-2010, provides for examination of private sector initiatives, search of investors – participants of realization of select projects, manpower training, construction and reconstruction of major and subsidiary facilities.

Third stage 2011-2015, will complete the whole complex of organizational measures and accelerate works to enhance competitive edge of products manufactured by processing enterprises. Result of the Program implementation will be change of the economic structure and export diversification.

The total cost of the Program for 2005 - 2015 will make up KZT 139795.13 million, KZT 77272.3 million of them being allocated out of the central budget, another KZT 2112 million – out of local budgets, and private local and foreign investments are expected to make up no less than KZT 60410.83 million.

Active pursuance of the industrial-innovational policy will ensure rate of economic growth not less than 8.8-9.2% a year. This will allow increasing the national GDP 3.5-3.8 times by 2015 compared to 2000, driving growth of labor productivity at least 3 times by 2015 compared to 2000 and reducing GDP energy-intensity twice.

Results of the Strategy implementation amidst intensive development of oil and gas are not going to entail drastic changes in the structure of the economy or that of production.

The Strategy implementation will allow to:

At the same time, without the Strategy being implemented, the share of value added of mining industries in the industrial production sector can reach 55-56% in 2015, including 50-51% in oil sector against 25,6% in 2000. With due consideration of the Strategy implementation, mining industries will only make up 46-47%. At the same time, the share of high-tech industries will grow from 0,1% of the GDP in 2000 to 1-1,4% in 2015. Quality changes are to take place in the structure of value added in processing industries. The share of metallurgy and metal working will fall down from 40,1% of the total value added in processing industries to 27-28%, and the share of agro products processing will grow from 38,1% to 45-46%. The share of science-intensive and high-tech products will make up 9-11% against 0,6% in 2000.

Thus, successful realization of the Strategy is to facilitate Kazakhstan in turning to a higher level of social development and to induce quality changes in the economic structure, which will lead to sustainable growth based on efficient use of human, production and natural capital.

 

Diversification of Kazakhstan’s Economy

through Cluster Development

in Non-Extraction Sectors of the Economy

 

Kazakhstan initiated the national economy development by means of cluster approach. In 2004 Kazakhstan has launched its project for Diversification of Kazakhstan’s Economy through Cluster Development in Non-Extraction Sectors of the Economy. Kazakhstani Government is the main initiator of the project. This project involves elaboration of concrete Action Plan intended to raise competitiveness of non-extraction sectors of Kazakhstan’s economy. Successful realization of the program is to result in increased production and sustainable economic growth of the country. The project in general is based on cluster approach, that is well-tried and efficient instrument for raising competitiveness and promoting economic development of regions and countries.

 

The essence of the cluster approach is in forming of a certain group of geographically localized interconnected companies, suppliers of equipment, component parts, specialized services, infrastructure, research facilities, higher education facilities and other associated institutions needed to achieve a certain economic effect and amplifying competitive advantages of certain companies, the cluster itself and the country in general.

 

During the first stage of the project 55 thousand enterprises in 46 branches in 12 regions were studied.

 

By the time being the Government has already defined 7 sectors best prepared for clusterization. These are tourism, transport logistics, oil-and-gas machine building, construction materials, food processing and textiles, and metallurgy. In some of the said sectors there is certain progress already achieved, while the other sectors need to be helped out of their plight.

 

Simultaneously with this project Kazakhstani Government is working on creation of cotton, wine and fish clusters.

 

Representatives of the pilot clusters have already identified problems in need of urgent solving.  First of all, skill formation needs to be put in place; continuing ties are to be maintained between business, science and education institutions.  

 

Secondly, those holding large capital are to be motivated to participate in the development of domestic industries.

 

To develop the most relevant and viable Action Plan different interest groups are being attracted to the project: authorities, business, universities, research institutes, business associations and etc. Operators of the project are expecting to achieve first results even as early as in the course of realization of the project and thus to attract greater attention to the competitiveness raising initiatives.

 

Providing legislation framework to enable cluster development is the first direction of the state-run program. The second direction is to enhance S&MB infrastructure. The third direction is to create a field of operation to accommodate small business.  Including through liquidation of branches of large national companies engaged in non-core business.

 

Thus, realization of the project will result in creation of viable program for raising competitiveness of Kazakhstan and appearance of well-trained local experts having sufficient skills and knowledge for realization of such program. A number of successful projects based on cluster approach indicated that the idea to stimulate economic growth through cluster development bears sustainable and noticeable results.

 

As is known, Kazakhstan intends to join the club of 50 best developed countries of the world. Еhis project represents Kazakhstan’s another step forwards to achievement of its ambitious goal, set  by the President of the Republic of Kazakhstan Nursultan Nazarbayev in 2002, to double its GDP by 2010 and to increase it 3,5 times by 2015.