Wednesday, 04 September 2013

Kazakhstan Plans to Rewrite Its Innovation Strategy by Hosting EXPO-2017: Will It Work?

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By Rafis Abazov and Arystanbek Mukhamediuly (the 04/09/2013 issue of the CACI Analyst)

Kazakhstan plans to host World EXPO under the theme “Energy of the Future” in 2017 as part of its ambitious Innovation Strategy, designed to develop skill-intensive sectors and to promote innovative businesses, especially in the alternative energy sector. In preparation for the event, the Kazakh government plans to spend between US$ 3 and 5 billion on alternative energy development and infrastructure, respectively. Opinions in the country are deeply divided. Some believe that this is an excellent opportunity to promote targeted industries and small and medium enterprises (SMEs) in the alternative energy sector. Others are very skeptical, considering it likely to become another white elephant with little impact on Kazakhstan’s national economy.

BACKGROUND: The government considers World EXPO-2017 as an opportunity to catch a very promising economic tide, as many economists around the world predict a significant potential for job and business creation and economic growth in a new approach to economic development – the creation of a green economy. Kazakhstan – like many countries in the CIS – is working hard to reinvent itself in the post-global financial crisis era. This includes the search for country recognition in the international market, development of internationally and regionally competitive industries and steering clear of high dependency on energy exports and the so-called Dutch Disease.

In this context, the government is investing great hope and a very substantial amount of money (some local experts estimate that the total bill will be about US$ 10-12 billion, in contrast with government estimates of US$ 3-5 billion) on World EXPO – an international exhibition to be hosted in Kazakhstan’s new capital Astana in summer 2017.

In fact, World EXPO-2017 has become an integral part of what President Nursultan Nazarbayev calls “energy-ecological security” and a “green bridge” to growth. Astana won the right to host World EXPO-2017 beating another strong contender, Belgium, by a large margin of 148 votes against 44 on November 22, 2012. Kazakhstan selected a very appealing topic for the event – alternative energy – and committed to spend between US$ 300 and 400 million on EXPO site facilities, US$ 1-1.3 billion on a city railway system, roads and new construction, and about US$ 3 billion on promoting its own alternative energy sector. In addition, the country hopes to attract the latest hi-tech in the field of alternative energy and, according to Kazakhstan’s Ambassador to the UN Byrganym Aitimova “to share it with the least developed and developing countries.” It also established an ambitious target of attracting between four and five million visitors to this event alone. For comparison, according to the State Statistics Agency, Kazakhstan attracted less than five million visitors during all of 2012, of whom only about 13 percent were tourists, and ranked 88th out of 140 in the World Tourism Ranking for 2013 (behind Latvia in 48th place, Russia  in 63rd and Ukraine in 76th place).

Achieving these ambitious goals is quite a challenge for a nation of just 16 million without access to large maritime communication routes and which just a decade ago was one of the largest international donor aid recipients in the former Soviet space. The country made considerable achievements in its economic development during the energy boom era that started around 2001-2002 and that has driven the price of oil to double or as much as triple compared with energy prices in the 1990s, and GDP per capita grew from US$ 5,900 in 2001 to an estimated US$ 13,900 in 2012.

IMPLICATIONS: The Kazakh economy is indeed in need of innovative public policy initiatives and effective policy actions in order to address the country’s economic challenges and stimulate economic diversification and competitiveness. The highly concentrated investment efforts announced in the World EXPO-2017 preparation initiatives could become steps in the right direction if implemented effectively.

The government already spent almost US$ 10 billion on the country’s new capital Astana and a network of multi-billion dollar techno- and industrial parks, and US$ 3 billion on a highway project that includes an East-West cross-national highway section of the World Bank-supported Western Europe – Western China highway (WE-WC). Human capacity building projects include Kazakhstan’s multi-billion flagship Bolashak (Future) educational program, which has funded several thousand Kazakhstani students to study at major prestigious universities in the West and in East Asia. In addition, the government plans to spend billions of dollars on domestic education projects, such as Nazarbayev University and massive funding of several national research universities. It also spent several billion dollars to back up its banking sector during the global financial crisis of 2008-2009, when Kazakhstan’s economy plunged from double digit growth of its national GDP in 2001 to 1.2 percent in 2009.

The multi-billion dollar EXPO-2017 initiative is already channeling significant investments into large national projects with a certain impact on the country’s economic development and GDP growth.

First is a concentrated direction of resources targeting some sectors of the economy with high potential in the regional markets and stimulating the development of the innovative SME sector. In a time of weakening demand for Kazakhstan’s traditional exports, the government is trying to stimulate domestic consumption, domestic markets and those economic sectors that experienced losses during the crisis or have lost their international competitiveness.

Second, Astana has also increased investments into the development of national infrastructure including highways, railways and communication lines. Many highways and local roads outside the strategically important Almaty-Astana highway form a veritable Tetris of holes and patches. International development experts suggest that a good national infrastructure is an attracting point for international investors as well as for visitors and tourists.

Third, Kazakhstan has begun investing resources into alternative energy production including opening its first US$ 130 million solar panel manufacturing operation in Temirtau and a US$ 100 million innovative wind-powered electricity station in Zhambyl. These sources of energy are still quite expensive and heavily subsidized from the state budget, yet such moves make sense in a country with strong solar radiation and regular wind patterns, and where building and maintaining traditional power-transmitting lines to remote areas is extremely costly and complicated.

The fourth impact is job creation, education reform and research in the field of alternative energy. New projects are already hiring university graduates with appropriate skills, paying significant salary premiums and bonuses for those who have the requisite knowledge and experience.  

CONCLUSIONS: Heated policy debates still continue on the merits of hosting the World EXPO in Kazakhstan in 2017, though the discussion is gradually shifting toward the implementation process. The experience of Kazakhstan and many neighboring countries underline the importance of a high-quality implementation policy to successful completion of national programs and projects. In this context, Kazakhstan’s government should work carefully to identify high-priority infrastructure projects, economic sectors and enterprises that might pioneer new technologies and new approaches, and avoid “white elephant” super-large construction projects which would be abandoned upon the conclusion of World EXPO. Second, the government should use a public-private partnership (PPP) approach to stimulate a high level of investments in the private sector, especially SMEs, both in the development of new energy-saving technologies and in preparation for World EXPO. Last but not least the government should avoid the trap experienced by many developing countries where much money is spent on infrastructure and buildings, but inadequate amounts on building human capital through education and training. Kazakhstan should continue investing in human capacity building among the general population and especially among its young people, and should make regular needs assessments to identify skills and competencies that will be invaluable in the new and innovation-driven economy in the context of Kazakhstan’s national development.

AUTHOR’S BIO: Rafis Abazov, PhD, is a visiting professor at Al Farabi Kazakh National University and a director of Global Classroom Program. He also teaches at SIPA, Columbia University, NY. He is author of “The Formation of Post-Soviet International Politics in Kazakhstan, Kyrgyzstan and Uzbekistan” (1999), “The Culture and Customs of the Central Asian Republics” (2007) and “The Role of Think Tanks in the Policy-Making Process in Kazakhstan” (2011). Arystanbek Mukhamediuly, PhD, is Professor and Rector of T. Zhurgenov Kazakh National Academy of Arts. He is author of ten books on modern Kazakhstan, including “The Art of Independent Kazakhstan in the Context of Cooperation with UNESCO” (2011). In the past he has chaired several international festivals and conferences.

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